Surf Road Nominees Pty Ltd v James - [2004] NSWSC 61

No judgment structure available for this case.

CITATION: Surf Road Nominees Pty Limited & Ors v Tass James & Ors [2004] NSWSC 61

HEARING DATE(S): 15/12/03 - 19/12/03, 2/2/04 - 6/2/04, 9/2/04, 11/2/04

JUDGMENT DATE:
20 February 2004

JURISDICTION:
Equity Division
Commercial List

JUDGMENT OF: Einstein J

DECISION: Clause 5 of Deed of 1 July 1999 construed; Guarantees not shown to have been discharged; Oppression suit not made out; Dunningham Investments and Station Constructions causes of action not made out; Disparate other issues determined; Short minutes of order to be brought in.

CATCHWORDS: Contracts - Complex of obligations including guarantees and indemnities entered into by corporations, trusts and individuals parties to deed entered into upon acquisition/reorganisation of real estate group - Construction - Principles - Identification of obligors and obligees - Equity - Trust of a contractual promise - Corporations - Directors duties - Duties not to profit without first obtaining fully informed approval/consent of co-directors - Obligation of full disclosure by directors of wholly owned subsidiary to parent company - Oppression-Sections 232 and 233 Corporations Act inapplicable where venture protected by unit trust superimposed on company structure - Guarantees - Discharge - Release of one joint or joint and several promisor discharges all others - Promises not to sue - Distinction between release and promise not to sue - Rule in Jones v Dunkel - Principles - Onus of proof - Shifting evidentiary onus - Employment law - Summary dismissal for gross and wilful misconduct

LEGISLATION CITED: Corporations Act, 2001 (Com)
Evidence Act 1995 NSW
Supreme Court Act 1970 NSW

CASES CITED: Adler v Australian Securities and Investments Commission [2003] NSWCA 131
Ashville Investments Ltd v Elmer Contractors Ltd [1989] QB 488
Australian Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99
Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130
Birtchnell v Equity Trustees Executors and Agency Co Ltd (1929) 42 CLR 384
Black v The Ottoman Bank (1862) 15 Moo PCC 472; (1862) 15 ER 573
Boston Deep Sea Fishing & Ice Co v Ansell (1888) 39 Ch D 339
Byrne & Frew v Australian Airlines Ltd (1995) 185 CLR 410
Clouston & Co Ltd v Corry [1906] AC 122
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
Concut Pty Ltd v Worrell (2000) 75 ALJR 312
Dorgal Holdings Pty Ltd v Buckley (1996) 22 ACSR 164
Dowell Australia Ltd v Triden Contractors Pty Ltd [1982] I NSWLR 508
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688
Fexuto Pty Ltd v Bosnjak Holdings (2001) 37 ACSR 672
Fitzsimmons v R (1997) 23 ACSR 355
Fountain v Alexander (1982) 150 CLR 615
Hancock v Williams (1942) 42 SR (NSW) 252
Hide & Skin Trading v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310
IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896
Jones v Dunkel (1959) 101 CLR 298
Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606
Lakatoi Universal Pty Ltd v Walker [2000] NSWSC 113
Lane v Arrowcrest Group Pty Ltd (1990) 27 FCR 427: 43 IR 210
Lane v Fasciale (1993) 35 AILR 339
McEwen v Combined Coast Cranes Pty Ltd (2002) 44 ACSR 244
Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 76 ALJR 246
Mayor of Durham v Fowler (1888) 22 QBD 394
Meehan v Jones (1982) 149 CLR 571
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449
Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187
Pollak v National Australia Bank Ltd [2002] FCA 237
Prenn v Simmonds [1971] 1 WLR 1381
Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134
Re Pearse [1905] VLR 446
Re Polyresins Pty Ltd [1999] 1 Qd R 599
Wolmershausen v Wolmershausen (1890) 62 LT 541
Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289
Schellenberg v Tunnel Holdings Pty Ltd (2000) 170 ALR 594
Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359
South Australia v Clark (1996) 19 ACSR 606
Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245
Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107
United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514
United States Surgical Corp v Hospital Products International [1983] 2 NSWLR 157
Walker v Bowry (1924) 35 CLR 48
Ward v National Bank of New Zealand Ltd (1883) 8 App Cas 755

PARTIES :

Surf Road Nominees Pty Ltd ACN 087 719 060 (First Plaintiff)
Chris Burke & Co Pty Ltd ACN 062 554 849 (Second Plaintiff)
IG Martyn Real Estate Pty Ltd ACN 001 210 304 (Third Plaintiff)
WIT Investments Pty Ltd ACN 087 762 856 (Fourth Plaintiff}
DJZ Construction Pty Limited ACN 087 784 601 (Fifth Plaintiff)
Tass Alexander James (First Defendant)
Janet Margaret James (Second Defendant)
New South Head Road Nominees Pty Ltd CAN 088 322 472 (Third Defendant)
First Cross Claim
Tass Alexander James (First Cross-Claimant)
Janet Margaret James (Second Cross-Claimant)
New South Head Road Nominees Pty Ltd (Third Cross-Claimant)
Surf Road Nominees Pty Ltd (First Cross-Defendant)
Chris Burke & Co Pty Ltd (Second Cross-Defendant)
I G Martyn Real Estate Pty Ltd (Third Cross-Defendant)
W I T Investments Pty Ltd (Fourth Cross-Defendant)
D J Z Construction Pty Ltd (Fifth Cross-Defendant)
Michael Christian (Sixth Cross Defendant)
Katherine Christian (Seventh Cross Defendant)
Cottenham Nominees Pty Ltd (Eighth Cross-Defendant)
Vincent Palmieri (Ninth Cross-Defendant)
Terry Ian Wilson (Tenth Cross-Defendant)
Andrew Peter Mortimer (Eleventh Cross-Defendant)
Second Cross Claim [Settled]
Michael Christian (First Cross-Claimant)
Katherine Christian (Second Cross-Claimant)
Cottenham Nominees Pty Limited (Third Cross-Claimant)
Tass Alexander James (First Cross-Defendant)
Janet Margaret James (Second Cross-Defendant)

FILE NUMBER(S): SC 50108/01

COUNSEL: Mr TA Alexis SC, Ms KP Sainsbury (Plaintiffs) (First to Fifth and Ninth to Eleventh Cross Defendants)
Mr CRC Newlinds SC, Mr AP Coleman (Defendants) (Cross Claimants on First Cross Claim)
Mr AJ Bulley (Sixth, Seventh and Eighth Cross Defendants to First Cross Claim) (First to Third Cross Claimants on Second Cross Claim)

SOLICITORS: Pritchard Law Group (Plaintiffs) (First to Fifth and Ninth to Eleventh Cross Defendants)
The Argyle Partnership Defendants) (Cross Claimants on First Cross Claim)
Dibbs Barker Gosling Sixth, Seventh and Eighth Cross Defendants to First Cross Claim) (First to Third Cross Claimants on Second Cross Claim)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Friday 20 February 2004

50108/01 Surf Road Nominees Pty Limited & Ors v Tass James & Ors

JUDGMENT

The proceedings

1 For a number of years two licensed real estate agents, Mr Tass Alexander James (and interests associated with him) and Mr Michael Christian (and interests associated with him) personally and/or through their corporate vehicles or trusts carried on business as real estate agents in Caringbah and Cronulla. During the early 1990’s each of Mr James and Mr Christian [by themselves or their corporate vehicles or trusts] had become 50 percent shareholders in James Christian Pty Ltd which came to conduct the business, ‘Raine & Horne, Cronulla’. In 1996 their wives became 50 percent shareholders in IG Martyn Real Estate Pty Ltd ["IGM" or “IG Martyn”] which conducted the business, ‘Raine & Horne, Caringbah’. Sometime prior to 1 July 1999, IG Martyn and James Christian Pty Ltd [“James Christian” or “James Christian Pty Ltd”] entered into an agreement whereby IG Martyn purchased the business of James Christian Pty Ltd for a consideration of $900,000.

2 Mr James and Mr Christian were approached for an expression of interest in relation to the then largest real estate agency in Cronulla which carried on business as Chris Burke & Co Pty Ltd ["the Burke business" or "Chris Burke"] which was initially offered for sale at approximately $1.7 million. Ultimately they were able to acquire this business with the assistance of loan funds borrowed from the Macquarie Bank and from outside investors two of whom are the fourth and fifth plaintiffs. These proceedings concern the rights and obligations of a number of individuals, companies and trusts arising, inter alia, from the complex of contractual arrangements generally entered into upon the occasion of the acquisition in 1999 of the Burke business.

Diagrammatic representation of ownership structure at 1 July 1999

3 A convenient diagram of the ownership structure of the Surf Road Trust and the Burke Group on 1 July 1999 was prepared by Horwath. It is appended to this judgment as appendix "A".

4 There is a degree of complexity in following:

· the identity of the relevant parties and their interrelationship;

· the place which the parties played in relation to the circumstances giving rise to the relief claimed; and

· the interrelationship of:

(1) the claims to relief made in the third further amended summons;

(2) the claims to relief made in the first cross-claim; and

5 A deed dated 1 July 1999 ["the Deed"] is central to one group of claims. A copy of the Deed is appended to this judgment as appendix "B". It suffices in broad overview terms to note that the acquisition of the Burke business required the setting up of a number of corporate entities and trusts as well as commitments flowing from extensive borrowings from a number of parties. The first, second and third defendants namely Mr James, his wife Mrs Janet Margaret James and their family company New South Head Road Nominees Pty Ltd ["the James family company" or “NSHR”] are said to be jointly and severally liable:

· pursuant to clause 5 (1) of the Deed to guarantee the obligations of James Christian Pty Ltd in relation to the payment of the amount due by IG Martyn Real Estate Pty Ltd to Macquarie Bank ["the IGM bank debt"] for the benefit of the first plaintiff as trustee for the Surf Road Unit Trust ["SRUT" or “the Surf Road Trust”]; [Declaration 1]

· pursuant to clause 5 (1) of the Deed to guarantee the obligations of the first plaintiff as trustee for the SRUT in relation to the payment of preferential distributions by SRUT for the benefit of the fourth and fifth plaintiffs who are respectively WIT Investments Pty Ltd ["WIT"] and DJZ Construction Pty Ltd ["DJZ"]. [Declaration 2]

· [Alternatively] pursuant to clause 5 (2) of the Deed to indemnify WIT and DJZ in relation to any loss or damage suffered by them in consequence of the defendants:

- failing to ensure payment of the IGM bank debt;

Relief sought

6 The relief sought includes:

· An order for the entry of judgments against each of the defendants for the moneys found to be due with respect to:

(a) the IGM bank debt pursuant to the Deed;

(b) the preferential distributions pursuant to the Deed;

(c) the loss and damage suffered by [WIT] and [DJZ] in relation to the defendant’s failure to ensure payment of the IGM bank debt and the preferential distributions;

(d) the conduct of Mr James in breach of his directors duties as pleaded; and/or

· Alternatively, damages.

7 Other issues pursued by the plaintiffs concern:

· the conduct of Mr James said to have been in breach of his directors duties owed to the first, second and third plaintiffs, respectively Surf Road Nominees Pty Ltd ["the Surf Road company" or “Surf Road Nominees"], Chris Burke and IG Martyn; and

· the defendants alleged obligations in respect of moneys used or borrowed from one or more of:

8 The defendants accept that WIT and DJZ have locus standi to make the claims pursued in declarations 2 and 3 of the third further amended summons but raise outflanking defences asserting the discharge of the subject guarantee by subsequent events. Even if no such discharge is held to have been effected, the defendants raise questions of quantum. They also contend that upon the proper construction of the Deed it was necessary that there be profits made by SRUT prior to the arising of any obligation for the payment of preferential distributions.

Expert evidence

9 There were sundry disputes between the experts called by the parties. Many were resolved by agreement following a joint conference. The issues had included whether there was a profit, and if so, what was that profit; an issue as to the quantum of the preferential distributions, if any, which were payable and an issue as to the categorisation of payments received by the investors from the Trust during 2000 and 2001 and not identified at the time of payment as being preferential distributions [the question arose as to whether they were interim dividends]. Many other matters were also raised and considered in the voluminous experts reports but mostly fell away as ultimate live issues.

