FEDERAL COURT OF AUSTRALIA

Rambaldi v Mullins (No 2) [2016] FCA 977

ORDERS

THE COURT ORDERS AND declares THAT:

1    The Applicants (“the Trustees”), the trustees in bankruptcy of George Alex (“the Bankrupt”), are vested with half (in number and value) of the shares:

(i)    held by AR & KH Pty Ltd in the Fifth Respondent, GHR Custodian Pty Ltd (“GHR Custodian”); and

(ii)    held by GHR Custodian in the Second and Fourth Respondents, namely Civil Pacific Services Group Pty Ltd (“Civil Pacific Services Group”) and Global Civils Group (NSW) Pty Ltd (“Global Civils Group”) respectively,

(“the identified shares”).

2    The Second to Eighth Respondents shall transfer the identified shares to the Trustees within 21 days, and shall do all things and sign all documents necessary to give effect to these orders. As directors of AR & KH Pty Ltd the seventh and eighth respondents shall take all steps necessary to transfer to the Trustees half (in number and value) of the shares held by that company in GHR Custodian.

3    The Second to Eighth Respondents are restrained from transferring, selling, encumbering or dealing in any way with the shares held by AR & KH Pty Ltd in GHR Custodian or held by GHR Custodian in Civil Pacific Services Group or Global Civils Group unless or until they have transferred the identified shares to the Trustees as ordered.

4    Antoun entered into a Deed of Settlement dated 22 October 2013 (described in the reasons for judgment as “the October Deed”) as the Bankrupt’s agent in respect to half of the $5 million consideration under the deed, payable by parties that include the Second, Fourth, Sixth, Seventh and Eighth Respondents. The Trustees are vested with the Bankrupt’s rights under the deed.

5    The Second to Eighth Respondents shall pay $2,395,000 to the Trustees, plus interest to be calculated, within 21 days.

6    The parties are granted liberty to apply generally, including in relation to the form of these orders and for further or varied orders.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MURPHY J:

INTRODUCTION

1    This proceeding concerns the affairs of Mr George Alex, a bankrupt (“Alex” or “the Bankrupt”). The applicants, Mr Gess Rambaldi and Mr Andrew Yeo, are the trustees in Alex’s bankruptcy (“Trustees”). They brought proceedings to recover property of the Bankrupt which they allege is vested in them by operation of ss 58, 115 and 116 of the Bankruptcy Act 1966 (Cth) (“the Act”), namely the Bankrupt’s interest in shares in a labour hire business operating in Queensland (“the Global business”) and/or monies payable in relation to that interest under deeds of agreement with the sixth, seventh and eighth respondents, Mr James Byrnes (“Byrnes”), Mr Kevin McHugh (“McHugh”) and Mr Angelo Russo (“Russo”) and their associated companies in the Global business.

2    The proceeding was brought against nine respondents:

(a)    the first respondent, Ms Teagan Mullins (“Mullins”), the former partner and the next of kin of Mr Joseph Antoun (deceased) (“Antoun”) who was shot and killed on 16 December 2013. He was a business associate and friend of the Bankrupt, and the trustee of JA Investments Trust (“the purported trust), in which Mullins is the “protector”. (There are some indications in the materials that the name of the first respondent is properly spelt as “Mullens”. I have spelt the first respondent’s name as in the pleadings);

(b)    the second, third and fourth respondents, Civil Pacific Services Group Pty Ltd (“Civil Pacific Services Group”), Global HR Group Pty Ltd (later renamed RK Qld Pty Ltd, now in liquidation) (“Global HR Group”), and Global Civils Group (NSW) Pty Ltd (“Global Civils Group”), which are or were the operating companies in the Global business (“the Operating Companies”);

(c)    the fifth respondent, GHR Custodian Pty Ltd (“GHR Custodian” or “New Parent Company”), which became the parent company of the Operating Companies on 19 March 2014;

(d)    the sixth, seventh and eighth respondents, Byrnes, McHugh and Russo, who now jointly control the Global business, and are parties to deeds under which the Bankrupt and/or Antoun agreed to transfer the business to them in return for valuable consideration; and

(e)    the ninth respondent, NSW Trustee and Guardian (“NSW Trustee”), which is a statutory corporation constituted pursuant to s 5 of the NSW Trustee and Guardian Act 2009 (NSW). Antoun died intestate and the NSW Trustee is deemed to be vested of his real and personal estate until such time as probate or administration is granted to another person: see s 61 of the Probate and Administration Act 1898 (NSW).

The first and ninth respondents did not play an active role in the proceeding, and I usually refer to the second to eighth respondents as “the respondents”. The Bankrupt is not a party to the proceeding.

3    The Trustees alleged that the property vested in them is the Bankrupt’s interest or rights:

(a)    in shares in GHR Custodian and in shares held by GHR Custodian in the Operating Companies.

(b)    under deeds made on 11 March 2013 (“March Deeds”) in which McHugh, Byrnes and Russo their associated companies in the Global business agreed to pay a total of $12 million by instalments to the Bankrupt and Antoun (as trustee of the purported trust) apportioned as follows:

(i)    $5.65 million to be paid to Antoun (as trustee of the purported trust) for the transfer of shares in the Global business to the parent company, Global Human Resources Group Pty Ltd, (“Global Human Resources Group” or “Parent Company”) of which Russo was the sole director at the time;

(ii)    $6.35 million to be paid to the Bankrupt and Antoun to settle purported defamation claims, to be paid in the following proportions;

(1)    $6.2 million to be paid to the Bankrupt; and

(2)    $150,000 to be paid to Antoun (as trustee of the purported trust); and/or

(c)    under a deed made on 22 October 2013 (“October Deed”) in which McHugh, Byrnes and Russo and their associated entities agreed to pay $5 million by instalments to Antoun (as trustee of the purported trust) for the settlement of unspecified claims for damages.

4    In broad terms the Trustees contended that:

(a)    the Bankrupt had beneficial ownership of all or part of the companies in the Global business;

(b)    Antoun acted as either the Bankrupt’s agent or as his trustee in entering into the March Deeds; and

(c)    Antoun acted as either the Bankrupt agent or as his trustee in entering into the October Deed.

5    To the extent that it is necessary for the Trustees to choose between claims that are alternatives, the Trustees seek judgment in the following order of priority:

(a)    first, judgment for amounts owing under the October Deed;

(b)    second, judgment for amounts owing under the March Deeds; and

(c)    third, judgment in respect of the Bankrupt’s interest in GHR Custodian and shares in the Operating Companies.

6    Obtaining a clear view of the facts in this matter has not been straightforward. The Trustees are strangers to the Bankrupt’s affairs and he did not cooperate with them. The Bankrupt did not give evidence. The evidence tends to show that he operates in a criminal netherworld and it strongly supports the inference that he concealed his business interests from the Trustees. The evidence tends to show that Antoun operated in the same shadowy world as the Bankrupt. He was unable to give evidence, having been fatally shot in his driveway on 16 December 2013.

