O'Farrell v Network Entertainment Pty Ltd

[2005] NSWCA 284

CITATION:	O'Farrell v Network Entertainment Pty Ltd [2005] NSWCA 284
HEARING DATE(S):	09/06/2005
JUDGMENT DATE:	26 August 2005
JUDGMENT OF:	Mason P at 1; Bryson JA at 2; Brownie AJA at 61
DECISION:	Appeal dismissed with costs.

CATCHWORDS:	EMPLOYMENT - termination of Contract of Service of Director and CEO- claim by employer for loan account and defence that directors earlier agreed to release loan when employee agreed to extend term of service - Trial Judge rejected employee's evidence - appellant made criticisms of trial process and Trial Judge's expression of reasons for rejection of employee's evidence - criticisms of cross-examining counsel - Trial Judge's decision on facts not shown to be in error, appeal dismissed. - EVIDENCE - cross-examining counsel - conduct of counsel and form of questions.
LEGISLATION CITED:	Corporations Act 2001 Industrial Relations Act 1996
CASES CITED:	Browne v Dunn (1893) 6 R 67 (HL) Commercial Union Assurance Co of Aust Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 Fox v Percy (2003) 77 ALJR 989 Jones v Hyde (1989) 85 ALR 23
PARTIES:	Karl John O'Farrell Applicant Network Entertainment Pty Ltd Respondent
FILE NUMBER(S):	CA 40507/2004
COUNSEL:	Mr B. Walker SC with Mr M. Christie Appellant Mr T.G.R. Parker Respondent
SOLICITORS:	Michell Sillar Appellant RAJ Lawyers Respondent

LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	DC 14418/01
LOWER COURT JUDICIAL OFFICER:	Charteris DCJ

CA 40507/2004

MASON P
BRYSON JA
BROWNIE AJA

FRIDAY, 26 AUGUST 2005

KARL JOHN O’FARRELL v NETWORK ENTERTAINMENT PTY LIMITED

Judgment

1 MASON P: I agree with Bryson JA.

2 BRYSON JA: The appellant appeals against the decision of Judge Charteris in the District Court on 14 May 2004. The appellant Mr O’Farrell, defendant and cross-claimant in the District Court, was from 1992 to 6 April 2000 a director and the Chief Executive Officer of the respondent Network Entertainment Pty Limited (hereinafter NEPL), with responsibilities for the affairs of NEPL and a number of companies related to NEPL. NEPL was the plaintiff and cross-defendant in the District Court. NEPL sued Mr O’Farrell by Statement of Liquidated Claim dated 21 December 2001 for an alleged debt of $403,192.10 as the unpaid balance as at 30 June 2000 of a loan account in NEPL’s books arising from advances made by NEPL to Mr O’Farrell during a period from about 1996 to 6 April 2000. NEPL also claimed interest. The claim was upheld and the learned Trial Judge found that NEPL was entitled to a verdict for $604,550.73. After setting off $138,284.36 which Mr O’Farrell was awarded on his cross-claim the Trial Judge gave judgment for NEPL for $466,266.37 with costs.

3 Mr O’Farrell’s Amended Notice of Grounds of Defence made a number of admissions and the substance of the defence is in these terms:(Red 6)

6. In answer to the Claim as a whole, the terms and conditions of the Loan and the Defendant’s employment with the Plaintiff was varied on 24 February 1999.
Particulars
Minute of meeting of the Board of Directors of Cinimagic Limited where it was agreed between William Waterhouse and Robert Waterhouse acting for and on behalf of the Plaintiff that the “loan of approximately $350,000.00 owed by (the Defendant) is written off and is not payable by (the Defendant) to (the Plaintiff)”.

The minute referred to (Blue 2/476-477) is a minute of a directors’ meeting of Cinimagic Limited (hereinafter Cinimagic), which at that time was related to NEPL and was in a position to control its affairs. The minute records the presence of Mr O’Farrell, Mr William Waterhouse and Mr Robert Waterhouse, who then were the directors of Cinimagic and also the directors of NEPL. The minute was signed by Mr O’Farrell as Chairman; but it was not signed by Mr William Waterhouse nor by Mr Robert Waterhouse as directors. Although the minute does not record this, Mr O’Farrell in the course of his oral evidence said to the effect that one (or his evidence may mean both) of Mr William Waterhouse and Mr Robert Waterhouse was present in the meeting only by telephone.

4 The loan account, referred to in the minute as “approximately $350,000,” stood at $341.720.00 at 30 June 1999. The loan account continued to be maintained in NEPL’s financial accounts, without any record of its having been written off or discharged, and further drawings were made against the account by Mr O’Farrell, up to the time of his resignation.

5 After dealing with other business including the issue of options for Mr O’Farrell to acquire shares in Cinimagic the minute records (Blue 2/476 - 477):

It is further proposed that, as at 1 July 1999, Karl O'Farrell's remuneration package be amended as follows:

Cash of $250,000 per annum, plus two fully maintained motor vehicles as per the contract of employment, plus Superannuation of 12 ½ %

It was also proposed that Karl O'Farrell extend his contract of employment by a further two years. It was noted that significant new funds were being received by the Company and the Board and shareholders needed certainty as to the future management of the Company.
After lengthy discussion, Karl O'Farrell agreed to extend his Contract by two years to September, 2001 provided that:

· he be allowed to participate in other business from time to time

· the Board acknowledge that he may not devote all his time to the Company

· Karl O'Farrell can terminate his employment at any time provided he give three (3) months written notice. In the event of Karl O'Farrell terminating his employment, the Company would be liable for 50% of the value of his remaining contract (including any extensions from this Board Minute. In the event the Company varies or terminates his position as Managing Director/CEO of Network Entertainment Group Limited, that the Company is liable for the full payout of the remainder of his contract and its two year term (hence this Board meeting), and any other extensions as may be agreed from time to time.

