CATCHWORDS CORPORATIONS - directors - directors' duties - whether respondent owed fiduciary duties and a duty of care to the company - respondent not a formal director of the company - whether respondent an "officer" under s.232 Corporations Law - whether a "director" within s.60 - whether respondent acted as a director - whether respondent merely acted as a "consultant" - husband and wife companies. CORPORATIONS - directors duties - application under s.598 Corporations Law - whether misfeasance, negligence, default, breach of trust or breach of duty by respondent - s.232 Corporations Law - common law - whether taking of company moneys when company in financial difficulty a breach of fiduciary duty - whether use of company moneys for ordinary living expenses a breach of duty - failure to account for moneys received - whether breach of duty of care by purchasing uninsured stock. CUSTOMS & EXCISE - s.35A Customs Act 1901 - s.60 Excise Act 1901 (Cth) - s.2B Sales Tax Assessment Act (No 5) 1930 (Cth) - s.23 Sales Tax Assessment Act 1992 (Cth) - liability to pay customs tax, excise tax and sales tax - whether "failure to keep goods safely" - whether liability for stolen goods is absolute. Bankruptcy Act 1966 (Cth) - s.122 Corporations Law - ss.9, 60, 232, 565, 598 Customs Act 1901 (Cth) - s.35A Excise Act 1901 (Cth) - s.60 Sales Tax Assessment Act (No.5) 1930 (Cth) - s.2B Sales Tax Assessment Act 1992 (Cth) - s.23 Australian Securities Commission v AS Nominees Ltd (1995) 133 ALR 1 AWA Ltd v Daniels (1992) 7 ACSR 759 Collector of Customs (NSW) v Southern Shipping Co Ltd (1962) 107 CLR 279 Corporate Affairs Commission v Drysdale (1978) 141 CLR 236 Daniels v Anderson (1995) 37 NSWLR 438 Kinsela v Russell Kinsela Pty Ltd (In Liq) (1986) 4 NSWLR 722 Standard Chartered Bank of Australia Ltd v Antico (1995) 18 ACSR 1 Walker v Wimborne (1976) 137 CLR 1 MISTMORN PTY LTD (IN LIQUIDATION) and HUGH JENNER WILY v MICHAEL YASSEEN NG 3115 of 1994 Davies J Sydney 2 August 1996 IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 3115 of 1994 ) GENERAL DIVISION ) BETWEEN: MISTMORN PTY LTD (IN LIQUIDATION) (ACN 004 002 500) First Applicant HUGH JENNER WILY Second Applicant AND: MICHAEL YASSEEN Respondent Coram: Davies J Place: Sydney Date: 2 August 1996 MINUTES OF ORDER THE COURT ORDERS THAT: Counsel should bring in within 10 days, minutes of the orders which they propose. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 3115 of 1994 ) GENERAL DIVISION ) BETWEEN: MISTMORN PTY LTD (IN LIQUIDATION) (ACN 004 002 500) First Applicant HUGH JENNER WILY Second Applicant AND: MICHAEL YASSEEN Respondent Coram: Davies J Place: Sydney Date: 2 August 1996 REASONS FOR JUDGMENT Introduction These proceedings are brought by a company in liquidation, Mistmorn Pty Ltd ("Mistmorn") and its Official Liquidator, Mr Hugh Jenner Wily, against the respondent, Mr Michael Yasseen, for misfeasance, negligence, default, breach of trust or breach of duty, it being alleged that Mr Yasseen acted as a director or officer of Mistmorn or otherwise owed fiduciary duties and a duty of care to the company. Mr Yasseen denies that at any time he acted as a director or officer Mistmorn and further denies that he was guilty of any misfeasance, negligence, default, breach of trust or breach of duty. The applicants rely upon principles of the general law but also refer to s.232 of the Corporations Law which provides, inter alia:- "232 (1) In this section: `officer', in relation to a corporation, means: (a) a director, secretary or executive officer of the corporation; (b) a receiver, or receiver and manager, of property of the corporation, or any other authorised person who enters into possession or assumes control of property of the corporation for the purpose of enforcing any charge; (c) an administrator of the corporation; (ca) an administrator of a deed of company arrangement executed by the corporation; (d) a liquidator of the corporation; and (e) a trustee or other person administering a compromise or arrangement made between the corporation and another person or other persons; ... 232 (2) An officer of a corporation shall at all times act honestly in the exercise of his or her powers and the discharge of the duties of his or her office. ... 232 (4) In the exercise of his or her powers and the discharge of his or her duties, an officer of a corporation must exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation's circumstances. ... 232 (6) An officer or employee of a corporation must not, in relevant circumstances, make improper use of his or her position as such an officer or employee, to gain, directly or indirectly, an advantage for himself or herself or for any other person or to cause detriment to the corporation. ... 232 (11) This section has effect in addition to, and not in derogation of, any rule of law relating to the duty or liability of a person by reason of the person' office or employment in relation to a corporation and does not prevent the institution of any civil proceedings in respect of a breach of such a duty or in respect of such a liability." The second applicant also relies upon s.598(2) of the Corporations Law. Section 598 of the Law provides, inter alia:- "598 (1) ... (2) Subject to subsection (3), where, on application by an eligible applicant, the Court is satisfied that: (a) a person is guilty of fraud, negligence, default, breach of trust or breach of duty in relation to a corporation; and (b) the corporation has suffered, or is likely to suffer, loss or damage as a result of the fraud, negligence, default, breach of trust or breach of duty; the Court may make such order or orders as it thinks appropriate against or in relation to the person (including either or both of the orders specified in sub-section (4)) and may so make an order against or in relation to a person even though the person may have committed an offence in respect of the matter to which the order relates. ..." Section 9 of the Corporations Law defines "eligible applicant" to include the liquidator of a corporation. Section 60 relevantly provides:- "60 (1) Subject to subsection (2), a reference to a director, in relation to a body, includes a reference to: (a) a person occupying or acting in the position of director of the body, by whatever name called and whether or not validly appointed to occupy, or duly authorised to act in, the position; (b) a person in accordance with whose directions or instructions the directors of the body are accustomed to act; ... 60 (2) A person shall not be regarded as a person in accordance with whose directions or instructions: (a) a body's directors; or ... are accustomed to act merely because the directors ... act on advice given by the person in the proper performance of the functions attaching to the person's professional capacity or to the person's business relationship with the directors ... or with the body." Mistmorn was incorporated on 4 June 1990. Its shareholders were Mrs Maha Faour Hamad and Ms Joumana Rehayem. Ms Rehayem held her one share on trust for Mrs Hamad. Mrs Hamad was the proprietor of "The French Corner", a retail perfumery business carried on at the Campsie Centre, Campsie. Ms Rehayem was an employee. On 1 July 1991, Mistmorn registered the business name "Campsie Duty Free" and, on 19 November, the necessary licences and permissions for a duty free business under the Customs Act 1901 (Cth) and the Excise Act 1901 (Cth) were issued to Mistmorn for 275 Beamish Street, Campsie ("the premises"). The registered office of Mistmorn and the place of business of the French Corner were changed to the premises of Campsie Duty Free. Mistmorn thereafter conducted both Campsie Duty Free and the French Corner as a combined operation. On 28 November 1991, Campsie Duty Free was officially opened by the Mayor of Bankstown, Mayor Gorrie. Mistmorn traded as Campsie Duty Free and the French Corner from this time until mid-1993. On 16 June 1993 Mistmorn's duty free licence was suspended and on 14 July it was cancelled. On 9 September Mr Wily was appointed liquidator of Mistmorn. In the course of its business, Mistmorn suffered four thefts of stock, which I should mention now. On 20 February 1992, stock having a wholesale value of $279,589.73, principally cigarettes and liquor, was taken from the premises. There had been a substantial buildup in stock before the theft occurred. Thus, Mr D.L. Dickson, an officer of Customs, has deposed:- "12. Campsie Duty Free's purchases of under-bond alcohol provide good examples of this. Three examples are as follows: a) the documentation showed that between the time that the store commenced trading and 5 February 1992, 48 bottles of Chivas Regal 750 ml had been purchased by Campsie Duty Free. However, on 5 and 6 February 1992 alone, the business purchased 1,200 bottles; b) similarly, the documentation showed that between the date that the business opened and 14 February 1992, only 12 bottles of 100 Pipers 750 ml had been purchased by Campsie Duty Free. On 14 February 1992, however, Campsie Duty Free purchased 1,248 bottles; and c) further, between the date of commencement of the business and 5 February 1992, Campsie Duty Free had purchased 372 bottles of Black Douglas 750 ml. However, on 5 February 1992 Campsie Duty Free purchased 840 bottles and on 14 February 1992 they purchased 2,400 bottles. 