Equiticorp Financial Services Limited (In Liquidation) v Bank of New Zealand

[1993] HCATrans 384

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sl68 of 1993

B e t w e e n -

EQUITICORP FINANCIAL SERVICES
LIMITED (IN LIQUIDATION)
(RECEIVER AND MANAGER

APPOINTED)

Applicant

and

BANK OF NEW ZEALAND

Respondent

No Sl69 of 1993

B e t w e e n -

EQUITICORP FINANCE LIMITED

(IN LIQUIDATION)

Applicant

Equiticorp 1 10/12/93

and

BANK OF NEW ZEALAND

Respondent

Applications for special leave
to appeal

BRENNAN J
DEANE J

MCHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 10 DECEMBER 1993, AT 12.45 PM

Copyright in the High Court of Australia

MR R.J. BAINTON, OC: If the Court pleases, I appear with

my learned friend, MR J.S. WHEELHOUSE, for the

applicant. (instructed by Sly & Weigall)

MR F.M. DOUGLAS, OC:  May it please the Court, I appear with

my learned friend, MR J.E. SEXTON, in the second

matter for the applicant. (instructed by Mallesons

Stephen Jaques)

MR R.A. CONTI, OC:  May it please Your Honours, I appear

with MR P.D. DURACK for the respondent in both

matters. (instructed by Clayton Utz)

BRENNAN J: Yes, Mr Bainton.

MR BAINTON:  Your Honours, can I hand up a written outline

of the submissions we propose to put.

BRENNAN J:  We do not have the last of the schedule at this

stage, I take it?

MR BAINTON: There is a schedule there that runs to 2 1/2

pages with 28 items on it. Is that what

Your Honour is referring to?

BRENNAN J: Well, you are proposing to take us through this,

are you?

MR BAINTON:	What I was proposing to put to Your Honours is that what is on that schedule are the findings of
fact that appear in both the majority and the
minority judgment in the Court of Appeal, and they are really all taken from Mr Justice Giles'
judgment. They sum up what, in our submission, are
the relevant facts giving rise to the question of
law that is involved.  They are all either admitted
or undisputed or beyond any argument. Indeed,
with, I think, possibly one exception, they are all

Equiticorp 2 10/12/93

taken from contemporary documents. The one

exception to that I think, is that one of the

executives in the Equiticorp group, Mr Fitzgerald,

added to what the documents disclose anyway, that

he was very much opposed to the use that Mr Hawkins

proposed to put to what became called the liquidity

reserves.

On those facts, the questions of law, in our submission, arise. We say that because the size of

the application book is obviously a little

offputting, but this is not - - -

DEANE J:  And the 25 other volumes that it refers to.

MR BAINTON: Well, I was not going to mention those just in

case I got a reaction that did not auger well.

Certainly there was a lot of material, but those

are the concurrent findings. They raise the

questions and it can be put in a very narrow form.

Before I go off those, can I just take

Your Honours to the chronology at the back.	It is
intended to do what is, in effect, a slight

supplement of the other schedule, and while it is

chronological, it really falls into four different

segments. The first 1987 items and the first one

in 1988, that is the fifth, tell us when what was

called the URUZ facility was set up. That was set

up as part of what was called the industrial group

of the Equiticorp companies for the purpose of
financing a takeover offer of Monier Industries, an

Australian company, which was partially successful.

The next group, from early June to 30 June,

are the steps that were taken to set up this

liquidity group, liquidity reserve for the two

appellant companies which were part of what became

called the finance group and it was done because

Fitzgerald had formed the view that the liquidity

position of the finance group and, indeed, I think

frankly of the whole group, by then was not happy
to say the least.	So that was put into place in
the month of June.

Then if you go from 30 June down to the

22 July, there is some reductions of the URUZ

facility agreed upon on the last day of the

financial year. Then the use of the liquidity

reserve - the judgment sometimes says to pay off

the URUZ facility - that is not entirely correct.

There was a small amount left. I think there was

only something like 46 or 47 million available to

reduce a 51 million facility.	What was done was
all done on 27 and 28 July at best.	The item for

27 July we describe as the date of the letter

because the judgment indicated that there was some

Equiticorp 3 10/12/93

indication it might have been sort of predated.	It
may well have happened all on the 28th, but whichever is right the events of which the
plaintiffs complain took place on the last couple
of days of July 1988.

The background to it - and again, while it is

not one of the facts in the schedule - is that Bank

of New Zealand had committed a lot of its funds to

the Equiticorp group. The Reserve Bank of

New Zealand, if that is its proper name, had

apparently come to the view that it had exceeded
its prudential limits. It had more than 25 per
cent of its entire paid up capital on loan one way
or another around the Equiticorp group, and the

Reserve Bank was apparently pressing the Equiticorp people to reduce their indebtedness to BNZ and

ultimately, the chief executive, Mr Hawkins, was

persuaded to cause this transaction to be carried

out, the transaction being that the liquidity

reserve of Equiticorp Finance Limited and the other
company in the finance group for whom my learned

friends appear, was simply at that stage, they were

cash on deposit with BNZ but it could withdraw at

call in case its short-term lenders made a call on

it. That was taken in its entirely and by a series

of, I think it would be right to say it was taken

in its entirety, out of being to the credit of the

two appellant companies and simply treated as

having been repaid to the Bank of New Zealand

itself.

For that to happen, there had to be a number

of book entries through the various companies in the Equiticorp group, so that it would show.that URUZ had repaid the money. The details of those are probably not of any importance, save for the findings in respect of it that they were all done

after the event and to say the least, not very well

done because they did not accurately record what

was found to happen.

The questions of law that arise in those

circumstances are the ones which, in our

submission, we have set out in the short document.

There are basically two, although answering one

would probably, as a matter of law, answer the

other. The first is: can it be said that a chief

executive in a position such as Mr Hawkins held for

this group had implied actual authority from

Equiticorp Finance Limited, on whose board he was

not, to cause funds that had been set up for it asa

liquidity reserve a short time earlier, with the

concurrence and the partial encouragement, to say

the least, of Bank of New Zealand, could he cause

those funds, against the opposition of the group

treasurer, Mr Fitzgerald, who happened to be a

Equiticorp 4 10/12/93

director of Eq~iticorp Finance Limited, and use

that money to satisfy an obligation of a different

company, true in the same group, but not on the

same side of the group. URUZ was a wholly owned,

indirect subsidiary of Equiticorp Tasman Limited.

