White Constructions (ACT) Pty Ltd (in liq) v White - [2004] NSWSC 71

No judgment structure available for this case.

Reported Decision:
49 ACSR 220

Supreme Court

CITATION: White ACT (In Liquidation) v G B White & Ors [2004] NSWSC 71 revised - 7/02/2005

HEARING DATE(S): 3/11/03, 4/11/03, 5/11/03, 6/11/03, 7/11/03, 10/11/03, 11/11/03, 12/11/03, 13/11/03, 14/11/03, 17/11/03, 18/11/03, 19/11/03, 20/11/03, 21/11/03, 24/11/03, 25/11/03, 26/11/03, 27/11/03, 28/11/03, 1/12/03,
2/12/03, 3/12/03, 4/12/03, 8/12/03, 9/12/03, 10/12/03, 11/12/03

JUDGMENT DATE:
25 February 2004

JUDGMENT OF: McDougall J at 1

DECISION: See paragraph [555] of judgment

CATCHWORDS: CORPORATIONS - directors' duties - fraudulent breach of duty - whether actual knowledge required - whether acting as de facto directors - divestiture of assets - whether purpose of transactions to leave no asset to meet future claim - INSOLVENCY - whether reasonable grounds to expect insolvency - whether unliquidated damages are a debt due and payable - whether failure to have regard to interests of unsecured creditor - PRACTICE AND PROCEDURE - whether pleaded case extended to non-intentional breach of duty - case opened beyond pleadings - whether plaintiff should be held to pleaded case

LEGISLATION CITED: Limitation Act 1969
Corporations Act 2001
Companies Code
Corporations Law

CASES CITED: Australian Securities and Investments Commission v Plymin (No 1) [2003] VSC 123
Boardman v Phipps [1967] 2 AC 46
Brunskill v Sovereign Marine & General Insurance Co Ltd (1985) 59 ALJR 842, 844
Constantinidis v JGL Trading Pte Ltd (1995) 17 ACSR 625, 636
Devries v Australian National Railways Commission (1993) 177 CLR 472, 479
Dunn v Shapowloff (1978) 2 NSWLR 235, 244
Emanuel Management Pty Ltd v Foster's Brewing Group Ltd [2003] QSC 205
Geneva Finance Ltd v Resource & Industry Ltd (2002) 169 FLR 152
Hamilton v Kaljo (1989) 17 NSWLR 381
Iso Lilodw' Aliphumeleli Pty Ltd (in liq) v Commissioner of Taxation (2002) 42 ACSR 561
Keech v Sandford (1726) Sel Cas t King 61; 25 ER 223
Nocton v Lord Ashburton [1914] AC 932, 954
Norberg v Wynrib [1992] 2 SCR 226, 272
Nuthall v Nuthall [2001] NSWSC 950
Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165, 196-199
Re Hyams: Official Receiver v Hyams (1970) 19 FLR 232
Re Saebar: Official Receiver v Saebar (1971) 18 FLR 317
Re Wise: ex parte Mercer (1886) 17 QBD 290
Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213
Totterdell v Nicol-Burmeister (1995) 13 ACLC 1521
Wicks v Marsh, ex parte Wicks [1993] 2 Qd R 583, 585
Williams v Minister, Aboriginal Land Rights Act 1983 (1994) 35 NSWLR 497

PARTIES :
White Constructions (ACT) Pty Limited (in liquidation)
v
Geoffrey Bernard White (First Defendant)
Travers William Duncan (Second Defendant)
John William Spinks (Third Defendant)
Frank Stratton McAlary (Fourth Defendant)
Michael Frank McAlary (Fifth Defendant)
White Constructions Pty Limited (formerly known as White Constructions Limited) (Sixth Defendant)
Exxon Coal Australia Pty Limited (formerly known as White Industries Limited) (Seventh Defendant)
PDC Constructions Pty Ltd (Eighth Defendant)
White Industries (Qld) Pty Limited (Ninth Defendant)
White Constructions Incentive Share Scheme Pty Limited (Tenth Defendant) [Deleted]
WIL Civil and Mining Engineering Pty Limited (formerly known as Keathson (WA) Pty Ltd and as WIL Plant Hire Pty Limited) (Eleventh Defendant)
White Constructions (NT) Pty Limited (Twelfth Defendant)
Norwest Development Corporation Limited (Thirteenth Defendant) [Deleted]
PDC Plant Hire Pty Ltd (Fourteenth Defendant)
White Constructions (NSW) Pty Ltd (Fifteenth Defendant)
White Property Developments Pty Limited (Sixteenth Defendant)
White Industries Australia Limited (Seventeenth Defendant)

FILE NUMBER(S): SC 50144/02

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

SOLICITORS: Deacons (Plaintiff)
Mallesons Stephen Jaques (Defendants)

INDEX

White Constructions (ACT) Pty Ltd (In Liquidation) v G B White & Ors

No. 50144/02

INTRODUCTION Para 1

BACKGROUND MATTERS 8

The White Group 8

History of prior and present litigation 15

ISSUES BETWEEN THE PARTIES 18

The pleadings 18

The parties’ stated issues 46

The relief sought 68

RELEVANT CONTRACTUAL DOCUMENTS 72

The Quadrant Contract 72

The “hard dollar” subcontract and agency agreements 82

The CNCC agency agreement 89

The design and construction management agreements 93

THE KEY AREAS OF DISPUTE 98

CREDIBILITY 104

Mr Frank McAlary 115

Mr Duncan 144

Mr White 156

Mr Spinks 161

Mr Michael McAlary 163

THE SALE OF WHITE ACT 165

THE OCTOBER 1988 ACCOUNTING ENTRIES 178

Conclusions on the 1988 accounting entries 205

MANAGEMENT FEES AND OTHER CHARGES 206

Management fees: 1988 210

Management fees: 1989 236

Management fees: 1990 247

Management fees and other charges: 1992 251

Management fees and other charges: conclusions 258

INSOLVENCY 261

The relevant circumstances 261

Expert evidence 277

Legal principles 287

Analysis and conclusions 295

THE DIRECTOR DEFENDANTS’ STATE OF MIND: INSOLVENCY 320

THE QUADRANT INDUSTRIAL DISPUTE 331

Industrial background 331

The reasons of Giles CJ Comm D 333

The 1988 industrial dispute 338

The evidence of Mr Fischer 394

The evidence of Mr Berry 428

The evidence of Messrs Gartrell, Lamont and Wason 444

THE DIRECTOR DEFENDANTS’ STATE OF MIND: THE INDUSTRIAL DISPUTE 455

RESOLUTION OF THE ISSUES ON THE PLEADINGS 471

Paragraphs 2 & 3: who were directors? 473

Paragraph 10: insolvency 475

Paragraph 11: director defendants’ knowledge of insolvency 476

Paragraph 12: White ACT’s contractual obligations 479

Paragraph 13: director defendants’ knowledge of likelihood of loss under the Quadrant contract 480

Paragraphs 14 & 15: notice of intention to terminate/notice of termination of the Quadrant contract 482

Paragraph 16: director defendants’ knowledge relating to termination of the Quadrant contract 485

Paragraph 17: judgment in ADC’s favour 488

Paragraph 18: divesting White ACT of assets and future revenues 490

Paragraph 19: purpose 491

Paragraph 20: intercompany debts 493

Paragraph 21: extinction of intercompany loans 496

Paragraph 22: offsetting of debts 499

Paragraph 23: sale of White ACT 502

Paragraphs 24 & 25: agreement to pay claims of creditors 503

Paragraph 26: resignations 507

Paragraphs 27 & 28: de facto directors 508

Paragraph 29: further payments by White ACT to WCL, 1989-1992 515

Paragraphs 30 & 31: fiduciary relationship and obligations 520

Paragraph 32: no approval 523

Paragraph 33: breach of duties in relation to the October 1988 journal entries 525

Paragraph 34: breach of duties in relation to the management fees and other charges 529

Paragraph 35: limitation and other matters 533

Paragraph 36: knowing involvement 534

Damages 535

Specific defences 549

CONCLUSION AND ORDER 554

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

McDOUGALL J

25 February 2004

50144/02 WHITE CONSTRUCTIONS (ACT) PTY LTD (In Liquidation) v GEOFFREY BERNARD WHITE & ORS

JUDGMENT

HIS HONOUR:

INTRODUCTION

1 On 30 June 1988 the plaintiff (“White ACT”) was a wholly owned subsidiary of the sixth defendant (then known as White Constructions Ltd) (“WCL”). 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.

2 The great bulk of the total assets was represented by loans to related companies. A substantial proportion of the total liabilities was represented by loans from related companies. The other components of the total liabilities included a bank overdraft and “creditors and accruals”.

3 At all material times up until 14 October 1988, the directors of White ACT were the first to third defendants (respectively “Mr White”, “Mr Duncan” and “Mr Spinks”). On 14 October 1988, WCL agreed to sell the whole of the issued capital in White ACT to the fourth defendant (“Mr Frank McAlary”). For convenience I shall refer to the first to fourth defendants collectively as the “director defendants”. Messrs White, Duncan and Spinks resigned as directors on 28 November 1988 and Mr Frank McAlary and one of his sons, the fifth defendant (“Mr Michael McAlary”), were appointed directors of White ACT.

4 On 6 February 1998, the Federal Court of Australia, on the application of Australian Development Corporation (“ADC”), ordered that White ACT be wound up on the ground of insolvency. The report as to its affairs verified by Mr Frank McAlary showed that the sole remaining asset of White ACT was $328 in cash. Its principal liability was an amount of $33,593,268 plus interest owed to ADC under a judgment of this Court.

5 White ACT held the necessary licence to enable it to undertake building works in the Australian Capital Territory. As at June and October 1988, it had on hand work relating to a number of contracts, including contracts relating to the Canberra National Convention Centre (“CNCC”) project and six contracts for works in various parts of the ACT that were referred to as, and that I shall call, the “hard dollar contracts”. White ACT says that the contracts to which I have referred were, as at June and October 1988, and were expected to remain thereafter, profitable.

6 On 25 February 1987, White ACT entered into a contract with ADC for the design and construction of a building known as the “Quadrant” building. ADC terminated that contract on 11 August 1988 for breach on the part of White ACT. (I interpose that, although White ACT denied that it was in breach, and denied that ADC was entitled to terminate, this Court has upheld ADC’s termination and, as I have mentioned, has awarded ADC very substantial damages.)

