White Constructions (ACT) Pty Limited (in Liquidation) v White & 14 Ors - [2005] NSWCA 173

NEW SOUTH WALES COURT OF APPEAL

CITATION: White Constructions (ACT) Pty Limited (In Liquidation) v White & 14 Ors [2005] NSWCA 173

FILE NUMBER(S):
40199/04
40341/04

HEARING DATE(S): 04/04/05, 05/04/05, 06/04/05, 07/04/05, 11/04/05, 12/04/05

JUDGMENT DATE: 17/06/2005

PARTIES:
White Constructions (ACT) Pty Limited (In Liquidation) (Appellant)
Geoffrey Bernard White (First Respondent)
Travers William Duncan (Second Respondent)
John William Spinks (Third Respondent)
Frank Stratton McAlary (Fourth Respondent)
Michael Frank McAlary (Fifth Respondent)
White Constructions Pty Limited (formerly known as White Constructions Limited) (Sixth Respondent)
Exxon Coal Australia Pty Limited (formerly known as White Industries Limited) (Seventh Respondent)
PDC Constructions Pty Ltd (Eighth Respondent)
White Industries (Qld) Pty Limited (Ninth Respondent)
WIL Civil and Mining Engineering Pty Limited (formerly known as Keathson (WA) Pty Ltd and as WIL Plant Hire Pty Limited (Tenth Respondent)
White Constructions (NT) Pty Limited (Eleventh Respondent)
PDC Plant Hire Pty Ltd (Twelfth Respondent)
White Constructions (NSW) Pty Ltd (Thirteenth Respondent)
White Property Developments Pty Limited (Fourteenth Respondent)
White Industries Australia Limited (Fifteenth Respondent)

JUDGMENT OF: Santow JA Ipp JA McColl JA

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): SC 50144/02

LOWER COURT JUDICIAL OFFICER: McDougall J

COUNSEL:
D E Grieve QC/ S D Epstein SC/ J Horowitz (Appellant)
B W Rayment QC/D T Kell (Respondents)

SOLICITORS:
Deacons (Appellant)
Mallesons Stephen Jaques (Respondents)

CATCHWORDS:
APPEALS - Challenges to factual findings made by trial judge - Principle in Devries v Australian National Railways Commission (1993) 177 CLR 472 applies - Damages - Contended on appeal that loss was suffered - Loss was of a different kind to that argued at trial - Principles relating to finality of litigation prevent damages being awarded on appeal.
EVIDENCE - Discretion to limit use made of evidence that is admitted - s 136 Evidence Act 1995 (NSW) - Failure to call a relevant witness - No explanation given - Rule in Jones v Dunkel (1959) 101 CLR 298 applies.
RESTITUTION - Failure to raise it properly at trial such that no evidence there led - Appeal Court unable to determine whether restitution could be practically effected and whether it would be equitable to grant such relief.
CORPORATIONS - Breach of fiduciary duties by directors - Where fraudulent preference afforded to certain creditors - Whether damages recoverable by company itself - Company must prove it sustained financial loss.
EQUITY - Statutes of limitations - Doctrine of analogy is recognised - Breach of fiduciary duties by directors - s 48 of the Limitation Act 1969 (NSW) applies by analogy. D

LEGISLATION CITED:
Corporations Act 2001 (Cth), Pt 5.7B, ss 565, 598(2)
Evidence Act 1995 (NSW), s 136
Income Tax Assessment Act 1936 (Cth), s 80E
Limitation Act 1969 (NSW), ss 14(1)(d), 48

DECISION:
(1) Appeals dismissed (2) Appellant to pay the respondents' costs of the appeals.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40199/04
CA 40341/04
SC 50144/02
SANTOW JA
IPP JA
McCOLL JA
Friday 17 June 2005

