New South Wales Supreme Court CITATION : Gordon McNicol Finlay v John Edward Star & Ors; David Lewis Clout & Ors v Faxon No. 3 Limited [2001] NSWSC 1104 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 50089/99; 50047/00 HEARING DATE(S) : 24/04/01 to 26/04/01, 16/05/01, 25/07/01 & 26/07/01 JUDGMENT DATE : 6 December 2001 PARTIES : Gordon McNicol FINLAY v John Edward STAR & Ors; David Lewis CLOUT & Ors v Faxon No. 3 Limited JUDGMENT OF : Foster AJ at 1 Mr N. Cotman SC - Plaintiff COUNSEL : Mr. V.R. Gray - First defendant Mr C.R. Newlinds - Second defendant McCabe Terrill - Plaintiff Abbott Tout - First Defendant SOLICITORS : Andersen Legal - Second Defendant CATCHWORDS : Plaintiff sues as Receiver of the Trust for Debenture Holders in Nambucca Investments and of assets of Nambucca secured under a Mortgage Debenture between Nambucca and the Trustee for Debenture Holders of that company. LEGISLATION CITED : Part 5.7B of the Corporations Law Fair Trading Act 1984 (NSW) DECISION : The plaintiff's claim against Faxon No. 3 Limited in proceedings No. 50047/2000 is dismissed and Faxon No. 3 Limited's cross-claims are also dismissed.; The plaintiff's claim in proceedings No. 50089/1999 against Mr Star, Nambucca and Lawnkin is also dismissed. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST CORAM: FOSTER AJ THURSDAY, 6 DECEMBER, 2001 50089/99 - Gordon McNicol FINLAY v John Edward STAR & Ors 50047/00 – David Lewis CLOUT & Ors v FAXON NO 3 LIMITED (formerly known as Snoco) JUDGMENT 1 HIS HONOUR: The plaintiff David Lewis Clout ("Mr Clout") sues as Receiver of the Trust for Debenture Holders in Nambucca Investments Pty Limited (In Liquidation) ("Nambucca") and of assets of Nambucca secured under a Mortgage Debenture between Nambucca and the Trustee for Debenture Holders of that company, pursuant to the Trust created by a Trust Deed dated 30 June 1990. He was substituted, in these capacities, before the hearing of these proceedings, for Gordon McNicol Finlay ("Mr Finlay"), who had previously been the Receiver. Documentary evidence as to his receivership has been tendered. There is no dispute as to his appointment in these capacities. 2 Nambucca operated, at all relevant times, as a financier. It borrowed money, by (inter alia) issuing debentures and on-lent the money to borrowers. It had subsidiary companies, which it owned and controlled, and which undertook activities such as land development. One of such companies, Lawnkin Pty Limited (in Liquidation) ("Lawnkin"), was engaged in such development and was a borrower from Nambucca. 3 The plaintiff brings two actions which, together with cross-claims to which reference will be made later, have been heard together. In the first action (No. 50047/2000) he, together with Nambucca as second plaintiff, sues a company Faxon No. 3 Limited, seeking judgment for the principal sum of $726,000 together with interest on certain alleged Bills of Exchange dated 15 December 1994 ("the Bills"). 4 In his second action (No. 50089/1999) he sues John Edward Star ("Mr Star"), in his capacity as liquidator of Nambucca and Lawnkin. He also sues Nambucca as second defendant and Lawnkin as third defendant. I shall refer, later, to the nature of the claims made in these proceedings. 5 Mr Finlay was appointed on 3 November 1995 by this Court as receiver and manager of the assets of Nambucca. He was also appointed as receiver of the property of the Trust for Debenture Holders, which included the mortgage debenture under which Nambucca had granted a first charge to secure repayment of all monies owing in respect of the debenture, being a fixed charge over Nambucca's present assets and undertaking and a floating charge in relation to future acquired property. On 8 November 1995 Mr Star and Mr Finlay were appointed joint Voluntary Administrators of Nambucca and Lawnkin and other subsidiaries of Nambucca. On 22 December 1995 at separate meetings convened under s. 439A of the Corporations Law, the creditors of Nambucca and Lawnkin resolved that the companies be wound up and that Mr Star be appointed sole liquidator of Nambucca and joint liquidator with Mr Finlay of Lawnkin. On 16 June 1998 Mr Finlay resigned as joint liquidator of Lawnkin, Mr Star then becoming the sole liquidator of that company. The debenture crystallised on the appointment of Mr Finlay as receiver on 3 November 1995, with the result that, at that time, the assets of Nambucca became subject to a fixed charge. The assets of Nambucca mainly consisted of loans to its subsidiaries and to other parties. 6 The company Faxon No. 3 Limited was originally called Snoco Pty Limited. It is convenient to refer to it, for the most part, as "Snoco". It was a subsidiary company in a group of companies incorporated in New Zealand and referred to as "The Equitable Group". In September 1994 Nambucca purportedly lent to Snoco the sum of $300,000 and in December of that year a further $165,000. There is an issue in the case as to whether the proposed loan was made by Nambucca or whether it was made wholly or in part by Lawnkin. At the time, both Snoco and Nambucca and also Lawnkin were, for practical purposes, under the control of James Kearns, ("Mr Kearns"), who did not give evidence in the case. In apparent connection with these loans, the Bills were drawn by Nambucca and accepted by Snoco. They purported to be payable on 15 December 1999 in a sum of approximately $731,000 which included interest. 7 Although it does not appear, in any precise way, in the pleadings, it became apparent, shortly after the hearing commenced, that there was a major issue in the case as to whether the Bills were valid and enforceable legal instruments. Indeed, it is my view, having read and re-read the evidence, oral and documentary, that this is really the crucial issue in both cases. 8 The plaintiff, as Receiver, contends that the bills were valid and enforceable by Nambucca against Snoco. On this basis he and Nambucca, at his instance, bring action against Faxon No. 3 Limited claiming the full value of the bills, plus interest to judgment. This claim is resisted, on the alleged invalidity of the Bills and on other grounds, to which I shall refer later. 9 The plaintiff alleges against Mr Star, in the second action that he, as liquidator, should have collected on the bills, in the ordinary course, at their maturity, and not, as in fact happened, have settled the claim in respect of the alleged loans to Snoco for a considerably smaller amount. It is the contention of Mr Star, as appears from the evidence, that the Bills and the loans in respect of which they were issued were not genuine legal transactions. He called them "shams". He also asserts that they were uncommercial transactions within the meaning of Part 5.7B of the then Corporations Law. He claims that, in view of these and other circumstances, he was fully justified in settling the claim against Snoco in the manner and in the amount that he did. 10 The plaintiff also asserts that he, as receiver of Nambucca, is entitled to the whole of the amount received in settlement. This claim is denied by Mr Star. 11 The above sets out a broad outline of the main issues in this complicated case. It is necessary that I now set out, with greater particularity, a number of matters, by way of background. 12 Background Nambucca was incorporated in 1969. A witness in the case, John Goldsworthy Poynten, ("Mr Poynten"), a solicitor, whose affidavit evidence was unchallenged, was one of the original directors and shareholders. In 1971, he resigned as a director and disposed of his shares and thereafter had no involvement in the affairs of Nambucca until approximately the middle of 1991, when he acted on behalf of the subsidiary Lawnkin in relation to its purchase of real estate for development. In October 1991 he again became a director of Nambucca and also of Lawnkin. He resigned from these directorships in or about late September 1994, when Mr Kearns and interests associated with him entered into arrangements for the purchase of the shares in Nambucca and its subsidiaries. The evidence establishes that Mr Kearns acquired the shares of Messrs L.P. Hall and P.C. Hall on 29 September 1994 and thereupon assumed effective control of the whole Nambucca Group of companies. Both L.P and P.C. Hall gave unchallenged affidavit evidence in the case, to which I shall make reference later. Both remained on as directors of Nambucca and Lawnkin after the sale of their shares, until February 1995. It appears that, after their departure, Mr Poynten, at Mr Kearns' invitation, rejoined the Nambucca board, on 23 February 1995. 