International Consulting and Business Management v Volanne Pty Ltd

SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

Case Title:	INTERNATIONAL CONSULTING AND BUSINESS MANAGEMENT & ANOR v VOLANNE PTY LTD & ORS
[2014] ACTSC 175
Hearing Date(s):	5-8 December 2011, 19-23 March 2012
DecisionDate:	25 July 2014
Before:	Harper M
Decision:	1. The plaintiff lodge and serve a summary arriving at the figure for which judgment should be entered consistently with these reasons. 2. The further hearing of the action be stood over to a date to be fixed.
Category:	Principal Judgment
Catchwords:	CONTRACT – claim for debt or liquidated demand – counterclaim for goods sold and delivered – determination of claim and counterclaim – dependent on findings of fact and credibility of witnesses – no issue of principle.
Parties:	International Consulting and Business Management Pty Ltd (First Plaintiff) Skybase (Vic) Pty Ltd (Second Plaintiff) Volanne Pty Ltd (First Defendant) John Fragopoulos (Second Defendant) Anthoula Fragopoulos (Third Defendant)
Representation:	Counsel: Mr W L Sharwood (Plaintiffs) Mr R J Arthur (Defendants)
Solicitors: Bradley Allen Love (Plaintiffs) Donohue & Co (Defendants)
File Number(s):	SC 398 of 2007

International Consulting and Business Management (ICBM) Pty Ltd, commenced action against the second and third defendants, John and Anthoula Fragopoulos, in June 2007, claiming a debt of $523,587.28 pursuant to a deed of guarantee and indemnity dated 17 September 2001, in which those defendants had guaranteed payment of a debt owed by Volanne Pty Ltd.

In September 2007 Skybase (Vic) Pty Ltd sued Volanne for damages in respect of a liquidated demand for $100,000.00, said to have been paid by Skybase to Volanne by mistake. Briefly, Skybase asserted that it had paid $100,000.00 to Volanne during May 2002 in the belief that Volanne was entitled to that payment as its proportion of a success fee in respect of an agreement with Mr Lindsay Watson. Skybase asserted in the statement of claim that Volanne had not been entitled to payment pursuant to the agreement, and that the payment had been made by mistake.

The pleadings in both actions were amended a number of times.

In April 2009 the two actions were consolidated. A further amended statement of claim in relation to the consolidated action was filed, and the consolidated action proceeded to trial on that pleading.

Brendan Matthew Godfrey is, and has at all relevant times been, a director of both the plaintiff companies and has effectively controlled each of them. Mr and Mrs Fragopoulos are the directors of Volanne.

The statement of claim

The statement of claim filed in the consolidated action in April 2009 states that ICBM was in the business of lending money to clients at commercial rates of interest, and of providing business and investment advice and assistance to clients.

The plaintiffs assert that in or about November 2000 ICBM and Volanne entered an agreement whereby ICBM would lend money to Volanne from time to time, and Volanne would repay it with interest. The agreement was oral, with some implied terms. It was made between Mr Godfrey and Mr Fragopoulos at meetings in Sydney and at Belconnen. Mr Fragopoulos wanted to borrow money at a lower rate of interest than he was paying. Mr Godfrey agreed to lend money at the indicator lending rate from time to time set by Westpac Banking Corporation Limited plus 2 percent. Mr Fragopoulos accepted this and agreed to repay the borrowed moneys within a reasonable time, by instalments of such amounts as his company could afford.

The plaintiffs asserted implied terms, to the effect that repayments would be on account of principal and interest; interest would be calculated daily and capitalised daily; an event of default would occur if any repayment was not made on time, and in the event of default all outstanding principal and interest would become immediately due. It was said that these terms were customarily implied into loan agreements of a similar nature in the commercial moneylending industry, and were necessary to give business efficacy to the agreement.

It was asserted that ICBM had lent to Volanne $51,150.80 between 1 March and 7 July 2001.

On about 8 July 2001 Volanne had agreed to make minimum weekly repayments of $1000.00, and to provide security for past loans and any future loans.

Between 8 July 2001 and 13 September 2001, ICBM asserted that it had lent $88,500.00 to Volanne.

On or about 17 September 2001 Mr and Mrs Fragopoulos had executed a deed of guarantee and indemnity in respect of all money owing, then or in the future, by Volanne to ICBM.

Between 17 September 2001 and 21 July 2002, it is alleged that ICBM lent a further amount of $225,771.45 to Volanne pursuant to the loan agreement.

On or about 21 July 2002 Volanne agreed to increase the repayment rate to a minimum of $2000.00 per week.

Between 21 July 2002 and 16 June 2003 ICBM lent a further $122,000.00 to Volanne.

The plaintiffs assert that there were various events of default, in the form of failures to make repayments in particular weeks of the agreed amounts (initially $1000.00 and later $2000.00).

The plaintiffs then asserted that on or about 23 April 2007 ICBM demanded payment of all moneys due and payable under the loan agreement, but that Volanne had not made any further payments. On or about 14 May 2007 ICBM had made demand from Mr and Mrs Fragopoulos pursuant to the deed of guarantee and indemnity, but no payment had been made by them either.

The plaintiffs said that at the date of the pleading ICBM had repaid $381,191.41, but that $429,152.66 remained outstanding.

The plaintiffs then asserted further amounts owing by Volanne pursuant to a consultancy agreement. The plaintiffs asserted that in or about November 2000 ICBM and Volanne had entered an agreement whereby ICBM would provide business and investment advice and assistance for reasonable remuneration and reimbursement of reasonable expenses. The agreement had been made at the same times and places as the loan agreement and was again oral with additional implied terms. The background was that Volanne had required advice and assistance with respect to exploring the potential for overseas business, and pursuing other development opportunities in Australia. The plaintiffs asserted that Mr Godfrey provided business and investment advice and assistance between December 2000 and May 2001. In about May 2001 Volanne had agreed to pay $35,000.00 to ICBM, being unable to pay the full amount then owing. The amount of $35,000.00 was in effect added to the then loan principal. It had not been repaid. By the date of the statement of claim it had increased with accrued interest to $90,513.00.

The statement of claim then set out the claim by Skybase, which was against Mr Fragopoulos only. The plaintiffs asserted that in April 2004 Skybase and other parties had executed a deed of settlement of a dispute which had arisen out of a proposal during 2002 for the acquisition by Skybase and later by Mr Fragopoulos of a business known as Canberra Seafoods at the Belconnen markets. It was an express term of the deed of settlement that Mr Fragopoulos would pay to Skybase a total of $40,000.00 over four months. Mr Fragopoulos paid $12,500.00 only. The plaintiffs asserted that in about mid-2004 Skybase and Mr Fragopoulos agreed that the outstanding amount of $27,500.00 was to be repaid on the same terms as the terms of the loan agreement. Mr Fragopoulos had never made any further payments. By the date of the filing of the pleading, the amount owing, with interest, had increased to $47,933.72.

A defence to the statement of claim in the consolidated action was filed in August 2009. Minor amendments were made to it in September 2009. The defendants admitted that there had been a loan agreement made between ICBM and Volanne in the terms pleaded, except that there had been no agreement to pay interest, either express or implied. They said that the agreement had been made not in November or December 2000, but in about July 2001. They denied that there had been any implied term as to events of default or any consequence of default.

As to the loans claimed by ICBM to have been made between March and July 2001, the defendants denied that those sums had been lent.

The defendants admitted that there had been an agreement to vary the original loan agreement by requiring minimum weekly payments of $1000.00, but said that this had happened in early September 2001, not in July 2001. They admitted the loan amount pleaded as lent between July and September 2001. They admitted that in September 2001 Mr and Mrs Fragopoulos had executed the deed of guarantee and indemnity. They admitted the loans between September 2001 and July 2002.

As to the allegation that there was a further variation to the agreement in July 2002, to increase minimum repayments to $2000.00 per week, the defendants said there was a variation, but the variation was simply to endeavour to pay $2000.00 per week, without any contractual requirement to pay more than $1000.00 per week.

The defendants admitted the loans made between July 2002 and June 2003.

The defendants denied that Volanne had failed to make repayments as required on various dates between November 2001 and May 2007. If there had been any such failure, they denied that it amounted to an event of default for the purposes of the loan agreement or any other purpose. They admitted that demands had been made by ICBM in April and May 2007, but said that Volanne had paid all amounts owing to ICBM. They said that in addition to the repayments pleaded by the plaintiffs, they had paid further amounts of $79,000.00. That was made up of payments of $2000.00 in June 2003, $2000.00 in April 2006 and $75,000.00 in April 2009.

In reply to the claim pursuant to a consultancy agreement, the defendants said that, at about the end of 2000, Mr Fragopoulos and Mr Godfrey had agreed orally to undertake jointly an entrepreneurial venture which they pursued early in 2001. The agreement was that money would be put up by each of them, and reimbursed from the proceeds of the venture, with any profit from the venture being divided equally, and any losses being shared equally. The venture had not been successful, and both Mr Fragopoulos and Mr Godfrey had lost substantial amounts. Mr Fragopoulos had lost over $200,000.00 and Mr Godfrey had lost about $60,000.00.

The defendants then said that in about July 2001, Mr Fragopoulos and Mr Godfrey had agreed that Mr Godfrey would lend money to Volanne from time to time to assist in the operation and expansion of the seafood business conducted by Volanne, and that the losses incurred in the failed venture would be recouped from the profits of the business. As a consequence of this agreement, Volanne and ICBM entered into the loan agreement previously pleaded. Money had been paid to Mr Godfrey from the profits of the business, being the payments made to ICBM pleaded in the statement of claim ($381,191.41), the additional $79,000.00 pleaded in the defence, and seafood to a value in excess of $37,000.00 given to Mr Godfrey at approximately weekly intervals between July 2001 and July 2007.

The defendants denied that there had been any consultancy agreement for ICBM to provide business and investment advice and assistance, or for Volanne to pay remuneration for any such advice or assistance.

The defendants admitted the assertions in the statement of claim about the Canberra Seafoods deed of settlement, but said that the amount Mr Fragopoulos had agreed to pay under the deed had been paid in full. They denied that there had been any agreement to add any part of that amount to the funds covered by the loan agreement.

The defendants also made a counterclaim in the sum of $18,104.13. This had been the value of stock supplied by Volanne to Skybase for the operation of a seafood retail outlet, Blue Seas, at the Belconnen Markets at the end of March 2002.

Skybase filed a defence to the counterclaim denying liability and saying that the Blue Seas shop had not been operated by Skybase but had been operated by either Volanne or Mr Fragopoulos, and that any stock had been purchased by the defendants for their own use. The defence further asserted that the defendants had retained all of the profits from the operation of the business.

The evidence for the plaintiff

The evidence for the plaintiff consisted of oral evidence by Mr Godfrey, and affidavits which were read without objection of Michael Slaven, an accountant qualified as an expert for the purpose of the plaintiffs’ case, and James Stephenson, a manager with Westpac Banking Corporation.

Mr Godfrey was born in 1944. He was a Commonwealth public servant for many years. He retired from the public service in 1997 as a Deputy Secretary in the Department of Administrative Services, a very senior position. He acted as a departmental secretary on many occasions.

