Chong v CC Containers Pty Ltd

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2014 0089
KAIN PATT CHONG	Appellant
v
CC CONTAINERS PTY LIMITED & ORS	Respondents
and
S APCI 2014 0090
CHRISTOPHER HOWARD NEALE	Appellant
v
CC CONTAINERS PTY LIMITED & ORS	Respondents

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JUDGES:	REDLICH, SANTAMARIA and KYROU JJA
WHERE HELD:	MELBOURNE
DATES OF HEARING:	16–17 February 2015
DATE OF JUDGMENT:	9 June 2015
MEDIUM NEUTRAL CITATION:	[2015] VSCA 137
JUDGMENT APPEALED FROM:	CC Containers Pty Ltd v Lee [No 6] [2014] VSC 151 (10 April 2014)

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TORT – Conspiracy to injure corporations by means of fraudulent charges made for the repair of shipping containers – Whether trial judge applied the correct standard of proof – Briginshaw v Briginshaw (1938) 60 CLR 336; Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449, applied – No requirement that ‘every rational inference inconsistent with the requisite state of mind’ in respect of civil claims involving fraud or deceit be excluded – Young Investments Group Pty Ltd v Stripe Capital Pty Ltd [2011] FCA 1147, distinguished.

EVIDENCE – Whether open to infer from circumstantial evidence that each appellant was a participant in the conspiracy – Payments made to appellants during period of the conspiracy – Whether innocent hypotheses excluded as unlikely possibilities – Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1; Lithgow City Council v Jackson (2011) 244 CLR 352; Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125, applied.

EVIDENCE – Whether trial judge erred in rejecting account given by party – Inferences to be drawn from party giving false account – Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361, applied.
EVIDENCE – Rule in Browne v Dunn (1893) 6 R 67 – Inference to be drawn from nature of cross-examination – R v MAP [2006] QCA 220, applied – Inferences to be drawn from appellant failing to give evidence but aligning himself with false account.

EVIDENCE – Whether privilege against self-incrimination was properly claimed – Section 128 of the Evidence Act 2008 – Whether rule in Jones v Dunkel (1959) 101 CLR 298 could apply where privilege against self-incrimination has been claimed.

PRIVILEGE – Privilege against self-incrimination – Implied waiver of privilege against self-incrimination by nature of cross-examination – Course of conduct at trial.

FRAUDULENT MISREPRESENTATIONS – Sale of business agreement contained false warranties – Reliance on representations – Whether open to trial judge to conclude that appellants were knowing participants in fraudulent misrepresentations and misleading and deceptive conduct in relation to sale.

EQUITY – Fiduciary duties – Payments made to appellant subsequent to sale of business and referable to purchase price – Appellant director of purchaser – Whether open to trial judge to conclude that appellant had received secret commissions – Whether secret commissions were paid in furtherance of the repair fraud.

INTEREST – Whether trial judge erred in calculation of interest on damages awarded for repair fraud – Sections 58 and 60 of the Supreme Court Act 1986, considered – Whether amounts awarded were sums certain – Appeal allowed as to award of interest but otherwise dismissed.

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APPEARANCES:	Counsel	Solicitors
For the Appellant (Chong)	Dr N Orow	Jack Bock Lawyers
For the Appellant (Neale)	Mr D J Williams QC with Mr B Guzzo	Doherty & Colleagues Solicitors
For the Respondents	Mr S R Horgan QC with Mr J M Brereton	K & L Gates Lawyers

REDLICH JA
SANTAMARIA JA
KYROU JA:

Between 2002 and 2008, CC Containers Pty Ltd (‘CCC Old’),[1] a company owned and controlled by the appellant Kain Chong (‘Kain’) and his son Kevin Chong (‘Kevin’) stored and repaired shipping containers owned by Mediterranean Shipping Company (Aust) Pty Ltd (‘MSCA’), a wholly owned subsidiary of Mediterranean Shipping Company SA (‘MSC’). The appellant Christopher Neale (‘Neale’) was at all material times a director of MSCA.
[1]ACN 082 962 598. To avoid confusion with the later company CC Containers Pty Ltd of the same name incorporated in 2008, this older company is referred to herein as ‘CCC Old’. In her reasons, the trial judge referred to CCC Old as ‘CCC Old Co’.

Following a trial in the Supreme Court, the appellants, Kain and Neale, were found to have conspired, together with Kevin and others, to injure the respondents MSC and MSCA by means of a fraud perpetrated in respect of the repair by CCC Old of the shipping containers of MSCA (the repair fraud). Between 1998 and 2008, the appellant Neale received undisclosed payments from Kain via corporate entities owned by them. The appellants were also found to have engaged in a fraudulent misrepresentation and misleading and deceptive conduct in relation to the February 2008 sale of the business of CCC Old to a newly formed company of the same name, CC Containers Pty Ltd (‘CCC’), in which MSCA was the primary shareholder. The purchase price of CCC Old’s business having been grossly inflated as a consequence of the revenue derived by it from the repair fraud, the appellants were found to have known that the warranties contained in the sale of business agreement were false. The appellant Neale was found to have breached his fiduciary and statutory duties as a director of MSCA and CCC and to have received secret commissions as a result of his participation in the repair fraud and involvement in the sale of CCC Old’s business.

The appellants appeal against those findings and seek to have the following orders set aside. The appellant Kain was ordered to pay MSCA and MSC the sum of $703,178.93, interest of $550,344.16 and exemplary damages of $10,000 for his involvement in the repair fraud. The appellant Neale was ordered to pay MSCA and MSC the sum of $489,488.49, interest of $385,096.55 and exemplary damages of $10,000 for his involvement in the repair fraud. The appellant Kain was ordered to pay CCC the sum of $4,099,114.45 together with interest of $1,479,668.00 for fraudulent misrepresentation and deceptive and misleading conduct arising from the sale of CCC Old’s business, the sum ordered being the difference between the price paid for the business and its true value at the date of purchase. For breaches of his fiduciary and statutory duties together with the fraudulent misrepresentation and deceptive and misleading conduct in respect of the sale of the business, the appellant Neale was ordered to pay CCC and MSCA the sum of $4,099,114.45 and interest of $1,359,390.00. Neale was further ordered to pay MSC and MSCA the sum of $288,721.20 with interest of $192,439.33 for the receipt of secret commissions.

Before identifying the issues that must be considered in these appeals, something must be said of the course followed by the appellants before and during the trial. Kain and Neale were each added as defendants after the respondents had filed their first statement of claim. Both initially filed non-responsive defences. In response to the respondents’ second further amended statement of claim, Kain and Neale both filed further non-responsive defences asserting their privilege against self-incrimination, and continued to assert it at the trial.

At the close of the respondents’ case at trial, Kain changed his position and announced that he intended to advance a positive defence. He was given leave to file a responsive defence and was ordered to provide particulars. Following the receipt of Kain’s particulars of defence and an outline of his proposed evidence, the respondents were ordered to make discovery of any documents in their possession upon which they wished to rely in rebuttal of Kain’s responsive defence. Upon resumption of the trial after an adjournment of some days, Kain gave evidence, proffered an explanation for some of the facts relied upon by the respondents and denied other facts. The trial judge ultimately rejected Kain’s evidence on all material issues. Neale continued to assert his claim of privilege against self-incrimination throughout the remainder of the trial, filed no responsive defence and did not give evidence. During the course of the trial however, Neale aligned himself with the explanation proffered in evidence by Kain.[2] The respondents submitted at trial that Neale had failed to properly claim privilege against self-incrimination. They invited the trial judge to draw an adverse inference from Neale’s failure to give evidence. The trial judge made no findings in these regards.
[2]See [188]–[198] below.

The appeals require consideration of the following issues:

·Was it open to the trial judge to infer from the circumstantial evidence that each appellant had conspired with other named conspirators to injure MSC and MSCA by means of the repair fraud?
·Did the evidence permit the inference that the appellant Neale breached his fiduciary duty to MSCA in receiving regular payments by way of secret commissions from a company under the control of Kain?
·Did the trial judge apply the correct standard of proof?
·Did the evidence permit the inference that the appellants Neale and Kain were knowing participants in the fraudulent misrepresentations and misleading and deceptive conduct in relation to the sale of CCC Old?
·Did Neale receive secret commissions upon the sale of CCC Old and were these secret commissions paid in furtherance of the repair fraud?
·Did the appellant Kain give, and did the respondents rely upon, the warranties contained in the sale of business agreement of CCC Old?
·Did the trial judge err in rejecting Kain’s account?
·What inferences arose if Kain gave false evidence in order to conceal his true role?
·Did Neale make a proper claim of privilege and, if so, was that claim waived?
·What inference arose if Neale, in reliance on the privilege against self-incrimination, failed to give evidence but advanced a positive defence in which he aligned himself with the false account of Kain?
·Did the trial judge err in her calculation of the interest on the damages awarded for the repair fraud in treating the sums received by Kain as sums certain?

Background — summary of facts and findings below

MSC operates a shipping business transporting containerised cargo around the world. Its Australian operations are conducted through MSCA. MSC began operating in Australia in about 1989 and used the services of a company controlled by the first appellant, Kain, to repair, maintain and store shipping containers in Melbourne. From 1998, the repair, maintenance and storage of MSCA’s containers in Melbourne was undertaken by CCC Old. Kain and Kevin were CCC Old’s directors from its incorporation.

In February 2008, CCC, a newly incorporated company, acquired the business conducted by CCC Old. MSCA owned 75 per cent of CCC, while Kain and Kevin owned the remaining 25 per cent. The directors of CCC included Neale, Kain and Kevin. Neale was a director of MSCA responsible for MSCA’s operations throughout Australia and New Zealand, and his particular responsibilities included shipping container inventory management, maintenance and repairs. MSCA subsequently acquired the 25 per cent of CCC held by Kain and Kevin in November 2009. Kevin continued to work in the business until mid-2010.

In early November 2010, a shipping company that was utilising the container services of CCC issued a complaint alleging that false charges had been levied for the movement of shipping containers. The complaint caused MSCA and CCC to conduct an investigation which established that the respondents had been the subject of a large scale fraud.

At trial, the respondents sought to recover loss arising from the fraud from Kain, Kevin, Neale, Desmond Lee, and Lee’s company, Lee Holdings (Aust) Pty Ltd. Lee had been an employee of the business of CCC Old and later CCC, reporting to Kevin. Lee Holdings (Aust) Pty Ltd was a company owned and operated by Lee. Lee, his company and Kevin filed defences but did not appear at trial. Kain and Neale attended the trial, were represented and contested the respondents’ claims.

Five separate frauds were alleged by the respondents, and were summarised by the trial judge in her reasons as follows:

(a)repair fraud — this relates to fraudulent charges made for repair work on shipping containers that was never undertaken;
(b)container movement fraud — this relates to false charges made for the movement of shipping containers in and out of the CCC container yard;
(c)transport fraud — this concerns the operation of a transport business, CC Cartage, by Mr Lee, without the consent of CCC;
(d)diesel fraud — this concerns the unauthorised taking of fuel belonging to CCC; and
(e)container sale fraud — this relates to the unauthorised disposal of shipping containers stored at CCC’s container yard.[3]

[3]CC Containers Pty Ltd v Lee [No 6] [2014] VSC 151, [6] (‘Reasons’).

Only the repair fraud, which was pleaded to have been in existence since at least 2002, was said to have involved the appellants. Each of the other frauds that were perpetrated through the business originally owned by CCC Old were not alleged to have commenced prior to 2008 or 2009. It is not necessary to examine the remaining four separate frauds found by the trial judge.

The nature of the repair fraud

The respondents pleaded that: ‘During the period from at least late October 2002 to about late February 2008 each of [CCC Old], Mr Lee, Mr Kevin Chong, Kain Chong and Mr Neale, unlawfully conspired to injure MSC and MSCA by unlawful means’. Alternatively, the respondents pleaded that each of those conspirators ‘unlawfully conspired with each other to cause MSC and/or MSCA to pay amounts to [CCC Old] to which it was not entitled, with the sole or predominate purpose of injuring MSC and/or MSCA.’ These pleadings reflected the alternate forms of the tort of conspiracy. The respondents’ pleadings particularised the unlawful means by which the conspirators injured MSC and MSCA and the overt acts of the co-conspirators. The respondents further pleaded that by reason of that conduct Neale had breached his fiduciary and statutory duties, had perpetrated a fraud against MSC and MSCA and had received secret commissions.