13. Similar trends were evident in the purchases of under-bond cigarettes by Campsie Duty Free. The documentation showed that in the two weeks alone between 5 February 1992 and 19 February 1992, Campsie Duty Free purchased: a) from Rothmans of Pall Mall (Australia) Limited 1,385,000 cigarettes (or approximately 5,540 - 6,925 cartons -@200 - 250 cigarettes a carton); b) from W.D. and H.O. Wills (Australia) Limited 1,310,000 cigarettes (approx. 5,240 - 6,550 cartons); and c) from Philip Morris Limited 1,516,000 cigarettes (approx. 6,064 - 7580 cartons). that is a total of 4,211,000 cigarettes or between 16,844 and 21,055 cartons depending on how many of the lines purchased had 200 cigarettes per carton and how many had 250." On or about 18 May 1992 and 21 May 1992, further but smaller thefts occurred. After protracted negotiations, on 23 March 1993, Mistmorn's insurer, FAI General Insurance Co Ltd ("FAI"), reluctantly agreed to pay to Mistmorn the sum of $400,000 for its loss. This was paid to Mistmorn's solicitors, Ferrier & Associates, who, after deducting their fees, made out several cheques. Two of the cheques, one for $100,000 and another for $130,000, were made payable to and were paid to Mr Yasseen on 25 March 1993. The recovery of those sums is sought in these proceedings. In June 1992, the Collector of Customs ("the Collector") gave notice to Mistmorn under s.35A of the Customs Act, s.60 of the Excise Act and s.2B of the Sales Tax Assessment Act (No.5) 1930 (Cth), calling upon it to pay the sum of $274,176.12, the excise duty, customs duty and sales tax which would have been payable had the goods been entered for home consumption on the day the Collector made the demand. Mistmorn did not pay the sum demanded. On 20 February 1993, after there had again been a substantial increase in the level of stock, particularly of cigarettes, there was a fourth theft of stock from the premises of Mistmorn. The value of the goods taken was $279,589.76. The stock was uninsured, as the previous insurance had expired on 26 November 1992. Renewal had been refused by FAI and the insurance broker had been unable to locate an insurer willing to accept the risk. On 27 May 1993, the Collector gave notice to Mistmorn calling upon it to pay $283,008.14 in respect of the excise duty, customs duty and sales tax lost by virtue of the theft. Again this sum was not paid. No person has been charged in relation to the thefts. It is difficult to be precise as to the course of events surrounding the establishment and operation of Campsie Duty Free. The history of Mistmorn is an incredible one and the evidence of neither of the persons mainly concerned, Mrs Hamad and Mr Yasseen, was reliable. Mrs Hamad was too emotionally involved in the breakup of her relationship with Mr Yasseen and in the financial disaster of Mistmorn to be able to respond reliably to questions asked of her. Mr Yasseen, in his evidence, strongly opposed any indication that he had acted as a director of Mistmorn may have done. His evidence was grossly overstated and does not fit such facts as are established by the evidence. The Directors Mrs Hamad had received substantial funds on her divorce from her second husband, Dr Hamad. As part of her settlement, she became the proprietor of a perfumery, the French Corner, at Campsie. Mrs Hamad formed a relationship with Mr Yasseen and, from September 1991 for about 12 months, she lived in a de facto relationship with him. They and their respective children lived together in Mr Yasseen's home at Holmedale Road, Bankstown. Mrs Hamad regarded herself as Mr Yasseen's wife and was referred to at times as Mrs Yasseen, although at other times the name Maha Faour or Maha Hamad was used. Mistmorn was funded largely by Mrs Hamad and she, as well as Mistmorn, lost a great deal of money. Mrs Hamad was not successful in looking after her own affairs and appears to have been too ready to implement ideas which Mr Yasseen propounded. My impression is that Mrs Hamad was much influenced by the fact that Mr Yasseen was her husband. Indeed, even after the breakup of their relationship, $230,000 was paid to Mr Yasseen in March 1993 of which $130,000 was to be held by him for Mrs Hamad. And some of the payments to Mr Yasseen's benefit which are in issue in these proceedings were made in May 1993. Mr Yasseen's own financial position is a mystery. Statements of his many bank accounts are unenlightening. During the subject period, Mr Yasseen maintained his principal financial affairs "off record". In his evidence, Mr Yasseen spoke of a safe in which he kept substantial sums of money. But what amounts of money he had available at any time cannot be determined. Mrs Hamad said of Mr Yasseen:- "He doesn't have any money, I keep telling you he never had any money. He's broke, somebody taking his videos and washing machine, he was that broke. Where is he going to get the money and give it to me? I want to understand." But her evidence on this, as on other matters, may not be reliable. The first formal directors of Mistmorn were Mrs Hamad and her employee, Ms Rehayem. After Ms Rehayem's resignation as an employee, Mr Yasseen's sister, Houda Touma, was made a director. However, Ms Rehayem and Houda Touma did not act as directors. There were no meetings of directors or, for that matter, meetings of shareholders. Only a few formal minutes are in existence. Most but not all monetary payments were made by Mrs Hamad, who made little distinction between her own moneys and those of Mistmorn. Mrs Hamad said in her evidence:- "I really didn't know the difference between me and the company, whatever I was paying on behalf of the company or behalf of me was the same." Many payments, including payments to employees, were made in cash. Mr Yasseen also was a signatory to the bank account and signed some cheques. I am satisfied that Mr Yasseen intended that he would not be a director. That is plain enough from the fact that he was not made a director and from the fact that, when Ms Rehayem left, he asked his sister, Houda Touma, to become a director. Mrs Hamad gave evidence that Mr Yasseen had informed her that he could not be a director as he had previously been a director of an insolvent company. It may be that Mr Yasseen said that to Mrs Hamad. Whether it was true in fact does not matter. The business card which was printed read "M. Faour Yasseen, Managing Director" and had a reference to Campsie Duty Free on one side of the card and to the French Corner on the other. Mrs Hamad's name before she married Dr Hamad was Maha Faour. Accordingly, the business card could be and was used by her. The evidence shows that it was also used by Mr Yasseen. The letter "M" could stand equally for "Maha" or "Michael". Mr Yasseen, in his evidence, denied using this card but I am satisfied that this was the only card which was printed and that it was the business card which Mr M.A. Sweeney said he had received from Mr Yasseen. The confusion which this card caused is made plain by the evidence of Mr P. Hughes. He was given the card by Mrs Hamad. He gave the card to another member of his firm who addressed a letter to "M. Faour Yasseen" and commenced "Dear Michael". I am satisfied that the driving force behind the establishment of Campsie Duty Free was Mr Yasseen. Although the application form for the necessary licence and permission was signed by Mr V.M. Aboud, who was an accountant and the company secretary, each of the Customs officers who dealt with the