Equiticorp Tasman Limited was partly owned by

the top company in the Equiticorp group to the extent of 50 to 60 per cent - 43, was it - the precise percentage does not matter. Equiticorp

Tasman was listed on the stock exchange, so the

balance of the shares were outside the group. Did

he have the implied authority to do that, bearing

in mind that unless you can accept the group

benefit argument to which I shall have to come

later, that Equiticorp Finance was incapable of

benefiting from this transfer? Persons or

entities, not even in the Equiticorp group would

benefit. That is the stock exchange shareholders, if I can describe them in that way, and bearing in mind also that Mr Hawkins personally either owned

or controlled a large proportion of the capital in

the top company of the group. I think it was

something of the order of 30 per cent; the precise

percentage does not matter. He certainly had a

large, personal equity and interest in the

companies in the group.

The second question: they really, in our submission, involved the same considerations, is

that can it be said that if a transaction of that

nature was carried out by somebody who had implied

actual authority to implement it, it was a

transaction that was in conformity with his

fiduciary duty as the controller of the affairs of

the company. The tests as to that have been

postulated in a number of ways but if you take the

postulation most against us, that we would have to

find that it could be categorized as dishonest

conduct, it has to answer that test. You have the

position of a man in de facto control taking from a

company that he is controlling an asset which he

knows and the Bank of New Zealand know was put in

place not long ago, critical to the continued
business activities of that company, taken from it,

applied to discharge the obligations of a partly

owned company elsewhere in the group with a benefit

flowing from that, flowing up through other

companies to an extent which can be described as

considerable, even if you cannot quantify it with

mathematic precision, for the benefit of the person

who does this. In our submission, that is

dishonest conduct on any possible meaning of the

word "dishonest". While some of the authorities

have indicated that you have to find the conduct

was either dishonest or unhonourable or words like

that, taking the highest against us that you have

Equiticorp 10/12/93

to find dishonesty, in our submission, that is the

finding that should have been made on the

evidentiary material. And, for the additional reason that what seems to have been completely

overlooked - perhaps overlooked is the wrong word

so far as Mr Hawkins is concerned - ignored by him,

and overlooked by the majority judgment in the

Court of Appeal is the matter we have sought to set
out in the second-last paragraph in the short

submissions.

From reading the judgments, there seems to

have been a lot of time spent, not so much on

proving whether or not Equiticorp Finance Limited

and Equiticorp Financial Services Limited were

insolvent in the sense of having assets less than

liabilities, but whether that was relevant and

whether it was gone into. It is the wrong

question, in our submission. Walker v Wimborne, in

Russell Kinsella with the duty of directors to have regard in

this Court, and in the Supreme

forming a decision, and you have to assume for this

purpose that the quasi-controller could not have a

less duty, at least so we would submit, than the

director.

Their concern is not simply to the welfare of the shareholders. It must take into account the

interest of creditors. That first arose in this

Court in Walker v Wimborne where it is true that

the company was insolvent in the sense of having

liabilities which exceeded its assets. That was

not necessarily so in Kinsella v Russell Kinsella

and I take it Your Honours are not right at one - -

BRENNAN J:  How close are you to the end of your

submissions, Mr Bainton?

MR BAINTON: Longer than 10 minutes, Your Honour.

happy to continue. I am

BRENNAN J: Yes, go ahead, Mr Bainton.

MR BAINTON: In this case, what was overlooked is that

creditors had a somewhat different and special

interest so far as Equiticorp Finance - - -

DEANE J:  Mr Bainton, can I divert you for a minute? I

appreciate your reasons for putting it the way you

do, but is what was involved here any more than a

shorthand method of two companies in the group

lending money to a third company in the group?

MR BAINTON:  Yes, quite a lot more.

Equiticorp 6 10/12/93

DEANE J: That was not the overall effect of the

transaction. I mean, I understand the importance

of the background of reserves and so on, but I

mean, is that not what was involved, a loan by two

companies in the group to - - -

MR BAINTON:  The end result of the transaction was that

these two companies did not have some funds and

another one, URUZ, notionally got them, and used

them to repay the Bank of New Zealand. That is the

overall end result.

DEANE J: If it had been done in a roundabout way, would not the transaction that you would have to attack be an

intra-group transaction of loan?

MR BAINTON:	If Your Honour is asking me to assume did everything take place in accordance with all the
regularities of corporation law - - -
DEANE J:	As I say, assuming there is no direct dealings

with reserves and so on, but it was done in a great

roundabout way, would not the critical transaction

that you would be attacking be inter-company loans?

MR BAINTON:  Yes. Loans from one company in the group to

another in that broad sense, yes, that is perfectly

true. That is what is being attacked. But,

implemented, not by the decision of a board of

directors, but by another person for a reason.

DEANE J:  I follow that, and I am not suggesting that you

forget the reserves or what they were there for, or

so on, but I was just trying to identify in a

longhand analysis where you centre your att~ck.

MR BAINTON: That is probably a fair commercial description

of the end result. Where we centre the attack is

that it was done at a time and with knowledge of

all of the relevant circumstances which should,

assuming they did not in fact, lead the actuator of

this, Mr Hawkins, to know that it was very much

against the interests on any test, in our

submission, of Equiticorp Finance Limited and the

same applies to Equiticorp Financial Services

Limited, to have that done, because it took from

them what had been acknowledged to be a critical

liquidity reserve set up for them and applied it,

not in any way, in our submission, for their

benefit, but for the benefit of somewhere else in

the group.

It is not part of our argument that it is

impossible properly to do that under any

circumstances whatever. Much depends upon the

particular circumstances of this case, and one of

the very relevant critical circumstances, in our

Equiticorp 10/12/93

submission, is this. Both of these finance

companies were "in the position of what is

colloquially called, "borrowing short and lending

long". They were taking in money - in one case

under a debenture trust deed from the public; the

other, I think, is Equiticorp Finance - from lines

of credit and from dealings on the money market.

That money is on short call. We do not know

precisely what the call was, except that one knows

that money market dealings are normally on 11 AM

call. It might be 24 hours or something of that

nature. The money was being lent out on hire

purchase transactions, leasing transactions,

consumer finance and things of that nature. If you

have a company whose business involves it getting

in money from the public or the money market,

whatever, on a daily basis, as it were, a short

call basis, you have money called for that. These

companies will work out through their experience

how much at times they can expect to have called

more than they are getting in on a particular day,

and they have to have available to themselves a

reserve to enable them to make that payment.

Because, if a company dealing on the money market

fails to meet a call, that particular piece of news

is going to get around the money market that day

and it would have to close its doors.

