Flinders Management v Pope; Mane Market v King No. DCCIV-97-39, DCCIV-97-213

FLINDERS MANAGEMENT v POPE
MANE MARKET v KING
[2000] SADC 83

His Honour Judge Kitchen
Civil

These two actions were ordered to be heard together, the evidence in one to be evidence in the other subject to all just exceptions.
In both actions the plaintiff’s claim is for the proceeds of, or alternatively damages for the conversion of, or in the further alternative restitution in the amount of, a cheque or cheques drawn on the plaintiff’s bank account and signed by Russell Temple, a director of each of the plaintiffs. Each plaintiff additionally claims other relief or remedies referable to the acts of the particular defendant in the proceedings against him concerning his alleged dealings with, in the case of Pope, one cheque in the sum of $60,000 drawn on the account of the plaintiff Flinders Management Pty Ltd (“Flinders Management”) and in the case of King, two cheques in the sum of $20,000 and $80,000 drawn on the account of Mane Market Pty Ltd. (“Mane Market”).
Each plaintiff’s case is that the plaintiff was not indebted to the defendant and Temple had no authority to draw the cheque or cheques, the subject of its action.
Pope admits that a cheque dated 29th June 1995 in the sum of $60,000 made payable to him, signed by Temple and drawn on Flinders Management’s account, was indorsed by Pope in favour of Temple. Pope, by his defence, contended that the amount of $60,000 was the repayment of a loan in that sum made by him to Flinders Management in about May 1994, or it was a refund to him of an investment of that sum with Flinders Management, in about May 1994.
King, by his defence, admitted that he received a cheque for $20,000 dated 28th June 1995 payable to him, drawn on the account of Mane Market and signed by Temple. King contends by his defence that the cheque was the repayment in part of a loan of $25,000 made by him in about January 1994 and February 1994 to Mane Market, or alternatively an investment of $25,000 in Mane Market as a member of the Ocean East Group of companies. As to Mane Market’s claim against him concerning the cheque for $80,000, which was dated 30th June 1995, drawn on Mane Market’s account, signed by and made payable to Temple, King in effect denies he ever received or had any dealings with that cheque.
Much of the evidence in the case of each plaintiff was common to both cases, hence the order that they be heard together. It is convenient therefore that there be only one set of reasons for judgment but the reasons will, of course, deal separately with the case against each defendant.
Temple and one David Weeks, on 8th October 1992, promoted the incorporation of Ocean East Pty Ltd (“Ocean East”). They were the first directors of Ocean East and each owned one of the two issued shares in the capital of that company (part Exhibit P2), Ocean East it appears was the trustee of what was called the Temple Weeks Trust and in that capacity it owned 66.67% of the issued shares in the plaintiff Mane Market, which was incorporated on 13th October, 1992 and acted as the trustee of the Newmarket Trading Trust trading as the Newmarket Hotel. Ocean East, also in its capacity as trustee of the Temple Weeks Trust, owned all the issued shares in the plaintiff Flinders Management which was incorporated on 8th February, 1993 and was the trustee of the Flinders Hotel Trading Trust trading as the Flinders Hotel and Raglan Hotel. Temple and Weeks were directors of both Mane Market and Flinders Management.
Temple and Weeks were members of a syndicate which betted on horseracing. In that connection and beginning in about 1992, King (who had been acquainted with Temple since about 1978) acted as an agent for Temple and sometimes for Weeks journeying to interstate racing tracks to place bets on horses. Pope, by about 1990, was working in his father’s business as a bookmaker. In that year eight bookmakers formed a venture called Adbet which, as I understand it, was the first to be granted a licence in South Australia to conduct betting over the telephone. In the course of that business Pope, in about 1993 and 1994, came to know Temple and Weeks and also King.
Neither Temple nor Weeks were called by any party to give evidence in these proceedings so such of these preliminary and background matters concerning the business and other relationships between Temple and Weeks are taken from the evidence of the witnesses (including the defendants) who were called.
As best I can understand, the interest which Temple and Weeks had in hotels via Ocean East was sharpened in about 1993 by the proposed introduction in July 1994 of licensed poker machines in hotels and other venues. By February 1995 Ocean East’s holdings in various hotels (there were by then eight of them) either outright or with other entities was as shown in Exhibit P35. The hotel businesses included those of each of the plaintiffs and, among others, North East Management Pty Ltd which was incorporated on 29th April 1994 and was the trustee of the Windsor Hotel Trading Trust trading as the Windsor Hotel.
Temple resided in Adelaide. Weeks resided in Adelaide until in 1993 when he went to live in Queensland. I infer that Temple had a more intimate knowledge of the hotel business than Weeks who was content to leave in Temple’s hands as an executive director the task, inter alia, of running the group’s hotels which he carried out with book-keeping services provided by Execucorp Pty Ltd, a company Temple controlled. Walker Wayland, a firm of chartered accountants, provided financial and accounting services to the group. Richard Krantz was a member of that firm.
On 4th November 1994, Ocean Central Pty Ltd was incorporated. Its sole shareholder was Ocean East. Its purpose, as I understand, was to administer the groups’ hotel businesses and among other things to bring a greater semblance of order to the financial and business records of those businesses. Peter William James was engaged in December 1994 by Ocean Central as General Manager, Finance and Administration a position he took up in January 1995 and he was appointed the secretary of each of the several corporations which conducted the hotel businesses. Part of his task in conjunction with Krantz was to take over with effect from 28th February 1995, the book-keeping and similar tasks then being conducted by Execucorp and to obtain from Execucorp balances at that date for each of the members of the group. James holds the degree of Bachelor of Economics from the Adelaide University and is a certified practising accountant. At various times before his appointment by Ocean Central on 17th January, 1995 he had successively held the positions of Chief Executive Officer of the Calvary Hospital and the Adelaide Casino and had been Managing Director of the marine division of Adsteam.
James set about taking possession of the accounting and business records, which he expected would exist, concerning each of the group’s businesses including documentary evidence of each of the individual assets and liabilities and the necessary documents and records concerning the trading of each group member. His evidence in the broad is that from his inquiries of Temple or Execucorp, represented by a Mr Mark Gray, or otherwise he obtained only incomplete information concerning the assets and liabilities and the profit and loss position of the group and its members at 28th February 1995.
Stephen Gerard Williams’ early career was in Town and Regional Planning for many years before he became an investor and property developer, a business activity in which he is associated with Weeks through Wingate Properties Pty Ltd. Williams has been acquainted with Weeks, a property developer, since 1975.
In early 1995 Williams was asked by Weeks to investigate the hotel property holdings of the Ocean Central group and consider ways in which the assets could be improved, or disposed of if they were judged to be performing unsatisfactorily.
Williams, although not appointed as a Director of Ocean Central until 12th December 1995, attended the board meetings of that company throughout 1995. On the same date 12th December 1995, he was also appointed as a Director of each of Ocean East, both plaintiffs and the other companies shown in Exhibit P35 (the group structure) which Ocean East controlled either through Ocean Central or in which it had direct substantial shareholdings.
Throughout 1995 the meetings of the Board of Directors of Ocean Central, and likely the meetings of the Board of Ocean East in previous years, were also regarded to be meetings of the Boards of each of the corporations in the group; that was the effect of Williams evidence.
James said that in about April 1995 in speaking with, among others, Krantz he learned of what were called shareholders’ loans. This was at a time when James was investigating or assisting in the investigation of financial records to enable the production of trial balances for each of the members of the group as at 28th February 1995, the preparation of which required, among other things, the identification of such loans. James was working closely with Temple who used rooms at the Newmarket Hotel from which Temple administered the group’s affairs. Some weeks after his appointment, James and a staff of eight were located to offices in Hutt Street to which he removed the financial and other records of the group’s members, but not those concerning the Newmarket - they remained with Temple at the premises of that hotel.
Exhibit D80 is a copy of an agenda for a meeting of the Directors of Ocean Central “on 20th February at 9.00 am”; Williams believed it concerned a meeting in that month of 1995. He was unsure whether he attended the meeting. From the content of the agenda, which included a proposal for the acquisition by Ocean Central of Ocean East’s interest in the Old Lion, the Newmarket, the Windsor and the Flinders Hotels and the contents of the minutes of a Directors’ meeting on 13th March 1995 (D79), I infer the agenda was for a meeting on 20th February 1995. In D80 there is a proposal for “issuing shares in Ocean Central Ltd to those persons who currently have lent funds to the Flinders Hotel - $570,000”.
In the minutes of meeting on 13th March 1995 (D79), under the heading “Cash Flow” there appears (inter alia):
“- .... Initial balances at the 28th February in relation to creditors etc. were not yet available.
-Discussion took place as to the finalisation of forecasts including opening balances at 28th February 1995 and projected balance sheets. It was agreed that this would be made available at the next directors meeting ..... ” (the next meeting was scheduled for 11th April 1995)

and under the heading “Flinders Hotel”:

“It was agreed to sell the leasehold of this hotel. R. Temple estimated a price of $1 million should be achievable. R. Temple to action as soon as practicable.
R. Temple reported that the loans owing to investors amounting to $570,000 in the balance sheet of the Flinders Hotel Unit Trust would be converted to capital in Ocean Central Ltd in due course. He had spoken to each of the investors who would be offered the alternative of investing in Ocean Central Ltd or the repayment of their funds based upon the eventual sale price achieved for the lease.”

On 11th April 1995 Temple in a memorandum (P59) to the Directors of Ocean East wrote, inter alia:
“(A). INABILITY TO PROVIDE ACCURATE OPENING BALANCES (28TH FEB)
I am in a position of being unable to furnish Peter and Richard with these balances by today, or Thursday for that matter, as promised. This situation is not the fault of either of the above or Mark Gray and without trying to vindicate my position over this vital matter I would like to give you my assurance these will be complete and accurate by the end of April so that Richard and Peter are able to provide the board with the correct accurate information for its consideration.”
Exhibit P60, prepared by James, is a draft of minutes of a Directors’ meeting on 13th April 1995. It records (Item 3.1) that the Directors were “very upset at delay in ‘transfer date’ (27 February 1995) balances ..... Discussion of reasons, then Russell Temple instructed to enforce absolute deadline of 1st May 1995 prior to telephone conference on 2/05/95.”; and at Item 5.1(e) “The draft balance sheets including debtors, intercompany loans were discussed in general. Many technical errors existed as well as out dated items (eg debtors that should have been written off). Refer 3.1 above.”.
James said that in or after April 1995 he received from Mark Gray of Execucorp what he described as print-outs of trial balances at 28th February 1995 for each of the companies in the group conducting hotels, and also printed versions of what Execucorp (as I understand) suggested was the balance sheet of each of those companies at the same date; copies of the latter documents as a bundle are Exhibit P38 on which is handwritten “draft”. In only one of those documents does the name of either defendant occur; under “current liabilities” in the Windsor Hotel balance sheet appears “loan - T King $25,000”. However, Temple is shown as a lender to the Newmarket, the Beachfront, the Old Lion and the Flinders Hotel in amounts aggregating $300,000, $170,000 of which is a loan to the Old Lion.
In the printout “General Ledger Trial Balance as at February 1995” Exhibit P3 for the Windsor Hotel, there appears at page 3 “830 03 T King $25,000”, that sum being listed as a credit.
On 26th May 1995, Krantz wrote a memorandum (Exhibit P39) to Weeks and Temple, sending copies of it to May and James, setting out matters to be discussed at the board meeting on 31st May 1995. May was the Chairman of the Board of Directors of Ocean Central. Part of the memorandum comprised a copy of a consolidated balance sheet at 28th February 1995 “prepared from accounts completed by Mark Gray” and “a schedule of persons who have advanced monies to the company”. The consolidated balance sheet has the words “draft for discussion purposes” typed at the foot of it. Against the item “Loans - others” amounts appear under the column headings “M/Market, Old Lion TT, Flinders, Windsor, P/Anchor” totalling $1,525,000. The schedule is a document headed “Ocean/East Central Group Loan Schedule as per R P Krantz”. Under the item Old Lion Hotel “T King” and “D Pope” are shown as lenders in the amounts of $75,000 and $60,000 respectively and under the item “Windsor Hotel” King is shown as a lender of $25,000. Under the item “Flinders Hotel” “various” is shown as a lender of $575,000. Different copies of that document came before the Court, each of them bearing differing handwritten notes on them.
The minutes of a directors’ meeting on 31st May 1995 (Exhibit P44) include under the heading “Corporate Restructure Progress”
“Richard Krantz spoke to his circulated paper regarding:
1. Consolidated balance sheet at 26 February 1995;
2...... Proposal of conversion of existing ‘loan holders’ and Weeks/Temple equity to new equity and debt. (A list of all ‘loans’ existing in subsidiary hotels was provided and clarified by Russell Temple in some cases);
....
NP (sic)... It was essential that a (legally approved) letter of offer was put before 30 June to all minor shareholders or ‘loan providers’ on the circulated list and that all should be spoken to by Russell Temple in order to satisfy Directors obligations to those people whose relationship was still uncertain in some cases (especially associates introduced by O’Shaughnessy).”
James was not asked and Williams (in cross examination) said he could not recall what Temple might have said about the list of loans mentioned in the minutes.
The minutes of a directors’ meeting on 15th June 1995 (Exhibit P40) record, amongst other items:
- Under “financial report”