application considered that he was dealing principally with Mr Yasseen. Evidence was given by Mr A. Tierney and Mr R.B. Harkins, who attended the premises, that they spoke to Mr Yasseen and Mrs Hamad, although principally to Mr Yasseen. I accept their evidence in preference to that of Mr Yasseen who denied that he took any significant part in these matters. Mr Yasseen negotiated the lease of the premises at which Campsie Duty Free was established, and thereafter it was generally Mr Yasseen who dealt with the landlord with regard to matters such as rent review and arrears of payment. Most correspondence from the landlord was directed to "Mr Yasseen" or "Mr M. Yassine, Mistmorn P/L", even up until September 1993 when Mistmorn was locked out of the premises. Mr Yasseen lodged the development application of the premises with Canterbury Council and, thereafter, the Council dealt primarily with "Mr Michael Yasseen", referring to him in a file note as "proprietor" of the store. When Mr Yasseen repeatedly failed to lodge an application form seeking approval for the installation of certain signs, in a letter of 15 April 1992 addressed to Mr Michael Yasseen, legal proceedings were threatened against "you". It was noted that Mr Yasseen gave an undertaking to submit the necessary application, which was finally done by him in December 1992. Mr Yasseen was instrumental in obtaining insurance for Campsie Duty Free, although the policy application was signed by Mrs Hamad. The evidence shows that Mr Yasseen contacted a Mr Steve Coventry of Brookvale Insurance Brokers Pty Ltd, who was a friend of his, to obtain insurance for the company. In 1991, correspondence from Mr Coventry to Mistmorn was generally addressed to "Michael". Correspondence from Mr Coventry to FAI, who were underwriting the insurance, on 13 December 1991, noted that "now that the client has got into his shop he requires a few changes." A letter from Mr Coventry to Mr Yasseen on 27 November 1991 also stated that "...security codes & keys must only be held by company directors for the safe, building, alarm. This is a requirement due to the large sum/insured." Mr Yasseen had such keys and had access to the code; at one time he changed the code without informing Mrs Hamad. Mr Yasseen arranged for the fitting out of the shop at the premises. His own evidence shows that he attended to the shop fittings, the construction of the store rooms, the contractors, the sign writing and the painting. Mr Yasseen also arranged for the printing of the early promotional material. This included letters or flyers which were to be distributed to potential customers such as embassies. One letter, dated 2 January 1992, on the letterhead of Campsie Duty Free, read:- "Dear Sir/Madam, I would like to take this opportunity to wish you and your staff a very happy and prosperous new year. I would also like to introduce myself, Michael Yasseen, the manager of CAMPSIE DUTY FREE. CAMPSIE DUTY FREE is the largest suburban duty free store with a wide variety of everything you would possibly want to purchase at duty free prices, as shown in our enclosed pamphlet. My offer to you is the following: 1. Commission of 5% paid monthly to the referrer. 2. The traveller referred by you will receive - 1 bottle of Black Douglas scotch OR 1 carton of cigarettes as a complimentary gift. 3. Guaranteed lowest prices in Sydney. This offer is not valid with other specials, and is subject to the following conditions: . One pamphlet per person . 1 pamphlet per couple . 1 pamphlet per family . Traveller must produce passport and ticket. Consulates, travel agents and airline crew receive an additional 10% discount to our low prices. I thank you for your participation and hope that our future business relations will be mutually successful." (emphasis added) Mr Yasseen signed the letter above the name "Michael Yasseen". Mr Yasseen applied for membership with the Australian Duty Free Operators Association Ltd. The correspondence from the Association was directed to "Mr Michael Yassine". When, in 1993, the business of Mistmorn closed, the Association looked to him for outstanding fees. Mr Yasseen arranged for the opening of Campsie Duty Free by the Mayor of Campsie. This occurred on 28 November 1991. In his response to the Mayor's opening speech, in which he congratulated "Michael" and "Maha" on opening the store, Mr Yasseen said:- "I can promise you all good service and good prices and I'd like to thank my wife for supporting me and being patient. Thank you." Mrs Hamad did not speak. From these facts, the inference is irresistible that Mr Yasseen promoted the concept of establishing a duty free store and was instrumental in achieving that end. I shall deal with subsequent facts at a later point in these reasons. For the moment, it is sufficient to mention that, in May 1993, it was Mr Yasseen who attended a duty free trade fair held in Hong Kong. And, in later months, when Mistmorn's business had been brought to closure by the seizure of its stock by Customs, it was Mr Yasseen who arranged for the release and sale of stock, and negotiated a sale of the business on the condition that the lease be transferred to the purchaser, a condition which Mr Yasseen sought to have fulfilled but was unable to achieve. The business had two sections, the duty free section, which had the prominent corner position, and the French Corner, which was adjoining. The one entrance served both premises. The duty free business encompassed both stores for the perfume and other goods which were available in the French Corner could be acquired at discounted duty free prices by persons who were entitled to acquire duty free goods. Mr Yasseen maintained an office in the premises but the time which he spent on the business of Campsie Duty Free varied from time to time depending upon the needs of the business and whether there was at the time a manager employed. When he was engaged in the operations of the business, Mr Yasseen concerned himself with the affairs of Campsie Duty Free whilst Mrs Hamad concerned herself rather more with the affairs of the French Corner. When Campsie Duty Free first commenced business, its manager was Mr Luke Estephan. Mr Estephan's affidavit describes his being engaged by Mrs Hamad, his management of the duty free business and how he was responsible for ordering and selling electrical and photographic goods, liquor, cigarettes and watches whilst Mrs Hamad was responsible for dealing with goods such as perfume, cosmetics, lingerie, jewellery, glasses, leather goods and travelling goods. Mr Estephan deposed:- "From my observation Michael Yasseen had nothing to do with the company or its affairs nor did he have anything to do with the business or its operations. I saw Michael coming only to see Maha. On occasions he helped her with advice. I heard Michael saying to Maha: `Don't sign personal guarantees for anybody, your [sic] leaving yourself personally liable.'" In his oral evidence, Mr Estephan repeated that Mr Yasseen played no role in the business before he, Mr Estephan, resigned in February 1992. However, this story was patently incorrect. In cross-examination, Mr Estephan first retreated to the story that he, Mr Estephan, would ask Mr Yasseen to go and get some parcel or pick up some goods for the company and Mr Yasseen would go and do that for Mr Estephan, like a messenger boy would. This evidence was so inconsistent with Mr Yasseen's personality that it must be rejected. Later, in his cross-examination, Mr Estephan conceded that, from 15 January 1992 onwards, during the four weeks before Mr Estephan left the employment, he taught Mr Yasseen the business, introduced him to the staff and to the customers and taught him how to be the manager of the business with a view to his taking over when Mr Estephan left. That part of Mr Estephan's evidence and the evidence of other persons such as the representatives from the liquor and tobacco companies who dealt with Mr Yasseen is so inconsistent with the substance of Mr Estephan's evidence that I cannot place reliance on it. No doubt, when Mr Estephan was first employed as a manager, there was little need for Mr Yasseen to involve himself in the day-to-day business, for Mr Estephan was experienced in the field. But that is not a point which assists the determination of the issues in these proceedings. The evidence of two other employees is also not determinative. Ms