Kara Kar Holdings Pty Ltd v Knudsen

[2001] NSWCA 276

CITATION:	Kara Kar Holdings Pty Ltd and Ors v Knudsen and Anor [2001] NSWCA 276
FILE NUMBER(S):	CA 40894/00
HEARING DATE(S):	21 June 2001
JUDGMENT DATE:	28 August 2001
PARTIES :	Kara Kar Holdings Pty Ltd - 1st Appellant William Yardy - 2nd Appellant Jennifer Yardy - 3rd Appellant Neils Knudsen - 1st Respondent Suchindra Knudsen - 2nd Respondent
JUDGMENT OF:	Mason P at 1; Stein JA at 32; Ipp AJA at 87

LOWER COURT JURISDICTION :	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S) :	EQ 1150/91
LOWER COURT JUDICIAL OFFICER :	Austin J

COUNSEL:	R G Forster SC/J J de Meyrick - Appellants A J Sullivan QC/P L Dodson - Respondents
SOLICITORS:	Lincoln Smith & Company - Appellants Koffels - Respondents
CATCHWORDS:	PROCEDURE - Notice of Motion - fresh evidence - whether requirements in Greater Wollongong CC v Cowan met - CONTRACT - undertakings - construction - whether ambiguity in meaning of undertakings - intention of parties - CONTRACT - whether there was a legally binding agreement - whether a proposal - discretion of trial judge - EVIDENCE - discretion of trial judge - whether oral or documentary evidence preferable - credibility - EQUITY - estoppel - whether estopped from denying the existence of a binding agreement - TRUSTS - discretion of trustee - whether purporting to exercise discretion - whether intended to pay entitlements on basis of correct accounts - trustee acting in good faith - D
LEGISLATION CITED:	N/A
CASES CITED:	Greater Wollongong CC v Cowan (1955) 93 CLR 435 Kervan Trading Pty Ltd v Mercantile Mutual Insurance (Aust) Ltd [2000] NSWCA 356 McDonald v McDonald (1965) 113 CLR 529 Muir v City of Glasgow Bank (1879) 4 App Cas 337 Orr v Holmes (1998) 76 CLR 632 Re Anderson Ex Parte Alexander (1927) 27 SR (NSW) 29 Rosenberg v Percival (2001) 75 ALJR 734 Warren v Coombes (1978-79) 142 CLR 531
DECISION:	1) Appeal allowed. 2) The appellants to pay the costs of the Motion dismissed on 21 June 2001. 3) The respondents to pay the appellants costs of the appeal excluding the costs of the lengthy first set of written submissions. 4) Parties to file Short Minutes of Order within 7 days. If the parties cannot agree on orders, each should file the preferred version together with supporting written submissions within a further 7 days.

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40894/00
EQ 1150/91


MASON P
STEIN JA

IPP AJA

Tuesday, 28 August 2001

KARA KAR HOLDINGS PTY LTD and Ors v Neils KNUDSEN and Anor

The first appellant is the trustee of the Kara Kar Employees Pension Fund and the respondents are former employees of Kara Kar. The litigation has a long history and the appeal is concerned with the payment of superannuation entitlements to the respondents. A number of undertakings were given to the lower court in September 1999. The construction of two undertakings are in dispute, as to whether judgment should be entered against all the appellants or only against the corporate appellant. The appellants contend that if the company alone is liable for judgment, then it should only be required to pay the verdict out of the trust fund.

The appellants also submit that there was a legally binding agreement between the parties that the benefits of the pension fund be shared in the proportion of 90% to the second and third appellant, and 10% to the respondents. It was argued, in the alternative, that the respondents are estopped from denying the existence of such a binding agreement. The accounts for the Pension Fund had been incorrectly written up in 1990, and it was argued by the respondents that they should receive their entitlements based upon the books as they should have properly stood.

A Notice of Motion seeking to adduce further evidence on appeal, amend the Notice of Appeal and to raise the issue of certain undertakings given to Austin J, was also before the Court.

Held

Per Mason P, Stein JA and Ipp AJA:

1) Notice of Motion dismissed. None of the requirements referred to in Greater Wollongong C C v Cowan (1955) 93 CLR 435 for the receipt of fresh evidence were satisfied.

2) There is nothing in the undertakings given to Austin J which indicate that the liability of the first appellant is limited to the assets of the Pension Fund. A trustee is prima facie personally liable and it cannot be demonstrated that any judgment should be made only against the assets of the trust.

3) There was an ambiguity in the meaning of the first and sixth undertakings given. It was never the intention of the parties that the second and third appellants be personally liable to judgment against them. Where there is doubt in the construction of the undertakings, it should be resolved in favour of the second and third appellants.

4) The trial judge’s finding with respect to whether there was a legally binding agreement to pay the benefits of the Pension Fund in a 9:1 ratio was open to him. There was insufficient evidence before the Court to establish such an agreement or arrangement.

5) The appellants had fundamentally departed from the arrangement and the respondents were not estopped from declining to be bound by it.

Per Mason P and Ipp AJA; Stein JA dissenting:

6) The respondents’ entitlement is to be paid based on the actual common understanding of the parties reflected in the balance sheet of 30 June, 1990. The finding of the trial judge with respect to this aspect of the matter was not based on the preference of witnesses or upon demeanour, but upon inference.

Per Stein JA:

7) The trustee intended that the respondents’ entitlements be paid based on account balances truly reflected by proper accounts, as opposed to those contained in the incorrectly written up accounts. The trial judge’s finding was not contrary to the evidence and his view of the second appellant’s evidence and demeanour played a not insignificant part in his conclusion.

Orders:

1) Appeal allowed.

2) The appellants to pay the costs of the Motion dismissed on 21 June 2001.

3) The respondents to pay the appellants costs of the appeal excluding the costs of the lengthy first set of written submissions.

4) Parties to file Short Minutes of Order within 7 days. If the parties cannot agree on orders, each should file the preferred version together with supporting written submissions within a further 7 days.

oOo
IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40894/00
EQ 1150/91


MASON P
STEIN JA

IPP AJA

Tuesday, 28 August 2001

KARA KAR HOLDINGS PTY LTD and Ors v Neils KNUDSEN and Anor
JUDGMENT

1    MASON P: I have had the benefit of reading the judgment of Stein JA. I agree with what he has written as to the dismissal of the motion to adduce further evidence; the construction of the plaintiffs’ undertakings; the question whether there was a legally binding agreement or arrangement; and estoppel.

2    This leaves the challenge relating to the interpretation of the decision to pay the respondents 10% of the Kara Kar Employees Pension Fund (the fund).

