Inner West Demolition (NSW) Pty Limited v Silk

[2018] NSWDC 136

District Court

New South Wales

Medium Neutral Citation:	Inner West Demolition (NSW) Pty Limited v Silk [2018] NSWDC 136
Hearing dates:	9 October 2017 – 13 October 2017, 16 October 2017, 23 November 2017 - 24 November 2017; 1 December 2017; 8 December 2017; 16 March 2018
Date of orders:	30 May 2018
Decision date:	30 May 2018
Jurisdiction:	Civil
Before:	Dicker SC DCJ
Decision:	(1) Judgment for the plaintiff; (2) The defendant is to pay the plaintiff's costs of the proceedings as agreed or assessed; (3) The parties are to bring in agreed Short Minutes of Order giving effect to these reasons including the amount found and any interest claimed on it, within seven days; (4) Liberty to the parties to apply in relation to the costs order made in (2) above; (5) Exhibits to be returned after 28 days.
Catchwords:	Corporations law – alleged insolvent trading action against director– whether consent of liquidators to proceedings obtained prior to proceedings being commenced – was company insolvent at the relevant time – were there reasonable grounds for suspecting that the company was insolvent or would become insolvent – whether statutory defences available to defendant director-adequacy of documents available to expert witness-Jones v Dunkel inferences
Legislation Cited:	Corporations Act 2001 (Cth) Building and Construction Industry Security of Payment Act 1999 (NSW)
Cases Cited:	ASIC v Edwards (2005) 220 ALR 148; [2005] NSWSC 831 ASIC v Plymin (No 1) [2003] VSC 123, (2003) 46 ACSR 126 ASIC v Rich [2009] NSWSC 1229 Campbell Street Theatre Pty Ltd (Receivers and Managers Appointed) (In liquidation) v Commercial Mortgage Trade Pty Ltd [2012] NSWSC 669 Campbell v Brazel [2016] NSWSC 198 Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Condon v Watson (2009) 174 FCR 314 Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd [1975] HCA 49; (1975) 133 CLR 72 Deputy Commissioner of Taxation v Clark [2003] NSWCA 91; (2003) 57 NSWLR 113 Deveigne v Askar [2007] NSWCA 45 Elliott v ASIC [2004] VSCA 54 Expile Pty Ltd v Jabb’s Excavations Pty Ltd [2003] NSWCA 163; (2003) 45 ACSR 711 Fabre v Arenales (1992) 27 NSWLR 437 FAI Traders Insurance Co Ltd v Ferrara (1996) 41 NSWLR 91 FAI Traders Insurance Co Pty Ltd v FAI (CTP) Pty Ltd [2015] NSWSC 2137 Geeveekay v Director of Consumer Affairs (2008) 19 VR 512 GR Securities v Baulkham Hills Private Hospital (1986) 40 NSWLR 361 Hall v Poolman [2007] NSWSC 1330; (2007) 65 ACSR 123 Harrison v Lewis [2001] VSC 27 Harvey v Burfield (2002) 84 SASR 11; [2002] SASC 314 Hawkins v Bank of China (1992) 26 NSWLR 562 In the matter of Matlic Pty Ltd (in liquidation) [2014] NSWSC 1342 In the matter of Re Swan Services Pty Ltd (in liquidation) [2016] NSWSC 1724 In the matter of Universal Consultants Group Pty Ltd [2016] NSWSC 1508 Jones v Dunkel (1959) 101 CLR 298 Lewis v Doran (2004) 50 ACSR 175 Manly Council v Byrne [2004] NSWCA 123 Masters v Cameron (1954) 91 CLR 353 McLellan, in the matter of The Stake Man Pty Ltd v Carroll [2009] FCA 1415; (2009) 76 ACSR 67 Newell v De Costi [2018] NSWCA 49 Payne v Parker [1976] 1 NSWLR 191 Powell v Fryer [2000] SASC 97; (2000) 18 ACLC 480 Powell v Fryer [2001] SASC 59; (2001) 37 ACSR 589 Re Glass Recycling Pty Ltd [2014] NSWSC 439 Re Kukulovski [2015] NSWSC 2040 Re Swan Services Pty Ltd (in liquidation) [2016] NSWSC 1724 RHG Mortgage Corporation Ltd v Ianni [2016] NSWCA 270 Sandell v Porter (1966) 115 CLR 666 Southern Cross Interiors Pty Ltd (in liquidation) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 The matter of Golden Plantation Pty Ltd [2011] NSWSC 1610 Tourprint International Pty Ltd v Bott [1999] NSWSC 581 Treloar Constructions Pty Ltd v McMillan [2017] NSWCA 72 Williams Group Australia Pty Ltd v Crocker [2016] NSWCA 265 Zappia v Grant Baines Transport Pty Ltd [2010] NSWSC 98
Texts Cited:	Corporations and Associations Law: Principles and Issues, sixth edition, Lexis Nexis, Gooley et al
Category:	Principal judgment
Parties:	Inner West Demolition (NSW) Pty Limited (Plaintiff) Thomas John Silk (Defendant)
Representation:	Counsel: A Gerard (Plaintiff) H W Somerville (Defendant)   Solicitors: Wyndham Lawyers (Plaintiff) Bridges Lawyers (Defendant)
File Number(s):	2014/00331146

JUDGMENT	PARAGRAPH
THE PLEADINGS
The Amended Statement of Claim	5
Defence	8
ISSUES TO BE DETERMINED	10
THE RELEVANT PROVISIONS OF THE ACT	12
THE ELEMENTS WHICH MUST BE ESTABLISHED BY A PLAINTIFF TO PROVE AN INSOLVENT TRADING CAUSE OF ACTION AGAINST A DIRECTOR	19
THE PLAINTIFF’S EVIDENCE
Evidence of Mr Frank Kontrafouris	21
Evidence of Mr G Nardone	41
Evidence of Ms C Marshall and Mr H Billitzer	48
Evidence of Mr N Chase Berry	54
Evidence of Ms M Cailao	64
Evidence of Mr D Hurst	67
Evidence of Mr P Hosking	69
Evidence of Mr S Ghedia	70
Evidence of Mr Anton Petrov	77
THE DEFENDANT'S EVIDENCE
Evidence of Mr T Silk	82
THE EXPERT EVIDENCE	146
The evidence of Mr A Barnden	147
The evidence of Mr S McMahon	208
SUBMISSIONS OF THE PARTIES	232
FACTUAL FINDINGS AND OTHER ISSUES
Knowledge and belief of Mr Silk	235
STANDARD OF PROOF	241
MR LUNNEY – CONSEQUENCES OF HIM NOT BEING CALLED AS A WITNESS	243
THE DEFENDANT’S SUBMISSIONS AS TO THE ABSENCE OF COMPLETE FINANCIAL RECORDS	250
CONSIDERATION	261
CONSENT TO THE COMMENCEMENT OF THE PROCEEDINGS FROM THE LIQUIDATORS OF ONE BUILD	262
THE TERMS OF THE AGREEMENT BETWEEN THE PARTIES	282
MATTERS NOT IN ISSUE OR CLEAR ON THE EVIDENCE	301
WHETHER ONE BUILD INCURRED DEBTS TO THE PLAINTIFF AND AT WHAT TIMES	302
INSOLVENCY OF ONE BUILD	306
ARE THERE REASONABLE GROUNDS FOR SUSPECTING THAT THE COMPANY WAS INSOLVENT OR WOULD BECOME INSOLVENT AS A RESULT OF THE RELEVANT TRANSACTION?	350
DID MR SILK HAVE REASONABLE GROUNDS FOR SUSPECTING THAT ONE BUILD WAS INSOLVENT OR WOULD BECOME INSOLVENT IF IT INCURRED THE RELEVANT DEBT?	353
WHETHER ANY OF THE DEFENCES HAVE BEEN ESTABLISHED BY MR SILK	361
LOSS OR DAMAGE SUFFERED BY THE PLAINTIFF	372
DETERMINATION	374

Judgment

1. These proceedings are brought by the plaintiff, Inner West Demolition (NSW) Pty Ltd (“IW”) against the defendant, Mr Thomas Silk, for compensation under s 588M of the Corporations Act 2001 (Cth) (“the Act”) for loss or damage said to have been suffered by IW due to the alleged insolvent trading of a company of which Mr Silk was a director.

2. Mr Silk was, at all relevant times, a director of One Build Pty Ltd (in liquidation) (“One Build"). The plaintiff IW alleges that on 30 August 2013 the plaintiff and One Build entered into an agreement whereby the plaintiff agreed as a subcontractor to provide demolition services at Suncorp Place at 259 George Street Sydney to One Build for a fixed lump sum price of $345,000. The plaintiff alleges that on and from 30 August 2013 and at all relevant times, One Build was insolvent or became insolvent by entering into the 30 August 2013 agreement (“the Agreement”) or by incurring the debts under the progress payments to be made to IW under the Agreement. The plaintiff alleges that when the debts under the 30 August 2013 Agreement were incurred by One Build, there were reasonable grounds for suspecting that One Build was insolvent or that One Build would become insolvent by incurring each debt under the Agreement. It is also alleged that the defendant knew and had reasonable grounds to suspect that One Build was insolvent or would become insolvent by incurring each debt under the Agreement and that a reasonable person in the like position of Mr Silk would have been aware of those matters.

3. The plaintiff claims an entitlement to sue Mr Silk for the amount of its loss.

4. Mr Silk disputes the allegations and also claims that he has statutory defences available to him under s 588H of the Act.

The pleadings

The Amended Statement of Claim

5. The plaintiff relies on an Amended Statement of Claim filed on 9 June 2017 (“Statement of Claim"). In the Statement of Claim, the plaintiff relevantly pleads:

1. One Build is a corporation pursuant to the Act;

2. Since 17 September 1999, Mr Silk has been a director of One Build within the meaning of the Act;

3. On 30 August 2013, the plaintiff and One Build entered into the Agreement where amongst other things the plaintiff agreed to provide demolition services at 259 George Street Sydney for a fixed lump sum price of $345,000;

4. Under Clause 5.4 of the Agreement, One Build would pay the plaintiff's progress claim under the Agreement “on the Friday after the expiration of 30 calendar days from the last day of the month in which such progress claim was submitted”;

5. In performance of the Agreement, the plaintiff provided demolition services to One Build at Suncorp Place between 3 September 2013 and on or around 17 November 2013;

6. In accordance with the Agreement, the plaintiff made progress claims to One Build being tax invoices dated 24 September 2013, 24 October 2013 and 20 November 2013;

7. As at 26 November 2013, One Build had incurred debts to the plaintiff totalling $327,332.50;

8. On 26 November 2013, One Build was placed into voluntary liquidation and Mr Hill was appointed liquidator of One Build;

9. On 13 December 2013, the creditors resolved to appoint Mr Philip Hosking and Mr David Hurst as liquidators of One Build in the place of Mr Hill; and

10. One Build is being wound up.

6. The plaintiff makes a number of allegations in relation to the debts allegedly incurred pursuant to the Agreement as follows:

1. One Build incurred the total debt to the plaintiff on or about 30 August 2013 by entering into the Agreement with the plaintiff. This pleading was not pressed at the final hearing. Alternatively, it is pleaded that One Build incurred the total debt to the plaintiff by the issue of the various tax invoices. In the further alternative, it is pleaded that One Build incurred debts to the plaintiff being the total debt each day between 3 September 2013 and 17 November 2013 when the plaintiff provided demolition services at Suncorp Place. This last claim also was not pressed at the final hearing;

2. The plaintiff pleads that on and from 30 August 2013 and at all times relevant, One Build was insolvent or alternatively it became insolvent by entering into the Agreement or by incurring the various debts in the three tax invoices issued as they occurred.