· It is further acknowledged that the loan of approximately $350,000 owed by Karl O’Farrell is written off and is not payable by him to the Company. A previous letter from the Company's Chairman confirming this was tabled and is to be attached to these Minutes.

Resolution: It was Resolved to accept the proposal as outlined above.

There being no further business the meeting was closed.

6 At the time of the directors’ meeting Mr O’Farrell’s employment was regulated by an Executive Service Agreement dated 18 August 1997 (Blue 2/258). The Agreement was for a term of three years but the employment was to continue for another twelve months unless terminated; and the Agreement contained elaborate mechanism for termination. By 24 February 1999 there had been no termination. There is an unexplained anomaly in the reference in the minute to extending the Agreement by two years to September 2001; according to the terms of the Agreement an extension of two years would run to August 2002.

7 Mr O’Farrell brought a cross-claim against NEPL. The cross-claim alleged that the term of the Executive Service Agreement was extended from 18 August 2000 to 18 August 2002; and the particulars referred to an event on 24 February 1999 which must be understood as the meeting which the minute records. It was alleged that NEPL terminated the Agreement on 4 April 2000 in breach of the Agreement.

8 Mr O’Farrell’s cross-claim was amended by leave granted on the first day of the hearing, although actually filed on the third day. The Notice of Grounds of Defence by NEPL which was filed earlier did not deal with the amendment, and it should be taken that the trial was conducted on the basis that the new allegations in the amendment were traversed. Paragraphs 8 and 8A, introduced to the cross-claim by the amendment, allege constructive dismissal on 4 April 2000 in these terms: (Red 11)

8. Further or in the alternative to paragraph 7, NEPL informed Mr O’Farrell that unless he [resigned] immediately, he would be dismissed as Managing Director and Chief Executive of NEPL.
Particulars

· Particulars are provided in the O’Farrell affidavit dated 11 July 2003.

8A. The conduct of NEPL referred to in paragraph 8 amounted to a constructive dismissal of O’Farrell, and a repudiation of the Agreement by NEPL which was accepted by O’Farrell.
Particulars

· The Cross-Claimant repeats the particulars to paragraph 8.

9 Particulars in paragraphs 8 and 8A refer only to Mr O’Farrell’s being informed that unless he resigned immediately he would be dismissed, particulars of which were provided in his affidavit dated 11 July 2003; that is to say, the whole of the events of the day, and the events which intervened before he in fact resigned, were not particularised at all.

10 In effect Mr O’Farrell contended that notwithstanding that he did in form resign, he was in substance constructively dismissed. He also contended that there was a breach of the Executive Service Agreement consisting of a repudiation by NEPL which he had accepted, and that he became entitled to $928,074.90 being the Notice Amount provided for by clause 7.5 of the Agreement as well as to other entitlements, including statutory entitlements.

11 Although the pleadings do not show this altogether clearly, in my understanding the principal issues at the trial were:

On NEPL’s claim for debt Mr O’Farrell bore the onus of proving that $341,720.00 of the debt had been discharged by a term of an agreement for the extension of the term of employment and otherwise dealing with his employment conditions made orally between himself and NEPL in the person of its directors at the meeting on 24 February 1999 recorded in the Cinimagic minutes. As to the rest of the debt claim there was no substantial defence.
On the cross-claim for breach of contract Mr O’Farrell bore the onus of proving that conduct of NEPL on 4 April 2000 repudiated the Executive Service Agreement, and that he accepted the repudiation on that day.

12 The evidence-in-chief of Mr O’Farrell relating to formation of the agreement for discharge of the debt appears in his affidavit of 11 July 2003 as follows: (Blue 2/383-384 and 393)

32. On 24 February 1999, at a meeting of the Board of Directors of Cinimagic, and in light of potential strategic changes with the direction of the Cinimagic group, a discussion took place regarding an extension of my employment contract for 5 years. I recollect the discussion was in words to the following effect:

BW: "Karl, you're running the show for these gaming opportunities, and we want you to commit for 5 years".

I said: "Bill, that's a long time. I want some flexibility to pursue other interests, as I'm not always full-time here".

RW: "How about two years then?"
I said: “I’ll agree to that”.
In reliance on the representations of the Board that the contract would be for two years, that I would be allowed to participate in other business from time to time, and that it was confirmed that the NEPL loan of 16 October 1996 was written off, I agreed to commit to stay on with the Cinimagic group, and did so until my employment was subsequently terminated in about April 2000. I refer to documents 7 and 8 of exhibit "KOF1" which are a copy of the minutes of the meeting held on 24 February 1999, and a copy of the letter from [Bill Waterhouse] (dated 1 May 1998) referred to in the said minutes.

33. I recollect that at this meeting, the Board also discussed the write off of the loan, and it was decided by the Board on the basis of advice from the company accountant, to leave the loan on the books as a doubtful debt.

76. I was at all times aware that the NEPL loan to me remained on NEPL's books as a doubtful debt, rather than being written off, in order to avoid paying tax obligations which would be in the vicinity of fifty percent. Rather, the cash was needed for NEPL's purchases, so it was preferable to retain it as a doubtful debt. This was a board decision and ratified by the NEGL/NEPL auditors at the time.

13 I have already set out the significant parts of the minute of 24 February 1999. The letter of 1 May 1998 was on the letterhead of Zealsun Pty Limited and signed by Mr Bill Waterhouse as “Director of Network Entertainment Group Limited and Zealsun Pty Limited,” addressed to Mr O’Farrell. Both Network Entertainment Group Limited (hereinafter NEGL) and Zealsun Pty Limited were companies in the Cinimagic Group. Mr Bill Waterhouse was a director and Chairman of all the companies in the Cinimagic Group, including NEPL. The letter said: (Blue 2/478)

I wish to inform you that Zealsun Pty Limited (“Zealsun”) approves the write-off of your outstanding loan to the company and that there will be no further liability by you.