The evidence in this case showed quite clearly

that both of these companies were in present need of such a reserve, partly because of the problems

with the Equiticorp group as a whole, and

substantially because the finance side of the group

had been lending money to what was called the

industrial side. The Bank of New Zealand knew

about it, and the executives of the company and the

bank between them set up this fund, it got to be

called liquidity reserve. They did it by having

the Bank of New Zealand buy from both of these

companies, and I am slightly simplifying - the

transactions, like anything in this group, tended

to be a little more complex than straight out. But

the essence of it was that the Bank of New Zealand

bought from the two finance companies what are

called receivables, that is to say the hire

purchase contracts, the leasing contracts, and so

forth that were outstanding, for a sum of money -

at a discount I would imagine - and that sum of

money amounted in round terms for the two of them

to the $50 million that between the two became
described as the liquidity reserve. It was done

for the express purpose of making sure these

companies could continue to carry on their

business. They had to have it because of the

nature of their business in the circumstances in

which that sort of company always is, to some

extent, and because these were deeper in it, as it

Equiticorp 10/12/93

were, because of the situation of the group as a

whole.

The fund was simply taken from them by

Hawkins' decision because - let me correct that -

at the Bank of New Zealand's suggestion there being
no other liquid money available in the group, as

the source from which the URUZ debt could be paid

by the deadline that had been set, which was

28 July. It was the only liquid fund in the group.

Hawkins, on any realistic view of the evidence, was told if he did not use it the bank would withdraw

any support. He instructed that it be used to

repay the URUZ facility with the consequence that

it left the two finance companies without any

liquidity reserve, a situation that seriously

imperiled the business activities. The question is

BRENNAN J:  Mr Bainton, I can understand that situation if

you look at it from a point of view of two

companies carrying on this business, needing this

reserve in order to be in a position to retire any

claims that are made upon them. Is that the real question? In the circumstances of this group, if the bank had withdrawn the support from other

members of the group, would that have led to a run

upon these companies, which the $50 million would

not have done anything substantial to abate, or is
it the situation that by lending this money to

other companies in the group, who then repaid their

debts to the bank, if there were at any time any

concern about the solvency of the group, or the

ability of the group as a whole to meet debts as

they became due, there is a likelihood that the

bank could channel the funds back through the other

companies to which the monies had been lent to

these companies?

MR BAINTON:  The bank had been asked to give an assurance

that it would do that, and it refused to do it, and

I have also left out of account one other factor

that is relevant. When the bank purchased the

"receivables" for the 50 million to set up the

facility in June, the bank also secured from the

two companies a put option. It could put them back

to those two companies at any time. So they were

at risk of having to find 50 million to repay the

bank on demand from the bank.

The question is, I do not suggest otherwise, not the simple one of what you can do between two

completely separate companies. These two companies

were part of what is called the Equiticorp group.

The substantial question, and one which in our

submission has got considerable importance because

it has happened in the past and may happen again,

Equiticorp 9 10/12/93

is whether, in the circumstances such as those

disclosed as the background to this matter, it is a proper use for a director or controller to make, of

funds of one company in the group in a way that

would imperil the continuing business of that

company in the group to save someone else in the

group, and in the light of a suggestion that if one

company in the group falls, the domino effect will

be that they all fall. But, there was no reason to

assume, in the case of these two finance companies,

that if they continued to meet calls, which they

could have if they had had 50 million, they did not

necessarily have to fall or to close their doors if

some other company in the group failed.

The main company in the group, whose debt the

bank was anxious to repay, was URUZ Limited. Its

only activity was as a vehicle to finance the

Monier bid. It borrowed money from the Bank of

New Zealand and then lent it to another company in

the group which actually acquired the Monier shares at reserve. Hardly a shell company but it was just

a vehicle company.

The question is - and there are two steps to

it - has an executive got implied authority, or

implied actual authority to cause a company in the

group to do this against the opposition of his

treasurer and a director, and if he has, can it

properly be said to be a transaction which can

properly be said to be for the benefit of, in the
widest sense, the company concerned. If not, it is

not authorized and the results, in our submission,

would flow.

There are two views of this and they are to be found in very short passages in the judgments in

the Court of Appeal and they are identified in

paragraphs 2 and 3. There is six pages in the

President's judgment and 10 in the majority

judgment where they cover, having made findings,

where they cover the arguments and come to

diametrically opposed conclusions on them. Our

submission is that, ascertaining the authority of

this Court which of those two views is correct is

important to the commercial future of this country.

It is a question that remains undecided apart from

the decision from which we seek leave to appeal.

BRENNAN J:  We will adjourn now until 2 o'clock.

AT 1.18 PM LUNCHEON ADJOURNMENT

Equiticorp 10 10/12/93

UPON RESUMING AT 2.17 PM:

BRENNAN J: Yes, Mr Bainton.

MR BAINTON:  I was going to refer Your Honours to the

passage almost at the end of Mr Justice Street's

judgment in Kinsella which is among the copies that

were given to Your Honours' associates just after

Your Honours adjourned.

BRENNAN J:  What page, Mr Bainton?

MR BAINTON:  The report is at page 722. The passage begins

at 732, almost at the bottom of the page. It is

the last paragraph on that page and the first

paragraph on page 733, that deals with this general

question and it had the concurrence of the other

two members of the court.

The view being expressed is that it is not

enough for directors or whoever may be controlling

a company simply to consider the interests of

shareholders.	The interests of others merit
consideration.	Who those others are, of course,

depends upon the nature of the corporation and the

business it is carrying on. But those who may be

affected by decisions made by the controllers

through the body corporate are entitled to have the

effect on them considered by directors if they are

acting properly in the execution of their office as

director. The same must apply, we would submit,

beyond argument, to somebody who assumes control,

whether he simply takes it or whether it has been

conferred upon him by ostensible authority, either

by the board or the shareholders. There can be no

difference in principle to the office of the person
who is taking the steps. It is the steps that are
being taken with the corporation's property that

are the relevant matters for consideration.

This, in our submission, is a suitable case

because the relevant facts have, in fact, been

found in the court below. We do not seek to

necessarily in the same language, but if you look at the schedule and compare the two, you will find they are coming to the same conclusions, and I say

quarrel with any of them becauwse the schedule

shows the judges who are in the majority and the

it is not surprising, because it was documentary

material that they, for the most part, relied upon.

It is an important question in modern commercial

life, because as one knows there has been more than

one group collapse, normally because of the

Equiticorp 11 10/12/93

activity imposed upon the group by some controlling

executive.

BRENNAN J: Are you saying that if special leave were

granted, the appeal books would not need to contain

anything further than the judgments themselves?

MR BAINTON:  As far as we are concerned, no, they would not.

I cannot speak, obviously, for the respondent, but

we would be satisfied to argue this matter on the

material in the judgments. I think it would be

prudent if I made it clear that it would include

Mr Justice Giles' judgment, because he has

obviously found some facts that somebody may want

to refer to, but for our part, we would not want to

go beyond it. I have not discussed that with my

learned friend for the other applicant, but as I

would see it, it is all there. Those facts throw

up, in a fairly stark form, a question of law on

which Mr Justice Kirby found for, in our

submission, very good reasons one way, and the

majority judge found, I suppose in conformity with

some more traditional views, a different way.

