Lewis v Nortex Pty Ltd (in liq) - [2004] NSWSC 1143

No judgment structure available for this case.

CITATION: Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2004] NSWSC 1143 revised - 09/12/2005

HEARING DATE(S): 10 - 19 April, 7 - 14 November, 2 - 20 December 2002, 14 - 16, 22 April - 2 May, 16, 17, 19 - 27 June, 10 - 14 & 20 November 2003, 9 - 20 February, 1 - 9 March, 21 April, 11 May and 8 November 2004

JUDGMENT DATE:
29 November 2004

JURISDICTION:
Equity

JUDGMENT OF: Hamilton J

DECISION: See paragraph [202]

CATCHWORDS: CONTRACTS [218] - Particular parties - Principal and agent - Relations between principal and third persons - Other cases - Agent participating with principal in transactions involving breach of trust - Knowing receipt of proceeds of breach of trust - CORPORATIONS [19] - Constitution and legal capacity - Contracts - Other matters - Engagement of solicitors and accountants by one of two directors in proceedings brought at the instance of the other - Ratification by general meeting - Whether effective - CORPORATIONS [291] - Winding up - Liquidator - Appeal from liquidator's decision - Rejection of proof of debt - Nature of proceedings - EQUITY [1] - General principles - Rules and maxims of equity - "Unclean hands" - Corresponding common law maxims relating to illegal conduct - Respective operation of defences of illegality and of unclean hands - Principles relating to application of clean hands doctrine - EQUITY [185] - Trusts and trustees - Powers, duties, rights and liabilities of trustees - Liability for breach of trust - What constitutes a breach of trust and who may be liable - Breach of fiduciary duties - Conflict between duty and interest - Duty not to profit from position - Remedies - EVIDENCE [144] - Burden of proof, presumptions, and weight and sufficiency of evidence - Generally - Sufficiency - Standard in civil proceedings - When fraud alleged - Whether "clear and cogent" proof required - Whether "actual persuasion of its occurrence or existence" necessary before Court can find fact proved - EVIDENCE [216] - Witnesses - Cross examination - When permitted and in general - By whom - Evidence of witness proposed to be contradicted by adversary.

LEGISLATION CITED: The Corporations Law ss 232(2), (4) & (6)
Corporations Act 2001 (Cth) s 251A(6)
Evidence Act 1995 ss 128, 140

CASES CITED: Abdurahman v Field (1987) 8 NSWLR 158
Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1
Amalgamated Television Services Pty Ltd v Marsden [2002] NSWCA 419
Barnes v Addy (1874) LR 9 Ch App 244
Black Uhlans Incorporated v New South Wales Crime Commission [2002] NSWSC 1060
Blundell v Curvers [1999] NSWCA 421
Bray v Ford [1896] AC 44
Briginshaw v Briginshaw (1938) 60 CLR 336
Browne v Dunn (1893) 6 R 67
Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534
Catt v Marac Australia Ltd (1986) 9 NSWLR 639
Chalker v Barwon Coast Committee of Management Inc [2003] VSC 286
Chan v Zacharia (1984) 154 CLR 178
Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373
Danish Mercantile Co Ltd v Beaumont [1951] Ch 680
Day v Mead [1987] 2 NZLR 443
Dering v Earl of Winchelsea (1787) 1 Cox Eq Cas 318; 29 ER 1184
FAI Insurances Ltd v Pioneer Concrete Services Ltd (1987) 15 NSWLR 552
Gascoigne v Gascoigne [1918] 1 KB 223
George v Greater Adelaide Land Development Co Ltd (1929) 43 CLR 91
Government Employees Superannuation Board v Martin (1997) 19 WAR 224
Griffiths v Griffiths [1973] 1 WLR 1454
Helton v Allen (1940) 63 CLR 691
Hill v Rose [1990] VR 129
Idameneo (No 123) P/L v Ticco P/L [2003] NSWSC 538
Idameneo P/L v Ticco P/L [2004] NSWCA 329
In Re Emery's Investment Trusts. Emery v Emery [1959] Ch 410
In re Hulkes. Powell v Hulkes (1886) 33 ChD 552
Jones v Dunkel (1959) 101 CLR 298
Jones v Lenthal (1669) 1 Chan Cas 154; 22 ER 739
Karl Suleman Enterprizes Pty Ltd (in liq) v Babanour (2004) 49 ACSR 612
Lewis v Nortex Pty Ltd [2001] NSWSC 511; (2001) 10 BPR 19,035
Lewis v Nortex Pty Ltd (In Liq) [2002] NSWSC 124
Lewis v Nortex Pty Ltd (In Liq) [2002] NSWSC 143
Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2002] NSWSC 189
Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2002] NSWSC 337
Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2002] NSWSC 1192
Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2003] NSWSC 354
Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2004] NSWSC 121
Loughran v Loughran 292 US 216 (1934)
McKenzie v McDonald [1927] VLR 134
Meyers v Casey (1913) 17 CLR 90
Miller v Miller (1995) 16 ACSR 73
Mills v Mills (1938) 60 CLR 150
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170
Nelson v Nelson (1995) 184 CLR 538
Nocton v Lord Ashburton [1914] AC 932
Nortex Pty Ltd v Lamru Pty Ltd NSWSC 12 August 1997 Master McLaughlin unreported
Pascoe Ltd (in liq) v Lucas (1999) 75 SASR 246
R v Birks (1990) 19 NSWLR 677
Re Jay-O-Bees; Rosseau v Jay-O-Bees [2004] NSWSC 818
Re Nortex Pty Ltd (In Liq) [2003] NSWSC 1036
Rejfek v McElroy (1965) 112 CLR 517
Rochefoucauld v Boustead [1897] 1 Ch 196
Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378
Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262
Southern Area Health Service v Brown [2003] NSWCA 369
Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332
Tinker v Tinker [1970] P 136
Weston v Beaufils (No 2) (1994) 50 FCR 476
I E Davidson "The Equitable Remedy of Compensation" (1982) 13 MULR 349
W M C Gummow "Compensation for Breach of Fiduciary Duty" in T G Youdan (ed) Equity, Fiduciaries and Trusts (1989) 57
Sir Frederick Jordan "Chapters on Equity in New South Wales" (6th ed, 1947) (reprinted in "Select Legal Papers" (1983)) at 115
Meagher & Gummow, Jacobs' Law of Trusts in Australia (6th ed, 1997) at [1334], [1711], [1735]
Meagher, Gummow and Lehane's Equity Doctrines and Remedies (4th ed, 2002) at [3-110], [5-260]
Stephen Odgers, Uniform Evidence Law (6th ed, 2004) at [1.4.100]
F M B Reynolds, Bowstead and Reynolds on Agency (17th ed, 2001) Article 13 [2-047]
4 Scott on Trusts (4th ed, 1989) par 326.3
Lord Walker "Dishonesty and Unconscionable Conduct in Commercial Life - Some Reflections on Accessory Liability and Knowing Receipt" John Lehane Memorial Lecture 2004

PARTIES :
3081/97
Peter Lawrence Lewis (P)
Lamru Pty Ltd (Applicant)
Kation Pty Ltd (Respondent)
Brian Raymond Silvia (Liquidator)
1750/02
Lamru Pty Limited (P)
Kation Pty Limited (D1)
Peter Lawrence Lewis (D2)
Mark Lewis (D3)
Nortex Pty Ltd (In Liq) (D4)

FILE NUMBER(S): SC 3081/97; 1750/02

COUNSEL: S D Rares SC then N A Cotman SC and J T Johnson (P L Lewis & Kation P/L)
S J Motbey (Lamru P/L)
V R W Gray (Liquidator & Nortex P/L)
P R Whitford & M P Cleary (M Lewis)

SOLICITORS: Kemp Strang (P L Lewis & Kation P/L)
Lyons & Lyons (Lamru P/L)
Abbott Tout (Liquidator & Nortex P/L)
Corrs Chambers Westgarth (M Lewis)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

HAMILTON J

MONDAY, 29 NOVEMBER 2004

3081/97 PETER LAWRENCE LEWIS v NORTEX PTY LIMITED (In Liq)
1750/02 LAMRU PTY LIMITED v KATION PTY LIMITED & ORS

JUDGMENT

1 HIS HONOUR:

TABLE OF CONTENTS

Item
Paragraphs

Introductory
1 – 3

The Issues
4 – 7

Background Facts
8 – 16

The Course of the Litigation
17 – 25

The Credit of Witnesses
26 – 33

Issues 1 & 4
1 Whether the $150,000 paid to Hirmanu in 1991 was paid as a distribution of profit to Hirmanu or was borrowed by Lamru and paid by it to Hirmanu?
4 Was Lamru short paid $161, 398 or any sum in 1991?
34 – 56

Issues 2 & 3
2 Whether the differential interest convention is effective?
3 Whether the add backs convention is effective?
57 – 77

Issue 5
Was Lamru short paid $164,121 or any sum in 1992?
78 – 82

Issues 6 & 7
6 Was Lamru short paid $27,026 or any sum in 1993?
7 Was Lamru short paid $3,758.13 or any sum in 1994?
83

Issue 8
8 Was Lamru short paid $38,248.01 or any sum in 1995?
84

Issue 9
What was the free net income in 1996?
85

Issue 10
What was the free net income at 30 June 1997?
86 – 87

Payments to Mark Lewis
88 – 107

Fraudulent taking of stock
108 – 132

Unclean hands defences
133 – 155

Legal and accounting expenses
156 – 169

China creditors
170 – 173

Issue 11
174

Issue 12: Accessorial liability
Whether Kation or Lewis is personally liable to Lamru in respect of any of the breaches of trust
proved
175 – 183

Issue 13
Whether the cross claims against Lamru and Lamb
for contribution or indemnity succeed
184

Issue 14
Whether the cross claims against Lamru and Lamb based on breach of contract or for breach of his duties
as a director succeed
185 – 201

Appeals from liquidator’s decisions on proofs of debt
202 – 203

Conclusions
204 – 205

2 This is a commercial “divorce” case. By that I mean that it arises from the entry of two men into conducting a business together. The business flourished but the relationship turned sour. Upon the separation of the parties they fell into disputation of the utmost acrimony.

3 The men in conflict are Peter Lawrence Lewis (“Lewis”) and Russell William Lamb (“Lamb”). The business was a business of wholesaling manchester. It was conducted through a trading trust, which was a unit trust, known as the Nortex Unit Trust (“the trust”). This was governed by a deed (“the trust deed”). The trustee of the trust was Nortex Pty Ltd (“Nortex”). Prior to 1991 the “partners” in the business were Lewis and one Graeme Dufty (“Dufty”). Their respectively controlled companies, Kation Pty Ltd (“Kation”) and Hirmanu Pty Ltd (“Hirmanu”) owned 53 per cent and 47 per cent respectively of the issued units in the trust. Lewis and Dufty were also the only directors and shareholders of Nortex. Kation and Lewis appeared by the same representatives at the trial and are together referred to as “the Lewis interests”. During 1991, there were negotiations between Lewis, Dufty and Lamb with a view to Lamb acquiring a share in the business. In the end, Lamru Pty Ltd (“Lamru”), a company controlled by Lamb, acquired 40 per cent of the units in the trust from Hirmanu and Lamb became a director and shareholder of Nortex in Dufty’s stead. Lewis, however, retained the majority of voting shares in that company. Lamb physically departed from the business on 28 June 1996, but remained a director of Nortex and holder of units in the trust. Lewis’ son, Mark (“Mark Lewis”), also worked in the business. His position was a subject of conflict between Lewis and Lamb. In September 1996, Lamru gave to Nortex a statutory notice of demand under the Corporations Law, but this did not lead to the winding up of the company. In June 1997 Lamb withdrew a guarantee of obligations of Nortex that he had given to the Bank jointly and severally with Lewis. Not long afterwards, Nortex was wound up and Brian Raymond Silvia was appointed its liquidator.

THE ISSUES

4 At the end of the evidence, the issues arising at the suit of Lamru were formulated by agreement between the parties as follows. These have formed the principal basis of the debate before me in final submissions. I set them out verbatim with only minor corrections.

1 Whether $150,000 was paid to Hirmanu in 1991 as distribution of profit or was borrowed by Lamru and paid by it to Hirmanu as part of the purchase price of units?

