Sterileair Pty Ltd v Papallo

[1998] FCA 239

FEDERAL COURT OF AUSTRALIA

CORPORATIONS - company seals - whether a document, not having been sealed in accordance with its Articles of Association, is duly sealed where the affixing of the seal is attested not by two persons but by one and there is no indication that the signatory signed in any capacity or with any authority other than the person’s own.

CONTRACTS - principles relating to when an arrangement will be a “sham” - arrangement intended to be a mere facade.

CONTRACTS - consideration - detriment and benefit.

CORPORATIONS - financial assistance - prohibition on company giving financial assistance for the purpose of acquisition of shares in the company - whether the assumption of an obligation by a company may breach s 205 of the Corporations Law.    

Corporations Law, s 164(1), s 164(3)(e)(i), s 164(3)(f), s 205(1)(a)(i)(A), s 205(4), s 206(2)

195 Crown Street Pty Ltd v Hoare [1969] 1 NSWR 193, followed
Scott v Commissioner of Taxation(Cth) (No. 2) (1966) 40 ALJR 265, followed
Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449, cited
Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235, cited
Darvall v North Sydney Brick and Tile Co. Ltd (1987) 12 ACLR 537, followed

STERILEAIR PTY LIMITED v GEORGE RALPH PAPALLO and CATHERINE ANNE PAPALLO
NG 3148 of 1996

LEHANE J
SYDNEY
18 MARCH 1998

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 3148  of   1996

BETWEEN:

STERILEAIR PTY LIMITED
APPLICANT

AND:

BETWEEN:

AND:

GEORGE RALPH PAPALLO
FIRST RESPONDENT

CATHERINE ANNE PAPALLO
SECOND RESPONDENT

GEORGE RALPH PAPALLO
FIRST CROSS-CLAIMANT

CATHERINE ANNE PAPALLO
SECOND CROSS-CLAIMANT

STERILEAIR PTY LIMITED
CROSS-RESPONDENT

JUDGE:

LEHANE J

DATE OF ORDER:

18 MARCH 1998

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1. The respondents file, not later than fourteen days after delivery of these reasons, short minutes of the orders required to give effect to these reasons.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 3148 of 1996

BETWEEN:

STERILEAIR PTY LIMITED
APPLICANT

AND:

BETWEEN:

AND:

GEORGE RALPH PAPALLO
FIRST RESPONDENT

CATHERINE ANNE PAPALLO
SECOND RESPONDENT

GEORGE RALPH PAPALLO
FIRST CROSS-CLAIMANT

CATHERINE ANNE PAPALLO
SECOND CROSS-CLAIMANT

STERILEAIR PTY LIMITED
CROSS-RESPONDENT

JUDGE:

LEHANE J

DATE:

18  MARCH 1998

PLACE:

SYDNEY

REASONS FOR JUDGMENT

The applicant seeks a declaration that a document described as a loan agreement   between the respondents (Mr and Mrs Papallo) and the applicant is void and of no effect.  It seeks certain other ancillary declarations and orders; but the substance of the relief which it seeks is a declaration the effect of which is that monies which Mr and Mrs Papallo claim to be owed under the loan agreement are not in fact owing, nor are any other sums, nor will any other sums be owing, under the loan agreement.  In its application filed on 15 March 1996, the applicant claimed a multitude of additional relief, some relating to winding up proceedings which had been commenced against it by Mr and Mrs Papallo, some directed to the recovery of monies paid by the applicant to Mr and Mrs Papallo, purportedly under the loan agreement, together with interest: but counsel for the applicant explicitly abandoned its claims for relief of either of those kinds.  

Mr and Mrs Papallo, by their amended cross-claim filed on 11 August 1997, claim against the applicant the sum of $63,225.98, together with interest accrued since 31 December 1995, alleged to be due under the loan agreement; alternatively, if the loan agreement should be held to be invalid, they claim by way of “damages” substantially the same sum on various bases including conventional estoppel, unjust enrichment and conduct allegedly infringing
s 52 of the Trade Practices Act 1974 (Cth).

Background Facts

Mr Papallo is an industrial chemist.  In 1989 he became acquainted with Mr Andrew Wyles Waters (who was then known as Andrew Wyles and subsequently adopted the surname Waters: I shall refer to him as Mr Waters).  Mr Waters at that time conducted two businesses, one a business of cleaning industrial premises under the name Disaster Restoration Control (or “DRC”), the other, carried on under the name Sterileair Aust., a business of importing chemical cleaners, partly for sale and partly for use by DRC.  

Discussions between Mr Papallo and Mr Waters led to a proposal, implemented in May 1989, that Mr and Mrs Papallo should invest in Mr Waters’ businesses, with a view particularly to expanding the business of Sterileair Aust.  The proposal was carried into effect as follows: the parties acquired a shelf company, Divali Pty Ltd (“Divali”); Mr Papallo and Mr Waters were appointed directors of Divali and Mr Papallo its secretary; Mr and Mrs Papallo acquired jointly, by transfer from one of the subscribers and by allotment, 27,998 shares in Divali and Mr Papallo and Mrs Papallo, separately, one share each; by a written agreement for sale of business, Divali agreed to buy from Mr Waters what was described as a business comprising certain plant, certain chemicals, a formula and the business name “Sterile Air Aust” together with the goodwill attaching to it; the consideration for the purchase was $49,332, satisfied by a cash payment of $40,000 and the allotment to Mr Waters of 9,332 fully paid shares in Divali.  At the same time, Divali resolved to take a lease of premises at 53A Wattle Street, Haberfield.  It resolved also to borrow from Mr and Mrs Papallo “$25,000 and such other sums as resolved from time to time” on the terms of a loan agreement and on the security of a charge of Divali’s undertaking and assets. 

Two aspects of the agreement for sale of business should be noted.  One is that the value attributed to the chemicals was $10,200, to the plant and equipment $1,150 only and to the formula $650; the bulk of the purchase price was attributed to goodwill, the value placed on the goodwill being $45,357.59.   The other matter is that the recitals describe the business sold as that carried on under the name “Sterile Air Aust” and it is described as a business of the “[s]upply and installation of odour and fume controllant services and equipment”: there is no specific mention of the DRC business; and the directors’ report accompanying Divali’s 1988 and 1990 accounts repeat the statement that “the principal activity of the company is the supply and installation of odour and fume controllants”.  Nevertheless, the plant and equipment bought by Divali from Mr Waters included a sprayer, two sets of poles and brushes, some protective equipment, a vacuum cleaner and two ladders, suggestive, perhaps, at least of a modest cleaning business; and Mr Papallo’s evidence, not challenged in this respect, was that the DRC business was acquired by Divali and indeed was to be the principal source of cash flow, funding the development and expansion of the business of importing (or manufacturing) and selling chemicals.  Mr Papallo’s evidence is supported by some internal documents of Divali suggesting that it had internal “divisions” and evidence of a subsequent re-acquisition from Divali, by a company controlled by Mr Waters and his brother, of the DRC business.  In the circumstances, I accept, despite the terms of the agreement for sale of business, that Divali acquired both the Sterile Air and DRC businesses.  

It soon became apparent that Divali needed additional funds in order to continue operating.  Between May and December 1989 Mr and Mrs Papallo lent to Divali, in addition to the initial $25,000, further sums amounting in all to $100,000.   At the time when the last advance was made, Mr Waters and Mr Papallo completed a series of documents described as “loan certificates”, one for each advance made by Mr and Mrs Papallo, acknowledging the advance and confirming that it was secured by the deed of charge.   Additionally, Mr and Mrs Papallo advanced $6,147 to meet various expenses incurred in connection with the establishment of Divali.  During 1990, Mr Waters arranged for the State Bank to lend $50,000.  The arrangements surrounding that loan are somewhat obscure: particularly, it is not clear whether the loan was made directly to Divali and guaranteed by Mr Waters or whether, on the other hand, it was lent to Mr Waters and then advanced by him to Divali.  Fortunately a decision in the case does not require that obscurity to be resolved.  

Although Mr and Mrs Papallo lent no further sums to Divali after December 1989, Mr Papallo’s evidence was that he worked full-time for Divali during 1990, for a substantial period without remuneration and for a considerable additional period at a rate of remuneration substantially less than he might reasonably expect. 

The accounts of Divali for the years ended 30 June 1989 and 30 June 1990 are in evidence.  The 1989 accounts show (for a period slightly exceeding one month) an operating loss of $7,493.86 and the 1990 accounts an operating loss of $139,820.11.   The 1990 accounts show, as a current liability, the sum of $126,524.59 owing to G.R. and C.A. Papallo. 

Probably during 1990, and certainly during 1991, relations between Mr Papallo and Mr Waters deteriorated seriously.  Mr Waters did not give evidence: the evidence is that he left for Hong Kong in June 1994; from Hong Kong he corresponded with those representing the applicant until July 1996; both the applicant’s solicitor and its managing director, however, gave evidence of more recent, unsuccessful, attempts to make contact with Mr Waters.  Thus, I do not have the benefit of his account of the events of 1991 and later years.  What follows, therefore, to the extent that it does not rely for support on documentary evidence, reflects Mr Papallo’s account.  Submissions were made concerning Mr Papallo’s credit, which I shall consider later in these reasons.  I may anticipate that consideration, however, to the extent of saying that I accept Mr Papallo’s account as generally reliable.