3    Austin J concluded that Mr Yardy’s instruction to the accountant Mr Nancarrow in February 1991 was an instruction to calculate the correct credit balances in the Knudsens’ employer contribution accounts, and to make arrangements for payment of the full amounts of those credit balances.

4    The full amounts of those credit balances were in fact substantially greater than the amounts calculated by Mr Nancarrow in the Balance Sheet as at 28 February 1991 (CB 194). Since, however the Balance Sheet embodied Mr Nancarrow’s erroneous assumption (first reflected in the Balance Sheet for the year ended 30 June 1990 (CB 156)) that there had been a valid “Refund to Employer” in 1989-90, the Balance Sheet had to be notionally rewritten reversing that debit item. It had been agreed between the parties that:

If the sums standing to the credit of the Employer’s Contribution Accounts of Mr and Mrs Knudsen are re-calculated as at 28 February 1991 on the basis that the breaches of trust identified on 13 April 1994 are rectified, those amounts are $66,112 and 30,336 respectively.

5    These were the sums reflected in the calculations embodied in the judgment entered in favour of Mr and Mrs Knudsen pursuant to Defendants’ undertaking 6 which stated:

If the question numbered 10.1 in Annexure A is answered “Yes” the defendants will consent to judgment for the first plaintiff in the sum of $57,099 (being the sum of $66,112 less the sum of $9,013 already received by way of withdrawal benefit) and for the second plaintiff in the sum of $26,741 (being the sum of $30,336 less the sum $3,595 already received by way of withdrawal benefit) together with interest on each judgment at the rates and during such periods as are agreed between the parties, or in default of agreement, as is determined by the Court.

6    It should be noted at the outset that the effect of this judgment was to give the Knudsens well over 10% of the net assets of the fund (ie after repaying Mr and Mrs Yardy’s employee contributions). The corollary was that Mr and Mrs Yardy were left with well under 90%.

7 The essential reasoning of Austin J is at pars [97]-[105] of his judgment ([2000] NSWSC 715). Stein JA sets out the key passages.

8    I do not read this portion of the judgment of Austin J as turning upon a preference of the evidence of one witness over another or otherwise based upon any finding as to demeanour. Rather, his Honour arrived at a conclusion described as an inference (see [104]). It is drawn from primary facts which themselves were not or are no longer in dispute.

9    The primary facts included the following:

(a) Employer contributions to the fund had been made proportionately to the salaries of the members, rather than their equity interests in the company. (They were recorded as such in the fund Balance Sheet as at 30 June 1989 (see CB 153 H-K).) This was done to ensure that the fund was a complying superannuation fund for tax purposes and thereby maximise the taxation benefits earned by the fund. The fund accumulated a surplus during the 1980s and part of that surplus was returned to Kara Kar as employer, by distributions in 1983, 1984 and 1989. The remainder was transferred to the special reserve account within the fund, with the Tax Commissioner’s approval (Austin J at [73], [85]).

(b) Unlike Mr and Mrs Yardy, Mr and Mrs Knudsen had made no employee contributions to the fund (Austin J at [82]-[84]).

(c) Following Mr Yardy’s withdrawal of $115,000 in December 1989, which Young J found to be in breach of trust, Mr Nancarrow drew up the “employer account” portion of the fund Balance Sheet which was divided between the Yardys and the Knudsons on a 9:1 basis (CB 155). This paralleled the trustee minutes of 11 December 1989 showing that it was

Resolved that the $115,000 paid to W J Yardy today on behalf of Kara Kar Holdings Pty Ltd be designated as a return of Company Contributions to Kara Kar Holdings Pty Ltd and allocated in the books of the Kara Kar Employees Pension Fund as follows:
1. By reduction of allocated company contributions to N C Knudson and S Knudson so that the balance of each account represents one ninth of the allocated company contributions for W J Yardy and J M Yardy.
2. By reduction of the Special Reserve account of the balance to make up $115,000.
The accounts will reduce as follows:
N C Knudsen, Company Contributions $41,757.00

S Knudsen, Company Contributions $20,072.00
Special Reserve $53,171.00
$115,000.00

(CB 150)

(d) Mr Knudsen’s employment came to an end in October 1990, and on 17 January 1991 his company commenced proceedings to wind up Kara Kar Holdings Pty Ltd on the ground of oppression.
(e) After the commencement of those proceedings Mr Yardy told Mr Nancarrow that the partnership with Mr Knudsen was finished. He instructed him to “work out the value of his shares in the company and the pension fund so I can pay him out his 10 percent” (Austin J at [100]).

(f) The Balance Sheet then prepared by Mr Nancarrow as at 28 February 1991, and the payments to Mr and Mrs Knudsen effected in accordance with it, was an updating of the 30 June 1990 Balance Sheet with the surplus earnings distributed to the employee and employer contribution figures as per note 6 of the 1991 Balance Sheet (CB 200). In February 1991 the 9:1 proportion as between the Yardys and the Knudsons in the figures shown for “Employer Account” was simply updated to reflect the available surplus (CB 194. See also Mr Nancarrow’s evidence at CB 51 which is reproduced below.)

(g) There was in fact an understanding between the parties that, subject to (a) the Rules of the fund and (b) exhaustion of the Special Reserve shown in the 1989 Balance Sheet, the employer contributions to the fund would be distributed according to the shareholder ratio (9:1) (see “Information for Members - 30 June 1989” (CB 153 P-R ) and the findings of Austin J adverse to Mr Knudsen at [66], [76]-[79]).

(h) The Special Reserve was used up by 28 February 1991 (CB 194, 200, Austin J at [80]).

(i) Mr Yardy’s instruction to Mr Nancarrow in February 1991 was treated as an effective decision by the trustee in exercise of the bare power of appointment which (by virtue of the resulting trust found by Austin J at [49]-[50] was in the terms of cl 15 of the 1979 trust deed (set out by Austin J at [17])). In the circumstances, where Mr and Mrs Knudsen were retiring from the company before the normal retirement date, the trustee’s discretion was to:


... deal with the total amount at credit of the Member as they (sic) at their discretion may determine and may at their discretion pay the whole or part thereof to the Member.


(j) Mr Yardy’s instruction to Mr Nancarrow was to do the accounts of the fund so that Mr Knudsen got whatever he was entitled to” (Austin J at [100], based on CB 24-27).

(k) Mr Nancarrow proceeded on the basis that the instruction he received was full and sufficient authority to complete the matter without the need for further recourse to Mr Yardy (Austin J at [104]).

