White Constructions (ACT) Pty Limited (In Liquidation) v White & 14 Ors - [2005] NSWCA 173 - NSWCA 2005 case summary — Zoe

NSWNSWCA

White Constructions (ACT) Pty Limited (In Liquidation) v White & 14 Ors

[2005] NSWCA 173

Court of Appeal (NSW)|2005-06-17|Before: Santow JA, Ipp JA, McColl JA

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At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2005-06-17

Before

Santow JA, Ipp JA, McColl JA

Source

Original judgment source is linked above.

Judgment (28 paragraphs)

[1]

The application for leave to appeal to add the new ground relating to the note of 29 August 1991 235 In support of its argument relating to the sale to Mr McAlary, White ACT sought leave to appeal against the ruling by McDougall J admitting, only on a limited basis, a handwritten note dated 29 August 1991 prepared by an unknown person apparently in the employ of the auditors of the White Group. 236 The note in question is dated 29 August 1991 and states: "ADC claim against WC [sic - White] (ACT) and Exxon Notes of meeting 3.00 pm with Coy secretary Bevan Piper. (i) He understands that claim has no basis. (ii) WIL new [sic - knew] that it might arise one day! (iii) That [sic - is] why WC [sic - White] (ACT) were [sic - was] sold to FS & Son. (iv) That [sic - is] why WC [sic - White] ACT has no assets …" 237 At trial, the respondents objected to this document. His Honour ruled: "I admit the document, but pursuant to s 136 of the Evidence Act, I order that it be admitted only to prove, firstly, that on the day in question at the meeting that is recorded, Mr Piper communicated to the auditors the matters set out in that note and secondly, as at that time Mr Piper held the understanding or the belief as to the five matters that are recorded in that note." 238 Section 136 of the Evidence Act 1995 (NSW) provides: "The court may limit the use to be made of evidence if there is a danger that a particular use of the evidence might:

[2]

[8]

The October 1988 accounting entries 241 On 17 October 1988, three days after the Heads of Agreement document relating to the sale to Mr McAlary was signed, Mr Piper (who was then an employee of the White Group) sent a memorandum to a number of employees of WCL setting out certain "procedures and duties" that were to be carried out immediately. The memorandum concerned various accounting transactions involving the elimination of inter-company balances and White ACT's debt to the State Bank of New South Wales. Mr Piper's instructions were carried out. These constitute a further set of transactions that White ACT contends were fraudulently undertaken to defeat ADC's claim. 242 Before the October 1988 transactions, White ACT was owed a total of $12,460,965 by related companies (and $11,858,876 of this amount was owed to it by WCL). White ACT owed related companies a total of $7,544,819. As at 30 June 1988 White ACT owed the bank some $3.8m on overdraft, that by October 1988, had increased to about $4.2m. White ACT was also cross-guarantor to the bank of debts of related companies and had provided the bank with security for its cross-guarantee. 243 By the October transactions, White ACT's claims against the related companies in question were settled, as were its debts to the related creditor companies, and the bank overdraft was paid. Further, White ACT was released from its contingent liability as cross-guarantor for the liabilities to the bank of other companies in the White Group, and the security that it had given in support of its overdraft and guarantees was discharged. 244 White ACT obtained full value for its claims. Mr Watson, White ACT's expert, accepted that the October 1998 transactions were balance sheet neutral and did not reduce White ACT's net financial position. 245 In addition, in October 1988, WCL granted fresh credit to White ACT to enable it to continue to carry on its obligations under the CNCC and hard dollar contracts. 246 McDougall J said of these transactions: "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 … 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." 247 The judge said that there was a considerable body of evidence that supported the proposition that transactions of this kind are usual and appropriate when a company is sold out of a corporate group. His Honour detailed a number of other matters that supported his finding that the October 1988 transactions were not of an unusual kind. 248 His Honour accepted that the fact these transactions were not extraordinary did not mean that they were not undertaken for an improper purpose. 249 He found, however, that the October 1988 transactions were a form of "tidying up" of the affairs of White ACT; something that needed to be done preparatory to the sale of the company to Mr McAlary. He found that the accounting staff of WCL had made the book entries that effected the transactions, and this they had done without direction from or reference to the Directors. In particular, he found that the entries had been made by the then company secretary Mr Shaw (who had died by the time of the trial) and his accounting staff. 250 His Honour found that the Directors did not, at the relevant times, regard White ACT as being insolvent and did not believe that ADC was likely to recover very substantial (or any) damages from White ACT, and did not give any instructions or otherwise participate in the October 1988 transactions. 251 According to the Directors, they would not have expected Mr Shaw or his staff to refer these accounting steps to the board for consideration. The judge accepted that it was within the ordinary authority of the accounting staff to perform the actions in question. His Honour attributed no sinister inference to what had occurred. 252 In my view, these findings were open to the judge on the evidence. They are not glaringly improbable, nor are they contrary to compelling inferences or inconsistent with incontrovertible facts.