7    The picture was also obscured because the Bankrupt and Antoun, with the cooperation of McHugh, Byrnes and Russo, signed legal documents which hid the substance of their agreements. For example:

(a)    the March Deeds falsely described $6.2 million to be paid to the Bankrupt (and $150,000 to be paid to Antoun) by McHugh, Byrnes and their associated entities as being for defamatory statements and imputations made about them. In reality the amount to be paid to the Bankrupt was consideration for the transfer of his beneficial interest in the Global business to McHugh, Byrnes, Russo and their associated companies in the Global business. Describing the monies in that way was to the Bankrupt’s benefit because a payment for defamation would be exempt monies under s 116(2)(g) of the Act which would not vest in the Trustees; and

(b)    the October Deed falsely described $5 million to being paid to Antoun alone, to settle claims for damages outside of the claims made in a Supreme Court of New South Wales proceeding brought by McHugh against Antoun, the Bankrupt and others (“the Supreme Court proceeding”). In reality the monies were to be paid to Antoun in consideration for the transfer of all interests in the Global business (including the Bankrupt’s beneficial interest) to McHugh, Byrnes, Russo and their associated companies and on the understanding that Antoun would pay half to the Bankrupt.

8    In different ways the evidence of each of McHugh, Byrnes and Russo was unsatisfactory and I take a dim view of their credibility. The respondents largely did not offer a positive case and instead they relied on asserted gaps in the Trustees’ case to contend that the evidence was insufficient to allow the Court to form a reasonable and definite inference that the Bankrupt had a beneficial interest in the Global business and/or an interest under the relevant deeds. I do not agree.

9    For the reasons I explain I consider that:

(a)    after the commencement of his bankruptcy the Bankrupt acquired beneficial ownership of half of the shares in the companies in the Global business. The Bankrupt’s rights in relation to those shares vested in the Trustees;

(b)    the Bankrupt has contractual rights to be paid $2,395,000 plus interest (being half of the $5 million payable under the October Deed less $105,000 already paid to his benefit). The Bankrupt’s rights under the October Deed vested in the Trustees; and

(c)    under the March Deeds the Bankrupt had contractual rights to be paid $6.2 million in his own name, but those deeds were declared void, unenforceable and of no effect by order of the Supreme Court of NSW on 22 October 2013. As a result of those orders the Trustees cannot enforce the Bankrupt’s rights under the deeds.

10    In broad summary, I have made declarations and orders requiring the second to eighth respondents:

(a)    to transfer to the Trustees half of the shares held by AR & KH Pty Ltd in GHR Custodian, and half of the shares held by GHR Custodian in the Operating Companies; and

(b)    to pay $2,395,000 to the Trustees, plus interest to be calculated.

However, such orders may allow double recovery for the Trustees and I will hear further submissions from the parties as to whether further or varied orders should be made. The orders I have made do not finally determine the proceeding.

THE PROCEEDING

The application for interim injunctive relief

11    The proceeding was commenced by an urgent application filed on 28 March 2014, made returnable the same day, in which the Trustees alleged that the relevant property of the Bankrupt was vested in them as trustees in bankruptcy. The Trustees relied on documents from the Supreme Court proceeding, being Supreme Court of NSW proceeding No 2013/158050 brought by McHugh against Antoun, the Bankrupt and others, regarding a dispute about ownership of the Global business, effectively between McHugh, Byrnes and Russo on one side and the Bankrupt and Antoun on the other. In reliance on these documents the Trustees contended that:

(a)    the assets vested in them as trustees in bankruptcy include rights purportedly held in the name of Antoun (deceased) (as trustee of the JA Investments Trust) under the October Deed;

(b)    the JA Investments Trust was a sham designed by the Bankrupt and Antoun to conceal the Bankrupt’s interest under the October Deed and in the Global business;

(c)    under the October Deed the respondents and their associated entities were required to pay $5 million by way of instalments to Antoun (as trustee) for the Bankrupt’s (or alternatively the Bankrupt’s and Antoun’s) interest in the Global business, with the third instalment being due to be paid the following business day, 31 March 2014; and

(d)    the October Deed replaced the earlier March Deeds in which the respondents and their associated entities were required to pay $12 million to the Bankrupt and Antoun (as trustee of the JA Investments Trust. Although the March Deeds attributed $6.2 million of that sum to a payment for defamation of the Bankrupt the Trustees contended that the true nature of the payment was, in whole or in part, consideration for the Bankrupt’s interest in the Global business.

12    The Trustees sought orders, essentially to preserve the status quo, that:

(a)    before the second to eighth respondents made any payment under the October Deed the person making the payment was required to give the Trustees as much notice of the payment as was reasonably practicable;

(b)    Mullins, Antoun’s next of kin, and any trustee of the JA Investments Trust pay into Court any further payments made under the October Deed;

(c)    the second to eighth respondents be restrained from dealing with, disposing of or otherwise encumbering any amounts received in respect of the October Deed, except for paying the amount into Court; and

(d)    the second to eighth respondents be restrained from exercising any rights under the October Deed in relation to the transfer of shares in Civil Pacific Services Group, Global HR Group or Global Civils Group, Global Human Resources Group or GHR No 3.

I made the urgent orders the Trustees sought: Rambaldi v Mullins [2014] FCA 361.

The substantive proceeding

13    The matter was then conducted on pleadings. Following amendments the pleadings comprise:

(a)    an Amended Application dated 19 May 2014, and a Further Amended Statement of Claim dated 18 May 2015 (“FASOC”);

(b)    a Second Further Amended Defence of the second to eighth respondents dated 19 May 2015; and

(c)    a Reply to Second Further Amended Defence dated 19 May 2015.

THE EVIDENCE

The Trustees’ evidence

14    The Trustees obtained leave of the Supreme Court of NSW to use evidence filed in the Supreme Court proceeding. They filed the following evidence:

(a)    affidavits of Mr Rambaldi:

(i)    sworn 28 March 2014 (“the first Rambaldi affidavit”);

(ii)    sworn 9 April 2015 (“the second Rambaldi affidavit”) which includes five lever arch binders of exhibits, including transcripts of the evidence given by various persons in public examinations of the affairs of the Bankrupt conducted under s 81 of the Act (“public examinations”) and documents produced in the examinations or otherwise obtained by the Trustees; and

(iii)    sworn 16 May 2015 (“the third Rambaldi affidavit”);

(b)    affidavits of Mr Innis Cull, the solicitor for the Trustees:

(i)    sworn 28 March 2014 (“the first Cull affidavit”);

(ii)    sworn 12 May 2014 (“the second Cull Affidavit”);

(iii)    sworn 13 May 2015 (“the third Cull Affidavit”). The Trustees did not read paragraphs 23 to 26 of this affidavit; and

(iv)    sworn 18 May 2015 (“the fourth Cull Affidavit”);

(c)    an affidavit of Ms Alison Lee affirmed 18 August 2014 which went to service of orders on Mullins.

The deponents were not required for cross-examination.

The respondents’ evidence

15    The second to eighth respondents filed the following evidence:

(a)    affidavits of McHugh:

(i)    sworn 15 May 2015 in this proceeding, which did no more than exhibit his affidavit in the Supreme Court proceeding sworn 20 May 2013 (“the first McHugh affidavit”); and

(ii)    sworn 18 September 2013 in the Supreme Court proceeding which was tendered in evidence in this proceeding.