But, those conclusions do not depend upon the

evidence, they depend upon the application of the
proper principles of law to the evidence.

DEANE J:	I do not follow what the difference between the majority and minority judge as to the proper
principles of law is? I can understand they differed as to the relevance of creditors in the
particular circumstances of this case, but
otherwise it seems to me there is just a different
assessment of the overall effect of the facts.
MR BAINTON:	Your Honour, they differed in two ways, one of

them being quite important, with respect. The

first is on the question of actual authority of

Hawkins, by implication, which sounds a bit of a

contradiction in terms, but that was the way it was

approached. Mr Justice Kirby took the view that

you could not imply authority to takes steps that

were not in the interests of the company. The

majority did not think it relevant to know what the

person assuming control was doing, but simply

whether or not, as a matter of inference and the

fact that nobody had interfered with him in the

past, he had the authority to do anything he liked.

That was one matter and that is of no slight

importance. As to the other, it goes a little, in

our submission, beyond - - -

DEANE J: But Mr Bainton, you would not really argue, would

you, that you could not have actual implied

authority to make all relevant decisions as a

matter of principle, and if you have got actual

Equiticorp 12 10/12/93

implied authority to make all necessary decisions,

that bestrides the question whether the decisions are right or wrong with the benefit of hindsight.

MR BAINTON: In a sense, with respect, that puts the cart

before the horse. It would be possible, I would

have to concede, I think, for a board of directors

to resolve that so-and-so had authority to do

whatever he liked in respect of the affairs of the

company. That would be a misfeasance, for a start,

but I suppose they could do it, and I suppose if

they did it, that -

DEANE J:  "For heavens sake, he owns it. He put us here.",

you could just hear some of them say, "He owns the

thing, he put us here. I'm not going to stand up

to him."

MR BAINTON:  I know that happens in practice, and one of the

reasons why we submit this is an important case is
it should be stopped, or at least those who do it

ought to realize the consequences.

McHUGH J: But does it not depend upon the particular facts

of the case? Is not the majority's view summarized

at page 199, line 25:

his Honour found that there were really no

board meetings of EFSA ..... The reason advanced

in the evidence for this was that the treasury

function, ostensibly within the domain of

Fitzgerald and Curtayne, was a centralised one

and was dealt with at the EFGL board

meetings - at which Hawkins presided.

MR BAINTON: That has got nothing to do with my client, for

a start.

MCHUGH J: Yes.

MR BAINTON:  But taking that as a fact, the real question in

my submission - and taking up what Justice Deane

was putting to me - is it proper to imply an

authority to do something that is outside the scope

of the proper execution of the duty? I cannot deny

that it could be actually conferred, but is it
right to imply it, as the question that

Mr Justice Kirby addressed him to, and he thought

it was not and said so expressly. That is step

one.

The second question, I have to concede, does

involve or may involve, in cases, a question of

degree. But the evidence in this case was fairly

clear, that when Hawkins made his decision he gave

no thought to the separate situation of either of

these two finance companies or of the creditors who

Equiticorp 13 10/12/93

may want their money back in a hurry and need this

liquidity reserve. He was only concerned with

appeasing the bank, who wanted some money back or

was threatening, as it were, to pull the plug on

the group, whatever that meant. That is my summary

of the evidence, and I think it is fairly accurate.

So the question is whether that authorizes

what was in fact done or, on the contrary, whether

that is in conflict with the proper appreciation of

a director's duties.

BRENNAN J: Could I take you back to your first point, the

implied actual authority? If one says, can there

be implied actual authority to do an act which is

in breach of fiduciary duty, your answer is, of

course, no, there is none. But is that the

relevant question that was being asked here? Is

not the relevant question that was being asked in

this case, was there implied actual authority to

appropriate funds standing to the credit of A and B

in favour of the discharge of the debt of X?

MR BAINTON: That is stating the facts, I was seeking to

state a conclusion from them.

BRENNAN J:  Exactly. Then the question whether or not the

application of those funds for that purpose is in

breach of a fiduciary duty must await the

elucidation of all the surrounding circumstances,
which the creditor may or may not know at that

time.

MR BAINTON:  That is true. The creditor may or may not

know. In this case he did because the bank was the

creditor and the bank was the one pressing for it,

but as a generalization what Your Honour has put to

me must be correct. It is a matter of evaluating

the surrounding circumstances, but the evidence

evaluates them with, in our submission, clarity.

BRENNAN J: It comes down to the second question, then, in

the circumstances commonly known to the bank and to

Mr Hawkins, was it a breach of fiduciary duty to

allocate these funds for the purpose for which it

was devoted?

MR BAINTON: Without wanting to quibble, the question is:

was it known to Mr Hawkins, for that step? If it

is known to the bank also, that is relevant on the

recovery aspect, but only on the recovery aspect.

There is no doubt, in this case, it in fact was.	I
think that is common ground.	But that is to be

tested by what was known to Mr Hawkins - or what

should have been known to Mr Hawkins - as to the

effect of what he was proposing to do on these two

Equiticorp 14 10/12/93

companies.	Aga_in, it is all the subject of
findings.

BRENNAN J:  The relevant question, in order that you can get

relief against the bank, is what the bank knew. Is

that not so, because if there should be any

difference - - -

MR BAINTON:	If the bank was innocent of any knowledge one would not be able to recover from it.
BRENNAN J:	I am putting it not quite in those terms, but

that whatever entitlement you have against the bank

depends upon the state of the bank's knowledge.

MR BAINTON:  As a broad generalization, yes, but again there are clear findings. When I indicated earlier that

the findings were mostly documentary, most of the

bank's documents were proved and used to make these

findings. So while it is true that it is an

evidentiary matter, it is a matter that is the

subject of unarguable findings on the bank's own

documents in this case.

BRENNAN J:  Have we got this much then: on the face of the

judgments there is no disagreement as to the facts;

on the face of the judgments there is no

disagreement as to the relevant principles; and yet

on the face of the judgments there is a division of

opinion as to the application of those principles

to the facts?

MR BAINTON:  Not quite. There is a dispute as to the

relevant principles at any rate, in so far as the

implication of authority is concerned. The

President thought you could never imply authority

to, in effect, misconduct yourself. It involves an
investigation of the facts. That is where we come

to.

BRENNAN J:  Do you find any difference in the two questions:

that is, breach of fiduciary duty and the limit of

authority?

MR BAINTON: Yes, they are different questions, but the same

facts proved in this case would answer both of

them. If we cannot succeed in one, we cannot

succeed in the other.