The letter did not mention NEPL although there can be no doubt about which loan it referred to.

14 Except in the indirect ways appearing from these passages in the affidavit, that is by referring to the minute of 24 February 1999, to the letter of 1 May 1998, and to broad discussion of the write-off of the loan with a decision to leave the loan on the books as a doubtful debt, Mr O’Farrell did not give evidence of statements at the meeting on 24 February 1999 which were alleged to have constituted an agreement between himself and NEPL that the discharge of the loan would be a term of the agreement for extension of the Executive Service Agreement.

15 NEPL’s evidence-in-chief was principally directed to proving, through accountants, the state of its accounts and the references to the loan in them. None of the witnesses whose affidavits were read and whose oral evidence was given on behalf of NEPL participated in the meeting of 24 February 1999 or in the events relating to the termination of Mr O’Farrell’s employment and directorship.

16 Mr P. H. Hudson, who became a director of NEPL on 24 August 2000, gave the history and structure of NEGL (and NEPL was part of the NEGL Group at that time), and produced documents including the Loan Agreement between Mr O’Farrell and NEPL of 16 October 1996 under which the loan account was conducted. Mr Hudson also produced annual reports of NEGL for 1997, 1998 and (under the name E.tec Limited) for 1999. NEGL was renamed as E.tec Limited in 1999. The consolidation of NEPL and E.tec Limited’s accounts appeared in NEGL’s annual reports. The loan account and interest thereon were referred to or reflected in various ways in the annual reports, including references later than Mr Bill Waterhouse’s letter of 1 May 1998, and later than the minute of 24 February 1999.

17 E.tec Limited was listed on the ASX when its annual report for 1999 was published, and Mr O’Farrell as Managing Director shared responsibility for its contents. Under E.tec Limited’s Related Party Disclosures (Blue 1/202), the loan account was reflected in a disclosure of loan to Mr O’Farrell by a controlled identity (which was not named but must be understood as NEPL) shown for the year ended 30 June 1999 as $341,720.00. This disclosure was accompanied by a statement to the effect that apart from the details disclosed no director had entered into a material contract with NEGL and no material contracts involving directors’ interests existed at the year end. The Trial Judge referred to the significance attributed to this disclosure and to the annual report. His Honour said: (Red 24)

That report has considerable significance in this case. It is the defendant's case that on 24 February 1999 at a meeting of the directors of the parent company, NEPL Ltd, the loan had been forgiven. That is the basis of the defendant's grounds of defence in this matter. It is put forward by the plaintiff as of great significance that had the loan truly been forgiven in February 1999, the defendant would hardly have been signing as true and correct, the annual return of the company on 30 November 1999 detailing the loan and the amount outstanding.

18 NEPL also called affidavit evidence of Mr Drew Townsend, a Chartered Accountant, who was concerned in the audit for the NEGL accounts in 1999 and signed the Auditor’s Report in respect of NEGL for the accounting periods ended 30 June 1999 and 30 June 2000. He gave evidence to the effect that the previous auditor of NEGL, as he understood it, made a decision to provide for the loan on the accounts of NEGL as a doubtful debt at 100% of its value. He also gave evidence to the effect that he enquired into the value of Mr O’Farrell’s assets and ascertained that Mr O’Farrell in all likelihood had no tangible assets apart from his shares in NEGL from which to satisfy the doubtful debt, and concluded that it was correct to continue to provide for the loan as a doubtful debt and maintain that treatment in the accounts of NEGL. Mr Townsend produced a copy of the balance sheet of NEPL as at June 2000, and under the headings “Current Assets” and “Other Debtors and Pre-payments” it states: (Blue 1/238)

KOF Sundry Debtor $403,192.10
PROV for doubtful debts KOF $403,192.10
with a net value of nil. Mr Townsend said to the effect:

…that it was evident from the entries in the books of the [NEGL] that the O’Farrell debt was not intended to be written-off in the accounts of [NEGL] as in that case it would not have been provisioned as a doubtful debt.

19 In his second affidavit, put in evidence by Mr O’Farrell, Mr Townsend gave evidence of a discussion with Mr O’Farrell, the date of which is not clearly shown, as follows: (Blue 2/378)

Karl: “As the group is to write off my loan on the books, does it have to pay any tax?”
I said: “There is a tax implication, as it was a personal loan to an employee and therefore an issue of fringe benefits tax arises. As the group can’t off-set FBT against company tax losses, payment would have to be made to the tax office separately in relation to the write-off.”
Karl: “Then we better leave it, as we need the money for the restructuring”.

Mr Townsend’s evidence shows that he had not seen the minute of 24 February 1999 or any other document in regard to waiver of the loan.

20 In relation to the conversation with Mr O’Farrell referred to in Mr Townsend’s second affidavit the Trial Judge said (Red 30):

I also take into account that his conversation with Mr O'Farrell suggests that Mr O'Farrell had the belief that the group "is to write off my loan." I do not take that to mean that Mr O'Farrell was asserting at that time that the loan had been written off.

21 Mr Murray and Mr Young, who are also accountants, gave evidence about aspects of NEGL’s documents. Evidence from Mr Murray dealt with calculation of interest on the loan. The evidence of the accountants show that the financial statements for the years to 30 June 2001 and 30 June 2002 continued to show the debt due to NEPL from Mr O’Farrell, increasing in amount, with provision for 100% of the debt as being a doubtful debt. In relation to the evidence of Mr Murray and Mr Young, the Trial Judge said (Red 34):

I accept, in particular, the evidence which shows that even after February 1999, when the defendant asserts the loan was forgiven, the defendant continued to draw down upon the loan, and indeed, continue to increase his borrowings right up to the time of his resignation.

22 Evidence and submissions dealt with the concept and significance of writing-off a debt. NEPL’s accounts have never shown Mr O’Farrell’s debt as having been written-off, or as having been discharged. However it is not the treatment of the debt in the accounts which finally establishes the rights of the parties. Mr O’Farrell at trial bore the onus of proving that the parties had agreed, for consideration, that the debt would be discharged, and also of proving fulfilment of any contractual provision for the discharge to take effect.