7. In relation to the insolvency issues, the plaintiff pleads as follows:

1. When each debt forming part of the total debt was incurred, there were reasonable grounds for suspecting that One Build was insolvent or would become insolvent by incurring each debt or any one of them;

2. When each debt was incurred, Mr Silk knew and had reasonable grounds to suspect that One Build was insolvent or would become insolvent by incurring each debt or any one of them;

3. When each debt was incurred, a reasonable person in the like position to that of Mr Silk would have been aware that there were reasonable grounds for suspecting that One Build was insolvent or would become insolvent by incurring each debt or any one of them;

4. Mr Silk failed to prevent One Build from incurring the total of the debts and each debt under each claim;

5. Mr Silk thereby contravened s 588G(2) of the Act;

6. Due to Mr Silk's contravention of s 588G of the Act, the plaintiff has suffered loss and damage in the amount of $327,332.50. This is based on the fact that in the winding up there are insufficient funds to pay any distribution in respect of ordinary unsecured debts which include those of the plaintiff and, as a result, the plaintiff has lost the entirety of its amount claimed under the Agreement;

7. It is pleaded that on 22 September 2014 the plaintiff received written consent from the liquidators of One Build to commence these proceedings against Mr Silk. This issue of consent became a significant issue in the proceedings;

8. It is pleaded that having regard to the matters set out above, the plaintiff was entitled to recover from Mr Silk as a debt due to the plaintiff an amount equal to the total loss or damage allegedly suffered by the plaintiff together with interest under s 588M(3) of the Act.

Defence

8. A Defence was filed by Mr Silk on 24 April 2015.

9. The Defence, in summary:

1. Admits that One Build is a corporation under the Act;

2. Admits that Mr Silk has been a director of One Build since 17 September 1999;

3. Admits that the plaintiff and One Build entered into an agreement by which the plaintiff agreed to provide demolition services at Suncorp Place to One Build (paragraph 4);

4. Admits that the plaintiff provided demolition services at Suncorp Place;

5. Admits that the plaintiff made progress claims to One Build;

6. Does not admit that One Build incurred debts to the plaintiff totalling $327,332.50 (paragraph 8);

7. Admits that One Build was placed into voluntary liquidation on 26 November 2013;

8. Admits that the creditors resolved to appoint Messrs Hosking and Hurst as liquidators of One Build on 13 December 2013;

9. Admits that One Build is being wound up;

10. Does not admit that One Build incurred the various debts pleaded by the plaintiff (paragraphs 12-14);

11. Denies that One Build was insolvent on and from 30 August 2013 (paragraph 15);

12. Denies that One Build became insolvent by entering into the Agreement and by incurring the debts in the various progress claims (paragraph 16);

13. Denies that there were reasonable grounds for suspecting that One Build was insolvent when each debt was incurred (paragraph 17);

14. Denies that Mr Silk knew and had reasonable grounds for suspecting that One Build was insolvent when the debts were incurred (paragraph 18);

15. Denies that a reasonable person in the like position of Mr Silk would have been aware that there were reasonable grounds for suspecting that One Build was insolvent (paragraph 19);

16. Denies that Mr Silk failed to prevent One Build from incurring the debt and also denies any breach of ss 588G and 588M of the Act (paragraphs 20 and 25);

17. Says that at the time the debt, if any, was incurred, One Build and Mr Silk had reasonable grounds to expect and did expect, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at the time.

18. Pleads that One Build and Mr Silk had a defence under the Act in relation to information provided by a competent and reliable person as to solvency: see s 588H(3) of the Act.

Issues to be determined

10. The issues to be determined by the court, as identified by the defendant in his schedule of issues and damages, were said to be as follows:

1. Whether the plaintiff has obtained the consent of the liquidators of One Build as required by s 588R of the Act;

2. Whether the plaintiff and One Build entered into an agreement dated 30 August 2013 by which One Build agreed to engage the plaintiff to carry out demolition works at Suncorp Place for the sum of $345,000;

3. Whether One Build incurred debts to the plaintiff totalling $327,332.50 or any part of that sum;

4. If One Build incurred debts to the plaintiff whether:

1. One Build was insolvent at the time of incurring that debt; or

2. One Build became insolvent as a result of incurring that debt;

5. Whether Mr Silk had reasonable grounds to expect that One Build was solvent or would remain solvent if it incurred the relevant debt;

6. Whether Mr Silk had reasonable grounds to believe and did believe:

1. That a competent and reliable person (“the other person") was responsible for providing to Mr Silk adequate information about whether One Build was solvent;

2. Whether the other person was fulfilling that responsibility; and

3. Mr Silk expected, on the basis of information provided to Mr Silk, by the other person, that One Build was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time;

7. Whether the plaintiff was entitled to the amount as claimed of $327,332.50 plus interest or any part of that sum.

11. In substance, similar issues for determination were raised by the plaintiff. However, in relation to issue (5) above, the plaintiff submitted that Section 588G (1)(c) of the Act required that at the time of the incurring of the relevant debts there were reasonable grounds for suspecting that the company was insolvent which was to be determined objectively: Submissions dated 16 February 2018 paragraph 23.

The relevant provisions of the Act

12. An issue was raised by the defendant in relation to whether the plaintiff had the appropriate consent from the liquidators of One Build to commence these proceedings.

13. Section 588R of the Act provides as follows:

588R Creditor may sue for compensation with liquidator’s consent

(1) A creditor of a company that is being wound up may, with the written consent of the company’s liquidator, begin proceedings under section 588M in relation to the incurring by the company of a debt that is owed to the creditor.

(2) Subsection (1) has effect despite section 588T, but subject to section 588U.

14. There is no evidence that any of the circumstances in s 588U of the Act applied.

15. There was also no evidence that the plaintiff had given the liquidators notice of their intention to sue within s 588S of the Act. Accordingly, s 588R(1) is the relevant section to this case.

16. Section 588M of the Act provides as follows:

588M Recovery of compensation for loss resulting from insolvent trading

(1) This section applies where:

(a) a person (in this section called the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and

(b) the person (in this section called the creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company’s insolvency; and

(c) the debt was wholly or partly unsecured when the loss or damage was suffered; and

(d) the company is being wound up;

whether or not:

(e) the director has been convicted of an offence in relation to the contravention; or

(f) a civil penalty order has been made against the director in relation to the contravention.

(2) The company’s liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage.

(3) The creditor may, as provided in Subdivision B but not otherwise, recover from the director, as a debt due to the creditor, an amount equal to the amount of the loss or damage.

(4) Proceedings under this section may only be begun within 6 years after the beginning of the winding up.

17. The issue therefore arises whether Mr Silk, as a Director of One Build, has breached s 588G(2) of the Act in relation to the incurring of a debt by One Build to allow recovery by IW under s 588M(3) of the Act. Sections 588G(1)-(2) of the Act provide as follows

588G Director’s duty to prevent insolvent trading by company

(1) This section applies if:

(a) a person is a director of a company at the time when the company incurs a debt; and

(b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and

(c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and

(d) that time is at or after the commencement of this Act.

(1A) For the purposes of this section, if a company takes action set out in column 2 of the following table, it incurs a debt at the time set out in column 3.

When debts are incurred			[operative table]
Action of company	When debt is incurred
1	paying a dividend	when the dividend is paid or, if the company has a constitution that provides for the declaration of dividends, when the dividend is declared
2	making a reduction of share capital to which Division 1 of Part 2J.1 applies (other than a reduction that consists only of the cancellation of a share or shares for no consideration)	when the reduction takes effect
3	buying back shares (even if the consideration is not a sum certain in money)	when the buy‑back agreement is entered into
4	redeeming redeemable preference shares that are redeemable at its option	when the company exercises the option
5	issuing redeemable preference shares that are redeemable otherwise than at its option	when the shares are issued
6	financially assisting a person to acquire shares (or units of shares) in itself or a holding company	when the agreement to provide the assistance is entered into or, if there is no agreement, when the assistance is provided
7	entering into an uncommercial transaction (within the meaning of section 588FB) other than one that a court orders, or a prescribed agency directs, the company to enter into	when the transaction is entered into

(2) By failing to prevent the company from incurring the debt, the person contravenes this section if:

(a) the person is aware at that time that there are such grounds for so suspecting; or

(b) a reasonable person in a like position in a company in the company’s circumstances would be so aware.

Note: This subsection is a civil penalty provision (see subsection 1317E(1)).

18. Defences are available to a director in relation to insolvent trading under s 588H of the Act which provides as follows:

588H Defences about reasonable grounds, illness or reasonable steps

(1) This section has effect for the purposes of proceedings for a contravention of subsection 588G(2) in relation to the incurring of a debt (including proceedings under section 588M in relation to the incurring of the debt).

(2) It is a defence if it is proved that, at the time when the debt was incurred, the person had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.

(3) Without limiting the generality of subsection (2), it is a defence if it is proved that, at the time when the debt was incurred, the person:

(a) had reasonable grounds to believe, and did believe:

(i) that a competent and reliable person (the other person) was responsible for providing to the first‑mentioned person adequate information about whether the company was solvent; and

(ii) that the other person was fulfilling that responsibility; and

(b) expected, on the basis of information provided to the first‑mentioned person by the other person, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.

(4) If the person was a director of the company at the time when the debt was incurred, it is a defence if it is proved that, because of illness or for some other good reason, he or she did not take part at that time in the management of the company.

(5) It is a defence if it is proved that the person took all reasonable steps to prevent the company from incurring the debt.

(6) In determining whether a defence under subsection (5) has been proved, the matters to which regard is to be had include, but are not limited to:

(a) any action the person took with a view to appointing an administrator of the company; and

(b) when that action was taken; and

(c) the results of that action.

The elements which must be established by a plaintiff to prove an insolvent trading cause of action against a director

19. In my view, the relevant elements which have to be established by the plaintiff in the proceedings are accurately summarised in Corporations and Associations Law: Principles and Issues, sixth edition, Lexis Nexis by Gooley et al in Chapter 21. The elements to establish a cause of action under s 588G are therefore as follows:

1. Was the defendant a director at the time when a company incurs a debt;

2. Did the relevant company incur the debt;

3. Was the company “insolvent” at the time of incurring the debt or became insolvent by incurring the debt or by incurring at that time debts including the particular debt;

4. Are there reasonable grounds for suspecting that the company was insolvent or would become insolvent as a result of the relevant transaction;

5. Are any of the statutory defences available to the director? In particular:

1. Has the director proved that at the time when a particular debt was incurred, the director had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent notwithstanding that it had incurred that debt and any other debts that it may have incurred: s 588H(2);

2. Did the director expect that the company was solvent at the time the debt was incurred as a result of relying on information provided by a competent and reliable person who was responsible for providing information relating to the solvency of the company, s 588H(3);

3. Did the director, at the time the debt was incurred, not take part in management and that this lack of participation by the director was due to illness or was for some other good reason: s 588H(4);

4. Has it been shown that the director has taken all reasonable steps so as to prevent the company incurring the debt: s 588H(5)?

20. If s 588G has been satisfied and none of the defences in s 588H apply:

1. Is the debt wholly or partly unsecured; and

2. Has the person to whom the debt is owed suffered loss or damage in relation to the debt because of the company’s insolvency?