The trial judge set out the relevant elements of the tort of conspiracy and they were not in issue on the appeal. It was also not in issue that the repair fraud was in existence throughout the pleaded period of the conspiracy and that the unlawful means that had been employed were the obtaining of financial advantage by deception, false accounting and the falsification of documents.[4]
[4]See Crimes Act 1958 ss 82, 83, 83A.

We turn to examine the nature of the repair fraud. It was committed in the course of CCC Old’s shipping container business. It is convenient to extract the trial judge’s summary of the operations of the business as to the context in which the frauds were perpetrated:

In the case of CCC customers, when a ship arrives in Melbourne, the containers are usually collected by the shipper or their agent and taken to their premises to unpack them. Once a container is emptied it is then sent to the CCC container depot. When it comes to the container depot, a container controller records the number of the shipping container and the registration number of the truck that has brought the container to the yard. Each container is surveyed to see if it requires maintenance or repair. If it does, then a quote for the cost of that work is completed and the quote is entered into CCC’s computer system. Containers that require maintenance or repairs are then sent to the repair area of the yard and the repairs are approved by the shipping line which owns the container. There is an automatic approval amount set for most shipping lines so that repairs under that limit are carried out without any other authorisation by the shipping line and without inspection of the container. If the repair cost is above the automatic approval limit, then the shipping line must give specific instructions for the repair work to be undertaken. In addition to maintenance and repairs, work is carried out on some containers to upgrade them from general to food standard so that food may be transported in them.
Once the containers have been repaired or upgraded, the repair quote is marked in the CCC computer system as complete. Invoices are generated periodically in accordance with the arrangements for the particular shipping line. In addition to any repair or maintenance fees, most of the shipping lines are charged an entry fee (when the container comes into the yard), storage fees (for the time that the container is in the yard) and an exit fee (when the container leaves the yard). There are two shipping lines that are not charged in this way. Instead they are billed on a package rate. MSCA is charged a fee when one of their shipping containers leaves the depot. APL[5] is charged a fee when one of their shipping containers enters the depot. In addition, both MSCA and APL are charged for repairs. Once the containers have been repaired or upgraded, they are stored at the depot until they are needed. They may be released to an exporter, or, if there is a shortage of containers in another port, containers may be moved to those other ports.[6]

[5]A customer of CCC.

[6]Reasons [13]–[14].

The trial judge described the methods by which the conspirators were said to have committed the fraud as follows:

Three methods were employed for overcharging for repairs. The first method was to falsely duplicate maintenance and repair charges for shipping containers that had already been the subject of maintenance or repair. In other words, MSCA was charged twice for the same work. The second method was to record charges for repair or maintenance works where no repair or maintenance had been undertaken. For example, charges were sometimes levied for work to convert a container from the general category to one that was capable of transporting food but the standard of the container was not altered. Sometimes charges would be made for repair work when there was no damage to the container. The third method of falsifying the invoices was to increase the amount charged for legitimate repairs to more than was an appropriate charge. No matter which method was deployed, the CCC Old Co staff who were involved in the fraud referred to the false repair charges as ‘Repair X′s’, ‘X′s’ or ‘Ghost Repairs’.[7]

[7]Ibid [16].

On the few occasions that customers raised questions about the repair charges, the overcharging was blamed on the computer system and a refund was arranged. MSCA had an on-site surveyor checking repair quotes and inspecting containers to ensure that work had been done. However, MSCA had an automatic approval limit, and if an amount quoted for a repair was below that limit no check was done. It was this approval limit which enabled the fraud to be committed.

At trial, the respondents led evidence from several witnesses in relation to the repair fraud. Jay Ho was married to Kain’s niece, and began working at CCC Old in 2002, managing the operations in the yard. He reported to and acted at the direction of Kevin. It was apparent to him that the repair fraud was already on foot at the time he commenced his employment at the business. Early in his employment, Ho was taught by another employee how to create false repair charges, and was told that it was part of CCC Old’s practice. Ho was told by Kevin that this was standard industry practice. Ho created false repair charges as part of his daily routine for approximately a year before his promotion to another position in which he was no longer required to do so.

Thai Nguyen began working for CCC Old in 2003 in the repair and maintenance department, acting at the direction of Kevin, Ho and Lee. Nguyen’s responsibilities included entering quotes for repair works into the computer system. He would inflate the quotes entered into the system. He was told by his managers to enter the false information so that CCC Old could make more profit and stay afloat.

There was documentary evidence in the form of numerous emails which implicated Kevin and Lee in the repair fraud. For instance, Lee sent Kevin emails setting out the amounts that were to be falsely charged. Other employees who worked at CCC Old also gave evidence that they were encouraged by Kevin and Lee to continue the frauds.

The duplication of invoices as one means of implementing the repair fraud ceased in early 2008, shortly before the sale of the business to CCC. The other methods of repair fraud continued after the sale.

On a weekly basis, CCC Old would invoice MSCA for its services on MSCA’s containers. Amongst the charges on the invoices were the false charges for repairs. On a weekly basis MSCA would make remittances to CCC Old on the invoices submitted. Nguyen testified that it was not now possible to identify which of those charges for repairs that were entered into the system were false save for those repairs that had been duplicated.

The repair fraud was not in issue. The form of the fraud was not disputed. It had not been put in issue that, throughout the period of the conspiracy, staff were instructed that particular volumes of the fraud had to be maintained so that the revenue earned by CCC Old from the fraud did not decline. The staff were also instructed that it was necessary for them to participate if they wished to retain their employment. The key role of Kevin in the fraud was not disputed by any witness although Kain expressed concern in cross-examination at the imputations made against his son. Kevin elected not to appear at the trial and has been declared bankrupt. The respondents were given leave to proceed against him.

Kain advanced the curious submission at trial, and repeated on appeal, that the evidence of the witnesses testifying as to the fraud ‘was not properly tested’ and that they were by their admission ‘dishonest’ and gave evidence under the protection of a s 128 certificate under the Evidence Act2008. The relevance of this submission was never made clear as Kain did not dispute the existence of the fraud or its duration.

Participation of Kain and Neale in the repair fraud

It was the respondents’ case, and was so found by the trial judge, that a portion of the proceeds of the repair fraud remitted by MSCA to CCC Old was regularly distributed by CCC Old to Ackland Forge Pty Ltd (‘Ackland Forge’), a company owned and controlled by Kain. In turn, Ackland Forge would distribute a portion of the payments it received from CCC Old to Dawn Trading Pty Ltd (‘Dawn Trading’), a company owned and controlled by Neale. The respondents tendered documentary evidence of those payments being made between October 2002 and February 2008. The payments from CCC Old to Ackland Forge would always occur on or within a few days of MSCA’s weekly remittances to CCC Old for container repairs. A document entitled ‘Repair Fraud — Further Particulars Part II’ was tendered by the respondents and set out in table form the dates and details of MSCA remittances to CCC Old, the payments from CCC Old to Ackland Forge, and the payments from Ackland Forge to Dawn Trading for the period 2002 to 2008. The table was drawn from bank statements of the relevant entities. In total, the table records that between October 2002 and February 2008, CCC Old made payments to Ackland Forge in the amount of $2,410,385.50, and Ackland Forge made payments to Dawn Trading in the amount of $1,081,726.19.[8]
[8]Due to the methods by which the fraud was implemented and the records that were maintained, the respondents could only identify duplicated invoices issued after March 2005. Thereafter, Ackland Forge was paid $703,178.93 in respect of duplicated invoices, and Dawn Trading was paid $489,488.49: Reasons [74].

In respect of the payments from CCC Old to Ackland Forge, Ackland Forge issued invoices to CCC Old that were endorsed, ‘Discount on invoices of Mediterranean Shipping Co., (A) Pty Ltd remittance’ or similar. These invoices were prepared by Kain. It was not in dispute that this endorsement was false. With few exceptions, between 25 October 2002 and 21 November 2003 the invoices were for exactly 3.3 per cent of the total amount paid by MSCA to CCC Old, and between 28 November 2003 and 29 February 2008 the invoices were for 4.4 per cent of the total amount.

In respect of the payments from Ackland Forge to Dawn Trading, Dawn Trading invoices addressed to Ackland Forge were endorsed as ‘to work performed’. Kain testified that he had been provided with blank invoices for Dawn Trading and completed the invoices to Ackland Forge. The invoices were issued at about the same time as the Ackland Forge invoices were issued to CCC Old. It was conceded at trial by Neale’s counsel that the endorsements to the invoices were false, as Dawn Trading had done no work for Ackland Forge. The amounts paid by Ackland Forge to Dawn Trading were usually between two per cent and three per cent of the amount remitted by MSCA to CCC Old.

Although Kain sought to distance himself from any involvement in the business of CCC Old after 2001, the trial judge found that he continued to be involved in its management up to and including the time of its sale to CCC in 2008. Her Honour set out certain ‘established facts’ as providing the foundation for the finding that Kain and Neale were involved in the repair fraud:

1.First, there is the fact that MSCA was defrauded through false charges being made for repairs and other work that was never undertaken. It is clear from the documentary and oral evidence that both Kevin and Mr Lee were centrally involved in that fraud. It is not possible to tell exactly how much MSCA overpaid, but suffice to say for present purposes, the amount was in excess of $1 million.
2.While it is not clear exactly when the fraud began, it is clear from Mr Ho’s evidence (which was not contradicted and which I accept) that the repair fraud was underway when he took up his role in CCC Old Co’s maintenance and repair section in 2002. It is also clear from the evidence of Mr Ho that by October 2002 (some six months after Mr Lee began to work for CCC Old Co) the repair fraud was in full swing. Whilst there is no documentary evidence by way of emails from this early period, that is explicable. The electronic records of CCC Old Co (including some historical records) were transferred to MSCA when the business was purchased in February 2008. However, before MSCA took over, CCC Old Co did not have a proper email server on which all emails were stored. Consequently, not all emails from the early period are available.
3.There is the familial relationship between Kain and his son, Kevin. Both were directors of CCC Old Co, at least for part of the time that the fraud was perpetrated.
4.There is the close friendship of many years between Kain and Mr Neale.
5.Mr Neale was a director of MSCA with responsibility for shipping container inventory and management.
6.There is the fact that Kain was told when MSCA remittances were received by CCC Old Co and he raised invoices to CCC Old Co from Ackland Forge for a discount on invoices of MSC.

7. CCC Old Co made payments to Ackland Forge from at least 1998.
8. Ackland Forge made payments to Dawn Trading before 2002.
9.The Dawn Trading invoices addressed to Ackland Forge stated that the charge was for ‘work performed’ when there was no work done.

10.Whilst the amount paid to Ackland Forge was not always exactly the same percentage of the MSCA remittance amount, it was almost always 3.3 per cent until November 2003 and thereafter almost always 4.4 per cent. In this regard, Kain admitted that the payments were made, and that they represented a percentage of the amounts remitted by MSCA.
11.Although the percentage amount paid by Ackland Forge to Dawn Trading was less consistent and there were some limited exceptions, it was usually within a reasonably narrow band of between 2 per cent and 3 per cent of the MSCA remittance. Even on Kain’s version of events, the amount to be paid to Dawn Trading was linked to the MSCA remittances. There is no evidence that the payments were not so linked.
12.Ackland Forge and Dawn Trading were paid within days of the MSCA remittance.
13.Some manifestations of the repair fraud continued after the business was purchased in February 2008 by MSCA.

14. Mr Neale did not share the proceeds of other frauds.
15.Mr Neale was a longstanding director and employee of MSCA. He had not previously been known to have abused his position.
16.Finally, between October 2002 and February 2008, Ackland Forge received over $1 million from CCC Old Co and paid Dawn Trading over $1 million.[9]

[9]Reasons [64].