McHugh was cross-examined.

(b)    affidavits of Byrnes sworn 11 May 2015 (“the first Byrnes affidavit”) and 18 May 2015 (“the second Byrnes affidavit”). Byrnes was not required for cross-examination;

16    Russo and Ms Filomena Kyriacou (“Kyriacou”), a director of Wentworth Williams & Associates, did not put on affidavits. They gave viva voce evidence and were cross-examined.

17    The first respondent, Mullins, was served with the proceeding and for a short period a solicitor was on record as acting for her. The ninth respondent, the NSW Trustee, filed a Notice of Appearance and indicated that it did not intend to take part in the proceeding. Neither Mullins nor the NSW Trustee put on evidence or participated in the trial.

MY ASSESSMENT OF THE WITNESSES

McHugh’s evidence

18    I accept much of the factual narrative set out in McHugh’s first affidavit largely because much of it is uncontentious, much of it is consistent with my view of other evidence, and some of it is contrary to his interests in the present case. The evidence in McHugh’s second affidavit is largely not relevant. There are various aspects of McHugh’s evidence which I consider unreliable and overall I take a dim view of his credibility.

19    First, for the reasons I set out below (at [294]) I consider McHugh’s evidence that in about May 2011 he was forced by duress into handing over his interest in the Global business to the Bankrupt is implausible.

20    Second, McHugh provided a substantially different account in his first affidavit from that which he gave in a statutory declaration in January 2013. In his statutory declaration he made no mention of coercion. Instead he declared that he had sold his interest in the Global business to Antoun in October 2011 because of difficult trading conditions and a concern about the outstanding taxation liabilities of the business. Unlike the account in his affidavit he declared that he retained 4.7% of the business for himself.

21    Third, as I have said (at [7]), McHugh entered into legal agreements with the Bankrupt and Antoun which mischaracterised the substance of the agreements and laid down a false trail.

22    Fourth, while cross-examination of McHugh largely related to matters which are not central to my decision, it led me to conclude that he was more concerned to protect the respondents’ interests than to give a frank account. Amongst other things:

(a)    he initially said that he was unsure why he ceased to be the director of Global HR Group but then, when pressed, he said that while he was not absolutely sure, “it could have something to do with workers’ comp”. Russo later gave evidence that McHugh ceased to be the director because a large volume of workers compensation claims were made against Global HR Group, and if that company were to go into liquidation with McHugh as a director, then the Global business would lose its Westpac loan facility. In my view McHugh must have known why he ceased to be a director. A troubling but unexplored aspect of this evidence is that it appears that, as a director and the manager of the Global business, McHugh allowed Global HR Group to run up significant workers compensation liabilities, then simply ceased to be director of Global HR Group and continued as director and manager of the other companies in the Global business, running the same labour hire operation;

(b)    he tried to suggest that he could not remember much because he had suffered injuries in some assaults. I do not accept this. Neither of the assaults about which he gave evidence appear to have been sufficient to have caused him memory loss or brain damage, he proffered no medical evidence in that regard, and throughout the relevant period he continued to manage a large labour hire business. Kyriacou corroborated his account of memory impairment to an extent but I found her evidence unreliable too. It is more likely that his claimed memory impairment was an attempt to avoid difficult questions in cross examination;

(c)    when questioned as to whether he received legal advice about the March Deeds before he signed them, he said that he was under stress at the time and “wouldn’t have a clue what was going on”. Then, when pressed, he accepted that he did receive legal advice;

(d)    he had no difficulty in remembering particular forms lodged with ASIC when it suited him. He readily recalled three ASIC Form 484 Change of Company Details forms, lodged with ASIC on 26 October 2011, on which he said his signature had been forged; and

(e)    when asked whether the October Deed was intended to supersede the March Deeds he initially answered that he “would say so, yes”. Then he said that there were “that many deeds going around backwards and forwards, I’m not up-to-date with it at all. I don’t know.” That answer is implausible when the October Deed was much more favourable for him than the March Deeds. It reduced the price, from $12 million down to $5 million, that he, Byrnes, Russo and their associated entities agreed to pay for the transfer of the Global business.

Byrnes’ evidence

23    Byrnes put on two short affidavits. He was not cross-examined on his evidence but, even so, I am not satisfied as to the reliability of his evidence.

24    First, his evidence in his first affidavit relating to the Bankrupt’s claims to a proprietary interest in the Global business is inconsistent with the thrust of his evidence in his public examination, inconsistent with an email which he sent to the solicitor for the Trustees and others a short time prior to the hearing of this case, and incompatible with the view I have reached of the evidence overall. In his public examination and his email Byrnes accepted that the Bankrupt had a beneficial interest in the Global business but before me he tried to undercut that testimony.

25    Second, Byrnes entered into legal agreements with the Bankrupt and Antoun which mischaracterised the substance of the agreements entered into and laid down a false trail, as I described above (at [7]). He acknowledged that he was aware at the time he entered into the March Deeds that the $6.2 million defamation payment to the Bankrupt was a sham.

26    Third, his second affidavit essentially concerns a set-off claim for $3.4 million. He did not disclose various significant matters and for such a substantial claim his evidence is far from complete. It is likely that he did not provide the Court with the full picture.

27    In the finish I found the contentious parts of his affidavit evidence to be self-serving and implausible. I do not give his evidence much weight.

Russo’s evidence

28    Russo only gave evidence on some discrete issues, but I found his evidence on those issues to be unreliable.

29    First, for the reasons I set out below (at [261] to [279]) I do not accept that he wrongly made declarations of solvency in relation to GHR No 3 and Global Human Resources Group by mistake. In my view it is likely that he wrongly made the declarations of solvency as part of an attempt by the respondents to avoid their obligations under the October Deed (and any outstanding obligations under the March Deeds) and to defeat the Trustees’ claims.

30    Second, as I have said, Russo too entered into legal agreements with the Bankrupt and Antoun which mischaracterised the substance of the agreements and laid down a false trail. He must have known that.

31    I give his evidence little weight.

Kyriacou’s evidence

32    Kyriacou gave evidence on similar discrete issues to Russo and she essentially corroborated his account. However, I did not find her a reliable witness either.

33    I reached this view, first, for the reasons I set out below (at [261] to [279]). I also found other parts of her testimony unsatisfactory, including that:

(a)    she was sometimes vague or evasive in her answers; and

(b)    she said that in March 2014 she arranged the sale of Global HR Group and McHugh ceased to be a director of that company on 11 March 2014. In my view she feigned that she could not remember the name of the person who purchased the company. She did not provide the name of that person until she was required to do so;

(c)    she said that in March 2014 she mistakenly failed to lodge an ASIC Form 484 Change to Company Details form to record that McHugh was no longer a director and shareholder in Global HR Group. On her account, upon discovering the error she corrected it by lodging the appropriate form on 12 May 2015, backdating the change to 11 March 2014. I found that evidence implausible when:

(i)    McHugh had no explanation for why the notice was lodged with ASIC more than one year after he ceased to be a director and shareholder; and

(ii)    other ASIC records showed that McHugh was still acting as a director of Global HR Group as at 12 March and 19 March 2014.