13 Mr Kearns, prior to his assuming control of Nambucca and its subsidiaries, had been in control of Snoco which, as already indicated, was one of the Equitable Group of companies, incorporated in New Zealand. In 1992 to 1993, as appears from the evidence of Arthur William Young ("Mr Young"), a solicitor and chairman of the Equitable Group of companies, the then operating companies in that Group (including Equitable Life Insurance Company Limited and Equitable General Insurance Company Limited) were acquired by a joint venture between members of a New Zealand family ("the Spencer Family") and Mr Kearns and his associated interests. The Spencer family owned 70% of the joint venture and Mr Kearns and his interests the remaining 30%. Snoco was the corporate vehicle through which Mr Kearns and his interests ultimately acquired this 30% share. Snoco, later to be named Faxon No. 3 Limited, was a subsidiary company and a new company, Equitable Investments Limited, was established as the holding company for the restructured Group. 14 In 1994 further funds were required for the operations of the Equitable Group. Mr Kearns and his associated interests were required to contribute 30% of these funds. The Spencer family contributed its share from its own resources. The Snoco/Kearns contribution was arranged in a manner to which I shall now refer. In doing so, it will be necessary to refer to the evidence of several witnesses. The amount of contribution required from Mr Kearns was $465,000. 15 It is convenient to commence with the evidence of Mr Poynten. In early March 1995, shortly after his re-appointment as a director of Nambucca, he had a conversation with Mrs Shirley Duncan, a manager employed by Nambucca, who indicated her concerns in relation to an amount of approximately $800,000, which had been taken from the Nambucca Group's accounts, without any apparent explanation. The monies making up this amount had been withdrawn from October 1994 to February 1995. Mr Poynten raised this matter with Mr Kearns at the next board meeting of Nambucca, in late March or early April 1995. Mr Kearns appeared to be angered by his queries about this sum but said he would look into the matter. In fact, on 27 June 1995 Mr Kearns circulated certain memoranda to Mr Poynten and the other Nambucca directors which related to these monies and which included within them the amount of $465,000. These memoranda provided as follows:- "To: Shirley Duncan cc. Directors, Nambucca Investments Pty Limited,John Florent From: J G Kearns Date: 21 June 1995 On 30 September 1994, the directors of Lawnkin Pty Limited (Phillip & Leslie Hall) borrowed on a temporary basis AUD300,000 from S & I Borton secured on the subdivision at Boambee by an unregistered mortgage at 21%. The money was banked to Helliars City Trust Account. Lawnkin Pty Limited then offered to repay Nambucca Investments Pty Limited the sum of AUD300,000 of its intercompany loan. The directors of NIPL directed Helliars City to pay this amount of money to Equitable Holdings Limited on behalf of Snoco Limited (a 30% equity partners in the Equitable Group NZ) to meet a capital call. Snoco Limited has acknowledged a debt due to NIPL of AUD300,000 repayable 15 December, 1999 of AUD300,000 with interest at 12% p.a. payable on 15 December 1999. These debts are evidenced by a series of bills, one for AUD300,000 and 5 for AUD36,000 all due 15 December 1999. Attached is a copy of the bills and Helliars City card and minutes of Lawnkin and NIPL. The balance of the entries on the card are personal to J G Kearns. J G KEARNS Enclosures To: Shirley Duncan From: J G Kearns Date: 21 June 1995 Subject: LOAN TO HAVENDOCK PTY LIMITED On 23 December 1994 Nambucca Investments Pty Limited, on the instructions of Damien Parkes, lent Havendock Pty Limited (a DP company) AUD50,000. On the same day related companies lent Havendock Pty Limited AUD30,000 and AUD50,000 (from which group companies the funds came, I am unaware). All amounts were paid to Helliars City Trust Account. Payments were deducted from the account to meet rent on Lawnkin's Sydney offices and moneys due to Snoco Limited. A further amount was transferred to Havendock's credit with Helliars City Trust Account of AUD51,739.17 on the sale of Teamcast Pty Limited of its hotel. From the funds available an amount was paid to Snoco Limited of AUD164,920 for investment in the Equitable Group in N.Z. I was in NZ when DP implemented the above. It seems Havendock Pty Limited was DP company used for the purpose of confusing the company personnel involved. Regardless, the nett effect of the transactions is a loan to Snoco Limited of AUD164,900 repayable 15 December 1999 by NIPL with interest (@12% p.a.) of AUD81,000 repayable 15 December 1999. Bills of Exchange have been drawn to recognise these two debts. Snoco Limited lent these amounts to the Equitable Group as part of the capital contribution on behalf of shareholders. J G KEARNS Helliars City card attached CC Directors NIPL, John Florent." 16 The solicitor's firm, Helliars City, acted for Mr Kearns and his interests. NIPL is a reference to Nambucca. The bills referred to are the bills in question in this case. I shall make further reference to them later in these reasons. 17 Mr Poynten gives the following further evidence in his affidavit:- " At about the same time as I received the memoranda from Mr Kearns he also presented to me a series of bills of exchange relating to the Snoco Debt. Mr Kearns asked me (in the presence of Mr Hilton Searle and Ms Shirley Duncan) to sign the bills of exchange on behalf of NIPL as a director which I did. Annexed hereto and marked "B" are true copies of the bills of exchange which were presented to me by Mr Kearns. At the time when I signed the bills they were undated and had not been signed by anyone on behalf of Snoco. The bills which are annexed bear the date "15 December 1994". I say that I signed the bills in or about June 1995 and not on 15 December 1994. Apart from my signature which appears on each of the bills I believe that the rest of the handwriting contained in the bills was written by Mr Kearns. Id \do not recall signing any documents on behalf of NIPL or Lawnkin in the period from September 1994 to late February 1995 and I was not associated in any way with the management of NIPL or Lawnkin in that period." 18 Mr Poynten also deposes that Mr Kearns gave him a document entitled "Minutes of a Meeting of Directors of Nambucca Investments Pty Limited held at level 17, 388 George Street, Sydney on December 16, 1994." He says he received the document in or about June 1995. He denies ever having attended the alleged Directors' Meeting or having passed the resolutions described. He did not sign the document. The document reads as follows:- "PRESENT Leslie Phillip Hall John Goldsworthy Poynten LOAN TO SNOCO LIMITED RESOLVED to lend Snoco Limited (per the intermediation of Havendock Pty Limited) the sum ofAUD165,000 to invest to meet capital requirements due to the Equitable Group in New Zealand. These funds would be provided from Group cash available as to AUD130,000 with the balance to be provided from the repayment of loan due on the Teamcast sale. Noted this loan would be acknowledged by Two Bills of Exchange due December 15, 1999 for loan AUD165,000 and interest AUD81,000. CLOSURE There being no other business the meeting closed. Confirmed as a true copy. ___________________________ Chairman 16 December, 1994" 19 The same document was proffered to Mr L P Hall for signature. Mr Hall also denies having been present at any such meeting or passing such a resolution. He also refused to sign the document. 20 Mr L P Hall, in his unchallenged affidavit, deposes that he was a director of Nambucca and its subsidiaries, including Lawnkin from the period 21 August 1992 to 6 February 1995. He says that in or about March or April 1995 Mr Dunn, then a director of Nambucca, gave him copies of certain Minutes of Meeting of Directors of Lawnkin and Nambucca, allegedly held on 30 September 1994 and 16 December 1994. The copies were given to him for signature. He denied attendance at the meetings. He says:- " After I received the Minutes I refused to sign them as I was not involved in the making of the loan transactions to Snoco Limited as referred to in the Minutes. I was never asked by Mr Kearns or Mr Dunn as to why I did not sign and return the Minutes." 