Having put aside Kain’s explanation, the trial judge concluded on the basis of all of the established facts that the proper inference was that Kain and Neale were participants in a conspiracy to defraud MSCA:

[T]there being no other plausible explanation provided, and bearing in mind the seriousness of the allegations made, it seems to me probable and proper to infer that Kevin, Kain, Mr Lee and Mr Neale conspired to defraud MSCA. In particular, I would infer that they had an agreement to overcharge MSCA by issuing inflated invoices for repairs (including by the duplication of invoices for work previously performed) and then to share at least part of the proceeds between CCC Old Co, Kain and Mr Neale. In this regard, Kevin and Mr Lee issued (or caused to be issued) false invoices and Kain and Mr Neale received at least part of the proceeds thereby obtaining a financial advantage by deception. The conspirators falsified documents in the course of the fraud (the invoices issued to MSCA (by CCC Old), to CCC Old (by Ackland Forge) and to Ackland Forge (by Dawn Trading)). I also infer that Kevin, Kain, Mr Lee and Mr Neale conspired with the intention of injuring MSCA. The fraud in respect of the false invoices addressed to MSC and MSCA was aimed at them alone. They were the only entities that would be the subject of harm as a result of the fraud directed to them. In my view, these are the only probable inferences to be drawn. Whilst there are other possibilities, such as that contended for by Kain, they are not probable. In particular, the timing of the payments to Ackland Forge and Dawn Trading after MSCA remittances, the link between Kain and Mr Neale and the fact that Mr Neale was an employee and director of the main target of the fraud, makes it inherently unlikely to my mind that there is no connection between them and the fraud and their co‑conspirators in perpetrating that fraud, or that they did not know about and participate in that fraud. It is not a case where there are unconnected steps taken by individuals in isolation from one another. In the circumstances of this case, that would be an unlikely coincidence of events. Rather, it is probable that the participants acted in concert with a specific plan to effect the fraud and share the proceeds of it. In this regard, it seems likely that Kain acted as the conduit between his son and Mr Lee on the one hand and Mr Neale on the other in arriving at the agreed plan.[10]
[10]Ibid [65].

Sale of the CCC Old business

As we described above, the business of CCC Old was acquired by CCC in February 2008. The purchase price was set by reference to CCC Old’s EBITDA.[11] The stated income of the business, which formed part of the calculation of the EBITDA figure, was inflated as a result of the repair fraud. The trial judge found that the purchase price had been inflated by $4,392,197.16 as a result of the fraud. The net amount received for the sale after payment of a debt owed to CCC Old’s financier was $9,239,490.65.[12]
[11]Earnings before interest, taxes, depreciation and amortisation.
[12]Reasons [111].

The sale of business agreement included warranties given by Kain and Kevin as an inducement to MSCA to purchase the business that the information provided as to CCC Old’s business was accurate. The trial judge summarised the warranties as follows:

[Kain and Kevin] warranted and represented that:
as an inducement to the Purchaser to enter into this agreement and to purchase the Business … it is a condition of this Agreement that … to the knowledge of the Warrantors each of the [warranties] is true, complete and accurate. ...

The warranties included that:
(a)all information given with respect to the business of CCC Old was true and correct;
(b)all information known and material to the purchase of the business had been disclosed;
(c)the books and records of the business were complete, accurate and properly maintained;
(d)the financial performance of the business was not affected by any unusual or non recurring items;
(e)all information concerning the financial position of the business had been compiled in accordance with applicable laws and regulations;
(f)there were no actual or contingent liabilities which could adversely affect the value of the business;

(g) all accounting records:
(i) were fully and properly maintained;
(ii)did not contain or reflect any material inaccuracies or discrepancies;
(iii)gave a true and fair view of the trading transactions, financial and contractual positions of the business;
(iv)were prepared in accordance with accepted accounting principles and practices;

(h)the accounts set out in the sale of business agreement were complete and accurate.[13]

[13]Ibid [79]–[80].

The trial judge found that the respondents CCC and MSCA relied upon those warranties.

Kain put in issue his level of involvement in the sale of the business. Relevantly, there was a significant amount of documentary evidence indicating that Kain was involved in the sale. We shall refer to that evidence when dealing with Kain’s evidence.

Neale signed the sale of business agreement on behalf of CCC.

Neale’s receipt of secret commissions on the sale of the CCC Old business

In addition to the regular payments throughout the conspiracy, the trial judge found that Neale received two further payments in March and May 2008 amounting to approximately three per cent of the purchase price paid by CCC for the CCC Old business.

Relevantly, the following payments were made around the time of the sale of the CCC Old business. On 11 March 2008, $1.5 million was paid to CC Technologies Pty Ltd (‘CC Technologies’), another company owned by Kain.[14] On 14 March 2008, CC Technologies paid $250,000 to Dawn Trading.[15] On 19 May 2008, Dawn Trading invoiced Ackland Forge for $262,473.82 plus GST of $26,247.38, making a total of $288,721.20.[16] On 21 May 2008, CC Technologies paid $38,721.20 to Dawn Trading.[17]
[14]Ibid [114].
[15]Ibid [115].
[16]Ibid [117].
[17]Ibid [118].

The trial judge referred to a significant amount of evidence that established that the two payments constituted secret commissions to Neale. In particular, on 4 March 2008 (four days after the CCC Old business was sold) Kain sent an email to Kevin asking: ‘Also advise me when we wish to pay Chris and what amount?’.[18] On 5 May 2008, Kain sent an email to Kevin asking how much Ackland Forge should send an invoice for.[19] On 10 June 2008, Kain sent an email to Kevin saying that he had used the sale proceeds to pay a ‘business sale commission’ of $250,000.[20] On 16 June 2008, Kain sent an email to Kevin asking for assistance to contact their accountant to handle the ‘commission payment and invoice etc’.[21] The trial judge rejected Kain’s evidence that the references to ‘Chris’ and to a ‘commission’ in the emails did not relate to Neale and were a commission to another person.
[18]Ibid [112].
[19]Ibid [116].
[20]Ibid [119].
[21]Ibid [120].

Ackland Forge’s accountant prepared a reconciliation of the company’s taxable income for the year ended 30 June 2008. The reconciliation included the invoiced amount of $262,474 as ‘Commission on Sale re CC Containers’. The amount of $288,721.20 paid by Ackland Forge to Dawn Trading constituted 3.12 per cent of the net amount received by CCC Old for the sale of the business.[22] Kain denied that he had given any instruction that the payments should be so characterised in the company accounts. These payments gave rise to the allegations relating to Neale’s receipt of secret commissions on the sale of the business.
[22]Ibid [122].

The trial judge found that the respondents had made out their claim that Neale received secret commissions from the purchase price paid by CCC for the CCC Old business. Neale’s counsel had submitted at trial that while there was no email suggesting that Neale had been rewarded for anything until very late in the piece, he accepted that the evidence left open the view that in 2008 Neale obtained a commission on the sale of CCC Old. Upon a review of the evidence, the trial judge concluded that Neale had received a secret commission:

In the absence of other cogent evidence, and based on the documentary evidence that I have set out above, it seems to me probable that the payments to Dawn Trading after the sale of the CCC Old Co business were a secret commission received by Mr Neale. It does not matter that the payments were not made directly to him by CCC Old. Indeed, Mr Neale accepts this. It is clear that the payments were derived from that source. There is a sufficient connection between that payment and the payments ultimately received by his company, Dawn Trading.[23]

[23]Ibid [123] (citations omitted).

Neale did not make any disclosures to MSCA as to his long-standing relationship with Kain or as to these or any other payments made to Dawn Trading. The trial judge found that the secret commissions further evidenced that Kain and Neale were party to a conspiracy to overcharge MSCA by means of the repair fraud and to share the proceeds.[24]
[24]Ibid [65].

Standard of proof

The grounds of appeal of Kain raise the question whether it was open, on the evidence and findings made, to draw the requisite inferences to sustain the claims in the repair fraud conspiracy to the standard of proof required in Briginshaw v Briginshaw[25] and Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd.[26] We shall later address that question. Both Neale and Kain advanced a particular submission as to the standard of proof to which we now turn. It was said that to establish that they had the necessary intent for the conspiracy pleaded, ‘every rational inference inconsistent with the requisite state of mind’ had to be excluded. For the reasons that follow, that submission is unsustainable.
[25](1938) 60 CLR 336 (‘Briginshaw’).
[26](1992) 110 ALR 449 (‘Neat Holdings’).

As the respondent’s case involved allegations of conspiracy to defraud, fraudulent misrepresentations, and misleading and deceptive conduct, the Court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.[27] Whilst civil claims involving fraud or deceit remain to be determined on the balance of probabilities,[28] the character of such allegations calls for clear and cogent proof that enables the tribunal of fact to feel an ‘actual persuasion’.[29] The need for such proof is, at least in part, informed by the view expressed by the High Court in Neat Holdings, and to which the trial judge made reference, that ‘members of our society do not ordinarily engage in fraudulent or criminal conduct’.[30]
[27]Ibid.
[28]See, eg, Gould v Vaggelas (1985) 157 CLR 215, 239 (Wilson J).
[29]Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd (2003) 216 CLR 161, 208 [143], quoting Briginshaw (1938) 60 CLR 336, 361.
[30]Neat Holdings (1992) 110 ALR 449, 449–50, quoted in Reasons [38].

In reviewing the elements of the tort of conspiracy, the trial judge approached the question of proof on the basis that the respondents needed to establish, on the balance of probabilities, that all the alleged conspirators had intended to injure the appellants.[31] Her Honour recognised that the gravity of the matters alleged should be taken into account in determining whether that standard of proof had been met.[32] She referred to a passage from the joint judgment in Neat Holdings to the effect that although the standard of proof did not alter when dealing with a serious matter such as fraud, ‘authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary “where so serious a matter as fraud is to be found”‘.[33]
[31]That may state the obligation too broadly.
[32]Evidence Act 2008 s 140(2)(c).
[33](1992) 110 ALR 449, 449–50.

The standard of proof required in a civil case where serious allegations are made was discussed in Rejfek v McElroy,[34] where Barwick CJ, Kitto, Taylor, Menzies and Windeyer JJ observed:

The ‘clarity’ of the proof required, where so serious a matter as fraud is to be found, is an acknowledgment that the degree of satisfaction for which the civil standard of proof calls may vary according to the gravity of the fact to be proved: see Briginshaw v Briginshaw, per Dixon J; Helton v Allen per Starke J; Smith Bros v Madden, per DixonJ.
But the standard of proof to be applied in a case and the relationship between the degree of persuasion of the mind according to the balance of probabilities and the gravity or otherwise of the fact of whose existence the mind is to be persuaded are not to be confused. The difference between the criminal standard of proof and the civil standard of proof is no mere matter of words: it is a matter of critical substance. No matter how grave the fact which is to be found in a civil case, the mind has only to be reasonably satisfied and has not with respect to any matter in issue in such a proceeding to attain that degree of certainty which is indispensable to the support of a conviction upon a criminal charge: see Helton v Allen per Dixon, Evatt and McTiernan JJ.[35]

[34](1965) 112 CLR 517.

[35]Ibid 521–2 (citations omitted).

The appellants emphasised at trial that there was no direct evidence that they were involved in the issuing of false or duplicate invoices as part of the repair fraud. The trial judge observed that in cases where fraud is alleged, direct evidence will often be lacking so that plaintiffs must satisfy the court that the inference they seek to draw is one which, on the balance of probabilities, arises from the established facts.[36] Her Honour quoted the oft-cited passage from Bradshaw v McEwans Pty Ltd,[37] which is in these terms:

Of course as far as logical consistency goes many hypotheses may be put which the evidence does not exclude positively. But this is a civil and not a criminal case. We are concerned with probabilities, not with possibilities. The difference between the criminal standard of proof in its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence, while [in] the latter you need only circumstances raising a more probable inference in favour of what is alleged. In questions of this sort, where direct proof is not available it is enough … [if] the circumstances appearing in the evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture (see per Lord Robson, Richard Evans & Co Ltd v Astley). But if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then though the conclusion may fall short of certainty it is not to be regarded as a mere conjecture or surmise.

[36]Reasons [39], citing Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125, 141 (Tadgell JA), and cases there cited.

