New South Wales Supreme Court CITATION : Anthony Magafas & Anor v Peter Carantinos & Ors [2007] NSWSC 416 HEARING DATE(S) : 2/04/07, 4/04/07, 5/04/07, 11/04/07, 16/04/07 - 20/04/07, 23/04/06, 26/04/06 JUDGMENT DATE : 15 May 2007 JURISDICTION : Equity Division JUDGMENT OF : Einstein J DECISION : Plaintiffs' case made out. Parties to bring in short minutes reflecting reasons. CATCHWORDS : Equity - Joint-venture/partnership - Trust and confidence - Fiduciary obligations - Unconscientious use by joint venture/partner of power arising from material circumstances - Practice and procedure - Finding that parties on each side of the Bar table acted with intent to defraud the Taxation Commissioner - Difficulties of assessing credit in that circumstance - Clean hands defence - Claims to account - Recipient liability - Constructive knowledge includes imputed knowledge - Distinction between 'mere notice' cases and circumstances where agent has active duties to perform and knowledge present to his mind is relevant to their performance - Where agent is authorised to commit principal to transaction, his state of mind being relevant to that transaction, for legal purposes acts of agent are acts of the principal and agent's state of mind constitutes state of mind of principal - Second defendant taken to have had knowledge of her husband where he was acting as her agent - Courts and Judges - Income tax fraud coming to attention of Court during hearing - Duty to bring facts to notice of executive branch of government Corporations Act 2001 (Cth) LEGISLATION CITED : Evidence Act 1995 (NSW) Fair Trading Act 1987 (NSW) Barnes v Addy (1874) LR 9 Ch App 244 Birtchnell v Equity Trustees Executors and Agencies Co Ltd (1929) 42 CLR 384 Black Uhlans Inc v New South Wales Crime Commission & Ors [2002] NSWSC 1060 Blythe v Northwood [2005] NSWCA 221 Boardman v Phipps [1967] 2 AC 46 Briginshaw v Briginshaw (1938) 60 CLR 336 Brooker v Friend & Brooker Pty Ltd & Anor [2006] NSWCA 385 Brunninghausen v Glavanics (1999) 46 NSWLR 538 Chan v Zacharia (1984) 154 CLR 178 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 Georginis v Kastrati (1988) 49 SASR 371 Glazier Holdings Pty Ltd v Australian Men's Health Pty Ltd (No 2) [2001] NSWSC 6 CASES CITED : Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 In the Marriage of P & P (1985) 9 Fam LR 1100 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 Pacific Coal Pty Ltd v Indemitsu Queensland Pty Ltd (unreported, Supreme Court of Queensland, Ryan J, 21 February 1992) Pascoe v Federal Commissioner of Taxation (1956) 30 ALJR 402 Pedler v Richardson (unreported, Supreme Court of New South Wales, Young J, 16 October 1997) Petera v Pty Ltd V EAJ Pty Ltd (1985) 7 FCR 375 Permanent Trustee Australia Co Ltd v FAI General Insurance Co Ltd (2001) 50 NSWLR 679 Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309 Schipp v Cameron and others (unreported, Supreme Court of New South Wales, Einstein J, 9 July 1998] Watson v Foxman (2000) 49 NSWLR 315 Warman International Ltd v Dwyer (1995) 182 CLR 544 Anthony Magafas (First Plaintiff) Pac Com Pty Limited (Second Plaintiff) PARTIES : Peter Carantinos (First Defendant) Fotini Carantinos (Second Defendant) Artesian Pty Limited (Third Defendant) FILE NUMBER(S) : SC 2670/06 COUNSEL : Mr T Alexis SC, Mr S Golledge (Plaintiffs) Mr CRC Newlinds SC, Mr A Bowen (Defendants) SOLICITORS : Rockliffs (Plaintiffs) Munro Lawyers (Defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION Einstein J Tuesday 15 May 2007 2670/06 Anthony Magafas & Anor v Peter Carantinos & Others JUDGMENT The proceedings 1 These are proceedings brought by the plaintiffs Mr Anthony Magafas and Pac Com Pty Ltd ['Pac Com'] against the defendants Mr Peter Carantinos and his wife Mrs Fotini Carantinos in order to determine the rights of the parties following business arrangements entered into between Mr Magafas and Mr Carantinos. 2 The central claim pursued by Mr Magafas [who has obtained leave under the Corporations Act 2001 to bring proceedings in the name and on behalf of Pac Com] is that in the early to mid-1990s he and Mr Carantinos entered into either a joint venture or a partnership for the acquisition, development and sale of real estate. [At this early stage in this judgment it is convenient to refer to the type of arrangement the subject of the agreement as "the joint-venture/partnership", leaving to the side for the time being the specific findings as to the nature of such arrangement, if any, found to have been entered into.] 3 It is common ground that Mr Magafas and Mr Carantinos are the two directors of and equal 50% shareholders in Pac Com which is the trustee of the Karafas Trust, a hybrid unit discretionary trust of which Mr Magafas and Mr Carantinos were appointed 'first appointers' [and in respect of which members of the Magafas family and members of the Carantinos family are the beneficiaries]. It will be noted that the name 'Karafas' is a creative combination of the surnames of Mr Carantinos and Mr Magafas. 4 The case pursued by Mr Magafas [on his own behalf and by the derivative action brought on behalf of Pac Com] is that there was an agreement that Pac Com would be acquired to be the corporate vehicle for the parties' property dealings. So much is clearly borne out by the evidence which is accepted as reliable. 5 It is fair to observe that the proceedings involve many questions of fact and that credit issues are pervasive. In essence the determination of the factual issues likely points the way to the determination of the proceedings. 6 Without being exhaustive there are a variety of causes of action relied upon by way of the contentions that: i. as a consequence of the agreements said to have been entered into, each of Mr Magafas and Mr Carantinos owed to the other, fiduciary obligations in respect of the conduct of the joint-venture/partnership; ii. Mr Carantinos breached those duties in a number of ways [as for example by causing property to be purchased in the names of himself and his wife rather than in the name of Pac Com] and by misappropriating moneys form Pac Com's banking account with Westpac. iii. Mr Carantinos has conducted the affairs of Pac Com contrary to the interests of the members of that company as a whole and by conduct unfairly prejudicial to or unfairly discriminatory against Mr Magafas within the meaning of s 232 of the Corporations Act . 7 Further representational causes of action are pursued claiming contraventions of s 42 of the Fair Trading Act 1987. 8 There is also a pleaded representation grounded upon the proposition that Mr Carantinos owed a duty to Mr Magafas to take reasonable care to avoid foreseeable risk of economic loss caused by inaccurate or misleading or deceptive representations or statements in relation to the partnership/joint-venture and the affairs of Pac Com. 9 It is presently unnecessary to deal with the sundry forms of relief pursued in the event that particular causes of action be upheld. Fiduciary obligations-the principles 10 Before returning to the evidence it is perhaps convenient to refer to the principles. 11 There were no serious issues debated in terms of the generally accepted principles which inform the content of fiduciary duties in general or the occasions when those duties will bind parties to joint venture/partnership arrangements. 12 The basal principles having on many occasions been closely treated with by the High Court were most recently reviewed and re-endorsed by the New South Wales Court of Appeal in Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309 (at [150]–[168]) per Tobias JA with whose reasons Mason P and Giles JA agreed. 13 For present purposes that analysis can be directly adopted in its entirety. In particular the following observations were made: [150] …A convenient starting point is the decision of Bryson J (as he then was) in Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 at 15 where his Honour said: "It is in no way difficult but is ordinarily to be expected that a person under a fiduciary obligation to another should be under that obligation in relation to a defined area of conduct, and exempt from the obligation in all other respects. Except in the defined area, a person under a fiduciary duty retains his own economic liberty." [151] His Honour then referred to a number of authorities in support of that proposition. For present purposes it is sufficient to refer, as did Bryson J, to the following passage from the judgment of Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 97: "That contractual and fiduciary relationships may coexist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all-important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction."… [156] One of the authorities referred to by Bryson J in Noranda was Birtchnell v Equity Trustees Executors and Agencies Co Ltd (1929) 42 CLR 384 at 408 where Dixon J (speaking of a partnership) said: "The subject matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking for which the partnership exists, and this is to be ascertained, not merely from the express agreement of the parties whether embodied in written instruments or not, but also from the course of dealing actually pursued by the firm." [158] …An understanding of the purpose or nature of the relationship is therefore crucial to a determination of the scope or extent of the fiduciary obligations arising from it. However, the relationship between the parties including its object or purpose needs to be considered in the context of the principles which inform the nature of a fiduciary relationship. [159] The Full Court of the Federal Court (Lockhart, von Doussa and Sackville JJ) in News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 undertook a comprehensive analysis of fiduciary duties at 538-541. Relevantly for present purposes their Honours noted (at 539) that it had "long been recognised that the nature and extent of the duties depends on the circumstances surrounding the particular relationship and the context in which relief is sought." [160] Their Honours referred (at 540-541) to the judgment of Mason J in Hospital Products (at 96-97) where he observed that: "[the] fiduciary undertakes or agrees to act for and on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise a power or discretion to the detriment of the other person who is accordingly vulnerable to abuse by the fiduciary of his position." Their Honours thus recognised that it was the obligation to act in the interests of another that was the foundation of the fiduciary relationship. [161] Referring to the judgment of Gibbs CJ, with whom Wilson J substantially agreed, in Hospital Products (at 68-70) their Honours observed that the Chief Justice had accepted that, in the circumstances, it was not inappropriate to apply the test that a fiduciary relationship exists where the facts of the case establish that, in a particular matter, a person has undertaken to act in the interests of another and not in his or her own interests. The Court of Appeal in Hospital Products had added that it is the fiduciary's undertaking to subordinate his or her interests that gives rise to the beneficiary's expectation or trust and confidence that the fiduciary will act accordingly. [162] In conclusion, the joint judgment stated (at 541) that the relevant question, in the words of Professor Finn, was whether: "the actual circumstances of a relationship are such that one party is entitled to expect that the other will act in his interests in and for the purposes of the relationship. Ascendancy, influence, vulnerability, trust, confidence or dependence doubtless will be of importance in making this out, but they will be important only to the extent that they evidence a relationship suggesting that entitlement." [163] In Brunninghausen v Glavanics (1999) 46 NSWLR 538 at 557 [94], Handley JA, with whom Priestley and Stein JJA agreed, cited the following passage from the judgment of Mason J in Hospital Products at 96-97 where his Honour said (with emphasis added by Handley JA): "… The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense . The relationship … is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. … It is partly because the fiduciary's exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owned and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed."… [166] [In Blythe v Northwood [2005] NSWCA 221 the] President commenced the relevant part of his judgment with an extensive citation from the judgment of Deane J in Chan v Zacharia (1984) 154 CLR 178 at 198-199, the relevant parts of which for present purposes I set out hereunder: "The variations between more precise formulations of the principle governing the liability to account are largely the result of the fact that what is conveniently regarded as the one 'fundamental rule' embodies two themes. The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage. … Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it. Any such benefit or gain is held by the fiduciary as constructive trustee … That constructive trust arises from the fact that a personal benefit or gain has been so obtained or received and it is immaterial that there was no absence of good faith or damage to the person to whom the fiduciary obligation was owed. In some, perhaps most, cases, the constructive trust will be consequent upon an actual breach of fiduciary duty: eg, an active pursuit of personal interest in disregard of fiduciary duty or a misuse of fiduciary power for personal gain. … The principle governing the liability to account for a benefit or gain as a constructive trustee is applicable to fiduciaries generally including partners and former partners in relation to their dealings with partnership property and the benefits and opportunities associated therewith or arising therefrom: see Birtchnell v Equity Trustees; Consul Development Pty Ltd v DPC Estates Pty Ltd. "… [167] …But the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of a person to whom the duty is owed…. 185. See also Warman International Ltd v Dwyer (1995) 182 CLR 544, where the Court said (at 557-8): A fiduciary must account for a profit or benefit if it was obtained either (1) when there was a conflict or possible conflict between his fiduciary duty and his personal interest, or (2) by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position. The stringent rule that the fiduciary cannot profit from his trust is said to have two purposes: (1) that the fiduciary must account for what has been acquired at the expense of the trust, and (2) to ensure that fiduciaries generally conduct themselves 'at a level higher than that trodden by the crowd'. The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage." [168] After referring (at [187]) to Birtchnell at 408 (which I have cited in [156] above) and to Phipps v Boardman [1967] 2 AC 46, the President observed (at [194]) that the latter did "not contradict the proposition (well-established in Australia: see Birtchnell ) that the scope of the equitable obligation [of the fiduciary] depends on the precise nature and scope of the relationship in each individual case. The fiduciary is not accountable for profits derived outside the scope of the relationship or required, outside that scope, to prefer the principal's interest over those of the fiduciary." Background matters 14 Mr Magafas was the first-born child in his family. He had emigrated to Australia with his parents and then two brothers. He had three brothers: Gregory, Michael and Constantine [in order to distinguish between each of the brothers it seems convenient to refer to Mr Anthony Magafas as "Mr Magafas" or as "Tony" and to refer to his brothers by their Christian names]. Only Mr Magafas and Michael gave evidence. 15 Mr Magafas had no tertiary qualifications. He was made bankrupt in 1998 as was his brother, Michael following a failed hotel development in the snowy Mountains. Mr Magafas was discharged from bankruptcy in March 1991. Notwithstanding that setback, across the whole of the time span of present relevance Mr Magafas was a director of one or more companies comprising a substantial family printing business originally commenced by his father. In truth the companies were technically not a group but simply a number of companies controlled by one or more of the Magafas brothers: for convenience herein called 'the group'. By and large most of the wealth of the Magafas family in the early 1990s was actually owned by various companies and hence held through various shareholdings trusts and the like. The group would in time amass substantial surplus cash available for investment. 16 The affairs of the group were conducted professionally utilising an internal accountant to ensure that proper and accurate books and records were maintained. Those books and records were then provided to an external accountant KPMG in order, with the assistance of the internal accountant, to finalise the accounts and to prepare taxation returns. Minutes were kept of meetings and when various monies were advanced to family members by way of loan, this was properly documented in the books of whichever particular entity had made the loans. First born meets first born 17 In about 1988 or 1989 Mr Magafas met Mr Carantinos who was then operating a business trading as "Communicado" which operated in the printing industry essentially as a middleman business outsourcing requirements of clients [sometimes described as 'buying and selling printing' - transcript 222.6]. Without purporting to be exhaustive, the business may be described as a translation and creative studio involved with graphic design and translation. 18 Mr Carantinos was a person with a Bachelor of Arts degree majoring in economics and philosophy, also holding a Master of Arts with honours in philosophy. He had lectured for some period at the University of Sydney in economics and philosophy. He was also of Greek background. Both men shared in common the fact that each was the first-born in his family and that each had emigrated to Australia with their respective families. 19 The developing friendship occurred in the context/background of Mr Magafas seeking to re-establish his business reputation and seeking to re-establish himself financially. As will be apparent from these reasons, the friendship was destined to come to a bitter ending, these proceedings demonstrating that neither of the friends had any scruples about defrauding the Taxation Commissioner for common gain. Trust and confidence 20 One of the vital matters which requires to be understood in relation to this litigation concerns the nature and strength of the friendship which developed between the two men. This is because over the years of meeting with one another and dealing with one another from time to time, Mr Carantinos would give advice as to what he considered would be the best route for the Magafas printing business to take: be it a matter involving company structure, future business planning [as for example dealing with the impending problems concerning new technologies]; taxation management or otherwise. Indeed on occasion, Mr Carantinos attained a formal position within the Magafas printing business when he became a director of a group company. On another occasion described as "Project Butterfly", the code name for a project aimed at investigating a public listing, Mr Carantinos was noted as chairman of a confidential meeting concerning future approaches to be taken to positioning the group in the market. He was noted as the person who would oversee within the group, a significant and somewhat sensitive planning for the future exercise. In time Project Butterfly became formalised into the corporation, as Centris Limited. Mr Carantinos became a director of Centris. The public listing never eventuated. 21 On yet another occasion in 1997 Mr Carantinos was joined for one day, as one of the employees of an employee benefit plan known as "Communications Technology Trust", when the directors of a number of group companies resolved to approve particular loans to identified employees for the purpose of those employees acquiring Employee Class Units [cf ExhibitD4]. 