Capital Investments Corporation Pty Ltd v Classic Trading Pty Ltd

[2001] FCA 1385

FEDERAL COURT OF AUSTRALIA

Capital Investments Corporation Pty Ltd v Classic Trading Pty Ltd
[2001] FCA 1385

EQUITY – fiduciary duties – conflict of duty and interest – diversion by director of business opportunity to another company associated with director – whether director resigned prior to engaging in activities contrary to interests of first company – duty of fidelity and loyalty – whether employee and manager owes fiduciary obligations to employer – ancillary liability – rule in Barnes v Addy – whether cross respondents dishonestly aided and abetted, procured or assisted in breach of fiduciary duty

Cheers v El Davo Pty Ltd (In Liquidation) [2000] FCA 310 referred to
Knight v Bulic (1994) 13 ACSR 553 referred to
Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 at 382, 389, 390-391, 392 applied
Humphris v Jenshol (1997) 160 ALR 107 at 118-120 applied
Compaq Computer Australia Pty Ltd v Merry (1998) 157 ALR 1 at 21-22 referred to
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 68, 96-97, 105, 141 considered
Chan v Zacharia (1984) 154 CLR 178 at 198-199 considered
Breen v Williams (1996) 186 CLR 71 at 92 106-107, 113, 286-289 considered
Regal Hastings Ltd v Gulliver [1967] 2 AC 134 at 139 referred to
Pilmer v Duke Ltd (2001) 180 ALR 249 considered
Avtex Airservices Pty Ltd v Bartsch (1992) 107 ALR 539 at 561-562 referred to
Consul Development Pty Ltd v D P C Estates Pty Ltd (1975) 132 CLR 373 at 394, 396-398, 404-412 referred to
Timber Engineering Co Pty Ltd v Anderson (1980) 2 NSWLR 488 referred to
Industrial Development Consultants Ltd v Cooley (1972) 1 WLR 443 at 451 referred to
Warman International Ltd v Dwyer (1994-95) 182 CLR 544 at 556, 559 considered
The Queen v Byrnes (1995) 183 CLR 501 at 516-517 referred to
Hancock Family Memorial Foundation Ltd v Porteous (1999) 32 ACSR 124 at 141-142 referred to
Giumelli v Giumelli (1999) 161 ALR 473 at 475 referred to
Beach Petroleum NL v Abbott Tout Russell Kennedy [1999] 48 NSWLR 1 referred to
Colour Control Centre Pty Limited and CCC Enterprises Pty Ltd v Richard Ty & Ors (unreported, Supreme Court of New South Wales, Equity Division, No 1689/93) at [65]-[69] referred to
Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66 at 82 considered
Maryland Metals Inc v Metzner (1978) 382 A (2d) 564 referred to
Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371 referred to
News Limited v Australian Rugby Football League Limited (1996) 64 FCR 410 at 538, 539-541, 547 considered
Securities and Exchange Commission v Chenery Corp 318 US 80 (1943) referred to
Phelan v Middle States Oil Corporation 220 F 2d 593 at 602-3 (1955) referred to
Reading v Attorney-General [1951] AC 507 at 517 referred to
Barnes v Addy (1874) 9 Ch App 244 at 251-252 applied
Green and Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1 referred to
Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491 referred to
Commissioner of Taxation v Macquarie Health Corporation Ltd (1999) 88 FCR 451 referred to
News Limited v Australian Rugby Football League Limited (1995) 58 FCR 447 referred to

CAPITAL INVESTMENTS CORPORATION PTY LTD (ACN 072 988 946) v
CLASSIC TRADING PTY LTD (ACN 006 792 249), ELLIOTT DAVIS, FRANK CROMBIE and NATIONAL FINANCE GROUP PTY LTD (ACN 006 372 041)

VG 106 of 1997

WEINBERG J
28 SEPTEMBER 2001
MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V106 OF 1997

BETWEEN:

ALAN FRANCIS CHEERS (and others according to the schedule attached hereto)
Applicants

AND:

EL DAVO PTY LTD (IN LIQUIDATION) (Formerly known as ENTERCORP FINANCE PTY LTD) (ACN 060 214 502) (and others according to the schedule attached hereto)
Respondents

AND BETWEEN:

CAPITAL INVESTMENTS CORPORATION PTY LTD
(ACN 072 988 946)
Cross Claimant

AND:

ALAN FRANCIS CHEERS (and others according to the schedule attached hereto)
Cross Respondents

AND BETWEEN:

CAPITAL INVESTMENTS CORPORATION PTY LTD
(ACN 072 988 946)
Cross Claimant

AND:

CLASSIC TRADING PTY LTD
(ACN 006 792 249)
Eightieth Cross Respondent

ELLIOTT DAVIS
Eighty-First Cross Respondent

FRANK CROMBIE
Eighty-Second Cross Respondent

NATIONAL FINANCE GROUP PTY LTD
(ACN 006 372 041)
Eighty-Third Cross Respondent

JUDGE:

WEINBERG J

DATE OF ORDER:

28 SEPTEMBER 2001

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.The proceeding be listed for hearing on 15 October 2001 at 9:30 a.m. for the making of orders.

2.The tenth respondent, Capital Investments Corporation Pty Ltd, file and serve an outline of contentions relating to interest and costs on or before 4 October 2001.

3.The  eightieth to eighty-third cross respondents, Classic Trading Pty Ltd, Mr Elliott Davis, Mr Frank Crombie and National Finance Group Pty Ltd, file and serve an outline of contentions in reply relating to interest and costs on or before 10 October 2001.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

INDEX

INTRODUCTION

The principal proceeding  [1]

CIC’s further amended cross-claim against the 80^th to 83^rd

cross-respondents  [8]

Settlement of the principal proceeding and the claims remaining                [18]

The allegations of breach of fiduciary duty  [30]

THE BACKGROUND TO THE COPPERFIELD TOUR  [34]
THE PERIOD BETWEEN FEBRUARY AND MAY 1996  [46]
MR CROMBIE’S ROLE WITHIN CAPITAL  [53]
MR CROMBIE’S DEPARTURE FROM CIC  [66]
THE AFTERMATH OF MR CROMBIE’S DEPARTURE  [74]
THE SWITCHED INVESTMENTS  [76]
MR PARK’S DEALINGS WITH MR DAVIS  [77]
MR PARK’S CROSS-EXAMINATION  [78]
MR PARK’S RE-EXAMINATION  [91]

MR CROMBIE’S ACCOUNT OF HIS ROLE AT CIC

AND THE CIRCUMSTANCES OF HIS DEPARTURE  [92]
MR CROMBIE’S CROSS-EXAMINATION  [120]
MR DAVIS’ DEALINGS WITH MR PARK AND MR CROMBIE     [151]
MR DAVIS’ CROSS-EXAMINATION  [172]
OTHER RELEVANT EVIDENCE  [186]
THE CROSS–RESPONDENTS’ CLOSING SUBMISSIONS                [197]
CIC’S CLOSING SUBMISSIONS  [226]
THE RELEVANT LEGAL PRINCIPLES  [256]

The nature and scope of fiduciary obligations  [256]
         Barnes v Addy  [290]

CONCLUSIONS  [303]

Mr Park’s credibility  [304]

Mr Crombie’s credibility  [314]

Mr Davis’ credibility  [322]

The alternative case against Mr Crombie  [326]

Mr Davis’ liability  [328]

The liability of Classic Trading and NFG  [329]

ORDERS  [330]

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V106 OF 1997

BETWEEN:

ALAN FRANCIS CHEERS (and others according to the schedule attached hereto)
Applicants

AND:

EL DAVO PTY LTD (IN LIQUIDATION) (Formerly known as ENTERCORP FINANCE PTY LTD) (ACN 060 214 502) (and others according to the schedule attached hereto)
Respondents

AND BETWEEN:

CAPITAL INVESTMENTS CORPORATION PTY LTD
(ACN 072 988 946)
Cross Claimant

AND:

ALAN FRANCIS CHEERS (and others according to the schedule attached hereto)
Cross Respondents

AND BETWEEN:

CAPITAL INVESTMENTS CORPORATION PTY LTD
(ACN 072 988 946)
Cross Claimant

AND:

CLASSIC TRADING PTY LTD
(ACN 006 792 249)
Eightieth Cross Respondent

ELLIOTT DAVIS
Eighty-First Cross Respondent

FRANK CROMBIE
Eighty-Second Cross Respondent

NATIONAL FINANCE GROUP PTY LTD
(ACN 006 372 041)
Eighty-Third Cross Respondent

JUDGE:

WEINBERG J

DATE:

28 SEPTEMBER 2001

PLACE:

MELBOURNE

REASONS FOR JUDGMENT

INTRODUCTION

The principal proceeding

1. In March 1997 seventy-six applicants who were, in the main, airline pilots commenced this proceeding.  It originally bore the title Cheers v Entercorp Finance Pty Ltd (later Cheers v El Davo Pty Ltd (In Liquidation)).  There were seventeen respondents though that number soon grew to twenty-one. 

2. The twenty-one respondents comprised:

   (a)Entercorp Finance Pty Ltd (“Entercorp”) (now known as El Davo Pty Ltd (In Liquidation)), formerly a member of the Boyle group of companies – the first respondent;

   (b)Capital Investments Corporation Pty Ltd (“CIC”) and its controller, Mr Kerrod Grant Park – the tenth and sixteenth respondents respectively; and

   (c)Peter Lindsay Boyle, Louis Weingarten, and various persons and companies associated with Boyle (collectively referred to as “the Boyle respondents”) – the remaining eighteen respondents.

3. Cross-claims were later brought by CIC, the tenth respondent, against the seventy-six applicants (who thus became cross respondents) and also against Entercorp, Mr Boyle and Mr Weingarten, who were the first, thirteenth and fifteenth respondents respectively.  That made a total of seventy-nine cross respondents.

4. The claims made by the applicants were contained in an amended statement of claim filed on 2 October 1997.  In that amended statement of claim, the applicants sought to set aside various loan agreements entered into by each of them with Entercorp (“the David Copperfield loan agreements”) on the following grounds –

   ·    At no time did Entercorp provide any loan funds under the loan agreements for or on behalf of the applicants;

   ·    Misrepresentations were made by Sentinel Financial Management Pty Ltd (“Sentinel”) (acting as agent of Entercorp and the Boyle respondents) to the applicants which were relied on by them and which induced them to enter into the loan agreements;

   ·    There was non-disclosure to the applicants by Sentinel (acting as agent of Entercorp and the Boyle respondents) of certain matters prior to their having entered into the loan agreements; and

   ·    The loan agreements formed part of an investment scheme that contravened the prescribed interest provisions of the Corporations Law with the result that those loan agreements were void and unenforceable.

5. Each of the misrepresentations and non-disclosures were said by the applicants to constitute misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth). Hence, a federal matter arose in the proceeding.

6. The applicants also contended that in or about February 1996 Entercorp entered into an agreement with CIC (which was incorporated on 22 February 1996 for the sole purpose of acquiring the Entercorp loan books) whereby CIC agreed that it would invest funds in the David Copperfield tour (“the Copperfield tour”) and, in so doing, would procure an assignment of the applicants’ loan agreements from Entercorp.  That assignment was said to have been effected on 1 March 1996.  The applicants claimed that the assignment of the loan agreements by Entercorp to CIC was invalid, and that CIC therefore had no right to enforce those loan agreements against them.  The relief sought by the applicants in their amended application included a declaration that CIC was not entitled to make any demand against them, pursuant to the loan agreements, for repayment of loan funds or interest instalments. 

7. On 24 September 1998 CIC filed an amended defence and further amended cross-claim in response to the applicants’ application.  The further amended cross-claim was brought against the applicants, Entercorp, and some, but not all, of the Boyle respondents.  In that further amended cross-claim, CIC sought to enforce the loan agreements against each of the applicants.  It sought judgment against each applicant for the amount outstanding under the loan agreement entered into by that applicant with Entercorp. 

   CIC’s further amended cross-claim against the eightieth to eighty-third cross-respondents

8. On 13 May 1999 CIC filed a cross-claim against the eightieth, eighty-first and eighty-second cross-respondents.  The eightieth cross-respondent, Classic Trading Pty Ltd (“Classic Trading”), is a company carrying on business as a provider of finance.  The eighty-first cross-respondent, Mr Elliott Davis, was at all relevant times a director of Classic Trading, and is said to have been in effective control of that company.  The eighty-second cross-respondent, Mr Frank Crombie, is said to have been, at all relevant times prior to 21 June 1996, a director of, and consultant to, CIC.  He was responsible for the assignment to CIC of the loan agreements, and for monitoring the performance of those agreements.