[37](1951) 217 ALR 1, 5 (citations omitted).

In Transport Industries Insurance Co Ltd v Longmuir,[38] Tadgell JA invoked the locus classicus of proof on the balance of probabilities in a circumstantial case:

In a civil case like this, where there is no direct evidence of a fact that a party bearing the onus of proof seeks to prove, ‘it is not possible to attain entire satisfaction as to the true state of affairs’: Girlock (Sales) Pty Ltd v Hurrell. In such a case, however, the law does not require proof to the ‘entire satisfaction’ of the tribunal of fact. A definition of the sufficiency of circumstantial evidence in a civil case to support proof by inference from the directly proved facts was given by the High Court in the unreported case of Bradshaw v McEwans Pty Ltd (27 April 1951) in a passage since repeatedly adopted: eg Luxton v Vines; Holloway v McFeeters; Jones v Dunkell; Girlock’s case.[39]

Tadgell JA then referred to the abovequoted passage from Bradshaw v McEwans Pty Ltd.[40]

[38][1997] 1 VR 125.

[39]Ibid 141 (citations omitted).

[40](1951) 217 ALR 1, 5.

Save in one respect, no complaint is made as to the approach to the standard of proof adopted by the trial judge. The appellants submitted, however, that as the test for an action in conspiracy is ‘what was the object in the mind of those combining when they acted as they did’,[41] and adopting the Briginshaw approach to the serious allegations pleaded, proof as to the appellants’ intent was more onerous than the civil standard. We do not accept that is so.
[41]Dresna Pty Ltd v Misu Nominees Pty Ltd (2004) ATPR 42-013, 48,885 [12] (Keifel and Jacobson JJ), citing Crofter Hand Woven Harris Tweed Co Ltd v Veitch [1942] AC 435, 445.

The common law has never recognised the existence of a third standard of proof.[42] It is not in issue that s 140 of the Evidence Act 2008 now prescribes the standard of proof in civil proceedings. As this Court stated in NOM v Director of Public Prosecutions,[43] it is settled that the conceptual effect of s 140(2) of the Evidence Act equates with the principle developed in Briginshaw.[44] The Court said in NOM:

Mere mechanical comparison of probabilities independent of a reasonable satisfaction will not justify a finding of fact. The fact finder must feel an actual persuasion of the occurrence or existence of the fact in issue before it can be found. Where, as in the present case, the standard of proof is to be applied to circumstantial evidence, satisfaction as to a reasonable and definite inference is required.[45]

[42]Nigro v Secretary to the Department of Justice (2013) 304 ALR 535, 569 [135], citing J D Heydon, Cross on Evidence (LexisNexis Butterworths, 9^th ed, 2012) [9001], [9005], [9010].

[43](2012) 38 VR 618 (‘NOM’).

[44](1938) 60 CLR 336, 361–3 (Dixon J).

[45]NOM (2012) 38 VR 618, 655–6 [124]. See n 152 in NOM and cases referred to there.

Neale submitted at trial and on appeal that the respondents will not have established a prima facie case unless every rational inference inconsistent with the requisite state of mind has been excluded. Although proof that a conspirator had the necessary actual knowledge and intention could be inferred from the surrounding circumstances, the appellants said at trial and on appeal that the inference that the alleged conspirator had the requisite state of mind had to be the only rational inference available on the found facts. They submitted that Pereira v Director of Public Prosecutions,[46] Young Investments Group Pty Ltd v Stripe Capital Pty Ltd[47] and Young Investments Group Pty Ltd v Mann[48] were authority for that proposition.
[46](1988) 63 ALJR 1, 3.
[47][2011] FCA 1147, [24]–[31].
[48](2012) 293 ALR 537, 541 [11].

In rejecting that submission the trial judge said:

It seems to me that the proper test to be applied and the question which the Court must answer is whether the more probable inference is that alleged, not whether it is the only rational inference. The cases relied upon by Mr Neale are not relevant. Pereira v DPP concerned proof of knowledge on a criminal charge of importing illicit drugs. In that context, the High Court held that where knowledge is inferred from the circumstances it must be the only rational inference. However, Bradshaw v McEwans Pty Ltd makes clear the distinction between criminal and civil cases so far as the drawing of inferences is concerned. Mr Neale also relied upon Young Investments Group Pty Ltd v Stripe Capital Pty Ltd at first instance and the appeal decision in Young Investments Group Pty Ltd v Mann. The relevant part of that case concerned the pleading of a claim against directors for involvement in a contravention of the misleading or deceptive conduct provision in the Corporations Act. At issue was the pleading as to the directors’ knowledge of the essential facts of the contravention. That is a quite different issue to whether the defendants in the current case are liable for the tort of conspiracy because they combined to perform acts which injured the plaintiffs.[49]

[49]Reasons [56] (citations omitted).

In Young Investments Group Pty Ltd v Stripe Capital Pty Ltd,[50] the directors of the respondent applied to strike out pleadings alleging that they had been involved in misleading and deceptive conduct by the company in breach of s 1041H of the Corporations Act 2001 (Cth) and, under the second limb in Barnes v Addy,[51] had been knowingly concerned in its alleged breach of fiduciary duty. The Stripe directors complained that the pleadings did not disclose a reasonable cause of action. They contended that the applicants were obliged to plead the basis upon which they were aware of the essential facts or matters which must be proved to establish their liability, citing Yorke v Lucas.[52] Gilmour J stated that Yorke v Lucas informs the question of how the necessary knowledge may be established. His Honour observed that that case concerned alleged involvement in misleading and deceptive conduct by virtue of s 75B of the then Trade Practices Act 1974 (Cth) and an analogous provision substantially in the same terms as s 79 of the Corporations Act upon which the applicants relied. After referring to a number of passages from Yorke v Lucas, his Honour referred to a passage from Compaq Computer Australia Pty Ltd v Merry[53] where Finkelstein J observed that, in cases where a person is sought to be made liable as an accessory to a contravention of s 52 of the Trade Practices Act, it was necessary to establish that the person had intentionally participated in that contravention and that necessitated proof of knowledge of the essential matters that made up a contravention. Finkelstein J referred to Yorke v Lucas and further to Pereira v Director of Public Prosecutions[54] as authority that knowledge of relevant essential matters may in particular circumstances be inferred. Gilmour J went on to refer to the case pleaded against the Stripe directors including their knowledge that Stripe had made certain representations and the directors’ duties to take reasonable care in a number of pleaded respects.[55] His Honour then said:

In my view, even assuming the existence of such duties, although I very much doubt that they exist at law, as well as the correctness of the factual allegations pleaded, for present purposes, they are not capable of supporting the allegation of inferred actual knowledge in paragraph 29.6(a). There is no plea that the Stripe Directors knew the extent of the trading or that it was exceptional and extraordinary. The allegation that the trading was unauthorised, inappropriate and not in the applicants [sic] best interests depends upon such prior knowledge. The alleged inference cannot be made out against a plea of a mere duty to know or even a breach of that duty. Neither of these constitutes actual knowledge of a contravention or proposed contravention and that the Stripe Directors associated themselves in some positive way therewith: Sent v Jet Corporation of Australia Pty Ltd. Moreover the pleaded inferred knowledge of the essential facts of the contraventions is not the only rational inference available: Pereira v DPP at 220. Indeed the assertions of negligent breach of a tortious or contractual duty by Stripe Directors to know the level of trading does not rise higher necessarily than what is pleaded, namely breach of such a duty.[56]

[50][2011] FCA 1147.

[51](1874) LR 9 Ch App 244.

[52](1983) 49 ALR 672.

[53](1998) 157 ALR 1.

[54](1988) 63 ALJR 1.

[55][2011] FCA 1147, [28].

[56]Ibid [29]–[30] (citations omitted) (emphasis added).

The phrase ‘the only rational inference available’ drawn from Pereira v Director of Public Prosecutions[57] concerned a criminal prosecution for contravention of the Customs Act 1901 (Cth) and whether the necessary mens rea of the charge could be inferred from all the circumstances. The appellants assume that the reference to ‘the only rational inference available’ meant that Gilmour J was applying the criminal standard of proof to establish the necessary knowledge. But Gilmour J said no more than that other rational inferences existed. His Honour said nothing as to the standard of proof to be applied in determining whether other rational inferences had been excluded. Moreover, he was concerned with a pleading alleging accessorial liability for a breach of the Corporations Act. His observation does not constitute any authority for the proposition advanced by both appellants on appeal that proof of the requisite intent in a civil claim of fraud or deceit requires the exclusion of all other rational inferences.
[57](1988) 63 ALJR 1, 3.

Gilmour J’s decision was upheld on appeal to the Full Court,[58] but the passage from the judgment of Gilmour J upon which the appellants rely was not the subject of any consideration by the Full Court. The Full Court found the pleadings to be deficient in a number of material respects, including the absence of an allegation of knowledge on the part of the Stripe directors of material facts giving rise to a contravention of the provisions of the Corporations Act.
[58](2012) 293 ALR 537.

The appellants’ contention must be rejected. The ordinary standard of proof required of a party who bears the onus in civil litigation is proof on the balance of probabilities and that remains so even where the matter to be proved involves criminal conduct or fraud.[59]
[59]Neat Holdings (1992) 110 ALR 449, 449–50 (Mason CJ, Brennan, Deane and Gaudron JJ).

The rejection of Kain’s evidence

The trial judge’s findings as to Kain’s evidence covered each of the four central matters in issue in the trial. Each was relevant to the respondents’ case that Kain was a party to the conspiracy to injure MSCA by means of the repair fraud. Those issues were:

(1) Whether he was involved in the business of CCC Old after 2001.

(2) His explanation that the payments from CCC Old to him and his dealings with Neale via Ackland Forge and Dawn Trading had no connection to the repair fraud but were an innocent commercial arrangement.

(3) His involvement in the sale of CCC Old to MSCA and whether he was aware of the falsity of the warranties which stated that the information regarding CCC Old was accurate.

(4) Whether he had paid secret commissions to Neale on the sale of the CCC Old business.

The trial judge rejected Kain’s account on each of these issues. Having regard to the grounds of appeal and in particular the contention that it was not open to the trial judge to reject his account on these issues, it is necessary to examine Kain’s evidence and the trial judge’s findings in some detail before we turn to the contention raised by both appellants that it was not open to the trial judge to infer from all of the circumstantial evidence that the appellants were parties to the conspiracy pleaded. For the reasons that follow, we reject the submission that the trial judge erred in rejecting Kain’s account.

(1) Kain’s continued involvement in the business of CCC Old after 2001

Kain submitted on appeal that there was no evidence linking him to the conduct of the business of CCC Old after 2001 so that the evidence of the repair fraud and Kevin’s involvement in it did not advance the case against Kain. The findings of the trial judge demonstrate that Kain sought to distance himself from the business of CCC Old after 2001. However, apart from the numerous emails that showed that Kain was notified when MSCA made payments to CCC Old, and received the remittance advices of MSCA, there was significant documentary evidence of his continuing role in CCC Old throughout the period from 2002 to 2008.

Kain was involved in the setting of fees paid to CCC Old by MSCA. In two emails dated 8 December 2004, Ho emailed documents to Kain described as ‘MSC’s current rates for your review’ and ‘the copy of amended rates for your review’. The trial judge said that ‘Kain gave evidence that he could not understand nor remember why the rates were sent to him’ and that he ‘was surprised by this email, never replied to it and that it was the only one that he received about the container business after he left’. He otherwise ‘denied having received details of MSCA’s rates for review’. The trial judge found that ‘Kain’s evidence appeared to be tailored to address the documentary evidence that could be found … I do not accept Kain’s evidence’.

In an email to Kevin dated 21 November 2006 and with the subject line ‘Re: Increase of Charges’, Kain wrote, referring to Neale as ‘Big Brother’:

This morning talk to Big Brother, he is in Sydney with Big Boss from Geneva and will be in Melbourne 25-11-06 and dinner with me and will give him X’mas gift card I bought from JB Hi Fi, I will send invoice to you.
Regarding increase depot rates please call David on 23/11/06 Thursday to ask him to help and speed up the process in the nice way as big brother had advise me.
I am sorry I have to remind you that I am still waiting for year 2005 balance sheet, profit and loss statement etc your kind assistant will be much appreciated.