22 At least one of the central issues in the case concerns whether or not the advice given by Mr Carantinos over these years and the part which he sometimes came to play in the Magafas printing business, were ever expressly or impliedly the subject of discussion in terms of any anticipated remuneration to be paid to Mr Carantinos for these activities. The clear finding is that these activities were given gratuitously and as part of the friendship. As the reasons will disclose, Mr Carantinos well understood that there were a myriad of ways in which his relationship with Mr Magafas could assist his own business activities. He proffered his advice, freely and often, without any anticipation of payment in that regard. He anticipated that any reward for the time that he spent giving the assistance already described would come aliunde the giving of that advice in the form of collateral benefits by reference to the relationship itself. He never expected any such payment. He never received any such payment. And on the other side of the ledger, Mr Magafas never considered that the advice and assistance given to his group by Mr Carantinos was being [or had been given] otherwise than gratuitously. 23 In truth as the evidence of Mr Magafas made plain, the sole 'business' relationship inhered solely in the real estate partnership/joint venture outlined below. 24 The two men formed a very firm and solid friendship during the whole of the period until the dispute leading to this litigation arose. It is crystal clear from all of the evidence that Mr Magafas saw Mr Carantinos as a person with a great deal of education and experience in all sorts of matters and particularly formed a very high opinion of him insofar as his ability as a businessman was concerned. He came to believe that Mr Carantinos had had a deal of experience in property development and also had a somewhat special ability 'to see outside of the square' in relation to general business matters. Mr Magafas was very impressed by the intellectual capacity of Mr Carantinos. Over the years up until the time of their relationship falling apart, the two men would regularly meet, very often over lunches, and would discuss all manner of things, both business and personal. Mr Magafas grew to repose absolute trust in Mr Carantinos as a friend and as a business partner. Indeed in time over the years Mr Magafas's three children came to refer to Mr Carantinos as their "Uncle Peter". Mr Carantinos spoke at the wedding of the elder son of Mr Magafas in late 2004. Mr Magafas appointed Mr Carantinos as his alternate executor in a 1995 Will, having appointed him as a joint executor in a 2003 Will. A matter of central significance 25 Even at this very early stage in these reasons it is perhaps convenient to record a matter of central significance in terms of the ultimate findings dealt with in the judgment. 26 The centrepiece of the submissions advanced on behalf of Mr Carantinos, addressed the crucial questions of credit which had been litigated. The point made was that Mr Magafas' case was "unbelievably complicated factually and was almost impossible to slot into legal boxes" [transcript 860]. 27 The proposition advanced was that it was the case of Mr Carantinos which was straightforward, simple and cohesive and which should be accepted. 28 Naturally the decision set out in these reasons is informed by many parameters: the evidence before the court being all-important. In cases such as the present, significance must be attached to: i. such of the contemporaneous documentary evidence as is able to be relied upon; ii. the credit of the material witnesses whose credit was in issue. 29 In all of this the Court stands back from the detail and gives a decision on the balance of probabilities [accepting the requirement to observe the under mentioned line of authority in so far as concerns the gravity of the allegations of intent to defraud the Taxation Commissioner]. However this is not the first occasion when a business partner and extremely close friend has so come under the influence of another as to have stood by, whilst allowing that other very considerable freedom of decision and action. The hallmark of trust and confidence is often exhibited in what, with the benefit of hindsight, appears to have been totally un-commercial behaviour. The books are replete with innumerable examples of persons who have so come to trust a parental figure, close relation or close friend that they have been prepared to permit the person in whom the trust is reposed to act on their behalf. Mr Alexis, senior counsel for the plaintiffs, in being challenged by the Court [in relation to certain parameters of lack of precision and lack of documentation and lack of clarity in the case pursued by the plaintiffs] made the point [at transcript 841] in the following words: "The explanation the plaintiffs rely upon in relation to all of that is that it is entirely explicable by reference to the fact that Mr Tony Magafas left all of the arrangements, as imprecise as they all were, to his trusted friend and partner, and insofar as there is plain lack of precision, it is the result of that mutual trust and confidence that was plainly reposed into the trusted friend and partner." As the reasons which follow make plain, the present is proven to be just such a case. It exhibits an unconscientious use by Mr Carantinos of the power arising from the circumstances. [Indeed the very definition given to a fiduciary by Mason J in Hospital Products [supra] makes the point that it is by reason of the fiduciary's undertaking or agreement to act for and on behalf of or in the interests of another person which will affect those interests, that the relationship gives the fiduciary a special opportunity to exercise a power or discretion to the detriment of the other person, who is therefore vulnerable to abuse by the fiduciary of his position.] 30 It has to be remembered that the so-called "simple case" contended for on behalf of the defendants has, as an essential part, the proposition that there were no financial contributions made to the partnership or joint venture, following the agreement made between the Mr Magafas and Mr Carantinos in mid 1995. This case could only have succeeded were the Court to accept that Mr Carantinos was a retained and paid consultant of the Magafas Group of Companies. That case is rejected in the reasons which follow. 31 An important and pervasive finding is that Mr Magafas understood from his conversations with Mr Carantinos that the contributions to the so-called "cashbox" would be used by the latter for the purposes or object of the partnership/joint venture, and not for his own personal use. That Mr Carantinos was permitted a wide discretion in the use of the cashbox, albeit being imprudent conduct on the part of Mr Magafas, simply demonstrates the extent to which he placed absolute trust and confidence in Mr Carantinos. The gravity of the allegations 32 There is a plethora of authority in support of the proposition that the Court is bound to see that a case of fraud is clearly proved. An allegation of fraudulent intent is one of the most serious allegations capable of being made. Actual dishonesty is said to be "the hallmark of fraud". The gravity of the allegation has been said to be such that whereas section 140(1) of the Evidence Act 1995 (NSW) stipulates a single standard of proof for all civil cases, namely the balance of probabilities, section 140(2) preserves the doctrine in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362; Pedler v Richardson (unreported, Supreme Court of NSW, Young J, 16 October 1997) at 10-11. See also McLelland CJ in Eq in Watson v Foxman (2000) 49 NSWLR 315 at 319. More recently in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 the High Court has put the matter in the following terms (at 449-450): "The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary "where so serious a matter as fraud is to be found". Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct." 33 The High Court has pointed out that the evidence given by a man of his intention and state of mind, must be tested: "most closely and received with the greatest caution." [ Pascoe v Commissioner of Taxation (Cth) (1956) 30 ALJR 402] 34 Those of the findings in this judgment holding that in common with Mr Magafas, Mr Carantinos acted with intent to defraud the Taxation Commissioner are made in circumstances in which that case has been soundly established consistently with the approach taken in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 [supra]. The parties' business arrangements 35 The efficient approach is to next move directly to the evidence concerning the parties' business arrangements. This followed discussions between the two men which commenced in about 1992 when they determined to form a partnership or joint venture to buy and then either develop or sell, real property. 36 It is also noteworthy that although in all other respects Mr Magafas confided fully with his brothers in relation to every parameter of the family business, he did not confide in all of them, detail of his partnership/joint-venture/dealings with Mr Carantinos generally chronicled in these reasons. Generally he spoke to Michael to whom he communicated a deal of his general arrangements with Mr Carantinos. 37 However his evidence was that in his mind, all of those dealings were for the ultimate benefit of his family following the tradition that the first born in a Greek family is charged with looking after that family's long-term interests. Hence on his evidence, he saw himself as having that role as a first born, giving him the right to enter into arrangements in general terms on behalf of the family, without consulting family members. That was the spirit in which he came to advance corporate group funds to the partnership/joint ventures. He understood that Mr Carantinos had that same authority for the same reason in relation to his family. 38 It is necessary to travel through a number of business arrangements entered into between Mr Carantinos and Mr Magafas, some of which really do no more than provide a background to the particular matters in relation to which relief is sought. This necessity arises amongst other things because of the need to explain particular documents relied upon by the plaintiffs in the manner described below in these reasons. Characterisation as joint venture or partnership a non-issue 39 Even before treating with the detail one matter can be mentioned only to observe that it can be put to the side. This concerns whether or not the agreements and relationships entered into and dealt with below are properly characterised as a partnership or a joint venture. 40 A treatment of the statutory definition of partnership, the judicially recognised characteristics of a partnership and the existence of fiduciary obligations whether a relationship was characterised as a partnership at law or as a joint-venture is to be found in Schipp v Cameron and others [unreported, Supreme Court of New South Wales, Einstein J, 9 July 1998] at 234-245. Reference was then made to the decision of Ryan J in Pacific Coal Pty Ltd v Indemitsu (Qld) Pty Ltd [unreported, Supreme Court of Queensland, Ryan J, 21 February 1992]. His Honour held that it was unnecessary to decide whether a particular agreement could be characterised as a partnership agreement for the reason that based on the form of the subject joint-venture agreement and the obligations which had been assumed by the parties, regardless of such a finding, a fiduciary relationship existed between the parties: "… I consider that the participants undertook to act so as to further their joint interest in the venture and not to act so as to prejudice that joint interest. They placed mutual confidence in one another and each was vulnerable to abuses of power by the others" [at 17]. 41 That is precisely the position in relation to the characterisation of the nature of the relationship between the parties dealt with in the present proceedings. In short the issue is academic for all material purposes. 42 There were some submissions advanced with respect to the decision in Brooker v Friend & Brooker Pty Ltd & Anor [2006] NSWCA 385. Whilst in some circumstances it may have become necessary to closely examine what was the ratio of that decision it suffices to observe that the findings set out in the present reasons raise no particular difficulties. This is because the factual findings mean that it is appropriate to direct that the accounting which is to take place differentiate as between where: i. the accounting is to be by Mr Carantinos to Pac Com with respect to the proceeds of sales/profits of 39-41 Riverside Crescent; ii. the accounting is to be by Mr Carantinos to Mr Magafas with respect to the proceeds of sales/profits from 43 Riverside Crescent; iii. The accounting is to be by Mr Carantinos to Pac Com in relation to the contributions made to the partnership/joint-venture and the proceeds of sales/profits from the Riverside Crescent development. [the position with respect to Mrs Carantinos is dealt with in the reasons below] The Barwon Holdings Property and Schwebel Street 43 In about June/July 1993 Mr Magafas and Mr Carantinos discussed the acquisition of 44 - 46 Princes Highway, St Peters ["the Barwon Holdings property"] an earlier development not the subject of the present proceedings. 44 Following the inspection of this property by Mr Magafas, he and Mr Carantinos discussed jointly purchasing the property. 45 The property was made up of two separate parcels on two titles. The property was purchased together – although one of those parcels was purchased in the name of Barwon Holdings Pty Ltd and the other parcel was purchased in the name of Mr Carantinos. However on the evidence of Mr Magafas both properties were purchased on behalf of both of them. 46 Mr Magafas nominated his brother Constantine to be a director of Barwon Holdings Pty Ltd to represent the Magafas family and to be a shareholder in the company with Mr Carantinos. 47 Contract for the purchase of the properties were exchanged in July 1993 in a circumstance in which ANZ bank loaned approximately $280,000. 48 Following completion of the purchase Mr Carantinos moved his Communicado business to occupy part of the ground floor of the property. The remaining part of the premises were refurbished. Mr Magafas arranged for a carpenter Mr Donnan to carry out repairs to the floor. 49 Mr Carantinos caused Mr Magafas to loan approximately $105,000 to the partnership in relation to this property. 50 This particular property development 'project', although not being the subject of the claim, has some features of it which are important to this litigation as the arrangement was part of the general relevant background and is said to explain the creation of a document which is said by the plaintiffs to contain an important admission. 51 The plaintiffs point out that one of the features of this early transaction was that Mr Magafas' interest in the property transaction and in the renovation of it was not recorded in any document. The plaintiffs rely upon this parameter as being the first significant indication of the trust and confidence which Mr Magafas reposed in Mr Carantinos that they would carry out their first venture in this way. 52 In 1993 Mr Magafas bought a property at 2/15 Schwebel Street Marrickville from Mr Carantinos. Mr Carantinos provided Mr Magafas with vendor's finance of approximately $40,000 interest-free which was repayable at the discretion of Mr Magafas. The vendor finance was secured on nothing more than a handshake. The plaintiffs again pointed this out as indicative of their relationship at the time. 53 Later Mr Magafas experienced some cash flow problems with his printing business. A business known as Highlight Printing had recently been acquired. Mr Magafas asked Mr Carantinos if the loan funds of $105,000 from the Barwon Holdings property acquisition could be repaid. Mr Carantinos obliged and on 25 August 1994 provided Mr Magafas with a cheque made out to Constantine for the $105,885 amount which had been loaned. 54 On 17 September 1994 discussion took place between Mr Magafas and Mr Carantinos as to how the former could exit from the Barwon Holding arrangement. The focus of their discussion was calculating the value of Mr Magafas's 50% interest in those properties. The plaintiff submit that this reflected the underlying arrangement notwithstanding that half of the property was in the name of Mr Carantinos and at the other half was in the name of Barwon Holdings. 55 An agreement was reached whereby Mr Carantinos would buy out Mr Magafas' 50% interest in the Barwon Holdings properties for $55,000 minus the balance that Mr Magafas owed to Mr Carantinos for the vendor finance on Schwebel Street of $15,000, leaving a balance of $40,000. 56 The evidence given by Mr Magafas which is accepted as reliable is that he said to Mr Carantinos that this $40,000 amount could be paid by the end of that calendar year. As far as Mr Magafas is aware, Mr Carantinos never ended up paying that amount. The evidence of Mr Magafas is that the amount seems to have been lost in the subsequent events but as earlier indicated, no claim is advanced in this litigation in respect of this sum. April 1995 and following 57 By about this time the cash flow problems which had been experienced by the Magafas business leading to the exit from the Barwon Holding arrangements had passed. By now Mr Carantinos was spending only very limited time managing his business Communicado the work of which was in decline. Mr Carantinos was for more interested at this time in managing his property portfolio. 58 Mr Magafas was working long hours ensuring that his printing business was a success. The business had now acquired FH Booth and Son, another printing business, and there was an expectation that following the acquisition of that business as well as Highlight Printing earlier on, he would enjoy reasonable cash flow. 59 In contra distinction Mr Carantinos had the time, qualifications and skills as well as experience in property investment to move with Mr Magafas into a property development mode which should advance the interests of each. April 1995 60 Albeit that it is somewhat difficult to differentiate between the precise occasions when particular conversations took place, the balance of probabilities on the evidence adduced suggests that a critical set of discussions between Mr Magafas and Mr Carantinos took place in or about the first quarter of 1995 and likely continued over a number of months, these essentially constituting the inception of the business dealings treated with in this current litigation. These discussions form the linchpin of the claims pursued by the plaintiffs. Although crucial parts of the version of the discussions given by Mr Magafas are put in issue by Mr Carantinos, the findings accept as generally reliable, the versions of discussions given by the former. It is clear that viewing the entirety of the body of evidence before the Court, in substance the discussions were as deposed to by Mr Magafas. 