21 The Minutes of 16 December 1994 are set out above. The Minutes of 30 September 1994 were as follows:- " MINUTES OF A MEETING OF LAWNKIN PTY LIMITED HELD AT LEVEL 17, AMERICAN EXPRESS TOWER, 388 GEORGE STREET, SYDNEY ON 30 SEPTEMBER 1994. _________________________________________________________________ PRESENT Leslie Phillip Hall Phillip Clarke Hall MORTGAGE BORROWING RESOLVED to borrow $300,000 from S & I Borton @21% per annum payable monthly and repayable 31 December 1994. REPAYMENT TO NAMBUCCA RESOLVED to repay INVESTMENTS PTY LIMITED Nambucca Investments Pty Limited the sum of $300,000. DIRECTION TO PAY RESOLVED to direct Helliars City, the solicitor acting for Lawnkin Pty Limited on the loan to pay the sum of $300,000 to Equitable Holding Limited of New Zealand in accordance with the request of Nambucca Investments Pty Limited. Resolved further that the Chairman execute all necessary authorities to perfect this request from Nambucca Pty Limited. CLOSURE There being no further business, the meeting was declared closed. Confirmed as a true copy _________________________ Chairman 30 September 1994" 22 Mr P C Hall, in his affidavit evidence also unchallenged, denies being present or passing the resolutions referred to in these alleged Minutes. He deposes that, at the time of the supposed meetings, he was not in fact a director of Nambucca or Lawnkin and that he first became aware of the movements of money described in the Minutes in a conversation, about 9 August 1995, with Damien Parkes, formerly a consultant to the Nambucca Group of companies. He deposes that Mr Parkes said to him words to the effect:- " Are you aware that Kearns has been using the Nambucca Group's funds for his own personal benefit. Last year the Group paid approximately $500,000 to his private company Snoco. The Group has also been paying a monthly retainer of $7,000 to Mt Gilead Farms and $3,500 a month for rent on a unit at Neutral Bay which Kearns claims is being used as an office for Nambucca when in fact it is being used as his own private residence." 23 Mr P C Hall further deposes that he examined the documents purporting to be the Minutes of 30 September 1994. He was of the opinion that the documents had been created sometime after February 1995, by use of a laser printer which instrument had not come into use for Nambucca and Lawnkin documents until after the appointment of Mr Lee Dunn as director on 6 February 1995. He had a laser printer. Before that time a typewriter or dot matrix printer had been used. This evidence was not challenged. 24 The evidence establishes that the amount of $300,000 was, in fact, obtained by Mr Kearns, by way of a mortgage given over certain assets of Lawnkin to mortgagees, S & I Borton, the borrowing being at the interest rate of 21%. The money was obtained by way of two bank cheques, one from the Commonwealth Bank of Australia in the sum of $100,000 and the other from Westpac Banking Corporation in the sum of $200,000. Each cheque was dated 30 September, 1994. Each was payable to Lawnkin. Neither cheque was negotiated through Lawnkin's bank account. Each cheque was paid into the trust account of Helliars City, in the following circumstances, which appear from the evidence of Messrs L P and P C Hall, which is also unchallenged. 25 Mr P C Hall who, it appears, was then the secretary of Lawnkin, was present with his father, Mr L P Hall, who was then a director of both Nambucca and Lawnkin, at the offices of Helliars City. Mr Kearns and Mr Fitzgerald, the principal solicitor of Helliars, were also present. Mr Kearns then said to Mr P C Hall and his father words to the effect: "As part of the takeover process of the Nambucca Group I require you and Les to endorse two bank cheques to Helliars trust account by signing on the back of the cheques." He placed the cheques on the table, one at a time, each being face down so that neither of the Halls could see what appeared on their face. He then wrote the words "Pay Helliars City trust a/c Lawnkin Pty Limited" on the back of each cheque and underneath wrote the words "Director" and "Secretary". As directed, Mr P C Hall signed as Secretary and his father signed as Director. Neither had ever endorsed a cheque in such a fashion before. Mr Kearns took possession of the cheques, putting them in his coat pocket. The Halls were able to identify the cheques, for the purpose of these proceedings, only because they had never, before or since, endorsed cheques in such a manner. 26 The authority to Helliars City to pay the amount of $300,000 to Equitable Holdings Limited (NZ) on behalf of Snoco Limited was in the form of a letter dated 30 September, 1994 on the letterhead of Nambucca, signed by Mr P C Hall as director. Mr Hall, in his affidavit, again unchallenged, denies that he signed the letter on 30 September, 1994, at which time he was not a director of Nambucca. He states his belief that he would have signed it sometime after February 1995 in circumstances which he describes as follows: "On a number of occasions between February 1995 and June 1995, James Kearns and Lee Dunn, who were then both directors of NIPL and Lawnkin, would place documents in front of me and say to me words to the effect: 'You are required to sign these documents as company secretary as part of your previous fiduciary obligations. Failure to do so will render you liable to prosecution by the ASC'. On each of these occasions, I did not read or inspect the documents prior to signing them. I was aware that Mr Kearns and Mr Dunn were qualified solicitors and I assumed that the documents which I was asked to sign were in order." 27 In respect of this document, he also asserts that it was created by a laser printer some time after February 1995. 28 The mechanism by which the other amount of $165,000 was transferred to Snoco does not appear from the evidence. However, there is no suggestion that any regular resolutions of either Lawnkin or Nambucca were passed relating to the transfer of this amount to Snoco. Nor were the articles of Nambucca or Lawnkin tendered on behalf of the plaintiff. There is nothing to indicate what authority was held by single directors, or the company secretary to execute financial documents, in particular bills of exchange, on behalf of the company. It is to be noted that the company seal has not been affixed to the Bills. Nor were any financial records of Lawnkin or Nambucca tendered to show the passage of the relevant monies through the accounts of those companies. I shall make further reference to these matters later. 29 Mr Kearns, who had sole control of Snoco, recorded the amount of $465,000 in its books, treating it as a loan by Nambucca to Snoco. Other evidence in the case indicates that the amount was made available for use in the Equitable Group. In February 1997 the Spencer family bought Mr Kearns' interest in the Equitable Group, acquiring Snoco and renaming it Faxon No. 3 Limited. At the time of this acquisition, the debt was still recorded as such in Snoco's books. 30 In the course of the liquidation, the sources of the funds from which the $465,000 were paid to Snoco were established. They were established as follows:- " Lawnkin (ex Borton) 300,000 other (23.12.94) 80,000 380,000 78.88% Nambucca Investments 50,000 10.37% Teamcask 51,739 10.74% $481,739 100.00% (rounded) Only $465,000 was in fact advanced to Snoco." Teamcask was another Nambucca subsidiary under the control of Mr Kearns. 31 It appears, from the evidence, that after an ASIC investigation Mr Kearns was charged in relation to this series of transactions. The outcome of those proceedings is not the subject of evidence. It is clear, however, that when these transactions were exposed during the course of the Liquidator's investigation, they were treated with very considerable suspicion, their authenticity and commerciality being called in question. Indeed, they are referred to in the Joint Administrator's Report of 14 December 1995. The Snoco loans are dealt with in the section relating to offences and potential actions against directors. Mr Finlay and Mr Star were the joint administrators. 