[12]

And: "The [Directors] … 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 conclusion that I have reached - the [Directors] 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 [Directors] were required to make) would have been justified." 262 Mr Grieve submitted that the management fees "were not in any way shape or form calculated by reference to what WCL did or didn't do". He did not, however, argue that WCL did not provide any management services to White ACT and accepted that it incurred overhead charges. His basic submission was that the levying of management charges was simply a fraudulent device and he challenged the judge's finding that the accounting staff acted merely of their own accord without reference to the Directors. 263 The judge observed that the evidence, including that of Mr Watson, established 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". His Honour accepted that evidence and held that the amounts of the management fees, to a significant extent, were based on this formula. 264 White ACT sought to argue that the judge made a fundamental error in making these findings. 265 White ACT's profit and loss accounts for the year ended 30 June 1988 were prepared in draft by the accounting staff of the White Group on the basis of the postulated re-organisation of White ACT into the three operating divisions Company 22, Company 87 and Company 91. 266 The draft accounts showed the "other expenses" of Companies 87 and 91 to have been increased by the sum of $937,353. Working papers of the auditors were put into evidence. In those auditors' working papers, this increase was referred to as a "fudge". The working papers noted, in effect, that the increase should be reversed. 267 Mr Grieve sought to make much of the word "fudge", as it was used in the auditors' working papers. 268 The judge appeared to accept that the fudge had a net effect of increasing the loss of White ACT by $937,353 but Mr Rayment submitted that, by reason of other adjustments, the increase in the "other expenses" was set -off elsewhere and the overall effect of what the draft accounts were proposing was balance sheet neutral. According to Mr Rayment, the $937,353 should have been added to the income of White ACT but instead, in the draft accounts, it was deducted from the expenses. On this basis, the final profit figure in the draft accounts was not affected. The auditors, according to Mr Rayment, were not prepared to agree with this method of dealing with the matter. They considered that the correct amount of expenses should be shown; this was to be achieved by reducing the "other expenses" by $937,350 (and, at the same time, the income should be increased by that amount). Thus, the auditors' complaint about the fudge did not concern the overall financial position of White ACT. 269 Whatever the correct position might be in this regard, I am not persuaded that what was done by the White Group staff in relation to the fudge undermines McDougall J's decision in relation to the 1988 management fees or generally. His Honour pointed out that the auditors were not called to explain what it was that prompted the use of the word "fudge". The judge was not prepared to find that the fudge bespoke the implementation of a fraudulent scheme. That finding was open to him on the evidence. Indeed, apart from attributing generally sinister motives to the Directors in allegedly perpetrating the fudge (mainly because of the implications of the word itself), White ACT was unable to point to any specific way in which the fudge would advance the fraud it alleged. 270 The Directors knew that the auditors had audited the accounts of both WCL and White ACT for the year ended 30 June 1988 and had issued an unqualified audit report. McDougall J found that the Directors would have been entitled to assume that the auditors had given the management fees for the year ended 30 June 1988 such consideration as they thought necessary and had found nothing to question. His Honour concluded that any such assumption would have been justified. 271 As regards the 1989 management fees, the judge referred to Mr Watson's explanation of the "basis of management fee". The judge described that explanation as follows: "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." 272 The actual management fees charged for 1989 amounted to $2,003,249. Mr Watson described the difference between that amount and $1,875,435 as "not significant". The auditors did not consider that the fee actually charged in 1989 was materially incorrect. 273 The auditors concluded overall that the management fee for the year ended 1990 appeared to be fairly stated. 274 The management fee for 1992 amounted to $65,157. The judge observed that this fee did not excite the suspicions of the auditors and likewise did not excite his. 275 His Honour noted that an amount of greater substance, as regards 1992, was a sum of $1.250m that was received by White ACT from a company in the White Group known as WPDL and then paid by White ACT to WCL. WPDL had paid that amount to White ACT in settlement of certain claims but the amount, in turn, was claimed by WCL from White ACT. The basis of WCL's claim concerned the contractual relationship between WCL and WPDL. A dispute arose between WCL and White ACT as to whether White ACT should pay the $1.250m to WCL. The parties requested an independent director, Mr Graeme Millington, to investigate and report on the validity of WCL's claim. Mr Millington recommended that White ACT pay WCL the $1.250m. This occurred. The judge found that this payment was appropriate and this conclusion was not, in substance, challenged on appeal. 276 White ACT was not able to refer to anything in the evidence that rendered glaringly improbable, or contrary to compelling inferences, or contrary to incontrovertible evidence in the case, the judge's finding that the Directors had not been involved in the levying of the management fees and the various accounting activities relating to them. The same must be said about the findings that there was no proper basis for suspecting impropriety in the charging of management fees and that, had the Directors had been aware of the method and amount of calculation of management fees from year to year, they would have been entitled to rely on the auditors' approval of the fees charged. 277 It follows that White ACT's arguments in relation to the management fees must be dismissed.