61 Because of its significance it is convenient to set out in full the accepted content of some of the discussions, and to include some of Mr Magafas' associated evidence (8 May 2006 affidavit): [21] From about April 1995 I had a number of discussions with Peter regarding the formation of a new partnership with I representing the Magafas family and Peter representing the Carantinos family. Mr Magafas: "It is a great feeling to have come through the collapse of our business in 1987 and have started to re-build our empire. We have bought the property in Lawrence St that houses Stratagem and we have expanded the printing operations by buying the business of F.H.Booth and amalgamating our Grafika Press business into it, as well as buying Booth's factory in Marrickville so that we will no longer be tenants." Mr Carantinos: "You certainly have made a remarkable recovery." Mr Magafas: "Yes but I have a few scars to show for it, but it has been quite educational. But to better plan for the future, why don't you and I put our heads together to create a sort of foundation of wealth to provide for the needs of the Magafas and Carantinos families in case we're not around." Mr Carantinos: "That means this structure may have to outlive the original founders. You're talking about a ten year plan." Mr Magafas: "Yes, at least ten years. That's why it has to be insulated against third party claims. When we terminate the arrangement profits will be split 50/50." Mr Carantinos: "Well why do you need me. You're capable of making your own investments?" Mr Magafas: "Because you have one thing I don't have, that is time. The digestion of the acquisitions my family made will be concluded soon. This should allow me access to surplus cashflow from the printing business that I can make available to a new partnership we might consider forming. Someone needs to be focused on how this surplus of funds is applied in order to drive the funds harder to achieve a much higher yield." Mr Carantinos: "Higher yields mean higher risks, and the sort of property deals I envisage are larger scale projects that require supervision." Mr Magafas: "Exactly my point. Supervision requires time and I don't have the time to make available, as I am working at the factory from the early morning hours and I am still at it late at night, but you, you have both the time and the qualifications. In any case my brothers and I can still make our own passive investments and create a separate portfolio to the one I am discussing with you." Mr Carantinos: "I see where you're coming from. But I am not liquid with funds. I don't have a business to generate funds like you. All my assets are still in properties." Mr Magafas: "That's O.K. All we need to do is select an investment that is within the combined budgets of both of us. We then develop and sell the asset and roll the profits into the next deal." Mr Carantinos: "Explain the concept to me again." Mr Magafas: "It will work like this. Either of us will make funds available to the new venture. But I should then be able to provide most of the cashflow that will be needed to fund the holding charges as well as the costs associated with the development of the projects we undertake. All you have to do is to locate suitable properties talk to Council and look after back office administration." Mr Carantinos: "How do we account for the funds we put into the venture." Mr Magafas: "The way I see it, is that it doesn't matter whoever of the two of us puts in the money, when we terminate the partnership it is a simple process of accounting to establish who put in what amount of funds and then we can be re-paid. I also suggest an interest rate of say 8% be applied to the funding." Mr Carantinos: "O.K. Let's do it. But the interest has to be 8% capitalized." Mr Magafas: "We need to get advice on what sort of structure we need, whether a company or a trust. An entity suitable for tax purposes as well as offering protection from third party claims." Mr Carantinos: "And we can run it from my office with my mother managing the accounts." [22] During one of our discussions Mr Magafas said: "My parents are getting on in years. I'm concerned about the need to provide for them adequately in their old age. Also for my children and for my brothers, just in case something happens to me." Mr Carantinos said: "I understand this. I also have to make provisions for my mother." At the time of this discussion, Mr Carantinos was not married nor did he have, as I understand it, any children. [23] It was my understanding that it was intended that the Carantinos family would provide the service of Mr Peter Carantinos who, as I understood from statements he had made to me referred to above, had a tertiary background in economics and finance, was good at tax management, who had free time available and had an upbringing in property matters and also had available his mother, Elly, with her experience in office administration and management available to contribute her services. [24] During one of our discussions the following exchange took place: Mr Carantinos: "We will need a decent parcel of money in order to do a large deal." Mr Magafas: "What I suggest is that we begin to gradually move funds from our printing businesses over the next few years into an Income Bearing Account. This will build up a cashbox for the new partnership without putting strain on the printing businesses." Mr Carantinos: "Can Communicado be the recipient of the funds for the new partnership?" Mr Magafas: "What is the reason for that?" Mr Carantinos: "I am having some pressure to lodge my annual reports and because I don't have a trading business I don't have any income in the form of sales to show. Is it okay to put the funding of the new partnership through Communicado's books and then I can transfer it to the new company when we set it up? This will give me an income stream." Mr Magafas: "How will it work, it needs to be simple." Mr Carantinos: "I will raise Communicado invoices to your printing businesses and you pay those invoices into Communicado." Mr Magafas: "What about the plan we discussed some time ago to find you an income from a trading business. Any luck finding a business for you to run?" Mr Carantinos: "No, not yet. But I am not in a hurry. You know my attitude to clients." 62 The essence of the above described arrangement involved the formation of a partnership to be regulated by the following terms: i. Either partner could make funds available but Mr Magafas would provide the overwhelming bulk of those funds from his printing businesses; ii. Mr Carantinos would locate certain properties, deal with councils in terms of development applications and the like, and attend to back-office administration [in short Mr Magafas would be providing the capital and Mr Carantinos would be providing his time and skill]; iii. the assets to be acquired by this partnership would be owned equally so that upon termination of the partnership, when matters were brought to account, whoever had brought in the funding, would receive that back at 8% capitalised and the balance should be divided equally between them [no issue ever being taken as to the disclosed fact that Mr Magafas represented his group and through it his family, in all of his dealings with Mr Carantinos]. 63 Agreement had been reached on the above parameters. There were then discussions about getting advice in relation to the sort of structure needed to operate the partnership/joint-venture and the discussions included reference to whether what had been discussed should be operated through a company structure or a trust structure or a combination. One important element was that Mr Magafas wished to ensure that the foundation was protected from third party claims and was hence concerned to ensure that the assets were held by a corporate entity. Ultimately that corporate entity, Pac Com, was incorporated on 15 January 1997 with Mr Carantinos and Mr Magafas as sole directors and equal shareholders each holding 100 shares. Mr Carantinos was appointed company secretary. 64 Mr Magafas gave evidence that following the above exchange with Mr Carantinos, Mr Magafas caused payments to be made to Communicado on his understanding that these funds were to support the company yet to be formed to represent the partnership. The finding is that this was a shared understanding. 65 The evidence does establish that between November 1995 and March 2002, approximately $480,000 was paid by the Magafas Group of Companies to Communicado. The plaintiffs contend and the Court accepts that this evidence, read in the light of the arrangements reached in the discussions between the two men, constitutes a powerful indication of the existence of a partnership or a joint venture between the two men. 66 It can now be seen that the basis upon which these funds were paid forms the critical divide on the evidence given by the respective main actors. To the contrary of the evidence given by Mr Magafas, Mr Carantinos contends that the funds so paid were purely and simply genuine payments as the consideration for consultancy and other advice and assistance which he gave to the group over the years across which these funds were paid, as is said to be documented by the invoices which he sent to the group generally correlating with the payments from that group. There is an absolute denial of the proposition that the funds were by agreement simply paid to Mr Carantinos' business trading as Communicado, to bolster its sales figures. There is an absolute denial that these monies were paid for the purpose of developing any cashbox for any partnership/joint-venture. Mr Carantinos has given evidence born out by the tendered tax returns that the receipt of those funds from Mr Magafas were declared as business income in the tax returns of Communicado/Mr Carantinos as that is what they were. It is perhaps convenient at this point in time to observe that on the evidence, across at least the 1995 and 1996 financial years, in general terms the invoices approximated the sum of $100,000 per year. 67 It seems convenient albeit again at this early stage of these reasons, to make clear that the finding of the Court based upon all of the evidence is that the agreement between the parties was always that Mr Carantinos would be compensated by receiving 50% of the profit of the material developments the subject of any joint-venture/partnership activities engaged in. There was never ever any suggestion, arrangement or agreement for Mr Carantinos to receive remuneration of any type, whether for management fees, administration expenses, advice or otherwise and whether to come from Mr Magafas or from the Booth Group. 68 The finding is that the substratum of the agreements and arrangements reached was based upon the proposition that the essential provision of the funding would be from the Magafas Group which was seen as likely able to handle this parameter, with Mr Carantinos providing his skills and time in relation to locating real estate development properties and carrying out the general administrative and other work [as for example dealing with councils for development consents] necessitated when such a property would become a target for acquisition. The agreement of course permitted either party to contribute capital and in that event interest at 8% capitalised would be paid on such funds to such contributing party. Indeed Mr Carantinos conceded that Mr Magafas was to be the funder for the Pac Com purchases [transcript 579.25]. The version of the relevant conversation given by Mr Carantinos 69 The version of the relevant conversation put forward by Mr Carantinos [13 September 2006 affidavit at [136] et seq] had been as follows: [136] Sometime in early January 1997, after I had received the above letter from Balmain MB, I had a conversation with Tony. [137] During the course of that conversation, words were spoken to the following effect: Mr Carantinos: I am looking to do a joint venture with a major corporation such as Macquarie Bank or Multiplex to pursue a future in property opportunities. What I have in mind is to set up an arrangement with a capital provider whereby I would be guaranteed management fees and running expenses while the provider contributes 100% of the capital required for the venture. The profits from the venture would then be split on a 50 / 50 basis." Mr Magafas: "That sounds interesting. What sort of properties are you thinking about? Mr Carantinos: "As you know, I've taken out an option over 39 & 41 Riverside Crescent. Fotini and I have purchased 43 Riverside Crescent. If the three properties are consolidated they will make a great development site. They should accommodate twelve 3-storey terraces. There's going to be a few bob in those. I've done the value adding research and it looks like it will be profitable." [This development project is referred to in the reasons below] Mr Magafas: "Property is picking up now." Mr Carantinos: "Yeah, I think there are better days ahead. I'm looking to team up with a large outfit to finance bigger projects." Mr Magafas: "Borrowing money?" Mr Carantinos: "No, the alternatives are now much broader than when we were kids. I'm looking at a joint venture deal where they provide all the capital including my management and expenses, in return for half the profit." Mr Magafas: "Well why can't I take their place? I could use the business profits. Things are going well." Mr Carantinos: "Yeah, but don't forget what happened last time. You came into Barwon Holdings with me but pulled out within a year, because of your cash flow." Mr Magafas: "The cash flow is good now. When was the last time I had money over the Christmas break?" Mr Carantinos: "But a venture like this will require ongoing management fees and expenses, plus, when you do find a property, substantial injections of money will be needed, in big lumps." Mr Magafas: "Yeah, but don't forget I have the properties and they're worth a bit now." 70 This evidence in so far as questions of remuneration to be paid to Mr Carantinos is rejected. It is unnecessary to deal with all of the above parameters of the conversation otherwise than to observe that it is rejected to the extent inconsistent with the evidence given by Mr Magafas. 71 Under cross-examination Mr Carantinos gave the following evidence: "Q. So should his Honour understand that in this conversation you were proposing that Mr Magafas pay $300,000 a year for you to continue as a consultant to the Booth group and devote your time and resources to developments for a venture in property development with Mr Magafas? A. Yes. Q. Is this the first time in your evidence that the subject matter of being paid as both a consultant and a manager of property development vehicle was discussed with Mr Magafas? A. Yes. Q. And do we understand therefore that the first time you ever said to Mr Magafas that you wanted to be paid $120,000 plus expenses of 80 in addition to $100,000 for consultancy fees was during this conversation? A. Yes, is this dated about the - if it happened at the end of 96, the beginning of 97, yes. Q. The properties that you were considering with him at the time at Riverside Crescent, and I appreciate you say that only included 39 to 41, were being considered for purchase at $225,000 each? A. No. Q. Look at half way down page 36? A. Yes. Q. You there tell Mr Magafas, according to your affidavit, that, "If we are going to do a deal for 39 and 41 they can be bought for $225,000 each". Do you see that? A. Yes. Q. So let's get things in perspective here. On the one hand you were saying to Mr Magafas, "Well, we can pick these properties up for $450,000 but you're going to have to pay me $300,000 a year for consultancy fees as well as management fee and expenses"? A. Yes. Q. And you say all this occurred in the one conversation, do you? A. Yes. Q. And may I suggest to you that what you tell us on page 36 in the words that you attribute to Mr Magafas-- A. Yes. Q. --"yes, there's enough to accommodate that. Let's do it"-- A. Yes. Q. --is a complete and utter lie? A. No, it isn't. Q. Do you seriously suggest to this Court that after telling Mr Magafas for the first time that you wanted to be paid $300,000 a year, he responded by saying, "Yes, there's enough to accommodate that. Let's do it"? A. Yes." [Transcript 696] 72 After Pac Com was incorporated on 15 January 1997 Mr Magafas came to understand that Mr Carantinos arranged for funds to be transferred from the Communicado bank account to the Pac Com bank account with Westpac, doing so pursuant to the arrangement which had been discussed to fund Pac Com's acquisition of properties. 73 Even after Pac Com was incorporated and a bank account was set up, the arrangement with the 'invoicing' to Mr Magafas' group of companies and the payments to Communicado still continued so as to maintain mutual benefit [Mr Magafas's companies receiving a tax deduction for such payment, and Mr Carantinos being able to prove some income (beyond the rental income) to potential lenders]. 74 It was also accepted by Mr Carantinos that Mr Magafas left the bookkeeping and record-keeping concerning Pac Com to the former [transcript 537.45]. Examining the cashbox contention more closely 75 Under sustained and careful cross-examination, Mr Magafas was closely tested on the cashbox contention. In essence that testing exercise threw up the following responses: i. Mr Magafas accepted that the idea was to quarantine some of the cash flow from his group's business by putting money aside over time in order to build up a fund to be utilised when an attractive investment opportunity may arise [Transcript 241-242]; ii. He accepted that at the time he was aware that Mr Carantinos' business 'Communicado' had its own cash flow problems and that notwithstanding this knowledge he had not required that the moneys had to be held by Communicado in some form of separate or trust account [Transcript 242.24]; iii. It was put to Mr Magafas that there was a central inconsistency in that to which he had agreed: once a parameter of that to which he acceded involved Communicado receiving the moneys paid across and using those funds as necessary in the event of particular cash flow problems, the idea of the gradual buildup of an immediately available cashbox would fall away; iv. He coped under cross-examination with this matter by contending that there was no licence given to Mr Carantinos/Communicado to spend the money, contending that in fact Mr Carantinos had other income from his so-called rental properties and that the agreement was simply to put Mr Carantinos/ Communicado into an advantageous position qua its balance sheet/ profit and loss account showing impressive sales as income; v. His evidence was that showing an income in addition to rental income was important for Mr Carantinos since he was a geared property investor who was heavily reliant on borrowed funds to manage his property portfolio and it was important for Mr Carantinos to be in a position to demonstrate serviceability of loans to his lending bankers; vi. His evidence was that these payments constituted his contributions to the partnership as Mr Carantinos well knew; vii. His evidence was that Mr Carantinos kept a sales ledger that recorded sales which occurred from time to time but also kept a separate ledger for "sales" to the Magafas Group of companies; viii. He had accepted that Mr Carantinos/Communicado would be depositing the funds into the ordinary account held by Communicado [Transcript 247.11]; ix. He accepted that Mr Carantinos had said that he wanted to disclose something that was not income as income, and accepted that thinking outside of the square it was the case that Mr Carantinos in fact did not need his help for this subterfuge as it would have been possible for Mr Carantinos to simply prepare bogus books [Transcript 247]; x. He accepted that he knew at the time that Mr Carantinos had made the suggestion that the latter had wanted to use him to effectively create false books for the purpose of misleading third parties [Transcript 249.16]; xi. He also knew at the time that Communicado had saved up tax losses this being an important matter because, had there not been such losses available to be utilised, the arrangement would to the contrary of creating a cashbox of 100% of the money being provided to Mr Carantinos' business, and instead would have been 100% less any tax payable by such business [Transcript 250.1]; xii. The same line of questioning involved Mr Magafas accepting that in relation to the series of invoices admitted into evidence and the payments which were made to Communicado, he was dealing dishonestly with the Deputy Commissioner of Taxation and was doing so conscientiously and deliberately [Transcript 242.12]; xiii. He contended that the payments were payments of capital. The Dulwich Hill properties 76 The finding is that in early 1996, Mr Magafas and Mr Carantinos had a number of conversations regarding properties located at 39 to 43 Riverside Crescent, Dulwich Hill. 77 Mr Magafas gave evidence which is accepted as reliable [8 May 2006 affidavit at paragraph [27]–[28]] as follows: [27] In about mid 1996 I had a conversation with Peter as to his progress on securing the Dulwich Hill properties and during that discussion the following exchange took place: Mr Carantinos: "I have secured 2 properties in Dulwich Hill by taking out an option for $20,000." Mr Magafas: "That's great. We have made our first move. What is the next step?" Mr Carantinos: "I will begin negotiating with the owner of 43, because it is in a derelict state whereas the one on the other side is a well maintained home and the owners will be asking too much to sell." Mr Magafas: "Why do we need a third property?" Mr Carantinos: "Because the council has already knocked back a development application on this site which was submitted by a previous applicant as they say the site is too narrow. So we need an additional block." [28] In late 1996 Peter and I discussed the progress of the properties: Mr Carantinos: "Our architect John Lewis has already commenced discussions with Marrickville Council. The council is definitely not in favour of allowing development of 39-41 Riverside on their own and has already rejected a development application for 39-41. John Lewis has indicated to council the possibility of incorporating number 43 as well in our submission and it appears that he has had a favourable reaction." Mr Magafas: "The option period on 39 and 41 Riverside will be running out soon. How much more funding do you think we will need to put aside in anticipation of their purchase and how much for 43 Riverside?" Mr Carantinos: "39 and 41 are costing about $500,000. We will get 75% of that, which is about $370,000. That means we will need to put in $130,000 and for 43 we might get higher gearing." Subsequently, in anticipation that further funds would be required following the exchange of contracts referred to in paragraph 37.4 below, I caused additional funds to be paid to Communicado totalling $33,000 in December 1996, $33,800 in January 1997, $25,000 in February 1997, and $15,000 in March 1997. 