“PWJ (James) spoke about our difficult cash position. .... PWJ would attempt to hold the cash position until month end.”

-....... Under “corporate restructure progress” a proposed letter to “loan providers” was discussed, and in that context:
......... “As there are already more than 20 ‘loan providers’ who are potential shareholders, it was suggested that Ocean Central aggregate some potential shareholders in order to provide ‘syndicates’ of major shareholding in Ocean Central viz:
1...... ....
2 ....
3...... ....
4 O’Shaughnessy and associates group
.......
Because of the need to avoid a cash payout to the group at present, Russell had advised any ‘loan providers’ who did not wish to become shareholders would not be repaid until December 31 1995 (but had indicated interest would be payable).”

James said that in the middle of 1995 he believed there were two cheque books for each hotel business, one kept at the hotel and the other at the Hutt Street office he occupied and that cheques drawn on an hotel account had to be brought to Hutt Street for signature,
......... “Because we had to watch the cash. They had to be authorised by me in conjunction with Mr Temple or individually. We couldn’t afford for cheques to be paid without our supervision so at least once a week there was a cheque payment day where they came and sat in a queue outside of Russell’s office or mine where we released cheques and signed them together.” (T332)
......... “We physically sat together wherever possible which was 95 per cent of the cheques. That was the expectation between Russell and I and the board of Ocean Central. We needed to keep track of all the cash. There were regular cash reports and it was most important that we do it together.” (T334).
James related that in July 1995, as part of his task to enter up and reconcile payments and receipts, he received and read the bank statements for each of Flinders Management and Mane Market; he saw that a cheque for $60,000 had been debited against Flinders Management’s account on 29th June 1995 and two cheques, one for $20,000, the other for $80,000 had been debited against Mane Market’s account on 29th June 1995 and 3rd July 1995 respectively. He said money was “constantly” being borrowed or lent between the various hotels in order to pay accounts and “to keep our credit right” but he had no knowledge of and had not been asked to authorise those particular cheques. He contacted an employee at each of the two hotels and also spoke to Temple. He learned that it was Temple who had signed the three cheques and was told they were to repay loans. Acting on that information he made “journal entries to reflect the fact they had been repayments - well supposed loan account according to Russell - but we had no loan accounts in.”. He said that after he learned about these cheques, the Board changed the direction to bankers concerning signatories of cheques drawn on the accounts of, among others, the plaintiffs to require two signatures in lieu of one (Exhibit P66).
In about June 1995, Mr James said, he was handed by Williams a document headed “Ocean East/Central Group. Loan Schedule as per R.P. Krantz”; it is Exhibit D23. Different copies of that document came before the court, each of them bearing differing handwritten notes on them. D23 under the item “Old Lion Hotel” shows or purports to show the defendant King and the defendant Pope as lenders in the sums of $75,000 and $60,000 respectively and under the item “Windsor Hotel” the defendant King appears as a lender of $25,000.
Concerning D23 James said that Williams was looking to him “for any objections from me or any advice I could give him, or documents, which would back this up.”. He set about that task but was unable to complete it because he was not able to find documents to “prove” all the items in D23; as to some hotels he found only a few documents and as to others there was no documentation “specifically listing loans or amounts”. He said he had received from Execucorp all the documents he was going to get from that source; he searched for documents in the Newmarket Hotel, the storage of which he described as disorganised, similarly searched at the Brighton Hotel and asked Temple for documents he might have relating to the “loans” listed in D23 - he was not given any documents by Temple but was told by him “There is probably something in the file.”. The enquiries by James included speaking to some of the persons named in D23, those whom he felt he knew or dealt with in the course of his daily activities; the defendants were not among those to whom he spoke. Among the records and documents he did find was a memorandum dated 30th June 1994 from Gray to Bettison (the latter was an employee of Quantile Pty Ltd, a company controlled by Weeks). It is Exhibit P13. The subject matter of the memorandum is “Re Windsor Hotel”. The memorandum lists, by name, funds contributed “in relation to abovementioned hotel ownership structure”; it includes “T. King $25,000”. Pope’s name does not appear in that document A copy of the memorandum was apparently sent to Temple.

James said that by the time his employment with Ocean Central ended in November 1995 his enquiries, at the behest of Williams, had not discovered any primary documentation confirming payments to either of the plaintiffs by King or Pope.
In cross examination, James said he understood that prior to June 1994, the only hotels owned by the group were the Newmarket, the Flinders and the Old Lion. The other hotels were acquired after that time so that there was not much given to him by Execucorp by way of records concerning the latter hotels; as to the longer-owned hotels, he received from Execucorp “in big boxes, semi‑organised” cheque stubs and bank pay-in slips, statements and invoices and handwritten journals like Exhibit P3 for each of the hotels, including those more recently acquired.
In order to familiarise himself with the book-keeping system Execucorp had maintained, James said he sat with its staff and assessed that system and was satisfied the cash received and the payment of invoices had been and was being captured by the routine procedures, but he was not sure “one off” type transactions were being properly recorded.
Mr James said that in about mid July 1995, Krantz was given the responsibility by the Board to accurately identify the balances at 28th February 1995, and I infer that thereafter James played little or no part in that task.
Taken to Exhibits P71 and P72 (general ledger trial balances) James said that the coding against entries was, as to some entries, confusing. He related that by June 1995 poker machines had been installed in each of the hotels in the group and by the terms of the relevant licences the controlling authority, on the seventh day of each month, appropriated from each licensee’s bank account a sum equal to the gaming licence fee, or tax, calculated (as I understand) upon the money which had passed through each of that hotel’s poker machines in a preceding period. If the particular licensee’s bank balance was insufficient to meet the appropriation, its poker machines were “switched off” by the authority. In the week before the seventh day of the month there was, as James put it, a frantic search for funds within the group, with moneys in very large sums being switched between many accounts, to ensure each hotel had sufficient in its account to meet its fee. The Newmarket Hotel had greater cash resources than any other hotel in the group, so it was often the source of funds for other less profitable hotels. The consequence of this, and other reasons concerning movements of funds within, into and out of the accounts of the group’s members, was that, as James put it, large amounts were regularly “swished” between accounts, end of month reconciliations were not, as I understand James, easy and therefore, for example, entries in Exhibit P72 (the Newmarket Hotel trial balance at 30th June 1995) concerning Temple and King showing against the Code 696 $315,000 borrowed from Temple and $100,000 lent to King could not be satisfactorily explained by James - more particularly because balances at 28th February 1995 reconciling loans to the group’s members had not been produced and (James said) were not produced before his employment terminated.
Exhibit P76 includes the general ledger audit report for the Flinders Hotel, the purpose of which James said was “to show every transaction”. At page 13 of that document against code reference 876C appears what James said he understood to be a repayment in June 1995 of $60,000 from the account titled “shares sales trust account” - that equates with the sum paid to Pope. James said he could not find any record of who were the contributors to that account (the balance of which at March 1995 was $575,000) other than a note from Gray to Bettison which he had read.
I have referred to this evidence of James to example what both sides in these two actions readily agree to be the case, namely the unsatisfactory state of the financial records of each plaintiff and the similar state of records of other members of the group.
Exhibit P5 includes a photstat copy of the cheque, dated 29th June 1995, for $60,000 drawn on Flinders Management’s account payable to Pope. The cheque stub for that cheque records “repay loan (indecipherable) D. Pope 876C shares sales trust a/c $60,000” as best I can decipher it. The “876C” is the account code reference which James spoke about and which I referred to earlier. The reverse of the cheque is indorsed “please pay R. Temple” followed by the signature of Pope. The sum of the cheque was debited to Flinders Management’s account on 29th June 1995.
Exhibit P6 includes a photocopy of a cheque, dated 28th June 1995, for $20,000 payable to Tyrone King drawn on Mane Market’s account. The cheque was debited to Mane Market’s account on 29th June 1995. In the exhibit there is what James identified to be a cheque requisition authority on Newmarket Hotel letterhead paper; it includes “Authorised RJT. Account code 696.30”. James identified the writing to be that of Ms Burns who worked with him in the Hutt Street offices. The effect of James’ evidence (T512 and T513) is that the requisition authority could have been produced “... to have enough paperwork at the end of the month to reflect what had happened.”.
Exhibit P6 also contains the last cheque, the subject of these actions; it is dated 30th June 1995 for the sum of $80,000 payable to “R. Temple” and drawn on Mane Market’s account. The stub for that cheque shows “payee T. King. Detail. Repay loan.”. The cheque was debited to Mane Market’s account on 3rd July 1995. James said he could not explain why the payee of the cheque was different from the payee on the cheque stub. He said both the cheque and the stub were in the handwriting of Ms Burns.
Williams described Krantz to be the financial adviser to the Ocean Group, Temple’s personal accountant and a director of Ocean Central. Krantz was also a member of the committee of management set up by the Board of which Temple, Weeks, May and James were also members. May, an accountant with the firm Duesburys, had been engaged by Weeks to give accounting advice to Weeks on financial and restructuring matters concerning Weeks’ involvement in the Ocean Central Group. May was the chairman of directors.
Williams did not become a director of any of the companies in the group until December 1995, but he said he became a member (in or before May 1995 as I understand) of the committee of management. His role, which had initially been property investigations, expanded into advising Weeks and the other Board members about the financial material being provided to Board meetings.
“Q.... You have told his Honour about some events at board meetings of Ocean Central which occurred in 1995, in particular, from about May onwards. Is this the position: as of, say, the end of May 1995, the board of Ocean Central and the management committee that you have told his Honour about were controlling the affairs of each of Mane Market and Flinders Management.
A...... At the end of May 1995, the board and the management committee were attempting to fully understand the operations of the company, but effective management, day-to-day management, still rested in the hands of Mr Russell Temple.
Q...... Yes. Mr Temple was a director of Ocean Central at this stage.
A...... He was acting as the managing director of the group, if you like.
Q...... And he was actively involved, was he, in the affairs of each of the hotels owned by the group.
A...... He was the only executive director.
Q...... And as such, he had day-to-day control of the affairs of the companies which operated the group’s hotels.
A...... That is correct.
Q...... Including Mane Market and Flinders Management.
A...... That is correct.
Q...... In the sense, though, of corporate governance, had the board of Ocean Central and the management committee taken control of management at the highest level of the companies in the group.
A...... It had. There was - may I elaborate on that?
Q...... Yes. Thank you.
A...... There was considerable dissatisfaction about the lack of credible information being put to the board, and therefore the board was wanting to take interventionary action to attempt to better control the functioning of Mr Russell Temple.” (T240-241)

