Addstead P/L & Ors (Respondents) v Liddan Pty Ltd and Ors (Appellants) No. Scgrg-95-1880 Judgment No. 6369 Number of Pages 41 Corporations

[1997] SASC 6369

IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA

COX, PERRY AND DEBELLE JJ

CATCHWORDS:

Corporations - directors' duties - directors of a group of companies indebted to its financiers for an amount in excess of $186 million, negotiated over a period of time to secure a payment from the financiers in consideration of the group permitting the orderly realisation of securities held by the financiers over the group's land holdings - during most of the negotiations, it was clearly intended on both sides that the payment would be to the group, with a view to the group in turn paying out pressing unsecured creditors - at a late stage of the negotiations the directors of the companies diverted the bulk of the proposed settlement moneys, in excess of $4.5 million (including some land transferred in specie) to certain discretionary trusts for the benefit of the family of the managing director of the companies - held on appeal that the trial judge had correctly found that the transaction was a fraud on the creditors of the companies, and a breach of the fiduciary and other duties owed by the directors to the companies comprising the group - further held that the trustees of the discretionary trusts, being companies of which one of the two directors was a nephew of the managing director of the group of companies, received the settlement moneys, including the property transferred in specie, with knowledge of the breaches of duty on the part of the directors of the group - they owed a duty to account in equity for the money and properties, including properties subsequently acquired with some of the money. Corporations Lawss232, 1317DA and 1317 HD, referred to. Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; Grove v Flavel
(1986) 43 SASR 410; Jeffree v National Companies and Securities Commission
(1989) 15 ACLR 217; Jacobs Law of Trusts in Australia (6th Ed) 1997 at 333, para [1335] et seq, considered.

Corporations - directors' duties - the managing director of a group of companies purported to resign as a director of a number of companies within the group just before the companies entered into transactions designed to secure a substantial payment to family trusts for the benefit of members of the managing director's family at the expense of the creditors of the companies - held on appeal that the director was in breach of fiduciary duties owed to the companies, despite his purported resignation. Canadian Aero Service Ltd v O'Malley et al (1973) 40 DLR (3d) 371, applied.

Practice and procedure -summons for immediate relief - held on appeal that the trial judge correctly disposed of a substantial commercial cause by granting immediate relief pursuant to SCR R 25.02 - observations as to the circumstances in which it is appropriate to entertain an application for immediate relief. Wicklow Enterprises v Doysal Pty Ltd and Anor (1985) 124 LSJS 225; Lawrence v Griffiths and Anor (1987) 47 SASR 455; Public Trustee v Sweeney and Ors (1981) 32 SASR 343; Settlement Wine Co Pty Ltd v National and General Insurance Co Ltd (1988) 146 LSJS 150, considered.

HEARING:

ADELAIDE, 10-11 July 1997 (hearing), ddmmyyy (decision)

#DATE 7:10:1997

#ADD 13:10:1997

Appearances:

Appellants:

Counsel: Mr D E Clayton QC with him Mr A S Martin

Solicitors: Wakefields

Respondents:

Counsel: Mr R J Whitington QC with him Mr M N Rice

Solicitors: Fisher Jeffries

ORDER: appeal dismissed.

COX J

I would uphold the findings and orders of the learned trial Judge and I would do so for the reasons given by him and, on the appeal, by Perry J. So far as the alleged knowledge and complicity of Mr Robert Simionato were concerned it was, at bottom, a simple circumstantial evidence case. The undisputed evidence was that Mr Giuseppe Emanuele was the founder of the Emanuel Group and its "dominant force" until late February 1995 when, on Mr Farrugia's advice, he resigned as a director of twenty-eight companies in the Group. Before that time he had been bending all his energies to securing as large a payment as he could from EFG as the price of his cooperating in EFG's realization of its loan securities. His demands on EFG were made with acrimony and threats and persistence. His primary purpose was to avoid insolvency for his companies and bankruptcy for himself and to have, as he put it, "a proper basis for starting again." The negotiations at that stage were on the footing that the Emanuel Group would be the main beneficiary of any payment that EFG might make, though how the funds would then be disbursed does not appear. Judging from all the indicators, it is not likely that much of it would have reached the Emanuel Group's creditors. After Mr Emanuele's formal withdrawal from the twenty-seven companies, the negotiations with EFG went forward on another tack. Within a few days agreement was reached with EFG for a payment of $4.6m. of which $3.3m. was to go to Simionato Holdings Pty Ltd as trustees for the Emanuel Family Trust. The reason put forward for this - that EFG wished to show its goodwill and gratitude to Mr Emanuele - was plainly false. The directors of Simionato Holdings were two of Mr Emanuele's relatives. The company subsequently made substantial payments of one kind or another that were directly or indirectly for the benefit of Mr Emanuele and members of his family. While Mr Emanuele may have moved into the shadows on his solicitor's advice, it is inconceivable that his interest and activity in the ultimate disposition of the EFG monies would have thereupon ceased. Having in mind his former position in the Emanuel Group, the part he played in the earlier negotiations with EFG, his fierce determination to survive financially and what emerges from the evidence as to his character, I have no doubt at all that he inspired or endorsed the Simionato Holdings stratagem and that he ensured that it would be equipped with complacent directors of whom Mr Robert Simionato, at least, would understand clearly what his uncle expected of him and act accordingly. The whole performance was patently a sham and Mr Simionato's claim that he made his relevant decisions as a director in good faith is incredible.

In my opinion the appeal should be dismissed.

PERRY J

This is an appeal by the defendants from a summary judgment entered in favour of certain of the plaintiffs pursuant to SCR R 25.02.

There are 64 plaintiffs and six defendants. All of the parties are proprietary companies.

The 64 plaintiff companies were at all relevant times under the control of Guiseppe ("Joe") Emanuele. They are known as the Emanuel Group of Companies. Apart from Mr Joe Emanuele, other members of his family have held office as directors or secretaries of companies in the Emanuel Group. They include his sons Rocco and Linton, his daughter Linda and his nephew Robert Simionato.

In January 1995, a chartered accountant, Peter Macks, was appointed liquidator of one of the plaintiff companies, Emanuel Investments Pty Ltd. Between then and August 1995 Mr Macks was, progressively, appointed liquidator of the other plaintiff companies.

Until the appointment of Mr Macks as liquidator, the Emanuel Group carried on business, inter alia, as a property developer. Early in 1995, two of the defendant companies, Simionato Holdings Pty Ltd ("Simionato Holdings") and Liddan Pty Ltd ("Liddan"), became trustees of family trusts established for the benefit of members of the family of Mr Joe Emanuel.

In March 1995, a transaction was implemented, the principal beneficiary of which was, on the face of it, Simionato Holdings. For present purposes, it is sufficient to note that on 17 March 1995, Simionato Holdings received from solicitors acting for companies within a group of financiers, which for convenience I will call EFG, $3.3 million. At the same time, one of the plaintiffs, Guiseppe Nominees Pty Ltd ("Guiseppe Nominees"), transferred to Liddan three properties situated respectively at Burnside, Mount Barker and Cape Jervis. I will refer to those properties as the South Australian properties. The transfer was expressed to be at a notional value which, when added to the $3.3 million, was intended to reflect a payment of money and a transfer of assets to Simionato Holdings amounting in all to a value of $4.6 million. The moneys received were distributed by Simionato Holdings amongst the six defendants and applied by them towards the acquisition and development of lands.

The plaintiffs alleged that the payment of $3.3 million and the transfer of the South Australian properties to Simionato Holdings were actions in breach of fiduciary and statutory duties owed by the directors of the plaintiffs; that directors of the defendants, more particularly Robert Simionato, had knowledge of and participated in the breach of duty; and that the defendants were liable in equity to account to the plaintiffs for the moneys and land received by them, and for any resulting profits.

The learned trial Judge upheld the plaintiffs' claim, at least insofar as it was advanced by 27 of the plaintiff companies. For convenience, I will refer to that group of plaintiffs as the 27 plaintiffs.

By a judgment entered on 6 June 1997, the learned trial judge declared that the South Australian properties and other properties resulting from the application of the moneys received by Simionato Holdings, held variously by the defendants, were held by them on a constructive trust in favour of the 27 plaintiffs. He further observed that Peter Macks in his capacity as liquidator of the 27 plaintiffs be substituted as trustee of the trusts in which the various properties were by then held. He made consequential orders vesting in Mr Macks the various trust properties.

In addition, he ordered that the 27 plaintiffs recover from the defendants damages to be assessed. He adjourned for further consideration the claims of the remaining plaintiffs apart from the 27 plaintiffs.

The appeal is brought by all of the defendants with the exception of Simionato Holdings. In their notice of appeal the appellants seek to reverse the critical findings made by the learned trial Judge and seek to vacate the judgments and orders which he pronounced.

At the forefront of the appellants' contentions they argue that the learned trial Judge erred in dealing with the matter summarily pursuant to R 25.02, and that he should have allowed the matter to go to trial in the ordinary way. That contention is best dealt with after the other grounds have first been addressed, during the course of which the nature of the claims and the reasoning which led to the judgment under appeal will become apparent.

Background

What might be described as the corporate head of the Emanuel Group was Guiseppe Nominees Pty Ltd ("Guiseppe Nominees"). All of the other companies in the group were subsidiaries, in some instances several stages removed from Guiseppe Nominees. The principal operating companies apart from Guiseppe Nominees were Emanuel Management Pty Ltd ("Emanuel Management") and Emanuel Constructions Pty Ltd ("Emanuel Constructions"). Only those three companies operated bank accounts. Emanuel Management operated as banker to the group. Inter-company loans were established between the members of the group and Emanuel Management.

Most of the other members of the group, apart from the three companies which I have described as the principal operating companies, were incorporated for the purposes of a specific development. To finance a development, Emanuel Management would borrow monies which it would lend to the particular subsidiary concerned with that development. Upon its completion, a final accounting as to each development would be made to Emanuel Management.

Mr Joe Emanuele was chairman of directors and chief executive officer of the Emanuel Group from the time of its establishment in the early 1950s until just before the transactions relevant to these proceedings took place. There is no challenge to the finding by the learned trial judge that he was the "dominant force behind the Group over the time that it operated".

Mr Joe Emanuele's two sons Rocco and Linton, and his daughter Linda, held various offices, including that of director and secretary, of a number of the plaintiff companies; in the case of Rocco after about 1991, in the case of Linton after 1993, and in the case of Linda since about January 1990.

