White ACT (In Liquidation) v G B White & Ors

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

50144/02 WHITE CONSTRUCTIONS (ACT) PTY LTD (In Liquidation) v GEOFFREY BERNARD WHITE & ORS JUDGMENT

INTRODUCTION 1 On 30 June 1988 the plaintiff ("White ACT") was a wholly owned subsidiary of the sixth defendant (then known as White Constructions Ltd) ("WCL"). The balance sheet of White ACT as at 30 June 1988 showed total assets of $26,163,492 and total liabilities of $27,312,607. 2 The great bulk of the total assets was represented by loans to related companies. A substantial proportion of the total liabilities was represented by loans from related companies. The other components of the total liabilities included a bank overdraft and "creditors and accruals". 3 At all material times up until 14 October 1988, the directors of White ACT were the first to third defendants (respectively "Mr White", "Mr Duncan" and "Mr Spinks"). On 14 October 1988, WCL agreed to sell the whole of the issued capital in White ACT to the fourth defendant ("Mr Frank McAlary"). For convenience I shall refer to the first to fourth defendants collectively as the "director defendants". Messrs White, Duncan and Spinks resigned as directors on 28 November 1988 and Mr Frank McAlary and one of his sons, the fifth defendant ("Mr Michael McAlary"), were appointed directors of White ACT. 4 On 6 February 1998, the Federal Court of Australia, on the application of Australian Development Corporation ("ADC"), ordered that White ACT be wound up on the ground of insolvency. The report as to its affairs verified by Mr Frank McAlary showed that the sole remaining asset of White ACT was $328 in cash. Its principal liability was an amount of $33,593,268 plus interest owed to ADC under a judgment of this Court. 5 White ACT held the necessary licence to enable it to undertake building works in the Australian Capital Territory. As at June and October 1988, it had on hand work relating to a number of contracts, including contracts relating to the Canberra National Convention Centre ("CNCC") project and six contracts for works in various parts of the ACT that were referred to as, and that I shall call, the "hard dollar contracts". White ACT says that the contracts to which I have referred were, as at June and October 1988, and were expected to remain thereafter, profitable. 6 On 25 February 1987, White ACT entered into a contract with ADC for the design and construction of a building known as the "Quadrant" building. ADC terminated that contract on 11 August 1988 for breach on the part of White ACT. (I interpose that, although White ACT denied that it was in breach, and denied that ADC was entitled to terminate, this Court has upheld ADC's termination and, as I have mentioned, has awarded ADC very substantial damages.) 7 White ACT's case in these proceedings is that, both before and after 14 October 1988, the director defendants planned, and caused White ACT to enter into, a series of transactions, the effect of which was to utilise its assets to repay intercompany debt, and to divert its income under the CNCC and hard dollar contracts to other members of the White Group. White ACT says that this was done deliberately, at a time when those defendants knew that White ACT was insolvent and had a very substantial, although then unquantified, liability to ADC for damages arising out of White ACT's breach, and ADC's termination, of the Quadrant contract. White ACT says that the sole purpose of those transactions was to ensure that ADC would not be paid. BACKGROUND MATTERS The White Group 8 The seventh defendant ("WIL") started life as a company known as Birdsall Earthmoving Pty Ltd. Mr White bought a 50% interest in that company in about 1967 and it changed its name to Birdsall & White Pty Ltd. He bought out the other shareholders in about 1969 and the company changed its name to G B White Pty Ltd. 9 That company was floated in 1972, under the name White Industries Ltd, and remained a listed public company until it was privatised in 1986. Along the way, in about 1979, WIL took over the sixth defendant ("WCL"), which was then a listed public company known as Project Development Corporation Ltd ("PDC"). Thereafter, the activities of the White Group included property development, construction, civil engineering and coal mining. (I interpose that, at some stage, the White Group had also held extensive pastoral interests in the north west of Australia.) For a time, after the takeover of WCL, WIL and WCL were both engaged in construction activities. 10 Mr Frank McAlary had become a director of PDC in the mid 1960s. That company carried on business in the fields of property development, construction and civil engineering. It operated through a number of subsidiaries, including White ACT (then known as Project Development Corporation (ACT) Pty Ltd). White ACT under its former name had undertaken significant construction works in the ACT and Mr Frank McAlary had been very much involved in those activities. 11 WCL was floated in 1987. Before this was done, the activities of the White Group were reorganised so that, in substance, the property development, coal mining and civil engineering activities were carried on by or under the control of WIL and the construction activities were carried on under or by the control of WCL. (By this time, the White Group had quit its pastoral interests.) In July 1988, WCL agreed to merge its operations with those of the Thiess Watkins Group. That arrangement came to an end in 1990 and at some time thereafter WCL was privatised. 12 In the meantime, in late 1988, it was decided that the White Group would sell its coal interests to Exxon. It appears that WIL held all the Group's coal mining assets. The sale was effected by removing all non-coal assets from WIL and then selling that company to Exxon. It then became known as Exxon Coal Australia Pty Ltd. It appears that the non-coal assets of WIL were vested in the seventeenth defendant ("WIAL"). 13 The structure of the White Group, in so far as the remaining defendants are concerned, can be briefly summarised as follows. 14 WCL itself was at all material times a subsidiary of WIL. The eighth, ninth, eleventh, twelfth, fourteenth and fifteenth defendants were at all material times wholly owned subsidiaries of WCL, as were companies known as White Constructions Incentive Share Scheme Pty Ltd ("WCISS") and Norwest Development Corporation Limited ("NDC"). It is alleged, and I think is the fact, that Mr White and his family at all material times held ultimate shareholding control, through a family company, of the sixth, seventh, eighth, ninth, eleventh, twelfth, fourteenth, fifteenth, sixteenth and seventeenth defendants and of WCISS and NDC. History of prior and present litigation 15 There has already been a substantial amount of litigation arising out of the Quadrant project. ADC was the plaintiff in the most significant piece of litigation - proceedings No. 55041 of 1991 in this Court. It has funded other litigation, including examinations conducted by White ACT's liquidator in the Federal Court of Australia and the present litigation. 16 A chronology of the prior litigation, which links it to the present litigation, has been agreed between the parties as follows:

8 August 1991 ADC commences proceedings 55041 of 1991 against White ACT and WIL seeking: damages for breach of contract from ACT; a finding that ACT had entered into the contract with it as WIL's agent; and a finding that it entered into the contract with ACT in reliance upon a representation by WIL that it could do the work required by the contract for the contract price utilising a steel frame for the residential building and that the representation was false and misleading. September 1992 to February 1993 7 day Reference before the late the Hon Mr D.A. Yeldham Q.C .

19 April 1993 Finding by Mr Yeldham that ACT contracted as agent of WIL and that WIL through a Mr Amann misled ADC through Mr Fischer. July 1993 2 day hearing before Giles J concerning the adoption of Yeldham's Report. 14 October 1993 Findings by Giles J that (notwithstanding the report of Mr Yeldham) ACT did not contract as agent of WIL, and (adopting Mr Yeldham's report in this respect) that WIL did make the representation and that ADC had relied upon it.

15 November 1993 Court of Appeal refuses ADC leave to appeal from Giles J's decision not to adopt the report as to agency prior to the finalisation of the proceedings. February 1994 WCL joined as a party to the proceedings by ADC claiming that it had induced ACT to breach its contract with ADC. October 1995 22 day hearing before Giles CJ Comm D. 30 January 1996 Judgment by Giles CJ Comm D finding that ADC was entitled to damages from ACT for breach of contract, such damages to be assessed later, and that WCL did not induce ACT's breaches of contract, and that depending on later proceedings, WIL may or may not be liable to pay damages to ADC under the Trade Practices Act . Judgment entered in favour of WCL against ADC. 9 February 1996 Costs order made against ACT in favour of ADC in respect of proceedings before Giles CJ Comm D. 16 May 1997 Order for further reference before Mr Morrisey to determine the quantum of any loss suffered by ADC as a result of ACT's breach of contract and WIL's misleading and deceptive conduct. 6 June 1997 ACT ordered by Hunter J to make an interim payment of $290,989.35 to ADC on account of costs. September/ October 1997 48 day reference before Mr Morrisey regarding the quantum of ADC's damages. On the first day of the hearing Mr Purdy, solicitor for ACT, indicated that ADC would not take any part in the reference but desired to adopt the evidence of Exxon (WIL). The hearing thereafter proceeded in ACT's absence. 6 February 1998 Order for the winding up of ACT. 20 March 1998 Order granting ADC leave to proceed against ACT. 1 June 1998 Report of Mr Morrisey. Mr Morrisey reports that ADC suffered no loss as a result of Mr Amann's misleading conduct. He finds that the damages to which ADC is entitled against ACT amount to $33,893,794.

2 June 1998 Liquidator applies for the issue of examination summonses against the first four defendants and Mr Wells (former managing director of WCL).

19 June 1998 Notice of Motion filed by ADC seeking the adoption of certain parts of the report, the rejection of the balance of the report and, as against ACT, judgment in the sum of $33,893,794 plus interest thereon to the date of judgment. 26 June 1998 Examination orders made. 11 August 1998 Federal Court (Branson J) dismisses application by examinees to adjourn the examinations until Attorneys-General respond to proposed s78B notices. 10 September 1998 Full Court dismisses appeal from Branson J's refusal to adjourn examinations. 1 December 1998 Application for special leave heard by the High Court in Spinks v Prentice. Judgment reserved. 7 December 1998 Amended Notice of Motion filed by ADC seeking, as against ACT, judgment in the sum of $33,593,268 plus interest thereon to the date of judgment. 8 February 1999 Judgment delivered by Einstein J following hearing of Notices of Motion concerning the adoption of the report. He refers the matter back to Mr Morrisey for a further report. 12 February 1999 Branson J transfers winding up proceedings to the ACT Supreme Court. March 1999 Hearing regarding the adoption of Mr Morrisey's reports before Einstein J. 5 March 1999 Orders made by Einstein J for judgment in favour of ADC against ACT in the sum of $33,593,268 (with the question of the precise amount of the interest to be awarded to ADC reserved for further consideration and inclusion in due course) and for the preparation of a supplementary report by Mr Morrisey. 30 March 1999 Supplementary report by Mr Morrisey. 6 April 1999 Examination orders made by the ACT Supreme Court. 10 June 1999 Original report and supplementary report of Mr Morrisey adopted by the Court. Judgment entered in favour of WIL against ADC. 17 June 1999 High Court grants special leave to examinees, but dismisses appeal (198 CLR 511). 25 June 1999 Examination orders rescinded by the ACT Supreme Court and winding up proceedings transferred back to the Federal Court. 8 July 1999 Notice of Appeal filed by ADC appealing, inter alia, against the finding of the Court that ACT did not contract as agent for WIL and the finding that ADC suffered no loss as a result of the misleading conduct of Mr Amann. 22 July 1999 WIL cross appeals against the findings that it had made a misleading misrepresentation to ADC and that ADC had relied upon that representation. 25 October 1999 to First round of examinations. 1 November 1999 5 - 8 June 2000 Hearing in the Court of Appeal. On the second day of hearing, the Court of Appeal dismissed an application by the liquidator of ACT to institute an appeal out of time against the finding that ACT did not enter into the contract with ADC as agent for WIL. Judgment was reserved on all other matters. 29 June 2000 The present proceedings commenced by (unserved) Statement of Claim in the Equity Division. 14 - 16 August 2000 Second round of examinations. 6 November 2000 First Amended Statement of Claim in these proceedings filed. 13 November 2000 The First Amended Statement of Claim in these proceedings served. 9 February 2001 Court of Appeal dismisses appeal and cross-appeal with costs. 8 March 2001 ADC files application for special leave to appeal to the High Court from the decision of the Court of Appeal. 27 August 2001 White ACT further amends the Statement of Claim in these proceedings by filing a Second Amended Statement of Claim deleting some allegations. 20 November 2001 ADC's special leave application in relation to its unsuccessful appeal to the Court of Appeal dismissed with costs. 11 December 2001 The defendants move by notice of motion to strike out the Second Amended Statement of Claim in these proceedings. 26 April 2002 The Second Amended Statement of Claim in these proceedings is struck out, with leave to file a further amended Statement of Claim on or before 10 May 2002. 10 May 2002 Third Amended Statement of Claim filed in these proceedings. 5 July 2002 These proceedings transferred to the Commercial List. 9 August 2002 Summons filed in Commercial List repeating the substance of the Third Amended Statement of Claim. 17 It is clear that ADC has incurred very substantial sums in costs (both of its own representation and under various costs orders made against it) in respect of proceedings No. 55041 of 1991, and that none of that expenditure has been recouped. It is also clear that ADC's funding of the liquidator's examinations and the present proceedings must have resulted in a very substantial expenditure on costs. ADC's only prospects of recovering the costs that it has spent to date, and for which it will no doubt continue to be liable, would appear to be through these proceedings. ISSUES BETWEEN THE PARTIES The pleadings 18 Although these proceedings were commenced in 2000, the summons was not filed until 9 August 2002. This is because the proceedings were initially commenced in the Equity Division, by the filing of a statement of claim. That statement of claim was from time to time amended (including in response to strike out applications). When the proceedings were entered in the Commercial List, the statement of claim as it then stood was effectively converted into the statement of contentions in the summons. I mention this only to make the point that, although it does not appear that the summons has been amended, it nonetheless reflects a number of revisions over time. 19 Paragraphs 1 to 9 of the statement of contentions allege in effect the corporate history of White ACT and the White Group. Although the defendants take issue with some of the matters of history that are alleged, I do not think that any substantial issue arises on those paragraphs. However, it should be noted that, on the pleadings, there is no allegation that Mr Frank McAlary was a director of White ACT prior to 28 November 1988. The admitted position, on which basis the hearing proceeded, was that he did not become a director until that date. (The same may be said of Mr Michael McAlary.) 20 Paragraph 10 alleges that, as at 30 June 1988 and at all material times until it was wound up on 6 February 1998, White ACT was insolvent. The defendants deny this. 21 Paragraph 11 alleges that throughout the period described in paragraph 10, the director defendants knew that White ACT was insolvent. The defendants deny this. 22 Paragraph 12 alleges contracts under which White ACT was undertaking building work, or under which it was entitled to receive revenues from building work, as at 30 June 1988. They include the Quadrant contract, the "hard dollar" contracts and the CNCC contracts. There is no dispute as to the currency of those contracts. White ACT's roles in respect of them may be stated as follows:

(1) It had direct responsibility for the design and construction of the Quadrant project;

(2) It was a subcontractor to and agent of WIL for the hard dollar contracts; and

(3) It was a project or construction manager for WIL for the CNCC contracts. (WIL's "client" for these contracts was the sixteenth defendant ("WPDL").) 23 Paragraph 13 alleges that, by no later than 29 February 1988, the director defendants knew that it was impossible for White ACT to complete the work under the Quadrant contract without incurring substantial financial loss. The defendants deny this. 24 Paragraph 14 alleges that on 8 July 1988 ADC, being entitled to do so, gave written notice to White ACT of its intention to terminate the Quadrant contract. Paragraph 15 alleges that on 11 August 1988 ADC, being entitled to do so, gave written notice to White ACT of termination of the Quadrant contract. The defendants admit the giving of the notices but otherwise do not admit these allegations. 25 Paragraph 16 alleges that by no later than 14 October 1988 (i.e., the date of sale of White ACT to Mr Frank McAlary) the director defendants knew that White ACT had defaulted under the Quadrant contract; that ADC had terminated the Quadrant contract "by reason of those defaults"; and that it was likely that White ACT had become liable to ADC in a very substantial amount by reason of those defaults and that termination. The defendants deny these allegations. 26 Paragraph 17 alleges the judgment given by this Court in proceedings No. 55041 of 1991 in favour of ADC against White ACT in the amount of $33,593,268, together with interest and costs. The defendants plead to that as follows:

(1) They say that the judgment is neither a material fact nor evidence of any material fact as against them;

(2) They do not admit that ADC suffered any loss by reason of any breach of contract by White ACT;

(3) They deny that the amount of $33,593,268, together with interest and costs, represents the amount of any loss or damage suffered by ADC in respect of the defaults alleged under the Quadrant contract;

(4) They admit the hearing of a reference in the proceedings and the report and conclusions of the referee (Mr John Morrisey);

(5) They assert that Mr Morrisey's finding was made "in the absence of any contradictor and in the absence of any defence maintained by [White ACT] as to quantum";

(6) They admit that this Court (Einstein J) adopted the report and entered judgment accordingly although, they say, White ACT did not appear at, or make any submissions on, the adoption hearing before Einstein J;

(7) They assert that none of the defendants other than WIL and WCL was a party to those proceedings and that, in those proceedings, WIL and WCL "were not in controversy with the plaintiff or ADC on the issue of the quantum of damages alleged to have been suffered by ADC"; and

(8) They assert that they urged the liquidator of White ACT (Mr Maxwell William Prentice) to oppose adoption of the report, but that Mr Prentice "neglected or declined to do so". 27 Paragraph 18 alleges that from 1 July 1988 up until 6 February 1998 the director defendants took a number of steps (described in succeeding paragraphs) by which White ACT was divested of all its assets and substantially all of its future revenues. Paragraph 19 alleges that those steps were taken for the purpose of leaving no asset available to meet ADC's claim against White ACT under the Quadrant project. The defendants deny these allegations. 28 Paragraph 20 alleges that the assets of White ACT, as at 30 June 1988, included certain intercompany debts owing to it by WCL ($19,141,200), the eighth defendant ("PDC Constructions") ($91,745), the ninth defendant ("White Qld") ($510,344) and WCISS ($705,674). The defendants do not admit these allegations. 29 Paragraph 21 alleges that the debts in question were "purportedly extinguished by entries made in [White ACT's] general journal in October 1988": to the extent of $12,661,246.51 in the case of the debt owed by WCL, and fully in the case of the other debts. The defendants do not admit these allegations. 30 Paragraph 22 alleges the method by which the debts were extinguished. In brief, that is said to have been done by the offsetting of debts due from White ACT to various defendants and NDC in specified amounts; by the repayment by WCL of White ACT's overdraft in the sum of $4,152,979.30, which overdraft was secured by a debenture issued by WCL to the bank; and by the crediting to WCL of amounts on account of "sales income" and "contract works". The defendants do not admit these allegations. 31 Paragraph 23 alleges the sale by WCL to Mr Frank McAlary of the issued share capital in White ACT "for a purported consideration of $1". The transaction is admitted. 32 Paragraph 24 alleges an agreement said to have been reached between Mr White, on behalf of WCL, and Mr Frank McAlary, on behalf of White ACT that, in consideration of Mr Frank McAlary undertaking the purchase, WCL would provide White ACT with sufficient funds to pay all claims of existing creditors of White ACT as those claims fell due. The defendants deny this. 33 Paragraph 25 alleges that WCL has breached that agreement by failing to pay the claim of ADC against White ACT. The defendants deny this. 34 Paragraph 16 alleges that Messrs White, Duncan and Spinks "purported to resign as directors of" White ACT on 28 November 1988. The defendants admit that those gentlemen resigned on that day. 35 Paragraph 27 alleges that, by reason of six specified matters, White ACT continued to be operated as if it were a wholly owned subsidiary of WCL from 14 October 1988 up until 6 February 1998. The key matters relied upon include that Messrs Frank and Michael McAlary "performed no management functions in relation to" the business of White ACT, and that "the totality of the management functions performed in relation to [White ACT's] business were carried out by the officers and employees of WCL and its subsidiaries". The defendants deny those allegations, and do not admit the other matters. 36 Paragraph 28 alleges that, accordingly, Messrs White, Duncan and Spinks, through the exercise of their powers as directors of WCL, continued de facto to be directors of White ACT after 14 October 1988. The defendants deny this. 37 Paragraph 29 alleges a process by which, it is said, the balance of the indebtedness of White ACT to WCL was extinguished (by the payment by WCL on behalf of White ACT of amounts owed by White ACT to various creditors other than ADC). It makes other allegations in relation to White ACT's rights to remuneration under the hard dollar contracts and in relation to novation of the CNCC contracts. The defendants do not admit these allegations. 38 Paragraph 30 alleges that Messrs White, Duncan and Spinks were at all material times in a fiduciary relationship with White ACT and it alleges the content of those fiduciary duties. The defendants do not admit these allegations. Further, the defendants say that no fiduciary relationship subsisted between Messrs White, Duncan and Spinks and White ACT after 28 November 1988. 39 Paragraph 31 alleges the like fiduciary duties owed by Messrs Frank and Michael McAlary to White ACT after 28 November 1988. The defendants do not admit these allegations. 40 Paragraph 32 alleges that the relevant transactions by which, it is said, White ACT was divested of its assets and revenues were not approved by White ACT in accordance with its Articles of Association. The defendants do not admit this. 41 Paragraph 33 alleges that the participation or acquiescence of the director defendants in the extinction of debts alleged in paragraph 21, and in the processes by which that was effected alleged in paragraph 22, constituted breaches of the fiduciary duties that are alleged and contraventions of ss 229(1), (2) and (4) of the Companies Code because, it is said, those acts were undertaken for the purpose alleged in paragraph 19 (i.e., to leave no asset available to meet the claim of ADC) and without regard to the interests of the plaintiff's unsecured creditors (including ADC). The defendants deny these allegations. 42 Paragraph 34 makes the like allegations against the director defendants in respect of the divestiture transactions alleged in paragraph 29. The defendants deny these allegations. 43 Paragraph 35 alleges matters in effect by way of pre-emptive strike against any limitation defence that might be pleaded. 44 Paragraphs 36 and 37 allege that the defendants who were not directly involved in the impugned transactions nonetheless knowingly participated in and assisted the breaches of duty represented by those transactions. The defendants deny these allegations. 45 In addition to the matters of defence already noted, the defendants further allege by way of defence:

(1) That any cause of action is, directly or by analogy, statute-barred and not maintainable;

(3) That the director defendants and Mr Michael McAlary at all times whilst they were directors of White ACT (but up until "at least 1995" in the case of Messrs Frank and Michael McAlary) believed that White ACT was solvent;

(4) That the director defendants believed up until 1995 that ADC was a debtor of White ACT for unpaid progress claims and would not establish that it was a creditor of White ACT;

(5) Mr Frank McAlary says that up until 1995 it was his belief and opinion that ADC would be required, but would be unlikely, to justify its purported exclusion of White ACT from the Quadrant site and its purported termination of the Quadrant contract, and that if it failed to do so it would be liable to White ACT for damages for repudiation; and

(6) Generally, whilst White ACT was a member of the White Group, each member of that Group was and was believed to be solvent, and the intercompany transactions of October 1988 were consistent with the legal rights and obligations of White ACT and were convenient having regard to the sale of its issued shares to Mr Frank McAlary. The parties' stated issues 46 Against that lengthy background, I turn to the issues that, at the commencement of the hearing, the parties propounded for determination. Notwithstanding the detailed issues raised on what, for convenience, I will refer to as the pleadings, the parties were unable to agree on what were the issues for determination. In one significant respect, the defendants asserted that the issues propounded for White ACT departed from the pleadings and should not be considered. 47 White ACT stated the issues as follows: " PRIMARY QUESTION NO. 1 - Was the plaintiff company in an insolvent condition during the period 30 June 1988 until its winding up in 1998? … PRIMARY QUESTION NO. 2 - In authorising the transactions the subject of these proceedings, did the plaintiff company's directors exercise their powers: a) without proper regard to the interests of the general body of the plaintiff's creditors (including ADC); and b) for the purpose of leaving no assets of the plaintiff available to meet the claim by ADC, arising from the plaintiff's default under the Quadrant contract?

Associated questions: a) Did the plaintiff's directors have knowledge or should they reasonably have known that the plaintiff company was in an insolvent condition in the relevant period? b) Did the plaintiff's directors have knowledge or should they reasonably have known that, other than its liabilities disclosed in its financial statements, the plaintiff had incurred a further substantial liability in consequence of its default under the Quadrant contract? c) Did the transactions, the subject of these proceedings, have a permissible purpose, as being consequential upon the sale of the shares in the plaintiff to the fourth defendant (McAlary) for $1 on 14 October 1988? d) Was the sale of the shares to McAlary for $1 consistent with the parties having any other belief except that the plaintiff was insolvent and of no financial value? e) Did the sale of the shares to McAlary have an explicable and legitimate purpose, in that McAlary wished to take advantage of the plaintiff's tax losses? f) Was the sale of the shares to McAlary explicable on ordinary commercial grounds, having regard to the plaintiff then having on foot substantial construction contracts, in addition to the Quadrant contract? … PRIMARY QUESTION NO. 3 - In authorizing the transactions the subject of these proceedings, did the plaintiff's directors exercise their powers in breach of their fiduciary duties to act in the interests of the plaintiff company as a whole, and particularly, in light of its insolvency, to act in the interests of the general body of the plaintiff's creditors? … SUBSIDIARY QUESTION NO. 1 - Did the plaintiff default under the Quadrant contract, by failing to perform any work under that contract in the period between 29 February 1988 and ADC's notice of termination given on 11 August 1988? … SUBSIDIARY QUESTION NO. 2 - Was the plaintiff excused from performance under the terms of the Quadrant contract, because of a strike or industrial conditions or restrictions beyond the control of the plaintiff? … SUBSIDIARY QUESTION NO. 3 - Was the industrial dispute connected with the Quadrant contract caused by the plaintiff and did the plaintiff fail to take reasonable steps to resolve that dispute? …" [footnotes and asserted answers omitted] 48 The material that I have emphasised in bold print is in each case an issue that, the defendants say, goes beyond the pleadings. 49 The defendants stated the principal issues as follows: " 1. By 14 October 1988 did the first to fourth defendants each know that: (a) ACT was in fundamental breach of the Quadrant contract; (b) ACT had terminated the Quadrant contract by reason of those defaults; and (c) it was likely that ACT had become liable to ADC for damages for breach of the Quadrant Contract in a very substantial amount …? … 2. Did the first to fourth defendants believe ACT to be insolvent as at 30 June 1988? … 3. Was ACT insolvent at all times from 30 June 1988 …? 4. Were the transactions mentioned in paragraphs 20-22 of the summons directed by the defendants or any of them, and if so were they effected for the purpose mentioned in paragraph 19 of the summons? … 5. Were the transactions effected in October 1988 following the sale of ACT to Mr McAlary, involving a repayment of its overdraft and the netting of various of mounts [sic] which ACT owed to and was owed by companies in the Whites' [sic] Group, neutral to the balance sheet of ACT …? 6. Were the "netting" transactions effected in October 1988 standard practice or not unusual when a member of a group of companies (which owes money to and is owed money by other group members) is sold to a third party? … 7. Were the profits and losses generated by "Companies" 87 and 91 taken up in the accounts of ACT? … 8. Did the directors of ACT breach their fiduciary duties to the company by causing it to dispose of its assets for inadequate consideration? … 9. Were the non-CNCC hard-dollar contracts the performance of which WIL assigned to ACT on 30 November 1986 taken back by WIL pursuant to WIL's letter of 29 February 1988 …? 10. Did ACT continue to derive revenue from the CNCC Project on the same contractual basis after the sale of ACT to McAlary as it did beforehand …? 11. Did WCL provide management services to ACT in return for the management fees which it charged? Was the basis on which it charged those fees unreasonable…? 12. Did the plaintiff (ACT) suffer any loss as a result of the impugned transactions? … 13. Are the claims of the plaintiff statute barred or by analogy with rules at law, not maintainable? … 14. Did relevant defendants participate with knowledge in the alleged breaches of duty?…" [asserted answers omitted] 50 The reference in the defendants' statement of issues to "Companies 87 and 91" will be picked up when I deal with the accounting evidence. At present it is sufficient to say that, from 1 March 1988, the accounts of White ACT recorded transactions by reference to three notional operating entities, known as Company 22, Company 87 and Company 91:

(1) Company 22 referred to the business activities of White ACT with the exception of the CNCC and hard dollar contracts;

(3) Company 91 referred to the hard dollar contracts. 51 The results of these three entities were consolidated for the purpose of producing the annual financial statements of White ACT.

52 In relation to the first issue stated by White ACT (and the third stated by the defendants), the defendants took the position that the issue was irrelevant. They said that the true issue was whether the director defendants understood, or believed, that White ACT was at any relevant time insolvent. 53 In my view, the defendants are correct in saying that the issues that I have highlighted in para [47] above (the "should they reasonably have known" issues) do not arise. The case for which White ACT contends, as set out in Part C of its summons, is, in substance and detail, a case of fraud. White ACT says that the director defendants put in place and effected (or caused to be effected) a plan that had the purpose and effect of divesting White ACT of all its assets and, in substance, its future revenues. It is said that this plan was put in place when those gentlemen knew that there had been default under and termination of the Quadrant contract, in circumstances that had rendered White ACT liable in damages to ADC in a very substantial amount. It is said that White ACT was at all material times insolvent and that the director defendants at all material times knew it to be insolvent. It is said that the purpose of the director defendants in effectuating their plan was to ensure that White ACT would have no assets available to meet its liability to ADC. 54 White ACT says, further, that the real reason for the sale by WCL to Mr Frank McAlary of the issued shares in White ACT was to remove it from the White Group, so that the consolidated accounts of WCL would not include any losses sustained by White ACT under (or flowing from its alleged breach of) the Quadrant contract. I note at this point that, although the sale was said to be effective from 30 June 1988, the results of White ACT for the year to that date were taken up in the consolidated accounts of WCL. 55 So stated, the case is one of actual knowledge and actual intention, amounting to actual fraud. There is no trace in the pleadings of any case of constructive knowledge or intention. The particulars that have been provided do not seek to make out a case of constructive, as opposed to actual, knowledge or intention. 56 Nor is any case of negligence asserted on the pleadings. True it is that (for example) there are fiduciary and statutory duties of care alleged: see paragraph 30(b) of the statement of contentions (picked up in paragraph 31). However the allegation of breach of that duty, and the allegation of breach of the statutory equivalent in s 229(2) of the Companies Code, are limited to the case that has already been pleaded. That is to say, it is said that the matters alleged against the director defendants, which may be characterised compendiously as involving knowing and fraudulent conduct, give rise to the breaches of fiduciary and statutory duties that are alleged. No separate case of negligence is pleaded. When this matter was raised in the course of the hearing, Mr Grieve QC, who appeared with Mr Epstein SC and Mr Horowitz of Counsel for White ACT, expressly disclaimed reliance upon a case in negligence against the director defendants. Further, Mr Grieve made it plain that White ACT did not propose to amend, and that it would rely on its pleaded case. 57 White ACT has, however, submitted that "[f]rom the outset of the hearing the plaintiff made it plain that its case lay in equitable fraud". It refers to Mr Grieve's opening in which, it says, "it was clearly stated that even if the Court accepted the defendant-director's evidence as to their subjective beliefs on the merits of ADC's claim, those stated beliefs were … plainly misguided and thus irrelevant." The consequence was said to be that the actions of the director defendants "in authorising the payments of which [the plaintiff] complains amounted to equitable fraud". 58 White ACT relies on a line of authorities from Keech v Sandford (1726) Sel Cas t King 61; 25 ER 223 through to Boardman v Phipps [1967] 2 AC 46 in support of the proposition that "proof of any subjective intent to cheat or deceive is inessential to the success of a claim in equitable fraud." It relies on the well known statement of principle enunciated by Viscount Haldane LC in Nocton v Lord Ashburton [1914] AC 932, 954. 59 It may be accepted that, in a case of equitable fraud - i.e., a case of fraud in what would have been the exclusive jurisdiction of the Courts of Chancery - an actual intention to cheat need not be proved. However, this assumes that there is pleaded a case of equitable fraud. If the pleadings, on their proper analysis, do allege equitable fraud then the failure to prove a pleaded but inessential ingredient of the cause of action may not be fatal. But if, on their proper analysis, they allege "actual fraud or nothing" then the failure to prove every ingredient of actual fraud will be fatal. 60 I do not think that it is appropriate to decide the question by reference to the manner in which the case for White ACT was opened. Nor do I think that it is appropriate to decide the question by reference to the way in which (so White ACT says) it conducted its case - for example, in objecting to evidence from the director defendants that would have been irrelevant if the case were one of equitable fraud. 61 If the case for White ACT was opened outside the pleadings, that would not entitle White ACT to succeed (if the case as pleaded failed but the case as opened succeeded) unless the defendants had in some way consented to, or acquiesced in, the expansion of the pleaded case. The defendants did not do this. On the contrary, Mr Rayment QC, who appeared with Mr Kell of Counsel for the defendants, in responding briefly to Mr Grieve's opening, made it plain that the defendants took the view that the opening went beyond the pleaded case, and that the defendants did not consent to any expansion of the pleaded case against them. 62 White ACT submits further that there is a distinction between a case of non-intentional breach of fiduciary or statutory duties on the one hand, and a case of negligence on the other. Accordingly, it submitted, the approach taken by the defendants, in seeking to conflate the case of non-intentional breach of duty with the case in negligence, was incorrect. In principle, I think that this is so: at least to the extent that a breach of fiduciary duty may be made out without any proof of negligence in the common law sense. (I leave aside the very difficult question of whether a fiduciary's liability for the negligent transaction of its obligations is an aspect of its fiduciary obligations or a separate duty imposed by law: see the discussion in Meagher, Gummow and Lehane's Equity Doctrines and Remedies (Butterworths LexisNexis: 4th Edition, 2002) at [5-295] to [5-330]. But it should be noted that in Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165, 196-199, the majority (McHugh, Gummow, Hayne and Callinan JJ) emphasised "the distinct character of the fiduciary obligation, which sets it apart from contract and tort". Their Honours quoted with approval from the judgment of McLachlin J in Norberg v Wynrib [1992] 2 SCR 226, 272, where Her Ladyship emphasised the "conceptual and functional uniqueness" of the fiduciary obligation as opposed to obligations in contract or tort.) 63 But I do not think that this assists White ACT. It diverts attention from, rather than assists in the resolution of, what I think is the real question: namely, what is the pleaded case? For the reasons I have given I think that the pleaded case is one of actual knowledge and actual intention, amounting to actual fraud. I propose to consider and deal with the case on that basis. 64 There is one qualification to what I have just said. In paragraphs 33 and 34 of its statement of contentions, White ACT alleges that the director defendants' participation or acquiescence in the acts complained of (the total or partial extinction of intercompany loans and the payment of management fees and related charges) were contraventions of both their fiduciary duties and certain provisions of the Companies Code (and, in the case of paragraph 34, the equivalent provisions of the Corporations Law at the relevant time) for two reasons. The first reason relates back to the purpose asserted in paragraph 19 - i.e., to leave no assets available to meet any claim by ADC relating to the Quadrant contract. The second reason is that the director defendants, in so acting, are said to have made use of their positions without regard to the interests of all White ACT's unsecured creditors, including ADC. The first of those purposes falls within what I have just said as to the case being one of actual knowledge and actual intention amounting to actual fraud. The second, on its face, goes further. But it does not go so far as to support the submission for White ACT that the pleaded case may properly be regarded as one of equitable fraud. 65 The reference to s 229(1) directs attention to the question, whether the director defendants acted honestly. Of necessity, that requires an analysis of their motives. Section 229(4) directs attention to the question, whether the director defendants made improper use of their position. That, again, directs attention to the question of motive. It is only s 229(2), and the fiduciary obligations that are alleged in so far as they, in turn, do not direct attention to motive, that direct attention to the objective character of the matters complained of rather than to the motives that were said to underlie them. 66 It may be accepted that the effect of paragraphs 33(b) and 34(b) of the statement of contentions is to require consideration of matters that do not, of necessity, raise questions of motive. But it does not seem to me to follow that there is opened up thereby a whole case of equitable fraud in which the allegations against the director defendants, that as pleaded depend upon actual knowledge and actual intention amounting to actual fraud, can also be examined objectively, without reference to subjective considerations of knowledge and intention. 67 Because of the dispute between the parties as to the issues that arise for determination, I propose to consider and deal with the case by reference to the issues that are stated on the pleadings. In relation to paragraphs 33 and 34 of the statement of contentions, that will involve giving separate consideration to the particular allegation made in each case by subparagraph (b). The relief sought 68 At the commencement of the hearing, White ACT indicated that it sought, as against the first to fifth defendants, a declaration that it had sustained loss and damage in the sum of $20,672,029.36, and orders for the payment of that sum and interest. 69 The sum of $20,672,029.36 was calculated as follows:

(1) $4,152,979.30 - the amount paid by White ACT in reduction of its bank overdraft on 19 October 1988 (that overdraft had been guaranteed by WCL, the eighth defendant ("PDC Constructions"), the ninth defendant ("White Qld"), the eleventh defendant ("WILCME"), the twelfth defendant ("White NT") and the fifteenth defendant ("White NSW") (2) $7,498,952.06 - the total of payments made by White ACT to related companies on 24 October 1988, namely:

To WILCME $710,566.13 To White NT $3,292,233.60 To the fourteenth defendant $196,776.50 ("PDC Plant Hire") To White NSW $3,074,375.83 To NDC $225,000.00

(The figure of $7,498,952.06 is also said to represent the amount paid by WCL to White ACT on 24 October 1988.)