The backdated change was not made until immediately prior to the trial of this case.

34    I give Kyriacou’s evidence little weight on the limited issues to which it goes.

EVIDENTIARY ISSUES

The standard of proof

35    The applicable standard of proof is the balance of probabilities. However, in applying that standard it is appropriate to take into account the factors listed in s 140(2) of the Evidence Act 1995 (Cth) (“Evidence Act”). Although in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 at 361-362 (“Briginshaw”), Dixon J was speaking of the common law position, it is settled that the Court is required to take into account similar considerations through s 140(2): see Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449; [1992] HCA 66 at 449-450.

36    Some of the factual findings I have made relate to serious allegations against a party. In particular I have found that:

(a)    Russo and McHugh took steps to register the New Parent Company and to register a new company to hold the shares in it. Then, as a director of the existing Parent Company, Global Human Resources Group, Russo resolved to transfer the shares it held in the Operating Companies to the New Parent Company. As a director Russo wrongly made Declarations of Solvency in respect to Global Human Resources Group and GHR No 3. As a member Russo resolved to put the Parent Company and GHR No 3 into members’ voluntary liquidation. Russo took those steps as part of an attempt by the respondents to avoid their obligations under the October Deed (and any outstanding obligations under the March Deeds) and to defeat the Trustees’ claim.

(b)    the Bankrupt and Antoun characterised $6.2 million that was to be paid to the Bankrupt under the March Deeds as being for defamation in order that it be treated as exempt monies in the bankruptcy and so as to avoid the Bankrupt’s obligations to his creditors. McHugh, Byrnes and Russo cooperated in the Bankrupt’s and Antoun’s mischaracterisation of the substance of the March Deeds;

(c)    Antoun (I infer with the Bankrupt’s agreement) mischaracterised the substance of the October Deed in order to assist the Bankrupt to defeat the Trustees’ claim. McHugh, Byrnes and Russo cooperated in that mischaracterisation at a time when they knew that Alex was a bankrupt.

I did not make those findings lightly. In doing so I followed the approach in Briginshaw and had regard to s 140(2).

Objections to evidence

37    I now deal with the respondents’ submissions in which they objected to the admissibility of various parts of the Trustees’ case, and in the alternative argued that the use of the evidence should be limited.

The Cavric email

38    On 5 February 2013 at 7:19 pm Mr Ned Cavric (“Cavric”) the Practice Director of NSW Compensation Lawyers sent an email to Mr Christopher Rumore (“Rumore”) a partner of the legal firm, Colin Biggers & Paisley, which said in part:

Yes, Mr Alex is a beneficial owner of the shares held by Mr Antoun.

39    The respondents submitted that the relevant statement is inadmissible as hearsay under s 59 of the Evidence Act, and alternatively that the use of the statement should be limited pursuant to s 136 of that Act, because Cavric did not have personal knowledge of the asserted fact, it is therefore second-hand hearsay and there is no evidence that Cavric was not available to give evidence. The respondents submitted that if the email is a business record (which they did not admit) then s 69 of the Evidence Act does not apply because Cavric did not have personal knowledge of the asserted fact, and it cannot be reasonably assumed that the information was directly or indirectly supplied by someone who did.

40    In the alternative, the respondents contended that if the statement is admitted, s 136 of the Evidence Act should apply to limit its use because its reception as proof of the truth of the fact asserted is unfairly prejudicial when the respondents are unable to test it. They argued that the statement is unreliable because at best it is hearsay which must be based on what someone else had told Cavric, and there is no evidence as to the source of the hearsay. They contended that the information did not come from the Bankrupt himself. Cavric said in his public examination that the Bankrupt “on most occasions, referred to the Queensland businesses as Mr Antoun’s businesses”.

41    The respondents relied on Cavric’s evidence about why he made the subject statement in the email. In his public examination he said that:

I’m pretty certain what happened was that Moloney Lawyers wanted George Alex in this deed, and then Mr Rumore would have asked in what capacity, and then I would have asked someone in what capacity, and someone would have told me he was a beneficiary of the trust….I can’t recall, but it would either be Joseph Antoun or Manny from MKP [Antoun’s accountant.]

42    They noted that the email states that the subject statement was Cavric’s “initial response” and that Cavric testified in his public examination: “I think that that’s a mistake” and that “I must have asked someone and someone would have told me this, but it was incorrect”. Cavric was not cross-examined on his disavowals of the subject statement and the respondents submitted there is no reason to suspect that he gave false evidence.

43    The respondents also pointed to Cavric’s evidence that the Settlement Deed recites that the Bankrupt is a beneficiary of the JA Investments Trust when in fact that is not the case, and that Cavric said that he did not see the JA Investments Trust deed at the time he sent the email. They argued that Cavric was not at the time a practising solicitor who was acting for the Bankrupt or Antoun, and he was conveying information to Rumore and submitted that it is not clear that he conveyed the information on instructions from Antoun or the Bankrupt.

44    Finally, the respondents noted that Cavric was replying to questions asked by Rumore by email at 6:09 pm, which questions are not in evidence. They submitted that there is a risk of unfairness in considering the statement by Cavric without the proper context, and said that it is possible Cavric made the statement because he erroneously understood Alex to be a beneficiary of the JA Investments Trust.

45    In my view the relevant statement in the email is admissible as a business record, kept in the course of the business of NSW Compensation Lawyers (and/or the business of Colin Biggers & Paisley) pursuant to s 69 of the Evidence Act. That section relevantly provides:

(1)    This section applies to a document that:

(a)    either:

(i)    is or forms part of the records belonging to or kept by a person, body or organisation the course of, or for the purposes of, a business; or

(ii)    at any time was or formed part of such a record; and

(b)    contains a previous representation made or recorded in the document in the course of, or for the purposes of, the business.

(2)    The hearsay rule does not apply to the document (so far as it contains the representation) if the representation was made:

(a)    by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact; or

(b)    on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact.

46    At the time Cavric was employed as the Practice Director of Petrovich Law Group Pty Ltd trading as NSW Compensation Lawyers (“NSW Compensation Lawyers”). Although he was legally qualified he did not hold a practising certificate. For the reasons I set out below (at [188]-[197]) I consider that, through Cavric, NSW Compensation Lawyers acted for the Bankrupt and Antoun. I infer that Cavric undertook legal work for that firm pursuant to the practising certificate(s) and under the supervision of the principal(s) of that firm.

47    Cavric sent the email to Rumore under the subject heading “Advice in relation to Global Group” which is the name of the Colin Biggers & Paisley file relating to the March Deeds. He sent it as a member of the legal team negotiating and drafting those deeds and it forms part of the records belonging to or kept by NSW Compensation Lawyers and Colin Biggers & Paisley for the purpose of their respective businesses. The requirements of s 69(1) of the Evidence Act are met in my view.

48    The next question is whether the relevant statement meets the requirements of s 69(2). It is uncontentious that the email was in reply to questions asked by Rumore in an email at 6:09 pm that day, which questions are not in evidence. Cavric sent an email to Rumore at 6:12 pm and said:

I am meeting with Joe [Antoun] and George [Alex] tonight and will draft a response to the issues raised late evening.