Robert Simionato was secretary to over 20 of the plaintiff companies and held an office described as accountant to the plaintiffs, for various periods subsequent to January 1990 until he resigned as secretary of a number of the plaintiff companies on 31 October 1994. In the case of two or three of the plaintiff companies, the evidence does not indicate that he has ceased to hold office as secretary. At all relevant times, he was both a director and secretary of Simionato Holdings, and at least three of the other defendants, namely, Liddan, Thomco (No 832) Pty Ltd ("Thomco") and Parachilna Nominees Pty Ltd ("Parachilna").

By about the mid-1980s the Emanuel Group had become a major property investor in Adelaide, and had acquired a property portfolio in Queensland from APM Forests Pty Ltd (the APM property portfolio). That was a substantial holding of some 64,000 acres located between Brisbane and the Sunshine Coast. It was acquired for a purchase price of $48 million. Finance was arranged through a subsidiary of EFG which advanced $43 million to Emanuel Management. The repayment of the loan was guaranteed by 26 of the plaintiffs and by Mr Joe Emanuele.

Subsequent to its acquisition of the APM property portfolio, the group, again with finance provided by EFG, acquired a number of other properties in Queensland.

During the economic recession which started to take effect in the late 1980s, EFG began to press the Emanuel Group to "sell down" the APM property portfolio. A pointer towards the fact that the Group was by then suffering from the economic downturn is that EFG began to advance monies for the repayment of interest and capital on its loan.

Eventually EFG refused to make any further funding available for interest payments. According to the findings made by the learned trial judge, this was in about 1991, when EFG's policy towards the Emanuel Group changed and it began to monitor the Group's operations more closely.

In 1992, the 27 plaintiffs executed a document known as a deed of cross-collateralisation. The deed had the effect of making available to EFG all securities given by any of the 27 companies to answer to the indebtedness of any other of the companies.

Leading up to the execution of that deed, and for a year or so thereafter, discussions took place between the Emanuel Group, represented by Joe and Rocco Emanuele, and EFG, designed to secure the agreement of EFG to what was described in an affidavit filed by Mr Joe Emanuele as an "orderly realisation of all properties which were subject to EFG's securities".

One of the major sources of income to the Emanuel Group after 1989 was constituted by royalties paid by Softwoods Queensland Pty Ltd ("Softwoods") with respect to the harvesting of timber standing on part of the APM property portfolio.

On 11 March 1993, EFG and the same 27 of the plaintiff companies as had executed the deed of cross-collateralisation, executed a document described as a deed or orderly realisation of securities ("DOOR"). In that deed, the Emanuel Group acknowledged that it had defaulted with respect to payment of monies owing to EFG. In the DOOR, EFG agreed to allow a period of grace during which the group would proceed with the orderly realisation of properties the subject of securities granted to EFG.

Importantly, the deed acknowledged a debt to EFG, at that stage, of in excess of $155 million. By the DOOR, EFG agreed in its "absolute discretion" to permit the continued flow of funds from Softwoods with respect to the timber royalties. In consideration of the terms of the deed and on condition that the Emanuel Group complied strictly with it, EFG granted a moratorium over the enforcement of its securities and the calling up of the various loan monies which it had advanced, for a period of some forty months expiring on 30 June 1996 "or such other period as may be determined by the EFG group from time to time".

Towards the end of 1993, a Mr Max Croft obtained a judgment against the group and Mr Joe Emanuele for $1 million.

In April 1994, having regard to what it considered to be a failure by the Emanuel Group to proceed diligently with the program of realisation of the securities as agreed in the DOOR, EFG gave notice that it would terminate the flow of funds from Softwoods to the Emanuel Group.

In July 1994, the 27 plaintiffs and Mr Joe Emanuel commenced proceedings in the Federal Court, seeking a declaration that the termination of the Softwoods funds was wrongful. In November 1994, the Federal Court gave judgment dismissing the claim. The Emanuel Group lodged an appeal against the judgment.

Before the appeal was heard, on 27 February 1995 judgment for an amount in excess of $186 million was entered in the Supreme Court of Queensland in an action which had been commenced by EFG in December 1994. The judgment was pronounced against the 27 plaintiffs and Mr Joe Emanuele.

During the course of the litigation to which I have just referred, various negotiations were taking place with a view to reaching an overall settlement between EFG and the Emanuel Group. The learned trial judge in his reasons for judgment sets out the history of those negotiations, commencing from about May 1994. An understanding of the course of those negotiations is important in order to expose what, in my opinion, the learned trial judge correctly found to be a carefully executed fraud on the creditors of the Emanuel Group.

The starting point appears in notes of a meeting between Mr Danny Farrugia of Thomsons, solicitors, who were acting at the time for Mr Joe Emanuele and the plaintiff companies, and John O'Grady of EFG. The notes, made by Mr O'Grady, in part record a proposal put by Mr Farrugia. Elements of that proposal included the transfer to EFG of what were described as "core assets", which appeared to refer to most of the property holdings of the Emanuel Group, at "fair market value", and the Softwood contract at market value.

Under the heading "What Emanuel Group want from EFG", the notes record as the first item: "(a) Pressing creditors to be paid out of up to $3 million". Under the same heading there is reference to "Houses transferred to the Emanuel Group", which seems clearly enough to be a reference to the South Australian properties.

The notes also incorporate a reference to a comment by Mr Farrugia which reads:

"A liquidator getting into the Emanuel Group would be a problem for Joe Emanuele and in Danny's opinion a problem for EFG".

Another part of the notes reads:

"6. I (Mr O'Grady) made the point several times during the meeting that EFG's starting point was that EFG would have to pay stamp duty of the order of $6 million in order to transfer the assets to EFG via a foreclosure mechanism. Any proposal which involved transferring at fair value of, say $75 million resulted in stamp duty saving, $3 million to EFG.

As a consequence, it was easy for EFG Management to justify a figure to the board of the $3 million, but beyond $3 million any increase had to be justified on other commercial grounds. There was obviously a point at which the Board would say that it would be better to stick with the existing Deed."

The existing deed obviously referred to the DOOR.

An important feature of that note is that nowhere in it is to be found a reference to the payment of any monies to Mr Joe Emanuele personally.

The next step revealed by the evidence as to the negotiations is recorded in a letter dated 8 June 1994 from EFG over the signature of Mr O'Grady to Mr Farrugia. That letter refers to a meeting between them of 3 June 1994, but there is no independent record of that meeting in the evidence.

The letter reads:

"Dear Danny

EMANUEL GROUP

1. Further to our telephone conversation on 24 May 1994, our meeting on 3 June 1994 and our telephone conversation on 7 June 1994 relating to the dispute between EFG and the Emanuel Group, I advise that for the sole purpose of attempting to achieve a commercial settlement of that dispute the Offer set out below is still open for acceptance by the Emanuel Group.

2. OFFER

(a) The Emanuel Group is to transfer ownership of all the Security Properties, except the private residences to EFG at Fair Market Value, which will be used to pay down the EFG loan.

(b) In consideration for the above: A$m (i) EFG will pay out Emanuel's pressing creditors of up to $3 million 3.0

(ii) EFG will pay costs of the Emanuel office for 12 months while it is restructured 0.5

(iii) EFG will discharge the mortgages over the private residences for no consideration:

. House - South Australia . Apartment - Cathness, SA . House - Queensland . House - Mt Barker, SA 1.6

(iv) EFG will pay out the leases for the private cars used by the Emanuele family 0.1

(v) EFG will make a one-off payment in cash or property to the Emanuel Group to a total of $2 million. Any property selected will be at EFG's absolute discretion and at fair market value. 2.0

(vi) EFG will release its mortgage charge over the Emanuel office in Brisbane -

(vii) Emanuele to retain the companies and tax losses - ___ Cash and property 7.2

(viii) EFG will transfer the Residual Balance of the EFG loans, (say $71 million based on the assumption in the example at Schedule A), to a company to be nominated by Emanuel advisers. 71.0

(ix) EFG will release the personal guarantee of Joe Emanuele and the Emanuel Group of Companies - ____ Total offer 78.2 ====

(c) The above settlement Offer is to contain mutual releases by Emanuel Group and EFG Group and is to be subject to documentation to EFG's satisfaction. No concluded agreement shall be in place until the terms of settlement are reduced to writing and executed by all parties.

(d) The above Offer is open until the close of business on 15 June 1994."

Insofar as the letter refers to the "residual balance" of the EFG loans (clause 2(b)(viii)), that presumably would be the net loss to EFG if settlement was to be effected on the basis suggested by them.

On 1 July 1994, the 27 plaintiffs and Mr Joe Emanuele commenced the Federal Court proceedings.

By letter of 14 July 1994, Clayton Utz, solicitors for EFG, wrote to Mr Farrugia referring to the Federal Court proceedings. They indicated that the offer put forward in the letter of 8 June 1994 had lapsed, and that their client would not be making any further settlement offers.

There followed a letter dated 29 July 1994 over the signature of Mr Joe Emanuele, who described himself as "chairman" of the Emanuel Group, with which was enclosed two separate settlement proposals. In the second of them the very first item proposed is that the Emanuel Group receive "to clear creditors 2,000,000", which, together with other payments to the Emanuel Group, would involve the company receiving a total of $5 million in cash payments.

As to that letter the learned trial judge concluded, in my opinion correctly:

"Clearly enough the terms of the offer show that the offer was put forward by the Group and for the benefit of the Group."

There was no evidence of any direct response to that offer. Indeed, it does not appear from the evidence that until a date after 15 November 1994, when Branson J dismissed the claim by the 27 plaintiffs in the Federal Court action, the settlement negotiations were resumed.

On 24 November 1994, a meeting was held in Melbourne to discuss further a possible compromise. Mr Joe Emanuele, his son Linton and Mr Farrugia attended on behalf of the Emanuel Group. Mr O'Grady attended with others on behalf of EFG. At the meeting, an offer made by Mr Joe Emanuele, which the learned trial Judge described as an offer for the benefit of the Emanuel Group, was rejected by EFG, which put a counter proposal.

The counter proposal was confirmed in a letter from Mr O'Grady addressed to Mr Emanuele dated 25 November 1994 in the following terms: "Dear Joe

1. I refer to our "Without Prejudice" meeting in Melbourne on 24 November 1994 at which we sought to reach a commercial compromise of the matters in issue between EFG Group and Emanuel Group.

2. Proposal

I am writing to you to affirm the proposal which I put to you at the conclusion of that meeting as the basis for negotiating a settlement which would be acceptable to EFG Group. That proposal was as follows:

(a) EFG Group will provide to Emanuel Group the sum of $4,800,000 to enable Emanuel Group to deal with claims by its other creditors and for such other purposes as Emanuel Group sees fit.