10    In my view, when these primary facts are examined in context they lead to an inference contrary to that drawn by Austin J. That inference is strengthened by reference to the uncontradicted evidence of Mr Nancarrow.

11    One starts with the assumption upon which Austin J proceeded, namely that Mr Yardy was effectively exercising the power under the Rules to pay the whole or any part of “the total amount at credit of the Member”.

12    Mr Yardy may not have realised the possibility that he had a discretion to give the Knudsens nothing, having regard to the fact that they had not reached retiring age. Be that as it may, the evidence points strongly to the fact that what he said to Mr Nancarrow expressed an intention that the Knudsens should get one tenth of the net assets of the fund (after return to Mr and Mrs Yardy of their employee contributions). It had always been the common understanding of the parties, including the Knudsens, that this would be the way that the fund would be distributed, after the taxation benefits were (properly) exploited and after the special reserve was exhausted (see par 9(g) above). That shared understanding did not amount to a binding agreement or estoppel (as Austin J concluded) but it was nevertheless a genuine common resolve.

13    Both Mr Yardy (CB 112) and Mr Nancarrow (CB 48) gave evidence that the 9:1 ratio was actually spoken about at the time the instruction was given.

14    Mr Yardy was found to be a less than satisfactory witness and his cross-examination showed him unable to accept or appreciate the difference between a background assumption and the express terms of a conversation (CB 24-25, 33). As Stein JA points out, the repeated assertion that Mr Knudsen was to be paid “whatever he was entitled to” assumed the character of a mantra. It cast little light upon the ultimately critical issue, beyond reinforcing my clear impression that Mr Yardy was not intending to be generous to the Knudsens. The actual distribution corroborates this, reflecting as it does the impact of the $115,000 abstraction.

15    However, I see no basis for discounting or rejecting the evidence of Mr Nancarrow, whom Austin J appears to have accepted as an honest and generally reliable witness (see at [65], [66], [76]). The following evidence is important, all of it coming from Mr Nancarrow’s cross-examination:

Q. Mr Yardy, in effect, said to you work out their benefits on the 9:1 ratio and draw a cheque, something to that effect?
A. Mr Yardy did not want to pay them anything. It was my suggestion that over the years we had been talking about 9:1 ratio and that should be the minimum. After that suggestion, Mr Yardy said go ahead and do a calculation and pay that.
Q. At the end of the day when the moment came to pay them, what was decided was that they would be paid whatever was standing to the account on that particular calculation?
A. Based on the 9:1 ratio. (CB 48-9)
Q. You understood at the end of February that any withdrawal payment to the Knudsens would be made pursuant to Rule 10.4, is that correct?
A. I am not sure. The 9:1 ratio was always ---
Q. In your mind?
A. In focus, yes.
Q. You said you conducted the accounting exercise?
A. After the decision had been made to pay on the 9:1 basis and the accounting exercise to provide the fund up to date and to determine those figures. (CB 50)
Q. The 9:1 ratio had already been effected a little earlier by changes to the account which occurred in response to the withdrawal of the $115,000, is that correct?
A. That’s correct.
Q. That happened in the second half of 1990?
A. Yes.
HIS HONOUR: So allocation of interest would be automatically on a 9:1 basis?
DODSON: Yes, your Honour.
DODSON: Q. You made changes to that allocation for the 1990 accounts, that is the 9:1 change?
A. Yes.
Q. And you simply brought that up to date?
A. That’s right.
Q. As at 28 February 1991?
A. Yes. (CB 51)

16    It is significant that the final question and answer in the cross-examination of Mr Nancarrow was:

Q. When it came to the calculation of the entitlement at 28 February 1991, really the only consideration was: Do the funds reflect this 9:1 ratio, if so, pay them whatever stand to their credit.
A. That’s correct. (CB 59)

17    Mr Nancarrow’s first answer in the extracts quoted at par 15 above is doubly important. It confirms that Mr Yardy was not in a generous mood, which is hardly surprising given the animosity between the parties and the pending litigation. And it confirms that the 9:1 ratio was actually spoken about.

18    It is reading too much into Mr Yardy’s mantra-like answers about giving Mr Knudsen his entitlement to see them as a reference to an entitlement to be paid according to a method of accounting already abandoned by both Mr Yardy and Mr Nancarrow by the time that the Balance Sheet for the year ended 30 June 1990 (CB 156) was prepared (see par 9(c)). Granted that there is an ambiguity in Mr Yardy’s evidence, I see no reason why (in the context) the Knudsens’ “entitlement” was not viewed as that based on the actual common understanding of all parties already reflected in the 30 June 1990 Balance Sheet, as distinct from a figure in a reconstructed Balance Sheet prepared on the same basis as the 30 June 1989 Balance Sheet.

19    The way Mr Nancarrow went about performing his instruction does not colour or change the objective terms of the instruction or the context in which it was given. But on balance it supports the appellants rather than the respondents. Mr Nancarrow had no reason at the time to think that the basis upon which the 1990 Balance Sheet had been prepared was flawed. In any event, the flaw that it contained (ie relating to the $115,000 abstraction) was irrelevant to the present exercise except as it affected the bottom line. Conversely, Mr Nancarrow had every reason to assume that the ultimate intent of all parties was to distribute the net fund according to the 9:1 ratio.

20    Austin J held (at [104]) that:

Mr Nancarrow proceeded to make calculations of the amounts standing to the credit of the plaintiffs’ employer contribution accounts on the manifest assumption that those full amounts would be paid out. I infer that Mr Nancarrow understood Mr Yardy’s instruction in terms of interpretation (d).

21    The first sentence is correct but the inference is not the one which I draw. The 28 February 1991 Balance Sheet was merely an update of the 30 June 1990 Balance Sheet. It reflected the same assumptions, including the validity of the $115,000 “returned to employer” figure. Mr Nancarrow obviously treated the employer account figures as the balancing item on the asset side of the ledger (after exhaustion of the special reserve). In light of his understanding that the Rules gave Mr and Mrs Yardy the right to repayment of their own contributions, Mr Nancarrow obviously interpreted the 9:1 understanding as applicable to surplus remaining after distribution of moneys standing to “Employee Account” to the employee(s) entitled. Unlike Mr and Mrs Yardy, Mr and Mrs Knudson had not made any employee contributions (Austin J at [82]-[84]). (I do not believe that the respondents have ever challenged Mr and Mrs Yardy’s right to repayment of their own employee contributions.)

22    The agreed facts and mutual understandings effectively proceed on the same assumption as Mr Nancarrow did, ie as confining the 9:1 apportionment to the total standing to the credit of the combined “Employer Account”, subject to a writing back of the $115,000 abstraction.