The plaintiff’s evidence

Evidence of Mr Frank Kontrafouris

21. The plaintiff read two affidavits of Mr Fotis (Frank) Kontrafouris sworn 2 October 2015 and 5 October 2017.

22. Much of the affidavit evidence of Mr Kontrafouris was not disputed.

23. In his main affidavit sworn 2 October 2015, Mr Kontrafouris:

1. States that he is the General Manager of the plaintiff IW and that IW is involved in the business of providing demolition services to various sectors of the construction industry. Mr Kontrafouris says that as the General Manager of IW his role generally involves undertaking quoting and submitting tenders for contracts, developing methodologies and work processes for completing demolition work, liaising with clients as well as general administrative duties and dealing with clients regarding payment. Mr Kontrafouris also states that his role as General Manager involves him attending sites to supervise works when required;

2. Gives evidence that IW had dealt with One Build on approximately four occasions in small contracts in 2002 and 2004;

3. States that on 29 May 2013 IW received an invitation to tender from One Build in relation to demolition works concerning the refurbishment of the lobby area of the building at 259 George Street in Sydney. Mr Kontrafouris gives evidence that in early June 2013 he was contacted by One Build’s project manager, John Nardone, asking him to tender for the work;

4. Gives the history of various tenders submitted by IW to One Build in the period June to August 2013 after attending the demolition site and conducting an assessment;

5. Gives evidence of lowering the tender price at the request of Mr Nardone and Mr Hadjakis from One Build;

6. Gives evidence that he submitted a final tender price of $355,000 plus GST which was submitted to One Build on 14 August 2013 (paragraph 35);

7. Gives evidence of attending a meeting with representatives of One Build on 22 August 2013 at One Build’s head office in Surrey Hills in which, in substance, he made clear that 40–60 day payment terms from end of month invoices were unacceptable to IW and the plaintiff required better payment terms;

8. Gives evidence that on 22 August 2013, IW received an email from Mr Troy Collins of One Build attaching a revised scope of works for the demolition works and stating: “Final Price as discussed is $345,000 + GST with 30 Day Payment terms and Full retention release on completion of works … Please return this credit and cost break up as soon as possible so that I can commence all our paperwork for senior management sign offs and approvals” (paragraph 42 and Exhibit at Tab 13);

9. Gives evidence that on 23 August 2013 he provided a basic cost breakup of the costs in the various stages of the demolition works, added some changes, gave credit for some works and returned a signed scope of works document (paragraph 43 and Tab 14);

10. Gives evidence that by an email dated 30 August 2013, Mr Collins, who was a One Build Contract Administrator, indicated that IW had been successful in its tender. The email stated: “We are pleased to advise that we intend on entering into a Trade Contract Agreement with Inner West Demolition (NSW) Pty Ltd for the Demolition Works for the above project for the total lump sum of three hundred and forty five thousand dollars ($345,000) plus GST at Suncorp Place – 259 George Street, Sydney” (paragraphs 44–45 and Tab 15);

11. Gives evidence that on 30 August 2013 he received an email from Mr Tony Hadjakis, Project Manager from One Build, requiring IW to commence work on the site on 3 September 2013 (paragraph 52 and Tab 17);

12. Gives evidence that on 3 September 2013 IW commenced demolition works at the site (paragraph 54);

13. Gives a detailed history of the demolition works undertaken and the stages of those works in the affidavit. This included works up to 17 November 2013 which gave rise to the third progress claim (paragraphs 108, 116-120 and 126);

14. Gives evidence of three progress claims submitted by IW. These were submitted on 24 September 2013 (paragraph 70), 25 October 2013 (paragraph 105) and 20 November 2013 (paragraph 125). A payment schedule was received from One Build in relation to the first progress claim but no correspondence was received in relation to the second or third progress claims;

15. The payment schedule in relation to the first progress claim had reduced the first progress claim from $188,370 plus GST to a total of $100,210.64 plus GST (paragraph 89) being $110,231.70;

16. Gives evidence that on following up non-payment of the first progress claim, Mr Nardone had informed him that the cheque for payment was ready but was being withheld until the contract for the job was signed and returned. Mr Kontrafouris states that he told Mr Nardone that IW had not received any contract (paragraph 111). A contract was received by IW by email from Mr Collins on 12 November 2013 which had a date of commencement of 30 August 2013, was promptly signed by Mr Kontrafouris on behalf IW and was returned on 12 November 2013 by email to One Build (paragraphs 112–115);

17. Gives evidence in relation to attempts by Mr Kontrafouris to chase up payment from One Build and the eventual collapse of One Build and the appointment of liquidators to it (paragraphs 128–133);

18. Gives evidence that IW has never received any payment from One Build in relation to any of the three progress claims or for the work IW completed at the site (paragraph 134).

24. The second affidavit of Mr Kontrafouris sworn 5 October 2017 is brief and confirms that IW has still not received any payment for the demolition work completed for One Build (paragraph 5).

25. As set out above, on 12 November 2013 Mr Troy Collins from One Build forwarded a subcontract agreement for the demolition works to Mr Kontrafouris: see email dated 12 November 2013. The evidence shows that this was signed by Mr Kontrafouris on behalf of IW on 12 November 2013 and returned by way of email to Mr Collins on 12 November 2013. Despite the date of the return and execution, the subcontract works agreement is dated 28 October 2013.

26. It is important to set out the relevant terms of the subcontract works agreement. It indicates that it is in relation to the project at 259 George Street. The parties to it were One Build and IW. The contract makes clear that the Agreement is in relation to the demolition works at 259 George Street Sydney (Clause 1) and that the fixed lump sum price for the contract, subject to the completion of the works, was $345,000 plus GST or such amount as determined by the schedule of rates under the contract which was not applicable (Clause 2). Clause 3 refers to the documents evidencing the subcontract which include the subcontract works agreement, the subcontract particulars on page 2 of the document and the conditions of the subcontract at pages 3–11 of the document. Other documents are referred to including in Clause 3(d), the Contract Documents as listed in Schedule 1 to the document which refer essentially to architectural and related drawings.

27. It is noted that the subcontract works agreement in evidence was not signed by One Build. However, there is no suggestion that the parties proceeded from the date of execution by IW on the basis of anything other than the subcontract works agreement.

28. The subcontract particulars included the following:

“Clause 2.1   Date for Commencement   30th August, 2013

…

Clause 4.4   Schedule of Rates (to be completed if Subcontract Sum is based on Schedule of Rates)    N/A

Clause 5.2   Day of month 24th day of each month

Clause 5.4   Period of progress claim 30 days

Clause 5.4    Rate / Limit of retention is 10% to a maximum of 10%, 100% of retention is to be released at the completion of the Demolition Works

…”

29. Significant clauses are in the conditions of subcontract at pages 3-11 of the document. Relevant provisions in the definition clause are as follows:

1. Definitions and Interpretation

1.1 In this Subcontract:

…

"Claimed Amount" The amount claimed by the Subcontractor in a Payment Claim.

…

"Contract Documents" All the documents listed or refereed [sic] to in Schedule 1.

…

"Contract Sum" the amount stated as such in the contract particulars, subject to any adjustment in accordance with the Contract.

…

"Date of Contract" the date of the Letter of Intent or if no Letter of Intent is issued by OBC to the Subcontractor, the date the Subcontract Agreement is signed by OBC after the Subcontractor has signed it.

...”

30. Significant clauses include the following:

2. Commencement and Completion

2 1   The Subcontractor shall commence the Works on the date stated in the Subcontract Particulars or such other date as OBC may notify.

2 2   The Subcontractor shall execute the Works regularly and diligently to the Practical Completion Date stated in the Subcontract Particulars.

2 3   Prior to the Works reaching Practical Completion the Subcontractor must provide OBC with the following (and in the case of subparagraphs (i) to (v), at least 15 days earlier)

(1) any written warranties / guarantees as required;

(2) all Consultant approved final services and operational manuals;

(3) all approvals or certificates from relevant authorities applicable to the Works;

(4) all Completion/Operation manuals and the like;

(5) three sets of Consultant "as-built" drawings in a form and containing such details as detailed in the Project Scope Documents;

(6) all relevant certificates required by the Subcontract and evidence of all applicable approvals, consents and permissions from all relevant Authorities;

OBC may withhold payment until the Subcontractor complies fully with his obligations under this clause.

…

4. Subcontract Sum

4.1   The Subcontract Sum is not subject to adjustment for rise and fall. The Subcontract Sum includes fluctuations in the Exchange Rate, transport, freight and delivery charges.

4.2   The Subcontractor will be paid either on a lump sum basis or schedule of rates basis, as stated in the Subcontract and inclusive of all site and any other allowances payable to the Subcontractor's employees at any time during the Subcontract Works. The Subcontract Sum will not be adjusted if there is any change to any allowances payable to the Subcontractor's employees.

4.3   If payment is to be made on a lump sum basis, the Contract Sum is the lump sum stated in the Subcontract, adjusted by any additions or deductions in accordance with the Subcontract.

4.4   If payment is to be made on a schedule of rates basis, the Subcontract Sum is the value of the measured quantity of work actually carried out (measured net of the drawings) at the rate stated in the Schedule or Rates referred to in the Subcontract Particulars, adjusted by any additions or deductions in accordance with the Subcontract.

4.5   Quantities in the schedule of rates are estimates only. No increase or decrease in quantities will result in a variation or adjustment of the rate unless deemed otherwise by OBC.

4.6   Measurement for the purpose of clause 4.4 must be carried out jointly by representatives of OBC and the Subcontractor and set out in a certificate, in duplicate, signed by them. No payment will be made to the Subcontractor without a certificate. Any dispute as to measurement must be determined in accordance with clause 24.

4.7   The Subcontract Sum includes the net cost of the all nominated Provisional Sums and includes all costs associated with overheads, administration and profit required to undertake the described works.

5.   Payment

5.1   Progress payment claims / tax invoices submitted by facsimile and/or email will not be accepted. OBC may withhold payment until the Subcontractor properly executes the Subcontract and returns it to OBC.

5.2   On the day of the month stated in the Subcontract Particulars the Subcontractor may submit to OBC an original progress claim (tax invoice showing the value of work carried out since the date of the last progress claim and other amounts to which the Subcontractor is entitled under the Subcontract

5.3   Every progress payment claim / tax invoice must be accompanied by the following documents completed by an authorised representative of the Subcontractor:

(1)   a written statement that :

(i) all remuneration and other entitlements payable to or on behalf of the Subcontractor's employees for work under the Subcontract during the period up to submission of the progress claim has been paid (Attachment B); and

(ii) all amounts payable to subcontractors and suppliers in respect of the work under the Subcontract have been paid;

(2)   written evidence that the Subcontractor has paid all relevant taxes, duties, statutory fees and charges' (Subcontractor's Statement);

(3)   copies of current certificates of currency for public liability, workers compensation and other insurances (where applicable);

(4)   all relevant calculations;

(5)   Conformance records showing conformance with particular requirements of the Contract, as provided in the Contract, and the Certificates in the form of Attachment C (Compliance Certificate), signed by the Subcontractor and also by any consultants involved in the works (where applicable), verifying that all work that has been done including design and construction with materials that have been supplied are in accordance with the Contract; and

Any other information specified in the Contract.

5.4   OBC will process a payment to the Subcontractor, (provided it has satisfied clause 5.1 and 5.3, the amount properly claimable under clause 5.2 less retention at the rate to the limit referred to in the Subcontract Particulars and any other amounts owing to OBC), on the Friday following the number of days stated in the payment terms in the Subcontract Particulars (counted from the last day of the month in which claims are received by OBC). Payment will be made by cheque and sent to the Subcontractor's address within the following week.

5.5   The Subcontractor will be entitled to claim for the initial portion of the retention monies (following the submission of a notification for the release of the initial retention monies and a tax invoice for the nominated amount) upon the date that is the later of:

(1)   Three (3) calendar months after the date of the Completion of the Works; and

(2)   The date of rectification of all defects notified to One Build by the Client under Clause 19 on or before the date which is Two (2) calendar months after the Completion of the Works.

Payment of the initial retention monies will be accordance with Clause 5.4.

5.6   The Subcontractor will be entitled to claim for the remaining portion of the retention monies (following the submission of a notification for the release of the remaining retention monies and a tax invoice for the nominated amount) within the date that is the later of three (3) months following the end of the Defects Liability Period or the completion of identified defects. Notification and/or receipt of a tax invoice for the release of the remaining retention monies beyond three (3) months following the end of the Defects Liability Period will be time barred and no longer payable.

Payment of the remaining retention monies will be accordance with Clause 5.4.

5.7   In lieu of the retention referred to in clause 5.4 the Subcontractor may provide two unconditional and irrevocable banker's undertakings in form and substance acceptable to OBC provided by a bank or financial institution acceptable to OBC for equal amounts totalling the limit of retention stated in the Subcontract Particulars. Except to the extent that OBC has made a demand under the undertakings, OBC must return one of the undertakings on the Completion of the Head Contract Works and the other undertaking on satisfaction of the obligations under the Defects Liability Period.