In an email to Kevin dated 28 February 2007 and with the subject line ‘Re: Increase of Charges’, Kain wrote, referring to Neale as ‘Christ’:

Good morning and wish you and your family all well, business prosperous. Talk to Christ yesterday David is going for 2 week holiday, upon his return Christ will guide us what to do next. I will explain more when we talk next.

In an email to Kevin dated 19 March 2007 and with the subject line ‘MSC Increase of charges’, Kain wrote, referring to Neale as ‘our brother’:

Talk to our brother this morning, that David Robertson has been back from leave last week, when you have time you can contact him for the above mentioned subject, he may just suggests increase 5% fuel levy on transport only, if so you can counter offer and ask for 7% for lift in/out charges and transport as well, point out to him that all our forklift use diesel that ask him to help, because we are struggling for long period of time due to high cost of fuel and his help will be much appreciated etc.

Kain was asked about this last email and agreed that he was referring to Neale as ‘brother’ in that email. Kain also acknowledged that Neale had said to him that he should seek an increase in the levy on lift-ins and lift-out charges but testified that Neale had suggested five per cent. Following Neale’s suggestion, Kain told his son to request from MSC an increase of five per cent on the fuel levy and a seven per cent increase in the lift-in, lift-out fee. He agreed that shortly after that suggestion, MSC agreed to a seven per cent rebate on lift-in and lift-out charges.

In emails from 2006 and 2007 relating to the sale of the CCC Old business, Kain sent emails to Kevin referring to Neale as ‘big brother’ and ‘brother’, and he corresponded with Neale with the signature block ‘Chairman’ of ‘CC Groups’. He confirmed in cross-examination that at the time of the sale to CCC he still considered CCC Old to be his and his son’s family company and that he considered himself its chairman. He said he had informed Neale to that effect.

The respondents’ case at trial was that Kain had given an untruthful account of his involvement in CCC Old after 2001 in order to distance himself from the repair fraud. The trial judge made an explicit finding that she did not accept Kain’s evidence that he was not involved in the business of CCC Old after 2001,[60] concluding that he continued to play a role until the sale of the business in 2008. Her Honour’s findings as to his continuing role were well supported by the documentary evidence. It demonstrated that Kain untruthfully sought to distance himself from the business of CCC Old. The evidence plainly justified the rejection of Kain’s false assertion that he was not involved, and played no part, in the business after that time.[61]

(2) Kain’s explanation that the payments from CCO Old and his dealings with Neale via Ackland Forge and Dawn Trading had no connection to the repair fraud but were an innocent commercial arrangement

[60]Reasons [88].

[61]Ibid.

We turn to Kain’s account of the payments from CCC Old to Ackland Forge and his dealings with Neale.

(i) Payments from CCC Old to Ackland Forge

Kain said that, since approximately 1981, he had worked in a company that was in the business of storing, maintaining and repairing shipping containers. He testified that he had performed the tasks of bookkeeper, operator, welder and painter. He indirectly held a majority of the shares in the company. In 1990, his son Kevin joined the company, commencing at a low level as a messenger boy. In 1998 Kain created a new corporate structure. CCC Old was incorporated.

Although Kain denied any knowledge of the repair fraud, he admitted during cross-examination that during the 1990s he had been forced to repay shipping lines for false repair invoices issued by CCC Old.

In the particulars to his amended defence, Kain had alleged that the payments from CCC Old to Ackland Forge had commenced in 2001 upon Kain’s departure from CCC Old, in accordance with an agreement he made with Kevin. In that defence, as a rebuttal to the allegation that he participated in the repair fraud, Kain further said:

The Ackland Forge Invoices were issued by Ackland Forge to [CCC Old] by way of a retirement benefit for the Fourth Defendant [Kain] in consideration of him ceasing all involvement in and ceding the business of [CCC Old] in or about July 2001 to Kevin Chong.

The payments were pleaded as a retirement benefit from 2001 and in consideration of his ceding the business to Kevin. If this were true, the payments to Ackland Forge and to Dawn Trading were unlikely to be linked to the repair fraud.

By the time Kain came to give his evidence-in-chief, it was apparent that this explanation in his particulars of defence was contradicted by accounting records of CCC Old which revealed that the payments from CCC Old to Ackland Forge had been made since at least 1998, and so were not for his retirement. It was also apparent at this stage of the trial that the payments from Ackland Forge to Dawn Trading had also commenced much earlier. As the trial judge found, Kain then tailored his account to this further evidence.

In chief, Kain testified that in 1998, as the business of CCC Old was growing, he entered into a form of partnership with a Mr Sam Tarascio for about two years. Kain testified that as his wages were low, he asked his co-director, Tarascio, for five per cent of MSCA’s remittances as a supplement to his wages, as MSCA was the largest customer of CCC Old’s business. Kain stated that he had arranged for the five per cent to be paid to Ackland Forge so that he could use the funds in his other businesses. He then said that after 2001 he agreed with Kevin that he would charge the largest customer five per cent as a ‘retirement benefit’ when he handed CCC Old over to Kevin. Kain acknowledged that there was no written agreement between him and Kevin. The cross-examination showed that Kain departed from his pleading after having viewed the accounting records of CCC Old the day prior to his evidence.

In cross-examination, Kain further departed from his pleaded case and his evidence in chief. He now said that the arrangement in 1998 had been made with Kevin and that its terms were to be passed on to Tarascio. He said he had talked to Kevin to ‘pass the message to Sam because I never meet him, because Sam is in the different office, me in the container side, just a portable office’.

The trial judge found that Kain’s evidence concerning the payments from CCC Old to Ackland Forge differed significantly from his very recently pleaded case. Her Honour said:

In my view, the bulk of the evidence given by Kain is not reliable. Indeed, much of his evidence seemed tailored to counteract the documentary evidence. For example, his final pleaded defence was filed during the course of the trial and shortly before he was to give evidence. As I have noted above, the defence pleaded an arrangement entered into in 2001 for payments to be made to Ackland Forge. Yet when Kain did give evidence, he departed from what was alleged to take account of documents that showed that Ackland Forge had received payments from CCC Old well before 2001. In cross-examination, he conceded that prior to being shown documents shortly before he gave evidence, he thought that there was only documentary evidence of the payments to him from July 2001 onwards.[62]

[62]Ibid [35].

Kain submitted that the trial judge was wrong to draw an adverse inference from the departure from his pleaded case that the payments from CCC Old to Ackland Forge constituted a retirement benefit that he and his son Kevin had agreed he should receive upon retiring from the business in 2001. That and other inconsistencies in his evidence, as we have said, led the trial judge to conclude that he had tailored his evidence to counteract the documentary evidence. There were compelling reasons for the conclusion reached by the trial judge.

(ii) Payments from Ackland Forge to Dawn Trading

Kain gave evidence about his relationship with Neale. Kain said he got to know Neale in 1980. They became good friends, and for some time met on a daily basis. Neale lived in the neighbourhood. Kain started doing business with him before he did business with MSC. Kain continued to do business with Neale when Neale was working for MSC.

Kain testified that the payments from Ackland Forge to Dawn Trading constituted instalments in the repayment of a loan that Neale had made to him. This explanation for their financial relationship was a critical part of his defence. It was rejected by the trial judge. As Kain contends that the trial judge erred in rejecting it, we must refer to it in some detail.

Kain said that he had a business in China in the late 1990s which ran into difficulties. He testified that Neale offered to lend him some money so that Kain could investigate his affairs in China. Kain said that Neale told him that he had money ‘from India and Singapore’, but that Kain would have to pay him back in Australia. Neale did not tell him how much money he could use. During cross-examination Kain said that he spoke to Neale in 1999 and said he might need to borrow some money to investigate things in China. He then said Neale loaned him $120,000 in 1999. Later in his cross-examination he said he borrowed a total of $1.1 million from Neale between 2000 and 2008.

Kain testified that he had an agreement with Neale that he would pay Dawn Trading when he received payments from CCC Old, with no set amount determined for each repayment. He said it was left to him to decide how much he would pay at any given time. There was no interest to be paid on the loan. The evidence established that there was no record kept by him of the amount borrowed or the repayments he made. Kain said he had been in contact with a Mr Yip, who was trustee for Neale, holding the funds in Singapore. He said Neale had allowed him to talk to Yip. Mr Yip, he said, had died in 2010. Kain said that he, Kain, always prepared the Dawn Trading invoices to Ackland Forge because it was he who determined the amount that he would repay to Neale. Kain said that he paid the balance of the loan owing to Neale from the gift of $2.5 million he got from Kevin on the sale of his units in the business of CCC Old.[63]
[63]See [95] below.

Kain was challenged as to this account of the arrangement:

I just want you to go straight to the point. How did you get the money from Mr Neale?---Whatever the expenditure of co in China they will let me know so I will instruct Mr Yip to pay the bill.
What bill?---What occur in China.
Where are the bills?---The bills is owing Mr Yip.
Where are the bills now?---Mr Yip already [has] them.
How did you get the bills to Mr Yip?---Now, from China tell me the total figure, he sent across to Mr Yip.
Did you get a copy of these bills?---No.
…
Who were they paying?---To pay someone, will pick up the money. Because they spend the Chinese money in China so ---
You understand me, Mr Chong. Who are the bills from?---From various place.
…
Who? Names?---You spend the money with the police, you spend money for investigation. What you want me to do?
Who are the names of the people in China that were to be paid?---I don’t ---
Where are their invoices?---In China a lot of things are owed by cash, no invoices.
Are you saying it was all by cash?---Yes.
…
Let’s just go back to my questions then shall we? Who was to be paid?---I pay all the investigator and I have appointed three representative.
Over what years were you making these payments?---From 2002 — no, from 2000 to 2007.
For seven years you’re making payments to people in cash in China using Mr Neale’s money?---Yes.
You’re lying?---No.

We shall later refer to the cross-examination of Kain by Neale’s counsel. For the present it suffices to say that Neale’s counsel did not challenge Kain’s explanation of their financial relationship and sought to elaborate upon some parts of it.

Kain acknowledged that he used the words ‘to work performed’ on all the Dawn Trading invoices. He said he used those words because he had been utilising Neale’s money in Singapore. He said it was ‘sort of work’ performed. He did not know why GST on the invoices would be payable if it was repayment of a loan but he thought all invoices are ‘to put in GST’. He denied that the description on the invoices was intended to conceal the true nature of the transactions.

Neither in closing submissions at trial nor before this Court was any attempt made to justify the use of that terminology on the invoices. Neale through his counsel conceded at trial and on appeal that the endorsements were false.

The evidence showed that at the time that Kain claimed he borrowed money from Neale because he was in need, he was earning half a million dollars from CCC Old annually, had many other business interests and had apparently received multi-million dollar compensation in an acquisition settlement. In answer to the further suggestion that he was not short of money and had no need to raise any from Neale, Kain simply asserted that he borrowed money from Neale.

Kain produced no documentation to support either his indebtedness in China, the loan or repayment agreement with Neale or his claim that he used the funds from Neale in China.

The trial judge found that ‘the bulk of the evidence given by Kain’ was not reliable and that his explanation of the payments to Ackland Forge from CCC Old and to Dawn Trading was ‘not plausible’. Her Honour further said:

However, it is unlikely that a businessman, such as Kain, would not make (if not retain) any record or note of any type of how much he borrowed from a friend nor how much he repaid, yet at the same time prepare false invoices for what were asserted to be the repayments. I do not accept Kain’s submissions that a distinction can be drawn because corporate entities must keep records (such as invoices) for taxation purposes. He could not identify by name who he had engaged to conduct the investigations in China, nor could he provide cogent evidence of what the payments were for. He did not provide any documentary evidence to support his testimony about Mr Yip and his death in 2010. All in all, his explanation for the payments was improbable.[64]

[64]Reasons [35].