This provision can be made by cash or a combination of cash and the following Adelaide properties. For the purposes of this proposal, EFG Group has valued the Adelaide properties as follows:

. Adelaide Home (Burnside) 350,000 . Cape Jervis - Beach House 760,000 . Mount Barker 190,000 $1,300,000

In the event Emanuel Group wish to retain any or all of the above properties, the value of the properties retained should be deducted from the sum of $4,800,000.

(b) In addition, EFG Group will provide Emanuel Group with the opportunity to match any acceptable offer EFG Group receives for the sale of the Caloundra property (Parcel 52) up to 30 June 1995. Emanuel Group will have this opportunity for a period of 14 days from notification by EFG Group to Emanuel Group of any acceptable offer for that property. This opportunity will lapse as from 30 June 1995, although Emanuel Group can, of course, at any time make a commercial offer for the acquisition of that property.

(c) In consideration of acceptance by Emanuel Group of this proposal, Emanuel Group will release any and all claims which it has in relation to the properties the subject of the Deed of Orderly Realisation and other securities and agrees to transfer these properties to EFG Group at market value in reduction of the debt due by Emanuel Group to EFG Group. Emanuel Group will further permit EFG Group to exercise any and all rights which it has in relation to those properties without interference from the Emanuel Group and, where appropriate, Emanuel Group will provide all reasonable assistance necessary for the purpose of enabling EFG Group to deal with those properties.

(d) In the event this proposal is acceptable to Emanuel Group, it will be necessary for our Solicitors to liaise and agree the precise terms of a formal settlement agreement, as there will be a number of matters of detail to be dealt with to give effect to this proposal. Any final settlement will be subject to formal documentation by our Solicitors of a comprehensive agreement satisfactory to EFG Group and Emanuel Group.

Although you rejected this proposal at the meeting yesterday, I am writing to confirm the proposal and to advise that EFG Group is prepared to leave the opportunity open to Emanuel Group to resume negotiations in accordance with this proposal at any time up to 5.00 pm on Friday 16 December 1994, at which time the proposal will lapse.

3. This proposal is made absolutely without prejudice to all of EFG Group's rights, all of which are reserved. In particular, I wish to make it quite clear that (unless and until a Deed of Settlement is duly executed by EFG Group and Emanuel Group) nothing in this letter involves EFG Group in giving up or deferring any right to take any action whatsoever (whether pursuant to the Deed of Orderly Realisation, the securities, or otherwise) at any time; and your Group ought not to construe this letter as involving a representation that EFG Group will not take such action as it may at any time consider appropriate, including at any time before the proposal lapses."

Mr O'Grady obtained the impression at the meeting which immediately preceded that letter that Mr Joe Emanuele intended to use what Mr O'Grady described as "all avenues available to him to fight legally" with a view to frustrating EFG in its "realisation program".

In those circumstances, it is clear that the motivation underlying the willingness of EFG to pay a substantial sum of money to the Emanuel Group, a course which otherwise might seem surprising in view of the extent of the indebtedness of the Emanuel Group to EFG, becomes understandable. It was to the commercial advantage of EFG to remove the threatened obstruction by the Emanuel Group to the prompt and orderly realisation by EFG of the Group's properties, by offering a settlement which involved a payment, or a combination of cash and the transfer of properties, to the Emanuel Group.

Putting it another way, there was a clear commercial benefit to be derived from a transfer to EFG of the secured properties at market value, which would give to EFG the ability to realise the properties in an orderly fashion rather than by forced mortgagee sales against a background of fierce resistance by the Emanuel Group.

What is important to note with respect to the letter of 25 November 1994 is that EFG contemplated benefiting the Emanuel Group to the extent of some $4.8 million "to deal with claims by its other creditors and for such other purposes as Emanuel Group sees fit".

On 1 December 1994 EFG served notices of demand on the Emanuel Group in relation to alleged breaches by the Group of the DOOR.

Mr Joe Emanuele wrote a long and somewhat rambling reply to Mr O'Grady's letter of 25 November by letter of 5 December 1994. During the course of the letter he said:

"... I seek an amount of $10 million to enable my family and I to discharge or compromise our creditors and to go forward. Unless I have an amount of this order I will be faced with insolvency or will spend the next five years fighting a rearguard action endeavouring to avert insolvency."

By letter of the same date, that is, 5 December 1994, Mr Farrugia wrote to Mr Emanuele referring to a meeting which apparently took place between them on the preceding Saturday. The letter reads: "The position that we arrived at on Saturday was that you instructed me to prepare a letter to O'Grady setting out your position and reiterating your request for $10 million compensation.

In relation to these instructions I wish to make the following remarks:

- I do not agree with your approach in the sense that I do not believe that there is any prospect of your obtaining compensation of $10 million.

I believe there is a reasonable prospect of your obtaining compensation of the order of $6 million but not substantially more.

Your request for compensation at the level of $10 million may be perceived as an outrageous 'ambit' claim and have the effect of terminating negotiations and result in the appointment of a receiver which would be financially critical and fatal for both you and your Group.

- Despite your expressed views to the contrary, you would be able with $5-6 million to deal with virtually all of your creditors and start again, admittedly with no stake but with some basis for going forward.

- The approach you are taking is a 'Russian roulette' approach which neither I nor any other prudent adviser could condone or support in your circumstances.

- Many would say that your approach is foolhardy in the extreme.

- Some might even say that especially insofar as your family is concerned your approach is selfish.

You should bear these matters in mind when considering the enclosed draft letter to O'Grady. In preparing this letter I have attempted (in a commercial and non-threatening manner) to reflect your position and why you believe that the amount of compensation sought is reasonable.

I hope that I have been able to accurately reflect your attitude and sentiments.

I have sent a copy of the enclosed letter to Rocco but not this letter for obvious reasons."

It is not unimportant to note the reference in the letter to Mr Farrugia's belief that Mr Emanuele would be able, with $5-6 million, to deal with "virtually all" of his creditors.

On 7 December 1994, Mr O'Grady wrote to Mr Joe Emanuele noting the latter's letter of 5 December and stating that the EFG was "unable to justify acceptance" of Mr Emanuele's counter offer, but the proposal contained in EFG's letter of 25 November 1994 remained open for acceptance until 16 December.

By letter of 8 December 1994, Clayton Utz, on behalf of EFG, wrote to Thomsons with respect to objections which Thomsons had taken to the notices of demand. In the course of the letter they refer to "Mr Emanuele's admission during the course of his evidence on 17 August 1994 that the Emanuel Group is insolvent and has been in that condition for some years".

As the learned trial Judge points out in his reasons, the assertion that Mr Emanuel had admitted under oath the long-standing insolvency of the Emanuel Group was not denied by his solicitors. The learned trial Judge concluded from this:

"It must be assumed that at all material times Mr Joe Emanuele was aware that the Emanuel Group was insolvent. In those circumstances the directors of the companies within the Group were under a duty to the companies of which they were directors to have a special regard to the interests of the creditors of those companies. Because of the inter-company debts, all of the directors had a duty to both the internal creditors and also the external creditors of the Group."

That conclusion cannot seriously be challenged.

On 12 December 1994, Mr Emanuele wrote to Mr O'Grady in terms which were becoming more acrimonious. In the course of the letter he said:

"I was promised $10 million plus and I fairly and strongly believe that I am entitled to it. If you think that you are in a strong financial position as you have won the first judgment I can assure you that this is just the first battle. You have not won the war. I have not even started fighting. As I said in your office it will be a long time before EFG will be able to do anything with my portfolio. ......

I have gone through hell with the Canberra case for nine years only because I always believed I was right (that appeal was heard on November 21 and all advice is that I will win it) so I suppose I can go through further hell with EFG for as long as it takes for right to prevail.

I am a most determined man when I know I am right. I will never give up."

Elsewhere in the letter he drew the attention of EFG to the effect mortgagee sales would be "likely to have", implying clearly that there would be complications if EFG were to make forced sales as mortgagee. The letter goes on:

"What can be 'justified' is not only the cost of all this but the effect it will have on what could have been."

In a letter written the very next day, Mr Joe Emanuele apologised for the threatening and emotional tone of the letter of 12 December 1994.

By letter of 13 December to Mr Emanuele, Mr O'Grady makes a number of significant observations, including the following:

"EFG Group is a subsidiary of a public company, and its duty is to its shareholders; this is a duty of which the Ramco board is very mindful (Ramco being a committee within the Elders Group). EFG Group is under no obligation to make any settlement offer to you as the amount of your debt to EFG far exceeds any realistic assessment of the value of the securities held by EFG Group."

He goes on to deny that Mr Emanuele was ever promised "$10 million plus". He then refers to the settlement proposal conveyed by EFG's letter of 25 November 1994 and states:

"The settlement proposal was carefully considered and is available for acceptance until close of business this Friday, 16 December 1994, at which time it will be withdrawn."

There followed a letter to Mr Joe Emanuele from Thomsons over the signature of another partner, a Mr D.J. Purcell, dated 14 December 1994. It reads: "As you know the deadline for acceptance of EFG's offer of $4.8m expires on Friday, 16 December 1994.

Notwithstanding that you are upset at the direction taken by EFG to terminate the flow of funds under the timber royalty agreement and to serve notices of default under the Deed of Orderly Realization, I consider that you have no legal options to achieve a better result than the offer that has been put to you by EFG.

I strongly urge you to accept EFG's offer. This is one of those situations where it is far better to survive and live to fight another day than to continue to wage a campaign to defend a worsening position which unfortunately I fear will result in the collapse of the Emanuel Group and possibly your personal bankruptcy.

It is my assessment that EFG's offer will lapse on Friday and that any offer (if any) put to you after that day will be for a lesser amount. In the meantime your other creditors are threatening and cannot be held at bay for much longer."

That letter is significant in a number of respects. Mr Purcell is fearful that failing acceptance of EFG's offer, the Emanuel Group would "collapse", and Mr Joe Emanuele might be declared bankrupt. Furthermore, it is clear from the correspondence to that date that EFG's offer was to the Emanuel Group. When Mr Purcell refers to "your other creditors", he must be taken to be referring to the creditors of the Group.

Notwithstanding that letter, Thomsons did not receive instructions to accept EFG's offer, which lapsed on 16 December 1994.

EFG's response to that circumstance was to commence the action to which I have referred in the Supreme Court of Queensland. This was instituted on 20 December 1994 against the 27 plaintiffs and Mr Joe Emanuele. As I have already indicated, that resulted in a default judgment entered on 27 February 1995 for an amount in excess of $186 million.