In about May 1991 Mr Papallo was at Divali’s premises on a Saturday morning.  He saw data being entered on Divali’s records concerning an account with Westpac Banking Corporation under the name “Andrew Wyles T/as DRC Cleaning & Maintenance & Airserve”; he noticed a number of large credit entries.  He then made enquiries, of Westpac among others.   Apparently those enquiries took some time.  On 30 September 1991 Mr Papallo wrote and hand delivered to Mr Waters a letter, which received much attention during the trial.   It is quite long and it is unnecessary to set it out in full or to describe all its content in detail.   In general terms, Mr Papallo recited a series of events in which, he claimed, Mr Waters had acted towards him in a way which was both dishonest and unfair.  Much of it had to do with circumstances surrounding a transaction by which, apparently, a company controlled by Mr Waters and his brother agreed to reacquire the DRC business from Divali: the suggestion appears to be that the transaction, initially agreed upon early in 1990, finally took effect early in 1991.   The letter alleged, among other things, the following:

5.  The opening on 28th Dec of account 331067 in the name of MR ANDREW WYLES T/AS DRC CLEANING & MAINTENANCE & AIRSERV.  At that time both of the abovenamed business names were registered with Divali Pty Ltd - a matter that was later to be confirmed by Graham Kirshaw, the manager of Westpac Haberfield.  He showed a considerable level of discomfort when he confirmed this fact.

6.  The depositing between 22 Dec 1990 and 3 Jan 1991 cheques totalling $9156 in favour of DRC Cleaning & Maintenance, a Division of Divali Pty Ltd into Westpac account 331067.

The misappropriated cheques were as follows:

$4906 from M&P Services
$  750 from Station 2KY
$3500 from the Lady Fairfax Account

It is of interest that by 28th January cheques totalling in excess of $35000 were deposited in the above account, all from work completed in 1990.  Any suggestion that this whole affair was not totally contrived and an outright premeditated swindle is humbug.  This also leaves absolutely no doubt that with the costs of labour, materials and commissions during November and December, 1990 being totally borne by Divali and all the credits being then removed to the new account, that the state of the Divali account and the problems we have had to bear with the State Bank were all totally caused by your scheming and fraud.

7.  The dreadful rush to sign the contract on 3 January so that you could take out that much needed “loan” to save the company.  It was unfortunate that the language and spelling on the contract required correcting and the contract was not signed until 7 January 1991.  Even after we signed the contract, you removed it from the table right before my eyes and then denied having it.  It took almost daily reminders to you that you had the documents and a good six weeks before you condescended to return them to me. 

8.  The litany of lies you told me when I questioned you about the deposits to your illegal account.   You insisted that the money came from Citibank which was totally untrue.

......

The letter concluded with the following passage:

As I am already torn to pieces with your endless lies, swindle and fraud, it is time to set down some clear guidelines for any restructuring.

1.  ALL your debts to Divali must be repaid in full.  This includes the settling of both cars as was agreed in January 1990 and the return of all misappropriated money.
2.  A significant [sic] or all of the money owing to me by the company must be repaid.
3.  I require an absolute assurance from you that your dishonest behaviour will cease.  As I not so naive as to believe a “leopard can change its spots”, this will require that finance be taken completely out of your hands and the mail box be emptied by me each day.  There is absolutely no way I am prepared to involve any friends of mine or anyone else for that matter with your current antics.  You have my absolute guarantee that if I find any repeat of this behaviour the matter will be handed straight to the police.  To give you little comfort in this matter I have already discussed this report with John Bradfield a solicitor and personal friend who is far from pleased that as yet I have not taken his advice on how to handle this whole business. 

It is ironic that I got involved with you partly out of charity and partly out of hatred for a pair of swindlers who had already taken you to the cleaners.  It now seems that they were very much in your league.

Should the guidelines I am offering not meet with your approval, you have the option to buy me out or sell the company.  If the latter appeals to you I will offer to stay with the buyer for an agreed period if necessary.  This is of course if you do not wish to stay yourself.

The “cars” were two vehicles owned by Divali and, apparently, financed under arrangements which included a personal guarantee by Mr Papallo: the cars, apparently, were used in the DRC business and they were to be transferred with that business.  There was considerable evidence about those matters, but they seem to me to have no particular significance to the outcome of the proceeding. 

Mr Papallo’s evidence was that a meeting was held following the delivery of the letter.   Present were Mr Waters, Mr Papallo, Mr Papallo’s brother and an accountant instructed by Mr Papallo.   After discussion Mr Waters said, according to Mr Papallo, “I have taken money from the company.   I have already made an entry into the company register to treat it as loan money.”   Neither Mr Papallo’s brother nor the accountant gave evidence: as will appear, however, I do not think that anything in particular turns upon that. 

Meantime, in July 1991, Mr Waters had arranged the acquisition of the applicant, then a shelf company.  Its name was Loreglow Pty Ltd.   Its register of members records that from 22 July 1991 Mr Waters was registered as the holder of one share as also was Mr Papallo; likewise the register of directors records that Mr Wyles and Mr Papallo became directors on 22 July 1991.   Mr Papallo’s evidence was that he did not agree, in July 1991, to become either a member or a director of the applicant.  His evidence was that he did not know of its existence until mid-September 1991, when he was telephoned by an accountant who introduced herself as Emilly Chang.  Mr Papallo’s account of the conversation was as follows:

Chang:“My name is Emilly Chang, I am an accountant.  I am preparing a new shelf company for you called Loreglow and I need your signature as a director.”

Papallo:“I’ve got no idea about this shelf company or my being a director.”

Chang:“Well I have been asked by Andrew Wyles to establish a new company and I have got all your company documents down here from Divali.”

Papallo:“I don’t understand this.”

Chang:“You better come and see me.”

On 19 September 1991 Mr Papallo sent a facsimile message to Ms Chang:

Please be advised that as I, George Ralph Papallo and my wife Catherine Anne Papallo hold a 75% shareholding in Divali Pty Ltd and its sibsiduary [sic], Sterileair (Aust) that any proposals to restructure the company will come from me or my solicitor in writing.

Shortly after sending that fax, according to Mr Papallo, he had a conversation with Mr Waters (referred to in Mr Papallo’s account as “Wyles”):

Papallo:“I’ve just found out from Emilly Chang that you set up a company called Loreglow and that you had appointed me as a director without telling me.  You had no right to do this.  Furthermore she told me that you have deposited the company register and seal at her premises.  I’ve made an appointment to see Emilly to pick up all of the company’s documents.”

Wyles:“I warned you before that I would take steps to start a company in opposition to you and this is my first step.   We can either put everything into Loreglow on a 50/50 basis.  If I go with Loreglow I won’t even have to buy you out.  I will get it all for nothing.”

Papallo:“Well, Andrew, if this is the case, we can’t work together.  One of us has got to go.”

After further discussions during October and November another meeting took place between Mr Papallo and Mr Waters.  Mr Papallo’s contemporaneous note of that meeting was in evidence.  His account of the conversation was as follows:

Wyles:“I’m going to give you 3 options.  You can leave and have your $100,000 loan repaid over 10 years at Citibank benchmark rates plus 1%.  Secondly, you can have $50,000 over 5 years at the same interest rate plus 20% of the business.  Thirdly, you can stay on $300 per week from the end of November plus 50% of the profits.”

Papallo:“Andrew, I am owed a lot more than that.”

Wyles:“You have that or nothing.  I can pull the plug on the company you know.”

Papallo:“With your skills in accounting, I would not know what I would be getting after I left the place.  I need some guarantees and some form of security.”

Wyles:“This offer won’t last much longer.”

Then, according to Mr Papallo, he had a further conversation with Mr Waters on 29 November 1991 which resulted in agreement between them:

Wyles:            “George, I want to know what you intend to do.”

Papallo:          “Andrew, I am owed almost $200,000 by this business and over the years put in an enormous effort as well.  I don’t think your offers acknowledge this money or this effort.   Also, I don’t believe you have much money to pay me and therefore I have little faith in your assurances that the company will pay me after I leave.” 

Wyles:“Okay, in those circumstances I will make you a new offer.  Here’s the deal.  I will add 10% of the profit of the business after I sell it.   I won’t be keeping it for more than 4 years. I will also give a personal guarantee.”

Papallo:“How are you going to work out the profit?”

Wyles:“Whatever I sell it for greater than the sum of $150,000; the $100,000 it will owe you and the $50,000 it owes me on the State Bank loan.”

Papallo:“Well, that’s interesting. But I don’t want to stay in the company any longer.”

Wyles:“Well, it seems to me that the first option we discussed on the 22 November is the way to go, except that the interest rate will now only be half a percent over Citibank benchmark.”

Papallo:“I also need to know what the company’s financial position is from time to time if I am going to have a profit in 4 years time.”

Wyles:“Well, in that case I will send you quarterly financials. You know how we do our books, they are all very straight.”

Mr Papallo’s evidence was that following that conversation it was agreed that Mr Waters and Mr Papallo would consult a “neutral solicitor”.  They found such a solicitor by consulting the telephone book.  He was Mr David Mills of the firm Allars Mottee & Co., practising in Five Dock.  They made an appointment to see him.  After they had made the appointment, Mr Waters said, according to Mr Papallo:

“We will need to make an arrangement with Watson & Proud [a firm of accountants] in Parramatta who I have used earlier for company transfers.  We will arrange to close down Divali and have it wound [sic] voluntarily.   In the meantime, we will transfer all of the assets and liabilities, including your debt, to the new company.   A new loan agreement will be drawn up by Allars Mottee and a new charge given to replace the existing one you have with Divali.

Mr Papallo gave evidence that he expressly assented to that proposal. 