BRENNAN J:  I am not quite following you. I had understood

you to say that the limit on authority is to be

ascertained as to the reference to the breach of
fiduciary duty and that within the limits of a

proper performance of a director's duty you did not

have any argument.

Equiticorp 15 10/12/93

MR BAINTON: That is correct. But what is proper

performance of a director's duties? It is not only

relevant to that question, but it is relevant to
the second question, whether there is something

that is recoverable. This is a case where the same

set of facts would answer the question at both

stages, one way or the other. That is what I say,

if our argument and the law is correct we succeed

on both propositions.	We cannot succeed on one and
not the other.

I have to concede that to some extent it

depends upon findings of fact, but all cases that

throw up points of principles, or nearly all do,

this is one where the findings are clear.	So it is
for that reason - and because it involves a

question that has occurred in the past and will, in

all probability, occur again in the future, it is

our submission that it is an important matter for

commercial morality and law. So it is an

appropriate case, we would submit, for leave.

BRENNAN J: Yes, Mr Douglas?

MR DOUGLAS: If Your Honours please, the propositions which

we would wish to put were articulated in the

affidavit which we filed in support of the

application for special leave, which commences at

page 226 of the appeal book. We say that there are

a number of specific questions of law raised by

this application, the first of that is whether

there was implied actual authority and in what

circumstances does a chief executive officer of a

large group of companies, who was either a director

of, or participates in making decisions for

individual companies in that group acquire actual
implied authority to make a decision for a

subsidiary company to dispose of a significant and

important asset of that group.

Just dealing with that proposition, because it

is a matter which has been dealt with by
Mr Bainton.	The evidence which was used to

establish implied actual authority in the

circumstances of this case was a participation of

Mr Hawkins in the decision to set up the liquidity

reserve in June of 1988. So, in other words,

Mr Hawkins and Mr Fitzgerald got together and

established a liquidity reserve for the purposes of

the Australian Finance Group and, in particular, my

client, EFSA, an amount of $17 million.

It was acknowledged by all parties concerned

that that money was needed for the purposes of the

Australian Finance Group, of which my company was a

member, and obviously it was entitled to so much of

that liquidity reserve as was its money. My

Equiticorp 16 10/12/93

company is a finance company which is a wholly

owned subsidiary of the group which was

substantially owned by Mr Hawkins. It sold

debentures to the public and so it was financing,

in the usual course of events, normal finance

company transactions.

As its balance sheet, which was in evidence,

showed - that is, the balance sheet for 30 June

1988 showed - its only liquidity at that time was

for money which it obtained from the sale of those

receivables. That is about $17 million. It had no

other liquid assets. The evidence which the

majority of the Full Court found as substantiating

implied actual authority was the fact that

Mr Hawkins, with Mr Fitzgerald, participated in the

setting up of a liquidity reserve for the benefit

of my company.

To extend from that a proposition that each of the other directors of that company, that is my

company, gave Mr Hawkins implied actual authority

to use that money for another company in the group,

wholly unrelated to the company of which they were

directors of, on basically an unsecured basis, is a

proposition which has never yet been accepted in

any court that we know of. All of the cases, such

as Freeman and Lockyer, and the other cases

following on from it - - -

McHUGH J: But has Freeman and Lockyer got anything to do

with this case?

MR DOUGLAS:  The way Mr Bainton puts it, he puts it in terms

of: you are not authorized to do something .in

breach of fiduciary duty. But I want to start it

at a more fundamental level. The question is:

what was the evidentiary basis upon which it was

said that Mr Hawkins had implied actual authority.

The only cases where you have implied actual

authority are cases where in an evidentiary sense

executive of a group has committed that company to	there have been prior transactions where the chief
transactions which have been subsequently approved
and so on. Minor transactions; not transactions of
this nature. A transaction where a finance
company, which accepts money on debenture from the
public, pays the entirety of its liquid funds to
one of the other companies in the group, which is
essentially a take-over vehicle, for entirely
unrelated purposes.

McHUGH J: But if you find a company operating and allowing

an outsider to run its affairs, in effect, why has

he not got implied authority? It is nothing to do

with ostensible authority.

Equiticorp 17 10/12/93

MR DOUGLAS:  Your Honour's proposition that you put to me

contains within it a fallacy because there is no

such evidence to that effect, Your Honour.

McHUGH J:  I thought the findings of Justice Giles when he

equated it, he seemed to equate EFSA and EFL.

MR DOUGLAS: That is a different matter, Your Honour. That

is a finding of His Honour Mr Justice Giles that in

most matters the company whom I represent delegated

significant decisions to its parent companies.

That is not a finding that it delegated significant

decisions to Mr Hawkins. If Your Honour reads the

findings which are made in those passages for

judgment Your Honour will find that the significant

decision which Mr Hawkins participated in, and the

only significant decision, was the setting up of

the liquidity reserve. The fact that we may have

delegated authority to companies higher up the
corporate tree than us is absolutely no authority
for the proposition that the other directors of

the company gave implied actual authority to

Mr Hawkins to pay away the whole of our liquid

funds.

McHUGH J: Yes, but you seize on a particular transaction

rather than a class of transaction.

MR DOUGLAS:  I do that for one good reason, Your Honour.

There are no classes of action referred to in the judgment. There are no other transactions in

evidence. There is simply no other evidence to

support the proposition.

If this decision is right, it means that all

of the other directors of this company, if in fact

this was a breach of fiduciary duty, impliedly

authorized Mr Hawkins to commit a breach of

fiduciary duty. They may be liable under the

Companies Code or the Corporations Law for the

offences which they committed. It is a serious

finding.

The doctrine of implied actual authority does

depend, we would say, upon there being prior

evidence of the other directors of the company

having actually consented to the chief executive of

the company doing similar things.

McHUGH J:  I thought the cases showed it could arise just

simply from the nature of the office?

MR DOUGLAS:  Your Honour, he was the chief executive of the

group. He was not a director of Mr Bainton's

company. He was a director of my company. He had

no other office. It is as fundamental as that,

Your Honour.

Equiticorp 18 10/12/93

McHUGH J:  No, I was just putting that in answer to your

argument that you had to find previous transactions

to have implied authority.

MR DOUGLAS:  One can have authority implied from the actual

office itself. That is a different matter. If we

address that proposition, is it to be suggested

that the chief executive of a group of companies

such as this, in all circumstances, has implied

authority to do what was done in the particular

circumstances of this case? Is that something

which the law would normally imply as - - -?

McHUGH J: It is not that the law implies it; it is a

conclusion that the law will permit from a

particular set of facts. I mean, supposing

somebody has got nothing to do whatever with a company, holds no office at all, but a company

allows him to run its transactions day in and day
out, well, surely, he has got implied authority

then to run the company's business, even though he

has got no actual authority and we are not even

dealing with ostensible authority.