WHITE CONSTRUCTIONS (ACT) PTY LIMITED (IN LIQUIDATION) v GEOFFREY BERNARD WHITE & 14 ORS

Judgment

SANTOW JA: I agree with Ipp JA.
IPP JA:
The issues in the appeal
This appeal turns substantially on questions of fact. The appellant company (“White ACT”) contends that the trial judge, McDougall J, erred in making factual findings when holding that the first five respondents (the “Directors”) had not been guilty of misfeasance in relation to their duties as directors of the company. To that extent the appeal is governed by the well-known principles relating to appeals as to factual findings expressed in cases such as Abalos vAustralian Postal Commission (1990) 171 CLR 167, Devries v Australian National Railways Commission (1993) 177 CLR 472, State Railway Authority of New South Wales v Earthline Constructions Pty Ltd (In Liq) (1990) 160 ALR 588 and Fox v Percy (2003) 214 CLR 118.
White ACT’s claim is brought under the general law. It contends that the misfeasance on the part of the Directors entitles it to relief of a restitutionary character (involving the setting aside of a series of transactions in which it participated and the restoration of the position that existed immediately before those transactions were effected). In the alternative, it claims an order that there be an enquiry into the damages it suffered by reason of the Directors’ misfeasance. It claims that the Directors should be ordered to pay it the damages to be assessed.
A further important issue concerns McDougall J’s finding that, by reason of White ACT not having claimed restitutionary relief in its pleadings (with the result, according to his Honour, that crucial matters in regard to such relief were not investigated), it was precluded from claiming such relief. White ACT contends that the judge erred in this regard.
McDougall J also found that White ACT suffered no loss in consequence of the alleged misfeasance. White ACT contends that his Honour erred in this regard, as well.
In addition to supporting his Honour’s judgment in regard to these matters, the respondents contend that White ACT’s claims are statute-barred.
The parties involved in the litigation
White ACT is in liquidation. The liquidator is not a party to the action and is not a party in the appeal. The company, White ACT, was the plaintiff at the trial and is the appellant.
Until October 1988 White ACT was a member of the White group of companies. The first respondent, Mr Geoffrey Bernard White, was the founder of the White Group.
In 1969 Mr White acquired all the shares in a company known as G B White Limited. In 1972 that company was floated under the name White Industries Limited (“WIL”). WIL is the seventh respondent. In about 1979 WIL took over White Constructions Ltd (“WCL”), the sixth respondent, and WCL became a subsidiary of WIL. Thereafter, the activities of the White Group included property development, construction, civil engineering and coal mining.
Until October 1988 White ACT was a subsidiary of WCL. It had a construction licence and was the vehicle through which the White Group conducted its construction operations in Canberra.
In the mid-1960s Mr McAlary, a barrister with interests in engineering, agricultural and other activities, became a director of WCL. In that capacity, he participated in White ACT’s construction business. Mr McAlary is the fourth respondent.
In 1987 WCL was floated. Prior to the float, the activities of the White Group were re-organised so that WCL carried on the construction activities of the White Group and WIL conducted its property development, mining and other engineering activities.
On 25 February 1987 White ACT entered into a contract with Australian Development Corporation (“ADC”) for the design and construction of the Quadrant building in Canberra.
On 11 August 1988 ADC terminated the Quadrant contract for breach on the part of White ACT. Although White ACT denied that it was in breach and denied that ADC was entitled to terminate, Giles CJ Comm Div (as his Honour then was) – after bitterly contested and lengthy litigation - held that White ACT had breached the Quadrant contract and upheld ADC’s termination of it. His Honour ordered White ACT to pay ADC its damages to be assessed. Later, Einstein J assessed damages at $33,593,268 (in proceedings that White ACT – then under liquidation – did not contest).
McDougall J remarked:
“It is clear that ADC has incurred very substantial sums in costs (both of its own representation and under various costs orders made against it) … and … none of that expenditure has been recouped. It is also clear that ADC’s funding of the liquidator’s examinations and the present proceedings must have resulted in a very substantial expenditure on costs. ADC’s only prospects of recovering the costs that it has spent to date, and for which it will no doubt continue to be liable, would appear to be through these proceedings.”
There was an identity of interest between ADC and White ACT in the conduct of these proceedings, the benefit of which (were White ACT to be successful) would accrue largely to ADC. The judge found that ADC funded and was the beneficiary of any success by White ACT in this litigation.
Until 14 October 1988 the directors of White ACT were Mr White, Mr Duncan (who is the second respondent), and Mr Spinks (who is the third respondent). On 14 October 1988 WCL agreed to sell the whole of the issued capital in White ACT to Mr McAlary. On 28 November 1988 Messrs White, Duncan and Spinks resigned as directors of White ACT and Mr McAlary and one of his sons, Mr Michael McAlary (who is the fifth respondent), were appointed directors of White ACT. I shall refer to Mr McAlary as “Mr McAlary” and to Mr Michael McAlary by his full name.
White ACT contends that Messrs White, Duncan and Spinks continued after 28 November 1988 as de facto directors of White ACT. McDougall J found to the contrary and White ACT challenges this finding.
As at 30 June 1988 White ACT had total assets of more than $26m. On 6 February 1998 White ACT, on the application of ADC, was wound up on the ground of insolvency. A report as to its affairs, verified by Mr McAlary, showed that the sole remaining asset of White ACT was $328. Its principal liability was some $54m in respect of capital and interest owing to ADC under the judgment debt.
In summary, the Directors are the first to fifth respondents, WCL is the sixth respondent and WIL is the seventh respondent. The remaining respondents were at the relevant period related companies in the White Group. Mr White and his family at all material times controlled these related companies.
Overview of the contentions of White ACT
What follows under this heading, unless otherwise stated, are allegations by White ACT.
In 1987 and 1988 White ACT was carrying out work under a number of contracts, including contracts relating to the Quadrant building, the Canberra National Convention Centre (“CNCC”) project and six contracts for works in various parts of the ACT that were referred to in these proceedings as the “hard dollar contracts” (meaning, we were told, lump sum contracts). In 1988 the CNCC and hard dollar contracts were profitable.
In December 1987 or early 1988 it became apparent to Messrs White, Duncan, Spinks and McAlary that the Quadrant contract had been underpriced and White ACT was likely to sustain a loss of some millions of dollars on it.
The Quadrant contract was divided into two stages. Stage one was the office building and stage two the residential tower. The completion date for stage one was 22 January 1988. That date passed without completion being achieved.
By early 1988 White ACT was, to the knowledge of Messrs White, Duncan, Spinks and McAlary, insolvent by reason of the very large contingent claim for damages that ADC had against it.
In January 1988 Messrs White, Duncan, Spinks and McAlary agreed or, more appropriately, conspired to force ADC either to vary the Quadrant contract or to terminate it. Their plan (which they implemented) was to strip White ACT of its assets so that – should their attempts to renegotiate the Quadrant contract fail – White ACT’s assets would be transferred to other companies in the White Group. White ACT would then be unable to pay ADC the damages to which ADC would be entitled.
In late February 1988 an industrial dispute commenced on the Quadrant site. Messrs White, Duncan, Spinks and McAlary sought to exploit this dispute to provide a basis upon which White ACT could seek extensions of time and, also, to put pressure on ADC to negotiate to vary the Quadrant contract on more favourable terms.
On 29 February 1988 White ACT terminated the employment of one of its crane drivers on the Quadrant site and his dogmen and stood down the rest of the workforce at the site.
On the same date White ACT wrote two letters (referred to in the proceedings as the “leap year letters”) which were an attempt (albeit ultimately unsuccessful) to strip White ACT of its profitable contracts (that is, the CNCC contracts and the hard dollar contracts). Entries began to be made in White ACT’s accounts consistently with this plan.
On 11 August 1988 ADC terminated the Quadrant contract by reason of White ACT’s material breach or repudiation of that contract.
On 13 October 1988 WCL sold its shares in White ACT to Mr McAlary for one dollar. This was a step in the implementation of the plan to deprive ADC of the opportunity to recover the damages to which it would be entitled under the Quadrant contract.
Also, in October 1988, White ACT took steps to discharge the debts owed to it by other companies in the White Group, principally by setting off debts owed by it to related companies. These transactions took place largely by book entries made by the accounting staff of White ACT but on the instructions or to the knowledge of the Directors.
Thereafter, the asset-stripping process was completed by WCL, at the direction or to the knowledge of the Directors, imposing management fees in large amounts on White ACT and the latter paying those fees.
In consequence of the Directors’ plan and its implementation, White ACT was left with nothing to pay the damages owing to ADC. As Mr Grieve QC (who together with Mr Epstein SC and Mr Horowitz appeared for White ACT) put it in the course of argument, “[f]rom first to last, the case was propounded as a breach of fiduciary duty”.
The respondents denied that the handling of the Quadrant industrial dispute, the leap year letters, the various book entries, the settling of the debts between White ACT and other companies in the White Group, the sale to Mr McAlary and the payment of the management fees were part of a plan to defraud ADC and denied that the book entries made by the accounting staff of White ACT were made on their instructions or with their knowledge. McDougall J accepted their evidence.
The principles governing the challenge to the factual findings of the trial judge
In Devries v Australian National Railways Commission Brennan, Gaudron and McHugh JJ said at 479:
“More than once in recent years, this Court has pointed out that a finding of fact by a trial judge, based on the credibility of a witness, is not to be set aside because an appellate court thinks that the probabilities of the case are against – even strongly against – that finding of fact. If the trial judge’s finding depends to any substantial degree on the credibility of the witness, the finding must stand unless it can be shown that the trial judge ‘has failed to use or has palpably misused his advantage’ or has acted on evidence which was ‘inconsistent with facts incontrovertibly established by the evidence’ or which was ‘glaringly improbable’”.
In State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (In Liq) Gaudron, Gummow and Hayne JJ held at 607 that, despite a negative view taken by the trial judge of the credibility of the plaintiff’s principal witness, the principles expressed in Devries did not preclude a court of appeal from concluding that, in the light of other evidence, the trial judge had too fragile a base to support the finding that the witness was unreliable. Insufficient weight had been given to documentary evidence that provided significant support to the allegations made by the principal witness, and this led to the factual findings of the trial judge being overturned.
In Fox v Percy Gleeson CJ, Gummow and Kirby JJ said at 128:
“[T]he mere fact that a trial judge necessarily reached a conclusion favouring the witnesses of one party over those of another does not, and cannot, prevent the performance by a court of appeal of the functions imposed on it by statute. In particular cases incontrovertible facts or uncontested testimony will demonstrate that the trial judge’s conclusions are erroneous, even when they appear to be, or are stated to be, based on credibility findings.
That this is so is demonstrated in several recent decisions of this Court. In some, quite rare, cases, although the facts fall short of being ‘incontrovertible’, an appellate conclusion may be reached that the decision at trial is ‘glaringly improbable’ or ‘contrary to compelling inferences’ in the case. In such circumstances, the appellate court is not relieved of its statutory functions by the fact that the trial judge has, expressly or implicitly, reached a conclusion influenced by an opinion concerning the credibility of witnesses. In such a case, making all due allowances for the advantages available to the trial judge, the appellate court must ‘not shrink from giving effect to’ its own conclusion.”
McHugh J said at 146 to 147:
“It is a serious mistake to think that anything said in Abalos vAustralian Postal Commission (1990) 171 CLR 167 or Devries necessarily prevents an appellate court from reversing a trial judge’s finding when it is based, expressly or inferentially, on demeanour. Those cases recognise – in accordance with a long line of authority – that it may be done. But there must be something that points decisively and not merely persuasively to error on the part of the trial judge in acting on his or her impressions of the witness or witnesses.”
In the present case the fraud alleged by White ACT contains three basic elements. Firstly, knowledge on the part of the Directors that there was a reasonable possibility that White ACT would be held liable to ADC in a very substantial sum of damages. Secondly, the devising by the Directors, or some of them, of a plan to transfer the assets of White ACT to other companies in the White Group in order to frustrate any attempt by ADC to recover its damages. Thirdly, the implementation of that plan by the Directors (or at their direction or to their knowledge) or some of them.
McDougall J, in a careful and thorough judgment, found that the Directors had no such knowledge, made no such plans and did not conspire to frustrate ADC’s claim. In making these findings his Honour relied on his subjective evaluation of the witnesses but, in addition, relied on a detailed examination of the probabilities by reference to the circumstances of the case.
In arguing that his Honour’s credibility findings should be overturned, White ACT submitted:
“[T]he primary judge’s acceptance of the respondents’ evidence on [the important issues] was starkly in conflict with incontrovertible documentary evidence that had come into existence at the time of the relevant events in question.”
At other times, White ACT submitted that his Honour’s factual findings were “glaringly improbable” or contrary to compelling inferences in the case. White ACT did not in terms contend that McDougall J failed to use or palpably misused his advantage as the trial judge.
White ACT not permitted to argue constructive fraud
McDougall J observed that the case brought by White ACT was “one of actual knowledge and actual intention, amounting to actual fraud”.
In its pleadings White ACT made no allegation of constructive knowledge or intention. It relied only on actual knowledge and intention. During the course of the trial, however, White ACT contended that, from the outset of the trial, it had made it plain that it was also relying on equitable fraud. That is, it contended it could succeed without proving any subjective intent to cheat or deceive, and had indicated that it wished to present an argument to that effect.
McDougall J refused to allow White ACT to argue that it was entitled to rely on equitable fraud. His Honour gave detailed reasons for this decision (see [56] to [67] of his Honour’s judgment).
When the case was opened Mr Grieve submitted that even if the Directors’ evidence as to their subjective beliefs concerning the merits of ADC’s claim were to be believed, White ACT could still succeed. At the conclusion of Mr Grieve’s opening, Mr Rayment QC (who, together with Mr Kell, appeared for the respondents at the trial and in the appeal) responded by asserting that the opening went beyond the pleaded case and the respondents did not consent to any expansion of the case as pleaded. Mr Grieve indicated that White ACT did not propose to amend its pleadings and would rely on its pleaded case. McDougall J pointed out that the pleaded case was one of actual knowledge and intention, amounting to actual fraud, and he would consider and deal with the case on that basis. Mr Grieve did not react to this statement.