The Transactions of December 1991 

On 3 December 1991 Mr Waters and Mr Papallo met the solicitor, Mr Mills.  Mr Papallo recounted the following conversation with Mr Mills, after Mr Waters had left the meeting:

Papallo:“I have put a lot of money into this company.  Andrew and I have not been getting on terribly well recently, there’s been a fair bit of trouble with money.  I’m getting out and I’m handing over my shares and everything to Andrew on the understanding that he takes over all of the debts of the company and in return the company pays me the sum of $100,000 which I’m owed.”

Mills:“That should not be a problem.  I will draft the document.  All I need from you is to write down the conditions.  It would probably be just as easy if you fax them to me.   I will draft a loan agreement for you, so long as you can provide me with details of what is required.”

Papallo:“I will do that for you.”

Mr Papallo provided to Mr Mills a written outline of what the “loan agreement” was to provide.  The outline commenced by saying that Mr and Mrs Papallo were “to lend the company $100,000.00 for a period not exceeding ten years.”  It proceeded to state the intended terms of repayment and payment of interest; it provided for registration of a charge over the applicant’s assets and a personal guarantee by Mr Waters; and it provided that “on the sale of the company whether it be within or beyond the term of the loan, 10% of the profit of the sale is to be paid to George Ralph Papallo and Catherine Anne Papallo or their beneficiaries”.   The terms outlined were reflected in an agreement which Mr Mills proceeded to draw.  The document recited that Mr and Mrs Papallo had agreed to lend $100,000 to the applicant for a period of ten years and that Mr Waters had agreed to guarantee “the said advance”.  In a series of operative provisions, the document proceeded to provide, in substance, as Mr Papallo’s outline required.  The document was approved and it was executed on 20 December 1991.  It was executed as a deed: it was expressed to be signed, sealed and delivered by Mr and Mrs Papallo and by Mr Waters and was signed by each of them in the presence of an attesting witness; the common seal of the applicant was affixed; it was expressed to be affixed (in accordance with the articles of association) in the presence of a director and the secretary; it is, however, common ground that Mr Waters signed in each capacity. 

A number of aspects of the agreement, and of the events surrounding its execution, are controversial and I shall return to them.  Meantime, it may be recorded that despite later negotiations between Mr Papallo and solicitors then acting for the applicant no separate charge was ever executed or registered.   The agreement itself, however, was ultimately stamped and registered as a charge.  

Mr Waters also made arrangements, as foreshadowed, with Watson & Proud, the accountants.   An appointment was made for Mr Papallo to visit their office on 13 December 1991.  He did so: he saw Ms Marie Kirkman, a chartered accountant employed by the firm, and signed a number of documents which Ms Kirkman had prepared for his signature.  The documents comprised Mr Papallo’s resignation as a director of the applicant (expressed, curiously, also as a resignation as secretary: there is no evidence that he ever held, or was recorded as holding, that office); a transfer to Mr Waters’ mother (Mrs Wyles) of the share in the applicant of which Mr Papallo was registered as the holder; Mr Papallo’s resignation as a director and secretary of Divali; and transfers to Mr Waters of the shares in Divali held by Mr and Mrs Papallo.  Mr Papallo’s evidence was that he signed those documents then and there.   He says that no-one was present other than himself and Ms Kirkman.  No doubt he must have taken share transfers away for signature by Mrs Papallo, though this is unmentioned in the evidence; nothing, however, seems to turn on that.

In addition to the documents signed by Mr and Mrs Papallo, Watson & Proud prepared a notice of cessation by Divali of business under the business name “Sterile Air Aust”, documents required to change the applicant’s name to Sterileair Pty Ltd and the documents necessary to obtain for the applicant a tax file number, registration as a group employer and registration under the sales tax legislation.  

Mr Papallo’s evidence was that, during his meeting with Ms Kirkman, he said:

Our intentions are to close Divali and to transfer the assets and liabilities of Divali into Loreglow, which will be renamed Sterileair Pty Limited.  Your job is to implement this on behalf of Andrew and me.  Meanwhile, I will resign formerly [sic] as a Director.

Ms Kirkman, according to Mr Papallo, replied “I understand”.  Evidence was given both by Ms Kirkman and by Mr Watson, the principal of Watson & Proud, to the effect that the instructions given to Watson & Proud were limited to the preparation and lodgment of the documents to which I have referred (and related matters, such as the preparation of minutes and making the appropriate entries in corporate registers) and did not extend to documenting a transfer of assets or liabilities.  I accept that evidence, which is supported by the documents tendered; it was not, in the end, suggested on behalf of Mr and Mrs Papallo that Mr Papallo’s evidence should be taken as contradicting it.  

One further document tendered in evidence should be mentioned, though its provenance is uncertain, because it bears upon the accuracy of Mr Papallo’s evidence that he did not agree, at any time before December 1991, to be either a member or a director of the applicant.  The document is a share certificate, in respect of one share in the applicant, registered in Mr Papallo’s name.  It is dated 22 July 1991.  On it is endorsed a form of transfer to Mrs Wyles, signed both by Mr Papallo and by Mrs Wyles and dated 23 December 1991.   What is of particular interest about the certificate, however, is that beside the appropriate places for signature of the certificate by a director and secretary of the applicant there appear “X AW” and “X GP”, plainly intended to indicate the place for signature by Mr Waters as a director and Mr Papallo as secretary (which, as I have mentioned, he appears not to have been).  On the form of transfer endorsed on the certificate there appear, beside the place for execution by the transferor, the indication “X GP” and, beside the place for execution by the transferee, “X GW” - plainly indicating that those were the places for signature respectively by Mr Papallo as transferor and Mrs Wyles as transferee.   The crosses and initials on both the certificate itself and the transfer are, obviously I think, in the same hand, and it is difficult to resist the inference that they were all written at the same time, the document thus being (if that is correct) an afterthought - whose afterthought does not appear.   Certainly I would not be prepared to rely on the share certificate for a conclusion that Mr Papallo had indeed agreed to be both a member and the secretary of the applicant by 22 July 1991.  

Mr Papallo’s evidence (which I accept) is that he worked for Divali until December 1991 and, after executing the loan agreement   prepared by Mr Mills, ceased to have any involvement with the affairs of Divali or the applicant.  

Events Following Mr Papallo’s Departure

(a)  Divali

The notice of cessation of business under the name “Sterile Air Aust” was lodged on 28 February 1992.  It stated that Divali had ceased to carry on business under that name on 4 December 1991.  As will appear, however, it is by no means clear when Divali in fact ceased carrying on business or when the applicant commenced doing so.   Meantime, Mercantile Mutual Insurance (NSW Workers Compensation) Ltd had obtained, on 1 October 1991, a judgment against Divali for $9,068.13, apparently for premiums payable on workers compensation insurance policies.  On 15 April 1992 its solicitors served on Divali a statutory demand in respect of that judgment debt on the basis of which, on 16 July 1992, Divali was wound up in insolvency.   Mr Papallo’s evidence was that he did not know of the judgment, or of the proceedings leading to it, and that he regarded the judgment as a “sham” because, given the very small number of Divali’s employees, it could not possibly have been liable for workers compensation premiums in the amount claimed.

(b) The Applicant and the Sterile Air Business

Following Mr Papallo’s departure the shares in the applicant were held by Mr Waters and Mrs Wyles.  On 21 December 1992 the shares held by Mr Waters and Mrs Wyles (in aggregate 100) were transferred to a company called Waters Corporation Pty Ltd and on the same day an additional 900 shares were issued to that company.   Also on the same day 100 shares were transferred, in exchange for a payment of $50,000, by Waters Corporation Pty Ltd to Mr Garry Brian Gunstone, an employee of the applicant involved in its management.  On 4 December 1995 Waters Corporation Pty Ltd transferred all its shares to Mr R.T. Weir, who in turn transferred them to the applicant’s present shareholders: they are WEFLO Nominees Pty Ltd as trustee of the Ron Weir Trust (334 shares), Mr Gunstone (333 shares) and Mr Lyn Williams (333 shares).   (The evidence does not disclose the terms of those transactions: Mr Weir gave some evidence above them in cross-examination, but the specific question was not put to him.  Mr Gunstone, in cross-examination, said “I can’t remember what you [sic] paid - $1, $30 or something”).

On 4 December 1995 Mr Waters resigned as a director of the applicant.  Mrs Wyles had, apparently, resigned previously.  The present directors were then appointed: they are Mr Weir, Mr Gunstone and Mr Williams.  Mr Gunstone had already been a director: he was appointed on 20 April 1994 but had resigned, in circumstances to which I shall return, on 22 August 1995.  The transactions of 4 December 1995 were completed by a release by Mr Waters of the debt which he claimed to be owed by the applicant (this arose from the loan originally made by the State Bank to, or to Mr Waters on the guarantee of, Divali).    My narrative of those events is based on the evidence of Mr Gunstone and Mr Weir, in that respect undisputed. 

Precisely what happened in relation to the business is somewhat more obscure.   Divali lodged the notice stating that it had ceased carrying on business under the name Sterile Air Aust on 4 December 1991.  However, the accounts of the applicant for the years ended 30 June 1992 and 30 June 1993 were prepared on the basis that the applicant did not trade during the former year but commenced trading on 1 July 1992.   Mr Gunstone’s affidavit evidence was that in February 1992 he was “employed by Divali Pty Limited trading as Sterileair (Aust) as a Manager of that firm”.    He then said that:

In [sic] or about 1st July 1992 Divali Pty Limited ceased trading and the business previously conducted by Divali Pty Limited was continued by the Applicant.  From that time on I was employed by Sterileair Pty Limited as General Manager.