In the meantime, on 23 December 1994, presumably in response to the issue of the Queensland proceedings, Mr Farrugia wrote again to Clayton Utz. With the letter Mr Farrugia enclosed a document entitled "Terms of Settlement". This involved a payment in cash of $5 million, together with the relinquishment of its securities over the South Australian properties, and an additional office property in Brisbane. Broadly speaking, in consideration of that payment in cash and those properties, all other properties and the softwoods contract were to be transferred to EFG for fair market value.

In the course of the letter Mr Farrugia states:

"The amount of cash required is a function of the financial obligations which are required to be met or compromised in order for the Group to survive and to continue to operate. Our position in this regard has been consistent and remains the same."

The proposed settlement included a term:

"The fact and terms of settlement shall be strictly confidential"

Following that letter, further negotiations continued into 1995. The detail is set out in the judgment under appeal. I do not pause to go into that detail. It is sufficient to note that the negotiations reflect a continuing worsening of the financial position of the Emanuel Group and continuing pressure from its creditors.

Mr Rocco Emanuele wrote to Mr Farrugia on 1 February 1995 stressing amongst other things the "vulnerable position" of the Group, and that a "myriad" of unsecured creditors was "rapidly building up".

At some time early in 1995, during the course of the settlement negotiations, EFG generated through Clayton Utz a draft Deed of Forbearance and Release (DOFR). Although an earlier draft was apparently not tendered in evidence, a redraft was enclosed with a letter to Thomsons from Clayton Utz dated 6 February 1995.

The terms of the redrafted DOFR are significant. Pursuant to the redraft, EFG covenanted to pay to the Emanuel Group $4.69 million and to release from its securities the South Australian properties, together with the Brisbane office. Those properties were to be valued notionally at $1.3 million. If retained by the Emanuel Group, that amount was to be brought to account. In addition, there is an offer to pay what is described as the Hall Road debt of $322,213.

There were to be mutual releases and discharges of any claims and cross-claims between the parties.

The letter of 6 February 1995 to Thomsons from Clayton Utz enclosing the redraft of the DOFR was followed soon thereafter by a letter dated 8 February 1995 from Clayton Utz to Thomsons. That letter reads in part:

"Our client instructs us that there is no point in holding a meeting until we receive your written advices as to the specific matters which your client wants you to discuss at the meeting. The Deed which we have submitted to you on our client's instructions contains the terms upon which our client is prepared to agree. There is no flexibility in relation to amending any substantive terms of the Deed, though it may be possible to address some fine tuning of the terms of the Deed. If the purpose of your proposed meeting is to re-open discussions on substantive matters of the Deed then there is no point in holding the meeting."

It is convenient at this stage of these reasons to take stock of the position which had been reached as at that date, that it, 8 February 1995.

As at that date, the matter may be summarised in this way: (a) The Emanuel Group had been insolvent for some years before August 1994.

(b) The likelihood is that Mr Joe Emanuele was personally insolvent during much of the same period.

(c) From about mid-1994 the Emanuel Group, largely through Mr Joe Emanuele but with some contribution from his son Rocco Emanuele, engaged in long, drawn out and increasingly acrimonious negotiations with EFG with a view to the Emanuel Group, on the one hand securing an amount of money to pay pressing unsecured creditors and to secure the South Australian properties, and on the other hand for EFG to obtain a transfer of the various other secured properties.

(d) The Emanuel Group emphasised again and again during the course of those negotiations that it needed a substantial amount to pay pressing unsecured creditors, and the proposals for settlement stemming from the Emanuel Group on the one hand, and EFG on the other, up until 8 February 1995, were clearly designed to generate sufficient funds in the hands of the Emanuel Group to address that need.

(e) EFG was prepared to countenance a not insubstantial payment to the Emanuel Group in consideration of taking a transfer of the various secured properties to enable their orderly realisation, and to avoid a long drawn out process of litigation with the Emanuel Group which might have resulted at best for EFG in a disadvantageous forced sale.

(f) The offer which was "on the table" as at 8 February 1997 from EFG, and which found expression in the redrafted DOFR, involved a payment to the Emanuel Group of $4.69 million and the relinquishment by EFG of its securities over the South Australian properties.

(g) At no time was it contemplated by any offer put by either EFG or by the Emanuel Group, or in the response to any offer put by either, that there would be a payment of any kind to Mr Joe Emanuele personally.

Soon after 8 February 1995, there was a dramatic change in the terms of the proposed settlement and in the destination of the proposed payment by EFG.

The Change of Direction

In his reasons, the learned trial Judge refers to a meeting which took place on 13 February 1995 between Mr T.J. Cumming, chartered accountant and liquidator, Mr P.J. Patterson, chartered accountant, Mr David Purcell (of Thomsons), Mr Joe Emanuele and Mr Rocco Emanuele. Mr Farrugia may have been present.

Mr Cumming and Mr Patterson were partners in Coopers & Lybrand, a firm of chartered accountants. Mr Cumming had been appointed liquidator of eleven companies forming part of the Emanuel Group in early 1991 and still held office at such at the time of the meeting on 13 February. Since August 1992, Mr Patterson had been in charge of the preparation of tax returns for the Emanuel Group. Mr Cumming was cross-examined in the course of the public examination associated with the liquidations as to the meeting on 13 February 1995.

Part of his evidence was as follows:

"A. ... What was put to us was that they had been discussing with Elders a settlement.

Q. Put to you by whom.

A. By David Purcell and Danny Farrugia, that they were discussing settlement with Elders and that there was likely to be a settlement reached which would entail Elders taking possession of the majority of the assets of the Emanuel Group and that there would be some money made available to the creditors or that there would be some money made available for the Emanuel Group of companies.

Q. How much. I would like to actually know the full amount because sooner or later I am going to find out. How much was said -

A. My recollection was that there would be 3 or $400,000.

Q. Not $6 million.

A. No, not $6 million.

Q. Are you sure about that now.

A. I was aware that there was a further money -

Q. I want to know the full amount, how much.

A. For the Emanuel Group I understand that there was $500,000 - four or five hundred thousand, there was a discussion as to another payment that was being made which was going into a company which I don't know whether it was part of the Emanuel Group or not because -

Q. Simionato Holdings.

A. If that is the company.

Q. How much was going to it.

A. I think they were saying something around $4 million."

It appears that the purpose of the meeting was to discuss the tax implications of the payments which were contemplated. In a further passage of evidence, Mr Cummings makes it clear that he indicated that Mr Joe Emanuele would have to "fully disclose" any term of settlement he had reached with all his creditors.

A further meeting took place on 22 February 1995 at Thomsons in the presence of Mr Purcell, another solicitor employed at Thomsons, Mr Bonnett, Mr Farrugia, Mr Rocco Emanuele and Mr Nigel Winter. The latter was a solicitor with another firm, Johnson Winter and Slattery. He attended at the request of Mr David Purcell.

Mr Winter was also examined pursuant to the Corporations Law. Part of his evidence indicated that what he described as a "dilemma" was identified at the meeting insofar as Thomsons felt that they could not properly represent the interests of Mr Joe Emanuele as well as the companies comprising the Emanuel Group. In his evidence he went on to say:

"The nature of that conflict was such that there was a willingness, on the part of Elders to make a payment to Joe in recognition of their long standing relationship, which was said to have lasted in the order of thirty years, and that consequently it was a question of the different competing interests, namely, the companies' on the one hand, and the individual on the other hand, negotiating independently as to how the financial package on offer by Elders would be split."

Apparently the possibility that Mr Winters might take over the role of acting for the plaintiff companies was discussed. It is not clear whether Mr Winter realised what the amount of money was which was on offer from EFG at that meeting, or later when he was given a copy of the draft DOFR to read. Be that as it may, during the course of his evidence in relation to that meeting appears the following passage: "Q. Did anything further happen that day.

A. I think at the meeting there was a view expressed by David Purcell that in his view that the whole of the $5 million or the amount of money on offer should go to Joe on the basis that the true purpose of the money was to give him an amount in recognition of the relationship between himself and Elders over thirty year period, as if to give him a new start.

Q. Was anything said about what was happening, what was going the other way from the companies to Elders.

A. I said having been involved in the matter for a very short time that I thought that the whole of the moneys should go to the companies.

Q. What was said to that.

A. I think it was just, there was no response to that.

Q. Was anything said as to whether more money could be procured from Elders than that then on offer whatever that amount was.

A. I think that it was said by Danny Farrugia that in his view the negotiations had been exhausted and that it was unlikely the amount of the fund could be improved upon.

Q. So the task then was for the division between Joe Emanuele and the companies.

A. Yes."

In a letter from Thomsons to Mr Joe Emanuel dated 27 February 1995. There is a reference to a meeting between Mr Farrugia and Mr Joe Emanuele on the preceding Friday, that is, 24 February 1995. The letter proceeds: "We confirm our advice to you that you should resign as a director of the companies involved in the dispute with Elders.

In negotiating any settlement with Elders the companies' interests in achieving the best financial settlement possibly conflict with your desire to achieve the best result for yourself.

We are therefore recommending a resignation because if you remain a director your duties as a director of those companies may conflict with your personal interests. As a director of these companies you are obliged to avoid conflicts of interest and where the companie's interests conflict with your interests, you must defer to the companies' interests."

The letter then refers to the fact that enclosed with it were forms of resignation by Mr Joe Emanuele as a director of 28 companies in the Group. The letter continues: "Please arrange for the executed resignation to be returned to us immediately.

You should be aware that if your resignation as a director of these companies is accepted you may still be deemed to be a director under the Corporations Law if you exercise influence over the affairs and operation of these companies either in relation to the Elders matter or otherwise. You must leave these matters entirely to the continuing directors of these companies and cannot interfere in any way in their conduct of the affairs of these companies. If you do not do so then you may be deemed to be a director of these companies and to have acted in breach of your duties notwithstanding your formal resignation.

You should therefore avoid contact and discussions with the continuing directors of these companies regarding their affairs.

Furthermore you should not contact or discuss with Elders or any other person dealing with these companies, the affairs of these companies.

Finally, you personally should, in our view, immediately cease any intermingling of your own affairs and those of these companies. You must draw a clear distinction between the assets of the companies and your personal assets and not rely in any way on the assets of the companies or any action by those companies. You should not compete with the companies either in securing a settlement with Elders or otherwise. If you act in breach of these directions you will be liable to account to the companies for any benefit derived by you."

Thomsons continued to act for Mr Joe Emanuele. In that capacity, Mr Farrugia wrote to Mr Winter on 28 February. During the course of the letter he made the following points: "- In our opinion it will be necessary for there to be contemporaneous dealings between EFG and the Emanuel Companies on the one hand and Mr G. Emanuele on the other because all are parties to the Queensland Supreme Court proceedings (No 2070 of 1995) in respect of which summary judgment was given on Monday.