5.8   OBC may make any payments on behalf of the Subcontractor directly to the Subcontractor's subcontractor or supplier, but is not under any obligation to do so. The amount will be deemed to be a payment in respect of the Subcontract Sum.

5.9   Late progress claims will be treated as having been made in the following month.

31. As will be seen, the subcontract works agreement in the conditions of subcontract contemplates progress claims to be made by IW on a monthly basis in relation to the work to be completed by the plaintiff under the Agreement. This appears to reflect what had occurred between the parties prior to the execution by Mr Kontrafouris of the subcontract works agreement on behalf of IW on 12 November 2013.

32. Mr Kontrafouris was cross-examined in relation to the conversation in paragraph 41 of his 2 October 2015 affidavit. He confirmed that payment 45–60 days from the end of month invoices was unacceptable to IW and that IW had a 14 to 30 day payment policy. Mr Kontrafouris confirmed that Mr Collins had said that he would have to speak to the Director for approval for 30 day payment terms with a $10,000 discount to be applied to the proposed contract sum. It was put to him that he had not received any approval or acceptance of those terms. Mr Kontrafouris disagreed and said that he regarded IW as having secured 30 day payment terms for a $10,000 discount.

33. Mr Kontrafouris was taken to paragraph 5.4 of the conditions of subcontract. It was put to him that under Clause 5.4, payment could be received up to 42 days after the invoice. Mr Kontrafouris said that he understood the Agreement between the parties was that an invoice was to be paid 30 days from the end of the month in which the invoice was received. He said that he understood that One Build wanted invoices by the 24th day of the month and those invoices would be paid at 30 days from the end of that month. Mr Kontrafouris said it was standard in the industry that invoices would be paid 30 days from the end of the month in which the invoice had been sent.

34. When questioned further, he agreed that if an invoice had been forwarded on 24th of the month that it would be paid by the 30th of the next month.

35. Mr Kontrafouris accepted that in the industry some companies were good payers and some were late payers.

36. Mr Kontrafouris agreed that the subcontract works agreement had been received late but that work had been completed since September 2013 on the terms previously agreed. He denied that the terms of Clause 5.4 of the subcontract conditions had previously been agreed between the parties. Mr Kontrafouris gave evidence that the terms previously agreed were 30 day payment terms and a full retention release on completion of the works. This evidence in substance reflected the email from Mr Collins dated 22 August 2013 which is at page 68 of the exhibits to Mr Kontrafouris’ 2 October 2015 affidavit.

37. While Mr Kontrafouris accepted that there were varying standards of payment in the industry and it was common for payment to be outside the payment terms agreed, that did not mean that it was accepted by all parties.

38. Mr Kontrafouris confirmed the contents of paragraph 111 of his 2 October 2015 affidavit being that Mr Nardone required the signed contract to be returned before the cheque for payment of the first progress claim was released.

39. In relation to his second affidavit sworn 5 October 2017 paragraph 5, Mr Kontrafouris confirmed that IW had not received any payment from Memocorp Australia Pty Ltd which was the client for whom One Build was doing the construction work at the site.

40. Mr Kontrafouris impressed me as a witness of truth. He gave his evidence in a straightforward and direct fashion and made concessions where appropriate. I accept his evidence.

Evidence of Mr G Nardone

41. The plaintiff read the affidavit of Mr Gianfranco Nardone sworn 1 October 2015.

42. Mr Nardone is an experienced building Project Manager. He was employed as a Project Manager for One Build for about 3½ years from September 2010. In his role as Project Manager, one of his tasks was to consult with a subcontractor at various stages of the project to discuss particular progress claims and to evaluate and assess progress claims as they were submitted by subcontractors. An assessment was made by Mr Nardone of what work in progress had been done and what was the appropriate figure for a progress claim. Mr Nardone also checked the documents that were forwarded with a claim to ensure that the relevant documents were received. Mr Nardone gave evidence about the procedure within One Build for pursuing payments. Initially payments would be pursued with the accounts clerk, Ms Wang. If the subcontractor had still not received payment, then on occasions the subcontractor would contact Mr Nardone who referred them to Mr John Lunney of One Build (Mr Lunney was the One Build Financial Controller). Mr Nardone gave evidence that he understood that Mr Lunney had the authority within One Build to decide who and how much a subcontractor would be paid (paragraphs 7).

43. Mr Nardone gives evidence in his affidavit that he was the Project Manager for the project at 259 George Street Sydney where the plaintiff was undertaking the demolition works. Mr Nardone was not working on other projects for One Build at the same time (paragraph 9). Mr Nardone gives evidence in his affidavit that IW performed their demolition work in a proper and workmanlike fashion with no issues as to the scope, quality or performance of their work. He also gives evidence that work was to his understanding, completed in accordance with the contract and that each of IW's progress claims was evaluated and assessed in the ordinary course of business (paragraph 10).

44. Mr Nardone gives evidence that in the last 6 to 8 months of One Build’s business before it went into liquidation he was spending more time than previously dealing with subcontractors chasing payment and that in the last six months he recalls many subcontractors on the Suncorp project chasing payments of progress claim (paragraphs 8 and 11). In each case he referred them to Mr Lunney who he told the subcontractor representative in question had the authority to decide whether a payment was to be made or not. Mr Lunney in such cases would say that he would look into the matter.

45. In cross-examination, Mr Nardone confirmed that he was only responsible for dealing with payment claims from sites where he was the Project Manager. He confirmed that One Build had many other project managers who dealt with other sites.

46. Mr Nardone confirmed that sometimes there were issues in relation to receiving the correct paperwork for a claim which needed to be checked. He said that his job was to ensure that the contract was signed, that the insurance for the subcontractor was issued and that all necessary documents were attached to the claim. He confirmed that no payment would be made by One Build until the necessary documents were attached.

47. Mr Nardone impressed me as an honest and forthright witness and I accept his evidence.

Evidence of Ms C Marshall and Mr H Billitzer

48. The plaintiff read affidavits from Christina Marshall sworn 5 October 2017 and Hugh Billitzer sworn 5 October 2017. These affidavits were part of the plaintiff’s evidence showing the trail of the financial documents relied on by the plaintiff and particularly the plaintiff’s expert, Mr Barnden.

49. Ms Marshall and Mr Billitzer were employees of CSSP Pty Ltd (“CSSP”). CSSP was the owner/operator/administrator of the Cheops software system which is an integrated civil and building construction software package designed specifically for businesses operating in the building and construction industry. It was used by One Build in 2012-13.

50. Mr Billitzer gives evidence that he received from the Managing Director of CSSP, Mr Hemmett, on 16 August 2016 a four terabyte “Seagate” drive, the data on which he uploaded onto the CSSP server together with the Cheops software package. He forwarded to Ms Marshall the login details for a remote desktop login with the necessary password.

51. Ms Marshall gives evidence in her affidavit that she accessed the CSSP server address using the remote desktop login and she ran the Cheops program against the data in the file to produce the reports requested in a subpoena to produce issued by the plaintiff to Mr Hurst, one of the liquidators of One Build. She then saved each report as a PDF document to a location on the CSSP server and notified Mr Billitzer.

52. Mr Billitzer indicates that the next day, 17 August 2016, he copied the PDF reports as produced by Ms Marshall onto a newly purchased gigabyte computer drive which he provided to Mr Hemmett.

53. There was no cross-examination of Ms Marshall or Mr Billitzer.

Evidence of Mr N Chase Berry

54. The plaintiff read an affidavit from Mr Nicholas Chase Berry sworn 4 October 2017. Mr Chase Berry was an employed solicitor working for the solicitors for the plaintiff between February 2015 and 8 December 2016 and had the day-to-day carriage of these proceedings for the solicitors for the plaintiff in that period subject to the direction and control of the solicitor for the plaintiff Mr Ghedia.

55. Mr Chase Berry gives evidence that in about November 2016 he provided a four terabyte “Seagate” hard drive contained in subpoena packet 12 to Mr Petrov and asked Mr Petrov to copy all financial documents in a readable format from the hard drive to a separate USB drive.

56. Mr Chase Berry gives evidence that Mr Petrov returned the hard drive and a separate one terabyte USB drive containing files and documents to him a few days later.

57. Mr Chase Berry gives evidence that he prepared and sent to Mr Barnden, the plaintiff’s expert, a letter dated 29 November 2016 which he attaches to his affidavit and a brief of the documents contained on a USB stick. Mr Chase Berry gives evidence that the documents in certain paragraphs of the letter to Mr Barnden were on the USB stick when provided by him to Mr Barnden. These included financial statements, financial reports (including balance sheets, profit and loss statements, trial balance ledgers, general ledgers, debtor balance summaries, age creditor listings, age creditor balance summaries and creditor ledgers with reconciliation reports for various periods) as well as financial reports, bank statements and other documents.

58. Mr Chase Berry was cross-examined by counsel for the defendant. Mr Chase Berry in his cross-examination confirmed that he had given instructions to Mr Petrov to retrieve financial documents from the hard drive which he had provided to Mr Petrov. He confirmed that he had obtained the hard drive from subpoena packet number 12 which was produced by the liquidators. Mr Chase Berry stated that as far as he could recall he gave only one hard drive to Mr Petrov and not a collection of hard drives. This was different to Mr Petrov's evidence but nothing appears to turn on this difference.

59. Mr Chase Berry confirmed that he left it to Mr Petrov to comply with his instruction to retrieve financial documents and also left it to Mr Petrov to use his judgment as to what were financial documents on the hard drives. Mr Chase Berry said he may have elaborated as to what he meant by financial documents at the time and expressed the belief that he gave Mr Petrov examples to assist him. However, he confirmed that he did not give the definition of financial documents in the Corporations Act to Mr Petrov and left it to Mr Petrov to exercise his judgment as to what was a financial document.

60. Mr Chase Berry was asked whether Mr Petrov came back to him with a list of documents (which was Mr Petrov's evidence) and he said he may have but he could not recall. Mr Chase Berry confirmed that after Mr Petrov did his task he himself did not review the hard drive as it was not readable. He took the documents which had been extracted by Mr Petrov and reviewed them. Mr Chase Berry confirmed that he then exercised his judgment in relation to the documents which he sent to Mr Barnden, the expert. He gave evidence that some of the documents included by Mr Petrov were not relevant but he only excluded non-financial documents.

61. Mr Chase Berry confirmed that Mr Barnden did not get a full set of the documents on the terabyte USB stick produced in answer to the subpoena. He confirmed that Mr Barnden had no role in extracting the documents that were sent to him. He also said that he did not recall Mr Barnden asking for more documents but he may have. Mr Chase Berry confirmed that he did not exclude from what he sent to Mr Barnden any financial type documents which were on the disc provided to him by Mr Petrov

62. In re-examination, Mr Chase Berry gave evidence that subpoena packet 12 was produced by the liquidators of One Build and that the defendant had first access to the subpoenaed documents. Mr Chase Berry also confirmed that he left soon after his briefing letter to Mr Barnden was sent and did not recall having any discussions with Mr Barnden in the short period between forwarding the briefing letter and leaving the plaintiff's firm of solicitors.

63. Mr Chase Berry gave his evidence in a forthright and direct fashion making concessions where appropriate and I accept his evidence.

Evidence of Ms M Cailao

64. The plaintiff read the affidavit of Ms Ma Cailao sworn 26 July 2017. Ms Cailao gives evidence in her affidavit that she is employed by IW as its office manager and has held that role since 2010.

65. Ms Cailao gives evidence that on 20 November 2013 under instructions from Mr Kontrafouris, she posted IW's third progress claim to One Build by mailing it in an envelope addressed to One Build. Ms Cailao annexes the documents which she forwarded in the envelope on 20 November 2013.