(3) $1,307,763 - the total of all payments made by related companies (excluding WCL) to White ACT on 24 October 1988, namely:

By PDC Constructions $91,745 By White Qld $510,344 By WCISS $705,674

(4) $6,462,335 - management fees paid by White ACT to WCL between 1988 and 1992, namely:

On 20 June 1988 $2,000,000 On 1 August 1988 $254,273 On 25 August 1989 $2,003,049 On 13 March 1990 $2,139,856 On 15 July 1992 $65,157

(5) $1,250,000 - settlement payment made by White ACT to WCL on 21 May 1991 70 White ACT sought an order that the sixth defendant pay $19,364,266.36 and interest. The principal sum consisted of the payments identified in sub paras (1), (2), (4) and (5) of the preceding paragraph. 71 White ACT sought orders that the various other defendants identified as payers or payees in para [69] above pay it the relevant amount or amounts together with interest. RELEVANT CONTRACTUAL DOCUMENTS The Quadrant contract 72 The Quadrant contract was described as a "lump sum agreement for design and construction of Lot 5 Section 8 Canberra City". It was made between White ACT as "the Company" and ADC as "the Developer". 73 The Quadrant project comprised the erection of an office building (with basement car parking) and a residential tower. The project was defined by reference to drawings that were themselves specified in the Articles of Agreement forming part of the contract, and further described in the specification that formed part of the Articles of Agreement. 74 Clause 1, 2 and 3 of the Articles of Agreement provided as follows: "1. The Developer hereby engages the Company to design and construct the Project. 2. In consideration and subject to receipt of the payments to be made to the Company by the Developer at the time and in the manner set forth in this Agreement the Company will: (a) well and faithfully execute all activities involved in the design and construction of the Project; (b) supply and provide all plant, equipment, materials, labour and all things requisite for or incidental to the performance of this Agreement; in conformity and accordance with this Agreement and the said Annexures. 3. Each party hereto shall perform fulfil observe comply with and submit to all and singular the provisions, conditions, stipulations and requisitions and all matters and things contained expressed or shown in this Agreement and by and on the part of the respective party to be performed fulfilled observed complied with and submitted to." 75 Clause 4 of the Agreement gave contractual force to various Annexures. Annexure "A" provided "Details of Agreement". Relevant provisions included the following: "Project: RESIDENTIAL AND OFFICE BUILDINGS Date for Practical Completion: Stage 1: Office Building - 8.12.87 Stage 2: Remainder - 22.8.89 of Project Contract Sum: $19,535,000 [this was set out in words and figures] Date of Commencement: 31 March 1987" 76 Annexure "B" contained "Conditions of Engagement". Relevant provisions include Article 2, Article 4 and Article 5.2: " ARTICLE 2 PROSECUTION OF PROJECT 2.1 The Company shall (except as herein otherwise provided) furnish the necessary superintendence, labour, materials, goods, equipment, services and transportation to carry out the design and construction of the Project. 2.2 The Company shall prosecute the Project diligently and shall complete the Project in a thorough and workmanlike manner with all reasonable expedition in accordance with the provisions of the Agreement. 2.3 The Company shall use all reasonable efforts to diligently complete the design of the Project and to obtain in a timely manner from Authorities the approvals necessary to permit commencement of construction of the Project by the Date of Commencement. … ARTICLE 4 PERFORMANCE, ACCESS AND TIME FOR COMPLETION 4.1 The Company and all those persons authorised by it will be provided by the Developer subject to circumstances outside the Developer's control at all times with full and clear access to the Site as and from the Date of Possession. 4.2 4.2.1 The Company shall be given possession of the Site by the Developer on the Date of Possession of Site specified in Annexure A. 4.2.2 The Company shall immediately upon execution of the Agreement commence performance of its obligations in accordance with the provisions of the Agreement as to enable the Project to reach Practical Completion on the Date for Practical Completion as may be extended pursuant to Article 4.4 hereof. 4.3 The Date for Practical Completion and Contract Sum are based on the receipt of the necessary approvals from Authorities in a timely manner to enable the construction of the Project to commence not later than the date of commencement. 4.4 4.4.1 If the Company is delayed at any time in the process of the Project by any cause whatsoever beyond the control of the Company (which are the causes of delay listed in Article 4.4.2) then the Date for Practical Completion shall be extended by a period equal to the extent of such delay to the Company. Within 30 days of when the Company reasonably believes that delay has occurred within the meaning of this clause, it shall notify the Developer of the time of commencement and actual or estimated termination of the delay, the cause thereof and the manner in which the progress of the Project has been or will be delayed and the Developer shall determine the time by which the Date for Practical Completion shall be extended. 4.4.2 The causes of delay which shall extend the Date for Practical Completion are: 4.4.2.1 Changes to the Project as described in Article 12.1; 4.4.2.2 Civil commotion, or strikes, lockouts or other industrial conditions or restrictions outside the direct control of the Company; 4.4.2.3 The Company not being given possession of the Site pursuant to Article 4.2; 4.4.2.4 The Developer suspending the Project pursuant to Article 10.1; 4.4.2.5 Inclement weather. ARTICLE 5 RESPONSIBILITIES OF COMPANY 5.1 The Company shall comply in the design and construction of the Project with all statutes, regulations, ordinances and by-laws. The Company shall obtain and pay for all necessary permits, approvals and certificates issued by the relevant Authorities, with the exclusion of payment of the Development and Building Approvals. On Final Completion all such permits, approvals and certificates shall be surrendered to the Developer. 5.2 The Company shall, from time to time, prepare such detail drawings, trade specifications and other such data as are required to complete the Project in accordance with the requirements of the said Annexures. … " 77 Article 16 required White ACT to complete the project by stages, Stage 1 being the office building and Stage 2, although described as "Remainder of Project" in Annexure "A", being in substance the residential tower. 78 Article 18 dealt with a number of matters, including termination. The right of termination given to ADC was expressed by Article 18.1 A(i) as follows: "A. By Developer (i) Should the Company make default in any of its obligations or duties under the Agreement or the said several Annexures then in such case the Developer may send to it by certified mail a written notice specifying the default and stating the intention of the Developer to terminate the Agreement and if the Company fails to remedy such default within thirty (30) days after receipt of such notice then the Developer, without prejudice to any other rights or remedies, may forthwith terminate the Agreement by written notice to the Company." 79 White ACT was required to enter into an "Industrial Conduct Undertaking" to the Commonwealth of Australia. That undertaking was in the following terms:

" INDUSTRIAL CONDUCT UNDERTAKING White Constructions (ACT) Pty Limited a Company incorporated in the Australian Capital Territory and having its registered office c/- Coopers & Lybrand, 24 Marcus Clarke Street, Canberra ACT hereby undertakes to the Commonwealth of Australia that it will, while builder of the proposed development at Block 5 Section 8 Division of City, maintain and require any contractors and subcontractors engaged in the undertaking of any works required to maintain a good industrial record and in particular undertake to: a) adhere to relevant awards and informal industrial agreements; b) adhere to the National Wage Case principles; c) prohibit 'all in' or cash-in-hand payments; d) ensure good safety practices in accordance with relevant legislation, awards and the procedures contained in the Building Industry Agreement; e) refuse claims for payment for lost time due to strike action; and f) refuse to recognise, co-operate with or deal in any way with the Australian Building Construction Employees' and Builders Labourers' Federation (BLF) following its deregistration under the Builders Labourers Federation (Cancellation of Registration) Act 1986. This does not affect dealings with the BLF as registered or recognised under State legislation in the States of Queensland, Tasmania, South Australia and Western Australia, but applies to any dealings with the BLF elsewhere." (emphasis supplied) 80 An undertaking in those terms was executed under seal of White ACT on 24 February 1987. 81 The industrial conduct undertaking was given "back to back" with one given by ADC pursuant to a condition of the lease from the Commonwealth to ADC of the Quadrant site that such an undertaking be given in respect of any building works carried out on that site. The "hard dollar" subcontract and agency agreements 82 I have referred in para [5] above to the CNCC project and the hard dollar contracts. The legal position was that WIL had entered into contracts with the ultimate clients (in most cases, the National Capital Development Corporation ("NCDC")) for the performance of the work. As part of the reorganisation of the White Group undertaken to prepare for the float of WCL (see para [11] above), it was apparently decided that the works under those contracts would be performed by White ACT, as the subsidiary of WCL that held the relevant licence in the ACT. Accordingly, on 30 November 1986, WIL and White ACT entered into a "subcontract agreement" and an "agency agreement" in respect of the hard dollar contracts. 83 By clause 1 of the subcontract agreement, WIL and White ACT agreed that, from 1 December 1986, White ACT would "execute and complete" the hard dollar contracts to an appropriate standard. By clause 2, WIL agreed, so far as it could, to enforce its rights under the hard dollar contracts for the benefit of White ACT. 84 By clause 4.3, WIL agreed to pay White ACT the amount of progress claims recovered by WIL from the clients after making appropriate allowance for work completed and unclaimed as at 30 November 1986. 85 By clause 12.1, the agreement was made subject to WIL obtaining the consent of the relevant clients (where necessary). By clause 12.2, if any client did not consent then, in effect, that client and its project would be deleted from the scope of the subcontract agreement. 86 By clause 1 of the agency agreement, WIL agreed to act as undisclosed agent for White ACT in relation to the relevant contracts. By clause 2, WIL agreed to use its best endeavours to secure performance of those contracts for the benefit of White ACT. 87 Clause 5 dealt with progress payments, in a manner similar to clause 4.3 of the subcontract agreement. 88 By an agreement made on 2 June 1989, WIL (with the consent of White ACT) novated the subcontract to WPDL. By a further agreement made on 18 October 1989, WPDL (with the consent of White ACT) novated the subcontract to WIAL. The CNCC agency agreement 89 The contracts for performance of the CNCC works were made between White ACT and a company known as National Convention Corporation Pty Ltd. It appears that the relevant contract was made on 9 November 1984 (although, as I understand it, there was more than one contract - certainly, there were several distinct areas of work). 90 On 28 May 1985, White ACT and WIL entered into an agreement ("the CNCC agency agreement"). That agreement recited, among other things, that White ACT had entered into the contract with National Convention Corporation Pty Ltd as agent for WIL, which wished to be and to remain an undisclosed principal. 91 Clause 1 of the CNCC agency agreement gave effect to that recital. 92 By clause 5, WIL agreed to reimburse White ACT for the cost to it of carrying out its obligations under the head contract. By clause 6, White ACT agreed to pay the amount of progress payments recovered by it to WIL, subject to deduction of amounts for which it might be entitled to reimbursement under clause 5. The design and construction management agreements 93 On 4 August 1987, WIL (as "Project Manager") and White ACT (as "Design & Construction Manager") entered into a series of "design and construction management agreements". By clause 2.1 of those agreements, WIL appointed White ACT "to furnish, design and construction management services" and to perform other responsibilities and provide other services, in connection with the CNCC contracts. 94 By clause 3, White ACT agreed to "prosecute the design and construction management of the Works diligently to ensure due completion of the Works in a proper, thorough and workmanlike manner … ". 95 The effect of clause 12 was that the subcontracts for the performance of relevant parts of the subject Works were to be made between White ACT (as agent for WIL) and subcontractors. 96 Clause 15 provided for payments by WIL to White ACT for White ACT's services. 97 By a series of agreements made on 30 March 1989 and (in one case) 2 June 1989, the obligations of WIL as "Project Manager" were novated to WPDL. THE KEY AREAS OF DISPUTE 98 Both on the pleadings and on the parties' respective statements of issues, the key areas of dispute between the parties are those relating to:

(1) insolvency; (2) the industrial dispute that afflicted the Quadrant project in 1988; and (3) the director defendants' state of knowledge, or understanding, as to those matters. 99 I say this because, it seems to me, the analysis of and conclusions on those matters will be dispositive of the question of breach of duty. This is certainly so if (as I have indicated I think is the case) the case for White ACT is to be considered as one of fraudulent - i.e. knowing - breach of duty. However, on reflection, it is also likely to be so even if the case should be considered as one of, in effect, negligent (or non intentional) breach of duty. 100 As to insolvency: the questions that require consideration include whether or not White ACT was, in June or October 1988 or at any other material time, insolvent (noting, of course, that the defendants state that this is not the true issue). 101 As to the industrial dispute: the questions that require consideration include whether White ACT caused it; whether White ACT wrongly failed or refused to resolve it and unnecessarily prolonged it (or, conversely, whether White ACT was justified in taking the approach that it did); and whether the dispute was caused or prolonged for the purpose of inducing ADC to renegotiate, or walk away from, the Quadrant contract. 102 As to the director defendants' knowledge or state of mind: the questions that require consideration include their knowledge, or understanding (or belief) as to the insolvency of White ACT at any relevant time; the extent, of their knowledge or understanding of the Quadrant project (with particular reference to ADC's termination of the contract and the likelihood, and extent, of a claim); their knowledge or understanding of events relevant to the industrial dispute; and their knowledge or approval of the accounting and other transactions briefly referred to in para [7] above. Underlying all this, of course, are the questions of whether the director defendants fomented and prolonged the industrial dispute in an attempt to force ADC to renegotiate or walk away from the Quadrant contract, and whether they put in place the relevant transactions so as to seek to ensure that any claim that ADC might have against White ACT would not be satisfied. 103 Before I consider those key questions, I will set out my findings on:

(2) The sale of the issued capital in White ACT to Mr Frank McAlary;

(3) The accounting transactions that took place in relation to that sale in about October 1988; and

(4) The management fees and other charges, of which White ACT now complains, that were imposed in the years ended 30 June 1989 to 30 June 1992. CREDIBILITY 104 White ACT launched a sustained attack on the credibility of the director defendants, both in cross-examination and in final submissions. It also, although with less vehemence, put submissions adverse to the credibility of Mr Michael McAlary. 105 White ACT identified and criticised ten key aspects of the evidence given by each of the director defendants. I set out, in summary form, the points that White ACT identified and the criticism made of it. In substance, the criticism was that the various points identified were "inconsistent with facts incontrovertibly established by the evidence" and "glaringly improbable" (citing Brennan, Gaudron and McHugh JJ in Devries v Australian National Railways Commission (1993) 177 CLR 472, 479; note that their Honours were in turn quoting from the judgment of the Court in Brunskill v Sovereign Marine & General Insurance Co Ltd (1985) 59 ALJR 842, 844). 106 In summary, the ten key points identified by White ACT, and its criticism of the evidence on each point, was to the following effect. It said that "each of the first four defendants has variously asserted": (1) That he believed that between February and August 1988 White ACT acted properly in relation to, or did not act in breach of, the Quadrant contract. White ACT said that, for reasons given earlier in its submissions, this evidence should be disbelieved. (2) That he believed that ADC had neither the right to terminate that contract nor to claim damages against White ACT.

White ACT said that this evidence should be disbelieved for the same reasons as the evidence in relation to the first point should be disbelieved. (3) That he believed that the purpose of the sale of the issued capital of White ACT to Mr Frank McAlary was to enable him, through the company, to take advantage of its accumulated tax losses, not to avert its immediate winding up. White ACT said that this "story" (as it called it) was fundamentally flawed because exploitation of the tax losses necessitated the derivation of assessable income, and the derivation of assessable income would have resulted in the accumulation of assets. Those assets would have been available to meet the claims of creditors including, White ACT said, ADC. It was therefore necessary, White ACT said, for Mr Frank McAlary to reach an accommodation with ADC before he could safely take advantage of the tax losses. (4) That he believed that White ACT was at all times solvent because intercompany loans would not be called up unless White ACT could pay them. White ACT criticised this evidence because, it said, the "arrangement" relied upon was not made out, was not evidenced in writing, was not supported by consideration and was not of binding force (it will be observed that there is some overlap between these responses). Further, it said, the practice could not have enured for the benefit of White ACT once it ceased (upon the sale of its issued capital to Mr Frank McAlary) to be a member of the White Group. (5) That he knew nothing of the detail of the journal entries by which the intercompany loan accounts were extinguished. In relation to this, and the sixth and seventh points, White ACT submitted that "it is plain from their evidence that the first four defendants were content to permit the accounting staff, if need be in consultation with the auditors, to process whatever book entries were "appropriate" to "tidy up" the plaintiff's balance sheet …". (6) That he knew nothing of the journal entries which substantially reduced the amount owed by WCL to White ACT. (7) That he knew nothing of the discharge of White ACT's overdraft. (8) That if it were found that he knew "or should have known" of the journal entries and discharge of the overdraft, he regarded them as proper steps in the circumstances. White ACT says of this point and the ninth and tenth points that they "are self-evidently incongruous". (9) That to the extent to which he knew anything of the payment of management fees to WCL, he considered them fair and reasonable. (10) To the extent to which he knew anything of the payment by White ACT to WCL of the $1.25 million due (and paid) by WPDL to White ACT, he considered that transaction to be proper. 107 Before turning to the specific attacks that are made on the credibility of the individual director defendants, I observe that I do not regard the criticisms that I have just summarised as coming anywhere near the description given to them by White ACT as inconsistent with facts incontrovertibly established by the evidence or glaringly improbable. 108 Thus, as to the first point (which will also dispose of the second point), I have concluded that White ACT did not act in breach of the Quadrant contract in the way that it handled the 1988 industrial dispute. As to the third point, it depends on acceptance of the proposition that the director defendants believed, at and prior to 14 October 1988, that ADC had a valid claim against White ACT; that ADC was likely to bring proceedings to enforce that claim; and that ADC would be likely to recover substantial damages in respect of that claim. As to the fourth point, I have concluded that White ACT was and remains solvent. As to the fifth point (and this will also dispose of the sixth and seventh points) I have concluded that the relevant actions were undertaken by the accounting staff of White ACT, WCL or the White Group and were not directed by or referred to the director defendants. As to the eighth point, I will note only at this stage that the criticism made is contradicted by the evidence of an independent expert accountant called by White ACT, Mr David Watson. As to the ninth and tenth points, although they are supported by the evidence of Mr Watson, I do not find that his evidence establishes anything - let alone primary facts against which the evidence in question could be examined and found wanting - "incontrovertibly". 109 Before I turn to an assessment of the evidence of each of the director defendants, I make a number of general observations. 110 The first is that, in assessing the evidence of the director defendants, it must be remembered that the events in question took place, for the main part, between 10 and 16 years ago. It would be surprising if any of them, regardless of his acumen or experience, had a detailed recollection of events that had occurred so long ago. Equally, it was apparent that none of the director defendants had sought to refresh his recollection by reading through the contemporaneous documents. (I interpose, firstly, that I do not mean any criticism of the director defendants in saying this; and, secondly, that it is not apparent that any of the director defendants had in his possession any significant collection of documents relating to the affairs of White ACT.) Almost inevitably, therefore, each of them gave evidence in terms of some generality. The cross-examination frequently looked at matters with a considerable degree of specificity, which required the witness to pay attention to documents that he had not seen for many years (if at all). In the circumstances, I do not consider it surprising that, even when confronted with contemporaneous documents, none of the director defendants professed any significantly greater recall of events. Equally, however, it should be observed that none of the director defendants sought, in the main, to quarrel with or disavow the contents of his, or in more general terms White ACT's, WCL's or the White Group's, documents. 111 Secondly, I did not observe, and do not find, that any of the director defendants was "selective" in his lack of recollection. In this context, it is worth remembering that each of them must have been aware that White ACT was in possession of a large quantity of documents, obtained through the liquidator's examinations conducted in the Federal Court (and, one might think, obtained from ADC) so that it would be able to prove a large number of matters regardless of the state of recollection of the defendants. There was no basis for thinking that a pretended lack of recollection could thwart proof of the case of White ACT: which was, in any event, substantially (and obviously) a documentary case. 112 Thirdly, each of the director defendants and Mr Michael McAlary had been examined in the Federal Court (and some of them had given evidence in the proceedings before Giles CJ Comm D). Although each of them was cross-examined on the evidence that he had given in the Federal Court, no significant inconsistency was demonstrated thereby. Nor was there cross-examination showing inconsistency between any evidence given before Giles CJ Comm D and the evidence given before me. 113 Fourthly, in relation to many parts of the evidence that are now said to be "absurd" or, in effect, "not worthy of belief": the particular submission that is now made was not put to the witnesses, although this may not be of great significance given that it was crystal clear that White ACT's position was at all times that the credibility of the defendants in general, and their evidence on the ten points identified in particular, was under challenge. 114 Fifthly, in many cases, it was apparent that matters on which the director defendants were cross-examined could have been illuminated had evidence been called from former employees of White ACT. For example, each of the director defendants was cross-examined on what I refer to below as the "Rawlinsons report". That report was not addressed to the board of White ACT (or, for that matter, to the board of WCL). It must be presumed to have been commissioned by and given to employees of White ACT. No employee was called to prove that he had communicated the report, or its contents, to any of the director defendants: yet they were cross-examined at length on what it was said they knew or should have known as a result of the contents of that report. A number of the relevant employees have died. However, others (including some who might be thought to have received the Rawlinsons report, and, more significantly, those involved in the accounting transactions that took place in October 1988, and the charging and payment of management fees and related charges that occurred in subsequent years) were not shown to have died, or otherwise to be unavailable. No explanation was given of why they were not called. In assessing the credibility of the director defendants, I take into account, adversely to the criticisms that are now made, the unexplained failure of White ACT to call witnesses whom, in the ordinary course of events, it might have been expected to call to make good at least some of the criticisms that it has put. Mr Frank McAlary 115 In assessing Mr Frank McAlary's evidence, it is necessary to bear in mind that he was a barrister in full time practice who also had extensive rural interests. It is not at all surprising that he did not immerse himself deeply in the day-to-day affairs of WCL and its subsidiaries. That he played a lesser role is confirmed by the evidence of Messrs White, Duncan and Spinks. Nor is it surprising that, after the time that has elapsed, his memory of the extent to which he was involved is faulty. 116 Mr Frank McAlary was not, at any relevant time prior to 28 November 1988, a director of White ACT. Further, he was absent, either overseas or in the north west of Australia, for about six weeks from 24 September 1988 (which is when many of the relevant events occurred). There is nothing to suggest that, during this absence, he kept, or was kept, in touch with what was happening (a circumstance that confirms the lack of significance that, at the time, the director defendants gave to the sale of White ACT to Mr Frank McAlary). 117 Mr Frank McAlary's cross-examination occupied more than three days. The criticisms of his evidence made by White ACT in its final written submissions occupied some twenty pages. Although I have read carefully his evidence and the criticisms that are made of it (as I listened carefully to his evidence and the oral summary of those criticisms) I do not propose to examine every one of them. I will look at some, to indicate why they do not, to my mind, make good the attack, and to show why they do not make good the proposition that I should not accept his evidence. 118 It is fair to say that there were a number of respects in which Mr Frank McAlary was an unsatisfactory witness. In particular, he showed a distinct propensity to argue with, and correct, cross-examining counsel. However, I conclude, that did not reflect some desire to evade the question, far less to evade the truth. Indeed, on many occasions, the effect of the exchange between Mr Frank McAlary and cross-examining counsel was to sharpen the question, thereby making it more rather than less difficult to evade the point or to obfuscate in reply. 119 One criticism was of Mr Frank McAlary's evidence that he had no recollection of the stockmarket crash of October 1987. He said that he could remember crashes but that he could not remember one in October 1987. This evidence was said to be "glaringly improbable". The criticism made of this evidence did not, however, deal with the reason that Mr Frank McAlary gave: which was that he was not then, or at any other time, an investor in the stockmarket generally. It appeared that, not unsurprisingly, he held relatively small parcels of shares in the listed entities in the White Group, and perhaps in other companies of which he was, or had been, a director; but that, in general terms, he preferred other modes of investment. 120 The stockmarket crash of October 1987 followed closely upon the listing of WCL. It had a significant impact on the fortunes of those who had invested in WCL: an impact that was compounded by the disastrous results of the company for the half year ended 30 December 1987. In those circumstances, it might be thought to be surprising that Mr Frank McAlary did not remember the crash. However, there was not in these proceedings any issue as to the stockmarket crash; it cannot be said that Mr Frank McAlary had any motive to lie in relation to his memory (or lack of memory) of it. I do not conclude that his evidence that he did not recollect it, particularly when considered in conjunction with his explanation, is so incredible as to be "glaringly improbable". 121 Another example is the criticism made of Mr Frank McAlary in relation to a report ("the Rawlinsons report") by a firm of quantity surveyors, Rawlinsons (NSW) Pty Limited ("Rawlinsons"). He denied that he saw it in February 1988. That answer is said to be "scarcely plausible". But I do not understand why it is. The report was not addressed to the board. It was not commissioned by the board. There is not one piece of paper in the evidence to show that it, or its contents, were communicated to the board. White ACT chose to call none of its former employees. There was therefore no evidence from anyone that the report, or its contents, had been communicated to the board (or specifically to Mr Frank McAlary). In the circumstances, I do not find this evidence in the least implausible; indeed, if I may say so, it is the unreasoned description of it given by White ACT that I find to be scarcely plausible. 122 Another criticism that was made of Mr Frank McAlary related to his evidence on the topic of what he called "strike pay". (The same criticism was extended to Mr Duncan and, with somewhat less vehemence, to Mr White.) For the reasons that I give in paras [371] to [374] below, I do not accept the substance of those criticisms. 123 There were two matters on which White ACT placed particular emphasis. One was Mr White's note of 6 March 1988 in which he recorded his conversation with Mr Darron Hitchings of that date and a separate conversation with Mr Frank McAlary. I consider separately that part of the note that deals with the conversation with Mr Hitchings. The part that records a conversation with Mr Frank McAlary reads: " Frank McAlary · Hardline with Unions · " " with Sid Fisher [sic] · Bring job to halt · We are frustrated · S Fisher [sic] to be pushed into determining Contract"

124 In summary, Mr Frank McAlary's evidence on what was thus recorded was as follows:

(i) He did not deny saying to Mr White words to the effect set out in the first two bullet points;

(ii) He did not deny saying to Mr White words to the effect set out in the third bullet point, but added "but it seems highly unlikely, since the job was stopped";

(iii) He did not deny saying to Mr White words to the effect set out in the fourth bullet point, but added "but I just don't understand what it would mean in the setting"; and

(iv) He did not deny saying words to the effect of those set out in the fifth bullet point. 125 Subsequently, Mr Frank McAlary amplified these responses by saying that he did not believe that he said words to the effect of those set out in the third or fourth bullet points: as to the third, because the job was already halted (so that there was no need to "bring" it to a halt); and as to the fourth, because he didn't "see what [it] has to do with anything". 126 I have some difficulty in placing either upon the note, or upon Mr Frank McAlary's evidence in relation to it, the sinister connotation which White ACT advances. Contrary to the submissions for White ACT, I did not find (and on re-reading them do not find) any of the responses given by Mr Frank McAlary to questions concerning this note to be "cagey". On the contrary, he was making the rather obvious point that, since he had absolutely no recollection of the conversation that the note purported to record, he could not deny having used words to the effect of those attributed to him; and, more importantly, could not express a view as to the probability (or otherwise) of his having used those words. 127 I find that, on or about 6 March 1988, Mr White did have a conversation with Mr Frank McAlary in which the latter said words to the effect of those summarised in the note. It is likely, and I find, that the conversation took place after Mr White had the separate conversation with Mr Hitchings set out in the body (indeed, the main part) of the note. That is because the conversation with Mr Hitchings occupies by far the greater part of the note and the conversation with Mr Frank McAlary is added at the bottom of the page. It is likely that it was Mr White's conversation with Mr Hitchings that led to his discussion with Mr Frank McAlary. It is likely that Mr White raised with Mr Frank McAlary the matters that he had been told (as recorded in the note) by Mr Hitchings. If that be correct - and it seems to me to be a logical reconstruction of the sequence of events - then I do not accept that the conversation between Messrs White and Frank McAlary that is recorded in the note has the sinister connotation that White ACT now seeks to put upon it. I am confirmed in this by the material to which I refer in para [393] below. It follows, among other things, that I do not regard either the note, or the conversation recorded in it, as bearing adversely upon the credibility of Mr Frank McAlary (or, for that matter, Mr White). 128 The other matter is the so-called "leap year letters". As their names might suggest, these are two letters bearing date 29 February 1988. One of them was written by Mr Spinks on the letterhead of WIL to White ACT. It referred to the subcontract agreement dated 30 November 1986 relating to the hard dollar contracts (see paras [82] to [85] above). It noted that "the Clients" under the hard dollar contracts had not given their consents (by implication, to the arrangements set out in the subcontract agreement - see cl 12.2 thereof). It then stated: "We consider that as, and from, 1 March 1988 cl. 12.2 of the Agreement should be invoked - i.e. invoked. We, therefore, instruct you to cease carrying out the Projects on our behalf."