9. CIC was given leave to file its original cross-claim against Mr Crombie, Mr Davis and Classic Trading on 13 May 1999 only because there was evidence that their alleged involvement in the breaches by the applicants of their contractual obligations to CIC had not become apparent until after discovery had been given in the principal proceeding.  It seemed desirable that CIC’s claims against these cross respondents be dealt with at the same time, and in the same proceeding, as its claims against the applicants and the Boyle cross-respondents.

10. The cross-claim originally filed against the eightieth, eighty-first and eighty-second cross-respondents pleaded that they had induced the applicants to breach their contractual obligations to CIC. In the case of Mr Crombie, the cross-claim pleaded that he had breached his duties to CIC under ss 232(2), (5) and (6) of the Corporations Law, and also that he had breached his fiduciary duty to the company.  Classic Trading and Mr Davis were said to have aided and abetted and to have been knowingly concerned in those various breaches of duty.

11. On 23 July 1999 CIC was granted leave to file an amended cross-claim against the eightieth, eighty-first and eighty-second cross-respondents, adding to the causes of action pleaded various allegations of contraventions of s 52 of the Trade Practices Act, and also of s 11 of the Fair Trading Act 1985 (Vic). The claims under the Trade Practices Act appear to have been added as a form of “insurance” given that in Re Wakim; Ex parte McNally (1999) 198 CLR 511 the High Court had determined that an alleged contravention of the Corporations Law could no longer be regarded as falling within the jurisdiction of this Court by virtue of cross-vesting, and had to be brought within its accrued jurisdiction.

12. On 13 September 1999 CIC was granted leave to file yet another further amended cross-claim, and to add to the cross respondents the eighty-third cross-respondent, National Finance Group Pty Ltd (“NFG”), another company controlled by Mr Davis. The tort of inducement of breach of contract, the alleged contraventions of ss 232(2), (5) and (6) of the Corporations Law, and the alleged breach of fiduciary duty, were again pleaded.  The claims under the Trade Practices Act and the Fair Trading Act were, however, abandoned.

13. CIC contended as against the eightieth to eighty-third cross respondents in the September 1999 cross-claim that in about May or June 1996 those parties encouraged the applicants (either directly or indirectly through Sentinel):

    ·    to terminate the David Copperfield loan agreements;

    ·    to purport to assign the burden of those loan agreements to Hemisphere Finance (NZ) Ltd (“Hemisphere”); and

    ·    to enter into “switched” investments by taking out equivalent loans with Hemisphere. 

14. This conduct on the part of the eightieth to eighty-third cross respondents was said to have given rise to liability for damages for the tort of inducing breach of contract. 

15. The remaining causes of action pleaded in the September 1999 cross-claim, namely breach of director’s duties, and breach of fiduciary duty, were said to arise from Mr Crombie having, in or about June 1996, induced the applicants to breach the David Copperfield loan agreements.  It was also contended that Mr Crombie, at about that time, removed from CIC and turned over to the eightieth, eighty-first and eighty-third cross-respondents (hereafter referred to as “the Davis parties”), certain documents relating to due diligence enquiries.  Those enquiries had been conducted by the firm Cornwall Stodart on behalf of CIC.  It was further contended that he turned over to the Davis parties documents relating to CIC’s monitoring and management of the David Copperfield loans.  This conduct on the part of Mr Crombie is said to have been preparatory to the inducement by the Davis parties of the breach of the loan agreements, and the breaches by Mr Crombie of his director’s duties, and of his fiduciary duty to CIC.

16. The due diligence documents which Mr Crombie was said to have turned over to the Davis parties noted that there was a problem with a particular clause of the loan agreements.  CIC alleged that the Davis parties subsequently encouraged the applicants to assign the David Copperfield loans, exploiting a legal advice given by Cornwall Stodart to CIC, but to CIC’s detriment.  CIC contended that Mr Crombie’s actions in turning over to the Davis parties the due diligence documents should be viewed as an integral part of the conduct of the Davis parties in inducing the applicants to breach their contracts with CIC.

17. The relief sought by CIC against Mr Crombie and the Davis parties at that point included:

    ·damages for loss of the benefit of the David Copperfield loan agreements; and/or

    ·an account of the profits made by those cross respondents as a result of the switched investments.

    Settlement of the principal proceeding and the claims remaining

18. The trial of the principal proceeding commenced on 15 February 2000.  The applicants opened their case and various witnesses were called on their behalf.  The hearing of the matter continued until 24 February 2000, when I was informed that the parties were having discussions with a view to settling various aspects of the proceeding.  On 14 March 2000 I was informed that all claims had been settled as between the applicants and the Boyle respondents.  I made final orders by consent to give effect to the settlement shortly thereafter.  It was foreshadowed, at that stage, that having regard to the fact that the only claims still on foot were those brought by CIC against Mr Crombie and the Davis parties it might be appropriate, at some stage, to amend the title to this proceeding to reflect that fact.  On 6 September 2000, I made orders to that effect.  The title to this proceeding reflects those orders.

19. Following the settlement of the principal proceeding CIC sought and was granted leave, on 16 March 2000, to file a third further amended cross-claim.  The circumstances surrounding the grant of leave to file a further amended cross-claim at such a late stage are set out in Cheers v El Davo Pty Ltd (In Liquidation) [2000] FCA 310. The substance of those amendments can be summarised as follows:

    ·In relation to the allegation that Mr Crombie had acted in breach of his fiduciary duty to CIC, pars 31A to 31E of the cross-claim were added.  Those paragraphs were, in substance, particulars of the alleged breach of fiduciary duty which Mr Crombie was said to have owed CIC. 

    ·Breaches of the Trade Practices Act were once again pleaded. CIC alleged that NFG engaged in misleading or deceptive conduct in breach of s 52 of the Act and sought to fix NFG with responsibility for Mr Crombie’s conduct as set out in the new par 31D, by invoking s 84(2)(b) of the Act. This was done by amending pars 36 to 43 of the cross-claim.

    ·Additionally, CIC alleged that Mr Davis was accessorially liable for NFG’s breaches of s 52 of the Trade Practices Act as set out above by invoking s 75B of the Act.  This was done by amending par 44 of the cross-claim.

    ·CIC alleged that Mr Crombie had engaged in misleading or deceptive conduct arising out of the matters set out in the proposed new par 31D of the cross-claim, in breach of s 11 of the Fair Trading Act 1985 (Vic).

20. At this stage, the cross-claim pleaded a number of distinct causes of action against Mr Crombie and the Davis parties.  These can be summarised as follows:

    ·the tort of inducing breach of contract;

    ·misleading or deceptive conduct in breach of s 52 of the Trade Practices Act on the part of Classic Trading and NFG, as set out at par 19 above;

    ·various breaches of the Corporations Law and of the Fair Trading Act on the part of Mr Crombie;

    ·various breaches of fiduciary duty on the part of Mr Crombie; and

    ·various permutations of ancillary or derivative liability on the part of each of the Davis parties (“the Barnes v Addy claims”).

1. The third further amended cross-claim no longer sought to enforce the David Copperfield loan agreements, as the previous versions had done.

2. The case then continued in relation to the cross-claim by CIC against Mr Crombie and the Davis parties.  With the consent of both sides, it was resolved that the issue of liability should be dealt with separately from any question of quantum.  A number of witnesses, including Mr Park, Mr Crombie and Mr Davis, gave evidence.  That evidence will be considered in detail later in these reasons for judgment.  At the conclusion of the evidence given on the issue of liability, I indicated that the proceeding would be adjourned until September 2000, at which time I would hear the parties’ final submissions in relation to liability.  I also indicated that I would hear any evidence relevant to quantum at that stage. 

3. On 27 July 2000 Mr Herskope, who appeared with Mr Evans, as counsel for Mr Crombie and the Davis parties, requested a mention of the matter.  At that time I was informed by Mr Herskope that although his clients continued to deny liability, Mr Crombie, at least, was prepared, upon formal proof, to admit quantum, in the event that liability was established.  I was also informed by Mr Herskope that he was no longer able to obtain instructions from Mr Davis who, it appeared, had left Australia and could no longer be contacted.

4. The substantive hearing of the matter resumed on 4 September 2000.  On that day CIC filed its fourth further amended (and final) cross-claim.  The important difference between the September 2000 cross-claim and previous versions was that CIC no longer alleged against Mr Crombie contraventions of the Corporations Law, and consequently it no longer alleged that NFG, Classic Trading and/or Mr Davis had aided and abetted those contraventions.  The September 2000 cross-claim maintained the following allegations:

   ·various breaches of fiduciary duty by Mr Crombie (pars 31 and 32);

   ·knowing participation in the breach of fiduciary duty (the Barnes v Addy claims) by Classic Trading and/or Mr Davis and/or NFG (par 34);

   ·misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act by Mr Crombie on behalf of NFG (par 41);

   ·that Mr Davis aided and abetted, counselled or procured, or was knowingly concerned in or a party to the contraventions of s 52 by NFG (par 44); and

   ·misleading or deceptive conduct in contravention of s 11 of the Fair Trading Act by Mr Crombie (par 45).

5. On that day there was some dispute as to the precise terms of the concession which Mr Herskope had made on 27 July 2000 regarding quantum.  CIC sought to file witness statements of Mr Park and Mr Mac Healy, a former director of Sentinel, relating to the issue of quantum, and to call them to give evidence.  Mr Herskope opposed the filing of these witness statements, despite the fact that he had previously indicated that he was prepared, upon formal proof, to admit quantum.  I adjourned the proceedings until the following day to allow Mr Herskope time to prepare cross-examination of Mr Park and Mr Healy.

6. The following day several events occurred which significantly reduced the number of issues to be determined by the Court.  Firstly, Mr Magee QC, who appeared with Mr Monichino and Mr Hay, as counsel for CIC, announced that his client no longer wished to proceed with the claims under the Trade Practices Act or under the Fair Trading Act.  The only remaining claims, therefore, were the claims against Mr Crombie for breach of fiduciary duty, and the Barnes v Addy claims against the Davis parties.  In other words, the case had become an equity case, pure and simple. 

7. Mr Magee also announced that agreement had been reached with Mr Herskope that if CIC were to succeed in establishing liability against Mr Crombie and the Davis parties, it would be entitled to recover the entire amount claimed, that is $12,021,586.39. 

8. Subsequently, in his closing submissions, Mr Magee clarified the agreement which had been reached with Mr Herskope regarding quantum.  He said that it had been agreed that if CIC established a breach of fiduciary duty on the part of Mr Crombie, and ancillary liability on the part of the Davis parties, there would be no issue as to causation of loss or quantum of damages.  There would be judgment against each of the eightieth to eighty-third cross respondents for the amount claimed.  He said that it had also been agreed that the abandonment by CIC of its other claims against those cross respondents would have no bearing upon any order which might otherwise be made as to costs. 

9. In order to avoid any uncertainty about the scope of the agreement reached between the parties, I indicated that it should be reduced to writing and filed with the Court. I also ordered that the September 2000 cross-claim and the various defences to that cross-claim be amended to reflect the terms of the agreement which had been reached.  There is no record of either of these things having been done.  However, the transcript makes it clear that after September 2000, neither causation nor quantum was any longer in issue in this proceeding.

   The allegations of breach of fiduciary duty

10. The allegations made against Mr Crombie concerning breach of fiduciary duty are set out in pars 31C – 31E of the September 2000 cross-claim.  Paragraph 32 alleges that by reason of the facts set out in pars 31D and 31E, Mr Crombie breached his fiduciary duty to CIC, and/or his duty owed to CIC to act in good faith and for proper purposes. 

11. Paragraphs 31C – 31E are in the following terms:

    “31C.During the period between May‑June 1996, Crombie, whilst a director, employee and/or consultant of Capital, discovered the following facts and matters -

    (a)Sentinel intended to get their clients (the borrowers) out of the Copperfield investment;

    (b)Sentinel had met with Davis in early‑mid May 1996 and had discussed switching the Sentinel clients from the Copperfield investment into an alternative investment;

    (c)Bernard Marks had advised Sentinel that the Tax Office would probably refuse the Sentinel clients’ claims for deductions given the way that the Copperfield transaction had been structured;

    (d)Sentinel considered that it was imperative to get their clients out of Copperfield;

    (e)Sentinel were desperate for a new investment product into which they could switch their clients;

    (f)Sentinel’s clients were proposing to enter into the Asian book investment, which investment was promoted by Loftus;

    (g)Sentinel was proposing to put not only its clients who had invested in the Copperfield tour but also about another 100 of its clients into the Asian book investment;

    (h)Loftus needed someone to manage the loans to be associated with the Asian book investment;

    (i)Davis was proposing to establish National Finance as the loan manager of the loans to be associated with the Asian book investment; and/or Davis was proposing that Crombie become a director of National Finance.