10 A short note summarising a number of the matters addressed by the accounting experts is to be found in the Ferrier Hodgson Report of 30 January 2004:

Horwath Calculation $	Potter Calculation Agreed $	Potter Calculation Unknown $	Potter Calculation Rejected $
Unauthorised Loan To James Family	289,975	168,010	93,965	28,000
Excess Remuneration Paid to James	14,198	NIL	NIL	14,198
Excess Reimbursements of the Fairfax Account to James	1,232	NIL	NIL	1,232
Payment to Fairfax on Account of James Christian Pty Limited	8,493	8,493	NIL	NIL
Unauthorised Payments to Maria James	23,250	23,250	NIL	NIL
Unauthorised Loan – T and J James	6,500	NIL	NIL	6,500
Unauthorised Private Rent Paid on Account of James	28,600	28,600	NIL	NIL
Unauthorised Payment to John Sullivan on Account of James	40,000	NIL	40,000	NIL
Unauthorised “Home Loan Partnership” Commissions Paid to James	89,917	NIL	89,917	NIL
Total Alleged Unauthorised Payments Claims	$502,165	$228,353	$223,882	$49,930

11 Further agreement has been reached in relation to some of these items.

12 The cross-claims raise disparate issues more conveniently explained below. It may however be noted that the first cross-claims are by Mr and Mrs James and the James family company and, inter alia, seek sundry orders, principally, but not exclusively, grounded upon the propositions that:

· each of the Surf Road company, Chris Burke and IG Martyn are being conducted in a manner oppressive to, unfairly prejudicial to, or unfairly discriminatory against:

- Mr and Mrs James as members of each of these companies; and/or

· units and/or shares held by the cross-claimants in Surf Road, Chris Burke and IG Martyn should be ordered to be purchased by any or all of the sixth to 11th cross defendants who may broadly be described as "the investor cross defendants".

Central structure of the issues pleaded

13 The core of the third further amended summons pleads:

The construction issues

· “that by entering into the Deed, the defendants agreed to indemnify WIT and DJZ in relation to any loss or damage suffered by them in consequence of the defendants’ failure to ensure the payment of the IGM bank debt and the payment of the preferential distributions. [9]

· By reason of the failure of:

(a) James Christian Pty Ltd to pay the IGM bank debt; and
(b) the SRUT paying the preferential distributions,

each of the defendants are jointly and severally liable to the first plaintiff (Surf Road Company) as trustee for the SRUT in relation to the IGM bank debt and to WIT and DJZ in relation to the preferential distributions, pursuant to the Deed, and continue to be so liable.

Particulars of Liability in relation to the IGM bank debt

IGM bank debt $1,044,600.00

Overdraft interest incurred by the first plaintiff as trustee for the SRUT and/or the Third Plaintiff in relation to the reductions of principal of the IGM bank debt made from 1 July 1999 to 30 June 2000 $ 11,049.00

Interest paid to Macquarie Bank by the first plaintiff as trustee for the SRUT and/or the Second Plaintiff from 1 July 1999 to 31 December 2000 on the IGM bank debt $ 134,252.00

Interest paid to Macquarie Bank by the first plaintiff as trustee for the SRUT and/or the Second Plaintiff from 1 January 2001 to 30 September 2002 on the IGM bank debt $ 141,623.00

Particulars of liability in relation to preferential distribution

Unpaid preferential distributions (being the sum equal to the amount paid by the first plaintiff as trustee for the SRUT to Macquarie Bank in accordance with clause 12.10 of the Surf Road Unit Trust Deed dated 28 May 1999) -
$ 154,841.00
[10]

· Further and by reason of the failure of:

(a) James Christian Pty Ltd to pay the IGM bank debt; and

(b) the first plaintiff as Trustee for the SRUT paying the preferential distributions,

each of the defendants are jointly and severally liable to the fourth and fifth plaintiffs for the loss and damage suffered by them in consequence of the failure to ensure payment of the IGM Bank debt and the preferential distributions.

Particulars of liability for loss and damage

(i) loss of value of the units held by the Fourth and Fifth Plaintiffs in the SRUT, in consequence of the payment of the IGM bank debt by the Second and/or Third Plaintiffs and from the proceeds of sale of the Cronulla and Carringbah rent rolls on 28 February 2003 resulting in the net asset value of the SRUT being reduced by $1,044,600;

The liability, set off and discharge issues

· At all material times while Mr James was a director of the Surf Road Company, Chris Burke and/or IG Martyn, Mr James owed duties pursuant to the Corporations Act and the general law and a fiduciary duty:

(a) to act honestly and with fidelity as a director in relation to the affairs of Surf Road Nominees, the SRUT, Chris Burke, the BUT and IG Martyn;

(b) not to prefer his own financial interests and those of Mrs James, the James Family Company and/or the financial interests of his immediate family, to the financial detriment Surf Road Nominees, the SRUT, Chris Burke, the BUT and IG Martyn; and

· At or about the times hereinafter particularised, Mr James in breach of the directors’ duties, for himself and for and on behalf of Mrs James and/or the James Family Company:

(a) used moneys of Surf Road Nominees, the SRUT, Chris Burke, the BUT and/or IG Martyn and accounted for those moneys as loans and/or advances to him and/or his family interests, without first obtaining the fully informed approval and/or consent of the directors of the Surf Road Nominees, Chris Burke, and/or IG Martyn;

Particulars

· 18 January 2001 – closing balance of advances to the “James Family”

$289,974.82

Particulars

· 2 July 1999 – payment to John Sullivan in part payment of a loan from Mr Sullivan to the First Defendant in the sum of $170,000.00, accounted for as “computer expenses”	$40,000.00
· August 1999 – moneys paid to Fairfax Community Newspapers on behalf of James Christian Pty Ltd	$ 8,493.05
· July 1999 to January 2001 – closing balance of moneys overpaid to the First Defendant’s Visa Card, for Fairfax Community Newspapers	$ 1,232.00
· April 2000 to February 2001 – rental for 62/1 McDonald Street, Cronulla occupied by the First Defendant and the Second Defendant and accounted for as “business rent”	$28,600.00

Particulars

· July 1999 to October 2000 – monies paid to the First Defendant and/or his family interests from “Home Loan Partnership” commissions	$ 89,917.00
· July 1999 to January 2001– monies paid the First Defendant’s mother Maria James interest and principal reductions of a loan, on behalf of James Christian Pty Ltd	$ 23,250.00
· 23 January 2001 – loan to First Defendant	$ 6,500.00
· 18 January 2001 – closing balances of advances to the James family	$289,974.82 [12]

Denial of entitlement to relief or damages issues

· By reason of the contentions pleaded in paragraph 12, Mr James, Mrs James and/or the James Family Company are liable to Chris Burke and/or the BUT to account for and repay the moneys used or, to the extent that any of the moneys were borrowed from Chris Burke and/or the BUT, to repay those moneys in accordance with the demand hereby made. [13]

· On or about 9 July 1999, the James Family Company agreed with the other unitholders in the SRUT, to contribute the sum of $130,000.00 ($10,000.00 per unit) as a loan to the SRUT for working capital (the “working capital loan”). Mr James arranged for the James Family Company to pay the working capital loan to the SRUT from an overdraft facility established with Macquarie Bank in the name of Chris Burke and/or the BUT (the “BUT overdraft”). [14,15]

The $18,737 issue

· Chris Burke and/or the BUT has paid interest and charges to Macquarie Bank on the BUT overdraft, with respect to the working capital loan in the sum of $18,737.00 (as at 30 September 2001) which it should not have incurred and/or paid and the James Family Company is liable to repay the said interest and charges in accordance with the demand hereby made. [16]

· Further, and in addition to the contentions pleaded in paragraph 12 hereof, and on or about 3 August 1999 the Mr James agreed with the other directors of Surf Road Nominees to be remunerated with a salary of $100,000.00 per annum and other benefits as more particularly set out in the minutes of the meeting of the directors of Surf Road Nominees dated 3 August 1999. [17]

The management fees and bonuses issue

· Mr James paid himself and/or James Christian Pty Ltd and/or entities associated with him, “management fees” in the sum of approximately $56,247.00 and “bonuses” in the sum of approximately $57,951.00 from Surf Road Nominees, the SRUT, Chris Burke, the BUT and/or IG Martyn, during the year ended 30 June 2000. [18]

The overpayment issues

· Chris Burke, Surf Road Nominees, the SRUT, the BUT and/or IG Martyn has overpaid Mr James and/or entities associated with him the sum of approximately $14,198.00 during the year ended 30 June 2000 and Mr James is liable to repay these moneys in accordance with the demand made. [19]”

The background

14 The material facts in terms of the written agreements which were entered into from time to time and the shareholding and structure of the corporate vehicles and trusts which were set up are not in issue. The convenient course is to simply adopt [albeit with some minor editing] for present purposes the summary of these matters, to be found in the written submissions of the defendants:

“Prologue (1990 - December 2000)

1. Prior to 1990, Mr James had interests in two real estate businesses. The first was known as “Raine & Horne Caringbah”. It was conducted through a company called Residential Commercial Sales Pty Limited, which company was in turn owned by Mr & Mrs James. The second was a real estate agency known as “James & Fear Real Estate” at Kingsford.

2. Sometime around 1990, Mr James went into business with Mr Christian who prior to that time, had been employed by him.

3. They formed a new company called “James Christian Pty Limited” in which Mr Christian held 49% of the shares and Mr James held 51% of the shares. That company took over the Raine & Horne Caringbah business.

4. Sometime shortly thereafter, James Christian Pty Limited opened a second office in Cronulla. Mr Christian became a licensee of what was then known as “Raine & Horne Caringbah” and Mr James the licensee of “Raine & Horne Cronulla”. Both businesses were owned by James Christian Pty Limited.

5. In 1994 the Raine & Horne Caringbah office was closed and the business consolidated as Raine & Horne Cronulla.

6. In 1997 James Christian Pty Limited having lost the Raine & Horne franchise, purchased a small local real estate agency at Caringbah called I.G. Martyn Real Estate Pty Limited.

7. At the time of the purchase of I.G. Martyn Real Estate Pty Limited by James Christian Pty Limited, Mr James sold one share in James Christian Pty Limited to Mr Christian so that thereafter they owned 50% of the shares each in James Christian Pty Limited.

8. The business operated with an office situated at Cronulla and a second office at Caringbah.

9. In 1999 Mr James and Mr Christian became interested in purchasing a large real estate agency in Cronulla known as “Chris Burke & Co Pty Limited”.

10. The proposed purchase price was $1.7M.

11. Mr James and Mr Christian were unable to raise finance for the purchase via conventional means and, in particular, were unable to obtain finance from there then financier Macquarie Bank Limited.

12. At the time of the proposed purchase, James Christian Pty Limited was indebted to Macquarie Bank for approximately $1M. Most of this debt had been acquired upon the purchase of the I.G. Martyn Real Estate business.

CHAPTER 1
The New Investors

13. Mr James and Mr Christian thereafter approached various individuals with a view to them investing in their business and for those investments assisting in the purchase of Chris Burke & Co Pty Limited.

14. Mr Palmieri was approached. He was a client of James Christian Pty Ltd. Mr Palmieri then referred Mr James and Mr Christian to Mr Mortimer and Mr Wilson.

15. The negotiations continued over some time. Ultimately, it was agreed as between Mr James, Mr Christian, Mr Palmieri, Mr Mortimer and Mr Wilson that they would purchase the business of Chris Burke & Co Pty Limited and that a new corporate vehicle would be established for that purpose. This was Surf Road Nominees Pty Ltd which, as described below, became the trustee of the Unit Trust which was established known as the “Surf Road Unit Trust”.

16. Essentially, the arrangement was that each of Mr James and Mr Christian would contribute to the new venture by providing to the new venture all of the assets of James Christian Pty Limited in essence, the I.G. Martyn Real Estate businesses.

17. The new investors would contribute cash.

CHAPTER 2
The Structure

18. For reasons that will perhaps never be entirely satisfactorily explained, the parties chose a extremely complicated legal structure for the purpose of the new business venture.

19. ….

20. The structure decided upon was that the parties respective interests would be represented by shares in Surf Road Nominees Pty Limited and units in a trust to be created known as the “Surf Road Unit Trust” the Trustee of which was to be Surf Road Nominees Pty Limited. All of the participants were directors of that company. This company also owned (as Trustee for the Trust) all of the shares in Chris Burke & Co Pty Limited which was the trustee of the Burke Unit Trust.

21. Chris Burke & Co was to be the operating company. Its Directors were Mr James and Mr Christian. It was the parties’ intentions that any profits generated by the venture would eventually find their way into Surf Road Nominees and thence into the Surf Road Unit Trust for distribution amongst the participants.

22. For the purpose of the valuation of the units, and for determining the cash price to be contributed by the unit holders, the I.G. Martyn Real Estate business was valued (see Recital D. Bundle Page 167).