- In our view it is highly unlikely that EFG will compromise its position in that litigation with only some of the parties to the proceedings. Accordingly, contemporaneous dealings on behalf of the Companies on the one hand and Mr Emanuele on the other are necessary.

- Contemporaneous dealings need to be clearly distinguished from dealings in competition. For the reasons set out below, the fact such dealings occur contemporaneously does not mean that those dealings are competitive.

- The interests of the Companies (having regard to their financial position) are to maximise the return to the Companies' creditors. The separate interests of Mr Emanuele are to avoid bankruptcy by securing financial and other support from EFG to achieve compromises with his creditors.

- We therefore believe that it is necessary for the Companies and Mr Emanuele to have separate and independent but contemporaneous dealings with EFG to pursue their respective interests on the basis that each of the parties will have separate representation and their respective interests vigorously represented to and pursued with EFG.

- We do not believe that it is appropriate for the Companies and Mr Emanuele to recognise, negotiate or agree an allocation of any supposed available settlement funds because that would necessarily place the parties in a position of competition whether any accommodation reached is amicable or otherwise. We do not believe that it is appropriate for our client to take such a position. His personal interests must at all times be kept separate from the interests of the Companies."

On the same day, that is 28 February 1995, the directors of the Emanuel Group, over the signature of Mr Rocco Emanuele, wrote to Mr Winter stating: "The directors have considered all matters discussed at our meetings.

The directors believe that the Group should seek the sum of $700,000 from the proposed settlement with EFG and we instruct you to negotiate with EFG to achieve this outcome.

It is our understanding that the three (3) properties in the name of Guiseppe Nominees Pty Ltd are intended by EFG to benefit Joe Emanuele for his own use.

Finally, please ensure that your fees (along with Thomsons' fees) are paid directly by EFG at settlement"

The learned trial Judge commented on the fact that the letter contained two curious propositions. They were that $700,000 would be an appropriate amount to seek from EFG, and that the three properties (which were the South Australian properties) were intended by EFG to benefit Mr Joe Emanuele. To comment that those were curious propositions is very much an understatement.

Despite having every opportunity to do so, in the course of the learned trial Judge's dealing with the application for summary judgment, there was not one shred of evidence put forward by Mr Joe Emanuele or any other of the directors of the companies in the Group to explain how the directors could possibly have formed the view that it was proper for the Group to "seek the sum of $700,000 from the proposed settlement with EFG" and to give instructions to negotiate to achieve that result when EFG's last offer, which found expression in the redrafted DOFR, if accepted, would have involved a total payment to the Emanuel Group of an amount in value in excess of $6 million.

Neither is there to be found in any of the voluminous material put before the learned trial Judge any explanation as to why the directors of Guiseppe Nominees Pty Ltd, in particular, considered that it was proper for that company to relinquish the South Australian properties "for the benefit of Joe Emanuele".

Furthermore, as the learned trial Judge observed:

"It cannot be overlooked that whilst Mr Joe Emanuele resigned from the twenty-eight plaintiff companies he remained a director of the remaining companies and therefore had a duty to those companies to ensure that their interests were not subordinated to his own interests. He therefore had a duty to ensure that the remaining companies would be able to recover any advances made to or investments in the twenty-eight plaintiffs. In these circumstances the companies of which he remained a director had a direct interest in the amount of money the twenty-eight plaintiffs might receive from EFG."

As the learned trial Judge points out, the only possible conclusion from the evidence before him was that the directors did not consult with any of the creditors of the Emanuel Group except Thomsons, whose fees were to be repaid by an arrangement which was to be kept confidential.

The learned trial Judge goes on to refer to evidence given by Mr Winter of a meeting in Brisbane on 2 March 1995 with representatives of EFG, including Mr Elliott.

Mr Winter said that he sought a payment to his clients, which of course were the Emanuel Group of companies, of $1 million. He went on to say that Mr Elliott:

"... confirmed to me that there was a desire on their part to give Joe Emanuele a sum of money and that the total amount was finite and in so far as I wanted a proportion of the total fund to go to my clients, it was a matter for me to justify and negotiate; that there was a confirmation that there was a degree of frustration at the O'Grady level and that there was no certainty that there would be any deal for anyone and that what Elders really wanted was for there to be a swift conclusion to all dealings and if there was sort of too much stuffing around there would be no money. Now in the face of that, I asked for a million in those circumstance and he said 'You can have 700' and that's where we finished."

As the learned trial Judge points out, it is an extraordinary coincidence that the very amount which Mr Winter had previously received instructions to settle for, namely $700,000, was exactly the figure which Mr Elliott said would be available to the companies.

The learned trial Judge was completely justified in reaching the conclusion that clearly "someone connected with Mr Joe Emanuele's interests had advised Mr Elliott of the position that the companies would take".

The meeting of 2 March 1995 was followed by the submission by Clayton Utz on behalf of EFG to Mr Winter of a further draft DOFR by letter of 8 March 1995.

The further draft DOFR differed from its predecessor in an important respect. Instead of a payment by EFG to the Emanuel Group of $4.69 million, it provided for the payment by EFG of a total of $700,000, as to $650,000 thereof by cheque drawn in favour of Johnson Winter & Slattery for the Emanuel Group, and as to $50,000 on account of Johnson Winter & Slattery's legal costs of acting for the Emanuel Group. Importantly, the draft deed did not refer to any other agreements to be entered into with EFG either by Mr Joe Emanuele or Simionato Holdings.

Mr Robert Simionato and Alessandro Caruso purchased the shares in Simionato Holdings from Thomsons on 9 March 1995. On 15 March 1995, the Emanuele family trust was established by settlement by Mr Danny Farrugia of Thomsons of the sum of $10 paid pursuant to a deed of settlement pursuant to which Simionato Holdings agreed to act as trustee of the trust. On the same day, the Liddan family trust was established.

In the deed establishing the trusts, the clauses defining the class of potential beneficiaries are obscurely worded. But the class includes, in both cases, the "parents, parents-in-law, brothers, sisters, spouses, widows, widowers, children, grandchildren, cousins, nephews and nieces" of Mr Simionato and Mr Caruso, both of them being owners of issued shares in the trustee company. So that, at least, Rocco, Linton and Linda Emanuele were included.

Thomsons were acting by then for both Simionato Holdings as well as Mr Joe Emanuele. At about the same time as the further draft DOFR was put forward by EFG, a draft deed between EFG and Simionato Holdings was also created. Although not exhibited in evidence, it is the subject of a letter from Thomsons to Clayton Utz dated 10 March 1995.

In the letter written on behalf of Simionato Holdings is an express reference to EFG observing its obligations "under its agreement with the Emanuel Group of companies". That could only be a reference to the DOFR.

The letter makes it clear that Thomsons regarded confidentiality as an important feature of the transaction. It suggested an amendment to the draft deed with Simionato Holdings to tighten the provisions designed to maintain confidentiality.

Having regard to the letter of 10 March, the conclusion is inescapable that Mr Simionato must have been aware of the existence of the DOFR. Furthermore, it seems hardly likely that he was, through his solicitor, making the point that EFG must observe the obligations under the DOFR, without being aware of the content of those obligations and of the terms of that deed.

The question of payment of costs amounting to some $400,000 to Thomsons is significant.

By letter of 14 March 1995, Mr Purcell wrote on behalf of Thomsons to Mr Joe Emanuele confirming:

"... our agreement that the sum of $400,000.00 will be paid to us directly from EFG Group in partial satisfaction of our costs and disbursements of the Federal Court litigation and our ongoing work to achieve a settlement with EFG and concerning your other creditors."

Separately by a letter written on the same day to Mr Simionato, Mr Farrugia stated, inter alia:

"It is understood that it has been agreed that some $400,000 will be paid to Thomsons directly by EFG on account of costs incurred in this matter and that the settlement amount payable by EFG to your company will be reduced accordingly."

Mr Simionato wrote on 15 March 1995 instructing Mr Farrugia to proceed with settlement as outlined in the letter of 14 March 1995.

As the learned trial Judge observed:

"If, of course, Simionato Holdings Pty Ltd was, in truth, at arm's length with the plaintiffs or Mr Joe Emanuele it would be surprising that Simionato Holdings Pty Ltd would have agreed, which implicitly it did, by the reduction of the sum being paid to Simionato Holdings Pty Ltd to pay $400,000 in costs for work previously done on behalf of the plaintiffs and Mr Joe Emanuele."

In minutes of a meeting of the directors of Simionato Holdings held on 16 March 1995, Mr Robert Simionato was shown to have been present when it was noted that the amount to be paid to the company, in its capacity as trustee of the Emanuele family trust pursuant to the company's deed of arrangement with EFG, was $4.6 million and that EFG would pay separately $400,000 to Thomsons on account of their fees.

As the learned trial Judge notes, the fact that EFG agreed to pay $400,000 directly to Thomsons was very much to the advantage of Thomsons and to the disadvantage of the other creditors of the Emanuel Group and Mr Joe Emanuele. There was no mention of the payment in any of the deeds which eventually were executed to give effect to the transaction. As the learned trial Judge commented:

"It was the most secret aspect of what was a most secret transaction".

In the events which happened, the transaction originally expressed in the draft DOFR propounded in early February 1995 was varied, the varied arrangements being set out in three different deeds. 1. In the first place, there was the Simionato Holdings deed, which provided for payment to Simionato Holdings of $4.6 million.

2. What was described as the DOFR, between EFG and 28 of the companies comprising the Emanuel Group, which provided for a total payment of $700,000 by EFG, $650,000 for the benefit of the Emanuel Group and $50,000 to Johnson Winter & Slattery on account of their costs.

3. A separate deed between EFG and Mr Joe Emanuele, ("the Joe Emanuele deed") which recorded the release and discharge by Mr Joe Emanuele of any causes of action which he might otherwise have had against EFG, and which by various covenants stipulated that Mr Joe Emanuele would assist EFG to enforce its rights against the various secured properties owned by the Emanuel Group.

As well, there was the provision for the payment of $400,000 direct to Thomsons, as to which all three of the deeds to which I have referred were silent, but which was confirmed by correspondence.

There were a number of striking features of the transaction as expressed in the three deeds: (a) Instead of the Emanuel Group receiving the settlement moneys on offer from EFG, which was clearly intended by both parties, having regard to my summary of the negotiations as at 15 February 1995, almost all of the settlement moneys were diverted away from the Emanuel Group to be disposed of by Mr Joe Emanuele and for his benefit.