During the appeal, White ACT submitted that McDougall J had erred in deciding that it was precluded from arguing constructive fraud and sought, again, to argue constructive fraud. This Court, however, unanimously decided to refuse to allow White ACT to argue constructive fraud on the ground, essentially, that – having regard to the way the case was pleaded and what occurred in the various exchanges between Mr Grieve, Mr Rayment and his Honour - the reasons given by the judge on this issue were entirely correct.
The stage one breach
I have noted that a fundamental element of White ACT’s cause of action was that, from early 1988, the Directors knew that there was, at least, a reasonable possibility that ADC would have a very substantial claim for damages against White ACT.
When argument on appeal commenced, Mr Grieve sought to base White ACT’s case in regard to the Directors’ knowledge of ADC’s claim on two categories of breaches of the Quadrant contract. The first concerned the performance by White ACT of stage one. As I have mentioned, the date for practical completion of that stage was 22 January 1988 and that date was not met. The second category concerned the industrial dispute on the Quadrant site. Because of this industrial dispute White ACT, on 29 February 1988, stood down a crane crew and other workers. White ACT failed to recommence work on the Quadrant project thereafter and, on 11 August 1998 ADC terminated that contract. White ACT submitted that its conduct in regard to the industrial dispute constituted a material breach or repudiation of the Quadrant contract.
Mr Rayment submitted that White ACT should be precluded from relying on the stage one breach. He submitted that a statement of issues handed up at the commencement of the trial by White ACT (at the invitation of the judge) made no mention of this issue, the trial was not conducted on the basis that a stage one breach was a live issue, and the judge did not deal with it.
Mr Grieve replied by pointing out that certain particulars in White ACT’s summons gave details of a knowing breach by White ACT of stage one. Further, he submitted, during the trial some witnesses were asked questions going to this issue and in closing addresses reference was made to a stage one breach; therefore the trial was conducted on the basis that a stage one breach was a live issue before McDougall J.
The statement of issues was produced on the second day of the trial after the judge asked the parties to supply an agreed set of issues of each party’s contentions as to the issues to be decided. Mr Grieve then gave to the judge White ACT’s statement of issues document in which no mention of a breach of stage one was made. Later in the trial, Mr Grieve informed the judge that the statement of issues went beyond the pleadings and his Honour should ignore the statement of issues to that extent.
Mr Grieve did not thereby inform the judge that, to the extent that the statement of claim was narrower than the pleaded case, the pleaded case would prevail. That the trial judge understood that the statement of issues reflected the true issues before him is apparent from his omission to deal with the stage one breach argument in his otherwise meticulously thorough judgment.
I would add that the notice of appeal does not assert an error on the part of the judge in omitting to deal with a stage one breach.
The particulars in the summons relating to breach were very wide, and did not focus attention on a case sought to be made by White ACT in regard to stage one. The cross-examination on the issue was very slight. During the course of final addresses, Mr Grieve dealt briefly with breaches of contract allegedly committed by White ACT prior to 29 February 1988 (and these included the stage one breach) and Mr Rayment, in turn, briefly commented on the points made.
In the context of a trial of 28 days that appears to have been conducted substantially in accordance with the statement of issues, it seems to me that the parties attached no real importance to the stage one breach argument. This explains why McDougall J ignored the perfunctory submissions on this issue. In my opinion, he was entitled to do that as the stage one breach argument was not squarely put before him for resolution.
In any event, the evidence does not support a finding that the Directors knew that, by reason of a failure on the part of White ACT to achieve practical completion of stage one by the required date, ADC might have a very substantial claim for damages against it.
As from March 1988, ADC pressed White ACT to complete the Quadrant contract. Mr Duncan knew that the office building (stage one) had not been built in time but he testified that he did not believe that ADC would be entitled to terminate the contract on that ground because ADC had continued to insist upon performance of the contract after the date for practical completion of the office building had passed. Mr Duncan said:
“I was firmly of the view and from experience once you had passed the completion date, and the owner did not act, and you kept on working and they let you keep on with working, he lost the chance. The view I have, if you didn’t use it, you lose it.”
In other words, Mr Duncan believed that, by so requiring White ACT to complete the Quadrant contract, ADC had waived its right to terminate on the grounds of the failure to achieve practical completion of stage one by 22 January 1988.
Mr Grieve submitted that there was no substance in this belief as White ACT, after 22 January 1988, continuously manifested an intention to repudiate the contract so that ADC was never called upon to elect to affirm or rescind the contract.
It is, however, unnecessary to determine the merits of Mr Grieve’s submission. The relevant issue that arises here is Mr Duncan’s state of mind, not the objective entitlement of ADC to terminate. Mr Duncan’s evidence, save in one respect not presently material, was believed by his Honour. Further, I do not think that it was unreasonable for Mr Duncan, as a layman, to believe (as he asserted) that ADC had waived its right to terminate the Quadrant contract (and that it did not have a concomitant right to damages) by reason of the failure to complete stage one by 22 January 1988.
The Directors were cross-examined either perfunctorily or not at all as to whether, at the relevant time, they believed that ADC was entitled to terminate the Quadrant contract by reason of the delay regarding stage one and as to whether they believed that ADC, in consequence of that delay, would have a very substantial claim for damages against White ACT. Those Directors who were cross-examined denied that they had the belief asserted by ADC. McDougall J found that the Directors were credible witnesses and their evidence should be believed. His Honour came to this conclusion not only on the grounds of demeanour but also by examination of the probabilities and the evidence as a whole. Despite White ACT’s attack on these findings, I am unable to discern any material error in the judge’s reasoning. In addition, the overall circumstances of the case do not suggest that it was probable that the Directors had the belief asserted by White ACT.
In the circumstances, even if White ACT were to be permitted to mount an argument based on its failure to complete stage one of the Quadrant contract by the requisite date, I would reject that argument.
The industrial dispute on the Quadrant site
During 1987 there was a significant degree of industrial unrest on the Quadrant site. This led to White ACT entering into a site agreement with a number of unions that was intended to regulate industrial relations on the Quadrant project. The unrest continued, however, and much of it was caused by or related to crane drivers, including one Mr Rod Saunders.
On 17 February 1988 Mr Saunders used his crane to place a concrete pipe behind a concrete pump truck operating on the site. The pipe was a substantial object and placed so that it prevented the concrete pump truck from moving away from where it was working and prevented trucks carrying concrete from discharging their loads into the concrete pump. This was Mr Saunders’ intention.
This action by Mr Saunders led the Transport Workers’ Union (“the TWU”) to impose work bans on the Quadrant site because the safety of its members could not be guaranteed.
On 23 February 1988 a meeting was held between White ACT and the unions involved. This meeting failed to achieve a resolution of the dispute largely because of Mr Saunders’ conduct at the meeting. The next day White ACT decided to terminate the employment of Mr Saunders and his two dogmen for misconduct. At the same time, it decided to stand-down other workers on the site, apparently on the basis that no work could be carried out whilst the TWU bans were in effect.
Neither of those decisions, however, was implemented pending a hearing in the Australian Conciliation and Arbitration Commission (“the Commission”) which had been notified of the dispute.
On 26 February 1988 a hearing took place before a Commissioner who directed that normal work be resumed and a conference held between officials of the relevant unions and officers of White ACT one week after work had been resumed. Work, however, did not resume.
On 29 February 1988 White ACT implemented its decisions to terminate the employment of Mr Saunders and his dogmen and to stand-down the rest of the workforce at the Quadrant site. The unions did not accept the terminations or the stand-downs and notified the Commissioner.
Under the site agreement, instant dismissal was warranted only if the relevant conduct could be characterised as “gross misconduct”. McDougall J found that it was open to White ACT to conclude that Mr Saunders’ actions amounted to gross misconduct. His Honour observed:
“His action was taken in defiance of an industrial settlement that had been reached by the two unions concerned … Effectively, it sought to reopen, or reargue, something that had been resolved. It involved threats of physical violence to TWU members and an official … Clearly, it was highly provocative. Equally clearly, it must have been apparent that the result that in fact followed (namely, the imposition of work bans and the cessation of work on the site) was likely to follow … Further, I think it was open to White ACT to regard both Mr Saunders’ decision to attend the meeting of 23 February 1988 and his conduct at that meeting as confirming that he was guilty of gross … misconduct.”
McDougall J referred to the decision by Giles CJ CommD in the action between ADC and White ACT to which I have referred and said:
“Giles CJ CommD was able to conclude, on the basis of what appears to have been a substantially greater body of evidence on this topic, that the bans were not lifted until after the dismissals and stand-downs had been implemented. The evidence before me does not enable me to reach the same conclusion. However, I am unable to conclude that the bans were lifted, or that productive work could have resumed, before the dismissals and stand-downs were effected. Nor can I conclude that White ACT was told, before it effected the dismissals and stand-downs, that the bans would be lifted (either conditionally or unconditionally).
Although White ACT contended for a finding that the dismissals and stand-downs were unjustified, because the industrial dispute had been ‘resolved’, it did not adduce evidence that enables me to reach that view. For the reasons that I have just given, I am unable to find that White ACT implemented its decision to dismiss the crane crew and stand-down the other workers at a time when it knew, or had been told, that the bans had been, or would be, lifted.”
Thus, McDougall J concluded (contrary to the decision of Giles CJ CommD but on different evidence) that it was open to White ACT to dismiss Mr Saunders and his dogmen when it did so on 29 February 1988.
The dispute escalated rapidly after the terminations and the stand-downs. The site was picketed and the dispute was aired in the local and national media. The unions refused to return to work unless Mr Saunders and the crew were reinstated with lost pay and the workers who had been stood down were also paid lost pay. White ACT was not prepared to do either of these things unless the Commission directed it do so.
On 16 March 1988 there was a hearing before the Commissioner who suggested that the unions make an application for the reinstatement of the dismissed workers and those who had been stood down. McDougall J explained what then transpired:
“White ACT notified ADC that, since the TWU had withdrawn its bans, it was prepared to withdraw all stand-down notices immediately on the basis that the crane crew remained dismissed pending a ruling by the commission on whether the stand-downs and dismissals were correct. Work did not resume on this basis. The unions were not prepared to resume work until Mr Saunders and his dogmen were reinstated, and until they, and the workers who had been stood-down, were paid for all time lost. White ACT was not prepared to reinstate Mr Saunders unless directed so to do by the commission. Equally, it was not prepared to pay the stood-down workers for time lost unless so directed by commission.
The unions did not make applications in relation to the reinstatement of Mr Saunders and his dogmen, or in relation to the standing down of other workers. Accordingly, there was no process before the commission to enable it to consider and rule on the question of whether the stand-downs and dismissals were correct. In the absence of rulings … from the commission, White ACT’s position remained unchanged.”
Thereafter, White ACT undertook no further work on the Quadrant site and eventually, on 11 August 1988, ADC terminated the Quadrant contract.
The reasonableness of White ACT’s handling of the industrial dispute
McDougall J concluded that White ACT acted reasonably in its handling of the industrial dispute after 29 February 1988. He accepted (as did Giles CJ CommD in his judgment on the issue) that White ACT did not, in its handling of the industrial dispute, breach its obligations under the Quadrant contract. White ACT challenged these findings.
There was a difference of opinion between ADC and White ACT as to how the industrial dispute should be resolved. ADC wanted White ACT to settle the industrial dispute by whatever means were available and resume work on the project. It wanted White ACT to reinstate Mr Saunders and the dogmen and to pay these persons and the workers who had been stood down for all time lost. ADC offered to reimburse White ACT for these payments or to pay the workers directly. White ACT, however, refused to comply with ADC’s wishes; it took the view that it would not pay “strike pay” and it would not give in to the unions. It was concerned with its overall position with unions generally – it having several construction contracts on the go at the time.
McDougall J expressed the view that White ACT’s attitude was dictated, not so much by the industrial undertaking that it had signed and the terms of the Quadrant contract (which, it claimed prohibited it from paying “strike pay”) but “by more fundamental philosophical considerations”. These considerations were based on the belief that paying strike pay would be giving away a position of advantage in any future industrial disputes on other sites.
Mr McAlary’s attitude was that White ACT had been justified in dismissing Mr Saunders and his dogmen and in standing down the other workers; and, therefore, White ACT was justified in refusing to pay those workers for the time they were not working on the site.
Mr Duncan’s attitude in substance was the same as that of Mr McAlary. He saw the underlying question as being whether workers, who had deliberately provoked an industrial dispute and had been dismissed as a result, should be paid - when they resumed work - for the time lost. His view was that a requirement for an employer so to behave was tantamount to industrial blackmail. Mr White’s attitude in substance was the same.
Later, an industrial arbitrator, Mr Nicholas Moore, handed down an award that, according to McDougall J, confirmed that the dispute could have been settled by reinstatement of the workers and payment for time lost. Nevertheless, his Honour (rightly, in my view) said that that award did not bear upon whether, under the Quadrant contract, White ACT was obliged to resolve the dispute on that basis.
McDougall J found that, on the evidence, White ACT was entitled to dismiss the crane driver and his crew, and to stand-down the other workers. I am not persuaded that his Honour thereby erred. There were plainly appropriate reasons to dismiss the crane crew. On 29 February 1998 no productive work was proceeding at the site because the TWU was not permitting deliveries. There was no useful work for the workers to perform. In fact, the TWU itself actively sought the dismissal of the crane crew. Moreover, at the time of the dispute, ADC did not suggest to White ACT that the dismissal of the crane crew was unjustified. ADC merely wished the industrial dispute to be resolved, regardless of its merits.
His Honour said in this regard:
“In substance, I accept the proposition that for White ACT to have resolved the dispute on the terms required by the unions (re-employing the crane crew and paying the crane crew and stood- down workers for time lost), without a direction from the commission, would have had damaging consequences for White ACT both on the Quadrant project and on any other work that it might undertake in the ACT in the industrial climate that, apparently, existed in 1988. I do not think that White ACT’s obligation under the Quadrant contract required it to sacrifice its own, legitimate, interests in favour of the interests of ADC. That this was White ACT’s attitude was confirmed by the evidence of Messrs Duncan and White, which on this point I accept. It was confirmed to ADC in meetings and correspondence: for example, at a meeting held on 10 May 1988 between Messrs Duncan and Hitchings for White ACT and Messrs Fischer, Ward and Mack for ADC.”
McDougall J found that White ACT acted reasonably in its handling of the industrial dispute after 29 February 1998. I am not persuaded that his Honour erred in these findings.
Did the Directors deliberately and improperly create, exacerbate or prolong the industrial dispute?
His Honour found that the Directors did not seek by any means and without justification to create or exacerbate or prolong the industrial dispute in an attempt to force ADC to terminate the Quadrant contract. White ACT argued that his Honour thereby erred.
The finding that White ACT acted reasonably in regard to the industrial dispute is a serious obstacle in the path of White ACT in its attempt to establish the requisite elements of glaring improbability, etc, concerning McDougall J’s findings as to the Directors’ state of mind.
There are, moreover, other matters that provide strong support for the judge’s finding.
There was no evidence that any of the Directors had any involvement in the decision to dismiss the crane crew and stand-down the other workers. It was also not put to the Directors in cross-examination that, to their knowledge at the time, the dismissals and stand downs were not justified.
A contemporaneous note made by Mr White on 6 March 1988 reinforced his evidence that it was not until that date that he was even aware of the dismissal of the crane crew. There was no evidence that established that the other Directors were aware, prior to that date, of the dismissal of the crane crew.
Mr White made other notes in March and April 1988 fundamentally inconsistent with White ACT’s contentions. Mr White’s March 1988 note referred to a conference being arranged with the Commissioner to have the work bans lifted; it records:
“When all this is done resume work.”
The note of April 1988 records:
“When the bans are lifted we will clean up the labour to make the job go and catch up.”