23 In the judgment the Trial Judge considered, at some length, the cross-examination of Mr O’Farrell. The Trial Judge’s treatment overall shows that his Honour regarded the cross-examination as of prime importance for disposition of the proceedings. Mr O’Farrell was cross-examined at considerable length, and the Trial Judge’s decision turned upon his Honour’s view of Mr O’Farrell’s credibility. The subjects reviewed included cross-examination directed to Mr O’Farrell’s understanding of whether there was a requirement for shareholder approval under the Corporations Act 2001 for the forgiveness of the loan to him. The cross-examination was not supported by any showing, at trial or on appeal, that there was any such requirement under the law, but there were suggestions that some consideration had been given or some preparation had taken place towards obtaining shareholder approval, but that approval was not further pursued.

24 The Trial Judge further referred to Mr O’Farrell’s having been taken to various annual returns of relevant companies including places where he was shown to have signed accounts in relation to financial statements, and asserted that the financial statements were true and correct. In relation to the issue of shareholder approval the Trial Judge said: (RED 55Q) “[Mr O’Farrell] agreed that even in the accounts for the year ended 1998, the shareholders in the company would conclude that the loan had not been written-off or forgiven but he asserted that the fact that the loan was ‘one fully provided for’ meant that it had been written-down to a zero value.” In the course of his consideration his Honour further said (Red 56-57):

He was asked whether, as a director, on 24 February 1999, that he was aware that if he received a financial benefit, shareholder approval was required. He stated he was not aware of that. I considered his answers on a number of topics under cross-examination to be unimpressive. That was one area in particular I thought he was unimpressive upon in giving evidence, I should say.

25 Senior Counsel for Mr O’Farrell contended that there was a failure of appropriate trial process in the significance attributed to cross-examination of Mr O’Farrell with respect to the question of shareholder approval. So far as appears the question whether or not there was or was ever expected to be shareholder approval had no real importance; but this does not disqualify the evidence dealing with it as a source of views and findings on the quality of Mr O’Farrell’s evidence and on his credibility.

26 The Trial Judge reviewed Mr O’Farrell’s evidence and cross-examination on many further subjects, including cross-examination on paragraph 33 of Mr O’Farrell’s affidavit, which alleged that the Board of NEPL discussed the writing-off of the loan and decided to leave the loan on NEPL’s books as a doubtful debt. The statement in paragraph 33 relating to a decision to leave the loan on the books as a doubtful debt is anomalous with Mr O’Farrell’s oral evidence, and it is a marked difficulty for acceptance of Mr O’Farrell’s case. There is nothing in the evidence and in his affidavit, elsewhere than in paragraph 33, in which he gave a narration of the statements made by the persons present at the meeting of 24 February 1999, or of other facts and circumstances which underlie the reference to the loan in the minute; nothing apart from producing and exhibiting a copy of the minute itself. It would appear remarkably strange to any person charged with the duty of deciding the facts of the case that Mr O’Farrell gave no account of the facts and events which the minute purportedly recorded. In relation to the cross-examination on paragraph 33 the Trial Judge said (Red 57-58):

Mr O'Farrell stated that that was an error. He had made a mistake in his affidavit: it was not discussed at that meeting and the accountant was not there. He had, prior to being taken to para 33, told the court that tax implications of writing off the loan were not discussed at the meeting. Being confronted with para 33, he then chose to say that the affidavit was a mistake. I found his evidence on that topic very unimpressive indeed.

The Trial Judge also said (Red 58 K-P):

I found that as he answered his questions in cross-examination, Mr O'Farrell tended often to not address the point of the question. He also, on occasions, tended to make what amounted to speeches so as to get his message across, as I perceived it, to the presiding Judge. I thought his answers were very unimpressive on many occasions.

27 The Trial Judge made reference to several drafts of Heads of Agreement between NEPL and Mr O’Farrell which were negotiated and proposed on 6 April 2000, on the day when Mr O’Farrell resigned. The Trial Judge noted (Red 51) that among the references to consideration for a proposed deal in several drafts of Heads of Agreement the following appears (Red 51M):

The total consideration for the deal to be the satisfaction of loan (approximately 350 k) and $1 cash.

His Honour said (Red 51N-R):

It is a matter of interest that although it is Mr O'Farrell's contention that the loan had been forgiven in February 1999, in about April 2000 he is entering negotiations in which the existence of the loan is being acknowledged and sought to be included into a consideration component of a proposed deal.

28 The Trial Judge reviewed cross-examination on the apparent anomaly between Mr O’Farrell’s evidence and the acknowledgement of the loan in the Heads of Agreement and said: (Red 60C)

It can be observed that it is inconsistent of Mr O'Farrell to have done so, inconsistent I mean with the suggestion that the debt was no longer payable.

29 There are a number of passages in the judgment which convey the Trial Judge’s adverse view of Mr O’Farrell’s credibility. Further passages include these (Red 62-63):

During the course of Mr O'Farrell's evidence, I sought to watch and listen carefully to what he had to say. As I have already observed, I thought many of his answers were unimpressive.
At a later point (Red 60) the Trial Judge said:

It was suggested to him in some of his answers that he was seeking to be evasive. He denied that proposition. I thought that on occasions, he was not deliberately coming to the point of the question and that it was not an unreasonable conclusion that he had, on occasion, sought to evade some of the questions.

His Honour further said (Red 64E-I):

I formed the view, regrettably, that in matters concerned with the financial affairs of Mr O'Farrell and the company that I should require corroborative evidence before I was prepared to accept Mr O'Farrell's account.