2 Whether the differential interest convention applies?

3 Whether the add backs convention applies?

4 Was Lamru short paid $161,398 or any sum in 1991?

5 Was Lamru short paid $164,121 or any sum in 1992?

6 Was Lamru short paid $27,026 or any sum in 1993?

7 Was Lamru short paid $3,758.13 or any sum in 1994?

8 Was Lamru short paid $38,248.01 or any sum in 1995?

5 There was an 11th issue over the terms of which the parties failed to agree. They submitted conflicting versions. The purport of it I found difficult to understand. I shall deal with it below: see [174].

6 There is an additional issue which clearly arises. In view of the fact that Nortex’s funds are now exhausted, it may be of considerable practical importance. It is whether, in respect of any breaches of trust found to be established, Lamru is entitled to relief against Lewis or Kation. I shall deal with this as the 12th issue.

7 In relation to the cross claim, on 7 December 2002 I made the following orders:

(a) The claim (in paragraphs 40, 41, 41A - 41D, 41H - 41K, 42A and 60 to 70) for damages for breach of the contract pleaded in paragraph 60;

……

(a) the claims (in paragraphs 38 and 39) for contribution and/or indemnity;

BACKGROUND FACTS

8 The following background facts are uncontroversial or easily found.

9 As I have said, the negotiations for Lamb’s entry into the business were conducted in the first half of the calendar year 1991. The transaction was certainly consummated before 30 June 1991 and Lamru had become a unit holder in the trust by that date. The oldest disputes in play in these proceedings relate to the terms of the negotiations among Lewis, Dufty and Lamb and the division of the profits of the trust for the 1991 financial year, that is, the year ended 30 June 1991. References to years in this judgment (as in most of the material before the Court) are, in general terms, references to financial years.

10 As to the basis of the division of income in 1991 and the following years, it should be said that the trust deed contained the following provisions. The definitions in clause 1(32) and (35) are as follows:

“(32) ‘Free Net Income’ in relation to a particular Accounting Period means so much of the net income of the Trust Fund for such Accounting Period as shall not at the expiry of such Accounting Period be the subject of a valid and effective determination by the Trustees during that Accounting Period under sub-clause (1) of Clause 4 of this Deed.
(35) ‘the Appointor’ shall mean subject to the provisions of Clauses 31 and 32 hereof successively the person or persons successively named described or defined as such in the First Schedule (if any) or determined according to the provisions hereof and where two or more persons are specified in the First Schedule as acting jointly shall mean those persons acting jointly.”

The first two sub clauses of clause 4 are as follows:

“4(1) The Trustees may prior to the Vesting day without creating a perpetuity at any time and from time to time during any Accounting Period and with prior written consent of the Appointor with respect to all or any part or parts of the net income of the Trust Fund for such Accounting Period determine to pay apply or set aside the same to or for any one or more of the Unit Holders and/or the Trustees of any eligible trust (acting in such capacity) and/or any eligible corporation and/or any other person or persons who from time to time shall be living prior to the Vesting day and come within the definition of Beneficiary in sub-clause (42) of clause 1 of this Deed in such amounts and/or proportions as the Trustees in their absolute discretion determine.
(2) The Trustees shall hold as a separate Trust Fund the Free Net Income of each Accounting Period at the expiry of that Accounting Period in trust absolutely for the Unit Holders of the Ordinary Units as at the expiry of that Accounting Period in the Specified Proportion.”

Clause 32(1) provides for the appointor by instrument in writing to appoint a new appointor or appointors.

11 In each of the 1991 to 1995 years, there was a minute of a meeting of the directors of Nortex before 30 June dividing the profits and apparently operating as a direction under clause 4(1) of the trust deed. In 1991 there were two such minutes.

12 After the end of each of the 1991 to 1997 years, accounts were prepared of Nortex or, more accurately, the trust. Loan accounts were kept between, on the one hand, the trust, and, on the other hand, Lamru and Kation respectively. They were recorded in the accounts. Advances during the year to Lamru and Kation were debited to their loan accounts and, each year, after their shares of profits were determined, those shares were credited to their loan accounts. Under the differential interest convention, as to which see [61] below, the amount owing as between Lamru and Kation was taken into account in determining the amount of profit to be credited to their respective loan accounts. The points of claim (as to the meaning of which see [20] and [22] below), the primary written submissions and the argument at the end of the case have progressed through the end of year accounts in chronological order.

13 After Lamru entered into it, the business proceeded successfully. Operations were commenced in New Zealand in association with the Ower family. Those operations were carried on through the companies Nortex Limited (“Nortex New Zealand”) and Nortex International Limited (“Nortex International”). Lamb gave evidence that he had a personal trust in Lewis, which declined gradually over the years. Problems came to a head in about May 1996 as a result of continuing insistence by Lewis on giving to Mark Lewis a 15 per cent interest in the business, taken proportionately out of Kation’s interest and Lamru’s interest, to which Lamb says he persistently objected. Lewis places the quarrel at about the same time, but insists that it came out of the blue as a result of his discovering dealings of Lamb in New Zealand which Lewis claimed were dishonest. There was controversy about the circumstances in which Lamb left the premises of Nortex, but it is clear that his last day there was 28 June 1996.

14 There were, shortly after his departure, negotiations between Lewis and Lamb as to the terms on which they might part, but they failed. On 30 September 1996, Lamru gave to Nortex a statutory notice of demand under the Corporations Law in respect of some $600,000 said to be owing on its loan account. On 21 October 1996, on Lewis’ instructions, Nortex took out summons 3731/96 in this Division to set aside the notice of demand. In the proceedings there was conflict as to whether Lewis was authorised to instruct solicitors on behalf of Nortex. By motion taken out on 30 December 1996, Lamru sought that the solicitors, Mallesons, pay its costs of the proceedings, because they were not authorised by Nortex to commence them. On 13 February 1997, a general meeting of Nortex purported to ratify the solicitors’ retainer. When the motion for costs came before Master McLaughlin on 12 August 1997, the learned Master held that the instructions had been effectively ratified.

15 After Lamb’s departure, Lewis assumed full control of Nortex and continued to operate the business. The accounts for the 1997 year appear to show it operating successfully up to 30 June 1997. On 19 June 1997, Lamb withdrew a guarantee which he had given jointly and severally with Lewis of Nortex’s obligations to the Commonwealth Bank. On 20 June 1997, the Bank withdrew Nortex’s finance facility, stating as its reason the withdrawal of the guarantee. On 8 July 1997, Brian Raymond Silvia (“the liquidator”) was appointed provisional liquidator of Nortex. Nortex was, on 2 September 1997, on the application of Lewis wound up by order of this Court and the liquidator was appointed permanently. The winding up order was made in proceedings 3081/97. Proofs of debt were lodged with the liquidator by Lamru, Nortex and Mark Lewis (among others). Those proofs of debt were originally determined by the liquidator on 11 January 2000. From that determination Lamru, by notice of motion dated 23 February 2002, appealed to this Court in relation to various items. That appeal is the first of the two proceedings which I have heard together and am at present determining. Mark Lewis also appealed against various of the liquidator’s determinations relating to his proof of debt.

16 Nortex New Zealand and Nortex International continued to operate for some time after Lamb left the Australian company. Their operations are said to have come to an end when Lamb entered and “trashed” their premises. Subsequently, Lewis brought proceedings in the High Court of New Zealand at Auckland against Lamb relating to transactions of the New Zealand companies (“the New Zealand proceedings”). In 1998 there was a mediation involving the Lewis interests and the Lamb interests before Sir Laurence Street in respect of the disputes between them. But nothing was settled, until in 2003 there was a settlement of the New Zealand proceedings, then about to come on for trial in Auckland. The proceedings which I have been trying have continued relentlessly.

THE COURSE OF THE LITIGATION

17 As I have said, the first of the two sets of proceedings before me is the statutory appeal from the liquidator’s determination of Lamru’s proof of debt.

18 On 4 September and 4 October 2000, Young CJ in Eq, in his words, “reluctantly ordered” the separate determination of five questions in the proceedings. Those questions were:

“In these questions the words impugned document means any version of annexure F to the affidavit of P L Lewis sworn 23 August 2000. The questions are:

1 Was the impugned document signed on (a) 16 April 1991 or; (b) some other, and if so, which date?

2 Does the impugned document have the effect of making Peter Lawrence Lewis the sole appointor of the Nortex Unit Trust?
3 (a) If yes to 2, did the appointor notify the trustee of such appointment or of any consent to distribution by the trustee;

(b) If the answer to (a) is yes, was any such notification given, and if so, when?

4 What, if anything, is the effect of the notice bearing date 31 March 1997?
5 On the true construction of the relevant trust deed and in the events which have happened, were the income splits from 1991 to 1995 validated by valid and effective determinations in accordance with clause 4(1) of that deed? (This question does not comprehend any issue of fraud on a power).”

19 His Honour conducted a trial after which, by a judgment delivered on 19 July 2001, he answered those questions: Lewis v Nortex Pty Ltd [2001] NSWSC 511, partly reported in (2001) 10 BPR 19,035 (“the 2001 judgment”). The effect in substance of his Honour’s answers to the first four questions was that a document appointing Lewis as the sole appointor under the trust deed was in fact signed by Lewis and Dufty on or shortly after 16 April 1991. Because it was then put in a drawer by Lewis and left there until 1997, it had no effect until that time and only limited effect thereafter. The answer to question 5 was, No. So far as concerns the years 1992 to 1995, the effect of this answer is clear: there was no determination relating to any part of the net income validly made under clause 4(1) of the trust deed in respect of any of those years. As to the 1991 year, the situation is somewhat more complex. There is no doubt that it flows from the answer that the determination pertinently made by a minute dated 28 June 1991 (“the 28 June 1991 minute”) is not to be regarded as a valid determination within clause 4(1). However, there has been conflict as to whether the answer also encompasses an earlier determination (“the 12 April 1991 resolution”) contained in a minute of 12 April 1991 (“the 12 April 1991 minute”) of a meeting at which Lewis and Dufty are shown as being present. I shall have more to say about this. There is also a controversy as to whether the effect of these answers was to preclude the continuing use of “accounting conventions”, which had been treated as being in effect between Lamru and Kation up to the time of his Honour’s decision. In the belief that the accounting conventions could not be used, the liquidator subsequently revised his determination of the proofs of debt. The liquidator’s determinations as they stand are, therefore, not in all instances as they were at the time the appeal was taken from them. The parties are agreed that this should not disrupt the course of these proceedings and that the Court should proceed to determine the questions in issue between the parties as they are defined in the “pleadings”.

20 After the 2001 judgment of Young CJ in Eq, the proceedings came before me for case management and, ultimately, a further trial. The proceedings first came before me on 1 November 2001. At that time, the only proceedings were the statutory appeal and the only documents defining the issues were the notice of motion instituting the appeal and a Scott Schedule relating to the various items in the proof of debt which were the subject of the appeal. An amended notice of motion was filed on 1 March 2002. It was plain that some of the allegations being made in the Scott Schedule amounted to allegations of fraud against Lewis and Mark Lewis, who, although they were party in some way to the proceedings, were not effectively being treated as defendants to those allegations of fraud. I directed that those parties against whom allegations of fraud were made should be squarely joined and made party in the appropriate way to those allegations: Lewis v Nortex Pty Ltd (In Liq) [2002] NSWSC 124. Subsequently, on 4 March 2002, separate proceedings (1750/02) were commenced in which the frauds were alleged. I ordered both sets of proceedings to be heard together. I then directed the filing of consolidated points of claim encompassing all matters in both sets of proceedings, the existing Scott Schedule to stand as particulars in the proceedings: Lewis v Nortex Pty Ltd (In Liq) [2002] NSWSC 143; Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2002] NSWSC 189. The trial has proceeded on the “pleadings” consequent upon these consolidated points of claim. They followed the plan of alleging the matters complained of chronologically, which has proved reasonably successful in giving some order to the various matters sought to be agitated in both sets of proceedings.

21 Before and at the trial, there were various applications to amend these “pleadings”, some of which I granted and some of which I refused. It was not possible to encompass in these proceedings all of the matters in conflict between the parties, if for no other reason, because of the existence of the New Zealand proceedings. Furthermore, I allowed certain cross claims to be made in these proceedings (so that no question could be raised afterwards of any res judicata or Anshun estoppel), but ordered their separate and later determination. Separate proceedings have been commenced relating to issues in play directly between Lewis and Lamb. These also I have declined to include in the present trial. Furthermore, on the application of Mark Lewis, I have somewhat reluctantly ordered that all claims against him be tried separately and subsequently. The arguments against this are obvious, but were outweighed by the unfairness of compelling his participation in a monster trial, which mostly did not concern him. That aside, I have attempted to keep grouped together issues directly related to each other. The outcome reached is not neat, but in my view there is no neat solution.