McDougall J found that those notes reflected Mr White’s genuine views at the time. His Honour said:
“They show that White ACT was not deliberately prolonging the industrial dispute in an attempt to force ADC to terminate the Quadrant contract.”
Mr Grieve submitted that the judge was wrong in finding that the notes evinced an attitude on Mr White’s part “that it was White ACT’s intention to resolve the industrial dispute, improve industrial relations on the site and ‘make the job go and catch up’”. In my view, however, the passages I have quoted support the inference drawn by the judge.
Mr White’s notes are consistent with a fax sent by Mr Houlahan, an officer of White ACT, to a union official asking him in strong terms to withdraw notification to the Commission “in relation to the bans clauses associated with our company”. The judge said:
“If the intention of White ACT were to prolong the industrial dispute then Mr Houlahan’s reaction to the application for bans clauses was completely inconsistent with that intention.”
The judge rightly pointed out that White ACT would not be likely to have acted as it did in relation to the union’s application for bans clauses if it had wished to prolong the industrial dispute.
The Directors caused WCL to fund White ACT’s defence of the proceedings brought against it by ADC. The key issue in those proceedings was whether ADC was justified in terminating the Quadrant contract. McDougall J rightly observed:
“It is inconceivable that WCL, through Messrs White, Duncan and Spinks, would have committed itself to spend large amounts of money on behalf of White ACT if those gentlemen had not thought that White ACT had at least reasonable prospects of successfully defending ADC’s claim.”
McDougall J found:
“To the extent that the [Directors] were involved in these matters, I find that they believed that White ACT was justified in the dismissals and stand-downs, and in refusing to settle the industrial dispute on the terms apparently required by [the unions].”
McDougall J went on to say:
“[S]ubject to giving the appropriate notices, White ACT was entitled to very substantial extensions of time under the Quadrant contract. The [Directors] said either that they assumed that the relevant notices had been given, or that they did not know, and had no reason to believe, that the relevant notices had not been given. I find that they held the belief (although, as events have shown, it was mistaken) that the relevant notices had been given. Accordingly, I find that they believed that White ACT was entitled to an extension of time to complete the Quadrant contract, the extension being, in rough terms, equivalent to the duration of the 1988 industrial dispute.”
Mr Grieve submitted that his Honour erred in finding that the notices claiming extensions of time had not been given. He submitted that that error in some way, that I found difficult to understand, assisted White ACT. Even if his Honour did so err I do not see how such an error could undermine the finding that the Directors believed the notices had been sent and, therefore, ADC did not have a claim for damages against White ACT. On the contrary, a finding that notices for extensions of time had been sent to ADC would support the finding that the Directors believed that ADC was not justified in terminating the contract.
Mr Grieve drew attention to the fact that on 14 January 1988 Mr Duncan was provided with a report showing that the loss under the Quadrant contract was of the order of $3.055m. Mr Duncan then made handwritten notes which included the following:
“Stop Quadrant – if client defaults.”
and:
“Quadrant – We will not sustain this loss
– Close this job
– Fight in court if need be.
– Advise Fischer closing.
– Allow loss $0.5M
– Still think we will re-negot. & get a profit after taking this action.
…
$2500 – Quadrant stop job.”
Mr Sid Fischer (the person referred to in the note) controlled ADC.
According to Mr Duncan, in early 1988 he was of the view that White ACT had various claims against ADC that could justify White ACT terminating the contract. This, according to him, was the background to the notes. He subsequently learned that White ACT had received legal advice to the effect that it would be difficult to terminate the contract on the grounds he had in mind. Mr Duncan was cross-examined about the notes and his explanation for them. He denied that he intended to or in fact did take steps deliberately to bring about or prolong the industrial dispute so as to compel ADC to “close” the Quadrant contract.
It is implicit from McDougall J’s judgment that he accepted Mr Duncan’s explanation in regard to the notes, and this he was entitled to do. It is also to be observed that Mr Duncan’s notes, on their own, do not unequivocally mean that Mr Duncan intended to take unlawful steps in breach of contract to bring the contract to an end.
Both by reason of the evidence of Mr Duncan and the wording of the notes themselves, the notes do not constitute incontrovertible evidence inconsistent with the judge’s findings. Moreover, in my view, those findings are not glaringly improbable.
White ACT further relied on a note that Mr White made on 6 March 1988 of a conversation with Mr McAlary. The note reads:
“Frank McAlary

Hard line with unions.
Hard line with Sid Fischer.
Bring job to halt.
We are frustrated.
S Fisher [sic – Fischer] to be pushed into determining contract.”