23    Viewed this way, Mr Nancarrow’s actions in response to Mr Yardy’s instruction support the appellants and not the respondents. He was in effect arranging to pay out the Knudsens with 10% of the available surplus in the fund.

24    According to Austin J, interpretation (d) was “the amounts standing to the credit of [the plaintiffs’] employer contribution accounts, whatever those amounts may be”. In argument before us, the respondents suggested the insertion of “properly” before “standing to the credit”. Even with this adjustment, there is an ultimate ambiguity with such a notional instruction, once it is realised that the total sum shown in employer contribution account was essentially a balancing item reflecting the net assets of the fund after deduction of employee accounts. The critical matter, as regards the Yardys and the Knudsens, was how that “Employer Account” was to be shared among them. The Kundsen’s interpretation of the instruction, as accepted by Austin J, was that the sharing be in accordance with the pre-1990 accounting arrangement, ie proportionate to salaries (see par 9(a) above).

25    Interpretation (d) does not in terms reflect this. Nor a fortiori did Mr Yardy’s instruction.

26    The respondents’ case would concentrate on their “entitlements” as they see them. It fails to address the fact that a consequence of their approach is that Mr and Mrs Yardy would end up with less than 90% of the net fund, despite the common understanding that this would be the way it would be dealt with (albeit a non-binding understanding). The sum remaining would bear no relationship to any “right” of the Yardys to qualify to be paid their “full entitlement” under the Rules.

27    The respondents’ case also fails to grapple with the fact that, even if the Balance Sheet had continued to show “employer contributions” in favour of the respondents at the levels appearing in the 1989 Balance Sheet, that would have created no present entitlement to the sums shown there. Any entitlement depended on the Rules.

28    During the hearing of the appeal, senior counsel for the respondents accepted that payment to Mr and Mrs Knudsen of a sum representing 10% of the net assets of the fund would not have involved any income tax difficulty (Tr pp 66-67). I think that this concession was properly made when it is remembered that distribution of nothing to the Knudsens would not have involved a breach of the express terms of the Rules. (Depending on the circumstances it might have involved an abuse of discretion by the trustee, but that issue was not explored to finality.)

29    The appeal should therefore be allowed.

30    The appellants should pay the costs of the Motion to adduce further evidence and to be relieved of their undertakings, being the Motion dismissed on 21 June 2001. The respondents should pay the appellants’ costs of the appeal excluding the costs of the lengthy first set of written submissions.

31    The parties should be directed to file Short Minutes of Order within 7 days. If the parties cannot agree on orders each should file the preferred version together with supporting written submissions within a further 7 days.

32    STEIN JA:

Introduction

33    The appellants, Kara Kar Holdings Pty Ltd, William Yardy and Jennifer Yardy, appeal from judgments of Austin J delivered on 21 July and 19 October 2000.

34    The litigation concerns the proceeds of the Kara Kar Employees Pension Fund, of which the first named appellant company is the trustee. The second and third named appellants are employees and officers of the first appellant and controlling shareholders The respondents, Neils Knudsen and Suchindra Knudsen, are former employees of Kara Kar.

35    The proceedings were commenced by the respondents in 1991 and have followed the tangled, indeed tortuous, history outlined by Austin J in his initial judgment of 21 July 2000. By now the legal costs of the parties have well and truly exceeded the amount at stake.

Notice of Motion of the Appellants

36    Before proceeding to the substance of the appeal, it is necessary to provide reasons for the courts’ dismissal on 21 June 2001 of a Notice of Motion brought by the appellants. The motion sought three orders:

(a) leave to adduce further evidence on the appeal;

(b) leave to raise on appeal the issue of whether the appellants ought be relieved from certain undertakings given to Austin J; and

(c) leave to amend the Notice of Appeal by adding grounds 17A and 17B set out in the Notice of Motion.

37    The further evidence is contained in an affidavit sworn 29 May 2001 by Mr De Meyrick of counsel. In brief, the deponent says that on the 11 August 1999 he erroneously consented to undertakings given to the court (numbers 2 and 3) because he did not realise that they had been changed to a form which he had neither sought nor agreed, (para 16). He did not realise his error when the matter was finally before his Honour on 19 October 2000, (para 26). Indeed, he only appreciated the situation when he was asked to review the papers shortly before the swearing of his affidavit on 29 May 2001.

38    Leading counsel for the appellants accepted that the motion involves the receipt of fresh evidence by the court. In GreaterWollongong CC v Cowan (1955) 93 CLR 435 Dixon CJ stated that the law governing the receipt of fresh evidence was not in doubt. Putting to one side cases of fraud, not here relied on, Dixon CJ said at 444:

… it is essential to give effect to the rule that the verdict, regularly obtained, must not be disturbed without some insistent demand of justice. The discovery of fresh evidence in such circumstances could rarely, if ever, be a ground for a new trial unless certain well-known conditions are fulfilled. It must be reasonably clear that if the evidence had been available at the first trial and had been adduced, an opposite result would have been produced or, if it is not reasonably clear that it would have been produced, it must have been so highly likely as to make it unreasonable to suppose the contrary. Again, reasonable diligence must have been exercised to procure the evidence which the defeated party failed to adduce at the first trial.

39    Further, at 445, quoting from Orr v Holmes (1948) 76 CLR 632 at 642:

The evidence must be so persuasive of the existence of the fact it tends to prove that a finding to the contrary, if it had been given, would, upon the materials before the court, appear to have been improbable if not unreasonable.

40    See also Barwick CJ in McDonald v McDonald (1965) 113 CLR 529 at 532 - 533 and Kervan Trading Pty Ltd v Mercantile Mutual Insurance (Aust) Ltd [2000] NSWCA 356 per Davies AJA at paras 38 - 41.

41    None of the requirements specified in Cowan have been met in this case. Nor can it be said that the interests of justice require that the court permit the evidence to be lead on the appeal. Indeed, the interests of justice may, bearing in mind the history of the litigation, the amount at stake, the costs thus far incurred and the need to hear contested evidence on the motion, militate against allowing the fresh evidence. In any event, it should be noted that the undertakings, on their face, include the power to seek to be relieved of the undertakings, in whole or in part. No such application was made. The appellants should pay the respondents’ costs of the motion.

