Middle East Trading v Nemes - [2000] NSWSC 632

CITATION: Middle East Trading v Nemes [2000] NSWSC 632

FILE NUMBER(S): SC 20173/96

HEARING DATE(S): 17/08/99, 18/08/99, 19/08/99, 20/08/99, 23/08/99, 24/08/99, 25/08/99, 26/08/99, 27/08/99, 17/04/00, 18/04/00, 19/04/00 20/04/00, 27/04/00

JUDGMENT DATE: 14 July 2000

PARTIES :

Middle East Trading Consultants Pty Limited v Steven Nemes and David Vaughan T/A Heaney, Richardson & Nemes

JUDGMENT OF: James J

COUNSEL : R MacFarlan QC/P Durack - Plaintiffs
D Davies SC - Defendants

SOLICITORS: P A Somerset & Co - Plaintiffs
Phillips Fox - Defendants

DECISION: Verdict for the Plaintiffs

THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

JAMES J

Friday 14 July 2000

20173/96 - Middle East Trading Consultants Pty Limited v Nemes & Anor
JUDGMENT

1   HIS HONOUR: This is an action for damages for professional negligence brought by Middle East Trading Consultants Pty Limited (“Metco”) against its former solicitors Steven Nemes (“Mr Nemes”) and David Vaughan (“Mr Vaughan”) practicing as Heaney Richardson and Nemes (“HRN”). Between April 1992 and October 1993 HRN acted as solicitors for Metco in its dealings with Jesseron Holdings Pty Limited (“Jesseron”). At all material times Metco was controlled by Mr Mohammad Hassan Akhyani (“Mr Akhyani”). It was Mr Nemes who, for the most part, acted as Metco’s solicitor, although occasionally Mr Vaughan acted as solicitor for Metco. Mr John William Beale (“Mr Beale”) of Messrs Beale Gaertner Young acted as accountant for Metco. Between April 1992 and October 1993 (and at other times) Jesseron was controlled by Mr Geoffrey Pritchard. During this period Jesseron’s solicitor was Mr David Ginges of Messrs Teakle Ormsby and Associates and a Mr Crick at times acted as accountant for Jesseron.
2   A very large amount of evidence was adduced in these proceedings. There were no fewer than nine affidavits by Mr Akhyani, made at various times between September 1996 and August 1999. Mr Akhyani’s principal affidavit on liabilty was his affidavit of 27 September 1996. In addition to these affidavits by Mr Akhyani, there were affidavits on behalf of Metco by Mr Akhyani’s wife, by Metco’s bank manager Mr Dart, by Metco’s current solicitor Mr Fordyce of Messrs P A Somerset & Co and by two solicitors Mr Linden and Mr Meagher who gave expert evidence. For the defendants there were affidavits by Mr Nemes, Mr Vaughan, Mr Beale, Mr Pritchard, Mr Donnelly who became the liquidator of Jesseron and by a solicitor Mr McCann who gave expert evidence. Apart from the affidavits and the annexures and exhibits to the affidavits, there was an agreed bundle of documents running to more than 650 pages. Oral evidence was given in the proceedings by Mr Akhyani, Mrs Akhyani and Mr Meagher and by Mr Nemes, Mr Beale, Mr Pritchard, Mr Donnelly and Mr McCann. I have taken all of this evidence into account but the evidence is so voluminous that I will refer specifically to only parts of it in this judgment.
3   At the hearing there was no dispute about a number of facts, many of which were proved by contemporaneous documents. It will be convenient to set out an outline of facts about which there was no dispute. It will also be convenient to include in this outline references to some matters about which there was dispute.

Outline of Facts which were not disputed

4   Mr Akhyani was born in Iran in 1947. His native language is Persian. However, he began learning English at the age of twelve. He obtained two degrees in the United Kingdom, including a Master’s degree in Business Administration.
5   In 1989 Mr Akhyani migrated to Australia, with his wife and children. In 1990 he established Metco. After establishing Metco, Mr Akhyani investigated a possible business venture of importing dates into Australia from Iran.
6   In 1992 Jesseron was carrying on the business of distributing packaged fruit in Australia. Jesseron had access to supermarkets for the products it was distributing and this was an important commercial advantage. Jesseron also had an established brand name for its packaged fruit.
7   Discussions took place between Mr Akhyani and Mr Pritchard with a view to their companies combining in importing packaged dates from Iran and distributing them in Australia. Metco had capital resources and Mr Akhyani’s contacts in the Middle East. Jesseron had its established distribution channels and brand name.
8   In April 1992 there was a meeting between Mr Akhyani and his accountant Mr Beale. Some aspects of what happened at this meeting are controversial. However, it was common ground between Mr Akhyani and Mr Beale that Mr Beale advised Mr Akhyani that the businesses of Mr Akhyani and Mr Pritchard should be kept separate, that there should be a distribution agreement between Metco and Jesseron, that Mr Akhyani should consult a solicitor and that Mr Beale recommended as a solicitor Mr Nemes or HRN. Mr Beale was an old friend of Mr Vaughan but he recommended Mr Nemes, rather than Mr Vaughan, because Mr Nemes was a specialist in commercial law.
9   On 13 April 1992 Mr Beale sent a fax to Mr Vaughan. The fax was in the following terms:-

“Our above client (Mr Akhyani) has requested us to arrange a draft agreement in respect to the marketing of dates which he is importing from the Middle East.

Please contact the client, Mr Mohammed Akhyani on 489 6075 to obtain your instructions.

The basis of the agreement is as follows:

1. Middle East Trading Pty Ltd (MET) is the importer of the produce.

2. The agreement is between MET and Jesseron Holdings Pty Ltd (JH).

3. JH currently markets a number of products under the name of ‘King Brand’.

4. It is proposed that JH will receive 50% of the profit from the sale of dates and in return will provide:

(a) the use of the Brand Name ‘King Brand Dates’.
(b) Marketing and Distribution of the produce including negotiate sales, eg; Coles, invoice the product and provide debt collection facilities.

5. MEH will be responsible for the purchase and freight of the dates and finance the costs.

6. The purpose of the agreement will be:

1. To enable the use of the Brand name ‘King Brand’
2. Assist in marketing and distribution.

Our client requires the contract to provide for:

1. Continuity of ‘King Brand’ name

2. Control in respect to ownership of the dates and receipt of monies from debtors.

7. The calculating of profit for sharing purposes should be:

Sale of Dates

less, all costs of purchase including freight, finance etc.

all costs associated with marketing & distribution of the product.

8. The share of profit is effectively a commission paid to JH.”

10   Soon afterwards Mr Beale spoke on the telephone to Mr Vaughan. Mr Vaughan made contemporaneous notes of the conversation, which he, and later Mr Nemes, regarded as part of Metco’s instructions. Part of Mr Vaughan’s notes reads as follows:-

“Jesseron invoice for these products but we retain ownership of goods & Jesseron only act as our agent. Jesseron get 50% of profit on sale”.

11   Mr Akhyani had a meeting with Mr Nemes. Some of what happened at the meeting is controversial. However, it is common ground that at the meeting Mr Akhyani said words to the effect that as soon as goods were delivered to Jesseron ownership of the goods would pass to Jesseron.
12   On 14 May 1992 Mr Nemes wrote a letter to Mr Akhyani, enclosing a draft agreement for approval by Mr Akhyani. Mr Nemes described the draft agreement as a draft “distributorship agreement”. In different parts of the evidence the draft agreement and the agreement subsequently entered into were described as a “distributorship agreement” and a “distribution agreement”. No copy of the draft enclosed with the letter of 14 May 1992 is extant. In the letter Mr Nemes sought instructions from Mr Akhyani on two specific points, one of which was:-

“Do you wish a personal guarantee from directors of JH? If so, this can easily be included but it may be that the directors would not be prepared to give such a guarantee”.

13   On 19 May 1992 Mr Akhyani telephoned the office of HRN. A file note of the telephone conversation was made. I am satisfied that the conversation was with Mr Nemes’ secretary and that it was Mr Nemes’ secretary who made the file note. According to the file note, Mr Akhyani requested eight amendments to the draft agreement. Two of these amendments are of particular importance, namely:-

“2. He (that is Mr Akhyani) wants a guarantee clause and will let us know the name of the guarantor.

…

8. He wants a new clause inserted that if he does not receive payment within a certain period of time then he is authorised to approach retailers direct seeking payment for goods delivered”.

14   On 21 May 1992 Mr Nemes sent a further draft of the agreement to Mr Akhyani and to Mr Ginges as solicitor for Jesseron.
15   Mr Nemes asserted in his evidence, and Mr Akhyani denied in his evidence, that on 20 or 21 May Mr Nemes had a conversation with Mr Akhyani. It will be necessary later in this judgment to return to the evidence about this alleged conversation.
16   On 9 July 1992 a distributorship agreement was entered into. The parties to the distributorship agreement were Metco and Jesseron, (referred to in the agreement as “JH”) with Mr Pritchard as a guarantor of the obligations of Jesseron. Some of the more important provisions of the distribution agreement were as follows.
17   In Part 1 of the agreement which was headed “Interpretation”, “product” was defined as meaning “dates that are supplied by Metco to JH (Jesseron)”. “Territory” was defined as meaning Australia.
18   By cl 11 in Part 3 of the agreement Metco appointed Jesseron as its sole distributor in the territory for the sale of the product. By cl 13 it was agreed that Metco and Jesseron might at any time agree in writing on the distribution of other products on the same terms as were contained in the distributorship agreement.
19   Cl 31 in Part 3 of the agreement provided that Jesseron should procure orders from retailers for quantities of the product to be supplied by Metco. Cl 33 in Part 3 of the agreement was in the following terms:-

“Metco shall be paid for quantities of the product delivered to JH within seven days of payment being received by JH from purchasers of such quantity of the product. The amount payable to Metco by JH pursuant to this clause shall be:

(a) the sum paid by Metco to its suppliers for quantities of the product delivered to JH; and

(b) reimbursement of all freight, customs and excise duties, insurance, interest charges on amounts paid to suppliers for quantities of the product and all other payments made by Metco and which are reasonably necessary in respect of the importation of the product into the Territory including the cost of delivery to JH”.

20   Cl 34 in Part 3 of the agreement provided that Metco should arrange to purchase quantities of the product ordered by Jesseron from its suppliers in Iran, subject to Metco being entitled to reject any order from Jesseron, provided it did so within seven days of receipt of the order.
21   By Part 4 of the distributorship agreement it was provided that after payment to Metco of the monies referred to in Cl 33 and after reimbursement of expenses reasonably incurred by Jesseron in the marketing and distribution of the product, the balance of the proceeds of sale of the product should be divided equally between Metco and Jesseron.
22   Part 6 of the distributorship agreement conferred rights on each of Metco and Jesseron to inspect certain records of the other.
23   Part 9 of the distributorship agreement dealt with termination of the agreement.
24   Clause 92 provided that on termination of the agreement for any reason Jesseron should discontinue all activities relating to the product (subject to a certain qualification) and “(ii) return any quantities of the product in its possession not the subject of supply orders to Metco within seven days of termination”.
25   Part 15 of the distributorship agreement contained a guarantee by Mr Pritchard of the obligations of Jesseron under the agreement.
26   Part 16 of the distributorship agreement was as follows:-

“ 16. COMMUNICATION WITH RETAILERS:

JH hereby irrevocably appoints METCO the attorney of JH immediately on or at any time after any breach or default by JH to exercise in the name of JH all rights, powers and remedies of METCO expressed or implied herein and to receive any moneys payable to JH in respect of the Product supplied to retailers pursuant to this Agreement and to do all things required to be done by JH and to execute all documents and to do all things necessary in regard to such matters including and without limiting the generality thereof:

(a) make demand to retailers supplied with quantities of the Product seeking payment; and

(b) institute and maintain proceedings for recovery of moneys owed by retailers in relation to quantities of the Product in the name of JH”.

27   On 3 October 1992 Mr Pritchard wrote a letter in the nature of a progress report to Mr Akhyani. He reported that all the supermarket chains had indicated that they were prepared to take “our King Brand dates”. He expressed the opinion that sales would exceed previous estimates by at least 200 per cent. He confirmed large orders by Jesseron for dates and also for cherries for the 1992-1993 season.
28   In November 1992 Mr Akhyani spoke to Mr Beale about the proposed expansion of the joint business. According to Mr Akhyani’s evidence, with which Mr Beale agreed, the following conversation took place between Mr Akhyani and Mr Beale.

“Mr Beale: You should get further security from Jesseron because of the expansion of your business dealings and the increased involvement of Metco with Jesseron. You should ask for more security. You should get a charge over Jesseron

Mr Akhyani: What’s a charge?

Mr Beale: A charge is like a mortgage over all of the assets of Jesseron including its floating assets like book debts”.

29   Each of Mr Akhyani and Mr Beale asserted in his evidence that further things were said in this conversation but these further things were contentious.
30   Mr Akhyani contacted Mr Nemes by telephone. Mr Akhyani said that he and Mr Pritchard wanted to expand their activities to include other product lines and that he wanted to know whether any further documentation was required. Mr Nemes advised that there was no need for him, Mr Nemes, to prepare any further document. He suggested that Mr Akhyani himself prepare a letter pursuant to cl 13 of the distributorship agreement, extending the distributorship agreement to other products. There was a conflict between the evidence of Mr Akhyani and the evidence of Mr Nemes as to whether anything was said in this conversation about Mr Beale’s advice that Metco should obtain a charge over Jesseron.
31   Mr Akhyani prepared a letter dated 6 November 1992, whereby Metco and Jesseron agreed that certain types of figs should be included in the distributorship agreement. Mr Pritchard signed this letter on behalf of Jesseron.
32   From September 1992 onwards Mr Akhyani attended regularly at Jesseron’s business premises. Mr Akhyani set up a computer system for Jesseron and also took part in the day to day running of Jesseron’s business.
33   While he was working in the same office as Mr Pritchard, discussions took place between Mr Akhyani and Mr Pritchard with a view to Mr Akhyani acquiring a 50 per cent share holding in Jesseron which was held by a Mr Hill, who was inactive in the company’s affairs and who apparently wished to dispose of his share holding.
34   At Mr Pritchard’s request, Mr Akhyani signed a lease of a motor vehicle as a guarantor and as the “secretary” of Jesseron. Mr Pritchard brought into existence a document in the following terms:-

“Minutes of meeting of directors of Jesseron Holdings Pty Ltd held at registered office on Thursday 22 April at 1.30 pm.

Present: Mr G Pritchard, Mohamad Akhyani

Appointment resolved that Mohamad Akhyani co-director of 1/A Clissold Road, Wahroonga is hereby appointed secretary of the company.

There being no further business the meeting is closed.

(Signed) G W Pritchard”.