He said the Board was concerned that the information about the financial affairs of the group being provided to the Board was inadequate and unreliable, the Board was frustrated at the lack of factual information and James was directed to prepare fuller information, but James later reported he was having difficulty in finding accurate information because Temple and Gray were unable to provide opening/closing balances at 28th February 1995. That date, it appears, had been selected as part of a programme to separate the interests of Temple and Weeks in the Ocean Central Group. Williams said James had produced various drafts of balance sheets, like those in Exhibit P38, for each hotel, but he (James) considered they were not reliable. Krantz was then instructed to investigate and in about July he produced the balance sheets in Exhibit P38 telling the Board he was 99.9% certain they were correct. Williams said the Board “noted” the information which the documents contained and requested him (Williams) to investigate the inter-company loan accounts and the current liabilities to ascertain that they were correct. Williams related that he asked Krantz the basis of the account, and for journal entries and for background information, following which Krantz produced Exhibit D23, but he did not produce any primary documentation; Williams said he asked Krantz the basis for the loan schedule in D23 and was informed it was “on the instructions of Mr Russell Temple.”.

Exhibit D23 is a copy of one of the documents (headed “Ocean East/Central Group loan schedule as per R P Krantz”) which accompanied Krantz’s memorandum, Exhibit P39. Williams said he was present at the Board meeting on 31st May 1995 when the loan schedule was discussed - he said “there was surprise at the Board meeting in relation to who had contributed amounts of money.”.
Williams said that he engaged Mr Gavin Bates from Walker Wayland who worked full-time for him investigating the financial affairs of the Group, in that task reviewing all the available information.
Williams related that in July 1995 the Board directed there be a change to the authorisation of signatories to the bank accounts of companies within the group, including each of the plaintiffs; to that time only one signatory of a number of signatories, including Temple, was required to any cheque. The authority was altered on 21st August 1995 to require two signatories (Exhibits P29 and P30). That decision, Williams said, “... originated from concern by the Board that there were being cheques drawn without the knowledge of the Board on matters which may or may not have related directly to the company’s activities.” (T239)
Taken to the minutes of meeting on 15th June 1995 (Exhibit P40) under the heading “corporate restructure progress” and Temple’s recorded statement that “loan providers who did not wish to become shareholders would not be repaid until December 31 1995” Williams said the discussion preceding that statement was upon three topics - cash-flow difficulties, disquiet about Weeks being “continually” required to advance funds to ensure the companies traded in a satisfactory manner and criticism of Temple that he had not been able to provide accurate financial accounts; he went on:
“Q.... Mr Temple having made the statement attributed to him in the minutes, was there any discussion after that on that topic of repayment of shareholders or shareholders’ loans.
A...... Not that I recall.
Q...... Did Temple say in the context of the statement attributed to him that any so-called loan providers had actually asked to be repaid.
A...... Not that I recall.
Q...... Did he, at that meeting, mention the names or either of them Pope and King.
OBJECTION.
Q...... Did Temple say at the meeting that he had an intention to repay before December 1995 any particular loan providers.
A...... No.
Q...... In particular, did he raise at the meeting the topic of repaying any loan providers before 30 June 1995.
A...... No. It was specifically agreed by all present that there was to be no repayments before that date.” (T251-252)
Williams said that he was not present at any Board meeting which authorised any of the cheques the subject of these proceedings and he did not learn of them until James produced a transaction statement toward the end of 1995, which he thought was prepared following discussions at the Board meeting on 13th September 1995. The minutes of that meeting (Exhibit P41) contains item 6.
“Miscellaneous unsecured loans.
Considerable discussion took place on the loan schedule prepared by Richard Krantz relating to funds advanced by various individuals, companies and trusts.
It was noted that the total amount advanced was approximately $1.54M.
Russell Temple reported:
-....... That all parties had been contacted by him except Alf Matthews and David Hall

-....... With the exception of Shiller/Smallacombe/Scenic Outlook/ O’Shaughnessy Connections (total $450,000) all other parties had confirmed a preparedness to convert their loan to equity in the restructured Ocean Central Group.

It was agreed that no loan repayments would be made without approval of the Management Committee. ....”

Williams was unsure which particular Krantz loan schedule was referred to at that meeting, but he said Temple did not say any loan repayments had been made.
Exhibit P42 is a facsimile from Williams to James, dated 5th October 1995; it includes a copy of the Krantz loan schedule which Williams said bears both his and Temple’s writing and markings made at a meeting he had with Temple when he questioned Temple as to “the history, origin and credibility of the figures which were shown on the schedule.”. The tick and asterisk against some of the items were made by Temple “ticking amounts that he (Temple) agreed with having been advanced by those parties ... The asterisk related to parties that I was unable to find any evidence of funds being advanced through the searches that I have been doing.” A tick and an asterisk appears against the amounts shown opposite the name of King ($75,000 and $25,000) and Pope ($60,000). Williams said that his conversation with Temple concerned “... how much money had been advanced by other parties and whether or not those amounts were correct, and if they were not correct it was relating to me putting to Mr Temple that he would have to have those amounts debited to his loan account, and he would have to repay the monies.” (T265); he related that he asked Temple to produce “original documentation” relating to those payments by King and Pope, but neither on the occasion of that meeting, nor later, was any documentation produced by Temple. Williams said that the words “not necessarily” (or their abbreviation) appearing in Exhibit P42 were written by Temple against, inter alia “King $25,000” and Temple told him that entry may not be accurate and as to the entry “Fox $20,000” he (Temple) would inquire whether the “Fox payment of $20,000 was part of the Pope payment of $20,000” (T284).
The facsimile to James, sending the loan schedule, part of Exhibit P42, asked James to provide to Williams “the date for when funds were received”. Williams said James later telephoned him stating “it was improbable that he would be able to provide accurate information as I had requested.”.
It is apparent that, by 26th October 1995 at the latest, Williams knew payments had been made to inter alios, King and Pope. On that date, Williams wrote a memorandum (Exhibit P91) to the management committee, item 2 of which is headed “equity/loan parties” and is divided into four parts, one of which (d) has the heading “paid parties”, below which appears
“-      Shiller $135,000
-       T King $100,000
-       D Pope $60,000
-       Fox $20,000

Note: accounts show Russell Temple paid Pope $80,000 and the Flinders paid him $60,000 whereas according to our records he was only owed $60,000 and therefore he should be shown as an asset for $80,000. Need for Richard Krantz to clarify the position.”

The memorandum also states that “letters have now been sent to all parties and we will await their responses over the next few weeks.”.

Williams said that the information in paragraph (d) of Exhibit P91 would have been the transactions and statements provided by James. However, the matters mentioned in the paragraph “Note ....” appears to reproduce an explanation forming part of the facsimile, dated 18th October 1995 (Exhibit P43) which Williams said he received from Bates of Walker Wayland. That explanation, which canvassed matters appearing in the first sheet of the facsimile headed ‘Ocean East/Central Group loan schedule as per balance sheet’ ...” concerned the King and Pope “loans” and concluded “What a mess. Please advise.” Williams said he probably saw an earlier copy of P43 in June 1995 and that it was likely discussed at a Board meeting. The “balance sheet” making up the first page makes no reference to Pope.
On 26th October 1995, Williams wrote to King (Exhibit D25) and to Pope (Exhibit D26). As I understand his evidence they were to be delivered by Temple. The letters are identical.
“Dear (Mr King) (Mr Pope)
OCEAN CENTRAL LTD HOTEL GROUP
We refer to your advancement of funds with a view to taking an equity position within the Ocean Central Ltd Group.

We confirm our understanding that all funds advanced by you to our group have now been repaid in full.
Would you please confirm our understanding by signing the acknowledgment on the additional copy of this letter and returning it to us.
Thank you for your assistance.
Yours sincerely”

Williams said the letters were based upon information given to him by Temple.
Each of King (on 22nd November 1995) and Pope (on 5th June 1996) returned to Williams a copy of the letter, acknowledging with his signature “that all funds advanced by us to Ocean Central Limited had been repaid in full”.
Williams said that he was not present at any Board meeting where a resolution was passed concerning the way in which payments to King or Pope should be accounted for in the books of the plaintiff companies.
I will interpolate here the evidence given by Mr John Hynd. Mr Hynd is a member of the firm of solicitors acting for the plaintiffs. He said that in November 1995 he was asked by Williams to speak with Temple to obtain information concerning a matter involving Win Manufacturing Pty Ltd and some of that company’s employees. He was told Temple and Pope and two brothers by the name of Deegan were the directors of Win. Hynd called on Temple on 20th November 1995. Pope was present. Hynd said he made notes of his conversation and later the same day transcribed his notes into a typewritten form. He said that during the conversation Pope told him “he had lent $60,000 into Win Manufacturing and that $40,000 was on his own behalf and Mr Temple said ‘yes and $20,000 was on my behalf’ meaning Temple”. In cross examination Hynd produced his handwritten note. He referred to his typewritten note and was referred to a letter, dated 28th November 1995, he wrote to Williams at Wingate Properties reporting upon the conversation. The conversation canvassed other matters which are not relevant to this case. So far as they are relevant:
-....... “the typewritten note records “The Deegans transfer all the intellectual property in the invention to Win Manufacturing and Temple and Pope lent in $60,000, being Pope 40 and Temple 20”
-....... Hynd agreed that his letter (Exhibit D34) to Wingate reported Temple lent $20,000 and Pope lent $40,000 to Win Manufacturing; it did not report Pope to have lent $60,000.
The handwritten note includes:
“- $60,000 - P - 40
T - 20 (loan)”

Hynd said that the word “loan” is the only part of any of the three documents he referred to which he could point to as a contemporaneous reference to what he said is his memory - that Pope told him $20,000 of the $60,000 was advanced by Pope on Temple’s behalf. He said he was first asked to recall that he had spoken with Temple and Pope some two years after it occurred. He said he was certain of what he was told by Pope and at the time he thought it was unusual.