Construction of Undertakings 1 and 6

42    I turn to the first issue arising on the appeal, which is the construction of the undertakings, numbered 1 and 6. The undertakings given to the court on 11 August 1999 by the parties are as follows:

UNDERTAKINGS


We, Niels Knudsen, Suchindra Knudsen, William Yardy, Jennifer Yardy and Kara Kar Holdings Pty Ltd, by our duly appointed solicitors hereby severally undertake to the Court, subject to the Court’s power to relieve any of us from any part of these undertakings, and without prejudice to our rights of appeal, as follows:

Defendants undertakings

1. If the question numbered 2 in Annexure A is answered “Yes” the defendants will consent to judgment for the first plaintiff in the sum of $57,099 (being the sum of $66,112 less the sum of $9,013 already received by way of withdrawal benefit) and for the second plaintiff in the sum of $26,741 (being the sum of $30,336 less the sum $3,595 already received by way of withdrawal benefit) together with interest on each judgment at the rates and during such periods as are agreed between the parties, or in default of agreement, as are determined by the Court.

2. If the question numbered 4 in Annexure A is answered “Yes” the first defendant will consent to judgment for the plaintiffs in such sums as are decided by the Court in answer to question 3 (the first and second plaintiffs giving credit for the sums of $9,013 and $3,595 received by them respectively as withdrawal benefits) together with interest on each judgment at the rates and during such periods as are agreed between the parties, or in default of agreement, as are determined by the Court.

3. If the question numbered 6 in Annexure A is answered “Yes” the first defendant will consent to judgment for the first plaintiff in the sum of $57,099 (being the sum of $66,112 less the sum of $9,013 already received by way of withdrawal benefit) and for the second plaintiff in the sum of $26,741 (being the sum of $30,336 less the sum $3,595 already received by way of withdrawal benefit) together with interest on each judgment at the rates and during such periods as are agreed between the parties, or in default of agreement, as is determined by the Court.

4. If the question numbered 7.1 in Annexure A is answered “Yes” the first defendant will thereupon take all necessary and appropriate steps to exercise the discretion referred to in question 7.1 in accordance with law and notify the plaintiffs in writing of its decision within 28 days (or such longer periods as is agreed between the parties or permitted by the Court).

5. If the question numbered 7.2 in Annexure A is answered “Yes” the defendants will within 28 days (or such longer period as is agreed between the parties or permitted by the Court) do all things necessary to comply with and carry into effect the Court’s exercise of the trustee’s discretion.

6. If the question numbered 10.1 in Annexure A is answered “Yes” the defendants will consent to judgment for the first plaintiff in the sum of $57, 099 (being the sum of $66,112 less the sum of $9,013 already received by way of withdrawal benefit) and for the second plaintiff in the sum of $26,741 (being the sum of $30,336 less the sum $3,595 already received by way of withdrawal benefit together with interest on each judgment at the rates and during such periods as are agreed between the parties, or in default of agreement, as is determined by the Court.

7. If the question numbered 10.2 in Annexure A is answered “Yes” the first defendant will thereupon take all necessary and appropriate steps to exercise the discretion referred to in question 10.2.1 in accordance with law and notify the plaintiffs in writing of its decision within 28 days (or such longer period as is agreed between the parties or permitted by the Court).

8. If the question numbered 10.2.1 in Annexure A is answered “Yes” the defendants will within 28 days (or such longer period as is agreed between the parties or permitted by the Court) do all things necessary to comply with and carry into effect the Court’s exercise of the trustee’s discretion.

Plaintiffs undertakings

9. If the answers to the questions in Annexure A have the consequence that

9.1 the first defendant is not required to pay any sum or consent to judgment in any sum; and

9.2 the first defendant is not required to exercise any discretion
according to law; and

9.3 the Court, declines to exercise any discretion of the trustee or
alternatively exercises such a discretion against making a
payment of any amount or proportion of any sum to either
plaintiff;

the plaintiffs will consent to judgment in favour of the defendants in the suit. [My emphasis added]

43    The appellants submit that Austin J erred in not concluding that, on the true construction of undertakings 1 and 6, all of the appellants (the defendants below) consented to judgment being entered in the stated circumstances and in the amounts specified, but only against the first appellant Kara Kar Holdings Pty Limited in its capacity as trustee. It is submitted on behalf of the appellants that the terms of the undertakings are ambiguous, admitting of more than one construction. Accordingly, the trial judge should have taken certain factors into account in construing the intention of the parties.

44    It is the appellants’ submission that if there is to be a judgment for the respondents (the plaintiffs below) it should be a judgment against the first appellant alone. Secondly, it is submitted that, in that event, the company should only be required to pay the verdict moneys out of the trust fund, which I may add has no funds. This submission is put as a matter of construction of the agreement contained in the undertakings.

45    This latter construction must be rejected. There is nothing in the undertakings which indicates any limitation on the liability of the first appellant (described as the first defendant in the undertakings). In particular, there is nothing to suggest that the first defendant’s consenting to judgment involved only paying the judgment out of the Pension Fund. There is nothing in the pleadings which raises such a defence. There is no reason, given the plain words used in the undertakings, to read into them what is suggested by counsel for the appellants, nor is any such limitation to be spelt out of the separate questions which his Honour was asked to determine.

46    A trustee is prima facie personally liable and it cannot be demonstrated from the undertakings or the nature of the trust that any judgment against the trustee should be made only against the assets of the trust. See Muir v City of Glasow Bank (1879) 4 App Cas 337 and Re Anderson Ex Parte Alexander (1927) 27 SR (NSW) 296 at 300.

47    Austin J stated that he did not regard the undertakings as ambiguous. However, the following matters are relied upon in support of the appellants’ submission that his Honour erred in not concluding that, on a true construction of undertakings 1 and 6, all of the appellants consented to judgment being entered (in the stated circumstances and amounts) but did so only as against the first appellant:

(a) The first appellant was originally joined in 1991 in the winding-up summons, and later as the employer of the first respondent in his claim for wrongful dismissal. It remained a party in its role as trustee of the company pension fund. The second and third appellants were joined, but not as trustees of the fund, which they were not. They were however potential beneficiaries of the fund.

(b) The central allegation in the Statement of Claim, paras 7 and 8, alleged that the first appellant, as trustee of the Trust, acted in the manner alleged. See also paras 9, 10 and 12 and declarations sought 2, 5, 6 and 7.

(c) No relief was sought against the third appellant (Mrs Yardy) in the Statement of Claim. The only relief sought against the second appellant (Mr Yardy) is to be found in prayer 1 and this had become redundant by the time of the trial before his Honour. [Prayer 4 in the Statement of Claim is incomprehensible and was never sought to be amended].

(d) Separate defences were filed by the first appellant, in its trustee capacity, and by the second and third appellants.

(e) On 3 August 1999 the second and third appellants filed a Notice of Submission to the court’s judgment.