30 In the only passage which clearly expresses an observation or finding about demeanour of Mr O’Farrell, the Trial Judge said: (Red 64)

I am therefore not prepared to accept the assertions of Mr O'Farrell and in particular, those relating to the circumstances of the loan, his resignation and the conduct of board meetings unless there is other material, whether it be documentary or otherwise, that supports the evidence. I do not make that decision lightly. Mr O'Farrell appeared as a pleasant man in the witness box. He was very polite but, regrettably, his evidence on crucial matters in this case is unreliable, in my view.

31 It does not follow from the relatively slight and unclear reference to demeanour in the judgment that the demeanour of Mr O’Farrell as a witness played no part in the Trial Judge’s conclusion – cf. Jones v Hyde (1989) 85 ALR 23 at 27 where McHugh J referred to the subtle influence of demeanour. In Fox v Percy (2003) 77 ALJR 989 at 993 [23] Gleeson CJ, Gummow and Kirby JJ referred to natural limitations when an appellate Court proceeds on the written record and said:

These limitations include the disadvantage that the appellate court has when compared with the trial judge in respect of the evaluation of witnesses’ credibility and of the “feeling” of a case which an appellate court, reading the transcript, cannot always fully share.

32 Cross-examination of Mr O’Farrell further dealt with what were contended to be anomalies of the minute of 24 February 1999, including the fact that the minute was not signed by any other director but by Mr O’Farrell only. The Trial Judge said (Red 59K-R):

It was put to [Mr O’Farrell] that he had set about to create the minutes of the meeting and the possibility was raised that he had done so without a meeting ever having taken place. Indeed, the cross-examiner put to him that he had made up the minutes. He denied that proposition. He said that the minute was properly a record of the company. He was asked why he had not had another director sign the minutes. His answer, somewhat lamely delivered, was "I did not foresee these circumstances.”

33 In his judgment the Trial Judge observed (Red 45-47) on how favourable the decision recorded in the minute was to Mr O’Farrell, with respect to the offer of options to acquire shares in Cinimagic, the significant increase in his salary, the extension of his Executive Service Agreement and the offer of advantages in the event of termination. His Honour said (Red 61):

It is surprising, having regard to the considerable benefits being delivered to Mr O'Farrell, that he did not seek that the other directors sign the minutes of the meeting.

34 Mr O’Farrell said in evidence that he abstained from voting at the meeting of 24 February 1999, although the minute does not reveal this. After reviewing evidence in cross-examination of Mr O’Farrell about some circumstances of the minute, his Honour observed: (Red 62):

It is extraordinary that in the minute of 24 February, he failed to mention that he had abstained from voting. It is even more extraordinary that he failed to mention in his affidavit that he had done so. In addition, his rambling answers did not encourage me in the view that he was seeking at all times to assist to give direct responses to what he was being asked.

…

Mr O'Farrell was re-examined. Again, I thought many of his answers did not address the point of the question. He rambled in a number of his answers. I was unimpressed by a number of his answers.

35 The treatment by NEPL’s counsel in cross-examination of questions relating to whether the minute was a correct record, and also whether the meeting which it purportedly recorded in fact took place, was criticised in submissions at first instance, on the ground that counsel had put in cross-examination positive assertions of matters which elsewhere he sought to challenge. His Honour said:

… I took the view that counsel had not exceeded the proper bounds of cross-examination. There was an arguable case to be put to ask the Court to conclude that the meetings of that minutes were not, to use an expression, bona fide. I am not critical of counsel's approach.

36 On appeal it is again contended that the conduct of the cross-examining counsel was inappropriate, and that the form of questions showed that counsel accepted that there had been a meeting and that the minute truly was a record of that meeting, until at a late stage an inconsistent attack was made.

37 In my view the cross-examiner’s questions were not well framed. The minute of 24 February 1999, and also the letter of 1 May 1998 by Mr Bill Waterhouse, went into evidence without objection in circumstances which suggested that their authenticity was not challenged. NEPL’s counsel did not adduce any evidence in denial of the position that appeared on the face of the minute, that there was in truth a Cinimagic directors’ meeting and that the events recorded in the minute took place. These were not subjects on which NEPL bore the onus of proof, and it was open to NEPL’s counsel, according to his instructions, which the Court cannot know, to test whether such a meeting ever took place, and whether the minute was genuine. However if those matters were in issue it would have been appropriate to conduct the case consistently, to take objection to the admission of documents rather than allow them to go in on a basis which created the appearance that their authenticity was accepted, and to frame questions in terms which did not appear to accept facts which counsel proposed to challenge. The conduct of NEPL’s counsel at trial (not being the counsel who appeared on the appeal) cannot be given approval in these respects.

38 However overall I am of the view that the trial was not conducted in an unfair way, and that it must have been altogether clear to Mr O’Farrell that his account of events and his credibility were comprehensively under challenge, in a case where he bore the onus of proof and had not set about discharging it by a full and circumstantial narration of events. The Trial Judge said (Red 66U-Y):

Of course, in my view, it is for Mr O'Farrell to establish that the meeting took place, that the decisions he asserts were made did actually occur at that meeting and that the minutes accurately reflect the decisions taken at the meeting.

No one participating in the trial could have failed to understand this.

39 The Trial Judge disposed of Mr O’Farrell’s defence of discharge of the debt on a clearly expressed and explained conclusion adverse to Mr O’Farrell’s credibility. The Trial Judge found as follows (Red 69-70):

Conclusion

As I have observed, I find Mr O'Farrell to be an unreliable witness. I find that his allegation that the loan was forgiven at a meeting of 24 February 1999 has not been established. There is no reliable corroborative material to support the proposition. The records of the companies concerned, together with the conduct of Mr O'Farrell at relevant times, tend to not support the proposition that the loan was forgiven: that included Mr O'Farrell continuing to borrow from the company after the alleged forgiveness, his signing annual reports showing the loan is still in existence and his being prepared to deal with the existence of the loan on his resignation.

The defendant has not satisfied me that there was a meeting of the board of directors on 24 February 1999.