66. Ms Cailao was not required for cross-examination.

Evidence of Mr D Hurst

67. The plaintiff read an affidavit of David Anthony Hurst sworn 10 October 2017. Mr Hurst is a chartered accountant by profession and is one of the joint liquidators of One Build. Mr Hurst confirmed receiving emails from the plaintiff's solicitors dated 24 May 2014 and 18 September 2014. Mr Hurst gives evidence that after receiving the email dated 18 September 2014 he recalled having a conversation with Mr Hosking, the other joint liquidator of One Build, sometime between 18 September 2014 and 22 September 2014 in which it was agreed that Mr Hosking and he would provide the necessary consent to the plaintiff pursuant to s 588R of the Corporations Act to pursue a claim against One Build’s director. Mr Hurst referred to a copy of an email dated 22 September 2014 from Mr Hosking to the solicitors for the plaintiff and noted that he was copied into that email. Mr Hurst expressed the opinion that Mr Hosking's email dated 22 September 2014 constituted his personal consent in writing to the plaintiff pursuant to s 588R of the Corporations Act to pursue a claim against One Build’s director (paragraph 5).

68. In cross-examination Mr Hurst agreed that he was appointed as a joint liquidator of One Build as opposed to a joint and several liquidator. He also agreed that he did not provide in writing anything under his hand amounting to a consent to the plaintiff to sue One Build’s director.

Evidence of Mr P Hosking

69. The plaintiff read an affidavit of the other joint liquidator of One Build, Mr Philip Hosking. Mr Hosking agreed that the resolution of creditors appointed Mr Hurst and himself as joint liquidators of One Build. He also confirmed that Mr Hurst never provided anything under his hand in writing granting consent to the plaintiff to sue a director of One Build and that the only document provided was his 22 September 2014 email.

Evidence of Mr S Ghedia

70. The plaintiff read an affidavit of the plaintiff's solicitor Mr Sundip Premji Ghedia sworn 25 July 2017. Mr Ghedia gave similar evidence in his affidavit in relation to the correspondence sent and received as in the affidavits of Mr Hurst and Mr Hosking.

71. Mr Ghedia was subject to cross-examination by counsel for the defendant. Much of that cross-examination was directed at the fact that Mr Ghedia shared premises on Level 2 of 230 Clarence Street Sydney which was a building apparently owned by a self-managed super fund associated with the directors of the accounting firm Rodgers Reidy of which Mr Barnden, the plaintiff's accounting expert, was a director. Mr Ghedia confirmed that he did not have a formal lease. He gave evidence that Level 2 was an open plan area and he had two desks on the floor. He also stated that on Level 1 Rodgers Reidy had their office. On Level 2 was the reception for Rodgers Reidy and there was an arrangement that reception services were provided also to Mr Ghedia by Rodgers Reidy's receptionist. For that service, Mr Ghedia gave evidence that he paid Rodgers Reidy $1,100 per desk per month. He said this amount was transferred electronically to Rodgers Reidy. He confirmed that he referred work to Rogers Reidy and they referred work to him. This case, according to Mr Ghedia, was not a case which had been referred by Rodgers Reidy to Mr Ghedia.

72. Mr Ghedia confirmed that prior to Mr Chase Berry's departure from his firm that he left matters relating to the briefing of Mr Barnden to Mr Chase Berry. He then took over the matter from Mr Chase Berry and dealt with Mr Barnden and his assistant Mr Griffiths. Mr Ghedia confirmed that his firm provided Mr Barnden with documents on a USB drive. No additional documents, other than were on the USB drive, were provided to Mr Barnden for his first report but a report of the former liquidator of One Build, Mr Hill, was provided to Mr Barnden for the purposes of his second report.

73. A document was tendered which became Exhibit 1 which was an email from Mr Ghedia to Mr Griffiths and Mr Barnden dated 31 January 2017 in which Mr Ghedia provided comments in relation to the first insolvency report prepared in draft by Mr Barnden. Mr Ghedia said that although Mr Barnden's first report was described in the report as “preliminary”, he did not regard that as suggesting that Mr Barnden had no concluded views as the report did express the views of Mr Barnden. Mr Ghedia said he was not concerned by the use of the word “preliminary” and did not recall any response from Mr Barnden to his 31 January 2017 email. Mr Ghedia noted that most insolvency reports received by him had the word “preliminary” on the report. Mr Ghedia confirmed that he sent the expert witness code of conduct to Mr Barnden but was not aware that the code which he had sent was outdated.

74. In re-examination, Mr Ghedia expressed the view that the date of the email, 31 January 2017, was the date he believed the plaintiff’s evidence in chief was due. He also confirmed that the email dated 31 January 2017 was prepared by counsel who he had briefed on behalf of the plaintiff.

75. Although Mr Ghedia did not appear to be impressed in having been cross-examined on various matters by counsel for the defendant, I accept his evidence.

76. A further detailed affidavit of Mr Ghedia sworn 12 October 2017 was read. This established the link between the documents provided to Mr Barnden on a USB drive and those in the plaintiff’s bundle of documents which was tendered and became Exhibit D.

Evidence of Mr Anton Petrov

77. The plaintiff relied on an affidavit from Mr Anton Petrov sworn 3 October 2017.

78. In his evidence Mr Petrov states:

1. That he is in information technology specialist;

2. In about November 2016 and at the request of Mr Berry from the plaintiff's lawyers he undertook a computer task relating to the proceedings;

3. Mr Berry gave him a package which contained a four terabyte computer hard drive. He was asked to copy and download the files contained on the hard drive onto a set separate USB drive;

4. Mr Petrov states that he performed a search on the hard drive, copied from the hard drive onto a separate USB the files and documents located on the hard drive and then gave the hard drive and the USB drive back to Mr Berry.

79. Mr Petrov was cross-examined by counsel for the defendant. In his oral evidence, Mr Petrov stated that he was an IT engineer and worked with hardware and software. He confirmed that he had neither accounting nor legal qualifications.

80. Mr Petrov confirmed that he had received instructions from Mr Berry to extract data. Mr Petrov said the request from Mr Berry was to copy documents related to finance or which had “finance” in the title to a file. Mr Petrov said that he determined which documents on the hard drives which he had been provided by Mr Berry, fell within the category of financial documents and sent a sample of them to Mr Berry to confirm that this was the type of documents that he was looking for. Mr Petrov confirmed that in undertaking this task he formed a view as to what were financial documents. Mr Petrov later expanded this to say that he sent Mr Berry a screenshot of the names of files or folders which he proposed to copy and that Mr Berry told him which of the files to copy or save. He gave evidence that Mr Berry was satisfied with the files and folders which he had located on the 4 hard drives, only one of which was readable. Mr Petrov said he then place those folders and files on a 2.5 inch USB drive and gave it to Mr Berry, together with the hard drives that he had been provided.

81. Mr Petrov confirmed that he had extracted a selection of financial documents onto a USB drive based on a selection made by him.

The defendant's evidence

Evidence of Mr T Silk

82. The defendant Mr Silk relied on and read in the proceedings an affidavit of his sworn 13 September 2017.

83. In the affidavit, Mr Silk:

1. Provides background evidence in relation to his position in One Build;

2. Provides evidence in relation to the practices and procedures adopted in One Build in relation to construction contracts to which it was a party;

3. Provides evidence in relation to a Mr John Lunney, the Financial Controller of One Build, who Mr Silk said he relied upon in relation to financial matters in the relevant period;

4. Refers to the responsibilities of Mr Lunney and an employed accountant who worked with Mr Lunney;

5. Provides evidence in relation to a contract between One Build and Alstom Grid Australia Ltd (“Alstom") which caused, according to Mr Silk, financial problems for One Build in the latter part of 2013 and which led to the appointment of a liquidator to One Build on 26 November 2013;

6. Comments on the contract with IW;

7. Comments on aspects of the report of the plaintiff’s expert Mr Barnden in relation to the solvency of One Build.

84. The affidavit was relevant both to the solvency of One Build and to the defences asserted by Mr Silk under s 588H of the Act.

85. In relation to Mr Silk's role in One Build, Mr Silk exhibits to his affidavit a company search of One Build. Mr Silk accepts that the company search shows:

1. One Build was incorporated in June 1999;

2. Mr Silk was appointed a director of One Build on 17 September 1999 and during the period 6 July 2007 to date was the sole director and secretary of One Build;

3. On 26 November 2013 Mr Grahame Hill was appointed liquidator of One Build;

4. On 13 December 2013 Mr Hurst and Mr Hosking replaced Mr Hill as liquidator of One Build.

86. Mr Silk gives evidence in his affidavit that from September 1999 to 26 November 2013 One Build operated a building and construction business undertaking medium to large commercial building projects usually being between $1 million and $10 million in value. The exception was the Alstom contract which was initially valued at $19,550,000.

87. In relation to Mr Lunney, Mr Silk gives evidence that from 2006 One Build employed Mr Lunney as its Financial Controller. As Mr Silk understood it, as at 2012 Mr Lunney was a tertiary qualified certified practising accountant with over 30 years’ experience as a financial controller. As stated above, a further certified practising accountant worked with Mr Lunney (paragraph 6). Mr Silk gives evidence that the responsibilities of Mr Lunney and his assistant included all accounting, budgeting and forecasting, credit control, reporting including advising on One Build's financial position and solvency, taxation and treasury and finance/office administration (paragraph 7). Mr Silk makes the point that he does not have any formal accounting qualifications and relied upon Mr Lunney and his team to handle all accounting and financial matters relating to One Build (paragraph 8). In paragraph 9 of his affidavit, Mr Silk states that Mr Lunney was in a position to disclose the financial position of One Build and that at no time prior to 19 November 2013 did Mr Lunney or his “team” advise Mr Silk that One Build was insolvent and also no reports provided to Mr Silk by Mr Lunney or his team indicated to Mr Silk that One Build was insolvent or likely to become insolvent.

88. Mr Silk gives evidence in relation to One Build’s practice systems. One procedure that was in force was that no subcontractor was entitled to be paid until a subcontract, as provided to the subcontractor by One Build, was returned unchanged and executed by the subcontractor. Mr Silk gives evidence that the failure to obtain a signed contract would prevent a payment being processed in the cheque run for One Build (paragraph 12). Approval procedures within One Build are referred to. Mr Silk gives evidence that he was not requested by anybody to approve an authority to let subcontract with respect to IW and that it was One Build's procedure that all returned contracts would be accompanied by the approved authority to let subcontract (paragraph 14).

89. Mr Silk also gives evidence that to the best of his knowledge, the subcontract signed by Mr Kontrafouris was never provided to him for execution by One Build (paragraph 16). Mr Silk noted that the CHEOPS software system used by One Build prevented a payment being made to a subcontractor where the subcontract agreement had not been returned unamended and signed by the subcontractor and then subsequently signed by Mr Silk as director (paragraph 16).

90. Mr Silk gave detailed evidence in relation to the Alstom contract and the difficulties One Build had in obtaining payment. The contract was entered into on 21 September 2012 (paragraph 23). After completing very substantial work on the contract, Mr Silk indicates that One Build ceased working on the project on 14 November 2013 because of outstanding payments said to be due to One Build of about $11 million. On 24 November 2013, Mr Silk said that negotiations broke down between One Build and Alstom and, as a result, due to advice from Mr Lunney that One Build was likely to become insolvent at some future time, Mr Silk voluntarily appointed Mr Hill as liquidator of One Build on 26 November 2013.

91. In relation to IW, Mr Silk asserts that it was standard One Build procedure at relevant site visits for potential tenderers to be advised that they can only be paid if they have entered into a One Build subcontract (paragraph 36). Mr Silk does not state in his affidavit that anyone from IW was told this but appears to rely on the standard practice within One Build. This evidence accordingly must be treated with some caution.

92. In relation to the solvency of One Build, in his affidavit Mr Silk seeks to address aspects of One Build's financial position that Mr Barnden, the expert for the plaintiff, states as indicating insolvency at the relevant time in One Build. These factors included there being $3,100,000 of unpresented cheques drawn by One Build as at June 2013, the extent of proofs of debt in the insolvency of One Build and the fact that a significant creditor, Hanson Precast, was owed money for eight to nine months.