(f) The Statement of Separate Questions for Determination by the court are all expressed in terms of whether the Trustee (that is the first appellant) is obliged to pay certain amounts. They contain no suggestion that the second and third appellants had any personal liability to pay. See, for example, questions 2, 4, 5, 6, 7, 9 and 10.

(g) The undertakings given by the respondents refer solely to the first appellant. This, it is submitted, is indicative that the parties anticipated that it could only be the first appellant who would be required to pay any judgment. It is relied upon as demonstrating the intention of the parties.

(h) The respondents conceded in their written submissions at trial (para 9) that Mrs Yardy was only joined as a necessary party and was not shown to be responsible for any wrongful conduct.

48    Because of this court’s dismissal of the Notice of Motion, the appellants are obliged to accept the wording of undertakings 2 and 3 and any effect that they may have on the construction of the balance of the undertakings.

49    His Honour’s construction is to be found essentially in para 18 and the succeeding paragraphs of the judgment of 19 October 2000.

50    Paragraph 18 is as follows:

I cannot accept the defendants’ construction of the undertaking. The undertakings were drafted with legal assistance during the course of a hotly contested hearing in circumstances where it was clear that each party would conduct the remainder of the litigation in reliance upon the precise terms of the undertakings given by the other. It would have been a simple matter for the document to say, if it was the defendants’ intention, that the defendants would consent to judgment being entered in favour of the third defendant as trustee if the relevant circumstances came to pass. But the document simply says that the defendants (by implication, all of them) would consent to judgment. In the absence of any qualifying phrase that statement is to be construed as meaning that the defendants would consent to judgment against all of them. That construction is reinforced by comparing the defendants’ undertaking number 1 with, for example, undertakings 2 and 3, which specify that it is only the first defendant who consents to judgment in the stated circumstances.

51    In my opinion, there is an ambiguity in the meaning of the undertakings given. Were all of the parties joining into the possible form of judgment simply because they were parties? Indeed, the appellants were related parties since the second and third appellants were employees, officers and controlling shareholders of the first appellant. Or were the appellants agreeing (in the events which might be found) to judgment being entered for the agreed money amounts in relation to each of them, and not just against the first appellant company? This constitutes, in my view, an element of uncertainty. It is therefore necessary to endeavour to ascertain the intention of the parties.

52    Leaving aside undertakings 2 and 3, there is, in my opinion, much substance in the submissions made on behalf of the appellants. That the appellants had legal assistance in the drafting does not really take much away from the substance of the submission. The history of the litigation is indicative that no relevant relief was ever sought or contemplated against the third appellant and only in a limited fashion against the second appellant, which had ceased to be material by the trial before Austin J. Having regard to the pleadings, the Separate Questions for Determination, the way in which the case was run at trial, and the content of the undertakings themselves, the construction urged on the court by Mr Forster is to be preferred.

53    His Honour placed reliance on the contrast between undertaking 1 (which referred to the defendants plural) and undertakings 2 and 3, which specified only the first defendant. However, in light of all of the factors mentioned above which favour the appellants’ construction, I do not think that the singularity of undertakings 2 and 3 are such as to defeat the construction relied on by the appellants. For example, it is difficult to see any rational reason for the difference in wording between undertakings 1 and 2 or 1 and 3 respectively. It is hard to perceive that there would have been some ‘sensible commercial justification’ for the difference.

54    The court should not readily construe an ambiguous undertaking so as to subject the second and third appellants to personal liability when, for all intents and purposes, no allegations of breach of trust were made against them nor any substantive relief sought against either of them. Moreover, they have submitted to orders. In my view, it was never the intention of the parties that the second and third appellants be personally liable to judgment against them. They were joined into the undertakings because they were parties to the litigation and intimately related to the first appellant company. To the extent that there is doubt in construction, it should be resolved in favour of the second and third appellants.

Was there a legally binding agreement or arrangement?

55    The appellants submit that there was a legally binding agreement or arrangement that the benefits of the pension fund be shared in the proportion of 9:1, that is 90% to the Yardys and 10% to the respondents.

56    In relation to this issue, his Honour referred to the evidence of the company’s accountant, Mr Nancarrow. However, he said that given that there was a documentary account of the ‘understanding’ in the 1989 financial statements, he would not rely on Mr Nancarrow’s evidence to discern ‘the precise terms of the arrangement’.

57    The ‘Information for Members’ attached to the 1989 financial statements included the following notes:

(a) Amounts equal to the maximum permissible contributions are being transferred each year from the Special Reserve to individual member’s accounts.

(b) It is envisaged that the ultimate retirement benefits payable to the Yardy and Knudsen families will be in proportion to their shareholding ratio.

(c) Before the object in (b) can be achieved , the Special Reserve has to be used up . After that happens Company contributions can be structured to achieve the desired result . [My emphasis]

58    His Honour continued:

The notes make it clear, in my view, that there was an understanding about the 9:1 proportion, and also that as a matter of construction, the understanding was not legally binding. What is recorded in the notes is a proposal which is ‘envisaged’. The proposal is acknowledged to be an option which cannot be achieved until the happening of a future event, namely the using up of the special reserve. Once that event occurs, it will be necessary for contributions to be ‘structured’ to achieve the desired result. The method of implementation is not addressed.

59    In my view, these were findings which were available to his Honour to make. His Honour was not bound to discern an agreement out of Mr Nancarrow’s evidence. Indeed, it is unsurprising that his Honour would prefer to rely on a document rather than attempt to ascertain the terms of an agreement or arrangement from the oral evidence of a third party given so many years after the event. There was simply insufficient evidence before the court to establish the contract or arrangement contended for by the appellants. The words in the notes to the accounts plainly rose no higher than to demonstrate the existence of a proposal which, if implemented by the structuring of company contributions, would affect ‘retirement benefits’. Whether the notes to the accounts are consistent or inconsistent with the agreement or arrangement contended for by the appellants is immaterial to whether such an agreement or arrangement was established. His Honour was entitled to find that the evidence did not establish such an agreement or arrangement as alleged.

60    In any event, the submission of the appellants seems to be inconsistent with the Statement of Agreed Matters upon which the trial before his Honour proceeded. In particular, it appears to be inconsistent with agreed facts 6 and 7 which are as follows:

6. There were notations in the 1987 and 1989 accounts concerning the 9:1 ratio of retirement benefits. As the special reserve had not been exhausted, all that was indicated in these accounts was that Mr Knudsen and Mr Yardy had given intellectual assent to the proposition that if the special reserve had been used up there would be a restructuring to obtain the 9:1 ratio. That had not come to pass and never came to pass. Mrs Yardy, and Mrs Knudsen and Kara Kar Holdings Pty Ltd had not input into that understanding. The amounts in the fund were not beneficially held in a nine to one ratio.