It was, in our opinion, not in the least surprising that her Honour rejected Kain’s account in this regard. Although Kain refused to admit that the invoices recorded a false explanation for the payments, Neale conceded that was so at trial and again on appeal. Kain’s explanation for the payments was advanced at only the last moment, following the close of the plaintiffs’ case. It was an account devoid of any supporting detail. The content of his account was not only seriously deficient but the suggested commercial arrangement was highly improbable. Despite the duration of the arrangement, Kain was unable to produce the slightest documentary or oral evidence to support any aspect of his account. In addition, Kain’s credibility was not to be assessed without regard to the credibility of other aspects of his evidence. In particular, her Honour rejected his explanation for the payments to Neale following the sale of CCC Old, recorded in the company accounts as a commission, as the repayment of the balance of the loan from Neale. The submission that the trial judge was not entitled to reject his account on this issue is without merit.

(3) & (4) Sale of the CCC Old business, awareness of the false warranties and payment of secret commissions to Neale

(i) Kain and Neale’s role

As described above, in his evidence Kain falsely denied that he played any role in the sale of the business. There were a number of emails evidencing Kain’s central involvement in the sale, including in relation to the terms.[65] From mid-January 2006, Kain sent emails to Kevin asking for information to be provided to prospective purchasers of the business. Kain sent emails to Kevin in which he passed on advice apparently given to him by Neale in relation to the sale.
[65]See ibid [89] et seq.

In cross-examination, Kain accepted that he had corresponded with Neale about the sale. He said Neale had rung him and they agreed that Neale would talk to his boss. He testified that he said to Neale that he would talk to Kevin to make an offer of a joint venture with MSCA. Kain said that after that he had no more involvement in the sale. However in June 2007 Kain sent an email to Neale proposing a joint venture with MSCA.

In an email from Kain to Kevin dated 22 August 2007 with the subject line ‘MSC TRANSACTION AND QUOTATION FOR WATCHES.’, Kain wrote, referring to Neale as ‘brother’:

Talk to brother to day that container JV with MSC, they will write to you to ask 5 year financial report, value of the business and how the business valued and by what matter etc please wait for official letter from them.

In an email from Kain to Kevin dated 30 August 2007 with the subject line ‘MSC — Project’, Kain wrote, referring to Neale as ‘brother’:

Reference to the above mentioned subject, meeting will take place on 6/9/07 at CC DEPOT, MSC — representative will include Finance Director, Operation Director and one Consultant with expert of business analysis as well, this meeting I have to present, you and may be included Kevin Ng as well.
As I told you yesterday that they need 5 years financial report, property lease agreement etc. MSC will official write to CC.
At this moment if you can give me brief summary of cash flow and last year profit amount will be much appreciated as brother needed.
Also to let you know that you must remember Brother had quoted them to purchase 50% of the business is 6 million not 5.5 million.

Kevin had previously told Kain that there was a valuation of the business at $10.9 million. In cross-examination, Kain was shown this email and asked to explain the last sentence:

Would you tell the court what you meant by that sentence?---Mr Chris say maybe your business 50 per cent, maybe six million and not 5.5 million, that’s it.
You meant to convey to Kevin Chong?---Yes.
That Chris Neale had told you?---Yes.
The expectation?---Yes.
That MSC had of the purchase price?---Yes roughly.
Chris Neale had given you that information?---Yes.
That was information that was confidential to MSC?---I think so.
What they expected to buy the business for?---Yeah, but of course ---
… And you were warning Kevin not to under quote the business, weren’t you?---Yes.

In an email dated 25 October 2007 from Kevin to Alexander Ellis, the finance director of MSCA at the time of the sale of the business, with Kain copied, Kevin wrote:

Dear Alex
I received your email today. Thank you for your response. I have spoken to Mr Chong Snr [Kain] regarding your proposal. In summary, everything is acceptable save for the multiple. We still feel that 4.75 is a reasonable request. We feel this multiple is reasonable for the following reasons:
We have agreed to MSC’s revised shareholding of 75% from 50%, and additionally the Chong family has the strong ability to bring new business (not only in Melbourne, but nationally as well).
We hope you understand where we are coming from and look forward to a favourable reply.
Best regards,
KC

Kevin sent another email to Ellis, copying Kain, on 26 October 2007:

Dear Alex,
Mr Chong Snr and I have discussed the valuation further and believe that 4.75 is a fair multiple for the business. We have built up the business from day one and truly believe in the performance of the container park operations. Furthermore, in addition to the quality of the container park operations in Altona, through the contacts of the Chong family national opportunities can be pursued.
Regards
KC

According to Ellis, all negotiations were with Kevin. Ellis provided Kevin with a copy of the sale of business agreement. Kain admitted in his evidence that he had signed the sale of business agreement, but said that he had not read the agreement nor sought advice. Following the signing of the documents Kain became an inaugural director of CCC.[66]
[66]Ibid [97].

Kain stated in cross-examination that he was paid $2.6 million when the business was sold to MSCA. He denied that it was a payment for his interest as a shareholder in the company. He said it was a gift. However Kain agreed in cross-examination that he retained an interest of 25 per cent in the business, including 25 per cent of the real property. He claimed he had no idea what that interest was worth because he had handed over the business to his son and never checked its worth. When it was put to him that the money he received on the sale was a payment for his interest in the company, he agreed. He said the interest was in a ‘unit trust for the company’. The trust documents were with his son, Kevin. He also said, however:

So it wasn’t a gift at all, it was because the business of the company had been sold to MSCA?---I don’t think so because all the money is under Kevin Chong’s control. What he want to do to settle all the debts or whatever he never discussed with me. He just called me, he said, this is (indistinct) I give you a gift, 2. something million, that’s it.

Kain denied in cross-examination that he had to pay a commission on the sale to Neale or that he had an arrangement with his son to pay a commission on the sale to Dawn Trading. Her Honour rejected Kain’s account in this regard.

Her Honour found that Kain was still involved in the business at the time of sale and was involved in the sale of the business:

Neither of the cases cited by Neale before the trial judge supports his contention. They support only the uncontroversial proposition that no adverse inference could be drawn from the fact that privilege is claimed. In Pappas v New World Oil Developments,[170] Lee J referred to counsel’s submission that the failure of Pappas to answer the questions then put to him in cross-examination and the claim of privilege against self-incrimination provided grounds from which an inference may be drawn adverse to the credit of Pappas. In rejecting that submission, Lee J agreed with the conclusion of Spender J in Dolan v Australian and Overseas Telecommunications Corporation[171] (upon which Neale here also relies) that no adverse inference may be drawn from the refusal of a witness to answer a question on the ground that the answer may, or would, tend to incriminate the witness. But we are not presently concerned with the application of the principle that no adverse inference as to the credit of a witness may be drawn as a result of their exercise of the privilege to refuse to answer questions, but with the quite distinct issue of the inferences that may properly be drawn as result of the absence of evidence from that witness. Lee J recognised that distinction as he said:

Of course, the failure to adduce evidence on central issues on which the witness may be expected to give evidence will permit a court to be satisfied that inferences adverse to the case of that party may be properly drawn notwithstanding that the ground for refusal to provide the evidence may be rooted in the privilege against self incrimination.[172]

[170](1993) 117 ALR 304.

[171](1993) 42 FCR 206.

[172](1993) 117 ALR 304, 310, citing Justice P W Young, ‘Taking the Fifth’ (1991) 65 Australian Law Journal 412, 415.

Warren J in ASIC v ABC Fund Managers Ltd,[173] citing Pappas v New World Oil Developments Pty Limited[174] and an extracurial article by Justice Young,[175] drew this precise distinction between the prohibition against drawing an adverse inference from the claim of privilege and adverse inferences that may arise from the absence of evidence which a party or witness could be expected to give.[176]
[173](2001) 39 ACSR 443.
[174](1993) 117 ALR 304.
[175]Young, above n 172, 415.
[176](2001) 39 ACSR 443, 467–8 [109].

The passage from Cross on Evidence at [1215] to which Neale referred before the trial judge states that the rule ‘has no application if the failure is explained, for example by … refusal to waive privilege’.[177] Payne v Parker[178] is cited for this point, in which Glass JA (in dissent) said:

The third condition [for a Jones v Dunkel inference to be made] is satisfied if no explanation is offered for the absence of the witness, or the tribunal thinks that the explanation given is unsatisfactory. The explanation tendered may be that the witness is ill, overseas, dead or refuses to waive his privilege.[179]

[177]Heydon, Cross on Evidence, above n 167, [1215].

[178][1976] 1 NSWLR 191.

[179]Ibid 202, citing Wigmore, Wigmore on Evidence, above n 109, [286].

It is assumed by the authors in Cross on Evidence that the reference by Glass JA to a refusal to ‘waive his privilege’ was intended to include the privilege against self-incrimination as well as legal professional privilege. Whether or not that be correct, there is now further authority against the view that a claim of privilege against self-incrimination provides a sufficient basis to exclude Jones v Dunkel reasoning where a party or witness fails to give evidence.

In Rowell v Larter,[180] Young J rejected the contention that a Jones v Dunkel inference should not be drawn:

The plaintiff did not give evidence. One can well understand why he did not as he would not be at all anxious to expose himself to cross-examination by counsel for the prosecutor because that might prejudice him in the … [related criminal] proceedings. Senior counsel for the plaintiff has urged on me that I should not draw any adverse inference to the plaintiff because he did not give evidence because the reason for his non-appearance was obvious. I do not accept this submission.[181]

[180](1986) 6 NSWLR 21.

[181]Ibid 24.

Croft J in Dale v Clayton Utz (a firm) [No 2][182] accepted that Rowell v Larter stands for the proposition that a plaintiff who elects not to give evidence in a proceeding cannot point to the privilege as the basis for escaping the drawing of an adverse inference from his or her failure to give evidence.
[182][2014] VSC 517.

The rule in Jones v Dunkel has been applied to civil penalty proceedings in Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd[183] and Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission,[184] notwithstanding the obvious risk of self-incrimination. In ASIC v Rich,[185] Austin J concluded that the principle in Jones v Dunkel is applicable against either party to civil penalty proceedings.[186]
[183](2001) 115 FCR 442, 456–7 [33] (Hill J).
[184](2007) 162 FCR 466.
[185](2009) 236 FLR 1.
[186]Ibid 100 [463].

In ASIC v Adler,[187] rulings by Santow J were made on the footing that the privilege against exposure to penalty was attracted through ASIC’s seeking of pecuniary penalties and that the privileges did not prevent the application of the rule in Jones v Dunkel, the rule and privilege both falling within the rules of evidence and procedure for civil matters. On appeal,[188] Giles JA, with whom Mason P and Beazley JA agreed, concluded that it had been open to the trial judge to apply the inferential reasoning in Jones v Dunkel. Giles JA said:

In the end the argument must be that it would not be consistent with this stance against self-incrimination for an inference adverse to the person from whom a civil penalty is claimed to be drawn because of the failure of the person to give evidence. That reasoning did not find favour in RPS v The Queen, in which the ‘right to silence’ was not thought to be a useful basis for reasoning (at [22]). To say that a person can not be forced to give evidence against himself, by providing discovery or answering interrogatories or, in a criminal context, making a statement to the police, says little when it comes to the giving of evidence in the person’s own case. In ordinary civil proceedings the defendant can not be forced to give evidence in his own case. Civil penalty proceedings are no different in that respect. In my opinion, it was open for Jones v Dunkel inferences to be drawn against Mr Adler, Adler Corporation and Mr Williams in these proceedings.[189]

[187](2002) 168 FLR 253.

[188]Adler v ASIC (2003) 179 FLR 1.

[189]Ibid 147 [661].