Pope denied he told Hynd he had lent $20,000 into Win on Temple’s behalf. I am not satisfied Hynd’s memory is accurate. It think it is possible that he is mistaken.
Returning to the approximately chronological narrative on the evidence in the plaintiffs’ cases.
On 4th June 1996, Williams wrote to Pope (Exhibit P50):
“Dear David,
OCEAN CENTRAL LIMITED HOTEL GROUP
We refer to our letter dated 26 October 1995 which we understand Mr Russell Temple has handed to you but to which we have not received a reply.
We are wanting to reconcile various loan accounts within our Group and we note that we made a payment to you of $60,000 in June 1995.
Unfortunately we have been unable to find any record of your advance to us of $60,000.
In addition, we have been informed by Russell Temple that he has personally paid a further amount of $80,000 to you and Russell Temple’s loan account with our Group has been adjusted accordingly. On this basis our records would show you owing us $80,000 unless you have also previously advanced to us $80,000.
So that we may be clear about our respective positions could you please provide me with details of all funds advanced to our Group so that the dealings between us may be settled.
Yours sincerely”
On the same date Williams wrote to King (Exhibit P51):
“Dear Mr King
OCEAN CENTRAL LIMITED HOTEL GROUP
We refer to our payments of $80,000 and $20,000 to you in June 1995.
These payments were made on the understanding that you had advanced $100,000 to our Group.
As part of a review of the various loan accounts within our Group we have been unable to ascertain any record of the $100,000 advance by you.
It would be appreciated therefore if you would provide us with details of all funds advanced by you to our Group so that the dealings between us may be settled.
Yours faithfully”
The letters, or copies of them, were sent to Temple.
Temple sent a facsimile to Williams on 18th June 1996 (Exhibit P53) stating:
“Stephen
Both Pope and King have spoken to me and either have or are replying to your letter.
The bottom line is that they both payed (sic) in $100k and $60k through me and they both received funds back. I cannot explain why you cannot find the payins (sic) as they should be clear.
They are both my responsibility.
I need some information from you to conclude the loan account balances of Pope and King.
I am happy to do this now or wait until you have forwarded all details to me of my loan accounts.”

The facsimile went on to state that the details needed by Temple were what pay-ins had been made by Pope or King, any unidentified pay-ins and any funds repaid to Pope or King.

In a letter to Williams, dated 12th June 1996 (Tab 27) Pope wrote:
“I advanced $60,000 to Russell Temple in approximately April 1994, to invest in a hotel. I was later told about the probable formation of a group of hotels, to be known as Ocean Central Ltd. I was told my investment would be treated as a loan until this group was formed at which time I’d have the option to invest or receive my $60,000 back, with interest.
I started a new business venture during this period and when the Ocean Central situation was not resolved I demanded the return of my $60,000. This was done. The situation is clear, I advanced $60,000 and received back $60,000.
I have no knowledge of the $80,000 referred to in your recent letter.”
Williams wrote to Temple by facsimile on 24th June 1996 (Exhibit P54):
“1..... Have received letter from Pope. Did you deposit $60,000 and if yes, into which account?
2...... Have not received a reply from King - do you know when this may be expected?”

Williams said that Temple telephoned him in response to that letter and told him he deposited $60,000 in Mane Market which he had received by three payments, each of $20,000 over three months.

In a letter to Williams, dated 14th June 1996 (Tab 26) King wrote:
“I was surprised to receive your letter, dated 4/6/96. I advanced $100,000 to Russell Temple between January-June 1994.
I have spoken to Russell Temple since I have received your letter and he was surprised no record of the $100,000 loan was to be found.
Russell has assured me he is responsible for these funds and will discuss this with you.
I believe my role in this is concluded as I advanced $100,000 and received back $100,000.”
On 18 July 1996, Williams wrote by facsimile to Temple (Exhibit P55):
“King’s letter dated 14/6/96 said he advanced $100,000 to you between Jan-June 1994. Pope’s letter dated 12/6/96 said he advanced $60,000 in April 94. I have asked Pope for exact date. During this period the bank statements have you depositing $181,000 which was credited to your loan account. The 30/6/94 account show no loan to (sic) Pope & King. Pl's confirm which deposits should be coded to Pope & King.”
A second page to that facsimile is headed “Deposits by RJT Jan 94 - July 94” and lists against various dates between 9th February 1994 and 22nd June 1994, and named hotels (Newmarket, Flinders, Windsor, Old Lion and “Mane Market”), money amounts totalling $181,000.
On the same date Williams again wrote by facsimile to Temple (Exhibit P56):
“King’s letter (14/6/96) says he advanced $100,000 to you between Jan‑June 1994. Pope’s letter dated 12/6/96 says he advanced $60,000 in April 94. Your note (18/6/96) says they both paid in the amounts. On 24/6/96 in reply to my note of 24/6/96 you said Pope’s $60,000 went into the Mane Mkt a/c in 3 lots of $20,000 over 3 months. There are no $20,000 deposits in the Mane Mkt or other accounts during this time that are not already accounted for. From all accounts you drew $147,500 and deposited $181,000 during the period Jan-July 94. To help clarify matters I have sent the attached letters to Pope and King. Could you also check your records to ascertain when the Pope and King moneys were received by you. If you were acting on behalf of the Ocean Central Group in obtaining the moneys from Pope and King then I presume you would have passed these moneys on to the group when you received them. Please let me have your reply as soon as is possible.
P.S. In your note dated 18/6/96 you ask about a $60,000 pay-in to Mane Market in Sept 95. I have checked and” The facsimile ends as it is reproduced here.
It is not clear from Williams’ evidence to which if either of those two communications he received a response from Temple, but he said “... (Temple) was at no stage, including at this stage, able to confirm to me the payments that were associated with Pope and King” (T296).
In letters to each of Pope and King, dated 18th July 1996 (Exhibits 46 and 57) Williams wrote that “While various deposits and drawings were made by Russell Temple between January-June 1994 the Balance Sheet for our Group as at 30th June 1994 (prepared by Execucorp Pty Ltd) does not include a loan or other reference to the” $60,000 or $100,000 “you advanced to Russell” and went on to ask Pope to provide the date in April 1994 that $60,000 was advanced to Temple and asked King to provide the dates and amounts of the advances made to Temple. Williams did not say whether or not he received a response to either of those letters.
Williams’ evidence is that in the course of his enquiries and investigations he did not seen any primary documentation evidencing or reflecting payment of moneys by Pope to Flinders Management or King to Mane Market or an application by either defendant for shares in the capital of Mane Market or Flinders Management or units in the trusts of which they respectively are trustees. He said, as I understand his evidence (at p303) that except for accounts which may have been part of taxation returns filed after December 1995, the accuracy of which he said “would have been qualified”, while he was a director of the plaintiff’s companies he did not see balance sheets “that had actually been voted on or passed by a meeting of the directors of the company”. He said that no tax returns for the years 1993 to 1995 inclusive were filed until 1996. Exhibits 2D117 are the 1994 tax returns for each of the trusts conducted by the particular plaintiff, and other trading trusts in the group. None of the tax returns appears to be “qualified”, but neither does any of them contain particulars of the liabilities of the entity.
In cross examination, Williams said that May had been engaged by Weeks in late 1994 to assist Weeks in the restructuring of “Ocean East or Ocean Central Group as it related to Scenic Outlook and as it related to the performance of Mr Russell Temple”. Scenic Outlook Pty Ltd was incorporated in 1982 (Exhibit P2). At the date of that exhibit, 12th August 1998, its directors were Roy Alfred Temple and Peter Francis O’Shaughnessy, both appointed in 1982. That company held 25% of the issued shares in North East Management Pty Ltd which, as the trustee of the Windsor Hotel Trading Trust, acquired the Windsor Hotel on 29th April 1994. Mr Williams said he had no knowledge of the arrangements between Weeks and Temple concerning the purchase of the Windsor Hotel.
Exhibit P13 is the memorandum from Gray (Execucorp) to Bettison, dated 30th June 1994, concerning the Windsor Hotel, setting out “a list of the current fund contributors to the Windsor Hotel” totalling $450,000 among whom is shown “T King 25,000”. Williams said that Bettison was the South Australian representative of Quantile Pty Ltd, a company controlled by Weeks and he (Williams) first saw P13 when he found it in late 1995 or early 1996 in Quantile’s Brisbane office.
Exhibit P3 includes what appears to be a part of a handwritten journal for the Windsor Hotel; it includes the entries by name and amount which appear in P13, but only the first two (Scenic Outlook and Flinders Management) are shown as loans, with the code commencing “696” - the others have no description although each is allotted the code commencing “830”; all are listed under “suspense account” in the section of the journal page in which they appear.
Taken to Exhibit P6 document 21 (a requisition for the cheque payable to King in the sum of $20,000) Williams said that he thought the raising of a requisition was routine practice, but later found out it was not always followed - he discovered there were several cheques drawn by Temple for which there was no accompanying authorisation, or requisition, sheet. He said that until about July 1995, cheques could be signed solely by Temple and, at Board meetings, and although the Board would be asked to consider particular payments by cheque and there was discussion about what cheques could not be drawn, the Board did not “.............. receive a batch of authorised statements saying ‘may I draw the following 100 cheques, ..’” (T397). Williams said he does not recall seeing the requisition authorising the cheque for $80,000 payable to Temple.
Williams was shown two requisitions (Exhibit D78) for cheques payable to Temple, the first dated 28th June 1995 for $15,000 “Reason: loan”, the second dated 22nd September 1995 for $75,000 “Reason: repay loan”. He could not say whether he had seen either of them before.
Williams said that until December 1995, Temple was the managing director of the group, the only executive director who was working in Adelaide and he was responsible for the day-to-day running of the group.
Williams agreed that by March 1995 there was a constant requirement for the group to borrow funds, and borrowings would be secured against whatever assets were available within the group; he said the item in the minutes of directors’ meeting on 13th March 1995 (Exhibit P79) concerning borrowing $400,000 from the National Australia Bank upon the security of the Port Anchor Hotel was an example of that; as I understood Williams’ evidence (p403 ff) steps such as that were taken to assist the cash-flow of the group while hotels within the group were identified and earmarked for disposal, the proceeds then being available to repay loans “- not just to Mr Weeks but to other parties from whom the companies had borrowed funds”. Williams said that at the meeting on 13th March 1995, Temple may have said, but he did not recall, who were the investors (totalling $570,000) in the Flinders Hotel as to whom he (Temple) reported to the Board they would be offered the alternative of investing in Ocean Central or the repayment of their funds. Williams was asked whether the Board made any resolution about that topic; he answered: (T405-406):
“At that point in time, again as I must preface, that I was not intimately involved and had no role in that at that time, but it was my understanding, if I may elaborate, that from around about late 1994, it was resolved between Mr Weeks and the other directors, including Mr Temple, that it would be best if the Ocean Central group separated its activities from the Scenic Outlook group and Mr Richard Krantz and Mr Bob May were investigating the best ways by which that could occur, and certainly at this particular meeting the intention was that the concept of converting debtor funds that were advanced into capital was the direction that the board was pursuing.”
Concerning the “Loan Schedule as per R P Krantz” part of Exhibit P39, Williams identified Manuel, Hall and Matthews as friends of Weeks, each of whom was involved in the horseracing industry. Williams said that Krantz had had a long term involvement with the group dating back to 1993 and when he (Williams) obtained a copy of P39, he did not then make any particular enquiries about the loans from Temple’s associates - he merely took at face value the information contained in inter alia the Krantz’s loan schedule because it had been prepared by Krantz; it was not until after July or August 1995 that he began to investigate the matter of the loans.
In a facsimile to Weeks, dated 11th July 1995 (Exhibit D83) Williams wrote about $400,000 which he said Weeks had advanced to Ocean Central; the facsimile contains the passage “.... we want to establish where the last $400,000 went (Russell says $200,000 was used to pay out some of the small shareholder/loans). We also want to understand the background to the $110,000 from O’C’ to Russell in June.”. Williams said that the information concerning the $200,000 had come to him from May, and he did not pursue that topic with Temple. This facsimile was sent a few days after a board meeting on 7th July 1995, the minutes of which (Exhibit D82) included:
“It was agreed that RPK would need to satisfy himself for the Board that the 30 June 1995 Balance Sheet was correct, so that 1995/96 results to be produced would be meaningful. The 94/95 confused accounts were best kept in low profile.”
and
“It was noted that RJT was now handling day to day cash release, ....”
In evidence in chief, Williams had said that he had not been present at any board meeting where a resolution was passed concerning how the payments to King or Pope should be accounted for in the plaintiff companies. However, in cross examination, he identified Exhibit D85 as a memorandum he wrote on 1st November 1995 to the directors of Ocean Central reporting that he had met Temple and Krantz on 31st October 1995. In the memorandum, item 1 headed “equity/loan parties” states that it was agreed (inter alia):
-....... “Letters to ‘paid parties’ to be sent immediately with Stephen Williams following up on signed acknowledgments ....
-....... “Letters to Cadzow, Hutton, Simmonds, Maynard, Duthy, Ferrett and Evans to be sent on Monday 13/11/95. Like the other ‘paid parties’ letters we will require the return of the signed acknowledgment that the Ocean Central Group does not owe them any monies. This is the group which Russell Temple is going to personally repay with Russell’s loan account being adjusted accordingly (amount $215,000). I understand this was discussed at the last Management Meeting.”
Williams was questioned about the memorandum (T439-440):
“Q.... The document in front of you, 1 November 1995, one final topic dealing with this memorandum of 1 November 1995, do you see after the reference to the letters to Cadzow Hutton and Co, there is the reference that Mr Temple was going to repay Russell’s loan account being adjusted, do you see that.
A...... I do.
Q...... There is a reference to it being discussed at the last management meeting. Can you recall what was discussed about the adjustment of Mr Temple’s loan account.
A...... Yes I can. The position was starting to unfold whereby Mr Temple was acknowledging that, in the absence of him being able to provide, or us being able to find, any evidence of certain people putting money or advancing funds to the group, that he would accept that those amounts would become debts that he owed to the company.
Q...... In other words, that his loan account with the group would be debited to reflect these loans, is that the position.
A...... That is correct.
Q...... That was a matter discussed at the management meeting.
A...... Yes it was.
Q...... That was a matter agreed by the board.
A...... It is my understanding that that is correct.
Q...... And at some stage, an attempt was made to adjust his loan account, is that the position.
A...... Yes, that’s the position.
Q...... Looking at the document produced to you, do you see that appears to be minutes of a meeting of the management group of the Ocean Central Group of 2 November 1995.
A...... Yes I do.
Q...... I take you to p3 of that document, which has the number 284 printed up the top, it refers to you, I think, reporting to the meeting, and, in respect to the Temple group, it is said that loans of $215,000, to be taken over by Russell, although I think at that stage you were still seeking the receipt of the acknowledgment of letters.
A...... That is correct.
Q...... The second to last page of the document, stamped 285 up the top, there is a reference to Russell agreeing with the amounts being debited to his personal loan account, pending further investigation, that there be a debit to his account of $290,000.
A...... That is correct.
Q...... That was something which was resolved, accepted, at the meeting, was it, as best you can recall.
A...... Yes.
Q...... On the question of adjusting the loan accounts, you understood that to be a consolidated loan account, did you not, Mr Temple’s loan account with the whole group, rather than being with one particular hotel, or another hotel, or otherwise.
A...... That is correct.
Q...... The way the company operated was to treat loans from one hotel as being part of the overall group, is that the position.
A...... That is the way it transpired, yes.”
Also, on this topic of the adjustment of Temple’s loan, Williams was taken to Exhibit P43, the “loan schedule as per balance sheets” prepared by Bates and to the sheet headed “Notes ...”. He said he had discussions with Temple concerning the payments to King and Pope being “adjusted against Temple’s loan account” (T450); “... there were discussions about all loan accounts including Mr Pope’s and Mr King’s and placing responsibility on Mr Temple to, if you like, be indebted to the company for those amounts.”. The topic continued:
“Q.... After those discussions did something actually happen with the accounts or did you put into train some exercise where Temple’s loan accounts were adjusted to make allowance for any such loans.
A...... Yes. The procedure started to unfold that we investigated in more depth all of the transactions that we had some doubts about and I did prepare a schedule of Mr Temple’s loan accounts where I believed it was reasonable to conclude that Mr Temple owed the company certain moneys and there was an attempt made by me with the assistance of others to prepare a consolidated schedule showing what the amount of Mr Temple’s loan account should be. The precise time in history I can’t be sure about.
Q...... Tell me this, if you can tell me, as a consequence of that exercise there was an adjustment to his loan account made in the books of the company.
A...... There were ongoing adjustments being made to Mr Temple’s loan accounts throughout 1995 and throughout 1996. The more we delved into the company’s affairs the greater Mr Temple’s loan account became and there was never at any one moment in history a final sign off in 1995 which said in absolute terms that this is the extent of Mr Temple’s loan account. It was an ongoing process.
.....
Q...... .... but do you say as and when certain adjustments were made to Temple’s loan accounts they were recorded in some form inside the company, were they.
A...... Not in the sense that there was a final reconciliation of them and that they were adopted by the board. Not until such time as in 1996 we were getting to what I would term the truth of the matter and it was only in 1996 that we were really starting to get sufficient confidence about the accounts. Up until that time there were documents such as the one before us now being produced as working documents where I and others were trying to come to grips with what had in fact been transpiring. There was a lot of contradictory information being provided at that time.
Q...... At some stage down the track the Ocean Central Group issued proceedings against Temple, is that right.
A...... That is correct.
Q...... Do you know at the time when those proceedings were issued whether there had been a final adjustment to Temple’s loan account to determine how much Temple owed the Ocean Central Group.
A...... Yes I had.” (T452)