Catherine Anne Gorrie gave evidence that she was answerable to both Mr Yasseen and Mrs Hamad but always felt that Mr Yasseen had the final say. Mrs Janine Mardini said that, during the period from November 1992 to the beginning of July 1993, when she worked in the business, Mr Yasseen was not involved in any aspect of the business. The evidence of Mrs Mardini must be rejected. During November and December 1992, and January and early February 1993, Mr Yasseen, on his own admission, was active in the business and, indeed, during December 1992, he attempted to exclude Mrs Hamad from the business. In cross-examination, Mrs Mardini qualified her evidence by saying that, when she first commenced work in November 1992, Mr Yasseen was always there and always working, including speaking to the representatives of different companies, serving customers and telling all the girls what to do, but that, all of a sudden, he just stopped. Certainly, after the theft in February 1993, Mr Yasseen did at times absent himself from the business. Indeed, as much of the duty free stock had been stolen and there were no funds to replace it, there was not the same need for his attendance. However, he never gave up his connection with the business and it was he, not Mrs Hamad, who, in mid-1993, took steps to wind up the business. I shall mention these matters later. Several suppliers testified that they had had contact with Mr Yasseen during the early period. Mr Warren Vesey of Seagram Australia Pty Ltd ("Seagrams") gave evidence that, in January or February 1992, Campsie Duty Free opened an account in its books. Mr Vesey said that the only person with whom he dealt in respect of that account was Michael Yasseen. Mr Vesey said that Mr Yasseen normally ordered the goods and attended to payment. Mr Richard Ayson, formerly an employee of the Orlando Wyndham Group, gave evidence that he met Mr Yasseen at Campsie Duty Free on 11 February 1992 and received an opening order for a number of different wines and spirits. On 13 and 14 February 1992, he received two more orders from Campsie Duty Free but no more thereafter. Mr Ayson said that the only person with whom he dealt was Mr Yasseen. Mr Gaetan Rouillon, a Sales Supervisor at Rothmans' Exports Pty Ltd ("Rothmans"), gave evidence that, in November 1991, Mr Estephan invited him to visit the Campsie Duty Free premises where he was introduced to Mr Yasseen who said to him:- "I have established the duty free business in partnership with my wife, who manages the perfumery, at the back of the shop, while the duty free shop occupies the front section... I employed Luke Estephan to guide me in establishing the new venture, because of Luke's past experience in the duty free business. To establish the duty free shop I have good contacts with Embassies and Consulates, and want to open an account with Rothmans to purchase tobacco products. I intend to promote the duty free shop by distributing pamphlets to travel agencies in the area, offering a free carton of cigarettes to customers shopping at Campsie Duty Free." Mr Rouillon said that Mr Yasseen then showed him around the shop and a credit account was opened. Mr Andrew Attard, also employed by Rothmans, gave evidence that he received an application for a credit account from Campsie Duty Free in late 1991 and that, throughout the period in which Campsie Duty Free obtained stock from Rothmans, whenever a problem arose with respect to overdue accounts, he dealt by telephone with Michael Yasseen. Mr Joe Caterina, an export manager employed by W.D. & H.O. Wills (Australia) Ltd ("Wills") gave evidence that, after his third visit, when he attended the shop, he principally saw Mr Yasseen and had dealings with him. Very little in this case turns upon the extent to which Mr Yasseen actually worked in the day-to-day operations of the business. But the evidence I have already mentioned shows that he did involve himself to a considerable extent in the day-to-day transactions and affairs of Campsie Duty Free. What is more, in all those affairs in respect of which one would expect a director to be involved, Mr Yasseen was involved. When funds were required in early 1992 because of the heavy purchases of stock which had occurred, Mr Yasseen arranged for a loan of $130,000 from his brother-in-law, Mr Andy Jackson. When Mistmorn was involved in litigation, Mr Yasseen played a prominent role. Mr Yasseen was active in dealing with the negotiations with the insurance company, FAI, which showed reluctance to pay out on Mistmorn's claim. Mr Yasseen took a leading role in giving instructions in the negotiations with Customs on Customs' claims for the payment of the excise duty, customs duty and sales tax. It was Mr Yasseen and the solicitor, Mr A. Tudhope, who attended a conference with Customs on 3 June 1993 when an offer of settlement was put to Customs which Customs subsequently rejected. In all these ways, Mr Yasseen involved himself in the affairs of Mistmorn as only a director of the company would have been expected to do. I do not say that he held himself out to be a director, for, as I have said, I think that he intended not to be a director, but he dealt with the matters one would expect a director to handle. The case put on behalf of Mr Yasseen was that whatever he did was done to assist Mrs Hamad. Thus, Mrs Mardini gave this evidence:- "He only helped sell. He was not employed there. He was there as Maha's husband, partner, to help out." Mr Yasseen and Mr Estephan gave like evidence. It seems to me to be quite inconsistent with Mr Yasseen's personality that he acted as a caring assistant to his partner, Mrs Hamad. My impression of Mr Yasseen is that he is a person who is aware of what is going on around him and that he looks after his own interests. Mr Yasseen gave evidence that he acted as a "consultant" to Mistmorn or Mrs Hamad. In fact, he so described himself at various times. But the use of the term is of little assistance. In order to determine whether Mr Yasseen acted as a director and officer of Mistmorn, it is necessary to see what he did, not what euphemism he applied to his actions. Mrs Hamad does not appear to have fully understood what was occurring in relation to the business. A member of the staff of the liquidator, Mr David Maher, has calculated that Mrs Hamad put over $700,000 into the business. Mrs Hamad lost this amount and, presumably, a great deal more. She was a director of Mistmorn and she undoubtedly managed the French Corner side of the business. However, I think it is unlikely that Mrs Hamad either controlled or had a good understanding of what was occurring in the other side of the business, that is to say, the duty free side of the business which involved cigarettes, liquor, electrical and photographic goods. I also think it is unlikely that Mrs Hamad initiated or turned her mind to the large increases in stock which occurred before the two major thefts. It was her financial position that was affected. I think that she would not have approved expenditure on stock which was unwarranted and I think it is improbable that she was in any way involved in any of the thefts which occurred. She would not have stolen from the business which she was funding. I think it is probable that, when Mr Yasseen was working in the duty free side of the business, Mrs Hamad left the decision making in that side of the business principally to him. My overall impression is that Mistmorn was run as a husband and wife company. Both Mr Yasseen and Mrs Hamad were involved in the day-to-day operations and the business affairs of the company. Mr Coventry addressed some of his facsimile transmissions to "Maha/Michael". Mr Aboud sent a facsimile to Mistmorn directed to the attention of "Maha Faour or Michael Yasseen". Mr Yasseen and Mrs Hamad both directed the affairs of the company. The distinction between a consultant to and a director of a corporation is often said to be that the former is engaged to perform specific functions whilst the latter is engaged in the affairs of the corporation generally. See, eg. Australian Securities Commission v AS Nominees Ltd (1995) 133 ALR 1 at 53, per Finn J; Standard Chartered Bank of Australia Ltd v Antico (1995) 18 ACSR 1 at 70, per Hodgson J. Mr Yasseen fell into the latter category, notwithstanding that his attention to Mistmorn's affairs was not full-time. He was subject to the duties which a director of