93. Mr Silk also gave evidence about One Build's procedures in relation to the payment of trade suppliers’ terms and why the matters relied upon by Mr Barnden did not, in his view, indicate insolvency in One Build.

94. Mr Silk in relation to the question of whether One Build was an ongoing concern, gave evidence in relation to the significant tender opportunities connected to One Build as at 30 June 2013 including upcoming tenders over the next 24 month period of $368.8 million (paragraph 63).

95. Mr Silk ultimately expresses the opinion that One Build had every belief that but for the issues with Alstom in November 2013, it was an ongoing concern and would be able to meet its financial obligations into the future (paragraph 64).

96. Mr Silk was subjected to a detailed and lengthy cross-examination including detailed cross-examination in relation to financial records which were part of the plaintiff’s tender bundle, Exhibit D.

97. Mr Silk confirmed in cross-examination that he had been a director of One Build Holdings Pty Ltd since 2002 which was a company which was now deregistered and had been the holding company of One Build. Mr Silk also confirmed that he had been a trustee in 2012-2013 of the Valley View Investment Trust. Mr Silk gave evidence that he was a beneficiary including in the 2013 financial year of the Valley View Investment Trust which owned as at 2013, One Build's business premises in Foveaux Street Surry Hills.

98. Mr Silk confirmed that all of One Build's income came from construction activities in the 2011–2013 financial years up to 26 November 2013.

99. Mr Silk was asked questions about a questionnaire which he completed as a director on 2 December 2013, after Mr Hill was appointed as liquidator (Exhibit D, 3/965. Hereafter, reference will only be made to the volume and page number). He could not recall whether he completed it at the request of Mr Hill. The questionnaire, which was signed by Mr Silk, included the following relevant questions:

“2. What were your duties?

Management of the company

…

4. Who was responsible for the day-to-day management of the company?

Tom Silk

…

12. When did the company cease business (if appropriate)?

22 November 2013

…

36. What books and financial records were kept by the company?

Description Last date posted Held by

Standard books of account & general ledger Nov. ‘13

37. By whom were the books and records kept? (indicate name, period maintained and whether or not the person was an employee)

John Lunney 2006–2013

Employee

38. What steps did you take to ensure that the books and records were properly kept?

Monthly review

…

42. How often were balance sheets and profit and loss accounts prepared for the company?

Monthly

43. Who compiled them?

John Lunney

…

45. What steps did you take to satisfy yourself that the balance sheets and profit and loss accounts were correct?

Full review with John Lunney

…

49. What figures were compiled by you or presented to you (weekly, monthly or other period) to show the financial position of the company?

Monthly – P&L, Balance sheet, KPI's

…

51. Who prepared income tax returns for the company? What tax returns are outstanding?

John Lunney – internal.

Edney Ryan checked & submitted. 2013 outstanding.

.…

57. When did you first become aware of the company's financial difficulties?

21 November 2013

…

60. When did creditors start to press the company for payments?

During the week beginning 18/11/13.

61. What steps did you take to satisfy these creditors?

We advised creditors that we had not been paid by Alstom and would pay them once we had been paid.”

100. The document included as an annexure an answer to question 58 in the following terms:

“58. What caused you to realise that the Company had financial difficulties?

One Build had a major dispute with Alstom Grid regarding the cash flow and revised contract value on the Holroyd and Rookwood sites. When we decided that we had no reasonable expectation to resolve this dispute we decided that we could not continue to trade."

101. The document also included the following:

“On Thursday 21st November 2013 we decided that the dispute was irreconcilable and that there was now no reasonable expectation that we could resolve it and as a consequence of this we could not pay our subcontractors and suppliers. We sought external advice and had no other option than to cease trading."

102. There was also included as a schedule an answer to question 70 in the following terms:

“Q 70. What do you consider were the reasons for the failure of the Company or the reasons for the appointment of the external insolvency Administrator?

Please also refer to Q 58.

The non-residential construction industry has been suffering for some years now, which has led to heavy competition, minimal margins and significant acceptance of contractual risk. One Build has been exposed to this market resulting in a dwindling of cash reserves.

In normal circumstances we believe that we could have traded through this market and continued into the future. However the losses that we now forecasted for the Alstom contract, being $4 million, were insurmountable. Once we made the decision that there was no reasonable expectation to resolve the financial problems with Alstom on these projects we decided to appoint an Administrator."

103. Mr Silk also agreed that he had signed a Report as to Affairs on 20 January 2014 in his capacity as director (3/988). This revealed that as at 26 November 2013 One Build had $14,513,117 of assets with creditors of $17,423,463 (3/984). Mr Silk in his evidence claimed that he did not complete the document but agreed that his signature was an indication that he had read it. Mr Silk stated that he could not have known that the amount for unsecured creditors was 100% correct.

104. Mr Silk confirmed that his role in the 2013 financial year was the Managing Director of One Build with responsibility for overall management of the company which he fulfilled by putting in place a team to manage different areas of the company.

105. In relation to Mr John Lunney, Mr Silk confirmed that he was the Financial Controller of One Build and had been at all times Financial Controller of One Build since 2006. Mr Silk confirmed that Mr Lunney prepared monthly balance sheets and profit and loss accounts for One Build and did so in the period July to November 2013.

106. Despite what appears at questions 42-45 of the questionnaire completed by Mr Silk (3/969), Mr Silk said he did not undertake a full review of monthly balance sheets and profit and loss accounts with Mr Lunney on a monthly basis but only on an annual basis. Also, despite the answer to question 49 in the questionnaire (3/970) about monthly profit and loss accounts and balance sheets being “presented” to Mr Silk monthly, Mr Silk gave evidence that they were reviewed monthly by Mr Lunney but Mr Silk himself only reviewed with Mr Lunney key performance indicators which were presented to him in a document. Mr Silk confirmed that balance sheets and profit and loss accounts were prepared at the end of each month for One Build. Mr Silk denied that at the monthly reviews with Mr Lunney that Mr Lunney provided a cash flow document to him. He agreed that Mr Lunney usually gave him an indication of monthly cash flows at the meeting. Mr Silk gave evidence that Mr Lunney kept the cash flow statements to himself and did not present them to him at the monthly meetings.

107. Mr Silk agreed that One Build utilised a computer software program called Cheops which was a software used in the building and construction industry. He agreed that the Cheops system included:

1. A general ledger which was maintained;

2. A ledger of creditors;

3. A document showing aging of creditors being an aged creditors listing.

108. Mr Silk said that he was never given a creditors balance summary for One Build in the form at 4/1338. However, Mr Silk gave evidence that he was aware that One Build maintained a creditors ledger in the Cheops system which recorded moneys owed by One Build to persons. This recorded creditors based on the date of the invoice but Mr Silk said it was standard in the building construction industry that persons were paid at the end of the month following the month in which the invoice was received as opposed to the date of the invoice.

109. Mr Silk was asked questions about the first sentence of paragraph 61 of his affidavit in which he states that a progress claim/status report was developed by the Financial Controller, Mr Lunney, to monitor the status of progress claims across projects and to assist in his overall management of cash flow. Mr Silk agreed that it was in a spreadsheet form which anticipated the progress claims which would be made on each project. He confirmed that the document at 2/628 was an example of a progress claims status report referred to in paragraph 61 of his affidavit. Mr Silk said that Mr Lunney did not provide him with copies of the progress claim status reports for each month. Mr Silk said that they were internal documents for Mr Lunney's use but he was aware of their existence. He agreed that he was aware of their existence in 2013 but never asked to see them and generally did not make himself aware of them.

110. In relation to annual balance sheets and profit and loss accounts, Mr Silk agreed that these were prepared annually for One Build and were reviewed by him but not in a detailed fashion. Mr Silk said that he had enormous trust in the numbers supplied to him by Mr Lunney. This evidence appeared to be contrary to Mr Silk's evidence about question 45 of the questionnaire in relation to which he had indicated that he conducted a “full” annual review of profit and loss statements and balance sheets with Mr Lunney (3/969, answer to question 45). Mr Silk also gave evidence that he did not review an annual cash flow statement. To his answer in the questionnaire at 3/969 that he took a “monthly review” to ensure that the books and records of the company were properly kept, Mr Silk said that he delegated that task to Mr Lunney. This seems to be inconsistent with the answer to question 38 in the questionnaire. Again, despite the answer to question 48 that monthly profit and loss statements and balance sheets were “presented” to Mr Silk, he gave evidence that they were in the system and he could have accessed them but they were not physically presented to him and he looked at the key performance indicators which were recorded on a piece of paper which Mr Lunney gave to him. Mr Silk agreed that he was aware of the existence of the monthly balance sheets and profit and loss statements prepared by Mr Lunney and could access them but he generally did not do so.

111. Mr Silk was asked questions in relation to the involvement of Mr Hill in August 2012 to advise Mr Silk and One Build. Mr Silk gave evidence that he did not recall if Mr Hill had been paid or whether he had been engaged by One Build: however, paragraph 21 of his affidavit clearly states that Mr Hill was engaged to provide advice to One Build in respect of One Build’s proposed contract with Alstom and it is likely, in those circumstances, Mr Hill being a professional, that he was paid. Mr Silk gave evidence that he was not aware when Mr Hill gave advice that he was a liquidator and only found out about that matter later. Mr Silk stated that Mr Hill was used to provide corporate advice. Despite Mr Hill being used by Mr Silk and the matters contained in paragraphs 22 and 40 of Mr Silk's affidavit, Mr Silk denied that he sought advice from Mr Hill because he had concerns in relation to One Build remaining solvent in the future. Mr Silk said he was concerned about One Build’s cash reserves and cash flow. Mr Silk conceded in the light of the email at 3/996 dated 7 August 2012 from Mr Ryan of Edney Ryan that he met with Mr Hill twice in August 2012 in relation to the financial position of One Build. He gave evidence that he did not recall the second meeting.

112. There was detailed cross-examination about a meeting between Mr Hill, Mr Ryan and Mr Silk relating to accounting procedures and entries that may be appropriate to register the amount that One Build theoretically owed Mr Silk due to him not receiving a commercial salary: see 17 August 2012 email from Mr Ryan at 3/1001. Mr Silk was taken to changes to One Build’s accounts in which in draft accounts, One Build had as an asset a receivable from a related party in the sum of $1,681,691 (3/1062, 3/169) whereas in later accounts this showed a debt of $1.5 million from One Build to related parties. Mr Silk agreed that there was a reduction in One Build’s assets at the time by $1.5 million and that the Valley View Investment Trust became a creditor of One Build for that amount (3/1045). Mr Silk had denied initially that the trustees of the Valley View Investment Trust had originally owed the $1,681,691 to One Build (cf the emails at 3/1047-9 particularly point three in Mr Ryan's email of 22 August 2012). Despite Mr Silk's initial evidence that he did not recall this, the documents, particularly Mr Ryan's email at 3/1045, appears to establish it in the light of the accounts. Later, Mr Silk accepted that One Build had implemented the recommendations of Mr Ryan in relation to the Valley View Investment Trust being credited $1.5 million because of Mr Silk's previous services. Mr Silk conceded that he was aware that these accounting entries were to be made but denied that he implemented them (compare the accounts at 1/36-55 to the accounts at 3/1060 in relation to trade and other receivables:1/38, 1/45 cf 3/1069). Mr Silk accepted that these entries resulted in a reduction in One Build’s assets by $1.5 million. Mr Silk could not recall discussing the $1.5 million journal entry with Mr Hill in August 2012. Mr Silk asserted that Mr Ryan was giving advice to the Valley View Investment Trust not One Build in relation to this matter. He did not recall why Mr Hill was copied into the email dated 23 August 2012 discussing the journal entry at 3/1045.

I have taken into account the defendant’s submissions on this point in relation to practices in the construction industry: see the defendant’s oral submissions and the reliance placed on ASIC v Plymin, above, at [387] in which Mandie J referred to the fourth point of Palmer J in Southern Cross Interiors Pty Ltd v DCT (2001) 53 NSWLR 213 at [54]. However, in the present case One Build had issued payment schedules and a payment plan had been agreed.