Working papers of the accountants who prepared the applicant’s 1992 and 1993 accounts suggest that they were prepared on the basis that the applicant on 1 July 1992 acquired the assets of Divali and assumed its liabilities.   Mr Gunstone’s oral evidence suggested that such a transaction took place imperceptibly, seamlessly, informally and at a time which could not be pinned down with any accuracy.   After agreeing that a product called the “Easy-Dose Cartridge” (which Mr Papallo claims to have developed) was sold by his employer at the commencement of his employment and continued to be sold by it throughout, to the present day, Mr Gunstone gave the following answers:

On 1 July 1992 had you given any thought to by what means Sterileair Pty Limited had come to be selling the Easy-Dose Cartridge? - How do you mean?

Have you ever considered how Sterileair Pty Limited as opposed to Divali had come to be selling the easy dose cartridge?  - They were just a product in the range.

Can I suggest to you that at the time you presumed it was with the consent of Mr Waters that the sale of the product by Divali ceased and it commenced being sold by Sterileair?  - I would have presumed so.

Do you recall thinking about it at all or not?  - Not really, no.

I mean you were informed at some stage were you that your employer had changed?  - I later found out, yes.

When did you find that out?  - I don’t know the specific date but I always thought I was working for Sterileair and at a later date they actually changed over from Sterile Air (Aust.) to Sterileair, so it was some time in ‘90 - the middle of ’92.

Later cross-examination elicited, by reference to records produced by Mr Gunstone, the fact that, according to his group certificate for the year ended 30 June 1992, Mr Gunstone had been employed by the applicant since 1 February of that year.   Whoever may have been Mr Gunstone’s employer before July 1992, however, the documentary evidence confirms the effect of what Mr Gunstone said in cross-examination: the business which came to be conducted by the applicant was substantially that which had previously been carried on by Divali under the name Sterile Air Aust.   Until November 1992 the business was conducted from the premises which Divali had occupied.  “Before” and “after” catalogues were tendered.   They indicate continuity in supplying a number of products distributed by Divali (including the Easy-Dose Cartridge); they describe a number of products in substantially the same way; they use type of a similar blue colour for the names of the products; photographs of the products are of substantially the same size and shape and are surrounded by similar blue frames; at the top of each page the name “Sterileair” is printed similarly in lower case, in blue type and followed by a stylised “Z”.   I was referred also to letterhead used by Divali and by the applicant.   The Divali letterhead is headed in the top left hand corner with the word “Sterileair” printed in substantially the same way as in the catalogues, followed by the same stylised “Z”.   Under the right hand end of the word “Sterileair” there appears “(Aust)”.   Under the left hand end there is printed an Australian company number and, underneath it, the words “a Division of Divali Pty Ltd”.  That letterhead, unamended, was used by the applicant on at least one occasion in August 1992; there is then in evidence the same letterhead, used in the same month, but with the company number and the words “a Division of Divali” obliterated, so that underneath “Sterileair” there appears “Pty Ltd (AUST)”.  Then, by October 1992, new letterhead had been printed.   The word “Sterileair” and the stylised “Z” appeared as before; under “Sterileair” there appeared (AUST.) Pty. Ltd.” underneath which, again, was the Australian company number.  It may be commented that there was apparently a strong attachment to the continuing use of “(Aust)”, although it did not form part of the applicant’s name.  I have referred to only a small number of the voluminous documents tendered; enough, however, to make the point.  

(c)  Transactions with Mr and Mrs Papallo       

Between February 1992 and November 1995 a series of payments was made to Mr and Mrs Papallo on account of monies owing (or purportedly owing) under the loan agreement with the applicant.  The payments were not made with strict regularity, but there was one payment for each month during the period which they cover.  Nor is it clear that the amount paid was always an amount calculated precisely in accordance with the terms of the agreement: Mr Papallo complained from time to time that payments were late and the interest component wrongly calculated.   Over the whole period, it appears that the discrepancy between the amount paid and the amount claimed to be owing was approximately $1,400.   The payments made before July 1992 did not come from the applicant.  There is no clear evidence as to their source; it may have been Mr Waters (that was the applicant’s preferred possibility); it was not suggested that it was Divali.   From July 1992 the payments were made by the applicant.   There was correspondence, commencing on 17 March 1993, between Mr Papallo and the applicant and its solicitors concerning the provision of a charge over the applicant’s assets in favour of Mr and Mrs Papallo.  Such a document was drawn and negotiation of its terms extended over the ensuing year, but it was never executed.  

Mr Gunstone, by then a director of the applicant, saw, shortly after June 1994, a copy of the applicant’s accounts for the year ended 30 June 1993.  Those accounts recorded the indebtedness claimed by Mr and Mrs Papallo.  Mr Gunstone’s evidence was that he had not previously been aware of it, could find no evidence that $100,000 or any other amount had ever been advanced by Mr and Mrs Papallo to the applicant and ultimately, on 14 August 1995, wrote to Mr Waters in Hong Kong.   He asked Mr Waters when the $100,000 loan was made to the applicant, what the loan was for, who received it, what account it was paid into and how did it benefit the applicant.  Those queries elicited two faxed responses from Mr Waters, each dated 18 August 1995.   One of them commenced with the paragraph:

I have received your fax and after your phone call the other day I find your attitude discussing [sic] as you have cost me and the company a lot of money, through your negative attitude and failure to follow directionand [sic] instructions.  I am in a position of financial restraint and this is mostly due to your destruction of the company wich [sic] you seem guest [sic] proud off [sic].  You have been told not to talk to George Papallo and you still insist on doing this and this is apparent by the garbage you promote in your letter.  This is consistent with your attitude that is destroying the company.

........

If you talk to George Papallo again I will seek action for damages against you and George Papallo immediately. 

The other fax included the following passage:

Please be advised once again that you in your capacity of General Manager are only directed to manage the day to day affairs of the company and with your main objective to increase sales.

You are and have been instructed not to communicate with George Papallo under any circumstances.  

All matters relating to the Papallo loan or any other matter in relation to the structure of the company must come through the companies [sic] accountants or solicitors. 

It was those responses which prompted Mr Gunstone’s resignation as a director a few days later.

During September 1995 there was a meeting between Mr Papallo and Mr Thomas Fekete, who was employed by the applicant as a part-time accountant.   According to Mr Papallo, Mr Gunstone also was present at the meeting, but he gave no evidence about it.  Mr Fekete’s evidence was that Mr Papallo said to him words to the following effect:

I was Andrew Wyles’ partner in Divali and did not trust him and I wanted him to buy me out.  He formed another company behind my back and I found out.  I then became director of that company.  However, I still wanted out.  He agreed and I sold my shares to Andrew and that is what this loan is about.

Mr Papallo denied saying anything to the effect that the loan was about a sale of shares to Mr Waters.  He claims to have said either to Mr Gunstone or to Mr Fekete: “I got out of the company and the intention was the company would re-pay the loan”.  In his affidavit evidence he did not deny, but he did deny during the course of cross-examination, that he had said anything to the effect that he became a director of the applicant at any time before December 1991.

Meantime solicitors acting for Mr and Mrs Papallo had also been corresponding with the applicant and its solicitors since January 1995. The correspondence, in broad terms, concerned defaults which had allegedly occurred under the loan agreement and the registration of the loan agreement as a charge (which occurred on 18 January 1995). Finally, on 13 November 1995 the solicitors for Mr and Mrs Papallo wrote to the applicant alleging that despite numerous requests made to the applicant, its officers and its lawyers, payments had “routinely” been made late, quarterly reports required by the loan agreement had not been supplied and the applicant had done nothing to enable a charge against its assets to be registered with the Australian Securities Commission. The solicitors proceeded to assert that those “actions” evinced an intention no longer to be bound by the loan agreement and to convey their clients’ acceptance of the alleged repudiation. There followed a demand for the amount claimed to be outstanding at 30 November 1995, $63,331.40. The letter concluded with a threat to commence proceedings unless payment was made within fourteen days. No payment having been received, Mr and Mrs Papallo served on the applicant, on 19 December 1995, a demand under s 459E of the Corporations Law.  The amount of the debt claimed was $63,255.98.  In his accompanying affidavit, Mr Papallo swore that:

The books and records of the Plaintiffs to which I have access, indicate that the Defendant is indebted to the Plaintiffs in the sum of $63,255.98.  Monies advanced by the Plaintiffs to the Defendant pursuant to Agreement dated 21 December 1991, the terms of which were repudiated by the Defendant, which repudiation was accepted by the Plaintiffs.

The applicant commenced proceedings to set aside the demand, but did so after the expiry of the period of twenty one days provided by s 459G(2) of the Corporations Law: the application was by consent dismissed.   The applicant then commenced these proceedings on 15 March 1996; and on 4 April 1996 Mr and Mrs Papallo filed an application in this Court for an order that the applicant be wound up.   The ground on which that order was claimed was failure to comply with the statutory demand; Mr Papallo’s affidavit in support of the application asserted that the debt “was incurred as a result of advances of funds by the Applicants to the Respondent totalling $100,000, the repayment of which sum of money was governed by a Deed of Agreement between the Applicants and the Respondent dated 20 December 1991”.   Expert reports to the effect that the applicant was solvent were prepared, on the applicant’s instructions, and ultimately, I was told, on 5 November 1996 the application to wind the applicant up was discontinued; I was told also, however, that the costs of that application were reserved pending the outcome of this proceeding. 