23. When that exercise was undertaken the debt due by James Christian Pty Limited and I.G. Martin Pty Limited to the Macquarie Bank was ignored. This debt was known as and is referred to as “the I.G.M. debt”.

24. The reason the entity was valued in this way was because it was always intended that whilst James Christian Pty Limited would transfer to the new entity all of its assets, it would not transfer to the new entity, and the new entity would not take on, any obligation to pay the Macquarie Bank the outstanding debt. The purpose being that the new investors would not be exposed to the old debt of James Christian Pty Ltd, or I.G. Martyn Pty Limited.

25. Ultimately, the transaction was finalised and Chris Burke & Co Pty Limited purchased the real estate business known as Chris Burke & Co and had transferred to it all of the business interests and shares in James Christian Pty Limited and I.G. Martyn Pty Limited.

26. A total of 36 units in the Surf Road Unit Trust were issued.

27. Those units were held as follows:-

(i) James Christian Pty Limited - 14 units.

(ii) Mrs James and Mrs Christian or their Nominees - 12 units.

(iii) D.J. Z. Construction Pty Limited (Mr Palmieri’s vehicle) - 7 units.

(iv) WIT Investments Pty Limited (Mr Wilson’s vehicle) - 1 unit.

(v) D & A Mortimer Pty Limited (Mr Mortimer’s vehicle) - 2 units.

28. Each unit was valued at inception (11 July 1999) at $110,000. That being the cash contribution made by the new investors.

29. Mrs James and Mrs Christian nominated New South Head Nominees Pty Limited and Cottenham Nominees Pty Limited respectively as the holders of their units and subsequently the 12 units initially allocated to Mr & Mrs James were transferred to each of those companies so that each held 6 units.

30. Shortly after the Trust was established, James Christian Pty Limited transferred 1 unit to D.J.Z. Constructions Pty Limited and James Christian Pty Limited transferred 7 of its units to New South Head Road Nominees Pty Limited, and its remaining units (7 units) to Cottenham Nominees Pty Limited.

31. Thereafter the unit holdings were as follows:

(i) New South Head Road Nominees Pty Limited as Trustee for J James Trust - 13 units.

(ii) Cottenham Nominees Pty Limited as Trustee for M & K Christian Family Trust - 13 units.

(iii) D.J.Z. Constructions Pty Limited - 7 units.

(iv) WIT Investments Pty Limited - 1 unit.

(v) D & A Mortimer Pty Limited - 2 units.

32. The shareholding in Surf Road Nominees Pty Limited was and according to the ASIC extract (Ex ) is as follows:

(i) Mr Wilson - 1 share.

(ii) Mr Christian - 6 shares.

(iii) Mr James - 6 shares.

(iv) Mrs Christian - 7 shares

(v) Mrs James - 7 shares

(vi) Mr Mortimer - 2 shares

(vii) Mr Palmieri - 7 shares

33. In other words the share allocation reflected the original allocation of units. It seems clear enough that it was always intended that the parties interest in the venture would be represented by Units in the Trust and accompanying shareholdings in Surf Road Nominees. The value of the shares and the Units being at all times the same. However, over time the Unit holding has been changed and the original shareholding has according to the ASIC extract remained unchanged.

34. ...

CHAPTER 3
The Guarantee

35. At the time the transaction was entered into (1 July 1999), a Deed was executed by various (but not all) of the participants. That Deed is referred to in the pleadings, evidence and these submissions either as the “Deed” or the “Deed of Guarantee”. It is found at Bundle PX1 page 166-178.

36. It is a central issue in this case as to what is the proper construction of this document.

37. By the Deed, the James interests and the Christian interests undertook certain obligations in relation to moneys due by I.G. Martyn to the Macquarie Bank at the time of the transaction, and in relation to what are described as “preferential distributions” which were an entitlement for the investor unit holders to receive payment over and above other unit holders in an amount equal to any capital or interest paid to the Macquarie Bank pursuant to the Surf Road bank debt. The precise context of those obligations is a central issue in this case. “

Defendants’ overview submissions

15 The defendants’ overview submissions identify the defendants’ essential case sufficiently for present exposure. Those submissions [now overtaken by the final written submissions], albeit prepared prior to certain amendments to the pleadings [later treated within this judgment] included the following at paragraphs 37 – 65 inclusive:

“The plaintiff’s Claim

37. The plaintiff’s claim falls into three separate and distinct categories.

38. The first is a claim based on an alleged guarantee executed by the defendants on 1 July 1999 (paragraph 10 - Second Further Amended Summons). That guarantee in turn is said to secure the payment of three separate liabilities.

39. The second is a claim for money “used or borrowed” by the defendant from the second plaintiff and/or the Trust of which the second plaintiff is Trustee (paragraph 12).

40. There are then some miscellaneous claims totalling to approximately $32,000 (paragraphs 14-19).

41. Dealing with each aspect of the case in turn.

The alleged liability pursuant to the guarantee.

42. There will be considerable evidence at the trial as to the circumstances under which the parties entered into the transaction described above.

43. Whilst in essence, the transaction could be described as simple, the way it was structured and documented is far from simple.

44. The Deed upon which the plaintiffs sue creates a number of separate and distinct obligations between different classes of people. It is a far cry from what might be described as a standard form of guarantee.

45. The document needs to be read in whole but it is important when doing so to note that the defendants are defined as the “the indemnifying parties” (as far as Mr & Mrs James are concerned) and “the unit holders” (as far as New South Head Nominees Pty Limited is concerned).

46. The obligations of the defendants are set out in Clause 5 of the Deed.

47. Whilst described in some places throughout the document as an indemnity, in substance what it is is three separate and distinct guarantees. The first is a promise by James Christian Pty Limited given to Surf Road Nominees that it (James Christian) would guarantee the payment of a debt owed by IG Martin Real Estate Limited (“IGM”) to the Macquarie Bank and the defendants’ guarantee also given to Surf Road Nominees for the performance of James Christian Pty Limited’s own guarantee. In other words the Defendants guaranteed the obligations of a guarantor.

48. The second obligation created by the Deed was a guarantee to secure the obligations of Surf Road Nominees Pty Limited in relation to separate obligations it had to the Macquarie Bank.

49. The third obligation was a guarantee of entitlements said to be due to the investor unit holders (which included the fourth and fifth plaintiffs) for what is described as “preferential distributions”.

50. So it can be seen that the obligations created are far from usual, and the way that they have been recorded, cannot be described as orthodox.

51. It is important to focus on precisely what obligations are guaranteed and to note that the Deed was but one of a series of documents created at the same time as part of an overall transaction. The true intention of the parties to the Deed and the conditional nature of the guarantees can only be seen when the entire transaction is considered as a whole.

52. One thing will be clear. The only basis upon which Mr & Mrs James and their company had any realistic prospect of meeting the obligations created by the Deed, was that Mr James would continue to be employed by the new business, a state of affairs that was assumed by all and was a fundamental basis for the new business arrangement and that Mr & Mrs James would themselves receive distributions in return for the units they were to hold in the Unit Trust.

53. That fundamental assumption that underpins the whole of the arrangement was resiled from by the plaintiffs when in January 2001 Mr James was summarily dismissed from his employment and thereafter, the 13 units were transferred from the defendants to the plaintiffs for a consideration of $1.00 per unit purportedly in exercise of a Power of Sale created by the Deed.

(i) firstly, properly construed, the guarantee was conditional on Mr James employment continuing absent serious misconduct. It was also conditional on him retaining his units in the Unit Trust. Those conditions having been departed from the guarantee is discharged.

(ii) secondly, there has been a fundamental departure from the common assumption between the parties at the time the Deed was executed. In those circumstances equity would prevent the plaintiff from now relying on the guarantee;

(iii) Thirdly, the guarantee is subject to an implied term to the effect that Mr James’ employment is secure which has been breached.

(iv) fourthly, the conduct of the plaintiffs in dismissing Mr James with no justification and converting his units to their own use, amounts to conduct that is so fundamentally prejudicial to Mr & Mrs James’ position as guarantors under the Deed, that the guarantee created thereby is discharged or an election by them to not thereafter sue on the guarantee.

(v) fifthly, it is clear that some sort of accord has been reached between the plaintiffs and the James interests which itself has the effect of discharging the liability of the defendant, the obligations created by the Deed being joint several as between the James interests and the Christians interests.

(i) moneys due to the defendants for unpaid dividends due to be paid in relation to the units they held during the period they held them;

(ii) damages for conversion of Mr & Mrs James’ units;

(iii) damages relating to Mr James’ unfair dismissal and general breach of his employment contract;

56. Finally, the quantum of the plaintiffs’ claim is not accepted.

Moneys “used or borrowed”

57. It is very difficult to identify precisely which of the various categories of paragraph 12, the various amounts refer to in the particulars to paragraph 12 are alleged to fall into.

58. Suffice to say, the defendants in relation to the various claims, admit that there is some moneys outstanding, but deny that any money is outstanding upon any other basis of a legitimate loan made by the plaintiff companies to the defendants repayable on demand.

59. The various allegations of breach of fiduciary duty, breach of directors duties, failure to act honestly etc are all denied.

60. Attached to this overview is a spreadsheet which attempts to set out the evidential references to each of the claims made by the plaintiffs, including those for “unauthorised basis” or “breach of directors duty” as pleaded in paragraph 12 of the Second Further Amended Summons.

Miscellaneous Matters

61. If the plaintiffs fail to establish that Mr James acted dishonestly or was otherwise guilty of misconduct, then his dismissal from his employment must, necessarily, have been wrongful.

62. This will result in an award of damages to Mr James over and above any other amounts he is entitled to set off.

Cross Claim against Mr & Mrs Christian and Cottenham Nominees Pty Limited

63. Whatever else can be said about the Deed of Guarantee document, it is clear that the obligations of the defendants are joint and several with Mr & Mrs Christian and their companies’ obligations.

64. The Cross Claim simply seeks orders that Mr & Mrs Christian pay to the defendants an amount equal to half of whatever amount the Court may order the defendants pay the Plaintiff.

Flow chart and further explanation

16 The plaintiffs during the course of their opening relied upon a further flow chart [MFI P1] which, together with the description of the transactions given during the opening, are appended to this judgment as appendix “C”.

Reliability of witnesses

17 This judgment covers a deal of the evidence given by the witnesses who were called and cross-examined. The findings generally make clear which are the areas where particular evidence could or could not be relied upon. The fact is that at the end of the day a combination of the evidence given by the witnesses who were called and the contemporaneous documentary material [usually although not always identified in this judgment] has provided a sound basis for the findings made and the inferences drawn.

18 It is fair to say that the evidence given by Mr Wilson and by Ms Conway is generally accepted as reliable. Both presented as witnesses who had given their best recollection of the events which had occurred.

19 The evidence given by the principal witnesses who were cross-examined, namely Mr Sicuro, Mr Palmieri and Mr Mortimer, certainly displayed very many areas where a partisan and selective recollection often appeared to be at least initially, the order of the day. However, their cross-examination was careful and sustained and it seemed to me ultimately permitted the Court:

· to make the findings of fact appropriate to be made; and

· to reach the inferences appropriate to be reached

20 It is somewhat difficult to be particularly precise as to why each of these witnesses is sometimes accepted in part and sometimes rejected in part. Probably the best explanation is that the Court has carefully followed the documentary evidence and has then tested the evidence given by each of these witnesses against what each other of them and all witnesses had said. Of course the whole of the exercise is unaided by any evidence at all coming forward from Mr James.

21 It has also to be recalled that each of Messrs Sicuro, Palmieri and Mortimer were at the material time very angry with Mr James and that their particular recollections of the relevant investigations and meetings would likely be affected by that emotion. However, the fact is that there was sufficient contemporaneous documentary material for the Court to comfortably reach the findings set out. And in any event there remained only certain factual issues in dispute.

22 Lest there be any doubt about the matter it is to be noted that of these three witnesses, Mr Palmieri appeared to have the most difficulty, on a number of occasions becoming confused in questions asked of him during cross-examination. The impression which he gave was one of frustration in having to be asked questions concerning Mr James whom he obviously considered to have been guilty of serious misconduct. Possibly some of the difficulty which he had in this regard is explained by what I infer to have been a feeling that in giving evidence under cross-examination, it was he and not Mr James who was being roundly stood up in a Court room and required to justify his relevant actions and those of his fellow investors. In any event and as I have said a combination of all of his evidence as well as of all of the evidence given by Mr Sicuro and by Mr Mortimer all examined in the light of the contemporaneous documentary material has permitted the making of the subject findings.