After he left the public service he undertook a number of consultancy projects through the medium of ICBM company, which he formed for that purpose. He played a significant role in relation to the Sydney Olympic Games in 2000, and provided consultancy services in relation to the next two Olympic Games and the Commonwealth Games in Melbourne thereafter. Between 2001 and 2005 he provided consultancy services to the NSW Department of Transport. By the time he gave his evidence he described himself as a retired consultant. He said that he had not done any consultancy work since 2007.

Mr Godfrey has a doctorate in labour economics. As a consultant he was able to offer management skills as well as knowledge and experience at government level, particularly in the social welfare area.

Mr Godfrey has lived in Canberra for many years. From the beginning of 2000 he also had a residence in Sydney and spent a lot of time working there until 2007. In 1997 he placed an advertisement for his services in the Yellow Pages but otherwise never found any need to advertise for work.

He said that he had given up work as a consultant for two reasons. He had had heart surgery in 2004, and two subsequent operations. He had been involved in what he described as a legal case, following which he had decided not to do any further work (the legal case, it transpired as the evidence unfolded, was a criminal prosecution in the NSW District Court of Mr Godfrey and a number of others, arising out of events in which Mr Fragopoulos was also involved).

Mr Godfrey said that occasionally his company, ICBM, would lend money. These were usually relatively small amounts for short periods. He had lent the money at bank interest rates.

Mr Godfrey incorporated the second plaintiff, Skybase, to purchase an investment property through the Defence Service Homes scheme.

Emmanuel Makas was an old friend of Mr Godfrey. He had owned property and restaurants, and Mr Godfrey had done some work for him. They remained friends after Mr Makas retired, and often had coffee or lunch together.

Mr Godfrey said that in November 2000 Mr Makas had rung him and asked him to meet a friend who ran a fish shop at Belconnen called FishCo. Mr Makas bought Mr Fragopoulos to Sydney and they met at a hotel. Mr Fragopoulos explained how his business functioned. He said that he had recently returned from South Africa where he had been investigating the potential for export of fish from Australia. He said that he had met a black South African, Dr Phillips, who was looking for an agent in Australia to transfer money out of South Africa. Mr Fragopoulos said that his business might need money to operate. Mr Godfrey said that he would be in a position to lend money, but would have to charge interest because he would otherwise be putting the money into his superannuation fund. He said that he would charge the rate being used by the organising committee for the Olympic Games in Sydney, which was the Westpac indicator lender rate plus 2%, compounded daily.

Mr Godfrey said that he agreed with Mr Fragopoulos to go to the fish shop the following weekend, when he would be in Canberra, to look at the way the business operated and talk about what he could offer. He said that he made a note in a notebook about the meeting and the conversation. The preliminary note was dated 6 November, with details of a meeting at a motel at Lidcombe at 7:00 pm on Thursday 9 November. Mr Makas was to confirm the address. The reference to Lidcombe turned out to be incorrect. It seems that the meeting took place at a motel at Camperdown. Mr Godfrey noted that the meeting went as follows:

Meeting
Met with Manny and J (John) Fragopoulos?
Runs fish market at Belconnen.
Very good little business, best in Cbr.
Just returned from overseas – good prospects.
Has borrowed money – wants to have good business relationship.
I indicated I would be interested.
-Still working full time.
-Have capacity to loan money – would be from my super (ICBM payments) which currently earning VG interest/returns – need similar – perhaps use Olympic arrangements – Westpac Bank plus 2%.
John [telephone contact numbers for Mr Fragopoulos]
-Meet at markets have coffee and sort things out.
Manny suggest meet at Belconnen on Sunday.

Mr Godfrey’s evidence was that he made that note on the day of the meeting.

He gave evidence that he had made a loan some time earlier through his company, ICBM, of $100,000.00, which was paid back with interest after two months.

Mr Godfrey said that as arranged he met Mr Fragopoulos and Mr Makas at the fish shop at the Belconnen Markets on the next weekend. He met Mrs Fragopoulos for the first time. He was shown around the fish shop, and inspected the cold storage and ice-making equipment.

Mr Fragopoulos then spoke further about his trip to South Africa and meeting with Dr Phillips. They discussed whether he should accept Dr Phillips’ offer to act as an agent for the transfer of funds. Mr Godfrey said that he warned Mr Fragopoulos that it might be a scam, but Mr Fragopoulos nevertheless seemed interested. Mr Godfrey said that he would see if he could find any information about Dr Phillips.

Mr Godfrey said that he indicated to Mr Fragopoulos that if he was asked to provide business assistance, it would be on the basis of a consultancy arrangement. At the time Mr Godfrey said that he was very busy with work related to the Olympic Games. He continued to work almost full-time until June 2001 on that project.

He had another meeting with Mr Fragopoulos at the end of January 2001. Mr Fragopoulos asked him to go with him to Amsterdam, Madrid and South Africa to follow up two leads. One was the money issue concerning Dr Phillips. The other was the possibility of exporting fish from Australia to Europe. Mr Fragopoulos said that he saw significant potential arising from the effect of Mad Cow disease on the meat market in Europe. Mr Godfrey agreed to accompany Mr Fragopoulos. He arranged to take time off from his consultancy responsibilities from the end of February 2001. Mr Fragopoulos booked the air travel for both of them, and paid for it. They discussed Mr Godfrey’s role as assisting as required with any contractual matters which might arise. Mr Godfrey said that he indicated to Mr Fragopoulos that because he was forgoing income in Australia, he would charge a consultancy fee for the period of absence. He indicated to Mr Fragopoulos what his rate would be. He said that he could not recall the rate he quoted, but he quoted a daily rate, a lower rate than he was charging for the Olympic work in Sydney. He said that the rate would include a component for his absence based on Australian Taxation Office rates for overseas travel. He rendered an invoice to Mr Fragopoulos in May 2001 which specified the rates. The invoice also included hotel costs and taxi fares. He charged for nine days at $2,200.00 per day, plus travelling allowance of $1,561.63, plus outgoings for hotels, taxis and meals. The invoice also included Qantas airfares of $8,231.80. A copy of the invoice was tendered without objection. The total amount of the invoice was $38,500.00 including $3,500.00 GST. The copy invoice in evidence is dated 2 May 2001 and printed on the letterhead of ICBM company. I had some difficulty understanding aspects of it. Firstly, the invoice included airfares, inconsistently with Mr Godfrey’s evidence that Mr Fragopoulos paid for the airfares. Secondly, the total came to precisely $35,000.00 notwithstanding a number of small expense items, such as taxi fares of, for example, $19.13 and $27.92. I asked Mr Godfrey whether there had been a rounding figure inserted to bring the total to $35,000.00 but he denied this. It seemed to me at the time, and still seems to me, to beggar belief that by coincidence the total of so many small detailed amounts could lead to such a precise total.

The third difficulty I have with the invoice is the including of GST of precisely 10% of the total. Mr Godfrey’s evidence was that his liability for GST was on a cash receipts basis rather than an accounts rendered basis, and I accept that he would not have had to pay any GST until the invoice was paid, but I was and remain unable to see how GST could be payable on hotel expenses and taxi fares incurred in Holland and Spain.

Mr Godfrey’s evidence was that the invoice was not paid, but that the amount was transferred to Volanne’s ledger as an amount due to ICBM. Mr Godfrey did not expect it to be paid. Mr Fragopoulos had told him that he could not pay it at that time and that he would put it down as a loan.

Mr Godfrey gave evidence that he had undertaken a variety of other consultancy work for Mr Fragopoulos and his company. In February 2001 he had investigated the transfer of some Crown land near Narooma, NSW. Mr Godfrey said that he made necessary inquiries through the Department of Lands in Sydney about this transaction.

Mr Fragopoulos asked for his advice about letters of demand he had received from a fish company, and he gave him advice that he should consult a lawyer.

Mr Godfrey arranged a meeting with someone who was involved with the export of abalone from Tasmania, from whom he found out and passed on to Mr Fragopoulos information about exporting fish from Australia to Asia.

Other work he undertook included chasing up some outstanding debts from customers, and setting up a seafood restaurant on Lake Burley Griffith. Another issue had to do with the disposal of fish waste, and the possibility of arranging fish recycling at the old Belconnen tip, converting the waste into compost or manure. He worked out that it would have cost more than $1 million to establish such a plant, which was not affordable.

He said that he also provided Mr Fragopoulos with credit for suppliers, including a supplier of prawns in North Queensland who otherwise would not have been prepared to send the stock without prepayment.

Mr Godfrey said that he did not make a charge for any of this consultancy work at the time, but he kept a fairly accurate record of the time he spent on it.

Mr Godfrey was asked about the trip to Europe in March 2001. He said that they arrived in Amsterdam where Mr Fragopoulos had arranged a meeting with two people. Mr Godfrey was asked to leave the room whilst the meeting took place. His understanding was that it related to the transfer of money into Australia, for which Mr Fragopoulos would receive a percentage fee.

On the evening following that meeting, Mr Fragopoulos told Mr Godfrey that he needed more money. He gave Mr Godfrey a precise amount in American dollars. Mr Godfrey contacted his bank, the Fyshwick branch of the National Australia Bank, and spoke to his account manager. He authorised the manager to make the funds available for collection the next morning by Mrs Fragopoulos, to be remitted to her husband in Amsterdam. The amount was almost $26,000.00. Mr Godfrey said that he was suspicious that Mr Fragopoulos might have been taken in by a Nigerian-style scam.

On 1 March 2001 Mr Godfrey and Mr Fragopoulos attended at the office of Thomas Cook in Amsterdam, where Mr Fragopoulos was given cash, either Euros or American dollars. It appears from copies of records in evidence that two amounts of cash were handed over at the Thomas Cook office on the morning of 1 March 2001, of identical amounts, $US14,768.40, a total of $US29,536.80. Mr Godfrey assumed that the money had been sent in two parcels to avoid attracting the attention of the Australian revenue authorities.

They returned to the hotel. Mr Godfrey understood that a courier came and delivered a bottle of some chemical liquid, said to have the capacity to clean powder off bank notes. He understood that Mr Fragopoulos gave the courier the money in exchange for the bottle. He later saw a broken bottle of fluid in Mr Fragopoulos’ hotel room. It looked to be a standard 700ml glass drink bottle. Mr Fragopoulos told him that the purpose of the bottle was to wash white powder off the money. Mr Fragopoulos showed him two $US1 notes. They did not have any white powder on them. Mr Godfrey said that they left the next morning for Madrid, where Mr Godfrey stayed for two days. Mr Fragopoulos stayed on after he left, for about ten days in all. Mr Godfrey had intended to stay for four days in Amsterdam, and then to fly to Johannesburg before returning to Australia. He asked how it came about that he had decided to go straight home from Madrid. He said that on the day they arrived in Madrid, Mr Fragopoulos called him and asked him to come to meet a black African called Comor. Comor told them that he had got out of the taxi which brought him to the hotel and left his bag in the back, which contained all of his personal possessions, including his passport and money. Mr Godfrey said that he had been extremely suspicious about this story.

The next morning there was a meeting in the foyer of the hotel between Mr Godfrey, Mr Fragopoulos, Comor and two other black Africans. The Africans spoke excellent English.

Mr Godfrey said that after about twenty minutes he pulled Mr Fragopoulos aside and told him that he believed that what was happening was a scam. He said that he did not want to be associated with it any further and that he was checking out of the hotel and flying home. Mr Fragopoulos said that he believed that it was a worthwhile deal and that he intended to keep talking to the Africans.