Williams said he was “intimately” involved in putting together a schedule which would form the basis for the proceedings against Temple. He said that his investigation with others included searching the deposit pay-in slips obtained from the banks to show the source of the moneys which were paid to the company, that is the Ocean Central Group, but although he asked Temple to produce copies of his own or his companies’ bank accounts to determine what moneys had gone to those accounts Temple did not produce any such accounts and therefore he had no knowledge of Temple’s trading accounts.
Williams was unable to shed any light on documents such as Exhibit P72 (the general ledge trial balance of the Newmarket Hotel at June 1995) relating to the coding appearing there against loans to Temple or borrowings from Temple.
The plaintiffs called Mr Mark Peter Jappe, a solicitor employed by the plaintiffs’ solicitors. His task, under the supervision of his principal, Mr Myszka, was to retrieve the documents of the Ocean Group for the purpose of these and other proceedings. In that connection he went to the premises of some of the hotels in the group and to the Hutt Street offices of the group searching for and taking possession of many documents of various descriptions. Included among the documents he found are three comprised in Exhibit P4:
-....... A copy of a letter, dated 25th January 1994, from Mann Judd to Temple, stating they acted for Mr & Mrs Tyrone King and “Tyrone has asked us to advise you that the shares representing his 10% interest in the gaming-machine operations at the Windsor Hotel are to be held in the name of:
Decemal Pty Ltd (ACN: 062 984 249) as trustee for the TP & EJ King Family Trust.”
......... As to this letter Jappe said that to his knowledge no shares in Windsor were issued to King or Mrs King or Decemal
-....... A copy of a typed document, dated 7th July 1994:
“Tyrone King is employed by our group of companies and his gross wage is $1,000.00 per week.
Yours faithfully
Russell J Temple
General Manager.”
No signature appears on the copy; it bears at the top the hand-printed word “Execucorp”.
-Copy of a typed, unsigned document, dated 29th July 1994:
“TYRONE KING has accepted a contract from Jalded Pty Ltd for two years. Tyrone’s duties commencing July 1st 1994 are to act as a confidential aid (sic) to Russell Temple. Other duties will include internal security, hospitality reporting, customer relations and personal duties for executive staff.
Tyrone will receive a gross remuneration of $52,000 per annum.
Yours faithfully
Russell J Temple
Managing Director”
Jappe said he was aware of the written communications in 1996 between Williams and each of the defendants. On 12th November 1996, the plaintiffs’ solicitors wrote to each defendant demanding repayment of the moneys the subject of these actions against them (Exhibit P11 and P12). King replied on 29th November 1996 (Exhibit P9) and Pope on 25th November 1996 (Exhibit P10).
King’s reply reads:
“I refer to your letter, dated 12th November 1996. I paid to Russell Temple, the then managing director and part-owner of Ocean Central Pty Ltd, an amount of $100,000 to invest within the group. My understanding is that Ocean Central repayed (sic) the $100,000 directly to Russell, with my approval. Russell and I have made separate arrangements from this point.
I remained silent to Stephen Williams in regards to his letter dated 18/7/96 because I believed that Stephen and Russell had resolved the issue regarding my investment. I signed letters and documents to Ocean Central and Stephen Williams to ensure that they were aware of the accurate position of myself as an investor.
I state again, as I did in the 14/6/96 letter to Stephen Williams, that this is an issue between your client and its former Managing Director. I paid the funds to your client’s most senior representative and therefore find the situation unbelievable that you question me whether I made any initial investment.
I dispute and strongly refute any liability whatsoever to the Ocean Central Group and believe there is no basis for a claim against me. This is causing my family as well as myself unnecessary stress and would appreciate a response confirming that this matter is concluded from my point of view as soon as possible.”
Pope’s reply reads:
“I refer to your letter dated 12th November 1996.
I dispute any liability to the Ocean Central Group.
I am amazed that your client is unable to resolve this situation with Russell Temple, as I dealt with him as an Ocean Central representative at all times. Russell Temple was managing director at the time and an owner of the hotel group.
I paid Russell Temple $60,000 to invest in the hotel group and received the repayment of $60,000 through Russell Temple. The repayment from Ocean Central went directly to Russell with my approval, from which point Russell and I made separate arrangements.
I signed documents referred to in your letter on the understanding that this was helping your client to update its records to ensure their accuracy.
I shall strongly defend any claims brought against me as I have done nothing wrong.”
Jappe said that after the defence of each defendant was filed he researched and reviewed the documents and found no reference to a deposit of moneys with the group or any member of it by either defendant except in Exhibit P3, a trial balance of Windsor Hotel at September 1994 printed on 27th November 1994. He described he perused the banking records (including statements and pay-in books) of each of Flinders Management, Mane Market and Northeast Management (the Windsor Hotel) comprised in Exhibits P16 and P21 inclusive investigating any deposit greater than $10,000. He spoke to May and Krantz among others. He said that in early 1997 he was shown the computer at the Newmarket Hotel and asked the operator for records in the period 1992-1996. He viewed information displayed on a screen monitor - he saw nothing relating to King or Pope, however he understood from what he was told by Mr Grant Elsworthy (said to be the accountant for the group) and who displayed the information to him, that once the monthly reports or accounts were produced “all the data that had produced those reports was purged once it had been printed, yes, such that there was literally no information left on the computer pertaining to the relevant period”.
The effect of Jappe’s evidence is that he did not find any documentation “tending to prove of disprove that either Mr Pope or Mr King deposited amounts with either of the plaintiff companies”.
Jappe said that among the documents discovered by King was Exhibit P22. It is on the letterhead of Scenic Outlook Pty Ltd; it is dated 11th April 1995 and reads:-
“Tyrone King has placed $100,000 (one hundred thousand dollars) on loan with the abovenamed company. Tyrone will receive a share certificate in due course. The shares will be in Ocean Central Limited.
Russell Temple
Managing Director”

It bears a signature which, from other signatures identified in evidence to be those of Temple, I accept to be that of Temple.