32 It is apparent that problems arose between the Spencer interests and Mr Kearns in the operations of the Equitable Group. The Spencer interests decided during 1996 that it would be in their interest to obtain 100% control and proprietorship of the Equitable Group. It is clear that their relationship with Mr Kearns was not a happy one. This led to negotiations with Mr Kearns during 1996. Finally there was a buy-out of his 30% interest. The agreement was finally settled on 25 February 1997. 33 In the meantime there had been a collapse of the Nambucca Group, in late 1995. This had led to the appointment of Mr Finlay as Receiver for the debenture holders of Nambucca on 3 November 1995. As already referred to, on 8 November 1995 Mr Star and Mr Finlay were appointed voluntary administrators of Nambucca. On 22 November 1995 by resolutions of the creditors of both Nambucca and Lawnkin both companies were to be wound up. Mr Star was appointed liquidator of Nambucca and Mr Finlay and Mr Star were appointed as Joint Liquidators of Lawnkin. In that capacity they reported that the payments totalling $465,000 to Snoco on behalf of Nambucca and/or Lawnkin were potentially recoverable as uncommercial transactions under s 588FE of the Corporations Law. Mr Finlay remained Joint Liquidator of Lawnkin until 16 June 1998. 34 Mr Star engaged the services of P A Somerset & Co. solicitors, in relation to the liquidations. A partner in that firm Marc Ryckmans, ("Mr Ryckmans") has had the conduct of all matters pertaining to the liquidations on behalf of Mr Star. 35 On 22 December 1995 Mr Star sent a letter of demand to Mr Kearns requiring repayment of (inter alia) the advance of $465,000 to Snoco. This produced a response on 25 January 1996 from Helliars City, solicitors for Mr Kearns, with an offer of settlement, which was not attractive to Mr Star. 36 In February 1996 Mr Star sought advice from Mr Ryckmans in relation to the Snoco debt. He was advised that, in the opinion of the solicitors, the transactions were voidable as an uncommercial transactions under Part 5.7B of the Corporations Law. 37 On 10 May 1996 Mr Star instructed Mr Ryckmans to commence proceedings against Snoco for recovery of the sum of $465,000 under s 588FE of the Corporations Law. These proceedings were not, however, commenced at that stage as further settlement discussions took place between Mr Star and Helliars City on behalf of Mr Kearns. These discussions produced offers from Helliars City in July 1996 and also November 1996. An offer contained in a letter of 21 November 1996 from Helliars City was copied and sent on to Mr Finlay's legal advisers in his capacity as Receiver of Nambucca. The Snoco debt was regarded as a potential Nambucca asset caught by the receivership. 38 On 16 January 1997 a letter was received by Mr Star written on behalf of Mr Finlay noting that Mr Finlay had not been receiving details of the negotiations in respect of the Snoco loan. On the same day a letter had been written to Mr Kearns C/o Helliars City which referred to negotiations between him and the liquidator and stated:- "Please note that prior to finalisation thereof, the settlement needs to be ratified and accepted by me as Receiver and Manager." The Liquidator will be unable to release Snoco from this debt." The letter noted that its contents had been communicated to Mr Star, which was the fact. 39 On 20 March 1997, a letter was sent to the Liquidator's solicitors from the Receiver's solicitors in relation to the settlement proposals being discussed with Helliars City. The main paragraph of that letter read as follows:- "Our client has provided instructions in relation to the proposal put by Helliars City in their letter to your client of 21 November 1996. Our client would be happy for the proposal to go ahead. However, he is concerned to ensure that any payments made under the proposal are applied towards the debt owed to Nambucca Investments Pty Limited. In this regard our client requires acknowledgment from your client of the Receiver Managers priority in relation to the funds to be received. Having said that our client recognises the effort which has been expended by your client in putting the deal together and would be happy to consider any proposal put by your client in relation to appropriate fees." 40 Thereafter settlement negotiations continued, with correspondence between the solicitors for Mr Finlay and for Mr Star being exchanged from time to time in April and May 1997. Eventually a draft Deed of settlement was prepared by Mr Ryckmans and forwarded to Helliars City on 4 September 1997 for the obtaining of their client's instructions. The parties were aware that approval of the Court would be required for the settlement to go ahead. I need not refer to the contents of this Deed other than to note that it contemplated that Mr Finlay as Receiver of Nambucca would be a party to it and that contained a term as to payment by instalments of a sum of money in full and final settlement of the claim against Snoco. 41 A copy of the Deed was also sent to the solicitors for Mr Finlay on 4 September 1997. It referred to a letter proposed to be sent to Helliars City and proceeded as follows:- "We confirm that any consent given by the Receiver to the arrangement between the Liquidator and Snoco Limited is strictly without prejudice to any claim or entitlement of the Receiver to the said monies paid by Snoco Limited to the Liquidator pursuant to the proposed settlement. In order to enable the settlement to proceed, we would suggest that the settlement moneys be paid into our trust account on the undertaking that we will not dispose or otherwise distribute the moneys except by agreement of the parties or in accordance with any court order. Would you please confirm whether your client consents to settling the claim against Snoco Limited on the basis contained in the draft deed." 42 On 14 October 1997 Mr Star advised Mr Ryckmans that he was satisfied with the draft Deed of Settlement. On 23 October 1997 Mr Ryckmans forwarded the draft Deed to Helliars City for the purpose of their obtaining their client's instructions in relation to it. On the same day the draft Deed was forwarded to Mr Finlay's solicitors, it being suggested, as previously, that the settlement monies be held in trust pending agreement between the Receiver and the Liquidator as to their distribution or, if necessary, a Court order. Confirmation was sought that the Receiver consented to the settling of the claim against Snoco on the basis contained in the draft Deed. 43 It appears that there was no response from either the Receiver or Helliars City. On 4 December 1997 Mr Ryckmans wrote to Helliars City indicating that if settlement was not available in terms of the draft Deed proceedings would be commenced against Snoco the following week. 44 These proceedings were not, however, commenced at that time. It appears that the contemplated proceedings would involve not only Mr Kearns and Snoco but also the other companies in the Equitable Group which had benefited from the receipt of the monies advanced to Snoco. It was, apparently, decided that a further letter of demand should be directed to the companies in that Group. Upon receipt of instructions to this effect from the Liquidator, a letter was sent by Mr Ryckmans to the Directors of all companies in the Equitable Group. It was in the following terms:- "We act for the Liquidator of NIPL and Lawnkin. We understand that James Gordon Kearns was or is a Director of the abovenamed companies together with Snoco Limited ("Snoco") and "Equitable" companies to which this letter is addressed. Further we understand Mr Kearns was a Director of the aforementioned entities in September 1994. According to the records of NIPL and Lawnkin on 30 September 1994 the Directors of Lawnkin borrowed $300,000 ("the principal sum") from S & I Borton secured by an unregistered mortgage over land at Boambee Estate. Interest was expressed to be payable under the mortgage at the rate of 22% per annum. We are instructed that on 15 December, 1994, the principal sum and a further sum of $165,000 was advanced by NIPL and/or Lawnkin to Snoco. At Snoco's direction, part of the advance was subsequently paid to Equitable Holdings Limited ("Equitable") to meet a capital call made on Snoco in its capacity as a 30% shareholder in Equitable. Snoco has acknowledged its indebtedness to NIPL and/or Lawnkin for the amount of $465,000 payable on 15 December, 1999 together with interest at 12% per annum. These debts are evidenced by a series of bills of exchange. It is our client's opinion that the aforesaid transactions