When Mr Godfrey arrived at the airport in Sydney, he had a telephone call from Mrs Fragopoulos. She said that her husband needed $12,000.00 immediately, and asked whether he could meet her at the Thomas Cook office in Canberra. He agreed to do so. When he got back to Canberra that same afternoon he went to his bank and withdrew $12,000.00, which he took and gave to Mrs Fragopoulos.

At that stage in Mr Godfrey’s evidence I asked him why he did that, having regard to his suspicions. His answer was that he did not think that Mr Fragopoulos had been left with any money to live on. He was told that he needed the money to live on, because he did not have any money with him at all. He assumed that he would be repaid.

I asked Mr Godfrey whether it occurred to him to ask Mrs Fragopoulos why she would not send her husband the $12,000.00 he was asking for. He said that she told him that she did not have it to send and had asked him to lend it to her. By this time he had been developing doubts about how good a business the fish shop at Belconnen was.

A copy of the bank statement for the business cheque account of ICBM, for March 2001 was tendered. The statement confirms the withdrawal of $25,961.00 on 1 March and a further $12,000.00 on 5 March. By then the balance of the account was down to about $16,000.00 credit, but two weeks later cheques in a total sum of almost $67,000.00 were deposited. Mr Godfrey was not asked about that deposit but I take it that it would largely have been made up of remuneration for his consultancy work associated with the Olympic Games.

After Mr Fragopoulos returned to Australia, he and Mr Godfrey had a number of discussions about the business. Mr Godfrey was continuing to work in Sydney for most of his time. On occasions Mr Fragopoulos told him that he was confident of getting funds back to pay what he owed.

In June 2001 Mr Fragopoulos telephoned to ask for more money. He said that he was going back to Spain. He had booked tickets but did not have the funds to pay for them. Mr Godfrey transferred money to cover the air tickets.

Subsequently Mrs Fragopoulos rang him and said that her husband was on the way to the airport but did not have any money. She asked Mr Godfrey to transfer $4,000.00 to his Visa card account. Mr Godfrey did so. He said that by this stage he was beginning to become concerned, but Mr Fragopoulos still appeared very confident that the money would be repaid. The transfer for the airfares was a little over $3,000.00.

ICBM’s bank statement for June 2001 records cheques for the two amounts mentioned, on 6 June and 19 June. There is another cheque on 22 June for $6,000.00. Mr Godfrey’s evidence about that was that he thought that he had received a telephone call from Mr Fragopoulos saying that his wife needed money to pay the Sydney fish market. His recollection was that he went to the bank and cashed a cheque for $6,000.00 and took it to her at the fish shop. He said that he was extremely concerned that the business did not have adequate funds to buy stock for a weekend.

The evidence was corroborated by a note in his notebook to the effect that Mr Fragopoulos had rung from Spain on 22 June saying that he was confident that the deal was “going down”. He spoke to Mr Fragopoulos who told him that his wife would be ringing about the fish market. Mrs Fragopoulos then rang and asked for the $6,000.00 to cover fish from Sydney.

A further note in the notebook is to the effect that on 24 June he returned a call from Mr Fragopoulos in Spain and said that he was concerned about the business having debts, after his discussion with Mr Fragopoulos. Mr Fragopoulos told him not to worry. He said that they would talk about it when he returned but that he was positive he would have the money on his return.

Mr Godfrey said that when he went to the fish shop on that occasion Mrs Fragopoulos told him for the first time that her husband had borrowed a lot of money and that they were having trouble meeting business commitments. She did not say who they had borrowed the money from.

Mr Godfrey said that he became concerned and wanted some security for the money his company had lent. The day Mr Fragopoulos got back from Spain he asked him for a full set of accounts to the end of the financial year, so that he could make an assessment of the financial position of the business. Mrs Fragopoulos sent some documentation, and after further prompting, most of the financial data to 30 June 2001. By that time ICBM had lent approximately $51,000.00. The figures showed that the business had a quarterly turnover of over $600,000.00.

Mr Godfrey told Mr Fragopoulos that he would be instructing solicitors to draw up agreements to document and secure the loan funds. He instructed Phillips Fox.

At about the same time, Mr Godfrey said that he had discussions with Mr Fragopoulos about regular repayments. They agreed on repayments of $1,000.00 per week, starting from 1 September 2001.

Phillips Fox prepared three documents: a deed of loan between ICBM and Volanne; a deed of fixed and floating charge in favour of ICBM over the assets of Volanne; and a deed of guarantee and indemnity between Mr and Mrs Fragopoulos and ICBM. Mr Godfrey said that he took those documents to Mr and Mrs Fragopoulos and left them with them to read. He subsequently went out and got the three documents executed. He left one set of the documents with them, and took the other set away. He instructed Phillips Fox to register the charge. All of the documents are dated 17 September 2001, although it is apparent that they had been prepared in July of that year.

Although ICBM sues Mr and Mrs Fragopoulos on the deed of guarantee and indemnity, for reasons which have not been articulated to me, ICBM does not sue Volanne on the deed of loan. That document is not mentioned in the pleadings. Nevertheless the deed of loan is in evidence and has clearly been executed under common seal by Volanne, over the signatures of Mr and Mrs Fragopoulos, and executed by Mr Godfrey as a director of ICBM. Whether or not this is significant, the deed of loan does not contain any recital to the effect that any moneys had been advanced prior to its execution. It deals on its face with a loan of $200,000.00, to be advanced, subject to satisfaction of a number of conditions precedents, in a single lump sum on the date of the deed. Nor do either of the other documents contain any such recital.

Mr Godfrey said that in about mid-2002 he became concerned that the defendants were not always paying the agreed weekly instalments of $1,000.00. He asked them to increase the weekly payments to $2,000.00, because the total amount of the loan had become larger.

He said that in about May 2002 he had a discussion with Mr and Mrs Fragopoulos about the consultancy fees. Asked what discussion he was referring to, he replied:

There was a payment received in respect of a consultancy arrangement that Mr Fragopoulos had asked me be a party to with a Mr Watson, who also had a shop out at the markets. This resulted in a payment in May 2002, which subsequently was deemed to be a fraudulent payment to which I pleaded guilty, your Honour, to dishonesty on the basis that I represented Mr Fragopoulos at the solicitor’s office to introduce the parties for the preparation of the legal documents in relation to a loan and purchase of property from ATSIC and I also received some funds for a consultancy which was an ongoing consultancy payment that I was working with Watson on a variety of issues. The money that I paid to Fragopoulos in May, two lots, was his part of the money that came from the consultancy arrangement with Watson, which I subsequently paid and then pleaded guilty to dishonesty in 2007-2008.

He said that he had pleaded guilty in the District Court in Sydney and received a suspended sentence of 18 months. This was the reason he had given up his consulting practice. He did not believe that he could continue to act for governments or companies when he had pleaded guilty to a charge of dishonesty. He agreed with the NSW Police to finalise some contractual work he was doing for them on an unpaid basis until they got someone to take it over, and he had not worked since.

I asked him what had been the benefit to him out of those events. He said that the benefit had been the payment of the consultancy fee of $50,000.00, but he had repaid the total amount, including the amount paid to Mr Fragopoulos, as part of a proceeds of crime restitution. He had paid $150,000.00 less tax of about $10,000.00.

He had made payments to Mr Fragopoulos during May 2002 of $25,000.00 and $75,000.00.

Mr Godfrey was asked whether he had made any attempts prior to 2007 to recover the moneys his company had lent to the defendants. He said he had asked on numerous occasions for the debt to be reduced. He regularly went to the shop to collect instalments that had not been transferred into his company’s account. If he did not go to the shop he did not expect to get any money. Relations remained polite, but he found this unsatisfactory. The business did not seem to be progressing as well as it should have been, and the defendants were always short of cash.

Early in 2002 Mr Fragopoulos told Mr Godfrey that another fish shop in the Belconnen Markets, the Blue Seas fish shop, was for sale. He thought that it was good for his business to retain a second fish shop at the markets, and that the second fish shop should provide a reasonable return to the purchaser. Mr Godfrey met one of the owners of the shop, a Mr Oliver, with Mr Fragopoulos. It was arranged that subject to the consent of the landlord, Skybase would buy the business and take over the balance of the lease. About a week and a half prior to Easter 2002 Mr Godfrey and Mr Oliver had a meeting with Mr Efkarpidis, the owner of the Belconnen Markets, to finalise arrangements for the transfer. An oral agreement was reached that the transfer would take place so that Mr Godfrey could have the benefit of trading from the Thursday before Easter.

Because Mr Godfrey was in Sydney, Mr Fragopoulos arranged to get the keys to the shop from Mr Oliver. Mr Fragopoulos rang Mr Godfrey to say that the shop was dirty and in a mess. He would arrange to have it cleaned overnight, and have it ready for operation over Easter. Mr Fragopoulos said that he would supply the stock and have it operational as though it was an annexe to his own shop. Mr Fragopoulos arranged insurance through his own insurer. Mr Godfrey arranged for the transfer of the electricity account. Mr Fragopoulos telephoned him again on the Wednesday afternoon to say that the shop was properly stocked and ready to open. He was to meet Mr Oliver later that day for the formal hand over. The shop opened for business on the Thursday. Mr Godfrey travelled from Sydney to Canberra on Thursday evening and went to the shop. Everything appeared to be in order. The shop opened on Good Friday and traded for the whole of that day.

On the Saturday one of the staff got an electric shock from a loose wire in an ice tray. Mr Fragopoulos arranged for an electrician to report on the fault. Mr Godfrey asked him for a list of stock. Mr Godfrey’s understanding of the arrangement was that the shop would operate over the Easter period, one of the most profitable times of the year for fish shops, and would then close for refurbishment to be opened under a new business name early in the following month.

Mr Godfrey said that he did not take any of the money resulting from the operation of Blue Seas over that Easter. He assumed that all of the proceeds were taken by the defendants. He did not take any of the stock either and assumed that any unused stock was returned to the defendants. He was not at the shop on Easter Saturday when it was closed because of the electrical fault.

Following that weekend, the landlord, a company controlled by Mr Efkarpidis, despite earlier indications, refused its consent to the transfer of the lease. Mr Godfrey, through Skybase, had paid the full agreed purchase price of $100,000.00 to the vendors of the shop. He commenced proceedings in this court for recovery of that amount. The landlord company was also a party. The litigation was eventually settled on terms which included repayment of the $100,000.00 to Skybase, and agreement by the landlord to Mr Fragopoulos taking over the lease of the shop premises. Skybase received some funds from Mr Fragopoulos at settlement. Mr Godfrey agreed with Mr Fragopoulos to put the outstanding amount on Volanne’s loan account with ICBM.

The deed was tendered. There were six parties to it, including Skybase, Mr Fragopoulos, the vendor company and its lawyers, and two companies described in the recital to the deed as the registered owners of the block on which the Belconnen Markets were located. Mr Fragopoulos agreed in the deed to pay $30,000.00 to the vendor and $40,000.00 to Skybase, $10,000.00 on execution of the deed and the balance over the following three months. It was that balance of $30,000.00 which Mr Godfrey says was added to the loan.