22 The current form of the points of claim is a document entitled “amended consolidated points of claim” (“the points of claim”). The current form of the defence of the Lewis interests is entitled “further amended points of amended defence to amended consolidated points of claim and points of amended cross-claim” (referred to respectively as the “defence” and “the cross claim”; the liquidator’s points of defence will be referred to as “the liquidator’s defence”). The current form of the Scott Schedule is a document entitled amended Scott Schedule (“the Scott Schedule”).

23 The points of claim plead the basis on which it is said that various decisions of the liquidator which are appealed from should have been decided otherwise. They also allege those matters as breaches of trust, for which it is said that Kation and Lewis should bear accessorial liability and should at the suit of Lamru be ordered to compensate it. Those allegations are generally made in the following terms:

“Lewis Senior and Kation were knowingly concerned in the breach of trust pleaded in [paragraph number].

As such accessories to Nortex's breach of trust Lewis Senior and Kation are liable to Nortex to indemnify it in respect of the breach and liable to compensate Lamru.”

These are referred to as “the accessorial allegations”. Where their specific terms are material, they will be recorded in the appropriate place.

24 I should also note here that the Lewis interests pleaded generally to Lamru’s claims the defence of laches, acquiescence and delay (defence paragraph 37B; see also paragraph 32). In relation to claims for breach of trust they pleaded consent (paragraph 32) and also waiver and estoppel (paragraph 31).

25 The estimates of the time necessary for the trial given by the parties have constantly changed, always lengthening. Much time has been taken up by constant and combative disputation between the parties over the applications for amendments and every other conceivable point. These matters have added length and contributed disorder to the trial, which has taken some 77 days.

THE CREDIT OF WITNESSES

26 Lamb, Dufty and Michael Potter were called on behalf of Lamru. Craig Edwards was called on behalf of Kation. The liquidator gave evidence in his own case. The Lewis interests had filed a number of affidavits by Lewis and it was originally indicated that they would be read in their case. But, in the event, they were not read and Lewis did not give evidence at the trial.

Lamb

27 Lamb spent more time in the witness box than any other witness. He was cross examined extensively. There was a development in his evidence in chief which was significant, both in the assessment of his credit and also in the course which the trial followed thereafter. Lamb was not himself a party to the proceedings (except as a defendant to the cross claim). The party on his side was Lamru, a company of which he was, and is, the controller. As counsel for Lamru, Mr Motbey asked Lamb in chief questions to elicit answers to the effect that, during the years 1991 to 1996, while he and Lewis had in general been working together amicably, they had together engaged in a fraud on the revenue. Lamb refused to answer the questions on the ground that the answers might tend to incriminate him. The procedure under s 128 of the Evidence Act 1995 (“the EA”) was invoked. It was protested on behalf of the Lewis interests that the process could not be used where the witness who was asked the question was asked it by counsel instructed by a company, which he, the witness, controlled, in support of a claim by the company. I rejected that submission and granted to Lamb a certificate under s 128 in respect of the evidence: Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2002] NSWSC 1192. Lamb then gave evidence concerning the fraud. His account was that the arrangement by which the fraud was effected was that goods of Nortex were sold and the proceeds were not directed into the company but directed in cash into the pockets of Lewis and Lamb in the proportions in which they were ultimately entitled to the profits of the trust (60:40). The effect of this evidence will need to be examined more closely when I turn to the issues arising as to the accounts of the 1996 and 1997 years. However, in general terms, Lamb’s account, if accepted, makes it more credible or likely to be accepted that Lewis continued on his own behalf alone the same practice after Lamb had left the company at the end of the 1996 year, than it would be were such evidence not given and accepted.

28 The admission of this evidence led the Lewis interests to seek and obtain leave to add to the defence a defence based on the maxim, “He who comes into equity must come with clean hands”. It was only after this evidence had been admitted that it was announced that Lewis would not be called as a witness.

29 Lamb gave this evidence with apparent frankness. It was not denied by Lewis, the only other party to the arrangement alleged. Furthermore, there was confirmation of the truth of the allegations in documentary evidence before the Court (indeed, tendered by the Lewis interests) that recorded the sale of items, the collection of cash and the way in which it was accounted for between Lamb and Lewis. Whilst there is a case for accepting the evidence, the giving of the evidence inevitably reflects adversely on Lamb’s credit. If it is found to be untrue, then he has given untrue evidence on oath. If it is found to be true, then he has participated in a calculated and protracted fraud on the revenue. Either of these reflects poorly on his credit. It is clear from other evidence that he engaged in other practices to defraud the revenue. For instance, the consideration for the purchase by Lamru of the units in the trust was understated to avoid stamp duty. All this is poor conduct by a man qualified as an accountant in New Zealand, although not practising as an accountant in Australia. It evinces dishonesty, which casts doubt on whether his word can be taken on his oath.

30 Other detailed material was put by Mr Cotman, of Senior Counsel for the Lewis interests, in support of a submission that Lamb’s credit was so wounded that his word could not be taken for anything, at least unless it were supported by credible evidence. Mr Cotman’s points were not without some substance. However, I do not accept them at face value. In my view, it was in only a few instances, not central to these proceedings, that Lamb was shown actually to have given false answers. As I earlier had occasion to remark, one deficiency in his evidence was a certain diffuseness: Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2002] NSWSC 337 at [9]. This tendency continued throughout his evidence. It arose from a reluctance to engage with particular questions that were asked of him. There was also a tendency, arising I think from his deep absorption in, even obsession with, his disputes with Lewis and the course of the litigation, to put things at their best from his point of view. Nonetheless, in a number of instances, when faced with contrary evidence, he readily admitted that his earlier evidence had been incorrect. I perceived in Lamb a tendency to rush and give a version favourable to the proposition he was advancing without sufficient thought (as in the case of a much debated affidavit sworn on 16 January 1998 and filed in the New Zealand proceedings), but also a preparedness to correct his evidence on greater reflection.

31 I have had a very extensive opportunity to watch Lamb in the witness box. He was a far from exemplary witness. During the trial he gave evidence on a lengthy voir dire hearing on the admissibility of a computer record. In a judgment given on that issue (Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2002] NSWSC 337), I expressed the view (at [9]) that “in the comparatively short cross examination he has undergone before me on the voir dire, there has been some diffuseness in the answering of questions, but nothing which would lead me at this stage, as I make this judgment, to regard Lamb overall as a witness lacking veracity or accuracy.” The situation grew worse for Lamb during the course of his lengthy cross examination in the trial. The diffuseness continued. The false answers were given. The cheating of the revenue was revealed. Despite all the matters that have been set out above, I do not, however, accede to Mr Cotman’s submission that Lamb’s evidence is utterly unreliable or worthless. In my view, what Lamb says must always be approached with great caution and assessed in the light of the circumstances in which the particular piece of evidence is given. Despite the fact that his credit is damaged, I am prepared to regard his evidence, in general terms, as a possible view of the facts, to be assessed together with and in the light of the other material going to the particular issue in relation to which it is being assessed.

Potter

32 Michael Potter is an employee of the liquidator. Much was made on behalf of Lamru of an account which Potter is said to have given orally, years ago, which, if taken literally, would indicate that Lewis admitted abstracting stock of Nortex in the 1997 year (which propositions are controverted by the Lewis interests). Potter was examined and cross examined about this. I formed the impression that he was in his evidence attempting to give the best of the recollection that he had when in the witness box concerning what had originally happened and his subsequent recounting of it. I do not accede to suggestions that were made to the effect that it was surprising or sinister that Potter had no notes taken on the relevant occasion or that he should not better remember small (to him) events occurring a long time ago.

Dufty

33 Dufty appeared to me to give his evidence in an open and relaxed manner. My impression was that he was trying to give the Court the best account he could of the events with which he was dealing. I also formed the view that his recollection of those events was reasonably good.

ISSUES 1 AND 4
1 Whether the $150,000 paid to Hirmanu in 1991 was paid as a distribution of profit to Hirmanu or was borrowed by Lamru and paid by it to Hirmanu?
4 Was Lamru short paid $161,398 or any sum in 1991?

34 These issues are interrelated and should be dealt with together. Issue 1 needs to be dealt with only if Lamru succeeds on issue 4. That is because under issue 1 Lamru does not make a claim, but makes a concession of $150,000, which it says it is appropriate for it to do if it succeeds on issue 4. It is probably correct that the concession is appropriate if Lamru succeeds on issue 4.

35 It is always important, but particularly important amidst the complexities of this case, to determine the issues in light of the way they are pleaded. The points of claim make the claim relevant to issue 4 as follows:

“10 As at 91 income vesting day the free nett income (calculated in accordance with accounting methods and conventions agreed to between Nortex, Lamru and Kation), was $1,098,828.04 of which Nortex was bound in law to hold as to 40% for Lamru.

PARTICULARS

a Scott Schedule claims 1 and 2 and evidence there referred to.

……
12 In breach of trust Nortex dealt with the free nett income as at 91 income vesting day by accounting only $278,133.69 to the benefit of Lamru, with the deficiency on Lamru's side (an amount of $161,397.53 as disclosed in the last (ie the summary) page of the Scott Schedule filed in Court on 8 March 2002) wrongfully accounted to the benefit of Kation.

PARTICULARS

a Scott Schedule claims 1 and 2 and evidence there referred to

……

15 In breach of trust Nortex, having misdealt with the free nett [sic] income as at the 91 income vesting day as pleaded above, made corresponding incorrect entries in the loan accounts between itself and Kation and itself and Lamru.

PARTICULARS

a Scott Schedule claims 1 and 2 and evidence there referred to”

The primary defence by the Lewis interests to this claim is contained in paragraph 29 of the defence, as follows:

“29 In further answer to paragraph 10 of the Amended Consolidated Points of Claim, the first and second defendants say that on 12 April 1991 Nortex distributed all of the free net income of the Nortex Unit Trust for the period from 1 July 1990 up to and including 12 April 1991, with $150,000.00 being distributed to Hirmanu Pty Limited and the balance to the first defendant.”

To that, Lamru pleaded in its amended points of reply (“the reply”) as follows:

“4 As to the allegation (para 29) that there was a valid and effective 4(1) determination on 12 April 1991, the plaintiff denies that allegation and repeats the contentions in reply contained in the Scott Schedule (little white book 46 – 47) and previously advanced in its synopsis (20/7/01 – little white book 66 – 67).”

36 The relevant material in the Scott Schedule is as follows:

“(a) The contention cannot survive Justice Young's finding answering question 5 in the negative. That answer says in terms that there are no clause 4(1) determinations which support the 1991 profit splits that in fact occurred.

(b) The evidence of Mr Dufty (transcript page 13) that he had been duped by Mr Lewis into falsely believing that the profits to 12 April 1991 were of the order of $200,000 only and would not have signed if he had known the truth was accepted by Justice Young (judgment para 30) where His Honour found that Dufty had been cheated by Lewis. Consequently the document of 12 April 1991, although signed by Dufty, is voidable for the fraud of Lewis.

(c) Even if the document is not voidable, Lewis's dishonest conduct, would estop [sic] him from asserting that the profits to 12 April 1991, if it were otherwise proven, exceeded $200,000 with the result that the profits to 30 June 1991 would be the total year profits less the $200,000.

(d) Next, Kation/Lewis failed to adduce any evidence either to the Liquidator in the adjudication process or to the Court establishing the actual profits to 12 April 1991 as opposed to the total year profits to 30 June 1991.

(e) Finally, and Lamru says conclusively, when Kation and Lamru came to the task of splitting the 1991 profits (in the latter part of 1991) it was common ground between them that they were splitting the full profits for the entire 12 months and not merely dealing with some isolated sum gained after 12 April 1991.”

37 The questions that arise under this issue are as follows:

(1) Whether the argument that the 12 April 1991 resolution was a valid determination under clause 4(1) of the trust deed is precluded by the 2001 judgment.

(2) Whether the 12 April 1991 resolution was a valid determination under clause 4(1) of the trust deed.