At the time when the winding up application was discontinued, although some affidavit evidence had been filed by the applicant in this proceeding, no pleadings had been filed and the respondents had filed no affidavit evidence.   Those matters proceeded during the ensuing months.  

The Applicant’s Case; Discussion

I have mentioned that the applicant no longer seeks to recover money which, before 30 November 1995, it paid to Mr and Mrs Papallo.  It seeks, primarily, orders to the effect that the loan agreement of 20 December 1991 is void or unenforceable, so that the applicant is not indebted, and no liability on the part of the applicant can arise, under it.   It does so on a number of grounds. 

(a)  Is the Loan Agreement a Valid Deed?

First, the applicant says that the loan agreement has not been sealed in accordance with its articles of association and is not the applicant’s deed.   Article 84(2) of the articles of association is in familiar terms:

The seal shall be used only by the authority of the Directors or of a committee of the Directors authorised by the Directors to authorise the use of the seal, and every document to which the seal is affixed shall be signed by a Director and be countersigned by another Director, a Secretary or another person appointed by the Directors to countersign that document or a class of documents in which that document is included.  

The article clearly contemplates, it is said, signature and counter-signature, respectively, by two people, each of whom is a director or one of whom is a director and the other a secretary or other person appointed for the purpose. The loan agreement, however, was both signed and countersigned by Mr Waters. Mr and Mrs Papallo, the applicant contends, cannot rely on s 164(1) of the Corporations Law: the relevant assumption is that set out in s 164(3)(e)(i), that is:

(e)  that a document has been duly sealed by the company if it bears what appears to be an impression of the company’s seal and either:

(i)the sealing of the document appears to be witnessed by 2 people, one of whom may be assumed to be a director of the company because of paragraph (b) or (c) and the other of whom may be assumed to be a director or a secretary of the company because of those paragraphs; or ......

The sealing appears to be witnessed by one person, signing in two separate capacities. It was not suggested on behalf of Mr and Mrs Papallo, as I understood the argument, that Article 84(2) was complied with and I accept the submission of the applicant’s counsel that it was not. It was suggested, however, that Mr and Mrs Papallo were entitled to make the relevant assumption under s 164(3) of the Corporations Law so that (s 164(1)) any assertion of the applicant to the contrary is to be disregarded.   That was put principally on the basis that, the only directors of the applicant being at the time Mr Waters and Mrs Wyles, Mr and Mrs Papallo were entitled to assume (s 164(3)(f)) that they properly performed their duties to the applicant and therefore arranged for the attesting of the seal in the manner required by the articles: thus, Mr and Mrs Papallo were entitled to assume that Mr Waters signed on his own behalf as secretary and, on behalf of his mother and with her authority, as a director.

I do not accept that submission. It may be that the requirements of Article 84(2), that every document to which the seal is affixed must be signed and countersigned as the article requires, imposes on directors, secretaries, employees and agents of the applicant duties to the applicant of the kind referred to in s 164(3)(f). It does not follow, however, in my view that where the affixing of the seal is attested not by two persons but by one, and there is no indication on the face of the document that the signatory (who happens to be both a director and the secretary) signed in any capacity or with any authority other than the person’s own, the sealing of the document concerned may be described as appearing to be witnessed by two people. On the contrary, it appears to be witnessed by one person. I say nothing, because it is unnecessary to do so, about whether a delegation of the kind suggested by counsel for Mr and Mrs Papallo is permissible or whether, if so, a document signed by one person, once for himself or herself and once for someone else, can be said to be one which “appears to be witnessed by 2 people”. I conclude, in any event, that the loan agreement does not bind the applicant as its deed.

(b)  Sham?

It does not follow, however, that the loan agreement is necessarily void or unenforceable against the applicant.  Mr Waters was a director of the applicant and, as in my view it must be inferred on the evidence, the director who customarily made decisions in relation to its affairs.  It is not necessary, I think, to enter into an examination of the various kinds of authority on which a person dealing with a company can rely to conclude that Mr Waters had authority to bind the applicant, for the benefit of Mr and Mrs Papallo, to obligations such as those provided in the loan agreement.  If the loan agreement was supported by consideration, and if it were not void or unenforceable for some other reason, it might, though defective as a deed, be enforced as a simple contract: 195 Crown Street Pty Ltd v Hoare [1969] 1 NSWR 193. Counsel for the applicant submitted, however, that the loan agreement was void or unenforceable, principally on this basis that it was a sham and also because, in any event, it was not supported by consideration.

The applicant, in support of its argument that the loan agreement was a sham, relied on the description of what is, in law, a sham given by Windeyer J in Scott v Commissioner of Taxation (Cth) (No. 2) (1966) 40 ALJR 265 at 279.  His Honour’s observations concerned a deed which purported to establish a superannuation fund for the benefit of employees:

But it is not enough to say that a fund governed by the provisions of a deed such as that we have here could be a superannuation fund within the meaning of the Act.   For it to be so in fact the parties concerned must have intended that the deed should take effect and operate according to its tenor; that a fund should be set up subjected to the trusts of the deed; and that Associated Provident Funds should as trustee be bound to carry out those trusts.  On the other hand, if the scheme, including the deed, was intended to be a mere facade behind which activities might be carried on which were not to be really directed to the stated purposes but to other ends, then the words of the deed should be disregarded.   It was urged for the appellant Associated Provident Funds that it is a real company and that the deed was really executed by it; and that, it was said, is the end of the question.  But it is not.  A disguise is a real thing: it may be an elaborate and carefully prepared thing; but it is nevertheless a disguise.  The difficult and debatable philosophic questions of the meaning and relationship of reality, substance and form are for the purposes of our law generally resolved by asking did the parties who entered into the ostensible transaction mean it to be in truth their transaction, and in fact use it as, merely a disguise, a facade, a sham, a false front - all these words have been metaphorically used - concealing their real transaction: ......

I was referred also to the well known passage in the judgment of Lockhart J in Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449 at 454 - 458. The facade in this case, the applicant contended, was an arrangement, reflected in the terms (including the recitals) of the loan agreement by which Mr and Mrs Papallo would lend $100,000 to the applicant which the applicant would repay, and on which it would pay interest, as the agreement provided. In reality, it was said, there was never an intention that Mr and Mrs Papallo would lend $100,000 to the applicant; as a matter of fact Mr and Mrs Papallo never lent the applicant $100,000. The reality, counsel for the applicant submitted, was this: Mr Papallo, in the latter part of 1991, was faced with a situation in which Divali was insolvent; his (and his wife’s) claim against Divali for repayment of the advances made to it was, though secured, worthless or almost so; Mr Waters had been (or at least Mr Papallo believed him to have been) diverting for his own benefit substantial sums to which Divali was entitled; furthermore, Mr Waters was threatening, in effect, to leave Divali and Mr Papallo “high and dry” by simply commencing business through the applicant in direct competition with Divali. In those circumstances, the argument proceeds, Mr Papallo had two levers, by the use of which he could extract from Mr Waters recovery, over time, of a substantial amount of what he and Mrs Papallo were owed: one was that the removal from the business of Mr and Mrs Papallo required transfers of their shares; the other was, as foreshadowed in the letter of 30 September 1991, Mr Papallo’s ability to cause difficulties for Mr Waters by exposing his activities. Thus, the reality behind the facade was that the applicant was to make payments provided for in the loan agreement as the price of the shares held by Mr and Mrs Papallo in Divali and by Mr Papallo in the applicant and also as the price of Mr Papallo’s continuing silence about Mr Waters’ activities.

It was, of course, no part of the case for Mr and Mrs Papallo that they actually lent, or that it was intended that they lend, $100,000 of “new money” to the applicant.  The recital to the loan agreement, according to them, was to be regarded as mistaken; or, at least, the recital that they “have agreed to advance a loan” was not to be read literally.  The real transaction for which they contended was an agreement between the Papallos, the applicant as represented by Mr Waters, Mr Waters himself and (no doubt) Divali, an aspect of which was that, in consideration of Mr and Mrs Papallo releasing their claim against Divali so as to enable its business to be taken over by the applicant, the applicant agreed to pay Divali’s debt (to the extent of $100,000) and Mr Waters guaranteed the performance of the obligation thus assumed.  

Counsel for the applicant put the sham allegations squarely to Mr Papallo in cross-examination, and Mr Papallo denied them.  Counsel also put to Mr Papallo, and in submissions relied upon, a number of other circumstances which, he contended, supported his argument that the loan agreement was a mere facade or sham.  For example, Mr Papallo’s evidence was that he had taken some advice as to the way in which the loan certificates executed by Divali should be signed so as to bind Divali and had taken some care to ensure that they were signed in the appropriate way; he had, on the other hand, taken no such care, it was said, in relation to the execution of the loan agreement but had accepted it despite the obvious fact that it had been signed only by one officer of the applicant.   This was said to indicate that the Papallos never intended to rely on the loan agreement as giving rise to enforceable obligations in accordance with its terms.  Secondly, the applicant relied on the circumstance that there was no evidence of a release (in any formal sense) of the debt owed to Mr and Mrs Papallo by Divali, and no notice of discharge of their equitable charge over Divali’s assets had been lodged; and Mr Papallo conceded in evidence that he had taken no steps (beyond the agreement which he said he had reached with Mr Waters) to release the debt or the charge.   Thirdly, the applicant relied on Mr Papallo’s affidavits in the winding up proceedings and on what counsel characterised as his solicitors’ avoidance, in correspondence, of direct questions concerning the alleged “loan” to the applicant as indicating that even at that stage Mr Papallo was still seeking to rely on the “facade” and thus to misrepresent the position in his affidavits, revealing his true position only upon the exchange of pleadings in this proceeding, after the application to wind up the applicant had been discontinued.   Fourthly, it was submitted that there was no evidence that the applicant had actually acquired assets or assumed liabilities of Divali: particularly, there was no evidence that the applicant had collected any debts due to Divali or paid any of its trade creditors: the way in which the accountants prepared the applicant’s accounts for 1992 and 1993 could not be taken as demonstrating any actual underlying transaction.   Fifthly, counsel drew my attention to the fact that the Papallos had not called a number of possible witnesses, including Mr Papallo’s brother and accountant who were said to have been present at the conversation during which Mr Waters allegedly admitted misappropriating Divali’s money, Mrs Papallo, the accountants who had prepared the accounts of Divali and the applicant or any customers or sales agents of either Divali or the applicant.  