The letter continued to deal with other matters relevant to the subcontract agreement. 129 The second leap year letter was written by Mr Duncan on behalf of White ACT to WIL. It referred to the CNCC projects and to the design and construction management agreements (see paras [93] to [96] above). Relevantly, it stated: "From a review we have recently conducted, we estimate that in respect of the above Project, approximately $250,000 will have to be paid by this Company for Financial Institutions Duty if the current system of payments under the Contracts continues. We consider that this expense can be avoided in the following way, namely, by you making the payments direct on our certification. Therefore, we propose that the obligations on this Company to pay, as your agent, the subcontractors and consultants on the Projects be altered; that you take over this obligation. We will provide certified progress claims in respect of each Project to enable the relevant payments to be made."

The letter continued to deal with ancillary matters. 130 It was apparent that each of the letters had been backdated, in that they were prepared in draft by Mr Marshall of Mallesons Stephen Jaques on 1 March 1988, pursuant to discussions with Mr Shaw of WCL on 29 February 1988. The drafts were faxed by Mr Shaw to Mr Frank McAlary on 2 March 1988. Mr Frank McAlary settled them. They were thereafter engrossed and signed. 131 In these proceedings, White ACT suggested that the backdating had some sinister connotation, because 29 February 1988 was the day in which the crane crew was dismissed and the other workers on the Quadrant project were stood down. The explanation given by the director defendants was, simply, that it was convenient for the revised accounting arrangements that would follow from the acceptance of each of the letters to be put in place at the beginning of a month and that, since the proposals had been discussed (as the evidence showed) on 26 February 1988, there was nothing inappropriate in choosing 1 March 1988 as the commencement date of the revised arrangements proposed by the two letters. 132 Indeed, if the director defendants had engaged in a fraudulent conspiracy of the kind now alleged by White ACT, and if they had sought to give effect to that conspiracy by (as White ACT says) dismissing the crane crew and thereby precipitating prolonged industrial unrest at the Quadrant site, it might be thought that the last thing that they would do was put in place what is now said to be another part of the conspiracy, through the mechanism of the leap year letters. I think that the very fact that they wrote, and retained, the leap year letters tells strongly against the existence of any such fraudulent conspiracy. 133 White ACT used these letters to attack the credibility of Mr Frank McAlary in two ways. Firstly, it attacked his evidence in relation to the "provenance" of the letters - in particular, what it said was his reluctance to reveal his involvement in their preparation. Secondly, it said (and this attack was extended to the other director defendants) that the letters were an integral part of a premeditated plan to divorce White ACT from the White Group, "given the inevitability of a substantial loss on the Quadrant contract". 134 Mr Frank McAlary acknowledged, both in his evidence-in-chief and in his cross-examination, that he had settled at least one of the leap year letters (I think the better view is that he acknowledged that he had settled them both). He was asked whether it was a matter of "mere coincidence" that the letters were dated the same date as the crane crew was dismissed. The submission is now made that his answer was "obfuscatory". I do not think it was. The question was predicated on the assumption that the letters were in fact written on 29 February 1988 when, as previous questions and answers (and references to the tender bundle had shown) they were settled at a later date and backdated. I think that the answers that Mr Frank McAlary gave in response to the suggestion of "mere coincidence" were no more obfuscatory than the questions in response to which they were given were confused. 135 The same evidence was characterised as "cagey". I do not think that it was. I think that the nature of the responses that Mr Frank McAlary gave reflected no more than his fundamental disagreement with the proposition that was put, both expressly and by implication, as to the purpose that was sought to be achieved by the letters. 136 In the same manner, a response given by Mr Frank McAlary to a suggestion that the letters were "shams" was characterised as "an argumentative speech". It was not. It was both a flat denial of the proposition - as "absolute nonsense" and "nonsense" - and a justification for the response. Further, as to that letter that dealt with Financial Institutions Duty ("FID"), it is clear that Mr Frank McAlary understood, as cross-examining counsel did not, the way in which the saving of FID would occur; and that the former was somewhat impatient at the apparent lack of understanding of the latter. It may perhaps be undesirable for a witness thus to express frustration, but in this case I do not think that the expression of frustration is an indication of dishonesty. 137 As I have just indicated, the attack that White ACT made in respect of the FID letter was, in my view, misconceived. It was submitted that the letter was clearly a sham, and that the evidence in respect of it was no better, because there would be no saving of FID simply by diverting the obligation to pay subcontractors from one company in the White Group to another. That would be correct if the proposal had been that the principal (in this case WCL), instead of paying White ACT, was to pay another company in the White Group that would in turn pay subcontractors. However, as even a cursory reading of the relevant letter reveals, that was not the proposal. The proposal was that WCL would pay subcontractors direct. On that basis, there would be no intermediate receipt of the money by any company in the White Group. Any FID in respect of the payments would be borne by the ultimate recipients - the subcontractors. 138 In short, I do not regard the leap year letters, or Mr Frank McAlary's evidence in respect of them, as having any adverse impact on his credibility. To the extent that the attack based upon them related not to evidence given but to the nature of the proposals, I reach the same conclusions in respect of the other director defendants. 139 The general tenor of Mr Frank McAlary's evidence-in-chief was that, prior to November 1988, he had almost no involvement in the day-to-day affairs of White ACT. It will of course be remembered that he was not a director of that company between 1982 and November 1988. The significance of White ACT to Mr Frank McAlary, before he acquired its issued capital, was simply that it was an operating subsidiary of WCL whose specific responsibility included performance of what were, in effect, WCL's contracts in the ACT. 140 It is clear that, from time to time, through the medium of reports to the board and other board papers, Mr Frank McAlary (in common with the other director defendants) was made aware of the state of progress of White ACT's contracts in the ACT, and of the expected outcomes of those contracts. Indeed, Mr Frank McAlary did not suggest to the contrary (and nor did any of the other director defendants). His evidence (and theirs) was that, while he would not dispute that he received and, at the time, read and understood the documents in question (in so far as they were documents shown to have come to the board) he had no present recollection of them, of their contents, or of his thoughts at the time on their contents. I do not find this at all surprising. 141 It became clear that, in 1988, Mr Frank McAlary had had more involvement with the handling of the Quadrant contract than he would now concede. However, I find his evidence on that topic was not intentionally dishonest. It reflected the fact that, not surprisingly, he had forgotten that (for example) he was from time to time sent draft letters and from time to time settled them. He did so in his capacity as a director of WCL rather than as a barrister instructed in relation to the dispute, although it was, no doubt, because of his eminence at the Bar that he was asked to undertake these tasks. 142 In general, as the foregoing paragraphs demonstrate, the criticisms that are made of Mr Frank McAlary's evidence rely not so much on inconsistency with established fact as upon inconsistency with White ACT's case. The two cannot be equated. 143 I have concluded that, in substance, the particular challenges to the credibility of Mr Frank McAlary that were made by White ACT in its written and oral final submissions fail. I do so for a number of reasons:

(1) Firstly, although (as I have indicated) it could not be said that Mr Frank McAlary was an ideal witness - he was frequently argumentative, and from time to time, inclined to make speeches - I formed the very clear view that this was a reflection of his personality in general, and his experience in particular. It was almost painfully obvious that, to a substantial extent, Mr Frank McAlary resented both the process and the detail of cross-examination. This may not be desirable, but it cannot be regarded as surprising, having regard to his age, his lengthy career at the Bar and his temperament as it was manifested in the witness box. I do not think that this criticism of his evidence demonstrates a desire either to avoid or to conceal the truth.

(2) Further, and against the submission that White ACT put, I do not think that there was any instance where the evidence of Mr Frank McAlary was shown to be inconsistent with "incontrovertible facts". It was certainly inconsistent with the way in which White ACT put its case and the theory (for want of a better word) that it advanced in the proceedings. However, as I have already pointed out, those inconsistencies do not justify the criticism that has been advanced.

(3) I did not detect any trace of selective obfuscation, or selective lack of memory, in Mr Frank McAlary's responses. It is impossible, on considering his evidence as a whole, to conclude that those characteristics betray what might be called "consciousness of guilt".

(4) His evidence was to an extent corroborated by that of the other director defendants. Although, no doubt, White ACT would say that their evidence cannot be regarded as corroborative because it is, in each case, seriously flawed, I do not think that this is so: with the exception, for a particular reason, of one aspect of Mr Duncan's evidence and, for another reason, of some aspects of Mr White's evidence, each of which I shall discuss in due course.

(5) No evidence was called, either from former employees of White ACT, or from former employees of WCL or the White Group, to contradict Mr Frank McAlary or to give the lie to propositions advanced in his evidence (for example, as to his relative lack of involvement in some matters, and his relative ignorance of others). Nor, except in the case of persons, including Mr Derry Shaw, who have died, was any explanation given for the failure to call them. Whilst former employees of WCL or, more generally, the White Group might not be thought to be within the "camp" of White ACT, so as to lead to the natural expectation that they would be called, the same cannot be said for former employees of White ACT.

(6) Finally, and in particular on the matters that are crucial to this case, I have concluded that Mr Frank McAlary's evidence is in substance consistent with the facts as I find them based on the whole of the evidence. In this context I refer, in particular, to his evidence that he thought that White ACT had not, in its handling of the industrial dispute, breached the Quadrant contract (with its consequences including his belief as to the invalidity of ADC's termination and the likely fate of ADC's claim for damages); his belief as to the solvency of White ACT; his lack of knowledge of the accounting entries effected in October 1988; and his belief (when he considered them) of the validity of those accounting entries and of the subsequent imposition of management fees and other charges. Mr Duncan 144 Mr Duncan's cross-examination took the best part of three days (spread over about five days). About nine and a half pages of written submissions were directed to an attack on his credibility. 145 There were two specific aspects of Mr Duncan's evidence that gave me concern. The first was his denial of the "rocky road" conversation with Mr Fischer (see para [415] below). The second was his denial of any awareness that it was likely that ADC would sue White ACT over the Quadrant contract. 146 Mr Duncan was, together with Mr White, a joint managing director of White ACT after Mr Wells resigned in early March 1988. It would follow, and I find, that Mr Duncan therefore had a much greater involvement in the day-to-day affairs of White ACT than did non-executive directors (including Mr Frank McAlary) of WCL. Mr Duncan (together with Messrs White and Spinks) was also, at all times up until and after the termination of the Quadrant contract, a director of White ACT (Mr Frank McAlary was not). It is likely, in all the circumstances, that Mr Duncan (and Mr White, as joint managing director) had more dealings with employees of White ACT, and came into possession of more documentation, than did non-executive directors of WCL. 147 I set out in paras [412] to [415] below the sequence of events relating to, and the relevant terms of, the "rocky road" conversation. Notwithstanding my general reservations as to both Mr Fischer's credibility as a witness and the reliability of his contemporaneous notes, I think it likely that Mr Duncan did use the words "rocky road" attributed to him in Mr Fischer's notes of the conversation that took place on 18 March 1988. I say this for two reasons. Firstly, having had the opportunity of observing Mr Duncan in the witness box for a substantial period of time, and of making some assessment of his personality, I formed the view that it is likely that he would have expressed to Mr Fischer the attitude that is summed up in the "rocky road" references. Secondly, and notwithstanding the reservation that I hold as to the reliability of Mr Fischer's contemporaneous notes, I do not think that he would have completely fabricated the conversation, as must follow if Mr Duncan's denial is to be accepted. It is one thing to say that, even in 1988, Mr Fischer's notes and correspondence were written in a manner as favourable to his company as might be. It is quite another to say that they, or conversations recorded in them, were fabricated. I accept the former proposition. I do not accept the latter. 148 I interpose that, even though I find on balance that the "rocky road" conversation did take place, I do not find that the terms of that conversation (as opposed to Mr Duncan's denial of its occurrence) reflect adversely on Mr Duncan's credibility. Clearly, White ACT was in a difficult position on the Quadrant contract. Clearly, it had determined to seek to renegotiate the contract. Clearly, both Mr Duncan and Mr Fischer were intelligent and hard headed businessmen, each of whom was seeking to do the best that he could for his company. It is apparent from the totality of the conversation, as recorded by Mr Fischer, that the discussion was tough, and that there were at least implied threats, on each side. That is what one might expect in such circumstances. It does not follow, simply from the fact that Mr Duncan sought as vigorously as he could to renegotiate what he saw as being a disadvantageous contract, that he was being dishonest. Nor does it follow, simply from the fact that Mr Fischer insisted on the performance of the contract to the letter, even though he knew that it would cause severe disadvantage to White ACT, that he was being dishonest. 149 At first, I also found it difficult to accept Mr Duncan's denial that he was aware that ADC was likely to sue White ACT. Both the conversations and the correspondence were full of threats, and of comments from which such threats could readily be inferred. I do not think that a person who was as astute as Mr Duncan appeared to me to be could have overlooked, or mistaken, those matters. At most, there may be some question as to the likelihood that the threat would be implemented. However, on reflection, I think that Mr Duncan was saying, in effect, that he viewed the threats as unlikely to be implemented because, at the time, he believed that White ACT's conduct in relation to the industrial dispute was justifiable. In effect, I think, he was conflating his view at the time of the strength of White ACT's position with what was in substance the other side of the coin: the real force of ADC's threats. I therefore do not conclude that this evidence bears adversely on Mr Duncan's credibility. 150 Nor do I think that a number of the specific attacks that White ACT made upon Mr Duncan's evidence should be accepted. Again, I have considered very carefully both the detail of the attacks and the evidence on which they are based. 151 For example, some of his evidence in relation to prospects of recovery on contracts (not including any of the ACT contracts) is said to be "simply discordant with reality". However, the discordance has not been proved. 152 Again, Mr Duncan was attacked in respect of his professed ignorance of the Rawlinsons report. For the same reasons as I have given in respect of Mr Frank McAlary, and notwithstanding that Mr Duncan, as joint managing director, might be thought to be a person to whom either the report or its contents would be communicated, I do not find that the attack is justified. In Mr Duncan's case, the failure of White ACT to call any of its employees who might be expected to have received the report and who might be expected to have given it to, or discussed it with, Mr Duncan is, I think, significant. 153 Thirdly, as was the case with Mr Frank McAlary, many of the criticisms that White ACT makes of Mr Duncan's evidence are based not on inconsistency with incontrovertible facts but, rather, on inconsistency with White ACT's view of the case. For the reasons that I have given in relation to Mr Frank McAlary, I do not find those criticisms of Mr Duncan's evidence persuasive. 154 It remains the position that, in one significant respect, I do not accept evidence given by Mr Duncan. That matter - his denial of the "rocky road" conversation - is significant, because the denial bespeaks an awareness of the difficulties to which a truthful answer would have led. Inevitably, that gives me real cause to question Mr Duncan's evidence except to the extent that it is corroborated by other, and acceptable, evidence. 155 Nonetheless, on balance, I have come to the conclusion that I should accept Mr Duncan's evidence on the ten fundamental issues that I have identified in para [106] above. I do so essentially because the substance of his evidence is consistent with the facts as I find them. Mr White 156 Mr White's evidence occupied almost two days. Although four pages of submissions were devoted to what was called Mr White's credibility, a number of these submissions either did not go to credibility at all or, as with Messrs Frank McAlary and Duncan, based their attack on inconsistency with the case advanced by White ACT rather than inconsistency with incontrovertible facts. 157 I hope that I am not doing the detailed submissions for White ACT injustice by saying that, having considered them and the evidence to which they relate carefully, I do not find that Mr White was doing anything other than endeavouring to tell the truth to the best of his present recollection. Specifically, I do not think that Mr White sought to prevaricate, to dissemble, or to lie. 158 There is, however, a significant difficulty with Mr White's evidence. It relates not to his truthfulness but to what appeared to me to be a real problem that he had in comprehending, and dealing with, some of the questions that he was asked. At one point (recorded at T 936.6) this became so apparent that I felt compelled to intervene, in an attempt to clarify for myself whether Mr White had understood a particular question recorded on the previous page. It is clearly apparent from his answer (as it was clearly apparent to me observing him in the witness box) that he had not. 159 Indeed, White ACT appears to recognise the problem in relation to some earlier evidence given by Mr White at T 923.16 and following. The submissions concede that "(i)t may be the case, in fairness to him, that his concentration wavered at this point". Whether it was a wavering of concentration, or a more fundamental lack of comprehension, I do not know; but I am quite certain that on a number of occasions Mr White did not understand (or, perhaps, did not properly hear) the question that was put and, in consequence, did not give reliable evidence in response. That unreliability flows, as I have sought to make clear, from his problems in hearing or understanding the questions and not from any inherent or adherent untruthfulness. 160 I therefore have doubts about the reliability of the detail of Mr White's evidence. However, nothing in his evidence or in the evidence overall causes me to doubt the truthfulness of his adherence to the propositions I have summarised in para [106] above. As I have already said in the case of Messrs Frank McAlary and Duncan, my acceptance of that evidence depends not so much upon the evidence itself as upon my acceptance of the underlying propositions. Mr Spinks 161 Although Mr Spinks was cross-examined for some two days, little attack was made in cross-examination on his credibility. That notwithstanding, White ACT has seen fit, in its closing written submissions, to attack his credibility. It is sufficient, I think, to say that for the most part the attacks that are now made are argumentative and, to a very large extent, based on inconsistency with White ACT's case rather than with incontrovertible facts; or based on asserted but unjustified rejection. In some cases, the rejection is not graced with reasons; in other cases - for example, in relation to Mr Spinks' reliance on the arrangement in relation to intercompany debts, the assertion is inconsistent with my finding as to the existence and effect of such an arrangement; in contrast Mr Spinks' evidence is not. 162 I therefore accept the substance of Mr Spinks' evidence in so far as it deals with the ten matters that I have identified in para [106] above. Mr Michael McAlary 163 In contrast to the director defendants, the cross-examination of Mr Michael McAlary was brief. There was no suggestion in cross-examination that his evidence was other than truthful to the best of his ability, or that he was seeking to be evasive or obfuscatory. A brief submission was made on the topic of what was said to be his credibility. However, the matters referred to have nothing whatsoever to do with his credibility. 164 I have no reason to think that Mr Michael McAlary was doing anything other than telling the truth to the best of his recollection and ability, and I so conclude.

THE SALE OF WHITE ACT 165 The sale of the issued capital in White ACT to Mr Frank McAlary was undertaken pursuant to a document described as "heads of agreement" that was executed on behalf of Mr Frank McAlary on 13 October 1988, and on behalf of WCL a few days later. The document was executed for Mr Frank McAlary by another of his sons, Mr Daniel Patrick McAlary, pursuant to a power of attorney: Mr Frank McAlary being overseas at the time. (He left Australia on 28 September 1988 and returned into Darwin on 24 October 1988. From Darwin he went to Perth and then to Derby for the purpose of inspecting rural properties that he owned. He did not return to Sydney until about 2 weeks after 24 October 1988.) 166 The background to the execution of the heads of agreement may be summarised briefly as follows:

(1) In November 1986, in preparation for the proposed float of WCL, the White Group was reorganised. The reorganisation encompassed the transfer, to the appropriate operating subsidiaries of WCL, of construction contracts that WIL had won. This was effected through the subcontract agreement of 30 November 1986 relating to the hard dollar contracts (see para [82] above) and the design and construction management agreements dated 4 August 1987 (see para [93] above).

(2) The prospectus for the public offering was dated 11 August 1987. The shares available for subscription would represent, upon issue, about 40% of the issued capital of WCL. Mr White, or entities associated with him, controlled the great bulk of the remaining 60%.

(3) In late October 1987, a few weeks after the public offering was completed, the stockmarket crashed.

(4) In late 1987, it became apparent to the directors of WCL that the company was likely to post a loss for the 6 months to 31 December 1987, contrary to the rosy picture that had been painted in the prospectus.

(5) On 4 March 1988, WCL announced a loss after provision for taxation (the taxation provision related to income earned in Singapore) of $14,404,000 on turnover of $146,000,000.

(6) By reason of the loss, a number of changes were made to the operations of WCL. These included the resignation of its managing director, Mr Wells, and the appointment of Messrs White & Duncan as joint managing directors in his place.

(7) For some weeks prior to 6 May 1988, Mr White sought to find a replacement for Mr Wells as managing director of WCL. He sought to interest a Mr Bill Kocass in the position. Mr Kocass had just been offered the position of managing director of a company known as Thiess Watkins. He suggested to Mr White that the operations of WCL be merged with those of Thiess Watkins. Mr White pursued these discussions.

(8) On 6 May 1988, the board of WCL agreed in principle to the merger of its operations with Thiess Watkins, leading to the creation of a new entity to be known as Thiess Watkins White. As part of the merger, it was agreed that WCL would cease to carry out further civil engineering work other than completing certain existing jobs and would cease to tender for "hard dollar" building contracts.

(9) On the same date, the board of WCL, among other things, authorised Mr White to sign the heads of agreement that would lead to the creation of the Thiess Watkins White entity.

(10) The heads of agreement were signed on 6 May 1988.

(11) A further document described as "heads of agreement" was signed on 30 June 1988. One of the terms of that document was that WCL would cease for a period of 5 years to carry out construction work and that its existing projects would be completed on a subcontract or agency basis by the Thiess Watkins group, with profit or loss accruing to WCL.

(12) On 8 July 1988, ADC served on White ACT notice of intention to terminate the Quadrant contract, on the basis of alleged breaches of contract set out in the notice.

(13) On 11 August 1988, ADC served on White ACT notice of termination of the Quadrant contract. 167 To leave the chronological sequence for a moment: Mr White's evidence, which on this point I accept, was that by early 1989 it became apparent that the Thiess Watkins White joint venture was not going to operate satisfactorily and that, in 1990, it was brought to an end. However, it was not suggested to him that he was aware of the likelihood of those matters as at October 1988, when the sale of White ACT's capital to Mr Frank McAlary was undertaken. 168 Mr White said, and I accept, that once the Thiess Watkins White merger was put in place, he did not think that WCL would have any further use for White ACT. White ACT had no plant and equipment. Once the Thiess Watkins White venture was in place, White ACT ceased itself to employ anyone directly. Its role on the CNCC project and (to the extent that there remained work to be done) the hard dollar contracts would be undertaken by Thiess Watkins. On any view, the Quadrant contract had been brought to an end: either because (as ADC said) the contract had been validly terminated by ADC for breach on the part of White ACT; or because (as White ACT said) ADC, in purporting to terminate the contract, had repudiated it and White ACT had accepted that repudiation as discharging any further obligation on its part to perform the contract. 169 In about August or September of 1988, Mr White mentioned to Mr Frank McAlary that he was thinking of having White ACT wound up. Mr McAlary asked whether, instead, he could acquire White ACT so that he could take advantage of its tax losses. Mr Frank McAlary says that, by then (i.e., by about September 1988) he had taken over a number of defunct or insolvent businesses (in some cases, by taking over the company that owned them), returning them to profitability and utilising the tax losses in effect to recapitalise the companies or businesses out of pre-tax (and non-taxable) profits. He says that he saw a similar opportunity with White ACT, which was the holder of an ACT building licence and which had a current contract to complete the CNCC project. If that project were continued there would be a continuity of business which, he thought, would enable him to take advantage of the tax losses if other and profitable work were undertaken by the company. Mr Frank McAlary says further that he had had prior extensive experience in the construction industry (including, but not limited to, his role as a director of PDC and its operating subsidiaries including, from 1979 to 1982, White ACT). 170 It might be thought that the need for White ACT to continue to manage the CNCC project was inconsistent with the relevant provisions of the Thiess Watkins White heads of agreement, by which, in effect, Thiess Watkins would undertake the management of all WCL projects. However, as I understand it, the continued performance by White ACT of its obligations in relation to the CNCC project was critical to Mr Frank McAlary's plans, and was expressly preserved in the heads of agreement relating to the acquisition by him of the issued capital of ACT. Presumably, although the evidence does not show this, Thiess Watkins must have agreed to or acquiesced in this happening. 171 Another, and more significant, concern is that if White ACT were to continue its role as project manager for the CNCC project then, on past performance, it would be expected to derive profits from the performance of that role. Effectively, for the CNCC project, White ACT was an intermediary between WCL and the ultimate client (in this case WPDL) on the one hand, and an intermediary between WCL and the subcontractors (who actually performed the work) on the other. Its position was protected, and its profit was assured, to the extent that WCL remained able to fund performance of the works and pay amounts owing to White ACT. In turn, WCL would remain able to do those things as long as WPDL remained able to and in fact did pay it. It seems to me to follow almost inevitably that a moment's reflection about the proposed sale to Mr Frank McAlary would have shown that he was getting, for no consideration, the right (through White ACT) to receive perhaps substantial profits over the ensuing years, until the contracts relating to the CNCC project were completed. Indeed, Mr Duncan says, this aspect on the proposal gave him concern although, in deference to Mr White, he did not press his concerns. 172 It could be thought that the proposal to take profits out of White ACT through the mechanism of management fees (being, of course, one of the matters of which White ACT now complains for the financial years 30 June 1989 and following) might have been put in place to prevent this apparent anomaly from arising. However, none of the director defendants sought so to justify the imposition of management fees for those years. 173 On 30 September 1988, Mr White formally advised the board of WCL (excluding Mr Frank McAlary, who was overseas) of the proposal to sell the issued capital in White ACT to Mr Frank McAlary. The board gave approval in principle to the proposed sale. 174 On 14 October 1988 Mr White tabled the heads of agreement for the sale at a board meeting of WCL (Mr Frank McAlary was still overseas). The board authorised Mr White to sign the heads of agreement on behalf of the company and approved, prospectively, the relevant transfers of shares and changes in directorships. 175 Mr White then signed a copy of the heads of agreement which, as I have said, had been already signed on behalf of Mr Frank McAlary. Clauses 4 and 5 are of some significance and I set them out: "4(a) WCL agrees with FSM that it will procure that neither of National Convention Corporation Pty Limited nor White Industries Limited shall terminate the Construction Management Agreements currently with WCACT for the construction management of Office Buildings 1-6 inclusive, the Canberra National Convention Centre and the Canberra Park Royal Hotel, all forming part of the Canberra National Convention Centre development (collectively "the Contract") without the prior written consent of FSM.

(b) WCL agrees to procure that WCL shall make available to FSM all such men, resources and finance as FSM may reasonably require to enable the Contracts to be completed through to final completion, by WCACT. 5(a) WCL agrees that FSM shall have the benefit of all claims or variations lodged by WCL or WCACT in respect of the Contracts with effect from the effective date notwithstanding that the same may have arisen prior to the Effective Date. (b) WCL agrees to assist provide timely and adequate assistance to FSM to prepare all contract claims and variations as required from time to time for the proper completion of the Contracts." 176 In clause 5(b), the word "assist" was struck out by Mr Daniel McAlary when he signed for his father and the words that I have underlined were written in by him at the same time. The separate copy of the heads of agreement signed by Mr White had been amended to include those changes in the printed document. 177 At a meeting of the board of White ACT held on 28 November 1988, it was resolved that the relevant share transfers be approved. Messrs Frank and Michael McAlary were appointed directors of the company. The resignations of Messrs White, Duncan and Spinks were accepted. The accounts for the year ended 30 June 1988 were tabled and approved. The directors (i.e. Messrs Frank and Michael McAlary) resolved that the accounts were drawn up to give a true and fair view of the state of affairs as at 30 June 1988 and that "at the date of this statement there are reasonable grounds to believe that Company will be able to pay its debts as and when they fall due".

THE OCTOBER 1988 ACCOUNTING ENTRIES 178 In October 1988, a number of accounting entries were passed in the accounting records of WCL, White ACT and other companies in the White Group. Those accounting entries have been the subject of detailed analysis by Mr Watson. 179 There is a difficulty in Mr Watson's evidence, as contained in his report dated 28 February 2003, in that, as he says in paragraph 5, he commenced his inquiries by reference to what he calls "the balance sheet work sheet of [White] ACT at 30 June 1988". However, it is quite clear that the document that he refers to, whatever may have been its provenance and for whatever purpose it may have been prepared, did not reflect the assets and liabilities of White ACT as at that date. 180 At this point I note that, since White ACT chose to call no former employee who had been involved in the maintenance of its accounting records or the preparation of its accounts for any part of the period in question, the provenance and purpose of the document referred to by Mr Watson remains a mystery. One of the principal persons involved, the former company secretary Mr Shaw, died many years ago. However, White ACT offered no explanation for its failure to call any other (surviving) employee who could have shed light either on the preparation of its accounts from time to time, the accounting entries that took place in about October 1988 (including the extent to which, as alleged by White ACT, they were directed or approved by the director defendants), or the imposition of management fees and related charges in the years from 30 June 1989 to 30 June 1992. 181 In cross-examination, Mr Watson agreed that the document to which I have referred in para [179] related only to the activities of the accounting division within White ACT known as "Company 22". For the purpose of preparing White ACT's financial statements, the accounts relating to Company 22 were consolidated with those relating to "Company 87" (which effectively accounted for the CNCC Project) and "Company 91" (which accounted, at least to some extent, for the hard dollar contracts) to produce the financial statements of White ACT for the years ended 30 June 1988 and following. Because the document to which Mr Watson referred was not the basis on which the accounts for 30 June 1988 had been prepared, his conclusions based upon it - that is to say, paragraphs 5, 6, 7 and 8 of his first report - were effectively withdrawn. 182 This is not the only difficulty in Mr Watson's evidence. To some extent, his demeanour and responses in cross-examination were somewhat pugnacious (a characteristic shared with other witnesses - in particular, Mr Frank McAlary). Further, and in addition to the error referred to in the preceding paragraph, Mr Watson conceded in cross-examination that there were other problems with paragraph 7.3 of his first report. One of those problems was, I think, the result of the error already referred to and I shall not turn to it. The second, however, was not. In that paragraph Mr Watson asserted that "[t]he removal of [White] ACT from the Group prevents the net recorded loss [of White ACT] from being included in the consolidated accounts of WCL". As Mr Watson conceded in cross-examination, the results of White ACT for the year ended 30 June 1988 were consolidated into the accounts of WCL for that year. He had not troubled to check the published accounts of WCL to see whether or not this was the case. When they were put to him in cross-examination, it was apparent, and he conceded, that it was. It would appear that his error was caused because he assumed, wrongly, that the effect of the heads of agreement whereby Mr Frank McAlary bought the issued capital of White ACT was to "deconsolidate" as at 30 June 1988. The mistake was exacerbated because, as I have said, he did not check the published accounts of WCL. 183 Another matter in Mr Watson's evidence that caused me serious concern was what appeared to be a possible lack of impartiality. He was asked whether he sought to verify whether certain procedures described in the notes to the accounts of White ACT for the year ended 30 June 1988 had been followed in any of the years for which he examined them, to which his reply was: "I believe at the examinations of the directors of [sic - obviously, "and"] the auditors we tried to ascertain that, but we were unsuccessful in getting answers to it." 184 He repeated this answer saying "… we tried to ascertain, we tried to drill down into that". 185 Subsequently, he was questioned about his use of the word "we" and the following exchange occurred (T 195 line 40 - 196 line 20): "Q. A little earlier you spoke of "we having tried to obtain information at the public examinations", who was that "we"? A. If I use the word - the litigation team being the people at the bar table. Q. And who else? A. Myself. And one of my colleagues.

Q. You see yourself as part of the litigation team of the gentlemen there at the bar table, do you? A. No. Q. What do you mean by "we" if you don't - A. It was an incorrect phrase Mr Rayment. Q. Did you go to those examinations? A. I was there for some of them, yes. Q. And that was before you wrote any report in this case was it? A. I think we completed our reports before those examinations or thereabouts at the time of the examinations. Q. But you had completed which report? A. I thought we had completed the reports of - the first report. I just have to check the diary notes as to when the public examination dates were. Q. The first report of yours that we have in this case is a 2003 report? A. February 2003, yes. Q. And the public examinations were in the year 1999 and 2000? A. Well I'm wrong then. Q. So you went to the public examinations did you before you wrote your first report in this case? A. Yes … ." 186 At the time, it seemed to me that this evidence might indicate that Mr Watson regarded himself not as an independent and impartial expert, but as part of a team that comprised the liquidator, Mr Prentice (who had conducted the public examinations) and "the litigation team". My concern was not diminished by the inference that I drew from the passage set out in the preceding paragraph, namely, that Mr Watson had taken part in directing the questions put to at least some of the witnesses in the public examinations conducted by the liquidator. Whilst I would not reject Mr Watson's evidence (to the extent that it is controversial) on this account, I have to say that the extent of his involvement, and of his identification with the present cause of White ACT, causes me to view his evidence (to the extent that it is controversial) with some degree of reserve. 187 I will refer, in paras [243] and [244] below in the context of my consideration of Mr Watson's evidence in relation to management fees, to some other concerns with evidence that he gave. 188 However, I do not think that there is any need to view with reserve the picture that, ultimately, emerged from Mr Watson's evidence in so far as it related to the accounting and related transactions that took place in about October 1988. Indeed, at the end of the day, there appeared to be no issue between the parties as to the way in which, as a matter of fact, the transactions were effected. 189 On 17 October 1988 - 3 days after the heads of agreement for the sale to Mr Frank McAlary were signed - Mr Bevan Piper, an employee of WCL with responsibility for accounting matters, sent a memorandum to a number of employees of WCL and copied to Mr Shaw, setting out "the … procedures and duties [that] must be carried out immediately". The first step was the extinction of White ACT's debt owed to the State Bank of New South Wales on overdraft, including a description of the accounting transactions by which that would be given effect. The second step was the elimination of intercompany balances to the extent possible. Again, the necessary entries were described. 190 There is no doubt that the relevant steps took place and that, among other things, the amount owed by White ACT on overdraft ($3,804,053 as at 30 June 1988, which had increased to $4,152,979 at the time of payment) was repaid. White ACT was released from its contingent liability as cross-guarantor for the liabilities to their bankers of other companies in the White Group. The security that it had given in support of its overdraft and guarantee was discharged. Since the debt was paid by PDC Plant Hire, which was not a debtor of White ACT, it must be the case that there were "round robin" entries made involving that company and other companies in the White Group - presumably, either directly or indirectly, including WCL - so that PDC Plant Hire would not be worse off by reason of having paid out the bank debt. 191 On Mr Watson's evidence (to the extent that it has not been withdrawn) what appears to have happened can be described as follows:

(1) Immediately before the accounting entries were made, White ACT was owed a total of $12,460,965 by related companies.