    PARTICULARS

    Crombie discovered the above facts and matters from discussions with Davis and Healy in the period between May‑June 1996.

    31D.Crombie deliberately refrained from disclosing the matters referred to in paragraphs 31C above and 31E below to Capital (“the conduct”).

    31E.    Further, during the period between May‑June 1996, Crombie ‑

    (a) ‑ (c) [deleted]

    (d)suggested to Healy alternative investments in which Capital was not involved or interested;

    (e)agreed with Davis to become involved in the loan management of the loans associated with the alternative investments into which Sentinel’s clients were to be switched;

    (f)agreed to become a director of a competitor of Capital, namely National Finance, which was intended to act as loan manager of the alternative loans associated with the alternative investments;

    (g)took preparatory steps to establish office accommodation and equipment (computers, software and office equipment) for a competing business whilst still a director, employee and/or consultant of Capital;

    (h)made arrangements, alternatively sought to make arrangements, with other Capital staff (namely Sonia Hall and Tony Shaw) to the effect that they would leave Capital and become employees of National Finance if and when Crombie’s plans came to fruition;

    (i)made a preliminary agreement with Davis to set up a competing business to Capital which would result in Capital losing its major asset, being the interest receivables from Sentinel clients as disclosed in Capital’s books of account; and/or

    (j)exploited a business opportunity, which came to his attention by virtue of his fiduciary position with Capital, for his own personal benefit when there was a conflict of interest between his fiduciary duty owed to Capital and his personal interest.”

12. In his closing submissions, Mr Herskope acknowledged that it was clear, on the evidence, that between May and June 1996, Mr Crombie had discovered or learned each of the matters set out in par 31C of the September 2000 cross-claim.  Mr Herskope had little choice in that regard because Mr Crombie’s knowledge of these matters could be gleaned from his own witness statement filed at the commencement of these proceedings.  Nor was it disputed by Mr Herskope that Mr Crombie had refrained from disclosing these matters to CIC, as pleaded in par 31D.  What was disputed was that Mr Crombie had discovered or learned of these matters at a time when he still owed a duty to CIC to inform that company of them.  This was on the basis that Mr Crombie claimed that he had already resigned as a director of CIC, on 15 or 16 May 1996, that Mr Park knew that he was leaving the company from that date, and that Mr Crombie did not discover or learn of any of these matters until after his resignation had taken effect. 

13. The evidence concerning the date of Mr Crombie’s resignation as a director of CIC, and the events which followed, is therefore critical to the resolution of the sole remaining issue before the Court.  That evidence came largely from Mr Park and Mr Crombie.  Before setting out their evidence regarding that issue, I propose to summarise briefly Mr Park’s evidence concerning the background to CIC’s involvement in the David Copperfield tour.  That evidence was, in the main, non contentious. 

    THE BACKGROUND TO THE COPPERFIELD TOUR

14. The Capital group of companies (“Capital”) was established in 1991.  Its core business was the provision of finance facilities to corporate and individual investors, and the management of loan portfolio receivables and structured investments. 

15. Capital formed part of a competitive finance market which funded, amongst other things, collective investment schemes.  These were schemes where a group of investors collectively invested in, for example, a film or theatre production for the perceived investment and/or tax advantages said to be associated with that particular scheme.  It was part of the ordinary course of business of the group to provide funds to investors in these types of schemes.  The financiers in this market included merchant banks, retail banks, and other lending institutions. 

16. In about June 1995 Mr Boyle applied to Capital for finance for investors in the Copperfield tour, and other projects which he and other entities associated with him were marketing.  He told Mr Park that he was the promoter of the tour and that it was being marketed by Sentinel.  Mr Park said that Capital had never previously been involved in any transaction with Sentinel.  He said that neither Capital, nor anyone on its behalf, spoke to Sentinel or to any of the applicants concerning the tour. 

17. Mr Park said he had been asked by Mr Boyle for details regarding the terms upon which Capital would provide such finance.  Mr Park summarised these terms as follows:

    ·    the borrowers would be required to sign loan agreements with Capital;

    ·    the loans would be for a fixed term;

    ·    the borrowers would pay interest to Capital;

    ·    a bank or Capital would provide a letter of credit or guarantee with the borrowers as beneficiaries thereby ensuring repayment of the principal sum to the borrowers at the expiration of the fixed term of the loan;

    ·    pursuant to the loan documentation, the letter of credit or guarantee would be mortgaged to Capital by the beneficiary; and

    ·    if a borrower defaulted under the loan agreement, Capital could require the borrower to repay the principal sum owing under that agreement, but otherwise, at the conclusion of the loan period, the borrower’s obligation to repay principal under the loan agreement was set-off against the letter of credit or guarantee.

18. In about August 1995, Capital made available to Mr Boyle a number of finance kits to give to potential investors.  At the same time Capital instructed its lawyers, Cornwall Stodart, to verify that the transaction documents underlying the tour were legally effective to achieve what was intended.  Mr Park said that it had always been understood that whether or not the Copperfield tour was a sound investment, or whether it would achieve the anticipated taxation benefits, was a matter for the applicants to determine.  Capital gave no advice and offered no opinion on these matters.

19. Mr Park said that between August and late October 1995, Capital continually pressed Mr Boyle regarding whether he intended to proceed with his finance application.  Mr Boyle refused to commit himself. 

20. In about October or November 1995 Mr Boyle told Mr Park in a telephone conversation that he no longer required any funding from Capital for the Copperfield tour. This was because Mr Boyle had procured funds from wealthy individuals within the Jewish community via his business partner, Mr Weingarten.  Mr Park said that he was extremely annoyed because Capital had spent more than $100,000 preparing the finance kits and, as far as Mr Park was concerned, Mr Boyle owed that money to Capital.

21. In January 1996 Mr Boyle again approached Capital for funds which he said Entercorp required both for working capital, and to fund the Copperfield tour.  Mr Park told Mr Boyle that, in his view, Capital was already owed more than $100,000 and he was not interested in lending Entercorp any more money.

22. At the same time, however, Mr Park indicated to Mr Boyle that Capital might be prepared to purchase some of the assets of the Boyle group.  Mr Boyle offered a commercial property in South Yarra, and a recording studio in Richmond.  These were of no interest to Mr Park.  Mr Boyle also offered various Entercorp loan books, including the loan book for the Copperfield tour.  Mr Park asked for details, including in particular, details of the borrowers and the applicable interest rates.

23. Negotiations concerning the purchase of the Entercorp loan books continued throughout January and February 1996.  Mr Park said that he told Mr Boyle that Capital would be prepared to purchase the income stream on the loan books (estimated to be worth $6 million) for $3.75 million, but only if the transaction passed a due diligence carried out by Capital’s advisers.

24. Mr Boyle told Mr Park that the loans the subject of the loan books were non-recourse.  That meant that Entercorp (as lender) could not recover the principal sum from the borrowers at the end of the term.  However, if there were a default under the loan agreements, the principal sum would become due and payable immediately. 

25. Mr Park asked Mr Boyle how that principal sum was to be repaid at the end of the loan period.  Mr Boyle replied that he had a mechanism in place to ensure repayment to Entercorp without recourse to the borrowers.  He told Mr Park that this should not be of concern to Capital because it was simply buying the income stream from the loan books.

    THE PERIOD BETWEEN FEBRUARY AND MAY 1996

26. Mr Park arranged for a due diligence to be conducted to verify the quality of the income stream that Capital would be buying.  He said that Mr Crombie was responsible for coordinating that due diligence.  The three advisors engaged by Capital were:

    ·Cornwall Stodart;

    ·Lending Solutions Pty Ltd, a credit reference agency; and

    ·Alexander & Spencer, Chartered Accountants.

27. Each advisor prepared a report in February 1996.  These reports satisfied Capital, and Mr Park informed Mr Boyle of this in late February. 

28. CIC was incorporated, as indicated earlier, for the specific purpose of purchasing the loan books.  Mr Park and Mr Crombie were appointed directors.  On 1 March 1996 CIC and Entercorp executed a Deed of Assignment.  CIC required an absolute assignment of the loans for three reasons:

    ·in order to call up the principal under the loans in the event of default in the payment of interest by the borrower;

    ·to have the option of on-selling the loan books to the bank if it so desired;

    ·to use the loan books as security to raise funds to pay for the loan books if necessary.

29. In order for Capital to be able to conduct the due diligence and also, as required by cl 2.2(a) of the Deed of Assignment, Entercorp had to provide to CIC all of the loan agreements made between Entercorp and the investors in the Copperfield tour, together with all files, documents and records relating to those loan agreements.  Entercorp provided CIC with those documents. 

30. After the Deed of Assignment was executed, CIC made a series of payments to Entercorp, or on its behalf.  The details of these payments were:

    ·on 4 March 1996 CIC paid to Retrak Pty Ltd (“Retrak”), a company of which Mr Boyle was a director, the sum of $725,000 by telegraphic transfer. 

    ·on the same day Entercorp allowed a credit to CIC in the sum of $275,000 in respect of an amount then owing by it to Capital. 

    ·also on the same day Entercorp allowed a further credit to CIC in the sum of $100,547 in respect of an amount then owing by it to CIC and/or Capital.

    ·on 20 March 1996 CIC paid to Retrak the sum of $85,555.56. 

    ·on 22 March 1996 Mr Park paid to Retrak the sum of $100,000 in cash. 

    ·on the same day CIC arranged for the sum of $215,000 to be paid by Classic Trading (from whom it had borrowed funds in order to fund the acquisition of the loan books) to Retrak.

    ·on 29 March 1996 CIC paid to Retrak the sum of $20,000. That sum was paid as part of a larger sum paid to Retrak on that date. 

    ·on 16 April 1996 CIC paid to Entercorp Holdings Pty Ltd the sum of $10,000.

    ·on 18 April 1996 CIC paid to Entercorp the sum of $5,000. 

    ·on 23 April 1996 CIC paid to Retrak the sum of $60,000. 

    ·on 29 April 1996 CIC paid to Retrak the sum of $40,000.  

31. It seems, therefore, that during March and April 1996 CIC either paid or allowed credit to Entercorp in the sum of about $1.63 million, pursuant to the Deed of Assignment.  As a result of these payments, CIC acquired the income stream from the Copperfield loan book, including the benefit of each of the loan agreements entered into by the applicants with Entercorp relating to the Copperfield tour.

32. Mr Park said that all of the applicants were subsequently sent letters by CIC, or its solicitors, demanding payment of interest in accordance with the loan agreements.  He produced a computer generated record containing details of the amounts advanced by Entercorp to each of the applicants in respect of the Copperfield tour, the amount of interest which had been paid in relation to the loans, the date on which each applicant had defaulted under his or her own particular loan agreement, and the amount of interest allegedly owed to CIC under that agreement.

    MR CROMBIE’S ROLE WITHIN CAPITAL

33. Mr Park gave a detailed account of Mr Crombie’s role within Capital.  He said that he first met Mr Crombie in about June 1992 and that he had engaged him as his personal assistant in September 1993.  Mr Crombie had been 22 years of age at the time.

1. Mr Park explained the corporate structure within the Capital group.  In May 1994 Capital Finance Corporation Pty Ltd (“CFC”) had been registered.  That company was the loan manager for Capital.  On 13 May 1994 CFC engaged Mr Crombie, via his service company Marcrom Holdings Pty Ltd (“Marcrom”), as a consultant to Capital.  Mr Crombie was appointed a director of CFC on that date. 

2. Mr Park said that he had appointed Mr Crombie as Capital’s project manager for the due diligence prior to the execution of the Deed of Assignment on 1 March 1996.  In that role, Mr Crombie had engaged each of the three advisors, Cornwall Stodart, Lending Solutions Pty Ltd and Alexander & Spencer to carry out their respective tasks in the due diligence.