Mistmorn owed to it: Corporate Affairs Commission v Drysdale (1978) 141 CLR 236. Those duties were discussed by Rogers CJ in Comm. Div. in AWA Ltd v Daniels (1992) 7 ACSR 759 at 864-873. See also Daniels v Anderson (1995) 37 NSWLR 438 at 495-502; Kinsela v Russell Kinsela Pty Ltd (In Liq) (1986) 4 NSWLR 722 at 730-3. I am satisfied that, during relevant periods with which we are concerned, if not during the whole period while Mistmorn traded, Mr Yasseen acted as a director and officer of Mistmorn and owed fiduciary duties and a duty of care to Mistmorn. However, these proceedings cannot be determined by any broad characterisation of Mr Yasseen as a director and officer of Mistmorn. It is necessary to examine carefully the individual claims which have been made. The Payment of $230,000 On or about 25 March 1993, Mr Yasseen was given two bank cheques from the company's funds: one in the amount of $100,000 and another in the amount of $130,000. The evidence shows that the money was paid to Mr Yasseen by Ferrier & Associates out of the $400,000 received from FAI on settlement of the insurance claim. The moneys were distributed in accordance with the instructions of Mrs Hamad which were faxed to Ferrier & Associates on 24 March 1993. Apparently, the two cheques were converted into cash and the cash went into Mr Yasseen's safe or other safe place. Mr Yasseen gave evidence that the $100,000 was owed to him by Mrs Hamad under a written agreement dated 25 March 1993 for the sale to her of certain fixtures and fittings owned or paid for by Mr Yasseen. I am satisfied, however, that the written agreement of 25 March 1993 was a sham, drawn up with a view to giving a degree of verisimilitude to the payment to him of the $100,000 which he proposed to take out of the insurance moneys. The goods which were the subject of the agreement were all the property of Mistmorn. Mr Yasseen alleged in his evidence that some of the goods such as a cash register came from a business previously owned by one of his companies, Pastry Plus Pty Ltd. However, I am satisfied that all issues concerning the equipment which had been owned by that company had long since been resolved as between himself and Mrs Hamad. Mr Yasseen claimed that Mistmorn or Mrs Hamad owed him money as he had paid certain expenses involved in fitting the Campsie Duty Free shop: $15,000 to Tony Hanna Roofing for the construction of the storeroom, boardroom, eating room, fitting room, computer room and two walls for the front door; $16,000 to Paradise Kitchens for supplying and fitting the interior display cabinets, counters and fittings to the shop premises; $20,000 to Anises Signs for the erection of certain signs at the shop premises; $4,700 for electrical work; $5,000 for the installation of the security door and security alarms; and $4,000 for brackets, glass shelves, tools, hardware and accessories. Mr Yasseen also asserted that he gave to Mrs Hamad on behalf of the company equipment installed in the shop to the value of $20,000 and arranged for the erection of shelves and construction of upstairs offices. Mr Anis Sabouna gave evidence that around October/November 1991 he installed some signs for Campsie Duty Free and received from Mr Yasseen $3,000/$4,000 in cash on each occasion. Mr Karl Issa, a director of Eurostyle Kitchens Pty Ltd, gave evidence that in about September 1991 Mr Yasseen requested a quotation for shop fittings at his Campsie shop. After a period of negotiation, he agreed to do the work for $28,000 and completed the job between September and November 1991, which included supplying and fitting the interior display cabinets, counters and fittings. Mr Yasseen paid the amount and was issued a receipt in the name of "27 Beamish St, Campsie". Mr Tony Hanna gave evidence that, in about October 1991, he was contacted by Mr Yasseen requesting a quotation on a job at 275 Beamish St and he gave a quotation of $15,000. Mr Hanna said that Mr Yasseen gave him three payments of $5,000 each in cash for the work. I have not attempted to sort out the financial position as between Mrs Hamad and Mr Yasseen. That would be an impossible task as the evidence of neither was reliable. Moreover, the accounting records of Mistmorn are not adequate. I am not satisfied, however, that any of the expenditure described in the above evidence was paid by Mr Yasseen out of his own funds or otherwise represented a debt from Mistmorn to Mr Yasseen. The records of Mistmorn do not show a debt due by it to Mr Yasseen. Even the sham agreement of 25 March 1993 was expressed to be between Mr Yasseen and Mrs Hamad. As Mr Yasseen was involved in instructing Ferrier & Associates with respect to the claim made upon FAI, he clearly owed fiduciary duties to Mistmorn in relation to settlement moneys which FAI paid. In arranging, in association with Mrs Hamad, that $100,000 out of the settlement moneys be paid to him personally, Mr Yasseen breached the duty which he owed to the company. This is especially so as, by 25 March 1993, the fourth theft of stock had occurred, Mistmorn had debts which it could not pay and already had against it a demand by Customs for the payment of $274,176.12 arising out of the first theft. The taking by Mr Yasseen of the $100,000 was plainly a breach of the duty which he owed to the company: Walker v Wimborne (1976) 137 CLR 1. The letter signed by Mrs Hamad and faxed to Ferrier & Associates on 24 March 1993 instructing them to draw a cheque in favour of Mr Yasseen for $100,000 also directed them to pay a further $130,000 to Mr Yasseen from the proceeds of the insurance claim. The applicants claim that this sum, which Mr Yasseen received, has not been accounted for by Mr Yasseen. Mr Yasseen, in his evidence, again relied on the fact that the payment was authorised by Mrs Hamad, the managing director and sole shareholder of the company. Mr Yasseen asserted in his evidence that the money was money recouped by Mrs Hamad from moneys the company owed to her and was paid to him to be held on trust for her so that she could buy a home for herself. This payment was said to be of benefit to Mistmorn as it reduced the liability of the company to Mrs Hamad. Mr Yasseen gave evidence that he applied the $130,000 towards buying a property at 171 Davies Road, Padstow for Mrs Hamad. This was disputed by Mrs Hamad who said that Mr Yasseen used only part of the moneys in the purchase of the property for her. Again, I do not propose to resolve this dispute as between Mr Yasseen and Mrs Hamad. In my opinion, it is probable that the sum of $130,000 was paid to Mr Yasseen under an arrangement with Mrs Hamad that Mr Yasseen would use the sum in the purchase of a home for her. I think that the likely arrangement was that described in the evidence of Mr Emmanuel Tsalikas, who gave evidence that, in about July 1993, Mrs Hamad said to him: "I gave him [Mr Yasseen] $130,000.00 out of the insurance claim to buy me a house." Mr Joe Hanna, who also gave evidence on behalf of Mr Yasseen, gave evidence to like effect. As both Mr Yasseen and Mrs Hamad owed fiduciary duties to the company in respect of the proceeds of the insurance claim, it was, of course, wrong and a breach of these duties for them to arrange that $130,000 of the settlement money would be paid to Mr Yasseen to be held by him for the personal benefit of Mrs Hamad. At that time, therefore, Mrs Hamad had no entitlement to take moneys of the company for use as she saw fit for her own benefit. Mr Yasseen was equally in breach of his duties to the company in assisting her to do so: see Walker v Wimborne. It is true that Mistmorn owed funds to Mrs Hamad. By March 1993, the total exceeded $700,000. That fact provides no sufficient reason for the taking of moneys of the company to be used for the personal benefit of a director at a time when it was quite inappropriate that company moneys should be so used. Moneys Paid for the benefit of Mr Yasseen A claim is made in the sum of $13,955.62 in respect of moneys said to have been paid out of Mistmorn's funds for the benefit of Mr Yasseen. It is not in dispute that Mrs Hamad authorised these payments and signed all the cheques save a cheque for $2,000 made out to the National Australia Bank Ltd ("NAB") which was signed by Mr Yasseen. The payments are as follows:- Date Amount Payee Cheque No. 12/1/93 $ 851.33 Bankstown City Council 026394 12/1/93 $ 170.98 AGL Sydney Ltd 026395 12/1/93 $ 209.30 