49    The evidence shows that Cavric acted for the Bankrupt and Antoun and regularly conveyed instructions from them to Rumore. It also shows that Cavric conferred with the Bankrupt and Antoun on the evening of 5 February 2013 so as to obtain instructions. Cavric told Rumore that he would provide a response to his questions later that evening and he did so in the subject email.

50    Cavric and Rumore were jointly engaged in negotiating and drafting complex commercial deeds for the Bankrupt and Antoun and it is unlikely that Cavric would have made the relevant statement unless he had a proper basis for doing so. I infer that he took instructions from the Bankrupt and/or Antoun as to whether the Bankrupt had a beneficial interest in shares held by Antoun and it is more likely than not that he made the subject statement on the basis of instructions given to him by the Bankrupt and/or Antoun.

51    Each of the Bankrupt and/or Antoun had or might reasonably be supposed to have had personal knowledge of whether the Bankrupt was the beneficial owners of shares held by Antoun. In my view the requirements of s 69(2) of the Evidence Act are satisfied and the relevant statement is admissible as a business record.

52    I accept that Cavric said that it was his “initial response” and he was not cross-examined on his evidence that his statement was a mistake, but I do not consider it appropriate to limit the use of the evidence pursuant to s 136 of the Evidence Act. In my view:

(a)    it is not to the point that Cavric did not hold a practising certificate. He was legally qualified and employed as the Practice Director by NSW Compensation Lawyers. He undertook legal work pursuant to the practising certificate(s) and under the supervision of the principal(s) of that firm. Nor do I accept that Cavric was just a conduit to Rumore. However, even if he was a conduit, he and Rumore were jointly engaged in negotiating and drafting complex commercial deeds and he is likely to have been careful when providing information at Rumore’s request;

(b)    there is no merit in the respondents’ contention that without knowing the question Cavric was asked there is a real risk of unfairness to the respondents. It can only have been a question which concerned the legal or beneficial ownership of the shares in the Global business;

(c)    there are grounds for treating Cavric’s disavowal of the statement with caution. As I later explain I found his evidence in his public examination that he did not act for the Bankrupt to be implausible; and

(d)    the respondents knew the use that the Trustees proposed to make of Cavric’s statement. It was open to the respondents to call Cavric to clarify the evidence he gave in his public examination and they did not do so;

53    I consider the subject statement is admissible and its use should not be limited. However, taking account of the fact that it was Cavric’s “initial response” and paying some regard to his disavowal of the statement I give it reduced weight. The statement is just one strand in my conclusion that the Bankrupt had a beneficial interest in the shares in the Global companies. My conclusion would be the same whether or not the statement is admitted into evidence.

The Byrnes email

54    On 16 March 2014 Byrnes sent an email to his solicitor, Mr Alistair McKeough (“McKeough”) of Whittens Lawyers, which he copied to various other people including the solicitor for the Trustees. The email includes the statement:

The trustee as everyone else believes that Antoun was just a front for Alex and never put in any of his money.

55    The respondents contended that this statement is inadmissible on grounds of relevance and that it is in any event unreliable. They argued that what Byrnes thought is irrelevant and contended that it is not clear that the email expresses Byrnes’ own view of the matter rather than what he thought everyone else believes. They submitted that the evidence should not even be admitted as proof of Byrnes’ state of mind because that is not relevant or admissible as proof of the legal relations between the Bankrupt and Antoun. On their contentions even if the email did express Byrnes’ view (rather than what he thought the Trustees and “everyone else” believed) the probative value of the email as to the property rights of Antoun and the bankrupt is limited. They also contended that Byrnes was available to give evidence and it should have in fairness been put to him that the email expressed his belief.

56    In my view the subject statement is relevant and admissible. The passage to which the respondents objected must be seen in context. In the relevant passages of the email Byrnes said:

Mr Alex at that mediation in front of you and every other lawyer and myself and Russo said this is my company, I own it and you can’t show me where you paid me for it.

He made several similar comments and Antoun said this is our company and you have stolen it from us.

I later said to G Alex, “George even if we wanted to pay you, how would we because you’re a bankrupt”

GA “just pay Joe [Antoun] and he will pay me”.

When asked again he said pay Joe and we will work it out between us.

The trustee as everyone else believes that Antoun was just a front for Alex and never put in any of his money.

The respondents only objected to the final sentence.

57    In my view the respondents’ objection lacks real force because:

(a)    while the relevant statement is somewhat ambiguous (in referring to what “the trustee as everyone else believes”) on a fair reading of the email overall the statement indicates Byrnes’ view that Antoun was just a “front” for the Bankrupt. That reading is consistent with the rest of the email and Byrnes’ other evidence to the same effect in his public examination;

(b)    the probative value of Byrnes’ view is not as limited as the respondents said. Byrnes worked for the Bankrupt and Antoun on restructuring the Global business from about September 2011. In his public examination he said that he reconstructed the accounts of the business and arranged a forensic audit. He also said that, through a company he controlled, Construction Financial Management Pty Ltd (“Construction Financial Management”) he transferred $3.42 million to Antoun in the period March to October 2012 and that he acquired a one third interest in the business (of an unspecified nature). It is likely that he had a close understanding of the Global business including whether the Bankrupt held a beneficial interest in it and whether Antoun acted as the Bankrupt’s agent or trustee to assist in concealing the Bankrupt’s property (colloquially as a “front”); and

(c)    whether Antoun acted as an agent, trustee or “front” for the Bankrupt is a central question in the proceeding and the statement is against Byrnes’ interests. Byrnes was on notice of the Trustees’ proposed use of the email and he put on no evidence to qualify or correct the subject statement. I do not accept that it was unfair of the Trustees not to require him to attend the cross examination to put to him that the email expressed his belief.

58    I consider the relevant statement is relevant and admissible as setting out Byrnes’ view that the Bankrupt had a proprietary interest in the Global business and used Antoun as a front man to conceal that interest. I do not treat it as admissible in setting out the views of other persons, including the Trustees. However, the statement has little probative value standing alone because Byrnes only states his own view, but when viewed with other evidence it is a minor strand of the evidence supporting the inferences I have drawn.

The admissibility of transcripts of the public examinations generally – the statutory context

59    The balance of the respondents’ objections to evidence relate to statements in the transcripts of evidence given in the public examinations.

60    Section 81(17) of the Act provides:

Notes taken down and signed by a person in pursuance of subsection (15), and the transcript of the evidence given at the examination of a person under this section:

(a)    may be used in evidence in any proceedings under this Act whether or not the person is a party to the proceeding; and

(b)    shall be open to inspection by the person, the relevant person, the trustee or a person who states in writing that he or she is a creditor without fee and by any other person on payment of the fee prescribed by the regulations.

(Emphasis added.)

61    The expression “proceedings under this Act” in s 81(17) encompasses any action seeking to take a step, or assert or establish an entitlement, provided by under the Act: Rothmore Farms Pty Ltd (in liquidation) v Belgravia Pty Ltd (1999) 31 ACSR 88; [1999] FCA 598 (“Rothmore Farms”) at [14] (Mansfield J). It is uncontentious that the present case is a proceeding under the Act.