McDougall J found that on about 6 March 1988 Mr White had a conversation with Mr McAlary in which the latter said words more or less to the effect of those set out in the note. The judge, however, declined to place a sinister connotation on the note or on the fact that Mr McAlary testified that he did not believe he said words to the effect of those set out in the third and fourth bullet points of the note.
The judge refused to accept that the note of 6 March 1988 materially supported the proposition that the Directors intended to (or did) use unlawful or improper means to bring the Quadrant contract to an end. In so concluding, his Honour took into account, particularly, White ACT’s attempt to dissuade the unions from applying for bans clauses to be inserted in the relevant awards and Mr White’s notes of March and April 1988 which recorded, “[w]hen all this is done resume work” and “[w]hen the bans are lifted we will clean up the labour to make the job go and catch up”. His Honour plainly had regard to his impression of the evidence of Mr McAlary and the other Directors, and the evidence in the case as a whole.
The fact that a discussion occurred in March 1988 between Mr White and Mr McAlary in which they canvassed (or even decided upon) taking a hard line with unions and with Mr Fischer, bringing the Quadrant project to a halt, and pushing Mr Fischer into determining the contract, does not necessarily mean that Mr White and Mr McAlary thereby decided to do anything unlawful or improper or unreasonable, or to breach the Quadrant contract deliberately, or to bring about or prolong the dispute with the unions. Their discussion is reasonably capable of giving rise to the inference that they intended that White ACT should use lawful and proper means in taking the steps recorded in the note of 6 March 1988.
In my view, the note of 6 March 1988 does not constitute evidence that would entitle an appellate court to set aside the factual findings now under challenge. The judge’s findings in regard to the note are not glaringly improbable or contrary to compelling inferences drawn from other incontrovertible evidence. Indeed, as his Honour pointed out, White ACT’s actual conduct and Mr White’s subsequent notes are contrary to the inference now contended for by White ACT, as is the evidence of the Directors as a whole, which the judge accepted (and which, in my view, he was entitled to accept).
At some time after 18 March 1988 a conversation occurred between Mr Duncan and Mr Fischer of ADC during which Mr Duncan proposed that White ACT and ADC complete the Quadrant project as joint venturers. Mr Fischer replied:
“[O]ur company has a building contract with your company and wants performance of that contract and would not be interested in going into a joint venture with your company.”
According to Mr Fischer, Mr Duncan said:
“If you insist on the contract going on that way it will be a rocky road and I will put every stone in the road to make it a hard road.”
Mr Duncan denied that he had made that statement. The judge found, however, that a conversation did occur in substantially the terms alleged by Mr Fischer. The judge, nevertheless, accepted Mr Duncan’s denial that he had taken steps so as deliberately to bring about the industrial dispute and to force ADC to terminate the contract. This is a matter inherently within the province of a trial judge and it was open to his Honour to make the findings he did. There is nothing glaringly improbable about them and they are not contrary to compelling inferences drawn from incontrovertible evidence in the case.
White ACT also relied on the following documents:
(a)A letter of 4 January 1988 from WCL threatening to terminate the Quadrant contract.
(b)A note by Mr Duncan of 14 January 1988 that asserted that the Quadrant contract represented $3m of WCL’s $14m half yearly loss and a note referring to the project requiring “reassessment”.
(d)A February 1988 report to the WCL board that recorded that arrangements were in hand to vary the contract arrangements and “if necessary to terminate the [Quadrant] contract.”
(e)A note by Mr Spinks annexed to that report referring to the need “to terminate [the Quadrant] contract”.
(f)A statement in a February 1988 report to the board that recorded: “The point has now been reached where WCL have to decide to make further commitments in the design and subcontract area to progress the project to approval or to stop the project.”
(g)A White ACT memorandum dated 23 February 1988 that included the words “project cost overrun as now reported exceeds $4 million”.
(h)Board papers of 4 March 1988 that recorded, “[t]he loss on the Quadrant contract is estimated at $4,789,000” and “[s]ubstantial cost overruns throughout the trades are definite and under present conditions, there does not appear to be opportunities for recovery”.
(i)A March 1988 report which stated that the anticipated loss on the Quadrant contract was $4.855m “which is subject to increase due to continuing industrial disputation”.
None of these matters, however, proves that the Directors deliberately set about to create a situation at the Quadrant site that would lead to the termination of White ACT’s involvement in the project.
The documents in question show that in February and March 1988 there was a desire on the part of Mr Spinks and perhaps others to terminate the Quadrant contract, and that the Directors knew the losses made by White ACT under the Quadrant contract were in the region of $4m and were increasing, but these matters do not establish that the Directors conspired to manufacture the industrial dispute and to bring about a situation which compelled ADC to terminate the contract.
Mr Grieve submitted that the evidence of Mr White, Mr Duncan and Mr McAlary to the effect that White ACT was ready, willing and able to perform the Quadrant contract was false and demonstrates “consciousness of guilt”. Consciousness of guilt in this context is intended to mean, I think, that these persons were not ready or willing for White ACT to perform the Quadrant contract, and deliberately brought about the industrial dispute to force ADC to terminate it. The findings by the trial judge are to the contrary and there is nothing in the documents and other evidence that incontrovertibly demonstrates that his Honour was in error and his Honour’s findings in this regard are not improbable, let alone “glaringly” improbable. I would reject these submissions.
The next matter relied on by Mr Grieve concerned what was described as the Rawlinson report. This was a report by a firm of quantity surveyors dated 4 February 1988 in which the opinion was expressed that, if the Quadrant contract were to be carried to completion, as from early February 1988 the projected cost would result in a loss to White ACT of almost $7m.
McDougall J accepted the evidence of the Directors that they had not seen the Rawlinson report. McDougall J said in this regard:
“That report was not addressed to the board of White ACT (or, for that matter, to the board of WCL). It must be presumed to have been commissioned by and given to employees of White ACT. No employee was called to prove that he had communicated the report, or its contents, to any of the [Directors]: yet they were cross-examined at length on what it was said they knew or should have known as a result of the contents of that report. A number of the relevant employees have died. However, others (including some who might be thought to have received the Rawlinson report, and, more significantly, those involved in the accounting transactions that took place in October 1988, and the charging and payment of management fees and related charges that occurred in subsequent years) were not shown to have died, or otherwise to be unavailable. No explanation was given of why they were not called. In assessing the credibility of the [Directors], I take into account, adversely to the criticisms that are now made, the unexplained failure of White ACT to call witnesses whom, in the ordinary course of events, it might have been expected to call to make good at least some of the criticisms that it has put.”
Mr Grieve drew attention to the fact that the report by the then managing director of WCL dated 5 February 1988 referred to an independent assessment of the Quadrant project which was “now showing a major reversal in the previously reported end result”. Mr Grieve submitted that this was likely to be a reference to the Rawlinson report. That, however, is mere speculation and the fact that the board papers make no reference to a loss of about $7m is contrary to the submission.
In my view, it was open to McDougall J to accept the evidence of the Directors that they had not seen the Rawlinson report at the relevant time. There was indeed no evidence to the contrary. Applying the established principles to which I have referred above, the argument based on the Rawlinson report must be rejected.
Mr Grieve also submitted that the judge erred in making the factual findings without having regard to the well-known principle in Tesco Supermarkets Ltd v Nattrass [1972] AC 153. There was no substance in this submission. The principle in Tesco concerns circumstances under which a company will be bound by the acts of a person regarded as the embodiment of the company (see Lord Reid at 170). In the present case, the issue before the Court was whether any of the individual Directors deliberately set about creating the industrial dispute and forced ADC to terminate the Quadrant contract. White ACT was required to establish this by evidence of actual knowledge. This case concerns allegations of actual fraud by the Directors; not whether White ACT was guilty of fraud. The Tesco principle cannot be used to attribute the knowledge of other persons or entities to the Directors.
I am not persuaded that the matters to which I have referred demonstrate appealable error on the part of the judge.
The credibility of Mr McAlary and the other Directors
White ACT challenged the judge’s acceptance, generally, of the credibility of each of the Directors. These challenges were more appropriate for submission to a trial judge. Although a concerted effort on appeal was made to establish that documentary evidence was inconsistent with oral evidence given by Messrs McAlary, Duncan and (to a considerably lesser extent) White, I was unpersuaded that there were any inconsistencies in the evidentiary material such that could entitle this Court to interfere with his Honour’s credibility findings.
I shall, in detail, discuss the challenge to the judge’s acceptance of the evidence of Mr McAlary as White ACT’s main (but not sole) focus was on his testimony. White ACT submitted that he was the mastermind of the fraud.
The attacks on the credibility of Mr Duncan and Mr White were based largely on notes each had made and specific testimony each had given. I deal separately with the arguments raised in respect of these individual matters in the course of these reasons. Suffice it to say under this heading, I was unpersuaded by the arguments that were pressed. No arguments were raised in oral argument as to the credibility findings in respect of Mr Spinks and Mr Michael McAlary.
White ACT submitted that documents in an exhibit known as “PX13” demonstrated that Mr McAlary was dissembling when he testified that he was not able to recall the detail of events occurring in relation to the Quadrant project between January and August 1988.
Mr McAlary said that while he had “some recollection of some things” he had “no knowledge of those events in any detail”. He said that while he “may have had some reasonable knowledge” when he analysed the material before the litigation, at the time of the trial he was unable to recollect the detail.
Convincing reasons existed for the difficulties that the Directors in general and Mr McAlary in particular experienced in recalling the detail of the industrial dispute. As McDougall J pointed out:
“[I]n assessing the evidence of the [Directors], it must be remembered that the events in question took place, for the main part, between 10 and 16 years ago. It would be surprising if any of them, regardless of his acumen or experience, had a detailed recollection of events that had occurred so long ago.”
Further, prior to giving evidence at the trial, none of the Directors had sought to refresh his recollection by reading through the contemporaneous documents. McDougall J remarked in this regard:
“Almost inevitably, therefore, each of them gave evidence in terms of some generality. The cross-examination frequently looked at matters with a considerable degree of specificity, which required the witness to pay attention to documents that he had not seen for many years (if at all). In the circumstances, I do not consider it surprising that, even when confronted with contemporaneous documents, none of the [Directors] professed any significantly greater recall of events.”
The judge observed:
“In assessing Mr Frank McAlary’s evidence, it is necessary to bear in mind that he was a barrister in full-time practice who also had extensive rural interests. It is not at all surprising that he did not immerse himself deeply in the day-to-day affairs of WCL and its subsidiaries. That he played a lesser role is confirmed by the evidence of Messrs White, Duncan and Spinks. Nor is it surprising that, after the time that has elapsed, his memory of the extent to which he was involved is faulty.
Mr Frank McAlary was not, at any relevant time prior to 28 November 1988, a director of White ACT.”
Mr Grieve, on the other hand, submitted that Mr McAlary had a “very close involvement” with the Quadrant contract. He pointed out that Mr McAlary was the chairman of a claims committee that had been constituted by WCL. This committee met from time to time for periods of several hours, each, in Mr McAlary’s chambers.
Mr Grieve referred to exhibit PX13 and various letters that were part of it. He drew attention to the fact that Mr McAlary had drafted many of the letters in that exhibit and had added sentences to various other letters “which demonstrated he was doing far more than simply helping out with legal or English expression”. Mr Grieve submitted that Mr McAlary’s involvement in the letters required an “in-depth knowledge of the industrial dispute”. Mr Grieve drew attention to the fact that exhibit PX13 contained not only letters that Mr McAlary was requested to settle but various faxes from Mr McAlary to other employees of White ACT relating to the industrial disputes, requests for advice from Mr McAlary and letters sent to him for his information.