Water Board 026396 12/1/93 $ 980.00 Trinity Grammar School026393 13/1/93 $2,000.00 NAB 026398 16/2/93 $ 132.41 Sydney Electricity 468233 7/4/93 $5,500.00 Twin Windows Pty Ltd 363578 7/4/93 $1,500.00 Twin Windows Pty Ltd 363579 9/4/93 $1,266.00 Meriden School 365590 9/4/93 $1,345.60 Trinity Grammar School 363581 Mr Yasseen gave evidence that, as to the payments of $851.33 paid to Bankstown Council on 12 January 1993, $170.98 paid to the AGL on 12 January 1993, $209.30 paid to the Water Board on 12 January 1993, $980 paid to Trinity Grammar School on 12 January 1993 and $2,000 paid to the NAB on 13 January 1993, he gave Mrs Hamad cash in the amount of $4,211.61 and she drew the cheques to pay the amounts. Mr Yasseen said he was authorised to sign the cheque in favour of the NAB. Mr Yasseen did not know if Mrs Hamad deposited the cash into Mistmorn's account. Mr Yasseen said he also gave cash in the amount of $132.41 to Mrs Hamad in return for a cheque payable to Sydney Electricity. As to the payments of school fees for Mr Yasseen's children of $1,345.60 paid to Trinity Grammar School and $1,266.00 paid to Meriden School on 9 April 1993, Mr Yasseen said that he gave Mrs Hamad cash of $2,600 on 9 April 1993 and asked her to write out the cheques. Again, he did not know if she deposited the cash in Mistmorn's account. I do not have any confidence in Mr Yasseen's evidence on these points. However, I cannot see any substance in the applicants' claim with respect to matters such as the school fees and other living expenses. Neither Mr Yasseen nor Mrs Hamad drew any regular sum from the company for the work that they did. It is clear that, in a private company such as Mistmorn, the directors who worked in the business would either have had to receive a regular remuneration or they would have had to draw upon the company for their living expenses. I think that all these payments were in that latter category. Mr Yasseen and Mrs Hamad had a rather loose arrangement as far as their personal finances were concerned and, although Mr Yasseen had many bank accounts, he often preferred not to use them. Accordingly, it is not surprising to find that ordinary living expenses would be paid by cheques drawn on the company's bank account. Mrs Hamad put far more money into the business than she took out. She was certainly entitled to pay or to authorise the payment of accounts of this nature. The payment of $7,000 to Twin Windows Pty Ltd ("Twin Windows") is slightly different. Mr Yasseen gave evidence that this money was paid to Twin Windows for supplying front doors to Campsie Duty Free. Mr Samer Darwich, a director of Twin Windows, gave evidence that, in March or April 1993, he received from Mrs Hamad two cheques, one for $5,500 and one for $1,500, for work which his company had done in 1991. The basic story to which Mr Darwich deposed is improbable. It would be highly unusual for a tradesman who did work in 1991 to wait around until 1993 to seek payment. There is no evidence of letters of demand, threats of legal action or the like in the meantime. The probabilities favour the conclusion that the $7,000 was paid to Twin Windows in respect of work which Twin Windows did for Mr Yasseen in mid-1993. I so find, notwithstanding that I have rarely seen a witness give his evidence more convincingly than did Mr Darwich. I would, however, resolve this issue on a basis similar to the other payments I have already dealt with. I am not satisfied that there was any impropriety involved in the payment that was made. $7,000 might appear to be a large sum, but there is, in evidence, a deposit slip for Mistmorn's account dated 28 May 1993 for a sum of $20,000 which is noted, on the duplicate, "from Michael". As I am unable to clarify the financial dealings between Mr Yasseen and Mrs Hamad and the extent to which they involved payments to or from Mistmorn's account, I am not satisfied that this particular payment was a payment which conferred any improper benefit upon Mr Yasseen or involved any breach of duty by him or by Mrs Hamad. In respect of all these matters, Mr Yasseen also claimed that he was entitled to a set-off arising out of what he said was an agreement between himself and Mrs Hamad that he would be paid a remuneration of $1,000 per week. I am not satisfied that any such arrangement was made by Mrs Hamad on behalf of Mistmorn. Mr Yasseen was never paid $1,000 per week and no liability to pay any such sum appeared in the accounts of Mistmorn. The Brown Noel Transaction A Singapore corporation, Brown Noel Pte Ltd ("Brown Noel"), wished to purchase 550 cases of premium liquor from Australia. Mr M.A. Sweeney, who had previously spoken with Mr Yasseen and Mr Estephan, became involved, as also did a Mr L. Frenopoulo and a Mr E. Tsalikas, who were known to Mr Yasseen. Mr Sweeney and representatives of Brown Noel spoke to Mr Yasseen in his office at Campsie Duty Free. The general structure of the transaction was then agreed. It later became somewhat complicated, in part because Mr Yasseen placed an order with Seagrams on the basis that the goods were required for the U.S. Embassy in Canberra, whereas the goods were in fact to be exported to Singapore. 350 cases of the liquor were obtained from Seagrams by Mistmorn for the price of $149,000. Mr Yasseen received from Brown Noel the sum of $107,174 by way of bank draft made out to Campsie Duty Free and the sum of $190,443 by way of bank draft made out to Seagrams. Because of a difficulty, the draft for $107,174 was endorsed to Mr Yasseen and paid into his own account. As only approximately $149,000 was due to Seagrams, the draft for $190,443 was returned and Brown Noel made a further payment of that sum direct to Mr Yasseen. Mr Yasseen then paid $148,813 to Seagrams from his own funds or from the funds which he held. The remaining cases of liquor were not ordered or delivered. The transaction became further complicated when, in June 1993, the Brown Noel goods were seized by Customs with the remainder of the stock held by Campsie Duty Free. After negotiation, in which Mr Yasseen participated, Customs accepted that the Brown Noel liquor was the property of Brown Noel and released it for export to Singapore. The applicants therefore claim that Mr Yasseen received a total of $297,617 from Brown Noel, of which he gave only $148,813 to Seagrams. The applicants accept that Mr Yasseen subsequently went to Singapore and paid Brown Noel $60,000 in return for a release of all claims against him and Mistmorn. Expenses for his trip to Singapore were $8,000 and his fee to Mr Tsalikas and Mr Frenopoulo for arranging the shipping and acting as quasi agent was $7,086. According to the applicants, that leaves a sum of $73,718, or thereabouts, unaccounted for. Mr Yasseen gave evidence that he had given to Mistmorn three sums which were owing to him and which totalled more than the amount due to Mistmorn under the Brown Noel transaction: $30,000 on 6 May 1993, $20,000 on 28 May 1993 and $20,000 on 7 June 1993. He also claimed to have made two payments to Ferrier & Associates: $6,000 on 6 July 1993 and $3,500 on 9 August 1993. Counsel for Mr Yasseen further submitted that Mr Yasseen had not been paid the $1,000 allegedly owing to him for remuneration under his contract with Mistmorn. I have already rejected this evidence. The evidence shows that $20,000 was received from Mr Yasseen on 28 May 1993, recorded in the deposit books in Mrs Hamad's handwriting as being "from Michael". A number of other sums of cash were deposited with no indication as to their source. For example, a sum of $3,490 in cash was deposited on 6 May 1993 with no note as to where it came from. A sum of $27,660.00 was also deposited on 7 May 1993, in cash, there being no note on the deposit slip as to the source. On 7 June, there was another payment of $3,660 in cash and on 9 June 1996, there was a deposit of $10,000 cash with no indication as to its source. It is not possible to draw the inference that any of these sums was related to the Brown Noel transaction, however. The one pay-in slip recording that the payment was "from Michael" suggests that the other payments were not from that source. In her evidence, Mrs Hamad said that the payments could have represented takings. It was not inconsistent with Mrs Hamad's practice that this could be so, for she used cash in the business and therefore could have paid in cash in a lump sum