In cross-examination Jappe said that the night before he gave evidence he found documents at the Newmarket Hotel which he described to be minutes of meetings. They had not been previously found, discovered or produced. That occurrence lead to an application by the defendants for an adjournment in the circumstances that appear in the transcript. In the result the trial was adjourned on 11th March 1999 to another date, subsequently fixed to be 1st November 1999, and various consequential orders were made. Between those dates it appears some 300 further documents were produced by the plaintiffs.
In further cross-examination Jappe said that among the documents and records he perused he noted there were a series of loans to the Ocean Group by Temple; between March 1993 and June 1994 Temple’s loan account recorded transactions involving a total of $1.5 million dollars. He said that his investigations into Temple’s loan account did not disclose any reference to moneys paid by King or Pope.
Jappe identified Exhibit D24 to be a document, probably prepared in 1996 by Bates, termed a reconciliation of Temple’s loan account in the period 19th November 1992 to 7th December 1995. He said that in trying to identify the source of “funds deposited” (a column heading in that document) he went to pay-in books and cheque stubs and he had with him a report prepared by Bates. He said that from his investigations he prepared a document showing the “source” of funds; privilege was claimed, and not challenged, for that document. Jappe said that in April 1997 he met Krantz and asked him for any documents he had relating to the Ocean Central Group concerning, in effect, the matters the subject of these proceedings; Krantz refused to give Jappe access, both then and in response to letters making the same request, and in November 1998 the plaintiffs’ solicitors wrote to Krantz notifying him of possible legal proceedings against him and that he should look to his professional indemnity insurers.
Jappe said he understood from his examination of the documents that in about January 1994 the Ocean Central Group was experiencing difficulty in getting funds from lending institutions and thereafter moneys came into the group from sources other than such institutions to enable the companies to buy poker machines, Weeks arranging for friends of his (among whom were Hall, Matthews and Manuel) “to put money into the group”. Jappe said, by reference to Exhibit P3, that in 1994 it appeared Mane Market, which had cash surpluses, was “the banker” lending money to other hotels in the group the moneys (and repayment of them as I infer) being accounted for as inter-company loan transactions.
Pope said that he was introduced to Temple by King who told him in Temple’s presence, that Temple’s group of hotels was going to buy more hotels and invest heavily in poker machines because they were going to be very profitable, that there was “a chance to invest in those hotels, into the actual poker machine revenue, purchase the machines and have a share in them”, suggesting that Pope should speak with Temple as soon as he could and invest as much as he could for at least 100% profit per annum on the investment.

100 Pope said he spoke to Temple about one week later, on an occasion he and Temple were settling bets, when Temple told him there was an opportunity “to invest anything from $10,000 to $100,000” into the hotel group “and would I like to do it” and I said “yes”. Pope related that Temple had used an “ocean” word in referring to the group and told him “they are looking at a minimum of 100% per annum, but very, very, very worst case would never get below 50% per annum”. Pope said he proposed to Temple an investment of “perhaps $50,000”, Temple replied that was “fine” and when asked when he would like the money Temple replied that there was no rush but “before the end of the financial year” when the poker machines were to start. Temple told him that part of the “dividend” would probably be paid in cash, which was attractive to Pope. He said (T574) he was told by Temple that once the money was paid to Temple:-

“he was going to allot it to the group of hotels and then it would be moved to a particular hotel or spread between some hotels, and he mentioned the possibility of the Windsor Hotel or the Flinders Hotel, and that, at some stage down the track, that would be finalised and I would get some share certificates, some company share certificates; or something like that”.

101 Pope said he never received any “documentation” from Temple.

102 Pope related that on the 11th April 1994 he withdrew $15,000 in cash from his bank account and gave it to Temple and on 29th April 1994 withdrew $10,000 from his account and gave that to Temple; then on 20th May 1994 he obtained a bank cheque for $10,000 payable to Temple and took it together with $25,000 in cash to Temple, the $25,000 being “$5,000 cash from my cash reserve, $10,000 cash from my father - which was my father’s, $5,000 from Brett McCammon and $5,000 from David Southwell, both friends of mine”. He said that when delivering the cheque and the cash to Temple he told Temple it “was my final payment towards poker machine investment in the group of hotels”. He said he did not obtain a receipt for any of the moneys he gave to Temple - “it may seem fairly naive or casual, but I did take one cheque along so I had a solid record of giving him some money. But we were used to dealing in enormous amounts of cash in the business we were involved in because it was just a daily tool of the trade”. He related that Temple would invest up to $20,000 to $25,000 on each of some thirty-two races in the course of a day.

103 Two withdrawals from Pope’s bank account in the amounts and on the dates he spoke of are recorded in Exhibit D92; Exhibit D93 is a photocopy of a bank cheque for $10,000 dated 20th May 1994 payable to Temple.

104 Pope said Temple told him he was the managing director of the group of hotels “the Ocean or Ocean Central; I didn’t remember the last word at the time, but it was just ‘Ocean’ that stayed in my mind”, and told him “they were buying the Windsor, and the Flinders Hotel, the Newmarket Hotel, the Old Lion Hotel, and that’s all I remember at that stage”.

105 Pope’s evidence is that he pestered Temple about a return on his investment and for the share certificates, “or some acknowledgment of my investment”. This he said was at least once each fortnight until a time in June 1995 when Temple asked to meet him at the Arab Steed Hotel on 29th June 1995. Pope said he was told by Temple at that meeting that (T579):-

“the group of hotels were changing structure and that the return on my investment, which I had kept on pestering him about, was not going to be anywhere near what he had promised, and that he suggested that there was not going to be any return at all on it in the way of interest”.

106 He said he was told by Temple that the change in the structure “meant that I would have been a shareholder in the group of hotels, not just the poker machine revenue and operations, but the whole group, a shareholder in all aspects of the whole group, which I did not want to be a part of. ...... I didn’t want to be a hotelier. The hotels that I knew of were very unprofitable, from just my general knowledge.” and he told Temple he “wouldn’t mind (the investment) back”. He said (T 580) Temple told him he could reinvest the money at about 15% which he (Pope) agreed to, he and Temple then went to Temple’s office, Temple produced the cheque (Exhibit P5) “and then I just signed it over and that was the end of the meeting”.

107 Pope’s evidence is that he has not recovered the $60,000 from Temple or any interest on it.

108 In December 1994, Pope said, he Temple and the Deegan brothers invested in and became directors and shareholders of Win Manufacturing Pty Ltd, a manufacturer of printing equipment; he said he is still a director and shareholder of that company but Temple has not been a director or shareholder for many years.

109 Taken to Exhibit D26 (Williams letter to him dated 26th October 1995), Pope said that until he received that letter no one, apart from Temple, had raised with him the matter of his investment in the Ocean group. When he received the letter he said he telephoned Temple, read the letter to him and decided that Ocean group was “just clearing up their books”, signed the letter and delivered it to a receptionist at the Newmarket Hotel, asking that it be handed to Williams whom he had met on a social occasion some time toward the end of 1994. He said that he met with Williams again in about 1995, in Queensland, when he used Weeks’ offices at Fortitude Valley for some five days and obtained advice from Williams concerning a problem Win Manufacturing had with some of its employees in Queensland. His evidence is, and Williams did not dispute it, that no mention was made on that occasion by Williams concerning Pope’s “loan to the Ocean Central Group”.

110 Taken to Exhibit D94, the letter to Pope from Williams suggesting Pope had received a further $80,000 from the Ocean Group, Pope said he spoke to Temple about that letter who told him other shareholders had received letters (Cadzow, King and Duthy), said that he (Temple) would fix it and that he had drafted a reply which he asked Pope to “come and look at”. Pope said he went to Temple’s office, Temple told him the $80,000 was “a complete error”, and produced a typed letter (Exhibit P5) to Williams which he, Pope, signed. He denied that he had received from Ocean Central Group an additional payment of $80,000.

Concerning Exhibit P10, Pope’s reply dated 25th November 1996 to Hynd & Co’s letter, Pope said that it contained his memory of the transaction “as it was at that time”.

112 In cross-examination Pope was referred to his letter to Hynd & Co dated 25th November 1996 (Exhibit P10). He said that although he spoke to Temple concerning Hynd & Co’s letter to him dated 12th November 1996 (to which P10 was written in reply) he did not discuss with Temple the terms of his reply, Temple made no suggestion as to what the letter should contain and neither did he discuss with King the contents or the terms of the letter P10; his evidence is that although “we” (I understood he, Temple and King) “had discussions” (T591) no draft of such a letter was produced, and any similarity in phraseology between his letter P10 and King’s reply (P9) to Hynd & Co’s letter is coincidental. He said he is unsure whether at the time he wrote P10 he knew that proceedings had been brought against Temple concerning Temple’s dealings with cheques, including the $60,000 cheque which he indorsed to Temple, but asserted the letter P10 was written in relation to his, not Temple’s, interests and was based on his own knowledge.

113 Pope agreed, after what appeared to me to be some hesitation, that Temple has been ready to assist him in his defence of these proceedings and, notwithstanding that Temple became a bankrupt in 1998 and at that time owed Pope $175,000, he (Pope) has met or spoken to Temple every two or three months. The effect, in my view, of his evidence in cross-examination concerning his connection with Temple is that it has been a quite close personal and business relationship. As to the business relationship, Pope described, it was based on trust which Pope explained to be the reason why he did not obtain from Temple any kind of receipt or acknowledgment for the sum of $60,000 (which represented about 30% to 40% of his entire assets) he said he paid to Temple in 1994. The same basis of dealing, I infer, was put by Pope as the reason for there being nothing to corroborate his evidence of moneys he borrowed from others to make up the $60,000. Trust in Temple also, Pope said, underlaid his indorsement of the $60,000 cheque to Temple as an investment in an entity, controlled by Temple, which operated hotels (not part of the Ocean Group) in Victor Harbour or Darwin and which had poker machines. He explained that the promised investment was never made by Temple who, he concluded by early 1996, had therefore cheated him, but he did not take proceedings against Temple.

114 Pope said he would have noted that the cheque for $60,000 was drawn on Flinders Management account, but could not say if he noticed that Flinders Management was described on the cheque as a trustee, and if he did he would not have understood he was being paid trust moneys. He said he assumed Flinders Management was “one of Temple’s companies, part of the group” and operated the Flinders Hotel into which, he said, Temple had told him in late 1994 his money was to go and in which he Pope had shares. Taxed about his knowledge and his then involvement as a director of companies, Pope said he knew the difference between “loan capital and share capital” and said as to his dealings with the cheque “these could have been a transfer in the company. I have no idea. It is only what I was told”.

140 King agreed that the $100,000 he said he paid to Temple was a very significant investment, and said when he put up those moneys he did not expect to “end up” with shares. He asserted he did not “really read” Exhibit P22 (the Scenic Outlook document to the effect that $100,000 had been lent to that company and would be represented by shares in Ocean Central), because he obtained it only for the purpose of showing it to the bank. I do not accept that he was so indifferent to what is contained in Exhibit P22 - it was an important document for his purposes.