[13]

The Jones v Dunkel argument 278 White ACT submitted that the judge misapplied the rule in Jones v Dunkel (1959) 101 CLR 298. 279 In several passages in McDougall J's judgment he drew attention to the fact that "matters on which the [Directors] were cross-examined could have been illuminated had evidence been called from former employees of White ACT". His Honour accepted that many employees had died in the interim period but others were not shown to have died or to be unavailable. His Honour said: "In assessing the credibility of the [Directors], 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." 280 White ACT submitted that, given the statutory responsibilities of the Directors for the management of White ACT's affairs, a Jones v Dunkel inference should have been applied adversely to them. 281 In the light of the long period of time between the events in question and the trial, and the change in the character of the business of the White Group, it was not possible to say, without evidence, that a particular employee was within one camp or another. 282 Jones v Dunkel does not apply where a witness is dead or cannot be found or is not available or is shown to be of little worth. But a party who bears the onus, and omits to call a relevant witness without any explanation as to why that witness is not called, may find that the judge has regard to that omission when evaluating whether the onus has been discharged. That is particularly the case where the allegations made by the party not calling the witness concern fraudulent or improper conduct: see Cook's Construction Pty Ltd v Brown and Anor (as liqs of DML Resources Pty Ltd (In Liq)) (2004) 49 ACSR 62 at 67 - 68. 283 As White ACT gave no explanation for the omission to call potentially important witnesses, his Honour was entitled to take that into account.

[15]

The appellant's cause of action and the relief sought 288 White ACT's claim is not a claim by a liquidator for recovery of undue preferences under s 565 of the Corporations Act 2001 (Cth) or a claim by a liquidator for recovery of property or compensation under Pt 5.7B of that Act for the benefit of creditors of insolvent companies. It is also not a claim by "an eligible applicant" under s 598(2) of that Act for an order that the Court "thinks appropriate". These are proceedings taken by the company itself (albeit that is under winding up) for relief that it has had difficulty in identifying with precision. 289 Mr Grieve said that this is a "case brought under the general law to avoid payments made by the company at the behest of its directors in breach of their duties to it". He said that White ACT's case was that, in consequence of those breaches, "the respondent directors were guilty of fraud upon it". He asserted that the claim was for breach of fiduciary duties (although, I do not think he meant to abandon the claim that there was a breach by the Directors of their statutory duties as alleged in the summons). 290 In its summons White ACT claimed "damages" and, apart from costs and interest, nothing further. 291 On the seventh day of the trial, Mr Grieve handed up short minutes of orders to the judge. In those short minutes the principal relief claimed was a declaration that the loss and damage incurred by White ACT in consequence of the breaches of duty by the Directors was $20,672,029.36. Orders were sought for payment of that sum, interest and related relief. No claim was made for restitutionary relief. 292 At the commencement of his argument on appeal, Mr Grieve said that the claim was for "equitable damages". He submitted that the appellant was not claiming "compensatory damages by reason of the loss that was inflicted on it at law". 293 Subsequently, Mr Grieve suggested that the relief that should be ordered was an enquiry as to damages. 294 Later in his argument Mr Grieve said: "[T]he loss is the suffering by the company of a null administration of its affairs. It is not a loss that can be quantified in so many dollars …the loss is the loss suffered by the company as a consequence of the fact that its affairs have been administered in a manner other than the manner to which it was entitled to have them administered."