The only direct evidence of the terms of the agreement actually reached between Mr Papallo (for himself and Mrs Papallo) and Mr Waters is, in the circumstances, the evidence of Mr Papallo.  The credit to be accorded to his evidence is, therefore, a matter of some importance.  Counsel for the applicant criticised Mr Papallo’s evidence and submitted that I should prefer that of witnesses called by the applicant, particularly Messrs Fekete, Gunstone and Weir.  I accept that Messrs Fekete, Gunstone and Weir gave a careful and accurate account of their recollections.  Except, perhaps, in the case of Mr Fekete’s conversation with Mr Papallo (to which I have referred) that conclusion does not lead very far: none was in a position (their connection with the applicant having commenced after Mr Papallo’s departure) to throw any direct light on the nature or terms of the agreement reached between Mr Papallo and Mr Waters.  I accept also - no suggestion was made that I should not - the evidence of the other witnesses called by the applicant, Mr Watson, Mr Mills and Ms Kirkman. 

Mr Papallo was cross-examined at some length: his evidence commenced in the afternoon of the second day of the trial and concluded on the fourth day.  It was said that his evidence was not careful or considered, that on occasions questions had to be put to him several times and that he gave a number of unresponsive answers which degenerated into self-serving and argumentative speeches.   Certainly it is true that Mr Papallo often sought what he considered might lurk behind a question rather than simply deal with the question itself and he did give some argumentative and lengthy answers.  It does not follow, however, that his evidence was untruthful or his recollection inaccurate.  It is, however, true also that he plainly had strong feelings about the events and some of his answers were, I think, ill considered and intemperate: for instance, he described a report obtained by the applicant, as to its solvency, in the winding up proceeding as a “sham”, an observation for which no justification is apparent. 

Particular criticisms were made as well.  For example, submissions were made about the September 1991 conversation with Mr Fekete (and, possibly, Mr Gunstone): in the context of that conversation, Mr Papallo was questioned at some length about the time at which he became a director of the applicant; and it was submitted that Mr Papallo, in that conversation, inadvertently blurted out the truth of the arrangement - “However, I still wanted out.   He agreed and I sold my shares to Andrew and that is what the loan is about”.   It was then submitted that Mr Papallo’s evidence about his conversation with Ms Kirkman was inaccurate, to the extent that he claimed to have suggested to her that it was “her job” to “implement” the transfer of assets and liabilities between Divali and the applicant.   Plainly Ms Kirkman did not understand that to be her job, and I accept her evidence that no-one suggested to her that it was.   Counsel pointed, with some justification, to Mr Papallo’s difficulties in seeking to maintain that aspect of his evidence while avoiding contradicting Ms Kirkman’s evidence that he had not instructed her to implement the transfer.  Thirdly, counsel submitted that I should draw adverse inferences from the circumstance that Mr Papallo, having informed Ms Chang that any instructions about restructuring should be acted upon only if they came from him, or his solicitor, in writing, nevertheless claimed that he had permitted a restructuring to proceed on the basis of his oral instructions to Mr Mills and Mr Waters’ oral instructions to Watson & Proud.  

On the other hand, counsel for Mr and Mrs Papallo emphasised what, on the evidence, (as he said) actually happened.   Among the documents which Watson & Proud prepared was a notice by Divali that it had ceased trading under the name “Sterileair Aust”; another matter which they documented was the adoption by the applicant of the name “Sterileair Pty Ltd”; and they prepared forms for lodgment by the applicant with the Australian Taxation Office clearly indicative of an intention to carry on a business which at least included wholesaling.  Counsel pointed to evidence to which I have already referred as indicating that at some time, no earlier than mid-December 1991 and no later than 1 July 1992, the applicant took over the business previously conducted by Divali.   I have already said that I draw irresistibly from Mr Gunstone’s evidence the inference that the takeover or transfer was “seamless”: it is hardly consistent with his evidence to suppose that there was, at some point, a clear line drawn, such that (as counsel at one stage suggested I should conclude) the applicant in trading used only its own inventory and not stock which had belonged to Divali, collected only debts arising from sales by it and never debts incurred in favour of Divali and, on the other hand, paid only creditors whose claims arose from its trading, none whose claims arose from trading by Divali.  Counsel referred also to the evidence about use of the same premises, and (though in itself it may seem a trifling matter) the use by the applicant of Divali’s letterhead.   He relied, then, on the trade by the applicant in the product line in which Divali had traded, similarly got up, and the use of strikingly similar catalogues using the same colouring, substantially the same format and “Sterileair” and the stylised “Z” printed in the same way as suggesting that the applicant at least considered that Divali had acquired a reputation in the market worth taking advantage of and consolidating. 

In my view, counsel for Mr and Mrs Papallo was right when he submitted that that evidence provides considerable support to the evidence of Mr Papallo that the agreement reached between him and Mr Waters included the taking over by the applicant of the business then conducted by Divali and of the assets and liabilities of that business.  If so, whether that part of the agreement was effected with complete legal or accounting propriety and whether, for example, stamp duty properly payable was in fact paid might be relevant in other contexts; those topics were touched on in argument but are of little relevance, in my view, in the present context: what matters is not the propriety or effectiveness of what was done between Divali and the applicant after Mr Papallo’s departure but what the terms of his departure were and, particularly, the extent to which the subsequent events corroborate, or otherwise, his account of what was agreed.   It may be said in passing that such an enquiry is quite a different one from that which arises when it is sought to rely on subsequent conduct in order to construe an agreement by resolving ambiguities in it: see the discussion by Hayne JA (as he then was) in Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235 at 261, 262.

Of the matters particularly relied on by counsel for the applicant, I am not inclined to attribute much weight to the suggestion that I should treat, as indicative of a sham, Mr Papallo’s preparedness to accept the loan agreement signed only by Mr Waters.  He justifiably pointed out that a solicitor, Mr Mills, was acting for him and claimed, reasonably enough, that the solicitor’s function included the checking of matters of that sort.   In any case, a facade is not of much use unless it is convincing.  Again, in the rather informal context in which the events happened, I do not think much weight is to be given to the failure of Mr and Mrs Papallo formally to release Divali: there was in fact no practical necessity for it (see below) and there is no reason to suppose that Mr Papallo ought to have regarded it as practically necessary.   The basis on which the winding up proceedings against the applicant were conducted is, I think, a somewhat different matter: on any view, the affidavits sworn by Mr Papallo were inaccurate and they should not have been sworn in that form; I do not have information which would enable me to apportion responsibility for that and I shall not attempt to do so: but it may be observed that a good deal of trouble and expense might have been avoided had the true position been disclosed earlier than it was.  Nevertheless, I do not think that that is a matter which points particularly to one, rather than the other, version as the real transaction.  And the suggestion that, in his conversation with Mr Fekete, Mr Papallo “blurted out” the real nature of the transaction seems to me rather improbable, particularly when combined with the suggestion that, at the same time, in the solicitors’ correspondence and winding up proceedings, strenuous efforts were being made to preserve the facade.  

As for the witnesses who were not called, the conversation at which Mr Papallo’s brother and accountant were present was relied on, in the end, only for the admission by Mr Waters, and that is not in controversy: there does not appear to be any other matter on which the brother or accountant could throw any particular light.  There is no evidence that Mrs Papallo took other than a passive part in any of the transactions, so that the fact that she did not give evidence does not seem to me particularly surprising or significant.   As for customers and sales agents, no doubt they would have been available, if of assistance, to either party: I do not think that their absence adds anything appreciable to the balance on either side; in the end, I must decide, on the evidence which the parties have put before me, which is more probably the actual transaction entered into.   Nor do I think that the letter to Ms Chang, designed, obviously enough, to stop further unauthorised activity on her part, throws much light on the probability that an arrangement such as that for which Mr and Mrs Papallo contend was agreed upon, orally, with Mr Waters.  

A number of other aspects of the evidence were canvassed.  It is not necessary, I think, to refer in detail to all of them, but there are two final matters which I should mention.   One is the somewhat hysterical correspondence, which I have quoted, from Mr Waters.  That correspondence might be taken to indicate that there was something, in relation to the loan claimed to have been made by Mr and Mrs Papallo, that Mr Waters wished to hide; but the force of that is, I think, quite apart from the intrinsic probabilities to which I shall return, weakened by what I think may fairly be described as the generally irrational tone and content of the correspondence.  The other matter is the evidence about the time at which Mr Papallo became aware of the existence of the applicant, and that he had been recorded as a shareholder and director of it.  On that matter, the documentary evidence is, to put it mildly, very thin; but such indications as there are incline me to the view that I should accept what Mr Papallo said about it.  Among the scant documents concerning the applicant’s internal affairs, there is a written consent by Mr Waters to act as a director; no consent by Mr Papallo was tendered.   The allotment register of the applicant suggests that a share was allotted to Mr Papallo, but it is evident from the records as a whole (and the disappearance from the picture, in practical terms, of the subscribers) that what really was intended to be indicated was that Mr Papallo was transferee of one of the subscribers’ shares: but no transfer to him is in evidence.   I have mentioned the share certificate on which a form of transfer is endorsed: that document seems to me, if anything, to indicate, as I have already described it, an afterthought, not that a share was actually issued (or transferred) to Mr Papallo in July 1991.   Indeed, the letter to Ms Chang is consistent with his account of his conversation with her, and neither is easily reconcilable with knowledge by Mr Papallo, in September 1991 let alone in July, not only that the applicant existed but that he was a director and shareholder of it.  