23 Mr Mortimer may be described as a witness barely containing his anger. Notwithstanding that circumstance, this cross-examination carefully tested that which required to be tested and the judgment makes plain where his evidence is not accepted.

24 Mr Sicuro had much difficulty in remembering many facts. However, ultimately it was possible to follow what his best recollection was, particularly as it was tested so closely under cross-examination. One particular area in respect of which his credit was correctly tested and found wanting was his statement [paragraph 46] where he had sworn that the 23 January 2001 cheque for $6500 was a loan which was not authorised by the directors. Under cross-examination he withdrew that paragraph.

The evidence

25 Detailed final submissions from the parties identified the course of events proved by the oral and written evidence adduced during the hearing. In the result it is fair to say that to a large extent there was no or little possible dispute as to what had taken place although in relation to a number of matters the evidence did not clarify particular detail.

26 The convenient course is to set out the findings of the Court as to the matters which were clearly proven on the balance of probabilities, and as appropriate to also make clear, in relation to matters which were in dispute, what the findings of the Court are in this regard. In many areas these findings are able to be made by simply adopting the submissions of one party or the other.

Background

27 The background established, on the evidence, that by December 2000 the business was certainly not generating and had never generated profit for the purpose of distributions to unit holders. Various ad hoc arrangements had been put in place concerning interim distributions and the like, however, the new investors (Messrs. Mortimer, Wilson, and Palmieri) were disenchanted and from a financial viewpoint, had formed the view that the business was being mismanaged by Mr James who was believed to be funding private expenses unassociated with Chris Burke from Chris Burke. In a series of discussions (sometimes referred to as “marathon meetings” Sicuro T: 178.25-46) throughout December, it was agreed between all concerned (other than Mr James, who had no knowledge of those meetings) that Mr James was to be removed as managing director of the business and also removed as a director of Chris Burke & Co. [Sicuro T:179.6-179.39; 205.52-206.50; Wilson: T:311.29; Palmieri T:335-21-29; Mortimer T399.50-400.7]

Key events

28 During cross-examination, particular focus was placed on the following key events:

· the events of December 2000 – the backdrop for the meeting held in early 2001;

· the 5 January 2001 meeting of the directors of Surf Road [by telephone to Mr and Mrs James];

· the 8 January 2001 Double Bay meeting at which Mr James resigned as a director of Chris Burke;

· the 13 January 2001 meeting where the locks had been changed at the Cronulla office;

· the 24 January 2001 [or 30 January 2001] meeting at the Double Bay coffee shop between Mr James, Mr Sicuro and Mr Palmieri;

· the 6 July 2001 meeting of Surf Road Nominees at which it was resolved that Mr James, Mr Mortimer and Mrs James be removed as directors; that Mr Sicuro be appointed a director; and that the shares of Mr and Mrs Mortimer be transferred to Mr Sicuro;

· the 6 July 2001 IG Martyn meeting at which it was resolved that Mrs James be removed as a director; that Mrs Christian's resignation as a director be accepted; and that Mr Sicuro be appointed a director;

· the sundry movements in units and shares including the transfer on or about 22 October 2002 of units in SRUT to Mr Palmieri [4 units] and to Mr Sicuro [4 units]; and

· other relevant transactions.

The evidence of Ms Conway and Mr Wilson

29 It is convenient to commence by noting the evidence given by two witnesses.

The evidence of Ms Conway

30 The evidence of Ms Conway serves to describe the position following the amalgamation. Her evidence included the following:

· “In approximately 1993, I commenced employment with a Real Estate Agency known as Raine & Horne Cronulla. Mr Tass James and Mr Michael Christian were the principals of the business.

· In about 1995, I left the employ of Raine & Horne Cronulla for a period of about 12 months.

· In 1996 I returned to the employ of Tass James and Michael Christian’s Real Estate Agency in Cronulla.

· I returned on a part time basis, three days a week, and some time later I went to four days a week and later still I went onto a full time basis… as at July 1999, I was working full time for the Real Estate business known as IG Martyn. ..

· …The businesses of IG Martyn Real Estate Pty Ltd (“IG Martyn”) and Chris Burke & Co Pty Ltd were amalgamated. The amalgamated business was known by the trading name of Chris Burke & Co (“Chris Burke”).

· After the [mid 1999] amalgamation, separate Trust accounts were maintained in respect of each business, but otherwise the businesses were run as a single business. For some period after the amalgamation, I recorded the day-to-day transactions for two of the three Trust Accounts. I also was responsible for maintaining the General Account records of the amalgamated businesses. However, some time after the take over, another bookkeeper was appointed to record the day-to-day transactions in the two Trust Accounts for which I was responsible. From that time, I was responsible for recording the day-to-day transactions only for the Chris Burke General Account and Sales Trust Account. I also did some Office Manager duties.

· From before the take over in mid 1999 of Chris Burke Real Estate, and certainly after the amalgamation of the two businesses, there were constant difficulties in paying trade creditors. Also the PAYG Withholding Tax was permanently in arrears as were payments for employee compulsory superannuation.

· …Sometimes, Mr James would say to me, words to the effect of:

“Don’t tell Michael about this, because he can’t handle it.”

· During the year and a half after the amalgamation of IG Martyn and Chris Burke, the financial problems of the business became more pronounced and more acute. I was constantly dealing with requests from creditors for payments of outstanding accounts. I used to find that stressful. I, on many occasions, talked to Mr Tass James about the creditors situation. On a number of occasions, I said to Mr James, words to the effect of:

“You’ve got to pay the Tax and Super.”

He said words to the effect of:

“We can’t at the moment Helen.”

· I reached the point where, I said to Mr James, words to the effect of:

”I am not going to be involved in making arrangements with creditors, you will need to do that yourself.”

· Mr James did make many arrangements with creditors including the Tax Office.

· Mr Tass James Visa Card Account

Mr Tass James used to pay Fairfax Newspapers Advertising Account using his Visa Card Account. I remember Fairfax Newspapers were constantly demanding a minimum payment on its advertising account be made or the advertising account would not be kept open. I was directed by Mr James to make the minimum payment required by Fairfax into Mr James’ Visa Account. I then made the payment to Mr James’ Visa Card account equal to the payment required by Fairfax Newspapers. I do not know whether or not Mr James made a payment to the Fairfax account equal to the amount I paid into his Visa Card Account.

· Mr James’ Mortgage

Mr James had a mortgage. Mr James would regularly direct me to make payments out of Chris Burke General Account to make payments to the ANZ Bank. I said to him, on occasions,

“What about [mentioning the name of other some creditor who was owed money]”.

Mr James would say something like:

“I’ve got to pay the mortgage or we will be homeless”.

On other occasions when I spoke to him about paying his mortgage in preference to creditors, he said something like:
“Oh, we’ve got to pay that or I will be out on the streets.”

Sometimes I made the payments from Chris Burke General Account, sometimes I made the payments from Chris Burke Management Fees Ledger in the Chris Burke Trust Account.

· Drawings

Quite frequently, Mr James would come to me and ask for money by way of what I thought was drawings. He would say words to the effect of:

“I need $1,000.00”.

I would give him the $1,000.00 by cheque and post the advance to his Loan Account.. I do not remember if the cheque was made out to Tass James or Cash, but believe I would have made it out to either his own name or to Cash. Mr James would say on some occasions when he asked me for money, something like:

“You’d better also make one out for Michael [Christian].”

Tass James loan Account

· Annexed hereto and marked respectively “A” and “B” is, to the best of my knowledge and belief, a true copy of the following Chris Burke General Account ledger accounts:

A Advance Unit Holder James Family – account number 1-1650

Together Annexures A and B record all transactions in Tass James loan account with Chris Burke during the period 1 July 1999 to 18 January 2001 (“the Loan Account”)

· The transactions in the Loan Account fall into the following categories:

(a) Numerous small cash ($500.00 or less) advances to Tass James or James family members by way either of cash, cheque or from “petty cash”.

(i) These transactions bear the description “cash”, or the name of the payee, in the ledger accounts. These cash advances were made from Chris Burke General Account to Tass James or to James family members. Some advances to Mr James were part of a cash cheque. For example, cheque number 633709. This is a cheque for $400.00, $50.00 of which is a cash advance to Mr James and is debited to his Loan Account. Annexed hereto and marked respectively with the letters “C” and “D” is, to the best of my knowledge and belief, a true copy of:

C MYOB Transaction Report in respect of cheque 633709
D Cheque butt stub in respect of cheque 633709
I entered the details of each individual cheque into the MOYB system from the information on the cheque butt stub.

(ii) I posted these advances to Mr James Loan Account because to my knowledge they were advances to Mr James.

(b) Larger cheques (over $500.00) drawn from Chris Burke General Account in favour of Mr James or another payee as directed by Mr James. I posted all such advances to Mr James Loan Account because they represented advances to Mr James.

(c) Payments to third parties on behalf of Mr James

I drew cheques on the Chris Burke General Account at the direction of Mr James in favour of the particular third party nominated by Mr James. I then posted the transaction to Mr James Loan Account as the third party payment represented an advance to Mr James as none of those third party payments related to any business expense of Chris Burke.

(d) Journal entries to bring to account payments made from the Chris Burke & Co or the IG Martyn Trust Accounts on behalf of Mr James, his family, or interests associated with Mr James. Every month I reconciled the General Account with the Trust Accounts to ensure that all Chris Burke income (such as commissions earned from property sales and property management) was reflected in the General Account. For example from time to time funds were transferred from the management fees ledger in the IG Martyn Trust Account into Mr James IG Martyn Trust Account ledger in order to put Mr James in funds to pay his home mortgage. This was a transfer of Chris Burke monies to Mr James and was then debited to Mr James Loan Account by way of a journal entry.

(e) End of year Adjustments. These were adjustments to the Loan Account made at the direction of Chris Burke’s accountants, BDO Chartered Accountants, Sydney. “

The evidence given by Mr Wilson

31 Mr Wilson had purchased one unit in SRUT in about July 1999. His evidence included:

· “The dividends were to be paid into the investors bank accounts. I gave my bank account details to Helen Conway who did the accounts at Chris Burke. No dividend was ever paid into my bank account. I either had to go down to the office of Chris Burke to collect my dividend or I would ask Andy Mortimer to collect mine when he was collecting his.

· I remember on one occasion when I went down to collect my dividend, probably about February 2000, I had a conversation with Tass James during which he said words to the effect of

“I can’t give any dividend this month. We are not travelling too well.”

· I later rang Andy Mortimer and told him what Tass James had said. Subsequently my dividends were paid each month until December 2000. I have not received any dividend since December 2000.

· At about 9.30am on 5 January 2001 I received a telephone call from Sil Sicuro. We said words to the effect of:

“We are having a meeting about removing Tass James you must come into town at 4.00pm.”

· The meeting was at the offices of Dibbs Barker Gosling at 123 Pitt Street, Sydney. At about 3.00pm I met Sil Sicuro. Michael Christian, Vince Palmieri and Andy Mortimer in a coffee shop close to the offices of Dibbs Barker Gosling in the city. During the meeting Sicuro said words to the effect of:

“Tass James has been misappropriating funds from Chris Burke. If we don’t remove Tass we think the business will go into liquidation.””

32 He also gave evidence that the circumstances which led him to be concerned included the fact that sales agents, that is, Ms Hicks and Mrs Sicuro, were complaining about their commissions not being paid on time and that they were not being paid.

The events of December 2000

33 As earlier indicated, by December 2000 the investors in the Chris Burke venture were disappointed and disillusioned with the financial success of the business, and in particular with the management ability of Mr James [see Palmieri at Transcript 322.44, 336.39; Mortimer at Transcript 399.50; Sicuro at Transcript 179.11].

34 Mr Sicuro became involved in the affairs of the company sometime in December 2000. It is likely that his original involvement was as a result of his wife’s employment in the business and/or his relationship with Mr Mortimer. [See Sicuro T: 207.10-208.43; 219.36-220.29]

35 Whatever the basis upon which he originally became involved, by late December 2000/early January 2001, Mr Sicuro appears to have become an adviser to all concerned (other than Mr James) at various levels [T207.40-208.50]. Mr Sicuro, having determined that the business was probably insolvent or, at the very least, in difficulty [T: 209.35-41] purchased one unit in the SRUT for $110,000 in February 2001 [T227.29-56; 274.6-275.53]. This would suggest that the net asset position of the SRUT at that time was $3,960,000 (36 x $110,000). Ultimately he was put forward by the plaintiffs as their first witness.