Further, the submission based on the SOP Act by the plaintiff seems to have force: plaintiff’s submissions dated 16 February 2018 paragraph 77. Under the SOP Act, the amounts scheduled by One Build in relation to the Hanson payment claims were owed by it to Hanson in accordance with the SOP Act: see 4/1120-3; 4/1143-8; 4/1157-62; s 16 of the SOP Act.

8. Aged creditor analysis – Mr Barnden makes the point that the average terms on which One Build traded with its suppliers were 30 days and a large proportion of total aged creditors were older than 30 days with the amount owing being over $3 million. Mr McMahon states that it is common practice particularly in the construction industry for debts to trade creditors to be paid outside of the normal trading terms. Mr Barnden says in his second report that whatever the normal practice is, is irrelevant, as such debts are still due and payable in accordance with the normal trading terms. In cross-examination of both Mr McMahon and Mr Barnden, issues were raised in relation to time being granted being potentially a variation of trading terms and the need as a matter of commercial reality to look at the particular industry and in particular Mr Silk’s evidence that normal construction terms were 30 days after the end of the month in which the invoice was received.

Mr McMahon makes the point that as at 30 June 2013, 96% of aged creditors were less than 60 days and 98% of aged creditors were under 90 days: paragraph 5.11.4.

Even if Mr Silk’s evidence was accepted on this issue, it is unlikely that all creditors' invoices would have been received at the beginning of a month such that effectively One Build had close to 60 days to pay. It is also unlikely that the conduct of the parties as to the non-enforcement of usual terms would in all cases or even perhaps a majority of cases have amounted to conduct constituting a variation in contractual terms. Mr McMahon states in paragraph 5.11.7 of his report that the state of ageing of trade creditors may be a poor indicator of insolvency.

In my view this is not a strong indicator of insolvency. I accept the defendant’s submissions on this issue.

339. Mr McMahon also raises the question of potential support from related entities and forward cash flow projections.

340. In relation to the question of potential support from related entities, Mr McMahon gave evidence that some support was provided to One Build towards the end of the calendar year 2012. In paragraph 6.2.1 of his report, Mr McMahon states that the assessment of the ability of related entities to provide financial support is a key issue in a company's solvency. This is clearly correct. He notes that the willingness and capacity of Mr Silk to provide additional funding and/or financial support to One Build does not appear to have been investigated or addressed in the Barnden report: paragraph 6.2.4.

341. In my view, this is not a significant matter. As Mr Barnden notes in his second report in paragraph 6.1.2, related parties did not provide any financial support to One Build in the six months up to the date of insolvency. It is also noted that the director did not have a loan account with the company at the relevant time to clear the account to nil. I do not see it as a problem with the Barnden reports that enquiries were not made in relation to the support by related parties. If those entities were going to provide support it is likely that they would have done so. See paragraphs 90-91 (first sentence) of the plaintiff’s written submissions dated 16 February 2018.

342. I accept the submission that a Jones v Dunkel inference can and should be drawn in relation to the failure by the defendant to call evidence from the trustees of the Valley View Investment Trust and from Metroplex Pty Ltd in relation to the willingness of those persons to provide financial assistance to One Build: Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418; RHG Mortgage Corporation Ltd v Ianni [2016] NSWCA 270 at [160]-[165]. Both entities were within the defendant’s camp. The trustees of Valley View were Mr Silk and his wife. It was to be expected that Mr Silk and/or his wife and or a director of Metroplex would be called to give the evidence if such support would have been forthcoming. This failure to call evidence was unexplained by the defendant. However, I note that I would have arrived at the same conclusion even without this Jones v Dunkel inference.

343. Mr McMahon also raises the point that forward cash flow projections should have been taken into account. He refers to spreadsheets which appear to project the cash flow of the company from October 2013 and November 2013 through to 30 June 2014, which indicate substantial positive net cash flows: paragraph 6.3.3-4. Mr Barnden states that an analysis of the cash flow forecast past the date of insolvency is irrelevant as the company went into liquidation and was undoubtedly insolvent on that date.

344. In my view, Mr Barnden's opinion is substantially correct, unless it could be shown that very substantial cash flows were almost certain to have been obtained in very close proximity to the insolvency date. The real issue is whether the company can pay its debts as and when they fall due on a particular date.

345. Two other matters should be noted which are of some relevance to this issue. The first involves a questionnaire completed by Mr Silk on 2 December 2013 (Exhibit D, 3/965) in which he noted in answer to question 70 that the non-residential construction industry “has been suffering for some years now, which has led to heavy competition, minimal margins and significant acceptance of contractual risk. One Build has been exposed to this market resulting in a dwindling of cash reserves” (emphasis added). The second matter is that Mr Silk gave evidence in cross-examination that it was the policy of One Build to send out a payment schedule in response to a payment claim even in circumstances where One Build thought it was a proper claim: T206.23-.48. This does not appear to represent a builder having the capacity to pay its debts as and when they fell due.

346. A further matter which in my view is very relevant is the treatment of the claims made by One Build under the Alstom contracts: see the evidence in paragraph 126 above. This seems to establish that two very substantial amounts claimed by One Build on its major contract were disallowed by Alstom on or before 12 August 2013.

347. Mr Barnden gave evidence that on an accruals basis this should have been reflected in the accounts as at 30 June 2013 as the payment claims of One Build were dated 28 June 2013 before the end of the financial year. The evidence establishes that One Build’s accounts were prepared on an accruals basis.

348. The response of Alstom was, in my view, having regard to the importance of the contracts with it, a very significant matter also going to the insolvency of One Build if not as at 28 June 2013 then certainly as at 12 August 2013. On an accruals basis, the scheduling of One Build’s two claims by Alstom should have been reflected in One Build’s accounts as at 30 June 2013. See the plaintiff’s submissions dated 16 February 2018 at paragraphs 49 and 52-61 on this point. Mr Silk conceded he would have been aware of this very significant matter some time in July 2013. This matter goes directly to the issue of the insolvency of One Build as at 30 June 2013, alternatively 12 August 2013. See paragraph 60 of the plaintiff’s 16 February 2018 submissions.

349. For all of the above reasons, I find that One Build was insolvent as at 30 June 2013 and was presumed to have remained insolvent thereafter. I note that I would have reached the same conclusion even absent the unpresented cheques indicator which had considerably less influence to me in my conclusion.

Are there reasonable grounds for suspecting that the company was insolvent or would become insolvent as a result of the relevant transaction?

350. This issue requires the court to consider the position of One Build as at August to November 2013. The plaintiff submits that One Build was insolvent on and from 30 June 2013.

351. This element is determined objectively. It states the standard of reasonableness of a director of reasonable competence and diligence not the standard attributable to the particular director in question: Plymin (No 1) above at [423]; Swan Services above per Black J at [178]-[180]. It assumes a director who reached a reasonably informed view as to the financial capacity of the company in question. See paragraphs 23-4 of the plaintiff’s 16 February 2016 submissions.

352. In my view, there were reasonable grounds for suspecting that One Build was insolvent or would become insolvent as a result of the relevant transaction with IW, for the following reasons:

1. As stated, this aspect of the section requires an objective assessment to be made. The particular knowledge of a director and any assessment which he or she may have made as to the financial position of the company is not relevant. It is sufficient if a reasonable person in a like position as a director in the company’s circumstances would be aware having regard to the facts and circumstances that the director knew or ought to have known: Powell v Fryer [2001] SASC 59; (2001) 37 ACSR 589 at [76]-[77]; Hall v Poolman [2007] NSWSC 1330;

2. There must be at the time the debt is incurred, reasonable grounds for a person in the position of the director suspecting that the company was insolvent or would become insolvent as result of the transaction. In Hall v Poolman [2007] NSWSC 1330 Palmer J stated at [234]:

“[234] Suspicion of insolvency falls somewhere between a belief that insolvency exists, on the one hand, and a mere wondering whether it exists, on the other. Suspicion is a positive feeling of apprehension, an admittedly tentative belief, without sufficient evidence to form a concluded and supportable opinion: see, for example, Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 303 ; [1966] ALR 855 at 892–3;”

3. I have found above that One Build was insolvent from 30 June 2013, alternatively from the end of July 2013 when a large portion of the claims made by One Build in relation to the Alstom contracts were not paid: see CB 2/640-642;

4. In my view, any director undertaking the management of One Build at the time the debts to IW, which I have identified above, were incurred, would have had reasonable grounds for suspecting that One Build was insolvent, quite apart from the transactions with IW. In my view, any reasonable director of One Build, would have been exercising reasonable care to review the financial position of One Build, particularly in relation to the various matters which constitute the indicators of insolvency which I have found established. That director should reasonably have been very apprehensive of One Build’s solvency on the evidence;

5. The matters I have indicated above as being relevant on the insolvency issue are relevant to this element. In particular, the director should reasonably have been aware of:

1. The status of the claims under the Alstom contracts;

2. The decreasing cash position of One Build;

3. The ratios discussed above;

4. The understated BAS returns in relation to GST or the error in the sales recorded in One Build’s management accounts if the BAS returns were accurate;

5. The position relating to Hanson’s claims. (See Mr Silk’s evidence at T240.11-242).

Accordingly, in my view a reasonable director with knowledge of One Build’s circumstances would have been aware, or very apprehensive, that it was insolvent in the period from 30 June 2013, alternatively from 30 August 2013-November 2013 and prior to 26 November 2013.

Did Mr Silk have reasonable grounds for suspecting that One Build was insolvent or would become insolvent if it incurred the relevant debt?

353. Mr Silk will be liable under the next element if, at the time the debt was incurred, he was aware that there were grounds for suspecting that One Build was insolvent (s 588G(2)(a)) or a reasonable person in his position in One Build in the company circumstances would have been so aware (s 588G(2)(b)).

354. There are thus two alternative ways in which the director can be found to have had the required suspicion of insolvency being either actual awareness or that a reasonable person in a like position in a company in the company’s circumstances would have been so aware. The test in s 588G(2)(a) is a subjective test whereas the test set out in s 588G(2)(b) is an objective test. The objective standard is to be determined by the standard of a director of ordinary competence: McLellan, in the matter of The Stake Man Pty Ltd v Carroll [2009] FCA 1415; (2009) 76 ACSR 67; In the matter of Re Swan Services Pty Ltd(in liquidation) [2016] NSWSC 1724 at [182]. As stated by Black J in the Swan case, this requirement may be satisfied either by proof that a director had a subjective awareness of grounds that constitute reasonable grounds for suspecting insolvency, or that a reasonable person in the position of the director would have been aware of the existence of such grounds: at [182] following ASIC v Plymin (No 1) (2003) 46 ACSR 126 at [426]; Powell v Fryer (2001) 37 ACSR 589 at [77].

355. In my view, it is not necessary for me to determine whether Mr Silk had actual knowledge of grounds for suspecting that One Build was insolvent if the objective test is satisfied. I am comfortably satisfied, and I find, on all the evidence that a reasonable person in the position of Mr Silk as a director of One Build would have been aware of grounds that constitute reasonable grounds for suspecting insolvency of One Build at the relevant times.

356. A reasonable person in the position of Mr Silk in One Build at the time, being the sole director, should have been well aware of the company's financial position in the period from 30 June 2013 to 25 November 2013. I have already analysed above Mr Silk's actual knowledge. See also his cross-examination at T240.11-242.33. However, a reasonable person in the position of Mr Silk would have had regular meetings with Mr Lunney (and thus could ask him questions on financial issues) and had access to the company's management accounts. A reasonable person in the position of Mr Silk would also have been aware of the various indicators of insolvency which I have found. In my view, a reasonable director would have been aware of these matters as a sole director would have been ultimately responsible for the management of the company and should have regularly reviewed the financial position of the company as part of that management with the financial controller, Mr Lunney. A reasonable director in Mr Silk's position in particular would have been aware of the amounts in the BAS returns compared to the management and annual accounts, the company’s deteriorating cash position as part of its cash flow and the payment position under the Alstom contracts. As to the latter, see T242.33 which reflects the knowledge a reasonable director would have had at the time.