78 The further evidence given by Mr Magafas [affidavit in reply dated 13 March 2007 at paragraph [44]] which is also accepted as reliable included the following: [44] I further say that during a meeting with Peter, the following exchange took place: Mr Carantinos: "I am getting closer on closing a deal. There are two sites I am recommending to you. The first one has two houses on offer located at 39 and 41 Riverside Crescent, Dulwich Hill. I still have to work out how we can get another one, possibly 43. The second site I am considering is a warehouse that Laing and Simmons have got." Mr Magafas: "How much are they each asking?" Mr Carantinos: "The one in Dulwich Hill I can do with an option. Probably $465,000 as an unconditional sale or $480,000 plus $15,000 with an option for about nine months. The warehouse is going to be about $200,000 to $300,000." Mr Magafas: "What sort of location do the properties have?" Mr Carantinos: "Riverside is in a quiet street opposite the golf course and overlooks the Cooks River. The warehouse is behind workshops." Mr Magafas: "My instinct tells me we should buy the Riverside properties, especially when we may be able to buy the one next door." Mr Carantinos: "I agree with you. But it is a more expensive site." Mr Magafas: "But that should not be a problem. I am sure we have parked sufficient funds in Communicado to do the purchase. In any event I can arrange for more funds for what sounds like a good property." Mr Carantinos: "Alright, I'll investigate further and advise you of the outcome." During the course of this meeting, Peter made notes, which he handed to me before the end of the meeting referred to in the preceding paragraph, [these became Exhibit P5 at 14]…. Peter's handwritten note made during this meeting was located by me during the discovery process in the course of these proceedings. Soon after the meeting above referred to, Peter advised me that he had secured the properties by way of an option and that he was intending to try to increase the size of the site by consolidating the adjoining block and I refer to paragraph 27 of my May Affidavit." 79 Mr Carantinos denies speaking to Mr Magafas about the Riverside properties before having purchased the option over 39 - 41 Riverside [paragraph 49 of Mr Carantinos' 13 September 2006 affidavit]. 80 The finding is that Mr Carantinos and his wife had as purchasers, exchanged on the purchase of 43 Riverside on 3 December 1996 [Exhibit P5 opening bundle, p15] for $245,000, without Mr Magafas' knowledge. This was before Pac Com Pty. Limited was incorporated: the resulting finding is that the property was purchased on trust for the partnership or joint-venture between Mr Magafas and Mr Carantinos. [This is consistent with the representation that Mr Carantinos made to Mr Magafas with respect to 43 Riverside in paragraph [28] of Mr Magafas' primary affidavit, the particulars recorded in the Balmain NB mortgage proposal dated 20 January, 1997 (Ex P28) and the conversation between the two men set out in paragraph [41]. Indeed, and as contended for by the Magafas interests, that conversation evinces the intention of Mr Carantinos (which was accepted by Mr Magafas) to acquire 43 Riverside for the partnership or joint-venture, outside of the holding vehicle.] 81 43 Riverside Crescent was settled on 24 January 1997. The funds to enable the settlement were advanced by the National Australia Bank which took a registered mortgage over the property. 82 On Mr Magafas' evidence, accepted as reliable, in or about February 1997, he was told by Mr Carantinos that 43 Riverside had been bought, and in particular, bought in Mrs Carantinos' name [Mr Magafas' 8 May 2006 affidavit, paragraph 41]. [Mr Carantinos had denied that this conversation took place at all and claimed that Mr Magafas was well aware that Mr and Mrs Carantinos had purchased 43 Riverside prior to the incorporation of Pac Com [paragraph 165, Mr Carantinos' 13 September 2006 affidavit]. 83 It was not until after the appointment of the Joint Administrators of Pac Com on 4 November 2005 that Mr Magafas became aware that 43 Riverside Crescent had in fact been purchased by both Mr Carantinos and his wife [Mr Magafas' 8 May 2006 affidavit paragraph 42]. 84 On 13 January 1997, Mr Magafas and Mr Carantinos met with Mr Kevin Munro, a solicitor, about a suitable structure or vehicle for their capital acquisitions [Mr Magafas' 8 May 2006 affidavit paragraphs 30-31]. Mr Munro advised that the property be purchased by a hybrid trust that was eventually set up as The Karafas Trust. 85 Pac Com Pty Limited was incorporated on 15 January 1997. 86 On 16 January 1997, Mr Carantinos and Mr Magafas met with Mr Kotowicz, a solicitor, to execute necessary documents to cause Mr Carantinos to nominate Pac Com as his nominee to exercise the option to purchase 39 and 41 Riverside. Such nomination then took place [Mr Magafas' 8 May 2006 affidavit, paragraph 37]. 87 On 17 January 1997 Pac Com exchanged on the contract for the purchase of 39 - 41 Riverside Crescent, the purchase price being $470,000. At that time the Karafas Trust did not exist [the trust deed not having been executed until 11 February 1997: cf the seal register of Pac Com Exhibit P31]. 88 In March 1997 Pac Com settled on the contract for the purchase of 39 - 41 Riverside Crescent. The funds to enable settlement were advanced from HP Custodians which took a registered mortgage over 39 - 41 as security. 89 It follows that at material times with respect to numbers 39 and 41 Riverside Crescent, Pac Com was the joint venture vehicle [albeit there was not yet any trust established]. 90 However the position was different in so far as number 43 Riverside Crescent was concerned: this is because the contract for the purchase of that property preceded the incorporation of Pac Com. Nor was there any evidence of a reconveyance so as to provide Pac Com with a legal interest in number 43. Hence number 43 is seen to have been purchased on trust for the anterior partnership/joint-venture between Mr Magafas and Mr Carantinos. The Balmain NB mortgage proposal 91 The mortgage proposal arranged by Mr Carantinos for finance through Balmain NB [Exhibit P28] makes entirely clear that the proposition was for the three properties in Riverside Crescent to be acquired in one line for development accordingly. The document describes both Mr Carantinos as well as Mr Magafas as applicants and in terms advises that the applicants have also purchased the adjoining cottage, 43 Riverside Crescent. The factual finding is that each of the three Riverside Crescent properties were acquired as part of the joint-venture/partnership. 92 In July 1998 Mr Carantinos phoned Mr Magafas with the information that the Council has approved the DA on the Riverside properties. 93 Contracts for sale of 39 - 43 Riverside from Pac Com to Dimension Line Developments Pty Ltd were dated 3 May 1999 and exchanged on 6 May 1999. There were two contracts involved: i. Pac Com contracted to sell numbers 39-41 for a price of $1.08 million; ii. Mr and Mrs Carantinos contracted to sell number 43 for $400,000. 94 A deposit of $296,000 was paid by the purchaser (cheque to Pac Com), representing 20% of the total purchase price for the sale of 39 - 43 Riverside Crescent of $1,480,000 [para 52, Mr A Magafas 8 May 2006]. This deposit was released to the vendor and was paid into the joint account of P & F Carantinos [ie Mr and Mrs Carantinos]. 95 In June 1999 the Booth factory roof that sustained severe damage during the April 1999 hailstorm collapsed during roof replacement. 96 Settlement of the sale of 39 - 43 Riverside occurred on 16 November 1999 [para 69, Mr A Magafas 8 May 2006]. By reason of a prior termination of the contract, following initial default of the purchaser, and forfeiture of the deposit which had been released, the whole of the purchase price due under the two contracts [$1.48 million] was paid on completion. Whilst Mr Carantinos has disclosed the distribution of the proceeds of sale of numbers 39-41, on the evidence there has not been any accounting provided in respect of the proceeds of sale of number 43 nor of the basis for apportionment of any profit across the sale of the three properties. It is worthy of note that the settlement date for the purchase of the Hoechst property [treated with below] was 9 days after 16 November 1999. 97 Mr Magafas gave evidence accepted as reliable that Mr Carantinos has never accounted to him for the proceeds of the sale of 39 - 41 Riverside. 98 On his evidence accepted as reliable, Mr Magafas only discovered [on investigation of the General Ledgers of The Karafas Trust supplied to the Administrators by Mr Michael Egan] that Mr Carantinos had in fact withdrawn the profits of the Riverside sale which had settled in November 1999 [see Mr Magafas' 8 May 2006 affidavit, paragraphs 60.6 to 60.8 for ledger details]. The tax bill discussion 99 In about September 2003, Mr Carantinos phoned Mr Magafas regarding a substantial tax bill of over $150,000 that Mr Carantinos had to meet due to having taken the profits from the sale of Riverside [paragraph 75, Mr Magafas' 8 May 2006 affidavit]. Mr Magafas gave evidence in his 8 May 2006 affidavit which is accepted as reliable, that Mr Carantinos told him he had used the proceeds from the Riverside sale to fund "our share of the Hoechst property purchase". The more particular facts concerning this property are referred to below. 100 After this conversation, Mr Magafas drew two personal cheques - one dated 15 September 2003 for $70,000 and one dated 18 September 2003 for $50,000 – to Mr Carantinos on the basis of his belief induced by Mr Carantinos, that all profits from the Riverside sale were rolled into the Hoechst site purchase. 101 The version of events given by Mr Magafas is clearly to be accepted in contradistinction to that given by Mr Carantinos. The latter whilst accepting that he used funds provided to him by Mr Magafas to pay for his tax, had difficulty in explaining why that had occurred and ultimately came forward with no explanation at all. His cross examination included: "Q. And you certainly didn't understand that Mr Magafas was going to pay your tax for you, did you? A. Certainly not. Q. You understood that he was helping you out? A. No. Q. You certainly didn't understand that it was a gift, did you? A. That's another matter. Q. Is the answer to my question yes or no? Did you have that understanding or didn't you? A. A gift in a - no, I didn't, I didn't think it was a gift. .. Q. Mr Carantinos, what I am suggesting to you is that you made plain to Tony Magafas that you had a tax problem, you needed some help to pay it-- A. I said that wasn't the case - oh, I see, sorry. Q. He lent you this money and you received it for the purpose of paying your tax? A. No." [Transcript 720-721] 102 Other evidence which substantiates the proposition that 43 Riverside Crescent had been acquired as part of the joint-venture/partnership includes: i. Exhibit P1, as well as the cheque butts Exhibit P 18, which establish not only that the architectural and consulting fees were paid out of Pac Com in relation to the development which embraced the three sites, but which also establish that council rates and water rates for number 43 were also paid out of Pac Com. ii. The evidence that development consent in relation to the three properties had been obtained. iii. Whilst it is certainly somewhat difficult to work through the diagram to be found at Exhibit P5 page 34, the evidence given by Mr Magafas in this regard at least gives some corroboration to the proposition that at the time, he was informed by Mr Carantinos that the two current assets included Riverside. iv. There is also the objective fact that after development consent had been granted, steps were taken to sell all three properties in the one line which ultimately occurred which is consistent with the proposition that the whole purpose and object of the acquisition of all three properties was always for sale in one line. v. When the deposit was paid over by the purchaser [cf cheque at page 50 of Exhibit P5 in the sum of $296,000 relating to the sale of all three properties], that amount was deposited by Mr Carantinos into his personal account as to $150,000 he then paid $115,500 as his share of the deposit on the Hoechst site, all of this taking place on 28 May 1999. vi. Mr Carantinos gave evidence [transcript 713.45] that out of the proceeds of sale of 39-41, Pac Com had discharged the mortgage to the National Australia Bank over number 43, as well as over Mr Carantinos' own house. vii. it is also clear from Exhibit P35 that Mr Carantinos instructed Konstan Lawyers [who acted on the sale of the three properties] that they were on settlement to pay out not only the mortgage in respect of which Pac Com was the mortgagor over numbers 39 and 41, but also to have discharged out of those proceeds, the mortgage to the National Australia Bank over number 43 and to do so out of the proceeds of numbers 39 and 41. viii. The evidence does not disclose where the proceeds of sale in so far as number 43 went. It is clear that the consideration paid by the purchaser upon the sale of number 43 was $400,000. ix. The evidence is also that only Mr Carantinos made the decision as to what was to be the respective aliquot share of the sale price of the three properties to be paid by the purchaser in respect of numbers 39 and 41 [sold together in the same contract] and in respect of number 43 sold by another contract. [cf transcript 711]. 103 Likewise a convenient short transcript summary reference [as extracted by the Magafas party's counsel in final submissions] to some of the evidence which substantiates the acquisition of an interest in 39-43 Riverside Crescent by the Pac Com joint-venture/partnership is as follows: Evidence Transcript reference Expenses for each of the properties at 39,41 and 43 are paid from the Pac Com account 541. The Mortgage proposal to Balmain NB refers to the purchase by "the applicants" of all 3 properties (ex P28) 690.30 Mr Carantinos agreed that he received the whole of the deposit (released) on exchange of contracts for the sale of the 3 properties 711.52 Mr Carantinos agreed that the proceeds of sale from 39-41 Riverside Crescent had been paid off the mortgage debt on 43 and off his home loan debt 713. Fictitious Pac Com meeting 104 The evidence given by Mr Carantinos to the effect that an annual directors meeting of Pac Com was held on or about 30 June 1999 attended by himself and by Mr Magafas at which it was resolved that the net income derived by the trust including any capital gains be distributed to himself is rejected. The purported minute [to be found at Exhibit P5 page 51] was a fabrication. Mr Carantinos accepted [transcript 708.35] that the minute was only signed years later when the tax return for the trust for the year ended 30 June 2000 had been prepared. 105 Mr Magafas denied that the meeting had taken place. His evidence is accepted as reliable. For Mr Magafas to have agreed to any such resolution, would have been entirely inconsistent with the whole purpose and object of the joint-venture/partnership. Hoechst property (St Peters) 106 Although Mr Magafas had some difficulty with the precise dates of conversations with Mr Carantinos, as well as the disputed trip to Melbourne to negotiate with the owners of the Hoechst property dealt with below, I accept that: (i) In early 1998, Mr Carantinos spoke to Mr Magafas about his negotiations with Hoechst regarding the potential acquisition of property that Hoechst were considering selling at the time. (ii) A few months after this, Mr Carantinos told Mr Magafas about the first right of purchase on the property which he had been given by one of the managers of Hoechst. 107 It is convenient to commence by simply reciting the bald facts proven by the documentary evidence. They are as follows: Date Event 28 April 1999 Artesian Pty Limited exchanges on contract for purchase of 60-78 Princes Highway St Peters. Purchase price is $2.31 million. $115,000 (being 5% of purchase price is payable, on exchange, as deposit. Balance of further 5% is payable within 1 month. 28 May 1999 Peter Carantinos pays $115,000 as balance of deposit on purchase. 25 November 1999 Settlement of purchase of 60-78 Princes Highway. Funds to enable purchase are advanced by national Australia Bank which takes, inter alia, a registered mortgage over the site as security. Sale 7 December 2006 Artesian enters put and call option for sale of St Peters for $7.7m settlement due June 2007. 108 It is next convenient to shortly note some important parts of the evidence before the Court pointing to the acquisition by the Pac Com joint-venture/partnership of an interest in the Artesian property by transcript reference: Evidence Transcript Reference The Riverside deposit is released into Mr Carantinos joint account (with his wife) $150,000 is then paid into his own account and then $115,000 is paid from that account to fund Mr Carantinos' payment of $115,000 as his share of the deposit on Artesian purchase 712.50 Payments for Artesian expenses are recorded in the Pac Com cash book; just as they are for expenses in relation to Felton Woods manor 545.20; 546.35 Handwritten note by Mr Carantinos concerning the payment of Stamp Duty on the Artesian purchase records " $ from Pac Com as contribution for share in future profits" (P44) 743. 30 Mr Egan's note, made by staff member, (ex P47) records equity ownership of Artesian 758.5 109 The Hoechst property was bought as a 'joint' purchase with funding from Mr Gregory Gav for the purchase of the whole site as well as 50% of the holding costs, with the remaining 50% of the holding and development costs being funded by Artesian. Artesian is a company of which Mr Gav and Mr Carantinos are both directors. Each ultimately came to hold two of the total four shares in the company. 