In Council of the NSW Bar Association v Power,[190] Hodgson JA (with whom Beazley and McColl JJA agreed) stated:

If this had been a criminal trial, then in my opinion what the High Court said in Azzopardi would have meant that a jury could have been told that inferences from proved facts could more safely be drawn because the opponent elected not to give any explanation in terms of additional facts peculiarly within his knowledge or any evidence of such facts. In my opinion, if such Jones v Dunkel reasoning is available to a jury in a criminal trial, it must a fortiori be available to a court in civil proceedings such as the present. That would be so, even if these civil proceedings are regarded as proceedings for a civil penalty. I note that a similar view was expressed by Hill J in Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd at [33].
It could be argued that this approach only deals with the right to silence in relation to proceedings actually under way, and that the opponent had another right against self-incrimination in respect of any additional offence with which he might be charged; and since his failure to give evidence was supported by that right, it could not be relied on to assist any inference against him.
However, that topic is dealt with by s 128 of the Evidence Act1995 …
In my opinion, the opponent cannot be in any better position, as regards a privilege against self-incrimination in other proceedings (or any inference that might be drawn from reliance on that privilege), than if he had given evidence before this Court and claimed the privilege as a basis for not answering particular questions; and in my opinion the content of s 128 (providing for the protection of a certificate with the effect stated in s 128(7)) is inconsistent with a view that a person not giving evidence because of a concern about self-incrimination in respect of another matter is in any better position, as regards inferences that may be drawn from failure to give evidence, than an accused not giving evidence at a trial, as discussed in Azzopardi.[191]

[190](2008) 71 NSWLR 451.

[191]Ibid 465–7 [22]–[25] (citations omitted).

In ASIC v Fortescue Metals Group Ltd [No 5],[192] Gilmour J stated that nothing had been said by the High Court in RPS v The Queen,[193] Azzopardi[194] or Dyer v The Queen[195] that would extend the general proscription in criminal trials against engaging in inferential Jones v Dunkel reasoning to civil penalty proceedings.[196] Gilmour J concluded that despite a claim of privilege against self-incrimination, he would not have been precluded from drawing a Jones v Dunkel inference against the witness who had failed to give evidence.
[192](2009) 264 ALR 201.
[193](2000) 199 CLR 620.
[194](2001) 205 CLR 50.
[195](2002) 210 CLR 285.
[196](2009) 264 ALR 201, 224 [97].

Finally, in Hudak v Adams,[197] Rein J discussed the application of the rule in Jones v Dunkel where the explanation of the party for not giving evidence was that they were under investigation for the matter in dispute between the parties:

In my view it would be surprising for a defendant against whom a claim of fraud is brought to be able to rely on a concern that criminal charges will be laid as a reason why an adverse inference could not be drawn if he fails to give evidence. First, because if his evidence would, if accepted, support his case that what had been done had been effected with the complete concurrence of the plaintiff, he would have no concern that he would thereby incriminate himself on a charge of obtaining property from the plaintiff by fraud. Second, because it strikes me as inherently unfair that a party who wants to put the plaintiff to proof can decline to give evidence and do so without an adverse inference being drawn. If criminal proceedings are feared, a defendant may take the chance that the plaintiff will not be able to adduce sufficient evidence to establish his case, or may admit liability or not defend the proceedings. The third reason is that even in criminal cases there is, in exceptional and rare circumstances, room for a Jones v Dunkel inference: see Azzopardi v The Queen and Comptroller-General of Customs v Parker in which Simpson J explains that where the accused who does not give evidence and has a personal involvement in the transaction in question, a Jones v Dunkel inference can be drawn.
I do not need to resolve this interesting question.[198]

[197](2013) 17 BPR 32,289.

[198]Ibid 32,299 [41]–[42] (citations omitted).

Our tentative view is that the privilege, if properly claimed pursuant to s 128, would not have precluded the application of the rule in Jones v Dunkel to a party or witness who fails to give evidence. But as it is clear that Neale did not effectively claim the privilege, we find it unnecessary to express a concluded opinion on this question.

Was the claim of privilege properly made?

On appeal, the respondents in written and oral submissions maintained their contention advanced at trial that the privilege had not been properly claimed by Neale so that the rule in Jones v Dunkel applied as he fell to be treated as a party who had failed to give any contradictory evidence.

The common law has long recognised the privilege of a witness to decline to give evidence if the giving of such evidence may incriminate him or her in an offence. The privilege is not merely a rule of evidence but is a fundamental and substantive common law right.[199] The rationale for the privilege is that an applicant must prove its own case and should not get any assistance from the respondent in proving its case. This statement also applies to the privilege against self-exposure to a penalty.[200]
[199]Reid v Howard (1995) 184 CLR 1, 11 (Toohey, Gaudron, McHugh and Gummow JJ); Griffin v Pantzer (2004) 137 FCR 209, 227–9 (Allsop J, Ryan and Heerey JJ agreeing). See also Lee v DPP (Cth) (2009) 75 NSWLR 581, 587 (Basten and Macfarlan JJA and Sackville AJA).
[200]Trade Practices Commission v Abbco Iceworks Pty Ltd(1994) 52 FCR 96, 129 (Burchett J); Lifetime Investments Pty Ltd v Commercial (Worldwide) Financial Services Pty Ltd [2006] FCA 696, [26] (Spender J); Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543, 559.

Neale in his defence pleaded in respect of the respondents’ statement of claim that he ‘claims and reserves his right to claim penalty privilege and self incrimination privilege’ and otherwise pleaded a non-responsive defence. In that context he sought to be excused from compliance with various requirements of the Supreme Court (General Civil Procedure) Rules 2005[201] to the extent that compliance with those Rules may have had a tendency to expose him directly or indirectly to a civil penalty or a criminal proceeding in respect of the subject matter of this proceeding.
[201]See, eg, rr 13.10 (‘Particulars of pleading’), 13.12 (‘Admission and denials’); O 29 (‘Discovery and Inspection of Documents’).

During the interlocutory stages of the proceeding the trial judge ruled on an application to strike out the pleaded defence that the appellants were entitled to claim privilege against self-incrimination and penalty privilege and were not required to plead a responsive defence.[202] When the time came for Neale to advise the trial judge as to the course he would follow, Neale, through his counsel, asserted a claim of privilege from the bar table as the reason for declining to give evidence. The trial judge gave no indication that the privilege against self-incrimination in testifying at the trial could be made in that manner. Thus the respondents submitted in closing that no proper claim for privilege had been made and invited the judge to reason in accordance with Jones v Dunkel.
[202]CC Containers Pty Ltd v Lee [No 2] [2012] VSC 149.

The trial judge said:

Having reached the conclusions that I have about the inferences to be drawn, it is not necessary to consider whether those inferences might more readily be drawn because of the failure of Mr Neale to give evidence in circumstances where he had claimed privilege against self-incrimination in his defence.[203]

[203]Reasons [73].

The trial judge made no other reference in her reasons to Neale’s claim of privilege and made no finding as to whether the privilege had been properly claimed.

The claim of privilege against self-incrimination must be claimed by the witness under oath or affirmation. The process by which such a claim is made is now prescribed by s 128 of the Evidence Act2008. Its object is to strike a balance between upholding an objection by the witness to giving particular evidence on the ground that the evidence may tend to prove that he or she has committed an offence against Australian law, and in some cases requiring the witness to give the evidence but in circumstances where the court gives the witness a certificate in respect of the evidence.[204] The language and scheme of s 128 indicate that it only operates in a hearing context where there is a witness who objects to giving particular evidence and that the common law, and not s 128, governs the privilege against self-incrimination at the pre-trial stage and with respect to pre-trial processes.[205] The privilege under s 128 is only enlivened if by objection a witness demonstrates that they are unwilling to give the evidence where otherwise required to do so, on the ground that the evidence would tend to incriminate them.[206] As was said by Clarke JA in Accident Insurance Mutual Holdings Ltd v McFadden:[207]

Whether the answer may tend to incriminate the witness is a point which the court will determine, under all the circumstances of the case, as soon as the protection is claimed. It will do so without requiring the witness fully to explain how the effect would be produced, for if this were necessary, the protection which the rule is designed to afford to the witness would at once be annihilated: Taylor, (at 1247). However, the mere statement by a witness that he believes the answer will tend to incriminate him will not suffice to protect him from answering when the other circumstances of the case are such as to induce the judge to believe that the answer would not really have that tendency (at 1247–1248).[208]

237 Section 128 only applies if a witness objects to giving particular evidence on the ground of privilege (s 128(1)). If the court finds there are reasonable grounds for the objection, it is not to require that the evidence be given and is to inform the witness that he or she need not give the evidence but that if he or she does so a certificate will be given under the section (s 128(2)). If the witness gives the evidence, the court is to cause the giving of a certificate (s 128(3)), the effect of which is that the evidence and information obtained as a direct or indirect consequence of the witness giving the evidence cannot be used against him or her (s 128(7)). In addition, however, where the court is satisfied that the evidence may tend to prove the commission of an offence against Australian law but does not tend to prove the commission of an offence against a foreign law, and that the interests of justice require that the witness give the evidence, the court may require that the witness give the evidence (s 128(5)) and is to cause the giving of a certificate (s 128(6)).[209]

[204]Cornwell v The Queen (2007) 231 CLR 260, 312 [148] (Kirby J).

[205]Jill Anderson, Neil Hunter and Louise Clegg, The New Evidence Law: Annotation and Commentary on the Uniform Evidence Acts (LexisNexis Butterworths, 2^nd ed, 2009) 451 n 159.

[206]Ying v Song [2009] NSWSC 1344, [31], [51]; Song v Ying (2010) 79 NSWLR 442, 450 [28].

[207](1993) 31 NSWLR 412.

[208]Ibid 430.

A failure by a witness to enter the witness box and testify at all is not the same as objecting to the giving of particular evidence. As Neale declined to enter the witness box there was no legal compulsion upon him to give any evidence, let alone ‘particular evidence’. The respondents’ submission in closing address at trial that Neale had not, in the manner required by s 128(1), objected to giving particular evidence and could not therefore call in aid the privilege[210] was on proper analysis correct. It is not sufficient for counsel to take the objection.[211] Neale had neither invoked the privilege nor received the benefit of any ruling or certification that relieved him from giving relevant evidence.
[210]Health Services Union NSW v Mylan [2014] NSWSC 1026, [27]–[30].
[211]Young, above n 172, 414 (Justice Young suggests it may be even be improper for counsel to do so).

The privilege was not properly claimed. Looking at the argument before the trial judge that Neale had not advanced any positive defence, Neale was to be viewed as a party who had left uncontradicted the unfavourable inference which the trial judge drew from the undisputed facts and her findings. Even if the concession had not been made on appeal that Neale had adopted Kain’s defence, the inference drawn by the trial judge that Neale was a party to the conspiracy could be drawn with even greater confidence in the absence of evidence from Neale.[212]
[212]See J D Heydon, Cases and Materials on Evidence (Butterworths, 1975) 62: ‘Finally, a party’s failure to give any satisfactory explanation of a prima facie case against him may suggest that the case is sound, either because silence is assent — an implied admission, or because it shows a consciousness of guilty or liability, or because inferences from the prima facie case, being unchallenged, are thereby strengthened. The presumption is the stronger where the facts are particularly within his knowledge.’

Kain’s appeal against the award of interest

After delivering reasons for judgment on 10 April 2014, the trial judge requested that the parties provide minutes of orders to reflect the reasons and to address her on the question of costs.[213] Kain and the respondents were unable to agree on, amongst other things, the basis for the calculation of interest on the amounts that were to be awarded against him for the repair fraud.
[213]Reasons [164].

In a ruling dated 4 July 2014, the judge concluded that interest should be paid by Kain pursuant to s 58 of the Supreme Court Act 1986 (‘Supreme Court Act’) rather than s 60 of that Act. She adopted the following two step approach: first, calculate the amount of the repair fraud perpetrated in each calendar year; and then calculate the interest payable on that amount from the date of the last transaction in each calendar year until the date of the order of the court.[214]
[214]CC Containers Pty Ltd v Lee[No 7] (Unreported, Supreme Court of Victoria, Ferguson J, 4 July 2014) [14], [21]–[23] (‘Supplementary Reasons’).

On the appeal, Kain challenges that conclusion. As Neale has not appealed against this aspect of the judge’s orders,[215] we will not consider the question of interest as it relates to him.
[215]At the supplementary hearing on 30 May 2014 referred to at [248] below, Neale accepted that, in respect of any amounts to be disgorged by him, interest was payable for the period before commencement of the proceeding in accordance with s 58 of the Supreme Court Act: Supplementary Reasons [19].