In the end, however, the transaction contended for by Mr and Mrs Papallo seems both intrinsically and in the light of later events natural and probable, whereas the sham theory seems to me improbable.  In the first place, the one thing which, in the circumstances, Mr Papallo might be thought to have wanted, for the benefit of himself and Mrs Papallo, was an enforceable obligation.   In the second place, the purpose of a sham or facade is, ordinarily at any rate, to create the form of a legal obligation without the underlying substance, so that a third party will be deceived into thinking that form reflects substance.   But in this case, if the loan agreement was a mere facade, it is by no means easy to see who was intended to be deceived about what.   After all, as Mr Papallo pointed out more than once during his evidence, his expectation was that he would be dealing (as for some years was in fact the case) with a company controlled by Mr Waters and his mother; and he contemplated also that, if they sold out, the “loan” would be repaid.             

Accordingly, I accept Mr Papallo’s evidence that the agreement reached between him and Mr Waters in November 1991 contemplated that the applicant would acquire the business, assets and liabilities of Divali.   Once that step is taken it follows, in my view, that the lack of a formal release of the indebtedness incurred or charge given by Divali is of very little significance: the agreement necessarily contemplated that Divali would become a “shell” so that recovery against it would no longer be a practical possibility so that the substance of the arrangement must necessarily be that Mr and Mrs Papallo accepted the applicant as their creditor in substitution for Divali.   It is not right, in my view, to say that the Papallos remained in a position, by enforcing their charge against Divali, to seek to recover assets from the applicant or to sue it for passing off (a possibility which, as I understood it, was also suggested during argument).   To do so would plainly be inconsistent with an agreement, a term of which was that the assets of Divali might be transferred to the applicant. 

Thus, I conclude that Mr and Mrs Papallo accepted, in substitution for the secured debt of Divali, a secured debt of the applicant, payable on the terms set out in the loan agreement.  It is, nevertheless, true that the recital to the loan agreement does not accurately reflect the true transaction.   The applicant was to assume a portion of Divali’s debt; there was never an intention that the Papallos would advance more money.  So much was recognised by Mr Mills, who drew the agreement.  His recollection of the events was, understandably enough, by no means complete, but he gave, in cross-examination, the following evidence on which counsel for Mr and Mrs Papallo placed considerable reliance:

As a result of your instructions from Mr Papallo you understood, though, did you not, that there was no further money to be paid by Mr Papallo, that is upon execution?  - No, because there was no, there was only what was contained in this agreement.

But the obligation was for Sterileair to commence paying, as you saw it?  - Yes.  Yes, they were going their own separate ways, so I would have hardly thought that Mr Papallo would be wanting to put any further funds into the company.

Yes, thank you.  You were not told anything by either Mr Wyles or Mr Papallo to lead you to believe that the document you were preparing was a sham or something that did not reflect genuine views? - No.

Counsel for the applicant suggested that “the company” in the second answer must be taken as meaning Divali, so that the answer should not be taken to be inconsistent with a belief on the part of Mr Mills that the Papallos did indeed intend to lend further money to the applicant.  It is sufficient to say that I do not at all think, in context, that that is what Mr Mills meant: I am sure he was using the word “company” in a general sense as representing the business in which Mr Papallo and Mr Waters had been engaged and in which Mr Papallo’s participation was to cease.  That Mr Mills drew the recital as he did can apparently be explained, I think, only as resulting from a transcribing, without analysis, of Mr Papallo’s written instructions.  It is not unfair, I think, to say that it is not the only aspect of the document the drafting of which falls short of the ideal: a similar lack of analysis is evident in the provisions of clause D dealing with what was to happen if the business conducted by the applicant were sold, and there are at least grammatical difficulties with the guarantee in clause H.   Thus, I find that the recital, and the instructions it reflects, stated inaccurately, and mistakenly, that aspect of the agreement which the document was meant to reflect.  The consideration was, by mistake, wrongly stated; but there was intended to be a real obligation on the part of the applicant to pay in accordance with the terms of the agreement, and a real obligation on the part of Mr Waters as guarantor.  If the agreement were otherwise enforceable, there is no apparent reason why, if it were necessary, it should not be rectified; I shall return to that question later in these reasons.  

(c)  Consideration; Detriment and Benefit

The applicant relied on another group of substantial submissions in relation to the enforceability of the agreement; they may be summarised as contentions that there was no detriment to the Papallos nor any benefit obtained by the applicant.  Those arguments go to the question whether the agreement was supported by consideration, to the alternative estoppel argument relied upon by Mr and Mrs Papallo and to the propriety of the transaction from the point of view of the applicant (the suggestion being that the directors of the applicant could not properly authorise a transaction from which it obtained no benefit, a contention which might, if the first step were established, also require consideration of knowledge or notice on the part of Mr and Mrs Papallo).  

The basis of the “no detriment” argument was that Divali was insolvent and consequently the Papallos’ claim against it was worthless.   I have already referred to the continuing losses suffered by Divali and to the fact that it was wound up on the application of a creditor, based on a judgment debt obtained in the months preceding the agreement reached between Mr Papallo and Mr Waters.    In cross-examination Mr Papallo gave this evidence:

I suggest to you that both your equity and your loan capital investment in Divali had been well and truly lost at least one year before these negotiations with Mr Waters were undertaken?  - That’s correct.

Mr Papallo, however, insisted that Divali at all times was solvent:

And you are saying you have got no faith in Divali’s ability to repay either the $100,000 or any percentage of profits on sale after you left?  - No, that’s not so at all.   It was nothing to do with the faith in the company it was the faith in him.   The company was totally solvent, the company was totally covering all its debts, it had no problems in terms of debts at all.  It was a perfectly solvent company and it continued to be a solvent company after I left.  

The most recent accounts of Divali Pty Ltd are those for the financial year ended 30 June 1990.  At that point it was recorded as having accumulated losses of $147,313.97 and a deficiency in shareholders’ funds of $109,980.97.   Plainly its ability to continue in business depended upon finance provided by its shareholders, particularly, of course, the loans provided by Mr and Mrs Papallo.  At 30 June 1990 it had trade debtors of $25,659.96 and stock on hand valued at $3,885.81.  It had plant and equipment the depreciated value of which was $10,023.04.  The intangible assets, including goodwill, which the company had purchased from Mr Waters appeared in the accounts undepreciated, despite, in the case of the goodwill valued at $45,357.59, an accounting standard which required that it be written down.   Creditors, apart from the shareholders’ loans, comprised a bank overdraft of $27,353 and trade creditors of $33,337.41.   Clearly Divali had difficulties, and the evidence suggests that the position did not improve between 30 June 1990 and December 1991.

But that is not the complete picture.  Divali continued trading; it must be inferred, I think, that it had assets, in December 1991, in the same categories as those which it had on 30 June 1990: particularly, stock and debtors and no doubt, plant and equipment.  Mr Gunstone gave evidence that on 4 December 1991 Divali’s stock in trade had a value of less than $20,000.   He continued that to the best of his recollection Divali had no other assets.  That topic was not explored with him in cross-examination, but two comments may be made: first, Mr Gunstone’s employment commenced two months later than 4 December 1991; secondly, it is implicit in his evidence that Divali, at 4 December 1991, had creditors; it seems highly unlikely that it had no stock at all, and no plant or equipment.  It should be concluded, I think, that Divali at 4 December 1991 had realisable tangible assets, though their realisable value was no doubt substantially less than $100,000.   But the claim of Mr and Mrs Papallo was secured; subject to statutory priorities, it would rank ahead of the claims of unsecured creditors.  Even on that limited basis, I think the conclusion must be that Mr and Mrs Papallo, in releasing their claim against Divali, suffered a detriment, though a detriment the amount of which was doubtless considerably less than $100,000: but the discrepancy does not, of course, mean that there was no consideration sufficient to support a simple contract.  Nor, from that point of view, does it particularly matter that some months later Divali was wound up on the application of an unsecured creditor, albeit one which had obtained a judgment in respect of its debt before 4 December 1991.  It may be observed, in passing, that no evidence was called or tendered by either party as to the state of Divali’s affairs at the commencement of its winding up. 