7 White ACT’s case in these proceedings is that, both before and after 14 October 1988, the director defendants planned, and caused White ACT to enter into, a series of transactions, the effect of which was to utilise its assets to repay intercompany debt, and to divert its income under the CNCC and hard dollar contracts to other members of the White Group. White ACT says that this was done deliberately, at a time when those defendants knew that White ACT was insolvent and had a very substantial, although then unquantified, liability to ADC for damages arising out of White ACT’s breach, and ADC’s termination, of the Quadrant contract. White ACT says that the sole purpose of those transactions was to ensure that ADC would not be paid.

BACKGROUND MATTERS

The White Group

8 The seventh defendant (“WIL”) started life as a company known as Birdsall Earthmoving Pty Ltd. Mr White bought a 50% interest in that company in about 1967 and it changed its name to Birdsall & White Pty Ltd. He bought out the other shareholders in about 1969 and the company changed its name to G B White Pty Ltd.

9 That company was floated in 1972, under the name White Industries Ltd, and remained a listed public company until it was privatised in 1986. Along the way, in about 1979, WIL took over the sixth defendant (“WCL”), which was then a listed public company known as Project Development Corporation Ltd (“PDC”). Thereafter, the activities of the White Group included property development, construction, civil engineering and coal mining. (I interpose that, at some stage, the White Group had also held extensive pastoral interests in the north west of Australia.) For a time, after the takeover of WCL, WIL and WCL were both engaged in construction activities.

10 Mr Frank McAlary had become a director of PDC in the mid 1960s. That company carried on business in the fields of property development, construction and civil engineering. It operated through a number of subsidiaries, including White ACT (then known as Project Development Corporation (ACT) Pty Ltd). White ACT under its former name had undertaken significant construction works in the ACT and Mr Frank McAlary had been very much involved in those activities.

11 WCL was floated in 1987. Before this was done, the activities of the White Group were reorganised so that, in substance, the property development, coal mining and civil engineering activities were carried on by or under the control of WIL and the construction activities were carried on under or by the control of WCL. (By this time, the White Group had quit its pastoral interests.) In July 1988, WCL agreed to merge its operations with those of the Thiess Watkins Group. That arrangement came to an end in 1990 and at some time thereafter WCL was privatised.

12 In the meantime, in late 1988, it was decided that the White Group would sell its coal interests to Exxon. It appears that WIL held all the Group’s coal mining assets. The sale was effected by removing all non-coal assets from WIL and then selling that company to Exxon. It then became known as Exxon Coal Australia Pty Ltd. It appears that the non-coal assets of WIL were vested in the seventeenth defendant (“WIAL”).

13 The structure of the White Group, in so far as the remaining defendants are concerned, can be briefly summarised as follows.

14 WCL itself was at all material times a subsidiary of WIL. The eighth, ninth, eleventh, twelfth, fourteenth and fifteenth defendants were at all material times wholly owned subsidiaries of WCL, as were companies known as White Constructions Incentive Share Scheme Pty Ltd (“WCISS”) and Norwest Development Corporation Limited (“NDC”). It is alleged, and I think is the fact, that Mr White and his family at all material times held ultimate shareholding control, through a family company, of the sixth, seventh, eighth, ninth, eleventh, twelfth, fourteenth, fifteenth, sixteenth and seventeenth defendants and of WCISS and NDC.

History of prior and present litigation

15 There has already been a substantial amount of litigation arising out of the Quadrant project. ADC was the plaintiff in the most significant piece of litigation – proceedings No. 55041 of 1991 in this Court. It has funded other litigation, including examinations conducted by White ACT’s liquidator in the Federal Court of Australia and the present litigation.

16 A chronology of the prior litigation, which links it to the present litigation, has been agreed between the parties as follows:

September 1992
to February 1993 7 day Reference before the late the Hon Mr D.A. Yeldham Q.C .

July 1993 2 day hearing before Giles J concerning the adoption of Yeldham’s Report.

14 October 1993 Findings by Giles J that (notwithstanding the report of Mr Yeldham) ACT did not contract as agent of WIL, and (adopting Mr Yeldham’s report in this respect) that WIL did make the representation and that ADC had relied upon it.

February 1994 WCL joined as a party to the proceedings by ADC claiming that it had induced ACT to breach its contract with ADC.

October 1995 22 day hearing before Giles CJ Comm D.

Trade Practices Act

9 February 1996 Costs order made against ACT in favour of ADC in respect of proceedings before Giles CJ Comm D.

16 May 1997 Order for further reference before Mr Morrisey to determine the quantum of any loss suffered by ADC as a result of ACT’s breach of contract and WIL’s misleading and deceptive conduct.

6 June 1997 ACT ordered by Hunter J to make an interim payment of $290,989.35 to ADC on account of costs.

6 February 1998 Order for the winding up of ACT.

20 March 1998 Order granting ADC leave to proceed against ACT.

1 June 1998 Report of Mr Morrisey. Mr Morrisey reports that ADC suffered no loss as a result of Mr Amann’s misleading conduct. He finds that the damages to which ADC is entitled against ACT amount to $33,893,794.

2 June 1998 Liquidator applies for the issue of examination summonses against the first four defendants and Mr Wells (former managing director of WCL).

26 June 1998 Examination orders made.

11 August 1998 Federal Court (Branson J) dismisses application by examinees to adjourn the examinations until Attorneys-General respond to proposed s78B notices.

10 September 1998 Full Court dismisses appeal from Branson J’s refusal to adjourn examinations.

Spinks v Prentice.

7 December 1998 Amended Notice of Motion filed by ADC seeking, as against ACT, judgment in the sum of $33,593,268 plus interest thereon to the date of judgment.

8 February 1999 Judgment delivered by Einstein J following hearing of Notices of Motion concerning the adoption of the report. He refers the matter back to Mr Morrisey for a further report.

12 February 1999 Branson J transfers winding up proceedings to the ACT Supreme Court.

March 1999 Hearing regarding the adoption of Mr Morrisey’s reports before Einstein J.

5 March 1999 Orders made by Einstein J for judgment in favour of ADC against ACT in the sum of $33,593,268 (with the question of the precise amount of the interest to be awarded to ADC reserved for further consideration and inclusion in due course) and for the preparation of a supplementary report by Mr Morrisey.

30 March 1999 Supplementary report by Mr Morrisey.

6 April 1999 Examination orders made by the ACT Supreme Court.

10 June 1999 Original report and supplementary report of Mr Morrisey adopted by the Court. Judgment entered in favour of WIL against ADC.

17 June 1999 High Court grants special leave to examinees, but dismisses appeal (198 CLR 511).

25 June 1999 Examination orders rescinded by the ACT Supreme Court and winding up proceedings transferred back to the Federal Court.

8 July 1999 Notice of Appeal filed by ADC appealing, inter alia, against the finding of the Court that ACT did not contract as agent for WIL and the finding that ADC suffered no loss as a result of the misleading conduct of Mr Amann.

22 July 1999 WIL cross appeals against the findings that it had made a misleading misrepresentation to ADC and that ADC had relied upon that representation.

5 - 8 June 2000 Hearing in the Court of Appeal. On the second day of hearing, the Court of Appeal dismissed an application by the liquidator of ACT to institute an appeal out of time against the finding that ACT did not enter into the contract with ADC as agent for WIL. Judgment was reserved on all other matters.

29 June 2000 The present proceedings commenced by (unserved) Statement of Claim in the Equity Division.

14 - 16 August 2000 Second round of examinations.

6 November 2000 First Amended Statement of Claim in these proceedings filed.

13 November 2000 The First Amended Statement of Claim in these proceedings served.

9 February 2001 Court of Appeal dismisses appeal and cross-appeal with costs.

8 March 2001 ADC files application for special leave to appeal to the High Court from the decision of the Court of Appeal.

27 August 2001 White ACT further amends the Statement of Claim in these proceedings by filing a Second Amended Statement of Claim deleting some allegations.

20 November 2001 ADC’s special leave application in relation to its unsuccessful appeal to the Court of Appeal dismissed with costs.

11 December 2001 The defendants move by notice of motion to strike out the Second Amended Statement of Claim in these proceedings.

26 April 2002 The Second Amended Statement of Claim in these proceedings is struck out, with leave to file a further amended Statement of Claim on or before 10 May 2002.

10 May 2002 Third Amended Statement of Claim filed in these proceedings.

5 July 2002 These proceedings transferred to the Commercial List.

17 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) in respect of proceedings No. 55041 of 1991, and that 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.

ISSUES BETWEEN THE PARTIES

The pleadings

18 Although these proceedings were commenced in 2000, the summons was not filed until 9 August 2002. This is because the proceedings were initially commenced in the Equity Division, by the filing of a statement of claim. That statement of claim was from time to time amended (including in response to strike out applications). When the proceedings were entered in the Commercial List, the statement of claim as it then stood was effectively converted into the statement of contentions in the summons. I mention this only to make the point that, although it does not appear that the summons has been amended, it nonetheless reflects a number of revisions over time.

19 Paragraphs 1 to 9 of the statement of contentions allege in effect the corporate history of White ACT and the White Group. Although the defendants take issue with some of the matters of history that are alleged, I do not think that any substantial issue arises on those paragraphs. However, it should be noted that, on the pleadings, there is no allegation that Mr Frank McAlary was a director of White ACT prior to 28 November 1988. The admitted position, on which basis the hearing proceeded, was that he did not become a director until that date. (The same may be said of Mr Michael McAlary.)

20 Paragraph 10 alleges that, as at 30 June 1988 and at all material times until it was wound up on 6 February 1998, White ACT was insolvent. The defendants deny this.

21 Paragraph 11 alleges that throughout the period described in paragraph 10, the director defendants knew that White ACT was insolvent. The defendants deny this.

22 Paragraph 12 alleges contracts under which White ACT was undertaking building work, or under which it was entitled to receive revenues from building work, as at 30 June 1988. They include the Quadrant contract, the “hard dollar” contracts and the CNCC contracts. There is no dispute as to the currency of those contracts. White ACT’s roles in respect of them may be stated as follows:

(1) It had direct responsibility for the design and construction of the Quadrant project;

(2) It was a subcontractor to and agent of WIL for the hard dollar contracts; and

23 Paragraph 13 alleges that, by no later than 29 February 1988, the director defendants knew that it was impossible for White ACT to complete the work under the Quadrant contract without incurring substantial financial loss. The defendants deny this.