40 Senior Counsel for Mr O’Farrell contended that the Trial Judge’s references to Mr O’Farrell’s evidence as unimpressive was an irrelevant global comment, and that it was almost impossible to understand what his Honour meant. It was said that this was a failure of the trial process in that by using these expressions the Trial Judge did not make findings; as counsel put it, the Trial Judge made an irrelevant global comment while “not analysing anything legally at all.” To my reading the meaning of his Honour’s use of these and like expressions is altogether clear. There were several subjects of cross-examination which appear to have been inconclusive in terms of adduction of any relevant evidence; yet they were available and were referred to by the Trial Judge as sources of views about Mr O’Farrell’s credibility. There was no failure of trial process in these events.

41 Senior Counsel for Mr O’Farrell complained, with force and repeatedly, to the effect that the Trial Judge disposed of the question of credibility by references to his being unimpressed or not favourably impressed by Mr O’Farrell in the witness box, and that the use of these expressions showed that his Honour did not deal with material contemporaneous and subsequent with the events which tended objectively to confirm Mr O’Farrell’s case. It was contended that there was corroboration of Mr O’Farrell’s case in the Related Party Disclosures in the notes forming part of the annual report of E.tec Limited and its controlled entities for the year ended 30 June 1999 (Blue 1/202). In my opinion the notes have altogether the opposite effect, as they state that there were no material contracts involving directors’ interests existing at year end and that the loan to Mr O’Farrell was subject to normal terms and conditions; these statements would not be correct if there had been an agreement to discharge the loan, nor would they be correct if there had been an agreement under which it was to be discharged in the future. The balance sheet of NEPL as at June 2000 (Blue 1/238), relating to a time after Mr O’Farrell ceased to be a director, shows the debt and the corresponding provision for the doubtful debt; this has no tendency to confirm or corroborate Mr O’Farrell’s evidence.

42 It was contended that the Trial Judge did not address a prior consistent statement by Mr O’Farrell, appearing in the second affidavit of Mr Townsend, where Mr Townsend said, speaking on 18 July 2003, more than eighteen months after the action in the District Court had been commenced (Blue 2/378):

I understand from recent discussions with Karl, that the Board of NEGL confirmed a waiver of the loan to Karl (“the Loan”) in February 1999, and minutes exist to this effect.

43 This statement, which was recent in July 2003 must have been made while the litigation was pending and could at the best have very slight effect as a prior consistent statement.

44 Another statement of Mr O’Farrell deposed to in that affidavit is:

As the Group is to write-off my loan on the books, does it have to pay any tax?

This statement, probably attributable to some time in 1999, has no real corroborating force for the alleged agreement to discharge the debt. Counsel also referred to a statement which Mr O’Farrell in his affidavit said he made to Ms Cherkovic, the solicitor representing those in control of NEGL including NEPL in April 2000:

That loan has been written-off ages ago by Bill Waterhouse.

The Trial Judge did not refer to these statements or make any findings in relation to them. In my opinion this is well explained by their lack of inherent importance.

45 In my opinion the Trial Judge’s conclusions on NEPL’s claim against Mr O’Farrell have not been shown to be in error.

46 With respect to the cross-claim relating to termination of the Executive Service Agreement, Mr O’Farrell bore the onus of proving that conduct of NEPL on 4 April 2000 repudiated the Executive Service Agreement, and that he accepted the repudiation on that day.

47 In his affidavit, Mr O’Farrell gave an account of events in which Mr Bill Waterhouse resigned as a Chairman and director of all the companies in the Cinimagic Group including NEPL on 8 March 1999, and control of the companies passed to persons who had not previously been involved in the companies’ affairs. One of the persons exercising control was Mr Richard Farmer, and another was Mr Leo Respinger who became a director when Mr Robert Waterhouse resigned on 1 October 1999. Mr O’Farrell’s affidavit gave a detailed narration of various events relating to the affairs of Cinimagic, in which, in March 2000, he continued in his role as Managing Director and Chief Executive Officer of NEPL, and of Canbet Limited, formerly named E.tec Limited. His affidavit said: (Blue 2/388)

60. I continued in my role as Managing Director/CEO of NEPL/Canbet Limited formerly E.tec.
61. Towards the end of March 2000, I became aware that Respinger and Farmer were issuing instructions to senior management of Canbet Limited to close the operations in Sydney, to lay-off most of the staff and to send the accounts and records to Canbet's office at the Canberra Racecourse. I left a number of telephone messages for Farmer to ring me none of which were returned.
62. I then approached Respinger to ascertain what was going-on as we had not had a Board Meeting regarding the proposed actions and that I, in my capacity as Managing Director/CEO was not being consulted about these events. A meeting was arranged at Respinger's office.
63. Shortly afterwards, I met Respinger at his office at Hall Chadwick. I am not sure of the date. Respinger invited me to go downstairs to have a coffee with him. At the coffee shop, Respinger said to me:
“Karl, the New Zealanders have requested that we close the operations in Sydney apart from the entertainment operations at Darling Harbour and Fox Studios."

[By "the New Zealanders", Respinger was referring to the strategic investors from New Zealand, i.e., Cullen Investments Limited who took approximately $12 million of the $18 million sought in the Prospectus.]

I said: "Shouldn't I be involved in any decision like this as managing director?"

Respinger said: "Listen Karl, the New Zealanders are pulling the strings now. They want Sydney closed down. They also have an ownership in a lotteries business operating in the South Pacific and they want Canbet to review this business with a view to purchasing it. By the way, they want you to resign as managing director."

I said: "Why should I? I don't know why we should be purchasing another business when management's time will be taken up with the integration of Canbet as well as Capital Sports."