110 Mr Magafas only became aware in about February 2000 from Mr Carantinos that shares in Artesian had been issued in favour of Mr Carantinos and not Pac Com. 111 The Court's finding is that the two shares acquired by Mr Carantinos in Artesian were acquired on trust for Pac Com. The accepted evidence pointing to this is as follows: (i) On 14 October 1999 Mr Carantinos acquired 2 ordinary shares in Artesian (Exhibit P41) on trust for Pac Com. [This is consistent with the conversations between Mr Magafas and Mr Carantinos set out in paragraphs [55], [56.1] and [57] of Mr Magafas' primary affidavit of 8 May 2006]: At paragraph [55]: Mr Carantinos: "I am confident we will get the Hoechst site. One option is for Pac Com to buy it by joint venturing with another party." Mr Magafas: "This suits me because the cashflow from the printing business is uncertain." At paragraph [56.1]: Mr Carantinos: " I have been negotiating with their director, and I am confident that we are getting closer to getting the Hoechst site. But we will need to move quickly. That means we will need to have ready funds. " Mr Magafas: "Whatever are our options, let's choose the one that puts minimal stress on us. Especially in view of the dramas we have had with our roof incident at our factory." (In June 1999 the roof of our factory had sustained severe damage by a major hailstorm and whilst contractors were attempting to replace the roof, it collapsed, resulting in the closure of our site by WorkCover inspectors. This resulted in loss of jobs and/or clients and impacted adversely on cash flows). Mr Carantinos: "I agree with you. At our age we don't need that. Because the sale of Riverside, although imminent, may not happen in time for us to have ready funds. " Mr Magafas: "Well in view of a possible delay, I suggest that we seriously look at the joint venture option for the Hoechst site. This will preserve our cash and will not put any financial pressure on Pac Com or on either of us. We no longer need that sort of pressure at this point in our lives." [Emphasis added.] At paragraph [57] (after returning from the Melbourne trip): Mr Carantinos: "Guess what. The director for Hoechst rang me while I was at home babysitting my daughter Elly to continue the discussion on the sale of the property. While he was talking he could hear Elly in the background. He asked me if I was minding a child, and commented how he was impressed that I was a good father. As a result he agreed to sell us the property." Mr Magafas: "How about that. Baby Elly saved the day. The trip to Melbourne paid off after all." Mr Carantinos: "What we need to do now is to decide whether we do this deal on our own or try and do a joint venture with someone. My preference is that we do a joint venture." Mr Magafas: "I agree with you, because I am still concerned of a possible delay in the settlement of 39 - 43 Riverside Crescent, and this will leave us badly exposed to the Hoechst site." (ii) Although the conversation set out at paragraph [60.1] speaks in terms of " we ", the holding reliant on the conversations is that Mr Magafas and Mr Carantinos intended their relevant interest in the Hoechst site, via the shareholding in Artesian, to be held by Pac Com. That conversation [at paragraph 60.1] was as follows: Mr Carantinos: "I have done a deal with Gregory Gav. He is very well connected with Marrickville Council and he developed the Nally site on the corner of May St and Princes Highway St.Peters. The deal is, that he will put up the money to purchase the site so that we will have an unencumbered site. And all we have to do is fund 50 % of the holding and development costs and he the other 50%" Mr Magafas: "How much will our share of the purchase costs and development expenses be? " Mr Carantinos: "I reckon, the way architects and engineers charge, as well as the need to engage town planners and hydraulic engineers we will need at least half a million dollars plus another two hundred thousand for the purchase costs. For the holding costs I reckon another five to six hundred thousand. All up about one million three hundred thousand dollars. " Mr Magafas: "Why so much for the holding costs?" Mr Carantinos: "A project like this can take four to five years to get through Council plus this property has to all go to the Minister for approval as well. But don't worry this project is going to be worth about fifteen million dollars." Mr Magafas: "Where will our funding for all these costs come from?" Mr Carantinos: "From the proceeds of the settlement of Riverside. " Mr Magafas: "Oh well, I suppose if the man is putting up the purchase money, 50% is a fair exchange." 112 The above finding is consistent with the conversation between Mr Magafas and Mr Carantinos deposed to in paragraph [61.1] of Mr Magafas' 8 May 2006 affidavit, which is as follows: Mr Carantinos: "I have taken our 50% share with Gav in my name." Mr Magafas: "Why have you taken it in your own name and not in Pac Com's. This will possibly cause us accounting and tax issues later." Mr Carantinos: "I did it because it would be simpler for us if I hold it on behalf of the Pac Com partnership in my own name, because this will make it quicker to deal with issues that arise and in dealing with our joint venture partner Gregory Gav. This is the same reason why Gav has taken his shareholding in his own name. " 113 It is likewise consistent with Mr Carantinos' note made on the reverse side of the cheque butt contemporaneously with the completion of the purchase of the Hoechst site on 25 November 1999 –"….$ from Pac-Com as contribution for share in future profits." [also dealt with in the reasons below] 114 It is also consistent with holding and development expenses being actually paid by Pac Com, as recorded in the cashbook (Exhibit P1) and the instructions or information provided by Mr Carantinos to his accountant on 25 June 2002 (Exhibit P47) – "Mars…+ Pac Com = own Artesian P/L jointly". 115 The finding is that Mr Carantinos needed Mr Magafas' cashflow to fund 50% of the holding and development costs of the Hoechst property, in accordance with the agreement between Mr Carantinos and Mr Gav. Mr Carantinos was not shown to have any demonstrable capacity to fund these costs independently of Mr Magafas. This is evidenced by Mr Carantinos' income tax returns from 1994 to, at least, 1999 [the returns beings Ex P20, P21, P22, P25, P29, P36 and P38] which disclose not only Mr Carantinos' net income (loss) from year to year, but also his net assets. The balance sheet for the year ended 30 June 2000 [Exhibit P36] demonstrated that his net assets in the 1999 year totalled $157,650 only 3 ½ months before he acquired the shares in Artesian. These assets included "goodwill" for Communicado in the sum of $300,000 (having been carried forward from pervious years), which at the time was either not a trading business or had considerably reduced its sale activity. If goodwill is removed, Mr Carantinos is seen to have suffered a deficiency of assets over his liabilities at the time. 116 On 14 March 2002, Mr Magafas caused Benward Pty Ltd [a company within the Magafas group of companies] to advance $500,000 to Pac Com to enable it to meet its share of the ongoing holding and development costs of the Hoechst property [Mr Magafas' 8 May 2006 affidavit, paragraph 63.1]. 117 The finding is that Mr Carantinos [in relation to the Hoechst property] at some stage in 2002 showed a model of the proposed development to Michael and said [T 44:7]: "Thanks. Your brother will be happy. We're going to make some serious money on this". 118 I accept that there would have been no reason for such a comment to be made if, as Mr Carantinos has subsequently denied, there was no interest of Mr Magafas in the shares in Artesian. Moreover as earlier pointed out, Mr Carantinos had explained to Mr Magafas why he had acquired the Hoechst site in his own name, rather than in that of Pac Com [Mr Magafas' 8 May 2006 affidavit, paragraph 61]. 119 In a meeting held on 1 August 2003, at which Mr Magafas, Michael and Mr Carantinos were present, Michael asked Mr Carantinos what he estimated Pac Com's share of the Hoechst development was likely to be. Mr Carantinos estimated as of 30 June [2003] it was $3 million [Mr Magafas' 8 May 2006 affidavit, paragraph 73]. 120 Mr Magafas gave evidence which is accepted as reliable, of a conversation which he had with Mr Carantinos in about June 2005 a few days prior to the departure of Mr Carantinos overseas. The conversation was in the following terms: Mr Magafas: "I believe you are leaving for a holiday overseas, is that correct. " Mr Carantinos: "Yes, that is correct. " Mr Magafas: "But look at the state of the companies. How can you leave at a time like this? Felton Woods Hotel is going backwards. The income is nowhere near the forecasts you gave me. The creditors bills are never ending and I've got Betsy on my tail every week needing money because you are not contactable. Also Pac-Com needs money to fund its share of our joint venture with Gav and there's no news of a sale of the Hoechst site . You don't even have a marketing strategy in place, because I haven't even seen a billboard up as yet nor have I seen the site advertised anywhere. How can you leave such a financial mess and plan a trip overseas and not even inform your partner that you are going. If I hadn't found out accidentally you would have gone and left me in the dark." Mr Carantinos: "I was going to tell you, but because I was upset with you I put it off. In any case I have made arrangements to cover the Hoechst site costs and can you look after the hotel payments till I get back? And by the way there is a possibility of a sale for the Hoechst site ." Mr Magafas: "I can't believe it. The hotel business is bleeding us financially, and your answer to help fixing the problem is to take your family for a trip overseas, even though there is a possibility of a sale of the Hoechst site. And you decided not to tell me any of this because you were upset and prepared to just disappear and leave me with the mess. That's great management style." Mr Carantinos: "On the issue of management, I am claiming for my time and operating expenses as management fees." Mr Magafas: "This is news to me, there had never been an agreement about management fees. In fact the only agreement we had was that I would supply some funds and cashflow for the deals we agreed on and you would supply your expertise and resources, including office, without charge. How much are we talking about?" Mr Carantinos: "$200,000 per year. That's how much it takes to run an office. " Mr Magafas: "An office for who, Pac-Com or your own businesses. Pac-Com has only done two transactions in ten years and one joint venture that Gav is managing. " Mr Carantinos: "And what about the time I have given you whenever you needed me, whether it was for business or personal matters." Mr Magafas: "But surely you can as a friend. Have I not done likewise for you." Mr Carantinos: "What about Felton Woods. Look how much time Mum and Betsy have put into that. " Mr Magafas: "That was their choice. We both told her not to do it. She wanted to do it for her own sake and as a contribution. But anyway Felton Woods is a separate company." Mr Carantinos: "I maintain my position on the management fees. " Mr Magafas: "Does this mean you are owed $200,000 times 10 years, so you are owed $2m." Mr Carantinos: "That sounds about right. " Mr Magafas: "You're joking, right? Let me give you some facts. First, because your wife works, you have chosen to be a child minder for the last six years, and have left your mother to look after your business. And how about the countless days away on holidays or not contactable. Look at the Hoechst property, we've had it for six years and still no sale. Look at the Katoomba property that was supposed to be a property flick, and three years later we've still got it and you tell me not a buyer in sight. What have you really been doing. If you were a manager on the sort of pay you're claiming , you would have been sacked within six months based on your performance or sued for negligence and incompetence - you would not have lasted ten years. Stop big noting yourself and look at what you've actually achieved. In the biggest property boom Sydney has had for 25 years, all you have managed to accomplish is to send us broke". [Emphasis added] 121 This was the first time Mr Carantinos had ever made a claim to an entitlement to management fees of $200,000 per year. 122 Following the above exchange, the two men then parted. Mr Magafas did not see Mr Carantinos again until 2 November 2005. 123 It is against that background that a letter dated 21 August 2005 was sent to Mr Magafas by Mr Carantinos, in the following terms: "Dear Tony, Let me state at the outset that despite the ugliness of our meetings this year, I want to reach an ammicable solution to our problems that you are happy with. I am prepared to compromise on many of the issues that divide us in order to acheive this because no matter what the outcome of the legal rangling would be, we both would be left with images of each other that are too painful to carry for the rest of our lives – I now think you probably also have thought of this as you just can't wipe out the immages and feelings of a friendship as close as ours was for well over a decade before it broke under the strain of conflicting loyalties and opposing views of economic fairness. After travelling for nearly 3 months, motion of it with Fot & Elly, I have come to see that the only dampner on my enjoying them and the world is not just the tension of our situation, but the immages of us being/acting so out of character and crude. This weekend on my homeward leg to Aus. (due back week after next), I have decided that it's not enough to fight this through the demands and rights of situation. It is now important to me that you are happy with it and that the crudeness gets washed away. Please forgive me for the ugly things I said to you in the heat of our arguments as I can't afford to see you as in that monstrous light. On that, I refused to tell you of how my family travel plans were going and how Artesian was going with marketing St. Peters. On the first, we went to China, Russia, Italy & Greece at the end of May and loved it. On the Second, and in light of our disputes over your demands and claims to it and your demands that I approve your giving your brothers a say in Pac-Com, I refused. As a gesture of my goodwill, however, and to the extent that you find it usefull in travelling to that place of resolution that we both want, I can tell you that the latest effort to sell it is in the on the basis of of a $8million - $8.8million figure (depending on GST) on a token $200,000 deposit that Gregg & I are very glad of in coping with the subsidies/costs of holding it. On the other issues of my management fees, costs of a serviced office, expenses, lost appreciation of selling properties to fund them, depending on your contributions for an income, loss of profits in developments forgone etc. you now want to change elements of the original agreement on the grounds that it was not commercial – that it was based on romance. On reflection, that's possible but please bear in mind that it appealed to the highest levels of our character rather than the lowest – the highest of motives. Perhaps the "vanilla funding" model it was based on can only be best used with the likes of mcquarie Bank that used it. I don't know – But Please bear in mind in your road to an open heart and resolution – goodwill that for my part I bore a lot of the costs and vulnerability of it in keeping to it. In any case, I want to state to you that on even all those fronts, I am prepared to compromise for a total solution that you are happy with. After trying to solve each point in isolation, I found it impossible to be unequivically clear on it without seeing your side. I think you will find it likewise – Its too complex. – Its 8 years of change and interpretations – as you say. I beg you to reciprocate my intention for a happy ending to this – for the sake of our selves and the families that depend on us. Please use the next 2 weeks to journey to that place of hope and understanding with an open heart and may you be guided by the voice within you that I know you have. Let's turn this impending train wreck into a speed hump – we deserve it. While travelling, my phone is not on networks and calling is difficult so please phone/fax Betsy if you decide to head my call for that journey. Yours in hope and a commitment to compromise. Peter" 124 In the circumstances in which the two men had had the acrimonious and significant earlier conversation, the balance of probabilities is very heavily weighted against the likelihood that Mr Carantinos would in his letter have referred to the efforts to sell St Peters for the $8,000,000 - $8.8 million figure, had it not been for his acceptance that Mr Magafas had an interest in the Artesian shares. Katoomba – Felton Woods Manor 125 This acquisition is not the subject of a present claim. Its relevance is purely adjectival. 126 In late October 2002, Mr Carantinos became keen to acquire this Katoomba property (as an asset of Pac Com), and when Mr Magafas was initially hesitant, Mr Carantinos assured him the acquisition would be a 'property flick' [Mr Magafas' 8 May 2006 affidavit, paragraph 67]. 127 On 11 December 2002, Mr Magafas transferred $600,000 to Pac Com's account (additional funding on top of NAB loan) [Mr Magafas' 8 May 2006 affidavit, paragraph 70]. 128 Towards the end of 2002 and during 2003, the Magafas brothers with Mr John Fitzgerald, the accountant to the Magafas group, reviewed the internal arrangements for the Magafas family and received advice regarding the lack of documentation in relation to investment in Pac Com [Mr Magafas' 8 May 2006 affidavit, paragraph 73]. (a) 1 August 2003 – Mr Magafas and Michael Magafas meet with Peter Carantinos regarding the tightening and documenting of arrangements. (b) Draft documentation given to Mr Carantinos [Mr Magafas' 8 May 2006 affidavit, paragraph 85-86]. 129 In January 2005 Felton Woods Manor House Pty Limited was incorporated to operate the hotel at Katoomba (Mr Carantinos as sole director, Pac Com as sole shareholder). [Mr Magafas did not want to be involved in running the hotel, hence the setting up of a separate vehicle.] 130 In March 2005 the hotel opened. 131 On 2 November 2005, on the first occasion that Mr Magafas had seen Mr Carantinos since his return from overseas, Mr Carantinos stated that Pac Com should be liquidated, and expressed his concern about his exposure to directorial liability that was largely by reason of the mounting costs associated with the Katoomba property. Mr Magafas rejected this and said the Hoechst property was worth at least $2 million 'to us' [transcript 62 -3]. 132 At this point for the first time, Mr Carantinos denied that Mr Magafas had an interest in the Hoechst property and it became clear that he was claiming half of the net proceeds of the Hoechst property for himself. 133 It was also during this meeting that Mr Carantinos told Mr Magafas that he had taken money out of Pac Com for 'fees', about $500,000. 134 On 17 March 2006 contracts for sale of Felton Woods Manor was exchanged ($1.4 million) (paragraph 145.3, Mr Magafas' 8 May 2006 affidavit). 135 The sale of Felton Woods Manor completed on 28 April 2006. Dissolution of partnership 136 On 1 May 2006 Mr Magafas and Pac Com addressed a formal (p387 of AM1) Notice to Mr Carantinos pursuant to Section 32(c) of the Partnership Act intent to dissolve the partnership as from that date. 137 On 27 November 2006 Brereton J heard an interlocutory application for an injunction and other relief in relation to the Hoechst property sale. Reliability of evidence given by witnesses outside of the main witnesses 138 Evidence was given by Mr Au, Ms Sutton and Mr Donnan and there is no question but that this evidence was reliable in terms of honestly given and being generally acceptable as true. Mr Saviou Au 139 Mr Au was a former Executive Account Manager of Moore Business Systems Australia Limited ('Moore'). 