35   In about May 1993 Mr Akhyani had a conversation with Mr Pritchard in which he proposed that Metco acquire a 50 per cent share holding in Jesseron and that Jesseron give a charge in favour of Metco. Mr Akhyani expressed concern about the size of the indebtedness of Jesseron to Metco and proposed that the amount of the balance due be determined by an independent accountant. Mr Pritchard agreed with this proposal and nominated Mr Crick as an independent accountant.
36   A meeting took place in a café between Mr Akhyani, Mr Pritchard and Mr Ginges. Mr Nemes was not present. At the meeting Mr Ginges said that he would prepare a charge to be given by Jesseron to Metco.
37   Mr Crick prepared a report dated 11 June 1993, which showed the position of Jesseron as at 30 April 1993. In Mr Crick’s report the indebtedness of Jesseron to Metco as at 30 April 1993 was stated to be $685,659.97. This figure included the cost of purchases of stock by Jesseron from Metco, even if the price was not yet payable because Jesseron had not yet received payment from a sub-purchaser.
38   Mr Akhyani asserted in his evidence and Mr Nemes disputed in his evidence that a meeting took place between them in about the middle of June 1993.
39   A meeting undoubtedly did take place between Mr Akhyani and Mr Nemes at Mr Nemes’ office on 16 June 1993. Mr Akhyani expressed concern about the amount of the indebtedness. Mr Nemes said that there was a large debt owing by Jesseron to Metco, that this debt was unsecured and that Metco did not own any of the stock held by Jesseron and that in these circumstances, as court proceedings would be slow and expensive, it would be more commercially sensible for Mr Akhyani to negotiate with Mr Pritchard concerning the amount of the indebtedness of Jesseron to Metco, the terms on which this indebtedness should be paid and the provision of security for payment of this indebtedness. Mr Akhyani said that his object was to become a partner in Jesseron’s business and the indebtedness of Jesseron to Metco could be used as a lever for achieving this object.
40   A meeting took place on 18 June 1993 at Mr Nemes’ office. The meeting was attended by Mr Akhyani, Mr Nemes, Mr Beale, Mr Pritchard, Mr Ginges and Mr Crick. At the meeting Mr Ginges said that all the stock was owned by Jesseron, that the amount of any debt due and payable by Jesseron was disputed and that his client did not want Mr Akhyani as a shareholder in Jesseron. However, he said that Jesseron would give a charge in favour of Metco. Mr Pritchard or Mr Ginges made assertions that the amount of any debt should be discounted, because some stock supplied by Metco to Jesseron had been in a damaged condition or had incorrect use by dates. It was agreed that the accountants Mr Beale and Mr Crick should attempt to arrive at a compromise figure for the amount of the debt, that Mr Nemes should prepare a charge to be given by Jesseron to Metco and that a stocktake of the stock held by Jesseron should be conducted. Mr Akhyani asserted in his evidence and Mr Nemes disputed in his evidence that certain things were said between them at a private meeting between them during a break in the general meeting.
41   On 22 June 1993 Mr Ginges wrote to Mr Nemes, saying that Jesseron’s consent to the giving of a charge depended on the accountants reaching agreement on the amount of the debt. On 23 June 1993 Mr Nemes wrote to Mr Beale asking him to expedite the preparation of figures, so that a charge could be prepared by 28 June.
42   In his oral evidence Mr Nemes initially denied that by 22 June Mr Akhyani had made it clear that he wanted a charge to be given by Jesseron or that Mr Beale had been asked to prepare figures so that a charge could be prepared by 28 June. When confronted with the letter of 23 June to Mr Beale, Mr Nemes conceded that his earlier evidence had been incorrect.
43   By 25 June 1993 Mr Beale had prepared a report. In this report he showed the amount of the debt from Jesseron to Metco as being $320,392. This amount was arrived at on an assumption that stock which had not been onsold by Jesseron was owned by Metco and the purchase price of this stock was not included in the amount of the debt. Of the amount of $320,392, only $204,400 was immediately due and payable in accordance with the distributorship agreement. $115,992 was the cost to Jesseron of stock which had been onsold by Jesseron but for which Jesseron had not yet received payment.
44   A meeting took place at Mr Nemes office on 30 June 1993. The meeting was attended by Mr Akhyani, Mr Nemes, Mr Beale, Mr Pritchard, Mr Ginges and Mr Crick. The purpose of the meeting was to negotiate a compromise and to prepare and execute fresh documents to give effect to the compromise.
45   At the meeting it was agreed that the amount of the indebtedness of Jesseron to Metco should be compromised at the figure of $260,000 and that that amount together with interest thereon should be paid by six monthly instalments. It was also agreed that Metco should take back the stock which had not been sold by Jesseron.
46   There was a conflict between the evidence of Mr Akhyani and the evidence of Mr Nemes as to what was said between them in private conversations at lunch and at some time in the afternoon of 30 June.
47   The meeting ended in mid-afternoon. Mr Nemes then drafted documents to give effect to the compromise. In the evening Mrs Akhyani came to Mr Nemes’ office, so that she could participate in the execution of the documents by Metco.
48   In the evening the documents drawn by Mr Nemes were executed. Although the documents were executed on 30 June, they were dated as of 1 July. Mr Akhyani, as well as participating in the execution of the documents by Metco, witnessed the affixing of the seal of Jesseron to the documents as the “secretary” of Jesseron. There was a conflict between the evidence of Mr Akhyani and the evidence of Mr Nemes about what was said between them, immediately before Mr Akhyani signing the documents purportedly as the secretary of Jesseron.
49   At a late stage in the evening it was agreed that Metco should appoint Jesseron as its non-exclusive agent for the distribution of dates. Mr Nemes handwrote a distribution agreement.
50   One of the documents executed on 30 June was a deed between Metco and Jesseron (“the deed”), Mr Pritchard being joined as a party for the purpose of his giving a guarantee of the obligations of Jesseron under the deed.
51   Important clauses in the deed include the following:-
52   By cl 11 the distributorship agreement of 9 July 1992 was terminated.
53   By cl 21 it was agreed that dates which were being held in storage should be the property of Metco.
54   By cl 3 it was agreed that Jesseron was indebted to Metco in the sum of $260,000, which together with interest thereon was to be paid by six monthly instalments of $45,055, the first instalment being payable on 1 August 1993 and the last instalment being payable on 2 January 1994.
55   By cl 4, which dealt with the subject of default, it was agreed that on the happening of any one of a number of events Metco could require immediate repayment of the balance outstanding.
56   By cl 6 it was agreed that Jesseron should execute a deed of equitable charge to secure its obligations under the deed.
57   Cl 10 contained mutual releases by the parties.
58   Cl 11 contained a personal guarantee by Mr Pritchard of the obligations of Jesseron under the deed.
59   By a deed of equitable charge executed on 30 June 1993 Jesseron charged all its assets so as to create a fixed or floating charge over all its assets, to secure repayment of the sum of $260,000 and interest thereon. The charge was accordingly not an “all monies” charge securing payment of all moneys whatever which might be owing by Jesseron to Metco. Part 5 of the charge provided that on the happening of any one of a number of events the monies secured by the charge would become immediately due and payable. Part 7 provided that at any time after the monies secured by the charge had become due and payable, Metco could appoint a receiver. By the provisions of Pt 7 extensive powers were conferred on any such receiver.
60   By the handwritten non-exclusive distribution agreement Metco appointed Mr Pritchard or Jesseron a non-exclusive sale agent for the sale of dates and other products nominated by Metco from time to time. Payment for goods supplied pursuant to this non-exclusive distribution agreement was to be made by Jesseron within seven days of receipt of proceeds from its customers.
61   On 1 July 1993 Mr Nemes wrote a letter, reporting to Mr Akhyani. Part of this letter was in the following terms:-

“We note that this matter, after lengthy negotiations settled yesterday when a Deed was entered into between the two companies the effect of which is as follows:

1. The existing Distribution Agreement between the Middle East Trading Consultants Pty Limited (“METCO”) has been terminated.

2. There is an acknowledgment in the document that the figs are now the sole property of Jesseron and the dates the sole property of METCO.

3. By agreement there is an acknowledgment that the amount owed by Jesseron to METCO is $260,000 to be repaid over a six month period at the rate of $45,055.00, which amount includes interest calculated at 13½% per annum.

4. You are entitled under the agreement to sell existing stock of dates and other products under the ‘King Brand’ name, which is defined as stock having landed in Australia or ordered up to 29 June 1993.

5. Mr Pritchard guarantees the obligations of Jesseron and Jesseron pursuant to the document has provided a Deed of Equitable Charge to secure the loan.

We also note that a letter was prepared for you setting out the new arrangements to distributing stock by Jesseron, should you require to utilise their services.

We enclose a copy of the Deed for your records”.

62   The remaining paragraphs of the letter dealt with purely formal matters.
63   Jesseron soon defaulted in paying for stock purchased by it from Metco pursuant to the non-exclusive distribution agreement.
64   On 23 July 1993 Mr Akhyani telephoned Mr Nemes, complaining about the non-payment by Jesseron. Mr Nemes advised that under the charge Metco had the right to have an accountant inspect the books and records of Jesseron. He advised that Mr Akhyani should contact Mr Beale and instruct him to inspect Jesseron’s books and records to determine whether any obligation by Jesseron to pay Metco had arisen.
65   On 29 July 1993 a meeting took place between Mr Akhyani and Mr Nemes. Mr Akhyani reported that he had made arrangements for Mr Beale to inspect Jesseron’s books and records. Mr Nemes said (this was alleged by Mr Akhyani in his evidence and not denied by Mr Nemes in his evidence) that, if the non-exclusive distribution agreement had been breached, Metco could enforce the charge by appointing a receiver. Mr Akhyani also raised the matter of his being (or apparently being) an officer of Jesseron. Mr Nemes said that he would draft a letter to be sent to Jesseron.
66   On 29 July 1993 Mr Nemes sent a fax to Mr Akhyani, part of which was as follows:-

“1. Suspected late payments for sale of dates

We note that you have reason to believe that Jesseron has not made payments for dates sold pursuant to letter of agreement dated 1 July 1993. As discussed under clause 612 and 87 of the Deed of Equitable Charge (“Charge”) you can request an inspection of the records of Jesseron and if they have indeed breached their obligations to Metco we can look at enforcing rights under the Charge. We recommend that you write a letter to Jesseron in the following terms.

‘I acknowledge receipt of your facsimile dated 28 July 1993 relating to payments of money due to Middle East Trading Consultants Pty Limited (Metco) for dates sold by Jesseron Holdings Pty Limited (“Jesseron”) pursuant to agreement evidenced by letter dated 1 July 1993 (“Agreement”).

Under the terms of the Agreement Jesseron is required to pay Metco within seven days of receiving payment from customers, subject to Jesseron’s right to deduct commission and other payments referred to in the Agreement. Jesseron is not entitled to delay payments because of time taken to reconcile accounts.

I am concerned to ensure that Metco receives payments in accordance with the Agreement and need to protect Metco’s interest in this regard. Accordingly, pursuant to clause 612 and 87 of the Deed of Equitable Charge granted to Metco by Jesseron, I hereby give you notice that Metco has this day authorised and appointed Mr John Beale Metco’s accountant to inspect the books and records of Jesseron. Metco nominates 9.00 am Monday 2 August 1993 at the office of Jesseron at Suite 2, 836 Military Road, Mosman as the time and place for such inspection.

Please confirm that the records of Jesseron will be available for inspection at the appointed time and place.

Mohammad Akhyani’

2. Resignation as Officer of Jesseron

In order to resign as a director and secretary of Jesseron a letter should be sent to Jesseron in following terms:

‘Secretary,
Jesseron Holdings Pty Limited
Suite 2, 836 Military Road,
Mosman

30 July 1993

Dear Sir,

I hereby tender my resignation as a director and secretary of the Company effective immediately. Please confirm once the necessary documents have been lodged with the Australian Securities Commission…’”.

67   On 30 July 1993 Mr Akhyani wrote a letter to Jesseron, tendering his resignation as a director and the secretary of Jesseron.
68   On 2 August 1993 Mr Pritchard wrote a letter to Mr Akhyani asking for certain details which would have to be included in a form to be lodged with the Australian Securities Commission pursuant to Mr Akhyani’s resignation, including “details & date of your appointment as a director, because to the best of my knowledge your appointment referred only to the position of secretary”. Mr Akhyani forwarded a copy of this letter to Mr Nemes.
69   On 8 August 1993 Mr Pritchard wrote to Metco, complaining that orders which had been placed by Jesseron with Metco had not been filled. In this letter Mr Pritchard said inter alia “we will defend any action by you, should it arise in relation to the charge”.
70   On 9 August 1993 Mr Akhyani forwarded to Mr Nemes a copy of this letter from Mr Pritchard. In a fax to Mr Nemes Mr Akhyani asked “is he (Mr Pritchard) saying that he will challenge the charge? Can he do that?” In the fax Mr Akhyani reiterated that he was not prepared to supply dates to Jesseron, until Metco was paid for dates which had already been supplied. Mr Nemes did not make any written reply to this fax.
71 In a telephone conversation between Mr Akhyani and Mr Nemes on or about 9 August 1993, Mr Akhyani gave instructions that a demand under s459E of the Corporations Law should be served by Metco on Jesseron.
72   On 17 August 1993 Mr Nemes wrote a letter to Mr Ginges. The concluding paragraph of this letter was in the following terms:-

“Our very clear instructions are that Metco will require your client to meet its obligations pursuant to the deed of equitable charge and the letter appointing Jesseron as non-exclusive distributor. In the event that your client continues to fail so to do our client will have no alternative but to rely upon all its rights at law and in equity”.

73 On 20 August 1993 a demand pursuant to s459E of the Corporations Law was served on Jesseron.
74   On 24 August 1993, while Mr Nemes was overseas, Mr Vaughan wrote a letter to Mr Ginges, complaining that, notwithstanding provisions of the deed of 1 July 1993, Jesseron had been telling supermarkets that Metco was not entitled to sell dates in Jesseron packaging to the supermarkets.
75   On 24 August 1993 Mr Beale wrote a letter to Jesseron, requesting access to and inspection of a number of classes of books and records of Jesseron “under the terms of the deed of equitable charge”. Mr Nemes gave evidence at the hearing that he had spoken to Mr Beale, suggesting what things Mr Beale should look for on an inspection of the books and records of Jesseron. On 26 August Mr Beale wrote to Mr Akhyani, reporting on an inspection, partly unsatisfactory, which he had made on 25 August.
76   In a conversation between Mr Akhyani and Mr Nemes Mr Nemes said that Mr Beale would be able to find evidence on an inspection of the books and records of Jesseron, which would enable the appointment of a receiver “sooner than later”.
77   On 1 September 1993 HRN wrote a letter to Mr Ginges, enclosing a copy of Mr Beale’s letter reporting on his attempt to inspect the books and records of Jesseron on 25 August. The concluding part of this letter read:-

“Jesseron’s actions are in clear breach of the deed of equitable charge dated 1 July 1993 and we hereby give formal demand that unless these documents are produced for inspection by Mr Beale by the close of business on Thursday 2 September 1993 we will seek Metco’s instructions in relation to any further action it proposes to take”.

78   On 6 September 1993 HRN wrote a letter to Mr Akhyani. The concluding paragraphs of this letter were:-

“We note that the 21 day period from the service of the statutory notice expires on 9 September 1993 and we will commence proceedings if the amount claimed is not paid by then.

In the meantime we seek your further instructions in relation to the appointment of a receiver and the action against Jesseron for the wrongful representations concerning your ability to sell the dates”.

79   On 8 September 1993 Jesseron commenced proceedings claiming an order that the statutory demand which had been served on it be set aside.
80   On 9 September 1993 Mr Beale furnished a report about Jesseron. Mr Beale expressed concern about Jesseron’s ability to continue servicing the deed of charge. The amount owed by Jesseron to Metco was $32,238. In Mr Beale’s opinion, Jesseron was not able to pay its debts as they fell due and was insolvent.
81   A telephone conversation took place between Mr Nemes and Mr Akhyani on or about 9 September 1993. There is a conflict between the evidence of Mr Akhyani and the evidence of Mr Nemes about what was said in this conversation. It is common ground that Mr Nemes said that he would like to obtain an opinion from counsel.
82   On 13 September 1993 a conference took place at the chambers of Mr Simpkins of counsel, which was attended by Mr Akhyani, Mr Nemes and Mr Star. Mr Star was an accountant with an insolvency practice. Mr Akhyani had contacted Mr Star and had made arrangements with Mr Star for Mr Star to accept appointment as receiver of Jesseron.
83 There was a conflict between the evidence of Mr Akhyani and the evidence of Mr Nemes about what happened at the conference with Mr Simpkins. No evidence was given in these proceedings by either Mr Simpkins or Mr Star. It is, however, common ground between Mr Akhyani and Mr Nemes that at the conference Mr Star expressed concern that, because of Mr Akhyani’s association with Jesseron, Mr Akhyani might be an “officer” of Jesseron for the purposes of s267 of the Corporations Law.
84 It is convenient at this stage to set out some of the provisions of s267 of the Corporations Law:-

267 (1) [Charge in favour of ‘relevant person’ void] Where:

(a) a company creates a charge on property of the company in favour of a person who is, or in favour of persons at least one of whom is, a relevant person in relation to the charge; and
(b) within 6 months after the creation of the charge, the chargee purports to take a step in the enforcement of the charge without the Court having, under subsection (3), given leave for the charge to be enforced;

the charge, and any powers purported to be conferred by an instrument creating or evidencing the charge, are, and shall be deemed always to have been, void.