[21]

The failure to raise the restitutionary claim, properly, at the trial 300 McDougall J commented on this claim as follows: "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. 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. 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." 301 As no restitutionary claim was advanced at trial until the closing addresses, many matters relevant to such a claim were simply not investigated. White ACT could have led evidence on these issues but, as the restitutionary case had not been pleaded, it did not do so. I would add that White ACT has never sought to amend its pleadings to claim restitutionary relief. 302 Mr Rayment submitted that other companies in the White Group had altered their position to their detriment in the belief that the transactions now sought to be set aside were valid and that there had been no investigation of the issues involved in that question. 303 In addition to the matters referred to by McDougall J and the respondents, there was no investigation as to what effect the restitutionary claim could have on the bank (in regard to the discharged overdraft) and those entities involved in the discharge of White ACT's guarantees of overdrafts afforded to other companies in the White Group. In my opinion, it is not possible, on the evidence, to determine whether restitution could practically be effected and whether it would be equitable to do so. 304 I would add that I have serious reservations about the legal basis of White ACT's claim for restitutionary relief. In view of the conclusions to which I have come as to the other issues in the appeal, however, I do not propose to canvass these matters. 305 In my view, the claim for restitutionary relief must be rejected on the grounds stated by McDougall J and the additional grounds referred to above.

[23]

Thus, as I have noted, his Honour concluded that White ACT had suffered no loss. 307 As mentioned, White ACT does not now contend that it suffered loss of the kind argued before McDougall J and puts its claim on a completely different basis, being "[t]he loss suffered by the company as a consequence of the fact that its affairs have been administered in a manner other than the manner to which it was entitled to have them administered". It was not said that the maladministration caused financial loss to White ACT itself. 308 In my view, it is now not open to White ACT to bring such a claim on appeal. The issues involving such a loss were not raised at the trial, no explanation has been given for not raising the claim for damages on this basis earlier, and the trial and the appeal have been long, arduous, and, no doubt, expensive to all. In my opinion, the principles relating to the finality of litigation preclude White ACT, for the first time, during argument on appeal, raising the possibility that it had suffered damages of the kind now contended for and seeking an order for an enquiry as to those damages. 309 White ACT submitted that Griffin v Mercantile Bank (1890) 11 LR (NSW) Eq 231 was an example where a court had allowed a claim for an enquiry as to damages to be raised at such a late stage. In Griffin, by a majority, the Full Court of the Supreme Court of New South Wales, having accepted that a decree of specific performance should be granted, ordered an enquiry into damages even though no claim for an enquiry had been made. The basis of the decision by Foster J was the fact that, despite the granting of specific performance of the agreement, the plaintiff would be left still suffering loss. His Honour held that in those circumstances, even though an enquiry into damages had not been claimed, the court had a discretion to direct an enquiry to be held (see at 252). Manning J was of a similar view (see at 258 - 259). Stephen J dissented. 310 Whether Griffin would be decided in the same way today is open to question. In any event, however, the decision to order an enquiry as to damages was linked to the consequences following an order for specific performance where that order was found to be inadequate compensation, and for that reason the case is distinguishable. The enquiry ordered in Griffin was ancillary to the principal relief. That cannot be said about White ACT's claim for an enquiry. 311 A more modern case is Cotogno v Lamb (unreported, NSWCA, 9 August 1985). The plaintiff claimed damages, including exemplary damages, for trespass. At virtually the last moment in the hearing of the appeal, the plaintiff (the appellant) sought an amendment to the grounds of appeal by which he formulated, for the first time, a claim that he should be awarded aggravated damages. By a majority, the court refused the application, the principal ground being that the plaintiff had made no such claim at the trial and no evidence had been called directed to that issue. 312 Mahoney JA said that in such a case it is to be expected that the applicant for such an amendment would provide a sufficient explanation of why the claim was not made at the trial, and why a new trial should be granted in relation to the issue notwithstanding the long established attitude of the courts to new trials. His Honour noted that the grant of the amendment involved an exercise of discretion and referred to the factors relevant to that exercise. These included "[t]he evil involved in the grant of a new trial, both in respect of the parties and in respect of the administration of justice generally". McHugh JA agreed with the judgment of Mahoney JA. Kirby P dissented on the ground that a "fundamental mistake" had occurred and "the demands of justice would not be served adequately by holding the appellant to the case presented before the Master". 313 In my opinion, the considerations that moved Kirby P to dissent in Cotogno v Lamb do not exist in this case. White ACT has not suggested that its omission to claim the damages was a "mistake" on its part (whether fundamental or otherwise), and for my part the interests of justice would be served by bringing this litigation to an end.