140 Mr Au first met Mr Magafas and Michael Magafas in the early 1980s when the brothers were operating Stax Condor Printing, but became reacquainted with the Magafas brothers when they later acquired the Booth Printing business in the mid-1990s. At this time, Mr Au was working for the Australian Government Publishing Service (AGPS) but subsequently obtained a position with Moore in about early November 1996 in which he was engaged principally, given his background, in the acquisition of the business of AGPS. 141 In late 1996 to early 1997, Mr Au on behalf of Moore, was in contact with Mr Magafas regarding the opportunity for Booth Printing to work with Moore to form a strategic alliance or partnership to bid for AGPS printing service tenders. An agreement for a strategic alliance was entered into [although the tendering process was ultimately discontinued by AGPS]. It is Mr Au's evidence that Mr Carantinos did not have an active role in the entering of the agreement between Moore and Booth Printing [paragraph 12 of Mr Au's affidavit 9 March 2007]. 142 In addition Mr Au had other discussions about potential business acquisitions by Mr Magafas as well as the negotiations that led to the eventual formation of a consortium [which included Booth Printing and Moore] to purchase the printing operation of the former AGPS. The consortium was styled 'Information Solution Group (ISG) Pty Limited'. Mr Carantinos was again not said to be involved in these discussions [transcript 155 and para 19-20 of Mr Au's affidavit]. Ms Anne Sutton 143 Ms Sutton commenced employment with Tudune Pty Ltd t/as Stratagem Creative Services in about November 1998 as financial controller of the Magafas group of companies. She left the employ of the Magafas group of companies in about July 2005 [at that specific time she was employed by Benward Pty Ltd but was still the financial controller across the Magafas group of companies]. She gave evidence that during her employment, she would see Mr Carantinos from time to time and on an average of about every 6 to 8 weeks attending the [Magafas] premises at Marrickville around lunchtime to go off to lunch with Mr Magafas. Her office was in line of sight to Mr Magafas' office, and either Mr Carantinos or Mr Magafas would tell her they were heading off to lunch when leaving and passing by her office. Ms Sutton's evidence was that her work did not bring her into contact with Mr Carantinos [transcript 122.12]. From time to time, Ms Sutton attended meetings of directors of the various entities within the Magafas group of companies, and at only one of these meetings which she attended was Mr Carantinos in attendance. She observed no input from him at this meeting which discussed non-sensitive budgetary type matters [transcript 132.21]. 144 Ms Sutton gave evidence that at the management type meetings she attended [generally those with a financial requirement], Mr Carantinos was never in attendance [transcript 141.45]. 145 As previously observed, on 11 June 1999, part of the roof collapsed at the [Magafas] Marrickville premises. Subsequent litigation was brought and as financial controller, Ms Sutton became involved in the litigation that was brought by several of the Magafas entities against the roofing contractor and sub-contractor as well as the insurer. As far as Ms Sutton was aware, Mr Carantinos had no involvement in the litigation apart from his attendance as an observer on two occasions with Tony. 146 During her employment she became aware that Mr Carantinos was assigned to be project manager of a dispute with a supplier, Mediatech Pty Limited. She deposed that this was a relatively minor matter and it was ultimately Michael Magafas who took over the negotiations that led to the resolution of the dispute. 147 Two months prior to leaving her employment with the Magafas group of companies, Ms Sutton was requested by Mr Magafas to search the records and general ledgers to prepare a schedule of payments made to Pac Com and Communicado. Prior to this time, she had not heard of Pac Com and had no understanding that it was a related company to Mr Magafas. In re-examination, Ms Sutton expressed the opinion that the invoices that were related to the payments made to Pac Com and Communicado appeared very unprofessional in the way they were presented and that she had held professional doubts about their validity, given that she saw no evidence of Mr Carantinos actually doing the work specified in the invoices [transcript 148.20]. 148 Over her period of employment with the Magafas group, she caused payment of invoices that were received by various companies within the Magafas group after being directed by Mr Magafas, or perhaps on occasion Michael Magafas, to do so. There were occasions when Mr Magafas told her not to pay those invoices yet, but there was no suggestion by Mr Magafas or his brothers that they were not legitimate invoices. The invoices paid to Communicado were coded as consultancy expenses under the instruction of Mr Magafas. Mr Leigh Donnan 149 Mr Donnan, a carpenter, gave evidence about two particular repairs and renovations he was engaged to do by Mr Magafas. 150 He was engaged by Mr Magafas to carry out floor repairs to the building at 44-46 Princes Highway and 3 Barwon Park Road, St Peters. In the course of this work, he met Mr Carantinos who instructed what work was to be done. It was accepted by Mr Donnan in cross-examination that in relation to this particular job, Mr Magafas simply referred Mr Donnan to go to see Mr Carantinos for instructions. The invoice for this work was addressed to "Barwon" [Barwon Holdings Pty Limited] [see Exhibit D1]. Payment for the work done was arranged with Mr Carantinos. 151 Some years later, Mr Donnan carried out the roof repairs and floor cleaning on the property at 37 Sydenham Road, Sydenham. He was contacted by Mr Magafas to perform the work and was given a cheque by Mr Magafas after the work was done. He did not see Mr Carantinos in the course of this work. Standing back from the detail – credit and related matters 152 There is no doubt but that determining credit as between two persons each of whom had no compunction in flouting the requirements for honesty in their dealings with the tax commissioner is no easy task. When men of dishonour fall out, each accusing the other of dishonesty, misrepresentation and similar and the matter comes before the Court it continues to be necessary for the Court to treat with decisions as to credit on the balance of probabilities. This is the approach taken in this case. Credit of Mr Magafas 153 It should be immediately pointed out that there is no substance in the proposition put forward by Mr Alexis SC appearing for the plaintiffs to the effect that lodgment by the Magafas parties of amended income tax returns alters by one jot, the proper approach to be taken to credit of those parties. Plainly enough they believed that in order to bring this litigation, this matter would require to be addressed. So much was accepted by Mr Magafas under cross-examination: [transcript 253]. Further Mr Fitzgerald gave evidence [transcript 480] that he had pointed out to Mr Magafas and to the other directors of the companies that the taxation returns were clearly fraudulent and that he suggested that they do something about it. 154 The credit of the Magafas parties is determined by their anterior conduct. By lodging the amended returns, they receive in a court of law no absolution from adverse inferences necessary to be drawn in respect of their credit by reference to their willingness, over many years to continue the pattern of dishonesty with the Commissioner of Taxation. 155 Outside of the dishonesty parameter shared by both Mr Magafas as well as Mr Carantinos, an assessment of the evidence of the former would accept that his evidence was given honestly, carefully and directly. I was certainly impressed with Mr Magafas in terms of his command of detail and in terms of the manner in which the evidence which he gave was often able to be corroborated in one way or another, by various types of documentation. It was plain that he is an intelligent person of depth. Naturally however his evidence must be carefully monitored by reason of his stake in the result. It was plain enough that he felt that Mr Carantinos was guilty of heinous wrongdoing which required to be corrected through the curial process. In one respect dealt with in these reasons, he became confused on a matter of chronology. This can happen, and the confusion does not affect his general reliability as a witness. Credit of Mr Michael Magafas 156 The evidence given by Mr Michael Magafas was given clearly and was generally also consistent with many of the written materials which came forward. I formed the view that his evidence could generally be accepted. It is plain that he is a careful person in his business affairs and takes fastidious notes. 157 However in one respect it is difficult to determine whether or not his evidence was reliable. I refer here to his evidence that notwithstanding: i. that his brother had told him that there was going to be put in place a mechanism whereby one of the companies under his control was going to pay invoices in circumstances where there was to be no work or services provided as stated in those invoices; ii. the implication that his brother had been telling him that the subject company [or companies] were going to record in their own records those payments as actually having been for such invoice; and iii. the implication that there would be an advantage to the Magafas Group whereby that company [or those companies] would be able to claim as tax deductible expenses, expenses to which they would not be entitled to make a claim, nonetheless he had given little thought to the ramifications of that which he had been told and, although understanding the effect with the benefit of hindsight, at the time "did not join the dots together". [cf transcript 374 - 377] 158 These proceedings do not depend upon whether or not this evidence is to be regarded as reliable. For that reason it is unnecessary to reach a finding on the matter. Credit of Mr Carantinos 159 Mr Carantinos was clearly an unreliable witness. He often pontificated and often engaged in extended non-responsive answers, at times bursting into laughter at propositions put to him. There is naturally no problem in witnesses expressing their true feelings in whatever fashion is appropriate when a proposition put is so ludicrous that it can only be laughed away. The Court accepts entirely that laughter may occur [presumably to be equated with an answer rejecting the proposition put as so ridiculous as to be laughable]. However in this case I formed the view from time to time that the laughter was nothing more and nothing less than a performance put on for show, and on occasion to mask his surprise at being shown a document which contradicted his evidence. 160 Mr Carantinos, when directed to the particular matter at issue often either failed to address himself to it or alternatively, when confronted with an unequivocal document which was inconsistent with the evidence that he was giving, consistently responded by saying, "well, that's wrong" or "that's a mistake". One example concerns the mortgage proposal with respect to 39-43 Riverside Crescent, which clearly described both he and Mr Magafas as the applicants for the loan in relation to the development of those three properties. He was very quick to point out that the contents of that document were mistaken. 161 Time and time again his answers were that he could not recall; or he did not know, or he was not sure; or that others had dealt with particular matters and he was not certain of whether or not he had been cognizant of what they had done or why. His evidence was that in relation to the books and records of Pac Com, the bookkeepers had been his mother as well as his cousin Betsy; that in so far as the way in which the books and records of Communicado had been kept, that was not done at his direction or under his supervision in terms of the way in which his mother and Betsy had carried out their work and that he had had very little to do with the keeping of cash books or sales ledgers or accounting records, although he would look at them from time to time. 162 He accepted that when he had come to swear his affidavit he had understood that the cash book for Pac Com recorded expenditure that related not only to 39-41 Riverside Crescent but also to No 43 [transcript 544.44]. 163 He also accepted that it was plain to him prior to the time when he came to swear his affidavit, that the entries in the Pac Com cash book showed not only expenditure going out for the Riverside development including No. 43 but also moneys being expensed out for the purpose of the Artesian property at St Peter's [transcript 547.5]. 164 Under cross-examination [at transcript 547-548] he accepted each of the propositions put to him: i. That he understood that one of the matters he would have to attend to in defending this case was the provision of a plausible explanation as to why the Pac-Com cash book shows moneys being paid out for number 43 and moneys being paid out for the purpose of Artesian's landholding at St Peters; ii. That this was in the circumstances where he contended that Pac-Com had nothing to do with either of those two properties; iii. That he understood that he had to provide an explanation about that; iv. That when he considered that, he came to the conclusion that the only way he would be able to explain that was to be able to suggest that all of the money in the Pac-Com bank account was his money; v. And therefore it could be expensed as he liked vi. That despite the fact that he and Mr Magafas were the joint directors and shareholders of this company, he wanted to say that the fact that expenses were paid out of the Pac-Com bank account in this way was of no moment because it was all his money anyway; vii. That this is his position in this case; viii. That he also understood that he would need to demonstrate or at least explain to the Court that Mr Magafas had made no financial contribution in relation to the Riverside development; ix. That he also needed to demonstrate that in relation to profits that were generated because of that development he had given up any interest in them; x. This was because otherwise he would then have to explain why it was that moneys were being paid out of the Pac-Com bank account for properties that he said he had no interest in. [Transcript 547-548] 165 He also gave evidence as follows: "Q. And so you came to understand, didn't you, that a very important issue in this case was demonstrating to the trial judge that the $480,000 or, according to your affidavit, the $460,000 that you received from 1995 through to March of 2002 related to genuine proper consulting fees. Correct? A. Not all of them. That's what had to be addressed by his characterisation. I didn't make up my mind that that entire number of cheques related purely to consultancy fees." [Transcript 548] 166 Under cross-examination he was taken to paragraphs 18 and 19 of his first affidavit reading as follows: "18 I was providing consultancy advice to Tony from about 1991. This was a role that had developed over some time and came about from our friendly discussions about our respective businesses. Whilst I cannot recall specific conversations, I do remember Tony and I would often discuss the problems facing his business as friends would. Initially I sensed Tony was interested in my thoughts and ideas, however, as time went on and his businesses were operating in difficult trading conditions, I sensed Tony came to pay a lot more attention to what I said. As the circumstances evolved, Tony came to see the value in my analysis of his business difficulties and over time he began to consult with me regularly about all aspects of his business and the businesses of his family companies. As I understood it, I was the only person Tony would discuss these types of matters with at that time. 19 The arrangement I had with Tony was initially quite informal. I do not recall that we actually discussed payment. I recall at this time I was keeping abreast of the financial press in relation to the printing industry, reviewing ABS material, economic analysis and forecasting as well as speaking to my many contacts in the printing industry. I was also researching and advising Tony in respect to the technological changes that were taking place. I still had my own business and a lot of the research I was doing concerned issues in common with Tony." 167 His evidence during cross-examination included the following: "Q. In the early 1990s… from 1991 until about May 1995 did Mr Tony Magafas ever say to you, "I want to retain you as an external consultant to my business so that I can discuss with you, as and when I need, matters concerning my business"? A. No. Q. And no formal discussion or reference in any conversation to that effect ever occurred, did it? A. Yes, it did. Q. During this period? A. Oh sorry, no. You said "ever occurred", so-- Q. You see, in paragraph 18 you say in the fourth line that you and Tony would often discuss problems facing his business as friends would? A. Yes. Q. And you're not suggesting, are you, that during this period of time you were providing advice or a consulting service to him for which you would be paid? A. That is correct. Q. And so it is in that sense that I am suggesting to you that you are over-stating your evidence in paragraph 18 when you describe these discussions as providing consultancy advice from about 1991? A. No, that's not true. I still was providing the advice. Q. But as a consultant? Is that what you are seriously saying during this period? A. That's my profession, that's what I do. Q. That's how you saw it? A. Well, no, that's what my Communicado business did for years. That's what I did before Communicado… Q. Having accepted from me that Mr Magafas never asked you to be retained to provide consulting advice to his companies from 1991, you nonetheless understood that you were retained as a consultant, is that what you are saying? A. No, I wasn't retained as a consultant. I've already told you I was not retained as a consultant." [Transcript 552-553] 168 In paragraphs 60 and 61 and 62 of his 13 September 2006 affidavit he gave the following evidence: "60 By mid 1994, Tony and I were meeting regularly. I recall most of the meetings took place at my premises to discuss the challenges facing the printing industry and macro economic issues. These meetings culminated during the later part of 1994 with an agreement that I take on a role researching and advising Tony to reposition the Booth Group in order to navigate the difficult trading conditions present at the time. 61. I recall that because Tony was forced to sell his share in Barwon Holdings as a result of his shortage of cash flow from the Booth Group, he had come to the realisation of the vulnerability of his business. I recall a conversation to the following effect taking place around the time I had bought Con out of Barwon Holdings: Mr Magafas: "Sure, we're not going belly up and whoever survives all this is going to be stronger for it. Look at what it's costing us. It's costing us every other investment. We have to mortgage and sell everything just for the business to stay afloat." Mr Carantinos: "Tony, there is no way out of this if you just stick to the knitting. I've done a lot of research on your industry, and I'm telling you there are no easy fixes. There are alternative things to do, but they all take time and cost money, and they all require changing things radically." Mr Magafas: "All right. You've always said that. That's why you're decreasing your productive capacity. You've put your money where your mouth is." Mr Carantinos: "I can keep on going looking at alternatives for you, but this will distract me from what I've got to do so, so you'll have to compensate me for any decrease in Communicado income." Mr Magafas: "No problem, people work better when they're not hungry." Mr Carantinos: "Look, I'm perfectly willing to be flexible about it. The general idea is as I wind back Communicado's productive capacity, I will substitute it for more and more work at your senior corporate level aimed at restructuring and selling the lot." Mr Magafas: "That sounds fine to me as long as you are reasonable about the cash flow's ups and downs, which you know better than anyone and as long as none of the staff know about it." 62. The arrangement I had with Tony was a fairly loose one to begin with. I still had my own business and a lot of the research that I was doing I would also apply to the development of my business. I had no concerns that Tony would not honour his commitments to me for the work I had done. I was working closely with Tony, in regular contact with him, and I felt he was very grateful for, and reliant on, my advice." 