(b) It had been emphasised again and again in the negotiations leading up to 15 February 1995 that the substantial payment then contemplated to the Emanuel Group was seen to be necessary in order to pay off, or at least to effect a compromise with, its pressing creditors. Suddenly, concern as to the interests of the creditors disappeared in favour of a transaction which was substantially for the benefit of Mr Joe Emanuele, the creditors receiving a derisory $650,000. Apparently creditors' claims amounted to a total of approximately $304,468,000, with the result that, excluding any allowance for costs of winding up, there would be a dividend to the unsecured creditors of the order of .213 cents in the dollar.

(c) Each of the three deeds contained clauses designed to ensure that the parties kept the provisions of the deed in each case strictly confidential, in the case of the Simionato Holdings deed and the Joe Emanuele deed, in elaborately expressed terms.

(d) There was no mention in the DOFR of the existence of the other two deeds, let alone the terms of them.

(e) Despite the fact that $400,000 to be paid to Thomsons was part of the consideration moving from EFG, there was no mention of it in any of the deeds.

(f) The only explanation which appears in the documents for the payment of the rump of the settlement moneys to Simionato Holdings appears in the Simionato Holdings deed in recital F which reads:

"The commercial relationship between the EFG Group and the Emanuel Group and Guiseppe Emanuele is now at an end and the EFG Group is desirous of paying a gratuity to Simionato Holdings in recognition of the commercial relationship between the EFG Group and Guiseppe Emanuele and in consideration of the provision by Guiseppe Emanuele and by the members of the family of Guiseppe Emanuele of such co-operation and assistance as may be required by the EFG Group in enforcing its rights under the Securities and dealing with the properties the subject of the Securities." (emphasis added)

As to that clause in the recital, one wonders at what could properly have prompted a public company, or group of public companies, gratuitously to pay several million dollars at the direction of the managing director of a group of companies indebted to them to the extent of in excess of $186 million as a gesture made in recognition of a pre-existing commercial relationship which had ended with litigation and heated and acrimonious settlement negotiations.

The answer emerges from the circumstances to which I have referred at length and which led up to the settlement. In particular, the course of events after the middle of February 1995 can only be explained on the footing that there was a deliberate decision taken to divert most of the settlement moneys to Mr Joe Emanuele for his benefit, at the expense of the creditors of the Emanuele Group, and that that diversion be disguised by separating out the elements of the transaction into the three deeds to which I have referred.

Whoever was the source of the initiative which resulted in the stripping of the settlement moneys in favour of Mr Joe Emanuele, the diversion of the bulk of the settlement moneys from the Emanuel Group was only possible with the co-operation of Mr Joe Emanuele and the other members of his family who were directors of the various companies in the Group.

The transaction was nothing but a transparent fraud on the creditors of the Emanuel Group, and the participation by the directors of the Group amounted to a gross breach of the fiduciary and other duties which they owed.

It is nothing to the point that at a late stage Mr Joe Emanuele resigned as director of some (but it is important to note, not all) of the companies in the Emanuel Group. Not only did he continue to owe duties as a director of the companies from which he did not resign, but a director cannot avoid a finding of a breach of fiduciary duties owed to a company by bailing out of the directorship in the hope that by doing so he might sanitise his involvement in a fraudulent scheme, subsequently entered into, impacting on the company or its creditors.

As to that aspect of the matter, with respect, I agree with the judgment of the Supreme Court of Canada in Canadian Aero Service Ltd v O'Malley et al.

The learned trial Judge's conclusion that it had been established on the balance of probabilities that Mr Joe Emanuele, together with Rocco, Linton and Linda Emanuele, had failed to act "in the best interests of each of the plaintiff companies" throughout the relevant period leading up to the settlement - in the case of Mr Joe Emanuele, notwithstanding his purported resignation from the 27 plaintiffs on 27 February 1995 - was, in my view, clearly correct. It should not be overlooked that Rocco, Linton and Linda Emanuele remained in office as directors throughout the whole of the relevant period.

I am in full agreement with the learned trial Judge's findings that in the circumstances each of the directors "failed to act honestly in the discharge of their duties of office" and failed "to exercise the degree of care and diligence that a reasonable person in their position would have exercised in the carrying out of their duties as officers of the plaintiffs".

Furthermore, their breaches of duty operated as breaches of s232 of the Corporations Law, and they became liable, by reason thereof, to the civil penalties provided for under s1317DA of the Corporations Law.

Settlement of the transaction took place on 17 March 1995. Details of the various payments and transfers of property which took place in order to effect settlement are set out in the judgment under appeal. No question arises out of that aspect of the matter relevant to the questions agitated on the hearing of the appeal.

Neither does anything turn upon the subsequent dealing by the appellants with the settlement proceeds. There has been no suggestion in the case that any of those dealings operated to deflect an obligation to account, if such an obligation otherwise arose.

Of course, the directors of the 27 plaintiffs were not parties to the action. The critical question in the case, once a finding was made that the directors of the plaintiff companies were in breach of fiduciary and other duties, was whether or not the circumstances of the acquisition by the defendants of the proceeds of settlement attracted an obligation on their part to account.

As to that, the critical finding by the learned trial Judge, being a finding which was at the forefront of the attack mounted by the appellants, is as follows: "I have no doubt that the defendants, at least those which were then incorporated, and the defendants' directors were well aware of the breaches of fiduciary and statutory duties of the directors of the plaintiff companies. Indeed the raison d'etre of the defendants Simionato Holdings Pty Ltd, Thomco No 832 Pty Ltd and Liddan Pty Ltd was in my opinion to aid and abet in those breaches. Simionato Holdings Pty Ltd, in particular, was acquired from Thomsons for the purpose of acting as trustee of the Emanuele Family Trust and for the specific purpose of entering into the Deed of Forbearance and Release with EFG. It was acquired for the purpose of receiving $3,300,000 from EFG and for the purpose of benefiting the Emanuele family and in particular the directors to whom I have referred. So also did Liddan Pty Ltd assume the obligation of trustee of the Liddan Family Trust for the purpose of receiving the three properties in South Australia and for the particular purpose of benefiting the Emanuele Family and directors to whom I have referred.

The directors of both companies and the companies themselves were aware of the breaches by the plaintiff companies' directors and were aware that their role was, in the case of those two companies, to receive the assets otherwise due to the plaintiff companies.

They received the assets with full knowledge of the breaches by the directors of the plaintiff companies and in aid of these breaches.

The other companies in the Simionato Group, either then incorporated or later incorporated, also acted with full knowledge of those breaches in receiving and disposing of the proceeds of the payments by EFG and the transfer of the properties by Guiseppe Nominees Pty Ltd.

The breaches by the directors made them liable to account: Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; s1317 DA, s1317 FA and s1317 HD Corporations Law.

The defendants received the monies and properties with actual knowledge of the dishonest design and therefore hold the monies and the properties on constructive trust for the twenty seven plaintiffs. Consul Development Pty Ltd v DPC Estates Pty Ltd (supra).

Each of the defendants has had knowledge of the dishonest design and where each of the defendants has received money from any other defendant it has received that money as constructive trustee for the plaintiff companies."

Put shortly, the contention of the appellants is that there is no evidence to support a finding that the directors of the defendant were aware of the breaches of duty committed by Mr Joe Emanuele and the other directors of the plaintiff companies. Or at least, so the appellants contend, that issue should have gone to trial in the ordinary way.

Of the directors of the defendant companies, Mr Robert Simionato played an active part in the proceedings. Alessandro Caruso, the other director of the defendants, did not. The evidence pointing to knowledge on the part of the defendant companies and involvement by them in the aforementioned scheme is evidence more directly implicating Robert Simionato. Any knowledge acquired by him in the course of the transaction, and in his capacity as a director of the defendants, must be imputed to the defendants.

Part of what I have described as the critical finding by the learned trial Judge is that Simionato Holdings was acquired from Thomsons for the purpose of acting as trustee of the proposed family trust, and for the purpose of receiving the $4.6 million payment from EFG.

While Mr Robert Simionato admits to having known that much, it does not follow that he knew that the purpose of the payment was to implement a transaction which amounted to a breach of fiduciary and other duties owed by the directors of the plaintiff companies of the kind suggested by the learned trial Judge.

For reasons which I come to, I think that the evidence did establish on the balance of probabilities that he did have that knowledge. But the decision reached by the learned trial Judge may be supported on a more limited basis. It was not necessary for the plaintiffs to succeed, that they proved knowledge by Mr Simionato of the breaches of duty on the part of the plaintiffs' directors stemming from the directors' actions in diverting the rump of the settlement moneys from the Emanuel Group of companies to Mr Joe Emanuele. It was sufficient for them to prove knowledge on the part of Mr Simionato of other circumstances falling short of that, which I now come to.

I have already referred to recital F of the Simionato Holdings deed. That makes it clear that part of the consideration for the payment of $4.6 million by EFG was-

"... the provision by Guiseppe Emanuele and by the members of the family of Guiseppe Emanuele of such co-operation and assistance as may be required by the EFG Group in enforcing its rights under the Securities and dealing with the properties the subject of the Securities."

The relevant members of Mr Joe Emanuele's family were Rocco, Linton and Linda Emanuele who, between them, were directors of a number of the plaintiff companies. In the Simionato Holdings deed, they purport to speak for the whole of the EFG Group.

Schedule 2 of the Simionato Holdings deed is in terms of a letter which, pursuant to clause 2.1 of the deed, Rocco, Linton and Linda Emanuele were to sign. The letter reads: "Mr John O'Grady Managing Director EFG Australia Limited Level 19 333 Collins Street MELBOURNE VIC 3000

Dear Mr O'Grady

I hereby acknowledge, covenant and undertake to you that the EFG Group is entitled to and can, by its employees and agents from time to time, enforce its rights under all of its securities with the Emanuel Group of Companies and with Mr Guiseppe Emanuele and deal with the property the subject of its securities, without any interference or claim by me whatsoever.

I further covenant and undertake that I will provide any assistance, co-operation or information to the EFG Group as I am able to provide and the EFG Group may reasonably require, to assist the EFG Group in enforcing such rights of dealing with such properties.

Yours faithfully

(signed) Rocco Emanuele Linton Emanuele Linda Emanuele

With respect to Mr Joe Emanuele, clause 2.1 of the Simionato Holdings deed describes part of the consideration for the payment of $4.6 million to Simionato Holdings by EFG in the following terms: "In consideration of Simionato Holdings causing Guiseppe Emanuele to enter into the Guiseppe Emanuele deed and ..."