267 (2) [‘take step in enforcement of charge’] Without limiting the generality of subsection (1), a person who:

(a) appoints a receiver of property of a company under powers conferred by an instrument creating or evidencing a charge created by the company; or

(b) whether directly or by an agent, enters into possession or assumes control of property of a company for the purposes of enforcing a charge created by the company;

shall be taken, for the purposes of subsection (1), to take a step in the enforcement of the charge.

267 (3) [Where charge may be enforced] On application by the chargee under a charge, the Court may, if it is satisfied that:

(a) immediately after the creation of the charge, the company that created the charge was solvent; and

(b) in all the circumstances of the case, it is just and equitable for the Court to do so; give leave for the charge to be enforced.

…

267 (7) [Definition] In this section:

“charge”, in relation to a charge, means:

(a) in any case - the holder, or all or any of the holders, of the charge; or

(b) in the case of a charge that is an agreement to give or execute a charge in favour of a person or persons, whether upon demand or otherwise - that person, or all or any of those persons;

“officer”, in relation to a company, includes, in the case of a registered foreign company, a local agent of the foreign company;

“receiver” includes a receiver and manager;

“relevant person”, in relation to a charge created by a company, means;

(a) a person who is at the time when the charge is created, or who has been at any time during the period of 6 months ending at that time, an officer of the company; or

(b) a person associated, in relation to the creation of the charge, with a person of a kind referred to in paragraph (a)”.

85 By s9 of the Corporations Law “officer” is defined as including “(a) a director, secretary, executive officer or employee of the body (corporate)”.
86   The concern expressed by Mr Star was that Mr Akhyani was a person associated with Metco and might during the period of six months up to the time of creation of the charge have been an officer of Jesseron. At the conference Mr Star said that he had caused a corporations search to be made and the search had not shown Mr Akhyani as holding any office in Jesseron.
87   Mr Simpkins advised that it would seem that Mr Akhyani had not been an officer of Jesseron and he further advised that Metco should issue a demand on Jesseron for all monies outstanding and that a receiver and manager of Jesseron should be appointed.
88   After the conference with Mr Simpkins, a notice was served on Jesseron requiring payment by 15 September of the amount alleged to be due by Jesseron to Metco. On 16 September, no payment having been received from Jesseron, Metco, pursuant to the power conferred by the deed of equitable charge, appointed Mr Star receiver and manager of the undertaking and assets of Jesseron charged by the deed of equitable charge.
89   On 17 September 1993 Hulme J, on the application of Jesseron, granted an ex parte injunction restraining Mr Star from acting as receiver and manager of Jesseron.
90 On 17 September Mr Nemes delivered a brief to Mr McClintock of counsel to appear for Metco in the injunction proceedings. In his instructions to Mr McClintock Mr Nemes said that Jesseron was claiming that the amount claimed by Metco as being the amount of Jesseron’s indebtedness was excessive. In his instructions to Mr McClintock Mr Nemes did not refer to s267 of the Corporations Law or to Mr Akhyani having participated in the execution of the charge by Jesseron.
91   On 17 September 1993 a conference took place at Mr McClintock’s chambers, which was attended by Mr Akhyani, Mr Nemes and a representative of Mr Star. There was a conflict between Mr Akhyani’s evidence and Mr Nemes’ evidence about what was said at the conference. Mr Nemes has no notes of the conference.
92   On 22 September 1993 and 23 September 1993 there was a contested hearing before Hulme J of an application by Jesseron to continue the interlocutory injunction.
93   On 1 October 1993 Hulme J gave a reserved judgment. His Honour made an order, until further order, restraining Metco and Mr Star from taking any step in furtherance of the appointment by Metco of Mr Star as receiver and manager of Jesseron. Hulme J made this order on the ground that there was a serious issue to be tried as to whether within six months prior to 1 July 1993 Mr Akhyani had been an “officer” of Jesseron, with the consequence that the charge had become void by reason of Metco, within six months after the creation of the charge, taking a step in the enforcement of the charge, without having obtained leave for the charge to be enforced. Hulme J did not make any finding on whether the charge had been validly executed.
94   Before Hulme J delivered his reserved judgment, Mr Nemes on 30 September wrote a letter of advice to Mr Akhyani in response to questions from Mr Akhyani. Part of this letter was as follows:-

“Have there been any errors made in relation to the signing of the charge or the enforcement of it having regard to the Corporations Law? The Corporations Law renders void any charge granted by a company broadly speaking in favour of an officer or employee of the company or any person or entity associated with such officer or employee, if a step (such as an appointment of a receiver) is taken within six months of the date of the charge. We respond to this two part question as follows:

(a) At the time you signed the charge as Secretary of Jesseron you instructed us that this was the fact. Such signing did not invalidate the charge if you were the Secretary but merely delayed Metco’s right to enforce the charge having regard to the part of the Corporations Law referred to above.

(b) Subsequently you instructed us that you were not the Secretary and, indeed, this was confirmed by John Star’s company search and a close scrutiny of the purported minutes appointing you as a Secretary. It was in reliance on this information that Mr Simpkins of Counsel based his advice that the appointment of a receiver in an attempt to protect your interests would not invalidate the charge”.

95   On or about 5 October 1993 Mr Akhyani consulted his present solicitor Mr Fordyce of Messrs P A Somerset & Co. On 30 November 1993 Mr Fordyce informed Mr Nemes that his firm had been instructed to take over as solicitors for Metco.
96 The proceedings brought by Jesseron against Metco were finally heard by Young J. In his reserved judgment given on 17 May 1994 Young J considered whether the charge (if there was a valid charge) had become void as a result of the operation of s267 of the Corporations Law. His Honour had to decide whether at any time in the period of six months up to the creation of the charge Mr Akhyani had been an “officer” of Jesseron, that is whether he had been a director, secretary or employee of Jesseron.
97   Young J found that Mr Akhyani had not been either a director or the secretary of Jesseron. “Thus (his Honour held) the charge was not properly executed by the company (Jesseron) and so accordingly is void”.
98 So far as s267 was concerned, it was still necessary to determine whether Mr Akhyani, while he had not been a director or the secretary of Jesseron, had nevertheless been an “officer” of Jesseron by virtue of being an “employee” of Jesseron. His Honour held that not every employee of a company would be an “officer” of the company within the definition in s9 but that Mr Akhyani, by virtue of the functions he had performed in the affairs of Jesseron, was “such an employee as to be an officer”. Accordingly, even if the charge had been validly executed, it had become void by virtue of the operation of s267 of the Corporations Law.
99   On 6 September 1994 Jesseron was wound up and Mr M C Donnelly was appointed liquidator. Jesseron had no assets of any substance.

The Plaintiff’s Claims

100   Metco’s further amended statement of claim filed 30 July 1999 is a long complex document containing a multiplicity of allegations. However, in par 9 of counsel for Metco’s final written submissions the respects in which it was alleged by Metco that Mr Nemes had acted negligently were concisely stated as being:-
101   (i) In relation to the distributorship agreement of 9 July 1992, he failed to warn Mr Akhyani about the vulnerable position Metco would be in under the agreement, if Jesseron defaulted, and he failed to advise Mr Akhyani that security, and in particular a floating charge from Jesseron, should be obtained.
102   (ii) In November 1992 he failed to warn Mr Akhyani about the vulnerable position Metco was in under the agreement and he failed to advise Mr Akhyani that a floating charge should be obtained from Jesseron.
103 (iii) In mid 1993 he failed to advise Mr Akhyani that s267 of the Corporations Law might apply to the proposed deed of equitable charge from Jesseron to Metco and he failed to properly advise Mr Akhyani about whether he had the capacity to participate in the execution of the deed of equitable charge by Jesseron, by witnessing the affixing of the common seal of Jesseron in the capacity of being its secretary.
104   (iv) In September 1993 he failed to advise Mr Akhyani not to appoint a receiver and manager of Jesseron, when such advice should have been given, because of the manner in which the deed of equitable charge had been executed by Jesseron and because the appointment of a receiver and manager would amount to the taking of a step in the enforcement of the charge, thereby invalidating the charge.
105   The defendants denied that they had been negligent in any of these respects.

Evidence in Cross-Examination

106   Earlier in this judgment I set out an outline of facts which were not disputed. In addition to evidence about which there was no dispute, counsel for Metco in their final submissions relied on a number of pieces of evidence given by Mr Nemes in cross-examination and counsel for the defendants in his final submissions relied on a number of pieces of evidence given by Mr Akhyani in cross-examination.
107   Some of the pieces of evidence given by Mr Nemes in cross-examination, which were relied on by counsel for Metco, were as follows.
108   Mr Nemes accepted that the fax of 13 April 1992 from Mr Beale to Mr Vaughan, and in particular the part of the fax in which Mr Beale said “our client requires the contract to provide for… control in respect to ownership of the dates and receipt of monies from debtors”, and Mr Vaughan’s notes of his later conversation with Mr Beale formed part of his initial instructions.
109   Mr Nemes accepted that the distributorship agreement of 9 July 1992 did not comply with these initial instructions.
110   Mr Nemes asserted that he had not complied with his initial instructions, because there had been a change in those initial instructions. The change of instructions had resulted from Mr Akhyani saying at a meeting with Mr Nemes words to the effect that as soon as goods ordered by Metco were delivered to Jesseron ownership of the goods should pass to Jesseron and from a conversation between Mr Akhyani and Mr Nemes on or about 20 or 21 May, a conversation which was disputed by Mr Akhyani, in which, according to Mr Nemes, Mr Nemes raised the subject of security but was “cut off” by Mr Akhyani, who said that he did not want any additional security beyond a personal guarantee from Mr Pritchard. Later in this judgment I will make findings about this alleged conversation.
111   Mr Nemes agreed that possible courses that could have been taken to improve Metco’s position would have been to provide that Metco retained ownership of the dates supplied by Metco to Jesseron until Jesseron sold the dates or to provide for further security to be given to secure payment of amounts due by Jesseron to Metco.
112   As regards ownership of the dates, Mr Nemes could have asked why Mr Akhyani wanted ownership of the dates to pass to Jesseron and Mr Nemes could have advised Mr Akhyani what would be the legal consequences of property in the dates passing to Jesseron. If Mr Akhyani had been sure that he wanted property in the dates to pass to Jesseron, then the obtaining of security became important. Indeed, the obtaining of security was important, whether or not property in the dates was to pass to Jesseron.
113   As regards the obtaining of security, the initial instructions in Mr Beale’s fax could have been achieved, by obtaining adequate security, even though the property in the dates passed to Jesseron. The matter of obtaining security was an appropriate matter for Mr Nemes as Metco’s solicitor to turn his mind to. Up to the time the distribution agreement was entered into, Mr Nemes knew very little about Jesseron’s financial position. He did know that Jesseron did not have the means to pay Metco for the dates, until it itself had been paid by its customers.
114   The need for security was heightened by some of the features of the agreement between Metco and Jesseron as stated in the distributorship agreement. The distributorship agreement impliedly provided for the passing of property in the dates to Jesseron. Jesseron was not obliged to pay Metco for the dates, until after Jesseron had itself received payment from its sub-purchaser. Metco thereby assumed a double credit risk and was left in a highly exposed position. Clause 92 of the distribution agreement, which on its face might give Metco some protection, would be ineffective, if Jesseron became insolvent. The personal guarantee from Mr Pritchard was not sufficient security, because it could be useless.
115   A floating charge would have been an appropriate form of security for Metco to have obtained from Jesseron in 1992. Under the distributorship agreement with Metco, Jesseron would be acquiring stocks of perishable foodstuffs for which it had not paid. In June 1993 Mr Nemes thought that a floating charge was an appropriate form of security for Jesseron to give. In mid 1992 Mr Nemes had not mentioned to Mr Akhyani the option of a floating charge.
116   Some of the numerous pieces of evidence given by Mr Akhyani in cross-examination on which counsel for the defendant relied in his final submissions included:-
117   From a very early stage, prior to the distributorship agreement being entered into, Mr Akhyani had wanted to acquire an interest in Jesseron’s business.
118   Mr Akhyani played an active part in the settling of the terms of the distribution agreement. Not only did he on 19 May 1992 inform HRN of eight amendments he requested should be made to the draft agreement prepared by Mr Nemes; but also, after Messrs Teakle Ormsby and Associates had written a letter to HRN on 9 June 1992 seeking certain amendments to the draft agreement prepared by Mr Nemes, Mr Akhyani had a meeting with Mr Pritchard, in which he and Mr Pritchard reached agreement on a number of the outstanding points.
119   By 12 June 1992, that is some time before the distributorship agreement was entered into, Mr Akhyani and Mr Pritchard had reached “total agreement” on the terms on which Metco and Jesseron were to trade together, leaving it to the lawyers to work out “the fine details”.
120   Before the distributorship agreement was entered into, there had already been co-operation between Mr Akhyani and Mr Pritchard. Before 3 June 1992 Jesseron had assisted Metco in selling products which Metco had imported.
121   In about April 1993 Mr Akhyani had been willing to guarantee the obligations of the lessee under an agreement for the lease of a motor vehicle to be used by Mr Pritchard, even though he knew Mr Pritchard was a person of no financial substance and even though by April 1993 Jesseron was having difficulty paying Metco. Mr Akhyani said that “from the beginning” he had known Mr Pritchard was a person of no financial substance.
122   In mid 1993, by which time Mr Akhyani was certainly aware of a fixed and floating charge as a form of security, Mr Akhyani made no complaint that a fixed and floating charge had not been obtained from Jesseron in 1992.

Assessment of Mr Nemes and Mr Akhyani as Witnesses

123   I have so far summarised some of the evidence about which there was no dispute and some of the evidence given by Mr Nemes or Mr Akhyani in cross-examination which was relied on by counsel for the opposing party in final submissions. This leaves outstanding a number of factual disputes on which there was conflicting evidence. On most, although not all, of these disputes the parts of the oral evidence which were in conflict consisted of evidence by Mr Akhyani and evidence by Mr Nemes. The credibility of each of these principal witnesses was strongly attacked by counsel for the opposing party. With respect to most of the factual disputes, it seems to me that I should attempt to resolve the disputes, more by having regard to the contents of contemporaneous documents and to what would seem to me to have been inherently probable in all the circumstances, than to some general assessment of the credibility as a witness of either Mr Akhyani or Mr Nemes. Nevertheless, I should record my general assessment of the credibility of Mr Akhyani and Mr Nemes, as I will pay some regard to that general assessment in resolving a number of issues of fact.