169 Under cross-examination he was asked what he had said to Mr Magafas which led him to conclude that a meeting or meetings culminated in an agreement that he would take on the role to which he referred in paragraph 60. His answer commenced with stating that he was not sure that it was what he had said that led to the culmination of the agreement, but that it was a matter of a dialogue between them. He there purported to set out the effect of the dialogue in terms of their having been insurmountable problems within the industry which he had predicted and that he was to be the person who would address these matters in a way which otherwise could not be afforded within the Magafas organization. [Transcript 565] 170 He was also asked whether he discussed payment at the time and his evidence was that this had been discussed and that what had been said was that it would be about $100,000 per year. It was put to him that in contradistinction to this evidence, in his 13 September 2006 affidavit at paragraph [68] he had deposed that given the passage of time, he could not recall the specific conversations which he had with Mr Magafas about his being paid for his consultancy work. It was put to him that he had not, at least in that section of the affidavit, made any reference to a conversation during which Mr Magafas had agreed to pay him by the end of 1994, the sum of $100,000 a year. He accepted that proposition [transcript 570.11]. 171 Mr Carantinos' evidence with respect to an arrangement having been reached with Mr Magafas whereunder the former would be paid $100,000 per year for management fees and administration expenses is rejected in its entirety. As already observed, the evidence put forward in relation to such an arrangement was unclear as to date or the occurrence of particular conversations with any defined detail. Commonly stale claims or claims which come forward very late in the day are viewed with high suspicion. In this particular case it would be astonishing indeed had it been the case that over a number of years prior to 2005, Mr Carantinos had had an entitlement to annual payments of this order without making claims to such. 172 It is clear from the evidence given by Mr Magafas, which is accepted as reliable, that the first time that there had been any reference in any conversation with Mr Carantinos, to a claim made for management fees and administration expenses of this annual order was in 2005 prior to Mr Carantinos leaving for an overseas trip. It is also clear [even from the evidence accepted by Mr Carantinos] that the first time that he had ever prepared a document to reflect such a claim was on 28 October 2005 when he prepared an invoice for the administrator of Pac Com. Prior to that date as he accepted [transcript 692], there was never any written invoice or other document prepared by him and provided to Mr Magafas making a claim for management fees, administration expenses or a combination of both. 173 It is also clear from the annual balance sheet prepared by Mr Egan, who had been Mr Carantinos' accountant for in excess of 20 years, that there was no reference to any loan or liability due to Mr Carantinos from either Pac Com or Mr Magafas in relation to outstanding management fees or administration expenses. All of this corroborates the evidence given by Mr Magafas of no such arrangement or agreement ever having been reached with Mr Carantinos. 174 It is no exaggeration to say that it became extraordinarily difficult to follow exactly what Mr Carantinos ultimately contended for as to, not only the moneys to which he was entitled, but also as to the basis for that entitlement and certainly as to the particular conversations at which any such entitlements were agreed upon. In this sense his evidence was riddled with inconsistencies. 175 Dealing with the bogus invoices directly, it is clear from the wording on these invoices that they do not reflect the provision of genuine consulting services that were actually provided. Indeed Mr Carantinos accepted in cross-examination that the invoices were prepared by Mr Magafas giving him directions in relation to whom the invoice should be directed and in relation to the description to be put on the invoice. [Transcript 526.20]. He also accepted that Mr Magafas had explained to him what was the amount to be included on the invoices and that this would be largely informed by anticipated cash flow with respect to work at hand in the Booth Group businesses. To take up only one part of the submissions to the effect that the invoices could not be accepted as genuine, the following may be noted: i. the date on the invoices did not bear any true reflection of when the invoice was created [an example of that being the invoice for $25,000 at page 33 of exhibit P5] As exhibit P16 demonstrates, notwithstanding that the handwritten invoice bears the date 23 June 1997, it was faxed on 11 December 1997 at 9.42am, ii. Mr Carantinos was unable to provide a rational explanation for that. iii. It was put to Mr Carantinos that the only explanation could be that he was accruing income for the purpose of bolstering his figures. He rejected that and Mr Egan seems to confirm that accounting was done on a cash received basis. Nonetheless, it does, absent any explanation, rather confirm, that the invoices were not genuine in the sense of reflecting the existence of the true consultancy. 176 It is also the case that the separate sales ledger [Exhibit 19] recorded in a consistent hand, the ledger records by sequential number, all of the sales. One struggles to locate any reference in any part of the ledger to Booth or Strategem related invoices. The separately created ledger 177 Then there is the separately created ledger which records the separate Booth or Strategem related invoices. In that regard there is an uncontradicted conversation between Mr Magafas and Elly [Mr Carantinos' mother who was not called], to explain that ledger. The evidence given by Mr Magafas [affidavit in reply at [19] and [20]] which is accepted as reliable was as follows: [19] The invoice exhibited at "PC8" at page 22 is dated 9 June 1995. As at that date, Communicado did not, from my observations, have the necessary production facilities or sufficiently qualified personnel which would have allowed it to produce the design work described in that invoice . [20] The invoice referred to in the preceding paragraph is also the subject of the ledger entry, which appears at page 97 of the bundle annexed to Mr Carantinos' affidavit. This ledger entry, save for the entry '95024', which was already entered by someone other than myself, was created by me in the presence of Mr Carantinos' mother, Elly. I had dropped into the office and whilst there had a conversation with her to the following effect: Mrs E Carantinos: "Tony my son, I am confused about these invoices you and Peter have raised." Mr A Magafas: "What problem do you have, mum." Mrs E Carantinos: "How am I to show them in the account ledgers." Mr A Magafas: "That's an easy problem to fix. Show me the ledger so that I can make a sample entry for you to follow." Mrs E Carantinos: "Here it is." Mr A Magafas: "I see someone has already written the invoice number 95024. Now, on the left column I put the date of the invoice as you normally do, then the invoice amount in the column next to the invoice number. I think this invoice was for $34,500. And in the last column you enter funds received. Again I think the instalment I gave Peter was $10,000. So we put that figure here. See, it is no different to what you normally do. I also suggest that you keep these entries separated from your normal sales so as to make it easy for Peter and I to work out later what I have transferred into our partnership." 178 There is also the evidence of the tax returns of Mr Carantinos which consistently showed the return of a loss as well as the fact that the receipt of the so-called "consultancy fees", did not have the consequential effect of his paying any tax. The plaintiffs also contend and I accept that it is appropriate to infer that Mr Magafas never had any access to Mr Carantinos' income tax returns for the 1994 to 2000-2001 period which were discovered in the course of these proceedings. In that regard, to use the words of Mr Alexis, the evidence given by Mr Magafas about the manner in which the invoices to boost sales was to work, fitted hand in glove with what is in the content of those tax returns. In the environment which came forward by way of proof, any suggestion by Mr Carantinos that the arrangement was uncommercial because he had had to pay tax on those receipts falls away. As the Westpac bank Exhibit P15 made plain, due to the way in which Mr Carantinos structured his financial affairs to minimise tax liability, both his business and his other investments had never revealed much profitability, this being a difficult aspect in demonstrating serviceability. 179 The finding is that Mr Carantinos as he well understood, was to receive the benefit of being able to show "sales" in his income tax returns. This was important for the purpose of maintaining the appearance of being able to service his liabilities to his bankers so as to maintain his property portfolio (most of the properties being negatively geared). This position is made plain by his income tax returns from 1994 to, at least, 1999: see the Westpac diary notes that comprise Ex P15 and the returns beings Ex P20, P21, P22, P25, P29, P36 and P38. [Note also the handwritten note on Exhibit P48]. 180 It is a fair reflection of the cross examination of Mr Carantinos to observe that in relation to most of the elements of the consultancies which he relied upon, he was left floundering when cross-examined. I accept that in relation to the Butterfly project, although he was made the Chairman, that description amounted to a purely ceremonial description, his contribution amounting to very little indeed and his interest being that of the kudos to which he aspired in the event that he would ever have a prospect of becoming the chairman of a public company. 181 A convenient short transcript summary reference [as extracted by the Magafas party's counsel in final submissions] to some of the evidence which substantiates the proposition that the so-called consultancy invoices were purely fictitious is set out below: A. Evidence Relating to the disguised cash box contributions and the alleged Consultancy Evidence Transcript Reference Mr Carantinos agreed that no consultancy invoices had been delivered before 1995 551.15 And he was not formally retained as a paid consultant by the Booth group before that time 553.10 The existence of the separate ledger in the Communicado Sales ledger for the dealings with the Booth Group. 558.30 Mr Carantinos agreed that the form/ content/ quantum and addressee of the invoice were dictated to him by Tony Magafas 586.20; 604.3 The invoices made no mention of work allegedly being done pursuant to the Consultancy at the time. For example: 593.15 (i) in relation to the purchase of any interest in Penfolds 614.30 (ii) Print Concepts 628 (iii) Craft printing 604.25 (iv) meetings with G.Hill & Associates 653 (v) discussions with Moores re the strategic alliance 588 (vi) Butterfly and Centris Mr Carantinos is unable to recall details of the actual work allegedly comprising the consultancy services 521.36; 527.21599.40; 646.40; 598.5; 683.50; 707.10; The invoices were backdated and no explanation for why that was being done was provided by Mr Carantinos 529.15 Anne Sutton's view was that she did not think the invoices she saw were "really" for consultancy work 146.50 182 In truth the evidence given by Mr Carantinos under cross-examination amply demonstrated that his work product was minimal and largely directed to retaining the anonymity of Mr Magafas and his companies in relation to prospective mergers and acquisitions. As already observed, in the absence of any contract of retainer for the provision of consultancy services the finding is that the capacity in which Mr Carantinos assisted Mr Magafas was as a friend and confidante as and when he was asked to do so because he had both the time and inclination to do so. 183 Likewise a convenient short transcript summary reference [as extracted by the Magafas party's counsel in final submissions] to some of the evidence which substantiates Mr Magafas's version of the disguised cash box contributions is as follows: Evidence Transcript Reference None of: Robert Lin; 112.30 Leigh Donnan 117.5 Saviou Au 153.45; 161.30 Could recall any involvement of Mr Carantinos in respect of the matters alleged to form part of the consultancy services Communicado workload was reducing from the 1994 financial year; and net assets of Mr Carantinos were also reduced 559.5 563.10 Mr Carantinos was, in the mid 90's negatively geared in respect of his properties. 564.20 Mr Egan's firm records a note in a Carantinos trial balance of the client's desire to show "business income" to his banks 761.5 184 Hence to the extent that Mr Carantinos sought to rely upon portions of these invoices as an accurate reflection of his 'consultancy' that evidence is rejected. 185 Many of the myriad of other examples of why it is that his evidence was unreliable are treated within these reasons. However one concerning Exhibit P44 should be noted immediately. Exhibit P44 186 Exhibit P44 [referred to below in the reasons] comprised a cheque butt of Communicado upon which the following had been written in the handwriting of Mr Carantinos: "25 November 1999 Office of State Revenue, stamp duty, half of 60 to 78 Princes Hwy, St Peters, share of Artesian purchase - $60,000" The following had been written on the reverse side of this cheque butt also in the handwriting of Mr Carantinos: "$60,000 stamp duty for purchase of 60 to 78 Princes Hwy, St Peter's by Artesian Pty Ltd from Pac Com as contribution for share in future profits." 187 Mr Alexis SC appearing for the Magafas parties, put the following submission to the court during final address concerning the occasion [transcript 743] when Mr Carantinos had been shown the cheque butt and asked to read the contents of the note: "I would invite your Honour to consider what actually occurred in the witness box yesterday afternoon when [ Mr Carantinos] was shown this cheque butt. Your Honour had to remind him to raise his voice because as he was reading the contents of the note that I just took your Honour through, his voice, we would submit very uncharacteristically, went very quiet, and we will respectfully invite your Honour to draw an inference that the presence of this document to him in the witness box caught him by surprise and did so because it was wholly inconsistent with his evidence with respect to-- to the effect that Pac-Com or Mr Magafas had no interest in the Hoescht site whatsoever." 188 For the reasons given by Mr Alexis that very inference is appropriate to be drawn and is drawn. The lack of clean hands defence 189 It is unnecessary in dealing with the unclean hands defence to go further than the decision of Campbell J in Black Uhlans Inc v New South Wales Crime Commission & Ors [2002] NSWSC 1060 where the principles were comprehensively treated with [at [157] and following]. That seminal analysis inter alia point up the following crucial matters: i. in order for the defence to succeed, the so-called lack of clean hands [hereinafter referred to as "the so-called disentitling conduct"] must have an immediate and necessary relation to the equity sued for; as well as amounting to a depravity in a illegal as well as in a moral sense [at [164]-[181]]; [Those two tests are a necessary condition for the application of the unclean hands maxim but not a sufficient condition. This is because equitable relief is always discretionary and other factors can influence the exercise of the discretion [at [181]]; ii. the so-called disentitling conduct must have been done to/directed at the defendant [at [162]]; iii. in applying the unclean hands principle it is necessary first to identify what is the equity which (absent unclean hands) the court would be prepared to uphold. 190 It is immediately apparent that the unclean hands defence must fail in the present proceedings. Not a single one of the above requirements is made out by Mr Carantinos' case. All that has been made out is that the two men determined to participate in a long-standing fraud upon the Deputy Commissioner of Taxation. Certainly this conduct does not meet the requirement that it had an immediate and necessary relation to the Equity sued upon. There was no lack of clean hands in the relationship between the two participants to the scheme. 191 It is equally clear that in so far as Mr Magafas was one of the parties to the agreement to engage in the so-called disentitling conduct, that conduct was not directed at the defendant. 192 The equity which entitles the respective plaintiffs to success is that which obliges the person who is under a fiduciary obligation to account to the person to whom the obligation is owned for any benefit or gain which has been obtained or received in circumstances where a conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it: the law requiring that any such benefit or gain is held by the fiduciary as constructive trust: cf Mason P in Blythe v Northwood supra, [in turn citing Deane J in Chan v Zacharia at 198-199 ]. 193 Importantly and as observed by Campbell J in Black Uhlans, equitable relief is always discretionary and other factors can influence the exercise of the discretion. Here those factors include the injustice in permitting Mr Carantinos against the case proven by the plaintiffs, to avoid the obligation to account. Dealing with the District Court proceedings 194 Reference has earlier been made to the September 2003 tax bill discussion. The evidence clearly establishes that on a number of occasions leading up to June 2003 Mr Carantinos inquired of Mr Magafas as to whether any of the companies in the group had tax losses which he said he needed. Subsequently the tax bill discussion occurred. Mr Magafas agreed to lend those moneys to assist Mr Carantinos as Mr Magafas felt he had a duty to assist his partner, believing that the Riverside profits were rolled over to fund the Hoechts site development costs and as he thought that it had absorbed all of their profits from the Riverside Sale. 195 In these circumstances, this appears to have been a one- off arrangement. The finding is that Mr Magafas is entitled to judgment in the claim pursued in the District Court statement of claim for the amount claimed plus interest. 