Just how Simionato Holdings was in a position to cause Guiseppe Emanuele to do anything, if it was truly at arm's length of Guiseppe Emanuele, as counsel for the appellants suggested, is a matter of surmise. At all events, pursuant to clause 2.1 of the "Guiseppe Emanuele deed", which was duly executed by Mr Joe Emanuele, he:

"Admits and acknowledges.... (that) the Emanuel Group (with the exception of Airlie Bay Developments Pty Ltd) are indebted to the EFG Group for the Judgment Debt (elsewhere defined as $186,880,302.79) together with interest accruing thereon at the rate of 20.5% per annum from 27 February 1995."

Clause 2.5 records an admission and acknowledgment by Mr Joe Emanuele that:

"The Emanuel Group have defaulted under the terms and conditions of the Securities."

Clause 4.2 reads:

"Giuseppe Emanuele covenants and undertakes that the EFG Group is entitled to and can by its employees and agents from time to time enforce its rights under the Securities (except for its rights under any personal guarantees given by Giuseppe Emanuele to the EFG Group or in respect of any other personal liability which Giuseppe Emanuele may have to the EFG Group under the Securities) and deal with the Security Property without any interference or any claim by or from him whatsoever, whether by caveat, other process, or any other direct or indirect means of conduct or action whatsoever, and Guiseppe Emanuele convenants and undertakes that he will provide any assistance, co-operation or information to the EFG Group which it may reasonably require to enforce its rights under the Securities, including, and without limiting the generality of the foregoing, executing any documents which the EFG Group may, in its absolute discretion, require."

One might reasonably question how Mr Joe Emanuele, having on the face of it resigned as a director of many of the companies in the Emanuel Group, was in a position to acknowledge the indebtedness of that Group to EFG, and further to offer assistance to EFG in enforcing its rights under the securities, which must be taken to have included rights against the Group. More importantly for present purposes, for him to have covenanted in those terms, he was clearly in breach of the fiduciary duty which he owed to the Emanuel Group companies which, for present purposes and the reasons which I have given above, included the companies from which he had purported to resign as director.

Robert Simionato witnessed the affixing of the common seal of Simionato Holdings to the Simionato Holdings deed. Its terms were negotiated by his solicitors, who, on his instructions, were in correspondence with the solicitors for EFG as to those terms.

Given that the Simionato Holdings deed recites that part of the consideration for the payment of $4.6 million was "Simionato Holdings causing Giuseppe Emanuele to enter into the Giuseppe Emanuele deed", Mr Simionato must be taken to have been aware of the terms of that deed.

It follows that Mr Robert Simionato must be taken to have been aware of the fact that three members of the Emanuele family, who were directors of companies within the Emanuel Group, were offering to assist EFG to enforce its rights under the securities which it held over Emanuel Group properties in part consideration for a payment of $4.6 million to their father, who, as Mr Robert Simionato knew, intended to direct payment of the moneys to Simionato Holdings as trustee of a family trust for the benefit of members of the Emanuele family.

They had in fact filed three affidavits in opposition on 10 January 1997. It is unnecessary to deal with those affidavits in view of the fact, noted by the learned trial Judge, that it was conceded by counsel for the defendants that they did not address the issues in the case.

Following the completion of the plaintiffs' argument on 13 January 1997, one of the counsel then representing the defendants sought leave to withdraw. Another of the defendants' counsel then applied for an adjournment on the ground that the defendants were not ready. In support of that he called the counsel who had withdrawn, a Mr Birrell, who, to use the words of the learned trial Judge:

"... confirmed ....... that he had not applied his mind to the issues in the matter as he should have and that the defendants were free of all blame for their state of unreadiness."

The learned trial Judge then allowed the defendants' application for an adjournment on terms. The adjournment was to 4 February 1997 and was accompanied by a direction that the defendants file any answering material by 28 January 1997. This was later extended to 31 January 1997.

Funds which the defendants suggested they needed in order to pay for their defence were tied up with moneys which had been frozen by reason of an injunction granted earlier in the action. Before 13 January 1997, $400,000 had been released for their defence. On 23 January 1997, the learned trial Judge released a further $50,000 for legal fees solely in relation to the application for summary judgment. Subsequently, he allowed for a further payment of $20,000 with respect to the defence to the application.

When the learned trial Judge gave ex tempore reasons for the adjournment on 13 January 1997, he made it clear what he perceived to be the major issues in the case as they appeared at that stage. He said: "The three major issues identified in the affidavit and in the statement of claim are:

(1) Whether the then officers of the plaintiffs were guilty of breaches of statutory and fiduciary duties.

(2) Whether the defendants had notice of those breaches of duty.

(3) Whether the moneys, which the defendants undoubtedly received, are held on constructive trust for the plaintiffs."

I agree with the conclusion reached by the learned trial Judge that an affidavit of Mr Robert Simionato sworn 17 January 1997 failed to address those issues. The affidavit is remarkable for what it does not say as opposed to what Mr Simionato deposes to. He states in the affidavit, inter alia, that in March 1995 he was asked by Mr Farrugia to act as trustee for the Emanuel family trust. He says:

"My understanding at that stage was that the trustee company would administer a family trust for the Emanuele family. My recollection is that the company which was called Simionato Holdings Pty Ltd would receive settlement moneys arising from the dispute between EFG and my uncle, Giuseppe Emanuele."

He said that what I have described as the Simionato Holdings deed was executed after receiving advice from Mr Farrugia. The affidavit goes on to state that insofar as he had been able to ascertain, the affidavit of the liquidator, Mr Macks, accurately set out the flow of funds and payments made by Simionato Holdings to the other defendants. He stated that:

"... all payments of moneys by the defendants on behalf of other persons or other entities have been carefully considered by the directors of the defendant."

He goes on to deny that the control of the defendants had been other than in the hands of the directors who did not take directions from any other person, and in particular from Mr Joe Emanuele. The affidavit concludes with a series of denials of relevant allegations in the statement of claim, including assertions that he had not exercised the necessary degree of care and skill, had made improper use of information or that he had acted improperly in the discharge of his duties.

A further affidavit was filed by the defendants, namely, an affidavit of Mr Tropeano, solicitor, which was sworn on 31 January 1997. He deposes to various steps which had been taken by him as solicitor for the defendants with respect to the defence to the application. He refers to a number of matters.

As to Mr Farrugia, after some unsuccessful attempts to obtain a statement or affidavit from him, he eventually conferred with him and others on 29 January 1997, during the course of which Mr Farrugia provided some information as to the history of the negotiations which he had conducted, leading to the transaction in question.

I agree with the comment made by the learned trial Judge that:

"The information given by Mr Farrugia was very basic and was indeed information alleged in the Statement of Claim and clearly expressed in the affidavit supporting this application."

That is subject to the qualification that Mr Tropeano did report that Mr Farrugia had said that:

"Throughout the negotiations the theme was that Elders Finance Group should make an ex gratia payment to Mr Emanuele so that he could re-establish himself with dignity."

And further that:

"Elders had no interest in making any payment to the plaintiff companies .... Elders Finance Group had no interest in making a payment to insolvent companies of which they were principal creditor when any money paid would go partly to the benefit of the other creditors."

The learned trial Judge goes on to observe:

"Whilst Mr Winter was prepared to be interviewed, it was only in circumstances where the solicitors for the plaintiffs were present. Mr Winter had been the solicitor for the plaintiffs. The plaintiffs were thus entitled to claim legal professional privilege in respect of any communication with him. They indicated they would not claim privilege provided they were either present at any interview or had an awareness of the matters of discussion with the legal advisers for the defendants."

The learned trial Judge then refers to paragraph 22 of Mr Tropeano's affidavit which reads:

"For the defence to be properly presented it will be necessary for the evidence of Mr Winter, Mr Farrugia and representatives of Elders Finance Group to be placed before the Court. Those persons can give evidence of the negotiations that led to the settlement which is the subject of this action. On my instructions the evidence of those people will establish that the payment made by Elders Finance Group was for the benefit of Mr Giuseppe Emanuele and it was only intended to be for the benefit of the plaintiff companies to the extent that was specifically provided for. Additionally their evidence will show that the plaintiff companies were separately represented at the relevant stages of the negotiations and there was no breach of any duty by the directors officers or employees of any company. Because those persons are not prepared to provide affidavits it will be necessary to serve them with subpoenas to give oral evidence."

It appears that one of the representatives of Elders Finance Group whose evidence the defendants wished to put before the Court was Mr O'Grady.

The further history of the matter is set out from the following passage from the learned trial Judge's reasons for judgment: "When the matter came on for hearing on 4 February Mr Clayton QC (who appeared with Mr Andrew Martin for the defendant) sought a further adjournment of the matter to enable the evidence of Mr O'Grady and Mr Farrugia to be put before the Court. The affidavit of Mr Tropeano exhibited the evidence given by Mr Winter in his public examination. There was nothing further that Mr Clayton wished to lead from him. The thrust of the application was that the defendants wished to subpoena both Mr O'Grady and Mr Farrugia and lead viva voce evidence from them. The witnesses had not been subpoenaed to appear because the defendants were not sure that the application to call that evidence would be successful. Having regard to the fact that Mr O'Grady is resident in Queensland that attitude was not unreasonable. It was put that this evidence (Messrs O'Grady and Farrugia) had not been reduced to writing because the potential witnesses refused to co-operate.

In the alternative Mr Clayton submitted that the inability of the defendants to bring forward that evidence indicated that this application was not an appropriate procedure to determine the rights between these parties.

He conceded that Mr Joe Emanuele, Mr Linton Emanuele and Mr Robert Simionato were witnesses who were available to him and that he could have presented whatever evidence he wished from those persons. Mr Rocco Emanuele was also in a sense available to the defendants although he is presently overseas.

It seems to me that the applications by the defendants are misconceived. The defendants have not addressed the question of whether or not the directors of the plaintiff companies were guilty of any breach of fiduciary and statutory duties in 1994/1995. No evidence whatsoever has been brought forward in respect of that matter. The primary evidence whether the plaintiffs' directors were in breach of their fiduciary and statutory duties would be led principally from Mr Joe Emanuele, but as well from Mr Rocco Emanuele, Mr Linton Emanuele and Mr Robert Simionato. Not a scintilla of evidence has been led in denial of these matters. Some evidence has been adduced as to Mr Joe Emanuele's resignation as a director from some of the plaintiff companies and that thereafter he did not act as a director. Whilst that is relevant it still overlooks what this case is about. The defendants have simply not addressed the thrust of the plaintiffs' case.

The evidence which the defendants wished to bring forward from Mr O'Grady was to the effect that Elders intended that the money be paid to Mr Joe Emanuele. Whilst Elders intention may not be irrelevant for the purpose of determination of these proceedings, the question is still whether or not the plaintiffs' directors have been guilty of any breach of fiduciary and statutory duties.