Mr Nemes as a Witness

124   It was submitted by counsel for Metco that Mr Nemes’ credibility as a witness was weakened by a number of matters.
125   (i) Mr Nemes initially denied in his oral evidence that by 22 June 1993 Mr Akhyani had made it clear that he wanted a charge to be obtained from Jesseron and that Mr Beale had been asked to prepare figures, so that a charge could be prepared by 28 June. Mr Nemes appeared to be unwilling to concede that in mid 1993, when Mr Akhyani was aware of a floating charge as a form of security, Mr Akhyani was pressing for a charge to be obtained. When confronted with his letter of 23 June 1993 to Mr Beale, Mr Nemes conceded that his earlier evidence had been incorrect.
126 (ii) Mr Nemes made a quite implausible assertion that on 30 June 1993 he had given Mr Akhyani advice about s267 of the Corporations Law in relation to the deed of equitable charge.
127 I am satisfied that this assertion was untrue and that, indeed, Mr Nemes had no inkling that s267 of the Corporations Law might apply to the charge, until some time in September 1993, very shortly before the conference with Mr Simpkins. I consider it likely that it was Mr Star, who, drawing on his experience as an insolvency practitioner, first drew attention to the possible application of s267 of the Corporations Law.
128 If Mr Nemes had been aware of the possible application of s267, having the consequence that the deed of equitable charge would or might not be enforceable by Metco for six months, then I would have expected Mr Nemes to have included advice about s267 in his letter of 1 July 1993, in which he reported to Mr Akhyani on the documents which had been executed the night before. In cross-examination Mr Nemes said that his letter was “deficient” in this respect.
129 According to Mr Nemes’ evidence, as early as 23 July 1993 and thereafter “continually”, Mr Akhyani said that he wanted to enforce Metco’s rights under the charge. That Mr Akhyani said that he wanted to enforce Metco’s rights under the charge is inconsistent with his having received advice from Mr Nemes on the application of s267 to the charge.
130   According to Mr Nemes’ evidence, the answer he gave to Mr Akhyani’s question whether Mr Pritchard could challenge the charge, was “how do you know Jesseron is in breach?” When asked by senior counsel for Metco, why he did not tell Mr Akhyani, in accordance with the advice he had allegedly already given, that Metco could not enforce the charge for six months, Mr Nemes replied that “this was a whole jumbled period after the deed”, which was a quite unsatisfactory answer.
131 That Mr Nemes was conscious of s267 is contradicted by the giving by him of his oral advice on 29 July that, if the non-exclusive distribution agreement had been breached, Metco could enforce the charge by appointing a receiver and by the terms of the letter of 29 July which he wrote to Mr Akhyani. In this letter Mr Nemes advised that to determine whether Jesseron had failed to make payments for dates sold by Metco to Jesseron under the non-exclusive distribution agreement, Metco should exercise its powers under the deed of equitable charge to inspect the books and records of Jesseron “and if they have indeed breached their obligations to Metco we can look at enforcing rights under the charge”.
132 That Mr Nemes was then conscious of s267 of the Corporations Law applying to the charge and had advised Mr Akhyani about s267 is also inconsistent with the terms of the fax of 9 August 1993 from Mr Akhyani to Mr Nemes in which Mr Akhyani specifically asked for advice on whether Mr Pritchard could challenge the charge; the letter of 17 August 1993 from Mr Nemes to Mr Ginges; the letter of 24 August 1993 which Mr Beale wrote to Jesseron, after consulting with Mr Nemes; and by the letter of 1 September 1993 to Mr Ginges.
133 In his letter of 30 September 1993 Mr Nemes did give Mr Akhyani advice about s267 and the effect of s267 on the charge. Mr Nemes would have realised that the advice he was giving in that letter would be unpalatable to his client. If he had earlier given the client similar advice, I would have expected that, even if only for his own protection, he would have reminded the client of the earlier advice.
134   (iii) The advice that Mr Nemes gave in his letter of 29 July, with respect to the alleged failure by Jesseron to make payments for dates sold by Metco to Jesseron under the non-exclusive distribution agreement, that Metco should exercise its powers and rights under the charge, was wrong advice, because the only monies secured by the charge were the sum of $260,000, with interest.
135   Mr Nemes said that when he sent his fax of 29 July he had overlooked that the charge was a limited charge and not an “all monies” charge. He claimed that he had not made the same mistake when he saw Mr Akhyani and advised him orally. This last piece of evidence is quite implausible. It is apparent that the fax was sent after the conference had been held and if Mr Nemes had been conscious at the time of the conference that the charge was a limited charge, it is most unlikely that he would have made such an error when later the same day he sent his fax.
136 (iv) Mr Nemes said that he did not discuss the appointment of a receiver with Mr Akhyani, until shortly before 13 September. However, in the fax of 29 July 1993 Mr Nemes referred to looking at “enforcing rights under the charge”. An obvious right under the charge was the right under Part 7 to appoint a receiver, who would have all the extensive powers conferred by Part 7 of the charge. I am also satisfied that the reason, or at least a principal reason, why on or about 9 August 1993 Mr Nemes advised that a demand under s459E of the Corporations Law should be served on Jesseron was to lay the foundation for the appointment of a receiver. By this time Mr Nemes was alive to the fact that default in making a payment under the non-exclusive distribution agreement was not of itself an event on the happening of which Metco was entitled under the charge to appoint a receiver.
137   (v) Mr Nemes claimed that in a conversation between him and Mr Akhyani on or about 6 September Mr Akhyani had said that he wanted to appoint a receiver of Jesseron and Mr Nemes had replied to the effect “how can you appoint a receiver? You were the director and secretary (of Jesseron)” I am satisfied that this conversation did not take place. Apart from anything else, if the conversation had taken place at about that time, Mr Nemes would not have written a letter in the terms of the letter of 6 September.
138   I accept that as a result of these and other matters Mr Nemes’ credibility as a witness was seriously weakened.
139   It was submitted by counsel for the defendants that Mr Akhyani’s credibility as a witness was weakened by a number of matters, including the following.
140   (i) Mr Akhyani asserted in his first affidavit that, before he had his first meeting with Mr Nemes in 1992, he had obtained through Mr Dart, the manager of the bank at which Metco and Mr Akhyani banked, a bank reference from Mr Pritchard’s bank, saying that Mr Pritchard was “a reasonable business risk”, which, according to Mr Dart, meant in the language used by bankers “a very bad credit risk” and that at the first meeting with Mr Nemes he had referred to the unfavourable bank reference and to his need to ensure “that the documentation I have in place is good, because there is a real likelihood that I will need it” and that Mr Nemes said “I will bear that in mind when I am preparing the documentation”.
141   However, Mr Dart made an affidavit in which he disclosed that the date of the bank reference about Mr Pritchard was 22 May 1992. Consequently, the bank reference had not yet been received when Mr Akhyani had his first meeting with Mr Nemes and parts of Mr Akhyani’s evidence about his first meeting with Mr Nemes are clearly incorrect.
142   (ii) In some parts of his evidence Mr Akhyani said that Mr Nemes had sent out a draft agreement after the first meeting between him and Mr Nemes. Mr Akhyani thought that the first meeting with Mr Nemes had been in April 1992. If this was so, the draft agreement could not have been sent out after the first meeting, because there was clearly a meeting between Mr Akhyani and Mr Nemes on 12 May 1992, which preceded Mr Nemes’ letter of 14 May 1992 with which the draft agreement was enclosed.
143   (iii) Mr Akhyani gave evidence that he was told in mid 1993 that Metco did not own any of the stock. However, this should not have come as any surprise to Mr Akhyani, because in 1992 he had himself told Mr Nemes that the arrangement would be that as soon as goods ordered by Metco had been delivered to Jesseron ownership of the goods would pass to Jesseron.
144   (iv) In an affidavit in reply Mr Akhyani denied that in a conversation between him and Mr Nemes (apparently the alleged conversation of 20 or 21 May) Mr Nemes had suggested a mortgage or a bank guarantee as forms of security which Metco might obtain. However, in his oral evidence Mr Akhyani accepted that Mr Nemes had suggested to him a mortgage or a bank guarantee. In re-examination Mr Akhyani claimed that he had been confused when giving his oral evidence and that it was his affidavit evidence which was correct.
145   (v) In his oral evidence Mr Akhyani claimed that in October or November 1992 he had told Mr Nemes that the exposure of Metco to Jesseron would be increasing. In his affidavit evidence he had not claimed that he had told Mr Nemes expressly that the exposure of Metco to Jesseron would be increasing and had merely said that Metco and Jesseron wanted to expand their activities to include other product lines. In his oral evidence Mr Akhyani asserted that expansion so as to include other product lines would obviously involve more exposure.
146   (vi) Mr Akhyani did not give any clear explanation of how it had happened in the first half of 1993 that Jesseron was unable to pay Metco money it owed Metco, when Jesseron was not liable to pay Metco until after it had been paid by its on-purchaser and should therefore have had funds with which to pay Metco. Additionally, Mr Akhyani was himself working in the office of Jesseron. One explanation offered by Mr Akhyani was that Jesseron used some of the money it received from supermarkets for purposes other than paying Metco.
147   (vii) Mr Akhyani’s assertion that he had not concerned himself with the legal parts of the distributorship agreement was inconsistent with the steps he had taken in the settling of the terms of the distributorship agreement, including his requesting amendments to Mr Nemes’ draft agreement on 19 May 1992 and his conferring with Mr Pritchard on or about 12 June 1992 concerning amendments which had been sought by Mr Pritchard’s solicitors in their letter of 10 June 1992.
148   (viii) Mr Akhyani asserted in his oral evidence, with reference to the minute of April 1993 purporting to record his appointment as secretary of Jesseron, that he had not attended any meeting with Mr Pritchard at which a resolution had been passed appointing him as a director of Jesseron. However, in evidence given by him before Hulme J in September 1993 Mr Akhyani had replied in the affirmative to a question asking him whether he had attended a meeting of directors of Jesseron at which a resolution appointing him as a director had been passed.
149   In two documents dated 19 February 1993, that is before the date of the minute, Mr Akhyani had signed as a “director” of Jesseron.
150   In his evidence before me Mr Akhyani said that his understanding was that he had been appointed the secretary of Jesseron but he was not sure whether he had been appointed a director. He had been asked by Mr Pritchard to sign the minute as “a favour” to Mr Pritchard, because Mr Pritchard wanted Mr Akhyani to sign the lease agreement for the lease of the motor vehicle.
151   (ix) It was alleged in par 9(c) of the further amended statement of claim, which was verified by Mr Akhyani, that Mr Nemes had failed to explain to Mr Akhyani that the deed of 1 July 1993 terminated the distributorship agreement of 9 July 1992. However, Mr Akhyani had clearly been informed by Mr Nemes’ letter of 1 July 1993 that the distributorship agreement had been terminated by the deed of 1 July 1993.
152   (x) Mr Akhyani asserted in his oral evidence that no offer to settle the legal proceedings in September 1993 had been put by Jesseron, whereas in fact Jesseron’s solicitors had written to HRN putting a settlement offer.
153   (xi) Mr Akhyani asserted in an affidavit that before he had undertaken the importation of any dates he had required an agreement to be in place and that he had not placed any order for dates until late June 1992, when at least all the terms of an informal agreement had been reached by himself and Mr Pritchard. However, Mr Akhyani conceded in his oral evidence that he had placed a first order for dates in early June 1992 and that his earlier evidence had been incorrect.
154   (xii) Mr Akhyani asserted that after his wife had arrived at HRN’s office on the evening of 30 June 1993, he had been with his wife at all times when she was in the same room as Mr Nemes and he denied that Mr Nemes had explained to his wife the documents to be executed by Metco. Mrs Akhyani herself gave evidence that Mr Akhyani had in fact left her and Mr Nemes alone together for some minutes.
155   (xiii) Mr Akhyani said that he had been taking drugs for a serious kidney disorder since early 1995 and that the drugs had affected his memory.
156   (xiv) Mr Akhyani denied that Metco had brought any legal proceedings against Mr Pritchard personally. In fact, District Court proceedings had been brought by Metco against Mr Pritchard in September 1994. Mr Fordyce gave evidence that these proceedings had been abandoned, when it became clear that the proceedings would be defended by Mr Pritchard, Mr Pritchard being, in any event, a person of little financial substance.
157   (xv) A number of criticisms were made of evidence given by Mr Akhyani for the purpose of quantifying Metco’s claim for damages.
158   In what I have said above I have not attempted to refer to all of the criticisms which were made of Mr Akhyani’s credibility by counsel for the defendants. Some of the criticisms appear to me to be minor or to be the sort of inconsistencies which are only to be expected when a witness makes nine affidavits at varying times and gives extensive oral evidence. However, I have concluded that some of the criticisms do weaken Mr Akhyani’s credibility as a witness.

Finding of Disputed Facts

159   I have earlier in this judgment summarised some of the evidence which was not disputed and some of the evidence given by Mr Nemes and Mr Akhyani in cross-examination, which was relied on by opposing counsel. I have still to make findings of fact on a number of disputed issues of fact.

1. The First Meeting Between Mr Akhyani and Mr Nemes

160   As indicated earlier, the bank reference about Mr Pritchard was dated 22 May 1992. Accordingly, the bank reference was not to hand when Mr Akhyani had his first meeting with Mr Nemes. Consequently, I do not accept the evidence by Mr Akhyani that at his first meeting with Mr Nemes he told Mr Nemes about the bank reference and about the need for Mr Nemes, in the light of the bank reference, to prepare “good legal documentation”.

2. The Alleged Conversation Between Mr Nemes and Mr Akhyani on 20 or 21 May 1992 .

161   In par 21 of his affidavit of 7 February 1997 Mr Nemes said that he had had a conversation with Mr Akhyani to the following effect:-

“Mr Nemes: ‘Well, do you think we should get some more security? You could get a mortgage over some of Pritchard’s property or a bank guarantee, for example. The Bank guarantee is probably the simplest and easiest security to rely upon if there is a default’.

Mr Akhyani: No, a personal guarantee will be sufficient. I do not want to push Pritchard too hard as ultimately I would like to join him as a partner in the business. That would be beneficial to me because Pritchard has the ‘King Brand’ name and that name has established shelf space at Franklins and various other supermarkets. That is valuable because it is very hard to get into supermarkets to get shelf space and it costs a lot of money in terms of promoting brand name recognition. I have very good contacts in the Middle East to import this type of product but I do not have an established name and that is what Pritchard has. I believe it will cost me too much to develop his brand names and what I am aiming to do is to become a partner of his so that together we can develop them”.

162   Mr Akhyani in his affidavit in reply of 22 August 1997 denied that this conversation took place.
163   I would accept that before the distributorship agreement was entered into Mr Akhyani did tell Mr Nemes that ultimately he wanted to become a partner in Jesseron’s business and that Jesseron had the advantages of having an established brand name (although perhaps not the brand name “King Brand”) and established shelf space in supermarkets. It is however necessary to determine whether Mr Nemes asked Mr Akhyani whether more security should be obtained, whether Mr Nemes suggested to Mr Akhyani a mortgage over property of Mr Pritchard or a bank guarantee as possible forms of security and whether Mr Akhyani instructed Mr Nemes that a personal guarantee from Mr Pritchard would be sufficient and, importantly, whether anything Mr Akhyani said should be regarded as having been “a cutting off” by Mr Akhyani of any further discussion about security.
164   If Mr Akhyani said what he is alleged by Mr Nemes to have said, then what he said would have represented a change in his instructions from the instructions he had given to Mr Beale that he required “control in respect to… receipt of monies from debtors”.
165   On 19 May 1992, only a day or two before the alleged conversation, Mr Akhyani had informed his solicitors that, apart from wanting a personal guarantee from Mr Pritchard, he wanted a clause inserted in the distributorship agreement to the effect that if Metco did not receive payment from Jesseron within a certain period of time, then Metco should have the power to approach retailers direct, seeking payment for goods delivered (by Metco to Jesseron). In my opinion, the amendments sought by Mr Akhyani on 19 May show that he was then concerned about Metco being protected, in the event of default by Jesseron.
166   The reason attributed by Mr Nemes to Mr Akhyani for Mr Akhyani being content with a personal guarantee was that “I do not want to push Pritchard too hard, as ultimately I would like to join him as a partner in the business”. However, it is unlikely that Mr Akhyani would have thought that seeking to obtain more security would have involved pushing Mr Pritchard too hard, if Mr Akhyani did not think that seeking to obtain a personal guarantee from Mr Pritchard or seeking to obtain a power to approach retailers direct, any exercise of which would involve intruding in the relationship between Jesseron and one of its customers, would involve pushing Mr Pritchard too hard. The amendments proposed by Mr Akhyani on 19 May indicate that Mr Akhyani was not averse to pressing for amendments to the draft distributorship agreement of a kind which Mr Pritchard might find burdensome or intrusive.
167   There would not necessarily be any contradiction between, on the one hand, Mr Akhyani having the ultimate objective of becoming a partner with Mr Pritchard in Jesseron’s business and, on the other hand, Mr Akhyani wanting Metco to be properly secured in its dealings with Jesseron. Twelve months later, in mid 1993, Mr Akhyani clearly pursued simultaneously the dual objectives of acquiring an interest in Jesseron and obtaining further security from Jesseron.
168   Mr Nemes accepted in his oral evidence that the obtaining of security was important and that, so far as a guarantee from Mr Pritchard was concerned, he had no knowledge of Mr Pritchard’s capacity to meet any claim on such a guarantee. It is clear that Mr Nemes had no knowledge of Mr Pritchard having any property over which he could give a mortgage or having the means to obtain a bank guarantee.
169   Mr Nemes has no note of this alleged conversation and could offer no explanation of why, as Metco’s solicitor, he had not made any note. If the conversation had occurred in the terms alleged by him, it would have been a most important conversation, which ought to have been recorded, because it would have represented a change of instructions, to the disadvantage of his client, from the initial instructions he had received in the form of Mr Beale’s fax.
170   I have not overlooked that Mr Akhyani did make a concession in his oral evidence in cross-examination that Mr Nemes had spoken to him about a mortgage and a bank guarantee. However, I am prepared to accept the explanation for this evidence offered by Mr Akhyani during re-examination.
171   I have concluded that I should not accept that a conversation in the terms alleged by Mr Nemes took place. Alternatively, I would accept only that Mr Nemes suggested a mortgage over property of Mr Pritchard or a bank guarantee as possible forms of security and that Mr Akhyani rejected both these forms of security, for the simple reason that he knew that Mr Pritchard had no property over which he could give a mortgage and would not be able to obtain a bank guarantee and I would find that nothing that was said by Mr Akhyani amounted to a “cutting off” by him of any further discussion about security.