36 Further evidence was given by Mr Sicuro that during this period, “marathon meetings” were being held throughout December 2000 to discuss the position of the company [Transcript 178.25-178.46]. It was resolved during these meetings that Mr James was to be removed as managing director of Chris Burke [Palmieri at Transcript 335.21-335.29; Wilson at Transcript 311.29; Sicuro at Transcript 179.27-179.32].

37 Although close questions were raised during the cross-examination of Mr Sicuro as to the extent of the investigations then carried out by him, the position at the end of the hearing is that the evidence before the Court did establish a number of important matters in relation to the very clear mismanagement of the affairs of Chris Burke importantly resulting from Mr James funding sundry private expenses [having no relationship to the business activities of Chris Burke or IG Martyn] from Chris Burke by a variety of routes and methods.

38 In general terms the evidence adduced established the backdrop to the holding of the relevant meetings of early 2001 as including the following:

· there was an ongoing cash flow problem;

· the interim distributions to the investors were reduced virtually from the outset;

· no preferential distributions were paid to the investors;

· there were constant difficulties paying creditors;

· pay as you go withholding tax was in arrears; and

· the superannuation guarantee levy was not paid.

39 But before returning to examine the so-called marathon meetings in which Mr Sicuro participated it is convenient to examine what is now known following the adducing of the detailed evidence. In particular it is presently convenient to examine certain heads of conduct in respect of which contemporaneous documentary evidence was adduced. It is important not to lose sight of these matters which were generally proved by documents and inferences able to be drawn from other evidence.

40 The heads of conduct relating to the alleged unauthorised payments were treated with by the experts in two distinct categories:

· unauthorised borrowings which have been accounted for as loans or advances to the James family interests – “unauthorised loans”; and

· unauthorised use of moneys paid on behalf of James or the James family interests and treated for accounting purposes as if they were a legitimate business expense of the real estate activities conducted by the Chris Burke Group – “unauthorised payments”.

41 The loan accounts of Mr James [ultimately consolidated to give the resultant debit balance] are to be found:

· as to loan account No. 11650 entitled “Advance Unit Holder/James Family” at PX 2/523; and

· as to loan account No. 21750 entitled “Interim Distribution James Family” at PX 2/528.

The home loan partnership

42 At a meeting of Surf Road Nominees on 3 August 1999 reference was made to Chris Burke being a part of a group of five agents associated with the “Home Loan Partnership” underwritten by Westpac in respect of which members were entitled to trailer commissions paid with respect to loan referrals [PX1/258]. The position established by the evidence and by the appropriate inferences to be drawn from the evidence was, as submitted by senior counsel for the plaintiffs in final address,:

· A trust account ledger records the receipt of these commissions [exhibit PX volume 2 at page 574].

· The amount involved is not now in dispute.

· The ledger shows relevant entries adjacent to which there is the reference to “TJ”.

· The same ledger includes reference to Corporate Identity Business Centre [a business owned by Urunga Nominees Pty Limited]. That company was incorporated on 9 July 1999. The sole director of that company was Mrs James. The shareholders of that company were Lisa James, who is Mr and Mrs James’ daughter, as to two shares; New South Head Road Nominees, that is to say the James family company as to one share, and Cottenham Nominees, that is to say the Christian family company as to one share]. The Chris Burke & Co ledger demonstrates that moneys were being paid to defray Corporate Identity’s expenses. Expenses that were paid by Chris Burke & Co for the benefit of Corporate Identity were expensed to the Corporate Identity loan account.

· The same ledger includes reference to Residential and Commercial Sales. Residential and Commercial Sales, according to the search at page 414 of exhibit PX01, is a company, the shareholders and directors of which were Mr and Mrs James.

· Hence, there is no issue but that Corporate ID and Residential and Commercial Sales are James entities, save for the 25 percent share of Corporate ID held by the Christian interests.

· Nor is there any issue but that money was paid out of Chris Burke for the benefit apparently of one or other of those entities and ultimately expensed back to Mr James’ loan account.

· All of those transactions are the subject of the conceded amount of loan account.

43 In the result, it is clear that the commissions that were received into the trust account were used to fund expenses of Mr James that had no relationship with the business activities of IG Martyn Real Estate or Chris Burke & Co.

44 A letter from Westpac to Mr James of 23 September 1999, exhibit PX volume 1, page 285 demonstrates that from 1 October 1999, Chris Burke was to receive the commissions.

45 The minutes of a further meeting of Surf Road Nominees on 15 November 2000 record a meeting at which Mr James, Mr Christian and Mr Mortimer were present [page 324 of exhibit PX01]. The following is to be found in those minutes:

"Andy Mortimer expressed concern the way the company had been trading. Mortimer advised rumours around that Chris Burke & Co. was in financial trouble, creditors not being paid as well as staff commission, et cetera. Tass James assured him all was well.

was

coming through into Chris Burke account

46 As Mr Alexis submitted, that was plainly a half-truth. The home loan commissions were coming into the trust account of Chris Burke & Co, but were not then transferred into the operating company’s general account to be available for the payment of expenses relating to the operation of that business. The funds were used to fund the private expenses of Mr James in the amount now seen to be of the agreed sum of $89,000. Plainly enough that was not disclosed to Mr Mortimer at that meeting.

Payments out of Chris Burke general account to ANZ bank on account of Mr James’ mortgage

47 The evidence of Ms Conway gives the detail of these payments. A number of relevant entries are to be found at PX 2/523 as by way only of example, the entries of 5 January 2000 ($2,000), 27 January 2000 ($8,000) and 29 February 2000 ($7,512.50).

48 I accept that the inference from Ms Conway's evidence is that Mr James wanted his home mortgage paid. There is reference to him being out on the street if it was not, and the Court infers from that that he was referring to his home at Rose Bay. There are entries in his loan account for regular sums being paid “on “account of mortgage.

End of year adjustments

49 The end of year adjustments at 30 June 2000 have now been agreed by the experts as totalling the sum of about $93,000.

50 The Court’s finding is that a sum of about $93,000 travelled out of Chris Burke & Co for the benefit of Mr James. The finding is that the adjustment that led to the debiting of his loan account was the result of an instruction from Mr James to the external accountants, BDO Nelson Parkhill [cf the working papers [exhibit PX volume 2 at page 656-entry that the adjustments were “per TJ”]. Mr Weber when he investigated the matter spoke with Mr Goman from BDO Nelson Parkhill and confirmed that those adjustments were on the basis of instructions from Mr James.

51 Mr Potter noted in his report that the relevant transactions recorded in the MYOB accounts are journal entries rather than actual cash payments to, or on account of, Mr James [Potter report, 7.1.29].

52 Albeit that Mr Potter’s position was that he had not been able to find the primary document to demonstrate that a payment actually went out, if, as the Court finds, Mr James was the source of the instruction to make that adjustment, it must follow that he must have received the benefit of the result of that adjustment. No other reason is given for him providing the instruction.

Loan to Mr James’ mother

53 The Maria James Agreement shows that Maria James lent $75,000 to James Christian Pty Ltd on 20 July 1994 [PX 1]. That agreement provided for the loan to be guaranteed by Mr James and Mr Christian and for the principal to be repaid on 20 July 1995. It provided for a non-default interest rate of 12 percent per annum to be paid monthly and for a default interest rate of 14 percent per annum. During the period from 1 July 1999 to 16 January 2001 payments were made by the Burke Unit Trust to Maria James on account of James Christian Pty Ltd:

· $21,000 debited to the Burke Unit Trust MYOB ledger account 2-6300 titled “Loan – James Christian P/L”; and

· $2250 debited to the Burke Unit Trust MYOB ledger account 6-4300 titled “Interest”.

54 The payment total of $23,250 for the above period is the subject of agreement between the experts: [Potter report at 7.5; First Weber report at 13.15].

55 Most of the payments made to Maria James were in excess of the interest amount allegedly payable under the Maria James Agreement. A portion of the payments represented principal reductions [see first Weber report at 13.16].

56 Nothing turns on whether the sum paid out of Chris Burke & Co to Mrs James was principal, interest, whether penalty or otherwise.

57 The only relevant fact is that the moneys were paid out to Chris Burke & Co and expensed so far as Chris Burke & Co was concerned to the James Christian loan account, to be found at page 529 of exhibit PX volume 2].

58 Mr Alexis summarised this issue in a manner which reflects the evidence as follows:

“It is clear from Mr James’ loan account that he was servicing from Chris Burke & Co a loan from his mother and the loan agreement with respect to that loan [can be found] at volume 1, page 1 of exhibit PX01, it is a deed of loan and guarantee between James Christian Pty Limited as the borrower, Maria James as the lender and Mr James and Mr Christian as guarantors, and [the Court] will find on page 6 of exhibit PX volume 1 the schedule to the deed of loan and guarantee which identifies the parties…the principal sum [is] $75,000.

Cronulla rent

59 This item concerns rent in relation to premises at 62/1 McDonald Street, Cronulla where Mr James lived with his family between April 2000 and February 2001. Mr Sicuro gave the following evidence:

”On 1 April 2000, James Christian Pty Limited entered into a lease for 62/1 Macdonald Street, Cronulla. The property was occupied by the First Defendant Tass James and his family.” [Affidavit of Silvano Sicuro dated 2 December 2002, para 41]

60 This evidence of Mr Sicuro was supported by a copy of a letter exhibited to his affidavit, being a letter to the owners of the property advising them of the new tenant’s name, “James Christian Pty Ltd (Tass James) ACN 059 970 633”. [Ex SS1-485]

61 The property was one of the residential properties on the rent roll managed by Chris Burke Property Management. Here again the matter was in terms of a summary of the evidence which is accepted as correct, explained by Mr Alexis as follows:

“We then come to the lease by either James Christian Pty Limited or Mr James personally, the lease contains references to each of them, of the premises at …McDonald Street, Cronulla, in a period when there were difficulties with cash flow and creditors apparently were putting pressure on Ms Conway, all of this money was going out to service Mr James’ lifestyle, we would respectfully submit.

It is clear that Chris Burke & Co was paying the rent. The trust ledger from which the owners of the property were paid is at exhibit PX volume 2 at page 552 and the rent expense ledger within Chris Burke & Co can be found at page 542. …that ledger at page 542 your Honour will see that the rent –[when one correlates the expense ledger in Chris Burke & Co and the trust ledger, the movement of money is correlated]… [the exhibit] assisted by the asterisks on that exhibit, [shows] that Chris Burke & Co was paying Mr James’ private rent and it was being expensed to rent, not loan account.

Mr Sicuro at paragraph 41 of his affidavit gave evidence that Mr James and his family lived there and of course we now have, since the service of Mr Potter's report late last Friday, the concession in relation to this sum. [see concession in Potter Report at 7.7.9]

62 The evidence does not permit of precision as to why the Cronulla premises were rented or as to which members of the James family resided in those premises.

Sullivan cheque

63 A loan agreement between Mr Sullivan and Mr James [page 265 of exhibit PX volume 1] makes plain the relationship of debtor and creditor between Mr Sullivan as the lender and Mr James as the borrower for the amount of $170,000.00. Mr Sullivan was paid a sum of $40,000 on 2 July 1999 [the cheque butt for that particular cheque at page 820 of exhibit PX volume 2]. The cheque butt reads "Reimburse computers re J Sullivan $40,000". That expense was posted not to loan account but to computers [cf the expense ledger for computers at page 539]. Hence this is seen to be a repayment to Mr Sullivan by Mr James of an indebtedness of Mr James.

64 In his report, Mr Potter categorised the $40,000 payment as “unknown”. However, during oral evidence he accepted that there was a $40,000 payment but did not know what it was for [Transcript 571.4 – 571.25]. The amount of $40,000 is now no longer in issue between the experts.

Unauthorised loan to T & J James

65 In final address the plaintiffs withdrew their claim in respect of the payment of $6,500 made to Mr James from the Burke Unit Trust on 23 January 2001. The circumstances in which the cheque was paid are examined below.

Excess reimbursements of the Fairfax Account to Mr James

66 Chris Burke advertised extensively through Fairfax Community Newspapers. Mr James had a practice of paying the Fairfax accounts from his credit card for the purpose of earning customer loyalty points. On a regular basis Mr James would arrange for cheques to be drawn by the BUT to reimburse his credit card (see first Weber report [13.2] and the evidence of Ms Conway).