(3) Whether, if it was a valid determination, Lamru is entitled to have it set aside as procured by a fraud on Dufty and Hirmanu.

(4) Whether the Lewis interests are estopped from alleging that the profits of the 1991 year up to 12 April 1991 exceeded $200,000.

(5) Whether there is any breach of trust established arising out of the distribution of the profits of the 1991 year.

(6) Whether Lamru consented to or waived its rights in respect of any breach of trust committed.

38 These matters must be determined against the background of the negotiations which were being conducted during 1991 among Lewis, Lamb and Dufty, which I have referred to earlier. Lamb’s evidence was that in 1988 he was already in the manchester business and in the course of it met Lewis and Dufty. In 1990, Lewis invited Lamb to join the Nortex business full time. Initially it was anticipated that Lewis, Dufty and Lamb would all be involved in the business together. Lamb commenced to work for Nortex in the last couple of months of the calendar year 1990. Within a few weeks after he started, there was a falling out between Lewis and Dufty. There were negotiations among the three of them and, in the end, “for an agreed consideration, Dufty transferred to my entity Lamru (on 19 June 1991) 40% of the units. The balance of his units he transferred to Kation, so that from 19 June 1991 Kation owned 60% and Lamru owned 40%.” On 16 April 1991, Dufty resigned as director and Lamb became a director of Nortex. Lewis held two shares and Lamb one share in the company.

39 In the course of the negotiations, Lewis represented to Dufty that the profits of the 1991 year to 12 April 1991 were approximately $200,000. That that representation was made is corroborated by the 12 April 1991 minute which is set out in [40] below. It is apparent from other evidence in the case that this representation was not true. It seems likely that the profits for the year were approaching $1 million even by that time. In the 2001 judgment (at [30]) Young CJ in Eq found that Lewis had cheated Dufty. But I do not need to rely on his Honour’s finding. I propose to make a similar finding for reasons stated at [47] below.

40 Although his Honour found that a subsequent meeting of directors recorded in the 28 June 1991 minute did not take place, his Honour accepted that a meeting of directors attended by Lewis and Dufty did take place on 12 April 1991. I also accept that that occurred and was accurately recorded in the 12 April 1991 minute. This proposition was not seriously controverted at the trial before me. That minute was signed by Lewis and Dufty. The substantive business of the meeting was recorded as follows:

“Confirmed that preliminary accounts indicated that the Net Income of the Trust Fund for the period ending 12th April 1991 would be approximately $200,000.

IT WAS RESOLVED THAT THE Net Income of the Trust Fund should be distributed as follows:

(1) The sum of $150,000 of the Net Income of the Trust Fund to Hirmanu No 1 Trust.

(2) The balance of the Net Income of the Trust Fund to Lewis No 1 Trust.”

41 On the face of it, there is no reason why the 12 April 1991 resolution should not be taken as a valid determination of profits within clause 4(1) of the trust deed. If it does operate to have that effect, then clause 4(2) would operate to apportion the 1991 profit 60:40 only in respect of the profit accruing after 12 April 1991.

42 The first matter which needs to be determined is question (1), whether the argument that the 12 April 1991 resolution was a valid determination under clause 4(1) of the trust deed is precluded by the 2001 judgment. On the face of that judgment there is some apparent basis for the argument. Question 5, which was answered, No, asked, “Were the income splits from 1991 to 1995 validated by valid and effective determinations in accordance with clause 4(1)?” The principal discussion concerning that was in [64] of the 2001 judgment, as follows:

“64 Mr Motbey says that the evidence shows quite clearly that although there was a minute of 28 June 1991 and a similar minute in 1992, the minute was actually signed some time after 30 June in each year. There is thus no proper evidence that the board of the trustee ever met prior to 30 June in 1991 or 1992 to make a determination under clause 4(1). Furthermore, as Lewis and Dufty were the appointors until at least 1997, there was no prior written consent of the appointor to anything that Nortex may have done” (my italics).

43 His Honour proceeded in [65] to say that he could see no answer to that submission. Lamru, in support of its submission, relies on the italicized words in [64] of the judgment. Whilst literally those words encompass a finding that the board did not meet on 12 April 1991 or make a determination under clause 4(1) on that day, it is argued that there are other indications in the judgment and elsewhere that His Honour did not intend the answer to question 5 to extend to the board meeting of 12 April 1991 and the 12 April 1991 resolution. This matter was taken back to Young CJ in Eq on an application under the slip rule in 2003. His Honour refused that application: Re Nortex Pty Ltd (In Liq) [2003] NSWSC 1036. The application was refused on the basis that there was controversy concerning it and that the slip rule should not be used where there is controversy as to the appropriateness of its use. His Honour said that what he was really being asked to do was to construe the answer to question 5 given in the 2001 judgment and that that should be done in separate proceedings. It falls to me to do it on this trial.

44 Whilst I have said that there is some justification for Lamru’s argument on the face of the 2001 judgment, in my view, considering the whole of that judgment, it should not be taken to embody a ruling concerning the validity of the directors’ meeting said to have been held on 12 April 1991 or the 12 April 1991 resolution. Paragraph [64] itself refers in terms only to the directors’ meeting purportedly held on 28 June, not to the directors’ meeting of 12 April 1991. His Honour was well aware of the earlier meeting. In the 2001 judgment it is referred to in [20]. In [22] his Honour referred to Lewis’ evidence that there was a further directors’ meeting on 16 April 1991 and that, at it or shortly after it, the instrument appointing a new appointor was executed. Despite his reservations about Lewis’ evidence, his Honour in the end accepted that the notice of appointment was in fact executed as Lewis deposed. He did not make a specific finding that the directors’ meetings of 12 and 16 April 1991 occurred, but he did not find that they did not, which one imagines he would have done, in the course of deciding the matters that he did decide, had he rejected the evidence that those meetings were held. As his Honour elsewhere referred to the evidence of the holding of the meeting of 12 April 1991 and did not reject it, it seems to me that he should not be taken by his answer to question 5 as finding that that meeting did not occur; that the 12 April 1991 resolution was not passed; or that it was not an effective determination within clause 4(1). The argument, that the issue as to the validity of the 12 April 1991 resolution as a determination under clause 4(1) is foreclosed by the 2001 judgment, is therefore rejected.

45 I have stated as question (2) whether the 12 April 1991 resolution was a valid determination under clause 4(1) of the trust deed. It was argued before me but faintly, if at all, that the meeting did not take place or that the resolution was not passed. It was implicit (if not explicit) in Young CJ in Eq’s 2001 judgment that the meeting was held and the resolution was passed: see [20] and [22] of that judgment and [44] above. His Honour, in effect, found that a directors’ meeting between Lewis and Dufty was held on 16 April 1991 following on a directors’ meeting held between them on 12 April 1991. There is no reason to doubt that the 12 April 1991 minute does accurately record what occurred at the meeting on 12 April 1991. Even if his Honour’s finding is not binding, I make the same finding on the material before me. Dufty gave evidence and did not suggest that the meeting did not occur or that the minute, signed by him, was bogus. On the evidence, I find that the meeting took place and the resolution was passed.

46 There was some suggestion that there was an onus on the Lewis interests to establish positively the prior consent of the appointor before they could rely on the 1991 resolution. I do not think this is so. The appointor at the relevant time was Dufty. It is not impossible on the evidence that he gave the appropriate consent and there is nothing in the evidence that establishes that he did not. Those propounding the resolution are in the circumstances entitled to the benefit of the presumption of regularity. The 12 April 1991 resolution was valid and, if not set aside, continues to be operative.

47 I turn to the argument (question (3)), that the resolution may and should be set aside at the suit of Lamru because “the document of 12 April 1991, although signed by Dufty, is voidable for the fraud of Lewis”. It is alleged that Lewis deceived Dufty by representing to him that, as at 12 April 1991, the profits for the 1991 year were about $200,000, whereas in truth they were something more closely approaching $1 million. It was so found by Young CJ in Eq in the 2001 judgment. As all of Lamru, Kation and Lewis were parties to the proceedings at the time of the trial before Young CJ in Eq, it appears to me that that finding is binding upon them all. In any event, I make the same finding on the evidence before me. Dufty has given evidence that he was cheated. The minute of 12 April 1991 is corroborative of the representation. It is clear on the evidence in this trial that the profit for the year was far beyond $200,000 as at 12 April 1991. Lewis has not given evidence that he did not deceive Dufty or that that there was some reason for him saying that the profits as at April 1991 were about $200,000 only. Dufty not only gave evidence that he was cheated, but also gave evidence that he subsequently taxed Lewis with this. As a result of this approach to Lewis, there was a settlement between Lewis and Dufty (encompassing their companies Kation and Hirmanu respectively) in relation to that deception and as to other outstanding issues between them. In satisfaction of those claims Lewis paid to Dufty $100,000. The claims of Dufty (and Hirmanu) in respect of the deception were thereby satisfied. I accept that Lewis deceived Dufty and thereby procured his agreement to the 12 April 1991 resolution. The clarity of the evidence satisfies me of this, even taking into account the provisions of s 140(2) of the EA (as to which see [117] below).

48 However, even if Dufty and Hirmanu’s claims had not been extinguished by satisfaction, in my view, the deception of Dufty by Lewis is not something that could be relied on by Lamru or Lamb as a ground for setting aside or otherwise negativing the effect of the 12 April 1991 resolution. The representation was not addressed to Lamru, Lamru was not deceived by it and Lamru does not have standing to seek relief arising from it. The 12 April 1991 resolution will not be set aside.

49 Question (4) is whether the Lewis interests are estopped from alleging that the profits to 12 April 1991 exceeded $200,000: see particulars (c) and (e) in the particulars of reply in the Scott Schedule set out in [36] above. It appears that these seek to propound an estoppel by representation and a conventional estoppel respectively. The allegations by way of reply, insofar as they are spelt out in items (c) and (e), in my view are not sound in fact or in law. They do not, as a matter of law, fully or properly state the basis of an estoppel. But, in any event, the matters which they seek to adumbrate are not established as matters of fact. I have already observed in [48] above, that the representation relied on was made to Dufty and was not, on the evidence, made to, or relied on, by Lamru.

50 Insofar as either form of estoppel is alleged to arise from conduct subsequent to the making of that representation, the evidence as to what passed between Lamb and Lewis late in calendar year 1991 in relation to the 1991 profits is exiguous. The account in Lamb’s affidavit of 27 March 2000 is as follows:

“In about September 1991 I had a meeting with Mr Lewis where he advised that he had completed the accounts for the year ended 30 June 1991. He indicated that the nett [sic] trading profit was of the order of $950,000 before add-backs. He said that I was not entitled to 40% of that figure because some of the reserves in the accounts were put in place before I joined the business. I did not agree with his argument and said that I had come into my 40% aware of these reserves, and he’d even commented about the books being very conservative as a selling point. I said they were assets that I should be free to participate in. However he then did a calculation in which he said made the adjustments allegedly to compensate him for the reserves in the accounts. He prepared a sheet of paper with the revised figures and did the add backs to produce our respective shares. I do not have a copy of that sheet of paper but as best I can recall it was similar to the sheets Mr Lewis prepared in later years.”

51 The same subject matter is repeated in Lamb’s affidavit of 16 November 2000 with little substantial difference, although that account contained the words, “We agreed to disagree.” Furthermore, he was cross examined on this subject matter as follows:

“MR COTMAN: Q It was in about September in each of the relevant years that you came to address the question of what the distribution should be?
A It was usually about that time of year, yes.

HIS HONOUR: Q You say that the same thing happened in September 1992 in relation to the '92 return; is that what you say?
A Each year through to 1995, yes.

MR COTMAN: Q You say the difference between the '91 and '92 years, and '93, '94 and '95 respectively, is that in the last three years, you agreed with the distributions, in the first two years you disagreed with the distributions; is that right?
A No, that's not quite right. In the first two years I agreed and in the '93 and '94 years I agreed and the '95 year was actually the argument over Mark Lewis receiving a percentage of the profits, so I never agreed to the distribution with the '95 one.

Q Well, in the '91 and '92 years, you don't say that you were in some way forced or overborne by Mr Lewis in relation to the conduct of the affairs of the trust, do you?
A No, I wouldn't call it forced. I'm not sure what you mean by ‘overborne’.