357. In my view, the requirements of s 588G(2)(b) of the Act are satisfied.

358. Mr Silk also failed to prevent One Build from incurring the debts with IW.

359. Under s 588G(2), it must be established that the defendant failed to prevent the company from incurring the debt.

360. The evidence establishes that Mr Silk took no action to cause One Build to have a liquidator appointed to it until his attempts to resolve his disputes with Alstom in relation to the September 2013 claims in November 2013 failed. He must have been aware that One Build had numerous other contracts to perform other construction work. If I am correct that One Build was insolvent as at 30 June 2013 or certainly by the end of July 2013 or August 2013 when substantial portions of claims made in relation to the two Alstom contracts were not allowed, then Mr Silk should have caused a liquidator to be appointed to One Build at those times. Instead, One Build continued to trade until the end of November 2013. Accordingly, Mr Silk failed to take all reasonable steps within his power to prevent the company from incurring the debts in question here and any other debts from at the latest late August 2013: see ASIC v Plymin (No 1) (2003) 46 ACSR 126 at [3]-[5]; Elliott v ASIC [2004] VSCA 54 at [116]-[117].

Whether any of the defences have been established by Mr Silk

361. Under s 588H of the Corporations Act there are four defences potentially available to a director who is alleged to have committed insolvent trading. They are as follows:

1. At the time when the debt was incurred, the director had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time: s 588H(2);

2. The director believed on reasonable grounds that a competent and reliable person was monitoring the insolvency of the relevant company and the director was provided by that person with adequate information about whether the company was solvent: s 588H(3);

3. The director did not take part in management at the time the debt was incurred because of illness or some other good reason: s 588H(4); and

4. Where a director takes all reasonable steps to prevent the company incurring the debt: s 588H(5).

362. The defence under s 588H(4) is not relied upon by Mr Silk.

363. In accordance with the Defence filed 24 April 2015, Mr Silk appears to be relying on the defences under s 588H(2) and s 588H(3) of the Act.

364. The onus in relation to these defences rests upon Mr Silk. In the case Re Swan Services Pty Ltd (in liquidation) [2016] NSWSC 1724, Black J stated as follows at [220]-[221] and [230]:

[220] A defence to a claim under s 588G of the Corporations Act is available under s 588H(2) of the Corporations Act where, at the time a debt was incurred, a person has reasonable grounds to expect and does expect that the company was solvent at that time and would remain so even if it incurred the debt. In order to establish an expectation that the company is solvent for the purposes of s 588H(2), a director must establish a measure of confidence or actual expectation that the company is solvent, and more than a mere hope or possibility of solvency; the grounds on which the director forms the view as to the company’s solvency must be reasonable when considered objectively in the light of the relevant circumstances; and the director must have a reasonable basis for an expectation that the debts will be paid as they fall due for payment, not merely at some future time: Metropolitan Fire Systems Pty Ltd v Miller & Ewins (1997) 23 ACSR 699 at 711; Tourprint International Pty Ltd (in liq) v Bott above at 215; Hall v Poolman above at [265]; Smith v Bone above at [375]. That defence will not be established if a director did not take reasonable steps to perform his or her duties, including obtaining relevant information from the company’s management: Deputy CMr of Taxation v Clark [2003] NSWCA 91; (2003) 57 NSWLR 113 at 131–134; Australian Securities and Investments Commission v Plymin (No 1) above.

[221] I have addressed many of the issues relevant to this defence in addressing the question whether there were reasonable grounds to suspect insolvency above. In this case, as in many cases, the matters that establish that a director knew, or a reasonable person in his or her position would know, that there were reasonable grounds to suspect that the relevant company was insolvent, to which I have referred above, undermine any conclusion that the director had reasonable grounds to expect, that the company was solvent at the relevant time and would remain so after incurring the relevant debts.

[230] A defence is available under s 588H(3) of the Corporations Act if a director had reasonable grounds to believe, and did believe, that a competent and reliable person was responsible for providing adequate information about whether the company was solvent and that the other person was fulfilling that responsibility, and expected, on the basis of information provided by that other person, that the company was solvent and would remain solvent even if it incurred the relevant debts. That defence requires that the other person is in fact responsible for providing adequate information to the director whether the company is solvent: Australian Securities and Investments Commission v Plymin (No 1) above at [559]–[560]; aff’d Elliott v Australian Securities and Investments Commission above; McLellan (in his capacity as liquidator of Stake Man Pty Ltd) v Carroll [2009] FCA 1415; (2009) 76 ACSR 67 at [184]–[185]. That defence will not be established if a director was put on inquiry to the reliability of information provided by management and did not make the necessary inquiry: Australian Securities and Investments Commission v Plymin (No 1) above at [559]; aff’d Elliott v Australian Securities and Investments Commission above.

365. As Black J said in the Swan case, the matters that establish that a director knew, or a reasonable person in his or her position would know, that there were reasonable grounds to suspect that the relevant company was insolvent, generally undermine any conclusion that the director had reasonable grounds to suspect that the company was solvent at the relevant time and would remain so after incurring the debts.

366. In my view, the defence under s 588H(2) of the Corporations Act is not established in the present case by Mr Silk for the following reasons:

1. The defence in s 588H(2) requires an objective standard to be applied in relation to the facts known to the director at the relevant time or times. However, a director cannot rely on ignorance of or neglect of his or her directors’ duties: Tourprint International Pty Ltd v Bott [1999] NSWSC 581;

2. Mr Silk did not make clear what beliefs he had as at 30 August 2013 as to One Build’s solvency and more importantly that any belief as to solvency was reasonably based following having made reasonable inquiries. He seemed to rely entirely on Mr Lunney;

3. Mr Silk did not have reasonable grounds to expect that the company was solvent as at August-November 2013 even if it incurred the relevant debts to IW;

4. As is shown in relation to the insolvency issue, One Build had a substantially worsening cash flow;

5. Its BAS returns to the ATO were probably substantially understated as to GST;

6. By the time IW started its demolition work at the site, Alstom had not approved a substantial portion of the claims made by One Build in the two Alstom contracts in June 2013;

7. A reasonable person in Mr Silk's position would have been aware that One Build had substantially more current liabilities compared to current assets;

8. One Build was being selective in the enforcement and management of its trading terms having regard to the special arrangement with Hanson;

9. There was no evidence that Alstom's attitude to the claims made in June 2013 by One Build would change in the foreseeable future;

10. What is required to establish the defence is an “expectation” of solvency which is a higher degree of certainty to a “mere hope or possibility” or “suspecting”. The defence requires the director to have an actual expectation that the company in question was and would continue to be solvent and to show that the grounds for that belief were reasonable: Tourprint International Pty Ltd v Bott [1999] NSWSC 581 at [67].

11. Mr Silk claims that he left matters essentially to his Financial Controller, Mr Lunney. However, a defence under s 588H(2) will not, as Black J emphasises, be established if a director did not take reasonable steps to perform his or her duties including obtaining relevant information from the company's employees: Deputy Commissioner of Taxation v Clark [2003] NSWCA 91; (2003) 57 NSWLR 113 at 131-134;

12. I refer to my findings above in relation to the matters of which a reasonable director should have been aware. In the light of those findings, in my view Mr Silk would not have had reasonable grounds to expect that the company was solvent at the relevant time and would remain so even if it incurred that debt.

367. The defence under s 588H(2) of the Act therefore fails.

368. In relation to the defence under s 588H(3) of the Act, no evidence was before the court from Mr Lunney. However, based on Mr Silk's affidavit, I find that Mr Silk had reasonable grounds to believe, and did believe, that Mr Lunney was both competent and reliable and was a professional accountant. I also find first, that Mr Lunney had another accountant to assist him and secondly, Mr Lunney was responsible for providing to Mr Silk financial information about One Build.

369. However, based on the whole of the evidence, I do not accept that at the time the debts were incurred to IW that Mr Silk expected, on the basis of adequate information provided to him by Mr Lunney, that the company was solvent at that time and would remain solvent even if it incurred the IW debts and any other debts that it incurred at that time. In particular, the following matters appear to me to be relevant:

1. Any competent Financial Controller in the position of Mr Lunney would have likely been astute to keep Mr Silk aware of the financial position of the company;

2. Mr Silk, as the only director, and the person responsible for the management of the company, would have wanted to be kept informed on a regular basis of the important aspects of the financial position of One Build, including in relation to its main debtors, particularly in relation to payments under the Alstom contract which was One Build’s biggest contract;

3. However, there is no detailed or sufficient evidence as to what information Mr Lunney was “responsible” for providing to Mr Silk or that the information he did provide could be regarded as adequate information as to solvency within the section: cf paragraphs 7-9 of Mr Silk’s affidavit especially paragraph 7(e) which in my view is not sufficient. There was no detailed evidence as to what was in the key performance indicators document which Mr Silk said he was regularly provided by Mr Lunney. Therefore, there cannot be an assessment that that information from Mr Lunney allowed a reasonable belief as to solvency to be held by Mr Silk. See Swan Services above at [233]; In the matter of Matlic Pty Ltd (in liquidation) [2014] NSWSC 1342 at [68];

4. Mr Silk conceded that he would have been aware some time in July 2013 that Alstom via a payment schedule had disallowed over $1.3m of One Build’s June payment claim: T242.33. This knowledge probably came from Mr Lunney. It seems One Build’s June 2013 claims to Alstom were reduced by a combined total of about $2.6m excluding GST: plaintiff’s submissions at paragraphs 52-62. That was a very substantial reduction in One Build’s expected cash flow and current assets not recorded in One Build’s 30 June 2013 accounts. Mr Silk conceded that the only claims not paid by Alstom as at 6 (or 11) November 2013 which had been scheduled by Alstom were the September 2013 One Build claims: plaintiff’s submissions paragraph 92; T237.38 cf T237.17;

5. This goes directly to the reasonableness of any belief of Mr Silk;

6. Mr Silk knew that he could have accessed One Build’s monthly management accounts from Mr Lunney including reviewing accounts from previous months. If he had not been provided with monthly progress claims reports he also knew he could access these: T135.44.

370. Based on my findings as to the lack of specificity in the evidence of the responsibility of Mr Lunney in providing adequate information as to solvency and what information was actually provided to Mr Silk and the whole of the evidence, I consider this defence has not been established by Mr Silk.

371. It seems that no defence is relied on under s 588H(5). However, based on all the evidence, Mr Silk has not established that he took all reasonable steps to prevent One Build from incurring the debt with IW.

Loss or damage suffered by the plaintiff

372. IW's claim against One Build is wholly unsecured. As stated above, the liquidators in their report to creditors dated 24 February 2017 have stated that there are insufficient funds in the liquidation of One Build to enable the liquidators to declare a dividend to unsecured creditors. Accordingly, IW has suffered loss or damage as a result of the insolvency of One Build being the inability to recover the amount which I have found was incurred to IW at the time of the appointment of Mr Hill as liquidator. That amount is the amount sought by the plaintiff in these proceedings of $327,332.50.

373. I have found that the elements of the plaintiff’s claim have been established. In considering each of the elements in s 588G, I have applied the Briginshaw standard. I am comfortably satisfied on the balance of probabilities that the elements have been established. I also consider that no defence under s 588H has been established by Mr Silk.

Determination

374. For the above reasons, I make the following orders:

1. Judgment for the plaintiff;

2. The defendant is to pay the plaintiff's costs of the proceedings as agreed or assessed;

3. The parties are to bring in agreed Short Minutes of Order giving effect to these reasons including the amount found and any interest claimed on it, within seven days;

4. Liberty to the parties to apply in relation to the costs order made in (2) above;

5. Exhibits to be returned after 28 days.

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Decision last updated: 01 June 2018