67 The plaintiffs make a claim for $2,132 for overpayment to Mr James in respect of these reimbursements. The Weber calculation is as follows:

Overpayment per our First Report (HR:13.2(i))	20,736
Less error in our calculation (paragraph 11.2)	(10,000)
Less payment for unknown sources
July 1999	(1,000)
October 1999	(1,873)
July 2000	(2,585)
Less payment made directly to Fairfax (par 11.3)	(4,046)
$1,232

68 The defendants’ expert rejects Mr Weber’s calculation of $1,232. In 7.3.7 of his report, Mr Potter states:

69 In my view, this item has not been proven by the plaintiffs on the balance of probabilities.

Excess remuneration to Mr James

70 There is a question of whether excess remuneration was paid to Mr James beyond the $100,000 ratified by the directors of Surf Road Nominees during the meeting of directors held on 3 August 1999 [see minutes of meeting PX 272].

71 The calculations of the experts have been summarised in the following table, extracted from the Potter report:

Horwath Calculation $	Potter Calculation Incl. Tax $
Salary	NIL	65,000
Management Fees	56,247	18,505
Bonuses	57,951	NIL
Less: Authorised Salary	(100,000)	(104,000)
Add: Remuneration Unaccounted For	NIL	20,495
Remuneration Overpaid	$14,198	NIL

72 The reasoning of the experts can be found at the following references: First Weber report at 7.6-7.12; Second Weber report at 10.1 – 10.6; Potter report at 7.2.1-7.2.21.

73 The issue becomes whether or not the moneys that were paid out by Chris Burke & Co. to James Christian Pty Limited as bonuses were effectively Mr James’ and Mr Christian's remuneration [cf Mr Weber’s report in chief, Exhibit P3, paragraph 7.6 to 7.12 inclusive, his supplementary report, Exhibit P4, paragraph 10.1 to 10.6 inclusive, and Mr Potter's report paragraphs 7.2.1 through to 7.2.21].

74 In paragraph 7.2.17 Mr Potter says this:

75 The fact is that if the moneys paid to James Christian Pty Ltd were not salary, there is no explanation on the evidence as to what they otherwise could be.

76 Mr Potter continues:

77 Mr Alexis submitted as follows:

”Well, the evidence demonstrates that [Mr James] wasn't paid a salary by Chris Burke & Co.. One assumes that he wouldn't have worked for nothing and that he was paid a salary and the way he was paid was for it to be expensed as bonuses and commissions to James Christian and for that money to be treated in James Christian, no doubt tax effectively, for the benefit of Mr James and Mr Christian.
In addition of course your Honour has the Exhibit P6 which was tendered this morning which was the notice to produce to Mr James for the production of his 2000 tax return which wasn't produced, and so, your Honour, in our respectful submission, that document not having been produced, your Honour is entitled to infer that his "salary" was received from James Christian and that Mr Weber's approach therefore should be accepted. [Transcript 828 - 829]

78 In my view, the plaintiffs have established this claim on the balance of probabilities.

Claim to interest on the Burke Unit Trust overdraft facility

79 As to the claim pleaded [paragraph 16 third further amended summons] by Chris Burke against New South Head Road Nominees for the payment of interest on the Burke Unit Trust overdraft facility, which was arranged so as to provide working capital injections by the unit holders controlled by Mr James and Mr Christian, that claim has been accepted. The sum involved, which is also agreed, is the sum of $18,738. The second plaintiff is entitled to judgment against the third defendant for that sum with interest thereon from 1 October 2001 through to the date of judgment.

Returning to late 2000 and following

Pressure from Macquarie Bank

80 By mid 2000, Macquarie Bank was insisting upon its debt being refinanced, [cf the letters from Macquarie making demands at page 316 (with respect to the refinancing by 30 September 2000) and 320 (with respect to the refinancing date of 1 December 2000) of exhibit PX1]. The refinancing of the Macquarie Bank debt was the subject of meetings and conversations between the Bank and Chris Burke on 13 July 2000 and 19 October 2000.

Australian Taxation Office

81 As at the end of the calendar year 2000, ‘Pay As You Go’ withholding tax was outstanding in an amount of $85,849. The Superannuation Guarantee Levy for the year ended 30 June 2000 had also not been paid in the sum of $90,778.

Returning to the evidence given by Mr Sicuro and more particularly examining the events of January 2001

82 On the evidence of Mr Sicuro it was also resolved before 5 January 2001 that Mr James was to be removed as a director of Chris Burke [Transcript 179.34-179.39; 205.52-207.4]. This was clearly the position as at 5 January [PX 329].

· Mr Palmieri, Mr Mortimer and Mr Wilson are liable to Mr James to pay damages in the amount of $53,000 being his share of the proceeds of sale or such other amount as may be determined (paragraph 21S of the CC). This contention is not made out for the following reasons:

(a) It is based on the false premise that Mr Palmieri, Mr Mortimer and Mr Wilson were involved in the breach of the Shareholders’ Agreement as outlined in the preceding paragraphs;

· Contrary to the cross-claimants’ submissions that Mr James was unaware of the sale of the Dunningham properties (submissions paragraph 91 page 26), it is clear from documents produced by Mr James that he was aware that the assets of Dunningham had been realized as at 3 December 2002 (DX Vol 2 p2542, 2543).

The second Dunningham claim: cross claim contentions paragraphs 21T - 21V: Mr Palmieri, Mr Mortimer and Mr Wilson were knowingly concerned in the breach of trust of Chris Burke & Co Pty Limited.

215 This claim is based on the following premises:

· The sum of $603,351.14 was paid into the trust account of Chris Burke & Co Pty Limited on trust for Mr James as to his share (paragraph 21T of the CC). This contention is not made out, and is based on two false premises:

· This contention appears to be based the letter of S.J Nicolau & Co dated 27 September 2001 to Dunningham, in anticipation of settlement, stating that a cheque for this amount was to be provided on settlement (Exhibit DX vol 1 p2074).

· However, on 8 October, there was a deposit of $602,941.13 into Dunningham’s bank account (Exhibit DX vol 1 p2075). This correlates with the amount referred to above, less relevant adjustments for a delayed settlement. Therefore, this amount, which is the balance of proceeds of sale due to Dunningham, was never deposited into the trust account of Chris Burke & Co Pty Limited.

· Mr Sicuro’s evidence also made it clear that the only money which was deposited into the Chris Burke trust account was the deposit, not the balance of proceeds of sale payable to Dunningham on settlement (T259.3; T260.34-T260.45).

· The documentary evidence also supports the powerful inference that the balance of the deposit after payment of the agent’s commission was paid to Dunningham. The deposit was $71,250.00 (DX vol 1 p1970). The Commission was $10,529.85 (Exhibit DX vol 1 p2078 – Chris Burke Real Estate Ledger for Dunningham showing an entry on 25/10/01 for this amount). The difference between the deposit and commission was $60,720.15. An amount of $58,000 deposited into the account of Dunningham on 17 October 2001 (Exhibit DX vol 1 p2075). This amount was the balance of the deposit received by Dunningham, after commission and other sundry expenses had been deducted.

· In breach of trust Chris Burke & Co Pty Limited failed to account to Mr James for the said sum but instead applied the said sum to payment of its own debt (paragraph 21U of the CC). This contention must fail, because it is based on the false premises of paragraph 21T.

· Mr Palmieri, Mr Mortimer and Mr Wilson were knowingly concerned in the breach of trust of Chris Burke & Co Pty Limited and as such are liable without set off to pay damages to Mr Tass James or, at the election of Mr Tass James for an account of profits (paragraph 21V of the CC). This contention must fail because:

(a) It is based on the false premises contained in paragraphs 21T and 21U;

· The instructions for dealing with Chris Burke & Co Pty trust accounts were given by Mr Christian and Mr Sicuro, not Mr Wilson, Mr Palmieri and Mr Mortimer (T259.45). Neither Mr Christian nor Mr Sicuro are the subject of these claims.

· It was not put to any of Mr Palmieri, Mr Mortimer and Mr Wilson that they were knowingly concerned in this breach of trust, and therefore did not have the opportunity to refute this serious allegation.

The third Dunningham claim: cross claim Contentions paragraphs 21W – 21X: Mr Mortimer and Mr Wilson breached their fiduciary duties as shareholders in failing to ensure that Mr James was paid $53,000.

216 This claim is based on the following premises:

· When dealing with the said sum of $53,000, each of Mr Mortimer and Mr Wilson as shareholders of Dunningham owned fiduciary duties to Mr James in respect of such monies to act honestly, with fidelity and in good faith (paragraph 21W of the CC). There are two false premises in this contention:

Mr Wilson and Mr Mortimer somehow dealt with $53,000.

· Mr Wilson ever dealt with any money from the proceeds of sale of Santa Barbara. This is made clear in his evidence discussed above...

· There is no evidence that Mr Mortimer dealt with any money from the proceeds of sale of Santa Barbara. He was not cross-examined on this issue.

(b) The shareholders were responsible for distributing any monies from Dunningham

· Mr Mortimer and Mr Wilson, in breach of their fiduciary duties to Mr James failed to ensure monies were paid to Mr James (paragraph 21X of the CC). This is based on the false premise that a fiduciary duty involved payment of a share of the proceeds of sale. Any duty concerning the payment of monies could only be operative on the directors in relation to the distributable net income.

The first Station claim: cross claim contentions paragraphs 21A - 21H: Chris Burke & Co Limited and Mr Palmieri were knowingly concerned in breach of trust by Station Constructions.

217 This claim is based on the following premises:

· By a Deed dated 29 October 1998 as varied by a Deed dated 30 November 1998, a trust was created whereby Station Constructions as Trustee of Station Constructions Unit Trust was to hold property on trust for certain beneficiaries including Tass James upon the terms and conditions of the Trust (paragraph 21A of the CC). This contention is made out (Exhibit DX vol 1 p1971-1992 Station Unit Trust Trust Deed; 1993-1997 Unitholders Deed).

· Station Constructions as Trustee for the Trust purchased properties at 85-89 Cronulla Street Cronulla and 74 Croydon St Cronulla (paragraph 21B of the CC). This contention is made out.

· In or about August 2001, the said properties were sold for $1,800,000 and $500,000 respectively (paragraph 21C of the CC). This contention is made out (Exhibit DX vol 1 1968 Settlement statement).

· The sale of the properties realized a profit of $399,833.04 (paragraph 21C of the CC). This contention is not made out based on the following evidence:

(a) The settlement statement refers to this amount as proceeds of sale, not profit from the sale (Exhibit DX vol 1 p1969);

(b) The Trial Balance for Station Constructions for the year 2002 shows accumulated losses of $57,675.77 for the year ended 30 June 2002 (Exhibit DX vol 1 p2129) which shows there was no distributable net income for the year in which the properties were sold;

· Pursuant to the terms of the Trust, each beneficiary was entitled to share in the proceeds of sale pro rata their respective unitholding in the Station Constructions Unit Trust (paragraph 21D of the CC). This contention is based on a false premise. The Trust Deed, clause 13(a) provides that:

“At any time prior to the expiration of each Accounting Period until the Vesting Day the Trustee shall pay or apply or place to the credit in the books of account of the Trust Fund the whole of the net income of the Trust Fund for such Accounting Period to the Unit Holders in proportion to the number of units held in the Trust Fund.”

This clause deals with bringing to account the net income, not the proceeds of sale.

· Tass James unitholding in the Station Constructions Unit Trust was 35 units of the 200 units issued (paragraph 21E of the CC). This is based on a false premise. 35 units were held jointly by Tass James and Janet James (Exhibit DX vol 1 p1996).

· Station Constructions as Trustee was obliged to account to Tass James in the sum of $69,970.78 being his pro rata unit share of the proceeds of sale (paragraph 21F of the CC). This is based on the false premises that:

(a) Mr James only was a unitholder; and

· Station Constructions was in breach of trust by not accounting for this amount (paragraph 21G of the CC). This contention is based on the false premise that there was an obligation to account for the proceeds of sale rather than the profit.

· Chris Burke & Co and Mr Palmieri were knowingly concerned in the breach of Trust by Station Constructions Pty Limited (paragraph 21H of the CC).

(a) This is based on the false premise that there was a breach of trust.