3. The Conversation or Conversations Between Mr Akhyani and Mr Beale before the distributorship agreement .

172   In par 11 of his affidavit of 31 January 1997 Mr Beale said that, after he had given his initial instructions to HRN but before the signing of the distributorship agreement, he had had a conversation with Mr Nemes, in which Mr Nemes had said that the distributorship agreement did not provide any security for the monies that would be owed to Metco by Jesseron, that Mr Nemes had raised that matter with Mr Akhyani and that Mr Akhyani had said that he was not concerned because “the financial exposure will not be that great initially”.
173   In par 12 of his affidavit Mr Beale said that he had had a conversation with Mr Akhyani in the following terms:

“Mr Beale: You know, don’t you, that the Distributorship agreement does not provide you with much security? Steven Nemes is wondering whether you require any further security.

Mr Akhyani: I do not want to get involved in any lengthy documentation procedure at this stage and incur a lot of costs. I am looking towards becoming a partner in the business at a future date and I do not think that pushing for further security would be the right way to promote that relationship. I am a man who accepts someone’s word and I am satisfied with just having a Distributorship Agreement. I am comfortable dealing with Geoff Pritchard and I am happy to accept his handshake. Anyway, I do not believe he would agree to any security”

174   This evidence by Mr Beale in his affidavit was substantially qualified by oral evidence he gave at the hearing. In his oral evidence Mr Beale said that the conversation with Mr Akhyani deposed to in par 12 of his affidavit would have been at a conference he had with Mr Akhyani before (my emphasis) he sent his fax of 13 April 1992. Mr Beale could not recall speaking to Mr Akhyani about security after that conference.
175   In oral evidence Mr Beale said that par 12 of his affidavit recorded only part of the conversation he had had with Mr Akhyani at that conference. After Mr Beale and Mr Akhyani had said the things recorded in par 12, Mr Beale had given Mr Akhyani the advice, which Mr Akhyani had accepted, which had formed the basis of the fax of 13 April 1992, including the instruction that the contract to be prepared by HRN should provide for “control in respect to ownership of the dates and receipt of monies from debtors”.
176   It is difficult to reconcile the terms of what Mr Beale alleges in par 12 that he said, including the refences to a distributorship agreement and to Mr Nemes already acting and wondering about security, with the conversation having taken place before Mr Beale sent his fax of 13 April 1992. Nevertheless, the oral evidence given by Mr Beale largely undermines the evidence given by him in his affidavit and prevents me from having any confidence in the accuracy of his affidavit evidence. In any event, I would not accept that Mr Akhyani said the words attributed to him in par 12 of Mr Beale’s affidavit. Any such words would not have been consistent with the instructions Mr Akhyani must have given Mr Beale, in order for Mr Beale to have sent a fax in the terms of the fax of 13 April 1992.
177   As regards the reasons attributed to Mr Akhyani for not wanting further security, Mr Akhyani clearly did want a documentary distributorship agreement to be drawn up by a lawyer and was prepared to incur the costs of having that done. Mr Akhyani’s actions show that he was not prepared simply to accept Mr Pritchard’s word and handshake. He stipulated for a personal guarantee to be given by Mr Pritchard. He asked his own bank manager to obtain a bank reference respecting Mr Pritchard. He sought to have included in the distributorship agreement a provision authorising Metco to make a direct approach to retailers seeking payment for goods which had been delivered by Metco to Jesseron.
178   I do not accept pars 11 or 12 of Mr Beale’s affidavit.

4. The Conversation Between Mr Beale and Mr Akhyani in October or November 1992 .

179   Mr Beale did not dispute that a conversation between him and Mr Akhyani in the terms stated earlier in this judgment had occurred in November 1992. In this conversation Mr Beale had advised Mr Akhyani to obtain further security and, in particular, a charge over Jesseron and had explained to Mr Akhyani what a floating charge was.

180   However, in par 15 of his affidavit Mr Beale asserted that, after he had explained to Mr Akhyani what a charge was, Mr Akhyani had said “I don’t want to take it any further at this stage, because I know what’s going on in Jesseron”. In his evidence Mr Akhyani denied that he had said this to Mr Beale.
181   In his oral evidence Mr Beale substantially qualified what he had said in par 15 of his affidavit. He said that, as the taking of a charge would be a legal matter, he would either have recommended to Mr Akhyani that Mr Akhyani speak to Mr Nemes or he might himself have telephoned Mr Nemes while Mr Akhyani was with him. He said that it was more likely that the matter was left on the basis that Mr Akhyani would speak to Mr Nemes.
182   In any event, I consider that, if Mr Akhyani was concerned about the expansion of the business dealings between Metco and Jesseron and the increased exposure of Metco to Jesseron and had consulted his accountant and was advised by his accountant that Metco should obtain more security and was further advised by his accountant about a form of security of which Mr Akhyani had previously been unaware, it is unlikely that Mr Akhyani would have disregarded his accountant’s advice.
183   I do not accept par 15 of Mr Beale’s affidavit. I find that in November 1992 Mr Beale advised Mr Akhyani that he should obtain further security, and in particular a charge, from Jesseron and that Mr Akhyani accepted Mr Beale’s advice.

5. The Conversation Between Mr Akhyani and Mr Nemes in November 1992 .

184   Mr Nemes did not dispute that a conversation between Mr Akhyani and Mr Nemes took place, as set out earlier in this judgment. However, Mr Akhyani asserted, and Mr Nemes denied, that Mr Akhyani said to Mr Nemes that Mr Beale had advised the taking of a charge and that Mr Nemes had said that a charge was not necessary.
185   I find that Mr Akhyani did tell Mr Nemes that Mr Beale had advised the taking of a charge. If Mr Akhyani was concerned about Metco’s increasing exposure and if he had been advised by his accountant that he should ask for more security and had been advised by his accountant that he should obtain a charge from Jesseron and Mr Akhyani had had no previous acquaintance with this form of security, then it is highly likely that Mr Akhyani would have raised the subject of a charge with Mr Nemes, in a conversation he undoubtedly had with Mr Nemes.
186   I find that in November 1992 Mr Akhyani said to Mr Nemes that Mr Beale had advised a charge and that Mr Nemes advised Mr Akhyani that a charge was not necessary.

6. Conversation Between Mr Akhyani and Mr Nemes on 14 or 15 June .

187   Mr Akhyani asserted in his evidence, and Mr Nemes disputed in his evidence, that a meeting took place between them on 14 or 15 June, 1993.
188   Mr Akhyani gave evidence that during a conversation at this meeting he said that Mr Ginges had not yet prepared a charge over Jesseron, he gave Mr Nemes a copy of Mr Crick’s report of 11 June 1993, Mr Nemes expressed surprise at the amount of the indebtedness of Jesseron to Metco as shown in Mr Crick’s report, Mr Nemes said that he should have been present at the meeting which Mr Ginges had attended, Mr Nemes said that he would speak to Mr Ginges, Mr Akhyani said that he had been appointed secretary of Jesseron and had signed a lease agreement and guarantee as secretary of Jesseron, Mr Akhyani produced the document purporting to appoint him as secretary of Jesseron (that is, the minute of April 1993) and the lease agreement and Mr Akhyani made various complaints about Mr Pritchard’s financial history and current position.
189   I consider it probable that such a conversation did occur. Mr Nemes had not been present at the meeting at the café, at which Mr Pritchard’s solicitor Mr Ginges had been present. Mr Ginges had not yet fulfilled the undertaking he had given at that meeting that he would prepare a charge to be given by Jesseron to Metco. In these circumstances, it is probable that Mr Akhyani would have consulted his own solicitor and would have reported what had been happening and that Mr Nemes would have said that he should have been present at the meeting at which the opposing party’s solicitor had been present.
190   Mr Crick’s report is dated 11 June 1993. I infer that Mr Akhyani received a copy of the report on or soon after 11 June 1993. In that report the indebtedness of Jesseron to Metco as at 30 April 1993 was stated to be $685,659.97. It is likely that Mr Akhyani would promptly have taken a copy of Mr Crick’s report to his solicitor Mr Nemes and that Mr Nemes’ attention would have been drawn to the amount of the indebtedness as shown by Mr Crick.
191   In all of the above circumstances, it is likely that Mr Nemes would have decided that he should contact Jesseron’s solicitor Mr Ginges.
192   I also consider it likely that, if Mr Akhyani was speaking to Mr Nemes about the amount of Metco’s exposure, he would also have mentioned his own personal liability under the lease agreement he had signed as a guarantor and the secretary of Jesseron, particularly having regard to what Mr Akhyani knew of Mr Pritchard’s financial history and current financial position.
193   I find that a conversation took place between Mr Akhyani and Mr Nemes on 14 or 15 June 1993 in the terms alleged by Mr Akhyani.

7. When did Mr Nemes receive a copy of the Minute purportedly appointing Mr Akhyani as Secretary of Jesseron .

194   Mr Akhyani gave evidence that he produced a copy of the minute at the meeting he had with Mr Nemes on 14 or 15 June 1993. Mr Nemes disputed this and claimed that he had not been told that Mr Akhyani was a director or the secretary of Jesseron until late on 30 June 1993.
195   A copy of this minute is located in HRN’s file in such a position as to indicate that it was received by HRN at some time before 22 June 1993.
196   Mr Nemes disputed that any inference could be drawn from the present position of the copy of the minute in HRN’s file. He said that the file would have been culled and that the documents in the file would have been put in date order. In cross-examination Mr Nemes was taken through the documents in the file and he had to concede that some documents in the file were not in date order and that if any attempt had been made to put the documents in the file in date order, it had been partly unsuccessful.
197   I find that a copy of the minute purportedly appointing Mr Akhyani as secretary of Jesseron was handed to Mr Nemes on 14 or 15 June 1993.

8. What was said between Mr Akhyani and Mr Nemes in a private conversation in a break in the general meeting on 18 June 1993 .

198   Mr Akhyani gave evidence that in a private conversation between him and Mr Nemes he had asked Mr Nemes “can’t I rely on the distributorship agreement?”, to which Mr Nemes had replied to the effect that Jesseron had the stock, the stock was perishable and the stock would have perished before any court case could be finalised.
199   Mr Nemes asserted in his evidence that he had replied to Mr Akhyani’s question “of course, you can rely on the agreement” and that he had then gone on to say that Jesseron owned the stock, that Metco was an unsecured creditor, that a court case would take time and that by the time Metco had got judgment the stock might have perished.
200   I do not consider that Mr Nemes told Mr Akhyani that he could rely on the distributorship agreement. The distributorship agreement, partly for the reasons which both Mr Akhyani and Mr Nemes himself say were given by Mr Nemes, was of little use.

9. Obtaining a Charge

201   Despite Mr Nemes’ initial denial in his evidence, it is clear that by 22 or 23 June 1993 Mr Akhyani had made it clear that he wanted a charge over Jesseron to be obtained, and not some other form of security like a bank guarantee or a mortgage, and it is also clear that by 22 or 23 June 1993 Mr Nemes had not given any advice that, if a charge was obtained, it would for some time be unenforceable by Metco.
202   As I have already indicated, in June 1993 Mr Akhyani was concurrently seeking to become a “partner” of Mr Pritchard in Jesseron and to obtain a charge from Mr Pritchard’s company Jesseron.

10. Events on 30 June 1993

203   There were a large number of factual disputes about what happened on 30 June 1993.
204   (i) Mr Nemes asserted in his evidence, and Mr Akhyani disputed in his evidence, that at a conversation before the general meeting on 30 June 1993 Mr Akhyani asked how the indebtedness of Jesseron to Metco could be secured and that Mr Nemes replied that possible forms of security were a charge, a personal guarantee or a mortgage.
205   I reject this evidence by Mr Nemes. It is clear that before 30 June a decision had been taken by Mr Akhyani, which had been communicated to Mr Nemes, to endeavour to obtain a charge from Jesseron.
206   (ii) Mr Akhyani asserted in his evidence, and Mr Nemes disputed in his evidence, that in a private conversation between them at lunch on 30 June 1993, after Mr Akhyani had expressed the opinion that Jesseron would not be able to pay $45,000 a month for six months, Mr Nemes had said that, if there was a default by Jesseron, Metco could appoint a receiver.
207   I consider that I should accept Mr Akhyani’s evidence. It was common ground between Mr Akhyani and Mr Nemes in their evidence that Mr Akhyani said that if the indebtedness of Jesseron to Metco was to be paid by instalments over six months, Jesseron would not be able to pay all the instalments. In these circumstances, it is likely that Mr Nemes would have proffered advice on what remedies might be available to Metco, in the event of default by Jesseron. A prominent remedy under the charge executed later the same day was the remedy under Pt 7 of the charge of appointing a receiver.
208   (iii) A point of dispute was whether in a conversation during the afternoon of 30 June 1993 Mr Akhyani said, as Mr Akhyani himself alleged, that Jesseron would be able to pay instalments of $45,000 becoming due in August, September and October 1993 but would have difficulty in paying an instalment becoming due in November and would definitely be unable to pay instalments becoming due in December 1993 and January 1994. Mr Nemes said in his evidence that what Mr Akhyani had said was that Mr Pritchard (or Jesseron) would not “last past Christmas” in paying instalments of the debt.
209 The possible significance of this evidence would be that a restraint on Metco enforcing the deed of equitable charge for six months after it was created, arising under s267 of the Corporations Law, would not matter, or would matter less, if it was anticipated by Mr Akhyani that Jesseron would be able to pay instalments up to Christmas and would only default on the January 1994 instalment, which under the deed subsequently entered into became due and payable on 2 January 1994, that is just more than six months after the deed of charge was created.
210   I do not consider that it is possible, or necessary, to make any precise finding about what Mr Akhyani said, as to when in his opinion Jesseron would commence to make default, if it had to pay its indebtedness to Metco by monthly instalments. It is clear that Mr Akhyani expressed the opinion that Jesseron would not be able to meet all instalments. Even if Mr Akhyani did express an opinion that Jesseron would be able to meet all instalments apart from the last and the last instalment would not become due and payable until January 1994, it would clearly have been prudent to obtain some form of security which would be immediately enforceable in the event of Jesseron defaulting earlier.
211   (iv) Mr Akhyani asserted in his evidence, and Mr Nemes denied in his evidence, that Mr Nemes said that the charge would give Metco “every power under the sun”.
212   I consider it likely that Mr Nemes did give Mr Akhyani an assurance that Metco would have ample powers under the charge. As is usual, the powers conferred by the deed of equitable charge on any receiver appointed pursuant to it were very extensive. I consider it likely that Mr Nemes would have sought to reassure Mr Akhyani that, this time, Metco would be fully protected against default by Jesseron.
213   (v) Mr Akhyani and Mr Nemes differed in their evidence about what was said between them, immediately before Mr Akhyani participated in the execution of the deed and the charge in his purported capacity as secretary of Jesseron.
214   According to Mr Akhyani’s version, Mr Pritchard said to Mr Akhyani “you will have to sign as secretary of Jesseron” and Mr Akhyani then said to Mr Nemes “can I sign for both Metco and Jesseron?” to which Mr Nemes replied “I don’t see why not”.
215   According to Mr Nemes’ version, Mr Nemes asked who, apart from Mr Pritchard, could sign documents on behalf of Jesseron and Mr Akhyani replied that he could, as being a director and the secretary of Jesseron. Mr Nemes asserted that this was the first time he had become aware that Mr Akhyani held any office in Jesseron.
216   I have already found that on 14 or 15 June 1993 Mr Akhyani gave Mr Nemes a copy of the minute purportedly appointing Mr Akhyani as secretary of Jesseron. I am accordingly satisfied that Mr Nemes knew before 30 June 1993 that Mr Akhyani had purportedly been appointed secretary of Jesseron. I consider it likely that on 30 June 1993 Mr Akhyani, as a lay person, would have sought advice from his solicitor on whether he could sign a document on behalf of Jesseron, rather than himself volunteering the opinion that he could sign on behalf of Jesseron.
217   I prefer Mr Akhyani’s version of what happened.
218   Mr Nemes conceded that, if he had seen the minute purportedly appointing Mr Akhyani as secretary of Jesseron, he would have been concerned about whether the appointment was efficacious. Mr Nemes took no steps on 30 June 1993 to check whether Mr Akhyani had been appointed secretary of Jesseron. He said that he could not, because the issue arose late in the day, that is to say on the evening of 30 June. He accepted that, in hindsight, the execution of the documents should have been stood over, to give an opportunity of checking whether Mr Akhyani had been appointed the secretary of Jesseron.
219 (vi) Mr Nemes asserted in his evidence, and Mr Akhyani denied in his evidence, that on 30 June Mr Nemes explained s267 of the Corporations Law and advised Mr Akhyani that, as an officer of Jesseron, he could sign on behalf of Jesseron but Metco would not be able to enforce the charge for six months and that Mr Akhyani replied that “he (that is Mr Pritchard) will be all right until Christmas”.
220 In making a general assessment of Mr Nemes’ credibility as a witness, I have already stated some reasons for holding that Mr Nemes’ claim that on 30 June 1993 he explained s267 of the Corporations Law to Mr Akhyani as totally lacking in plausibility. I reject this evidence by Mr Nemes
221   (vii) As at 30 June 1993 Mr Nemes knew that within six months preceding 30 June Mr Akhyani had worked in the office of Jesseron. Mr Nemes accepted, in hindsight, that such knowledge on his part should have raised in his mind an issue of whether Mr Akhyani was an “employee” of Jesseron, so as to be an “officer” of Jesseron.