all constitute insolvent transactions and also uncommercial transactions within the meaning of the Corporations Law and are accordingly voidable pursuant to section 588 FE of the Corporations Law. We are hereby instructed to demand immediate repayment of the sum of $465,000 within seven (7) days together with interest thereon from the date of advance calculated at the rate of 22% per annum being the interest rate payable by Lawnkin to the original lenders. If you fail to pay the amount as demanded we intend to make application pursuant to section 588 FF of the Corporations Law seeking orders against inter alia each of the Equitable entities that received a benefit from the said transaction requiring that they pay to the Liquidator an amount equal to the whole of the moneys as herein demanded." A similar letter was sent to Snoco via Helliars City. 45 On 1 April 1998, a response on behalf of the Equitable Group of Companies was received by Mr Ryckmans from Messrs Chapman Tripp, solicitors of Auckland, New Zealand in which firm Mr Young was senior partner. It advised that Mr Kearns had resigned as a Director of all Equitable Companies in December 1995. It expressed surprise "as the Equitable Group has always considered that it has no liability to or direct relationship with Nambucca or to Lawnkin." Time to obtain instructions was sought. 46 As a result of this contact, Mr Young, who was also a Director of the Equitable Companies and Mr Chris Spencer, one of the Spencer family resident in Australia, became involved in further settlement discussions with Mr Star and Mr Ryckmans. 47 Mr Star had a meeting with Chris Spencer on 25 August 1998, which was held in the context that legal proceedings were about to be commenced, as earlier settlement negotiations had failed. New proposals were discussed. Mr Spencer was advised that a Statement of Claim was being drafted because "a time limit" was approaching in respect to "the matter under the Corporations Law". This was indeed so. The relevant statutory period was approaching expiration, after which proceedings could not be commenced under s 588FE. It was agreed that the Statement of Claim, when drafted, would be forwarded to Mr Young for consideration in relation to the settlement of the matter. 48 On 5 November 1998 proceedings No. 4546 of 1998 were filed in this Court (the Snoco proceedings). A copy of the Statement of Claim was sent to the Receiver's solicitors and also to Helliars City, who indicated they had no instructions to accept service. I shall refer to this Statement of Claim later in these reasons. 49 Further discussions ensued with Chris Spencer which led to settlement in principle. This resulted in a Deed of Settlement being prepared and forwarded (inter alios) to Mr Finlay's solicitors on 15 December 1998 "for your comments and approval.". No response was received from Mr Finlay or his solicitors in relation to the draft Deed or the proposed settlement. 50 The Snoco proceedings were settled between Mr Star and the Equitable Group in accordance with the Deed of Settlement, which had been the subject of several amendments during further negotiations. It was executed by the parties, in its final form, on 12 February 1999. 51 On 17 March 1999 the Deed was submitted to Hamilton J for approval. It was approved. It appears that his Honour was not informed of the existence of the Receiver or his claims in relation to the Snoco debt. This omission has been the subject of some criticism in submissions made to me. 52 The above represents a broad summary of events and documents which have led to the present proceedings. It will be necessary to refer to some aspects in more detail when considering the issues in these proceedings and the submissions of the parties in relation to them. 53 As already indicated there are two sets of proceedings being heard together, which proceedings include cross-actions. Mr Finlay is currently a party only insofar as he is the cross-defendant in a cross-action. As I have already indicated, the present plaintiff in the first set of proceedings is Mr Clout who is currently the Receiver for the debenture holders in Nambucca. Mr Finlay did not appear at the commencement of the proceedings and has never appeared. A request for clarification of his situation has not produced any response from any of the parties. Until shortly before the commencement of the hearing, the solicitors for Mr Clout had acted for Mr Finlay. I have proceeded on the assumption that he was aware of the proceedings and wished to play no part in them. His absence, however, as a party or as a witness, remains unexplained. 54 As I have already indicated, the first proceedings are brought by Mr Clout and Nambucca against Snoco (Faxon No. 3 Limited). They are brought in respect of the Bills and claim judgment for the full amount allegedly owing under them to date. The bills were drawn by Nambucca on Snoco on 15 December 1994 and were expressed to be payable to the order of Nambucca on 15 December 1999. It is asserted, as is the fact, that Mr Finlay, as Receiver of the assets of Nambucca, demanded payment through his solicitors by letter dated 20 December 1999 addressed to Snoco. It is asserted in the Statement of Claim that Mr Finlay was removed as Receiver and Manager "of the said mortgaged property and trust property and Mr Clout was appointed in his stead on 4 August 2000." It is alleged that Mr Clout "in his aforesaid capacity is the holder of the bills and is entitled to enforce them against the defendant." The Statement of Claim accepts that the bills were not presented for payment, but asserts that they were "accepted generally within the meaning of that expression in s 24 of the Bills of Exchange Act 1909 by the defendant on 15 December 1994". This, it is alleged, removes, pursuant to s 57(1) of that Act, the need for presentment for payment. 55 Snoco denies any liability for the Bills. It relies on a number of matters to which I shall make reference later, including that the Deed of Settlement relieved it from liability under the Bills. It also asserts that, if it is liable, then, it has a cross-claim against the plaintiff because the inactivity of Mr Finlay, being his failure, despite having a duty to do so, "to disclose to the cross-claimant that his true position was that performance by the cross-claimant of the Deed would not release the cross-claimant from all of its obligations to Nambucca according to the tenor of the Deed." Such failure was conduct in trade or commerce which was misleading or deceptive or likely to mislead or deceive in contravention of s 42 of the Fair Trading Act 1984 (NSW). These matters are put in issue by the defence to the cross-claim. Snoco brings a further cross-claim against Mr Star. It is alleged that there was a common intention between Mr Star as Liquidator and Snoco that at the time of entry into the Deed of 12 February 1999 that neither Mr Finlay nor Mr Star would make any further claims against Snoco "including any claim on the Bills of Exchange". It seeks declarations that an estoppel should operate denying the operation of the Deed other than in accordance with that common intention. It also asserts that Mr Star warranted that he had full authority of Nambucca and Mr Finlay to release Snoco from any claims that Nambucca and the Receiver might have had in relation to the bills. It asserts a breach of his warranty of authority. Consequential loss damage and relief is sought to which it is unnecessary to make present reference. 56 All these matters are put in issue by subsequent pleadings to the cross-claims. 57 The second proceedings, No. 50089 of 1999, are brought by Mr Clout against Mr Star alleging that the monies received by Mr Star through the settlement of the proceedings against Snoco are held subject to a charge in favour of Mr Clout as Receiver "of the trust for debenture holders in Nambucca Investments Pty Limited (in liquidation) and of assets secured under the mortgage debenture between Nambucca Investments Pty Limited (in liquidation) and the trustee for debenture holders of the company." It seeks an order that the monies so charged be paid to the plaintiff. 58 Declarations are also sought to the effect that Mr Star, in contravention of s 232 of the Corporations Law failed in various ways to exercise proper care and diligence as Liquidator of Nambucca and Lawnkin, in particular in relation to the commencement and compromise of the proceedings No. 4546 of 1998. Specifically it is alleged that the settlement figure was inadequate. 