Mr Godfrey was asked about the arrangement whereby he sometimes took or was given fish or other seafood from FishCo. He said that Mr Fragopoulos had been generous on numerous occasions and given him fish when he was at the shop. Mr Godfrey saw this as an in-kind payment and part of the exchange for his doing work for him. He kept a rough estimate of the number of times this happened and the value. He estimated it at a little over $7,000.00. During the period in question, he was in Sydney for the majority of his time, returning to Canberra on weekends. He said that he and his partner would collect fish on a Saturday or Sunday. Generally they picked up enough for two meals over the weekend. They did not take food to eat during the week, because he would generally be in Sydney. He recalled one occasion when Mr Fragopoulos gave his partner about 5kg of prawns, and he said that there had been three occasions when he had been given lobsters.

Mr Godfrey was asked in cross-examination whether Mr Fragopoulos had told him how much money had been involved in his discussions with Dr Phillips, as to transfer of funds from South Africa to Australia, and what percentage of the funds would be paid to Mr Fragopoulos as remuneration for his involvement in the scheme. He said that Mr Fragopoulos had told him that the amount of money involved ran into the millions, and that his percentage would be 10% or 20%.

Mr Godfrey was also asked whether, while he and Mr Fragopoulos were in Amsterdam, the latter had done anything in relation to the fish export aspect of their trip. Mr Godfrey said that he did not believe that he had done anything about that, other than going to a restaurant and tasting the quality of the fish. They had not been together at all times in Amsterdam and it had been possible that Mr Fragopoulos had taken other steps he was unaware of.

Mr Godfrey explained that whilst in Amsterdam they had moved hotels. The reason was that Mr Godfrey’s room had been broken into on the first night at the first hotel and he thought someone had tried to go through his luggage. Before they moved hotels, Mr Godfrey said that he moved his belongings into Mr Fragopoulos’ room because he thought that they were not safe in his own room. He had been there when two men came and knocked on the door. He could not recall whether he had been introduced to them. If so the introduction had been very brief. He had been asked to leave the room with one of the two visitors. The other person who left was not talkative, and wanted to stay right outside the door of Mr Fragopoulos’ room. Mr Godfrey said that he went downstairs and had a coffee. One of the men had brought a small duffel or overnight bag.

At the second hotel Mr Godfrey had seen a bottle. Mr Fragopoulos told him that the men had brought the bottle with them and he had paid the money for it. His understanding was that someone was to come and collect it to clean white powder from bank notes, presumably being the millions of dollars to be taken out of the country. Mr Fragopoulos told him that the bottle had to be kept in the refrigerator.

The next time he saw the bottle it was broken with a white liquid leaking from it, on the floor of the balcony to Mr Fragopoulos’ room. He said that there was a “bit of a panic to clean it up”. After this incident, Mr Fragopoulos told him that there would be no further opportunity to wash the money in Amsterdam and that they should head to Madrid. Mr Godfrey said that by this stage he had begun to think that the whole story about the money, and the chemical for washing the bank notes, was strange. His understanding was that the money Mr Fragopoulos had paid over was the whole of the almost $26,000.00 he had advanced. He later found that Mr Fragopoulos had borrowed other money from other people and might have paid that over in addition. He found out about this only when he read a statement by Mr Fragopoulos before the hearing.

After the incident in Amsterdam Mr Godfrey said that he formed the view that it had been a hoax and that the bottle had been likely to explode. In his words, he thought that Mr Fragopoulos had been set up. He told him so. Mr Fragopoulos appeared to take a different view, and was concerned that he had made some mistake in relation to the bottle which had caused it to break.

Mr Godfrey said that during March 2002 he made a phone call to the office of then Minister Philip Ruddock, whom he knew, in respect of Comor, who he had been informed was a son of the former President Mobutu of Zaire. He was told by someone at the Minister’s office that if Comor was in Madrid he would have to apply in Spain for any arrangement to come to Australia. Mr Godfrey said that he had already conveyed that information to Mr Fragopoulos. He thought that this might have been as late as May 2002 but was unsure about the exact date.

During the course of the cross-examination I asked Mr Godfrey when his relationship with Mr Fragopoulos had ceased to be a friendly one. He said that that point had been reached at Wagga Wagga in 2007, during the course of the committal proceedings against him, when Mr Fragopoulos gave evidence which he regarded as untrue. Until then they had had a good working relationship and something of a social relationship.

Mr Godfrey was asked in re-examination about the criminal prosecution. He said that he was one of five people originally charged with obtaining money from ATSIC. Three pleaded not guilty. One was acquitted and two were found guilty at trial by a jury. Two, including Mr Godfrey, pleaded guilty. He said that he pleaded guilty to a different offence, obtaining funds from the government dishonestly, an offence under a provision of the Crimes Act 1914 (Commonwealth). The late Judge Goldring presided over the trials and imposed sentences.

I asked Mr Godfrey how it had all come about. His first response was to say that it had been through stupidity. He said that he had agreed to introduce two of the accused to a law clerk, Gordon Duff, at the Canberra firm of Hill and Rummery. Mr Fragopoulos had asked him to make the introduction because he had to be in Sydney. Mr Godfrey said that his version of the meeting with Mr Duff was quite different from Mr Duff’s subsequent version. Mr Duff and Mr Fragopoulos gave evidence consistent with each other and inconsistent with Mr Godfrey’s version of what had happened. On the advice of his barrister at that time, Mr Sabharwal of the Canberra Bar, he pleaded guilty to the lesser offence. He said that a cheque sent to him had had “the wrong details of the company”. He said that he should have woken up then and returned the cheque but he had put faith in people that they had accepted that what he had done was correct. That turned out not to be the case. They (I infer Mr Duff and Mr Fragopoulos) said that it was not a payment to them but a loan. At that point Mr Godfrey said that he lost his faith in mankind.

Mr Godfrey said that Mr Fragopoulos had given evidence that he had not been at meetings with Mr Watson, and that the meetings had been between Mr Watson and Mr Godfrey in the office at FishCo. Mr Fragopoulos also gave evidence that he was unaware that he was going to receive any payment and that he had not done anything to justify receipt of any payment.

Counsel for the plaintiffs tendered a copy of an agreed statement of facts, two written character references, and a transcript of Judge Goldring’s sentencing remarks.

It is necessary for me to summarise the contents of the statement of facts and the sentencing remarks. They seem to me relevant to the relationship between Mr Godfrey and Mr Fragopoulos, and to their credibility.

A brief history of the matter prior to Mr Fragopoulos and Mr Godfrey becoming involved is necessary. Mr Cary and Ms Quince lived together. They were in poor financial circumstances. Mr Cary was bankrupt from 1998 until 2000. During that period he bought a house on a small holding at Colleambally in the Murrumbidgee Irrigation Area. He borrowed most of the purchase price from the Commonwealth Bank. He soon fell into arrears with repayments. The property was eventually sold for less than the bank debt.

Ms Quince was aboriginal. This made them eligible as joint applicants for a loan from ATSIC. They were advised about financial matters by Mr Watson. With his assistance they lodged an application for a loan from ATSIC of a sum in excess of $4m to purchase a property near Hay, NSW and farm machinery. Some of the information in the application form was false, and some relevant information was omitted. They falsely stated that they would be contributing more than $1m, when in fact they had no money or assets.

It became apparent that ATSIC was prepared to lend them money but not as much as they wanted. A loan of $2.8m was approved. This was not enough to purchase the property. They identified another property available for purchase for $2.2m. The vendor agreed to represent the purchase price in the contract for sale as $2.8m, with a rebate of $600,000.00, not mentioned in the contract.

ATSIC required a valuation of the property. Mr Watson found a valuer who was prepared to provide an inflated valuation. But he became concerned that the arrangement about the $600,000.00 rebate would inevitably be known to the lawyers acting on the transaction and would arouse suspicion and might come to the attention of ATSIC. They therefore looked for another property. They found one for sale for $750,000.00. They decided to interpose an intermediate purchaser at that price, who would on-sell the property to Cary and Quince for $2.8m. ATSIC approved a loan of $2.1m.

According to the statement of facts, Mr Godfrey was brought into the scheme to advise in late 2001 or early 2002. He was known to be a former senior public servant with knowledge of the workings of business and government, and in particular the workings of ATSIC.

In February 2002 Cary, Quince and Watson introduced themselves to Gordon Duff, law clerk with Hill & Rummery. They asked him to act on the purchase of the property. Shortly after this, Mr Godfrey came to see Mr Duff. He informed him that a valuation was required for ATSIC, and that there was to be a sale to an intermediate purchaser, Mr Fragopoulos or his nominee, with contract prices of $750,000.00 and $2.8m, and both settlements to occur simultaneously. Mr Godfrey told Mr Duff that the difference in price arose because Cary and Quince, being aboriginal, had unlimited access to water and that Cary had an interest in an earthmoving business, and had plant and equipment which he would use to increase the value of the property. The statement about unlimited access to water was incorrect.

In March 2002 the valuer prepared a false valuation at $2.6m which was given to ATSIC. Settlement of the two transactions took place in May 2002. $2.1m was provided by ATSIC on settlement. The valuer received $60,000.00. Watson and another participant, Camm, received about $250,000.00 each. Skybase received $150,000.00. Quince and Cary got the property and a further $446,000.00. ATSIC ended up with a mortgage over the property as security for its loan of $2.1m, the property being probably worth no more than $750,000.00. Carey and Quince were soon in default under the ATSIC mortgage.

Judge Goldring noted in his sentencing remarks that Quince had been acquitted at trial. Watson and Mr Godfrey had both pleaded guilty to a charge of taking part in a scheme with the intention of taking a benefit from a Commonwealth entity dishonestly. They pleaded guilty during the week after the trial was listed, before the jury was empanelled and while the judge was dealing with pre-trial issues. Cary and Camm were found guilty by a jury and convicted. The trial lasted for some eight weeks. The judge said that the facts in the agreed statement were similar to the case presented by the Crown at trial and disclosed that the offence committed by Mr Godfrey was committed as part of the same illegal joint enterprise which gave rise to the conspiracy charges.

The judge was satisfied that Watson was the architect and prime mover in the conspiracy, and the scheme was his idea. He referred to evidence given by Mr Fragopoulos, which he said was not of great probative value, but led to the inference that Mr Godfrey had been drawn into the scheme by Watson. Judge Goldring said that the scheme had required the involvement of Camm, the valuer, and Mr Godfrey. It was clear that Camm had lied to ATSIC and that Mr Godfrey had been involved in planning and executing the deception. The valuer had agreed to give evidence against the conspirators and was given immunity from prosecution.

The judge summarised the involvement of Mr Fragopoulos in the matter. He said that he was a fish merchant in Canberra who knew Watson as someone working in a shop near his own, and Mr Godfrey who was a customer. Watson told him that he was helping an aboriginal couple get a loan from ATSIC. Mr Fragopoulos told Watson about Mr Godfrey who he understood had worked for or with ATSIC. He described Mr Godfrey as an investor. He introduced them and was present at some meetings where they discussed the arrangements relating to the ATSIC loan.