Respinger said: "Karl, the bottom line is that they want you to resign."
I said: "I'm not going to resign.
64. After my meeting with Respinger, I was telephoned by Tania Cherkovic, a solicitor acting for NEPL in an employment matter involving Irene Taylor and Gary Fitzpatrick. Ms Cherkovic said to me:
"Karl, Leo has approached me and has asked me to advise you to resign from Canbet and NEPL. They do not want you involved in the companies any further."
I said: "Why should I resign?"
Ms Cherkovic said: "Karl, I told Leo that you were vital to the Warner Bros litigation and the employment matters involving Taylor and Fitzpatrick. Leo said he didn't care since the New [Zealanders] don't care either."
I said: "Well, surely my involvement with those cases is good reason for me not to resign. No. I am not prepared to resign."
Ms Cherkovic said: "Alright then. I am only the messenger".

48 Mr O’Farrell’s affidavit went on to say (para 65) that on 6 April 2000 he was told by telephone by the company secretary of Canbet Limited that there was to be a directors’ meeting by telephone conference that morning to dismiss him as Managing Director and to call an Extraordinary Shareholders’ Meeting to have him removed as a director; Mr O’Farrell responded that there was not sufficient notice for the meeting. Later on the same day he received another telephone call from Ms Cherkovic; and his affidavit referred to the telephone call in these terms: (Blue 2/391)

66. Shortly thereafter (but on the same day) I received another telephone call from Ms Cherkovic. Ms Cherkovic said to me:
“Karl, you know they’re going to dismiss you.”
I said: “I know. I have just been telephoned by Bruce.”
Ms Cherkovic said: “I think we should meet and discuss your dismissal.”
67. At the subsequent meeting between myself and Ms Cherkovic (which lasted approximately one hour), Ms Cherkovic said to me during the course of our meeting:
"The Board meeting has been delayed so that I can talk with you. The Board will be making a public announcement that you have been dismissed and that they will be calling an Extraordinary General Meeting to have you removed as a director at the earliest possible time. I think you should resign."
[Ms Cherkovic and I then discussed my options as to my proposed dismissal]
I said: "What about my entitlements and everything?"
Ms Cherkovic said: "They are willing to sell you the entertainment assets for a dollar."
[By the "entertainment assets", Ms Cherkovic was referring to various companies in the Canbet Limited Group including NEPL, NEAPL, the CEL Group of companies and the [assets] formerly known as CEPL]
Ms Cherkovic also said:
"The New Zealanders want to call in the loan unless you agree to resign."
I said: "That loan has been written off ages ago by Bill Waterhouse."
Ms Cherkovic said: "If they call in the loan, then you will still need to defend it on that basis. Listen Karl, you and your family have quite a few shares in the company and any adverse publicity will no doubt affect the share price."
I said: "I don't really have any option do I?"
Ms Cherkovic said: "No you don't."

68. With almost no time to decide and under some degree of duress, I reluctantly resigned rather than be fired because of my concern about the effect of my proposed public dismissal would have on Canbet Limited's share price and on the basis of the sale of the "entertainment assets" to me for $1.00 and the payment of my statutory entitlements. Canbet Limited was due to relist on the ASX the following day (ie. 7 April 2000).
69. I duly signed the various resignation forms needed to resign from the Canbet Limited group of companies.

49 Mr O’Farrell went on to list eighteen companies, including NEPL, from which he then resigned as a director. Mr O’Farrell’s affidavit went on:

70. During the course of the day (6 April 2000), a “Heads of Agreement” was negotiated between myself and Respringer.

50 Mr O’Farrell went on to produce copies of a number of Heads of Agreement, a letter and a message dated 6 and 7 April 2000, and to produce a company announcement of which he said:

71. A company announcement was prepared for me to send out.

He produced a copy of that announcement.

51 None of the Heads of Agreement was fully completed so as to become an Agreement to which both sides were parties. Mr O’Farrell’s affidavit went on to say that:

72…the Board of Canbet Limited failed to seek shareholder approval and I received no consideration or payment from Canbet Limited under the Heads of Agreement or at all.

It was Mr O’Farrell’s evidence which the Trial Judge appears to have accepted that the negotiations between Mr Respringer and Mr O’Farrell on 6 April 2000 and the forms of Heads of Agreement did not lead to any agreement or to any transfer of assets to Mr O’Farrell; rather, on 24 August 2000 Canbet Limited transferred its interest in NEPL and other companies to Mr Hudson.

52 Mr O’Farrell’s evidence continued:

73. Shortly after 6 April 2000, I received a Notice of Redundancy Payment Form detailing my redundancy payments including a one month notice payment, severance payment, annual leave accrued to 28 April 2000 and long service leave accrued to 28 April 2000. I refer to document 28 of exhibit "KOF1" which is a copy of the said Notice.
74. The Notice of Redundancy Payment Form did not take into account any payment for the remainder of my employment contract period, which at that time had approximately 29 months to go.
75. I have not received any payments whatsoever from NEPL (including any statutory entitlements) following my "resignation" on 6 April 2000.

53 Later Mr O’Farrell received a document titled “Bona Fide Redundancy Pay” (Blue 1/140) which according to its terms recorded a calculation in respect of termination of the employment on 6 April 2000 and referred to amounts of termination payment for notice, severance payment, unused holiday pay and long service leave. The Trial Judge treated this document as establishing Mr O’Farrell’s entitlements to unused holiday pay and long service leave, which his Honour awarded to Mr O’Farrell on his cross-claim.