In relation to the evidence of Mr Farrugia, of course Mr Farrugia was the solicitor for the defendants and in those circumstances he would have an obligation to co-operate with the defendants. That he has not co-operated with the defendants is a matter between the defendants and Mr Farrugia.

For those reasons I declined to allow the defendants an adjournment so as to call Mr O'Grady and Mr Farrugia on this application.

When I indicated to Mr Clayton that in my view the defendants had continued to avoid the main question in the case, i.e. breaches of fiduciary and statutory duties, he sought a short adjournment and thereafter advised me that Mr Joe Emanuele and Mr Linton Emanuele were prepared to give evidence in relation to this matter. He put to me that 'the family' was prepared to give evidence. In those circumstances he applied to call Mr Joe Emanuele and Mr Linton Emanuele on the application for summary judgment. He said he wanted a short adjournment because he did not have a proof from either of those men. It seem to me extraordinary that eighteen months after these proceedings have been brought the defendants have still not obtained a proof from the principal witness in these proceedings, Mr Joe Emanuele.

I declined to allow him to call oral evidence from Mr Emanuele on this application on the basis that the defendants have had every opportunity both before and after 13 January 1997, to obtain whatever evidence they wished from Mr Joe Emanuele and Mr Linton Emanuele in answer to this application. I declined any application for adjournment and required Mr Clayton to present his case upon the evidence which the defendants had brought into Court in conformity with my directions."

In my opinion, the learned trial Judge was right to take the course which he did. The application made on 4 February 1997 to adjourn the matter to enable oral evidence to be called was made at the eleventh hour in the face of a number of earlier directions that the matter proceed on affidavit.

As to the proposed witness Mr O'Grady, the only information as to the evidence which would be sought to be led from him was that the payment made by EFG was for the benefit of Mr Giuseppe Emanuele. That was an item of evidence which was irrelevant to the central issue. Whatever the intention of EFG might have been, evidence as to that could not in any sense counteract the overwhelming evidence indicating breaches of fiduciary duty by the directors of the plaintiff companies.

As to the suggestion that Mr Farrugia be called, he could only give evidence as to what his instructions were and what steps he took in the implementation of the transaction.

As to the former, evidence as to what his instructions were should have been given by the source of those instructions, namely, Mr Joe Emanuele and the members of his family who were involved in instructing Thomsons. They must have known what the instructions were and if those instructions could have thrown some different light upon things clearly evidenced by the documents relating to the negotiations and the documents in which the transaction was finally recorded, they could easily have given evidence as to that.

Furthermore, counsel for the defendants conceded before the learned trial Judge that there was nothing to be added to Mr Winter's transcript, which was also before him.

Giuseppe and Linton Emanuele had been available to the defendants since prior to the original hearing on 13 January 1997. No satisfactory explanation was given for the failure to prepare affidavits by them.

The last-minute application to call Mr Joe Emanuele and Mr Linton Emanuele to give evidence was yet another attempt to delay the hearing.

During the hearing of the appeal before this Court, Mr Clayton was invited to identify exactly what evidence could be given by any officer of Elders which would throw light on the critical issues. If it was suggested that there was procedural unfairness by reason of an inability to call a witness or witnesses, at the very least the party advancing that contention must be able to identify what, at best from the point of view of that party a proposed witness might have been able to say which could have resulted in a different outcome from that party's point of view.

It does not appear from anything that was put to the learned trial Judge or to this Court that the appellants were able to identify any item of evidence which they could have called which would have led to even the possibility of a different finding on the central issues upon which the case turned.

Everything points to last minute efforts by the appellant to frustrate the completion of the summary hearing.

I have not so far referred to the terms of the defendants' defence. In my view, this was superficial, failed to address the critical issues in the case, and failed to comply with the rules of court.

It contained what might be described as mechanical admissions and denials which have every appearance of being a product of a decision to admit only what could not seriously be disputed and deny everything else. In particular, the defence did not "specifically plead any fact or matter which .... raises issues of fact or any mixed question of fact and law not arising out of ..... the statement of claim" as required by R 46.12(4)(c). One can look in vain in the defence for any assertion by any of the defendants of factual matters bearing on the circumstances in which there was what I have described as a remarkable change in direction of the destination of the settlement moneys, or how it came about that the directors of the plaintiffs saw fit to go along with the settlement in the form in which it finally proceeded, or as to the allegedly limited understanding by Mr Simionato of the significance of the transaction.

The learned trial Judge was entitled to take into account the lack of flesh on the bones of the defence, and the lack of any factual material whatsoever adduced by the defendants at any stage, despite every opportunity to do so, which might have thrown a different light on the transaction.

If, despite the considerable sums apparently applied in the defence to the application, the best that the defendants could come up with is the defence in the form in which it appears on file, and the fragmentary and largely irrelevant assertions of fact made in the various affidavits filed by the defendants, the learned trial Judge was entitled to take the view that there was no substance in the defendants' case.

Conclusion

I would dismiss the appeal.

DEBELLE J

In broad terms, there were two main issues in this appeal. The first was whether the trial judge correctly held that the receipt by Guiseppe Emanuele of the sum of $4.6 million from the EFG Group was in breach of his fiduciary duties as a director of the plaintiff companies. The circumstances of that payment are set out in detail in the reasons of the trial judge. It is quite apparent that the moneys ought to have been paid to the companies and that the receipt of those moneys by Guiseppe Emanuele was in clear breach of his fiduciary duties as a director of those companies. Emanuele had improperly used his position as a director to gain a financial advantage for himself and to the detriment of the creditors of the plaintiff companies: Walker v Winborne (1977) 137 CLR 1. The fact that he resigned as a director shortly before the moneys were received does not avail him. His resignation from his directorships was an ill-advised attempt to avoid his obligations as a director. In the particular circumstances of this case, the fiduciary duties continued notwithstanding his resignation: Industrial Development Consultants Ltd v Cooley [1972] 1WLR 443; Canadian Aero Services Ltd v O'Malley (1973) 40 DLR (3d) 371. On this issue, I respectfully agree with the reasons of the trial judge and with the reasons of Perry J, which, in large part, recapitulate the reasons of the trial judge.

The second issue was whether the defendants knew that the payment had been received by Guiseppe Emanuele in breach of his fiduciary duties. I have great difficulty sharing the view that the plaintiffs have proved that fact. The case against the defendants was grounded on circumstantial evidence. That evidence consisted of letters, the deeds executed by the parties, and other documents which are referred to in the reasons of the trial judge. It is alleged that this documentary evidence proved that Robert Simionato knew that Guiseppe Emanuele had received the moneys in breach of his fiduciary duties. Simionato denied that fact in an affidavit. The plaintiffs chose not to cross-examine him and, instead, to rely on the documentary evidence. I do not think that that evidence is sufficiently strong to demonstrate, on the balance of probabilities, that Simionato had the knowledge which the plaintiffs assert. It is unnecessary to set out my reasons in full, as there is another ground on which I would dismiss the appeal on this issue.

The defendants had received the moneys and assets as volunteers. As those moneys and assets had been obtained in breach of fiduciary duties, the plaintiffs were entitled in equity to trace them into the hands of the defendants: Re Diplock [1948] Ch 465. I would uphold the decision that the plaintiffs are entitled to recover the moneys and assets on that ground.

A subsidiary, but important, issue on the appeal was whether the plaintiffs ought to have been allowed to proceed under Rule 25.02, which under the former Rules of Court was called a Summons for Immediate Relief. The constraints upon the use of that procedure were examined in Wicklow Enterprises Pty Ltd v Doysal Pty Ltd (1985) 124 LSJS 225. In that decision, King CJ said:

"I pause to observe that this case illustrates how unsatisfactory a vehicle the Summons for Immediate Relief is for the resolution of substantial disputes as to the facts and even as to issues of law requiring extensive argument and consideration. The Summons for Immediate Relief is a convenient vehicle for disposing expeditiously of cases in which there is not substantial dispute or in which the nature of the dispute is such that it can be resolved readily and speedily in Chambers. An attempt to determine by means of the Summons for Immediate Relief issues of fact and law requiring substantial hearing time produces mischiefs which are well illustrated by the course which the present case took."

The other members of the Full Court concurred in those views. As the trial judge observed, authority also suggests that the applicant needs to make out some urgency before the Rule can be invoked: see, for example, Lawrence v Griffiths (1987) 47 SASR 455 per von Doussa J at 486.

This litigation has had a most unsatisfactory history in that the defendants failed to comply with the Rules of Court and orders made by the Court. The history is recited in the reasons of the trial judge. The defendants failed to file a proper defence. They were plainly dilatory, if not recalcitrant, in the preparation of their case, notwithstanding that an order had been made on 28 February 1996 that there should be an early trial. The application for summary judgment was made on 2 September 1996. The defendants failed to comply adequately, or at all, with orders for directions as to the summary judgment application.

When the application for summary judgment came on for hearing on 13 January 1997, the trial judge stated that three major issues were identified in the affidavits and in the statement of claim. They were:

1 whether the officers of the plaintiffs were guilty of statutory and fiduciary duties; 2 whether the defendants had notice of those breaches of duty; and 3 whether those moneys, which the defendants undoubtedly received, are held on constructive trust for the plaintiffs. He then went on to say that none of the affidavits, or Mr Simionato's affidavit of 17 January 1997, addressed those three main issues. The trial judge erred in stating that Mr Simionato's affidavit did not address those issues. Mr Simionato had expressly denied that he had notice of the alleged breaches of duty by the directors of the plaintiff companies. It is apparent that the trial judge's belief that no affidavit had addressed any of those three issues was a significant factor in causing him to order that there should be summary judgment. In this respect, I think the trial judge erred in a material respect. Further, although it was important for creditors to be able to resolve the issues promptly, there was not a sufficient degree of urgency to justify the use of Rule 25.02. In addition, and more importantly, Simionato had denied any knowledge of the breach by Emanuele of his fiduciary duties. There was no application to cross-examine him on his affidavit. The documents relied on as circumstantial evidence of Simionato's knowledge were substantial. The documentary evidence on the issue of the breach of fiduciary duties was also substantial. The documents on these two issues comprised over 1000 pages in the appeal books. Moreover, the issues as to the breach of fiduciary duty and knowledge of the defendant companies, required extensive argument and consideration. The hearing of the application occupied three days. For these reasons, it was not appropriate to proceed pursuant to Rule 25.02. Instead, orders ought to have been made with strict time limits to enable the early trial which had initially been ordered. Notwithstanding this error, I do not think that there is any ground for setting aside the decision. The plaintiffs have plainly demonstrated that they were entitled to judgment.

For these reasons, I would dismiss the appeal.