62    Section 255 of the Act provides:

(1)    A transcript or electronic or magnetic recording that purports to be a record of proceedings under section 77C or 81, or of proceedings before a court, is to be taken to be a record of that kind, unless the contrary is proved.

(2)    The transcript or recording is admissible as evidence of the matters described by a person whose words are recorded in the transcript or recording, unless the Court, or a court in which the transcript is sought to be introduced, makes an order to the contrary.

….

(Emphasis added.)

63    The respondents contended that a transcript of a public examination under s 81 is prima facie hearsay (as an out of court representation) but accepted that it was made admissible by s 255. However, they argued that s 255 does not displace the rules of evidence as they apply to proceedings in this Court and that there is no reason to suppose that the effect of s 255 is to displace the restriction in the Evidence Act to the reception and use of only first-hand hearsay. They also submitted that if s 255 does allow second-hand or third-hand hearsay to be used as proof of the facts asserted then ss 135 and 136 of the Evidence Act should be brought to bear to ensure that remote hearsay is not admitted into evidence as proof of the truth of the fact asserted where neither the person who made the representations nor the person whose words they repeat are parties to the proceedings.

64    On the respondents’ submissions there is an important distinction between admissions made by the Bankrupt about what he or she did being admitted in proceedings against the Bankrupt and a third party, and the evidence of persons who are not parties to the proceeding of what other people said being admitted as evidence of proof of the truth of what those other people said. In this regard the respondents pointed to the warning about the unreliability of hearsay evidence by the High Court in Lee v R (1998) 195 CLR 594; [1998] HCA 60 at [32]; [34]-[35] (Gleeson CJ, Gummow, Kirby, Hayne and Callinan JJ).

65    I do not quibble with the High Court’s warning and there can be no question as to the danger associated with hearsay evidence. However, in the present case it must be kept in mind that the respondents’ objection to the admissibility of this evidence is made in the statutory context of evidence taken in a public examination by a trustee in bankruptcy.

66    The Full Court dealt with s 255 of the Act in Colonial Life Assurance Society Ltd v Donnelly (1998) 82 FCR 418; [1998] FCA 364 (“Colonial”) at 434 (Wilcox, O’Connor and Sackville JJ). As the Court explained:

…this provision was intended to make the transcript of evidence admissible as evidence not merely of the words spoken by the examinee, but of the matters described by the examinee in his or her evidence. If there were any doubts that this was the intended effect of the subsection, they are resolved by the Explanatory Memorandum accompanying the 1996 Bill. The Memorandum (par 182.2) states that the:

“provision is designed to overcome the common law rules excluding hearsay evidence, and to enable evidence given at examinations and recorded interviews to be put on the record in proceedings in a court without the need for witnesses to repeat their account of events.”

This does not mean that the contents of a transcript of a s 81 examination are automatically admissible in subsequent proceedings. First, s 255(2) itself provides that the court in which the transcript is sought to be introduced may make an order to the contrary. Secondly, s 255(2) must be read together with s 81(17). As we have said, s 81(17) is intended, in part, to impose a restriction on the use to which a s 81 transcript can be put in subsequent proceedings. Thus the apparently broad terms of s 255(2) must be qualified so as to make a s 81 transcript admissible (subject to the power of the court to make an order to the contrary) only in proceedings under the Bankruptcy Act to which the examinee is a party.

(Emphasis added.)

67    As the Explanatory Memorandum indicates, at that time s 81(17) of the Act provided that a transcript could only be used in evidence in proceedings under the Act in which the person whose evidence is sought to be adduced was a party to the proceeding: Colonial at 425. It is significant that there is no longer any restriction to the use of transcripts only to proceedings to which the examinee is a party. That is made clear by the current s 81(17)(b), into which the words “whether or not the person is a party” were inserted by the Bankruptcy Legislation Amendment (Anti-avoidance) Act 2006 (Cth).

68    Section 255 is intended to overcome the significant difficulties that trustees in bankruptcy may have in proving matters in court proceedings. The present case is a good example of the difficulties that may arise: the Trustees are strangers to the business arrangements between the Bankrupt and Antoun; Antoun is dead; the Bankrupt has not cooperated with the Trustees; and the Bankrupt, Antoun and the respondents entered into deeds which mischaracterised the substance of the agreements. In my view McHugh, Byrnes and Russo cooperated with the Bankrupt’s attempts to conceal property from the Trustees and his creditors.

69    Section 81(17) of the Act, read together with s 255, provides that in proceedings under the Act a transcript of evidence of a public examination under s 81 “is admissible as evidence of the matters described by a person whose words are recorded”, subject to any order to the contrary by a court in which the transcript is sought to be introduced. A transcript is admissible, whether or not the examinee is a party to the proceeding, and against “all parties”: Rothmore Farms at [9].

70    The question is whether, and if so to what extent, ss 135 or136 of the Evidence Act may impinge on evidence made admissible by s 255 of the Bankruptcy Act. The parties made no submissions and I was taken to no authority as to the proper interaction of s 255 of the Act with ss 135 or 136 of the Evidence Act. In those circumstances I decline to decide the question. I proceed on the assumption that it is open to me to rely on ss 135 or 136 of the Evidence Act to exclude evidence otherwise admissible pursuant to s 255 and to limit the use of evidence admitted pursuant to s 255.

Byrnes’ evidence of statements by the Bankrupt at the mediation

71    The respondents objected to the admissibility of parts of the transcript of Byrnes’ public examination in which he gave evidence of statements made by the Bankrupt at the mediation in the Supreme Court proceeding. Byrnes testified that the Bankrupt:

(a)    basically thumped the table and said:

This is my company and you guys have stolen my company. You’ve taken this – this is my business…

(b)    and also said:

Well, you will just pay…Joe and we’ll sort it out between us.

…

You pay Joe and he will pay me.

72    The respondents argued that the transcript of what the Bankrupt said is hearsay, there is no evidence that the Bankrupt is unavailable under s 63 of the Evidence Act, and no basis to apply s 64 of that act. They contended that pursuant to s 136 of the Evidence Act the use of the evidence should be limited to proof of the words that were said by the Bankrupt, but not as proof of the facts (alleged) to be asserted. They submitted that Byrnes did not intend to assert the truth of what the Bankrupt said, and he had no knowledge of the matters that the Trustees seek to prove by the statements made by the Bankrupt. They also argued that even if Byrnes thought the Bankrupt was a beneficial owner of the shares, the statement is not capable of proving that to be true (especially absent evidence of why he thought that). On their submissions, the language purportedly used by the Bankrupt is consistent with a number of different legal relationships (including a contractual relationship) and the objective evidence does not support the Trustees’ case.

73    The respondents contended that the evidence is unreliable because Byrnes said in his first affidavit that the Bankrupt had referred to the Global business as “his” business since entering into a Deed of No Legal Interest in 2008 in which he declared that he had no legal interest in the business. They also pointed to McHugh’s evidence that, in June 2011, the Bankrupt said to him “Joe [Antoun] is going to invest in the business so that we can pay the tax and arrange new finance”. The respondents contended that the Bankrupt could not have had a legal or equitable interest in the shares before they were transferred to Antoun in October 2011.