(2) This figure comprised some $11,858,876 owed by WCL, $510,344 owed by White Qld and $91,745 owed by PDC Constructions.

(3) White ACT owed related companies a total of $7,544,819. The break up of that figure is not at present significant.

(4) White ACT owed its bank on overdraft $4,152,979.

(5) The bank overdraft was paid out by PDC Plant Hire.

(6) The amount owed by White ACT to related companies was discharged.

(7) The amount owed to White ACT by related companies was treated as paid in full and White ACT was shown as owing WCL $802,371. (There was another small amount owing; Mr Watson agreed that this was immaterial, and accordingly I will ignore it.) 192 In substance, the amounts owed to White ACT were utilised firstly to procure the discharge of its overdraft indebtedness, and secondly to discharge its indebtedness to other Group members (apart from WCL). In substance, I think, it may be said that the debts owed by White ACT to other Group members prior to the effectuation of the accounting transactions in question were novated to WCL, so that it was to WCL and not White ACT that the creditors thereafter looked for payment. 193 Further, WCL granted fresh credit to White ACT to enable it to continue to carry on its obligations under the CNCC and hard dollar contracts. Of course, WCL had a direct commercial interest in the continued performance by White ACT of those contracts. 194 One matter that Mr Watson did acknowledge was that White Qld and PDC Constructions (who together owed White ACT about $600,000) were both companies that had an excess of liabilities over assets at the relevant time. Accordingly, one consequence of the accounting transactions that were processed was that the risk (be it great or small) of non-payment of those debts was effectively removed. Indeed, having regard to the arrangement that I find existed in relation to intercompany loans, it means that White ACT obtained full value for debts that, because they could not be paid, were not then payable. 195 On this analysis, the accounting entries and related events achieved the following:

(1) They relieved White ACT of its obligation to pay (as at 14 October 1988) a sum of about $4.2 million due to the State Bank on overdraft, and interest on that sum;

(2) They relieved White ACT of its contingent liability for the debts of other White Group companies to their bankers;

(3) They enabled the security that it had given in support of its guarantee to be discharged;

(4) They eliminated its liability to other companies in the White Group; and

(5) They eliminated the risk of non-payment of the debts owed to White ACT by White Qld and PDC Constructions. 196 As the price for this, White ACT effectively gave up claims that it had against other members of the White Group. I reiterate that it obtained full value for those claims. 197 One significant feature of this process, that needs to be borne in mind when considering the claims now made by White ACT, is that there was not a series of isolated and unrelated transactions but, clearly enough (from Mr Piper's memorandum referred to above) an overall plan, the purpose and effect of which was to send White ACT off into the care of its new owner free of the liability to its bank that it had incurred in the course of performing its role as a member of the White Group, free of intercompany assets and liabilities and free of any continued contingent obligation to support the liabilities of other White Group companies to their bankers. 198 There is a considerable body of evidence to support the proposition that transactions such as those of which White ACT now complains are both usual and appropriate when a company is sold out of a corporate group. 199 Mr Frank McAlary, Mr Duncan and Mr Spinks all gave evidence that this was their experience. Mr Frank McAlary supported his evidence by reference to an appointment that he had undertaken with the late Mr Colin Gray, then president of the Institute of Chartered Accountants, to investigate the collapse of the Sydney Guarantee companies. Mr Duncan supported his evidence by reference to experience involving the sale of companies out of a group (not the White Group) in which debit and credit loan accounts were netted off before the sale was completed. Mr Spinks supported his evidence by reference to the sale of WIL to Exxon. The debit and credit loan accounts were netted off with the result that there remained only a single asset or liability. 200 Further, Mr Watson in cross-examination accepted the following propositions:

(1) Within a related group of companies, intercompany debit or credit balances may develop as a result of transactions between those companies.

(2) A purchaser of a subsidiary company being sold from a group would typically not want the company's balance sheet to reflect debits and credits between that company and others with which, after the sale, the company would have no ongoing corporate relationship.

(3) If a company that is part of a group is sold out of a group, it is not uncommon for its balance sheet to be tidied up for the purposes of the sale.

(4) One of the most common steps in tidying up a balance sheet in those circumstances is the consolidation or elimination of debit and credit balances between the company being sold and other members of the group.

(5) As a result of such steps, there may, on some occasions be a remaining net liability to one of the formerly related companies. 201 I accept the evidence to which I have referred in the two preceding paragraphs. In my view, it accords with commercial commonsense. There was no evidence to the contrary. 202 Of course, that does not mean, in the particular case, that the netting off of assets and liabilities may not have been undertaken for an improper purpose. It means only that the fact of netting off is not of itself improper, and is not of itself indicative of an improper purpose. 203 The evidence of the director defendants is, in substance, that the accounting entries in question, whereby the intra group assets and liabilities of White ACT were netted off in the manner that I have described, were undertaken by the accounting staff of WCL without direction from or reference to the board. Messrs White, Duncan and Spinks said, in substance, that it was their understanding that such activities were within the authority of the then company secretary, Mr Shaw, and his accounting staff. They said further that they would not expect Mr Shaw or his staff to have referred to the board for consideration the question of whether or not the accounting steps to which I have referred should be taken. 204 I accept that it was within the ordinary authority of Mr Shaw and his accounting staff to carry out those tasks, and I accept that it was not necessary for Mr Shaw or his staff to seek permission from the board before undertaking those tasks. That seems to me to follow, almost inevitably, from the evidence of Mr Watson to which I have referred in para [200] above. Further, none of the accounting staff in question who are presently alive were called by White ACT to give evidence to the contrary, nor was any explanation given of why they were not called. I accept the evidence of the director defendants that the accounting transactions were carried out without direction from or reference to them. That is confirmed by the memorandum of Mr Piper referred to in para [189] above. There was no evidence to link that memorandum, either before or after it was sent, to any of the director defendants. Conclusions on the 1988 accounting entries 205 I am satisfied that:

(1) The accounting entries that were passed in October 1988, shortly after the heads of agreement were signed on 14 October 1988, were carried out by the accounting staff of WCL (or WIL or the White Group).

(2) It was within the ordinary authority of those staff to carry out those transactions without direction from or reference to the boards of the companies concerned.

(3) The accounting entries were in fact carried out without direction from or reference to, specifically, the director defendants.

(4) Steps of the kind that in fact occurred are commonly, and properly, taken when a company is sold out of a group.

(5) The steps occurred in the manner described in para [191] above, and had the effect described in para [195] above. MANAGEMENT FEES AND OTHER CHARGES 206 A brief analysis of the financial position of White ACT for the years ending 30 June 1988 to 30 June 1992, taken from its audited financial statements for those years, is set out below. I should say that, although the evidence showed the position after 30 June 1992, it is unnecessary to consider the question of solvency beyond that date. What White ACT said in these proceedings to be wrongful divestitures of its assets, through a series of financial transactions that occurred in connection with the sale and its capital to Mr Frank McAlary and by the imposition of "management fees" and other charges thereafter, effectively stopped as at 30 June 1992. The change in its net assets thereafter is, for any present purpose, immaterial. Y/E Assets $ Liabilities $ Deficit $ P Profit (Loss) $ 30/6/88 26,163,492 27,312,607 1,149,115 (4,935,933) 30/6/89 8,879,728 10,031,107 1,151,379 (2,264) 30/6/90 5,316,184 6,448,990 1,132,806 18,573 30/6/91 1,843,900 2,966,080 1,122,180 10,626 30/6/92 1,813,257 2,968,525 1,155,267 (33,087)

207 The profits or losses shown in the preceding paragraph were reached after debiting management fees and other charges to White ACT in favour of WCL for the years in question as follows: 30 June 1988: $2,254,273 30 June 1989: $2,330,049 30 June 1990: $2,139,856 30 June 1991: Nil 30 June 1992: $1,250,000 $ 65,157

208 All these amounts, with the exception of the $1,250,000 item for the year ended 30 June 1992, were described as "management fees". The amount of $1,250,000 was described as a compromise of a claim by WCL against White ACT that was negotiated after an equivalent claim by White ACT against WPDL had been compromised. In substance, the compromise was reached between WCL and WPDL. White ACT was the intermediary because of the contractual arrangement that I have described in paras [93] to [97] above. 209 WCL commenced operations during the financial year ended 30 June 1987. Its accounts for that year do not disclose any receipt of management fees from its subsidiaries. However, for the following year, WCL did charge management fees to its subsidiaries. The evidence does not disclose why this decision was taken. It may be that it was connected with the float of WCL during that year, and reflected a desire to apportion costs more appropriately between WCL and its operating subsidiaries (although, of course, for that year the results of those operating subsidiaries were consolidated into the results of WCL). Management fees: 1988 210 In any event, the accounts of WCL for the year ended 30 June 1988 show that it received a total of $4,851,000 in management fees from its subsidiaries. (I interpose that the audit report on those accounts was dated 14 October 1988 - the date attributed to the heads of agreement for the sale of WCL to Mr Frank McAlary of the issued capital of White ACT.) Of this amount, some $2,254,000 was charged to and, through journal entries, paid by White ACT. 211 Mr Frank McAlary dealt with this matter in cross-examination as follows:

"As a matter of principle, the management fees tend to be a misleading [description of] here what [sic] we are dealing with. What we were dealing with [was] corporate overheads. They include a lot more than management fees. The corporate overheads were being incurred from the first day of the 1989 year. They weren't being incurred at the end of it. They are incurred every day of the year with running and every day we were running, we were involved with the White setting [sic]. So the only, so that was an ongoing position through out the whole of the year. But, you couldn't ascertain the amount of charge that was coming to come for our use of the corporate overheads until the corporate overheads were established. That had to be done with the corporate overheads for the whole 12 months, then calculations had to be carried out. It is my understanding that the corporate overheads were being incurred as the job was running that year, and if they weren't being incurred, we weren't prepared to pay them, then there would have been no job." 212 He explained the expression "corporate overheads" as "referring to all off-the-site payments". He said that "the White group incurred overheads of some millions and we had to pay that percentage of those total overheads which [sic] our turnover, and work to do to [sic] the total turnover and work to the whole group". Subsequently, Mr McAlary made it plain that, in his understanding, the total amount received by WCL from its subsidiaries and White ACT by way of "management fees" may not have represented the total of the corporate overhead costs in fact incurred by WCL. 213 Messrs White, Duncan and Spinks gave some evidence relating to management fees. Mr White said that it was always his understanding that management fees were charged by WCL to other companies in the group "for the management services which it provided"; and that "this was done on the basis of each company's costs as a percentage of the total costs of the group". It was his understanding that, after the issued capital in White ACT was sold to Mr Frank McAlary, WCL continued to provide, and charge for, management services as it had done before. 214 Mr Duncan's understanding was that both before and after the sale of the issued capital in White ACT to Mr Frank McAlary, that company and other WCL subsidiaries were charged, and paid, management fees. His understanding was that "[s]ervices provided by WCL included the provision of accounting services, central banking facilities, guarantees, purchasing, estimating, lodgement of returns and the provision of administrative staff". 215 Mr Duncan amplified his evidence in cross-examination as follows: "… I think management fees is really a misnomer. It is construction industry practice to distribute the overhead costs of running an organisation relative to the turnover of each step [sic] to that particular contract and I think you, yourself, drew to my attention to [sic] board papers somewhere, which talk about gross profit and when an estimate is prepared for a job, a figure is struck on what the profit of that job is targeted to be and then against the profit, the job is run and the head office charges and all those other things are deducted from that later, outside the project manager's control, for providing the services of all the things he needs that are not direct costs on the job." 216 Mr Spinks said that he had at no time considered the amount of management fees charged by WCL to White ACT when it was under the control of Mr Frank McAlary; he had nothing to do with the payment of those charges by White ACT; and he played no part in the fixing of the amount of those charges. 217 Mr Spinks ventured a slightly different explanation of the reason for commencing to charge management fees in 1988: "I can't specifically recollect, but I would suggest that 1987, which is pre the float of White Constructions, a lot of the operations were within White Industries and, therefore, management fees and the like may not necessarily have appeared at WCL; they would have appeared elsewhere. I don't know; it is speculation, but … ." 218 It is, I think, reasonable to infer that the director defendants considered the draft accounts of WCL on a yearly basis. (It may also be that they considered the half yearly results, but I do not think that management fees were included in the half yearly results.) Further, I think that it is reasonable to infer that the director defendants would have given careful consideration to the draft accounts that were put before them for consideration and, ultimately, approval; and that they therefore either knew, or had the means of knowing, that management fees were charged by WCL to its subsidiaries. It does not follow that they were specifically aware of the amounts charged by WCL to White ACT. 219 The accounts of White ACT for the years 30 June 1989 up until 30 June 1992 did not disclose, as separate items of expense, the amount of management fees charged by and paid to WCL. Those amounts were separately disclosed in the income tax returns of White ACT for the years in question. Those returns were, for each year up to and including 30 June 1991, signed by Mr Piper. Although the income tax returns for the years ended 30 June 1992 to 30 June 1995 were signed by Mr Frank McAlary, he did not sign the return for the year ended 30 June 1992 until 23 June 1995. 220 I conclude, notwithstanding the evidence of Mr Spinks to which I have referred, that at all material times the director defendants were aware of the practice whereby WCL charged management fees to its operating subsidiaries and to White ACT, and either were aware, or would have assumed, that those management fees were paid. However, there is no evidence to suggest that the director defendants instigated, or supervised the implementation and performance of, the practice of charging management fees, or that they were involved in the quantification of those fees. On the evidence, all this was done by the accounting staff of WCL who would in some cases prepare invoices (and for some years on an "on account" and then final basis) and effect the relevant charges and payments through journal entries. 221 Mr Watson, referring to the designation of White ACT as "Company 22" in the internal accounting records of the White Group, concluded that this was "a reference to the fact that [White ACT] was one of a large number of companies in the corporate group, the accounting procedures of which were conducted through a single computerised accounting system". This supports the propositions that the Group did provide services to its members, and that accounting functions of the Group were carried out centrally and not on a company-by-company basis. 222 Mr Watson analysed the charging of management fees from year to year. His analysis showed that, for the year ended 30 June 1988, a fee was recorded (I would infer, effectively "on account") in the general ledger on 20 June 1988 in the sum of $2 million. Thereafter, on 1 August 1988, adjustments were made, the effect of which was to increase the total fee to $2,254,273. The quantification of this amount was considered by the auditors. In turn, the auditors' working papers and their reference to a "fudge" excited the interest of Mr Watson and of White ACT in these proceedings. 223 So far as the relevant events can be reconstructed, it appears that White ACT's profit and loss accounts for the year ended 30 June 1988 were prepared in draft by accounting staff of the White Group. They were prepared on the basis of the notional reorganisation of White ACT into three operating divisions, being Company 22, Company 87 and Company 91 (see para [50] above). For Company 22, the profit/loss recognised on contracts was a loss of $2,652,681. For Company 87 (it will be remembered, this covers the CNCC project) a profit of $2,024,580 was recognised. For Company 91 (representing the "hard dollar" contracts) a loss of $1,087,230 was recognised. 224 The following was recorded in the audit work papers, under the heading "ADJUSTMENT OF CLIENT - PREPARED P + L SCHEDULES": "The client prepared the P + L schedule for entity 22 on the basis of solely entity 22's declared profit/(loss). However, as noted on B/14 [the succeeding page in the audit work papers], Company 22 also takes the profits and losses for entities 87 and 91 : this means that the client-prepared P + L through not reflecting this, is inaccurate. Nevertheless, the client prepared a schedule balances to the correct figure; the "fudge" going through the "other expenses" account. The schedules should be restated as below:- Loss for COY'S 22/87/91 $ 1715331 Less Sundry income -325321 1390010 Add Expenses specifically defined 5666 1395676 Add "Other Expenses" 2556013 3951689"

(I have omitted most cross-references to other pages of the audit work papers.) 225 The next page, B/14, set out the "Profit recognised on contracts" for each of companies (or entities) 22, 87 and 91 and stated the following "Conclusion": "Declared Profit" included in General ledger Profit + Loss Report appears reasonably stated." 226 The "other expenses" figure was analysed on page B/16 of the audit work papers. The auditors stated that "$22544273 represents management fees etc levied by Corporate Division" and that "[a]s these charges are in essence intercompany, ACCEPT as reasonable under the circumstances". It then stated the following "CONCLUSIONS": "ACCEPT THESE MANAGEMENT CHARGES AS REASONABLY STATED: EXPENSE APPEARS REASONABLY STATED." 227 The "INTERCOMPANY CHARGES" were separately reviewed on page B/18 of the audit work papers. The auditors stated that the "WORK DONE" was as follows: "1. Agreed major portion $2000000 to journal GJC495. This journal debits COY 22 with the charge and credits company 21 [i.e. WCL]. The computer system automatically credits the amount to the intercompany account so that the books of each entity will balance.

Conclusion: Amount has been taken up in the books of both entities.

2. Spoke to Bevan Piper: He said that no invoices are raised or are required to be raised for such transactions. Accept that this is the case and that this is reasonable.

CONCLUSION : Intercompany charges appear reasonably stated."

228 Mr Watson's evidence-in-chief did not materially enlighten me as to the transactions that were discussed in the audit work papers to which I have just referred. However, the audit work papers did demonstrate the way in which the results of companies 87 and 91 had been consolidated with the results of company 22 to produce the results of White ACT for the year ended 30 June 1988. When company 22 was considered on a "stand alone" basis, its loss (which comprised principally the loss recognised at 30 June 1988 on the Quadrant contract) was $2,652,681. After allowing for sundry income and expenses specifically identified, there was a charge of $1,618,660 for "other expenses". This was said to be the amount initially recognised for "management fees" charged by WCL, although there is nothing that specifically identifies this amount or shows how it can be derived, and it is inconsistent with the journal entries identified by Mr Watson that I have referred to in para [222] above. 229 Nonetheless, White ACT, supported by Mr Watson's evidence, submits that the ultimate management fee of $2,254,273 that was recognised in the accounts was achieved as a result of the "fudge" to which the auditors referred to in their work papers. As I understand what was submitted, it is that, the necessity to recognise the results of companies 87 and 91 having been accepted, so that the profit/loss on the contracts of all three was reduced from a loss of $2,652,681 to a loss of $1,715,331, the amount of the management charges was increased so that the overall loss of $3,951,689 that had already been calculated, by reference to the results of company 22 only, was maintained. In other words, the positive profit contribution of companies 87 and 91 combined of (net) $937,350 was effectively absorbed by an increase in "other expenses" of $937,353. Further adjustments were then undertaken so that the net loss before tax was a total of $4,818,063. 230 No doubt, this is all very curious. However, it is more than a little difficult to see why it bespeaks the implementation of some fraudulent scheme. No one has suggested - and in my view it could not properly be suggested - that the "consolidation" of the three accounting entities, companies 22, 87 and 91, into the final accounts of White ACT for the year in question was other than appropriate. It follows that the draft accounts, prepared only on the basis of the results of company 22, were required to be recast to incorporate the results of companies 87 and 91. 231 Again, and even if "other expenses" had not been increased by an amount effectively equal to the net profit contributions of companies 87 and 91, there would have been, after that consolidation had taken place, a substantial loss. The only difference is that the loss would have been lesser to the extent to which "other expenses" were increased - i.e. lesser by an amount of $937,353. That is on any view a large amount of money. But it cannot be said, in the circumstances under consideration, that the effect of increasing "other expenses" by that amount was that a profit was turned into a loss. At most, and assuming that the "fudge" was inappropriate, the loss was increased. 232 There is one other significant feature of this transaction. As I have noted, and as White ACT in its final submissions accepted, the journal entries whereby the management fees of $2,254,273 were effectively charged and paid were made in June and August 1988. In other words, by no later than the beginning of August 1988, the final management fee to be charged by WCL to White ACT and paid by White ACT to WCL had been quantified. However, the draft accounts prepared by the client on the basis of "entity 22" only, referred to in the audit working papers, were not submitted to Coopers & Lybrand until 10 February 1989 (as, again, White ACT in final submissions recognised). Presumably, upon it being recognised that the draft profit and loss accounts were inappropriate because they did not include the results of all the operations of White ACT, the consolidation of the results of company 22 with those of companies 87 and 91 occurred at some stage after 10 February 1989. However, even on the case propounded by White ACT, the management fees that were recognised in the consolidated accounts - $2,254,273 - were those that had been established by the journal entries that were posted more than 6 months earlier. That chronology makes it difficult to argue that the calculation of the management fees that were ultimately taken up, in the final accounts of White ACT for the year ended 30 June 1988, was in some way improperly "fudged" to absorb a net profit contribution that would otherwise have been recognised when the operating results of companies 87 and 91 were consolidated with those of company 22. 233 In truth, I think, it is only the auditor's use of the word "fudge", in circumstances where the original draft of the profit and loss accounts prepared by WCL for White ACT were inaccurate, that has caused this matter to be investigated with the zeal that has been demonstrated. The auditors were not called to explain what it was that prompted the use of the word "fudge". Accordingly, one is left either to speculate or, if satisfied that there is no underlying impropriety, to set the matter aside. As I am satisfied, for the reasons that I have given, that there is no underlying impropriety, I take the latter course. 234 I add only that there is no evidence to suggest that any of the director defendants were in any way engaged in, or that they instigated, promulgated or supervised, the various accounting activities that have been canvassed both in evidence and submissions and in the preceding paragraphs of these reasons. In other words, even if, contrary to my conclusion, there were some real basis for suspecting impropriety, there is nothing to link any of the director defendants to it. In this context I remind myself that Messrs Frank and Michael McAlary were not directors of White ACT at the times in June and August 1988 when the journal entries that quantified the management fees were effected. Messrs White, Duncan and Spinks were not (subject to the "shadow director" argument that I consider below) directors in February 1989 and following, when the draft accounts were prepared, submitted to the auditors and audited. 235 The director defendants, in their capacities as directors of WCL, would have known that Coopers & Lybrand had audited the accounts of both WCL and White ACT for the year ended 30 June 1988. They would have known that Coopers & Lybrand had issued an unqualified audit report. (Mr Michael McAlary would have known that Coopers & Lybrand had audited the reports of White ACT for the same year, and that they had issued an unqualified audit report.) If - contrary to the evidence and the conclusion that I have reached - the director defendants were aware not just of the general practice of charging management fees but of the detail of what had occurred in relation to management fees for the year ended 30 June 1988, they would have been entitled to assume that the auditors had given it such consideration as they thought necessary and had found nothing to question. As has been seen, any such assumption (which, I stress, was not one that the director defendants were required to make) would have been justified. Management fees: 1989 236 The consolidation of the results for the accounting entities (companies 22, 87 and 91) for the year ended 30 June 1989 produced, after certain adjustments were made, a net profit on construction contracts of $2,016,575. State and Federal taxes diminished this by $15,589 and management charges diminished it by a further sum of $2,003,249. The result was a net loss before tax of $2,264. 237 Mr Watson does not identify the journal entries by which the management charges were debited and credited. However, he identifies audit work papers that show the auditors' understanding of how the charges were calculated. The relevant material reads as follows: " Admin/MGT expenses : Further profit [illegible] #91 623,008 W.C.L [deleted] 470,710 WCL MGT Fee (Jnl p13931) 1,064,833 Loss on contract div#91 (155,302) $1,535,543 2,003,249 ." 238 The material that I have indicated in italics, bold and ordinary print appears to be in different handwriting (and indeed, the heading on the page appears to be in different handwriting again). Further, where the amount of $1,535,543 appears and has been crossed out, it is apparent from the photocopy that some whiting-out has taken place. I have also omitted certain cross-references that are given to other pages of the working papers. 239 Mr Watson characterises this page as showing "that adjustments were made to the management fees charged for the exact amount of the adjustments made to the contract profits for division 91, being a $155,302 loss and a $623,008 profit." 240 Mr Watson attaches to his report, but does not comment on, a separate page from the audit work papers headed "Basis of Management Fee". That fee sets out the total contract costs for the WCL Group including (despite the sale) White ACT; the total management fees charged to the Group by WCL; and the total management fees charged to White ACT. It then multiplies the total of the management fees charged to the Group by the total contract costs for White ACT and divides this by the total contract costs for the Group. The result obtained is $1,875,435. The conclusion is expressed: "Difference to 2,003,249 is not significant." 241 The inference that I draw from this material is that that the auditors were satisfied that a calculation of management fees on a pro rata basis, whereby each company in the (notional) group was charged a proportionate share (based on the proportion of its turnover to total turnover) was appropriate. This inference is confirmed by an audit worksheet headed "Matters for Attention of Partner" which, referring to the summary results of White ACT for the year ended 30 June 1989, states, among other things: "The management fee paid to WCL represents an equitable charge based on the company's relative turnover to cover costs incurred by WCL." 242 It is clear that, having come to, or holding, this view, the auditors did not consider that the fee actually charged was materially incorrect. 243 Mr Watson was referred to the "Matters for Attention of Partner" document in conjunction with the document that I have summarised in para [240] above and another document, apparently bearing the reference E/4, said to have been taken from the audit work papers for the year ended 30 June 1989. This last document was described as the "OVERHEAD DISTRIBUTION" for the "WHITE CONSTRUCTIONS [sic] GROUP" for the year ended 30 June 1989. By reference to its number E/4, it appears to be a document that was cross-referenced as the source of the figures set out in the document referred to in para [237] above (which I note was paginated E/3). Mr Watson was asked, in substance, whether the two documents E/3 and E/4 were, in effect, a test for the correctness or otherwise of the amount of management fees for the year in question. In my view, the answer should clearly have been "yes" and his evasive responses, which do him no credit as an independent expert, should not be accepted. 244 Mr Watson was asked further whether the documents E/3 and E/4 between them reflected the basis of calculation discussed in the "Matters for Attention of Partner" document referred to in para [241] above. Again, although in my view the answer should clearly have been "yes", he was not prepared to acknowledge this, going only so far as to say that "it could" be seen to reflect that basis of calculation. 245 Indeed, the only matter that Mr Watson was able to point to as indicating anything other than satisfaction, on the auditors' part, with the method of calculation of management fees was the "fudge" comment. He conceded that at no time, to his knowledge, had dissatisfaction been indicated to the client - by qualification to the accounts, management letters, or direct communication to the directors. There is no evidence to suggest that the "fudge" comment was conveyed, directly or indirectly, to any of the director defendants. 246 In my view, if (contrary to my conclusion) the director defendants (or for that matter Mr Michael McAlary) were aware of the method and amount of calculation of management fees from year to year, they would have been entitled to assume that the auditors had given such consideration as they had thought fit to that matter and had concluded that there was no impropriety. In my view, if the directors had cause to make such an assumption (and I stress that I do not think that they did) it would have been one that they were entitled to make. Indeed, as I have shown, that which (by hypothesis) they would have assumed was the fact. To avoid repetition, I add that the same comments apply in substance to those of the succeeding years in which management and related fees were charged, although the auditors do not appear to have tested the quantification of management fees after 1990. Management fees: 1990 247 For the year ended 30 June 1990, the consolidated profit on construction contracts was $2,101,284. Management fees of $2,139,856 were charged. After adjustments for other income and other expenses, a net profit of $18,572 was declared. 248 Audit work papers annexed by Mr Watson to his report identified certain journal entries, which appear to have been posted on 12 and 13 March 1990. The first was a reversal of the $1,064,833 figure that formed part of the management fees charged in the previous year (see para [237] above). Presumably, this was reversed out on the basis that, although the journal entry was actually made during the year ended 30 June 1990, the fee was referable to the preceding year. Three further entries show amounts of $623,008, $434,592 and $1,067,097. (I interpolate that those amounts, excluding the reversal, total $2,124,697.) The total of those four entries (treating the reversal as a negative item) is shown as $1,059,856. The document in question, which is a computer print out apparently prepared for White ACT, shows this as the "CLOSING BALANCE TO MONTH 12". There is then a handwritten notation "ADJ. CNCC ExTWW" in the sum of $1,080,000. The total is then stated as $2,139,856. The auditors have recorded the following: "Conclusion: Mgt fee expense appears to be fairly stated." 249 The audit work paper demonstrates that the journal entries have been agreed to the records of WCL. It then cross-references the total derived figure to a page identified as B/3. That page has not been reproduced in the appendices to Mr Watson's report, although it is referred to not only in the page to which I have referred but also in other pages (being invoices for management fees) that he refers to. Those invoices show that the amount of $434,592.09 was charged as "Management Fees 6 months to December, 1989", that the amount of $1,067,097.21 was charged as "Management Fees - 1988/1989" (the invoice is dated 31 December 1989) and that $623,008 is charged as "Management Fees to 30/6/89". The invoices are somewhat informal in nature. The first two to which I have referred were printed as pro forma invoices for "White Industries Limited": that name was typed out and the name of WCL was typed over it. The third is likewise on White Industries Limited paper but has not been corrected: and the details (such as they are) are written by hand. 250 The basis for the adjustment of $1,080,000 relating to "CNCC Ex TWW" is unclear; whether or not it was explained in the missing page B/3 I do not know. However, it may refer to the fact that although, as a result of the Thiess Watkins White joint venture, the management of contracts was to be undertaken by Thiess Watkins, this did not happen in the case of the CNCC contracts; so that the management work of WCL may have increased. It does not seem to me to matter whether or not this inference is correct, given that the auditors have concluded overall that the management fee for the year appears to be fairly stated and that management fee, as has been seen, incorporates the "CNCC Ex TWW" adjustment. Management fees and other charges: 1992 251 The management fee for 1992 was an amount of $65,157. That was listed in an invoice from WCL dated 30 June 1992. The invoice lists the services provided. Many of those appear to relate to the claim which by then had been brought by ADC against White ACT. Others related to what might be classed as the provision of accounting, secretarial and other services. The only comment that Mr Watson makes is that "[t]he invoice does not however, [sic] show how the management fee has been calculated". 252 It is apparent that the management fee did not excite the suspicions of Coopers & Lybrand. It does not excite mine. Of more substance, however, is an amount of $1,250,000 that was received by White ACT from WPDL in settlement of claims and that was paid by White ACT to WCL. 253 The defendants said that I should not take into account the claims raised by White ACT in relation to the payment of $1,250,000 because it went beyond the pleadings. However, the amount was particularised and evidence was adduced in respect of it. I do not think that the defendants have been prejudiced; indeed, as will be shown, they have demonstrated to my satisfaction that there is nothing adverse about the payment. 254 As a result of the novations referred to in para [97] above, White ACT was effectively the intermediary between WPDL (the client) and WCL (the builder) for the CNCC project. The effect of the arrangements after the novations was that WPDL was obliged to pay White ACT (the party with whom, by novation, it had a contractual relationship) and White ACT was obliged to pay WCL (the party with whom, as a result of the subcontract arrangements, it had a contractual relationship). From time to time, WPDL was tardy in making payments and WCL thought that it was entitled to interest. Strictly speaking, its claim was against White ACT; but White ACT could only pay that claim if WPDL paid it. In substance, however, what happened was that WCL and WPDL negotiated a compromise. I am satisfied that the compromise was negotiated at arms' length. 255 Because there was a conflict between the two companies within the White Group, the Board took the view that none of the executive directors (including Mr Duncan for WCL and Mr Spinks for WPDL) could resolve it. An independent director, Mr Graeme Millington (who has since died) was commissioned to investigate the matter and report upon the validity of WCL's claim. Mr Millington recommended settlement in the amount of $1,250,000, the great bulk of which related to an interest claim. Mr Millington produced a written report that set out the substance of his investigation and his recommendation. 256 In the circumstances, it was appropriate that White ACT pay the amount on to WCL. That reflected accurately the substance of the dispute; which, as I have said, was between WCL and WPDL. It also reflected the recommendation made by Mr Millington. The auditors looked at the matter and concluded that the amount was "Receivable by WCL". In my opinion, that was the correct conclusion. 257 It follows that the amount of $1,250,000 should not have been brought to account in the profit and loss accounts of White ACT (it was not) and should have been brought to account in the profit and loss account of WCL (presumably, it was). Management fees and other charges: conclusions 258 On the whole of the evidence, I am satisfied that:

(1) WCL's practice of charging management fees to its operating subsidiaries and to White ACT after it ceased to be a subsidiary was not inappropriate.