142 Except for what appear to have been records created or produced in 1994 (Exhibit P3) concerning the Windsor Hotel (and even as to those James, whom I found to be a credible witness, said they were unreliable and he could not post them), various “financial” documents concerning the Ocean group, or any member of it, produced in 1995 or later and identifying King or Pope as having any interest in the group or a member of it in the capacity of a lender or putative shareholder were ultimately sourced to Temple, on the evidence I have heard. The actions and prevarications of Temple, particularly in 1995 and continuing into 1996, concerning his responses to requests to verify with documents the contributions of whatever character allegedly made by King and Pope, the subsequent proceedings against Temple by the group or some of its members and his bankruptcy in 1998 do, in my opinion, constitute a reasonable explanation for him not being called by either plaintiff; the plaintiffs could not put him forward as a witness of truth.

143 Both the defendants, I find on their evidence, were, and in the case of Pope he continues to be, in close association with Temple. Each of them, I find, sought from Temple assistance to show that the moneys said to have been paid to Temple did indeed find their way into the group, or a member of it, and the purpose or character of such payment. I conclude that Temple was not called by either defendant because his evidence would not have assisted their respective cases.

185 The plaintiffs’ failure to call Gray, Krantz, Bates or Bettison was criticised by the defendants. As to Bettison there is nothing in the evidence I have heard to suggest that he would have been able to contribute anything of relevance to the plaintiffs’ case; as an employee of Quintex he does not appear to have played any part in the events material to these actions. Bates, the plaintiff’s informed the Court (Exhibit P32), was overseas at the time of the trial. Krantz, as I have said, evinced an attitude of non-co-operation with the plaintiffs’ solicitors, and, in my opinion, no inference can or should be drawn that he would not have been able to assist the plaintiffs. Gray was an employee of Execucorp, a company controlled by Temple, which provided book-keeping services to the Group and, in my view, he would have been equally avilable to any party; I infer that if called his evidence would not have assisted the case of any party.

144 The absence of Weeks from the witness box is not so easily explained from the plaintiffs’ standpoint. Weeks and Temple effectively controlled the group and each member of it and although, as I find on the evidence, Temple conducted the day-to-day activities of the group, it could reasonably be expected in my opinion that Weeks would have had first-hand knowledge of events, particularly in 1993 and 1994, which led to loans into the group by non-institutional lenders for the purpose of acquiring hotels or poker machines, the latter acquisitions, as I understand the evidence, being the reason for the acquisition of additional hotels. Weeks, it appears, sourced from among his own friends or acquaintances moneys which were apparently used for the group’s purposes. Upon what basis those funds were obtained and precisely how they were accounted for within the group is only as clear as the records of the group might reveal, but those records are in an unsatisfactory state although, as I understand the implication in the evidence of those whom the plaintiff did call, there has been greater success in identifying the funds contributed by those introduced by Weeks.

145 However an individual director has no usual authority to bind a company (Northside Developments Pty Ltd v Registrar-General (1990) 170 C.L.R. 146 @ 205). If he is to bind the company he must have that power as an agent delegated by the appropriate authority, in the usual case the board of directors.

146 Williams described Temple to be the managing director of Ocean Central which was incorporated some months before Williams came upon the scene. Although the evidence is that Temple, as between himself and his co-directors including Weeks (who lived in Queensland) was the person responsible in an executive capacity for the Weeks/Temple hotel ventures, it is not open to the court to find that Temple also acted as the managing director of the group before the incorporation of Ocean Central, or that he was at any time the managing director of each or any other member of the group.

147 There is before the court a copy of the articles of association of each plaintiff. The articles provide that the directors may at their discretion borrow moneys for the purposes of the company, with or without security; they also provide that the directors may confer their powers as directors upon a managing director appointed by them. Each of the plaintiffs, as the trustee of its particular trust, has power under the relevant trust deed to raise or concur in raising money thought by the trustee to be expedient for any purpose in relation to the trust. However, as I have said, there is no evidence upon which it can be found that Temple was the managing director of either of the plaintiffs. As managing director of Ocean Central, even without specified powers conferred upon him, Temple had an implied power to “do all usual things as fall within the scope of that office”: Hely-Hutchinson v Brayhead Ltd [1968] 1 Q.B. 549 @ 583, but borrowings for other than the ordinary day-to-day business of the company are outside the usual authority of a managing director; Re Tummon Investments Pty Ltd (1993) 11 ACSR 637.

148 I will deal first with the claim against King.

149 I note at once that Scenic Outlook, the principal place of business of which between 30th June 1993 and 30th January 1996 (Exhibit P2) was the Newmarket Hotel from which Temple ran the group, is not a member of the Ocean Group. It is a company, its directors being Roy Alfred Temple and Peter Frances O’Shaugnessy, which had a 25% interest in North East Management Pty Ltd as trustee of Windsor Hotel Trading Trust, trading as Windsor Hotel. The Windsor Hotel was acquired on 29th April 1994.

150 King said his initial investment of $25,000 was paid to Temple in January and February 1994, and before he paid any amount he spoke with O’Shaugnessy, who as I have said was a director of Scenic Outlook.

151 King’s evidence of what Temple told him concerning the destination of his moneys before he paid, and when he paid, them to Temple in January - February 1994 ranged among “he did not say which hotels”, “going into an Ocean Central pot of money to be distributed”, “at this stage going into the Windsor Hotel”. It is clear that Ocean Central was not incorporated until November 1994, and in my view it is not likely that name would have been mentioned by Temple in the first months of 1994. What remains is the reference to the Windsor Hotel which not coincidentally in my view was purchased about two months later. Furthermore King’s own accountants, Mann Judd, wrote to Temple on 24th January 1994 stating that King had asked them to advise that the shares representing King’s 10% interest “in the gaming machine operations at the Windsor Hotel” be held in the name of Decemal; there is no mention in that letter of Ocean Central or Ocean East. In my view the contents of that letter should be regarded as accurately reflecting King’s instructions to Mann Judd: he called no evidence to the contrary.

152 King said that in about February 1994 he asked Temple if it was possible for him to put more money into poker machines, that Temple said it was and thereafter he (King) in settling bets with Temple allocated and paid to Temple from his winnings more money toward poker machine investments. Although his notebook records payments to Temple up to 8th March 1994, no further such entries appear but significantly his note includes that on 4th May 1994 $25,000 of the amounts previously noted was allocated “to Windsor Hotel account”; again I note the reference to Windsor Hotel.

153 The next document concerning King’s investment is the letter on Scenic Outlook letterhead dated 11th April 1995 (Exhibit P22) signed by Temple as the “managing director” of that company stating that King had placed $100,000 on loan to Scenic Outlook for which he “will receive a share certificate in due course. The shares will be in Ocean Central Ltd”. King said he solicited that letter from Temple for the purpose of his application for a loan to buy a newsagency. The clear meaning of that letter is that King’s moneys were on loan to Scenic Outlook which was not a member of the Ocean group but only the owner of 25% of Northeast Management.

154 King maintained in his evidence that the moneys he paid to Temple were for an investment in poker machines and not by way of a loan to any particular hotel. I find that, based upon the trust he had in Temple, King left it entirely to Temple to deal with King’s moneys as Temple considered appropriate concerning King’s objective to derive a return in connection with poker machines. Exhibit P22 shows that Temple placed King’s moneys with Scenic Outlook as a loan, apparently with a view to, at some point, securing for King by some means shares in Ocean Central. No such shares were ever issued.

155 Except for the journal and trial balance sheets for the Windsor Hotel, there is no other record within the group or its members of any payment by or in the name of King, other than the various drafts of balance sheets and other financial accounts produced on or after 26th February 1995, which as to any reference to King are based upon information provided by Temple, who I accept has never produced any document or other evidence to support his assertion and no other document or evidence has been otherwise found.

156 I am satisfied that certainly so far as concerns all but $25,000 of any moneys paid by King to Temple there was no loan or other payment, however characterised, by King to Ocean Central or any member of the group. The $25,000 is recorded in Exhibit P3; significantly it is the amount which King said was his initial investment and as to which there is at least some material produced by King to support what he said. There is nothing at all to support his evidence that he made further payments to Temple, except Exhibit P22 which, in my opinion, does not even tend to indicate King made any payment to the group or any member of it - at best it shows that King was a creditor of Scenic Outlook.

157 King in effect disavowed that he paid any more than $100,000 to Temple concerning his objective of poker machine investment, and in April 1995 he knew from Exhibit P22 that that amount was acknowledged by Scenic Outlook to be a loan from him to it. That document is contrary to what appears in the Hotel Windsor journal, part of Exhibit P3, which records against King’s name $25,000 as part of a suspense account totalling $450,000. James said, and I accept his evidence, that he had been unable to find any document or other evidence to substantiate that entry. The evidence of Williams and Japp, which I also accept, was to the same effect. In my view it is more likely than not the source for the entry was Temple, whose purpose, in so ascribing $25,000 to King is unknown, but whatever his purpose, by April 1995 he had by some means brought the $25,000 back into Scenic Outlook for that is the plain effect of Exhibit P22.

158 I find therefore that at the date of the cheques, the subject of the claim against King, he was not a creditor of or an investor in Mane Market, Ocean East, Ocean Central or any member of the Ocean group - his debtor, if any, was Scenic Outlook.

159 King by the time of trial admitted that he received the cheque for $20,000 from Temple and obtained the proceeds of it. His evidence concerning when and how he received the cheque and appropriated the proceeds of it, particularly his explanation to identify a credit of $19,700 to his account, probably involved some reconstruction and it was not thoroughly convincing, an observation that also applies to other aspects of his evidence, but except that it causes me to be cautious about his evidence unless there is support for it in other credible evidence, I do not doubt that he obtained Mane Market’s money represented by that cheque.

160 The cheque for $80,000 was made payable to Temple not to King and he denies all knowledge of it.

161 On the evidence I have heard Temple as the managing director, the person effectively responsible for the day-to-day running of the hotels and a sole signatory to the cheque accounts of the group members, evidently dealt with the moneys of the group and its members in an uncontrolled way.

162 I am prepared to accept King’s evidence that as a condition of borrowing money from the National Australia Bank to finance a newsagency, he was required to reduce to about $50,000 a home loan debt to another institution and he asked Temple for the return of $20,000 so he might effect that reduction.

163 The cheque for $20,000 is dated 28th June 1995 and that for $80,000 is dated 30th June 1995. There is no evidence who it was who collected the proceeds of the latter cheque, that is through whose account it was negotiated; the original cheque has been lost or misplaced by Mane Market’s bankers, and the photocopy of the reverse side of the cheque (in Exhibit P6) is too indistinct to decipher what appears there. King denied he or his company Decemal obtained the proceeds of the cheque.

164 It is I think significant that the cheque in the action concerning Pope was made payable to him and King was the payee of the cheque for $20,000. That Temple made the cheque for $80,000 payable to himself is consistent with King’s evidence that he did not see or know of that cheque - it is not improbable that in drawing the cheque payable to himself Temple did so for his own purposes and King was not informed. I am not satisfied that at the time the cheque was drawn or negotiated King knew about it and neither am I satisfied that he obtained the proceeds of the cheque.

165 I have found that none of the moneys paid by King to Temple went into the Ocean Group earmarked with King’s name. The entry in the Windsor journal concerning the $25,000 is probably to be attributed to false information provided by Temple. Temple in April 1995 represented that King’s moneys had been placed with Scenic Outlook and I infer they were used by that company. There is no evidence that the proceeds of the $80,000 cheque found their way into Scenic Outlook’s account. King said in October 1995 Temple told him he was hoping to invest the balance of King’s money, the amount in excess of $20,000, but that I find falls far short of proof on Mane Market’s part that King directly, or through the agency of Temple, obtained the proceeds of the $80,000 cheque.