196 The cross claim mounted against Pac Com requires to be dismissed. Issues concerning the pleadings 197 The defendants sought to advance submissions concerning the suggested inadequacy of the pleadings to cope with the case said to now be put forward by the Magafas parties. In this regard the defendant submitted inter alia as follows: "[10] A proper analysis of the pleaded case discloses that the case stands or falls on the alleged agreement (paragraphs 10-18A Statement of Claim and paragraphs 60, 63.1, 63.3 and 64 of Mr Magafas' affidavit). The Plaintiff seeks to turn what is in essence a breach of contract claim into a breach of fiduciary duty so as to obtain a remedial trust (paragraphs 18A and 19 Statement of Claim). It is important to emphasise at this point that there is no pleaded claim based on some form of constructive trust based on contributions from a "rolled over profit" from Dulwich Hill or the false invoices. This is diametrically different to what Mr Magafas says in his evidence." 198 In this regard the propositions of the Magafas parties are of substance. In short: i. In paragraph 10 of the Outline of Defendants' Submissions, the matters pleaded in paragraphs 1, 3, 4, 24 and following of the Amended Statement of Claim appear to have been overlooked. ii. Importantly, the pleading [as part thereof] refers to Mr Magafas' primary affidavit sworn on 8 May, 2006 which was served with the initiating summons. iii. The pleading clearly articulated the formation of the partnership/joint venture with attendant fiduciary obligations which came to be attracted in relation to the Riverside Crescent development and the acquisition of the Hoechst site. iv. The existence of the agreement and fiduciary obligations has always been the subject of a steadfast denial by Mr Carantinos: see his Amended Defence filed on 21 December, 2006 at [1] and particularly at sub-paragraphs (o), (p) and (q). [It is noted, however, that Senior Counsel for the defendants at T 861.21 accepted in submissions that: "…there was an agreement between these two gentlemen that they would on an investment by investment basis invest in properties jointly for the purpose of making a profit."]. v. Paragraph 24 of the Amended Statement of Claim complains of Mr Carantinos' failure to account in relation to all monies received from the sale of the Riverside Crescent development and Mr Carantinos' withdrawal and appropriation of monies from Pac Com's bank account. vi. Paragraph 28 of the Amended Statement of Claim specifically refers to Mr Carantinos' conduct in breach of the duties pleaded in paragraph 3 and paragraph 6A. vii. Whilst it is true that paragraph 17 of the Amended Statement of Claim particularises Mr Magafas' primary affidavit at [63.1] and [63.3] which relate to the $500,000 paid to Pac-Com on 14 March, 2002 " to meet its share of the ongoing holding and development costs of the St. Peters' property" , this is not the only contribution relied upon in relation to the Hoechst site. viii. In paragraph 63.5 of his primary affidavit, Mr Magafas says that the sum of $700,000 referred to in [63.3] was, to his understanding, part of the profits from the sale of the Riverside development. ix. There is no diametric difference with Mr Magafas' evidence. He has always maintained that the profits from the Riverside Crescent development were to be " rolled" into the Hoechst site: see, for example, his primary affidavit at [60.2]. Breach of fiduciary duty by Mr Magafas? 199 There was also advanced by the Carantinos parties the proposition that none of the moneys were actually payments by Mr Magafas but that in fact: i. The payments represented the proceeds of a clear breach of fiduciary duty by him. ii. the moneys were misappropriated funds. 200 As the Magafas parties have contended: i. Mr Magafas's case and evidence which is accepted is that he caused payments from companies in the Magafas Group of Companies to be made to Communicado and that between November, 1995 to March, 2002, these payments totalled approximately $480,000: primary affidavit at [25]. ii. The holding is that this conduct was in accordance with the arrangement set out in Mr Magafas' primary affidavit at [24] and in his reply affidavit at [18]. [Notably this was accepted by Mr Carantinos in his primary affidavit at [75], although he refers to the amount received as $457,620. He accepts, however, that " the entity responsible for payment of the invoices within the Booth Group was entered [presumably meaning "determined"] at the direction of Tony" .] iii. It has to be observed that the Magafast parties seek an accounting with respect to the Mr and Mrs Carantinos' use and dealings with those monies that were, on the Court's findings herein, received by Communicado as contributions to the partnership or the joint venture. iv. I accept that as Mr Carantinos' receipt of the monies (from whatever source) is not in issue, save only for their true character, it is simply irrelevant for the purpose of an account, whether the contributions were made by Mr Magafas or whether he caused the contributions to be made to Communicado by third parties. [It would be otherwise, if the paying entity was seeking to recover a loan from Mr Carantinos; the right to recover the loan would be that of the lender]. v. In the result relevant inquiry is not upon what basis the funds were paid to Communicado from time to time (which would be relevant if the paying entity was seeking to recover the monies paid to the first defendant), but rather what the Mr Carantinos did with the funds once they came into his possession . He was the partner or joint venturer with the fiduciary obligation to use the funds for the joint enterprise and is liable to account accordingly: see Austin J in Glazier Holdings Pty Ltd v Australian Men's Health Pty Ltd [2001] NSWSC 6 at [37]. Were the funds misappropriated by Mr Magafas? 201 I accept that the evidence does not establish that these funds were misappropriated by Mr Magafas from companies in the Magafas group. This follows from the affidavit evidence of Michael Magafas at [14] which is accepted as reliable: he had understood the way in which contributions to the partnership or joint venture would be made. 202 The assertion made in the case advanced by Mr Newlinds that Mr Magafas "stole" the money and kept it secret from his brothers (noting that Gregory and Constantine owned 10% each), was not established by the evidence and notably was not accepted by Mr Michael Magafas [who owned the other 40%] in cross examination. The claims to relief 203 For the reasons given above Mr Carantinos is obliged to provide Mr Magafas with an account in relation to the contributions made to the partnership/joint-venture from mid-1995: i. In relation to the Riverside Crescent development, Mr Carantinos must account to Pac-Com with respect to the proceeds of sale/profits of 39-41 Riverside Crescent. [This is now accepted by Mr Carantinos: outline submissions at [85] – [86]] ii. Mr Carantinos must account to Mr Magafas with respect to the proceeds of sale/profits from 43 Riverside Crescent. iii. The holding being that the two ordinary shares in Artesian Pty. Limited are held by Mr Carantinos on trust for Pac-Com, the former must account to the latter in relation to the contributions made to the partnership/joint venture and the proceeds of sale/profits from the Riverside Crescent development, (a) insofar as they were used by Mr Carantinos to acquire the shares in Artesian, to enable that Company to purchase the Hoechst site at St. Peters; (b) insofar as they were otherwise used to enable Artesian to pay 50 % of the holding and development costs of that property, in accordance with the agreement between Mr Carantinos and Mr G. Gav. The position of Mrs Carantinos 204 In Say-Dee [supra] Tobias JA [at [207] et seq] examined with care the current state of the authorities with respect to the occasions when "recipient liability" was appropriate to be imposed. As His Honour observed it is presently well established that: i. on the one hand, the 'accessory' liability second limb of Barnes v Addy applies where a third-party knowingly assists a trustee or fiduciary in breach of the trustee or fiduciary's duties, hence requiring actual knowledge on the part of the third party of the breach; ii. on the other hand, the first limb of Barnes v Addy , known as 'recipient liability', albeit requiring some form of knowledge on the part of the recipient of the benefit of the fiduciary's breach of duty, does not require actual knowledge of the breach on the part of the third party. 205 As His Honour further observes, the authorities have then become concerned in examining questions of recipient liability, with the question of what has to be the nature and extent of the knowledge on the part of the recipient of the benefit, of the fiduciary's breach of duty. 206 As occurred in the approach taken by Tobias JA in Say Dee, in the present context constructive knowledge at least includes imputed knowledge; that is to say Mrs Carantinos will be taken to have had the knowledge of her husband where he was acting as her agent in acquiring 43 Riverside Crescent. The finding presently is that Mr Carantinos was indeed acting as Mrs Carantinos' agent in this regard. The following evidence is sufficient to justify this finding: i. In Mr Carantinos' affidavit evidence at [131], he said that he instructed the agent to negotiate with the owner of 43 Riverside Crescent " on mine and my wife's behalf" … I was examining the possibility of the development… I engaged architects". ii. He then refers to engaging architects and obtaining other professional advice to determine the viability of the project. iii. At [133] he refers to approaching Balmain NB to obtain finance for the purchase of all three properties " for myself and my wife" . iv. Mr Carantinos then refers to the exchange of contracts for 43 Riverside Crescent at [134]. v. At [164] he deposed that "43 Riverside Crescent was purchased in the name of myself and my wife… My wife and I finance this purchase entirely ourselves through our joint home loan facility vi. It is plain from Mr Carantinos' evidence that he was acting as the agent of his wife in relation to the purchase of 43 Riverside Crescent. vii. There is no evidence which on examination justifies a finding that the Mrs Carantinos acted independently to her husband in that regard. She, according to Mr Carantinos' evidence, was content to leave it entirely to him. viii. Nor do any of the documents admitted into evidence following the grant to the plaintiffs of leave to amend the statement of claim suggest otherwise. [Those documents comprised: a) a copy of the Contract for Sale of Land relating to 43 Riverside Crescent, Marrickville dated 6 May 1999 which shows that the property was in the joint name of Mr & Mrs Carantinos; b) the Transfer by which that sale was completed which is signed by each of Mr & Mrs Carantinos; c) the bank account into which the monies were paid being a National Australia Bank account in the name of Mr & Mrs Carantinos; and d) a memo from the Carantinos' solicitors' file which shows Mrs Carantinos having direct dealings with the solicitor concerning the property.] [As the plaintiffs have submitted : · the above described copy bank statement of Mr and Mrs Carantinos, records the receipt on 7 May, 1999 of the deposit cheque in the sum of $296,000 for the sale of 39, 41 and 43 Riverside Crescent. · in his primary affidavit, however, the first defendant had deposed to having deposited the deposit cheque into his personal account at [188] on page 49. · the enquiry made by Mrs Carantinos recorded in the above described memo was clearly well after the sale of 39, 41 and 43 Riverside Crescent.] ix. Mr Carantinos had deposed that he had negotiated a sale for the three properties [185] and accepted at [711] that the sale arrangements were made entirely by him and that the sale price of number 43 was decided entirely by him x. He also accepted at [711] and had deposed at [188] in relation to the deposit cheque for $296,000 for the sale of the three properties released on exchange that he had deposited the cheque into his personal account xi. Mrs Carantinos did not give evidence. xii. The notice she had that 43 Riverside Crescent was being purchased for and on behalf of the partnership or the joint venture between Mr Magafas and Mr Carantinos is to be imputed to her from her authorised agent: so that when 43 Riverside Crescent was sold, she had constructive notice of the receipt of the proceeds of sale or profits in breach of trust. 207 Hence the submission advanced by the defendants of "significant personal involvement" of Mrs Carantinos is not supported by the evidence given by Mr Carantinos and the above-described documents the subject of the late tender [executing the memorandum of transfer as a registered proprietor and telephoning the Solicitor acting on the sale of the three properties, after the sales were concluded] fall short of demonstrating significant personal involvement. In any event, this material certainly does not rebut the conclusion arising from the evidence that the first defendant was acting as the authorised agent of Mrs Carantinos in relation to both the purchase and the sale of 43 Riverside Crescent. 208 Accordingly the obligation of Mrs Carantinos to account is seen to arise. 209 In Permanent Trustee Australia v FAI General Insurance Co Ltd 50 NSWLR 679 Handley JA [with his reasons Meagher and Powell JJA agreed] made observations on the differences to be found in imputed knowledge cases as between: i. on the one hand, 'mere notice' cases where any duty of the agent was simply to communicate information to the principal or so that it could be acted on by others so that the agent would ordinarily have no duty to pass on information received otherwise than in the course of his agency; ii. on the other hand, the situation where the agent has active duties to perform and has knowledge present to his mind, however required, which is relevant to their performance. 210 His Honour observed (at [88]) that in the latter situation in circumstances where the agent is authorised to commit the principal to a transaction, his state of mind being relevant to that transaction, for legal purposes the acts of the agent are the acts of the principal and the agent's state of mind must be the state of mind of the principal as well. 211 His Honour continued (at [89]) as follows: "Where the agent acts within his authority with the knowledge in question present to his mind, the principal should be bound by that knowledge, however acquired. I see no basis for ignoring any part of the agent's knowledge, present to his mind, when he is doing the authorised act. The source of the knowledge seems irrelevant. What must matter is the agent's state of mind when doing the authorised act." 212 These observations confirm the above-described finding of imputed knowledge. The bifurcated issues in relation to the purchase of Felton Woods Manor 213 In light of the findings the clear relief appropriate to be granted with respect to this investment concerns the entitlement of Pac Com to an account. 214 There is however a second claim to relief pursued pursuant to the Fair Trading Act, 1987 (NSW). The claim is that Mr Carantinos made the following misleading/deceptive representations, in trade and commerce, to Mr Magafas: "That Felton Woods Manor would be purchased as a "property flick", namely that the property would be purchased, renovated and then sold quickly." 215 The claim requires to be dismissed at least for the following reasons: i. it having become plain fairly shortly that the property was unable to be sold or sold quickly, alternative arrangements in which Mr Magafas acquiesced were put in place: these included Mr Carantinos' mother managing the hotel with others. ii. Mr Magafas was of course a joint shareholder in Pac Com and there is no evidence of his taking any particular steps to try to sell the property nor at the time to suggest any misconduct in having been misled. iii. Mr Magafas makes the claim that it becomes apparent [from paragraph 304 of the affidavit made by Mr Carantinos] that when he purchased the property at auction he had not intended to buy it and did not have his finance in place, which is then said to be proof of the misleading and deceptive conduct. iv. it has to be recalled that the nature of the partnership/joint-venture involved a degree of speculation. It must have been obvious that the idea of a 'property flick' could easily miscarry . 216 I reject the contention that reliance has been proven. 217 I reject the contention that any damages flowing from the suggested misleading and deceptive conduct have been proven. 218 The circumstances do not support this claim to relief. 219 The same finding seemingly covers the cause of action alleging breach by Mr Carantinos of a duty to Mr Magafas to take reasonable care to avoid foreseeable risk of economic loss caused by suggested inaccurate or misleading or deceptive representations or statements in relation to the partnership or, alternatively, the joint venture and the affairs of the Pac Com. Section 232 of the Corporations Act 220 The plaintiff had further sought to rely upon a cause of action claiming that Mr Carantinos is shown to have conducted the affairs of Pac Com contrary to the interests of the members of Pac Com as a whole, in fashion seen to be oppressive, unfairly prejudicial or unfairly discriminatory against Mr Magafas within the meaning of s 232 Corporations Act. 221 As far as I can recall there were virtually no submissions ultimately addressed in relation to this as a separate or discrete cause of action. Presumably the matter simply falls away having already been covered by the earlier reasons. However in the event that I have inadvertently overlooked matters put to the Court in final address and still to be pressed in relation to this cause of action, the parties have leave to address submissions on the matter following the delivery of the judgment. Returning to the pleading issue 222 The Court's reasons for allowing the late claim to amend paragraph 9 (ii) of the statement of claim are published together with this judgment. 223 I accept as of substance the plaintiffs submission which was that: i. The amended Statement of Claim at [9] pleads that Mrs Carantinos took her interest in 43 Riverside with notice of the beneficial interest of the first plaintiff and/or the second plaintiff. ii. The particulars refer to the primary affidavit of the first plaintiff at [41]. iii. The plaintiffs case against Mrs Carantinos has always been that she had the requisite notice; as the evidence from the first defendant since he swore his primary affidavit on 13 September, 2006 has been, inter alia, that he controlled both the purchase and the sale of 39, 41 and 43 Riverside Crescent, the case against Mrs Carantinos could only ever have been one that relied upon imputed notice. Referring the papers 224 Where a tax fraud is disclosed in evidence, it is the Court's duty to draw the evidence to the attention of the relevant authorities for such action as may be appropriate; In the Marriage of P & P (1985) 9 Fam LR 1100 [at 1108 et seq]; Petera v Pty Ltd V EAJ Pty Ltd (1985) 7 FCR 375 [at 380]; Georginis v Kastrati (1988) 49 SASR 371 [at 376]. For these reasons the registrar of the Court will be directed to forward a copy of these reasons for judgment to the Attorney-General and to make available as may be required, the full transcript of the proceedings and the exhibits for inspection by any officers authorised in that behalf by the Attorney-General or by the Commissioner of Taxation. Short minutes of order, costs and other matters 225 The litigation having included so many factual and legal issues, in the event that any particular claim to relief is suggested as having been overlooked, the parties are given leave to raise such a matter with the Court and it will be dealt with appropriately. 226 It seems likely that the parties will be in a position to agree upon short minutes of order to reflect the above reasons. In the event of any difficulties in this regard the Court will formulate the precise orders which are appropriate to be made. Costs may be argued as soon as practicable. 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.