[24]

White ACT suffered no loss 314 In any event, I do not think that the nature of the damage asserted by White ACT constitutes loss recoverable at law. 315 As I understand the argument White ACT now advances, the Directors' maladministration caused fraudulent preferences to be effected to the financial detriment of ADC, not White ACT. This, White ACT asserts, entitles it to rescind all the dispositions amounting to those preferences and recover them. 316 But any recovery of moneys paid as fraudulent preferences would be held on trust for unsecured creditors (N A Kratzmann Pty Ltd v Tucker [No 2] (1968) 123 CLR 295 at 300-301; Re Yagerphone Ltd [1935] Ch 392, ADC being, it seems, the only unpaid unsecured creditor. The claim is under the general law and the reservations as to this issue expressed in Geneva Finance Ltd v Resource & Industry Ltd (2002) 169 FLR 152 at 159 in regard to the proceeds of statutory claims for preferences do not apply. Thus, even on the new basis now sought to be argued, the claim is not for financial loss to White ACT, but - in substance (although not in form) - to ADC. 317 For White ACT to be able to recover damages for breach of fiduciary duties as alleged, it must prove that it sustained financial loss. In Cavendish Bentinck v Fenn (1887) 12 App Cas 652 Lord Herschell (at 661 - 662) said: "I think that in order to establish a claim to relief [under 165 of The Companies Act 1862 (Eng), the original legislation to which s 598 of the Corporations Act is a successor] it would be necessary only to shew a breach of duty but to shew a breach of duty which resulted in pecuniary loss to the company. It may be perfectly true that where there is a duty, whether arising out of a contract or otherwise, by one person to another an action will lie in respect of a breach of that duty although no substantial damage has been suffered. In an action nominal damages may be recovered wherever a breach of duty is shewn. But I certainly do not think that any such doctrine can be applied to the 165th section. … Now there is no duty or breach of duty to the company in respect of which a creditor or contributory can maintain an action, but he has a right to this extent, that if owing to a misfeasance or breach of duty the funds of the company in which he is interested have been diminished those funds shall again be made good and the assets of the company shall be recouped the loss which they have sustained. And, therefore, I think, that assuming that a breach of duty such as is suggested would be a misfeasance giving rise to an application under the 165th section such an application could only succeed when it could be shewn that the breach of duty had resulted in loss to the funds and assets of the company."

Parties

Applicant/Plaintiff:

White Constructions (ACT) Pty Limited (In Liquidation)

Respondent/Defendant:

White & 14 Ors

Legislation Cited (5)

Evidence Act 1995(NSW)

Limitation Act 1969(NSW)

Income Tax Assessment Act 1936(Cth)

Corporations Act 2001(Cth)

D Corporations Act 2001(Cth)

Cases Cited (18)

CITATION: White Constructions (ACT) Pty Limited (In Liquidation) v White & 14 Ors [2005] NSWCA 173

Abalos v Australian Postal Commission (1990) 171 CLR 167 Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153 Briginshaw v Briginshaw (1938) 60 CLR 336 Cavendish Bentinck v Fenn (1887) 12 App Cas 652 Cook's Construction Pty Ltd v Brown and Anor (as liqs of DML Resources Pty Ltd (In Liq)) (2004) 49 ACSR 62 Cotogno v Lamb (unreported, NSWCA, 9 August 1985) Couve v J Pierre Couve Ltd (In Liq) (1933) 49 CLR 486 Devries v Australian National Railways Commission (1993) 177 CLR 472 Fox v Percy (2003) 214 CLR 118 Geneva Finance Ltd v Resource & Industry Ltd (2002) 169 FLR 152 Griffin Mercantile Bank (1890) 11 LR (NSW) Eq 231 CASES CITED: Jones v Dunkel (1959) 101 CLR 298 N A Kratzmann Pty Ltd v Tucker [No 2] (1968) 123 CLR 295 Nuthall v Nuthall [2001] NSWSC 950 Re Yagerphone Ltd [1935] Ch 392 Re Yorke (Stationers) Pty Limited (In Liq) [1965] NSWR 446 Roach v Page (No 11) [2003] NSWSC 907 Safetycare Australia Pty Ltd v Maxwell [1999] VSC 353 State Railway Authority of New South Wales v Earthline Constructions Pty Ltd (In Liq) (1990) 160 ALR 588 Tesco Supermarkets Ltd v Natrass [1972] AC 153 The Duke Group Ltd (In Liq) v Alamain Investments Ltd [2003] SASC 415 Walker v Wimborne (1976) 137 CLR 1 Williams v Minister, Aboriginal Land Rights Act 1983 (1994) 35 NSWLR 497