Mr Fragopoulos gave evidence that Watson had told him that his solicitors did not do conveyancing work in NSW. Mr Fragopoulos’ solicitors were Hill and Rummery. He spoke to Mr Duff, a conveyancing clerk there, who confirmed that they did undertake such work. Mr Fragopoulos left a note for Mr Duff introducing Mr Godfrey to him. Mr Godfrey saw Mr Duff in mid-February 2002 and gave him a great deal of information about the purchase. He told him that ATSIC required a valuation, that there would be an intermediate purchaser who would probably be Mr Fragopoulos or someone nominated by him, that the contracts and settlements had to be simultaneous, and that the contract prices were $750,000.00 and $2.8m. He told him that the difference in price arose because Quince was aboriginal and had unlimited access to water pumping rights. Cary had the knowledge and ability to construct irrigation work and would increase the value of the property significantly.

Judge Goldring said that the Crown case was that Mr Godfrey had been involved in devising the structure of the operation using the intermediary as a means to deceive ATSIC. Counsel for Mr Godfrey pointed out that the evidence did not inevitably lead to that conclusion if it had not been for the admission made by Mr Godfrey in his plea of guilty.

Mr Duff realised that the arrangement would give rise to a capital gains tax liability for the intermediate purchaser. He had referred Mr Godfrey for advice about that issue. On the date contracts were exchanged Mr Duff was given a written direction, he thought by Mr Fragopoulos, for the purchasers to pay $150,000.00 to Skybase.

Judge Goldring said that in many respects the evidence of Mr Fragopoulos at the trial was unreliable.

The judge noted that Mr Godfrey had pleaded guilty, but not until after the matter had been listed for trial. He acknowledged that this had reduced the length of the trial significantly, and that the plea put beyond doubt some matters which the Crown might have had difficulty in proving. He noted that Mr Godfrey had been regarded as a person of outstanding character prior to these events. There was evidence in a psychiatric report that he was suffering from an anxiety disorder with depressed mood.

The judge said that the offence had been a fraud on the Commonwealth of a serious nature. It had been opportunistic but highly sophisticated and had required considerable thought. He noted that by the time of sentencing Mr Godfrey had repaid to the Commonwealth the amounts he had received. He imposed terms of imprisonment to be served on some of the defendants. He sentenced Mr Godfrey to one year and ten months imprisonment, to be suspended on his entering a recognisance. The sentence was expressed to conclude in March 2010.

Counsel for the plaintiffs completed Mr Godfrey’s evidence at that point, and after the tender of some further documents closed his case. As it turned out Mr Godfrey gave further evidence much later in the hearing. I shall come to that in due course.

Counsel for the plaintiffs read without objection an affidavit by Mr James Stephenson, Manager, Legal Notices Team with Westpac Banking Corporation, annexing a copy of Westpac’s general conditions for its business finance agreements, as in force at the end of 2000, and a schedule setting out the Westpac indicator lending rate at the dates relevant to the dispute between the parties.

He also read without objection an affidavit by Mr Michael Slaven, a chartered accountant and partner in the firm Kazar Slaven in Canberra, annexing a report setting out various alternative assumptions he had been asked to make, and arriving at calculations of the debt owing by Volanne to the plaintiffs as at 31 August 2009.

The evidence for the defendants

John Fragopoulos is a shareholder and director of Volanne. His wife is also a director and shareholder. He describes himself as a seafood merchant, selling wholesale to hotels and clubs and retail to the public through his shop at the Belconnen Markets. He was born in 1954 and came to Australia with his parents as a boy. He returned to Greece but after his marriage he and his wife moved to Australia in 1978 and to Canberra in 1980 where they have lived since. They have operated from the site at the Belconnen Markets since 1997. Their shop is open five days each week, from Wednesday to Sunday. Their shop is of 160 m², with a further 100 m² of storage space and a small office, about 10 m² at the back of the shop. In 2000 he employed a fishmonger, John Georgakakos, who still works with him and gave evidence. He also employed four shop assistants. His wife kept the books, paid bills and looked after banking. She also served in the shop from time to time. She worked long hours every day. They usually worked at the shop on the days it was open for twelve or thirteen hours each day. Mr Fragopoulos said that his role was to secure stock, fresh and frozen, for the retail and the wholesale side of the business.

In 2000 his wife found on the internet a request from a company in South Africa, the Ocean Basket, seeking seafood, generally in the form of skinless fillets. Mr Fragopoulos decided to travel to South Africa to talk to them, and did so in September 2000.

At about the same time, he said that they had received at the office by fax a letter from a Dr Phillips who was seeking assistance to move $US40m from South Africa. He was prepared to pay 20% of the total amount for that assistance. The letter referred to King Mobutu trying to take his money and his family out of South Africa. There was a mobile telephone number.

When Mr Fragopoulos had made arrangements to go to South Africa in September 2000 to meet the people at the Ocean Basket, he telephoned Dr Phillips and identified himself. He said that he would be in Johannesburg. They arranged to meet there.

Mr Fragopoulos booked into his hotel in Johannesburg and rang the mobile number. Dr Phillips came to meet him at the hotel. He told Mr Fragopoulos that the money to be transported out of South Africa had first to be washed with a liquid which was very expensive. Only the banks had access to it. He also told Mr Fragopoulos that King Mobutu was in Morocco with refugee status and that there were only a few countries he was allowed to enter. He asked Mr Fragopoulos whether he had access to bank accounts in US dollars. He said that if Mr Fragopoulos was interested, he would be able to provide the liquid to wash the money in South Africa and then bank it in order to transport it out of the country. The liquid would cost $60,000.00 to $70,000.00. He told Mr Fragopoulos that he would need to provide the money to buy the liquid. Mr Fragopoulos told him that he would think about it and let him know.

He was subsequently informed that the bank notes were coated with some kind of powder and that this was the way large sums of money were transported from country to country for security reasons. If a note was coated with a white powder it appeared to be simply white paper. No printing on it was visible.

Mr Fragopoulos said that at that time his practice was to travel to the Sydney Fish Markets every Tuesday morning to collect stock for the shop when it opened on Wednesday, and to travel to Sydney again on Friday mornings to obtain fresh stock for the weekend. He had a small truck for this purpose. When he had a large load to collect he generally went to Sydney the night before and stayed at a hotel, Rydges at Camperdown. The hotel had access and parking for his truck. He often took a retired friend with him for the trip to Sydney. One of the friends he took was Manny Makas. Mr Makas had, some years earlier, run a restaurant in Canberra and had bought his fish and other seafood on a wholesale basis from Mr Fragopoulos.

There was a cafe near the entrance to Mr Fragopoulos’ fish shop at the Belconnen Markets. One morning he was sitting with a few friends, including Mr Makas, at the cafe. Mr Makas saw Mr Godfrey and his wife shopping. He got up and asked them to join the group. Mr Godfrey joined them for a cup of coffee while his wife continued with her shopping. Mr Makas introduced him to Mr Fragopoulos telling him that Mr Godfrey worked for the government and had an involvement with the Olympic Games.

A week or two later Mr Makas asked whether he could accompany Mr Fragopoulos on one of his trips to Sydney. On the way to Sydney he told Mr Fragopoulos that he had invited Mr Godfrey to join them at the hotel for a drink that evening. During their drink Mr Godfrey told them that he was in the process of selling catering equipment after the Olympic Games on behalf of the NSW government. He asked Mr Fragopoulos about his business, and Mr Fragopoulos told him about the shop and the seafood business generally. Mr Makas assured Mr Godfrey that it was the best seafood business in Canberra.

Mr Fragopoulos was to go to the fish markets at 3:00 am the next morning for an auction. Mr Godfrey arranged to collect Mr Makas and show him some of the equipment which was for sale.

On the following weekend Mr Godfrey came to the fish shop at the Belconnen Markets. They had coffee again with Mr Makas. Mr Fragopoulos told Mr Godfrey about his trip to South Africa the previous September, investigating export opportunities. He said that Mr Godfrey told him that he had worked in South Africa at one time, and spoke of some of his adventures in that country, including assisting in the Nelson Mandela Revolution, with pistols in his suitcase, and smuggling diamonds back to Australia. Mr Fragopoulos went into his office and found the letter he had received by fax from Dr Phillips. He showed the letter to Mr Godfrey. Mr Godfrey read it. He said that there was a lot of fraud with requests of that kind. He asked Mr Fragopoulos whether he intended to do anything about it. Mr Fragopoulos told him that he knew only about fish, and had no experience in transactions of that kind. Mr Godfrey asked whether he could keep the letter, to which Mr Fragopoulos agreed. Mr Godfrey told Mr Fragopoulos that he knew about Mr Mobutu being in Morocco. Mr Fragopoulos said that he had not seen the letter again.

A few days later Mr Godfrey returned. He came into the office. He said that the request looked authentic and he wanted to investigate it further. Mr Fragopoulos agreed to this. He said that he would be going back to South Africa quite soon, in relation to the Ocean Basket matter. He asked Mr Godfrey how they could get Mobuto and his family, and the money, to Australia. Mr Godfrey said that he had undertaken some investigations. Australia would not accept Mobutu but would accept his children as refugees. They would have to come into Australia with false passports, and once here apply for political asylum.

Mr Fragopoulos said that he asked Mr Godfrey how the money would be brought in. Mr Godfrey answered that it could be brought in either by diplomatic mission, or deposited in a number of bank accounts and transferred. He explained that diplomatic correspondence moved from one country to another without being checked. He said that the expenses of such an undertaking would be of the order of $200,000.00 to $300,000.00, taking into account the expense of bribes to various countries for false documents as well as airfares and accommodation, and purchasing the liquid. Mr Fragopoulos said that he responded positively to this. Dr Phillips had mentioned a total amount of 40m Euros, and had said that $8m would be available as a fee for assistance in getting the money out of South Africa. Mr Fragopoulos said that Mr Godfrey had said that he thought that it was worth investing $200,000.00 to $300,000.00 in order to earn $4m each. Mr Fragopoulos said that he asked Mr Godfrey what would happen if they were not successful. Mr Godfrey said that they would have to think about that.

Mr Fragopoulos decided to ask friends for money by way of loan, to put into the project. He approached Giuseppe Pangallo, a retired painter from Griffith in NSW. He told Mr Pangallo that if the project was successful he would get double his money back. Mr Pangallo came back to him within a week and said that he and his family would put $100,000.00 towards the project. Mr Fragopoulos assured him that if the project was unsuccessful he would get his money back.

Probably a week or so later Mr Godfrey called at FishCo. He and Mr Fragopoulos went into the office and discussed the project further. At that meeting Mr Godfrey said that once they embarked upon it they needed to take it to finality. Mr Fragopoulos explained to him that he had found money through friends and would not be using his own funds, because he did not have money to spare. He had also spoken to Mr Makas who had agreed to put money in. His own son, Anthony Fragopoulos, agreed to put in a small amount.

During the conversation Mr Fragopoulos said that he told Mr Godfrey that if the venture was unsuccessful he would be in significant financial difficulty in keeping his business going and would not be able to pay the borrowed money. He asked Mr Godfrey whether, if the venture failed, he would support the business financially, to get it to a profitable position where both of them could get their losses back. He said that Mr Godfrey had agreed to that proposal, and said that he would support Mr Fragopoulos so that they could get all of their losses back in addition to the money which Mr Godfrey would lend to Mr Fragopoulos.