11. The Telephone Conversation between Mr Akhyani and Mr Nemes on or about 9 August 1993 .

222   Mr Akhyani in his affidavit of 27 September 1996 said that in this conversation Mr Nemes said:-

“You should issue a Statutory Demand to Jesseron for unpaid dates. If Jesseron does not pay its debts as and when they become due this would be a default under the Charge and you would be then entitled to appoint a Receiver. I will prepare the Statutory Demand and affidavit in support and send them out to you”.

223   Mr Nemes in his affidavit said that Mr Akhyani had said that he wanted a demand served and that nothing had been said at this stage about the appointment of a receiver to Jesseron.
224 I consider it unlikely that it would have been the lay client Mr Akhyani who initiated the proposal that a demand under s459E of the Corporations Law be served. In his fax of 9 August 1993 to Mr Nemes Mr Akhyani, so far from demanding that any particular legal course be taken, sought Mr Nemes’ advice on whether Mr Pritchard could challenge the charge and asked Mr Nemes to prepare a response to Jesseron’s letter “as you see fit”. It is far more likely that it was the solicitor Mr Nemes who initiated the proposal that a statutory demand be served on Jesseron.
225   Earlier in this judgment I have found that prior to 9 August 1993 Mr Nemes had already advised Mr Akhyani that, in the event of default by Jesseron, Metco would have the remedy of appointing a receiver under the charge. What actually happened after the statutory demand was served and the period of the demand had expired, including the appointment of a receiver, would suggest that a purpose of serving the demand was to create a ground for the appointment of a receiver.
226   In his written instructions to Mr McClintock of 17 September 1993 Mr Nemes said “the reason for the appointment of the receiver is primarily because of Jesseron’s failure to comply with a statutory demand for payment of debt…”. I would interpret this part of Mr Nemes’ instructions to Mr McClintock as meaning that the ground relied on for the appointment of the receiver was the non-compliance by Jesseron with the statutory demand.
227   It is true that it is by no means clear that default by Jesseron in complying with a demand based on non-payment of monies becoming due pursuant to the non-exclusive distributorship agreement would constitute an event, on the happening of which Metco would be entitled to appoint a receiver. However, Mr Nemes was not always clear about what monies were secured by the charge and what events would constitute default under the charge.
228 I find that Mr Nemes advised Mr Akhyani that a demand under s459E of the Corporations Law should be served, that he gave this advice because he considered that, if Jesseron did not comply with such a demand, that would create a ground for the appointment of a receiver and that he told Mr Akhyani that a reason for serving such a demand was that it would enable the appointment of a receiver under the charge.

12. The Conversation between Mr Akhyani and Mr Nemes after the demand had been served .

229   In this conversation Mr Nemes said that Mr Beale would be able to find evidence on an inspection of the books and records of Jesseron, which would enable the appointment of a receiver “sooner than later”.
230   Mr Akhyani asserted in his evidence and Mr Nemes disputed in his evidence that Mr Nemes said the additional words “you should be able to bring this matter to an end much sooner than Christmas”.
231   I consider that the actual appointment of Mr Star as receiver as early as 16 September supports Mr Akhyani’s version and I would accept it.

13. The conversation between Mr Akhyani and Mr Nemes on or about 6 September 1993 .

232   Mr Nemes asserted in his evidence and Mr Akhyani disputed in his evidence that in this conversation Mr Nemes said to Mr Akhyani “how can you appoint a receiver? You were the director and secretary (of Jesseron)?”
233   In the part of this judgment dealing with the credibility of Mr Nemes as a witness I have already made a finding that these words were not said. That Mr Nemes at or about this time doubted the ability of Metco to appoint a receiver, for the reason that Mr Akhyani had been a director and the secretary of Jesseron, is quite inconsistent with the terms of the final paragraph in HRN’s letter to Mr Akhyani of 6 September 1993.

14. The conversation between Mr Akhyani and Mr Nemes on or about 9 September 1993, preceding the briefing of Mr Simpkins .

234   It is common ground that in this conversation Mr Nemes said that he would like to obtain an opinion from counsel. It is also common ground that Mr Nemes said that the statutory demand would expire on 10 September.
235   Mr Akhyani asserted in his evidence that Mr Nemes had said that on 13 September it should be possible to appoint a receiver. Mr Nemes asserted in his evidence that what he had said to Mr Akhyani was that Mr Akhyani should be able to do something once the demand had expired but that he expressed some concern about whether the charge could be enforced.
236   I prefer Mr Nemes’ version of what was said. I consider that his advice that counsel’s opinion should be obtained indicates that he had become aware that the charge might not be enforceable.

15. The Conference with Mr Simpkins on 13 September 1993

237 Mr Nemes said in his affidavit that at the time of the conference with Mr Simpkins he was aware that s267 of the Corporations Law applied to an “officer” of the company creating the charge and that Mr Akhyani had previously been working at the office of Jesseron.
238 Mr Nemes said in his affidavit that either at the conference with Mr Simpkins or earlier he had advised Mr Akhyani that, if he had been “a key employee” of Jesseron, s267 might still apply (even though Mr Akhyani had not been a director or the secretary of Jesseron) and that Mr Akhyani had replied “look, I was not anyone important there. I just did a bit of bookkeeping and helped with the computer system”.
239   Mr Akhyani in his affidavit in reply of 22 August 1997 denied that this conversation had taken place and asserted that the question of whether he had been an “officer” of Jesseron by virtue of having been an employee of Jesseron, as distinct from having been a director or the secretary of Jesseron, had arisen only in cross-examination of Mr Akhyani before Hulme J on 23 September 1993.
240 I do not accept that this alleged conversation took place. I do not consider that Mr Nemes before or at the time of the conference with Mr Simpkins was sufficiently familiar with s267 of the Corporations Law and the definitions of the terms used in s267 to have given the advice he claims that he gave.
241   It seems to me likely that the advice which Mr Nemes alleges that he gave before or at this conference has been derived from the judgment Young J gave the following year, in which his Honour dealt with the question of when a person is an “officer” of a company by virtue of being an employee of that company.
242   It is highly improbable that Mr Akhyani, who for a number of months from September 1992 had attended at Jesseron’s business premises, on an average (according to him) of thirty hours per week, who had set up a computer system for Jesseron, who had taken part in the day to day running of Jesseron’s business, who had signed at least two documents as a “director” of Jesseron, who, according to Mr Pritchard’s evidence, had acted “like a director” of Jesseron, who had signed a lease agreement as being the secretary of Jesseron, who had the objective of becoming a “partner” with Mr Pritchard in Jesseron, would have said that he was “not anyone important there. I just did a bit of bookkeeping”.
243   Mr Nemes also said in his affidavit that at the conference Mr Simpkins advised that, if Mr Akhyani had not been a director or the secretary of Jesseron, then it was arguable that the charge was invalid for the reason that it had not been validly executed.
244   Mr Akhyani in his affidavit in reply denied that there had been any discussion at the conference as to whether the charge was invalid for the reason that it had not been validly executed.
245   I do not consider that I should find that Mr Simpkins gave the alleged advice. It is difficult to reconcile the giving of such advice with the advice that Mr Simpkins undoubtedly gave that a receiver and manager of Jesseron should be appointed, a step which could be prudently taken, only on the basis that the deed of equitable charge was a validly executed document.
246 I consider that I should accept a submission made by counsel for Metco that what prompted the conference with Mr Simpkins was the sudden realisation by Mr Nemes, probably as a result of something said by Mr Star, that the deed of equitable charge might be caught by s267 of the Corporations Law and the further submissions made by counsel for Metco that at the conference Mr Simpkins was instructed that a corporations search had not revealed Mr Akhyani as having held any office in Jesseron and that it was in reliance on these instructions that Mr Simpkins advised that it would seem that Mr Akhyani had not been an officer of Jesseron and that at the conference with Mr Simpkins no attention was paid to the questions of whether Mr Akhyani might have been an “officer” of Jesseron by virtue of having been an employee of Jesseron or whether the deed of equitable charge had been validly executed.

16. The conference with Mr McClintock

247   Mr Nemes asserted in his affidavit and Mr Akhyani disputed in his affidavit in reply that at the conference with Mr McClintock Mr Nemes said that Mr Akhyani had not been a director or the secretary of Jesseron and that Mr Akhyani had instructed that his duties at Jesseron had been “insignificant” and that therefore it seemed that Mr Akhyani had not been a “key employee” and that Mr McClintock had advised that, if Mr Akhyani had not been a director or the secretary of Jesseron, the charge might be invalid as not having been validly executed but that it was arguable at least that it was valid.
248 Mr Nemes did not make any notes of this conference and no written advice was given by Mr McClintock. Mr Nemes did prepare written instructions to Mr McClintock (unlike Mr Simpkins) but these written instructions do not refer to s267 of the Corporations Law or to Mr Akhyani having participated in the execution of the charge by Jesseron. The only issue alluded to by Mr Nemes in the instructions is whether the amount claimed in the statutory demand had been excessive.
249   I do not consider that I should find that what Mr Nemes alleges was said at the conference was in fact said.
250   The course of the proceedings before Hulme J suggests that Metco’s legal advisers did not immediately turn their minds to the question of whether the deed of equitable charge had been validly executed.
251   For reasons similar to those I gave for declining to accept similar evidence given by Mr Nemes about what had allegedly happened at the conference with Mr Simpkins, I do not accept Mr Nemes’ evidence that Mr Akhyani had instructed Mr Nemes that his duties at Jesseron had been “insignificant” or that Mr Nemes formed or expressed the opinion that Mr Akhyani had not been “a key employee” of Jesseron.

Expert Evidence

252   Expert evidence was given by two solicitors, by Mr Meagher who made an affidavit for the plaintiff and by Mr McCann who made an affidavit for the defendants. Both Mr Meagher and Mr McCann were cross-examined on their affidavits. Affidavits were also made by another solicitor, Mr Linden, on behalf of the plaintiff. However, at the hearing senior counsel for Metco expressly abandoned any reliance on expert evidence by Mr Linden. I accept that both Mr Meagher and Mr McCann were well qualified by experience to give expert evidence in relation to the preparation of distribution agreements by solicitors.
253   Parts of Mr Meagher’s affidavit were as follows:-

“16. If the instructions were that the title to the goods was to be transferred from the solicitor’s client to the distributor of those goods on arrival in the country and that payment was not required to be made until the goods had been sold and paid for by the customer of Jesseron then that would be seen by a practitioner as an extremely unusual arrangement in which the entire risk was being borne by Metco.

17 In respect of this unusual arrangement I would expect a practitioner to advise and warn his client in terms to the effect:

‘This is a most unusual arrangement. You are selling goods to a company which you know can’t pay for them. You have no security. You don’t even own the goods, so you can’t reclaim any goods that Jesseron hasn’t sold. If Jesseron goes into liquidation, without the benefit of a company charge, you will rank equally with all unsecured creditors. If you had a retention of title clause you would at least be able to repossess the goods and you might be able to claim some of the proceeds of the sale of those goods’

18. A solicitor who was instructed that title to the goods being supplied by Metco was to pass to Jesseron immediately on delivery and that Jesseron was unable to pay for the goods supplied until it was paid itself, would, in accordance with industry wide good practice, suggest to the client that there were other ways of effecting such an arrangement.

20. One of those suggestions would be to supply the product to Jesseron under a commission agency agreement. A commission agency arrangement would operate so that title to the goods did not pass to Jesseron but only to the party to whom Jesseron sold the product on behalf of Metco. Such an arrangement would still enable the product to be stored by Jesseron, at Jesseron’s expense. It would also make it possible for Metco to determine the price at which its products were sold. The proceeds of such sales would be paid to Metco and Metco in turn would account to Jesseron for commission on the sale. This would give effect to the suggestion contained in Par 8 of the letter dated 13 April 1992 in the fax from Beale Gaertner Young to David Vaughan of Heaney Richardson & Nemes.

21. Another suggestion would be to have retention of title provisions.

22 Another suggestion would be to incorporate a joint venture company, with the stock imported by Metco being supplied into that company. This would isolate the goods from Jesseron’s other activities, an important consideration because on the instructions that Mr Nemes had received Jesseron was unable to pay for the Metco product until it had been paid. This would indicate to a solicitor a risk that Jesseron could have problems now or in the future with its other creditors which would jeopardise any stock supplied to Jesseron as well as any monies that would become due to Metco from sales of its product effected by Jesseron. The agreement with that joint venture company could also give a fixed and floating charge, contain a retention of title clause, or the joint venture company could be a commission agent.

23. If the client’s instructions remained that title to the goods was to pass to Jesseron immediately on arrival in the country then in view of the risk as to Jesseron’s credit worthiness I would expect a solicitor acting for Metco would recommend the taking of a fixed and floating charge over all of the assets and undertaking of Jesseron and to explain the reasons for such recommendation in these terms:

Under a charge if there was a default you would be able to rank in priority to any other creditor; you would be able to control the selling process, you would be able to control the funds that Jesseron receives from its customers and to have first call on those funds. You would also, if you appointed a receiver, be able to utilise the distribution outlets of Jesseron and any other assets’”.

254   In pars 24 and 25 of his affidavit Mr Meagher advised that a search should have been made to ascertain whether there was any existing charge over Jesseron. In fact, there was no existing charge over Jesseron.
255   Mr Meagher’s affidavit continued:-

“26. A personal guarantee is regarded as a more personal step than asking for a company charge. A company director is generally more willing to grant a charge than to give a personal guarantee.