3. As project manager for the due diligence it was Mr Crombie’s responsibility to receive and deal with all correspondence concerning the purchase of the Entercorp loan books.  That correspondence included, in particular, two letters from Cornwall Stodart dated 20 and 22 February 1996 which set out its findings as a result of the due diligence to be conducted by that firm.  Accordingly to Mr Park, as part of Mr Crombie’s overall supervision of the due diligence process, it was he who gave instructions to those conducting the due diligence, answered any queries that they had, met regularly with their representatives, and arranged for the handover of books and materials by Entercorp to the advisors as and when required. 

4. Mr Park said he had played a limited role in overseeing the due diligence as he had every confidence in Mr Crombie and complete trust in him.  His main concerns were its cost, accuracy and timing.  He said that he authorised Mr Crombie to do everything which he regarded as being necessary in order for the due diligence to be properly carried out, and that he relied upon Mr Crombie to keep him informed of its progress.

5. Mr Park said that the reports provided to him regarding the due diligence were also made available, on a confidential basis, to persons who lent money to CIC for the purpose of funding its acquisition of the loan books.  These lenders included Mr Davis, and his company Classic Trading.  He said that each of the lenders was also provided with a copy of the Deed of Assignment.

6. Mr Crombie executed the Deed of Assignment for and on behalf of CIC, as one of its two directors.  He also executed the Offers to Borrow and the various Australian Securities Commission (“ASC”) forms necessary to put in place the security given over the loan books to Classic Trading. 

7. From about March 1996, Mr Crombie was solely responsible (with the assistance of two other Capital employees, Mr Tony Shaw and Ms Sonia Hall) for overseeing and monitoring the performance of the loan books.  According to Mr Park, Mr Crombie had control over the following Entercorp documents:

   ·the Entercorp database which contained details of each borrower;

   ·the Entercorp file set up for each borrower; and

   ·the Entercorp St George Banking Partnership Limited records for the loan books.

8. Entercorp handed these documents to CIC in late February or early March 1996.  They included documents relating to the Entercorp No 4 account into which the borrowers paid interest under the loan agreements.

9. Mr Park gave evidence of the history of his previous business dealings with Mr Davis throughout the period 1993 to 1996.  He said that Mr Davis had acted as a lender on a number of Capital’s projects.  Putting to one side the money that Capital had borrowed from financial institutions, Mr Davis had been Capital’s largest private provider of finance.  He said that Mr Davis had been a valued provider of funds to Capital, and that he had trusted him.

10. Mr Park said that given Capital’s good relationship with Mr Davis, whenever he requested, and time permitted, Capital allowed Mr Crombie to perform various administrative tasks on behalf of Mr Davis and his companies.  These included spreadsheet work, writing letters to Mr Davis’ clients, personally delivering documents to Mr Davis’ home and other similar tasks.  Mr Park said:

    “At no stage, however, did I ever authorise Mr Crombie to act in any way contrary to Capital’s interests.”

11. According to Mr Park, Mr Davis had suggested, some time in 1995, that Mr Crombie and Mr Park consent to act as directors of NFG, one of Mr Davis’ companies.  Mr Crombie and Mr Park had signed undated consents to do so.  However, Mr Park had never been appointed a director of NFG, and had never acted as such. 

12. Mr Park said that he had been unaware, until this proceeding, that Mr Crombie had been formally appointed a director of NFG on 4 October 1996.  He said that he initially suspected, in the last quarter of 1996, that Mr Crombie may have had some involvement with that company, and that he had spoken by telephone to both Mr Crombie and Mr Davis seeking information about that matter.  He said that he was unable to obtain that information. It was only as a result of the discovery process in this proceeding that he had learned that Mr Crombie had been signing letters on behalf of NFG, in which he described himself as a director of that company, as far back as 27 October 1994, and that he had continued to describe himself in that way throughout 1995.

    MR CROMBIE’S DEPARTURE FROM CIC

13. Mr Park said that although he could not recall precisely when, it was in about April or May 1996 that Mr Crombie had told him that his wife was experiencing difficulties with her pregnancy, and that he needed to take some time off to look after her.  Mr Park said that he had agreed to that request immediately.  Following the birth of Mr Crombie’s child he had been told that Mr Crombie’s wife was suffering from post-natal depression.  Mr Park told Mr Crombie to take time off as paternity leave.

14. According to Mr Park, by late May 1996 Mr Crombie was rarely, if ever, in the office.  Mr Crombie said that the situation at home was not improving and asked Mr Park to be patient until things improved.  From time to time, members of Capital’s staff, including Mr Shaw, were sent to Mr Crombie’s home to discuss work related matters.

15. Mr Park said that by late June 1996 Mr Crombie was not attending the office at all.  He was not returning calls, and he was not replying to facsimiles sent to him.  This was the busiest time of the year for Capital, and his absence made it a very difficult time for everyone. 

16. Mr Park said that at about this time, in late June 1996, Mr Crombie visited him at his home in East Malvern to seek counselling in relation to the various problems that he was then experiencing.  During the course of that meeting Mr Crombie asked Mr Park whether Capital could provide more flexible work arrangements.  They discussed possible options if such arrangements could not be made.  According to Mr Park one such option raised by Mr Crombie was the possibility of his buying a 7 Eleven franchise with some money he was thinking of borrowing from his father-in-law.

17. Mr Park said that, unbeknown to him, in about August 1996, Mr Crombie filed a notice of resignation of director with the ASC specifying 21 June 1996 as the date of his resignation as a director of CIC.  He said that Mr Crombie had never, at any stage, provided either Capital or CIC with a copy of that notice of resignation.

18. According to Mr Park he made enquires of Capital’s landlord in the months after Mr Crombie’s departure.  He obtained access to elevator records for the building in which Capital had its offices.  These records showed that Mr Crombie, using an identifiable access pass, had entered the building, and Capital’s offices, on numerous occasions after hours, both before and after 21 June 1996.

19. Mr Park said that Mr Crombie had never provided any explanation to Capital regarding his resignation as a director of CIC, his unauthorised entry into Capital’s offices, his appointment as a director of NFG, or why he had conducted himself in the manner in which he had.

20. Mr Park gave the following evidence regarding Mr Crombie’s supposed “resignation” from CIC:

    “Mr Park, at any time in May 1996 did Mr Crombie tell you that he was resigning from CIC?---No, he did not.

    Did he tell you that he was resigning from any of the Capital companies?---No, he did not.

    Did he tell you that he intended to leave the employment or his directorships of CIC forthwith?---No, he did not.

    Did he tell you if he proposed to leave the employment or directorship of any Capital company forthwith?---No, he did not.

    At any time between March and June 1996 did Mr Crombie tell you that Sentinel were proposing to thinking about pulling the pilots out of the Copperfield loan?---No, he did not.

    Did he at any time tell you that either he alone or he with Mr Davis proposed to switch the pilots into a different investment?---No, he did not.

    Had you found out, between March and June of 1996, that Sentinel were proposing to switch the pilots from the Copperfield loan into some other investment because of some dissatisfaction on the part of Sentinel, what would you have  done?---I would have attempted to rectify the situation forthwith.

    What does that mean?---That would have meant in the first instance that I would have communicated with Sentinel and probably with the underlying borrowers, to determine what problem they may have with the transaction.  Once I identified that problem I would have obviously sought to come up with appropriate solutions to rectify that problem, which may have meant any number of things depending on the nature of that problem.

    Had the problem been one of documentation what would you have done?---As an immediate alternative we would have proposed replacing the loan agreements that we had purchased, with more appropriate loan agreements, which may have made the borrowers and also Sentinel happier with that particular transaction.

    Were there any other tax products available on the last quarter of 1996?---A plethora of them.” 

    THE AFTERMATH OF MR CROMBIE’S DEPARTURE

21. Within a few days of Mr Crombie’s departure from CIC, on about 30 June 1996, Ms Hall told Mr Park that she too would be leaving.  She said that her departure was the result of personal problems and that she would not be working for the next 12 months.  Mr Park said that he had subsequently discovered that Ms Hall had begun working for Mr Crombie and Mr Davis at NFG almost immediately after she left Capital.

22. In November 1996, Capital’s other loan portfolio manager, Mr Shaw, told Mr Park that he was leaving Capital in order to join Mr Crombie at NFG, and to pursue two other personal ventures.  He also told Mr Park that his wife did not want him to continue working in the city because of his drinking problem.  Mr Park said that he asked Mr Shaw to stay at Capital and told him that he would make it worthwhile, but Mr Shaw declined that offer. 

    THE SWITCHED INVESTMENTS

23. Mr Park said that on about 3 July 1996 he was contacted by Mr Boyle who told him that he had received a letter from Sentinel giving notice that the applicants were terminating their involvement in the Copperfield tour, and were assigning their rights and obligations under their loan agreements with Entercorp to a third party.  Mr Park then, for the first time, contacted Mr Colin Quarrell of Sentinel to find out what was happening.  He was told by Mr Quarrell that Capital should not worry because the problem was one between Mr Boyle and Sentinel’s clients.  Mr Quarrell said that the applicants were continuing to pay interest under their loan agreements.  He also said that he would arrange a meeting between his himself, his fellow Sentinel director Mr Healy, and Mr Park to discuss the problems which had arisen between Sentinel and Mr Boyle.  Mr Park said that he attempted on several occasions thereafter to contact Mr Quarrell to organise the meeting, but Mr Quarrell had avoided him. 

    MR PARK’S DEALINGS WITH MR DAVIS

24. Mr Park was asked about his dealings with Mr Davis by Mr Magee.  His evidence was as follows:

    “Mr Park how often between March and June 1996 did you speak to Mr Davis?---Frequently, almost daily.

    During that period did Mr Davis ever say to you that he was proposing to appoint Mr Crombie a loan manager of NFG?---No, he did not.

    Did he ever say to you that he was proposing to go into business with Mr Crombie via NFG in competition with CIC?---No, he did not.

    Did he ever say to you that he was proposing to be involved in switching the Copperfield loan book investors into a different investment?---No, sir, he did not.

    When did you first discover that Mr Crombie had resigned as a director of CIC?---Late November, early December 96.

    In what circumstances did you find out?---I have previously instructed my solicitors, Cornwall Stodart, to make searches of all the Capital group companies for two purposes:  one was simply to check if any resignations had been made, given the absence of any communications from Mr Crombie, and secondly was to convert those companies from dual directorships to single directorships.

    So it was November 1996?---Late November, early December.  I can’t recall the exact date.” 

    MR PARK’S CROSS-EXAMINATION

25. Mr Park was cross-examined at length by Mr Herskope.  Much of that cross-examination was directed to the circumstances of Mr Crombie’s departure from Capital.  Mr Park reiterated that all that Mr Crombie had told him was that his wife was having difficulty with her pregnancy, and that his presence was required at home.  After the birth of their child, Mr Crombie’s wife had suffered post natal depression and he had requested more flexible working hours.  However, never at any stage did Mr Crombie tell Mr Park that he was leaving CIC, let alone that he had resigned or intended to do so. 

26. Mr Herskope put to Mr Park that there had been a meeting between himself and Mr Crombie at Mr Park’s home, in East Malvern, on either 15 or 16 May 1996.  He suggested that as a result of that meeting Mr Park “knew [Mr Crombie] was leaving”.  Mr Park emphatically rejected that suggestion.  He put to Mr Park that there had never been a conversation between Mr Crombie and Mr Park in which Mr Crombie mentioned the possible purchase of a 7 Eleven franchise to be financed by his father-in-law.  Mr Park insisted that that the conversation had occurred, some time late in June 1996.  However, Mr Park had not regarded Mr Crombie’s observation that he might, at some stage, borrow money from his father-in-law to buy such a franchise, as anything more than “musing over possibilities”. 

27. Mr Herskope also questioned Mr Park about a range of other matters.  He challenged Mr Park’s claim that there had been a conversation between Mr Park and Mr Crombie in which Mr Crombie was told that he was to be appointed as project manager to oversee the due diligence process.  He put to Mr Park that whatever role had been assigned to Mr Crombie was irrelevant to Mr Park’s decision to acquire the loan books.  Mr Park denied each of these propositions.  Mr Herskope put to Mr Park that it was he, rather than Mr Crombie, who had overseen the due diligence.  Mr Park accepted that the ultimate decision as to whether the Deed of Assignment would be executed was his, but maintained that Mr Crombie had played a pivotal role in supervising and coordinating the process.