Mr McAlary testified that he “was not a person who was engaged in decision making in relation to Quadrant”. Mr Grieve submitted, however, that the documents in exhibit PX13 (and other documents) demonstrated incontrovertibly that Mr McAlary had advised White ACT in regard to the claims it wished to make against ADC. Mr Grieve submitted that Mr McAlary’s involvement in the drafting of correspondence in relation to the Quadrant dispute, and in advising generally in regard thereto, showed that he had not given truthful evidence about his participation in the Quadrant contract.
Mr McAlary testified that in about August 1988 he thought that White ACT had sustained a loss of $3m on the Quadrant project. Mr Grieve pointed out that that evidence was contrary to a finding by McDougall J that by 4 March 1988 the Directors knew the projected loss was said to be $4.789m. Mr Grieve submitted that Mr McAlary had given misleading evidence about his knowledge of the loss that White ACT would have incurred had it been required to complete the Quadrant project. Mr Grieve submitted that Mr McAlary’s “attempt”, and that by Mr Duncan, “to play down their knowledge of the loss that White ACT would sustain on the Quadrant project” was indicative of their consciousness of guilt.
In my opinion, however, none of the documents in exhibit PX13 (or the other documents) and none of the matters raised by Mr Grieve to which I have referred in the previous paragraphs establish error on the part of the trial judge.
Mr McAlary testified that he gave advice to White ACT about “legal issues”. As chairman of the claims committee he dealt with claims in regard to all of the White Group’s contracts. In the course of performing those tasks he must have given advice generally and about the Quadrant contract in particular. To expect him to remember the detail (and all of the general matters of which he was informed) some 15 years later – without having refreshed his memory on the relevant documents – is asking too much and is unrealistic. The internal inconsistencies in his evidence and the inconsistencies with the documents in evidence (to which White ACT referred) are not significant and are not indicative of dishonest testimony; they are indeed to be expected.
The fact that Mr McAlary gave advice on legal issues, drafted letters and added sentences to other letters, all in relation to the Quadrant contract, does not mean that he was materially involved in decisions relating to important issues concerning that contract. As an experienced senior barrister and non-executive director, he gave advice of a legal and practical kind to the staff and executive directors of the White Group. The documents relied on by Mr Grieve do not establish that Mr McAlary’s role in regard to the Quadrant contract was materially different to that he described in his testimony.
I am not persuaded that the judge erred in his acceptance of Mr McAlary’s evidence.
The insolvency of White ACT
White ACT alleged in its summons that as from 30 June 1988 it was insolvent and the Directors knew that that was the case. White ACT spent much time at the trial attempting to establish the veracity of these allegations. The trial judge examined the legal principles to be applied in determining insolvency as well as all the relevant facts. His Honour found that White ACT was not insolvent at 30 June 1998 or at 14 October 1988 (the time of the sale of the White ACT shares to Mr McAlary) or at any other material time up until and including 30 June 1993 (when the last of the alleged divestment of assets by White ACT occurred). White ACT challenges these findings on this appeal.
In my opinion, the question whether White ACT was insolvent at the times alleged is not of direct relevance in the case, that is, in the sense of being a necessary element of White ACT’s cause of action.
White ACT’s claim is based solely on the allegations that the Directors, without regard to the interests of all of White ACT’s unsecured creditors, fraudulently caused White ACT to dispose of its assets for the purpose of leaving nothing available to meet ADC’s claim under the Quadrant contract. Whether White ACT was technically insolvent at a particular time is not a necessary ingredient of these allegations.
Of course, if it were the case that at any particular time or over a particular period the Directors knew that ADC had a very substantial claim for damages against White ACT and, with that in mind, they set about causing White ACT to dispose of its assets, that could readily lead to the inference that the Directors were acting fraudulently as alleged. It is in this sense that the “insolvency” of White ACT over the relevant period bears on the alleged fraud by the Directors.
Accordingly, in my view, it is not necessary to consider whether White ACT was technically insolvent at a given date. The critical question, having regard to the way White ACT put its case, is whether the Directors, at a time when they knew that ADC had a substantial claim for damages against White ACT, caused White ACT to dispose of its assets so as to defeat ADC’s claim by transferring those assets to other companies in the White Group.
I shall, however, for the sake of completeness, deal with the so-called “quarantine” agreement on which the Directors relied in answer to White ACT’s contention that, as at 30 June 1988 (and thereafter), White ACT was technically insolvent.
The balance sheet of White ACT as at 30 June 1988 showed total assets of $26,163,492 and total liabilities of $27,312,607. As McDougall J pointed out, “[t]he great bulk of the total assets was represented by loans from related companies”. The total liabilities included a bank overdraft and “accruals”.
Each of the Directors testified that he understood or believed that there was a policy and practice in the White Group whereby a member of the Group, that was a creditor of another member of the Group, would not call upon the debtor member for repayment of the debt unless the debtor was in a position to pay it.
There was no evidence that this policy and practice had been reduced to or recorded in writing. Nor was there evidence that the companies in the Group had formally adopted the policy and practice. Nevertheless, his Honour concluded that at all material times such a policy and practice was in force and was applied by the companies in the Group.
The judge made this finding principally for four reasons. Firstly, he accepted the evidence of the Directors as to their understanding or belief about the existence of this policy and practice. Secondly, he accepted that their understanding or belief reflected the factual reality. Thirdly, he considered that the existence of such a policy accorded with commercial common sense, having regard to the way in which the Group (and in particular WCL) carried on its operations. Fourthly, he pointed out that the existence of that policy and practice was confirmed by other evidence which he detailed.
His Honour went on to conclude that, by reason of the policy and practice, a demand would not be made by one company against another company in the White Group unless the debtor company could afford to pay the debt. On that basis, he considered that it would not be correct to classify the debts owed by White ACT to other members in the White Group as being payable on demand.
His Honour said that the effect of the arrangements that he had found proved “was to fetter the discretion of the creditor to demand repayment”. His Honour said, “[i]n those circumstances, the better analysis is that the debt was due not on demand but upon a contingency: the contingency being, of course, the ability of the debtor to meet any demand”.
Mr Grieve submitted that whatever practice existed fell far short of an enforceable contract. In my view, however, the evidence supports his Honour’s finding. A contract may be proved without evidence of a formal offer and acceptance (see Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153), and there was sufficient evidence to establish that the White Group members in general and White ACT in particular accepted that such an agreement existed.
The Directors’ belief as to whether ADC had a claim against White ACT arising out of the industrial dispute
Again, McDougall J’s finding that White ACT acted reasonably in its handling of the industrial dispute is a serious obstacle to White ACT in regard to this issue. Once that finding is accepted (and I have expressed the view that it should stand), there are obvious difficulties in establishing that the finding that the Directors did not believe that White ACT might be liable to ADC for a very substantial claim for damages was glaringly improbable or fundamentally inconsistent with inferences drawn from incontrovertible evidence. And, again, there are other matters that support the judge’s findings in regard to the innocence of the Directors’ state of mind.
ADC did not bring proceedings against White ACT until August 1991. In 1994 Mr McAlary sought financial assistance from WCL and another company in the White Group to enable White ACT to defend ADC’s claim. They agreed to provide that assistance. At that time, Mr McAlary spent two weeks attempting to review all the relevant material and discussed the matter with solicitors and counsel and considered an opinion from a well-qualified engineer. Mr McAlary testified:
“In the end I remained of the opinion I had held from August 1988 … namely that unless ADC could establish, the onus being on it, that [White ACT] was guilty of a fundamental breach of contract, the action of ADC in terminating the contract and expelling [White ACT] from the site was a repudiation by ADC of its contractual obligation. Accordingly [White ACT] would succeed unless ADC could discharge the onus on it. From what I knew I did not think that would occur.”
Mr McAlary adhered to this evidence in cross-examination and his Honour accepted that evidence. The judge noted that this testimony was consistent with notes of Mr McAlary’s opinion made by three different persons at three conferences with him. The first was a note made by Mr White on 6 March 1988, the second was a note dated 12 August 1994 written by Mr Morgan of Moray & Agnew, solicitors, and the third was a note dated 3 July 1995 made by a partner or employee of Coopers & Lybrand (the auditors to the White Group).
McDougall J observed:
“I have no doubt that, from time to time (both before and after ADC commenced its proceedings), Mr McAlary conveyed his views to Messrs White, Duncan and Spinks. I have no doubt that they would have accepted those views. It would have been reasonable for them to do so. I have no doubt that it was, partly, because of the views expressed by Mr McAlary that WCL or [another company in the White Group] provided funding to White ACT, after July 1994, to enable it to continue to defend ADC’s claim.”
His Honour concluded on this issue:
“It follows, and I find, that the [Directors] did not believe that ADC had a valid, let alone a substantial, claim against White ACT. On the contrary, I find that they believed that White ACT had right on its side when, after ADC served its notice of termination, White ACT treated that as a repudiation and accepted it as discharging White ACT from further performance.”
White ACT sought to challenge this finding largely on the grounds that his Honour’s credibility findings were erroneous. I have explained why I do not accept White ACT’s arguments in regard to the credibility findings.
White ACT also sought to place reliance on the Directors’ knowledge of the losses that White ACT might or would occur on the Quadrant contract.
On 31 December 1988 the chairman of WCL tabled a half-yearly report in which it was noted that a loss of $2m on the Quadrant contract had been allowed for in the half-yearly results. By January 1988 the board of WCL knew that the loss on the Quadrant contract amounted to some $3m. McDougall J found that at 4 March 1988 the Directors knew that the projected loss on the Quadrant contract was said to be $4.789m. According to written submissions filed on behalf of the respondents, the Quadrant job “was underpriced by several million dollars” although, when ADC terminated the contract, a provision of $3m was allowed for losses on the Quadrant contract.
Despite this evidence, it was not established that the Directors accepted that those estimates of loss were accurate.
I would add that even if the Directors believed that the estimates were accurate, it does not follow that they believed ADC would have a claim against White ACT for a sum equivalent to whatever loss was projected. The evidence is more consistent with a belief on the Directors’ part that the mere fulfilment by White ACT of its obligations under the Quadrant contract could cause White ACT to sustain a loss.
Moreover, even if the Directors had the belief alleged, it does not follow that they believed that White ACT would not be able to bear the loss. The White Group’s gross revenue for the year ended 30 June 1988 from the performance of construction contracts was some $283m. The sales revenue of White ACT as at 30 June 1988 was some $66.3m. On my understanding of the evidence, and having regard to the size and turnover of the White Group as a whole and White ACT in particular, while the Directors would have regarded a loss of about $5m on a single contract as highly unsatisfactory and to be deplored, it was not established that such a loss would be considered to be irrecoverably disastrous. A loss of over $30m might well be seen in a different light, but there was no evidence that suggested that the Directors could have contemplated a loss of that order.
Mr Duncan testified in regard to his knowledge of an anticipated $3m loss on the Quadrant contract and stated, “[i]n my experience, whilst a job may indicate a negative cash position during the course of the job, that does not necessarily reflect the ultimate profit or loss on the job as costs which are incurred on the job may subsequently be the subject of successful claims for variations and the like”. Mr McAlary gave similar evidence.
In my view, the finding by McDougall J that, at the relevant time, the Directors did not believe that ADC had a substantial claim for damages against White ACT was not glaringly improbable, was not contrary to compelling inferences and was not inconsistent with incontrovertible facts. This, in substance, disposes of the appeal as, unless White ACT demonstrates appealable error on this issue its allegation of fraud must fail. For the sake of completeness, however, I shall continue to deal with the other arguments raised.
The first set of divestment transactions
White ACT submitted that early in 1988 the Directors realised that the losses under the Quadrant contract would be at least between $3m and $5m (and closer to $5m than $3m) and at that stage they conceived the idea of removing the assets from White ACT so as to frustrate ADC’s claim. The implementation of this initial plan, it was submitted, was later reversed by the intervention of the auditors of White ACT, but it does, so the argument goes, assist in explaining the later divestment of White ACT’s assets.
These allegations concerned the hard dollar contracts and the CNCC contracts. Both were substantially profitable contracts.
WIL entered into the hard dollar contracts and the CNCC contracts with the proprietors. White ACT was a sub-contractor and an agent of WIL for the hard dollar contracts, and the project manager for WIL for the CNCC contracts. By the various sub-contracts, agency contracts and management contracts between WIL and White ACT, White ACT undertook to fulfil the obligations that WIL owed the proprietors under each of the hard dollar and CNCC contracts. White ACT thereby became entitled to be paid by WIL all, or a substantial part of, the sums to which WIL became entitled from the proprietors under those contracts.
On 3 March 1988 WIL wrote a letter to White ACT concerning the hard dollar contracts and White ACT wrote a letter to WIL concerning the CNCC contracts. Both letters were backdated to 29 February 1988. These letters were described at the trial as the “leap year letters”. White ACT submitted that the leap year letters were written to implement a plan for the fraudulent divestment by White ACT of its rights to the profitable hard dollar and CNCC contracts.
The leap year letter from WIL to White ACT was written by Mr Spinks and concerned the hard dollar contracts. It commenced by stating that the “clients” under the hard dollar contracts had not given their “consents” (implicitly to the arrangements set out in the sub-contract agreements between WIL and White ACT). The letter then stated:
“We consider that as, and from, 1 March 1988 Clause 12.2 of the Agreement should be invoked. We, therefore, instruct you to cease carrying out the Projects on our behalf.”
The second leap year letter was written by Mr Duncan on behalf of White ACT to WIL and concerned the CNCC contracts. It stated, relevantly:
“From a review we recently conducted, we estimate that in respect of the above Project, approximately $250,000 will have to be paid by this Company for Financial Institutions Duty if the current system of payments under the Contract continues.
We consider that this expense can be avoided in the following way, namely, by you making the payments direct on our certification. Therefore, we propose that the obligations on this Company to pay, as your agent, the subcontractors and consultants on the Projects be altered; that you take over this obligation. We will provide certified progress claims in respect of each Project to enable the relevant payments to be made.”
The White Group’s solicitor prepared drafts of the leap year letters on 1 March 1988 pursuant to discussions with Mr Shaw of WCL on 29 February 1988. Mr Shaw faxed the drafts to Mr McAlary on 2 March 1988 and Mr McAlary settled them. The letters were thereafter dated 29 February 1988, signed and sent. At the trial White ACT sought to make some point of the fact that the letters were backdated to 29 February 1988, which was the date on which the crane crew was dismissed and the other workers on the Quadrant project were stood down. The judge rejected these contentions and I can see nothing sinister in the backdating. The backdating could not have afforded the Directors any relevant advantage.
Mr Grieve placed considerable importance on the leap year letters. He submitted that their effect was to remove the benefits of the hard dollar and CNCC contracts from White ACT.
Mr Grieve pointed out that the effect of the leap year letter relating to the hard dollar contracts was to terminate the sub-contract agreement between WIL and White ACT (although it did not purport to terminate the agency contracts).
He also drew attention to the fact that, after the leap year letters had been written, three entities called “Company 22”, “Company 87” and “Company 91” were created in the books of White ACT. Despite the nomenclature, these entities were only “divisions” of White ACT, not separate companies. The Quadrant contracts were attributed to Company 22, the hard dollar contracts to Company 87 and the CNCC contracts to Company 91.
Mr Grieve submitted that the Directors’ plan was that the money earned by White ACT for Company 87 (through the hard dollar contracts) would “flow out to WIL” and some unidentified company in the White Group would be the ultimate recipient of the moneys earned by White ACT through the CNCC contracts for Company 91.
There was no direct evidence of this fraudulent plan. White ACT relied only on inference from other evidence in an attempt to establish its existence.
McDougall J did not accept White ACT’s argument in this regard.
McDougall J found that from 1 March 1988 the accounts of White ACT recorded transactions by reference to the three notional operating entities known as Company 22, Company 87 and Company 91. When the final accounts of White ACT were signed and published, the results of these three entities were consolidated for the purpose of producing the annual financial statements of White ACT. Therefore, in fact, the separation of White ACT’s financial affairs in its books as between these three entities had no effect on its results as finally reported.