24 Paragraph 14 alleges that on 8 July 1988 ADC, being entitled to do so, gave written notice to White ACT of its intention to terminate the Quadrant contract. Paragraph 15 alleges that on 11 August 1988 ADC, being entitled to do so, gave written notice to White ACT of termination of the Quadrant contract. The defendants admit the giving of the notices but otherwise do not admit these allegations.

25 Paragraph 16 alleges that by no later than 14 October 1988 (i.e., the date of sale of White ACT to Mr Frank McAlary) the director defendants knew that White ACT had defaulted under the Quadrant contract; that ADC had terminated the Quadrant contract “by reason of those defaults”; and that it was likely that White ACT had become liable to ADC in a very substantial amount by reason of those defaults and that termination. The defendants deny these allegations.

26 Paragraph 17 alleges the judgment given by this Court in proceedings No. 55041 of 1991 in favour of ADC against White ACT in the amount of $33,593,268, together with interest and costs. The defendants plead to that as follows:

(1) They say that the judgment is neither a material fact nor evidence of any material fact as against them;

(2) They do not admit that ADC suffered any loss by reason of any breach of contract by White ACT;

(3) They deny that the amount of $33,593,268, together with interest and costs, represents the amount of any loss or damage suffered by ADC in respect of the defaults alleged under the Quadrant contract;

(4) They admit the hearing of a reference in the proceedings and the report and conclusions of the referee (Mr John Morrisey);

(5) They assert that Mr Morrisey’s finding was made “in the absence of any contradictor and in the absence of any defence maintained by [White ACT] as to quantum”;

(6) They admit that this Court (Einstein J) adopted the report and entered judgment accordingly although, they say, White ACT did not appear at, or make any submissions on, the adoption hearing before Einstein J;

(7) They assert that none of the defendants other than WIL and WCL was a party to those proceedings and that, in those proceedings, WIL and WCL “were not in controversy with the plaintiff or ADC on the issue of the quantum of damages alleged to have been suffered by ADC”; and

27 Paragraph 18 alleges that from 1 July 1988 up until 6 February 1998 the director defendants took a number of steps (described in succeeding paragraphs) by which White ACT was divested of all its assets and substantially all of its future revenues. Paragraph 19 alleges that those steps were taken for the purpose of leaving no asset available to meet ADC’s claim against White ACT under the Quadrant project. The defendants deny these allegations.

28 Paragraph 20 alleges that the assets of White ACT, as at 30 June 1988, included certain intercompany debts owing to it by WCL ($19,141,200), the eighth defendant (“PDC Constructions”) ($91,745), the ninth defendant (“White Qld”) ($510,344) and WCISS ($705,674). The defendants do not admit these allegations.

29 Paragraph 21 alleges that the debts in question were “purportedly extinguished by entries made in [White ACT’s] general journal in October 1988”: to the extent of $12,661,246.51 in the case of the debt owed by WCL, and fully in the case of the other debts. The defendants do not admit these allegations.

30 Paragraph 22 alleges the method by which the debts were extinguished. In brief, that is said to have been done by the offsetting of debts due from White ACT to various defendants and NDC in specified amounts; by the repayment by WCL of White ACT’s overdraft in the sum of $4,152,979.30, which overdraft was secured by a debenture issued by WCL to the bank; and by the crediting to WCL of amounts on account of “sales income” and “contract works”. The defendants do not admit these allegations.

31 Paragraph 23 alleges the sale by WCL to Mr Frank McAlary of the issued share capital in White ACT “for a purported consideration of $1”. The transaction is admitted.

32 Paragraph 24 alleges an agreement said to have been reached between Mr White, on behalf of WCL, and Mr Frank McAlary, on behalf of White ACT that, in consideration of Mr Frank McAlary undertaking the purchase, WCL would provide White ACT with sufficient funds to pay all claims of existing creditors of White ACT as those claims fell due. The defendants deny this.

33 Paragraph 25 alleges that WCL has breached that agreement by failing to pay the claim of ADC against White ACT. The defendants deny this.

34 Paragraph 16 alleges that Messrs White, Duncan and Spinks “purported to resign as directors of” White ACT on 28 November 1988. The defendants admit that those gentlemen resigned on that day.

35 Paragraph 27 alleges that, by reason of six specified matters, White ACT continued to be operated as if it were a wholly owned subsidiary of WCL from 14 October 1988 up until 6 February 1998. The key matters relied upon include that Messrs Frank and Michael McAlary “performed no management functions in relation to” the business of White ACT, and that “the totality of the management functions performed in relation to [White ACT’s] business were carried out by the officers and employees of WCL and its subsidiaries”. The defendants deny those allegations, and do not admit the other matters.

36 Paragraph 28 alleges that, accordingly, Messrs White, Duncan and Spinks, through the exercise of their powers as directors of WCL, continued de facto to be directors of White ACT after 14 October 1988. The defendants deny this.

37 Paragraph 29 alleges a process by which, it is said, the balance of the indebtedness of White ACT to WCL was extinguished (by the payment by WCL on behalf of White ACT of amounts owed by White ACT to various creditors other than ADC). It makes other allegations in relation to White ACT’s rights to remuneration under the hard dollar contracts and in relation to novation of the CNCC contracts. The defendants do not admit these allegations.

38 Paragraph 30 alleges that Messrs White, Duncan and Spinks were at all material times in a fiduciary relationship with White ACT and it alleges the content of those fiduciary duties. The defendants do not admit these allegations. Further, the defendants say that no fiduciary relationship subsisted between Messrs White, Duncan and Spinks and White ACT after 28 November 1988.

39 Paragraph 31 alleges the like fiduciary duties owed by Messrs Frank and Michael McAlary to White ACT after 28 November 1988. The defendants do not admit these allegations.

40 Paragraph 32 alleges that the relevant transactions by which, it is said, White ACT was divested of its assets and revenues were not approved by White ACT in accordance with its Articles of Association. The defendants do not admit this.

41 Paragraph 33 alleges that the participation or acquiescence of the director defendants in the extinction of debts alleged in paragraph 21, and in the processes by which that was effected alleged in paragraph 22, constituted breaches of the fiduciary duties that are alleged and contraventions of ss 229(1), (2) and (4) of the Companies Code because, it is said, those acts were undertaken for the purpose alleged in paragraph 19 (i.e., to leave no asset available to meet the claim of ADC) and without regard to the interests of the plaintiff’s unsecured creditors (including ADC). The defendants deny these allegations.

42 Paragraph 34 makes the like allegations against the director defendants in respect of the divestiture transactions alleged in paragraph 29. The defendants deny these allegations.

43 Paragraph 35 alleges matters in effect by way of pre-emptive strike against any limitation defence that might be pleaded.

44 Paragraphs 36 and 37 allege that the defendants who were not directly involved in the impugned transactions nonetheless knowingly participated in and assisted the breaches of duty represented by those transactions. The defendants deny these allegations.

45 In addition to the matters of defence already noted, the defendants further allege by way of defence:

(1) That any cause of action is, directly or by analogy, statute-barred and not maintainable;

(2) Laches, delay and acquiescence;

(3) That the director defendants and Mr Michael McAlary at all times whilst they were directors of White ACT (but up until “at least 1995” in the case of Messrs Frank and Michael McAlary) believed that White ACT was solvent;

(4) That the director defendants believed up until 1995 that ADC was a debtor of White ACT for unpaid progress claims and would not establish that it was a creditor of White ACT;

(5) Mr Frank McAlary says that up until 1995 it was his belief and opinion that ADC would be required, but would be unlikely, to justify its purported exclusion of White ACT from the Quadrant site and its purported termination of the Quadrant contract, and that if it failed to do so it would be liable to White ACT for damages for repudiation; and

The parties’ stated issues

46 Against that lengthy background, I turn to the issues that, at the commencement of the hearing, the parties propounded for determination. Notwithstanding the detailed issues raised on what, for convenience, I will refer to as the pleadings, the parties were unable to agree on what were the issues for determination. In one significant respect, the defendants asserted that the issues propounded for White ACT departed from the pleadings and should not be considered.

47 White ACT stated the issues as follows:

PRIMARY QUESTION NO. 1

…

PRIMARY QUESTION NO. 2

a) without proper regard to the interests of the general body of the plaintiff’s creditors (including ADC); and

b) for the purpose of leaving no assets of the plaintiff available to meet the claim by ADC, arising from the plaintiff’s default under the Quadrant contract?

Associated questions:

or should they reasonably have known

c) Did the transactions, the subject of these proceedings, have a permissible purpose, as being consequential upon the sale of the shares in the plaintiff to the fourth defendant (McAlary) for $1 on 14 October 1988?

d) Was the sale of the shares to McAlary for $1 consistent with the parties having any other belief except that the plaintiff was insolvent and of no financial value?

e) Did the sale of the shares to McAlary have an explicable and legitimate purpose, in that McAlary wished to take advantage of the plaintiff’s tax losses?

f) Was the sale of the shares to McAlary explicable on ordinary commercial grounds, having regard to the plaintiff then having on foot substantial construction contracts, in addition to the Quadrant contract?

…

PRIMARY QUESTION NO. 3

…

SUBSIDIARY QUESTION NO. 1

…

SUBSIDIARY QUESTION NO. 2

…

SUBSIDIARY QUESTION NO. 3

…” [footnotes and asserted answers omitted]

48 The material that I have emphasised in bold print is in each case an issue that, the defendants say, goes beyond the pleadings.

49 The defendants stated the principal issues as follows:

“

…

2. Did the first to fourth defendants believe ACT to be insolvent as at 30 June 1988? …

3. Was ACT insolvent at all times from 30 June 1988 …?

4. Were the transactions mentioned in paragraphs 20-22 of the summons directed by the defendants or any of them, and if so were they effected for the purpose mentioned in paragraph 19 of the summons?

…

5. Were the transactions effected in October 1988 following the sale of ACT to Mr McAlary, involving a repayment of its overdraft and the netting of various of mounts [sic] which ACT owed to and was owed by companies in the Whites’ [sic] Group, neutral to the balance sheet of ACT …?

6. Were the “netting” transactions effected in October 1988 standard practice or not unusual when a member of a group of companies (which owes money to and is owed money by other group members) is sold to a third party?

…

7. Were the profits and losses generated by “Companies” 87 and 91 taken up in the accounts of ACT? …

8. Did the directors of ACT breach their fiduciary duties to the company by causing it to dispose of its assets for inadequate consideration? …

9. Were the non-CNCC hard-dollar contracts the performance of which WIL assigned to ACT on 30 November 1986 taken back by WIL pursuant to WIL’s letter of 29 February 1988 …?