28. Mr Park was asked about the nature of his association with Mr Davis.  He said that Capital was “essentially at his [Mr Davis’] beck and call”.  He said that Mr Davis was a wealthy and powerful individual who had often loaned funds to Capital.  He was challenged about the evidence which he gave to the effect that he had resisted overtures from Mr Davis to become a director of NFG.  He conceded that in 1995 he had signed documents consenting to act as a director of that company, but insisted that he had done so reluctantly.  He said that Mr Crombie had provided administrative services to NFG because Mr Davis did not have a business office, and operated from home.  He said that Mr Davis had asked that Capital establish a dedicated telephone line for NFG at its office, and that mail be directed to that office.  He said that he understood that Mr Davis was seeking to create the impression for his clients that NFG was a company of substance, and he saw no harm in indulging that aim.  He said that he was aware that Mr Crombie was performing general secretarial functions on behalf of NFG, though he denied having previously seen the letters signed by Mr Crombie as a director of that company.

29. Mr Herskope challenged Mr Park regarding evidence which he gave concerning the steps which Capital might have taken to put the applicants into an alternative investment scheme had he been aware of the proposal to switch the investments.  He invited Mr Park to identify the other tax products which were available between March and June 1996, and which could have been utilised for that purpose.  He also challenged Mr Park to indicate how he would have funded these alternative investments.  Mr Park replied that there were a variety of sources of additional funding available at that time, including the banks, and a range of private investors. 

30. Mr Herskope put to Mr Park that Mr Crombie would say that in 1995 and 1996, until the time he left CIC, Mr Park was rarely in the office before lunchtime.  He would also say that from March 1996 Mr Park was out of the office for significant periods of time.  Mr Park agreed that this was so, but insisted nonetheless that he had been able to keep track of Mr Crombie’s movements because he had been in regular contact with his office.  It was put to Mr Park that his constant unavailability had become a source of friction between himself and Mr Crombie, and that Mr Crombie had frequently complained about the effect which Mr Park’s absence from the office was having upon the operation of the business.  Mr Park denied that suggestion. 

31. It was suggested to Mr Park that Mr Crombie had told him, on a number of occasions between mid-April and mid-May 1996, that he was dissatisfied at Capital, and that he was seriously considering his options for the future.  Mr Park denied that any such conversations had taken place. 

32. Turning to the meeting which allegedly took place at Mr Park’s home on 15 or 16 May 1996, the cross-examination was as follows:

    “Now, Mr Park, Mr Crombie will say that you and he had a meeting on or about 15 May 1996 at your home at unit 1, 109 Brunel Street, East Malvern.  Is that where you lived at the time?---Yes, sir.

    Mr Crombie will say that he had a lengthy meeting with you which went for something around three hours on that particular evening.  Do you dispute that you had such a meeting on that day?--- Sorry, I didn’t realise that was a question.

    All right, I’ll put the question.  Did you meeting with Mr Crombie on or about 15 May 1996 at your home?---I may have.  I have no recollection of it.

    You may have?---Yes, I may have.  I have no recollection of it, I’m sorry, sir.

    You confirm that you do live at that address?---I do or I did, I beg your pardon.

    Mr Crombie will say that he had a conversation with you which went as follows, “Grant, we’re here again discussing once again the issues that trouble me.  I’ve put you on notice previously that I can’t continue if your non-attendance at the office and your drug use and the amount of time you are spending at the casino - - -“

    …

    “I can’t continue if your non-attendance at the office and your drug use and the amount of time you’re spending at the casino and the amount of money you are spending continues.  I can’t go on.  You keep promising me it will change, it doesn’t.  It had all come to a head regarding the Copperfield transaction.  For all these reasons I can’t go on.”  Mr Crombie then will say that he told you, “I’m resigning effective immediately as a director from all companies in the Capital group.”  You dispute having that conversation with Mr Crombie?---Totally.

    Now, what Mr Crombie will also say was that he told you he’d be leaving Capital and gave you three weeks’ notice.  You dispute that?---Totally.

    Mr Crombie will also say that you said to him that you would complete the necessary documents to remove him as a director of the Capital companies but that you asked him to give you some time to find somebody to replace him as the companies each had only two directors and therefore you needed someone to replace him to comply with the Corporations Law. Do you dispute that?---Totally.

    Mr Crombie will also say that for the purposes of the outside world you asked him whether he would be willing to tell anybody who asked him why he was leaving Capital to say it was for family reasons associated with the upcoming birth of his child, which could not be worked in with his responsibilities at Capital and that he agreed to that.  Do you dispute that as well?---Absolutely.

    I suggest to you that in fact consistent with those arrangements Mr Crombie continued to sign documents as a director of Capital thereafter when you asked him to do so.  Do you dispute that?---Totally.”

1. Mr Herskope also questioned Mr Park extensively on matters relating generally to credit.  I do not think it necessary to set out the details of his cross-examination in these reasons for judgment.  It is sufficient to say that some of the matters put to Mr Park related to his dealings with third party lenders, and the suggestion that Mr Park had deliberately withheld from them matters which were highly relevant and ought to have been disclosed.  These included the existence of an opinion from Cornwall Stodart concerning difficulties with the enforceability of the loan agreements.  He put to Mr Park that Mr Davis would say he was never shown that opinion. 

2. Mr Park insisted that Mr Davis had been fully apprised of all relevant matters throughout the entire transaction. 

3. It was put to Mr Park that Mr Crombie would say that he had told him in February 1996 that he was aware that no loan advances had been made to the applicants in relation to the Copperfield transactions as Entercorp had never had the loan funds.  This was put as part of the reason why Mr Boyle needed money so badly.  Mr Park described that suggestion as “rubbish”. 

4. It was suggested to Mr Park that at no time prior to the making of the loans was Classic Trading provided with a copy of the Deed of Assignment.  His response to that suggestion was that it was “so astonishing it’s not funny”. 

5. Finally, it was suggested to Mr Park that Mr Crombie had been “dead against” the acquisition of the four loan books by Capital and that he had told Mr Park, prior to the execution of the Deed of Assignment, that it should not enter the deal.  Mr Park emphatically denied that suggestion. 

   MR PARK’S RE-EXAMINATION

6. Mr Park was asked to elaborate upon the conversation which he claimed had occurred in June or early July 1996 concerning the 7 Eleven franchise.  He said that he had been trying to communicate with Mr Crombie and finally they had met.  Mr Crombie had asked whether Mr Park would consider some part-time work for him.  Mr Park had asked what other options Mr Crombie was considering.  It was at that point that Mr Crombie said that he had very few prospects, perhaps a 7 Eleven franchise which he would pay for with the assistance of his father-in-law.  The re-examination continued:

   “During that meeting did Mr Crombie tell you that he’d signed a letter of resignation from each of the Capital companies of which he was a director?---Absolutely not, sir, that came as an astonishment to me when I actually found that out some months later.

   During that meeting did Mr Crombie say to you that he was involved in a new financing business with NFG?---Absolutely not, sir.” 

   MR CROMBIE’S ACCOUNT OF HIS ROLE AT CIC AND THE CIRCUMSTANCES OF HIS DEPARTURE

7. Mr Crombie essentially confirmed Mr Park’s account of how he had come to work for the Capital group.  He said that a company of which he was a shareholder and director, Marcrom, had contracted with CFC in 1994 to provide his services as a consultant to members of the Capital group.  He had been appointed a director of CFC and also of several other companies within Capital. 

8. Mr Crombie agreed that the main business of Capital had been to source and provide third party loan funding to promoters of tax effective investments, whether through offerings to the public, or private offerings to wealthy individuals, and to manage the loan books which were then created.  Between 1993 and early 1996 Capital had been involved in about twenty such investment schemes. 

9. Mr Crombie said that from the commencement of business by Capital in late 1993 to about mid-1995 the main lenders to the group were private investors, rather than financial institutions.  One of those lenders was Classic Trading.  Mr Crombie had had extensive dealings with that company in his capacity as office manager. Between 1993 and 1996, with Mr Park’s consent, he regularly performed work for Mr Davis.  This included drawing spreadsheets in relation to Classic Trading’s investments, writing letters on its behalf and personally delivering documents to Mr Davis’ home when required.  He said that he had developed a good relationship with Mr Davis.  Neither he nor Marcrom received any payments from Mr Davis for the work which he performed. 

10. Mr Crombie said that in 1995 both he and Mr Park signed undated forms by which they each consented to be directors of NFG, together with undated letters of resignation.  Neither Mr Crombie nor Mr Park was formally appointed a director at that time though Mr Crombie said that he did not know that no appointment had been made until June 1996.  He acknowledged that he had written occasional letters at Mr Davis’ request on NFG letterhead which he had signed as “manager” or “director”.  The address for NFG on those letters was the same as the address for Capital.  He said that he made no attempt to hide these letters from Mr Park, or anyone else at Capital. 

11. Mr Crombie said that he had first heard of the Copperfield tour from Mr Boyle some time in early 1995.  In about May 1995 he became aware through conversations with Mr Park that Capital might fund the tour.  Mr Crombie saw nothing unusual in that.  It was like any other tax effective product – Mr Boyle would introduce the investors and stage the tour while Capital would obtain and provide the funding. 

12. In January 1996 Mr Park told Mr Crombie that Mr Boyle had not raised enough money to fund the Copperfield tour.  Mr Park said that Mr Boyle was desperate for funds.  He claimed that Mr Boyle had been stringing him along, and had not intended to use Capital unless there was no alternative.  He told Mr Crombie that Mr Boyle had drawn up loan agreements with Entercorp as the lender instead of Capital.  Mr Boyle was now seeking to have Capital advance money against the security of those loan agreements.  He told Mr Crombie that the “wheel had turned” and that he could now “screw” Mr Boyle over the funding of the tour. 

13. A short time later Mr Park told Mr Crombie that he now proposed that Capital would advance $2 million (which it would source from third parties) to fund the tour, and that it would take as security an assignment from Entercorp of a portfolio of four loan books.  He told Mr Crombie that he wanted to structure the transaction in such a way that Capital would have the option of buying the loan books at a substantial discount, and then on-selling them for a large profit. 

14. Mr Park told Mr Crombie that in order to satisfy the requirements of third party lenders who would fund the acquisition of the loan books, there would have to be a due diligence.  Mr Crombie knew that Capital did not have available to it anything like the sums required to be paid for the loan books and would have to raise funds from outside its usual group of finance providers.  Mr Park arranged for the due diligence to be carried out and appointed Mr Crombie to be the main point of contact. 

15. Mr Crombie said that he had been present at the offices of Capital with Mr Park when Mr Eric Low of Alexander & Spencer had delivered its draft due diligence report.  He said that Mr Park had expressed concern about the fact that the draft report did not cover the issue of whether loan advances had been made to each of the Copperfield borrowers.  Mr Low said that he had not seen any documents which would enable him to include such a statement in the report.  Mr Park showed Mr Low a number of Entercorp bank statements which indicated the movement of funds out of Entercorp’s account.  He asked Mr Low to use these statements as the basis for including in the report a finding that the loan advances had been made.  Mr Low said the statements were not sufficient for that purpose.  Mr Park then suggested that Mr Low might say that he had seen bank statements which “indicated” that loan advances had been made.  Mr Low agreed to amend the report to include such a statement. 

16. Mr Crombie said that he told Mr Park more than once prior to the execution of the Deed of Assignment on 1 March 1996 that Capital should not go into the deal with Entercorp.  Mr Park replied that the deal was potentially too profitable to walk away from.

17. Mr Crombie spoke of the problems which he had with Mr Park in 1995 and 1996.  He said that Mr Park generally did not arrive in the office until lunchtime, and did not let anyone know where he was.  Clients would arrive for meetings, but Mr Park would be nowhere to be found. 

18. Mr Crombie said that in late March or early April 1996 he had been telephoned by Mr Healy.  He had had previous dealings with Mr Healy in relation to a tax scheme involving a tour by the Bolshoi Ballet which Mr Park and Mr Boyle had funded.  Mr Crombie knew that Mr Healy and Mr Quarrell controlled Sentinel, and that it was the financial advisor to most of the applicants.  Mr Crombie said that he was disturbed by various matters raised by Mr Healy regarding Entercorp and that he raised these matters with Mr Park.  Mr Park said not to worry.  He said that Mr Boyle was just telling lies, as usual. 

19. According to Mr Crombie, Mr Healy telephoned again about a week later expressing similar concerns regarding Entercorp.  Mr Crombie told Mr Park about this call and was again told not to worry.  He said that he then rang Mr Davis and told him of his discussions with Mr Healy.  Mr Davis expressed concern that Classic Trading might not be in a position to recover the loans which it had made in relation to the Copperfield tour.  Mr Crombie suggested that Mr Davis should consider having a meeting with Mr Healy. 