(2) No impropriety attached to the method of calculation of those fees or to their amounts.

(3) For the years ended 30 June 1988 and 30 June 1989, the fees were the subject of investigation by the auditors, who apparently accepted both the practice and its implementation.

(4) For the year ended 30 June 1990, the auditors considered and were satisfied as to the quantification of the management fee.

(5) Although the director defendants were aware of the practice of charging management fees, they were not involved in the process of their calculation.

(6) The director defendants were not aware of the amounts of the management fees with the exception that, in June 1995, Mr Frank McAlary became aware of the amount of the management fee for the year ended 30 June 1992 ($65,157).

(7) Mr Michael McAlary was not aware of the amount of the management fees for any of the years in question.

(8) The amount of $1,250,000 that was paid by WPDL to White ACT in the year ended 30 June 1990 was properly owing by White ACT to WCL and was properly not brought to account as part of the revenues of White ACT.

259 It may also be observed that, if the management fees were not charged (and if the amount of $1,250,000 had not been paid by White ACT to WCL), Mr Frank McAlary would gave gained a substantial windfall. He bought the issued capital of White ACT for nominal consideration. He did not intend to buy (and therefore did not pay valuable consideration for) any revenues that might flow from its performance of its obligations in relation to the CNCC project. He bought it because he hoped to obtain the benefit of its tax losses by feeding fresh work into it. The only significance of the CNCC project to him was that it would enable White ACT to demonstrate continuity of business, so that (if it derived profits from new work) it could take advantage of the tax losses. 260 I have concluded that there was no legal impropriety in the practice of charging, or in the manner (including quantification) of charging, management fees. The considerations that I have set out in the preceding paragraph demonstrate, to my mind, that there was also lacking any moral or commercial impropriety. INSOLVENCY The relevant circumstances 261 As with much else in this litigation, the parties were unable to agree on the approach that I should take in considering the question of White ACT's insolvency at the times in question. The difference between them related to the relevance, to the question of insolvency, of an alleged practice within the White Group whereby group members that were creditors of other group members would not call for repayment of the debt unless the debtor were in a position to pay it. 262 I have summarised the financial statements of White ACT, for the relevant years, in para [206] above. The following points may be made about those financial statements:

(1) It appears that they were prepared in draft by accounting staff employed by WCL or other companies in the White Group;

(2) They were in each case audited by Coopers & Lybrand (as that firm was then known), who were also the auditors of WCL and (I think) WIL and other companies in the White Group;

(3) The audit certificate included a statement to the effect that the financial statements were properly drawn up so as to give a true and fair view of relevant matters and in accordance with the relevant provisions of law and applicable accounting standards;

(4) In each case the statements were signed by Messrs Frank and Michael McAlary. (I interpose that Mr Michael McAlary has accounting qualifications and is an associate member of the Society of Certified Practising Accountants);

(5) In each case, the accounts included a statement by the signing directors asserting, among other things, that the accounts gave a true and fair view of the company's results and state of affairs and that, as at the date the statement was made "there are reasonable grounds to believe that the company will be able to pay its debts as and when they fall due"; and

(6) In no case did the balance sheet include any liability referable to any claim by ADC against White ACT. 263 The financial statements for the year ended June 1989 contained the following statement in the notes setting out the summary of significant accounting policies: "(a) Going concern The accounts are prepared on a going concern basis which assumes that a related party will not call for repayment of monies owing to it until, [sic] sufficient funds are available." 264 That statement was repeated precisely (with the inclusion of the aberrant comma after "until") in the financial statements for the year ended 30 June 1990. 265 The financial statements for the year ended 30 June 1989 were finalised in about June 1990 although, for some reason that is not explained in the evidence, the reports of the auditors and directors were each dated 21 April 1990. On 18 June 1990 a meeting was held between a representative of the auditors and Mr Spinks and Mr Piper and others. Mr Piper, who was the secretary and in effect the head of the accounting staff of WCL, was also the notional chief executive officer of White ACT. 266 A note prepared by the auditors, which referred to a balance sheet produced as at 31 May 1990, recorded the following resolution: "It was resolved that the following would occur prior to the signing of the 1989 accounts:

(i) The amount disclosed as other creditors and accruals in the 31 May 1990 balance sheet will either be paid or written back to the profit and loss account as at that date. The balance sheet will then show a net liability situation being an amount payable to WCL. (ii) WCL will forgive its debt with WC (ACT). Prima facie, this will remove the going concern problem, however, it was discussed with John Spinks the impact [sic] of liabilities arising after this date. He stated that WCL will make available the necessary cash for WC (ACT) to pay its creditors which arise through normal trading activities. This means effectively that WCL will provide WC (ACT) with the necessary cash to pay all its debts except any claim arising in relation to Quadrant.

Richard Marshall [a partner in the White Group's solicitors, Mallesons Stephen Jaques] advised John Spinks that this guarantee given by WCL to WC (ACT) should not be put in any written form. For the 1989 accounts, an unqualified audit report can be issued on the basis that WCL will not call on WC (ACT) to pay its debt until all creditors are paid. Note 1 to the accounts will disclose this basis. This is not strictly correct as WCL will provide funding to WC (ACT) when required. However a note stating that WCL will provide continued financial support should be avoided with the Quadrant claim still outstanding."

267 The draft accounts for the year ended 30 June 1989 had been prepared by employees of WCL or another company in the White Group, presumably under the direction of Mr Piper. The auditors raised a question as to whether it was appropriate for the accounts to be prepared on the going concern basis, given the prima facie position (as to a deficit of assets and a loss for the year) that was shown by the draft. Accordingly, the auditors prepared a draft note to the following effect: "(a) Going Concern The accounts are prepared on a going concern basis which assumes that a related party will continue to provide financial support by not call ing for repayment any [of] monies owing to it until, and then only to the extent to which, sufficient funds are available". 268 That draft note was reviewed by Mr Robert Bayles of WIAL. He amended it in hand by deleting the words and syllable that I have underlined and by inserting the "of" that I have enclosed in square brackets. Mr Bayles sent the revised wording back to the auditors, omitting before he did so to delete the comma after the word "until". 269 Each of the director defendants gave evidence that he understood there to have been in place in the White Group, at all material times, a practice whereby a group member that was a creditor of another group member would not call upon the debtor for repayment of the debt unless the debtor were in a position to pay it. There was no evidence that this alleged policy had been reduced to or recorded in writing. Nor was there evidence of formal adoption (for example, pursuant to resolutions of the boards of the companies concerned or by some other means). 270 In these proceedings White ACT contested the existence of the policy. However, I conclude that there was in force, at all material times, such a policy. I do so principally for three reasons:

(1) Firstly, I accept the evidence of the director defendants as to their understanding or belief; and I accept that the understanding or belief was rationally based. That is to say, I accept that their understanding or belief reflects the factual reality.

(2) More importantly, the existence of such a policy seems to me to accord with commercial commonsense, having regard to the way in which (in particular) WCL carried on its operations, through operating subsidiaries in each state or territory.

(3) Thirdly, the existence of that policy is confirmed by the evidence that I have referred to in paras [263] to [268] above. 271 WCL inherited the former PDC structure whereby operations in individual states and territories were carried out through subsidiaries, each of which (where necessary) held whatever licences or other qualifications were necessary to operate in that state or territory. If the position in the ACT may be taken as a general guide, WCL (or, prior to the float of WCL, WIL) would tender for work and, if awarded the contract, would effectively subcontract its performance to White ACT. White ACT would therefore incur liabilities to sub-subcontractors and would have a right of indemnity from WCL (or WIL). 272 At least prior to the sale of the capital of White ACT to Mr Frank McAlary, the various companies in the White Group had entered into cross guarantees of the liabilities of other group members to external creditors such as bankers. Although the security and guarantee documents were not produced, commonsense suggests that, if the liabilities were "cross collateralised", then it is likely that the events of default would include the winding up of individual group members, or at least those that had provided security or guarantees. 273 In my view, the suggestion that WCL, at its uncontrolled discretion and without any limitation, could take action - calling up a debt that had arisen in the course of the business operations that I have described - borders on the absurd. The consequences could well include the winding up of the debtor company. If that company were an operating subsidiary, its winding up could lead to the loss of any licence held by that company and to the loss of the benefit of any contracts then being carried on by that company. In the particular case of White ACT, this might include (for example) the loss of the benefit of the profitable CNCC contracts. Further, the consequences might include the triggering of demands, and the realisation of securities, by external creditors. It seems to me to fly in the face of commercial sense that WCL, or for that matter any other company in the White Group, would take such a step where the debtor could not meet the debt. 274 It might be said that proper attention to the interests of individual members of the White Group, as opposed to the interests of the group as a whole, might mean that any such policy could not be applied regardless of circumstances. However, this was not explored in cross-examination with any of the director defendants. Given that the White Group (including, notwithstanding that at some time it was a listed public company, WCL) was effectively under the control of Mr White or entities associated with him, it may well be that, regardless of legal niceties, no clear distinction was drawn between the interests of group members and the interests of the group as a whole. 275 White ACT further submitted that, if such a policy existed, it could no longer apply to it after the sale of its issued capital to Mr Frank McAlary. Obviously enough, the consequences of that sale included that White ACT ceased to be a member of either the White Group or the WCL "subgroup". However, the simple answer to that submission appears to me to be found in the events of June 1990 that I have referred to in paras [263] to [268] above, and their impact on the financial statements of White ACT for the years ended 30 June 1989 and 30 June 1990. Although there is no evidence that the same approach was taken in subsequent years, there is, equally, no evidence of a change in policy. 276 I therefore conclude that there was in force, at all material times, a policy or arrangement whereby debts owed by White ACT to other companies in the White Group whilst it was a member of that group, and to WCL thereafter, would not be called upon for payment unless White ACT were in a position to pay them.

Expert Evidence 277 Mr Watson expressed the opinion that White ACT was insolvent as at 30 June 1988, and that it continued to be insolvent thereafter. He gave four reasons for this:

(1) The excess of liabilities over assets, $1,149,115, as at 30 June 1988.

(2) The after tax loss, $4,935,933, for the year ended 30 June 1988.

(3) White ACT was dependent upon funds advanced by WCL to meet its ongoing liabilities. It was financially reliant upon WCL because it could not have borrowed elsewhere "and as such there would be problems with its ongoing cash flow".

(4) WCL did not support all liabilities of White ACT: it explicitly excluded support for any liabilities in respect of the Quadrant contract. 278 It may be noted that Mr Watson's fourth reason would appear to be inconsistent with White ACT's case as pleaded in paragraph 24 of its contentions. That reason is supported by the documents to which he refers (extracts from the audit papers relating to the audit of White ACT for the year ended 30 June 1989 and including the memorandum referred to in para [266] above). It is also supported by the evidence of the director defendants, each of whom denies that any such agreement, as alleged in paragraph 24 of the contentions, was made. 279 Mr Watson did not consider the impact of the arrangement that, in para [276] above, I have found was made. Nor, it appears, did he consider that the external liabilities incurred by White ACT (by which I mean its liabilities other than to members of the White Group) were incurred in the performance of contracts under which it had a right to indemnity, and indeed remuneration that might generate a profit, from other members of the White Group. Nor, it appears, did Mr Watson take into account the circumstance that liabilities to companies in the White Group were incurred in the performance of those contracts and were matched by entitlements to indemnity. 280 Mr Watson acknowledged, as of course was the fact, that for each of the years ended 30 June 1988 to 30 June 1992, the accounts of White ACT were audited by Coopers & Lybrand, "a well known and reputable firm of auditors", and that for each of those years the audit report was unqualified. He agreed with the following propositions: (1) It was part of the auditors' function for each of those years to take a view about the "going concern" question; (2) The auditors' failure to qualify the accounts would imply that they were satisfied about that matter; (3) Where the financial statements indicated that the company was in a net liability position to another company being audited by the same auditors, satisfaction on the going concern issue "would usually be explicable on the basis that the net liability to that other company was quarantined in some way"; and (4) He had not sought to ascertain what other information Coopers & Lybrand may have had in their capacity as auditors of other White Group companies. 281 Mr Watson expressed the opinion that White ACT was at all material times insolvent. However, I do not accept his evidence in this regard. Firstly, he stated that insolvency "is determined from both a balance sheet and cash flow viewpoint". If he were intending to say only that one must have regard to all relevant circumstances, including both the company's assets and liabilities as recorded in its balance sheet and its cash flow, then I agree. If, however, he was intending to propound some "balance sheet" test of insolvency then I disagree. The authorities reviewed by Palmer, Mandie and Chesterman JJ, in the cases to which I refer in paras [289] and following below, make it clear that this is not the test. 282 Further, Mr Watson placed great reliance on the fact that White ACT "was dependent on funds being advanced from WCL to meet its ongoing liabilities" and "was financially reliant on WCL as it would not have been in a position to find borrowings elsewhere and as such there would be problems with its on going cash flow". That seems to me to disregard both the relationship between White ACT and WCL and the nature of White ACT's entitlement. The obligations to external creditors (leaving aside, of course, the State Bank) that White ACT incurred were obligations incurred by it pursuant to its performance of its obligations to WCL under the contract that I have already referred to (see para [254] above). White ACT's performance of those obligations certainly gave rise to liabilities. But, at the same time, that performance gave rise to assets, namely its entitlements to be paid, or indemnified or reimbursed, by WCL. Mr Watson appears to characterise the support provided by WCL as support provided as a matter of grace. However, I think, the better view is that it was support provided as a matter of obligation, in consideration or recognition of White ACT's performance of its obligations to WCL. 283 Thirdly, Mr Watson points to the circumstance that WCL expressly excluded, from the support that it provided to White ACT, support for White ACT's liabilities in respect of the Quadrant contract. That, of course, is correct (see para [266] above). However, for reasons I shall give (see paras [306] and following below), ADC's claim was not a debt, let alone a debt due and payable, until it was transmuted into a judgment of this Court in June 1998. It follows that the failure of WCL to provide, in prior years (and specifically in the years in which the question of insolvency is relevant), any support for whatever that obligation might turn out to be is not determinative of the question of solvency in those prior years. 284 The final reservation that I have about Mr Watson's evidence is that he does not take into account the impact of the arrangement that, I have found, was in place at all material times. His analysis of, and conclusion on, the question of solvency fails to consider something that in my view is not just relevant but of crucial importance. 285 Kirby P observed in Constantinidis v JGL Trading Pte Ltd (1995) 17 ACSR 625, 636 that "the court does not forfeit its evaluation and characterisation of the solvency or [sic: clearly, "of"] the company … to the evidence of accountants or company officers". Mr Watson's expression of opinion, whilst of course a material matter for me to take into account, cannot resolve the issue. Nor, for the reasons that I have given, do I find it persuasive in my consideration of that issue. 286 One further matter that arose in the cross-examination of Mr Watson is relevant to the question of insolvency. I refer to para [280(3)] above. In my view, that evidence shows that White ACT was not insolvent, in the years ended 30 June 1989 or later, because of the WCL debt: which must be taken, as Mr Watson acknowledged, effectively to have been "quarantined". Legal principles

287 The parties were agreed that the question of insolvency was to be addressed by considering whether, at the various times at which White ACT was alleged to be insolvent, it was able to pay all its debts as and when they became due and payable. In effect, the parties were content to adopt what is now stated by s 95A(1) of the Corporations Act 2001 as embodying the test of insolvency applicable at any time relevant to these proceedings. 288 Although it is clear enough that the question, whether a corporation is insolvent at any given time, is ultimately a question of fact, there has been a number of cases that set out the principles (including legal principles) that are said to be relevant to the resolution of that question. The authorities have been reviewed carefully and, in my respectful opinion, accurately in three recent decisions. I do not propose in these reasons to reinvent the wheel. 289 Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 is the first of the cases referred to in the preceding paragraph. Palmer J reviewed the authorities in detail and set out at 224-225 the propositions that, he said, could be drawn from them. What his Honour said was cited with apparent approval in the second and third of the cases adverted to in the preceding paragraph, namely the decision of Mandie J in Australian Securities and Investments Commission v Plymin (No 1) [2003] VSC 123 and the decision of Chesterman J in Emanuel Management Pty Ltd v Foster's Brewing Group Ltd [2003] QSC 205. In Iso Lilodw' Aliphumeleli Pty Ltd (in liq) v Commissioner of Taxation (2002) 42 ACSR 561 (a decision that I shall refer to as "ILA"), Davies AJ expressed reservations about the fourth, fifth, and sixth propositions stated by Palmer J in Southern Cross Interiors. However, whilst acknowledging the concerns of Davies AJ (to which I shall return) I am content to adopt, and set out (without their references to authority), the six propositions stated by Palmer J: "(i) whether or not a company is insolvent for the purposes of CA ss.95A, 459B, 588FC or 588G(1)(b) is a question of fact to be ascertained from a consideration of the company's financial position taken as a whole … ;

(ii) in considering the company's financial position as a whole, the Court must have regard to commercial realities. Commercial realities will be relevant in considering what resources are available to the company to meet its liabilities as they fall due, whether resources other than cash are realisable by sale or borrowing upon security, and when such realisations are achievable … ; (iii) in assessing whether a company's position as a whole reveals surmountable temporary illiquidity or insurmountable endemic illiquidity resulting in insolvency, it is proper to have regard to the commercial reality that, in normal circumstances, creditors will not always insist on payment strictly in accordance with their terms of trade but that does not result in the company thereby having a cash or credit resource which can be taken into account in determining solvency … ;

(iv) the commercial reality that creditors will normally allow some latitude in time for payment of their debts does not, in itself, warrant a conclusion that the debts are not payable at the times contractually stipulated and have become debts payable only upon demand … ;

(v) in assessing solvency, the Court acts upon the basis that a contract debt is payable at the time stipulated for payment in the contract unless there is evidence, proving to the Court's satisfaction, that: ? there has been an express or implied agreement between the company and the creditor for an extension of the time stipulated for payment; or

? there is a course of conduct between the company and the creditor sufficient to give rise to an estoppel preventing the creditor from relying upon the stipulated time for payment; or

? there has been a well established and recognised course of conduct in the industry in which the company operates, or as between the company and its creditors as a body, whereby debts are payable at a time other than that stipulated in the creditors' terms of trade or are payable only on demand … ;

vi) it is for the party asserting that a company's contract debts are not payable at the times contractually stipulated to make good that assertion by satisfactory evidence … ." 290 Davies AJ in ILA accepted the first three propositions enunciated by Palmer J. However, his Honour expressed reservations about the fourth, fifth and sixth propositions because, as he said at 566, he considered "that, as enunciated, the principles may imply a legality or inflexibility which is inconsistent with the point that the ultimate issue is a question of fact". His Honour cited the judgment of Mahoney JA in Dunn v Shapowloff (1978) 2 NSWLR 235, 244 in support of this view: "On the other hand, the fact that there is a reasonable or probable ground of expectation that the company will be able to pay the debt at a time distant from the time when the debt falls due will not normally be an answer … it will be necessary in each case to take into account the particular facts; I think the words "being able to pay the debt" admits some flexibility in this regard." 291 For my part, I do not think that Palmer J, in the fourth, fifth and sixth propositions that he stated, was seeking to lay down exhaustively the circumstances in which indulgences that creditors may allow will be taken into account, or the manner in which such indulgences will be taken into account. It is certainly possible to read the fifth proposition as being expressed in prescriptive terms; but even there, I think, his Honour was stating, in effect, the basis upon which the courts have generally assessed the significance of indulgences that were shown to have been granted. 292 If, contrary to my understanding, his Honour were intending, in the fourth, fifth and sixth propositions, to state exhaustively the circumstances in which indulgences will be considered relevant, and the weight that will be attributed to them, then I would share the reservations expressed by Davies AJ. But I do not so read what Palmer J said. 293 Of course, as Palmer J pointed out at 220-221, the significance of indulgences granted by creditors will vary according to whether the question for consideration is "actual" insolvency or "reasonable grounds to expect" insolvency. The case before his Honour fell into the former category. The case before me, on the pleadings, is likewise a case of actual insolvency; as the defendants point out in paragraph 2 of their written submissions "this is not a case of insolvent trading". 294 Before I leave the decision of Palmer J in Southern Cross Interiors, I should note that his Honour expressed the view that, for the purposes of s 95A of the Corporations Act, the words "due" and "payable" were synonymous. I agree. I therefore do not accept the submission for the defendants that "the debt to WCL may have been due but it was not payable". I do not accept that, either for the purposes of the statutory test of insolvency or for any test in substantially similar terms, there is any distinction to be drawn. Analysis and conclusions 295 The intercompany debts within the White Group appear to have built up as a result of the trading activities that I have summarised in paras [271] and [272] above. It does not appear that the directors, or for that matter management, of any of the companies ever turned their minds specifically to the terms by which intercompany debts were regulated. There was no evidence of any document dealing with that topic, at least at the level of policy or principle. 296 The basis for White ACT's submission that the relevant debts were due and payable is found, as I understand it, in the circumstance that they were recorded in its accounts as "current liabilities". On ordinary accounting principles, that would indicate that they were regarded as debts payable within twelve months of the relevant balance date. Further, as I understand the case for White ACT, it was submitted that, the debts being both recognised and classified as current in the financial statements, they must be presumed, in the absence of evidence to the contrary, to have been payable on demand. 297 However, given my conclusion that there was at all material times a practice in place within the White Group that intercompany debts would not be called upon unless the debtor were in a position to pay them, it is necessary to examine whether it can properly be said that the relevant debts were "payable on demand" at all. 298 The manner in which the debts came into existence may be clear enough in outline, but there is no detailed evidence showing how the balances moved from time to time. Nor is there evidence of the precise transactions in respect of which the debts arose. However, I conclude that the debts arose on a basis understood by all concerned: that a demand for payment would not be made unless the debtor could afford to pay the debt. On that basis, I think it is not correct to classify the debts as being payable on demand. Where a debt is payable on demand, it is taken to be payable forthwith because the creditor has an uncontrolled discretion to make demand at any time. However, the effect of the arrangement that I have found proved was to fetter the discretion of the creditor to demand repayment. The creditor could not demand repayment unless the debtor were able to meet the demand. In those circumstances, the better analysis is that the debt was due not on demand but upon a contingency: the contingency being, of course, the ability of the debtor to meet any demand. 299 On this analysis, the facts of this case are quite different to those considered in the many cases reviewed by Palmer J in Southern Cross Interiors, by Mandie J in Plymin and by Chesterman J in Emanuel Management. The cases there reviewed concerned debts that were payable in accordance with defined trading terms (for example, within seven or thirty days of invoice, or upon some other defined basis) or on demand. The question was whether, that being the legal position, some practice of granting indulgences, either as between particular creditors and the debtor or within the industry generally in which the debtor operated, could bear upon the legal character of the debts. In the present case, the arrangement that has been proved is not an arrangement in respect of a debt otherwise due and payable on demand. It is the equivalent of the trading terms in those other cases: it fixes the basis upon which the debt will be, or become, payable. The arrangement characterises, and determines, the payability of the debt. It is not simply an arrangement in relation to a debt that is otherwise, in law, characterised as payable on demand (or at some contractually fixed time). 300 I therefore do not accept the submission for White ACT, to the effect that the arrangement cannot be binding in contract to alter the character of a debt otherwise payable on demand. Nor do I accept, as White ACT submitted, that the arrangement was unenforceable for want of consideration. On the contrary, if the debts in question came into being upon the basis of the arrangement, the transactions which gave rise to the particular debts would provide sufficient consideration not only for the obligation to pay but also for the limitation upon the creditor's right to call for payment. 301 However, White ACT submits that, in any event, any such arrangement was only referable to companies within the White Group. It points out that it ceased to be a member of the White Group upon completion of the sale of its issued capital to Mr Frank McAlary. The latter point is, of course, correct. But the evidence to which I have referred in paras [263] to [268] above, and which I accept, shows that the arrangement did continue to apply to White ACT. 302 It will be seen that, as at 30 June 1988 and 14 October 1988, the assets of White ACT were sufficient to enable it to meet its debt on overdraft to the State Bank of New South Wales. It is also the case that the other debts of White ACT to external creditors - presumably, trade creditors whose debts arose out of the contracts that White ACT was undertaking - were debts in respect of which White ACT was entitled to be indemnified, or reimbursed, by WCL or some other company in the White Group. It therefore seems to me that, as at those two dates, White ACT was in a position to meet its obligations to external creditors. 303 Although the evidence was not explicit for the year ended 30 June 1989 and for subsequent years, there is no evidence that White ACT, for that or subsequent years, had external creditors other than trade creditors whose debts arose in the course of performance by White ACT of its contractual obligations. For that year and following years, it must also, I think, be the position that White ACT was entitled to be indemnified or reimbursed. 304 It therefore seems to me that the question of insolvency, at any material time, is to be considered by reference to the ability of White ACT to pay its debts to other White Group creditors; and indeed, with the exception of ADC's claim (to which I will turn shortly), the submissions for White ACT appear to accept this. 305 As at both 30 June 1988 and 14 October 1988, the analysis that I just have set out leads to the conclusion that White ACT was not insolvent by reason of the fact that the claims of other companies in the White Group exceeded its assets. Further, given the matters that I have referred to in paras [263] to [268] above, the same conclusion must apply explicitly for the years ended 30 June 1989 and 30 June 1990. Finally, given the absence of any evidence to show that the policy in force in those years had altered, I think that the same conclusion must follow for subsequent financial years, at least up until 30 June 1992 which, as I have said, I think to be the last year that requires consideration. 306 White ACT submitted that, in any event, an analysis of its position that did not include what it said was the claim of ADC was insufficient. It said that ADC was a creditor of White ACT at every material date. It said that, for example, if White ACT had been wound up as at 30 June 1988 or 14 October 1988, ADC would have been entitled to prove in the winding up for whatever its claim might be shown to be, and, upon its proof being admitted or established, would rank as a creditor accordingly. 307 The latter part of the analysis may be accepted. However, the fact that ADC had a claim against White ACT, even when coupled with the further fact that, upon the liquidation of White ACT, that claim could be admitted to proof, and somehow valued, does not mean that, absent winding up, there was a debt due and payable by White ACT to ADC in respect of that claim. ADC's claim was not a claim for debt. It was a claim for unliquidated damages for breach of contract. There was no debt due and payable in respect of that claim until the claim was established by the judgment of this Court. That did not happen until, ultimately, Einstein J adopted the reports of Mr Morrisey on 11 June 1999. (Indeed, it was not until Mr Morrisey's report, issued on 1 June 1998, that there was a realistic assessment of the amount of what would become the "debt".) 308 It is not to the point to say that, at some stage, White ACT should have recognised ADC's claim and should have provided for it, either in whole or in part, depending upon the evidence available to it. The question is whether, at any material time, an assessment of the ability of White ACT to pay its debts as and when they fell due required there to be taken into account ADC's claim for unliquidated damages. In my view, until that claim was transmuted by order of this Court into a judgment, there was no such requirement. 309 This analysis is, I think, consistent with what Scott J said in Totterdell v Nicol-Burmeister (1995) 13 ACLC 1521. That was an action to set aside a payment as preferential, relying on s 588FA of the then Corporations Law. The company was said to be insolvent because, among other things, it was a defendant in a defamation action; its defence had been struck out; and the action had been set down for assessment of damages. At the relevant time, as Scott J recorded at 1527, it was not known what damages, if any, would be assessed. It was likely, but not inevitable, that some award of damages would be made. His Honour held that there was no debt at the relevant time and that although there was "the potential for a future debt" it did not follow that the directors of the company "would have known of the existence of such a debt as, indeed, the damages could have been assessed at nil". 310 Whilst his Honour's decision appears, with respect, to elide the distinction between existence of the debt on the one hand, and appreciation of the possibility that it would come into existence on the other, it does seem to me to support the approach that I have taken in setting it to one side, in my analysis of insolvency at the material times, of ADC's claim. 311 White ACT relied on two decisions. The first (as reported) was the decision of Hoare J in Re Saebar: Official Receiver v Saebar (1971) 18 FLR 317. The other was the decision of Gibbs J in Re Hyams: Official Receiver v Hyams (1970) 19 FLR 232. 312 In each case, the question for decision was whether a voluntary settlement of property, made by an individual who later became bankrupt, was void as against the trustee in bankruptcy. In each case, the person taking the benefit of the settlement asserted that the settlor was, at the time of making the settlement, able to pay all his debts without the aid of the property comprised in the settlement. In each case, the question was whether the "debts" of the settlor included a prospective liability for damages. Saebar was decided by reference to s 120(2)(a) of the Bankruptcy Act 1966 (Cth). Hyams was decided by reference to s 94(1)(a) of the Bankruptcy Act 1924 (Cth). 313 In Saebar, Hoare J at 320 stated the question as being "whether the prospective liability for damages is to be taken into account when assessing the liabilities of the bankrupt". His Honour answered the question by saying, on the same page: "I am satisfied that it is necessary to consider all liabilities, not merely liabilities immediately provable in bankruptcy when determining the solvency of the settlor for the purposes of s 120(2)(a)." 314 In Hyams, Gibbs J concluded, at 258, "that in enquiring what were all the settlor's debts for the purpose of s 94(1)(ii) it is necessary to have regard to contingent liabilities if the evidence shows that there was a reasonable possibility that the settlor would have to meet them". 315 The decision of Hoare J in Saebar does not appear to have been cited to Gibbs J in Hyams. It may also be noted that Hoare J referred to, but Gibbs J did not, the decision of the Court of Appeal in Re Wise: ex parte Mercer (1886) 17 QBD 290, where Lord Esher MR, dealing with the equivalent provisions then in place, said at 300: "It was entirely a matter of speculation what the amount of the verdict would be. Therefore he was not insolvent." 316 Hoare J adapted his Lordship's remarks, saying at 322: "It would seem that the correct approach is to consider the whole of the circumstances and if the liability can be regarded as purely speculative and without any real likelihood of being established then the liability can be ignored … ." 317 I do not think that the decisions in Saebar and Hyams are conclusive, having regard to the test that the parties have propounded. As I have noted in para [287] above, the test propounded was whether White ACT, at material times, was able to pay all its debts as and when they became due and payable. The decisions in Saebar and Hyams, and the decisions discussed in those cases, recognise that an unestablished (and unquantified) liability may be required to be taken into account for the purposes of the particular exercise propounded by the legislation. They do not show that a claim for unliquidated damages is a debt, let alone a debt that is due and payable. I therefore do not think that the decisions are of direct relevance to the issue of insolvency as it has been framed. 318 Even if I am wrong in this, I would not conclude that it was, in June or October 1988, necessary to take into account, for the purposes of assessing the solvency of White ACT, the claim that was subsequently brought by ADC. There was no claim at those dates, let alone one that could be characterised as "speculative" (or otherwise). As the chronology set out in para [16] above shows, it was not until August 1991 that ADC even commenced proceedings; and it was not until June 1999, after a number of litigious spills and thrills, that judgment was entered. I do not think that the huffing and puffing set out in correspondence passing between ADC and White ACT in the first half of 1988 requires any different conclusion. Correspondence of that nature, including such threats, is (for better or for worse) a recurrent feature of commercial life. 319 I therefore conclude that White ACT was not, at any material time up until 30 June 1992, insolvent. THE DIRECTOR DEFENDANTS' STATE OF MIND : INSOLVENCY 320 Because I have found that White ACT was not insolvent at any material time, it must follow that the director defendants could not have known that it was insolvent at any material time. That is because I think that to know something involves, at a minimum, that the thing that is said to be known exists in fact. One cannot know that which does not in fact exist. In this, I think, knowledge is distinct from belief (as in turn belief is distinct from suspicion), notwithstanding that it may be said, in general terms, that there is a spectrum of "understanding" ranging from knowledge at one end to suspicion at the other, and that the dividing points between the component parts of that spectrum may not always be easy to identify. See, for example, the decision of the Court of Appeal of Queensland in Wicks v Marsh, ex parte Wicks [1993] 2 Qd R 583, 585. 321 In any event, the evidence of the director defendants was that they did not at any given time believe White ACT to be insolvent. (For present purposes, I put aside the controversy as to who was a director of White ACT at any given time.) 322 Each of the director defendants said that, at all material times, he was cognisant of the practice, that I have found existed, as to when intra-group debts could be called upon for payment. As I have said, White ACT could only be regarded as insolvent at the material times if those debts were due and payable forthwith. If they were not, and if (as they said) the director defendants were aware of the practice that meant that they were not, there is no other basis, apart from any claim by ADC, for the director defendants to have held any belief that White ACT was, at those times, insolvent. 323 Their evidence is corroborated by some other matters. Firstly, it is very hard to understand why Mr Frank McAlary would have offered or agreed to acquire the issued share capital of White ACT if he had believed, at the time, that it was insolvent. Secondly, to the knowledge of the director defendants (at times when they were directors of White ACT), the accounts of White ACT were prepared on a going concern basis and at no material time did the auditors qualify the accounts. The director defendants who knew of this were entitled to assume (and Mr White and Mr Frank McAlary said that they did assume) that this indicated that the auditors did not regard White ACT as being, at any material time, insolvent. Thirdly, there is the circumstance that I refer to in paras [386] and [462] below - the provision by WCL to White ACT of funds to enable the latter to continue to defend ADC's claim. It is hardly likely that Messrs White, Duncan and Spinks would have committed substantial funds of WCL to defence of the ADC litigation if they had believed that White ACT was then insolvent. This last circumstance also indicates that those gentlemen did not believe that ADC had a claim of such magnitude and certainty to show that, on any rational analysis, White ACT should have been regarded, even before that claim was quantified, as insolvent. 324 The other matter that is relevant in this context is the knowledge or state of mind of the director defendants relating to the Quadrant project and ADC's claim. Again, I propose to look at that issue without differentiating between them as to who was, or was not, at any given time, a director of White ACT. 325 Each of the director defendants put forward a case that, in substance, he was not (to the best of his present recollection) aware, in 1987 and 1988, of any detailed information relating to the Quadrant contract. However, each accepted that, to the extent that the Quadrant contract was the subject of material that went to and was considered by the board, or was shown to have been discussed at board meetings at which he was present, then he would have been aware of the relevant material. 326 Each of the director defendants, in his capacity as a director of either WCL or (in some cases) WIL/WIAL, was consistently provided with information, from at least 5 February 1988 on, showing that White ACT was likely to make a loss on the Quadrant contract. The board papers for WCL of 5 February 1988 quantified the loss at $500,000. By the time the then managing director (Mr Wells) reported to the board for its 4 March 1988 meeting, the projected loss had increased to $4,789,000. That figure again increased by 6 May 1988 to $4,855,000. It was noted that the loss might increase because of the continuing industrial dispute. 327 However, when it became apparent that ADC was going to terminate the contract (and when the contract was terminated) the loss was reduced to $3,000,000. Although White ACT sought to characterise both the reduction in the projected loss, and the manner in which the reduction was announced to the board as evidence of an underlying improper motive, I do not find that this was so. The evidence showed that WCL and its subsidiaries brought to account losses on the performance of contracts as those losses were perceived and quantified. The losses so brought to account were the losses expected to be made over the life of the contract and not just in a particular accounting period. Thus, the figures referred to in the preceding and succeeding paragraphs (noting that the latter were not shown to have come to the attention of the director defendants) were projected losses over the life of the contract. Once the contract was terminated, it was clear that White ACT would not sustain operational losses referable to its future performance. It might, of course, sustain further losses if ADC had a valid claim against it; but that topic, and the director defendants' state of mind in relation to it, requires separate consideration. 328 The other material on which White ACT placed reliance was the Rawlinsons report, which concluded that the end cost of the Quadrant project would be $26,498,000. When compared to the contract price of $19,535,000, this would have indicated (to anyone who read it) a loss of $6,953,000. It has not been suggested that Rawlinsons' assessment was manifestly unreliable, or defective or inaccurate, at the time it was made. 329 Each of the director defendants said, and I accept, that the report did not come to his notice in 1988 or at any relevant time thereafter. The report was commissioned by management. It was not referred to in terms in any report shown to have been provided by management to the board. Its prognostications were not (with or without attribution) included in any report that was shown to have been provided to the board. Further, White ACT did not call any of its former employees, or any employee of WCL, to demonstrate that either the Rawlinsons report or its substance was communicated to the director defendants. Nor, in the case of employees who might be supposed to have received it, or learned of the report and are still alive, did it offer any explanation for its failure to do so. Although I do not regard this consideration as conclusive (particularly given that at least some of the relevant employees may have been employed by WCL rather than White ACT) it does provide some support for my acceptance of the director defendants' evidence in this regard. 330 I therefore accept the evidence of the director defendants that they did not at any material time believe that White ACT was insolvent. THE QUADRANT INDUSTRIAL DISPUTE Industrial background 331 White ACT and a number of unions appear to have entered into a Site Agreement that was intended to regulate industrial relations on the Quadrant project. No signed or dated agreement has been produced. However, an unsigned document purporting to be the Site Agreement was tendered without objection. Its terms included the following: "20. DISMISSAL PROCEDURES Any acts of gross misconduct will mean instant dismissal. For acts of general misconduct or breaches of safety requirements the following procedure will be adopted: The employee will be given a verbal warning in the presence of the appropriate Union Site Delegate. The date and time must be recorded in the foreman's diary. Should the employee continue to fail to respond to instructions regarding misconduct or breaches of safety, he shall be given a written warning in the presence of the appropriate Union Site Delegate. A copy of the notice will be placed on employee's personal file. Should the employee still fail to respond to further instruction regarding misconduct or breaches of safety, he shall be issued with a notice of dismissal in the presence of the appropriate Union Site Delegate." 332 Clause 20 was amplified by the following: " CODE OF CONDUCT

The unions acknowledge the lawful right of the employer to hire and fire. Well established practice points to two areas of dismissal relating to gross and general misconduct.