7. By not bringing the $115,000 to account and in indicating that it wished to proceed on the nine to one ratio, the trustee was in breach of trust.

61    His Honour recorded that the parties invited the court to treat the Statement of Agreed Matters as mutual admissions.

Are the respondents estopped?

62    Alternatively, it is argued by the appellants that the respondents are estopped from denying the existence of any such binding agreement or arrangement. His Honour noted that, in the event that he rejected the appellants’ submission that there was a legally binding contract or arrangement, it was contended that the evidence established an equitable estoppel which prevented the respondents denying the arrangement.

63    His Honour concluded that the facts did not support the alternative contention. He said:

… The arrangement was at its highest, an arrangement anticipating a restructuring of the beneficial interests in the fund once the special reserve had been used up. In fact, by the time the special reserve was used up by virtue of the interim financial statements of 28 February 1991, the defendants had caused the circumstances to change by bringing about the termination of Mr Knudsen’s employment and by taking steps to pay out the plaintiff’s existing entitlements in the fund. Since the defendants had fundamentally departed from the arrangements, it could not be inequitable for the plaintiffs to resile.

64    Bearing in mind his Honour’s finding as to the ‘arrangement’ (which, as I have said, was open to be found on the evidence) Austin J was entitled to conclude that the appellants had fundamentally departed from the arrangement. The appellants had terminated Mr Knudsen’s employment and on 1 March 1991 taken steps to pay out the respondents’ existing entitlements in the fund. His Honour was entitled to conclude that it would not be inequitable for the respondents to resile.

65    It may be noted that estoppel was not pleaded and also appears to be inconsistent with the agreed admissions (6 and 7). It is apparent, however, that the appellants had fundamentally departed from the ‘arrangement’ so that the respondents were not estopped from declining to be bound by the arrangement.

The decision to pay the respondents 10% of the fund

66    The appellants submit the trial judge should have concluded that Mr Yardy was not purporting to exercise the discretion of the trustee. According to the submission, he was simply giving effect to the parties’ agreement as to the manner in which the fund was to be distributed. They submit, in the alternative, that if Mr Yardy was exercising the discretions of the trustee, he was doing so with the intent that the respondents receive 10% of the net assets of the fund. Further, it is put that his Honour erred in his construction of the Rules governing the trust fund and in his interpretation of Mr Yardy’s decision.

67    His Honour is said to be in error in his construction of the Rules in making the following findings:

(a) that the Yardys and the Knudsens were Category B members pursuant to clause 8.1 of the Rules;
(b) that Schedule 4 was silent as to the proportion (if any) of the employer’s contributions to which members might be entitled pursuant to clause 10.4 of the Rules;
(c) that the drafter of the deed had overlooked inserting some percentage in the “gap” in Schedule 4;

(d) that the drafter of the deed had “obviously intended” to insert a “vested interest” in that “gap”;

(e) that the proportion implied for inclusion in Schedule 4 was something other than zero but something less than 100%;
(f) that the parties’ 9:1 agreement or arrangement was not relevant to the incompleteness of Schedule 4; and
(g) that, whilst the 1979 deed had been rescinded and comprehensively replaced by the 1990 Rules, the “gap” in Schedule 4 could be filled by clause 15 of that 1979 deed.

68    In my opinion, the above findings were available to his Honour, either on the evidence presented or by reason of inferences which could properly and reasonably be drawn.

69    On the alternative argument that Mr Yardy was exercising the discretions of the trustee in making the payment to the respondents pursuant to cl 15 of the 1979 trust deed, it is submitted that his Honour erred in finding that the decision made by Mr Yardy was to pay to the respondents what his Honour referred to as option (d).

70    In para 102 his Honour said:

Assuming that Mr Yardy’s decision was the decision of the trustee, exactly what decision did he make? Did he decide to pay the plaintiffs (a) only the amounts that the trustee was obliged to pay them, because they were entitled to those amounts; or (b) the specific amounts calculated by Mr Nancarrow, no more and no less; or (c) amounts calculated to represent 10 percent of the net value of the fund; or (d) the amounts standing to the credit of their employer contribution accounts, whatever those amounts may be?

71    His Honour rejected interpretations (b) and (c). He said that (b) was incorrect because the instruction was given by Mr Yardy to Mr Nancarrow before the calculations were made. Therefore, Mr Yardy could not at that time have had specific amounts in mind.

72    Moreover, Mr Yardy repeatedly stated in cross-examination that Mr Knudsen was to be paid whatever he was entitled to, rather than a specific amount to be calculated. Indeed, Mr Yardy repeated this statement on five or six occasions, almost like a mantra. Interpretation (c) was, according to Austin J, also incorrect as it was inconsistent with that same evidence, ‘given that the trust instrument did not define existing entitlements by reference to the 9:1 proportion and the notes to the 1989 financial statements spoke in terms of a future intention rather than present rights’.

73    I interpolate that the appellants submit that the evidence overwhelmingly supports the conclusion that the decision made by Mr Yardy was that set out in option (c) above.

74    Having rejected interpretations (b) and (c), his Honour turned to consider interpretations (a) and (d). He found as follows:

104. Difficult though it is to make sense of the unsatisfactory evidence, I have decided that the correct interpretation is interpretation (d). I reach this conclusion in reliance on Mr Nancarrow’s conduct after he received Mr Yardy’s instruction. If he had taken Mr Yardy to mean interpretation (a), sooner or later he would have found it necessary to revert to Mr Yardy for clarification. This is because the entitlement of the plaintiffs (which, on this view, was the basis for paying them) was not set out in the trust instrument in view of the failure to complete Schedule 4; and moreover, on its face Clause 10.4 gave the trustee a discretion to increase the amount beyond the member’s entitlement. A reasonable person in Mr Nancarrow’s shoes would have drawn these issues to the attention of Mr Yardy and asked him for a decision to clarify his view as to the plaintiff’s entitlement. This did not happen. Instead, Mr Nancarrow proceeded to make calculations of the amounts standing to the credit of the plaintiffs’ employer contribution accounts on the manifest assumption that those full amounts would be paid out. I infer that Mr Nancarrow understood Mr Yardy’s instruction in terms of interpretation (d). That being so, I infer that interpretation (d) is the correct interpretation of the instruction that Mr Yardy gave.