20. Mr Crombie said that by mid-April 1996, he had become very concerned about what was going on at Capital.  From what Mr Park had told him, and also from his conversations with Mr Healy, Mr Boyle and Mr Davis, he believed that there could be real problems with the Copperfield loan transactions and with the Entercorp loan books.  He said that he was also very worried about Mr Park’s lifestyle, and its effect on Mr Crombie’s future.

21. Mr Crombie said that he spoke with Mr Park on a number of occasions from mid-April to mid-May 1996 about his concerns.  He told Mr Park that he was uncomfortable with what was going on.  He said that as he was newly married, and his wife was expecting their first child in May, he was seriously considering his options for the future.  He said that Mr Park did little to allay his concerns.  He said that by mid-May 1996 he had decided to leave Capital.  At that stage, he had no idea what he would do after he left.

22. In his witness statement filed on 7 February 2000 Mr Crombie said at par 85:

    “Shortly after I had decided to leave Capital, Elliott Davis called me.  He said that he had had a meeting with Mac Healy and Colin Quarrell at Sentinel.  Davis told that me that he had learnt through the meeting that Entercorp Finance had double pledged some of its loan books to raise funds, even after the assignment of the Entercorp Finance loan book to Capital had taken place.  He said that Entercorp Finance had stopped repaying its lenders.  Davis also said that Healy and Quarrell had said to him that Sentinel was going to get its clients out of Copperfield.  I told Davis that this didn’t surprise me.  I also told him that I had pretty much made up my mind to leave Capital because of my concerns surrounding the assignment of Entercorp Finance loan portfolio, the Jimmy Goh transaction, and Park’s instability.  Davis said that he was going to have a second meeting with Healy and Quarrell soon.”   (emphasis added)

23. However, by the time Mr Crombie came to give evidence in the trial, and was asked to adopt his witness statement, he indicated that he wished to amend the two passages emphasised in par 85. 

24. Instead of saying:

    “Shortly after I had decided to leave Capital, Elliott Davis called me.”

    Mr Crombie wished to say:

    “Shortly after I had told Park that I had decided to leave Capital, Elliott Davis called me.”  (emphasis added)

25. Also, instead of saying:

    “I also told him that I had pretty much made up my mind to leave Capital …”.

    Mr Crombie wished to say:

    “I also told him that I had told Park that I was leaving Capital …”  (emphasis added)

26. Mr Crombie said that he believed that it was in the third week of May 1996 that he told Mr Park that he was leaving Capital, and informed him that he was resigning as a director of all Capital companies of which he was a director, effective immediately.  He said the conversation took place at Mr Park’s home.  He said that he told Mr Park that he could not continue to work for him, given what was happening at Capital and that he would be leaving in three weeks’ time.

27. Mr Crombie said that Mr Park told him that he would arrange for the necessary documents to be prepared to have Mr Crombie removed as a director of the Capital companies.  However, he asked Mr Crombie to give him time to find a replacement, as each of the companies had only two directors, and at that time it was not possible to have fewer than that number.  Mr Park also asked Mr Crombie to tell anyone who asked him why he was leaving Capital that it was for family reasons associated with the upcoming birth of his child.  Mr Crombie agreed that he would do so.

28. Mr Crombie said that approximately two weeks later, shortly after the birth of his daughter on 25 May 1996, he had heard nothing further from Mr Park regarding a replacement for himself as director.  He said that he asked Mr Davis whether he could arrange for his accountant to carry out a company search with the ASC in order to determine of which companies he was a director.  He said he made that request so that when Mr Park eventually came back to him, he could confirm that he had resigned from them all.

29. Mr Crombie said that it was not until 21 June 1996 that he ultimately completed written notices of resignation of his directorships in relation to the Capital group.  These notices had been provided to him by Mr Davis.  He  said that he did not lodge them with the ASC until early August 1996.

30. Mr Crombie said that he had continued to work at the office of Capital until late June 1996.  He spent much of his time arranging matters so that other employees could take over his duties once he had gone.  He continued to sign documents as a director of Capital as required, or whenever Mr Park asked him to do so. 

31. Mr Crombie said that throughout June 1996 he had a number of conversations with Mr Davis, Mr Healy, and other Sentinel personnel, and Mr Michael Loftus, a former tax partner at Minter Ellison who specialised in structuring tax effective investments, regarding the Sentinel clients and their investments in the Copperfield tour.  From these conversations, he learned that Sentinel was putting, not only those of its clients who had invested in the Copperfield tour, but also another one hundred or so, into another tax scheme involving what was known as “the Asian book investment”.

32. Mr Crombie said that he had no involvement in drafting any of the loan documentation relating to the Asian book investment, and that he had not spoken to any of the Sentinel investors regarding that alternative scheme.  He acknowledged that he was involved in making arrangements to enable NFG’s loan management business to commence at the beginning of July 1996, but said that he had very little to do with the Asian book investment until July 1996, after he had left Capital.

33. Mr Crombie said that after he had told Mr Park that he was leaving Capital, he spoke with Ms Hall and Mr Shaw, about his plans.  He told then that he intended to go to work for NFG.  He was aware that they were also unhappy at Capital.  He told them that there would probably be work available for them at NFG in the future.  Ms Hall asked Mr Crombie some time later, but before he left Capital, whether she could join him at NFG and he agreed.  She began working for NFG in early July 1996.  After Mr Crombie left Capital he kept in contact with Mr Shaw.  In November 1996 Mr Shaw too left Capital and began working for NFG. 

34. Mr Crombie said that he disagreed with much of Mr Park’s evidence regarding the February 1996 due diligence.  He said that he had never provided any of the third party lenders with a copy of the Deed of Assignment.  He said that none of the conversations to which Mr Park had referred concerning Mr Crombie’s departure had ever occurred.  He insisted that Mr Park knew of his resignation from Capital at least from mid-May 1996 onwards. 

    MR CROMBIE’S CROSS-EXAMINATION

35. Mr Magee challenged Mr Crombie about his belief that Mr Park had deceived the third party lenders by not informing them that there had been no advances made to the borrowers in the Copperfield transaction.  Mr Crombie said that he had regarded Mr Park’s conduct as “sharp practice”.  However, he conceded that he had stood by and done nothing about it. 

36. Mr Crombie was asked about the payments which had been made by Capital for his services.  In his evidence-in-chief he had said that his remuneration had been based upon a monthly retainer, and a performance and profit share agreement.  He had said that at the end of each month, Marcrom would be paid an agreed sum and a cheque drawn on one of the companies within the Capital group would be paid into its account. 

37. Mr Magee put to Mr Crombie that his evidence regarding these payments had been untrue.  He suggested that a number of payments had been made by cheques personally drawn by Mr Crombie to accounts in his own name, and that of his wife.  Mr Crombie acknowledged that some payments had been made in this way.  He agreed that his wife had never performed any duties on behalf of Marcrom, and had not been entitled to the payments.

38. Mr Crombie was asked why he had not told Mr Park that Sentinel was proposing to switch its clients out of the Copperfield loans, and into the Asian book investment.  He said that he had not become aware of the details of that investment until after he had resigned from Capital.  By that time, he did not feel under any obligation to say anything about the matter to Mr Park. 

39. Mr Crombie was reminded that he had said in his evidence in-chief that Mr Healy had asked him to keep the fact that the Sentinel clients were getting out of the Copperfield loans quiet.  He agreed that, save for having told Mr Davis what Mr Healy had told him, he had refrained from telling Mr Park about this conversation.  It was put to Mr Crombie that he had been well aware that if Mr Park had found out about the proposed switch, he would have taken steps to prevent it from occurring.  Mr Crombie replied that he had by that stage resigned from Capital.  He considered that any involvement which he may have had in managing the switched investments after his resignation was of no concern to Mr Park. 

40. Mr Crombie was also reminded of his evidence concerning the meeting between himself and Mr Park which had supposedly occurred on either 15 or 16 May 1996.  He agreed that he had said that he had been asked to stay on for about three weeks.  However, he acknowledged that this may have been his suggestion rather than that of Mr Park.  He said that as a result of the meeting he had expected to leave Capital at around the middle of June 1996 but explained that the three weeks to which he had referred had been intended to exclude several days surrounding the birth of his daughter.  He acknowledged that the account which he had given of the meeting with Mr Park in his witness statement differed in certain respects from the account which he had subsequently given in Court.

41. Mr Crombie was asked to indicate the last day on which he worked at Capital.  He said that he could not recall, but he acknowledged signing letters and documents up until 27 June 1996.  He agreed that the work which he had performed for Capital after 15 May 1996 was substantially the same as the work which he had performed prior to that date.  He was asked, hypothetically, what steps, if any, he would have taken to protect the interests of Capital upon being told about the switched investments had he not already decided to leave the group.  He said that the first port of call would have been Entercorp.  He was then asked the following questions:

    “MR MAGEE:  Once you had resigned from CIC and Capital – I mean the Capital group, the resignation that occurred on the 15^th – you believed you owed no other duty to Capital after that resignation.  Is that correct?---That’s correct.

    HIS HONOUR:  From that date?

    MR MAGEE:  From that date?---That’s right.” 

1. I regard Mr Park as having given essentially truthful evidence regarding the circumstances of Mr Crombie’s departure from CIC.  The account which he gave was, in my view, credible and accurate.  His evidence on this issue was given in a clear and firm manner.  He withstood a vigorous and probing cross-examination. 

2. That is not to say that I regard Mr Park as being other than an extremely shrewd businessman who has, for many years, been involved in activities which have attracted people of doubtful repute.  However, when it came to his account of his dealings with Mr Crombie his evidence seemed to me to be plausible, and to ring true. 

3. I should interpolate here that I initially reserved my decision in this matter on 6 September 2000. On 7 May 2001, Mr Crombie filed a notice of motion in which he foreshadowed that leave would be sought to reopen his case.  The notice of motion was supported by an affidavit of Mr Michael Kenny, Mr Crombie’s solicitor.   

4. Mr Kenny deposed that he had been informed by Mr Herskope that on 4 April 2001 he had appeared on behalf of Mr Crombie in a criminal trial in the County Court of Victoria.  Mr Herskope had become aware of certain documents which had been produced to the County Court by St George Bank Ltd (“St George”), and which had apparently been prepared by Mr Park, though not discovered by CIC in the proceeding before me.  It was claimed that those documents suggested that certain evidence given by Mr Park before me had been untrue.  Similarly, Mr Herskope had become aware of documents produced to the Court by Crown Ltd (“Crown”) which might have had an adverse affect upon Mr Park’s credit.  Mr Herskope had told Mr Kenny that he had not been aware of the existence of these documents at any time prior to the criminal trial.

5. It became necessary to deal with this application by Mr Crombie to re-open his case.  On 12 June 2001 I heard argument on the motion.  It soon became clear that the St George document was said to be relevant only in the sense that it might have been used to establish that Mr Park had made a prior inconsistent statement regarding the circumstances in which he became aware that Mr Crombie had resigned as a director of Capital.  In the St George document, which was apparently signed by Mr Park, the bank was told on 7 August 1996 that as at 17 July 1996 Mr Crombie was no longer a director of CFC.  That statement by Mr Park was said to be inconsistent with his evidence that he first became aware of Mr Crombie’s resignation in November or December 1996. 

6. During the course of argument I pointed out to Mr Herskope that the actual date in the document, 17 July 1996, was not of great assistance to Mr Crombie.  Had it been 16 May 1996, the document might have had much greater weight.  Mr Herskope acknowledged that the document went only to credit but submitted that it was nonetheless significant. 

7. Another difficulty with Mr Herskope’s submission was that the St George document had been referred to by description as “Notice of retirement or resignation by director or secretary” on 9 August 1996 in Mr Park’s witness statement in this proceeding.  It appeared that no effort had been made by Mr Crombie’s legal advisors to obtain that document prior to the trial, and it could hardly be said that the document could not with reasonable diligence have been obtained. 

8. The other document sought to be tendered related to the amount of time spent by Mr Park at Crown Casino in 1996, and the size of the gambling losses which he sustained.  This document was said to bolster Mr Crombie’s credit when he claimed that Mr Park was spending far too much time away from the office. 

9. In the end, I dismissed Mr Crombie’s motion and ordered him to pay costs.  I said that I would provide my reasons for doing so at a later stage.