74    I consider the relevant statements are hearsay, made admissible by s 255. I do not consider it appropriate to exclude the evidence or to limit its use in the way the respondents contended, essentially because:

(a)    the statements are far from remote hearsay. They are direct evidence of what Byrnes saw and heard the Bankrupt say in the setting of a formal mediation in the Supreme Court proceeding;

(b)    the statements are against Byrnes’ interests in this proceeding;

(c)    Byrnes gave evidence on oath, and there is nothing to indicate that he gave false evidence. Indeed, the statements to which objection is made are consistent with his other evidence as to what took place at the mediation, including his 16 March 2014 email;

(d)    the respondents put on no evidence to qualify or contradict Byrnes’ statements as to what the Bankrupt said, even though the other persons present at the mediation included the respondents’ solicitors and senior counsel; and

(e)    whether the Bankrupt enjoyed beneficial ownership of some or all of the shares in the companies in the Global business is a central issue in the proceeding, as is whether Antoun acted as agent or trustee for the Bankrupt when he entered into the October Deed. Byrnes is a party and he was on notice of the use to which the Trustees proposed to put his earlier testimony yet he put on little evidence to qualify it. While in his first affidavit Byrnes (unconvincingly) tried to explain away the Bankrupt’s statements about ownership of the Global business, he did not otherwise contradict that evidence.

75    I do not accept the respondents’ contention that Byrnes had no knowledge of the matters that the Trustees sought to prove through this evidence. As I have said, Byrnes worked for the Bankrupt and Antoun on restructuring the Global business from about September 2011 and he reconstructed the accounts of the business and arranged a forensic audit. Through his company he transferred $3.42 million to Antoun in the period March to October 2012 and he said that he acquired a one third interest in the business (of an unspecified nature). It is likely that he had a close understanding of the Global business and a good understanding of whether the Bankrupt had beneficial ownership of the companies in the business and whether, and to what extent, the Bankrupt stood behind Antoun, using him as an agent, a trustee or a “front”.

76    I do not accept the respondents’ contention that the Bankrupt could not have had a legal or equitable interest in shares in the Global business before they were transferred to Antoun in October 2011. On my view of the evidence in about May 2011 McHugh agreed to dispose of his interest in the companies in the Global business to the Bankrupt. I accept that by October 2011 Antoun also had an interest in the companies in the business. The evidence tends to show that from about that point they had joint beneficial ownership, in equal shares.

Byrnes’ evidence of statements made by Antoun

77    The respondents also objected to the admissibility of the transcript of Byrnes’ evidence in his public examination in which he testified that in a meeting with Antoun to settle the Supreme Court proceeding, held in a café in the MLC Centre in Sydney in the period 16 October 2013 to 21 October 2013, Antoun said to Byrnes:

I will sort George out. I will pay George.

and that:

any payment would be…paid to him …and he would look after and he would pay George his half.

78    The respondents submitted that the evidence of what Antoun said is hearsay. They argued that pursuant to s 136 of the Evidence Act the use of the evidence should be limited to proof of the words that were said by Antoun and it should not be admitted as proof of the facts alleged to be asserted. They also contended that the language used by Antoun was consistent with a number of different legal relationships between Antoun and the Bankrupt (including a contractual relationship) and that the objective evidence does not support the Trustees’ case.

79    They also contended that the evidence assumes that Byrnes remembered the conversation accurately. For example, they argued that Antoun could have said “pay George half” rather than “pay George his half”. The respondents argued that even if Byrnes had accurately recalled the statement, Antoun was most likely referring to an agreement he had with the Bankrupt to pay him half of whatever he received from the respondents, rather than any trust relationship.

80    Finally, the respondents argued that the evidence is unreliable because McHugh gave evidence that:

(a)    on 13 October 2011 Antoun demanded that he sign share transfers and said: “There are a lot of George’s debts which need to be fixed up. I need the shares signed over” and “Kevin you’ve got to sign [the share transfers]. I’m paying a lot of George’s debts and that is my security” ; and

(b)    on 7 July 2013 Antoun sent him a text message which said “I paid for the company you have stolen”.

81    I consider that Byrnes’ evidence of Antoun’s statements is hearsay made admissible by s 255 of the Act. Section 59 of the Evidence Act does not apply, but if it did the evidence would be admissible pursuant to the exception in s 63 as Antoun is deceased.

82    I do not consider it appropriate to limit the use of the evidence, essentially because:

(a)    the statements are direct evidence of what Byrnes saw and heard Antoun say, in the presence of a witness, while they were negotiating the settlement of Supreme Court proceedings;

(b)    Byrnes gave evidence on oath and there is nothing to indicate that he gave false evidence. Indeed, the evidence is consistent with other evidence as to the nature of the relationship between the Bankrupt and Antoun, including Byrnes’ other evidence;

(c)    the statements are against Byrnes’ interests in this case;

(d)    whether Antoun acted as agent or trustee for the Bankrupt in relation the monies received pursuant to the October Deed are central issues in the proceeding. Byrnes is a party, and he was on notice of the use to which the Trustees proposed to use this testimony, yet he put on no evidence to qualify or contradict it. Byrnes sought (implausibly in my view) to explain away the Bankrupt’s statements about his ownership of the Global business. However, he put on no evidence to essentially contradict or qualify his testimony in his public examination that he told the other parties at the mediation of the Supreme Court proceedings that the case could be settled by the respondents paying monies to Antoun, or that he and Antoun would then sort it out between them, or that in their meeting at the MLC Centre Antoun told him that the Supreme Court proceeding could be resolved by the respondents paying Antoun, and that Antoun would pay the Bankrupt “his half”; and

(e)    for the reasons I explain I do not accept the respondents’ contention that the evidence shows that McHugh disposed of his interest in the Global business to Antoun, rather than to the Bankrupt.

Byrnes’ other evidence

83    The respondents objected to the admissibility of the transcript of Byrnes’ evidence in which he said:

…in late 2013, George Alex approached Ned Cavric…with a view to protecting his interest on any payments that might have been paid in relation to any settlements between the parties and Mr Antoun.

84    In my view this objection is well made. The transcript shows that Byrnes expressed some uncertainty before he made this statement and he provided no explanation as to how he came to know the reason for the Bankrupt’s alleged approach to Cavric. For example, he did not say that he was told this by the Bankrupt, by Cavric or by somebody else. It is unclear whether it is first-hand, second-hand or even more remote hearsay. I also note that the statement that the Bankrupt approached Cavric in late 2013 is inconsistent with evidence in the public examinations which shows that Cavric acted for the Bankrupt in the period February to May 2013. It is appropriate to exclude this evidence under s 255(2) of the Act.

85    The respondents also objected to the admissibility of the transcript of Byrnes’ evidence in which he said that in an unidentified period after the execution of the October Deed on 22 October 2013:

Mr Alex has had various Sydney underworld figures approach me with a view to telling me that I have to pay.