10. Did ACT continue to derive revenue from the CNCC Project on the same contractual basis after the sale of ACT to McAlary as it did beforehand …?

11. Did WCL provide management services to ACT in return for the management fees which it charged? Was the basis on which it charged those fees unreasonable…?

12. Did the plaintiff (ACT) suffer any loss as a result of the impugned transactions?

…

13. Are the claims of the plaintiff statute barred or by analogy with rules at law, not maintainable? …

14. Did relevant defendants participate with knowledge in the alleged breaches of duty?…” [asserted answers omitted]

50 The reference in the defendants’ statement of issues to “Companies 87 and 91” will be picked up when I deal with the accounting evidence. At present it is sufficient to say that, from 1 March 1988, the accounts of White ACT recorded transactions by reference to three notional operating entities, known as Company 22, Company 87 and Company 91:

(1) Company 22 referred to the business activities of White ACT with the exception of the CNCC and hard dollar contracts;

(2) Company 87 referred to the CNCC contracts; and

51 The results of these three entities were consolidated for the purpose of producing the annual financial statements of White ACT.

52 In relation to the first issue stated by White ACT (and the third stated by the defendants), the defendants took the position that the issue was irrelevant. They said that the true issue was whether the director defendants understood, or believed, that White ACT was at any relevant time insolvent.

53 In my view, the defendants are correct in saying that the issues that I have highlighted in para [47] above (the “should they reasonably have known” issues) do not arise. The case for which White ACT contends, as set out in Part C of its summons, is, in substance and detail, a case of fraud. White ACT says that the director defendants put in place and effected (or caused to be effected) a plan that had the purpose and effect of divesting White ACT of all its assets and, in substance, its future revenues. It is said that this plan was put in place when those gentlemen knew that there had been default under and termination of the Quadrant contract, in circumstances that had rendered White ACT liable in damages to ADC in a very substantial amount. It is said that White ACT was at all material times insolvent and that the director defendants at all material times knew it to be insolvent. It is said that the purpose of the director defendants in effectuating their plan was to ensure that White ACT would have no assets available to meet its liability to ADC.

54 White ACT says, further, that the real reason for the sale by WCL to Mr Frank McAlary of the issued shares in White ACT was to remove it from the White Group, so that the consolidated accounts of WCL would not include any losses sustained by White ACT under (or flowing from its alleged breach of) the Quadrant contract. I note at this point that, although the sale was said to be effective from 30 June 1988, the results of White ACT for the year to that date were taken up in the consolidated accounts of WCL.

55 So stated, the case is one of actual knowledge and actual intention, amounting to actual fraud. There is no trace in the pleadings of any case of constructive knowledge or intention. The particulars that have been provided do not seek to make out a case of constructive, as opposed to actual, knowledge or intention.

56 Nor is any case of negligence asserted on the pleadings. True it is that (for example) there are fiduciary and statutory duties of care alleged: see paragraph 30(b) of the statement of contentions (picked up in paragraph 31). However the allegation of breach of that duty, and the allegation of breach of the statutory equivalent in s 229(2) of the Companies Code, are limited to the case that has already been pleaded. That is to say, it is said that the matters alleged against the director defendants, which may be characterised compendiously as involving knowing and fraudulent conduct, give rise to the breaches of fiduciary and statutory duties that are alleged. No separate case of negligence is pleaded. When this matter was raised in the course of the hearing, Mr Grieve QC, who appeared with Mr Epstein SC and Mr Horowitz of Counsel for White ACT, expressly disclaimed reliance upon a case in negligence against the director defendants. Further, Mr Grieve made it plain that White ACT did not propose to amend, and that it would rely on its pleaded case.

57 White ACT has, however, submitted that “[f]rom the outset of the hearing the plaintiff made it plain that its case lay in equitable fraud”. It refers to Mr Grieve’s opening in which, it says, “it was clearly stated that even if the Court accepted the defendant–director’s evidence as to their subjective beliefs on the merits of ADC’s claim, those stated beliefs were … plainly misguided and thus irrelevant.” The consequence was said to be that the actions of the director defendants “in authorising the payments of which [the plaintiff] complains amounted to equitable fraud”.

58 White ACT relies on a line of authorities from Keech v Sandford (1726) Sel Cas t King 61; 25 ER 223 through to Boardman v Phipps [1967] 2 AC 46 in support of the proposition that “proof of any subjective intent to cheat or deceive is inessential to the success of a claim in equitable fraud.” It relies on the well known statement of principle enunciated by Viscount Haldane

LC in Nocton v Lord Ashburton [1914] AC 932, 954.

59 It may be accepted that, in a case of equitable fraud - i.e., a case of fraud in what would have been the exclusive jurisdiction of the Courts of Chancery – an actual intention to cheat need not be proved. However, this assumes that there is pleaded a case of equitable fraud. If the pleadings, on their proper analysis, do allege equitable fraud then the failure to prove a pleaded but inessential ingredient of the cause of action may not be fatal. But if, on their proper analysis, they allege “actual fraud or nothing” then the failure to prove every ingredient of actual fraud will be fatal.

60 I do not think that it is appropriate to decide the question by reference to the manner in which the case for White ACT was opened. Nor do I think that it is appropriate to decide the question by reference to the way in which (so White ACT says) it conducted its case – for example, in objecting to evidence from the director defendants that would have been irrelevant if the case were one of equitable fraud.

61 If the case for White ACT was opened outside the pleadings, that would not entitle White ACT to succeed (if the case as pleaded failed but the case as opened succeeded) unless the defendants had in some way consented to, or acquiesced in, the expansion of the pleaded case. The defendants did not do this. On the contrary, Mr Rayment QC, who appeared with Mr Kell of Counsel for the defendants, in responding briefly to Mr Grieve’s opening, made it plain that the defendants took the view that the opening went beyond the pleaded case, and that the defendants did not consent to any expansion of the pleaded case against them.

62 White ACT submits further that there is a distinction between a case of non-intentional breach of fiduciary or statutory duties on the one hand, and a case of negligence on the other. Accordingly, it submitted, the approach taken by the defendants, in seeking to conflate the case of non-intentional breach of duty with the case in negligence, was incorrect. In principle, I think that this is so: at least to the extent that a breach of fiduciary duty may be made out without any proof of negligence in the common law sense. (I leave aside the very difficult question of whether a fiduciary’s liability for the negligent transaction of its obligations is an aspect of its fiduciary obligations or a separate duty imposed by law: see the discussion in Meagher, Gummow and Lehane’s Equity Doctrines and Remedies (Butterworths LexisNexis: 4th Edition, 2002) at [5-295] to [5-330]. But it should be noted that in Pilmer v The Duke Group Ltd(in liq) (2001) 207 CLR 165, 196-199, the majority (McHugh, Gummow, Hayne and Callinan JJ) emphasised “the distinct character of the fiduciary obligation, which sets it apart from contract and tort”. Their Honours quoted with approval from the judgment of McLachlin J in Norberg v Wynrib [1992] 2 SCR 226, 272, where Her Ladyship emphasised the “conceptual and functional uniqueness” of the fiduciary obligation as opposed to obligations in contract or tort.)

63 But I do not think that this assists White ACT. It diverts attention from, rather than assists in the resolution of, what I think is the real question: namely, what is the pleaded case? For the reasons I have given I think that the pleaded case is one of actual knowledge and actual intention, amounting to actual fraud. I propose to consider and deal with the case on that basis.

64 There is one qualification to what I have just said. In paragraphs 33 and 34 of its statement of contentions, White ACT alleges that the director defendants’ participation or acquiescence in the acts complained of (the total or partial extinction of intercompany loans and the payment of management fees and related charges) were contraventions of both their fiduciary duties and certain provisions of the Companies Code (and, in the case of paragraph 34, the equivalent provisions of the Corporations Law at the relevant time) for two reasons. The first reason relates back to the purpose asserted in paragraph 19 – i.e., to leave no assets available to meet any claim by ADC relating to the Quadrant contract. The second reason is that the director defendants, in so acting, are said to have made use of their positions without regard to the interests of all White ACT’s unsecured creditors, including ADC. The first of those purposes falls within what I have just said as to the case being one of actual knowledge and actual intention amounting to actual fraud. The second, on its face, goes further. But it does not go so far as to support the submission for White ACT that the pleaded case may properly be regarded as one of equitable fraud.

65 The reference to s 229(1) directs attention to the question, whether the director defendants acted honestly. Of necessity, that requires an analysis of their motives. Section 229(4) directs attention to the question, whether the director defendants made improper use of their position. That, again, directs attention to the question of motive. It is only s 229(2), and the fiduciary obligations that are alleged in so far as they, in turn, do not direct attention to motive, that direct attention to the objective character of the matters complained of rather than to the motives that were said to underlie them.

66 It may be accepted that the effect of paragraphs 33(b) and 34(b) of the statement of contentions is to require consideration of matters that do not, of necessity, raise questions of motive. But it does not seem to me to follow that there is opened up thereby a whole case of equitable fraud in which the allegations against the director defendants, that as pleaded depend upon actual knowledge and actual intention amounting to actual fraud, can also be examined objectively, without reference to subjective considerations of knowledge and intention.

67 Because of the dispute between the parties as to the issues that arise for determination, I propose to consider and deal with the case by reference to the issues that are stated on the pleadings. In relation to paragraphs 33 and 34 of the statement of contentions, that will involve giving separate consideration to the particular allegation made in each case by subparagraph (b).

The relief sought

68 At the commencement of the hearing, White ACT indicated that it sought, as against the first to fifth defendants, a declaration that it had sustained loss and damage in the sum of $20,672,029.36, and orders for the payment of that sum and interest.

69 The sum of $20,672,029.36 was calculated as follows:

(2) $7,498,952.06 - the total of payments made by White ACT to related companies on 24 October 1988, namely:

To WILCME	$710,566.13
To White NT	$3,292,233.60
To the fourteenth defendant (“PDC Plant Hire”)	$196,776.50
To White NSW	$3,074,375.83
To NDC	$225,000.00

(The figure of $7,498,952.06 is also said to represent the amount paid by WCL to White ACT on 24 October 1988.)