Mr Fragopoulos said that at this time he was continuing to investigate the prospects of a business arrangement with the Ocean Basket company in South Africa. He told Mr Godfrey that he was intending to go back to South Africa. At Mr Godfrey’s suggestion he opened a bank account in American dollars in South Africa. He already had a bank account in his wife’s name in New York.

Mr Fragopoulos said that before he left Canberra he telephoned Dr Phillips, in Mr Godfrey’s presence. He told him when he expected to arrive in Johannesburg. Dr Phillips was waiting for him at the airport and took him to the hotel. Mr Godfrey said that he was not free to go to South Africa with Mr Fragopoulos at that time because of other commitments. He asked to be kept informed and said that he would be available to give advice by telephone if needed. He told Mr Fragopoulos to make sure that the money was there and that the American dollars were real.

After a day or two in Johannesburg Dr Phillips took Mr Fragopoulos to his house. While he was there a security truck came, with a padlock. Dr Phillips unlocked the padlock and took out a safe. He used a combination and opened the safe. In the safe there were stacks of coated pieces of paper. Dr Phillips asked Mr Fragopoulos to pick three of these pieces at random. He took a small bottle out and went to a hand basin, put the plug in and diluted the substance with water. He instructed Mr Fragopoulos to put the banknotes into the water. He shuffled them and dried them. He took them out, and they appeared to be $US100.00 notes. One of the notes turned pink. By that time there was little liquid left. Dr Phillips told Mr Fragopoulos that there had not been enough liquid to wash that note completely and it had been useless. It ended up as a pink $US100.00 note. Dr Phillips explained to Mr Fragopoulos that this was how money was transported from place to place. If they could provide the liquid, or the money to buy it, they would be paid $8m as their share. They would have to bank the full amount and transfer it to the designated accounts, leaving a balance of $8m for them. Dr Phillips said that the liquid would cost $US70,000.00. Mr Fragopoulos told him that he would think about it, and that he was acting on behalf of someone else as well, who would play a part in the decision-making process.

At that point I asked Mr Fragopoulos whether it had occurred to him that Dr Phillips would appear to have been perfectly capable of washing the money himself. I asked why he would have needed the help of Mr Fragopoulos, at vast expense. Mr Fragopoulos said that he assumed that Dr Phillips did not have $US70,000.00, and that they needed someone else to take the money out of South Africa and into foreign accounts.

Mr Fragopoulos said that after that visit he made contract with Mr Godfrey. He told him what had happened. While he was in South Africa he also spoke to the Ocean Basket people. Those negotiations were unsuccessful. They had had better offers from Argentina.

Mr Fragopoulos returned to Canberra. Mr Godfrey came to see him on the next weekend at the Belconnen Markets. Mr Fragopoulos had a conversation with Dr Phillips about what to do next. He said that Dr Phillips by that time seemed quite confident that things were going well. Mr Fragopoulos pursued his requests for money from Mr Makas and Mr Pangallo, with a view to returning to South Africa. He talked to Mr Godfrey about this. Early in 2001 he went to a Thomas Cook facility in Canberra and exchanged $150,000.00 for $US70,000.00, and made bookings to return to South Africa. He took the money with him in cash. Mr Godfrey told him that he would like to be coming with him but was too busy. He asked to be kept informed of developments.

Mr Fragopoulos left Canberra on 7 January 2001 for South Africa. Dr Phillips picked him up from his hotel and took him to his home. Another man came with a bottle. Dr Phillips took some notes coated with white powder and gave them to the other man. He put some liquid on the cap of the bottle and diluted it and then put the notes on a plate and washed them. Mr Fragopoulos could then see that they were $US100 notes and were genuine. He gave Dr Phillips the $70,000.00 in cash, and Dr Phillips gave him the bottle. The other man left at that point. Dr Phillips told Mr Fragopoulos to take the bottle back to the hotel. He said that the next day he would arrange for the security company to bring the cash so that they could wash it and bank it. He sent Mr Fragopoulos back to his hotel, with his own car and driver. He said that the next morning he would send the driver to bring Mr Fragopoulos back to his house.

The next morning Mr Fragopoulos waited at his hotel room to be contacted. At about noon he had a telephone call from a man who identified himself as a police detective. He asked Mr Fragopoulos whether he knew a person whose African name he gave. Mr Fragopoulos said that he did not know that person. The detective then said that he was also known as Dr Phillips. Mr Fragopoulos conceded that he knew a Dr Phillips. The detective told him that he had found his (Mr Fragopoulos’) telephone number in the memory of Dr Phillips’ mobile telephone and had rung that number. Mr Fragopoulos told him that he was an Australian citizen in South Africa on business.

Mr Fragopoulos then telephoned Dr Phillips’ number, and reminded him that he had been supposed to be collected that morning to go and wash the notes. Nothing had happened. Dr Phillips advised him to go back to Australia and to take the bottle of liquid with him.

Mr Fragopoulos said that he was feeling scared. He changed hotels. He stayed for another two or three days. He made arrangements to return to Australia. He tried again to telephone Dr Phillips but there was no answer and the telephone was switched off.

Mr Fragopoulos brought the bottle of liquid back with him to Australia. He placed the bottle, so that it would not break, with a number of gifts for his family.

When he got to Australia and waited at the carousel for his luggage, he could not find the gifts or the bottle. He collected his other luggage. He waited for at least an hour. He thought about making a claim for lost baggage but decided not to do so. Something similar had happened to him before in Athens, Madrid and in Australia. He remembered that when the lost baggage had been found he had been instructed to open the bag at customs to be checked. He was uncomfortable about that prospect. He was unsure whether it might have been illegal to be attempting to bring the bottle into Australia. He tried to telephone Mr Godfrey from the airport but was unable to make contact with him.

I put to him that his belief had been that the bottle was worth $US70,000.00. He agreed to this, but said that he thought that his life was more important by that time. He chose to move on. It occurred to him that the bottle might never have left South Africa, which he saw as still a third-world country.

Mr Fragopoulos returned to Canberra. A week or two after his return he received a call from Dr Phillips, who told him that he had been caught by the authorities. Mobutu had managed to bribe some officers, who had got him out of the country. Dr Phillips was on his way to meet Mobutu. He asked Mr Fragopoulos whether he still had the bottle. Mr Fragopoulos avoided answering the question. Dr Phillips told him that Mobutu wanted to speak to him direct and gave him a telephone number.

Mr Fragopoulos telephoned Mr Godfrey. They decided to leave it until the weekend when Mr Godfrey would be in Canberra. On the weekend they rang the number. This would have been about the third weekend in January 2001. Mr Fragopoulos said that he wanted to speak to Mobutu. The person at the other end of the line said that he had been waiting for his call. He apologised for what had happened but said that he was looking forward to seeing the consignment of money in Australia. Mr Fragopoulos told him that he did not have the liquid. The man on the other end of the line was silent for a minute or two. Mr Godfrey then said that he had a friend working at the Victorian Mint and that they might be able to get the same liquid there. The other person asked him to see whether that was possible.

Mr Godfrey told Mr Fragopoulos that his friend at the Mint owed him some favours. Some days later he came back to Mr Fragopoulos and said that the liquid was available but very hard to get. Mr Godfrey said that he had been to Victoria to meet his friend. Mr Fragopoulos concluded that the liquid would be unavailable in Australia. He telephoned Dr Phillips, who told him that he should make his way to Amsterdam where he had contacts. He would be able to send a consignment of the liquid far more easily to Europe and he could get a consignment of money to Amsterdam, where the bank notes could be washed and processed. They were told that it would cost only $US10,000.00 to rent a machine from a bank, and that it would not be necessary to buy the liquid again. They were given the name of a contact person at a security company in Amsterdam, Mr Kofi. They were told that after their trip to Amsterdam they would need to go to Madrid to pick up Mobutu’s son and travel to Johannesburg. Mr Fragopoulos could not remember the reason they were asked to go via Johannesburg. The money was to be processed in Amsterdam.

At about this time Mr Godfrey told him that he thought at only $10,000.00 the venture was worth pursuing in Amsterdam. They agreed to go to Amsterdam together. They telephoned Kofi to tell him that they had agreed to do so. Mr Fragopoulos made the necessary travel bookings. They left on 27 February 2001 for Amsterdam. Mr Fragopoulos took with him $US10,000.00. When they got to Amsterdam they made contact by telephone with Kofi. They booked into the hotel he had suggested, and met him at the lobby. Mr Godfrey asked him to “show us the money” before they handed over the $10,000.00. Kofi said that he would bring the money that afternoon.

At some point during the afternoon Mr Godfrey went back to his room to find someone trying to break in. The thief ran away. Mr Godfrey reported the break-in at reception. Mr Godfrey took his bags to Mr Fragopoulos’ room. Mr Kofi arrived with another man, with a suitcase with wheels. One of them asked that Mr Godfrey stay outside the room with the driver while the money was shown. Mr Godfrey asked to be informed so that he could see the money as well, and left. Mr Kofi opened the luggage and took out a safe. He made a telephone call and followed instructions, apparently in a different language. They put the safe on the bed. Kofi found a key stuck under the safe and opened it, having been told the combination over the telephone. Inside the safe there were stacks of US dollar notes, overstamped “US Federal Reserve” in black. Also in the safe were two bottles, a small one and a larger one. Kofi took the small bottle and asked Mr Fragopoulos to pick some of the notes, which he did at random. Kofi unscrewed the cap of the bottle and diluted the liquid in the handbasin. They put three notes into the basin and the pink disappeared. Kofi dried the bank notes using a hairdryer.

Mr Fragopoulos asked him to demonstrate some further washing of notes. Kofi took the second bottle and went to pour more liquid into the basin but the substance inside was solid. Kofi told Mr Fragopoulos that the liquid had been dried out and could not be used. Mr Fragopoulos telephoned Mr Godfrey who came in.

Shortly afterwards there was a lot of knocking on the door of the room. Kofi closed the safe, stuck the key under the safe, put it in the suitcase and zipped it up. He opened the door and said something to the man outside in another language. Something was said about changing the liquid back to its original form. Further phone calls were made. Kofi then told Mr Fragopoulos and Mr Godfrey that the solid in the bottle could be brought back to liquid but that it would cost about $50,000.00 to achieve this. He asked what they wanted to do. Mr Fragopoulos said that they did not know and would let him know. Kofi left and took the bottle with him.

At this point two US banknotes were tendered, with different serial numbers. Mr Fragopoulos said that these were two banknotes which he had kept and brought back to Australia for the purposes of the case. They were photocopies. His evidence was that he had brought original banknotes back and given them to his solicitor, Mr Donohue (of Donohue & Co) but that the originals had been lost. The copy notes had been stamped “US Federal Reserve”.

Mr Fragopoulos said that after this incident they had some $US100.00 notes in their possession which had been washed. That day or the next day he and Mr Godfrey took them to two banks. Mr Fragopoulos cashed his notes, presenting his passport.

Mr Fragopoulos said that about this time Mr Godfrey told him that they should try to find the money to pay a laboratory to treat the liquid to have the banknotes washed. Mr Fragopoulos said that he was not sure how much he could spare from his business but that Mr Makas would help. Mr Godfrey said that he would put in the rest of the money.