Sections 58 and 60 of the Supreme Court Act set out two alternative bases for calculating interest. Those sections relevantly provide:

58 Interest to be allowed when debts or sums certain recovered
(1) If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor on the debt or sum at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 … from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made.

…
(3) A debt or sum payable or a date or time is to be taken to be certain if it has become certain.
…

60 Interest in proceedings for debt or damages
(1) The Court, on application in any proceeding for the recovery of debt or damages, must, unless good cause is shown to the contrary, give damages in the nature of interest at such rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 as it thinks fit from the commencement of the proceeding to the date of the judgment over and above the debt or damages awarded.

(2) Nothing in this section—
…
(e) applies in relation to any sum on which interest might be awarded by virtue of section 58 …; or
(f) limits the operation of any enactment or rule of law which, apart from this section, provides for the award of interest.

(3) If the damages awarded by the Court or jury include or if the Court in its absolute discretion determines that the damages awarded include any amount for—
…

(c) exemplary or punitive damages—
the Court must not allow interest in respect of any amount so included or in respect of so much of the award as in its opinion represents any such damages.

By way of their third further amended statement of claim, the respondents pleaded the tort of conspiracy against Kain and others. MSC and MSCA pleaded that, by reason of the conduct that gave rise to that tort, they have each ‘suffered loss and damage’. They relied on particulars in which their loss was calculated on the basis of duplicate invoices issued from March 2005.[216] They also claimed the amounts paid pursuant to the false repair charges as ‘monies had and received’ by Kain and others. The particulars alleged that such monies were paid either under a mistake of fact or as illegal or excessive charges.
[216]See [25] and n 8 above.

In its prayer for relief, in respect of the repair fraud, MSCA claimed against Kain: ‘[d]amages, including exemplary and equitable damages’, whereas MSC claimed: ‘[d]amages, including exemplary damages’. Both MSCA and MSC also claimed: ‘[a]lternatively, the amounts received by [Kain] as a debt owing for the repair fraud’. They also claimed interest without specifying the nature of the interest or the source of the power to award it.

In her reasons, the trial judge stated that ‘the [respondents’] pleaded case in respect of the repair fraud is primarily for the tort of conspiracy’.[217] After finding in favour of MSCA and MSC in respect of that tort,[218] the judge stated that orders should be made against Kain ‘requiring him to pay $703,178.93 to MSC and MSCA, together with interest on that amount’.[219] The judge decided to award exemplary damages in the amount of $10,000 against Kain, consequent upon her upholding the claim of conspiracy.[220]
[217]Reasons [36].
[218]Ibid [65]–[75].
[219]Ibid [75].
[220]Ibid [76].

It is clear from the judge’s reasons that, in respect of the repair fraud, the only claim for which she decided to grant a remedy was the tort of conspiracy. The judge did not address restitutionary principles associated with a claim for monies had and received as pleaded by the respondents.

At the hearing on 30 May 2014, the respondents submitted that they were entitled to an order for interest on the amounts awarded against Kain for the repair fraud, which was to be calculated from the date of each individual transaction that constituted the repair fraud. However, because the making of such an order would necessitate hundreds of calculations, the respondents submitted that the Court should order interest be paid by Kain in part on the basis of the two step approach set out at [241] above.[221] These submissions purported to rely on the method of calculation of interest set out under s 58 of the Supreme Court Act.
[221]Supplementary Reasons [14].

The respondents submitted that whilst ss 58 and 60 obliged the Court to take a particular approach to the calculation of interest in particular circumstances, the Court retained the power to make such orders as were appropriate. In support of this submission, the respondents cited s 60(2).[222]
[222]Ibid [18].

Kain submitted that s 58 of the Supreme Court Act was inapplicable because the amount he was required to pay was neither a sum certain nor a debt, but rather was an award of damages. He contended that s 60 applied.[223]
[223]Ibid [20].

The judge concluded[224] that interest should be calculated on the basis of the two step approach proposed by the respondents for the following reasons:

[I]n addition to the statutory bases for ordering interest, equitable principles permit the award of interest on an award of equitable compensation. Noticeably though, the method used by the Plaintiffs to calculate interest did not apply those principles. Rather … the spreadsheets of calculations which they prepared and relied upon used the statutory method in s 58.
…
In my view, what Kain is required to do is to disgorge amounts that he wrongfully received through Ackland Forge. When each of those payments was received and the amount of each of them is, and has always been, known. It is akin to a defendant who is required to account as a constructive trustee. In my view, the amounts to be paid by Kain in respect of the repair fraud are in the nature of sums certain. The fact that the individual amounts must be added together to arrive at the total that Kain and Mr Neale must pay, does not change the analysis. That is an arithmetic exercise only with no need for any evaluative process to be engaged in. It can be contrasted to the situation which applied in Giller v Procopets [No 2] where equitable compensation was awarded for breach of confidence. In that case, the amount of the compensation had to be assessed and consequently was held not to be a sum certain.
The Plaintiffs have taken a practical approach to the calculation of interest recognising that to work out the exact interest to be paid on each individual amount from the date that it was received by Ackland Forge would be a lengthy and detailed exercise. The manner in which the Plaintiffs propose that interest be calculated benefits Kain - he will only pay interest from the date of the last transaction each year on the amounts that the Plaintiffs were wrongfully defrauded of during the course of that year.[225]

[224]Ibid [23].

[225]Ibid [18], [21]–[22] (citations omitted).

On 4 July 2014, the judge made an order reflecting her conclusion at [251] above. The order relevantly stated:

2. [Kain] pay [MSCA and MSC]:
a.the sum of $703,178.93;
b.interest of $550,344.16; and
c.exemplary damages of $10,000.00.

On the appeal, neither Kain nor the respondents made oral submissions on the interest issue and relied solely on their brief written submissions.

Kain contended that the judge erred in holding that interest was payable under s 58 of the Supreme Court Act rather than s 60. According to Kain, as the respondents succeeded in their claim for ‘damages’, they cannot be said to have recovered either ‘a debt or sum certain’ within the meaning of s 58.[226]
[226]Kain relied on Giller v Procopets [No 2] (2009) 24 VR 1 (‘Giller [No 2]’); Oddy v Fry (Unreported, Supreme Court of Victoria, McDonald J, 16 June 1997).

The respondents contended that there is no basis for impugning the award of interest. According to the respondents, the practical approach that the judge adopted had benefited Kain.

Both ss 58 and 60 have the beneficial purpose of providing for the award of interest to compensate parties who have been obliged to institute proceedings to recover a money sum and who in the meantime have been kept out of moneys which they could otherwise have used or upon which they could otherwise have earned interest.[227] However, as is evidenced by the language of s 60(2)(e), ss 58 and 60 are not intended to overlap.[228] The legislature clearly intended to distinguish between cases where a debt has become payable prior to the initiation of a proceeding for its recovery (in which case, s 58 will be enlivened if its requirements are met), and one in which the obligation to pay has not so crystallised at an earlier time (in which case, s 60 will be enlivened if its requirements are met).[229]
[227]Victorian WorkCover Authority v Esso Australia Ltd (2001) 207 CLR 520, 546 [69]; Clarke v Foodland Stores Pty Ltd [1993] 2 VR 382, 396.
[228]David Leahey (Australia) Pty Ltd v McPherson’s Ltd [1991] 2 VR 367, 381 (‘David Leahey’); Saunders v Nash [1991] 2 VR 63, 67.
[229]Saunders v Nash [1991] 2 VR 63, 68.

Where s 58(1) applies to a claim pursuant to a contract but the contract does not provide for payment of the amount claimed ‘at a date or time certain’, interest is payable ‘from the time when demand of payment was made’.[230] The issue of a writ does not constitute a demand for payment for the purposes of s 58(1).[231]
[230]David Leahey [1991] 2 VR 367, 381–2.
[231]Saunders v Nash [1991] 2 VR 63, 68.

Where there is no written instrument or a demand for payment, interest cannot be awarded under s 58 for a debt or a sum certain, but the plaintiff may be entitled to interest under s 60.[232]
[232]A J Lucas Drilling Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2009] VSCA 310, [184]–[188].

In the present case, the only pleaded case upon which MSCA and MSC succeeded against Kain in respect of the repair fraud was the tort of conspiracy. The judge did not rely on any restitutionary or equitable principles in deciding the case in favour of MSCA and MSC or in assessing the amount to which they were entitled. Similarly, in seeking interest on the basis set out at [241] above, MSCA and MSC relied entirely on the provisions of s 58 and did not call in aid any restitutionary or equitable principles.

In these circumstances, the issue for the judge was whether the requirements of s 58(1) were satisfied. The first relevant requirement was that the amount of $703,178.93 that MSCA and MSC recovered from Kain be ‘a debt or sum certain’. The judge did not find that that amount was either a debt or a sum certain. Rather, she found that the individual amounts that made up the total amount of $703,178.93 were ‘in the nature of sums certain’. This finding was insufficient to engage s 58.

However, even if the judge is to be taken to have decided that the amounts were sums certain, she has not adequately explained why a sum recoverable for a tort, which is ordinarily characterised as damages, did not have that character in the present case.[233] The judge’s use of the expression ‘disgorge’ and her reference to a defendant accounting as a constructive trustee cannot assist the analysis because the judge did not uphold the claim of MSCA and MSC on the basis of any restitutionary or equitable principles. It follows that Giller [No 2],[234] which dealt with the payment of interest on an award of equitable compensation for breach of confidence, had no application to the present case.[235]
[233]The law relating to the availability of pecuniary remedies other than damages for a claim in tort is complex. See, eg, Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157, 196–7 [160]–[162], 198–9 [167]–[173].
[234](2009) 24 VR 1, 124 [22], 127–8 [36]–[37].
[235]Oddy v Fry (Unreported, Supreme Court of Victoria, McDonald J, 16 June 1997), which was cited by Kain, also had no application, as it dealt with interest payable to a retiring partner on an amount payable under s 46 of the Partnership Act 1958.

Even if, contrary to the above analysis, it had been demonstrated that the first relevant requirement of s 58(1) had been met, that section did not authorise an award of interest against Kain from a date prior to the commencement of the proceeding on 9 November 2010[236] unless there was a ‘written instrument’ in existence that so provided or a demand for payment had been made before that time. In the present case, no written instrument was relied upon and our attention has not been drawn to any demand for payment. Even if it is assumed that a demand for payment had been made prior to Kain being added as a defendant, such a demand could not have been made prior to November 2010 when MSCA became aware of the repair fraud. It follows that s 58(1) did not authorise an order that interest be paid from as early as 2005.
[236]For present purposes, we will leave to one side the fact that Kain was added as a defendant on 4 February 2011.

For the reasons set out above, the judge was wrong to award interest against Kain under s 58 of the Supreme Court Act instead of s 60 of that Act. The Court will seek further submissions from the parties as to the order that should be made.

Conclusion

The appeal by Kain must be allowed in part in relation to the amount of interest. The appeal by Neale should be dismissed.

- - -

[105]Moriarty v London Chatham & Dover Railway Co (1870) LR 5 QB 314; John Henry Wigmore, Evidence in Trial at Common Law (Little, Brown and Company, Chadbourn rev, 1979) vol 2, 132–42, especially 141; Oran Park Motor Sport Pty Ltd v Fleissig [2002] NSWCA 371 (Hodgson JA, with whom Beazley JA and Einstein J agreed); Salvation Army (South Australian Property Trust) v Rundle [2008] NSWCA 347, [102] (McColl JA); Tobin v Ezekiel (2012) 83 NSWLR 757, 775 [60] (Meagher JA, with whom Basten and Campbell JJA agreed). See also J D Heydon, Cases and Materials on Evidence (Butterworths, 1975) 62: ‘[I]nferences may be drawn from any lying, fraud, fabrication or suppression of evidence, flight or interference with the course of justice by a party. Such conduct is seen as an implied admission of the weakness of his case.’

[106]Oran Park Motor Sport Pty Ltd v Fleissig [2002] NSWCA 371; Tobin v Ezekiel (2012) 83 NSWLR 757.

[209]Ross v Internet Wines Pty Ltd (2004) 60 NSWLR 436, 444–5 [84].

[2015] VSCA 137

9 June 2015