Q You didn't consider yourself to be under some improper pressure to agree with Mr Lewis, do you?
A Well, it came across quite plausibly as a misunderstanding or an - it wasn't a stand-up argument, it was a - he put his view that, ‘Oh, you misunderstood when you bought into the business, you were not entitlement [sic] to this’, and I put my bit back, but it was - you know, we both put our views strongly, but it wasn't what I'd call a stand-up fight or anything.

Q But the question I asked you was you didn't consider yourself to have been coerced or forced or overborne by Mr Lewis at this time, did you?
A No, quite the opposite, it was very plausible.

Q You know that minutes were prepared of the company of which you were a director reflecting a meeting between you and Mr Lewis describing the distribution for 1991 and 1992?

A Yes, I'm aware those minutes were prepared.

Q And you were aware that the tax returns were prepared in accordance with each of those sets of resolutions?
A Yes, I am.

Q You prepared your own accounts in accordance with those same resolutions, I take it, for the company Lamru?
A Yes.

Q And the tax returns?
A Yes.

52 In my view, the accounts set out above do not establish as a matter of fact representations or conduct as relied on in items (c) and (e) in the Scott Schedule set out in [36] above, and they are not otherwise established. Those matters of reply therefore fail. There is no operative estoppel as alleged.

53 In relation to question (5), whether there is any breach of trust established in relation to the distribution of profits of the 1991 year, this must be dealt with in the light of my decisions on the first four sub issues. These leave a situation where the existence and validity of the 12 April 1991 resolution are established and the Lewis interests are not estopped from alleging that the profits to 12 April 1991 exceeded $200,000. Lamru’s allegation remains that it has established a breach of trust. The Lewis interests do not concede a breach of trust. By particular (d) in its particulars of reply in the Scott Schedule, Lamru complained that the Lewis interests had not established the quantum of profit between 12 April and 30 June 1991. But, if Lamru complains of a breach of trust in respect of the distribution of the 1991 profits, it bears the onus of establishing its existence and, if that involves establishing the quantum of the profit during a particular period, it is for Lamru to prove it. Lamru undoubtedly received some $96,000 as its share of profit of the 1991 year. That sum is 40 per cent of about $240,000. $240,000 is about a quarter of the 1991 profit of about $1 million. The period between 12 April and 30 June 1991 is less than one quarter of the 1991 year. In saying this, I am not adopting as valid (as the liquidator did) a pro rata test for the amount of profit earned during that period. But it is not as if the profit during that period was estimated or assessed by Lewis at nil; Lamru received a profit share consonant with a substantial profit during the relevant period. The amount assessed by Lewis and paid or allowed by Nortex to Lamru as its 40 per cent share of the 1991 profit is not on the face of it impossible or improbable as a proper estimate of the profit during the post 12 April period, which is the relevant period since the 12 April 1991 resolution stands as a valid clause 4(1) determination. In my view, on the evidence, Lamru has simply not established a breach of trust in relation to the 1991 distribution of profits.

54 In relation to issue 4, I do not really need to deal with the substantive defences raised under questions (6) and (7). However, I think it desirable that I should make a finding at least in relation to the defence of laches, acquiescence and delay. I find that, if a breach of trust were established, relief would be precluded by that defence. I do not think I need to analyse the distinctions between the three elements embedded in its tripartite formulation. On the evidence, Lamb did not return to his complaint about this subject matter until after the terminal row between Lewis and himself and his departure from Nortex. It was in the course of the bitter disputation that then arose that the complaint was renewed, when Lewis and Lamb were throwing all possible allegations at each other. In the meantime, it seems to me that Lamb and Lamru proceeded on the basis, which Lamb says he enunciated at the time the 1991 profits were discussed, “We agreed to disagree”. What happened thereafter is elucidated in the answers to cross examination set out in [51]. It must be borne in mind that the division of the 1991 profits arose in the context of an ongoing business in which the accounts had to be, and were, finalised each year and the participants each year had to, and did, submit their own income tax returns based upon the results of the business, as Lamb conceded. In each case, the next year’s accounts depended for their starting point on the preceding year’s accounts, which were used accordingly. It seems to me that where this process was continued for a period of five years with both sides participating in it, it is not equitable that one party be allowed to reopen the situation after this lapse of time.

55 In view of this finding, I do not need to consider additionally the submission based on waiver.

56 So far as issue 1 is concerned, in light of my finding on issue 4, this issue does not arise. As I have already pointed out (in [34] above), it is not a claim made by Lamru, but a concession proffered by it as appropriate to be made if issue 4 is found in its favour. As the latter has not occurred, the need for the concession does not arise. I should add that, if it were necessary to deal with the subject matter, I do not think it possible on what evidence there is of the negotiations to find one way or the other whether, on the tripartite agreement among those concerned, the $150,000 was paid in either of the ways contended for.

ISSUES 2 AND 3
2 Whether the differential interest convention is effective?
3 Whether the add backs convention is effective?

57 These issues may also be considered together.

58 The issues relating to these conventions are best defined in the following provisions of the Scott Schedule dealing with the add backs convention. As matter of defence, the Lewis interests stated:

“In paragraph 63 of his Judgment Justice Young found as follows:

‘Clause 4 of the trust deed provides that at any time and from time to time during any accounting period with the prior consent of the Appointor with respect to any part of the net income of the trust fund for such accounting period the trustee may determine to pay same to any one or more of the unitholders as the trustee in its absolute discretion determines. An accounting period is 12 months ending on 30 June of each year. The definition clause defines “Free Net Income” as so much of the net income of the trust fund for an accounting period as is not the subject of a valid and effective determination by the trustees during that accounting period under clause 4. Under clause 4(2) the trustees are to hold as a separate trust fund the free net income of each accounting period in trust absolutely for the unitholders of the ordinary units in the specified proportion. “Specified Proportion” is defined in 1(14) of the deed as meaning the proportions that the number of ordinary units held by a unitholder bears to the total ordinary units. Thus, unless there has been a proper determination under clause 4(1) of the deed, the income for the financial year is held in proportion to the number of units that a unitholder has to the total number of units.’

In relation to the net income of the trust fund for the relevant accounting period, net income is a recognised accountancy term with a specified meaning. It does not include ‘add backs’. The clear consequence of Justice Young’s Judgment is to eliminate any procedure for ‘add backs’ as propounded by Lamru.

This is supported by clause 18B(6) of the Trust Deed, which provides that any remuneration for services rendered paid to any beneficiary is not to be taken into account as part of his share of the Trust Fund or the income thereof.

Further at paragraph 67 of his Judgment, Justice Young specifically rejected contentions by Kation that the parties were estopped from departing from their conduct in relation to the accounts of Nortex from 1991 onwards. It follows that, in accordance with His Honour’s ruling, Lamru cannot now raise the conduct of the parties in relation to the ‘add back’ procedure, but is bound by the strict approach to be found in the four corners of the Trust Deed in calculating the net income of the Trust (‘Free Net Income’).”

“Justice Young's answers to the questions posed for preliminary determination in no way foreclose the issue as to whether or not the add-back methodology employed by the trustee is in accordance with the trust deed. That issue was not raised or decided.

The source of the add-back methodology was a solemn agreement negotiated between Lamb, Lewis and Dufty when Lamb's entry into the business was originally agreed.

That agreement was perfectly valid and was put into effect and applied from the time of Lamb's arrival until Lewis, (after excluding Lamb from the business) quite improperly, unilaterally, without any agreement or corporate resolution, purported to abandon it in his own interests.

There is nothing at all in the trust deed which forbids or affects the rights of the parties concerned to make the agreement that they made and consistently applied for many years.

clause [sic] 18B(6) relates to moneys paid to unit holders. The unit holders are Kation and Lamru. The moneys which were added back were moneys paid to or for the benefit of Mr Lamb or Mr Lewis. See footnote 11 to synopsis being annexure A to aff [sic] of Lyons of 20/7/01 [sic]

Young J's comments at para 67 have nothing to do with the question as to whether or not the add-back agreement provides an estoppel.

If, which is denied, there is some invalidating provisions of the trust deed that affects [sic] the add back agreement then both Kation and the trustee are estopped from relying upon that invalidating provision.”

59 The “conventions” referred to were agreements as to the way in which certain items were to be dealt with in the accounts. They were called “accounting conventions”. They affected the way in which the free net income was to be calculated in each year.

60 The “add backs convention” was to the effect that, whatever drawings or payments there had been in favour of each of the unit holders during the course of the year (whether to the unit holder companies themselves or to their principals or associates of their principals), they were to be added back into the accounts before the free net income was determined. In the ultimate wash up, there were to be no drawings or remuneration for work done; the sole remuneration of each “partner” was to be the profit share in the agreed proportion of his company in the profits earned, without additional allowance for the labour or efforts of the company’s principal.

61 The “differential interest convention” flowed from an agreement that any money lent by the unit holders to the trust should be lent at interest. This convention was to deal with the situation where the amounts lent by the unit holders were unequal, which was virtually always the case. Rather than the unit holders charging and the trust paying this interest, the agreement constituting the convention was that the interest differential, ie, the difference between the amounts payable to the unit holders respectively, should be regarded as a debt payable between the unit holders directly. This was usually discharged by an adjustment of the amounts respectively credited to them as their shares of the free net income when determined.

62 There was debate as to whether the agreements were between the unit holders only, or whether the trustee was also a party to them. This is further discussed at [73] below.

63 Apart from this debate as to the parties, there is no doubt that these agreements existed and were acted on. They date back to the time when the unit holders were Kation and Hirmanu. They were applied consistently throughout the time that Lewis and Lamb worked together in the business. They were applied by the liquidator, who had no doubt of their existence, when he originally dealt with the respective proofs of debt of Kation and Lamru. It was not suggested by any party to these proceedings that they had not existed and been acted on. The way in which the issue arose was that, after the 2001 judgment of Young CJ in Eq, the legal advisers of the Lewis interests took a strong view that the judgment had the effect of negating the conventions, in the sense that it ruled that they were inconsistent with the trust deed and that their implementation involved a breach or breaches of trust. The liquidator came (with what degree of persuasion it matters not for present purposes) to take the same view and revised the accounting between the parties accordingly.

64 The question for determination is whether this view is correct. The question turns on the true interpretation of the trust deed and the correct view of the effect of the 2001 judgment. Clauses 4(1) and (2) and the relevant definitions are set out in [10]. Clause 18B(6) and (24) and clause 23 of the trust deed were also cited as relevant to the argument. I refer to clause 44 also as having a possible relevance to the subject matter. Clauses 18B(6) and (24), 23 and 44(1) are as follows:

“18 ……

……

(6) the power to remunerate any beneficiary who is at any time in the employ of the Trustees to the same extent and in the same manner as if the beneficiary so employed were not a beneficiary hereunder and all bona fide payments made by the Trustees to any such beneficiary in the form of remuneration for services rendered or to be rendered or on account of expenses in connection with such employment shall not be or be deemed to be payment to the beneficiary of or on account of his or her share in the Trust Fund or the income thereof, ……

……

(24) the power to determine whether any moveable or immoveable property or any increase or decrease in amount number or value of any property or holdings of property or any receipt or payments from or in connection with any moveable or immoveable property shall be treated as and credited or debited to capital or to income and generally to determine all matters as to which any doubt difficulty or question may arise under or in relation to the execution of the trusts and powers contained in this Deed and every determination of the Trustees in relation to any of the matters aforesaid whether made upon a question formally or actually raised or implied in any of the acts or proceedings of the Trustees in relation to the Trust Fund shall bind all parties interested therein and shall not be objected to or questioned on any ground whatsoever;

……

23 The Trustees shall keep complete and accurate books of account and records of all receipt and expenditures on account of the Trust Fund and promptly after the close of each Accounting Period the Trustees shall prepare a written accounting report (prepared in accordance with normally accepted account procedures) for such period consisting of a balance sheet a statement of income and expenditure and a list of assets held at the close of the period and a copy thereof shall be furnished upon request to each of the Ordinary Unit Holders and the accounting report shall include the names and addresses of all persons or firms having custody of all or any portion of the assets of the Trust Fund and the Trustees shall be entitled but not obliged to have such accounts audited by an Auditor appointed by the Trustees at the expense of the Trust Fund but the report of any such Auditor must be endorsed on or attached to the balance sheet relating to the period in respect of which the Auditor’s report relates.