when it was convenient to do so. On the other hand, this picture does not relate well to recorded sales. On the evidence, I am satisfied that Mr Yasseen did not account to Mistmorn for the $73,718 balance. There is no dispute about that. Mr Yasseen has never put in writing to Mistmorn the amount due to Mistmorn less amounts claimed to be set off against it. Moreover, I am not satisfied that any money was due to Mr Yasseen from either Mistmorn or from Mrs Hamad. Even as to the $20,000 which is recorded as having been received from Mr Yasseen, I cannot find on the probabilities that this was an advance to Mistmorn, that it did not represent moneys Mr Yasseen owed to Mrs Hamad or Mistmorn or even that it was paid from his own moneys rather than moneys he held for Mrs Hamad. As I am not able to draw a conclusion on the probabilities about these matters, I think there should be judgment for the applicants on this count. Sale of Stock There is a claim for $12,000 in relation to stock sold for $43,429 between 1 June 1993 and 31 August 1993 when Mr Yasseen was winding up the business. Mr Yasseen himself paid the duty and obtained its release from Customs. He then sold the stock for $43,429 and received that sum. $30,800 had been paid to Customs. Evidence was led, and accepted by the applicants, that $200 was used to pay Mr Leslie Abboud, solicitor. That leaves approximately $12,000 not accounted for. Mr Yasseen gave evidence that he paid $7,000 of the money in cash to Mrs Hamad and $5,000 in cash to his brother-in-law, Mr Jackson, being moneys due for the purchase of furniture. However, even if the evidence be accepted, the defence must be rejected. The transcript of Mr Yasseen's cross-examination on this point reads: "You then had $12,000 in cash left over and this looks like the end of August, beginning of September, and what did you do with this $12,000 of the company's funds?---I gave $5000 to Andy, my brother and $7000 to Maha. At that stage you knew that winding up proceedings had been commenced, did you not?---About Rothman? Yes?---Yes, probably. Those company funds have not been available for the creditors since you gave them to Maha and to Andy, correct?---Yes." The winding-up proceedings of Mistmorn had commenced on 18 July 1993 and the order was made on 9 September. Given this fact, I am satisfied that Mr Yasseen, who was under fiduciary duties in relation to the moneys received on the sale of the company stock, breached those duties by failing to account to the company for the net proceeds of the sale of the stock. The payment by Mr Yasseen to his brother-in-law, if it occurred, was a payment to a creditor of Mrs Hamad which Mr Yasseen was not authorised by Mistmorn to make. The payment of the $7,000 to Mrs Hamad, if it occurred, was not a proper one. At the time, late August and the beginning of September, Mrs Hamad was not managing the business of Mistmorn. It was Mr Yasseen who was taking steps to wind up the business. Mr Yasseen's duty was to account to the company for the moneys which he received on the sale of the company's stock, not to give those funds away. Theft of Stock There is also a claim for the value of the stock lost in the theft of February 1993, and also for the excise duty, customs duty and sales tax payable in respect thereof. It is alleged that there was a breach in the duty of care which Mr Yasseen owed to Mistmorn in that Mr Yasseen was responsible for or could have prevented the purchase of the large quantity of stock which was lost in the theft of February 1993 and which was uninsured. Mr Yasseen was actively engaged in the business of Campsie Duty Free during October, November, December 1992 and January 1993. His involvement diminished after the theft and, perhaps, after 14 February 1993. On that day, Mr Yasseen divorced Mrs Hamad in accordance with Islamic customs. Back in December, Mr Yasseen had discouraged Mrs Hamad from coming into the shop. She had remained away for some days but had returned with police back-up only to find that the security system had been reprogrammed in her absence. I do not think I need deal with those incidents in December in any greater detail. One issue is whether there was an undue buildup of stock and whether it was a buildup for which Mr Yasseen was responsible or which he was in a position to and had a duty to prevent. Mr David Maher, an officer employed by the liquidator, gave evidence that the value of stock stolen was approximately $279,000 and, of this amount, approximately $196,000 was in respect of duty free cigarettes. Mr Maher deposed that, on average, five years supply of tobacco products was purchased in the four months after 23 October 1992. Mr Maher deposed that, of the $117,839 of tobacco stock purchased between 23 October 1992 and 20 February 1993, $80,130 worth was delivered on or around 3 February 1993 while the balance had been delivered on 26 October 1992. Mr Maher deposed that total sales for the four months, 23 October 1992 to 20 February 1993, were $19,376.28, an average of approximately $4,844 worth per month, which average was boosted by the December sales of $8,140.35. Mr Hughes, a valuer specialising in stocktaking, valued the liquor and cigarettes stolen at $212,778.09, of which only a small part would have been for liquor products. These figures accorded with those of Mr Maher. Mr Hughes considered that the tobacco purchases in the four months period would have represented only a 16 month supply. But in adopting this approach, Mr Hughes based his calculations on the tobacco sales for December 1992. I agree with Mr Maher that the sales in a four or six or a twelve months period are a much more reliable guide than the sales in December. The differences between Mr Hughes and Mr Maher really do not matter. An extraordinary number of cigarettes were purchased during the period October 1992 to early February 1993. I am satisfied that there was a large buildup in the cigarettes over this period and that the directors were in breach of their duty to the company in permitting this to happen at a time, firstly, when the company was having financial difficulties and, secondly, when the stock was uninsured. I am further satisfied that Mr Yasseen knew that the company could not readily fund the additional purchases and I am satisfied that he knew that the company was uninsured. Mr Yasseen was the person who had primarily dealt with Mr Coventry, the insurance broker. He said in evidence that he had been informed by Mr Coventry that, when a proposal was filled in for cover by Lloyds of London, which had been done, the company would be covered. I am satisfied that Mr Coventry said no such thing. Mr Coventry knew that FAI had refused to renew the insurance and was aware that other companies in Australia would not take on the risk. He kept Mr Yasseen and Mrs Hamad informed of his attempts to obtain insurance, including a fax on the day the FAI policy ran out, 26 November 1992, reminding them that the policy expired on that day. An issue is the part which Mr Yasseen played in placing orders for the cigarettes. Mr Yasseen gave evidence that he placed one order with Wills on 2 February 1993 and that the only reason he placed it was that Mrs Hamad had told him that there was to be a price increase for cigarettes and that, as cigarettes and liquor were the "bread and butter" of her business, she wanted an order to be placed. I have already stated that I think it is unlikely that Mrs Hamad would have been involved in the ordering of an unnecessarily large quantity of goods. It was her money that was being used to fund the business. Moreover, I think it is unlikely that Mrs Hamad would have interfered with the liquor and cigarettes side of the business whilst Mr Yasseen was active in that area. The order books for the period from 24 October 1992 to 20 February 1993 show that, of the copy order forms on which a signature appears, 39 had Mr Yasseen's signature on them while only 16 had Mrs Hamad's signature. A few other order forms had either no signature or another person's signature. Mrs Hamad's signature did not appear on any of the order forms relating to liquor or cigarettes or, for that matter, on any order for liquor or cigarettes during the period 1 July 1992 to 23 October 1992. During the four months period, Mr Yasseen's signature appears on orders for both liquor and cigarettes as well as other goods. Some orders do not