MR DOUGLAS:  Your Honour, that is not the way it has been

put and moreover, if you look - - -

McHUGH J: That is the way I thought it was being put.

MR DOUGLAS:  No, Your Honour. The superior boards in this

group had that authority, undoubtedly, and we had

undoubtedly delegated our authority in many areas,

so far as funding was concerned, to our immediate

parent and its parent which was the company in New

Zealand which was the ultimate parent of the.

finance group. But there is no finding that there

was an ultimate delegation of authority to

Mr Hawkins in respect of all matters. But,

fundamentally, what Your Honour is putting to me is

this, is that Mr Hawkins could do anything in this

group and the other directors of my company allowed

him to do that regardless of whether it was in

breach of fiduciary duty or not.

DEANE J:  Mr Douglas, would you dispute Justice Giles'

findings that are set out at page 201 of the
application book in the paragraph quoted at the top

of that page?

MR DOUGLAS: That is "the reality was"?

DEANE J: "Reality was", yes.

MR DOUGLAS:  No, I do not dispute that finding, Your Honour.

DEANE J: It goes a very long way towards what

Justice McHugh put to you.

Equiticorp 19 10/12/93

MR DOUGLAS: But, Your Honour, to say that he is the

ultimate decision maker in all matters which

affected the group, that was taken from some of

Mr Fitzgerald's evidence. But, none the less, if

you look at the entirety of the evidence which was

in this case you can see that the boards of the

companys in fact participated in the decision

making. They deferred to Mr Hawkins, and that is

essentially what that finding is saying, that they

used to defer to him, but not in all circumstances.

DEANE J: No, that is not what it is saying. It is saying

they treated it as a matter for him.

MR DOUGLAS:  Assume they did in most normal transactions

deferred to the authority of Mr Hawkins, there is

no evidence to suggest that any of those other
transactions were necessarily in breach of

fiduciary duty. Is it to be suggested that just because they normally gave Mr Hawkins his way in that sense, that they met at boards but he usually

prevailed as a matter of course, that he could do

anything with this group of companies, Your Honour?

DEANE J:  I would have thought the answer to that would be

it would depend on the detailed facts of the

particular case.

MR DOUGLAS:  Your Honour, I do not think it depends upon

much more than is in the judgments.

DEANE J: That may be, but the proposition you are putting,

I would think, simply says this, that you must look

with great care at the detailed facts of the

particular case; you must assess comparative weight

to be put to comparative facts and, at the end of

the day, you have a factual decision to make.

MR DOUGLAS:  But it is an important authority in that

regard, Your Honour, because I do not know of any

other case with regard to such important decisions.

For example, I think the Brick and Pipe case was

holding out someone as a secretary. In Freeman and

Lockyer, I think it was just normal ordinary

everyday contracts of the company.

McHUGH J:  I know, and the learned President relied on both

those cases and they do not seem to me to be on the

point at all.

MR DOUGLAS: Well, they are on the point so far

McHUGH J: If the case is ostensible authority.

MR DOUGLAS: Well, implied authority is dealt with in it.

Now, I have said what I want to say in relation to that point and I do not want - - -

Equiticorp 20 10/12/93

BRENNAN J: Before you leave it, when you are speaking about

implied authority, I take it that is implied as a

matter of fact?

MR DOUGLAS:	Yes, Your Honour.
BRENNAN J:	And from what you had said a moment ago, I

understood you to say that on looking at all the

facts, one can see the way in which the boards of

the companies higher in the hierarchy than yours

were accustomed to dealing with financial matters

and attributing functions to Mr Hawkins.

MR DOUGLAS:  And Mr Hawkins participating in those decisions

and, in fact, having, as Justice Deane has pointed

out, considerable say.

BRENNAN J: Yes. Well now, do I take it then from what you

are saying that what you are really concerned to do

on this aspect of the case, that is implied actual

authority, is to re-examine the facts in order to

demonstrate that there was, as you put, no evidence

to support the conclusion of fact that Justice

Giles came to?

MR DOUGLAS:  No more facts than those which are contained in

the judgment because I believe that is all we need.

We do not, on that aspect of the matter, seek to

re-examine the facts. We would be content to live with the findings which are there and the basis on

which it is put. So, that is the first ground. I

do not agree with Mr Bainton that that stands or

falls with the next ground because it seems to us

it has its own life.

So, then we come to the question of breach of

fiduciary duty. Now, the question of breach of

fiduciary duty is dealt with, in our submissions,

in paragraph 7 and following. Your Honours will be

aware that Mr Justice Giles took into account six

considerations in determining that there was no

breach of fiduciary duty in the particular

circumstances of this case.

If I could just briefly deal with each of those as they relate to my client because it is an

important matter. The first of those is:

(i) the indirect shareholding in and

substantial advances to other members of the

group.

Well, the company whom I represent had no indirect shareholding in any other member of the group. It was owed $12 million by its direct parent, EAL, and

I am prepared to accept for the purposes of the

argument that EAL was substantially exposed to the

Equiticorp 21 10/12/93

other companies in the group such that if the other

companies, that is the industrial group, fell, EAL

would fall.

BRENNAN J:	You were owned, what, $12 million by EAL?
MR DOUGLAS:	We have got Mr Bainton's client, that is EFL; I am EFSA; EAL is our direct parent.

BRENNAN J: Yes, and you are owned, what, by EAL,

$12 million?

MR DOUGLAS:  $12 million.

BRENNAN J:	And how much was taken from you?	$17 million?
MR DOUGLAS:	$17 million.	If you look at paragraph 7.5 what

we say is that the relevant question which

His Honour should have asked in relation to that

question was whether an intelligent and honest

director of EFSA could have believed on reasonable

grounds that it was in the EFSA's interest to allow

liquidity reserve to be used to support another

company in the group because it already had

advances outstanding to EAL in that amount. We

would say that the answer to that would have to be

"No" because it is a greater amount and there are

some other reasons which I will develop in this

paragraph.

The next point which His Honour relied upon

was:

(ii) the adverse effect of loss of the Bank of

New Zealand's support on the Company's own

funding.

Well, the company whom I represented had no funding

relationship with the BNZ. It did not by guarantee

or otherwise support the companies to whom our

deposit was being given.

His Honour's finding seemed to be based upon a

fear that if in fact the Equiticorp Group fell,

well then our company would fall with it. But we

accepted debentures from the public and, of course,

debentures mature at different times so they could

not call for their money immediately and, secondly,

that sort of reasoning, if taken to its logical

conclusion, would allow the beggaring of the

company such as that which I represent in the

interest of the whole of the group until every

company in the group was illiquid. That chain of

reasoning would seem to be contrary to the decision

of Walker v Wimborne.