(3) $1,307,763 - the total of all payments made by related companies (excluding WCL) to White ACT on 24 October 1988, namely:

By PDC Constructions	$91,745
By White Qld	$510,344
By WCISS	$705,674

(4) $6,462,335 - management fees paid by White ACT to WCL between 1988 and 1992, namely:

On 20 June 1988	$2,000,000
On 1 August 1988	$254,273
On 25 August 1989	$2,003,049
On 13 March 1990	$2,139,856
On 15 July 1992	$65,157

70 White ACT sought an order that the sixth defendant pay $19,364,266.36 and interest. The principal sum consisted of the payments identified in sub paras (1), (2), (4) and (5) of the preceding paragraph.

71 White ACT sought orders that the various other defendants identified as payers or payees in para [69] above pay it the relevant amount or amounts together with interest.

RELEVANT CONTRACTUAL DOCUMENTS

The Quadrant contract

72 The Quadrant contract was described as a “lump sum agreement for design and construction of Lot 5 Section 8 Canberra City”. It was made between White ACT as “the Company” and ADC as “the Developer”.

73 The Quadrant project comprised the erection of an office building (with basement car parking) and a residential tower. The project was defined by reference to drawings that were themselves specified in the Articles of Agreement forming part of the contract, and further described in the specification that formed part of the Articles of Agreement.

74 Clause 1, 2 and 3 of the Articles of Agreement provided as follows:

“1. The Developer hereby engages the Company to design and construct the Project.

2. In consideration and subject to receipt of the payments to be made to the Company by the Developer at the time and in the manner set forth in this Agreement the Company will:

(a) well and faithfully execute all activities involved in the design and construction of the Project;

(b) supply and provide all plant, equipment, materials, labour and all things requisite for or incidental to the performance of this Agreement;

in conformity and accordance with this Agreement and the said Annexures.

3. Each party hereto shall perform fulfil observe comply with and submit to all and singular the provisions, conditions, stipulations and requisitions and all matters and things contained expressed or shown in this Agreement and by and on the part of the respective party to be performed fulfilled observed complied with and submitted to.”

75 Clause 4 of the Agreement gave contractual force to various Annexures. Annexure “A” provided “Details of Agreement”. Relevant provisions included the following:

“Project: RESIDENTIAL AND OFFICE BUILDINGS

Date for Practical Completion: Stage 1: Office Building - 8.12.87

of Project

Contract Sum: $19,535,000 [this was set out in words and figures]

Date of Commencement: 31 March 1987”

76 Annexure “B” contained “Conditions of Engagement”. Relevant provisions include Article 2, Article 4 and Article 5.2:

ARTICLE 2

PROSECUTION OF PROJECT

2.1 The Company shall (except as herein otherwise provided) furnish the necessary superintendence, labour, materials, goods, equipment, services and transportation to carry out the design and construction of the Project.

2.2 The Company shall prosecute the Project diligently and shall complete the Project in a thorough and workmanlike manner with all reasonable expedition in accordance with the provisions of the Agreement.

2.3 The Company shall use all reasonable efforts to diligently complete the design of the Project and to obtain in a timely manner from Authorities the approvals necessary to permit commencement of construction of the Project by the Date of Commencement.

…

ARTICLE 4

PERFORMANCE, ACCESS AND TIME FOR COMPLETION

4.1 The Company and all those persons authorised by it will be provided by the Developer subject to circumstances outside the Developer’s control at all times with full and clear access to the Site as and from the Date of Possession.

4.2

4.2.1 The Company shall be given possession of the Site by the Developer on the Date of Possession of Site specified in Annexure A.

4.2.2 The Company shall immediately upon execution of the Agreement commence performance of its obligations in accordance with the provisions of the Agreement as to enable the Project to reach Practical Completion on the Date for Practical Completion as may be extended pursuant to Article 4.4 hereof.

4.3 The Date for Practical Completion and Contract Sum are based on the receipt of the necessary approvals from Authorities in a timely manner to enable the construction of the Project to commence not later than the date of commencement.

4.4

4.4.1 If the Company is delayed at any time in the process of the Project by any cause whatsoever beyond the control of the Company (which are the causes of delay listed in Article 4.4.2) then the Date for Practical Completion shall be extended by a period equal to the extent of such delay to the Company.

Within 30 days of when the Company reasonably believes that delay has occurred within the meaning of this clause, it shall notify the Developer of the time of commencement and actual or estimated termination of the delay, the cause thereof and the manner in which the progress of the Project has been or will be delayed and the Developer shall determine the time by which the Date for Practical Completion shall be extended.

4.4.2 The causes of delay which shall extend the Date for Practical Completion are:

4.4.2.1 Changes to the Project as described in Article 12.1;

4.4.2.2 Civil commotion, or strikes, lockouts or other industrial conditions or restrictions outside the direct control of the Company;

4.4.2.3 The Company not being given possession of the Site pursuant to Article 4.2;

4.4.2.4 The Developer suspending the Project pursuant to Article 10.1;

4.4.2.5 Inclement weather.

ARTICLE 5

RESPONSIBILITIES OF COMPANY

5.1 The Company shall comply in the design and construction of the Project with all statutes, regulations, ordinances and by-laws. The Company shall obtain and pay for all necessary permits, approvals and certificates issued by the relevant Authorities, with the exclusion of payment of the Development and Building Approvals. On Final Completion all such permits, approvals and certificates shall be surrendered to the Developer.

5.2 The Company shall, from time to time, prepare such detail drawings, trade specifications and other such data as are required to complete the Project in accordance with the requirements of the said Annexures.

… “

77 Article 16 required White ACT to complete the project by stages, Stage 1 being the office building and Stage 2, although described as “Remainder of Project” in Annexure “A”, being in substance the residential tower.

78 Article 18 dealt with a number of matters, including termination. The right of termination given to ADC was expressed by Article 18.1 A(i) as follows:

By Developer

(i) Should the Company make default in any of its obligations or duties under the Agreement or the said several Annexures then in such case the Developer may send to it by certified mail a written notice specifying the default and stating the intention of the Developer to terminate the Agreement and if the Company fails to remedy such default within thirty (30) days after receipt of such notice then the Developer, without prejudice to any other rights or remedies, may forthwith terminate the Agreement by written notice to the Company.”

79 White ACT was required to enter into an “Industrial Conduct Undertaking” to the Commonwealth of Australia. That undertaking was in the following terms:

INDUSTRIAL CONDUCT UNDERTAKING

White Constructions (ACT) Pty Limited a Company incorporated in the Australian Capital Territory and having its registered office c/- Coopers & Lybrand, 24 Marcus Clarke Street, Canberra ACT hereby undertakes to the Commonwealth of Australia that it will, while builder of the proposed development at Block 5 Section 8 Division of City, maintain and require any contractors and subcontractors engaged in the undertaking of any works required to maintain a good industrial record and in particular undertake to:

a) adhere to relevant awards and informal industrial agreements;

b) adhere to the National Wage Case principles;

c) prohibit ‘all in’ or cash-in-hand payments;

d) ensure good safety practices in accordance with relevant legislation, awards and the procedures contained in the Building Industry Agreement;

refuse claims for payment for lost time due to strike action;

80 An undertaking in those terms was executed under seal of White ACT on 24 February 1987.

81 The industrial conduct undertaking was given “back to back” with one given by ADC pursuant to a condition of the lease from the Commonwealth to ADC of the Quadrant site that such an undertaking be given in respect of any building works carried out on that site.

The “hard dollar” subcontract and agency agreements

82 I have referred in para [5] above to the CNCC project and the hard dollar contracts. The legal position was that WIL had entered into contracts with the ultimate clients (in most cases, the National Capital Development Corporation (“NCDC”)) for the performance of the work. As part of the reorganisation of the White Group undertaken to prepare for the float of WCL (see para [11] above), it was apparently decided that the works under those contracts would be performed by White ACT, as the subsidiary of WCL that held the relevant licence in the ACT. Accordingly, on 30 November 1986, WIL and White ACT entered into a “subcontract agreement” and an “agency agreement” in respect of the hard dollar contracts.

83 By clause 1 of the subcontract agreement, WIL and White ACT agreed that, from 1 December 1986, White ACT would “execute and complete” the hard dollar contracts to an appropriate standard. By clause 2, WIL agreed, so far as it could, to enforce its rights under the hard dollar contracts for the benefit of White ACT.

84 By clause 4.3, WIL agreed to pay White ACT the amount of progress claims recovered by WIL from the clients after making appropriate allowance for work completed and unclaimed as at 30 November 1986.

85 By clause 12.1, the agreement was made subject to WIL obtaining the consent of the relevant clients (where necessary). By clause 12.2, if any client did not consent then, in effect, that client and its project would be deleted from the scope of the subcontract agreement.

86 By clause 1 of the agency agreement, WIL agreed to act as undisclosed agent for White ACT in relation to the relevant contracts. By clause 2, WIL agreed to use its best endeavours to secure performance of those contracts for the benefit of White ACT.

87 Clause 5 dealt with progress payments, in a manner similar to clause 4.3 of the subcontract agreement.

88 By an agreement made on 2 June 1989, WIL (with the consent of White ACT) novated the subcontract to WPDL. By a further agreement made on 18 October 1989, WPDL (with the consent of White ACT) novated the subcontract to WIAL.

The CNCC agency agreement

89 The contracts for performance of the CNCC works were made between White ACT and a company known as National Convention Corporation Pty Ltd. It appears that the relevant contract was made on 9 November 1984 (although, as I understand it, there was more than one contract – certainly, there were several distinct areas of work).

90 On 28 May 1985, White ACT and WIL entered into an agreement (“the CNCC agency agreement”). That agreement recited, among other things, that White ACT had entered into the contract with National Convention Corporation Pty Ltd as agent for WIL, which wished to be and to remain an undisclosed principal.

91 Clause 1 of the CNCC agency agreement gave effect to that recital.

92 By clause 5, WIL agreed to reimburse White ACT for the cost to it of carrying out its obligations under the head contract. By clause 6, White ACT agreed to pay the amount of progress payments recovered by it to WIL, subject to deduction of amounts for which it might be entitled to reimbursement under clause 5.

The design and construction management agreements

93 On 4 August 1987, WIL (as “Project Manager”) and White ACT (as “Design & Construction Manager”) entered into a series of “design and construction management agreements”. By clause 2.1 of those agreements, WIL appointed White ACT “to furnish, design and construction management services” and to perform other responsibilities and provide other services, in connection with the CNCC contracts.