10. It is clear that the evidence which Mr Crombie sought to adduce was relevant to credit only.  In the case of the Crown document, it was of no real probative value.  Mr Park had not disputed Mr Crombie’s contention that he had been away from Capital for a good part of the time in 1996 and was often difficult to contact.  In the case of the St George document, it was perhaps of greater relevance.  Nonetheless, its tender into evidence would have necessitated recalling Mr Park so that he could be further cross-examined.  It added little to the evidence already adduced at the trial that Mr Park had previously said that he became aware of Mr Crombie’s departure from CIC in September 1996, rather than in November or December 1996.  To have permitted Mr Crombie to reopen his case upon such slender material would, in my opinion, have been unjust.  I therefore declined, in the exercise of my discretion, to permit that course to be adopted.

    Mr Crombie’s credibility

11. I regard Mr Crombie as having been an unreliable witness.  His memory of many significant events was shown to be poor.  He appeared to me to be attempting to reconstruct matters about which he had no real recollection.  He was also, on occasion, evasive and unwilling to respond directly to questions put to him in cross-examination.  Some of his answers were, as I have indicated in extracts from his cross-examination set out above, quite extraordinary.  He seemed to me to be a person who had been quite out of his depth, given the responsibilities which he had assumed.  Where his evidence conflicts with that of Mr Park, I prefer the evidence of Mr Park.

12. A particularly telling feature of Mr Crombie’s evidence was his belated attempt to change what he had said in his witness statement regarding the conversation which he supposedly had with Mr Park on either 15 or 16 May 1996, and also what he supposedly told Mr Davis about that conversation.  I do not accept that Mr Crombie told Mr Park on either of those dates, or at all, that he was leaving CIC, or that he was resigning, or had resigned, from that company.  His behaviour in the weeks following this supposed conversation was inconsistent with his having resigned, or foreshadowed his resignation in the manner claimed.  He continued to perform all of the duties of a director and manager of CIC which he had previously carried out.  His last minute attempt to alter his witness statement was, in my view, a contrived act on his part, and one which in the end did him no credit.

13. I accept that in or about April or May 1996 Mr Crombie was contemplating his future with CIC.  He was plainly dissatisfied at Capital and was clearly having difficulties with Mr Park.  I also accept that at some point, probably in mid-May 1996, Mr Crombie made it clear to Mr Davis that he was unhappy at CIC and that he might be receptive to an offer from Mr Davis to join him.  Mr Moscatelli’s evidence supports at least that scenario.  It is clear from Mr Moscatelli’s diary that there were some discussions in late May 1996 concerning a “new venture” which would involve both Mr Crombie and Mr Davis. 

14. The fact that Mr Crombie was unhappy at CIC, and may have been contemplating leaving, does not mean that he told Mr Park what he was planning to do.  Mr Park emphatically denied any knowledge of Mr Crombie’s plans (apart from a somewhat discursive discussion about a 7 Eleven franchise which Mr Park said took place in late June or early July 1996).  I accept Mr Park’s evidence that he was never told by Mr Crombie that he was resigning, or that he had resigned.  I took particular care to observe Mr Park closely when he gave that evidence.  I do not believe that he was dissembling. 

15. In my opinion, Mr Crombie and Mr Davis saw an opportunity arising out of Mr Healy’s decision to take the Sentinel clients out of the Copperfield investment.  They took advantage of that opportunity to further their own interests and, in Mr Davis’ case, the interests of Classic Trading and NFG. 

16. Mr Crombie had several reasons for not telling Mr Park what Mr Healy had told him.  These included not merely his own personal difficulties with Mr Park, but also the opportunity which presented itself to take over the Sentinel clients and to arrange for their investments to be switched into the Asian book investment.  Mr Davis too had powerful reasons for not informing Mr Park of what he and Mr Crombie were planning.  Mr Davis is plainly an astute businessman, hard-headed, and well aware of the likelihood that were Mr Park to have learned of his plans, he might have taken steps to protect Capital’s interests.  It was particularly significant, in my view, that Mr Davis conceded that he may have discussed with Mr Healy the need to ensure that neither Mr Boyle nor Mr Park became aware of the proposal that Sentinel withdraw its clients from the Copperfield tour.

17. Mr Crombie’s evidence concerning the reasons why his notices of resignation were prepared by Mr Moscatelli was, in my view, unsatisfactory.  The use of the Form 370 notice,  rather than the Form 304 notice, was particularly telling. 

18. Mr Crombie was a director of CIC.  He remained a director until at least 21 June 1996.  He owed CIC the normal fiduciary duties that all directors owe to their companies.  During May and June 1996 he acted consistently in clear disregard of his fiduciary obligations.  A particularly telling illustration of his conduct was his involvement in establishing the NFG/Hemisphere account on 28 May 1996.  That fact was not controverted.  He is accordingly liable to compensate CIC for breach of his fiduciary duty. 

    Mr Davis’ credibility

19. I also regard Mr Davis as an unreliable witness.  Some of his evidence seemed to me to be contrived.  He contradicted himself on occasion on several significant issues.  Where his evidence conflicts with that of Mr Park, I prefer the evidence of Mr Park. 

20. I was not impressed with Mr Davis’ explanation for having belatedly amended his witness statement.  I was also not impressed with a number of the answers which he gave to Mr Magee in response to questions put to him in cross-examination.  His evidence concerning the backdating of the Deed of Assignment to 10 May 1996 was unsatisfactory, as was his explanation for having opened the NFG/Hemisphere account on 28 May 1996.  I noted his concession that he may have discussed with Mr Healy the need to keep from Mr Boyle and Mr Park Sentinel’s plans to withdraw its clients from the Copperfield tour.  It is inconceivable that he would not have discussed the same matter with Mr Crombie.

21. Mr Moscatelli’s evidence did not, in my opinion, demonstrate that Mr Davis had been told by Mr Crombie that he had resigned from CIC.  It was perfectly consistent with Mr Crombie having intimated to Mr Davis that he would be prepared to join him in managing the switched investments, but needing to take steps to resign his directorships with Capital.  Mr Davis acted dishonestly in beginning the process of arranging for the switch, with Mr Crombie’s  participation, before Mr Crombie had actually severed his ties with CIC.  Mr Davis knew full well that Mr Crombie was still employed by Capital when he arranged for the secretive process of switching the investments to begin.

22. I have set out earlier in these reasons for judgment lengthy extracts from Mr Davis’ cross-examination.  I have also set out in considerable detail a number of Mr Magee’s criticisms of Mr Davis.  I regard most of those criticisms as valid.

    The alternative case against Mr Crombie

23. If I am wrong in my conclusion that Mr Crombie remained a director of CIC until at least 21 June 1996, I would nonetheless uphold CIC’s claim against him.  On any view he was, in reality, a senior employee and manager of CIC.  He acted in that capacity throughout the whole of May and almost the whole of June 1996.  As such he owed a duty of fidelity and loyalty to his de facto employer which, for present purposes, may be regarded as indistinguishable from a fiduciary obligation.  He was not entitled to withhold from CIC or Mr Park information of a critical nature such as that relating to the course proposed to be taken by Mr Healy on behalf of the Sentinel clients.  Nor was he entitled in May and June 1996 to become involved in a joint venture with Mr Davis and NFG in relation to the switched investments. 

24. The fact that Mr Crombie was, in a formal sense, employed by Marcrom, which provided his services to CFC on a consultancy basis does not, in my opinion, detract from the application of the principles governing the obligations of fidelity and loyalty owed by an employee to his employer.  Marcrom was plainly interposed between Mr Crombie and Capital for reasons which suited Mr Crombie.  It was in no true sense Mr Crombie’s employer.  The manner in which he arranged to be remunerated for his services (with some payments being made directly to his wife) suggests that Marcrom was little more than a facade. 

    Mr Davis’ liability

25. Mr Davis is, in my view, plainly liable under the accessorial liability principle adumbrated in Barnes v Addy, and further explained in Royal Brunei Airlines.  The evidence makes it plain that he was fully aware of Mr Crombie’s position within Capital throughout the entire period that the “new venture” was being planned.  Mr Davis knew that Mr Crombie was a director of CIC or, at the very least, that he was, in reality, a senior employee and manager of that company.  He knew that Mr Crombie was not entitled to place his own interests ahead of those of CIC.  By arranging for Mr Crombie to facilitate the switched investments, Mr Davis dishonestly procured, or assisted in, Mr Crombie’s breach of fiduciary duty.  He is accordingly liable for that breach. 

    The liability of Classic Trading and NFG

26. Both Classic Trading and NFG are, in my opinion, equally liable under the second limb of Barnes v Addy for Mr Crombie’s breach of fiduciary duty.  Mr Davis was at all relevant times the “mind and will” of these companies.  Classic Trading had a clear motive to engage in conduct from which it would benefit financially.  The switched investments had precisely that effect.  NFG too stood to gain by becoming the manager of the Asian book investment.  It also dishonestly procured, or assisted in, Mr Crombie’s breach of fiduciary duty.  Both NFG and Classic Trading are liable to compensate CIC for their conduct.

    ORDERS

27. It was eventually conceded by Mr Herskope on behalf of Mr Crombie and the Davis parties that if Mr Crombie were found to have breached his fiduciary duty to CIC, and the Davis parties were found to be derivatively liable for that breach, CIC would be entitled to recover equitable damages against those parties.  As indicated earlier, it was acknowledged that in these circumstances causation and quantum would not be in issue. 

28. Mr Park maintained that had CIC been aware of Sentinel’s proposal to switch its clients out of the Copperfield investment, it would have arranged for an alternative investment to be found.  In those circumstances CIC would not have sustained the losses which it did, and may have generated considerable profits.  There is no reason to doubt that proposition. 

29. In my view, Mr Crombie and the Davis parties are all, jointly and severally, liable in damages.  The sum agreed is $12,021,586.39. 

30. There remain two other matters to be considered. The first is the question of interest. Section 51A of the Federal Court of Australia Act 1976 (Cth) makes provision for the Court to order that there be included in the sum for which judgment is given in any proceedings for the recovery of any money (including damages) interest at such rate as the Court thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered. Alternatively, without proceeding to calculate interest, the Court may order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest.

31. There was some discussion regarding interest during the course of the trial.  The matter is complicated by reason of the nature of the damages to be awarded, and also by reason of the long delay between the date when the cause of action arose and the date of this judgment.  I propose to give the parties an opportunity to make further submissions in relation to the amount of interest, if any, to be paid.

32. The other matter to be addressed is the question of costs.  That matter too is somewhat complex having regard to the history of this proceeding.  I propose to invite the parties to make submissions in relation to costs. 

I certify that the preceding three hundred and thirty-one (335) numbered paragraphs are a true copy of the reasons for judgment herein of the Honourable Justice Weinberg.