appear to have been recorded in the order book. Mr Andrew Attard gave evidence that orders placed by Campsie Duty Free with Rothmans included an order for $36,704 on 3 February 1993 and an order for $6,314 on 11 February 1993 and that payment for those orders remained outstanding. Mr Attard did not give evidence as to who placed those orders but, as I have mentioned, he did say that, throughout the period in which Campsie Duty Free had obtained stock from Rothmans, when a problem arose with respect to overdue accounts, he spoke by telephone with Mr Yasseen. He further said that he received from Mr Yasseen in February 1992 a letter which read, inter alia:- "Currently we are on $5000 limit, i [sic] wish to increase it to $3000 because we have a new deal with your company that we order a million cigarettes per delivery. The approximate cost is $27000 per delivery." The letter was signed by "Michael Yasseen Manager". Note that Mr Yasseen used the pronoun "i". An arrangement was subsequently entered into to provide a special discount on orders for one million cigarettes. On the whole of the evidence, it seems to me to be probable that Mr Yasseen was the person responsible for the large orders for cigarettes which were undertaken during the relevant period. It can be seen that he was planning to make such purchases when, during 1992, he arranged for a special discount if one million cigarettes or more were purchased in an order. Insofar as the order books disclose the facts, they show that, during this period, Mr Yasseen placed many more orders than did Mrs Hamad. Mr Yasseen's signature appears on such orders for liquor or cigarettes as are recorded. The probability is that Mr Yasseen was actually responsible for all the relevant orders. I am further satisfied that Mrs Hamad would have accepted his view on the matter. There is no evidence to the contrary of these findings save that of Mr Yasseen himself, which I am unable to accept. Having regard to the part which he played in Mistmorn's affairs, as a director and officer of Mistmorn, I am satisfied that Mr Yasseen breached the duty of care which he owed to Mistmorn. It was irresponsible to build up large stocks of tobacco which were not needed and which were uninsured. Mr Yasseen knew the risk for he was fully aware of the three previous thefts, he was aware that FAI had refused to renew the insurance and he was aware that the Collector had demanded customs duty, excise duty and sales tax after the February 1992 theft. The evidence does not satisfy me, however, that there was any undue build up in the stock of liquor. The claim must be limited to the cigarettes. A claim was made, in the statement of claim, for the value of all the goods stolen, but the evidence before the Court does not enable me to say that Mr Yasseen was responsible for the theft of the goods. I was not asked to make any such finding. No claim was made in respect of the physical care of the goods. In the circumstances, I am satisfied that there should be judgment against Mr Yasseen in the sum of the value of the stolen cigarettes, approximately $196,000, plus the amount of the customs duty, excise duty and sales tax which became payable on their loss, which I have not attempted to quantify. The liability in respect of customs and excise duty and sales tax arises in this way. Section 35A(1) of the Customs Act provides:- "35A. (1) Where a person who has, or has been entrusted with, the possession, custody or control of dutiable goods which are subject to the control of the Customs: (a) fails to keep those goods safely; or (b) when so requested by a Collector, does not account for those goods to the satisfaction of a Collector; that person shall, on demand in writing made by a Collector, pay to the Commonwealth an amount equal to the amount of the duty of Customs which would have been payable on those goods if they had been entered for home consumption on the day on which the demand was made." Section 60 of the Excise Act is similar. Sub-section 23(1) and no. LE11 of Table 2 in Schedule 1 of the Sales Tax Assessment Act 1992 (Cth) apply on the making of a demand under s.35A of the Customs Act. Section 2B of the Sales Tax Assessment Act (No 5) 1930 operated to the same effect. The liability under these provisions is absolute, or practically so. In Collector of Customs (NSW) v Southern Shipping Co Ltd (1962) 107 CLR 279, Dixon CJ said at 286-7:- "Then did the defendant `fail to keep the goods safely' within the meaning of par. (a) of the sub-section? That depends on the interpretation of par. (a). `Safely' seems to mean safe from loss or destruction: for the subject is excise duty, not the condition of the goods. The provision is pointed at the loss of goods involving the loss of excise duty. The time of payment of excise duty is at or before entry for home consumption. The hypothesis is that by the loss of the goods duty has been escaped. There must be some doubt whether the destruction of the goods was also contemplated but upon the words of the section destruction is certainly covered. It is said, however, for the defendant that `fail' involves some want of care, some neglect or default. Considering the object of the provision and the place it takes, this ground must `fail'. It means to place on the person having possession, custody or control an absolute duty. ... Perhaps the word `absolute' is too strong for it may be conceded that it is possible to except inevitable causality - what once was called `Act of God'." See also Taylor J at 295, Menzies J at 298-9. Notice was given by the Collector on 27 May 1993 requiring Mistmorn to pay $283,008.14. That demand, of course, covered all the goods which had been stolen in February 1993. Nothing that might be a defence to the Collector's demands was raised at the hearing. The amount referrable to the cigarettes should be calculated and there should be judgment against Mr Yasseen for that amount. Insolvency The applicants placed no reliance upon the insolvency provisions of the Corporations Law. However, s.565 of the Corporations Law and s.122 of the Bankruptcy Act 1966 (Cth) were relied upon in relation to the $100,000 which Mr Yasseen received on 25 March 2993. I need not discuss the argument as I think that Mr Yasseen was not a creditor of Mistmorn and that the $100,000 was not paid to him in that capacity. It is unnecessary for me to discuss in any detail the evidence given as to whether Mistmorn was, in March 1993, insolvent. However, as the issue has been raised, I should state that I agree with Mr Maher that Mistmorn was insolvent from the time the Collector made the demand for $274,176 in June 1992. It was not able to pay that demand. By the beginning of 1993, it was also not able to pay all its running accounts as they fell due. Even the rent was in arrears, which shows how desperate Mistmorn had become. Mr Alex Petrakis, an accountant, put forward the contrary view. However, he took into account stock of $200,456 and the $400,000, which FAI agreed to pay in March 1993, as current assets. The stock, of course, was not readily realisable, at least not at that value and, of the $400,000, only $135,000 came into Mistmorn's funds. Those assets, on which Mr Petrakis placed a value of $600,456, did not show that Mistmorn could pay it debts as they fell due. Mr Petrakis did not take account of the fact that Mistmorn was not meeting its current accounts. If one takes into account, as at 25 March 1993, the contingent liability of $283,008.14 to the Collector of Customs and also the $717,243 which was due to Mrs Hamad, it is clear that Mistmorn was, by then, hopelessly insolvent. However, as I have said, I think that nothing turns on the finding. Interest On the abovementioned sums, for which judgment will be given, interest should be allowed in accordance with the usual practice. Order Counsel should bring in within 10 days, minutes of the orders which they propose. I certify that this and the 40 preceding pages are a true copy of the reasons for judgment herein of the Honourable Justice Davies. Associate: Date: 2 August 1996 Counsel for the applicants: M.F. Holmes QC J.K. Chippindall Solicitor for the applicants: Australian Government Solicitor Counsel for the respondent: I.M. Barker QC A.S. Martin Solicitor for the respondent: Leslie E. Abboud Date of hearing: 15-24 April 1996 26-30 April 1996 2-3 May 1996 Date of judgment: 2 August 1996