94 By clause 3, White ACT agreed to “prosecute the design and construction management of the Works diligently to ensure due completion of the Works in a proper, thorough and workmanlike manner … “.

95 The effect of clause 12 was that the subcontracts for the performance of relevant parts of the subject Works were to be made between White ACT (as agent for WIL) and subcontractors.

96 Clause 15 provided for payments by WIL to White ACT for White ACT’s services.

97 By a series of agreements made on 30 March 1989 and (in one case) 2 June 1989, the obligations of WIL as “Project Manager” were novated to WPDL.

THE KEY AREAS OF DISPUTE

98 Both on the pleadings and on the parties’ respective statements of issues, the key areas of dispute between the parties are those relating to:

99 I say this because, it seems to me, the analysis of and conclusions on those matters will be dispositive of the question of breach of duty. This is certainly so if (as I have indicated I think is the case) the case for White ACT is to be considered as one of fraudulent – i.e. knowing - breach of duty. However, on reflection, it is also likely to be so even if the case should be considered as one of, in effect, negligent (or non intentional) breach of duty.

100 As to insolvency: the questions that require consideration include whether or not White ACT was, in June or October 1988 or at any other material time, insolvent (noting, of course, that the defendants state that this is not the true issue).

101 As to the industrial dispute: the questions that require consideration include whether White ACT caused it; whether White ACT wrongly failed or refused to resolve it and unnecessarily prolonged it (or, conversely, whether White ACT was justified in taking the approach that it did); and whether the dispute was caused or prolonged for the purpose of inducing ADC to renegotiate, or walk away from, the Quadrant contract.

102 As to the director defendants’ knowledge or state of mind: the questions that require consideration include their knowledge, or understanding (or belief) as to the insolvency of White ACT at any relevant time; the extent, of their knowledge or understanding of the Quadrant project (with particular reference to ADC’s termination of the contract and the likelihood, and extent, of a claim); their knowledge or understanding of events relevant to the industrial dispute; and their knowledge or approval of the accounting and other transactions briefly referred to in para [7] above. Underlying all this, of course, are the questions of whether the director defendants fomented and prolonged the industrial dispute in an attempt to force ADC to renegotiate or walk away from the Quadrant contract, and whether they put in place the relevant transactions so as to seek to ensure that any claim that ADC might have against White ACT would not be satisfied.

103 Before I consider those key questions, I will set out my findings on:

(1) The credibility of the individual defendants;

(2) The sale of the issued capital in White ACT to Mr Frank McAlary;

(3) The accounting transactions that took place in relation to that sale in about October 1988; and

CREDIBILITY

104 White ACT launched a sustained attack on the credibility of the director defendants, both in cross-examination and in final submissions. It also, although with less vehemence, put submissions adverse to the credibility of Mr Michael McAlary.

105 White ACT identified and criticised ten key aspects of the evidence given by each of the director defendants. I set out, in summary form, the points that White ACT identified and the criticism made of it. In substance, the criticism was that the various points identified were “inconsistent with facts incontrovertibly established by the evidence” and “glaringly improbable” (citing Brennan, Gaudron and McHugh JJ in Devries v Australian National Railways Commission (1993) 177 CLR 472, 479; note that their Honours were in turn quoting from the judgment of the Court in Brunskill v Sovereign Marine & General Insurance Co Ltd (1985) 59 ALJR 842, 844).

106 In summary, the ten key points identified by White ACT, and its criticism of the evidence on each point, was to the following effect. It said that “each of the first four defendants has variously asserted”:

(1) That he believed that between February and August 1988 White ACT acted properly in relation to, or did not act in breach of, the Quadrant contract.

White ACT said that, for reasons given earlier in its submissions, this evidence should be disbelieved.

(2) That he believed that ADC had neither the right to terminate that contract nor to claim damages against White ACT.

(3) That he believed that the purpose of the sale of the issued capital of White ACT to Mr Frank McAlary was to enable him, through the company, to take advantage of its accumulated tax losses, not to avert its immediate winding up.

White ACT said that this “story” (as it called it) was fundamentally flawed because exploitation of the tax losses necessitated the derivation of assessable income, and the derivation of assessable income would have resulted in the accumulation of assets. Those assets would have been available to meet the claims of creditors including, White ACT said, ADC. It was therefore necessary, White ACT said, for Mr Frank McAlary to reach an accommodation with ADC before he could safely take advantage of the tax losses.

(4) That he believed that White ACT was at all times solvent because intercompany loans would not be called up unless White ACT could pay them.

White ACT criticised this evidence because, it said, the “arrangement” relied upon was not made out, was not evidenced in writing, was not supported by consideration and was not of binding force (it will be observed that there is some overlap between these responses). Further, it said, the practice could not have enured for the benefit of White ACT once it ceased (upon the sale of its issued capital to Mr Frank McAlary) to be a member of the White Group.

(5) That he knew nothing of the detail of the journal entries by which the intercompany loan accounts were extinguished.

In relation to this, and the sixth and seventh points, White ACT submitted that “it is plain from their evidence that the first four defendants were content to permit the accounting staff, if need be in consultation with the auditors, to process whatever book entries were “appropriate” to “tidy up” the plaintiff’s balance sheet …”.

(6) That he knew nothing of the journal entries which substantially reduced the amount owed by WCL to White ACT.

(7) That he knew nothing of the discharge of White ACT’s overdraft.

(8) That if it were found that he knew “or should have known” of the journal entries and discharge of the overdraft, he regarded them as proper steps in the circumstances.

White ACT says of this point and the ninth and tenth points that they “are self-evidently incongruous”.

(9) That to the extent to which he knew anything of the payment of management fees to WCL, he considered them fair and reasonable.

(10) To the extent to which he knew anything of the payment by White ACT to WCL of the $1.25 million due (and paid) by WPDL to White ACT, he considered that transaction to be proper.

107 Before turning to the specific attacks that are made on the credibility of the individual director defendants, I observe that I do not regard the criticisms that I have just summarised as coming anywhere near the description given to them by White ACT as inconsistent with facts incontrovertibly established by the evidence or glaringly improbable.

108 Thus, as to the first point (which will also dispose of the second point), I have concluded that White ACT did not act in breach of the Quadrant contract in the way that it handled the 1988 industrial dispute. As to the third point, it depends on acceptance of the proposition that the director defendants believed, at and prior to 14 October 1988, that ADC had a valid claim against White ACT; that ADC was likely to bring proceedings to enforce that claim; and that ADC would be likely to recover substantial damages in respect of that claim. As to the fourth point, I have concluded that White ACT was and remains solvent. As to the fifth point (and this will also dispose of the sixth and seventh points) I have concluded that the relevant actions were undertaken by the accounting staff of White ACT, WCL or the White Group and were not directed by or referred to the director defendants. As to the eighth point, I will note only at this stage that the criticism made is contradicted by the evidence of an independent expert accountant called by White ACT, Mr David Watson. As to the ninth and tenth points, although they are supported by the evidence of Mr Watson, I do not find that his evidence establishes anything - let alone primary facts against which the evidence in question could be examined and found wanting - “incontrovertibly”.

109 Before I turn to an assessment of the evidence of each of the director defendants, I make a number of general observations.

110 The first is that, in assessing the evidence of the director defendants, 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. Equally, it was apparent that none of the director defendants had sought to refresh his recollection by reading through the contemporaneous documents. (I interpose, firstly, that I do not mean any criticism of the director defendants in saying this; and, secondly, that it is not apparent that any of the director defendants had in his possession any significant collection of documents relating to the affairs of White ACT.) 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 director defendants professed any significantly greater recall of events. Equally, however, it should be observed that none of the director defendants sought, in the main, to quarrel with or disavow the contents of his, or in more general terms White ACT’s, WCL’s or the White Group’s, documents.

111 Secondly, I did not observe, and do not find, that any of the director defendants was “selective” in his lack of recollection. In this context, it is worth remembering that each of them must have been aware that White ACT was in possession of a large quantity of documents, obtained through the liquidator’s examinations conducted in the Federal Court (and, one might think, obtained from ADC) so that it would be able to prove a large number of matters regardless of the state of recollection of the defendants. There was no basis for thinking that a pretended lack of recollection could thwart proof of the case of White ACT: which was, in any event, substantially (and obviously) a documentary case.

112 Thirdly, each of the director defendants and Mr Michael McAlary had been examined in the Federal Court (and some of them had given evidence in the proceedings before Giles CJ Comm D). Although each of them was cross-examined on the evidence that he had given in the Federal Court, no significant inconsistency was demonstrated thereby. Nor was there cross-examination showing inconsistency between any evidence given before Giles CJ Comm D and the evidence given before me.

113 Fourthly, in relation to many parts of the evidence that are now said to be “absurd” or, in effect, “not worthy of belief”: the particular submission that is now made was not put to the witnesses, although this may not be of great significance given that it was crystal clear that White ACT’s position was at all times that the credibility of the defendants in general, and their evidence on the ten points identified in particular, was under challenge.

114 Fifthly, in many cases, it was apparent that matters on which the director defendants were cross-examined could have been illuminated had evidence been called from former employees of White ACT. For example, each of the director defendants was cross-examined on what I refer to below as the “Rawlinsons report”. 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 director defendants: 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 Rawlinsons 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 director defendants, 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 Frank McAlary

115 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.

511 I find that Messrs White, Duncan and Spinks (or any of them) did not supervise or direct the employees of WCL or the White Group (or the WCL Group), referred to in paragraph 22 and in the preceding paragraphs of these reasons. I find that they knew, and acquiesced in, the provision of those services; and that in a general sense they knew, and acquiesced in, the charging of management fees - although I find that they did not know of the quantum of those management fees. See para [258] above.

512 I find that Messrs White, Duncan and Spinks (or any of them) did not direct or control the exercise of management functions by the employees of WCL or the White Group (or the WCL Group) referred to in paragraph 24 and in the preceding paragraphs of these reasons. I find that, in the exercise of their management functions, those persons did not report to, or did not seek, and were not given direction from, Messrs White, Duncan and Spinks (or any of them). There is no evidence to suggest that this was so; specifically, the relevant employees (to the extent that they are still alive) were not called to say that it was so. Messrs White, Duncan or Spinks denied that it was so.