59 Further declarations are sought to the effect that Mr Star improperly used his position as Liquidator to gain directly or indirectly an advantage for himself in relation to those proceedings and put himself in the position where his interests were in conflict. Orders for payment of compensation to Nambucca are sought. 60 At this stage it is convenient to consider the claim brought in Summons No. 50047 of 2000. 61 No. 50047 of 2000 The main question in this case is whether Mr Clout or Nambucca has established that Snoco is liable to one or both of them in respect of the Bills. 62 It is asserted by the plaintiffs that, notwithstanding the settlement of the Snoco proceedings and the payment made by Snoco and the other Equitable companies pursuant to that settlement, Snoco remains liable on the Bills. 63 If this liability is not established, the cross-claims brought by Snoco, which are purely defensive in nature, will not call for determination. 64 The critical question, as already indicated, is whether the Bills are, in fact, valid enforceable legal instruments. 65 I have already set out what the evidence establishes as having occurred in relation to the making of the alleged loan by Nambucca to Snoco and the creation and execution of the Bills. In relation to the totality of these circumstances, Mr Star, said in his oral evidence:- " It was all Jim Kearns' transaction for his benefit." This comment, of course, was made, having regard to the fact that both Mr Star as Liquidator of Nambucca and Lawnkin and also Mr Finlay as joint liquidator of Lawnkin, had been able to investigate the background relating to the purported loan and the Bills. 66 I consider that the comment was amply justified. I am quite persuaded that Mr Kearns who had obtained effective control of Nambucca and its subsidiaries in September 1994, but who had not become a Director of Nambucca or Lawnkin until February 1995, was intent on setting up a series of sham transactions for the purpose of lending legitimacy to his previous taking, from Lawnkin, Nambucca and Teamcask, of monies sufficient to enable him to make payments on behalf of Snoco, which were required within the structure of the Equitable Group in New Zealand. These payments were of no conceivable value to Nambucca, although it was portrayed as the lender to Snoco. 67 I have already set out the relevant evidence of Messrs L P and P C Hall and Mr Poynten. On the basis of that evidence, I am fully satisfied that Mr Kearns set out to achieve the result referred to in the previous paragraph by creating a series of false documents in order to confer a spurious legitimacy on what was, in fact, a misappropriation from Lawnkin of the amount of $300,000 and from Lawnkin, Nambucca and Teamcask of amounts totalling $165,000. His plan did not succeed because Messrs L P Hall and P C Hall refused to sign the bogus minutes of 30 September 1994 and Mr L P Hall and Mr Poynten refused to sign those of December 1994. Those gentlemen were directors at those times, whereas Mr Kearns was not. Accordingly, it was necessary that, in effect, their aid be enlisted to establish resolutions of Lawnkin and Nambucca legitimising the taking of these monies by Mr Kearns, by disguising them as repayments of loans to Nambucca which, in fact, they were not. Quite clearly, the directors refused to comply with his requests because the relevant meetings had not been held, nor had the resolutions been proposed or passed. 68 I am satisfied that the total amount of $465,000 was not, in fact, the subject of loan from Nambucca to Snoco. On behalf of the plaintiff, it was submitted that such a loan should be found and the fact that the monies were provided by subsidiary companies was no more than a matter of internal arrangements between the principal company, Nambucca, and its subsidiaries, as such, it should have no bearing upon the basic position that the loan was in fact made by Nambucca. I do not accept this submission. In my view, this is not a situation where any presumption that things had been done correctly can inure in favour of Nambucca. The facts clearly indicate that things were not done correctly. I am satisfied that the monies were merely taken by Mr Kearns from the companies and in the amounts already set out in these reasons and given by him, per medium of the Helliars City trust account to Snoco. The result was that Snoco was indebted to the companies from which the monies had been misappropriated in the amounts so taken. The debt was not founded upon a loan but on the basis that they were monies had and received to the use of Lawnkin, Nambucca and Teamcask. In the circumstances there was a clear obligation on Snoco, at law and in equity, to refund these amounts. 69 What of the Bills? It has been submitted on behalf of the plaintiff that, in effect, whatever problems exist in relation to the alleged loan of $465,000, the Bills are, nevertheless, valid and enforceable. I am quite satisfied, from the evidence of Mr Poynten, that the documents themselves were executed in February 1995, although they were later dated by Mr Kearns to conform with the bogus Minutes and Resolutions which he sought to have executed by Messrs. Hall and Poynten. Again, it was part of Mr Kearns' plan, in my view, that the whole of the purported loan by Nambucca and the associated Bills would appear to have been legitimately brought into existence by appropriate acts of the previous Directors, before he obtained control of the relevant companies and became a Director of them. I am satisfied that, when Mr Poynten signed the Bills at Mr Kearns' request, in the presence of Mr Hilton Searle, he did not do so with the intention of producing genuine documents binding upon Nambucca. Although he signed in the presence of Mr Kearns and Mr Searle, who at the time of signature, were, apparently, Directors of Nambucca, he did not do so as a result of any lawful authority given to him, to that effect, by or on behalf of the company. The authenticity of the Bills was clearly put in issue in the proceedings. As already indicated, no evidence has been given by way of tender of the Articles of Nambucca or any legitimate resolutions of that company as to Mr Poynten's authority to execute the Bills; nor was the company seal affixed to any of them. I am not prepared to assume any relevant authority on his part. On the contrary, I am satisfied that no such authority existed. 70 Although the Bills were accepted by Mr Kearns, at some stage, on behalf of Snoco, this was done, in circumstances where that company, by way of Mr Kearns, knew full well that they did not evidence and were not supported by any debt in the amount of $465,000 truly owing by Snoco to Nambucca. In the result, I am satisfied that it would always have been open to Snoco to allege that the bills were spurious and did not evidence or constitute a legally binding transaction. 71 Also, I am satisfied that, as submitted on behalf of Snoco, it would always have been open to it to allege that as between it and Nambucca, Nambucca had not provided it with full consideration for the Bills. Nambucca would never have had the rights of a holder in due course and the Bills, in its hands, would, in my view, always have been vulnerable to such a defence by Snoco. 72 In any event, the Bills, themselves, in my opinion, were part and parcel of Mr Kearn's dishonest scheme. I am satisfied that they were sham documents to which no legal effect should be accorded. 73 The result of these findings as to the authenticity and validity of the Bills must be that the plaintiff cannot succeed in its claim against Faxon No. 3 (Snoco). I should add that, even if I had not formed this view of the Bills, I should have felt obliged to uphold a further submission on behalf of Snoco that the Bills had never been appropriately presented for payment. The place of presentation was Macksville. This stipulation, in itself, prevented, in my view, the Bills having been the subject of general acceptance pursuant to ss 24 and 57 of the Bills of Exchange Act 1909. Moreover, the original Bills, which were not, apparently, at the relevant time, in the hands of Mr Finlay as receiver were never presented for payment. 