166 I do not overlook the evidence that King in various ways acknowledged that he had received $100,000 from “Ocean Central” but in my view King had never had, except for Exhibit P22, any real understanding of what happened to the moneys he paid to Temple. In 1995 Temple was manipulating the funds of the various companies in the group for his own purposes - that is evident from the claims made against Temple in the Supreme Court (Exhibit P111); he obviously knew that he could not justify any of the assertions he made to, among others, Williams that King and Pope had contributed funds as the Krantz loan schedule represented. What Temple did beginning in October 1995 to justify his actions by constructing or assisting in the construction of King’s letters and other responses to Williams was, in my view, done to disguise for as long as possible his apparently fraudulent behaviour toward the Ocean Central group and its members.

167 King’s participation, as I find at Temple’s behest, to support Temple by replying to Williams and the plaintiffs’ solicitors as he did, does him no credit but what he put forward in those replies does not, in my opinion, advance the plaintiff’s case that King converted the $80,000 cheque. At best it is but another example of the need for caution in assessing the worth of King’s evidence.

168 I have found that King was not entitled in any capacity, whether as a lender, investor or otherwise, to the proceeds of the cheque for $20,000.

169 I am satisfied that by the date he drew that cheque Temple had no authority from the plaintiff directly or indirectly to pay King $20,000. Even if Temple, prior to June 1995, had authority to solicit funds for the purposes of the plaintiff, and I am not satisfied he did, such authority did not also give him actual or implied authority to repay funds so obtained; and merely that he was a sole signatory to cheques drawn on Mane Market’s bank account did not invest him with any such authority. If, contrary to my view, Temple did have implied authority to repay, from the account of any member of the group, moneys solicited for the group or a member of it, that authority was effectively withdrawn on 15th June 1995 with respect to loan providers (Exhibit P40); therefore if I am in error in determining that King did not lend or otherwise provide money to the plaintiff, still the cheque delivered to King was without the plaintiff’s authority.

170 However, I prefer to rest my judgment on a finding that the cheque for $20,000 was drawn and delivered to King in apparent fraud of the plaintiff. That there were subsequently proposals or, if it be the case, an agreement between the plaintiff and Temple to debit, or a claim by the plaintiff it was entitled to debit Temple’s loan account with the sum representing the proceeds of the cheque, that did not in my opinion change the character of Temple’s action in drawing and delivering the cheque.

171 The plaintiff Mane Market’s claim against King, in respect of both cheques is in conversion, alternatively moneys had and received to the use of the plaintiff, or a constructive trust for the plaintiff, or alternatively pursuant to Section 1317HD(1) of the Corporations Law.

Conversion

172 An action in conversion is founded on the right to possession, an act of conversion being an intentional dealing with any chattel inconsistent with the right of another whereby that other is deprived of the use or possession of it. In the case of a cheque it is sufficient for the plaintiff to be the person who is entitled to the possession of it, whether or not he is also entitled to the property in it: Francis and Taylor Ltd v Commercial Bank of Australia Ltd [1932] N.Z. L.R. 1028. The remedy given by the law for the misapplication of a cheque, or the proceeds of it, takes the form of “treating the conversion as (a conversion) of the chattel, the piece of paper, the cheque under which the money was collected and the value of the chattel converted as the money received under it”: Lloyds Bank Ltd v Chartered Bank of India, Australia and China (1929) 1 K.B. 40. The person who is competent to bring an action in conversion in relation to the proceeds of a cheque is usually referred to as the “true owner”, an expression appearing in the Cheques Act (e.g. Sections 93(1) and 95(1), which although not defined “presumably has the same meaning in each case”: Bute (Marquess) v Barclays Bank Ltd (1955) 1 Q.B. 202 @ 211.

173 The payee of a cheque, and in possession of it, is a holder of the cheque for the purposes of the Cheques Act (Section 3) and the holder of a cheque is presumed to be a holder in due course, unless the contrary is proved (Section 51(1)); to be a holder in due course, the holder must have taken the cheque, inter alia, for value which is defined in Section 35 to be any consideration sufficient to support a simple contract or an antecedent debt or liability. By Section 36 the drawer of a cheque is presumed to have received value for the cheque unless the contrary is proved. A holder in due course of a cheque may enforce the payment of the cheque against any person liable on it which includes the drawer.

174 The defendant King (and so also the defendant Pope) relied upon the general ledgers, “loan schedules” and the correspondence to be an acknowledgment by Ocean Central of indebtedness to the defendant citing The Stage Club Ltd v Millers Hotels Pty Ltd (1981) 150 C.L.R. 535 and Dungate v Dungate [1965] 3 All E.R. 818. In the Stage Club case it was held that a balance sheet signed by two directors was a sufficient acknowledgment of a debt to commence again the running of the time within which an action upon the debt could be brought; in Dungate the terms of a particular letter were held to be a sufficient acknowledgment of a debt to start time running afresh. However, in my opinion, those authorities do not avail the defendant; the documents upon which the defendants rely are not signed by directors, either at all or in the formal circumstances present in the Stage Club case, and even if there were such an acknowledgment, that would be only evidence of a debt, not incontrovertible proof of its existence.

175 I am satisfied that King gave no value for the cheque for $20,000, he was not therefore a holder in due course of the cheque and he had no right to it or the proceeds of it, as against the plaintiff Mane Market which, as I find, was the true owner of the cheque. The claim in conversion for that cheque succeeds.

176 Turning to the cheque for $80,000. I am satisfied that King did not know of the existence of the cheque, never came into possession of it, and did not obtain the proceeds of it. I am not satisfied that Temple was King’s agent in taking possession of the cheque, or its proceeds, if Temple obtained them, and neither has it been proved that King, by any act, was guilty of converting the cheque.

177 The finding that King knew nothing of the drawing of the cheque and did not receive the proceeds of it is, in my opinion, fatal to the claims by Mane Market for moneys had and received to Mane Market’s use, or upon a constructive trust or pursuant to Section 1317HD(1) of the Corporations Law.

178 I find that Mane Market fails in its claim against King concerning the cheque for $80,000.

179 Turning to the claim against Pope. Pope’s evidence is that he made a cheque payable, and delivered it and cash, to Temple upon Temple’s representation that he was the managing director of hotels, referred to as the Ocean Group, that the moneys were for an investment in poker machine revenue, or a share in such machines, and on receiving the moneys Temple would allot them to the group, then move them to a particular hotel or a spread of hotels, mentioning to Pope as possibilities the Windsor Hotel or the Flinders Hotel and “at some stage down the track, that would be finalised and I (Pope) would get some share certificates, some company share certificates, or something like that”. Pope said Temple told him the group was “buying the Windsor”. Pope also said Temple mentioned Scenic Outlook and that it ran some hotels, but he does not believe Temple ever told him that company had an interest in the Windsor Hotel. Pope was not asked when Temple mentioned Scenic Outlook.

180 Except for the bank cheque (Exhibit D93) for $10,000 payable to Temple, Pope has no record of the moneys he said he paid to Temple. In his letter to Williams dated 12th June 1996 (part of Exhibit P5) Pope wrote that he advanced $60,000 to Temple -

“.... in approximately April 1994, to invest in a hotel. I was later told about the probable formation of a group of hotels, to be known as Ocean Central Ltd. I was told my investment would be treated as a loan until this group was formed at which time I’d the option to invest or receive my $60,000 back, with interest.”

The letter does not speak of investing in poker machine revenue, or in poker machines, but an investment in an unnamed hotel, and the letter clearly implies that Ocean Central was first mentioned to Pope after he had paid his money to Temple. Ocean Central was not incorporated until November 1994. The letter does not mention share certificates but an investment in an hotel, or a loan with an option to invest in a “group” to be formed. Pope said the letter, which he signed, was prepared by Temple. I infer he read it before he signed it. The letter, in my opinion, contradicts Pope’s evidence of what he said he was told by Temple, or by King in Temple’s presence, before or at the time he handed moneys to Temple. The differences bring me to conclude that Pope had little or no understanding of what was to be done with the moneys he paid, except that he anticipated a very large return, and his dealings with Temple were based on the trust he had in Temple concerning Temple’s hotel interests, whatever they might have been, and the advent of poker machines. I do not accept the import of Pope’s evidence that Temple was soliciting moneys for the Ocean Group, however called; Exhibit P5 speaks of an investment in an hotel. It may well be that Temple mentioned the Windsor Hotel which, as I have said, was purchased on 29th April 1994 and in which Scenic Outlook took a 25% interest. In my opinion the moneys Pope paid to Temple were for him to use as he saw fit on the footing that Pope was trusting him to produce a high return on some venture concerning an hotel and poker machines. I am not satisfied that Temple had authority from the plaintiff or any member of the group to solicit funds whether by way of loan or otherwise.

181 I am satisfied that except for assertions made by Temple to Williams, and others, and upon which various draft accounts or “loan schedules” were prepared, there is no evidence that Pope’s moneys found their way into the Ocean Group, or any member of it, particularly the plaintiff Flinders Management. Temple’s assertions were, I find, without any evident foundation in the material before the Court. What in fact happened to moneys Pope said he paid to Temple is unknown, but I am satisfied they were not paid to the plaintiff or any other member of the Ocean Group.

182 Accordingly I find that at the time Temple handed the cheque for $60,000 to Pope, and Pope then indorsed it to Temple, Pope was not a creditor of, or in any guise an investor in, the Ocean Group or any member of it. As the payee of the cheque he gave no value for it and, I find, Temple had no authority to draw or sign the cheque. I will not repeat the earlier reasons concerning the matter of King, where I dealt with the liability of a payee of a cheque to the true owner of it. Had Pope negotiated the cheque through his account to obtain the proceeds of it, he would have been liable to the plaintiff, Flinders Management, in conversion. Pope’s act of endorsing the cheque to Temple was equally a conversion of the cheque. That Pope may have thought he was entitled to take and deal with the cheque because he believed the plaintiff, or some other of Temple’s hotels, was indebted to him, or was refunding his “investment”, is irrelevant (Hollins v Fowler [1874-80] All E.R. 118).

183 Counsel (for both Pope and King) relied on David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 for the principle that a defendant, who believes he is entitled to a payment in satisfaction of an honest claim of right, has a defence to an action for money had and received. However, absent consideration, such a defence may succeed only inter alia where the payer “intended that the payee shall have the money at all events”. Barclays Bank Ltd v W.J. Simms Son & Cooke (Southern) Ltd [1980] Q.B. 677, 695 per Goff J. which the majority in the David Securities case referred to with approval. Here I find that neither plaintiff had such an intention. For these reasons each plaintiff’s claim, in the alternative, for money had and received in respect of the cheques, which I have found were converted, would also have succeeded.

184 I find that Pope is liable to the plaintiff, Flinders Management, for the conversion of the cheque for $60,000.

185 My conclusion being that each defendant is liable to the plaintiff in the action against him for conversion of the cheque, in the case of King the cheque for $20,000 and in the case of Pope the cheque for $60,000, or upon the claim for money had and received in those amounts, it is unnecessary for me to consider the alternative claims concerning the proceeds of those cheques.

186 Subject to the question of interest there will be:

in Action No. 39 of 1997 judgment for the plaintiff against the defendant in the sum of $60,000;
in Action No. 213 of 1997 judgment for the plaintiff against the defendant in the sum of $20,000.

My tentative view is that each plaintiff is entitled to interest from the date of the conversion of the cheque, the subject of its action, but I will hear counsel on that question and on the matter of costs.

[2000] SADC 83

28 June 2000