513 There was only one instance, in the evidence, where any of Messrs White, Duncan and Spinks purported to make a decision on behalf of White ACT. That occurred in relation to the settlement of the dispute in substance between WPDL and WCL that I have referred to in paras [254] and [255] above. Mr Duncan signed the relevant letter purportedly on behalf of White ACT. However, given that Mr Duncan was then the managing director of WCL, and effectively resolving the claim that in truth was owed to it, and given that White ACT was (as I have found) a mere conduit with no beneficial entitlement to the money, it is impossible to regard this as anything more than a mechanical step for the implementation of the settlement that was negotiated. See paras [252] to [256] above. As I have already found, the settlement was negotiated at arms’ length. I do not think that Mr Duncan's act in signing, on behalf of White ACT, that one letter to give effect to it makes him a de facto director.

514 I therefore find that, after 28 November 1988, Messrs White, Duncan and Spinks (or any of them) did not continue to "occupy the position of directors and act as directors of the plaintiff, notwithstanding their purported resignations".

Paragraph 29: further payments by White ACT to WCL, 1989-1992

515 I find that, by a process of journal entries, White ACT paid to WCL the management fees and other charges described in para [207] above, with effect during the financial years set out in that paragraph.

516 I find that those payments were made for good reason. In the case of the management fees properly so called, I find that they were paid for the provision of services by WCL and associated companies to White ACT during the years in question. I find further that the amounts that were charged were not unreasonable (noting that they were twice reviewed by the auditors and that in all cases the relevant accounts were audited.) In the case of the $1,250,000, I find that in truth that was an amount owing to WCL and not to White ACT, and that White ACT's only relevance in relation to that sum was as a "conduit" between WPDL and WCL. See paras [252] to [256] above.

517 As to paragraph 29(b): the reference back to paragraph 12(b) is a reference back to the subcontract and agency agreements relating to the hard dollar contracts. On the evidence, they were substantially complete as at 29 February 1988. Apart from some immaterial percentages of "incompletion", the only hard dollar contract that could be said to be less than substantially complete was that for the Australian War Memorial, which was said to be 50% complete as at that date. Accordingly, except for the Australian War Memorial contract, there was in substance no remuneration to be received after 29 February 1988 in respect of the hard dollar contracts. The evidence does not show what (if any) remuneration was due under the Australian War Memorial contract after 28 November 1988 (which, according to the introductory words of paragraph 29, is the relevant date). Nor is there any evidence of the steps (if any) taken or not taken by White ACT in respect of any remuneration that may have been owing. Accordingly, I do not find that the plaintiff abandoned whatever rights it may have had, after 28 November 1988, to receive whatever remuneration may have been owing after that date in respect of the hard dollar contracts.

518 As to paragraph 29(c): it is correct to say, and I find, that the novation agreements there referred to were made. See paras [88] and [97] above.

519 However, in respect of the reference to "management charges and other payments and expenses", I repeat the findings that I have already made.

Paragraphs 30 and 31: fiduciary relationship and obligations

520 There was no real controversy as to the existence or content of fiduciary duties owed by the relevant defendants whilst they were directors of White ACT. I find that Messrs White, Duncan and Spinks were fiduciaries of White ACT, by virtue of their office as its directors, up until 28 November 1988, but not thereafter.

521 Although the alleged content of the duties owed by them as fiduciaries was not admitted, I will assume that the duties involved each of the elements asserted in subparagraphs (a) to (m) of paragraph 30.

522 I find that Messrs Frank and Michael McAlary were fiduciaries of White ACT at all material times from 28 November 1988, by virtue of their office as directors. I will assume that, as fiduciaries, they owed duties of the kind alleged in paragraph 30 (a) to (m).

Paragraph 32: no approval

523 There is no evidence to enable me to conclude that the transactions referred to in this paragraph were not approved by White ACT in accordance with its Articles of Association. I find that the board of WCL authorised Mr White to enter into the heads of agreement with Mr Frank McAlary (see para [174] above). I find further that the transactions described in paragraphs 21 and 22 of the statement of contentions were appropriate having regard to the sale that was so authorised (see paras [198] to [201] above).

524 Further, I find that the persons by whom those transactions were carried out had, if not express, then at least implied, authority to perform them. See paras [203] and [204] above.

Paragraph 33: breach of duties in relation to the October 1988 journal entries

525 This paragraph cannot be sustained as against Mr Frank McAlary, simply because he was not a director of White ACT at the time when the journal entries were effected. Indeed, he was either overseas or in a remote part of Australia, and not in constant contact with the White Group, at the time when the journal entries were planned and effected. To the extent that it matters, I find that he did not direct or “participate” in the making of those journal entries.

526 As to Messrs White, Duncan and Spinks, I find that they did not direct or knowingly "participate" in the making of those journal entries (see paras [203] and [204] above). Further, I do not find that, at the time those journal entries were made, they had the intention that the sale of White ACT, and anything that might reasonably be thought to be associated with it (such as, by way of example, the elimination so far as possible of intercompany loan balances) should leave no assets of White ACT available to meet any claim of ADC against White ACT under the Quadrant contract.

527 Further, given that I have found that ADC was not, at the time, a creditor (unsecured or otherwise) of White ACT, and that the only other creditors of White ACT (apart from the State Bank, whose debt was discharged in full) were White Group companies, I find that Messrs White, Duncan and Spinks did not fail to have regard to the interests of unsecured creditors of White ACT.

528 If I am wrong in my conclusion that ADC was not, at the time, a creditor of White ACT, I would nonetheless still find that Messrs White, Duncan and Spinks did not fail, in a manner that could be said to demonstrate want of reasonable care and diligence, to have regard to the interests of unsecured creditors. As I have said in paras [456] and following, it was their belief or state of mind that White ACT was justified in the course that it had taken and, in substance, that ADC had no claim against it. For the reasons that I gave in those paragraphs, it cannot be said that this belief, or state of mind, was unreasonable. It would follow that, in failing to consider ADC as a creditor, and to give consideration to the likely extent of its claim, Messrs White, Duncan and Spinks did not act unreasonably. It cannot be unreasonable for a director to fail to take into account a claim that, on reasonable grounds, he believes will not succeed.

Paragraph 34: breach of duties in relation to the management fees and other charges

529 Since I have found that Messrs White, Duncan and Spinks were not directors, formal or de facto, of White ACT after 28 November 1988, the allegations made against them in paragraph 34 cannot be sustained.

530 As to Messrs Frank and Michael McAlary: I find that (after 28 November 1988) they were not, in relation to the imposition and payment of management fees, or the payment to WCL of the amount of $1,250,000, motivated by the purpose of leaving no asset of White ACT available to meet any claim of ADC against White ACT under the Quadrant contract. Indeed, I find that both the management fees were properly charged, and not improper in amount, and that the amount of $1,250,000 was properly paid by White ACT to WCL.

531 Further, because ADC was not at any time relevant to those transactions a creditor of White ACT, and as the only other creditors of White ACT were White Group companies, who may be presumed to have been satisfied with the state of affairs, I find that they did not fail to have regard to the interests of all the unsecured creditors of White ACT at the time those transactions took place.

532 Again, if I am wrong in my conclusion that ADC was not a creditor, it does not follow that Messrs Frank and Michael McAlary acted unreasonably in disregarding its claim. As I have said in paras [461] to [464] above, Mr Frank McAlary made a detailed review of ADC’s claim in July 1994, and concluded that it was unlikely to succeed. It was not put to him that the review that he carried out was deficient as to the materials that he considered. He was not taken in detail to the material that he considered. No attempt was made to show that, having regard to the material, his review or its conclusions were unreasonable. In my view, this indicates that any failure of Messrs Frank and Michael McAlary to take into account the interests of ADC as an unsecured creditor (if, contrary to my view, that is the correct analysis) cannot be characterized as unreasonable.

Paragraph 35: limitation and other matters

533 I shall leave this until I come to consider specific defences raised by the defendants.

Paragraph 36: knowing involvement

534 To the extent that a Barnes v Addy claim is made against other defendants, the requisite knowledge of those defendants can only come through the director defendants. The findings that I have made, as to the existence, or lack, of knowledge, belief or purpose, necessarily mean that this claim cannot succeed.

Damages

535 The conclusions to which I have come mean that White ACT's claim must fail. However, I shall set out the issues on damages and the conclusions that I would have reached had it been necessary for me to do so.

536 The claim that White ACT asserted was one for damages. Although the basis of the claim was not explicitly articulated, on a fair reading of the summons it must be a claim for damages for breach of the "statutory and common law duties" said to have been owed by the director defendants and Mr Michael McAlary as directors of the plaintiff: see part B, paragraph (a) of the summons. The damages alleged 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.

537 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.

538 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).

539 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.

540 If, contrary to my finding, ADC were a creditor of White ACT at 14 October 1988, then the liabilities of White ACT included not only those that were, in substance, recorded in its balance sheet as at 30 June 1988 (or those demonstrated by Mr Watson's evidence as at 30 September 1988) but, as well, the amount of ADC's claim. On that analysis, White ACT would undoubtedly have been insolvent: it would have had no prospect of meeting the totality of its internal and external liabilities. But the fact that there had occurred transactions that were, be it assumed, preferential, whereby certain creditors were paid in full to the detriment of others who received nothing, cannot cause any loss to White ACT. At most, it might be said to cause loss to the unsecured creditors whose claims were not paid, or were paid in a lesser amount, by reason of the preferential transactions.

541 Specifically, if, contrary to my conclusion, White ACT has made good the allegations in paragraphs 33(b) and 34(b) of its statement of contentions, the analysis in the preceding paragraphs would demonstrate that it suffered no loss.

542 If, as I think is the case, ADC is not to be regarded as a creditor of White ACT as at 14 October 1988, then the same analysis applies with greater force.

543 In my view, this analysis is supported directly by the reasoning of Heenan J in Geneva Finance Ltd v Resource & Industry Ltd (2002) 169 FLR 152. Further, I think, it is supported by analogy by the reasoning of the majority of the High Court in Pilmer.

544 No doubt to avoid this outcome, it was submitted for White ACT that it had a restitutionary claim. 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.

545 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.

546 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.

547 The management fees and related charges could be seen to fall into a slightly different category. On the face of things, there was no recorded liability of White ACT that was extinguished by the payment of those fees. Of course, it could be said that White ACT had an actual, although unrecorded, liability to WCL for the services and other matters in respect of which the management fees were paid. In any event, my finding that the payments were made for services actually provided means that they were made for good consideration. Even if their effect may have been to prefer WCL to other creditors, that did not, for the reasons already given, cause loss to White ACT.