74 Had it been necessary so to do, I would have found that the defendant's defence that it had been released from any claim by Nambucca in relation to the Bills by the terms of the Deed of Settlement, would necessarily have failed. Mr Star, as liquidator of Nambucca, could not by settling with Snoco, exclude any claim that might be brought by the receiver, in the name of Nambucca, under the terms of his security. Although I feel there was a certain degree of coyness as to this matter in the liquidator's negotiations with Snoco's representatives, an analysis of the legal situation plainly requires that result. 75 The plaintiff's claim against Snoco must, accordingly, be dismissed. This renders it unnecessary to consider Snoco's cross-claims. I note, however, that Mr Young's assertion, in the context of his and Mr Spencer's expressed desire that settlement be full and final and dispose of all possible claims, that Mr Star represented to him that he would take care of any problems with the receiver, was not denied by Mr Star. This representation was not fulfilled. 76 I turn then to consider the plaintiff's claims against Mr Star, Nambucca and Lawnkin in proceedings No. 50089/1999. 77 Proceedings No. 50089/1999 These proceedings are twofold in nature. The first claim is that Nambucca and/or Lawnkin should be the subject of a declaration that the monies received in settlement should be held by them subject to a charge in favour of the plaintiff as receiver, with a consequential order that the monies be paid over to the plaintiff. The second claim is against Mr Star and asserts in various ways that he failed in his obligations as liquidator, by compromising the proceedings brought against Snoco for a manifestly inadequate sum, and that he did so in order to advance his own interests, in so far as the monies that were obtained through the action that he brought did not fall within the terms of the receiver's security but, instead, provided a fund for unsecured creditors, from which the costs of the liquidator's administration could be paid. I shall deal firstly with the second claim. 78 The basic assertion made by the plaintiff is that Mr Star, instead of compromising the proceedings brought against Snoco and the other companies in the Equitable Group in March 1999, should have waited until December 1999, when the Bills fell due for payment. Had he done so, the argument proceeded, he would have received a far larger sum of money than was achieved in the settlement. This argument is, of course, difficult to sustain in light of the findings I have made as to the invalidity and unenforceability of the Bills. However, it can still fall for consideration on the basis that the Spencer family, and the solicitors acting for it, could conceivably have regarded the Bills as enforceable and paid them when they fell due. 79 It is difficult to accept this premise. It is clear that Mr Young and Mr Chris Spencer would have held suspicions about any activity of Mr Kearns in relation to Nambucca and Snoco. Indeed, until they had rid themselves of any connection with Mr Kearns, they did not focus their attention on the purported exposure of Snoco to the supposed loan from Nambucca and the associated Bills. It appears, from the evidence, that they were aware of possible questions as to Mr Poynten's authority to sign the Bills. The evidence does not persuade me that, had the matter not been settled, the Bills would have been meekly paid according to their tenor. It is clear that what the Spencer interests were seeking, at all times, was a satisfactory commercial resolution of the claim, which involved payment by the Equitable Group of the smallest amount that could be negotiated. 80 It is clear that even before the buy-out of Mr Kearns' interests, Mr Young had had some involvement in the Snoco debt problem. In 1994 and early 1995, when Mr Kearns was in control of Snoco, his solicitors, Helliars City, acted for the company. It appears that Mr Young was at least peripherally aware of settlement negotiations occurring from time to time between Mr Star and Mr Kearns and his solicitors on behalf of Snoco. He did not take part in them and, it seems quite clear, was far more concerned in making satisfactory arrangements for Mr Kearns' departure from the Equitable Group and its businesses. Even after the departure of Mr Kearns, it would seem, the attention of Mr Young and the Spencer family did not become fully focused on the Snoco debt problem until legal proceedings were threatened by Mr Star and ultimately commenced. It may be noted that the threatened proceedings, on the basis that the Snoco advance had been an uncommercial transaction within the meaning of Part 5.7B of the then Corporations Law, were somewhat of a mystery to Mr Young and to Mr Chris Spencer, in so far as New Zealand law had no counterpart. Indeed, reference to the possible bringing of such proceedings "under the Corporations Law" by Mr Star was regarded by Mr Spencer, in their negotiations, as "somewhat of a bluff". 81 It is clear that it was not so regarded by Mr Star and his solicitor Mr Ryckman. Nor indeed would it have been so regarded by Mr Finlay. It must be remembered that Mr Finlay, as well as being the receiver of the Nambucca assets, was, until June 1998, a co-liquidator with Mr Star of Lawnkin and had been a co-administrator of Nambucca and a co-author of the Administrator's Report, referred to above, prior to the liquidation. It is clear that both men, at an early stage, had formed the view that the apparent advance of $465,000 to Snoco might well be an uncommercial or insolvent transaction within the meaning of ss 588FB and 588FC of the then Corporations Law and might be vulnerable to action brought pursuant to s 588FE to avoid it. Quite apart from Mr Finlay's apparent concurrence in this view, as expressed in the Report, I am satisfied, from the evidence of Mr Star that, during their joint endeavours in relation to the liquidation of Lawnkin, Mr Finlay remained of this view. Mr Finlay has not been called as a witness, no reason having been advanced for this. Accordingly, I am prepared to accept Mr Star's evidence in relation to Mr Finlay's state of knowledge as to the problems associated with the purported loan and also in relation to the Bills. I am satisfied that Mr Finlay, like Mr Star concluded, at an early stage, that little, if any, reliance could be placed upon the Bills as avenues for recovery. Far better prospects existed by way of treating the whole complex of transactions as being uncommercial and capable of being avoided. Indeed, it appears that both men were aware of the ASIC investigation into these transactions. It is clear that Mr Star regarded them as shams. I accept that Mr Finlay had a similar view. Moreover both considered that the monies might be owing to Lawnkin rather than Nambucca. 82 I am also satisfied that Mr Finlay, as receiver, was prepared to leave to Mr Star, as liquidator, the task of recovering monies from Snoco. Although the alleged debt was a chose in action which fell within the securities in respect of which he was appointed receiver, he took no recovery action himself. He could of course, have brought an action in the name of Nambucca. As I find, he was content to leave recovery to Mr Star, whilst asserting entitlement to any monies that might be recovered, subject to an allowance to Mr Star for the reasonable costs of the recovery. So much appears from the portion of the letter already cited in these reasons and from other correspondence which need not be set out. 83 I am satisfied, also, that Mr Finlay did not directly interest himself in the amount of the recovery that might be achieved. He was prepared to leave this to Mr Star. From time to time he or his solicitors were made aware of the state of negotiations between Mr Star, Mr Kearns and Helliars in relation to the Snoco debt and received for consideration draft deeds of settlement, which were not proceeded with. No suggestion was made by Mr Finlay or his solicitors that such negotiations should be abandoned in favour of simple reliance on the Bills being paid in full when due. 84 I have already referred to the fact that when the statement of claim was issued by Mr Star's solicitors against Snoco, its holding company, and the companies in the Equitable Group, a copy was provided to Mr Finlay's solicitors. The statement of claim was issued not only in the name of Mr Star as liquidator of Nambucca and Lawnkin but also incorporated Nambucca and Lawnkin as plaintiffs. It contained identical claims by Nambucca and Lawnkin in respect of the alleged Snoco debt. It asserted that the relevant loans of $300,000 and $165,000 were entered into by Nambucca or Lawnkin as either insolvent or uncommercial transactions within the meaning of the relevant sections of Part 5.7B of the then Corporations Law. Similar claims were made on behalf of Mr Star as liquidator of each of the companies. The statement of claim made clear what amounts were being sought and also the bases upon which they were being claimed. It appears that the forwarding of the copy document produced no response on the part of Mr Finlay or his solicitors. This was notwithstanding that by letter of 30 September 1998, Mr Star's solicitors had advised Mr Finlay's solicitors that Mr Star had recently held informal discussions with the Equitable Group in order to resolve the matter of the Snoco debt. It was further indicated that negotiations were on-going and that counsel had been briefed and that a draft statement of claim would be forwarded shortly. It was further asserted in the letter that "the liquidator is the person properly entitled to recover the debt and that any amount recovered is to held by the liquidator in trust for the general body of creditors." 