(i) A March 1988 report which stated that the anticipated loss on the Quadrant contract was $4.855m "which is subject to increase due to continuing industrial disputation". 112 None of these matters, however, proves that the Directors deliberately set about to create a situation at the Quadrant site that would lead to the termination of White ACT's involvement in the project. 113 The documents in question show that in February and March 1988 there was a desire on the part of Mr Spinks and perhaps others to terminate the Quadrant contract, and that the Directors knew the losses made by White ACT under the Quadrant contract were in the region of $4m and were increasing, but these matters do not establish that the Directors conspired to manufacture the industrial dispute and to bring about a situation which compelled ADC to terminate the contract. 114 Mr Grieve submitted that the evidence of Mr White, Mr Duncan and Mr McAlary to the effect that White ACT was ready, willing and able to perform the Quadrant contract was false and demonstrates "consciousness of guilt". Consciousness of guilt in this context is intended to mean, I think, that these persons were not ready or willing for White ACT to perform the Quadrant contract, and deliberately brought about the industrial dispute to force ADC to terminate it. The findings by the trial judge are to the contrary and there is nothing in the documents and other evidence that incontrovertibly demonstrates that his Honour was in error and his Honour's findings in this regard are not improbable, let alone "glaringly" improbable. I would reject these submissions. 115 The next matter relied on by Mr Grieve concerned what was described as the Rawlinson report. This was a report by a firm of quantity surveyors dated 4 February 1988 in which the opinion was expressed that, if the Quadrant contract were to be carried to completion, as from early February 1988 the projected cost would result in a loss to White ACT of almost $7m. 116 McDougall J accepted the evidence of the Directors that they had not seen the Rawlinson report. McDougall J said in this regard: "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 [Directors]: 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 Rawlinson 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 [Directors], 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." 117 Mr Grieve drew attention to the fact that the report by the then managing director of WCL dated 5 February 1988 referred to an independent assessment of the Quadrant project which was "now showing a major reversal in the previously reported end result". Mr Grieve submitted that this was likely to be a reference to the Rawlinson report. That, however, is mere speculation and the fact that the board papers make no reference to a loss of about $7m is contrary to the submission. 118 In my view, it was open to McDougall J to accept the evidence of the Directors that they had not seen the Rawlinson report at the relevant time. There was indeed no evidence to the contrary. Applying the established principles to which I have referred above, the argument based on the Rawlinson report must be rejected. 119 Mr Grieve also submitted that the judge erred in making the factual findings without having regard to the well-known principle in Tesco Supermarkets Ltd v Nattrass [1972] AC 153. There was no substance in this submission. The principle in Tesco concerns circumstances under which a company will be bound by the acts of a person regarded as the embodiment of the company (see Lord Reid at 170). In the present case, the issue before the Court was whether any of the individual Directors deliberately set about creating the industrial dispute and forced ADC to terminate the Quadrant contract. White ACT was required to establish this by evidence of actual knowledge. This case concerns allegations of actual fraud by the Directors; not whether White ACT was guilty of fraud. The Tesco principle cannot be used to attribute the knowledge of other persons or entities to the Directors. 120 I am not persuaded that the matters to which I have referred demonstrate appealable error on the part of the judge.

[1999] VSC 353

[2003] SASC 415

(1993) 177 CLR 472

(1959) 101 CLR 298

(1990) 171 CLR 167

(2001) 53 NSWLR 153

(1938) 60 CLR 336

(1933) 49 CLR 486

(2003) 214 CLR 118

(2002) 169 FLR 152

(1968) 123 CLR 295

(1990) 160 ALR 588

(1976) 137 CLR 1

(1994) 35 NSWLR 497

[2003] NSWSC 907

Cited By (1)

Plaintiff A and B v Bird; Plaintiff C v Bird; Plaintiff D v Bird