……

65 The argument was most clearly put by Mr Ventry Gray, of counsel for the liquidator, who indeed said that it was “crystal clear”. It proceeded as follows. From 22 June 2001, when the 2001 judgment was delivered, it was clear that, in respect of the 1991 to 1995 years, there was no valid determination of the division of profits under clause 4(1) of the trust deed. The profits therefore fell to be divided under the provisions of clause 4(2). They had to be divided in accordance with the terms of the trust deed. These included the provisions of clause 23 which required the keeping of accounts in accordance with “proper accounting procedures”. Acting in accordance with the add backs convention and the differential interest convention was not in accordance with proper accounting procedures. Those conventions could have valid effect only through a clause 4(1) determination. Nortex as trustee (and therefore the liquidator) as of 22 June 2001 came under an obligation to rewrite all the accounts that had formerly been written in accordance with the conventions. Not to do this would involve breaches of trust. Any agreement between Kation and Lamru giving effect to the conventions may have been operative until Lamb’s departure from Nortex, but ceased to have effect at that time. Therefore, Lamru could not unilaterally require the liquidator to maintain the accounts as they had been written over the preceding years. (Apparently Kation was able unilaterally to require the opposite course to be taken.) The liquidator was obliged to rewrite them.

66 There are a number of reasons why this argument is not sound. Each of these reasons would alone destroy its validity.

67 First, it is not correct that the conventions could have effect only through a valid clause 4(1) determination (of which there was none in any relevant year, save that I have determined that the 12 April 1991 resolution was effective). Clause 4 is set out in [10] above. Clause 4(2) provides that in general terms the trustee shall hold the Free Net Income of each accounting period for the unit holders in the proportions of their interests in the trust. The Free Net Income is so much of the net income as shall not be the subject of a clause 4(1) determination. A clause 4(1) determination is a determination to apply the whole or any part of the net income to any one or more of the unit holders in such amounts or proportions as the trustee determines. Properly construed, this does not preclude the trustee from determining, or the unit holders from agreeing, that the accounts should be kept in one or another particular way which is proper. Nor is there anything in the 2001 judgment which would compel the conclusion contended for or necessitate or authorise the rewriting of the accounts in the fashion in which it was done.

68 Secondly, it is not established that to prepare the accounts on the basis of the conventions was, on the evidence, to prepare them otherwise than in accordance with “proper accounting procedures”. The term is a very general one contained in a very general clause in the trust deed concerning the preparation of accounts, not the substantive rights of the parties. I do not think that it could be applied to forbid the preparation of accounts on a proper basis agreed between the trustee and the unit holders.

172 When the matter was raised during the course of final submissions, I delivered a judgment: Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2004] NSWSC 121. In that judgment, I ruled that Lamru was entitled to make a submission about the item, despite the absence of any formal claim, because of the agreement of the parties manifested at that earlier time. The submission that it was able to make was that the credit should be recorded in the 1997 year, as that was the basis agreed to by all parties at that time.

173 In that judgment, I expressed the view that, on the evidence available, the correct course was for the credit to be recorded in the 1997 year. There were no further submissions made to me on the subject matter after the delivery of that judgment and no application was made for any party’s case to be reopened to lead further evidence on the subject matter, which might detract from the conclusion that I had expressed in that judgment. In those circumstances, the reasons I expressed in that judgment should be regarded as being incorporated in this judgment. On that basis, the credit against the $284,837 deduction in respect of the China creditors item arising from the liquidator’s rejection of the proof of debt should be recorded in the 1997 year and this issue should be regarded as concluded among all the parties. Any party who desired to agitate this question further should have sought to make appropriate amendments to the “pleadings” or Scott Schedule and to bring forward any claim or submission about it, along with any relevant evidence, at an appropriate time in the proceedings. This did not occur.

ISSUE 11

174 During the trial the parties attempted to formulate an 11th issue. They could not agree on a formulation. When I originally reserved judgment, I said that I should take their respective formulations and make sense of them, but I could not distil out of them an issue for decision beyond issues decided under other headings. I asked the parties for further submissions as to whether it was intended to raise questions beyond the applicability of the accounting conventions and the ambit of clause 23 of the trust deed, both of which I have dealt with above. In the end, the parties agreed that there was no other issue intended to be raised for decision under the proposed issue 11 and I need say no more about it.

ISSUE 12: Accessorial liability
Whether Kation or Lewis is personally liable to Lamru in respect of any of the breaches of trust proved

175 As a result of my decisions embodied in this judgment, the claim relating to the Mark Lewis payments is the only claim in respect of which this issue remains to be determined. There were issues involving the actions of Kation and Lewis raised in pars 76 to 88 of the points of claim in relation to issues 2 and 3 as to the add backs convention and the differential interest convention. In those paragraphs it is alleged that the final determination of the liquidator in relation to those conventions was erroneous and that the Lewis interests were involved in that erroneous decision by reason of the fact that their solicitor, Mr Baird, applied persuasion to the liquidator to alter, after and by reason of the 2001 judgment, the previous regime that he had adopted as to the conventions. However, these allegations were pleaded only as against the liquidator in relation to the statutory appeal. Lamru did not plead or bring or agitate at the trial, among the many claims that it did, a claim that Kation and Peter Lewis should be made personally liable by reason of any persuasion they exercised through Mr Baird. Furthermore, examination of the transcript shows that, even against the liquidator, these allegations were withdrawn before the end of the trial and are not open for any purpose at the time of this judgment. It is therefore not appropriate that I record any finding relating to those allegations.

176 Turning to the Mark Lewis payments, the form of the “pleadings” is again important. In relation to the 1995 payment, the allegation of breach in paragraph 34 of the points of claim is set out in [88] above. The accessorial allegations, in paragraphs 35 and 36, are as follows:

“35 Lewis Senior and Kation were knowingly concerned in the breach of trust pleaded in 34.

177 In relation to the 1996 and 1997 payments, the allegations of breach, in paragraphs 45 and 46 and paragraphs 60 and 61 respectively of the points of claim, are set out in [89] and [90] above. The accessorial allegations in respect of 1996, in paragraphs 48 and 49, are as follows:

“48 Lewis Senior, Kation and Lewis junior were knowingly concerned in the breach of trust pleaded in 45 and Lewis Junior knowingly received the said benefit.

178 The bases of accessorial liability for breaches of trust or fiduciary duty have become one of the most debated and vexed issues in current equity jurisprudence, both in England and Australia. One of the points of controversy has been a divergence of view between the High Court and the House of Lords concerning the quality or degree of the notice or knowledge required for liability under the second limb in Barnes v Addy (1874) LR 9 Ch App 244: contrast Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 395 with Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 at 388. The starting point for debate has been the famous passage from the judgment of Lord Selborne LC in Barnes v Addy at 251 - 252. There has been a tendency to treat these words almost as if engraved on a Mosaic tablet. The complications of the law as to questions of the knowledge and notice relevant under the so called “two limbs” have become almost Byzantine. For an up to date account by Lord Walker, writing extra curially, see the John Lehane Memorial Lecture 2004, “Dishonesty and Unconscionable Conduct in Commercial Life – Some Reflections on Accessory Liability and Knowing Receipt”. Fortunately, the application of the relevant principle in the present case is quite simple.

179 The famous passage from Lord Selborne’s judgment in Barnes v Addy is as follows:

actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust

180 An important feature of this pronouncement is noted in Meagher & Gummow, Jacobs’ Law of Trusts in Australia (6th ed, 1997) at [1334] as follows:

Barnes v Addy

First

Secondly

181 Similarly, it is stated in 4 Scott on Trusts (4th ed, 1989) par 326.3:

“Furthermore, the directors and officers [of a trustee corporation] are under a duty to the beneficiaries of trusts administered by the corporation not to cause the corporation to misappropriate the property. Any director or officer who knowingly causes the misappropriation of trust property by the corporation is personally liable for participation in the breach of trust committed by the corporation. The breach of trust need not, however, be a misappropriation of the trust property. Any officer who knowingly causes the corporation to commit a breach of trust causing loss to a trust administered by the corporation is personally liable for the loss to the beneficiaries of the trust.”

182 Those observations are relevant in the present case. The relevant breaches of trust are breaches of trust by Nortex as trustee of the trust. Lewis was at all times a director of Nortex. It was he who caused the accounts to be made up in the ways complained of. In the 1995 year, they distributed the disputed 3 per cent of profit to Kation. In the 1996 and 1997 years the payments were recorded as made to Mark Lewis. The other director of Nortex was Lamb. As I have found, Lewis, in causing Nortex to carry out these transactions, did not act, as he asserted, with the consent of Lamb, but in the face of and with knowledge of Lamb’s refusal of consent or agreement to these transactions. In respect of the transactions relating to the 1996 and 1997 years, Lamb had left the company and was not consulted. However, it was plain that Lamb did not consent to the giving of a profit share directly or indirectly, by paying remuneration over and above the value of his work, to Mark Lewis. As I have found that the use of funds in this way by Nortex was a breach of trust and that Lewis was a participant in that breach of trust, he is therefore liable to Lamru in respect of the sums of money dealt with in that way.

183 I turn to the position of Kation. In respect of the disputed 3 per cent in the 1995 year, after the conversations between Lewis and Lamb it was attributed to Kation in the 1995 accounts. This is the complaint made in the particulars appended to paragraph 34. On the evidence, Kation should be taken to have received it. As Lewis was the controlling mind of Kation, Kation undoubtedly did so with his knowledge of the dishonesty of the transaction. It is therefore liable to Lamru for that sum. However, in respect of the 1996 and 1997 years, it did not receive the relevant moneys. The actions within Nortex were carried out by Lewis as director and de facto controller of that company. Despite his role in Kation, I do not think the relevant actions were acts of Kation. I do not think that Kation can be said, in the words of the “pleading”, to have been “knowingly concerned in the breach of trust”. No doubt it could be said, as one of the parties otherwise entitled to the monies, to have acquiesced in the payments. But I do not think that, of itself, sufficient. On that basis Kation is not liable in respect of the 1996 and 1997 payments.

ISSUE 13
Whether the cross claims against Lamru and Lamb for contribution or indemnity succeed

184 The cross claims for contribution or indemnity can only arise insofar as claims against Kation or Lewis have succeeded. The only such claims that have succeeded are those in respect of the payments to Mark Lewis. The basis of the claims for contribution or indemnity is that Lamru and Lamb also participated in the breaches of trust that form the basis of liability. It is clear from my findings on that subject matter that Lamru and Lamb did not participate in the relevant breaches of trust.

ISSUE 14
Whether the cross claims against Lamru and Lamb based on breach of contract or for breach of his duties as a director succeed

185 The three claims ultimately made in respect of these breaches were succinctly summarised on behalf of Lamru and Lamb as follows:

This is a claim for damages for breach of the contract pleaded in para 60. 60 pleaded an agreement by Lamb and Lamru not to call up the loan account with Nortex and not to withdraw a personal guarantee of Nortex in favour of the CBA. 61 pleaded that the loan account was called and guarantee was withdrawn. It was alleged that in consequence Nortex ceased to be able to trade (63). It was further alleged that the conduct caused damage to Nortex Kation and Lewis (68) and claimed damages (70).

This is a claim arising out of the same facts (calling up loan and withdrawal of guarantee) causing Nortex to cease to be able to trade. However it is put, additionally as a breach of director's duties (67) with a claim for damages (70).

This was a claim (67(c)) that Lamb, in breach of his director's duties owed to Nortex, made a vexatious application to the Supreme Court challenging Malleson's retainer to act for Nortex in a suit arising out of Lamru's service of a statutory demand. This breach of director's duties was said to have caused damage to Nortex, Kation and Lewis (including reduced profits, legal costs, loss of goodwill (68)) with a claim for damages (70).”

186 Again, the precise allegations in the “pleadings” are of importance. The following allegations are made in the cross claim:

(a) was a director of Nortex, together with the second cross-claimant, Peter Lawrence Lewis (‘Lewis’);

(i) a fiduciary duty to act in good faith and in the interests of Nortex;

(ii) a duty under section 232(2) of the Corporations Law (as it then was) at all times to act honestly in the exercise of his powers and the discharge of his duties as a director of Nortex;

(iii) a duty under section 232(4) of the Corporations Law to exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation’s circumstances;

(iv) a duty under section 232(6) of the Corporations Law not to make improper use of his position as a director of Nortex to gain, directly or indirectly, an advantage for himself or for any other person or to cause detriment to Nortex; and

(a) to exercise reasonable care and diligence in and about the exercise of his powers and the discharge of his duties as a director of Nortex in its aforesaid capacity;

(b) to have regard to and act in the best interests of the unitholders in the Nortex Unit Trust;

(c) not to prefer his own interests or those of the first cross-defendant (‘Lamru’) above those of those of Kation; and

……

PARTICULARS

The agreement was both express and implied, and in writing and oral. Insofar as it was in writing it is contained in the Undertaking under the common seals of Lamru and Kation to CBA dated 19 July 1993. Insofar as it was oral it was made in the discussions that took place between Lamb and Lewis on the one hand and representatives of CBA at around that time. The implication arises from the aforesaid express terms and is necessary to give business efficacy to the agreement.