The penalty for gross misconduct is instant dismissal.

The penalty for general misconduct is a warning with the three warnings system.

Gross misconduct includes fighting, stealing, wilful interference with equipment and breaches of personal hygiene policy.

General misconduct includes persistent lateness, failure to notify non-attendance and poor performance.

Where any employee persistently fails to respond to instructions regarding his failure to comply with site safety and/or general requirements he shall be:

(a) given a verbal warning with the appropriate shop steward in attendance.

The date and time must be recorded in the foreman's diary.

(b) Should employee continue to fail to respond to instructions regarding compliance with safety and/or general site requirements he shall be given a written warning with the appropriate shop steward in attendance. A copy of said warning notice to be placed with employee's personnel file.

(c) Should employee still fail to respond to further instruction regarding compliance with site safety and/or general site requirements he shall be issued a further warning notice advising him that his services are being terminated with the appropriate shop steward in attendance.

Where the employee is employed by a sub-contractor a written notice shall be issued to the contractor manager and where necessary the said manager will be instructed to remove employee from the site.

It is expected that good industrial relationships are to be encouraged. Where an employee is allegedly guilty of misconduct, we accept that the employer can exercise their rights, subject to the rules of natural justice.

Upon the re-opening of the job all union members will be addressed on the need to work harmoniously and productively, and let bygones be bygones [sic]." The reasons of Giles CJ Comm D 333 Although the parties placed great emphasis on the industrial dispute, and in particular on White ACT's actions relating to it, it is clear that the evidence that was lead before me was significantly less in scope than the evidence led before Giles CJ Comm D in proceedings No. 55041 of 1991. White ACT tendered his Honour's reasons for judgment, given on 30 January 1996, as part of its tender bundle. The defendants objected and I rejected the tender. However, the defendants agreed that I could have regard to his Honour's reasons to the extent that it was necessary (e.g., to enable me to understand, should it be relevant, why His Honour found in a particular way on a particular issue). I do not think that this justifies me in treating his Honour's findings of fact, even on issues that were common to the proceedings heard by his Honour and those heard by me, as evidence. 334 It is clear from his Honour's reasons, that, even though the evidence led before him in relation to the industrial dispute was in some respects sparse, it was nonetheless considerably more detailed than the evidence led before me. Thus, his Honour was able to make a number of findings in relation to issues that were also argued before me where the evidence does not enable me to make such findings. In what follows, I indicate two particular areas where the material before me was less revealing than, apparently, was the material before his Honour. 335 It is apparent that, in relation to the 1988 industrial dispute, the issues that were argued before Giles CJ Comm D divided themselves into two sections. The first section concerned events up until and including the dismissal of the crane crew, and the standing down of other workers on site, on 29 February 1988. The second section concerned the attempts to resolve the industrial dispute after 29 February 1988.

336 As to the first section, his Honour concluded that White ACT had "acted precipitously [sic], knowing that its conduct would provoke the major confrontation which it did provoke, in dismissing the crane crew and standing down the other workers rather than inquiring into the position on Monday, 29 February 1988 and if necessary causing the matter to be re listed before the Commission. … It did so in order to have a showdown with the unions and in particular to rid itself of the crane crew notwithstanding the industrial confrontation that this would create. Its conduct was contrary to proper industrial practice, was unreasonable in the context of the contract, and in this respect it failed to prosecute the project diligently and was in breach of article 2.2" (reasons, page 79). Underlying this was his Honour's conclusion that the crane crew's action (on 17 February 1988) was not gross misconduct and did not justify industrial dismissal, either immediately or after 12 days when the dispute was before the Commission (reasons, page 78). 337 As to the second section, his Honour concluded that White ACT did not act unreasonably in relation to settlement of the dispute (reasons, page 85; see at page 88) and did not become unreasonable "because it saw in the maintenance of its stance a possible escape from an unprofitable contract" so that, in its handling of the dispute after 29 February 1988, "ACT did not fail to prosecute the project diligently and was not in breach of article 2.2" (reasons, page 89). The 1988 industrial dispute 338 There had been a significant degree of industrial unrest on the Quadrant site during 1987. Initially, that unrest related to negotiations for the Site Agreement. However, even after the Site Agreement was negotiated, there was unrest arising out of other, and unrelated, matters. It is also apparent that much of the industrial unrest had been caused by, or was related to, crane drivers, (including Mr Rod Saunders, to whom I refer in the next paragraph); and that this industrial unrest was not limited to White ACT's sites but extended to other sites in the ACT. 339 The industrial situation changed fundamentally on 17 February 1988. On that day Mr Saunders, who was by then a "lofty crane" driver employed at the Quadrant site, used his crane to place a precast concrete pipe into a location immediately behind a concrete pump truck that was operating on the site. The concrete pipe was a large and, I would infer, substantial object: its dimensions have been estimated at approximately 1-1.5 metres in diameter and 1.5-2 metres in length. The pipe was so placed that it prevented the concrete pump truck from reversing away from the location where it was working. I infer that it would have prevented trucks carrying concrete from discharging their loads into the concrete pump. It is quite clear on the evidence that this was Mr Saunders' intention. Ultimately, the truck driver and others were able to move a kibble that was also adjacent to the concrete pump truck and thereby manoeuvre the truck so that it could leave the site. A Mr Peter Schultz was involved in these activities. He was an organiser employed by the Transport Workers' Union ("TWU"). 340 Mr Saunders was not called to give evidence. However, it is apparent, from those witnesses who were called, that Mr Saunders, a member of the Federated Engine Drivers' and Firemen's Association ("FEDFA"), was strongly of the view that the concrete pump or pumps on site should be operated by members of his union, whereas in fact the driver and his offsider were members of the TWU. The question of coverage, as between the two unions, had been resolved between them and Mr Saunders' view, and the way that he chose to manifest it, were quite inconsistent with the agreed outcome. 341 The evidence suggests that an employer in the position of White ACT in 1987 and 1988 that wished to employ a crane driver was required to take a driver nominated from a roster maintained for that purpose. It would appear, although the evidence is not conclusive, that Mr Saunders was employed in this way for the Quadrant project. There is also a suggestion that Mr Saunders was regarded by at least some, both employers and unionists, as unruly, and, perhaps, a troublemaker. Although the evidence does not enable me to come to a concluded view on this, there are some instances of conduct by Mr Saunders (see paras [344] and [449] below) that would appear to support this view. 342 The TWU imposed work bans on the Quadrant site because the safety of its members could not be guaranteed. 343 White ACT took steps to arrange a meeting with the unions involved. This was done through the ACT Branch of the Master Builders' Association ("MBA"). Mr Frank Gillingham of the MBA was the person primarily involved, both immediately and in later hearings in the Australian Conciliation and Arbitration Commission ("the Commission"), on behalf of White ACT. 344 Mr Gillingham sought to arrange a meeting with the relevant union officials. A meeting was held on 23 February 1988. However, that meeting broke up in some disorder. At least part of the problem was that, although all the relevant unions were supposed to be represented, and to be represented by officials rather than by the men at the site, the FEDFA sent no officials along and instead Mr Saunders and his two dogmen attended. All accounts of that meeting make it clear that Mr Saunders' presence and conduct were disruptive. It is likely that Mr Saunders intended, by his presence at and conduct during that meeting, to ensure that it did not lead to a resolution of the problem. I have no doubt that his presence and, in particular, his conduct were at least partly responsible for the failure of the meeting to achieve a resolution of the industrial dispute that then existed. 345 After the meeting broke up, Mr Gillingham, on behalf of White ACT, notified the Commission of a dispute under s 25 of the Conciliation and Arbitration Act 1904 (Cth). 346 The next day, 24 February 1988, White ACT decided to terminate the employment of Mr Saunders and his two dogmen for misconduct. At the same time, it decided to stand down other workers on the site, apparently on the basis that no work could be carried out whilst the TWU bans were in effect. However, neither of those decisions was implemented pending a hearing in the Commission. 347 A hearing took place before Commissioner Baird on 26 February 1988. White ACT was represented by Mr Gillingham and two employees of the White Group, Mr Patrick Houlahan and Mr Bendeich. The unions involved were represented by Mr Richard Scott Gartrell, the assistant state secretary of the New South Wales Branch of the FEDFA. Commissioner Baird directed that normal work be resumed and that a conference between officials of the relevant unions, officers of White ACT and Mr Gillingham take place one week after work had been resumed. Mr Gartrell conveyed Commissioner Baird's directions to the other unions principally involved, namely the TWU and the Building Workers' Industrial Union ("BWIU"). 348 I interpose that 26 February 1988 was a Friday, and that Mr Gartrell conveyed Commissioner Baird's directions to the other unions involved on that day. However, on the following Monday, 29 February 1988, work did not resume. 349 This is one area where analysis of the events is made more difficult by the paucity of evidence. Although White ACT suggested that the TWU had lifted its bans either over the weekend (i.e. after the hearing on 26 February 1988) or on 29 February 1988, there is no direct evidence either that it did so, or that it informed White ACT that it had done so, before White ACT dismissed the crane crew and stood down the other workers on site. The relevant official of the TWU, Mr David Lamont, was able to say only that, "over the next couple of days" following a conversation with Mr Gartrell, he spoke to "members of the TWU who serviced the Quadrant project". Mr Gartrell's evidence was that he spoke to Mr Lamont after the hearing before Commissioner Baird and, I would infer, on 26 February 1988. It may be that Mr Lamont's conversation with TWU members took place over the weekend. However, Mr Lamont said also that he was not aware of the exact time that TWU members did resume delivery to the site but that this "could have happened" after his discussions with them. Mr Lamont gave no evidence that he had informed any representative of White ACT that the bans had been lifted. 350 Giles CJ Comm D was able to conclude, on the basis of what appears to have been a substantially greater body of evidence on this topic, that the bans were not lifted until after the dismissals and stand downs had been implemented. The evidence before me does not enable me to reach the same conclusion. However, I am unable to conclude that the bans were lifted, or that productive work could have resumed, before the dismissals and stand downs were effected. Nor can I conclude that White ACT was told, before it effected the dismissals and stand downs, that the bans would be lifted (either conditionally or unconditionally). 351 Although White ACT contended for a finding that the dismissals and stand downs were unjustified, because the industrial dispute had been "resolved", it did not adduce evidence that enables me to reach that view. For the reasons that I have just given, I am unable to find that White ACT implemented its decision to dismiss the crane crew and stand down the other workers at a time when it knew, or had been told, that the bans had been, or would be, lifted.

352 On 29 February 1988, representatives of the FEDFA and the BWIU notified Mr Robert Bendeich of White ACT that they required a meeting to be held at 12 noon on 1 March 1988. Mr Bendeich was the site manager for the Quadrant project. 353 Also on 29 February 1988, White ACT implemented its decision to terminate the employment of Mr Saunders and his dogmen and to stand down the rest of the workforce at the Quadrant site. The unions concerned did not accept the terminations or the stand downs, and notified Commissioner Baird. 354 White ACT now asserts that its decision to terminate the employment of Mr Saunders and his dogmen was not in accordance with the Site Agreement and Code of Conduct. The defendants contended that it was. It will be noted that instant dismissal was warranted only if the relevant conduct could be characterised as "gross misconduct". If it amounted to no more than "general misconduct" then the three warning system would have applied. 355 The Site Agreement appears to contrast gross misconduct and breaches of safety requirements. That might suggest that Mr Saunders' actions did not amount to gross misconduct. However, when one looks both at the relevant provisions of the Site Agreement and of the Code of Conduct, I think that it was open to White ACT to conclude that Mr Saunders' actions were, or amounted to, gross misconduct. 356 The definitions of "gross misconduct" and "general misconduct" in the Code of Conduct are not exclusive. When one reads them in conjunction with the Site Agreement, it seems to me that the reference, in the Site Agreement, to breaches of safety requirements should not be read as a deliberate and wilful breach. But in any event, I think, Mr Saunders' conduct went beyond this. His action was taken in defiance of an industrial settlement that had been reached by the two unions concerned, namely the FEDFA and the TWU. Effectively, it sought to reopen, or reargue, something that had been resolved. It involved threats of physical violence to TWU members and an official (see para [449] below). Clearly, it was highly provocative. Equally clearly, it must have been apparent that the result that in fact followed (namely, the imposition of work bans and the cessation of work on the site) was likely to follow. I think that Mr Saunders' conduct could be equated with the instances of "gross misconduct" that are given in the Code of Conduct, and that it could well be regarded as significantly more serious than the instances of "general misconduct" that are given. Further, I think, it was open to White ACT to regard both Mr Saunders' decision to attend the meeting of 23 February 1988 and his conduct at that meeting as confirming that he was guilty of gross rather than general misconduct. 357 White ACT did not immediately dismiss Mr Saunders after the events of 17 February 1988. I do not think that the reference, in the Site Agreement or Code of Conduct, to "instant dismissal" means that, if gross misconduct occurs, the employer is faced with the choice of dismissing the employee immediately or not at all. For example, I think that it would be open to the employer to investigate the misconduct complained of and, upon being satisfied that it did indeed meet the definition of "gross misconduct", dismiss the employee. However, I do not think that it was open to an employer, in the circumstances obtaining in 1988, as it were, to "save up" instances of gross misconduct and thereafter, notwithstanding that the conduct might by then have ceased, dismiss the employee. 358 At the relevant time in 1988, Mr Berry was the secretary of the ACT Branch of the BWIU. Mr Berry gave evidence to the effect that, in his experience in the ACT, an employer that wished to dismiss an employee for gross misconduct should do so forthwith upon the occurrence of the conduct. For the reasons that I have just given, I do not accept this evidence if it is intended to suggest that the employer was allowed no time whatsoever for investigation or consideration. However, if it is intended to suggest only that instances of gross misconduct would not be stored up and later utilised, then I agree. 359 It was further Mr Berry's view that, in the circumstances obtaining in 1988, White ACT had effectively forfeited its opportunity to dismiss Mr Saunders and his dogmen on 29 February 1988 (assuming, of course - a matter on which, I think, Mr Berry expressed no concluded view - that the conduct complained of amounted to "gross misconduct"). It may be thought, from what I have said in para [336] above, that Giles CJ Comm D would have been of a similar view had the question arisen for decision before him. 360 If it were not for the events of 23 February 1988 that I have referred to in para [344] above, on balance I would have accepted Mr Berry's evidence on this point. However, it seems to me to be at least arguable that it was open to White ACT to regard Mr Saunders' actions in attending the meeting of 23 February 1988, and his conduct at that meeting, as a continuation, and indeed exacerbation, of his conduct on 17 February 1988. 361 It will be noted that it was on 24 February 1988 - i.e., the day after the meeting - that White ACT took the decision to terminate Mr Saunders' employment. However, and I think appropriately, White ACT did not then implement that decision because of the then pending hearing before Commissioner Baird. No doubt, if the hearing before Commissioner Baird had produced a resolution or possible resolution of the dispute, White ACT would have been required to reconsider its decision. However, in circumstances where (as White ACT saw events in the middle of the day on 29 February 1988) the hearing before Commissioner Baird had not produced a resolution of the dispute, I find it difficult to say that, simply because it had withheld immediate implementation of the decision to dismiss Mr Saunders, it had thereby lost the right to do so. 362 On balance, therefore, and with the greatest respect to the contrary view of Giles CJ Comm D, I conclude that it was open to White ACT to dismiss Mr Saunders and his dogmen when it did so on 29 February 1988. (It does not appear, from his Honour's reasons, that Mr Saunders' apparent violent conduct towards fellow workers and officials of other unions was something that was proved before his Honour. Whether or not that is an explanation for the different views to which we have come is something that cannot be known and which, in any event, is not profitable to pursue.) However, to adapt his Honour's reasoning in relation to the failure of White ACT thereafter to settle the industrial dispute, I conclude that, if White ACT's action in dismissing Mr Saunders and his dogmen was permitted and justified in the circumstances prevailing on 29 February 1988, it did not become impermissible or unjustified because White ACT may also have seen that it might afford it the opportunity to renegotiate, or escape from, its contract with ADC. 363 One matter in dispute between White ACT and the unions was whether the stand down of members of the BWIU (both those employed directly by White ACT and those employed by subcontractors on site) was necessary on 29 February 1988. White ACT maintained at the time that there was no useful work for those men to do so that their stand down was justified. The union's attitude was that it was not. 364 This is another area where the paucity of the evidence makes it impossible for me to reach a firm conclusion. It is apparent that Mr Houlahan, who was at the relevant time the building manager, ACT, for the White Group, informed the Commission on 26 February 1988 that no productive work was proceeding at the Quadrant site because the TWU was not permitting deliveries and "so effectively the subcontractors have withdrawn their labour". White ACT did not call Mr Houlahan, or offer any explanation for its failure to do so. Nor did it call Mr Bendeich, or explain its failure to do so. In the circumstances, including specifically that the transcript of the proceedings before Commissioner Baird on 26 February 1988 was tendered by White ACT, I accept as reliable the assertion by Mr Houlahan in the course of that hearing to which I have referred. 365 As against that, Mr Berry's evidence was that even when the crane crew ceased to work, there would not be an immediate cessation of work for other men on site, and that "[i]t would have taken one to two weeks" for work to have run out. However, it does not appear that Mr Berry's evidence was based on his personal observation of the state of progress on the Quadrant project. It seems to have reflected some more general experience or expectation. There was no evidence called from anyone with knowledge of conditions on site (including, as I have observed, Mr Houlahan or Mr Bendeich, both of whom should be regarded as witnesses whom White ACT might have been expected to call, if their evidence was relevant) to justify Mr Berry's conclusion. Accordingly, I do not regard Mr Berry's evidence, bearing in mind both its limitations and the fact that it is unsupported, as demonstrating that the stand downs of the BWIU members on 29 February 1988 were in fact unjustified.

366 Not surprisingly, the dispute escalated rapidly after the terminations and stand downs. The workers who had been stood down picketed the site, with the support of other workers in the ACT. The dispute was aired in both local and national media. 367 There was a further hearing before Commissioner Baird on 16 March 1988. The Commissioner in effect suggested that the unions make application for reinstatement of the dismissed workers and applications in relation to those workers who, it was said, had been wrongly stood down. A tentative hearing date of 23 March 1988 was fixed for the hearing of those applications. 368 White ACT notified ADC that, since the TWU had withdrawn its bans, it was prepared to withdraw all stand down notices immediately on the basis that the crane crew remain dismissed pending a ruling by the Commission on whether the stand downs and dismissals were correct. Work did not resume on this basis. The unions were not prepared to resume work until Mr Saunders and his dogmen were reinstated, and until they, and the workers who had been stood down, were paid for all time lost. White ACT was not prepared to reinstate Mr Saunders unless directed so to do by the Commission. Equally, it was not prepared to pay the stood down workers for time lost unless so directed by the Commission. 369 The unions did not make applications in relation to the reinstatement of Mr Saunders and his dogmen, or in relation to the standing down of other workers. Accordingly, there was no process before the Commission to enable it to consider and rule on the question of whether the stand downs and dismissals were correct. In the absence of rulings (more accurately, directions) from the Commission, White ACT's position remained unchanged. 370 ADC took the view that White ACT should settle the industrial dispute by whatever means were available, and resume work on the project. It appears from both correspondence and notes of meetings that ADC thought that White ACT should reinstate Mr Saunders and his dogmen and that they and the workers who had been stood down should be paid for all time lost. ADC offered either to reimburse White ACT for these payments or, if required, to pay them direct. 371 The attitude taken by White ACT was that it would not pay "strike pay". This, it claimed, was prohibited both by the industrial undertaking that it had signed, and by the terms of the Quadrant contract. However, regardless of these niceties, it is clear that White ACT's attitude was dictated by more fundamental philosophical considerations. It was the view of Mr Frank McAlary (for example) that a company in the position of White ACT should not pay what he called strike pay because, if it did so, it would be giving away a position of advantage in any future industrial disputation on other sites. In this context, of course, Mr McAlary was looking at the position from the perspective of WCL, rather than that of White ACT. 372 It was put to Mr Frank McAlary that, even accepting his views on "strike pay", they were irrelevant to workers who had been dismissed or stood down because such workers could not be regarded as being "on strike". This, no doubt, was correct of a matter of language: although it must be said that, even on this basis, Mr McAlary was disinclined to accept the proposition. However, I think, this reflects not so much a refusal to accept what might be thought, in a semantic sense, to be obvious but a disagreement with the reality of the distinction that was drawn. In substance, I think it is fair to say, Mr Frank McAlary's attitude was that White ACT had been justified in dismissing Mr Saunders and his dogmen, and in standing down the other workers on the Quadrant site; and that, therefore, it was justified in refusing to pay those workers for the time that they were not working on the site. In this context, I think that Mr McAlary used the term "strike pay" not in any literal sense but as covering pay for time lost as a result of an industrial dispute whether that dispute is to be regarded as a "strike" or "lockout". 373 Mr Duncan's attitude to "strike pay" - both as to the extended, and non literal, meaning of that expression and as to why White ACT should not have paid it - was in substance the same as that of Mr Frank McAlary. Although Mr Duncan acknowledged that pay for men who were dismissed could not be described as "strike pay", it was clear that he saw the underlying question as being whether workers who had (as he saw it) deliberately fomented an industrial dispute and had been dismissed (in Mr Saunders' case) as a result should be paid, for the time lost, on resumption of work. His attitude was that a requirement for an employer so to behave was tantamount to industrial blackmail. 374 Mr White's attitude was in substance the same. It was his view that White ACT had been justified in dismissing Mr Saunders and his dogmen and that they should not be paid unless the Commission directed White ACT to do so. However, whatever may have been the state of Mr White's knowledge of the industrial dispute in 1988, his recollection of it, in the witness box, was minimal. It seemed to me that the evidence that he gave on this topic was a reconstruction of what he now thought what his views would have been, rather than an actual recollection of what those views were at the present time. That having been said, I do not think that his reconstruction was, so far as it went, inaccurate; although it was of but limited extent.

375 It may be noted that, after ADC terminated the Quadrant contract on 11 August 1988 and took over the Quadrant site itself, it took steps to resolve the industrial dispute. This was done through the intervention of an arbitrator, Mr Nicholas Moore. It is apparent that, Mr Moore was engaged by ADC and the unions concerned, and that, to the extent that he was given a history of the industrial dispute, it came from those sources. It does not appear that Mr Moore took any step to check, with White ACT or anyone else, the information that he was given as to the history of the industrial dispute. Nor, I hasten to say, is there any reason why he should have done so: his job was to resolve the outstanding issues (as to pay for time lost during the industrial dispute) as between ADC and the workers concerned, not to attempt to determine responsibility for the dispute. 376 Mr Moore's award does suggest that the history that he was given included that the bans imposed by the TWU were lifted "[o]n the afternoon of the 29th February" and that the dismissal of Mr Saunders and his dogmen and the standing down of other workers occurred before the TWU was given "an acceptable assurance from the other two organisations". The "assurances" to which Mr Moore was referring were those that Commissioner Baird directed the FEDFA and (Mr Moore says) the BWIU to give to the TWU. Mr Moore understood those assurances to be "that neither organisation condone [sic] any impediment of [sic] T.W.U. members carrying out their duties in the manner which sparked the dispute". If, as I assume, that reflects accurately the history given to Mr Moore by the unions concerned then it would confirm the finding made by Giles CJ Comm D, to which I have referred in para [350] above and, a fortiori, would give me comfort in the more negative conclusion that I have expressed in para [351] above. 377 Mr Moore set out his understanding of the history of the industrial dispute. Some of the matters to which he refers do not appear to be supported by the evidence before me. Given that Mr Moore's award was not admitted as evidence of the facts asserted in it, any possible discrepancies need not be pursued. 378 Mr Moore made some observations as to what he saw as a failure to follow the relevant provisions of the Site Agreement and the Code of Conduct. Although he found that the Code's relevant provisions had not been "implemented", he appears to have been of the view that White ACT might have been entitled to dismiss Mr Saunders for gross misconduct. However, it may be that Mr Moore was not expressing this as an opinion but simply as one of the alternative steps that should have been taken. 379 Having noted that reinstatement of the relevant workers had already been agreed (I interpolate, between ADC, following its taking over of the Quadrant site and project), Mr Moore reached his determination. That determination was: "That an exgratia [ sic ] payment of an amount equal to nett weekly wages be made for each week of the dispute, to the affected workers through their union organisations." 380 No doubt, the payment was to be made ex gratia because ADC was not the employer, or otherwise responsible for payment of the wages, of the relevant employees over the time of the dispute, so that any payment by it would be made as an act of grace rather than in fulfilment of some legal obligation. I therefore do not read Mr Moore's recommendation as necessarily inconsistent with the proposition that the relevant workers would have had a legal entitlement, as against White ACT, to be paid such amounts. 381 Whilst Mr Moore's award confirms that the dispute could have been settled by reinstatement of the workers and payment for time lost, it does not seem to me to bear in any way upon whether, under the Quadrant contract, White ACT was obliged to resolve the dispute on this basis. It had been clear, well before Mr Moore became involved, that the dispute could have been resolved on this basis. The real issue is whether it should have been resolved by White ACT on this (or indeed some other) basis. 382 I conclude that White ACT acted reasonably in its handling of the industrial dispute after 29 February 1988. I do so essentially for the reasons given by Giles CJ Comm D at pages 85 and 88 (see para [337] above). It follows, and again I accept his Honour's reasons (page 89 - see again para [337] above) that White ACT did not, in its handling of the industrial dispute, breach its relevant obligations under the Quadrant contract. In substance, I accept the proposition that for White ACT to have resolved the dispute on the terms required by the unions (reemploying the crane crew and paying the crane crew and stood down workers for time lost), without a direction from the Commission, would have had damaging consequences for White ACT both on the Quadrant project and on any other work that it might undertake in the ACT in the industrial climate that, apparently, existed in 1988. I do not think that White ACT's obligations under the Quadrant contract required it to sacrifice its own, legitimate, interests in favour of the interests of ADC. That this was White ACT's attitude was confirmed by the evidence of Messrs Duncan and White, which on this point I accept. It was confirmed to ADC in meetings and correspondence: for example, at a meeting held on 10 May 1988 between Messrs Duncan and Hitchings for White ACT and Messrs Fischer, Ward and Mack for ADC. 383 There are a number of other points to be made about the industrial dispute and the way in which White ACT handled it. 384 Firstly, there is no evidence that any of the director defendants had any involvement whatsoever in the decision to dismiss the crane crew and stand down the other workers. Nor was it put to any of them in cross-examination that, to their knowledge at the time, the dismissals and stand downs were not justified. 385 Indeed, at least in the case of Mr White, there is some evidence to the contrary. I have already referred to his handwritten note on 6 March 1988 of a discussion that he had with Mr Hitchings, a senior employee of White ACT with particular responsibility for the operational region of which, geographically, the ACT formed part. Mr Hitchings (who, I interpose, was not called by White ACT and whose absence was not explained) told Mr White that the unions had imposed work bans and that, some time earlier, the crane crew had been dismissed for misconduct. There was no suggestion in the note that the stance taken by White ACT was other than justified. More importantly, however, the note (absent any explanation to the contrary from Mr Hitchings) supports the inference that it was not until 6 March 1988 that Mr White was even aware of the dismissal of the crane crew. There is no evidence to suggest that any of the other director defendants was aware of the dismissal of the crane crew at an earlier date. 386 Further, the evidence shows that, at the request of Mr Frank McAlary, Messrs White, Duncan and Spinks caused WCL to fund White ACT's defence of the proceedings brought against it by ADC that I have already referred to in these reasons. The key issue in those proceedings was, in substance, whether ADC was justified in terminating the Quadrant contract. In turn, resolution of that issue depended substantially on whether White ACT was entitled to an extension of time equivalent to the duration of the industrial dispute. It could not have been entitled to an extension of time if it had acted wrongly in provoking the dispute by dismissing the crane crew and standing down the other workers, and it could not have been entitled to an extension of time if it had acted unreasonably in failing to settle the dispute by reinstating the crane crew and paying them and the stood down workers for lost time. It is inconceivable that WCL, through Messrs White, Duncan and Spinks, would have committed itself to spend large amounts of money on behalf of White ACT if those gentlemen had not thought that White ACT had at least reasonable prospects of successfully defending ADC's claim. 387 A second matter of significance is that there is evidence to support the conclusion that the TWU actively sought the dismissal of the crane crew. See para [451] below. 388 Thirdly, although ADC wrote to White ACT frequently and at length, urging a resolution of the industrial dispute, there was never a suggestion from ADC that it regarded the dismissal of the crane crew as unjustified. ADC's stated position was that, regardless of the merits, the industrial dispute should be resolved. It is clear that ADC, in particular (but not only) because of Mr Ward's frequent discussions with Mr Berry, was well aware of the events that had led to the industrial dispute. Given the attitude that ADC displayed in 1988, it is inconceivable that, if ADC thought that the dismissal of the crane crew was unjustified (or even of questionable justification), it would not have raised this in its correspondence with White ACT. 389 Fourthly, the evidence shows that the MBA continued to involve itself in the dispute, in an attempt to achieve some resolution. No doubt, this is because the MBA feared that the dispute might flow on into projects undertaken by other members in Canberra. One of the steps taken by the MBA (either through Mr Gillingham or through its executive director, Mr Robert Winnel) was an application made on about 21 April 1988 for an insertion of a "bans clause" in the relevant industrial awards. Although it is not clear, it would appear that the respondents to that application included the FEDFA and the BWIU. 390 Mr Duncan said, and I accept, that the effect of the application, if it were seen to have been made on behalf of White ACT, would have been to inflame the existing situation. I am satisfied that, as at the time the application was made, it was still the desire of the relevant employees of White ACT, including Messrs Houlahan and Bendeich, that the dispute should be resolved. I am satisfied further that, if the unions concerned had perceived that the application for the bans clauses was made on behalf of or with the support of White ACT then resolution of the dispute would have become difficult, if not impossible. 391 When Mr Houlahan became aware that the MBA proposed to apply for bans clauses to be inserted into the relevant awards, he protested vehemently. He said, in a fax to Mr Winnel the date of which is unclear: "WE ARE CONCERNED TO HEAR THAT YOU HAVE PROCEEDED AGAINST OUR INSTRUCTIONS IN APPLYING FOR BANS CLAUSES TO BE INSERTED IN THE B.W.I.U. AND F.E.D. AND F.A AWARDS DUE TO THE INDUSTRIAL DISPUTE AT THE QUADRANT SITE. YOU ARE HEREBY INSTRUCTED AGAIN TO WITHDRAW ALL NOTIFICATION TO THE COMMISSION IN RELATION TO BANS CLAUSES ASSOCIATED WITH OUR COMPANY AND UNDER NO CIRCUMSTANCES WILL YOUR ORGANISATION BE AUTHORISED TO PROCEED WITH ANY SIMILAR ACTIONS WITHOUT THE WRITTEN AUTHORISATION FROM OUR COMPANY. WE VIEW THIS MATTER AS SERIOUS AND REQUEST YOUR WRITTEN CONFIRMATION THAT OUR INSTRUCTIONS HAVE BEEN COMPLYED [sic] WITH." 392 Mr Gillingham responded stating, among other things:

"... 2. The applications have not been made on behalf of your Company. They are general applications. …4. We will therefore be leading submissions and possibly evidence from numerous employers regarding numerous matters, that is direct industrial action, taken by the unions over a long period of time. 5. I repeat the applications have not been made solely on behalf of your organisation. …. "

393 If the intention of White ACT were to prolong the industrial dispute then Mr Houlahan's reaction to the application for bans clauses was completely inconsistent with that intention. Given the lack of any evidence that implicates the director defendants in the day-to-day, or indeed overall, management of the industrial dispute, and given the unexplained failure of White ACT to call Mr Houlahan or any other of its employees who, on the evidence, did have the management of the industrial dispute, I regard this evidence in particular as providing compelling support for the conclusion that White ACT was not seeking, by any means and without justification, to exacerbate and prolong the industrial dispute. This conclusion is supported by Mr White's notes made in March (7 March 1988) and April (22 to 27 April 1988) showing that it was White ACT's intention to resolve the industrial dispute, improve industrial relations on site and "make the job go and catch up". I see no reason to think that those notes reflect anything other than Mr White's genuine views at the time. They show that White ACT was not deliberately prolonging the industrial dispute in an attempt to force ADC to terminate the Quadrant contract. The evidence of Mr Fischer 394 Mr Sydney Fischer is, and at all material times was, the executive chairman of ADC. The late Mr Gordon Ward, formerly a director of ADC, was ADC's main representative in its dealings with White ACT relating to the Quadrant project. Mr Fischer was kept informed by Mr Ward and others of events relevant to that project. 395 Mr Fischer's evidence was given substantially by reference to documents (including notes made by him or others from ADC) at the time of the events to which he deposed. It is clear, and entirely understandable, that Mr Fischer had almost no independent recollection of events. In so far as Mr Fischer's evidence was based on contemporaneous documents, it was reliable to the extent that those documents are reliable. 396 In general, to the extent that Mr Fischer's oral evidence went beyond the contemporaneous documents (either his or Mr Ward's), I do not accept it unless it is corroborated by other, credible, evidence or unless it is uncontroversial or accords with the probabilities objectively determined. I have come to this conclusion for a number of reasons. 397 Mr Fischer's demeanour was unimpressive. He was argumentative. His evidence on a number of occasions resembled more the address of an advocate than the account of a witness doing his best to tell the truth as he remembered it. It is very clear that ADC had suffered a substantial loss in respect of the Quadrant contract: as I have already noted, the damages awarded to it (including interest) in earlier proceedings in this Court exceeded $33 million. Even if one discounts this amount (as the defendants say should be done) the losses must have been substantial. In addition, there must have been very substantial expenditures on costs (see para [17] above). ADC has effected no recovery from White ACT and, to date, no recovery from any other source. 398 It is clear that Mr Fischer blames White ACT and the director defendants for the state of affairs that I have just described. Mr Fischer was described in evidence (by Mr Duncan) as someone who could only see his own side of the story. I accept this as an accurate description. I am certain that this characteristic has coloured Mr Fischer's evidence. 399 Even where Mr Fischer's evidence is corroborated by contemporaneous documents on which he relied, there were, in my opinion, problems with it. That is because, I conclude, there are substantial limitations on the reliability of the documents upon which Mr Fischer relied. Firstly, as to the relevant correspondence emanating from ADC (usually from Mr Ward): that correspondence was clearly partisan and, frequently, argumentative. Secondly, although Mr Fischer would not acknowledge it, one set of notes made by him was inaccurate in one respect. That of itself would not undermine whatever other credibility the notes had once the obvious correction is made, although Mr Fischer's refusal to acknowledge the obvious, apart from demonstrating that he has no independent recollection, casts a shadow of doubt on his credibility. 400 A third, and important, concern is that, as it appeared in cross-examination, Mr Fischer thought or contemplated, at the time the relevant notes were made, that there was likely to be litigation between ADC and White ACT over the Quadrant project. The inference that I draw is that the notes were prepared to justify the stance and actions taken by ADC. I would infer that the same may be said of Mr Ward's notes, given the close working relationship that existed between him and Mr Fischer (as demonstrated by Mr Fischer's evidence) and given that, as Mr Fischer said, it was Mr Ward within ADC who had primary responsibility for the Quadrant project. However, I would not be prepared to extend the inference to the notes prepared by Mr Lindsay Mack (an architect employed by or on contract to ADC). There is no evidence that he was within the circle of management occupied by Mr Fischer and Mr Ward, or privy to their views; and there is no evidence that he was requested by Mr Fischer or Mr Ward to ensure that his notes of meetings portrayed the matter favourably from ADC's perspective. 401 However, the most significant problem that I have with Mr Fischer's evidence (and it relates to the totality of his evidence, including that which is purported to be based on contemporaneous documents) is that, in my opinion, he behaved, and indeed ADC behaved, in a deceptive and underhand way towards White ACT in relation to ADC's dealings with the unions. In substance, I conclude that Mr Fischer, during the period from March 1988 onwards, actively sought to conceal from White ACT, and actively sought to mislead White ACT as to, the extent of contact between ADC and those unions. I am satisfied that Mr Fischer did this because he well understood that White ACT, and more generally the relevant directors and officers of WCL and the White Group, would be most alarmed if they knew of, and would protest vehemently against, the extent of those dealings. Further, I am satisfied that Mr Fischer well understood, at the relevant time, that ADC's dealings with the unions concerned would effectively undermine the position of White ACT in relation to the industrial dispute. 402 Mr Fischer's evidence was concerned almost entirely with the industrial dispute that affected the Quadrant project from 17 February 1988. The substance of Mr Fischer's evidence was that he did not think that White ACT had done what it could and should have done to resolve that dispute. It is clear that Mr Fischer believes, and believed, that White ACT fomented and prolonged the industrial dispute so as to provide it with a means of getting out of what was, from its point of view, an unprofitable contract. 403 At the core of Mr Fischer's oral evidence was his repeated assertion that it was for White ACT, as builder, to solve the industrial dispute and that it was essential that ADC, as the developer, stay out of the dispute. He said that ADC had been given legal advice "not to interfere with any work on the site or anything happening at the site" which, he said, is fairly normal in the building industry. Putting the same concept slightly differently, he said that "you can't tell the builder how to build. I am sorry that is like the golden rule between client and builder, thou shalt not tell the builder how to build". For that reason, Mr Fischer asserted, there had been only limited contact between ADC and the relevant unions whilst the contract was on foot; and any such contact was at the instigation of the relevant union official (Mr Berry), not at the instigation of ADC. Indeed, Mr Fischer went so far as to say that, to the best of his knowledge, there were only two conversations between Mr Ward and Mr Berry. 404 In fact, the evidence shows that there was sustained contact between Mr Ward and Mr Berry in which, among other things, Mr Ward told Mr Berry that ADC was pressing White ACT to settle the dispute with the unions. I am satisfied, notwithstanding Mr Fischer's evidence recorded in the preceding paragraph, that he was at all times aware of the extent and substance of the contact between Mr Ward and Mr Berry. Further, as I find, ADC sought to conceal the extent of its contact with the unions from White ACT. 405 On 7 March 1988, a meeting took place between Messrs Houlahan and Bendeich for White ACT and Messrs Fischer, Ward and Mack for ADC. In the course of that meeting, Mr Houlahan is recorded (in minutes apparently prepared by either Mr Ward or Mr Mack) as having stated that he had "gone out of my way in talking to the news papers [sic] to make sure that there is no suggestion of a dispute between us, someone is feeding them amunition [sic] and we have to get them more isolated from the news papers [sic] and the Unions". Mr Fischer is recorded as having said in reply "I want no contact with either". 406 On 10 March 1988, Mr Houlahan, in a letter to ADC for Mr Ward's attention, referred to advice that Mr Ward had spoken to Mr Berry and said that this was "of grave concern to our Company as it can only lead to further anarchy and escalation of the dispute as we had previously agreed that telephone calls from union representatives would not be accepted by your Company". 407 On 16 March 1988 Mr Ward replied (in a letter to Mr Bendeich) that "obviously at this stage it would be detrimental to your industrial relations for us to make any enquiries as to the reasons for the dispute". 408 In a further reply dated 17 March 1988, Mr Ward sought to play down the extent of his discussions with the relevant union officers saying "that if we … had refused to listen to Mr Berry, it would possibly have led to prolonging the strike". He assured White ACT that "[w]e have endeavoured at all times to avoid any contact with the unions, or to interfere in your problem …". 409 Having regard to Mr Fischer's evidence of the close working relationship between him and Mr Ward, and having regard to Mr Fischer's close personal interest in the dispute with White ACT, I conclude that those letters were written with either the prior or subsequent approval of Mr Fischer. In other words, I am satisfied that Mr Fischer, either before those letters were written or afterwards, knew of and acquiesced in their contents, and took no steps to indicate any inaccuracy in them to White ACT. 410 I am further satisfied that, on a fair reading and in the context of the discussions and correspondence that had passed between White ACT and ADC, those letters were intended to understate, or downplay, the true extent of the dealings that had already taken place between the relevant union officers and ADC. I am satisfied, for reasons that I shall state in dealing with the evidence of Mr Berry, that there had already been more substantial contact between Mr Ward (in particular) and Mr Berry, and that such contact continued thereafter, and indeed intensified. 411 At this stage, I turn to discuss the "rocky road" conversation and events leading up to it. 412 At around the same time as Mr Ward was writing to, and being written to by, Messsrs Houlahan and Bendeich, Mr Fischer sought to involve Messrs White and Duncan. On 10 March 1988, he wrote to them referring to attempts to contact them by telephone and requesting "that you contact me by telephone or advise a number and suitable time when I can call you". Mr White made a note on that letter to Mr Duncan that Mr Fischer should be phoned "probably Mon/14/3/88 …". 413 Thereafter, Messrs White and Fischer became entangled in correspondence and discussions based on Mr White's view that the Quadrant tender price had been wrongfully, and probably fraudulently, reduced, to a level where it was necessarily unprofitable to White ACT. They had a meeting on 17 March 1988, but that meeting did nothing to resolve matters. 414 On 18 March 1988, Mr Duncan wrote, on without prejudice basis, to Mr Fischer. He proposed, as "a mutually acceptable solution", that White ACT and ADC in effect complete the Quadrant project as joint venturers. That letter was handed by Mr Duncan to Mr Fischer at a meeting that took place on 18 March 1988. Mr Fischer made notes of that meeting. Mr Fischer, having read the letter, said "our Company has a building contract with your company and wants performance of that contract and would not be interested in going into a joint venture with your Company". 415 Thereafter, according to Mr Fischer, the conversation went as follows: "T.D. This is the way to solve our problems and will mean that the building will be built now and not in 5 years time. S.F. If you are saying that we will be forced to claim liquidated damages or alternatively you will be claiming extensions of time so be it. We are both big boys and can look after our respective rights and if we have to go to law we can both afford it and only the lawyers will benefit from it. So my advice is to get on with the job. T.D. If you insist on the contract going on that way it will be a rocky road and I will put every stone in the road to make it a hard road. S.F. Well if you want to do it that way we will be forced to resist to our utmost. T.D. Would you look at some compromise on the terms of the letter to solve the problem. S.F. Look we both know you have an onerous contract on your hands. However we want to stay with the terms of the contract as we want the building built so that the development will be completed on time.

… T.D. Well we would like to do a deal with your [sic] to find a solution to our problems. If we don't find a solution it will be a rocky road and could take five years to finish. S.F. If the whole union problem has been brought on to force us to negotiate a new form of deal with your [sic] forget it as we will not easily [sic] shaken from our resolve to stay with the terms of the contract. T.D. Your [sic] sure there could be no variation of the terms of the letter I have handed to you today. S.F. Well if you wanted to buy us right out of the development I would ask our people to look at it but I don't think the Government would let us sell the land as they don't like people dealing in land with [sic] until the building work and development are complete. T.D. If we tell them about our problems they may allow the land to be sold or transferred. S.F. I don't think so but on the basis of your request we will look at a solution to see if we can see a way of solving the problem to our mutual satisfaction. T.D. That would be a good ideas as it could take 5 years the other way." (emphasis supplied) [I have omitted matter relevant only to the allegation that White ACT's tender was deliberately underpriced.] 416 Mr Fischer said that his notes were a substantially complete and accurate record of the conversation. Mr Duncan denied that he had said the words that I have emphasised in bold print. 417 As I have said in para [147] above, I find that a conversation did occur in substantially the terms alleged by Mr Fischer. Specifically I find that Mr Duncan did use, in the course of the conversation, the words that I have emphasised. 418 It is clear that White ACT continued to be concerned that ADC was involving itself in the industrial dispute between White ACT and the relevant unions. This is shown clearly by the minutes (in draft, but not said to be for that reason inaccurate) of a meeting that took place on 10 May 1988. Messrs Fischer, Ward and Mack were present on behalf of ADC and Messrs Duncan and Hitchings were present on behalf of White ACT. The minutes record, among other things, the following: "T.D.: Firstly we are here to discuss the industrial situation. It doesn't look like improving in the foreseeable future. S.F.: We've written to you advising that we intend to meet with the unions and attempt to solve the matter. T.D.: White's have responded to that advice and you've been in touch with the unions all along anyway. G.W.: That's not correct. The unions have rung us twice. The first time they rang I just listened to what they had to say without comment. The second time they wanted to call a meeting and we simply said that we would get back to them. Both conversations were taken on the loud speaker phone and the conversations were recorded." 419 The attitude shown by Mr Duncan in this passage can hardly have come as a surprise to Mr Fischer: on 6 May 1988, Mr Duncan had written to ADC objecting to its "further intervention into this dispute with the Unions" and noting that its "intervention will almost certainly prolong and exacerbate that dispute". Mr Duncan asserted that ADC would be in breach of the contract if it did so and that White ACT would hold it liable for damage. Mr Fischer acknowledged that he had read this letter prior to the meeting of 10 May 1988. 420 The minutes also record the following: "D.H.: Your conversations with the unions seem to have been prejudicing our negotiations … every time we take three steps forward we take four steps backwards. G.W.: We have been very careful in our business. We've recorded these conversations as we have recorded others. T.D.: Is this conversation being recorded? S.F.: No. The industrial situation is known all around Canberra. It seems to be general knowledge. T.D.: It certainly does appear to have been discussed around Canberra. S.F.: We have been advised by a third party the basic terms of a settlement were negotiated with the unions by Houlahan and that he said that it had to go to White's Board for approval. No settlement transpired so we assume your Board did not go along with the negotiated terms of settlement. T.D.: There were no possible terms on [sic] settlement negotiated and it did not go to our Board." 421 It was suggested to Mr Fischer that the "third party" to whom he referred in the passage just quoted must have been a union official. Plainly, it was: it could only have been the union and White ACT who knew of the status of discussions; and, in the context of a discussion with White ACT, Mr Fischer would hardly have referred to that company as "a third party". His refusal to accept the obvious, as well as indicating his sensitivity on the general topic of the extent of ADC's dealings with the union and his desire to show it as minimal, does not reflect well on his credibility. 422 On 12 May 1988, Messrs Fischer and Ward met Mr Berry and Mr Rod Driver of the BWIU. Mr Ward's notes of that meeting suggest that it occurred "at the invitation of B.W.I.U.". Mr Berry gave a history of the negotiations (of course, from the BWIU's standpoint). It is apparent that any resolution of the dispute that would be acceptable to the BWIU and the FEDFA would involve at least the following elements:

(1) Paying out the contract of Mr Saunders - I take this to mean, paying him in effect the full amount that he would have earned had the project proceeded to completion and had he remained employed.

(3) Resolution of payment for lost time, either by negotiation or by arbitration. 423 The justification advanced for the requirement to pay out Mr Saunders' "contract" was said to be that he had been told he would be the crane driver for the job at a certain salary so that "he has a contract for the duration of the job at the agreed wage". Since, Mr Berry said, there was no ground for his dismissal, White ACT would "have to pay out his contract" if they did not want him on the site any longer. 424 It is apparent, from the evidence that I have referred to, that the information conveyed by Mr Berry to Messrs Fischer and Ward had already been conveyed by him to Mr Ward in previous discussions. It is hard to see what purpose was served by the meeting other than to ensure that Messrs Fischer and Ward knew, on what might be called an open basis, that of which they were already, undoubtedly, aware. 425 One significant piece of evidence that Mr Fischer gave is set out in the following passage from T 61: "Q. And Mr Fischer, it would be right to say, would it, that one of the reasons why client and union should not bypass a builder is that union representatives might take heart from any encouragement given to them by the client to hold out longer in their dispute with the builder; isn't that right? A. Well, it depends on what happened. I mean, if Berry rang Ward, I mean, you have to be polite. You can't tell them to go away.

Q. I am not asking you a particular question. At the moment, I am asking you a general question. Will you agree with me that if there is a dispute between builder and union, it is very undesirable for the client to have direct communications with the union about the matter? A. Yes.

Q. And the reason for that - one reason for that, I want to suggest to you, is that the union might be encouraged to persist in an inappropriate negotiating stance if the union thinks that the client isn't standing behind the builder; do you agree with that? A. Yes, to a certain degree.

Q. And if for example, the union knows, or is told by the client that the client has told the builder to compromise with the union, that puts the builder in an impossible position; doesn't it? A. It would if the client told the union, yes."

426 The significance of that evidence becomes clear when one considers the evidence, to which I will shortly turn, that demonstrated the extent of the contact between ADC and the unions in relation to the Quadrant dispute. 427 Another matter of significance to emerge from Mr Fischer's evidence is that ADC has funded both the present litigation and examinations conducted by the liquidator of White ACT in 1999 and 2000. I infer - and, realistically, I do not think that it could be disputed - that the present litigation is being conducted for the benefit of ADC. It is clear that, through this litigation, ADC seeks to recover at least some portion of the damages that it was awarded in the earlier proceedings, as well as the costs that I have referred to in para [17] above. The evidence of Mr Berry 428 Once the dispute broke out on the Quadrant site, Mr Berry became involved because members of the BWIU were affected. I have taken into account some of Mr Berry's evidence in the account of the industrial dispute that I have already given.

429 It is clear that, although Mr Berry was an official of the BWIU, he was concerned at the time, in his dealings with White ACT, to protect the interests not only of BWIU members but also of Mr Saunders and the dogmen, who were FEDFA members. That, no doubt, arose from the fact that the BWIU and the FEDFA were then in the process of merging, as I discuss later in these reasons.

430 Mr Berry's evidence, which in substance I accept as to matters of fact, was that he first initiated contact with Mr Ward at some time between 24 February and 10 March 1988 (those dates being fixed by, respectively, Mr Berry's return from holidays on the former date, and a minute of a meeting on the latter date, which made it clear that communication between them had started some time earlier). 431 Mr Berry agreed that he was in regular contact with Mr Ward throughout March, April and May 1988, from whenever it was that the conversations began (i.e., between 24 February and 10 March) and right up until 12 May 1988. Although Mr Berry first initiated contact, thereafter each would ring the other, and did so regularly. 432 Mr Berry said that the subject of their discussions was the stance that the BWIU was taking with White ACT. He and Mr Ward would review the situation regularly "to see if we could break the impasse". This, apparently, occurred "on a needs basis" but generally before and after meetings between the BWIU and White ACT. Mr Berry said that later, in April and May, ADC "got more actively involved in discussing - discussions with me as to what it would need to settle the dispute". 433 One example of such discussions can be found in paragraph 35 of Mr Berry's statement. In that paragraph, among other things, he said that Mr Ward confirmed that ADC had suggested to White ACT "[t]o compromise with the Unions, but Whites won't budge on the crane drivers". 434 Mr Berry said further in his statement that, on 10 May 1988, Mr Ward spoke to him by telephone and said that "[a]gainst our legal advice, we would like to speak to senior members of the Union …". A meeting was arranged. Before that meeting took place, Mr Berry had discussions with Mr Houlahan. He then had the meeting with Mr Ward that had been arranged, and took place, on 19 May 1988. It is clear that they discussed what had passed between Mr Berry and Mr Houlahan. Mr Ward then enquired, if White ACT did not resume work, "would the Unions co-operate and are any of the subcontractors owed money?". Mr Berry quantified the lost time of the union members at about $70,000 which "can be negotiated", said that he would find out if any subcontractors were owed money, and said "[t]he Union will co-operate fully with the new Builder". 435 A week later, Mr Berry spoke by telephone with Mr Ward prior to a meeting with White ACT in which, after discussing the situation, Mr Ward said: "We are getting advice as to what steps we can take. We will advise you in due course. …" 436 On 3 June 1988, Mr Berry had further conversations with Mr Ward. In the first of those conversations, Mr Ward said, "I hope the matter can be settled shortly, if I have your co-operation". In the second of those conversations Mr Ward asked, confidentially, for advice "in writing [as to] the basis of a settlement". 437 The contrast between Mr Fischer's stated position, as set out in the passage quoted in para [425] above, and the extent and nature of the dealings between Messrs Berry and Ward, is stark. 438 I mean no criticism of Mr Berry in saying this. His duty was to his members, and nothing that he did could be regarded as inappropriate in the circumstances that existed. Nor should I express any criticism of Mr Ward: in the circumstance that he is not alive to defend his actions, I do not think that I should say anything other than that he was no doubt seeking to advance the interests of ADC. However, viewed objectively, and taking into consideration Mr Fischer's evidence, it is clear that the extent and nature of the dealings between Mr Ward and Mr Berry substantially undermined the position of White ACT in its dealings with the unions. 439 Two other matters of significance arise from Mr Berry's evidence. 440 The first is that Mr Berry had (and was told that other union officials had had) substantial discussions with Messrs Bendeich and Houlahan (Mr Houlahan was Mr Bendeich's immediate superior) in relation to the possible resolution of the industrial dispute. Mr Berry was told by Mr Houlahan, on a number of occasions, that the decision to resolve the industrial dispute could not be taken by Mr Houlahan but was one to be taken by the directors of White ACT. Mr Berry gave evidence that, in effect, Mr Houlahan was reasonable, and prepared to work to resolve the dispute in a reasonable way, but that (as Mr Berry understood it, from what Mr Houlahan had told him) he was prevented from doing so because of instructions from the board of White ACT. 441 The second matter is that, in April and May 1988 (following intervention by Commissioner Baird on 22 April 1988) Mr Berry suggested to Mr Houlahan that what by then was an impasse could be resolved if the workers in question (including Mr Saunders and the dogmen) were reinstated and the question of lost time was decided by the Commission. Mr Houlahan, apparently, rejected this proposal (Mr Berry says, on instructions from the board of White ACT) because it involved the re-employment of Mr Saunders. 442 Thereupon, Mr Berry put a varied proposal to Mr Houlahan, based on the premise that Mr Saunders had a "contract" to be employed until the date in 1989 when the Quadrant contract should have been completed. The varied proposal involved "paying out" Mr Saunders' "contract" - i.e., as I understand it, paying to Mr Saunders a lump sum representing the value of the payment that he would have received if employed from the date when he was dismissed up until the date when the Quadrant project should have been completed. 443 The numerous references to Mr Houlahan's involvement need to be considered bearing in mind that White ACT did not call, and did not explain its failure to call, Mr Houlahan. In those circumstances, I do not accept as probative of the asserted underlying facts Mr Berry's evidence of what Mr Houlahan had from time to time said to him. The evidence of Messrs Gartrell, Lamont and Wason 444 In 1988, Mr Gartrell was the assistant state secretary of the New South Wales Branch of the FEDFA. Mr David Lamont was the secretary of the Canberra branch of the TWU. Mr George Wason was the assistant secretary to Mr Berry in the ACT branch of the BWIU. As with Mr Berry, I have taken account of some of their evidence in the account of the industrial dispute that I have given. 445 Between them, these three gentlemen and Mr Berry represented the unions that were involved in the industrial dispute on the Quadrant site between February and August 1988. However, it was only Mr Berry who had significant dealings with ADC. 446 The evidence of Messrs Gartrell, Lamont and Wason is that they regarded White ACT as being, in effect, intransigent and unreasonable in relation to the dispute. (It is clear that Mr Berry shared this view.) They contrasted the industrial relations on the site between February and August 1988 unfavourably both with those that had existed earlier on the site (in 1987) and with those that had existed on other White ACT projects in the ACT. 447 I think it is clear that, to some extent, Messrs Gartrell, Lamont and Wason were looking at industrial relations in 1987 (and on other sites) through rose coloured spectacles. However, despite this qualification, I do accept that the industrial dispute on the Quadrant site in 1988 was far more severe, both in duration (self evidently) and in intensity, than the industrial disputes that had affected other projects of the White Group in the ACT and the Quadrant site itself during 1987. But it does not follow from this either that White ACT was in the wrong in the 1988 dispute on the Quadrant site, or that its handling of that dispute should be characterised in the way for which White ACT (effectively, in the interests of ADC) contended at the hearing. 448 Mr Gartrell's evidence did little more than confirm what was apparent from the transcript of the proceedings before Commissioner Baird on 26 February 1988, and that, in compliance with the Commissioner's directions, Mr Gartrell had "counselled" Mr Saunders and had offered appropriate undertakings to officials of the TWU. 449 Mr Lamont gave evidence that it was his opinion, in February in 1988, that Mr Saunders' presence on the Quadrant site was "undesirable … [g]iven [his] actions at that time". He said that it concerned him "that, notwithstanding the resolution of the dispute [as to coverage of concrete pump operators], that there was the opportunity of further dislocation". It is apparent from Mr Lamont's evidence that the undesirable actions of Mr Saunders included that he threatened physical violence to Mr Schultz, a TWU organiser, and TWU members. Mr Lamont viewed Mr Saunders' actions as intimidation of TWU officials and members, and as "a serious industrial matter". 450 Although Mr Lamont would not adopt the language of "bans" or "pickets", it is clear from his evidence that on 18 February 1988, after the actions of Mr Saunders in placing the pipe behind the concrete pump truck and threatening violence to TWU members, that the TWU took steps to stop its members from going onto the site and that the effect of these actions was that TWU members would not, whilst those steps were in place, enter the site. The result was, necessarily, that no deliveries would be made to the site whilst what were in substance bans were in place. 451 It is also clear from Mr Lamont's evidence that on 19 February 1988 he had a discussion, at the ACT offices of the TWU, with Mr Gillingham of the MBA (Mr Schultz of the TWU was also present). He agreed that he said, in the course of that discussion, words to the following effect: "The crane driver and crew should be terminated. Furthermore, I want a guarantee from Whites that my union members on this site have their safety guaranteed by the company." 452 It is apparent from this that Mr Lamont believed, at least as at 19 February 1988, that the conduct of Mr Saunders and his crew up to that date justified their dismissal from the Quadrant site. 453 It was clear from Mr Wason's evidence (as it had been clear from the evidence of Mr Berry) that, in 1988, there was a very close working relationship between the BWIU and the FEDFA. Those two unions, and others, had taken coverage of workers who had belonged to the (by then) de-registered Builders' Labourers Federation. They later amalgamated to form the Construction, Forestry and Mining Employees' Union ("CFMEU"), of which Mr Wason is now an official in the ACT. In 1988, the BWIU and the FEDFA were in the process of amalgamation. They shared premises and, on a number of occasions, shared letterhead. 454 Mr Wason's account of the meeting of 23 February 1988 confirms that the presence of Mr Saunders and his dogmen did not assist in resolving the dispute. However, it also confirms that, at the meeting, the BWIU raised a number of issues separate to those arising out of Mr Saunders' actions on 17 February 1988. Those separate issues related to things that, Mr Wason said, had been earlier agreed with Mr Will Simons of White ACT: including the provision of a canteen on site, or the employment of people whose duties would include obtaining hot food for workers; the rates of pay or allowances for workers in various categories; and other matters. It is apparent from Mr Wason's evidence that he at least saw the meeting as an opportunity to discuss not (or not only) Mr Saunders' actions on 17 February 1988, but what the BWIU saw as White ACT's "backsliding" from the matters that were said to have been agreed with Mr Simons. Mr Wason says that he, and other BWIU representatives, left the meeting when White ACT made it plain that it was there to discuss Mr Saunders' actions and their consequences and not the other issues. THE DIRECTOR DEFENDANTS' STATE OF MIND: THE INDUSTRIAL DISPUTE 455 I have found that White ACT was justified in dismissing Mr Saunders and his dogmen, and in standing down the other workforce employed by it on the Quadrant site: see paras [362], [364] and [365] above. I have also found that the approach that White ACT thereafter took to settlement of the industrial dispute was justifiable, and that White ACT did not breach the Quadrant contract by refusing to settle the industrial dispute on the terms that had been propounded as acceptable by the BWIU and the FEDFA: see para [382] above. 456 To the extent that the director defendants were involved in these matters, I find that they believed that White ACT was justified in the dismissals and stand downs, and in refusing to settle the industrial dispute on the terms apparently required by the BWIU and the FEDFA. I also find that the director defendants believed that White ACT was not in breach of its obligations under the Quadrant contract by taking the attitude that it did towards settlement of the industrial dispute. 457 I emphasise, yet again, that I include Mr Frank McAlary in this for the sake of completeness and not because he was, at the relevant time, a director of White ACT. He was, of course, a director of WCL; and it is clear that such knowledge as he gained, and such beliefs as he held, were gained and held by him in that capacity. 458 It would follow from my findings that, subject to giving the appropriate notices, White ACT was entitled to very substantial extensions of time under the Quadrant contract. The director defendants said either that they assumed that the relevant notices had been given, or that they did not know, and had no reason to believe, that the relevant notices had not been given. I find that they held the belief (although, as events have shown, it was mistaken) that the relevant notices had been given. Accordingly, I find that they believed that White ACT was entitled to an extension of time to complete the Quadrant contract, the extension being, in rough terms, equivalent to the duration of the 1988 industrial dispute. 459 It follows, and I find, that the director defendants did not believe that ADC had a valid, let alone a substantial, claim against White ACT. On the contrary, I find that they believed that White ACT had right on its side when, after ADC served its notice of termination, White ACT treated that as a repudiation and accepted it as discharging White ACT from further performance. 460 As I have already noted, ADC did not bring proceedings until August 1991. Of course, its correspondence in 1988 (prior to termination) had asserted that White ACT was in the wrong; and its notice of termination had relied upon White ACT's failure to rectify the breaches complained of in the notice of intention to terminate. However, at that time, the key to a resolution of who was right and who was wrong was the existence and extent of any entitlement on the part of White ACT to an extension of time; and I have set out above my finding as to the director defendants' beliefs on that and related issues. 461 It was Mr Frank McAlary who gave the closest consideration to these matters; hardly surprising, given both his profession and, after October 1988, his ownership of White ACT. His evidence was, in substance, that although the result could not be regarded as certain (a sentiment that would be endorsed by anyone with any significant experience of litigation) he thought that ADC would not be able to justify its termination of the Quadrant contract, so that White ACT would be upheld in its claim that ADC had repudiated the contract. In the light of events as I have found them, and in the light of his understanding (as to the giving of notices) that I have found, his evidence seems to me to be entirely credible and I accept it. 462 My findings as to the state of mind of the director defendants' are reinforced by a number of matters. Firstly, as to all of them, there is the circumstance referred to in para [386] above: the provision of substantial funding by WCL to White ACT to defend the ADC claim when, finally, it was brought. Although the claim was brought in 1991, and there had been hearings in 1992 and 1993 (see the chronology in para [16] above), it was not until July 1994 that Mr McAlary sought financial assistance from WCL and WIAL, and that they agreed to provide such assistance. 463 Mr Frank McAlary said that, at the time he sought financial assistance, he "made a major attempt to see who was likely to succeed" in the litigation. This he did by spending "two weeks working full time at the offices of [White] ACT's solicitor, Moray & Agnew, attempting to review all of the relevant material". He says that he discussed the matter with solicitors and counsel, and that he "had an engineering opinion from a well qualified engineer … ". He said: "In the end I remained of the opinion I had held from August 1988 … , namely that unless ADC could establish, the onus being on it, that [White] ACT was guilty of a fundamental breach of contract, the action of ADC in terminating the contract and expelling [White] ACT from the site was a repudiation by ADC of its contractual obligation. Accordingly [White ACT] would succeed unless ADC could discharge the onus on it. From what I knew I did not think that would occur." 464 He adhered to this evidence in cross-examination. 465 I accept this evidence. It is of course consistent with the view that was implicit, if not explicit, in the advice given by Mr Frank McAlary to Mr White as recorded in Mr White's handwritten note of 6 March 1988. It is also, in my view, consistent with the probabilities objectively regarded, having regard to what Mr Frank McAlary knew and understood at the relevant time. 466 Further, it is corroborated by:

(1) A file note of Moray & Agnew dated 12 August 1994, reporting on a conference with Mr Frank McAlary and Messrs Wells and Spinks. It includes the following note: "On the industrial side Frank is to contact Mr Ludeke. Frank's view is objectively Whites [sic] conduct in the industrial dispute appears to be reasonable."