Equiticorp 22 10/12/93

The next two propositions which His Honour

relied upon were:

the adverse effect of loss of Bank of New Zealand's support on the funding of other

members of the group.

Well, without any development as to how that would

affect us, we cannot see how that could possibly be

a relevant consideration in terms of the test in

Walker v Wimborne.

The next one was:

the adverse consequences of the effect on

other members of the group.

Well, again, unless it can be shown that that would

have impacted upon us in some way, we cannot see

how that is a relevant question.	The test cannot
be - - -

McHUGH J: But these companies, in the public eye, would be

identified with Mr Hawkins. If he was in trouble

in one section of his empire, it must have

consequential effects.

MR DOUGLAS: But, Your Honour, is that form of reasoning -

and I am prepared to accept that for the purposes

of argument. Is that chain of reasoning going to

be allowed to let finance companies, which these

are, subsidiaries of a major corporate

conglomerate, to be beggared to enable a

conglomerate to survive, are they going to be

propped up there whilst members of the public

continue to invest in them, whilst out the back

door their money is being used to prop up the

corporate empire of entrepreneurs like Mr Hawkins?

What the intelligent and honest director has

got to think about is, having regard to the

position the company is in at the moment, would it

be better for it to, independently, go into

receivership or liquidation or would it be better

for all of its funds to be channelled into

Mr Hawkins' group and let sink or swim with the

rest? Now, the answer to that question depends

upon the extent to which we were exposed to the

rest of the group at the time when this decision

was made, as Justice Brennan pointed out and as, I

think, Justice Deane pointed out.

There was another consideration which was

taken into account by Mr Justice Giles and that is

the intention, albeit imperfectly executed, to

provide compensation for loss of the liquidity

reserve. What happened was that in August there

Equiticorp 23 10/12/93

was a transaction purportedly entered into whereby

certain receivables from the New Zealand finance

group were transferred to us by documents brought

into existence in August but dated 28 July.	We
only received $7 million of that and got the

benefit of it and we gave credit for that in our

claim. But we were supposed to receive $12 million

worth of Feltrax shares.	We never got any.
In any event, we say that is irrelevant to the question of breach of fiduciary duty.	It only goes

to a question as to what compensation we are

entitled to. That question only depends upon an

analysis of the evidence which is contained in all

of the judgments and we would say that one could

not form the view, looking at what was in fact done

in August, that that in any way excused Mr Hawkins

for what he did on 28 July 1988.

Then, the sixth consideration, which is a very important consideration, was:

the prospect (clearly enough not a certainty,

but historically justified and in fact

realised) that a liquidity reserve could be in

place within a short time.

The first point about that is this, that on 27 July

1988, Mr Hawkins sought from Mr Travers of the Bank

of New Zealand an assurance that he could get

another liquidity reserve in place.	No such
assurance was forthcoming.

The other point to remember about it is this:

the means whereby we set up the liquidity reserve

which is the subject of these proceedings was to

sell receivables to the Bank of New Zealand. But

each of the agreements whereby those receivables

were sold to the Bank of New Zealand contained a

put option which enabled the Bank of New Zealand to

put those receivables back to us at the end of
August.	The only money which we had available to

meet that was the $17 million which was being paid

to Uruz. So, therefore, if a put option was called

upon, we would have paid the $17 million to Uruz;

Uruz could not pay it back; we were already owed

$15 million EAL; it was in substantial difficulties

because it was exposed to the rest of the group

and, what is more, through the back door BNZ could

now call upon that put and say, "Pay us

$17 million."

So that effectively, the effect of these

transactions was one where from before the
transactions we were owed $12 million by EAL.

After the transactions, we were owed $12 million by

EAL; owed an additional $17 million through EAL to

Equiticorp 24 10/12/93

the industrial.group and Uruz, so that is $29

million and what is more, we were open to attack by

BNZ if they put the receivables back to us to

another $17 million. Now, a balance sheet which

was in evidence showed that we only had $25 million

at the relevant time.

We say, in those circumstances, no honest and

intelligent director of the company whom I

represent could possibly have agreed to this

transaction, and it was self-evidently a breach of

fiduciary duty.

One matter which is important - - -

BRENNAN J:  Mr Douglas, before you leave those items which

Justice Giles was concerned with, can I just take

you to page 47, the page before the page on which

those items appear.

MR DOUGLAS:  Of the application book?

BRENNAN J:  Of the application book. The first complete

paragraph on that page and the last few lines of

the second paragraph, that is from line 42 onwards

and lines 18 to about 25. Now, in those passages

His Honour seems to be coming to the conclusion,

rightly or wrongly, that there was a great

advantage to the two applicant companies in having

this money made available to Uruz or to other

members of the group. What do you say about that?

MR DOUGLAS:	Your Honour, we attack that.
BRENNAN J:	You attack as a finding of fact.
MR DOUGLAS:	Your Honour, it is more a conclusion drawn from

facts than the actual fact itself, is it not?

BRENNAN J:  What are the facts from which it is drawn?

MR DOUGLAS:  Your Honour, it is largely the evidence of

Mr Hawkins where he said, "I preferred the

interests of the group because I thought if one

company went, the whole group would go". It is

undoubtedly the case that the Bank of New Zealand

was the principal banker to the group. It had a

very substantial exposure to the Bank of New Zealand and, undoubtedly, if the Bank of New

Zealand withdrew its support, the whole group would

fall.

But the challenge which we make is essentially

this, what His Honour has - and what we say

His Honour is really saying in that passage is, it was better for all of the companies in the group to

Equiticorp 25 10/12/93

go down than for our companies possibly to go down

but with more money in their coffers.

BRENNAN J:  I do not read His Honour as saying that and

having regard to the extremely lengthy hearing that

proceeded it, it seems to me that this is a

conclusion which His Honour reaches in the light of

a mass of evidence which he does not purport to

reproduce in these pages.

MR DOUGLAS:  Your Honour, I do not think that could be said

to be a fair characterization of the evidence.	The
facts, as I am putting them to the Court - - -

BRENNAN J:  I am not suggesting that it is a fair

characterization of the evidence because I do not

know the evidence.

MR DOUGLAS:  No, I understand that, Your Honour.

BRENNAN J: All I am suggesting is that the way I read it is

that it was the way in which His Honour expressed

his conclusion from the mass of evidence that he

had heard.

MR DOUGLAS:  Your Honour, with all due respect, I really do

feel that he is only summarizing what Mr Hawkins is

alleged to have said in the next paragraph, that

is:

The substance of all these matters, and

more, was drawn out in the evidence of

Mr Hawkins. He said quite bluntly that in

making his decision he had regard to what he

believed to be the interests of the group as

opposed to the interests of any particular

company in the group, and that he saw the

welfare of the group as the most important

thing because of the effect the welfare of the

group had on the individual companies within

the group.