27. Clause 16 of the Distributorship Agreement would be regarded as being just as intrusive as seeking a fixed and floating charge and in some instances could be more so.

28. I have considered whether the Distribution Agreement created a situation analogous to a partnership agreement and do not believe that analogy is accurate. In my opinion, a partnership was not consistent with Mr Beale’s instructions in his letter of 13 April 1992. The essence of the arrangements here was that Metco was putting up all of the finance needed and taking all of the risk that the venture would prosper. Jesseron was contributing its outlet sources and experience in that area. There was no sharing in the risks equal to what each party was bringing to the arrangement.

29. If after advising Metco of the risks of entering into the Distributorship Agreement, particularly in circumstances where Jesseron was not known to be financially strong, the client appeared to accept the risks and gave instructions that it did not want to proceed by way of commission agency agreement, retention of title clause or joint venture agreement and did not want to obtain a fixed and floating charge, then in accordance with industry wide good practice the solicitor would not press the client any further but would record his instructions to that effect in a letter to the client or at least in a file note to that effect”.

256   I have considered all of the cross-examination of Mr Meagher. In my opinion, Mr Meagher’s evidence in his affidavit was not significantly affected by any evidence he gave in cross-examination.
257   Parts of the evidence given by Mr Meagher in cross-examination were as follows:-

“Q. If the reason given was that the client did not want to press the person with whom he was dealing too much because of the future intention of buying into the business, would that in your view be a satisfactory reason for the solicitor not pressing on with further advice about the security?
A. No, because that eventuality might not occur”.

…

“A. I would disagree, that given the circumstances of the fact that payment was not to be made until the retailers actually paid Jesseron, given that he knew that Jesseron wasn’t able to pay for the goods and didn’t have the finances, and the fact that Mr Akhyani had suggested a change to the document which would give him further security, some further security, the provision of the guarantee, that in those circumstances I think it was incumbent on the lawyer to advise him of alternative forms of security, alternative structures, or whatever”.

258   Mr McCann furnished a report dated 27 July 1999, which formed the substantial part of his affidavit. Parts of this report were in reply to opinions expressed by Mr Linden, on which, as I have said, the plaintiff later abandoned reliance.
259   A key assumption made by Mr McCann was “at the outset I note that you have instructed me to assume that the account of Mr Nemes set out in his affidavit of 7 February 1997 will be accepted by the court”.
260   Parts of Mr McCann’s report were as follows:-

“Clause 33 (of the distributorship agreement) is a most unusual provision… because Metco assumes the risk that the distributor’s customers may not make payment. In my experience it is very unusual for a Principal to agree that payment by the distributor for goods, is deferred until the distributor is paid by its customers. Mr Linden in his affidavit overlooks Clause 4(b) which provides that payment proceeds after the payment in Clause 33 and 4(a) are to be divided equally between Metco and Jesseron. This provision is consistent with the statement attributed to Mr Akhyani that the relationship between distributor and principal was seen by him as analogous to a partnership where both partners share equally in the commercial risk and rewards of the enterprise. The provisions of Clause 4(b) may give an explanation to the unusual arrangements in Clause 33 and explain the acceptance by Metco of the double credit risk of both Jesseron and its customers”.

…

In my opinion a reasonably prudent solicitor who received instructions from Metco (as a new client introduced by a firm of accountants acting for Metco) should have obtained from his client a full understanding of the commercial relationship between Metco and Jesseron before commencing the drafting of the agreement. (Mr Nemes’ affidavit is silent on the commercial bases for Clauses 33 and 4). Once this was explained, I would expect a reasonably prudent solicitor to raise with his client the terms of payment by the distributor. I would also expect the solicitor to raise with the client whether it wished to include a provision in the agreement which stipulated for a retention of title provision until payment, and a provision that if resale occurred prior to payment, the proceeds of sale or debts would be held by Jesseron for Metco (ie an extended reservation of title or Romalpa clause). If I was instructed that title to the product was to pass before payment (and the commercial reasons were explained to me), then I would not suggest a reservation of title clause to my client.

If I was instructed to draft clauses 33 and 4, they would be inconsistent with a retention of title provision. (I note that the provisions of clause 16 if valid would give part of the benefits of the extended retention of title clause).

The value of a guarantee depends on the financial substance of the guarantor, of which we have no evidence from Mr Nemes. In view of the evidence given by Mr Nemes about the relationship between Metco and Jesseron and his client’s instructions, I would not have and I do not believe a reasonably prudent solicitor would have advised Metco that it should take a floating charge over the assets of Jesseron.

I agree with Mr Linden that it is good practice for a solicitor to confirm in writing to his client the instruction that security was not required by the client (particularly since the client was new to HRN). In the end, however, this comes down to whether the evidence of Mr Nemes is accepted about his conversation with his client.

Mr Linden also asserts that a solicitor should advise a client to include in the arrangements with Jesseron the retention of title clause in respect of the product being imported and delivered to Jesseron.

Mr Nemes and Mr Akhyani both state that the intention of the parties was that title would immediately pass from the principal to the distributor. Accordingly, a retention of title provision in the normal form would not be appropriate in view of the commercial arrangements of the parties in relation to title. Further, if title passed to Jesseron on delivery, it would not be possible to have provided that in the event of resale prior to payment, the proceeds of sale and debtors were held on behalf of Metco”.

…

“I disagree that a reasonably prudent solicitor has a duty to raise with his client how the arrangement might have been restructured, ie, as a joint venture in which the product was bought and sold by a joint venture entity controlled jointly by Metco and Jesseron or Distributor Agreement in which Metco supplied product to Jesseron in return for payment.

Since the payment arrangements are highly unusual and involved a double credit risk for Metco (ie, Jesseron and its customers) as well as the benefit of a share in the profits, it would be of assistance if Mr Nemes explained what instructions he received. Where a Distributorship Agreement extends credit, payment is normally made after a specified number of days following delivery of goods. If the principal was satisfied with the credit worthiness of its distributor, then it is not unusual for credit to be extended by the principal to the distributor. The unusual payment provisions and distribution of profit on the resale to retailers, particularly Clause 4, may explain the willingness of Metco to assume the credit risk of Jesseron’s customers.

Mr Linden suggests that if the arrangement was to be structured as a distributorship then from the point of security it should be structured as outright sale with title passing to Jesseron upon delivery and payment due within a fixed time of delivery secured by an equitable charge.

In my experience, this is not how payment would normally be secured and an equitable charge does not appear appropriate in the circumstances of this arrangement. I would not have expected a reasonably prudent solicitor to recommend an equitable charge in the circumstances”.

261   Mr McCann concluded his report by saying:-

“If the evidence of Mr Nemes is accepted, I consider that he discharged his duty to his client and adequately advised him on security for payment under the agreement, subject to the following comments:

(a) I believe that basis for drafting Clauses 33 and 4 needs to be explained, because in my experience they are unusual in a distributorship agreement;

(b) the reason for the passing of title by Metco to Jesseron prior to payment requires explanation. If this was the instruction, then a retention of title clause (and control over proceeds in the event of sale prior to payment) could not be effective.

(c) Mr Nemes should explain why he drafted Clause 16 in the present form, rather than including a retention of title clause”.

262   The cross-examination of Mr McCann by senior counsel for Metco produced some important concessions by Mr McCann. I have taken into account all of the cross-examination and will note only some parts of it.
263   By the time he gave oral evidence Mr McCann had seen a further affidavit by Mr Nemes of 30 July 1999, which had been made by Mr Nemes as a result of the remarks made by Mr McCann in the conclusion to his report. In par 5 of his affidavit Mr Nemes said inter alia that before he had drafted the distributorship agreement Mr Akhyani had said to him:-

“Jesseron does not have sufficient funds to finance the importation of dates from Iran and will not be able to pay Metco for the goods until it gets paid by its customers”.

264   In cross-examination Mr McCann agreed that the concerns that had led him to qualify the conclusion of his report had not been at all assuaged by Mr Nemes’ further affidavit. What Mr McCann had been hoping for was more elaboration of the discussion between Mr Nemes and his client and all that Mr McCann had received in the further affidavit by Mr Nemes was a few lines, which did not give him any further information.
265   Mr McCann agreed that a floating charge has many features which would have made it an appropriate form of security for Metco to take. The following questions and answers occurred in the cross-examination:-

Q. Would a floating charge be one of the possible alternative types of securities that might be appropriate in this sort of situation?
A. Well, a floating charge certainly would have helped in relation to the proceeds of the sale, yes.

Q. And the goods themselves, before resold to retailers?
A. Yes, given that title had passed, yes.

Q. And a floating charge enables prompt action to be taken, doesn’t it, when default occurs?
A. Yes it does, yes.

Q. And it enables the business of the other party to be continued, if thought appropriate, by the receiver?
A. Yes, it does.

Q. And it is of particular value where one is dealing with perishable products?
A. On the basis you can move quickly, yes”.

266   Mr McCann agreed that, if he assumed that for all Mr Nemes knew a personal guarantee from Mr Pritchard might be worthless and if, as par 5 of Mr Nemes’ further affidavit indicated, Mr Nemes was aware that Jesseron was without financial substance, then a floating charge would have had advantages over any other type of security and would have been an obvious form of security to obtain.
267   With regard to Mr Akhyani’s alleged rejection of suggestions of a mortgage and a bank guarantee, Mr McCann was asked:-

“Q. And for all the solicitor knows, the reason or a reason the client doesn’t adopt those suggestions is that he doesn’t think that there is any tangible property available there to constitute the mortgage over Pritchard’s property or to support a bank guarantee?”

268   Mr McCann replied:-

“A. If that is the fact, well, that absolutely changes the basis in which I expressed a view. If the man has no property and (is) not able to get a bank guarantee, then it is a different situation”.

269   A little later the following evidence was given:-

A. Yes, I mean, if you put it that way that the distributor or the man behind the distributor company has no substance and, therefore, a mortgage over the property is not possible because the man has no property or he has absolutely no substance and can’t give bank guarantees, yes, you would be in a different context.

Q. And you would be talking about a floating charge?
A. You would be talking about all the range of options Mr Meagher mentioned in his affidavit.

Q. But, in particular, a floating charge?
A. Floating charge is an option, yes”

270   Later the following questions and answers occurred:-

“Q. And wouldn’t you agree that a prudent solicitor would have given to the client a warning substantially in these terms, he would have said to the client this is a most unusual arrangement, do you agree with that?
A. That’s right”.

271   Mr McCann said that he would not have pushed the client for a restructuring of the transaction, if the client had explained why title in the goods had to pass but he agreed that he had not in the assumptions he had been asked by the defendants’ solicitors to make, found any indication that Mr Nemes had asked Mr Akhyani why title in the goods had to pass and he agreed that title in the goods would not have to pass, simply because Mr Akhyani wished Metco to invoice Jesseron for the goods.
272   Mr McCann said that he had been given some additional facts of which he had been unaware when he made his report, which he specified as being “you told me Mr Pritchard had no property, that he had no substance to give bank guarantees. I think security would have been an issue a solicitor ought to have raised”.
273   Mr McCann said that, if as a solicitor he had had knowledge that the individual principal of a distributor had no financial substance, he would not have suggested a bank guarantee or a mortgage; he would have explained some of the alternatives set out in Mr Meagher’s affidavit. Mr McCann did not give a direct answer to a question asking him what a solicitor should have done, if he did not have actual knowledge of Mr Pritchard’s financial position but had no reason to think that Mr Pritchard did have anything of substance.
274   Mr McCann agreed that the opinion expressed in his report that an equitable charge did not appear to be appropriate in the circumstances of the case “completely depends” upon what had been the discussion between Mr Nemes and Mr Akhyani. Leaving any such discussion aside, an equitable charge would have been appropriate.
275   Mr McCann agreed that cl 92 and cl 16 in the distributorship agreement would have been ineffective in the event of Jesseron becoming insolvent. If cl16 had been suggested by the client, a solicitor should have advised the client that there were problems with the clause, particularly because the client might be under the misapprehension that a provision such as cl 16 was a substantial protection.
276   Mr McCann agreed that at the time Mr Beale sent his fax and at the time Mr Beale spoke on the telephone to Mr Vaughan, there had been no intention on the part of Metco to share the credit risk and that a prudent solicitor would have regarded any change in his instructions, such as to warrant the solicitor in not giving effect to the instructions in Mr Beale’s fax, as being an important change of instructions, which should have been recorded in writing.

Conclusions on Negligence

277   Earlier in this judgment I set out the respects in which in final submissions it was submitted that Mr Nemes had acted negligently. Having summarised the undisputed facts and some of the evidence given in cross-examination by the two principal witnesses Mr Akhyani and Mr Nemes and having made findings on a number of disputed issues of fact and having referred to the expert evidence, I will state my principal conclusions regarding Mr Nemes’ alleged negligence.

(i) The alleged negligence relating to the distributorship agreement of 9 July 1992 .

278   It was submitted that Mr Nemes had been negligent in that he had failed to warn Mr Akhyani about the vulnerable position Metco would be in under the agreement, if Jesseron defaulted, and he failed to advise Mr Akhyani that security, and in particular a floating charge from Jesseron, should be obtained.
279   The original instructions to HRN were contained in the fax of 13 April 1992 from Mr Beale and in the telephone conversation between Mr Beale and Mr Vaughan of which Mr Vaughan made notes. Of particular importance was the instruction in the fax that Mr Akhyani required the contract to provide for “control in respect to ownership of the dates and receipt of monies from debtors”.
280   The original instructions were qualified, insofar as at a meeting between Mr Akhyani and Mr Nemes Mr Akhyani said words to the effect that, as soon as goods were delivered to Jesseron, ownership of the goods would pass to Jesseron.
281   On 19 May 1992 Mr Akhyani requested a number of amendments to the draft distributorship agreement prepared by Mr Nemes, including the inclusion in the agreement of a guarantee and of a clause conferring on Metco a power, if it did not receive payment from Jesseron within a certain time, to approach retailers directly seeking payment.
282   The requesting by Mr Akhyani of these amendments shows that Mr Akhyani was interested in safeguarding the position of Metco and that he was not averse to seeking the inclusion in the proposed agreement of terms which Mr Pritchard might find burdensome or intrusive.
283   It was alleged by Mr Nemes that the instructions originally received were further changed in a conversation between Mr Akhyani and Mr Nemes on 20 or 21 May 1992, in which, according to Mr Nemes, Mr Nemes raised the question of security but Mr Akhyani said that a guarantee from Mr Pritchard would be sufficient.
284   I have found that a conversation in the terms alleged by Mr Nemes did not take place and hence the alleged further change of instructions did not occur.
285   Metco was in a vulnerable position under the distributorship agreement as drawn by Mr Nemes. Ownership of the goods which Metco had imported would pass to Jesseron before Jesseron had paid Metco and Jesseron would not be obliged to pay Metco until after it had received payment from its customers. Metco accordingly assumed a double credit risk. Jesseron did not have the financial means to pay for goods until after it had sold them and had received payment. The personal guarantee provided by Mr Pritchard was of dubious value. Clauses 92 and 16 of the distributorship agreement would be of limited effectiveness in the event of Jesseron becoming insolvent.
286   The distributorship agreement as drawn by Mr Nemes did not implement the continuing instruction that it should provide for “control in respect to the receipt of monies from debtors”.
287   If ownership of the dates which Metco had paid for was to pass to Jesseron before Metco had received payment from Jesseron, the question of security for Metco became important. It was part of Mr Nemes’ function as the solicitor for Metco to give consideration to the question of security for Metco. This was part of his function, notwithstanding that Mr Akhyani had tertiary qualifications and some business experience (although only very little business experience in Australia) and notwithstanding that the lay principals of the two companies, Mr Akhyani and Mr Pritchard, had completed negotiating an agreement between themselves.
288   Mr Nemes’ obligation to give consideration to the question of security for Metco was heightened by his actual knowledge that Jesseron was unable to pay for the goods until it had been paid by its customers and his lack of any knowledge of Mr Pritchard being a person of financial substance who could be relied on to meet a guarantee.
289   A charge from Jesseron including a floating charge over the stock it had acquired from Metco was an obvious form of security for Metco to seek. A floating charge would have had the advantages referred to by Mr Meagher and Mr McCann. The opinion expressed by Mr McCann in his report that a reasonably prudent solicitor would not have advised Metco that it should take a floating charge over the assets of Jesseron was based on assumptions made by Mr McCann on the basis of his instructions, which I have found to be incomplete and inaccurate in important respects.
290   Mr Nemes did not advise Mr Akhyani that he should seek to obtain a floating charge from Metco and I find that Mr Nemes was negligent in not warning Mr Akhyani about the vulnerable position of Metco under the agreement and in not advising Mr Akhyani to seek to obtain a floating charge from Metco.
291   I further find that, if Mr Akhyani had been advised that he should seek a floating charge from Metco, he would have taken this advice and sought such a charge. I do not consider that Mr Akhyani would have been deterred from seeking such a charge by his desire ultimately to become a partner of Mr Pritchard in the business of Jesseron.