54 Neither Mr O’Farrell nor NEPL called any evidence from Mr Bill Waterhouse, Mr Robert Waterhouse, Mr Respinger or Ms Cherkovic. The Trial Judge considered whether an adverse inference should be drawn against either party relating to their not being called as witnesses, but came to his judgments without making any such inference: (Red 71)

In my view, it could be expected that Mr O'Farrell would have called Mr Robert Waterhouse and Mr William Waterhouse. It is true that there is no evidence that either of them have any antagonistic attitude to Mr O'Farrell, there is no suggestion that he would fear that either would wish to give untruthful evidence on the issue. They were fellow directors of his at the time. There is no reason in the evidence as to why they could not be called to give evidence for Mr O'Farrell. As opposed to that, there is no reason why the plaintiff company could not have called the Waterhouse directors. I have formed the view that, considering the submissions on failure to call the Waterhouses, that it would be more likely to expect Mr O'Farrell to call his fellow directors than for the company to call those directors. However, even if that be right, I am not prepared to draw any inference that the failure to call Robert Waterhouse and William Waterhouse should entitle the Court to draw the inference that either or both of those witnesses' evidence would have not assisted Mr O'Farrell. I intend to make my decision in this matter on the basis of the evidence called and not resort to any inference as to the failure to call Messrs Waterhouse to give evidence.

55 The Trial Judge also referred to cross-examination which took Mr O’Farrell to many details of the claim he made in the Industrial Relations Commission and to respects in which allegations made and figures claimed in the Commission were similar or identical to allegations and claims in the District Court. Mr O’Farrell brought proceedings in the Industrial Relations Commission under s 106 of the Industrial Relations Act 1996, alleging that some of the terms of his Executive Service Agreement were unfair, harsh and unconscionable. The Summons was issued in the Commission on 24 August 2000 which was the day on which Mr Hudson came to be a director of NEPL. Among other remedies Mr O’Farrell sought an order that “[Canbet] on 24 February 1999 writes-off the debt of $350,000.00 owed by [Mr O’Farrell] to [NEPL].” In its defence Canbet disputed that it was the relevant employer and claimed that NEPL was the employer, and claimed that NEPL was no longer its subsidiary. Mr O’Farrell later amended his Summons to claim relief against Mr Farmer and Mr Respinger, the second and third respondents in the Commission. The Summons was discontinued by notice filed on 27 May 2002 as part of a settlement arrangement, and the Industrial Relations Commission was informed that business arrangements had been made and that all matters had been resolved amicably (Red 38). NEPL contended that the resolution of the proceedings in the Industrial Relations Commission amounted to an estoppel preventing Mr O’Farrell from bringing his cross-claim in the District Court proceedings. The Trial Judge did not uphold this contention.

56 With respect to the cross-claim the Trial Judge said (Red 72D):

On the issue of the cross-claim, I do not accept Mr O'Farrell's version of the circumstances leading up to his resignation. He has not satisfied this Court that events occurred as he has testified to. I have taken into account the criticism of the lack of detailed cross-examination, or indeed it is submitted any real cross-examination on those issues, but I found that that Mr O'Farrell is not a reliable witness when it comes to matters intimately connected with his financial affairs.
I, as I have observed, have taken the view that Mr O'Farrell's credibility was very much an issue in this case and I take the plaintiff's case to have been, as cross-defendant, that no reliance can be placed upon Mr O'Farrell's evidence on the relevant topic. There is no corroboration of the accounts given by Mr O'Farrell as to what was occurring leading up to his resignation. I am satisfied that he resigned. There is no evidence of which I am satisfied that would entitle me to conclude that he resigned in circumstances that amount to a dismissal at law. I therefore conclude that the termination provisions of the executive service agreement were not triggered by the circumstances of the voluntary resignation of Mr O'Farrell.

57 The criticism to which his Honour referred was that the lack of detailed cross-examination or indeed (as it was submitted) any real cross-examination on the issue of the circumstances leading up to Mr O’Farrell’s resignation was a departure in the conduct of the trial from the expectation, associated with Browne v Dunn (1893) 6 R 67 (HL), that if a witness’ evidence is challenged the cross-examiner will make that clear in such a way as to give the witness an opportunity to deal with the challenge. The present case is unlike many others. It is unlike what might reasonably be expected in the presentation of a case of repudiation in that Mr O’Farrell gave in evidence a detailed narration of events in which his resignation on 6 April 2000 was bluntly and crudely demanded, or taken for granted, but did not go on to deal in detail, and hardly dealt at all with later parts of the course of events which concluded with his resignation, although they included some detailed negotiations which produced three Heads of Agreement. The contents of the Heads of Agreement show that, in various forms, arrangements conferring significant advantages on Mr O’Farrell were under consideration, and that Mr O’Farrell participated in a public announcement which suggested that such an arrangement had been made. Mr O’Farrell did not in evidence give what could be regarded as a full, clear or persuasive account of the events at the conclusion of which he resigned; on its face his account is altogether incomplete in important respects.

58 Another way in which this case is not like many other repudiation cases is the comprehensiveness with which, in the view of the Trial Judge, the evidence of Mr O’Farrell was shown to be unreliable unless corroborated, and was discredited. The way in which Mr O’Farrell’s case was presented left the cross-examiner with the task, if he wished to examine and seek to discredit in detail Mr O’Farrell’s account of what had taken place, to set about establishing fully what Mr O’Farrell’s account was; an opportunity which would be taken only by the most rash cross-examiners.

59 The evidence which Mr O’Farrell gave of the events of 6 April 2000 was full of detail on part of the events of that day and strangely lacking in facts and circumstances about later events of that day, which were obviously important for a real understanding of what it was that led to his signing resignations and joining in a public announcement. The natural inference where a party fails to give evidence himself of important facts or fails to ask questions in chief of a witness is that the party fears to do so, and the Court should not draw inferences favourable to the party about facts with which he or she could have dealt; see Commercial Union Assurance Co of Aust Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418 (Handley JA). The more readily available inference is that events with which Mr O’Farrell himself could have dealt in his own evidence (but did not) would not have assisted his case. The Trial Judge’s reasoning did not reach this stage, as his Honour was not prepared to accept the uncorroborated evidence of Mr O’Farrell on the part of the events which his evidence did deal with.

60 In my opinion the Trial Judge’s disposition of the issues has not been shown to be in error, and the Court of Appeal should order:

Appeal dismissed with costs.

61 BROWNIE AJA: I agree with Bryson JA.

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