Associate:

Dated:             28 September 2001

Counsel for the Cross Claimant:	Mr N Magee QC, with Mr AA Monichino and Mr RS Hay
Solicitors for the Cross Claimant:	Cornwall Stodart
Counsel for the Eightieth, Eighty-First, Eighty-Second and Eighty-Third Cross Respondents:	Mr A Herskope with Mr JL Evans
Solicitors for the Eightieth, Eighty-First, Eighty-Second and Eighty-Third Cross Respondents:	Kalus Kenny Solicitors
Dates of Hearing:	15, 16, 17, 18, 21, 22, 23, 24 and 28 February 2000, 10, 14, 15, 16, 21, 24, 29, 30 & 31 March 2000, 3, 4, 5, 6, 7, 10, 11, 18 and 19 April 2000, 4, 5 and 6 September 2000 and 12 June 2001
Date of Judgment:	28 September 2001

SCHEDULE OF PARTIES

ALLAN FRANCIS CHEERS
  First Applicant
PETER MICHAEL ABRAHAMSON
  Second Applicant
JAMES AYLWARD BOLAND
  Third Applicant
RODNEY JOHN BOND
  Fourth Applicant
MICHAEL THOMAS BODSWORTH
  Fifth Applicant
RICHARD THOMAS BOWDEN
  Sixth Applicant
ALAN NOEL BROWN
  Seventh Applicant
EDWARD BULLOCK
  Eight Applicant
PERRY RAYMOND BURNS
  Ninth Applicant
IAN JAMES CARKEEK
  Tenth Applicant
GREGORY WILLIAM CHISHOLM
  Eleventh Applicant
LAWRENCE RAYMOND COLE
  Twelfth Applicant
RONNIE JOE COLEMAN
  Thirteenth Applicant
ALLAN ARCHIBALD COLLINS
  Fourteenth Applicant
DARRYL ROSS COLLISTER
  Fifteenth Applicant
CHRISTOPHER PAUL COLTON
  Sixteenth Applicant
GARY GORDON COOPER
  Seventeenth Applicant
RUSSELL CRAIG DINNING
  Eighteenth Applicant
ROGER LEE DUNCAN
  Nineteenth Applicant
TREVOR ALLAN DOUGLAS
  Twentieth Applicant
STEPHEN JOHN EATON
  Twenty First Applicant
MALCOLM JOHN ELLIS
  Twenty Second Applicant

ROBERT GAM
  Twenty Third Applicant
ASHLEY GARLAND
  Twenty Fourth Applicant
ANTHEA ELIZABETH MORGAN GEDGE
  Twenty Fifth Applicant
EDWARD JOHN GODEK
  Twenty Sixth Applicant
STEWART JOHN GOW
  Twenty Seventh Applicant
JASON ANDREW HAMMOND
  Twenty Eighth Applicant
GARY WILLIAM HANRAHAN
  Twenty Ninth Applicant
JOHN GARY HERBERT
  Thirtieth Applicant
VINCENTKEIR HINSCHEN
  Thirty First Applicant
JOHN PETER HOLGATE
  Thirty Second Applicant
ROGER HOPPER
  Thirty Third Applicant
WILLIAM JAMES HUGHES
  Thirty Fourth Applicant
KRISTAN PETER KRAWINKEL
  Thirty Fifth Applicant
TERRENCE ARTHUR LAWSON
  Thirty Sixth Applicant
ADAM EDWARD LEE
  Thirty Seventh Applicant
PETER VERNON LIDDELL
  Thirty Eighth Applicant
GARY MAJOR
  Thirty Ninth Applicant
JUDITH ANNE MARTIN
  Fortieth Applicant
MARK McWHINNIE
  Forty First Applicant
JONATHAN PAUL MERRITT
  Forty Second Applicant
ROBERT LEONARD MILLER
  Forty Third Applicant
JOHN MAXWELL MORRIS
  Forty Fourth Applicant
PETER JOHN MOWSON
  Forty Fifth Applicant
DEREK ANTHONY MURRAY
  Forty Sixth Applicant
PHILIP RAYMOND OAKES
  Forty Seventh Applicant
STEPHEN JOHN O’ROURKE
  Forty Eighth Applicant
IAN ROBERT PAIGE
  Forty Ninth Applicant
PETER PATERSON
  Fiftieth Applicant
CHRISTOPHER JAMES PENNYCUICK
  Fifty First Applicant
DARRYL MARCELLUS PETERSON
  Fifty Second Applicant
PAUL PROSSER
  Fifty Third Applicant
THOMAS JOSEPH RANIERE
  Fifty Fourth Applicant
ANDREW JOHN ROBERTS
  Fifty Fifth Applicant
WAYNE BARRY SANDERSON
  Fifty Sixth Applicant
NOEL MALCOLM SEMLER
  Fifty Seventh Applicant
FELICE SIRIO
  Fifty Eighth Applicant
FRANCESCA SIRIO
  Fifty Ninth Applicant
BRENDAN MURRAY SMITH
  Sixtieth Applicant
THOMAS BRUCE SMITH
  Sixty First Applicant
ROBERT PAUL STEPHENS
  Sixty Second Applicant
ANDREW GORDON STEWART
  Sixty Third Applicant

JAMES DAVID SUTHERLAND
  Sixty Fourth Applicant
JOHN TASHOUNIDIS
  Sixty Fifth Applicant
GORDON CLYDE TERRIL
  Sixty Sixth Applicant
GREGOR JAMES THOMSON
  Sixty Seventh Applicant
CHRISTOPHER DALE THORESEN
  Sixty Eighth Applicant
MAURICE JOSEPH TRAUGOTT
  Sixty Ninth Applicant
GERALD GORDON VENABLES
  Seventieth Applicant
WALTER WAIT
  Seventy First Applicant
TREVOR FREDERICK WARK
  Seventy Second Applicant
PETER ROBERT WATERWORTH
  Seventy Third Applicant
ANTHONY GEORGE WILSON
  Seventy Fourth Applicant
ELIZABETH ANNE WILSON
  Seventy Fifth Applicant
DESMOND ATHOL WRIGHT
  Seventy Sixth Applicant

AND

EL DAVO PTY LTD (In liq)
(formerly known as ENTERCORP FINANCE PTY LTD
(ACN 060 214 502)
  First Respondent
SKH MANAGEMENT PTY LTD
(ACN 060 155 688)
  Second Respondent
GRIFFIN ENTERTAINMENT AUSTRALIA PTY LTD
(ACN 060 155 679)
  Third Respondent
BOYMAN MANAGEMENT PTY LTD
(ACN 063 902 182)
  Fourth Respondent
BARNETT BOYLE CONCERTS PTY LTD
(ACN 070 092 376)
  Fifth Respondent
RETRAK PTY LTD
(ACN 071 999 481)
  Sixth Respondent
SUMSKERRY HOLDINGS PTY LTD
(ACN 007 413 229)  
  Seventh Respondent
WEINGARTEN NESVEDA INVESTMENT
SERVICES PTY LTD
(ACN 063 779 939)
  Eighth Respondent
ENTERCORP HOLDINGS PTY LTD
(ACN 030 544 968)
  Ninth Respondent
CAPITAL INVESTMENTS CORPORATION PTY LTD
(ACN 072 988 946)
  Tenth Respondent
ROCK EAGLE PTY LTD
(ACN 007 298 991)
  Eleventh Respondent
ENTERCORP PTY LTD
(ACN 061 212 913)
  Twelfth Respondent

PETER LINDSAY BOYLE
  Thirteenth Respondent
SALVATORE MANCUSO
  Fourteenth Respondent
LOUIS WEINGARTEN
  Fifteenth Respondent
KERROD GRANT PARK
  Sixteenth Respondent
KERRIE ANNE BOYLE
  Seventeenth Respondent

AND

CAPITAL INVESTMENTS CORPORATIONS
PTY LTD
(ACN 072 988 946)
  Cross Claimant

AND

ALLAN FRANCIS CHEERS
  First Cross Respondent
PETER MICHAEL ABRAHAMSON
  Second Cross Respondent
JAMES AYLWARD BOLAND
  Third Cross Respondent
RODNEY JOHN BOND
  Fourth Cross Respondent
MICHAEL THOMAS BODSWORTH
  Fifth Cross Respondent
RICHARD THOMAS BOWDEN
  Sixth Cross Respondent
ALAN NOEL BROWN
  Seventh Cross Respondent
EDWARD BULLOCK
  Eight Cross Respondent
PERRY RAYMOND BURNS
  Ninth Cross Respondent
IAN JAMES CARKEEK
  Tenth Cross Respondent
GREGORY WILLIAM CHISHOLM
  Eleventh Cross Respondent
LAWRENCE RAYMOND COLE
  Twelfth Cross Respondent
RONNIE JOE COLEMAN
  Thirteenth Cross Respondent
ALLAN ARCHIBALD COLLINS
  Fourteenth Cross Respondent
DARRYL ROSS COLLISTER
  Fifteenth Cross Respondent
CHRISTOPHER PAUL COLTON
  Sixteenth Cross Respondent
GARY GORDON COOPER
  Seventeenth Cross Respondent
RUSSELL CRAIG DINNING
  Eighteenth Cross Respondent
ROGER LEE DUNCAN
  Nineteenth Cross Respondent
TREVOR ALLAN DOUGLAS
  Twentieth Cross Respondent
STEPHEN JOHN EATON
  Twenty First Cross Respondent
MALCOLM JOHN ELLIS
  Twenty Second Cross Respondent
ROBERT GAM
  Twenty Third Cross Respondent
ASHLEY GARLAND
  Twenty Fourth Cross Respondent
ANTHEA ELIZABETH MORGAN GEDGE
  Twenty Fifth Cross Respondent
EDWARD JOHN GODEK
  Twenty Sixth Cross Respondent
STEWART JOHN GOW
  Twenty Seventh Cross Respondent
JASON ANDREW HAMMOND
  Twenty Eighth Cross Respondent
GARY WILLIAM HANRAHAN
  Twenty Ninth Cross Respondent
JOHN GARY HERBERT
  Thirtieth Cross Respondent
VINCENTKEIR HINSCHEN
  Thirty First Cross Respondent
JOHN PETER HOLGATE
  Thirty Second Cross Respondent
ROGER HOPPER
  Thirty Third Cross Respondent
WILLIAM JAMES HUGHES
  Thirty Fourth Cross Respondent
KRISTAN PETER KRAWINKEL
  Thirty Fifth Cross Respondent
TERRENCE ARTHUR LAWSON
  Thirty Sixth Cross Respondent
ADAM EDWARD LEE
  Thirty Seventh Cross Respondent
PETER VERNON LIDDELL
  Thirty Eighth Cross Respondent
GARY MAJOR
  Thirty Ninth Cross Respondent
JUDITH ANNE MARTIN
  Fortieth Cross Respondent
MARK McWHINNIE
  Forty First Cross Respondent
JONATHAN PAUL MERRITT
  Forty Second Cross Respondent
ROBERT LEONARD MILLER
  Forty Third Cross Respondent
JOHN MAXWELL MORRIS
  Forty Fourth Cross Respondent
PETER JOHN MOWSON
  Forty Fifth Cross Respondent
DEREK ANTHONY MURRAY
  Forty Sixth Cross Respondent
PHILIP RAYMOND OAKES
  Forty Seventh Cross Respondent
STEPHEN JOHN O’ROURKE
  Forty Eighth Cross Respondent
IAN ROBERT PAIGE
  Forty Ninth Cross Respondent
PETER PATERSON
  Fiftieth Cross Respondent
CHRISTOPHER JAMES PENNYCUICK
  Fifty First Cross Respondent
DARRYL MARCELLUS PETERSON
  Fifty Second Cross Respondent
PAUL PROSSER
  Fifty Third Cross Respondent
THOMAS JOSEPH RANIERE
  Fifty Fourth Cross Respondent
ANDREW JOHN ROBERTS
  Fifty Fifth Cross Respondent
WAYNE BARRY SANDERSON
  Fifty Sixth Cross Respondent
NOEL MALCOLM SEMLER
  Fifty Seventh Cross Respondent
FELICE SIRIO
  Fifty Eighth Cross Respondent
FRANCESCA SIRIO
  Fifty Ninth Cross Respondent
BRENDAN MURRAY SMITH
  Sixtieth Cross Respondent
THOMAS BRUCE SMITH
  Sixty First Cross Respondent
ROBERT PAUL STEPHENS
  Sixty Second Cross Respondent
ANDREW GORDON STEWART
  Sixty Third Cross Respondent
JAMES DAVID SUTHERLAND
  Sixty Fourth Cross Respondent
JOHN TASHOUNIDIS
  Sixty Fifth Cross Respondent
GORDON CLYDE TERRIL
  Sixty Sixth Cross Respondent
GREGOR JAMES THOMSON
  Sixty Seventh Cross Respondent
CHRISTOPHER DALE THORESEN
  Sixty Eighth Cross Respondent
MAURICE JOSEPH TRAUGOTT
  Sixty Ninth Cross Respondent
GERALD GORDON VENABLES
  Seventieth Cross Respondent
WALTER WAIT
  Seventy First Cross Respondent
TREVOR FREDERICK WARK
  Seventy Second Cross Respondent
PETER ROBERT WATERWORTH
  Seventy Third Cross Respondent
ANTHONY GEORGE WILSON
  Seventy Fourth Cross Respondent
ELIZABETH ANNE WILSON
  Seventy Fifth Cross Respondent
DESMOND ATHOL WRIGHT
  Seventy Sixth Cross Respondent
ENTERCORP FINANCE PTY LTD
(ACN 060 214 502)
  Seventy Seventh Cross Respondent
PETER LINDSAY BOYLE
  Seventy Eighth Cross Respondent
LOUIS WEINGARTEN
  Seventy Ninth Cross Respondent
CLASSIC TRADING PTY LTD
(ACN 006 792 249)

Eightieth Cross Respondent

ELLIOTT DAVIS

Eighty First Cross Respondent

FRANK CROMBIE
  Eighty Second Cross Respondent
NATIONAL FINANCE GROUP PTY LTD
(ACN 006 372 041)
  Eighty Third Cross Respondent