Mr Fragopoulos contacted his wife. She contacted Mr Makas. Mr Makas put in $A20,000.00. Mrs Fragopoulos sent her husband just under $24,000.00 via Thomas Cook in Amsterdam, split into two amounts, apparently because the total was over the daily permitted limit per person. Mr Fragopoulos and Mr Godfrey went to the Thomas Cook office in Amsterdam where they were given the money in US dollars. Mr Godfrey telephoned his bank manager in Fyshwick and made arrangements for Mr Makas to collect $25,000.00 in cash for the transfer.

Once they had the money, they telephoned Kofi and told him that they had close to $US25,000.00 and wanted to have the liquid treated.

At that point I asked Mr Fragopoulos whether it was his understanding that the money he had been shown in Amsterdam had been a different $40m in cash to the money he had been shown in South Africa. He said that it had been. The money in South Africa had been coated white. I asked him whether it had been his understanding that the Mobutu family had had two lots of $40m. He said that Mr Godfrey had told him that Mobutu had had a lot more, having been corrupt and skimming the country, and was in a position to remove many millions of dollars. He ended up by saying that he had just carried the suitcases, and had no knowledge of these matters.

They rang Kofi and told him that they were going ahead with the project. He said that he would send someone to collect the money and the bottle and would have them take it to a laboratory to get fixed. Someone came, and collected the bottle and the money. He took it away. Kofi brought the bottle back personally. It was a brown beer bottle. It looked the same as the bottle they had taken away. Kofi told them to store it in a cool place and said that he would send someone in a couple of hours to pick up the money to be washed. That man was to go to the bank and pick the machine up and take it to the offices of the security company. Kofi said he would then pick them up from the hotel, and they would set up the machine and wash the money, which would take a few hours.

Much later, during the course of closing addresses, I permitted Mr Godfrey to be called once more, to provide a further explanation about the invoice from ICBM company to Volanne company dated 2 May 2001, referred to earlier. He provided what seemed to me a convincing explanation to the effect that the invoice had indeed been created and printed on 2 May 2001, contrary to suggestions put to him by counsel for the defendant that the document had been created some years later and had been backdated.

The issues to be determined

Much of the financial background is not in contention. But there are a number of matters about which the parties are in dispute, and where the evidence of the principal witnesses on each side differs.

It is apparent that Mr Godfrey and Mr Fragopoulos met at the end of 2000, and developed a relationship which was generally friendly until Mr Fragopoulos gave evidence for the prosecution in the course of the committal proceedings against Mr Godfrey at Wagga Wagga in April 2007. Mr Fragopoulos gave evidence which was contrary to the expectations of Mr Godfrey, and from that time the relationship broke down. Mr Godfrey promptly instructed solicitors, who sent letters of demand to Mr and Mrs Fragopoulos and their company. Proceedings were commenced in this court in June 2007.

There seems to have been considerable confusion about the causes of action of each of the plaintiffs, and the defences, resulting in a number of amendments to the pleadings before trial.

The major factual issues to be determined seem to me to be as follows:

a) Whether the money paid by Mr Godfrey through ICBM in the early months of the relationship was a loan to Volanne, or a contribution to an unsuccessful joint venture.

b) Whether there was a any agreement between the parties that money lent by ICBM to Volanne was to attract interest.

c) Whether there was any agreement between ICBM and Volanne for Mr Godfrey to provide consultancy services, and if so on what terms.

d) The value of seafood provided by the defendants to Mr Godfrey, and the basis of the arrangement by which the seafood was provided.

e) Whether Volanne is entitled to recover the value of seafood provided by way of stock for Easter trading at the Blue Seas shop in 2002.

f) Whether Skybase is entitled to recover the sum of $100,000.00 paid, apparently as a share of a success fee in respect of the ATSIC matter.

g) Whether Mr Fragopoulos has paid the balance of the amount he agreed to pay in the Canberra Seafoods deed of settlement.

h) If I find that either party is entitled to recover interest, the rate of interest and whether simple or compound.

Consideration of the evidence

By the time of trial, all of the witnesses were giving evidence, in respect of the events of 2000-2001, of things that had happened eleven years earlier. Human memory of events after such a lapse of time is notoriously unreliable, especially as to matters of detail. I would have no confidence in the ability of any witness to remember the words used during a conversation so many years earlier. Where there are contemporaneous written records these are far more likely to be reliable.

In the present case, I must also take account of the fact that the two principal witnesses, Mr Godfrey and Mr Fragopoulos, by the time of trial both had a significant personal interest in their version of events being accepted.

In the case of each of them, there are factors, quite apart from my assessment of their demeanour in the witness box, which must have some impact on my assessment of their credibility.

Quite apart from his extraordinary gullibility, Mr Fragopoulos has been prepared at different times to say and do things which he must have known were untrue or misleading and probably unlawful. Although his attempt to do so was unsuccessful, he tried to smuggle a bottle of extraordinarily expensive liquid into Australia, and I have no doubt that if the joint venture had been successful he would have brought in millions of dollars in United States currency without disclosing it to the authorities as required by law.

It is also clear that he gave evidence at the committal proceedings in Wagga which was less than the whole truth. I do not have a transcript of his evidence at the trial but Judge Goldring found him an unsatisfactory witness. I have no doubt that he was a party to the ATSIC conspiracy and that he would have kept his share of the success fee if the conspiracy had not been uncovered.

I accordingly approach his oral evidence with a considerable degree of scepticism, particularly where he gave answers to his own financial advantage.

At the same time Mr Godfrey, despite an apparently excellent record and reputation until he met Mr Fragopoulos, has also admitted to and been convicted of a serious offence of dishonesty. I accept that the arrangement within the ATSIC conspiracy was that in the event of success Mr Godfrey was to receive and to retain a success fee of $50,000.00, an amount which I see as commensurate with involvement in a criminal enterprise, rather than a fee which might have been seen as justified for consulting work at an hourly rate. By the time of the trial Mr Godfrey clearly felt great remorse that he had allowed himself to become involved, and shame at the effect of the episode on his repute and standing in the community. Having said that, I cannot avoid taking his involvement in the conspiracy into account in assessing his character and credit.

Mr Godfrey was introduced to Mr Fragopoulos by a mutual friend, Mr Makas. Mr Makas was not called to give evidence. I was informed that at the time of trial he was old and in poor health but there was no evidence of his age or state of health, nor any suggestion that either side had issued a subpoena for his attendance. Perhaps if he had been called he might have found himself in an invidious position, being on friendly terms with both of the principal witnesses. I must also take into account the fact that if he had been called, he would have been asked about events of eleven years previously, of which he would have had no reason to keep any record. His evidence might not have been particularly helpful to either side and would have been lacking in reliability because of the passage of time. Nevertheless it seems to me that I should draw the available inference that each side took the view that his evidence would not have assisted their case.

Mr Makas was one of those who put money towards the Mobutu scheme, although there is no evidence that he was given any detail as to what the scheme involved.

The evidence of Mr Fragopoulos as to his early meetings with Mr Godfrey was to the effect that the discussions were focused not on the fish business but on the Mobutu opportunity.

Mr Godfrey’s evidence was that the early meetings were about the fish shop business, and the desire of Mr Fragopoulos to borrow money for his business. He said that the Mobutu issue was raised at their second meeting, but that he was always suspicious that it was a scam.

I cannot avoid finding that Mr Godfrey was, at least in the early stages, taken in by the scam to some degree. This seems to me the only available finding consistent with the amount of money he put in in the early stages and his willingness to travel to Europe with Mr Fragopoulos.

I am not satisfied that at that early stage there was any business relationship based on consulting work for a fee, nor am I satisfied that there was any business relationship based on lending and borrowing money.

At an early stage in his oral evidence Mr Godfrey was shown a loan agreement with a named company for an amount of $100,000.00, which he said he had lent, and got back with interest as arranged, within the agreed period of two months. He said that this was the largest amount he had ever lent, and that other loans had been up to $20,000.00, for a maximum period of three months. He had made loans on seven occasions in all by the time he met Mr Fragopoulos.

I am satisfied that Mr Godfrey was at the time a meticulous record-keeper and a careful man. He had used a loan agreement in the past, at least for the $100,000.00 loan. I do not accept that he would have lent, or did lend, the large amounts of money he put in towards the Mobutu investigation as a loan to Mr Fragopoulos or his company, without a loan agreement in writing.

I have a similar difficulty with his evidence that he had an oral agreement to undertake consulting work for Mr Fragopoulos or his company at an hourly rate. His evidence is that he had done a considerable amount of consulting work, at a senior government level, in relation to the Olympic Games and NSW public transport. It is inconceivable that the arrangements for that government work were not in writing. I do not accept that Mr Godfrey would have entered a business arrangement with someone he had just met, without committing the details of the consultancy arrangement to writing, in the form of a signed agreement or at the very least, by letter setting out the arrangement and obtaining confirmation that the terms were agreed. Accordingly I am not satisfied that in the early months of the relationship there was any agreement about lending money, at interest or otherwise, or about providing consultancy services.

I think it more likely that Mr Godfrey decided to go into the Mobutu scheme in the hope that it was genuine and with some expectation of making a large amount of money out of it. It would have been at that stage “low risk” for him. His business class return airfares to Europe were to be paid by Mr Fragopoulos. If nothing had come of it he would have lost little.

I should say that it strains my credulity at a personal level that anyone would fall for a such a scam, particularly having regard to the publicity about so-called Nigerian scams. However, I recognise that Mr Fragopoulos, for many years the operator of a successful business, was taken in and I must accept that it is quite possible that Mr Godfrey was taken in, at least to some degree, as well.

There was some focus during the hearing on an invoice on ICBM letterhead dated 2 May 2001, addressed to FishCo and headed “costs of trip” in the sum of $35,000.00. The invoice included Qantas airfares of $8,231.80, which Mr Godfrey at all times conceded had been paid by Mr Fragopoulos and not by him, thought he could not explain how in those circumstances he could claim to be entitled to recover it. The invoice also included “time” being nine days at $2,200.00 per day, a total of $19,800.00, and travelling allowance of $1,561.63 which Mr Godfrey said he had calculated at a rate approved by the Australian Taxation Office. The other items making up the total were hotel expenses of $4,469.86, taxi fares of $270.29, meals of $636.42 and commission exchange of $30.00.

I found Mr Godfrey’s denial that there was any balancing figure which led to the arrival at a total of precisely $35,000.00 incredible. It seems likely to me that the “meals” figure of $636.42 was the balancing figure one would expect to find.

I accept Mr Godfrey’s evidence that the document was created on 2 May 2001 on his computer and not subsequently altered. I accept that Mr Fragopoulos asked Mr Godfrey to provide the invoice. I do not accept that it was prepared or provided in any expectation that it would be paid, other than in circumstances where the Mobutu undertaking was successful in recovering a large amount of money. The evidence does not enable me to arrive at a conclusion as to what its purpose was intended to be, in the mind of either Mr Godfrey or Mr Fragopoulos. I do not accept that either of them intended that it be treated as a loan by ICBM to Volanne. Neither do I accept that either of them intended that Volanne would be obliged to pay it or that ICBM would be entitled to recover the amount from Volanne. Quite apart from anything else, the inclusion of the Qantas airfare figure is inconsistent with such a conclusion.