· $69,970.78 was deposited into the trust account of Chris Burke & Co Pty Limited on trust for Tass James as to his share pro rata his unit entitlement (paragraph 21I of the CC). This contention is based on two false premises:

(a) $69,970.78 was placed into the trust account of Chris Burke & Co Pty Limited

· $119,949 being 30% of the net proceeds of sale to Mr and Mrs K W and A F Schreiber (forming part of a cheque made out for $303,801.91 (DX vol 1 p2065; p1966). This was not a percentage of profit;

· $279,883.13 being 70% of the net proceeds of sale to Station Constructions Pty Limited. This was paid by a cheque for $215,483.13 made out to Station Constructions upon settlement, and $64,400 by way of the balance of the deposit, paid to Station Constructions by Chris Burke & Co Pty Limited (DX vol 1 p2065; p1966). Therefore, at most, $64,400 was held in trust by Chris Burke & Co Pty Limited for Station Constructions. There is a strong inference that this amount was paid by Chris Burke & Co to Station Constructions, as per the directions in the letter to Chris Burke & Co Pty Limited (Exhibit DX vol 1 p2065)

The second Station claim: cross claim Contentions paragraph 21J

· In breach of trust Chris Burke & Co Pty Limited failed to account to Mr James for $69,970.78 but instead applied the said sum to payment of its own debt (paragraph 21J of the CC). This is based on a false premises that:

(a) any monies held in the trust account of Chris Burke were held there in trust for Tass James. Any monies which Chris Burke & Co Pty Limited may have held on trust, were held on trust for Station Constructions Pty Limited as Trustee for the Trust, and not on trust for the beneficiaries of that trust;

The third Station claim: cross claim contentions paragraphs 21K: Mr Palmieri was knowingly concerned in breach of trust by Chris Burke & Co.

· Mr Palmieri was knowingly concerned in the breach of trust by Chris Burke Pty Limited and as such is liable to pay Mr James damages or at the election of Mr James for an account of profits (paragraph 21K of the CC). This claim must fail because:

(a) It is based on a false premise that Chris Burke & Co were involved in a breach of trust. There being no breach of trust, this claim must fail;

Threshold issues going to the reach of Corporations Act sections 232,233

218 On the approach which the Court as a matter of substance has taken in dealing with the suggested oppression case, it has not been necessary to treat with the juridical basis of the cause of action. There is, however, as I accept, a particular threshold problem with the claim. What one has is a venture protected by a unit trust device superimposed on a company structure. It has to be recalled that Surf Road Nominees acted at all times as trustee. It held as trustee for the SRUT, all of the shares in Chris Burke [itself the trustee of the BUT]. The shares in Surf Road Nominees could only be of nominal value.

219 There is authority for the proposition that sections 232 and 233 of the Corporations Act are inapplicable in the circumstances. Young CJ in Eq put the matter as follows in McEwen v Combined Coast Cranes Pty Ltd (2002) 44 ACSR 244:

Kizquari Pty Ltd v Prestoo Pty Ltd

Re Polyresins Pty Ltd

220 To my mind these authorities correctly state the circumscribed reach of the sections. That being the case the claims to Corporations Act sections 232, 233 relief here pursued were simply misconceived. As pointed out by Young CJ in Kizquari at 612 "if the articles or trust deed make provision for release of the Plaintiffs investment by a certain procedure, normally the plaintiff should be left to put that procedure in motion." It seems to me that the remedy in this type of situation must ultimately rely upon relevant principles which underpin the entitlement to equitable relief where trusts are involved, complemented as necessary by relief appropriate in terms of contract law, the parties having bound themselves by the unit trust device.

221 The holding is that Mr James did resign as managing director on the terms offered to him, namely the offer of employment as a commission agent but that there was then and continuing, a justifiable basis for his being removed as managing director and summarily dismissed. The subsequent withdrawal of the commission agent offer was also justified - further information as to his mis-conduct continually forthcoming: The commission agent offer was made on 8 January, Mr Sicuro carrying out his investigations between the 8 and 13 January lockout. Even had Mr James’ been entitled to damages for breach of the promise to employ him as commission agent, those damages would have entitled him to no more than a figure based upon a four week period – being, in my view, the period of reasonable notice of termination on a contract determinable at will. Mr James exclusion from the company's premises and the business from 13 January 2001 constituted a peremptory/summary constructive dismissal from his employment which was justified in the circumstances. The evidence adduced makes good the proposition that his mis-conduct in terms of his mis-management of Chris Burke and relevant non-disclosures justified that dismissal in those terms and without notice.

222 I note that I have real difficulty in understanding the impropriety involved in making clear to a director that absent his resigning, an application is to be made to a Court for the appointment of a provisional liquidator. Where curial rights are held, they can be pursued and Mr James would have been perfectly entitled, had such an application to the Court been made, to be represented or to seek to represent Chris Burke or to seek to have it represented so as to oppose the application.

The causes of action for breach of Mr James’ duties owed pursuant to the Corporations Act, the general law and by way of fiduciary obligation [third further amended summons paragraph 12]

223 During argument Mr Alexis made it clear that if the cross-claimants failed in terms of the cause of action for oppression and the claim for wrongful dismissal, the terms of the monetary judgment to be directed against Mr James did not necessarily require to be based upon breach of directors duties - as earlier explained there no longer being an issue but that the amounts agreed or found are regarded as repayable. The end result in terms of the amounts are not affected. That being the case and in circumstances where for reasons given above, the cause of action on the cross-claim by way of oppression treated with on the evidence fails and the claim for wrongful dismissal also treated with on the evidence fails, there being an acknowledgement that the indebtedness as conceded or found is to be the subject of a judgment, it does not seem to me to be necessary for the Court to further proceed to deal with the causes of action for breach of directors duties.

Dealing with the matters requiring determination and the subject of evidence adduced from the experts

224 Ultimately there remained only very few items where the experts remained at issue. It is possible to deal with these items very shortly. [Note by way of summary detail exhibits P1 and P2 and the table to be found at page 17 of Mr Potter’s 30 January 2004 report].

Concession by defendants-$268, 353

225 During final address [transcript 623] Mr Newlinds conceded that an amount was due by Mr James in the sum of $268,353 [comprising Mr Potter's agreed calculation - page 17 column 2 of his 30 January 2004 report- to which there was to be added the $40,000 payment to Mr Sullivan dealt with early in this judgment and which is no longer in issue].

Alleged unauthorised loan - T & J James - $6,500

226 During final address Mr Alexis conceded that this claim was no longer pressed.

Excess reimbursements of the Fairfax Account to Mr James - $1,232

227 This item has received a treatment earlier in this judgment. The difference between the experts comes down to an assumption: in paragraph 7.3.7, page 29 of Mr Potter's report he makes the assumption which leads to $1,232 being put in issue by him. The assumption was in these terms:

228 On the other hand, Mr Weber contends that it is likely that the payment includes a 17 July 2000 cheque for $4,045.55 drawn in favour of Fairfax being a Chris Burke cheque.

229 As earlier indicated, in my view the plaintiffs have failed on the balance of probabilities to establish an entitlement to this item.

Excess remuneration paid to Mr James-$14,198

230 This matter has been dealt with early in this judgment. As Mr Alexis submitted, the evidence demonstrates that Mr James was not paid a salary by Chris Burke & Co. The proper inference, on the balance of probabilities, is that the way payment took place was for it to be expensed as bonuses and commissions to James Christian and for that money to be treated in James Christian for the benefit of Mr James and Mr Christian.

231 The plaintiffs have shown an entitlement to the claimed sum of $14,198.

Home loan partnership/rent/Maria James payments

232 These items have been dealt with early in this judgment. It is convenient to note that the defendants’ ‘Notes for submissions in reply’ accept that Mr Sicuro’s evidence “establishes” that the home loan partnership monies, the rent and the Maria James payments shall properly be to the account of Mr James, both experts accepting this.

End of year adjustments

233 This item has been dealt with early in this judgment.

Proper accounting for value of James’ units

234 There has never been an issue but that a proper accounting for the value of the James’ units is to take place. The date at which the valuation is to be determined is October 2002 being the date of transfer of the units.

Disparate remaining issues

235 There were many and inter-related questions treated with by the experts and by the parties in relation to sundry parameters of evidence, logic and relief. Plainly the parties, aided by the findings in this judgment, will be considerably advanced in terms of many of the matters which had separated them during the hearing. Without necessarily being exhaustive in terms of all of the remaining issues, it would appear that attention to certain of them should assist the parties to come forward with short minutes of order or short submissions as to matters still remaining undetermined. I turn to deal with some of the disparate issues.

236 The parties generally addressed by reference to a convenient summary document prepared by Mr Weber identifying where he and Mr Potter had continued to disagree [exhibits P 1 and P 2].

GST

237 One such disagreement concerns a difference of treatment of the GST liability at the material time. Exhibit P 2 [in terms of the consolidation of balance sheets as at 30 June 2001] shows Mr Weber recording a liability of the group for GST as $279,345, whereas Mr Potter allowed only $20,286.

238 The matter essentially reduces to each of the experts having used a different balance sheet. The BUT balance sheet as at 30 June 2001 used by Mr Potter [exhibit D 3 (b)] included an item for the 2001 year in respect of the GST liability as $50,284.62. The balance sheet for the BUT as at 30 June 2002 used by Mr Weber [exhibit DX 623] showed a figure for the 2001 year in respect of the GST liability as $279,345.

239 Mr Potter had set off the figure of $50,254 against the input tax credit of $29,999. He had not used the comparative 2000 figures running down the left-hand column of exhibit D 3 (b) [transcript 580].

240 In the result both experts were cross-examined in detail as to the reasons why each believed that the balance sheet from which he had worked was the more reliable. Mr Potter emphasised that the set of accounts which he had relied upon was the more reliable because they balanced. However, Mr Potter did not accept that the only difficulty with the balance sheet used by Mr Weber in not balancing had been the accidental omission of the insertion of a figure for “fixed assets”.

241 During his re-examination Mr Weber it seemed to me gave evidence of a cogent nature as to why he and not Mr Potter had identified the appropriate figure to be taken into account. His explanation was put in the following terms:

242 Having heard the careful submissions by both parties in relation to the issue I accept that there are three principal reasons why the Court should accept Mr Weber's opinion as reliable in that the subject GST liability of the trust was indeed $279,345:

· the first reason is that Mr Weber gave evidence that the balance sheet he relied upon in fact balanced when one takes into account the amount of the fixed assets which were left off the printout [transcript 534.35];

· the second reason is that the balance sheet that Mr Weber relied upon was used for the purpose of the Chris Burke and the BUT’s tax returns for the year ended 30 June 2001. As the plaintiff submitted, where confronted with different sets of balance sheets and profit and loss statements for a particular accounting period it is appropriate to infer that one reliable way that an accountant might take to seek to understand which one was the more reliable was to source it back to the tax returns. That is precisely what Mr Weber did. When Mr Potter was asked under cross-examination whether he engaged himself in that exercise with respect to the balance sheet that he relied upon, his evidence was that he had not traced or sourced that back to the tax return. This does undermine the reliance that could be placed on that document; and

· the third reason for accepting Mr Weber's reliance upon the balance sheet [exhibit DX 623] that he relied upon is that, in addition to sourcing it back to the tax return, he reconciled it with the financial statements and tax returns of all of the other entities in the group so as to satisfy himself that there was a complete translation from the set of accounts he relied upon to those of the Surf Road Unit Trust [transcript 608.35 and following].

243 For those reasons the holding is that the approach taken by Mr Weber on the GST item was correct.

Discount issue/propriety of valuing net assets of SRUT as on notional liquidation

244 Mr Weber expressed the view that it was appropriate to apply a discount to a non-controlling minority interest in the trust. In his opinion a 15 percent such discount was appropriate [transcript 518]. His report of 5 December 2003 [exhibit P5] includes the following:

“7.13 We note also that the units held by NSHR in the Surf Road Trust (13 units) represent around 36% of the total issued units (36 units) and therefore represent a non-controlling interest. The Ferrier Report does not give consideration to this factor when valuing the James interests in the Surf Road Trust.

7.14 In our opinion, it is appropriate to apply a discount for lack of control and to recognise the difficulties associated with marketing a non-controlling interest of this nature compared to an interest that is readily marketable (for example, a share in a listed company). This matter is addressed in more detail at paragraphs 8.19 – 8.22 below…

8.19 NSHR owns 13 of the 36 units on issue representing around 36% of the capital of the Surf Road Trust. It is usual in such circumstances to discount a non-controlling interest to recognise the lack of control and inherent restricted marketability. The issue is, what would a reasonable buyer expect, and a reasonable seller accept, to allow for the fact that the interest does not carry control and for the delays in realisation and costs of finding a buyer.

“14.4 The value of a Unit on the Relevant Date or any other date on which it is to be ascertained shall be calculated by dividing the value of the Fund (ascertained in accordance with the provisions of the last preceding sub-clauses 14.2 and 14.3 hereof) on such date by the total number of Units for the time being issued.”..