……

187 There is no need to say more about the claim in contract than that there is no evidence that establishes an express contract to the relevant effect. Nor is there any evidence of the circumstances surrounding the creation of the relevant facilities in 1993 from which an implied contract to this effect might be inferred. This head of cross claim fails for those reasons.

188 The duties claimed to have been breached fall into two categories. In the first are the duties imposed by s 232(2), (4) and (6) of the Corporations Law (which was in force at the relevant time) and the common law duty of care corresponding to the duty imposed by s 232(4). The other category of duties is the fiduciary duties imposed on directors.

189 In both cases, it is important to examine what Lamb was doing and in respect of what rights, when he performed the actions complained of. In each case the rights he was pursuing or exercising were rights entirely personal to him or Lamru. In giving the notice of demand, he was acting as a director of, and seeking to enforce a right of, Lamru, which was a creditor of Nortex under its loan account. Lamru was not, of course, a director of Nortex. It was as a director of Lamru, not Nortex, that Lamb acted in causing the notice of demand to be given. It was equally in that role that he acted with regard to the objection as to the retainer of the solicitors in the proceedings consequential on the giving of the notice of demand. It was a personal right to withdraw a guarantee given by him personally that he was exercising when he withdrew the guarantee supporting Nortex 's finance facilities.

190 Section 232(2), (4) and (6) of the Corporations Law provided as follows:

“232(2) [Act honestly] An officer of a corporation shall at all times act honestly in the exercise of his or her powers and the discharge, of the duties of his or her office.

……

232(4) [Care and diligence] In the exercise of his or her powers and the discharge of his or her duties, an officer of a corporation must exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation's circumstances.

……

191 Each of these subsections imposes duties on a director in the course of his or her exercising powers or carrying out duties as a director. This is made plain by the words “in the exercise of … and the discharge of” in subs (2) and (4) and the words ”make improper use of his or her position” in subs (6). It cannot be said in any realistic way that Lamb was exercising any powers, or discharging any duties, or making any use of his position as a director of Nortex, in doing what he did. The same applies to any allegation of breach of a common law duty of care imposed on him as a director.

192 For those reasons alone the cross claims based on allegations of breach of those duties must fail.

193 The content of the relevant fiduciary duty or duties is not so easily determined. That Lamb as a director of Nortex was in a fiduciary relationship with the company is undoubted. But the relevant ambit of the duties arising from that relationship and whether the actions complained of conflicted with those duties is far from clear. The fiduciary duties, breaches of which were complained of, were pleaded as duties ”to act in good faith and in the interests of Nortex”(paragraph 40(b)(i)); “to have regard to and act in the best interests of the unitholders” in the trust (paragraph 41(b)); and “not to prefer his own interests or those of [Lamru] above those of Kation” (paragraph 41(c)).

194 Again, as has been made plain, Lamb was not acting in the role of a director of Nortex in carrying out the actions the subject of the claims. However, the ambit of the fiduciary duties imposed on a director is not necessarily limited to actions taken solely within the role of director. That there are two different themes as to what falls within the ambit of fiduciary duties was made plain by Deane J in Chan v Zacharia (1984) 154 CLR 178 at 199:

Phipps v Boardman

NZ Netherlands Society ‘Oranje’ Inc v Kuys

195 Under the first limb, it is the receipt of a benefit or gain that constitutes the breach of duty. It is clear that a breach of fiduciary duty may arise where a benefit is received in circumstances where there is a conflict between fiduciary duty and personal interest, even though the director could not be said to be acting in that role. The pursuit of a benefit or gain may be sufficient if it causes the company damage: see [200] below. In its most extreme formulation, the duty was said by Lord Herschell in Bray v Ford [1896] AC 44 at 51 to be that a person “… is not allowed to put himself in a position where his interest and duty conflict.” But it is plain that that most extreme form does not represent the law.

196 It was said by Sir Frederick Jordan in “Chapters on Equity in New South Wales” (6th ed, 1947) (reprinted in “Select Legal Papers” (1983)) at 115:

“It has often been said that a person who occupies a fiduciary position ought to avoid placing himself in a position in which his duty and his interest, or two different fiduciary duties conflict.

197 In Mills v Mills (1938) 60 CLR 150, the High Court recognised that it was not a breach of the rule for a director to hold shares in the company, and therefore to have a personal interest, which may come into conflict with his or her fiduciary duties as a director. Latham CJ said at 163 - 164:

“It must, however, be recognized that as a general rule, though not invariably (as, for example, in the case of Birtchnell in this case), directors have an interest as shareholders in the company of which they are directors. Most sets of articles of association actually require the directors to have such an interest, and it is generally desired by shareholders that directors should have a substantial interest in the company so that their interests may be identified with those of the shareholders of the company. Ordinarily, therefore, in promoting the interests of the company, a director will also promote his own interests. I do not read the general phrases which are to be found in the authorities with reference to the obligations of directors to act solely in the interests of the company as meaning that they are prohibited from acting in any matter where their own interests are affected by what they do in their capacity as directors. Very many actions of directors who are shareholders, perhaps all of them, have a direct or indirect relation to their own interests. It would be ignoring realities and creating impossibilities in the administration of companies to require that directors should not advert to or consider in any way the effect of a particular decision upon their own interests as shareholders. A rule which laid down such a principle would paralyse the management of companies in many directions. Accordingly, the judicial observations which suggest that directors should consider only the interests of the company and never their own interests should not be pressed to a limit which would create a quite impossible position.”

198 Similarly, it would be extremely inconvenient if directors could not make loans (represented by loan accounts), especially to small companies, which find in such loans one of their most common sources of finance. Likewise, the provision of guarantees by directors, often supported by the giving of security over personal assets, is often a necessity for such companies to obtain finance facilities from banks and other outside sources. In my view, it is clear that such transactions are not prohibited by the rule.

199 The question then becomes whether a director who has entered into such a transaction is precluded from exercising the personal rights conferred, if that exercise would be in any way detrimental to the company. Such a ban would tend to have the same effect as an absolute prohibition of such transactions, since directors would be strongly discouraged from entering into such transactions, advantageous or even necessary to the company, if they could not enforce their personal rights. In my view, the law does not impose such an absolute ban on the exercise of purely personal rights by directors. Such enforcement cannot be regarded as an act of the director in the role of director, as opposed to an action in a purely personal capacity. It may be that the vindication of a personal right of the director, whether by the recovery of money or otherwise, cannot be regarded as obtaining a gain or benefit within the formulation of Deane J in the passage set out in [195] above. Equally, although it is clear that there is a situation of conflict, it cannot be regarded, in Sir Frederick Jordan's words, as taking advantage of the conflict. It was suggested that in the case of the notice of demand, there was liability because the notice encompassed some items of debt which were not established or as to which there was a bona fide dispute. But I do not think that that changed the situation in this case. I should add that I was not referred to, and was unable to find, any case in which a director was found in breach of duty in circumstances such as those alleged in the relevant parts of the cross claim. I am of opinion that there was no breach of fiduciary duty which the Lewis interests can rely on.

200 In the case of a breach of fiduciary duty, there is no doubt that in appropriate circumstances equitable compensation will be available as a remedy for that breach of duty: see Nocton v Lord Ashburton [1914] AC 932 at 952, 956 - 957; McKenzie v McDonald [1927] VLR 134 at 146; Catt v Marac Australia Ltd (1986) 9 NSWLR 639 at 659 - 660; Day v Mead [1987] 2 NZLR 443 at 460 – 461; Hillv Rose [1990] VR 129 at 143 – 144; Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534 at 548, 570 – 571, 589 - 590; and see generally I E Davidson “The Equitable Remedy of Compensation” (1982) 13 MULR 349; W M C Gummow “Compensation for Breach of Fiduciary Duty” in T G Youdan (ed) Equity, Fiduciaries and Trusts (1989) 57; Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (4th ed, 2002) at [5-260]. One of the appropriate circumstances, is, of course, that it is demonstrated that the company has suffered a loss and that there is a causal connexion between that loss and the breach of duty. On the evidence before me, it was not established that there was any identified loss actually suffered by Nortex, nor that there was any causal connection between any loss suffered and the actions alleged to constitute breaches of duty. In the case of the notice of demand, the company was not wound up as a result of its service. There is no evidence that there were any costs incurred that were not dealt with in the proceedings ensuing from the notice of demand. In relation to the withdrawal of the guarantee, certainly there is evidence that, on the day following the withdrawal, the Bank withdrew Nortex’s finance facility, attributing as its reason the withdrawal of the guarantee. Some time afterwards the company was wound up. However, there is no evidence as to the financial state of the company at the time of the withdrawal of the guarantee or the availability or unavailability to the company of alternative sources of finance. In those circumstances, it is impossible to find that the winding up was caused in the requisite way by the withdrawal of the guarantee. Equally, there is no evidence as to what, if any, losses the company suffered by reason of being wound up. For those reasons alone, these claims for equitable compensation would fail, even if a breach of duty were established.

201 In those circumstances, the claims made in the cross claim which have been agitated upon the trial before me must fail and there will be judgment for Lamru and Lamb in respect of them.

Appeals from liquidator’s decisions on proofs of debt

202 The principles applicable on appeals from liquidators’ rejections of proofs of debt were discussed in the High Court in Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 per Brennan and Dawson JJ at 340 – 341 as follows:

In re Bird's Stores Pty Ltd

In re Kentwood Constructions Ltd

In re Trepca Mines Ltd

Re Jay-O-Bees; Rosseau v Jay-O-Bees

203 There are a number of reasons why in my view it may not be appropriate or necessary to determine in terms the various items of appeal from the liquidator’s decisions on the proofs of debt. Events have rather flowed over them. In a number of cases, the liquidator’s decisions under attack are not encompassed in the statutory appeal, because they were made after the liquidator’s original decisions on the proofs of debt and, indeed, after the statutory appeal was instituted. An example is the liquidator’s rewriting of the accounts on the basis that the 2001 judgment compelled the add backs convention and the differential interest convention to be put aside in the preparation of the accounts. As I understand it, by reason of my direction for the inclusion in the points of claim of all matters arising under the statutory appeal, as well as all matters raised in the second set of proceedings, all subject matters of complaint are in fact subsumed into those proceedings and may be dealt with by way of declaratory relief made in respect of the issues arising on the points of claim without reference back to the amended notice of motion now constituting the statutory appeal. The passage cited above from the Tanning Research case demonstrates that this is an entirely appropriate way to resolve the issues between the liquidator and the other parties. I refer to what is said in [205] below in respect of the formulation of orders.

CONCLUSIONS

204 In summary, the decisions I have made are as follows:

(1) That the argument that the 12 April 1991 resolution was a valid determination under clause 4(1) of the trust deed was not precluded by the 2001 judgment; that the 12 April 1991 resolution was a valid determination under clause 4(1) of the trust deed; that, although the passing of the 12 April 1991 resolution was procured by a fraud by Lewis on Dufty and Hirmanu, Lamru is not entitled to have it set aside; that the Lewis interests are not estopped from alleging that the profit of the 1991 year up to 12 April 1991 exceeded $200,000; that it is not established that there is any breach of trust arising out of the distribution of profits of the 1991 year; and that, if such a breach of trust were established, the defence of laches, acquiescence and delay would be available to disentitle Lamru from any relief which would otherwise be available to it (issue 4).

(2) That the implementation of the add backs convention and the differential interest convention did not constitute a breach or breaches of trust and that the conventions continue in operation and have not ceased to have effect (issues 2 and 3).

(3) That the attribution of the whole of the sum of $291,840 to Kation in the 1992 year did not constitute a breach of trust or did not constitute a breach of trust of which Lamru was entitled to complain and that the defence of laches, acquiescence and delay would be available to disentitle Lamru from any relief which would otherwise be available to it (issue 5).