White ACT was not able to refer to anything in the evidence that rendered glaringly improbable, or contrary to compelling inferences, or contrary to incontrovertible evidence in the case, the judge’s finding that the Directors had not been involved in the levying of the management fees and the various accounting activities relating to them. The same must be said about the findings that there was no proper basis for suspecting impropriety in the charging of management fees and that, had the Directors had been aware of the method and amount of calculation of management fees from year to year, they would have been entitled to rely on the auditors’ approval of the fees charged.
It follows that White ACT’s arguments in relation to the management fees must be dismissed.
The Jones v Dunkel argument
White ACT submitted that the judge misapplied the rule in Jones v Dunkel (1959) 101 CLR 298.
In several passages in McDougall J’s judgment he drew attention to the fact that “matters on which the [Directors] were cross-examined could have been illuminated had evidence been called from former employees of White ACT”. His Honour accepted that many employees had died in the interim period but others were not shown to have died or to be unavailable. His Honour said:
“In assessing the credibility of the [Directors], I take into account, adversely to the criticisms that are now made, the unexplained failure of White ACT to call witnesses whom, in the ordinary course of events, it might have been expected to call to make good at least some of the criticisms that it has put.”
White ACT submitted that, given the statutory responsibilities of the Directors for the management of White ACT’s affairs, a Jones v Dunkel inference should have been applied adversely to them.
In the light of the long period of time between the events in question and the trial, and the change in the character of the business of the White Group, it was not possible to say, without evidence, that a particular employee was within one camp or another.
Jones v Dunkel does not apply where a witness is dead or cannot be found or is not available or is shown to be of little worth. But a party who bears the onus, and omits to call a relevant witness without any explanation as to why that witness is not called, may find that the judge has regard to that omission when evaluating whether the onus has been discharged. That is particularly the case where the allegations made by the party not calling the witness concern fraudulent or improper conduct: see Cook’s Construction Pty Ltd v Brown and Anor (as liqs of DML Resources Pty Ltd (In Liq)) (2004) 49 ACSR 62 at 67 – 68.
As White ACT gave no explanation for the omission to call potentially important witnesses, his Honour was entitled to take that into account.
Conclusion as to the allegations of fraudulent purpose
I have dealt with the separate arguments raised on this issue by White ACT on an individual basis. I am conscious of the fact that, although each on its own may not be grounds for interference with the judge’s findings, when taken together they have greater collective force, and regard must be had to that. I have taken account of the additional weight White ACT’s arguments must have when taken as a whole, that is, as an inter-connected assembly of facts and inferences. I am unpersuaded that when seen in this light they establish that his Honour’s findings were in conflict with incontrovertible documentary evidence, or were glaringly improbable or contrary to compelling inferences in the case.
In my opinion, individually and when looked at as a whole, the arguments of White ACT do not establish that any of the judge’s relevant factual findings (in particular the finding that there was no fraud on the part of the Directors) were glaringly improbable, or contrary to compelling inferences, or inconsistent with incontrovertible facts established by the evidence.
For this reason, too, in my opinion, the appeal should be dismissed.
There are other grounds, as well, on which I would dismiss the appeal, and I shall proceed to deal with those.
The appellant’s cause of action and the relief sought
White ACT’s claim is not a claim by a liquidator for recovery of undue preferences under s 565 of the Corporations Act 2001 (Cth) or a claim by a liquidator for recovery of property or compensation under Pt 5.7B of that Act for the benefit of creditors of insolvent companies. It is also not a claim by “an eligible applicant” under s 598(2) of that Act for an order that the Court “thinks appropriate”. These are proceedings taken by the company itself (albeit that is under winding up) for relief that it has had difficulty in identifying with precision.
Mr Grieve said that this is a “case brought under the general law to avoid payments made by the company at the behest of its directors in breach of their duties to it”. He said that White ACT’s case was that, in consequence of those breaches, “the respondent directors were guilty of fraud upon it”. He asserted that the claim was for breach of fiduciary duties (although, I do not think he meant to abandon the claim that there was a breach by the Directors of their statutory duties as alleged in the summons).
In its summons White ACT claimed “damages” and, apart from costs and interest, nothing further.
On the seventh day of the trial, Mr Grieve handed up short minutes of orders to the judge. In those short minutes the principal relief claimed was a declaration that the loss and damage incurred by White ACT in consequence of the breaches of duty by the Directors was $20,672,029.36. Orders were sought for payment of that sum, interest and related relief. No claim was made for restitutionary relief.
At the commencement of his argument on appeal, Mr Grieve said that the claim was for “equitable damages”. He submitted that the appellant was not claiming “compensatory damages by reason of the loss that was inflicted on it at law”.
Subsequently, Mr Grieve suggested that the relief that should be ordered was an enquiry as to damages.
Later in his argument Mr Grieve said:
“[T]he loss is the suffering by the company of a null administration of its affairs. It is not a loss that can be quantified in so many dollars …the loss is the loss suffered by the company as a consequence of the fact that its affairs have been administered in a manner other than the manner to which it was entitled to have them administered.”
He referred to Walker v Wimborne (1976) 137 CLR 1 and Re Yorke (Stationers) Pty Ltd (In Liq)[1965] NSWR 446.