548 Finally, before I leave the question of damages, I should indicate that even if, contrary to the conclusion that I have expressed in paras [456] and [457] above, WCL had undertaken a contractual obligation to pay White ACT’s liability to ADC, and had breached that obligation, there would be no resulting loss to White ACT. Had the obligation existed and been performed, the effect would be that one creditor – ADC – disappeared, and another creditor – WCL – appeared, in the identical amount. Breach of a promise to lend money may cause special damage in particular factual circumstances; but no special damage has been pleaded, particularised or proved in this case, referable to the promise alleged in paragraph 24 of the statement of contentions and the breach thereof alleged in paragraph 25.

Specific defences

549 As with damages, it is unnecessary for me to consider these defences in detail. However, had it been necessary to do so, it is likely that I would have concluded that:

(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; 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.

550 There were no detailed submissions addressed to the operation of the Limitation Act, including whether it might be applicable at all (to the extent, for example, that the case for breach of statutory duty was founded on breach of Commonwealth, rather than State, legislation). Indeed, the pleadings for White ACT seem to assume that, prima facie, its claim would be statute barred: as I have said, paragraph 35 seems to have been pleaded in effect by way of preemptive strike. In those circumstances, there seems to me to be little point in giving detailed consideration to the availability and reach of the limitation defences.

551 Nor does there seem to me to be any purpose in exploring the application of s 48 by analogy: a topic that has been considered in decisions such as Williams v Minister, Aboriginal Land Rights Act 1983 (1994) 35 NSWLR 497 and Nuthall v Nuthall [2001] NSWSC 950. See, generally, Meagher, Gummow and Lehane, Chapter 34, particularly at [34-075] to [34-080]. Nor is there any purpose to be served in considering what precisely would be involved in its analogous application.

552 Further, in my view, there is no basis for a reply of fraudulent concealment. The concept is discussed in Meagher, Gummow and Lehane at [34-085] to [34-100]. For fraudulent concealment to be made out, there must be proof of dishonesty or moral turpitude: Hamilton v Kaljo (1989) 17 NSWLR 381. It follows from the conclusions that I have reached that there is no relevant dishonesty or moral turpitude.

553 Although the defendants advanced a separate ground of defence alleging laches, acquiescence and delay, no separate submissions were put in support of this defence. In those circumstances, I will not give it separate consideration.

CONCLUSION AND ORDER

554 In my judgment, White ACT's claim fails as against all defendants.

555 I make the following orders:

(1) I order that the summons be dismissed.

(2) I order the plaintiff to pay the defendants’ costs.

******

Last Modified: 07/16/2007

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Citations

White Constructions (ACT) Pty Ltd (in liq) v White [2004] NSWSC 71

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CITATION:	White ACT (In Liquidation) v G B White & Ors [2004] NSWSC 71 revised - 7/02/2005
HEARING DATE(S):	3/11/03, 4/11/03, 5/11/03, 6/11/03, 7/11/03, 10/11/03, 11/11/03, 12/11/03, 13/11/03, 14/11/03, 17/11/03, 18/11/03, 19/11/03, 20/11/03, 21/11/03, 24/11/03, 25/11/03, 26/11/03, 27/11/03, 28/11/03, 1/12/03, 2/12/03, 3/12/03, 4/12/03, 8/12/03, 9/12/03, 10/12/03, 11/12/03
JUDGMENT DATE:	25 February 2004
JUDGMENT OF:	McDougall J at 1
DECISION:	See paragraph [555] of judgment
CATCHWORDS:	CORPORATIONS - directors' duties - fraudulent breach of duty - whether actual knowledge required - whether acting as de facto directors - divestiture of assets - whether purpose of transactions to leave no asset to meet future claim - INSOLVENCY - whether reasonable grounds to expect insolvency - whether unliquidated damages are a debt due and payable - whether failure to have regard to interests of unsecured creditor - PRACTICE AND PROCEDURE - whether pleaded case extended to non-intentional breach of duty - case opened beyond pleadings - whether plaintiff should be held to pleaded case
LEGISLATION CITED:	Limitation Act 1969 Corporations Act 2001 Companies Code Corporations Law
CASES CITED:	Australian Securities and Investments Commission v Plymin (No 1) [2003] VSC 123 Boardman v Phipps [1967] 2 AC 46 Brunskill v Sovereign Marine & General Insurance Co Ltd (1985) 59 ALJR 842, 844 Constantinidis v JGL Trading Pte Ltd (1995) 17 ACSR 625, 636 Devries v Australian National Railways Commission (1993) 177 CLR 472, 479 Dunn v Shapowloff (1978) 2 NSWLR 235, 244 Emanuel Management Pty Ltd v Foster's Brewing Group Ltd [2003] QSC 205 Geneva Finance Ltd v Resource & Industry Ltd (2002) 169 FLR 152 Hamilton v Kaljo (1989) 17 NSWLR 381 Iso Lilodw' Aliphumeleli Pty Ltd (in liq) v Commissioner of Taxation (2002) 42 ACSR 561 Keech v Sandford (1726) Sel Cas t King 61; 25 ER 223 Nocton v Lord Ashburton [1914] AC 932, 954 Norberg v Wynrib [1992] 2 SCR 226, 272 Nuthall v Nuthall [2001] NSWSC 950 Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165, 196-199 Re Hyams: Official Receiver v Hyams (1970) 19 FLR 232 Re Saebar: Official Receiver v Saebar (1971) 18 FLR 317 Re Wise: ex parte Mercer (1886) 17 QBD 290 Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213 Totterdell v Nicol-Burmeister (1995) 13 ACLC 1521 Wicks v Marsh, ex parte Wicks [1993] 2 Qd R 583, 585 Williams v Minister, Aboriginal Land Rights Act 1983 (1994) 35 NSWLR 497
PARTIES :	White Constructions (ACT) Pty Limited (in liquidation) v Geoffrey Bernard White (First Defendant) Travers William Duncan (Second Defendant) John William Spinks (Third Defendant) Frank Stratton McAlary (Fourth Defendant) Michael Frank McAlary (Fifth Defendant) White Constructions Pty Limited (formerly known as White Constructions Limited) (Sixth Defendant) Exxon Coal Australia Pty Limited (formerly known as White Industries Limited) (Seventh Defendant) PDC Constructions Pty Ltd (Eighth Defendant) White Industries (Qld) Pty Limited (Ninth Defendant) White Constructions Incentive Share Scheme Pty Limited (Tenth Defendant) [Deleted] WIL Civil and Mining Engineering Pty Limited (formerly known as Keathson (WA) Pty Ltd and as WIL Plant Hire Pty Limited) (Eleventh Defendant) White Constructions (NT) Pty Limited (Twelfth Defendant) Norwest Development Corporation Limited (Thirteenth Defendant) [Deleted] PDC Plant Hire Pty Ltd (Fourteenth Defendant) White Constructions (NSW) Pty Ltd (Fifteenth Defendant) White Property Developments Pty Limited (Sixteenth Defendant) White Industries Australia Limited (Seventeenth Defendant)
FILE NUMBER(S):	SC 50144/02
COUNSEL:	D E Grieve QC/S D Epstein SC/J Horowitz (Plaintiff) B W Rayment QC/D T Kell (Defendants)
SOLICITORS:	Deacons (Plaintiff) Mallesons Stephen Jaques (Defendants)

INTRODUCTION	Para 1
BACKGROUND MATTERS	8
The White Group	8
History of prior and present litigation	15
ISSUES BETWEEN THE PARTIES	18
The pleadings	18
The parties’ stated issues	46
The relief sought	68
RELEVANT CONTRACTUAL DOCUMENTS	72
The Quadrant Contract	72
The “hard dollar” subcontract and agency agreements	82
The CNCC agency agreement	89
The design and construction management agreements	93
THE KEY AREAS OF DISPUTE	98
CREDIBILITY	104
Mr Frank McAlary	115
Mr Duncan	144
Mr White	156
Mr Spinks	161
Mr Michael McAlary	163
THE SALE OF WHITE ACT	165
THE OCTOBER 1988 ACCOUNTING ENTRIES	178
Conclusions on the 1988 accounting entries	205
MANAGEMENT FEES AND OTHER CHARGES	206
Management fees: 1988	210
Management fees: 1989	236
Management fees: 1990	247
Management fees and other charges: 1992	251
Management fees and other charges: conclusions	258
INSOLVENCY	261
The relevant circumstances	261
Expert evidence	277
Legal principles	287
Analysis and conclusions	295
THE DIRECTOR DEFENDANTS’ STATE OF MIND: INSOLVENCY	320
THE QUADRANT INDUSTRIAL DISPUTE	331
Industrial background	331
The reasons of Giles CJ Comm D	333
The 1988 industrial dispute	338
The evidence of Mr Fischer	394
The evidence of Mr Berry	428
The evidence of Messrs Gartrell, Lamont and Wason	444
THE DIRECTOR DEFENDANTS’ STATE OF MIND: THE INDUSTRIAL DISPUTE	455
RESOLUTION OF THE ISSUES ON THE PLEADINGS	471
Paragraphs 2 & 3: who were directors?	473
Paragraph 10: insolvency	475
Paragraph 11: director defendants’ knowledge of insolvency	476
Paragraph 12: White ACT’s contractual obligations	479
Paragraph 13: director defendants’ knowledge of likelihood of loss under the Quadrant contract	480
Paragraphs 14 & 15: notice of intention to terminate/notice of termination of the Quadrant contract	482
Paragraph 16: director defendants’ knowledge relating to termination of the Quadrant contract	485
Paragraph 17: judgment in ADC’s favour	488
Paragraph 18: divesting White ACT of assets and future revenues	490
Paragraph 19: purpose	491
Paragraph 20: intercompany debts	493
Paragraph 21: extinction of intercompany loans	496
Paragraph 22: offsetting of debts	499
Paragraph 23: sale of White ACT	502
Paragraphs 24 & 25: agreement to pay claims of creditors	503
Paragraph 26: resignations	507
Paragraphs 27 & 28: de facto directors	508
Paragraph 29: further payments by White ACT to WCL, 1989-1992	515
Paragraphs 30 & 31: fiduciary relationship and obligations	520
Paragraph 32: no approval	523
Paragraph 33: breach of duties in relation to the October 1988 journal entries	525
Paragraph 34: breach of duties in relation to the management fees and other charges	529
Paragraph 35: limitation and other matters	533
Paragraph 36: knowing involvement	534
Damages	535
Specific defences	549
CONCLUSION AND ORDER	554