- there is no readily available market for the interest;

- discounts for lack of control and marketability are commonly applied in respect of non-controlling interests in companies;

- because the present entity is a unit trust the discount could be expected to be less because unit holders can expect distributions of all income each year (although clause 12.7 provides for calculations); and

- no other party holds a controlling interest in the entity.”

245 Mr Potter did not agree with this approach for the reason that he characterised his task as valuing on a notional winding up basis, that is to say upon a basis which did not recognise that what was being valued was a going concern. He expressed his opinion as follows:

246 The cross-examination of Mr Potter included the following:

“Q. Can I move to the valuation of the units and it is fair to say, isn't it, that both you and Mr Weber have approached the valuation exercise on the basis of a determination of the net assets of the Surf Road Unit Trust as a going concern?
A. No, I've assessed it on the basis that all the assets would be realised and the proceeds distributed to beneficiaries after creditors are paid, so it is a notional liquidation, if you like.

Q. Yes, I noticed in your report that you reject the application of a discount for the minority holding that New South Head Road Nominees had in the Surf Road Unit Trust because such a discount wouldn't be applicable upon the winding up of the Surf Road Unit Trust?
A. That's correct.

Q. Have your investigations led you to consider whether or not there was a prospect of a liquidator being appointed and winding up Surf Road Unit Trust and the underlying trust in January 2001?
A. No.

Q. Have you considered whether there was any prospect of that occurring in December 2002 when the rent rolls were sold?
A. I haven't turned my mind to it, no.

Q. They're the two dates in respect of which you are providing the Court with an opinion as to value, aren't they?
A. Yes, they are.

Q. Well, if there was no prospect or you didn't turn your mind to the prospect of liquidation at those two points in time, what is the relevance of assessing the value of the trust on the basis of a winding up?
A. Because I took the view that the trusts or the three entities were collectively worth more if there was a notional winding up, the assets were sold and distributed to the beneficiaries rather than as a going concern. This is because the net income of the businesses was negligible or non-existent and as a valuer you would normally try to approach the valuation by taking the approach that arrives at the highest possible value and in this case I believed it was on a notional liquidation of the entities.

Q. You know from Mr Weber's report on valuation that he proceeded to seek to identify the price that would be paid by the hypothetical knowledgeable willing but not anxious purchaser to the knowledgeable willing but not anxious vendor in the open market?
A. Yes.

Q. That was a concept in determining price with which you agreed? You said so in your report, Mr Potter.
A. Yes, well, I agreed with the net assets approach, yes.

Q. You also know from reading Mr Weber's report that he, in undertaking his valuation, took no account of the existence of any special purchasers to whom the Surf Road Trust might have special or particular value?
A. Yes.

Q. And you agreed that excluding the special purchaser was appropriate, didn't you?
A. Yes.

Q. Do you agree with the proposition that when valuing shares or units in a unit trust of a business which is a going concern it is appropriate to apply a discount to a non-controlling interest?
A. As a going concern, yes, I do.

Q. Do you agree that the application of a discount is appropriate if the interest that is being sold does not provide the purchaser with control?
A. Yes.

Q. You also accept, I gather, that a discount should be applied in relation to the interest which is not readily marketable like, for example, shares in a publicly listed company?
A. Yes.

[transcript 573.5-574.45]

247 Mr Potter accepted, however, that if the Court rejected his valuation reasoning involving the characterisation of the proper approach to the SRUT businesses as not being a going concern, a reasonable discount would ordinarily be approximately 20 percent, so that in those terms Mr Weber's estimate of 15 percent was conservative [transcript 574].

248 The relevant date of the transfer of the units was in October 2002. The businesses at that time were clearly a going concern and remain so. I see no good reason for avoiding a discount for a minority holding by reason of an assumption of a notional realisation by a liquidator [cf the approach taken in United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514 at paragraph 57 per Campbell J:

The first cross-claim against Mr and Mrs Christian and Cottenham Nominees

249 During the hearing the second cross-claim was dismissed. Certain questions pleaded in the first cross-claim remained live. Mr Bulley of counsel, who had until 4 February 2004 appeared for Mr and Mrs Christian and Cottenham Nominees left the bar table on that day but furnished written submissions of his clients in relation to the first cross-claim.

250 It appears that a number of those submissions treat with matters already the subject of findings in the judgment presently delivered. In my view Mr Bulley should be given leave to further address on the findings and orders which are now sought and the first cross-claimants should have the same right.

Short minutes of order

251 The parties are given leave to address submissions on any claim not yet dealt with. The parties are directed to endeavour to agree upon short minutes of order. The proceeding will be stood over for a short period in order to enable the parties to apprise themselves of the findings.

I certify that paragraphs 1 – 251
are a true copy of the reasons
for judgment herein of
the Hon. Justice Einstein
given on 20 February 2004

___________________
Susan Piggott
Associate
20 February 2004

Corrigendum:
To make the corrections identified in the Appendix to the supplementary judgment in these proceedings [2004] NSWSC 223 delivered on 1 April 2004.

___________________
Susan Piggott
Associate
5 April 2004

Last Modified: 04/08/2004

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Citations

Surf Road Nominees Pty Ltd v Tass James [2004] NSWSC 61

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CITATION:	Surf Road Nominees Pty Limited & Ors v Tass James & Ors [2004] NSWSC 61
HEARING DATE(S):	15/12/03 - 19/12/03, 2/2/04 - 6/2/04, 9/2/04, 11/2/04
JUDGMENT DATE:	20 February 2004
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	Clause 5 of Deed of 1 July 1999 construed; Guarantees not shown to have been discharged; Oppression suit not made out; Dunningham Investments and Station Constructions causes of action not made out; Disparate other issues determined; Short minutes of order to be brought in.
CATCHWORDS:	Contracts - Complex of obligations including guarantees and indemnities entered into by corporations, trusts and individuals parties to deed entered into upon acquisition/reorganisation of real estate group - Construction - Principles - Identification of obligors and obligees - Equity - Trust of a contractual promise - Corporations - Directors duties - Duties not to profit without first obtaining fully informed approval/consent of co-directors - Obligation of full disclosure by directors of wholly owned subsidiary to parent company - Oppression-Sections 232 and 233 Corporations Act inapplicable where venture protected by unit trust superimposed on company structure - Guarantees - Discharge - Release of one joint or joint and several promisor discharges all others - Promises not to sue - Distinction between release and promise not to sue - Rule in Jones v Dunkel - Principles - Onus of proof - Shifting evidentiary onus - Employment law - Summary dismissal for gross and wilful misconduct
LEGISLATION CITED:	Corporations Act, 2001 (Com) Evidence Act 1995 NSW Supreme Court Act 1970 NSW
CASES CITED:	Adler v Australian Securities and Investments Commission [2003] NSWCA 131 Ashville Investments Ltd v Elmer Contractors Ltd [1989] QB 488 Australian Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99 Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 Birtchnell v Equity Trustees Executors and Agency Co Ltd (1929) 42 CLR 384 Black v The Ottoman Bank (1862) 15 Moo PCC 472; (1862) 15 ER 573 Boston Deep Sea Fishing & Ice Co v Ansell (1888) 39 Ch D 339 Byrne & Frew v Australian Airlines Ltd (1995) 185 CLR 410 Clouston & Co Ltd v Corry [1906] AC 122 Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 Concut Pty Ltd v Worrell (2000) 75 ALJR 312 Dorgal Holdings Pty Ltd v Buckley (1996) 22 ACSR 164 Dowell Australia Ltd v Triden Contractors Pty Ltd [1982] I NSWLR 508 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 Fexuto Pty Ltd v Bosnjak Holdings (2001) 37 ACSR 672 Fitzsimmons v R (1997) 23 ACSR 355 Fountain v Alexander (1982) 150 CLR 615 Hancock v Williams (1942) 42 SR (NSW) 252 Hide & Skin Trading v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 Jones v Dunkel (1959) 101 CLR 298 Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606 Lakatoi Universal Pty Ltd v Walker [2000] NSWSC 113 Lane v Arrowcrest Group Pty Ltd (1990) 27 FCR 427: 43 IR 210 Lane v Fasciale (1993) 35 AILR 339 McEwen v Combined Coast Cranes Pty Ltd (2002) 44 ACSR 244 Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 76 ALJR 246 Mayor of Durham v Fowler (1888) 22 QBD 394 Meehan v Jones (1982) 149 CLR 571 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 Pollak v National Australia Bank Ltd [2002] FCA 237 Prenn v Simmonds [1971] 1 WLR 1381 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 Re Pearse [1905] VLR 446 Re Polyresins Pty Ltd [1999] 1 Qd R 599 Wolmershausen v Wolmershausen (1890) 62 LT 541 Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 Schellenberg v Tunnel Holdings Pty Ltd (2000) 170 ALR 594 Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 South Australia v Clark (1996) 19 ACSR 606 Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514 United States Surgical Corp v Hospital Products International [1983] 2 NSWLR 157 Walker v Bowry (1924) 35 CLR 48 Ward v National Bank of New Zealand Ltd (1883) 8 App Cas 755
PARTIES :	Surf Road Nominees Pty Ltd ACN 087 719 060 (First Plaintiff) Chris Burke & Co Pty Ltd ACN 062 554 849 (Second Plaintiff) IG Martyn Real Estate Pty Ltd ACN 001 210 304 (Third Plaintiff) WIT Investments Pty Ltd ACN 087 762 856 (Fourth Plaintiff} DJZ Construction Pty Limited ACN 087 784 601 (Fifth Plaintiff) Tass Alexander James (First Defendant) Janet Margaret James (Second Defendant) New South Head Road Nominees Pty Ltd CAN 088 322 472 (Third Defendant) First Cross Claim Tass Alexander James (First Cross-Claimant) Janet Margaret James (Second Cross-Claimant) New South Head Road Nominees Pty Ltd (Third Cross-Claimant) Surf Road Nominees Pty Ltd (First Cross-Defendant) Chris Burke & Co Pty Ltd (Second Cross-Defendant) I G Martyn Real Estate Pty Ltd (Third Cross-Defendant) W I T Investments Pty Ltd (Fourth Cross-Defendant) D J Z Construction Pty Ltd (Fifth Cross-Defendant) Michael Christian (Sixth Cross Defendant) Katherine Christian (Seventh Cross Defendant) Cottenham Nominees Pty Ltd (Eighth Cross-Defendant) Vincent Palmieri (Ninth Cross-Defendant) Terry Ian Wilson (Tenth Cross-Defendant) Andrew Peter Mortimer (Eleventh Cross-Defendant) Second Cross Claim [Settled] Michael Christian (First Cross-Claimant) Katherine Christian (Second Cross-Claimant) Cottenham Nominees Pty Limited (Third Cross-Claimant) Tass Alexander James (First Cross-Defendant) Janet Margaret James (Second Cross-Defendant)
FILE NUMBER(S):	SC 50108/01
COUNSEL:	Mr TA Alexis SC, Ms KP Sainsbury (Plaintiffs) (First to Fifth and Ninth to Eleventh Cross Defendants) Mr CRC Newlinds SC, Mr AP Coleman (Defendants) (Cross Claimants on First Cross Claim) Mr AJ Bulley (Sixth, Seventh and Eighth Cross Defendants to First Cross Claim) (First to Third Cross Claimants on Second Cross Claim)
SOLICITORS:	Pritchard Law Group (Plaintiffs) (First to Fifth and Ninth to Eleventh Cross Defendants) The Argyle Partnership Defendants) (Cross Claimants on First Cross Claim) Dibbs Barker Gosling Sixth, Seventh and Eighth Cross Defendants to First Cross Claim) (First to Third Cross Claimants on Second Cross Claim)

IGM bank debt	$1,044,600.00
Overdraft interest incurred by the first plaintiff as trustee for the SRUT and/or the Third Plaintiff in relation to the reductions of principal of the IGM bank debt made from 1 July 1999 to 30 June 2000	$ 11,049.00
Interest paid to Macquarie Bank by the first plaintiff as trustee for the SRUT and/or the Second Plaintiff from 1 July 1999 to 31 December 2000 on the IGM bank debt	$ 134,252.00
Interest paid to Macquarie Bank by the first plaintiff as trustee for the SRUT and/or the Second Plaintiff from 1 January 2001 to 30 September 2002 on the IGM bank debt	$ 141,623.00
Particulars of liability in relation to preferential distribution
Unpaid preferential distributions (being the sum equal to the amount paid by the first plaintiff as trustee for the SRUT to Macquarie Bank in accordance with clause 12.10 of the Surf Road Unit Trust Deed dated 28 May 1999) -	$ 154,841.00 [10]