105. It follows in my view, that Mr Yardy authorised Mr Nancarrow to calculate the correct credit balances in the plaintiffs’ employer contribution accounts, and to make arrangements for payment of the full amounts of those credit balances. For reasons that I have given, the full amounts of the credit balances were substantially greater than the amounts calculated by Mr Nancarrow. Nevertheless Mr Yardy’s instruction, in its terms, authorised the payment of those full amounts. If Mr Yardy’s instruction constituted a decision by the trustee, it can only have been a decision taken in exercise of the available discretionary power, namely the power conferred by Clause 15 of the 1979 trust deed. Clause 15 in terms authorised the trustee to decide to pay the full credit balance of the employer contribution account to the member, and therefore authorised the trustee to give the instruction which Mr Yardy in fact gave.

75    In rejecting interpretation (c) it is submitted that his Honour took evidence out of context and failed to take account of other evidence which he had in fact referred to in paragraph 100. It is submitted that what Mr Yardy meant, when he said that whatever Mr Knudsen was entitled to, he got paid, was that the respondents were to receive whatever amounts Mr Nancarrow calculated to be their entitlements on the basis that they were to receive 10% of the net value of the fund.

76    Although the trial judge was critical of the credibility of Mr Yardy’s evidence, unless it was against his interests, his Honour accepted that Mr Yardy acted in good faith as trustee and that his decision was neither capricious nor taken for an improper purpose.

77    In preferring interpretation (d) it is clear that his Honour was referring to the amounts properly standing to the credit of the employers contribution accounts.

78    In paragraph 93 his Honour said:

The first step involved recalculating and altering the amounts standing to the credit of the plaintiffs’ employer contribution accounts. The findings which I have already made imply that before the alterations, the accounts reflected the employer contributions made in respect of each of the plaintiffs over the period from 1979 to 1989, and the investment income attributable to those contributions. Under both trust instruments, the trustee was obliged to credit the full amount of each contribution by the employer, in respect of a member designated by the employer, to that member’s account. There was simply no discretion in the trustee to do otherwise, nor any discretion to alter or reverse accurate entries once they were made. … But if one assumes (as I have held) that the figures in the 1989 accounts accurately reflected the allocation of employer contributions and investment income to each of the members’ accounts, then the purported reduction of the plaintiffs’ accounts was unwarranted and ineffective. The fact that Mr Yardy or Mr Nancarrow or even the board of directors of the trustee had by 1990 formed the view that the plaintiffs’ employer contribution accounts had been built up on the wrong principle did not provide any justification for the reductions, given the terms of the relevant trust instrument.

79    It is the submission of senior counsel for the respondents that, in effect, the trial judge found that Mr Yardy was saying in his evidence that he wanted the respondents to receive their entitlements as per the books of account as they should be correctly written up. Mr Nancarrow wrote up the books in a manner he thought correct, but was in fact incorrect. The respondents were then paid out the full amounts in the (incorrectly written up) books. While it was Mr Yardy’s intention to pay the respondents out the full amount in the books, his intention was frustrated because the books had been incorrectly altered. Mr Sullivan submits that the steps which were taken to readjust the balance in the accounts was improper, indeed in breach of trust. In adopting interpretation (d), his Honour was looking at the objective conduct of what was done, eg what Mr Nancarrow did in purporting to carry out his instructions from Mr Yardy.

80    While Mr Yardy, in exercising his discretion as trustee of the fund, may have been entitled to give the respondents nothing, he was clearly intending to give them something.

81    On behalf of the respondents, Mr Sullivan also submits that his Honour was entitled to rely on the evidence he did in rejecting interpretation (c). This was because the books had been written up on the 9:1 basis before the conversation was deposed to and his Honour had found that the understanding was that the 9:1 basis only operated upon the happening of a specified contingency, which had not occurred. While Mr Nancarrow thought that he was writing up the books in the correct way, in fact he was not. Mr Sullivan further submits that his Honour was making a factual finding of what Mr Yardy meant, which was one open to him and which this court ought not interfere, given that his Honour was exposed to the atmosphere of the trial and, in particular, his Honour’s assessment of Mr Yardy’s demeanour and evidence. See Warren v Coombes (1978 - 1979) 142 CLR 531. See also Rosenberg v Percival (2001) 75 ALJR 734 at 738 - 739 and 741.

82    Even if Mr Yardy believed that what the respondents were paid was the right amount, that is irrelevant. The trustee intended that the respondents be paid the balances which the books showed but balances which were truly reflected by proper accounts. His Honour’s analysis of Mr Yardy’s intention was clearly one made in the light of his abovementioned finding that he would assume that Mr Yardy was acting in good faith and not for any improper purpose.

83    I do not accept that the relevant finding of his Honour, preferring interpretation (d) to (c), is overwhelmingly contrary to the evidence. On one view of the evidence his Honour could have accepted interpretation (c). However, it was for his Honour to assess the evidence and, in particular, to discern the intention of Mr Yardy. Accepting that what Mr Yardy said about the respondents being paid whatever they were entitled to, and this was a repeated statement contrary to his interest, it was open to his Honour to conclude as he did. This is all the more so when it is plain that his Honour approached the evidence of Mr Yardy on the basis that he was acting in good faith and for no improper purpose. Indeed, the appellants endorse what his Honour said in these portions of the judgment eg. paragraphs 108 - 112.

84    In my view, his Honour’s finding on interpretation (c) was available on the evidence and reasonably drawn inferences. It is consistent with his Honour’s approach and reasoning on the issues arising in the case. Further, it is a finding which should not be lightly interfered with by this court since we are not in as advantageous position as the trial judge. In relation to Mr Yardy, his Honour had all of the benefits of a trial judge, which are denied to an appellate court. It is plain that his Honour’s view of Mr Yardy’s evidence and his demeanour played a not insignificant part in his conclusion as to what Mr Yardy meant in his evidence.

85    It follows, in my opinion, that this ground of appeal should be rejected.

86    Accordingly, I would propose the following orders:

1. The appeal of the first appellant be dismissed with costs.

2. The appeal of the second and third appellants be allowed and the judgment against them be set aside and a verdict be entered for those parties.

3. The appellants to pay the respondents costs of the Notice of Motion.

4. As between the second and third appellants and the respondents, each party should pay and bear their own costs of the appeal.

5. Order for costs (No 5) by Austin J on 19 October 2000 be confirmed.

87    IPP AJA: I agree with Stein JA in respect of all issues save the interpretation of the decision to pay the respondents 10% of the Kara Kar Employees Pension Fund. I agree with Mason P in regard to the latter issue. I therefore agree with the orders proposed by Mason P.

oOo