(ii) Alleged Negligence in November 1992

292   It was submitted that Mr Nemes had been negligent in that he had failed to warn Mr Akhyani about the vulnerable position Metco was in under the distributorship agreement and had failed to advise Mr Akhyani that a floating charge should be obtained from Jesseron.
293   In October 1992 Mr Pritchard communicated with Mr Akhyani, proposing a substantial expansion of the joint activities of their two companies. After receiving this communication from Mr Pritchard, Mr Akhyani consulted Mr Beale. Mr Beale advised Mr Akhyani to seek further security in the form of a charge and explained to Mr Akhyani what a floating charge was.
294   I have decided not to accept evidence given by Mr Beale in his affidavit that Mr Akhyani said to Mr Beale that he did not want to take the matter any further and have found that the matter was left between Mr Beale and Mr Akhyani on the basis that Mr Akhyani would be speaking to Mr Nemes.
295   Mr Akhyani did speak to Mr Nemes and I have found that when Mr Akhyani spoke to Mr Nemes he told Mr Nemes that Mr Beale had advised that a charge should be obtained. I am also satisfied that Mr Akhyani not only told Mr Nemes that he and Mr Pritchard wanted to expand their activities to include other product lines but also conveyed to Mr Nemes that the scale of their activities would be expanded and that the exposure of Metco to Jesseron would be likely to increase.
296   Mr Nemes did not warn Mr Akhyani about the vulnerable position Metco was in under the agreement and did not advise Mr Akhyani to seek to obtain a floating charge from Jesseron and I find that Mr Nemes was negligent in not so warning and advising. If Mr Akhyani had been advised that he should seek a floating charge from Metco, he would have taken this advice and sought such a charge.

(iii) Alleged Negligence in mid 1993

297 It was submitted that Mr Nemes had been negligent in that he had failed to advise Mr Akhyani that s267 of the Corporations Law might apply to the proposed deed of equitable charge from Jesseron to Metco and he had failed to properly advise Mr Akhyani about whether he had the capacity to participate in the execution of the deed of equitable charge by Jesseron, by witnessing the affixing of the common seal of Jesseron in the capacity of being its secretary.
298   As regards the alleged failure to advise about the execution of the deed of equitable charge, I have found that on 14 or 15 June 1993 Mr Akhyani told Mr Nemes that he had signed a lease agreement for the lease of a motor vehicle as being the secretary of Jesseron and had produced to Mr Nemes a copy of the minute purportedly appointing Mr Akhyani as the secretary of Jesseron. I have found that this copy of the minute was placed in HRN’s file.
299   This minute was such as on the face of it to raise doubts about whether Mr Akhyani had been validly appointed as secretary of Jesseron.
300   On 30 June 1993 Mr Nemes advised Mr Akhyani that he could participate in the execution of the deed of equitable charge by Jesseron. I consider that Mr Nemes was negligent in giving this advice. Mr Nemes should not have given this advice, without making a corporations search to determine whether Mr Akhyani had been appointed the secretary of Jesseron. Such a search would have revealed that Mr Akhyani had not been appointed the secretary of Jesseron.
301 As regards s267 of the Corporations Law, I find that on 30 June 1993 Mr Nemes was quite unaware of the possible application of s267 and did not give Mr Akhyani any advice about s267.
302 As at 30 June 1993 Mr Nemes was on notice of facts which could have made Mr Akhyani an “officer” of Jesseron for the purposes of s267. He knew that Mr Akhyani had been working in the office of Jesseron. I do not accept that Mr Akhyani said to Mr Nemes words to the effect that the work he had done in the office of Jesseron had only been minor. I have found that Mr Nemes had received a copy of the minute purportedly recording the appointment of Mr Akhyani as the secretary of Jesseron at a meeting of the directors of Jesseron attended by Mr Akhyani as a “co-director” of Jesseron. Even if on the face of the minute there were doubts about the validity of any appointment of Mr Akhyani as the secretary or as a director of Jesseron, the terms of the minute suggested that Mr Akhyani had played a part in the affairs of Jesseron which might constitute him an “officer” of Jesseron.
303 I conclude that Mr Nemes, having notice of these matters, was negligent in not advising Mr Akhyani that s267 might apply to the proposed deed of equitable charge.
304   Even if Mr Akhyani did say that he expected that Jesseron would be able to pay some monthly instalments of its compromised indebtedness, a reasonably careful solicitor would have explained to his client that, if a charge was taken, the client might not be able to take any step to enforce the charge for six months after its creation.

(iv) Alleged negligence in September 1993

305   It was submitted that in September 1993 Mr Nemes had been negligent in that he had failed to advise Mr Akhyani not to appoint a receiver and manager of Jesseron, when such advice should have been given, because of the manner in which the deed of equitable charge had been executed by Jesseron and because the appointment of a receiver and manager would amount to the taking of a step in the enforcement of the charge, thereby invalidating the charge.
306 I find that Mr Nemes was negligent in this respect. By the time the receiver was appointed Mr Nemes had actual knowledge that Mr Akhyani had not been validly appointed as the secretary of Jesseron. Mr Nemes was on notice of facts which ought to have indicated to him that, although Mr Akhyani had not been validly appointed as a director or as the secretary of Jesseron, he might still be an “officer” of Jesseron for the purposes of s267.
307 It is true that the appointment of the receiver was made on the advice of Mr Simpkins of counsel. However, I have found that Mr Simpkins was not adequately instructed. As regards s267, Mr Simpkins was not informed of facts which might have caused Mr Akhyani to be an “officer” of Jesseron, on some basis other than as being a director or the secretary of Jesseron. As regards the execution of the deed of equitable charge, I have found that no attention was paid at the conference with Mr Simpkins to the question of whether the deed of equitable charge had been validly executed.

Damages

308   I have found that Mr Nemes was negligent in all of the four respects in which it was alleged on behalf of Metco that he had been negligent. It is accordingly necessary to assess damages.
309   When counsel made their submissions on damages at the conclusion of the hearing, they could not know in what respects, if any, I would find that Mr Nemes had been negligent. Nor could counsel know what findings I would make on other issues of fact which would be relevant to the assessment of damages, including, for example, whether, if Mr Nemes had given the advice which it was alleged he ought to have given in mid 1992 or November 1992 and if Mr Akhyani had accepted that advice, at least to the extent of seeking to obtain the giving of a charge by Jesseron, whether Mr Pritchard would have agreed to the giving of a charge by Jesseron and whether, if Mr Pritchard had refused to agree to the giving of a charge, Mr Akhyani would nevertheless have proceeded with the proposed distributorship agreement or would, on the other hand, have decided not to proceed at all.
310   Because counsel for Metco could not know in advance what findings I would make on such matters, counsel for the plaintiff in their submissions on damages set out a number of different “scenarios”, each based on different assumptions as to what findings I would make.
311   Scenario A in counsel for the plaintiff’s outline submissions on damages, as I understand it, is based on assumptions that I would find that Mr Nemes was negligent in either mid 1992 or November 1992 in not advising that Metco should seek to obtain a charge from Jesseron, that if Mr Nemes had not been negligent and had given such advice then Mr Akhyani would have taken the advice and would have sought to obtain a charge from Jesseron, that if Mr Pritchard had been asked for a charge he would have been willing for Jesseron to give such a charge and that Jesseron would have given such a charge in either mid 1992 or November 1992 and that Metco would have appointed a receiver pursuant to the charge in about June 1993.
312   I have found that Mr Nemes was negligent in both 1992 and November 1992 in not advising that Metco should seek to obtain a charge from Jesseron. I have also found that, if such advice had been given by Mr Nemes, Mr Akhyani would have acted on the advice and would have sought to obtain a charge from Jesseron.
313   An outstanding issue is whether, if Mr Pritchard had been asked for a charge, he would have been willing for Jesseron to give such a charge.
314   In his affidavit Mr Pritchard said that, when the distributorship agreement was being negotiated, he would not have agreed to Jesseron or himself giving any further security and, in particular, if a request had been made that Jesseron give a charge over its assets to security the indebtedness of Jesseron to Metco, Mr Pritchard as a director of Jesseron would not have agreed to such a request.
315   I do not consider that I should accept this evidence by Mr Pritchard.
316   It was, of course, evidence given in hindsight by Mr Pritchard about what he believed he would have done, if something, which had not in fact happened, had happened. Some caution has to be exercised in assessing such evidence.
317   I formed an unfavourable view of Mr Pritchard’s credibility, especially in giving evidence which he would have known would be unfavourable to Mr Akhyani. At the hearing Mr Pritchard’s hostility to Mr Akhyani was quite obvious. For example, at one stage in his evidence he claimed to believe that Mr Akhyani had been a party to a conspiracy to take over Jesseron. It is clear that relations between Mr Akhyani and Mr Pritchard became acrimonious in 1993. In 1994 Jesseron was wound up and Metco sued Mr Pritchard on the personal guarantee he had given in the distributorship agreement. In cross-examination Mr Pritchard admitted that in the negotiations between Metco and Jesseron in mid 1993 he had told lies in an effort to obtain a favourable outcome in the negotiations.
318   Mr Pritchard conceded, as he had to, that in mid 1992 Jesseron did not have the financial resources to fund the prospective purchases of dates from the Middle East and could not pay Metco until after it itself had been paid by its customers and that Metco would be acting as a financier under the proposed arrangement between Metco and Jesseron. There is nothing to suggest that Jesseron had any alternative means of obtaining finance (Mr Pritchard was poorly regarded by his bank). In these circumstances, it would have been reasonable, and likely, for Mr Pritchard to have acceded to a request from Jesseron’s financier that Jesseron give a charge over the goods which had been acquired with the finance provided by that financier. Mr Pritchard in fact agreed to give a personal guarantee and agreed to the inclusion in the distributorship agreement of cl 16.
319   Mr Pritchard asserted in his oral evidence that in mid 1992 he had “a nice little company (Jesseron)… I didn’t want to expand it… and put it at risk”. I am, however, satisfied that, contrary to this evidence, Mr Pritchard was very optimistic about the proposed arrangement with Metco and foresaw a considerable expansion of the activities of Jesseron.
320   In October 1992 Mr Pritchard wrote the letter to Mr Akhyani, in which he asked for the distributorship agreement to be extended to figs and in which he predicted a great increase in the volume of the business being done by Metco and Jesseron. In his oral evidence Mr Pritchard claimed that this letter had been a “very optimistic letter” and that “in hindsight” it was “exaggerated” and that, although addressed to Mr Akhyani, the letter had really been written for the purpose of showing it to a bank. I am satisfied that, notwithstanding Mr Pritchard’s attempt to downplay the assertions in his letter of October 1992, Mr Pritchard in October and November 1992 foresaw a great expansion of the activities of Metco and Jesseron pursuant to the distributorship agreement. It was not true in October and November 1992 that Mr Pritchard saw Jesseron as “a nice little business”, which he did not want to expand.
321   In his oral evidence Mr Pritchard agreed that in November 1992 it would have been perfectly reasonable for Mr Akhyani to have sought a floating charge to secure the increased exposure of Metco to Jesseron. The following evidence was given by Mr Pritchard:-

“Q. You agree with me that from your point of view you would see it as unreasonable position where a financier parted with ownership of the stock before being paid and did not have any charge over the stock to secure payment?
A. It is not something that I would do”.

322   In mid 1993 Mr Pritchard in fact agreed that Jesseron should give a charge and a charge was given by Jesseron. It was submitted by counsel for the defendants that in mid 1993 circumstances were different, in that in mid 1993 Mr Akhyani was making threats to have Jesseron wound up. I accept that in mid 1993 Mr Pritchard was subject to this pressure, to which he had not been subject in mid 1992. However, even after this factor is taken into account, I consider that Mr Pritchard’s willingness for Jesseron to give a charge in 1993 renders it more probable that, if in 1992 he had been asked for a charge, he would have been willing for Jesseron to give a charge.
323   I am satisfied that if a charge had been given by Jesseron to Metco in either mid 1992 or November 1992, Metco would have appointed a receiver pursuant to the charge in June 1993.
324   As I have made all the findings required for scenario A in counsel for the plaintiff’s outline submissions on damages to be applicable, I would propose to assess damages in accordance with scenario A. I would not propose to assess damages in accordance with any of the other alternative scenarios in counsel for the plaintiff’s outline submissions on damages.
325   The manner in which counsel for the plaintiff submitted that damages should be assessed under scenario A is set out at pp 2-11 of the plaintiff’s outline submissions on damages. A further claim for damages based on the decision of the High Court in Hungerfords v Walker (1990) 171 CLR 125 is set out at pp 14-17 and at pp 18-19 of the outline submissions on damages.
326   Broadly speaking, the claim for damages argued for at pp 2-11 of the outline submissions on damages can be summarised as follows:-
327   I do not understand how, arithmetically, the figure of $487,520.80 has been arrived at.
328   It was submitted by counsel for the plaintiff that, if a charge had been given and if a receiver had been appointed in mid 93, the debt of $737,193.65 would have been fully recoverable by Metco.
329   As previously indicated, a claim is also made for Hungerfords v Walker damages.
330   The submissions made by counsel for the defendants in his outline submissions in answer to counsel for the plaintiff’s submissions on scenario A would appear to be fairly brief, being confined to a little over a page (pp 17 and 18), together with submissions in answer to the claim for Hungerfords v Walker damages at p30. Of course, counsel for the defendants, who did not have the assistance of a junior in what was an extremely heavy case, had also to grapple with the other scenarios on damages advanced by counsel for the plaintiff, as well as with the multifarious issues on liability.
331   I have found the proper assessment of damages, according to the assumptions made in scenario A, including the claim for damages under Hungerfords v Walker, to be far from simple and I consider that I could be assisted by any further submissions counsel, and particularly counsel for the defendants, might wish to make, now that it is known what findings I have made on liability and what findings I have made on certain other issues relevant to the assessment of damages. I propose to defer the assessment of damages, until counsel have had the opportunity of making any further submissions they may wish to make. I repeat that it is my present intention to assess damages, only in accordance with the assumptions which I understand to underlie scenario A.

Last Modified: 09/26/2000

CITATION:	Middle East Trading v Nemes [2000] NSWSC 632
FILE NUMBER(S):	SC 20173/96
HEARING DATE(S):	17/08/99, 18/08/99, 19/08/99, 20/08/99, 23/08/99, 24/08/99, 25/08/99, 26/08/99, 27/08/99, 17/04/00, 18/04/00, 19/04/00 20/04/00, 27/04/00
JUDGMENT DATE:	14 July 2000
PARTIES :	Middle East Trading Consultants Pty Limited v Steven Nemes and David Vaughan T/A Heaney, Richardson & Nemes
JUDGMENT OF:	James J

COUNSEL :	R MacFarlan QC/P Durack - Plaintiffs D Davies SC - Defendants
SOLICITORS:	P A Somerset & Co - Plaintiffs Phillips Fox - Defendants
DECISION:	Verdict for the Plaintiffs