I find that at some point during July 2001 the relationship changed. Mr Fragopoulos returned to Australia from one of his trips to Europe at the beginning of July 2001. It was clear by then that the money put into the Mobutu scheme had been lost and that there was no prospect of recovery let alone profit. During the period Mr Fragopoulos was away, Mr Godfrey became concerned about the financial position of the Fragopoulos interests. He asked Mrs Fragopoulos for printouts of financial records. I accept that from that point he decided that he was prepared to lend further money through ICBM to Volanne but only with the protection of personal guarantees by Mr and Mrs Fragopoulos and a registered charge over the assets of the company. He instructed solicitors to prepare the documents, and also a deed of loan which, for reasons not adequately explained, neither party relies upon. The documents were typed with the date July 2001. I infer that they were prepared during that month although they were not executed until 17 September 2001. I accept that Mr Godfrey provided copies of the three deeds to Mr and Mrs Fragopoulos during July. The deed of loan specified an “applicable rate” of interest of 8% per annum, and a “specified rate” of 11%, the latter being effectively a penalty rate recoverable in the event of default. The other two deeds defined the applicable rate as the Westpac indicator lending rate plus 2%.

Although the deeds were not executed until 17 September 2001, I am satisfied that Mr and Mrs Fragopoulos had been provided with copies of them and understood that their terms would apply to loans from the beginning of July 2001.

It seems to me of significance that the deeds did not contain a recital as to any loans they were intended to cover prior to their preparation. If they had been intended to cover any such loans one would have expected a recital of that fact and of the amounts involved. The lack of any such recital reinforces my finding that the payments up to the end of June 2001 were not by way of loan. They should be seen, in my view, as contributions towards a scheme which might have returned significant profits, to be reimbursed out of any proceeds of the scheme but not otherwise recoverable as between the parties to the scheme.

The loans made subsequent to the beginning of July 2001 are generally admitted on the pleadings. Entitlement to interest is denied but I find for the plaintiffs on that issue. I am satisfied that the agreed interest rate was the Westpac indicator lending rate plus 2%, and that Mr and Mrs Fragopoulos were well aware of that.

There is a subsidiary dispute between the parties as to whether interest should be treated as simple or compound. The deed of loan, which is in evidence although not sued upon, included a clause to the effect that interest on the principal sum was to accrue from day to day and to be computed on a daily basis of a year of 365 days. A further clause provided that interest not paid when due was to be capitalised as at the due date. I am satisfied on the evidence that this was consistent with banking practice. I am satisfied that the agreement between the parties was that interest was to be compound interest.

I am not satisfied that the plaintiffs have made out a case for consultancy fees. It seems to me on the evidence that Mr Godfrey had become a friend of Mr and Mrs Fragopoulos, spent quite a lot of time at their shop and was happy to help them out in small ways in relation to their business, in his own time and without charge, as a friend. I am satisfied that this remained the position until the falling out in April 2007. As I have said previously, Mr Godfrey is a meticulous record-keeper. He was at the time well aware of the importance of documentation. Even at the time he had the deeds prepared in relation to the loan moneys, he did not provided anything in writing about consultancy services or rates or remuneration for such services. I am not satisfied that there was at any relevant time any agreement between the parties whereby Mr Godfrey was to be remunerated, personally or through one of his companies, for any consultancy services provided to the defendants.

I take a similar view about the counterclaim for the seafood taken by or given to Mr Godfrey. I reject the evidence suggesting that it might have had a value anything like as high as $30,000.00. I accept Mr Godfrey’s evidence that the value of the seafood provided over a period of about seven years was probably of the order of $7,000.00. However, I am not persuaded that there was any agreement between the parties that it was to be paid for. Consistently with my finding that Mr Godfrey was providing administrative assistance to Mr and Mrs Fragopoulos, and help generally about their business, it seems to me far more likely that the provision of the seafood was in the nature of a quid pro quo for the provision of those services. Neither side kept any accurate record of the value of the seafood. If there had been any arrangement that Mr Godfrey was to be required ultimately to pay for it, it is almost certain that Mr and Mrs Fragopoulos would have maintained a record of its value. The counterclaim must fail.

As to the events surrounding the operation of the Blue Seas shop during Easter 2002, I generally prefer Mr Godfrey’s evidence to that of Mr Fragopoulos. I am not satisfied that there was any arrangement whereby Mr Godfrey or Skybase was to pay for the stock for that Easter period, or to take the profits from trading over that period. I accept that the shop traded over Easter and that it was supplied with stock by Volanne, but I think it more likely that Volanne retained the takings. I am not satisfied that there was any contractual arrangement between the parties pursuant to which Skybase is liable to pay for the stock, or any other legal basis for liability on the part of Skybase. The counterclaim against Skybase for stock must fail.

During May 2002, two payments were made by Skybase to Mr and Mrs Fragopoulos, of $25,000.00 and $75,000.00. These were originally claimed in the action by Skybase against Mr and Mrs Fragopoulos as money paid under mistake of fact. In the original statement of claim it was characterised as having been paid mistakenly as their proportion of a success fee (arising out of the ATSIC matter). It was pleaded that Mr Fragopoulos had denied in evidence during the committal proceedings at Wagga Wagga that he had been entitled to those payments.

That pleading was subsequently amended, and the $100,000.00 found its way into a loan said to have been made by ICBM to Volanne, on the same dates. It is clear from the evidence that those payments, amounting to $100,000.00, were not loan payments by ICBM to Volanne. They were “success fee” payments made by Skybase to Mr Fragopoulos. They are not recoverable as part of the claim for repayment of loan moneys by ICBM against Volanne.

It does not seem to me, for what it is worth, that they would have been recoverable by Skybase as payments made by mistake. There was no mistake at the time they were made. What I think probably happened is that Mr Fragopoulos told a different story to the police and the prosecution, and during his evidence in the committal proceedings, to minimise his involvement in the ATSIC conspiracy and avoid prosecution. It may be seen as unconscionable that in those circumstances Volanne does not have to pay the money back, but Mr Godfrey was also a party to the conspiracy and the law would not regard it as proper for Skybase to recover the money in those circumstances: ex turpi causa non oritur actio.

The final issue in contention between the parties arises from the Canberra Seafoods deed of settlement. It is conceded that Mr Fragopoulos agreed by that deed to pay Skybase $40,000.00, and that he paid $12,500.00. I am satisfied that Mr Godfrey and Mr Fragopoulos agreed, in about mid-2004, that the balance of $27,500.00 was to be treated as having been lent by ICBM to Volanne, from which point Skybase’s entitlement to recover, and Mr Fragopoulos’ liability to pay, were extinguished.

Disputed payments

There was some disagreement between the parties as to whether particular claimed payments were made. Two of these were payments claimed by ICBM as loan amounts, $12,000.00 on 5 March 2001, and $6,000.00 on 22 June 2001. Both of these were made during the period when I have found that the payments made by ICBM to Volanne were by way of contribution to the failed joint venture and not by way of loan. Hence they would not be recoverable in any event. Nevertheless I should deal with the dispute about payment and receipt, in case I am found to be mistaken about the nature of the payments during that period.

I am satisfied from a bank statement that on 5 March 2001 ICBM drew a cheque for $12,000.00. The evidence is that Mr Godfrey arrived in Australia on that date, returning from Madrid. Mr Godfrey says that when he was at the airport in Sydney Mrs Fragopoulos rang him and said that her husband needed $12,000.00 immediately. She asked him to meet her at the Thomas Cook office in Canberra later in that day, which he says he did. He said that he went to the bank, withdrew $12,000.00 in cash and gave it to her.

Mrs Fragopoulos was asked about this in chief. Her answer, first, was that she did not recall. She then said that it had not happened, and that if it had she would have recorded it. She had checked her documentation and there was no record of such a payment.

However, at another point in her evidence (T431 at line 40 and following) Mrs Fragopoulos referred to a deposit of $12,000.00 which had previously been deposited to the Volanne account without any reference, which was not recorded in her ledger. She did not know whether this had come from Mr Godfrey. I found that portion of her evidence difficult to follow, and it was not really clarified by counsel.

There is no other suggested explanation for Mr Godfrey having drawn a cheque for $12,000.00 on the ICBM account at that time, the day after his return from Spain. I think that it is more likely than not that his recollection of events is correct, and that he cashed the cheque for that amount and gave the cash to Mrs Fragopoulos for transmission via Thomas Cook to her husband in Madrid.

On 22 June 2001, Volanne drew a cheque for $6,000.00. This is verified by a bank statement.

Mr Godfrey was a little vague in his evidence about this. He thought that he had received a phone call from Mrs Fragopoulos who was in Spain, saying that his wife needed money to pay the Sydney Fish Market. His recollection was that he cashed the cheque for $6,000.00 and gave her the cash at the shop. This was confirmed by a note he said he had made in a bound notebook at the time. There was some suggestion put to him by counsel for the defendants that he had fabricated this note but I do not accept that suggestion. Mrs Fragopoulos gave evidence that she did not recall Mr Godfrey giving her $6,000.00 in cash at that time, but she did not deny it. Again I think it more probable than not that Mr Godfrey’s version in relation to that payment is correct.

There were then four payments claimed by Volanne to have been made to ICBM in reduction of the loan which were in dispute. The disputed payments were $4,000.00 on 25 June 2002; $2,000.00 on 1 September 2002; $2,000.00 on 22 June 2003; and $2,000.00 on 1 April 2006. Counsel for the defendant informed me during address that those payments were no longer disputed, and counsel for the plaintiffs did not mention them during his closing address. I am satisfied that those payments were made on those dates.

Outcome

It will be necessary for a calculation to be undertaken of loans made, interest, and repayments made, to arrive at a figure for which ICBM will be entitled to judgment against the defendants. Broadly this will consist of the loans made from the beginning of July 2001, plus interest, less repayments.

There was some dispute in the course of the evidence about whether the repayments, for some period at $1,000.00 per week and for later periods at $2,000.00 per week, had been made on time. The plaintiffs did not complain about any default, if there was one, prior to the sending of letters of demand in April 2007. I am satisfied that the plaintiffs were entitled to send that letter and that when the outstanding principal and interest were not paid as demanded, there was a default. I am not satisfied that there was any event of default prior to that.

Because the deed of guarantee and indemnity between Mr and Mrs Fragopoulos and ICBM was prepared at the same time, and executed on the same date, as the deed of loan between Volanne and ICBM, I expressed some concern during the course of the hearing that the guarantee may have been intended by the parties to be limited to loans governed by the deed of loan. Neither party pleaded or relied on the deed of loan in these proceedings. Both sides disavowed any reliance upon such an argument. It is common ground that the guarantee applies to all amounts owing by Volanne to ICBM, and is to be read independently of the deed of loan. That being so, ICBM is entitled to judgment against Mr and Mrs Fragopoulos for all amounts by way of principal and interest which come within the category of loans made by ICBM to Volanne.

The expert who was qualified to perform accounting calculations, Mr Slaven, performed calculations on a number of bases but I am not sure that any corresponds precisely with my findings of fact.

In the circumstances I propose to publish these reasons and to direct the plaintiffs to lodge and serve a summary consistent with the reasons, setting out the amount for which judgment should be entered. If there is no dispute about that amount I shall enter judgment in chambers. Otherwise the matter can be relisted for further submissions.

I certify that the preceding three hundred and four [304] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Master Harper.

Associate:

Date:

[2014] ACTSC 175

25 July 2014