It is largely that type of sentiment.	It is a form
of sentiment which is entirely contrary

DEANE J:  The next sentence is pretty relevant.

MR DOUGLAS: Sorry, Your Honour:

He thought at the time that loss of Bank of some of the companies in the group.

We do not dispute that, Your Honour.

DEANE J: No. Well, the sentence after that.

Equiticorp 26 10/12/93

There was no real challenge to any of

this - - -

MR DOUGLAS:  Your Honour, that is no real challenge to that,

being Mr Hawkins' view, and there is no real

challenge, as we say in our affidavit, to a

proposition to a withdrawal of BNZ support. It

would have been a complete disaster for this group. There is no doubt about it. The whole group would
which has not been addressed by His Honour and which should have been addressed by an honest and

have gone into liquidation in one form or another.

reasonable director at the time is would the

company, which I represent, have been better off

using its moneys, this liquid funds at the death,

to support the other members of the group - - -

DEANE J: But you are adopting a different approach to

His Honour. You are adopting the approach of, "Now we know how everything turned out disastrously and,

looking back, this is all terrible." His Honour,

if you read the rest of that paragraph, is adopting

a different approach and saying, in effect, "At

this stage it wasn't apparent that there was

disaster for anyone", and that being so its

critical importance to conclude:

the loss of Bank of New Zealand's support

would have been significantly against the

interests of, and potentially disastrous for -

the two companies that we are concerned with.

MR DOUGLAS: But, Your Honour, the propositions to put in

answer to that are these, are they not: firstly,

if he is looking at it in that way, that is, how

Mr Hawkins perceived it subjectively at the time,

it really is not the Charterbridge test. It is the

objective test which all of the parties agreed

should be applied and that is the one which I am

seeking to apply in this Court.

DEANE J:  It seems to me His Honour is applying it much more

appropriately than you are with the benefit of

hindsight.

MR DOUGLAS:  Your Honour, the next answer to it is one only

has to look at all of the evidence which is quoted

both in His Honour's judgment - - -

DEANE J:  I follow that but that takes us into what is

becoming clearer and clearer and that is this is a

case with concurrent findings of fact even if they

are findings of ultimate fact and, really, what is

challenged is not a challenge to principles of law,

it is an attempt to get this Court to set out a

Equiticorp 27 10/12/93

third assessme~t of facts and weighing of facts and

importance of facts and, really, it is quite an

inappropriate exercise for this Court.

MR DOUGLAS:  With respect, it is not, Your Honour, because,

really, the way in which Mr Justice Giles has gone

about his task is really inconsistent with a

decision of this Court in Walker v Wimborne and it,

effectively, drives a train through it.

McHUGH J: But is it? Why would not an intelligent director

ask himself this question, "If I don't go along

with what Hawkins wants, that's the end not only of

the group but, of necessity, of the company of

which I am a director? Or, should I go along with

him and see whether we can trade our way out of this or should I bring the whole show to an end

here and now?"

MR DOUGLAS:  Your Honour, he has to do that, having regard

to what he knows about the situation of the company

at the time. Your Honour, the evidence clearly

establishes that he knows that this money is the

only liquidity available to his companies; were set

up specifically for this group. He knows that the industrial group cannot find these moneys; that no

other banker in the world is going to give it to

him. We are effectively being asked to provide, on

an unsecured basis, the whole of the liquidity of

the Australian Finance Group to prop up the group

in New Zealand.

The evidence more than amply supports the view

that the directors and the Bank of New Zealand knew
the intense liquidity problem to which this group

of companies had been facing since the stock market

crash in October 1987.

BRENNAN J:  Is that state of the balance sheet and the

knowledge of the Bank to be found in the judgment

of Justice Giles?

MR DOUGLAS:  No, it is not there, Your Honour.

BRENNAN J: Well then, are you not inviting this Court, if that is something that you have to rely on, to go

back once more through the evidence in a case in

which there are concurrent findings of fact?

MR DOUGLAS:  Your Honour, I can say in all sincerity that

the submissions we would wish to make on the appeal

are basically contained in the affidavit which is

filed. I would need to refer to the balance sheet.

But one of the problems is that at every court in

every level they have not approached this case in

the way in which we are seeking to approach it.

The case has always been looked at, basically, in

Equiticorp 28 10/12/93

terms of that subjective assessment of Mr Hawkins

as - it would have been a disaster for the group.

What we are trying to do, and we tried to persuade

the Court of Appeal to do, is to look at the case

as the case should be looked at consistently with

the authorities, and it has not been looked at in
that way, because there have been broad general

findings as to the survival of the group but no
particular findings as to how it would have

affected the company which I represent.

I fully accept that these decisions cannot be

made in retrospect but one only has to look at the

evidentiary matrix which is cited in all of the

judgments to see how intense the liquidity

pressures were; how the directors must have
realized these funds were needed and they could not

but have come to a conclusion, objectively

speaking, which I have sought to impress upon

Your Honours.

If Your Honours were to be persuaded by the arguments which I seek to put on the question of

breach of fiduciary duty, well then, obviously,

some very interesting questions of law arise amd

they are set out in the affidavit. They are the

sort of questions which have been dealt with -

probably not dealt with by this Court since its

decision in Consul Developments. There has been a

lot of attention given to those questions in the

appellate courts of England, in the Court of Appeal

in Belmont Finance, and a number of other decisions

in recent years because the question of

participatory liability or liability as a recipient

under the doctrine of Barnes v Addy is one which is

attracting a lot of attention in lower courts at

the present time.

So far as I am aware, it has not attracted the

attention of this Court for a considerable period

of time, and we would say this is a suitable

vehicle for this Court to consider those questions

and to adjudicate upon them. If it please the

Court.

BRENNAN J:  The Court will adjourn briefly in order to

consider the course it will take.

AT 3.05 PM SHORT ADJOURNMENT

Equiticorp	29	10/12/93
UPON RESUMING AT 3.17 PM:

BRENNAN J:  We need not trouble you, Mr Conti.

We are not persuaded that the judgment of the majority in the Court of Appeal contains any

erroneous statement of principle, nor are we

persuaded that an appeal would ultimately involve

more than a re-examination of factual questions
which would necessarily involve reconsideration of

concurrent findings reached by the courts below.

For these reasons, the applications for special

leave will be refused.

MR CONTI:  Would Your Honour please make an order for costs

in our favour?

BRENNAN J: It will be refused with costs.

AT 3.18 PM THE MATTER WAS ADJOURNED SINE DIE

Equiticorp 30 10/12/93