At the trial, as McDougall J remarked, the damages sought by White ACT “would appear, from paragraph 18 of the statement of contentions, to be referable to the alleged divestiture of assets and the alleged divestiture of future revenues”. His Honour concluded, however, that White ACT had suffered no loss.
Mr Grieve accepted that he was now arguing that White ACT had suffered some kind of damages that it had not so far attempted to prove. He acknowledge that the loss which White ACT was now contending that it had suffered was not a loss that it sought to establish at the trial and it had not led evidence about that.
Also, in the course of argument on appeal, Mr Grieve said that White ACT was claiming restitutionary relief. He submitted that all of White ACT’s assets that existed in early October 1988 should be restored to it and all of its liabilities reinstated (these included the bank overdraft – and the bank was not a party to the litigation). Mr Grieve explained that that was the restitutionary claim that White ACT was making.
Eventually, Mr Grieve said:
“We are claiming primarily the restitution of the orders [sic - restitutionary orders]. Now if your Honours are against us on that we are claiming an order for an enquiry as to damages before the Master, and the subject matter of that enquiry, or the purpose of the enquiry would be to ascertain the degree to which White ACT’s capacity to pay a rateable dividend to its unsecured creditors including ADC was diminished by the transactions of which we complained.”
In summary, on appeal, White ACT’s position was as follows:
(a)The primary relief sought was a claim for restitution; that is, for orders that would have the effect that all White ACT’s assets to which it was entitled in early October 1988 should be restored to it and all of its liabilities at that time be reinstated (nothing was said about the later management fees, but plainly these, too, are the subject of the claim for restitutionary relief).
(b)In the alternative, White ACT claims an enquiry as to damages, those damages being “[t]he loss suffered by the company as a consequence of the fact that its affairs have been administered in a manner other than the manner to which it was entitled to have them administered.”
(c)Thus, White ACT does now not seek to make good its contention before McDougall J that it had suffered financial loss resulting from the divestiture of assets; the alternative claim is for an enquiry into damages sustained on a completely different basis.
The failure to raise the restitutionary claim, properly, at the trial
McDougall J commented on this claim as follows:
“The foundation of that claim was said to lie in its entitlement to avoid the accounting transactions that were effected on about 14 October 1988.
It was not pleaded that the transactions were voidable or, indeed, that they had been avoided. As to the latter, the case put in submissions was that they had been avoided by the institution of proceedings. However, I do not think that this argument is sustainable. The pleaded case was, in substance, that the impugned transactions were effective and, as I have said, that White ACT was entitled to damages in respect of their consequences.
Because no restitutionary claim has been pleaded, it is impossible to do more than indicate some of the factors that would have been relevant. One, of particular significance, is that the transactions affected not just White ACT, but also many other companies in the White Group. If restitution were to be effected then, one would think, it would be on the basis that White ACT did equity. In this context, if it were possible to do equity – a matter on which, since it was not pleaded and not explored in evidence, I can express no view – it might include, for example, restoring the debts owed by White ACT as the price of restoring the debts owed to it. Further, precisely how equity could be done in respect of the payment out of White ACT’s overdraft is a matter for speculation.”
As no restitutionary claim was advanced at trial until the closing addresses, many matters relevant to such a claim were simply not investigated. White ACT could have led evidence on these issues but, as the restitutionary case had not been pleaded, it did not do so. I would add that White ACT has never sought to amend its pleadings to claim restitutionary relief.
Mr Rayment submitted that other companies in the White Group had altered their position to their detriment in the belief that the transactions now sought to be set aside were valid and that there had been no investigation of the issues involved in that question.
In addition to the matters referred to by McDougall J and the respondents, there was no investigation as to what effect the restitutionary claim could have on the bank (in regard to the discharged overdraft) and those entities involved in the discharge of White ACT’s guarantees of overdrafts afforded to other companies in the White Group. In my opinion, it is not possible, on the evidence, to determine whether restitution could practically be effected and whether it would be equitable to do so.
I would add that I have serious reservations about the legal basis of White ACT’s claim for restitutionary relief. In view of the conclusions to which I have come as to the other issues in the appeal, however, I do not propose to canvass these matters.
In my view, the claim for restitutionary relief must be rejected on the grounds stated by McDougall J and the additional grounds referred to above.
The alternative claim for an enquiry into damages
At the trial, McDougall J dealt with the damages then claimed by White ACT (being referable to the alleged divestiture of assets and future revenues) as follows:
“The transactions that were implemented on about 14 October 1988 did not affect the net liability position of White ACT in any way. Mr Watson’s evidence makes this clear. In substance, what happened was that White ACT obtained full value for some assets and gave full value for the discharge of some liabilities. The value received was equal to the value given.
It is correct to say that, overall, the gross assets of White ACT were substantially diminished as a result of those transactions. However, as I have just indicated, the amount of its liabilities was decreased by the same amount (and as the reciprocal element of those transactions).
It is also correct to say that, as a result of the transactions, the assets available to meet the claims of unsecured creditors were diminished, so that any unsecured creditor whose claim was not dealt with as part of the transactions might not have received as much, on a winding up, as it would have received had the transactions not occurred. But that, of itself, does not seem to me to occasion any loss to White ACT.”
Thus, as I have noted, his Honour concluded that White ACT had suffered no loss.
As mentioned, White ACT does not now contend that it suffered loss of the kind argued before McDougall J and puts its claim on a completely different basis, being “[t]he loss suffered by the company as a consequence of the fact that its affairs have been administered in a manner other than the manner to which it was entitled to have them administered”. It was not said that the maladministration caused financial loss to White ACT itself.
In my view, it is now not open to White ACT to bring such a claim on appeal. The issues involving such a loss were not raised at the trial, no explanation has been given for not raising the claim for damages on this basis earlier, and the trial and the appeal have been long, arduous, and, no doubt, expensive to all. In my opinion, the principles relating to the finality of litigation preclude White ACT, for the first time, during argument on appeal, raising the possibility that it had suffered damages of the kind now contended for and seeking an order for an enquiry as to those damages.
White ACT submitted that Griffin v Mercantile Bank (1890) 11 LR (NSW) Eq 231 was an example where a court had allowed a claim for an enquiry as to damages to be raised at such a late stage. In Griffin, by a majority, the Full Court of the Supreme Court of New South Wales, having accepted that a decree of specific performance should be granted, ordered an enquiry into damages even though no claim for an enquiry had been made. The basis of the decision by Foster J was the fact that, despite the granting of specific performance of the agreement, the plaintiff would be left still suffering loss. His Honour held that in those circumstances, even though an enquiry into damages had not been claimed, the court had a discretion to direct an enquiry to be held (see at 252). Manning J was of a similar view (see at 258 – 259). Stephen J dissented.
Whether Griffin would be decided in the same way today is open to question. In any event, however, the decision to order an enquiry as to damages was linked to the consequences following an order for specific performance where that order was found to be inadequate compensation, and for that reason the case is distinguishable. The enquiry ordered in Griffin was ancillary to the principal relief. That cannot be said about White ACT’s claim for an enquiry.
A more modern case is Cotogno v Lamb (unreported, NSWCA, 9 August 1985). The plaintiff claimed damages, including exemplary damages, for trespass. At virtually the last moment in the hearing of the appeal, the plaintiff (the appellant) sought an amendment to the grounds of appeal by which he formulated, for the first time, a claim that he should be awarded aggravated damages. By a majority, the court refused the application, the principal ground being that the plaintiff had made no such claim at the trial and no evidence had been called directed to that issue.
Mahoney JA said that in such a case it is to be expected that the applicant for such an amendment would provide a sufficient explanation of why the claim was not made at the trial, and why a new trial should be granted in relation to the issue notwithstanding the long established attitude of the courts to new trials. His Honour noted that the grant of the amendment involved an exercise of discretion and referred to the factors relevant to that exercise. These included “[t]he evil involved in the grant of a new trial, both in respect of the parties and in respect of the administration of justice generally”. McHugh JA agreed with the judgment of Mahoney JA. Kirby P dissented on the ground that a “fundamental mistake” had occurred and “the demands of justice would not be served adequately by holding the appellant to the case presented before the Master”.
In my opinion, the considerations that moved Kirby P to dissent in Cotogno v Lamb do not exist in this case. White ACT has not suggested that its omission to claim the damages was a “mistake” on its part (whether fundamental or otherwise), and for my part the interests of justice would be served by bringing this litigation to an end.
White ACT suffered no loss
In any event, I do not think that the nature of the damage asserted by White ACT constitutes loss recoverable at law.
As I understand the argument White ACT now advances, the Directors’ maladministration caused fraudulent preferences to be effected to the financial detriment of ADC, not White ACT. This, White ACT asserts, entitles it to rescind all the dispositions amounting to those preferences and recover them.
But any recovery of moneys paid as fraudulent preferences would be held on trust for unsecured creditors (N A Kratzmann Pty Ltd v Tucker [No 2] (1968) 123 CLR 295 at 300-301; Re Yagerphone Ltd [1935] Ch 392, ADC being, it seems, the only unpaid unsecured creditor. The claim is under the general law and the reservations as to this issue expressed in Geneva Finance Ltd v Resource & Industry Ltd (2002) 169 FLR 152 at 159 in regard to the proceeds of statutory claims for preferences do not apply. Thus, even on the new basis now sought to be argued, the claim is not for financial loss to White ACT, but – in substance (although not in form) – to ADC.
For White ACT to be able to recover damages for breach of fiduciary duties as alleged, it must prove that it sustained financial loss. In Cavendish Bentinck v Fenn (1887) 12 App Cas 652 Lord Herschell (at 661 - 662) said:
“I think that in order to establish a claim to relief [under 165 of The Companies Act 1862 (Eng), the original legislation to which s 598 of the Corporations Act is a successor] it would be necessary only to shew a breach of duty but to shew a breach of duty which resulted in pecuniary loss to the company. It may be perfectly true that where there is a duty, whether arising out of a contract or otherwise, by one person to another an action will lie in respect of a breach of that duty although no substantial damage has been suffered. In an action nominal damages may be recovered wherever a breach of duty is shewn. But I certainly do not think that any such doctrine can be applied to the 165th section. … Now there is no duty or breach of duty to the company in respect of which a creditor or contributory can maintain an action, but he has a right to this extent, that if owing to a misfeasance or breach of duty the funds of the company in which he is interested have been diminished those funds shall again be made good and the assets of the company shall be recouped the loss which they have sustained. And, therefore, I think, that assuming that a breach of duty such as is suggested would be a misfeasance giving rise to an application under the 165th section such an application could only succeed when it could be shewn that the breach of duty had resulted in loss to the funds and assets of the company.”
Lords Watson, FitzGerald and McNaughten agreed.

In Couve v J Pierre Couve Ltd (In Liq) (1933) 49 CLR 486 Dixon J (at 495) accepted that actions for misfeasance against an officer of a company are limited to breaches of duty that have caused pecuniary loss to the company. See also Geneva Finance Ltd v Resource & Industry Ltd.
Nothing in Walker v Wimborne (relied on by White ACT) is to the contrary. White ACT also relied on Re Yorke (Stationers) Pty Ltd (In Liq)but that case involved a claim for restitution and does not assist.
White ACT has not established that it suffered any pecuniary loss by reason of the alleged misfeasance by the Directors and its claim for an enquiry into damages must fail on this ground as well.
The limitation defence
McDougall J said that, had it been necessary for him to have considered the limitation defences raised by the respondents, he would have concluded:
“(1)The claims for breaches of statutory duty (said to arise under the Companies Code or the Corporations Law) were statute barred: see s 14(1)(d) of the Limitation Act 1969 (NSW); and
(2)The allegations of breach of fiduciary duty were barred either by the application of s 48 of the Limitation Act, or, more likely, by analogy thereto.”
In holding that the Limitation Act 1969 (NSW) would apply by analogy, his Honour referred to Williams v Minister, Aboriginal Land Rights Act 1983 (1994) 35 NSWLR 497, Nuthall v Nuthall [2001] NSWSC 950 and Meagher, Gummow and Lehane’s Equity Doctrines & Remedies, 4th ed, at [34-085] to [34-100]. I would add that the doctrine of analogy has also been recognised in Safetycare Australia Pty Ltd v Maxwell [1999] VSC 353 and The Duke Group Ltd (In Liq) v Alamain Investments Ltd [2003] SASC 415.
White ACT did not challenge the direct application of the Limitation Act or its application by analogy but, in effect, sought to avoid the consequences of this defence by relying on the fraudulent conduct alleged. As the allegation of fraud fails, the limitation defence cannot be resisted.
Conclusion
I would dismiss the appeal against the orders made by McDougall J dismissing White ACT’s claim and granting judgment in favour of the respondents.
White ACT also sought, separately, to appeal from the costs order made by his Honour but conceded that the result of the appeal against that order would depend upon the appeal against the substantive decision made by the judge. As I would dismiss the appeal against his Honour’s judgment in favour of the respondents, I would dismiss the appeal in respect of costs.
I would order White ACT to pay the respondents’ costs of the appeals.
McCOLL JA: I agree with Ipp JA.

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LAST UPDATED: 17/06/2005