(2) A handwritten note of a partner or employee of Coopers & Lybrand, made on a facsimile transmission dated 3 July 1995 from WIAL to that firm, records: "Equally, White Constructions (ACT) Pty Ltd has a cross-claim against ADC, which Mr McAlary is confident that White Constructions (ACT) will win." 467 In my view, it is reasonable to treat both of these documents as containing contemporaneous records made by third persons of Mr Frank McAlary's views at the time they were apparently made. I see no reason to think that Mr Frank McAlary would have expressed, either to White ACT's solicitors or to its auditors, a view that he did not hold. 468 I have no doubt that, from time to time (both before and after ADC commenced its proceedings), Mr McAlary conveyed his views to Messrs White, Duncan and Spinks. I have no doubt that they would have accepted those views. It would have been reasonable for them to do so. I have no doubt that it was, partly, because of the views expressed by Mr Frank McAlary that WCL or WIAL provided funding to White ACT, after July 1994, to enable it to continue to defend ADC's claim. 469 I set out in para [106] above criticisms of what White ACT identified as ten key points in the evidence of the director defendants. The third of those relates to the alleged fundamental flaw in the "story" relating to the recoupment of White ACT's tax losses. 470 The criticism made by White ACT necessarily assumed that the director defendants, as at 14 October 1988, appreciated that ADC had a valid claim against White ACT that was likely to sound in substantial damages. Absent such an appreciation, there was no reason to think that Mr Frank McAlary would have to reach an accommodation with ADC before he could safely take advantage of the tax losses. The conclusion that I have just reached, in relation to the director defendants' state of mind as to ADC's claim, dictates that this criticism of the director defendants' evidence cannot be substantiated. RESOLUTION OF THE ISSUES ON THE PLEADINGS 471 I now turn to consider, and set out my conclusions as to, the issues raised by the pleadings. To a large extent, as foreshadowed in para [99] above, the conclusions to which I have come will be apparent from what I have already said. In those cases I will do no more than state the conclusion and cross-reference it to the paragraphs of these reasons that support it. However, to the extent that this is not so, I will set out my analysis of the facts and of any relevant principles of law. 472 References in the following headings to "paragraph(s)" are references to the appropriate paragraph(s) in White ACT's statement of contentions.

Paragraphs 2 and 3: who were directors? 473 Subject to the "de facto director" allegations that I consider later in these reasons, there was no real issue on this point. For the sake of clarity, I find that Messrs White, Duncan and Spinks were appointed, and acted, as directors of White ACT at all material times up until their resignations on 28 November 1988. I find that Messrs Frank and Michael McAlary were not appointed, and did not act, as directors of White ACT prior to their appointment as such on 28 November 1988. 474 In what follows, references to "the director defendants" should not be taken as expressing any view inconsistent with that set out in the preceding paragraph, or as indicating a view contrary to my conclusion on the "de facto director" allegations in relation to Messrs White, Duncan and Spinks that are considered below in relation to paragraph 28. Paragraph 10: insolvency 475 I find that White ACT was not insolvent at 30 June 1988, at 14 October 1988, or at any other material time up until and including 30 June 1993. See paras [261] to [319] above. Paragraph 11: director defendants' knowledge of insolvency 476 Given that I have found that White ACT was not insolvent at any material time, I do not think that the director defendants could have "known" that it was insolvent. See para [320] above. 477 Further, I conclude that the director defendants did not at any time believe that White ACT was insolvent. See paras [321] to [330] above. 478 Finally, and if, contrary to my finding White ACT was at any material time insolvent, I find that: (1) The director defendants did not know of this; and (2) The director defendants did not believe that it was. Paragraph 12: White ACT's contractual obligations 479 Again, there was no controversy as to these matters. I find that the allegations set out in this paragraph are made out. Further, I find that White ACT's roles in the various contracts are as set out in para [22] above. I add only that, in relation to para [22(3)], WPDL effectively became substituted for WIL pursuant to the novation agreements referred to in paras [88] and [97] above.

Paragraph 13: director defendants' knowledge of likelihood of loss under the Quadrant contract

480 I find that, as at 29 February 1988, the director defendants knew that if White ACT were to complete its obligations under the Quadrant project, it would be likely to incur a loss. I find further that they knew that the projected amount of the loss was then said to be $500,000, but that, by 4 March 1988, they knew that the projected loss was said to be $4,789,000. See para [326] above.

481 I find that the director defendants did not receive, and were not otherwise made aware of the contents of, the Rawlinsons report. Specifically, I find that they were not made aware of the likely loss of $6,953,000 projected by that report. See paras [328] and [329] above.

Paragraphs 14 and 15: notice of intention to terminate/notice of termination of the Quadrant contract 482 There was no controversy as to the giving of the notices, and no real controversy as to the entitlement of ADC to give them. I find that, on or about 8 July 1988, ADC gave written notice to White ACT of ADC's intention to terminate the Quadrant contract.

483 I find that, on or about 11 August 1988, ADC gave written notice to White ACT of ADC's termination of the Quadrant contract.

484 In each case, I find that ADC was entitled so to act. I have not separately considered this issue, but I have read and considered, and adopt, the reasoning of Giles CJ Comm D in his reasons for judgment given on 30 January 1996 in proceedings No. 55041 of 1991 in this Court. I acknowledge that, unlike his Honour, I have come to the view that White ACT was entitled to dismiss the crane crew on 29 February 1988 and to stand down the rest of the workforce employed at the Quadrant site. However, that difference of opinion does not in any way affect my reliance upon his Honour's overall conclusion, which was based not on that particular finding, but upon his finding that the provisions of the Quadrant contract relating to extensions of time were not engaged because the relevant notices had not been given.

Paragraph 16: director defendants' knowledge relating to termination of the Quadrant contract 485 There was no real controversy as to knowledge of the events (as opposed to knowledge of, or belief or understanding as to, the underlying dispute). I find that, as at 14 October 1988, the director defendants were aware that ADC had acted to terminate the Quadrant contract, and that it had taken this action because of what it said were White ACT's defaults under that contract (as set out in the Notice of Intention to Terminate).

486 I find that the director defendants did not know that White ACT had in fact defaulted. Further, I find that they did not believe that it had defaulted. I find that they were aware that progress of the works under that contract had been held up by reason of the industrial dispute, so that, absent an entitlement to extension of time, White ACT could not complete the contract according to its terms. However, I find, they believed that White ACT was entitled to an extension of time in effect equivalent to the duration of the industrial dispute. See paras [458] and [459] above.

487 Accordingly, I find that the director defendants did not know, as at 14 October 1988, that White ACT had become liable to ADC in a very substantial amount by reason of the alleged defaults and the purported termination. Further, I find that they did not believe that this was the case. On the contrary, I find that they believed that, on balance, ADC would be unable to justify its termination of the Quadrant contract, with the result that, on balance, it would be found that the contract had been discharged by repudiation (White ACT having, to their knowledge, given notice to ADC treating its notice of termination as a repudiation of the contract and accepting that repudiation as discharging White ACT from further performance). See paras [458] to [468] above.

Paragraph 17: judgment in ADC's favour 488 The fact of the judgment, as opposed to its significance (and the circumstances in which it was obtained), was not a matter of controversy. I find that in proceedings No. 55041 of 1991 in this Court, ADC recovered judgment against White ACT in the sum of $33,593,268, together with interest and costs. That judgment was ordered on 5 March 1989.

489 Notwithstanding the matters of defence that the defendants assert in relation to paragraph 17 (see para [26] above), there is nothing in the material before me that would enable me to conclude that the judgment sum was anything other than the amount of loss or damage suffered by ADC in respect of the defaults alleged under the Quadrant contract. It may be accepted that (for example) White ACT took no substantive part in the reference before Mr Morrisey, and did not make submissions on the adoption hearing before Einstein J. However, it does not follow that I should treat the judgment debt as anything other than what it is: namely, an entitlement evidenced by and arising pursuant to a judgment of a superior court of record.

Paragraph 18: divesting White ACT of assets and future revenues 490 Although, in substance, I conclude that the impugned transactions occurred, I find that (with limited exceptions) the director defendants did not direct that those transactions be implemented, so that I find that (again with limited exceptions) the director defendants did not take "the steps described" in paragraphs 21, 22 and 29(a). The principal exception is, of course, that Messrs White, Duncan and Spinks (among others) caused WCL to sell the issued capital in White ACT to Mr Frank McAlary.

Paragraph 19: purpose 491 To the extent that I have found that the director defendants did not take "the steps described" in relation to the impugned transactions, it follows that they could not have had any purpose "in taking such steps". However, to the extent that they did take some of the steps alleged, I do not find that their purpose was "to leave no assets of the plaintiff available to meet the claim of ADC against the plaintiff under the Quadrant contract". 492 Specifically, as to the sale by WCL to Mr Frank McAlary of the issued capital in White ACT, I find that this was done pursuant to Mr Frank McAlary's request, because (as he then thought) he would be able to take advantage of the tax losses. That is to say, I find that the "purpose" of the sale (WCL having no further use for White ACT, as was then believed) was to enable Mr Frank McAlary to attempt to take advantage of tax losses that would otherwise have no prospect of recoupment. See paras [165] to [177] and [470] above.

493 In the result, there was no real controversy as to the state of the intercompany loan accounts although, on the evidence, they were not all as asserted in paragraph 20 of the statement of contentions. I find that, as at 30 June 1988, the assets of White ACT included the following debts due to it: (1) owed by WCL: $12,047,147 (2) owed by White Qld: $ 510,344 (3) owed by PDC Constructions: $ 91,745. I take these figures from the evidence of Mr Watson.

494 For completeness, I mention that Mr Watson's evidence shows that, as at 30 September 1988 (the closest date to 14 October 1988 for which the evidence reveals figures), the debt owed by WCL had reduced to $11,858,876, but that the debts owed by White Qld and PDC Constructions had not changed.

495 The evidence does not prove the debt said to have been owed, as at 30 June 1988, by WCISS.

496 Again, in the result, there was little controversy, although the figures that were proved differ somewhat to those alleged in paragraph 21 of the statement of contentions. I find that, as a result of the journal entries effected on or around 30 September 1988, the amount then owing by WCL (which, on the evidence, would appear to be $11,858,876) was fully extinguished, and that instead White ACT became a debtor of WCL in the amount of $802,371. I note that this corresponds exactly (rounded off) to the amount alleged in paragraph 21(a), but (on Mr Watson's evidence) represents complete, rather than partial, extinction of the debt owed by WCL to White ACT.

497 Further, I find that the debts owed to White Qld and PDC Constructions were fully extinguished.

498 The evidence does not prove that any debt that may have been owing by WCISS was extinguished, or reduced.

Paragraph 22: offsetting of debts 499 Again, in the result, there was no substantial controversy as to the matters alleged in this paragraph. I find that, with one minor exception, the offsettings alleged in paragraph 22(a)(i) to (v) were effected. The qualification is that, on Mr Watson's evidence, the debt owed by White ACT to the eleventh defendant was reduced by an amount of $710,479. This left a balance owing of $101, which Mr Watson agreed was immaterial. If one combines the amount offset with the remaining balance, the antecedent debt would appear to have been $710,580 - $14 more (in round figures) than the amount alleged in paragraph 22(a)(i). No one has suggested that this is material; and had such a suggestion been made, I would not accept it.

500 Further, I find that PDC Plant Hire paid out in full the amount owing by White ACT to its bank, the State Bank of New South Wales, on overdraft. I find further that the overdraft was secured by (among other things) a debenture charge given by PDC Constructions over the whole of its assets and undertakings. I find further, although it is not alleged in paragraph 22, that White ACT had likewise given a debenture over the whole of its assets and undertakings, as security for its own indebtedness and the indebtedness of other White Group (or WCL Group) members to the Bank, and that this charge, and the contingent liability of White ACT under its guarantee, were extinguished as part of the transaction whereby its overdraft was paid out.

501 Except that Mr Watson's evidence reveals that, after the journal entries were effected on about 14 October 1988, White ACT became a debtor of WCL to the extent of $802,371, the evidence does not enable me to make a finding in terms of paragraph 22(c).

502 The only controversy was as to the word "purported" in this paragraph. I have not the slightest idea what was intended to be conveyed by that word, given that White ACT asserted that the sale had taken place, and no other consideration was alleged. I find that on 14 October 1988, WCL agreed to sell, and Mr Frank McAlary agreed to purchase, the whole of the issued capital in White ACT upon the terms of the Heads of Agreement referred to in paras [174] and following above. I find that the consideration for that sale was the sum of $1.

Paragraphs 24 and 25: agreement to pay claims of creditors

503 I find that no agreement was made in the terms alleged in paragraph 24. The making of that agreement was denied by the director defendants. There is no other basis in the evidence for finding that such an agreement was made. Indeed, as I have observed, there is material (including in Mr Watson's evidence) that is inconsistent with the making or existence of such an agreement: see para [278] above. 504 There is no doubt that WCL undertook liability to pay debt owed to trade creditors of White ACT, in so far as those debts related to contractual obligations of White ACT under the hard dollar or CNCC contracts. However, as is apparent from paragraph 25 of the statement of contentions, paragraph 24 relates to all creditors - specifically, including (so it is said) ADC. The finding that I have made is to be understood in terms of the width of paragraph 24 of the statement of contentions, and not as being inconsistent with the more limited position, relating to trade creditors, that I have just described. 505 If the director defendants had the purpose alleged in paragraph 19 of the statement of contentions, and if, at all material times, they understood or believed that ADC had a very large claim against White ACT (in each case, of course, I have found to the contrary), it would be inconceivable that an agreement of the kind alleged in paragraph 25, rendering WCL liable for that claim, would have been made.

506 It follows that WCL had no contractual obligation to pay the judgment recovered by ADC against White ACT. It has not breached any contractual obligation by not paying that claim.

507 The fact of the resignations was not in dispute. I find that Messrs White, Duncan and Spinks did resign as directors of White ACT on 28 November 1988.

Paragraphs 27 and 28: de facto directors 508 I find that the material facts alleged in subparagraphs (a) to (c) and (f) are made out. However, I find that White ACT paid what has been described as a "management fee" to WCL for the services provided by it, as alleged in subparagraphs (c) and (f).

509 I find further that the day-to-day management of White ACT, following 14 October 1988, was performed by employees of WCL or other companies in the White Group (or the WCL Group). Again, I find, the management fees were paid by White ACT to WCL for the provision of the services of those personnel.

510 Nonetheless, I find, ultimate responsibility for the business of White ACT remained with the board and, in particular, with Mr Frank McAlary. The evidence does not suggest that Mr Michael McAlary played any separate role in the administration of the company. I have not specifically addressed this finding earlier in these reasons, but in essence it follows from the findings that I make in the next paragraphs, some of which relate back to matters that have been discussed earlier in these reasons.

511 I find that Messrs White, Duncan and Spinks (or any of them) did not supervise or direct the employees of WCL or the White Group (or the WCL Group), referred to in paragraph 22 and in the preceding paragraphs of these reasons. I find that they knew, and acquiesced in, the provision of those services; and that in a general sense they knew, and acquiesced in, the charging of management fees - although I find that they did not know of the quantum of those management fees. See para [258] above.

512 I find that Messrs White, Duncan and Spinks (or any of them) did not direct or control the exercise of management functions by the employees of WCL or the White Group (or the WCL Group) referred to in paragraph 24 and in the preceding paragraphs of these reasons. I find that, in the exercise of their management functions, those persons did not report to, or did not seek, and were not given direction from, Messrs White, Duncan and Spinks (or any of them). There is no evidence to suggest that this was so; specifically, the relevant employees (to the extent that they are still alive) were not called to say that it was so. Messrs White, Duncan or Spinks denied that it was so.

513 There was only one instance, in the evidence, where any of Messrs White, Duncan and Spinks purported to make a decision on behalf of White ACT. That occurred in relation to the settlement of the dispute in substance between WPDL and WCL that I have referred to in paras [254] and [255] above. Mr Duncan signed the relevant letter purportedly on behalf of White ACT. However, given that Mr Duncan was then the managing director of WCL, and effectively resolving the claim that in truth was owed to it, and given that White ACT was (as I have found) a mere conduit with no beneficial entitlement to the money, it is impossible to regard this as anything more than a mechanical step for the implementation of the settlement that was negotiated. See paras [252] to [256] above. As I have already found, the settlement was negotiated at arms' length. I do not think that Mr Duncan's act in signing, on behalf of White ACT, that one letter to give effect to it makes him a de facto director.

514 I therefore find that, after 28 November 1988, Messrs White, Duncan and Spinks (or any of them) did not continue to "occupy the position of directors and act as directors of the plaintiff, notwithstanding their purported resignations".

Paragraph 29: further payments by White ACT to WCL, 1989-1992

515 I find that, by a process of journal entries, White ACT paid to WCL the management fees and other charges described in para [207] above, with effect during the financial years set out in that paragraph.

516 I find that those payments were made for good reason. In the case of the management fees properly so called, I find that they were paid for the provision of services by WCL and associated companies to White ACT during the years in question. I find further that the amounts that were charged were not unreasonable (noting that they were twice reviewed by the auditors and that in all cases the relevant accounts were audited.) In the case of the $1,250,000, I find that in truth that was an amount owing to WCL and not to White ACT, and that White ACT's only relevance in relation to that sum was as a "conduit" between WPDL and WCL. See paras [252] to [256] above.

517 As to paragraph 29(b): the reference back to paragraph 12(b) is a reference back to the subcontract and agency agreements relating to the hard dollar contracts. On the evidence, they were substantially complete as at 29 February 1988. Apart from some immaterial percentages of "incompletion", the only hard dollar contract that could be said to be less than substantially complete was that for the Australian War Memorial, which was said to be 50% complete as at that date. Accordingly, except for the Australian War Memorial contract, there was in substance no remuneration to be received after 29 February 1988 in respect of the hard dollar contracts. The evidence does not show what (if any) remuneration was due under the Australian War Memorial contract after 28 November 1988 (which, according to the introductory words of paragraph 29, is the relevant date). Nor is there any evidence of the steps (if any) taken or not taken by White ACT in respect of any remuneration that may have been owing. Accordingly, I do not find that the plaintiff abandoned whatever rights it may have had, after 28 November 1988, to receive whatever remuneration may have been owing after that date in respect of the hard dollar contracts.

518 As to paragraph 29(c): it is correct to say, and I find, that the novation agreements there referred to were made. See paras [88] and [97] above.

519 However, in respect of the reference to "management charges and other payments and expenses", I repeat the findings that I have already made.

Paragraphs 30 and 31: fiduciary relationship and obligations

520 There was no real controversy as to the existence or content of fiduciary duties owed by the relevant defendants whilst they were directors of White ACT. I find that Messrs White, Duncan and Spinks were fiduciaries of White ACT, by virtue of their office as its directors, up until 28 November 1988, but not thereafter.

521 Although the alleged content of the duties owed by them as fiduciaries was not admitted, I will assume that the duties involved each of the elements asserted in subparagraphs (a) to (m) of paragraph 30.

522 I find that Messrs Frank and Michael McAlary were fiduciaries of White ACT at all material times from 28 November 1988, by virtue of their office as directors. I will assume that, as fiduciaries, they owed duties of the kind alleged in paragraph 30 (a) to (m).

523 There is no evidence to enable me to conclude that the transactions referred to in this paragraph were not approved by White ACT in accordance with its Articles of Association. I find that the board of WCL authorised Mr White to enter into the heads of agreement with Mr Frank McAlary (see para [174] above). I find further that the transactions described in paragraphs 21 and 22 of the statement of contentions were appropriate having regard to the sale that was so authorised (see paras [198] to [201] above).

524 Further, I find that the persons by whom those transactions were carried out had, if not express, then at least implied, authority to perform them. See paras [203] and [204] above.

Paragraph 33: breach of duties in relation to the October 1988 journal entries

525 This paragraph cannot be sustained as against Mr Frank McAlary, simply because he was not a director of White ACT at the time when the journal entries were effected. Indeed, he was either overseas or in a remote part of Australia, and not in constant contact with the White Group, at the time when the journal entries were planned and effected. To the extent that it matters, I find that he did not direct or "participate" in the making of those journal entries.

526 As to Messrs White, Duncan and Spinks, I find that they did not direct or knowingly "participate" in the making of those journal entries (see paras [203] and [204] above). Further, I do not find that, at the time those journal entries were made, they had the intention that the sale of White ACT, and anything that might reasonably be thought to be associated with it (such as, by way of example, the elimination so far as possible of intercompany loan balances) should leave no assets of White ACT available to meet any claim of ADC against White ACT under the Quadrant contract.

527 Further, given that I have found that ADC was not, at the time, a creditor (unsecured or otherwise) of White ACT, and that the only other creditors of White ACT (apart from the State Bank, whose debt was discharged in full) were White Group companies, I find that Messrs White, Duncan and Spinks did not fail to have regard to the interests of unsecured creditors of White ACT. 528 If I am wrong in my conclusion that ADC was not, at the time, a creditor of White ACT, I would nonetheless still find that Messrs White, Duncan and Spinks did not fail, in a manner that could be said to demonstrate want of reasonable care and diligence, to have regard to the interests of unsecured creditors. As I have said in paras [456] and following, it was their belief or state of mind that White ACT was justified in the course that it had taken and, in substance, that ADC had no claim against it. For the reasons that I gave in those paragraphs, it cannot be said that this belief, or state of mind, was unreasonable. It would follow that, in failing to consider ADC as a creditor, and to give consideration to the likely extent of its claim, Messrs White, Duncan and Spinks did not act unreasonably. It cannot be unreasonable for a director to fail to take into account a claim that, on reasonable grounds, he believes will not succeed. Paragraph 34: breach of duties in relation to the management fees and other charges

529 Since I have found that Messrs White, Duncan and Spinks were not directors, formal or de facto, of White ACT after 28 November 1988, the allegations made against them in paragraph 34 cannot be sustained.

530 As to Messrs Frank and Michael McAlary: I find that (after 28 November 1988) they were not, in relation to the imposition and payment of management fees, or the payment to WCL of the amount of $1,250,000, motivated by the purpose of leaving no asset of White ACT available to meet any claim of ADC against White ACT under the Quadrant contract. Indeed, I find that both the management fees were properly charged, and not improper in amount, and that the amount of $1,250,000 was properly paid by White ACT to WCL.

531 Further, because ADC was not at any time relevant to those transactions a creditor of White ACT, and as the only other creditors of White ACT were White Group companies, who may be presumed to have been satisfied with the state of affairs, I find that they did not fail to have regard to the interests of all the unsecured creditors of White ACT at the time those transactions took place. 532 Again, if I am wrong in my conclusion that ADC was not a creditor, it does not follow that Messrs Frank and Michael McAlary acted unreasonably in disregarding its claim. As I have said in paras [461] to [464] above, Mr Frank McAlary made a detailed review of ADC's claim in July 1994, and concluded that it was unlikely to succeed. It was not put to him that the review that he carried out was deficient as to the materials that he considered. He was not taken in detail to the material that he considered. No attempt was made to show that, having regard to the material, his review or its conclusions were unreasonable. In my view, this indicates that any failure of Messrs Frank and Michael McAlary to take into account the interests of ADC as an unsecured creditor (if, contrary to my view, that is the correct analysis) cannot be characterized as unreasonable. Paragraph 35: limitation and other matters

533 I shall leave this until I come to consider specific defences raised by the defendants.

534 To the extent that a Barnes v Addy claim is made against other defendants, the requisite knowledge of those defendants can only come through the director defendants. The findings that I have made, as to the existence, or lack, of knowledge, belief or purpose, necessarily mean that this claim cannot succeed.

535 The conclusions to which I have come mean that White ACT's claim must fail. However, I shall set out the issues on damages and the conclusions that I would have reached had it been necessary for me to do so.

536 The claim that White ACT asserted was one for damages. Although the basis of the claim was not explicitly articulated, on a fair reading of the summons it must be a claim for damages for breach of the "statutory and common law duties" said to have been owed by the director defendants and Mr Michael McAlary as directors of the plaintiff: see part B, paragraph (a) of the summons. The damages alleged would appear, from paragraph 18 of the statement of contentions, to be referable to the alleged divestiture of assets and the alleged divestiture of future revenues.

537 The transactions that were implemented on about 14 October 1988 did not affect the net liability position of White ACT in any way. Mr Watson's evidence makes this clear. In substance, what happened was that White ACT obtained full value for some assets and gave full value for the discharge of some liabilities. The value received was equal to the value given.

538 It is correct to say that, overall, the gross assets of White ACT were substantially diminished as a result of those transactions. However, as I have just indicated, the amount of its liabilities was decreased by the same amount (and as the reciprocal element of those transactions).

539 It is also correct to say that, as a result of the transactions, the assets available to meet the claims of unsecured creditors were diminished, so that any unsecured creditor whose claim was not dealt with as part of the transactions might not have received as much, on a winding up, as it would have received had the transactions not occurred. But that, of itself, does not seem to me to occasion any loss to White ACT.

540 If, contrary to my finding, ADC were a creditor of White ACT at 14 October 1988, then the liabilities of White ACT included not only those that were, in substance, recorded in its balance sheet as at 30 June 1988 (or those demonstrated by Mr Watson's evidence as at 30 September 1988) but, as well, the amount of ADC's claim. On that analysis, White ACT would undoubtedly have been insolvent: it would have had no prospect of meeting the totality of its internal and external liabilities. But the fact that there had occurred transactions that were, be it assumed, preferential, whereby certain creditors were paid in full to the detriment of others who received nothing, cannot cause any loss to White ACT. At most, it might be said to cause loss to the unsecured creditors whose claims were not paid, or were paid in a lesser amount, by reason of the preferential transactions. 541 Specifically, if, contrary to my conclusion, White ACT has made good the allegations in paragraphs 33(b) and 34(b) of its statement of contentions, the analysis in the preceding paragraphs would demonstrate that it suffered no loss. 542 If, as I think is the case, ADC is not to be regarded as a creditor of White ACT as at 14 October 1988, then the same analysis applies with greater force.

543 In my view, this analysis is supported directly by the reasoning of Heenan J in Geneva Finance Ltd v Resource & Industry Ltd (2002) 169 FLR 152. Further, I think, it is supported by analogy by the reasoning of the majority of the High Court in Pilmer.

544 No doubt to avoid this outcome, it was submitted for White ACT that it had a restitutionary claim. The foundation of that claim was said to lie in its entitlement to avoid the accounting transactions that were effected on about 14 October 1988.

545 It was not pleaded that the transactions were voidable or, indeed, that they had been avoided. As to the latter, the case put in submissions was that they had been avoided by the institution of proceedings. However, I do not think that this argument is sustainable. The pleaded case was, in substance, that the impugned transactions were effective and, as I have said, that White ACT was entitled to damages in respect of their consequences.

546 Because no restitutionary claim has been pleaded, it is impossible to do more than indicate some of the factors that would have been relevant. One, of particular significance, is that the transactions affected not just White ACT, but also many other companies in the White Group. If restitution were to be effected then, one would think, it would be on the basis that White ACT did equity. In this context, if it were possible to do equity - a matter on which, since it was not pleaded and not explored in evidence, I can express no view - it might include (for example) restoring the debts owed by White ACT as the price of restoring the debts owed to it. Further, precisely how equity could be done in respect of the payment out of White ACT's overdraft is a matter for speculation.

547 The management fees and related charges could be seen to fall into a slightly different category. On the face of things, there was no recorded liability of White ACT that was extinguished by the payment of those fees. Of course, it could be said that White ACT had an actual, although unrecorded, liability to WCL for the services and other matters in respect of which the management fees were paid. In any event, my finding that the payments were made for services actually provided means that they were made for good consideration. Even if their effect may have been to prefer WCL to other creditors, that did not, for the reasons already given, cause loss to White ACT. 548 Finally, before I leave the question of damages, I should indicate that even if, contrary to the conclusion that I have expressed in paras [456] and [457] above, WCL had undertaken a contractual obligation to pay White ACT's liability to ADC, and had breached that obligation, there would be no resulting loss to White ACT. Had the obligation existed and been performed, the effect would be that one creditor - ADC - disappeared, and another creditor - WCL - appeared, in the identical amount. Breach of a promise to lend money may cause special damage in particular factual circumstances; but no special damage has been pleaded, particularised or proved in this case, referable to the promise alleged in paragraph 24 of the statement of contentions and the breach thereof alleged in paragraph 25.

549 As with damages, it is unnecessary for me to consider these defences in detail. However, had it been necessary to do so, it is likely that I would have concluded that: (1) The claims for breaches of statutory duty (said to arise under the Companies Code or the Corporations Law ) were statute barred: see s 14(1)(d) of the Limitation Act 1969; and (2) The allegations of breach of fiduciary duty were barred either by the application of s 48 of the Limitation Act, or, more likely, by analogy thereto. 550 There were no detailed submissions addressed to the operation of the Limitation Act, including whether it might be applicable at all (to the extent, for example, that the case for breach of statutory duty was founded on breach of Commonwealth, rather than State, legislation). Indeed, the pleadings for White ACT seem to assume that, prima facie, its claim would be statute barred: as I have said, paragraph 35 seems to have been pleaded in effect by way of preemptive strike. In those circumstances, there seems to me to be little point in giving detailed consideration to the availability and reach of the limitation defences.

551 Nor does there seem to me to be any purpose in exploring the application of s 48 by analogy: a topic that has been considered in decisions such as Williams v Minister, Aboriginal Land Rights Act 1983 (1994) 35 NSWLR 497 and Nuthall v Nuthall [2001] NSWSC 950. See, generally, Meagher, Gummow and Lehane, Chapter 34, particularly at [34-075] to [34-080]. Nor is there any purpose to be served in considering what precisely would be involved in its analogous application.

552 Further, in my view, there is no basis for a reply of fraudulent concealment. The concept is discussed in Meagher, Gummow and Lehane at [34-085] to [34-100]. For fraudulent concealment to be made out, there must be proof of dishonesty or moral turpitude: Hamilton v Kaljo (1989) 17 NSWLR 381. It follows from the conclusions that I have reached that there is no relevant dishonesty or moral turpitude. 553 Although the defendants advanced a separate ground of defence alleging laches, acquiescence and delay, no separate submissions were put in support of this defence. In those circumstances, I will not give it separate consideration.

554 In my judgment, White ACT's claim fails as against all defendants. 555 I make the following orders:

(2) I order the plaintiff to pay the defendants' costs.

(3) I reserve liberty to any party to move, on application made no later than 19 March 2004, to vary order (2). ******

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