But more is required to complete the picture.   Mr Papallo’s confident evidence was that, in substance, Divali was about to turn the corner: it had good products, a good network of agents and was in a position to trade successfully and profitably.   Mr Papallo’s evidence on that topic was given considerable attention in cross-examination, and I shall return to some aspects of it when considering the question of benefit to the applicant.   To a considerable extent, however, later events bear out Mr Papallo’s evidence: the evidence is that, overall, the applicant traded profitably; Mr Gunstone (although he had not then seen the 1993 accounts and, I accept, did not know about the debt claimed by Mr and Mrs Papallo) was prepared in December 1992, on the basis of his impression of the applicant’s trading, to invest $50,000 in the purchase of 10% of the applicant’s shares.   Later, and at a time when their state of knowledge was substantially more complete, Mr Gunstone, Mr Williams and (through a family trust) Mr Weir thought it appropriate to acquire all the outstanding shares in the applicant.  Mr Weir, who had acted as a consultant to the applicant since March 1993, gave evidence that he thought the Easy-Dose Cartridge was a good product, he thought the business was “proceeding nicely” and “knew that there were more and more people becoming interested in their range of products, and ..... could only see it growing”.   Surprisingly, perhaps, Mr Weir’s evidence was that before becoming a shareholder (even in December 1995) he had not had access to any financial information: that, however, detracts neither from the circumstance that the applicant had been profitable nor from his other observations about its business.  

On the question of benefit to the applicant it was submitted that, first, there was no evidence that the applicant had in fact acquired Divali’s assets or assumed its liabilities (I have already, however, found that it did) and that, in any event, the business was of no value.  The accountants’ working notes for the applicant’s 1993 accounts proceeded on the basis, apparently, that the applicant acquired the assets and liabilities of Divali at 1 July 1992.   But those notes indicate that current liabilities assumed exceeded current assets acquired, that total liabilities assumed substantially exceeded total assets acquired and that the figures were made to balance only by incorporating, as an asset, goodwill of $165,538.20 being the amount of the difference between liabilities and assets.   It was then suggested that there was nothing particularly novel about the products which Divali, and then the applicant, supplied; that attempts by Divali to register patents and trade marks had encountered difficulties and had not been persisted in and that, in short, there was nothing to prevent the applicant from commencing a new business of precisely the same kind as that which had been conducted by Divali, without risk of any claim by Divali.   But the fact that Divali had no registered or (if it were the case) registrable intellectual property rights did not mean that it had no valuable rights which might be protected by other means, for example, in a passing off action.  The evidence to which I have referred indicates, I think, that it had developed a reputation giving rise to rights of that kind.  In other words, the ability to succeed to the very business which Divali had carried on was, on the evidence, of some value and, that being so, the applicant’s ability to do so depended upon the assent of Divali and of Mr and Mrs Papallo as its secured creditors.  After all, it is to be remembered that the only persons, other than creditors, interested in the applicant, its success or failure, were Mr Waters and his mother: there is no obvious reason why, in that position, they would cause the applicant to acquire something of no value.   Particularly, there is no apparent reason why they should have needed to do that in order, as it was put, to buy Mr Papallo’s silence.  

Conclusions on Contractual Issues

In summary, I find that the loan agreement of 20 December 1991 between Mr and Mrs Papallo, the applicant and Mr Waters is not the applicant’s deed.   I am satisfied, however, that it is not a sham.   The agreement to which Mr Papallo deposed is consistent with the events which followed in the ensuing days and months.  There is nothing surprising or improbable about it.   The steps taken to put the agreement into effect involved, undoubtedly, a degree of confusion and muddle due, no doubt, at least in part to the curiously fragmented way in which the parties arranged for its implementation.  The effect of the agreement to which Mr Papallo deposed was that the business, undertaking and assets of Divali would be taken over by the applicant; the liabilities included $100,000 of the sum owed by Divali to Mr and Mrs Papallo.   If the agreement did not involve a formal release of debt or security, it certainly involved a binding assent to a course of action which would render valueless any claim which Mr and Mrs Papallo might have had against Divali.   The terms of the contract required also that Mr and Mrs Papallo transfer their shares in both Divali and the applicant and that Mr Papallo resign from any offices he held in either.  The considerations to which I have referred lead me to conclude that Mr and Mrs Papallo gave up something of value and the applicant acquired something of value.   Thus, in my view, the agreement was supported by consideration and, subject to a point about “financial assistance” to which I shall come shortly, is binding and enforceable.   The loan agreement embodied some of the terms of the total contract, not all of them.   To the extent that it recites a consideration which was not the true consideration it is inconsistent with the other terms of the contract and, I think, simply as a matter of construction of the contract as a whole, the recital can and should be disregarded.   If it were necessary, however, I can see no reason why rectification would not be available: the agreement reached between the parties was, in part, incorrectly recorded in a document intended to give effect to part of that agreement.   The evidence establishes in my view a clear and common understanding between the parties as to what the terms were.   In those circumstances rectification would not be denied, in my view, simply because the solicitor, in preparing the document, transcribed instructions from one of the parties which themselves incorrectly recorded the terms of the agreement.  

Other Issues

Given my conclusions on the contractual aspects of the case, it is unnecessary to consider questions, some by no means easy, arising from the alternative cases pleaded in the cross-claim: cases based on conventional estoppel, account stated and conduct alegedly infringing
s 52 of the Trade Practices Act.

Financial Assistance?

The applicant contended that the agreement reached between Mr and Mrs Papallo, the applicant and Mr Waters involved the provision by the applicant of financial assistance for the purpose of or in connection with an acquisition of its shares; and the applicant claimed to have exercised its option, under s 206(2) of the Corporations Law, to avoid the contract.   The applicant’s argument, as I understood it, was to the effect that the contract had been avoided in that way even on the footing that Mr Papallo’s evidence as to the contract was accepted.  

Section 205(1) provides:

Except as otherwise expressly provided by this Law, a company shall not:

(a)whether directly or indirectly, give any financial assistance for the purpose of, or in connection with:

(i)the acquisition by any person, whether before, or at the same time as, the giving of financial assistance, of:

(A)shares ...... in the company: .....

Section 205(4) provides:

For the purposes of this section, a company shall be taken to have given financial assistance in connection with an acquisition or proposed acquisition referred to in paragraph (1)(a) if, when the financial assistance was given to a person, the company was aware that the financial assistance would financially assist:

(a)      the acquisition by a person of shares ... in the company; ....

No doubt Mr Waters’ knowledge is to be imputed to the applicant, and it may well be the case that the incurring of an obligation such as the applicant assumed could for some purposes be characterised as the provision of financial assistance.  The question is whether, in the circumstances of this case, the incurring of the obligation can be regarded as the provision of financial assistance in connection with (or for the purpose of) the acquisition by Mrs Wyles of the share in the applicant held by Mr Papallo.   There was, no doubt, a connection between the incurring of the obligation and the acquisition of the share, to the extent that the contract which provided for one required the other also. 

It may be accepted that s 205(4) is not exhaustive of the requisite kinds or degrees of connection: Darvall v North Sydney Brick and Tile Co. Ltd (1987) 12 ACLR 537 at 561; see also the judgments on appeal, (1989) 15 ACLR 230. But, on the view I have taken of the matter, the essence of the present transaction was that the business of Divali, including its assets and its liabilities (the liabilities including a reduced obligation to Mr and Mrs Papallo) should pass to an entity controlled by Mr Waters. That object could, no doubt, have been achieved in a number of ways: ways other than those chosen might have included a simple acquisition by Mr Waters and his mother of all the issued shares in Divali coupled with a reduction in the amount owed by Divali to Mr and Mrs Papallo and a renegotiation of the terms of payment: another might have been a transfer of the business, assets and liabilities to a new company formed for the purpose by Mr Waters and his mother. Neither of those transactions would have involved financial assistance infringing s 205. Of course, I am required to consider the legal consequences of the transaction actually entered into, not hypothetical transactions which might have had a similar ultimate result. But a comparison between the actual and hypothetical transactions demonstrates, I think, that it is artificial in the extreme to regard the applicant’s assumption of the obligation to Mr and Mrs Papallo as providing financial assistance in connection with the acquistion of Mr Papallo’s share in the applicant. Certainly I think there is no intelligible sense in which it can be said that the assumption of the obligation was assistance for the purpose of the acquisition. Both the terms of s 205(4) and the judgments in Darvall, in my view, suggest that a relevant connection exists where it may be said that, albeit indirectly, what was done by a company financially assisted the acquisition of its shares. That is not, I think, a sensible description of what happened here, particularly given the circumstances in which (assuming he did so) Mr Papallo came to hold a share in the applicant in the first place. In short, I conclude that the making and carrying out of the contract which I have found did not infringe s 205.

Result

It follows from the reasons which I have given that the application should be dismissed.  It follows equally that the cross-claim should succeed, and there should be judgment for the respondents as cross-claimants.  There appeared to be no issue as to the amount claimed, and on that footing the judgment should be for the sum of $63,225.98 together with interest accrued since 31 December 1995.  Because the respondents claim on the footing that they accepted the applicant’s repudiation, interest accrued since 31 December 1995 should, I think, be calculated at the rate set out in Schedule J to the Supreme Court Rules (NSW), not in the manner provided in the loan agreement. The applicant should pay the respondents’ costs of the proceeding.

The only order I make now is that the respondents file and serve, not later than fourteen days after delivery of these reasons, short minutes of the orders required to give effect to these reasons.   The matter may then be set down, by arrangement with my Associate, so that any argument as to the form of orders may be dealt with and final orders made.  I shall then hear also any submissions which the parties may wish to make about the reserved costs of the winding-up application: but it may be that that matter should be dealt with by the judge who disposed of that application.  

I certify that this and the preceding thirty-six (36) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lehane

Associate:

Dated:             18 March 1998

Counsel for the Applicant:	C.J. Bevan
Solicitor for the Applicant:	Schweizer & Co.
Counsel for the Respondents:	R.E. Dubler
Solicitor for the Respondents:	Corrs Chambers Westgarth
Date of Hearing:	15-19 December 1997
Date of Judgment:	18 March 1998