(4) That the payments by Nortex to Kation of an additional 3 per cent of the profits in the 1995 year in the sum of $58,070 and to Mark Lewis of bonuses in the 1996 and 1997 years in the sums of $101,626 and $138,733.30 respectively were made in breach of trust.

(5) That Lewis (with the knowledge and acquiescence of Kation) during the 1997 year fraudulently took and sold stock of Nortex and did not pay or account to the company for the proceeds.

(6) That, by reason of Lamru’s use of Lamb’s evidence as to his and Lamru’s dishonest participation together with Lewis and Kation in the same practice in fraud on the revenue up to Lamb’s departure from Nortex in support of this claim, Lamru is precluded by the clean hands doctrine from obtaining equitable relief in relation to that fraud.

(7) That Lamru failed in its claim relating to legal and accounting expenses.

(8) That the credit against the $284,837 deduction in respect of the China creditors item arising from the liquidator’s rejection of the proof of debt should be recorded in the 1997 year.

(9) That Lewis is liable in relation to breaches of trust with respect to the Mark Lewis payments in the 1995, 1996 and 1997 years and that Kation is liable in relation to the breach of trust with regard to the Mark Lewis payment in the 1995 year.

205 As I have already indicated to the parties, I do not intend to make or formulate orders at the time that this judgement is delivered. Furthermore, I indicated earlier in the piece that I did not propose to deal with the issue of costs at all, until after my decisions were known. I propose to receive submissions from the parties as to the orders which should be made to give effect to my decisions. Short minutes (including conflicting versions if, as is likely, there is no agreement, concerning them) should be brought in at a time I shall appoint. Arrangements can be made at the same time for the hearing of any argument as to interest and costs.

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Last Modified: 07/16/2007

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Citations

Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2004] NSWSC 1143

Most Recent Citation

Hakea Holdings Pty Ltd v Neon Underwriting Limited for and on behalf of the Underwriting Members of Lloyds Syndicate 2468 [2023] FCAFC 34

Cases Citing This Decision

13

Kation Pty Ltd v Lamru Pty Ltd; Lewis v Nortex Pty Ltd (in liq) (No 5) [2010] NSWCA 294

Kation Pty Ltd v Lamru Pty Ltd; Lewis v Nortex Pty Ltd (In liq) [No 4] [2010] NSWCA 102

Kation Pty Ltd v Lamru Pty Ltd; Lewis v Nortex Pty Ltd (In liq) (No 3) [2009] NSWCA 438

Cases Cited

45

Statutory Material Cited

3

Lewis v Nortex Pty Ltd [2001] NSWSC 511

Lewis v Nortex Pty Ltd (in liq) [2002] NSWSC 124

Lewis v Nortex Pty Ltd (In Liq) [2002] NSWSC 143

CITATION:	Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2004] NSWSC 1143 revised - 09/12/2005
HEARING DATE(S):	10 - 19 April, 7 - 14 November, 2 - 20 December 2002, 14 - 16, 22 April - 2 May, 16, 17, 19 - 27 June, 10 - 14 & 20 November 2003, 9 - 20 February, 1 - 9 March, 21 April, 11 May and 8 November 2004
JUDGMENT DATE:	29 November 2004
JURISDICTION:	Equity
JUDGMENT OF:	Hamilton J
DECISION:	See paragraph [202]
CATCHWORDS:	CONTRACTS [218] - Particular parties - Principal and agent - Relations between principal and third persons - Other cases - Agent participating with principal in transactions involving breach of trust - Knowing receipt of proceeds of breach of trust - CORPORATIONS [19] - Constitution and legal capacity - Contracts - Other matters - Engagement of solicitors and accountants by one of two directors in proceedings brought at the instance of the other - Ratification by general meeting - Whether effective - CORPORATIONS [291] - Winding up - Liquidator - Appeal from liquidator's decision - Rejection of proof of debt - Nature of proceedings - EQUITY [1] - General principles - Rules and maxims of equity - "Unclean hands" - Corresponding common law maxims relating to illegal conduct - Respective operation of defences of illegality and of unclean hands - Principles relating to application of clean hands doctrine - EQUITY [185] - Trusts and trustees - Powers, duties, rights and liabilities of trustees - Liability for breach of trust - What constitutes a breach of trust and who may be liable - Breach of fiduciary duties - Conflict between duty and interest - Duty not to profit from position - Remedies - EVIDENCE [144] - Burden of proof, presumptions, and weight and sufficiency of evidence - Generally - Sufficiency - Standard in civil proceedings - When fraud alleged - Whether "clear and cogent" proof required - Whether "actual persuasion of its occurrence or existence" necessary before Court can find fact proved - EVIDENCE [216] - Witnesses - Cross examination - When permitted and in general - By whom - Evidence of witness proposed to be contradicted by adversary.
LEGISLATION CITED:	The Corporations Law ss 232(2), (4) & (6) Corporations Act 2001 (Cth) s 251A(6) Evidence Act 1995 ss 128, 140
CASES CITED:	Abdurahman v Field (1987) 8 NSWLR 158 Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 Amalgamated Television Services Pty Ltd v Marsden [2002] NSWCA 419 Barnes v Addy (1874) LR 9 Ch App 244 Black Uhlans Incorporated v New South Wales Crime Commission [2002] NSWSC 1060 Blundell v Curvers [1999] NSWCA 421 Bray v Ford [1896] AC 44 Briginshaw v Briginshaw (1938) 60 CLR 336 Browne v Dunn (1893) 6 R 67 Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534 Catt v Marac Australia Ltd (1986) 9 NSWLR 639 Chalker v Barwon Coast Committee of Management Inc [2003] VSC 286 Chan v Zacharia (1984) 154 CLR 178 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 Danish Mercantile Co Ltd v Beaumont [1951] Ch 680 Day v Mead [1987] 2 NZLR 443 Dering v Earl of Winchelsea (1787) 1 Cox Eq Cas 318; 29 ER 1184 FAI Insurances Ltd v Pioneer Concrete Services Ltd (1987) 15 NSWLR 552 Gascoigne v Gascoigne [1918] 1 KB 223 George v Greater Adelaide Land Development Co Ltd (1929) 43 CLR 91 Government Employees Superannuation Board v Martin (1997) 19 WAR 224 Griffiths v Griffiths [1973] 1 WLR 1454 Helton v Allen (1940) 63 CLR 691 Hill v Rose [1990] VR 129 Idameneo (No 123) P/L v Ticco P/L [2003] NSWSC 538 Idameneo P/L v Ticco P/L [2004] NSWCA 329 In Re Emery's Investment Trusts. Emery v Emery [1959] Ch 410 In re Hulkes. Powell v Hulkes (1886) 33 ChD 552 Jones v Dunkel (1959) 101 CLR 298 Jones v Lenthal (1669) 1 Chan Cas 154; 22 ER 739 Karl Suleman Enterprizes Pty Ltd (in liq) v Babanour (2004) 49 ACSR 612 Lewis v Nortex Pty Ltd [2001] NSWSC 511; (2001) 10 BPR 19,035 Lewis v Nortex Pty Ltd (In Liq) [2002] NSWSC 124 Lewis v Nortex Pty Ltd (In Liq) [2002] NSWSC 143 Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2002] NSWSC 189 Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2002] NSWSC 337 Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2002] NSWSC 1192 Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2003] NSWSC 354 Lewis v Nortex Pty Ltd (In Liq); Lamru Pty Ltd v Kation Pty Ltd [2004] NSWSC 121 Loughran v Loughran 292 US 216 (1934) McKenzie v McDonald [1927] VLR 134 Meyers v Casey (1913) 17 CLR 90 Miller v Miller (1995) 16 ACSR 73 Mills v Mills (1938) 60 CLR 150 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 Nelson v Nelson (1995) 184 CLR 538 Nocton v Lord Ashburton [1914] AC 932 Nortex Pty Ltd v Lamru Pty Ltd NSWSC 12 August 1997 Master McLaughlin unreported Pascoe Ltd (in liq) v Lucas (1999) 75 SASR 246 R v Birks (1990) 19 NSWLR 677 Re Jay-O-Bees; Rosseau v Jay-O-Bees [2004] NSWSC 818 Re Nortex Pty Ltd (In Liq) [2003] NSWSC 1036 Rejfek v McElroy (1965) 112 CLR 517 Rochefoucauld v Boustead [1897] 1 Ch 196 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262 Southern Area Health Service v Brown [2003] NSWCA 369 Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 Tinker v Tinker [1970] P 136 Weston v Beaufils (No 2) (1994) 50 FCR 476 I E Davidson "The Equitable Remedy of Compensation" (1982) 13 MULR 349 W M C Gummow "Compensation for Breach of Fiduciary Duty" in T G Youdan (ed) Equity, Fiduciaries and Trusts (1989) 57 Sir Frederick Jordan "Chapters on Equity in New South Wales" (6th ed, 1947) (reprinted in "Select Legal Papers" (1983)) at 115 Meagher & Gummow, Jacobs' Law of Trusts in Australia (6th ed, 1997) at [1334], [1711], [1735] Meagher, Gummow and Lehane's Equity Doctrines and Remedies (4th ed, 2002) at [3-110], [5-260] Stephen Odgers, Uniform Evidence Law (6th ed, 2004) at [1.4.100] F M B Reynolds, Bowstead and Reynolds on Agency (17th ed, 2001) Article 13 [2-047] 4 Scott on Trusts (4th ed, 1989) par 326.3 Lord Walker "Dishonesty and Unconscionable Conduct in Commercial Life - Some Reflections on Accessory Liability and Knowing Receipt" John Lehane Memorial Lecture 2004
PARTIES :	3081/97 Peter Lawrence Lewis (P) Lamru Pty Ltd (Applicant) Kation Pty Ltd (Respondent) Brian Raymond Silvia (Liquidator) 1750/02 Lamru Pty Limited (P) Kation Pty Limited (D1) Peter Lawrence Lewis (D2) Mark Lewis (D3) Nortex Pty Ltd (In Liq) (D4)
FILE NUMBER(S):	SC 3081/97; 1750/02
COUNSEL:	S D Rares SC then N A Cotman SC and J T Johnson (P L Lewis & Kation P/L) S J Motbey (Lamru P/L) V R W Gray (Liquidator & Nortex P/L) P R Whitford & M P Cleary (M Lewis)
SOLICITORS:	Kemp Strang (P L Lewis & Kation P/L) Lyons & Lyons (Lamru P/L) Abbott Tout (Liquidator & Nortex P/L) Corrs Chambers Westgarth (M Lewis)

Item	Paragraphs
Introductory	1 – 3
The Issues	4 – 7
Background Facts	8 – 16
The Course of the Litigation	17 – 25
The Credit of Witnesses	26 – 33
Issues 1 & 4 1 Whether the $150,000 paid to Hirmanu in 1991 was paid as a distribution of profit to Hirmanu or was borrowed by Lamru and paid by it to Hirmanu? 4 Was Lamru short paid $161, 398 or any sum in 1991?	34 – 56
Issues 2 & 3 2 Whether the differential interest convention is effective? 3 Whether the add backs convention is effective?	57 – 77
Issue 5 Was Lamru short paid $164,121 or any sum in 1992?	78 – 82
Issues 6 & 7 6 Was Lamru short paid $27,026 or any sum in 1993? 7 Was Lamru short paid $3,758.13 or any sum in 1994?	83
Issue 8 8 Was Lamru short paid $38,248.01 or any sum in 1995?	84
Issue 9 What was the free net income in 1996?	85
Issue 10 What was the free net income at 30 June 1997?	86 – 87
Payments to Mark Lewis	88 – 107
Fraudulent taking of stock	108 – 132
Unclean hands defences	133 – 155
Legal and accounting expenses	156 – 169
China creditors	170 – 173
Issue 11	174
Issue 12: Accessorial liability Whether Kation or Lewis is personally liable to Lamru in respect of any of the breaches of trust proved	175 – 183
Issue 13 Whether the cross claims against Lamru and Lamb for contribution or indemnity succeed	184
Issue 14 Whether the cross claims against Lamru and Lamb based on breach of contract or for breach of his duties as a director succeed	185 – 201
Appeals from liquidator’s decisions on proofs of debt	202 – 203
Conclusions	204 – 205