85 As already indicated, Mr Finlay's solicitors were provided with a draft of a deed, which after some further negotiated changes not presently relevant, became the final Deed of Settlement. It indicated the amount to be paid at settlement and that it released Snoco and the Equitable Group of companies from all further claims. The release was to be given on behalf of Mr Star, Nambucca and Lawnkin. Again, it appears that no complaint was made in relation to the amount of the projected settlement, its terms or the width of the release to be given. 86 If, in fact, the entering into the settlement involved some breach of duty on the part of Mr Star as liquidator, it is clear that Mr Finlay, as receiver, whilst being fully aware of the course that the liquidator was intending to follow, made no complaint and took no steps to deflect him from that course. In view of this, I am satisfied that Mr Star and his solicitors could feel reasonably confident that the receiver had no objection to the proposed settlement, provided that the settlement sum, when received, was held in trust pending agreement or decision as to the relative entitlements of the liquidator and the receiver. 87 Apart from these considerations as to the attitude of the receiver, can it be said, nevertheless, that Mr Star was guilty of any relevant breach of duty in his handling of the recovery of the Snoco debt? In the first place, Mr Star had no available funds for the prosecution of recovery proceedings. After demand had been made on Mr Kearns for the repayment of the amounts in question, negotiations were commenced with him and his solicitors. At that stage, it was made known to Mr Star that Snoco would not be in a position to pay the amount of any judgment. He was told that the company had a secured creditor, which appears to have been the case, and that if this security were realised the company would be, in effect, an empty shell. In this context various offers were made and considered but not proceeded with. Mr Star, as already discussed, had formed the view that the best mode of recovery was via Part 5.7B of the Corporation Law, insofar as Lawnkin had borrowed from S & I Bordon at 22% on the security of a second mortgage and the monies, ostensibly, had been advanced to Snoco at only 12%, the advance being unsecured. Moreover, the advance was not to be repaid until December 1999 and, in the meantime, there was to be no payment of interest. Furthermore, the advance to Snoco was of no commercial advantage to Lawnkin or Nambucca. Another benefit of the contemplated proceedings was that they would enable the joinder of the Equitable Group of Companies as being other parties benefiting from the transaction and as "related entities" of Snoco, within the meaning of this Part. 88 After negotiations with Mr Kearns and his solicitors had come to nothing, and when Mr Kearns had effectively left the scene, negotiations were recommenced with Mr Chris Spencer and Mr Young. These were clearly arms length negotiations in which Mr Star was told that Snoco had a deficiency of assets to liabilities, that secured advances had been made to Snoco by interests associated with the Spencer family, that Snoco was unable to repay the debt to Nambucca and that Mr Kearns had caused considerable loss to the Equitable Group. It was also asserted that the Equitable Group would be unable to repay the Snoco debt in full and that any settlement of the claim would involve time to pay the debt by instalments. In the circumstances in which he was placed, I find that it was not unreasonable for Mr Star to accord considerable weight to these assertions. 89 Mr Star was, additionally, faced with the problem of the time limit for the bringing of proceedings under Part 5.7B. The proceedings were brought towards the end of the limitation period and had the effect of speeding up settlement. Mr Star was, however, in no position to proceed to a hearing if the matter were not settled. There were no funds available and no apparent avenue for obtaining adequate financial assistance. 90 I consider that, in all these circumstances, it was reasonable that Mr Star should not consider it a viable option to wait for the expiry date of the Bills. He was able to use the litigation, which had been commenced, as a settlement tool. The amount of the settlement, which had not at that stage been the subject of adverse comment by Mr Finlay or his solicitors, was, in my view, reasonable in the circumstances. I am satisfied that Mr Star was not guilty of any relevant breach of duty. Accordingly, that aspect of the plaintiff's claim must be dismissed. 91 There remains for consideration the plaintiff's claim in respect of the settlement monies. In my view, its disposition depends upon the proper characterisation of the fund. It is not possible, in my opinion, for reasons which have already been explained, to treat it as a fund representing a debt due to Nambucca from Snoco, with the result that it would, in its entirety, fall within the receiver's securities. Nor am I prepared to regard it as a fund constituted by a recovery under the provisions of Part 5.7B of the Corporations Law. Although those provisions were made use of in the drafting of the statement of claim and were necessary for the involvement of the Equitable Group of companies as parties, the matter was not settled by way of verdict based upon those claims. The settlement was much broader in its terms and involved wide releases. It also appears that the monies were in fact paid, ultimately, by Snoco. Moreover, although Mr Star and his solicitors made use of the Part 5.7B provisions, in treating the transactions as being uncommercial, it is clear that Mr Star's real view was that they were more than merely uncommercial and were, in effect, shams. 92 In these circumstances, I think it proper to characterise the settlement fund in terms of the analysis that I made previously, namely that the monies were received not solely from Nambucca but from Lawnkin, Nambucca and Teamcask in the proportions that I have referred to earlier in these reasons. The money was taken from those companies and used by Mr Kearns for the unjust enrichment of Snoco. Accordingly, in my view, the fund should be held for those companies in the same proportions. I propose to make orders to this effect. One result may well be that the monies recovered by Lawnkin return to Nambucca because of Lawnkin's state of indebtedness to it. I am not in a position to make any findings to this effect. Accordingly, the result of this aspect of the litigation must be that the plaintiff's claim to the fund, as formulated, be dismissed. 93 The result is that the plaintiff's claim against Faxon No. 3 Limited in proceedings No. 50047/2000 is dismissed and Faxon No.3 Limited's cross-claims are also dismissed. The plaintiff's claim in proceedings No. 50089/1999 against Mr Star, Nambucca and Lawnkin is also dismissed. 94 I have heard no submissions on the question of costs or on the precise forms of the orders to be made. Accordingly, I will stand both proceedings over to a suitable time, for their final disposition. ***************************** Last Modified: 12/18/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.