86    Byrnes did not identify which alleged members of the Sydney underworld approached him, when they did so, what they said, or the basis for his belief that that they did so at the Bankrupt’s behest. In my view this evidence is unreliable, has limited relevance and little probative value. It is appropriate to exclude it under s 255(2).

Dona’s evidence of statements by the Bankrupt

87    The respondents objected to the admissibility of the transcript of the public examination of Noel Dona (“Dona”), a law clerk, who was friendly with and who had performed legal work for the Bankrupt. Dona testified that the Bankrupt told him (in about late 2012) that:

…he and Joe [Antoun] had an interest in a labour hire business in Queensland… And I said “What do you mean?” they said “Well, we’re getting some big money out of that. We’re selling our shares”. That was virtually the extent of it. I said “Whose shares?” and I didn’t get much details out of it.

And in relation to the labour hire business in Queensland:

I know that they’re being bought out.

88    The respondents submitted that this evidence should not be admitted because its probative value is substantially outweighed by the danger that it might be unfairly prejudicial to them. They argued that the evidence has little probative value and the language used by Dona as to what he remembered is an unreliable basis from which to infer that the Bankrupt had a proprietary interest in the Global business.

89    Dona’s evidence is hearsay made admissible by s 255 of the Act. It is direct evidence, given on oath, of what the Bankrupt said to him. There is no reason to think that he gave false evidence. Although only a minor strand, when viewed with the other evidence it is rationally probative of my conclusion that the Bankrupt had beneficial ownership of half of the companies in the Global business. I do not consider it appropriate to exclude the evidence.

The objection to tendency evidence

90    In opening submissions the Trustees relied on the transcripts of various public examinations to show that the Bankrupt used other people to “front” for him. They relied on the evidence of:

(a)    Byrnes - that the Bankrupt used Mazen (aka “Mace”) Hourani (“Hourani”) as a front for him, and that “George is an undischarged bankrupt, and can’t be a director of any companies and he puts up a lot of people who aren’t very smart to be directors on his behalf”;

(b)    Michael Cohen (“Cohen”) - that Hourani “is definitely a front for George”;

(c)    Jimmy Kendrovski (“Kendrovski”) - that the Bankrupt “puts certain front men in to deal with certain matters”;

(d)    Cohen - that he held one sixth of the shares in Elite Highrise Services Pty Ltd as a front for the bankrupt; and

(e)    Athina Alex, the Bankrupt’s sister - from which the Trustees’ argued it should be inferred that she acted as a front for the Bankrupt in the Active companies.

91    The respondents flagged their objection to this evidence in the course of the opening of the Trustees’ case. They contended that it is tendency evidence, they had not been served with notice under s 97 of the Evidence Act, and that the unreliability of the evidence was exacerbated by the fact that the Trustees were able to rely on hearsay evidence pursuant to s 255 of the Bankruptcy Act. They argued that the Trustees must call the relevant witnesses, and submitted that an order should not be made to dispense with notice pursuant to s 100 of the Evidence Act.

92    The respondents’ objection was put over for submissions to be made the following day by both sides, but the following day the objection was not further argued. Then, in written submissions after the close of the case the respondents put on detailed objections to evidence. They did not, however, detail any objection to this evidence. I was left unclear as to the whether the respondents maintained their objection to this evidence but I proceed on the assumption that they do.

93    By operation of s 255(2) of the Act, unless an order is made to the contrary, the transcripts are admissible as evidence of the matters described by the person examined. At the core of the respondents’ objection is the proposition that s 97 of the Evidence Act may operate to exclude evidence otherwise admissible pursuant to s 255 of the Bankruptcy Act. The parties did not take me to any authority or make any submissions in this regard, and in the circumstances it is inappropriate to decide the issue. I proceed on the assumption that s 97 applies. Even if it does not strictly apply s 97 reflects well accepted principles and it is a useful guide in the exercise of my discretion to exclude evidence pursuant to s 255(2).

94    Section 97 provides that tendency evidence shall not be adduced unless the party seeking to adduce the evidence provides reasonable notice in writing, and the court considers that the evidence will have significant probative value, either by itself or having regard to other evidence adduced. Section 100 of the Evidence Act allows the Court to prospectively or retrospectively dispense with the requirement for notice.

95    I consider the respondents had sufficient notice that the Trustees intended to rely on this evidence. Whether the Bankrupt used Antoun as a trustee, agent or “front”, so as to conceal his interest in the Global business and under the March Deeds and October Deed from the Trustees, are central issues in the case, and the relevant transcripts were exhibited to the second Rambaldi affidavit.

96    I can see little substance to the respondents’ contention that they were denied the opportunity of cross-examining these witnesses. It is quite unlikely that they would have done so having regard to the defence they ran, and the fact that Byrnes put on nothing to qualify or contradict his earlier testimony in this regard. It is particularly unlikely that the respondents would have cross-examined Cohen when he provided first-hand sworn testimony from his personal knowledge that notwithstanding ASIC records to the contrary the Bankrupt and Antoun each had a one sixth beneficial interest in the company.

97    However, it is appropriate to exercise my discretion under s 255 to exclude the relevant parts of the transcripts of Athina Alex’s evidence, Cohen’s evidence in relation to Hourani and Kendrovski’s evidence. Although Ms Alex displayed a gross lack of knowledge in regard to the various companies in which she had been a director the Trustees did not take the Court to any specific parts of her evidence to support the inference they sought. Kendrovski and Cohen did not explain the basis of their beliefs and Kendrovski’s evidence is vague. In my view this evidence has little probative value.

The evidence of settlement negotiations

98    The Trustees accepted that Byrnes’ evidence regarding the Bankrupt’s statements at the mediation and his evidence regarding Antoun’s statements in the meeting at the MLC Centre are evidence of settlement communications pursuant to s 131(1) of the Evidence Act. This provision prohibits adducing evidence of communications between people in a dispute in connection with an attempt to negotiate a settlement of the dispute.

99    Section 131(2) of the Evidence Act provides the following relevant exceptions to the prohibition on adducing evidence of settlement communications:

(2)    Subsection (1) does not apply if:

…

(f)    the proceeding in which it is sought to adduce the evidence is a proceeding to enforce an agreement between the persons in dispute to settle the dispute, or a proceeding in which the making of such an agreement is in issue;

…

(i)    making the communication, or preparing the document, affects a right of a person;

(j)    the communication was made, or the document was prepared, in furtherance of the commission of a fraud or an offence or the commission of an act that renders a person liable to a civil penalty;

100    Section 263(1) of the Bankruptcy Act sets out various offences in relation to defrauding creditors of a bankrupt, concealing the property of a bankrupt, receiving the property of a bankrupt with intent to defraud creditors or assisting a bankrupt to do so.

101    In my view the evidence of settlement negotiations falls within the exceptions in subs 131(2)(f) and (i). In respect of s 131(2)(j), for the purposes of these proceedings, I am satisfied that the Bankrupt’s statement was made as part of an attempt to conceal from the Trustees that he was to be paid substantial monies for his interest in the Global business. In my view the evidence is admissible.

THE FACTS

102    In setting out the facts I set out my view of the evidence. I have largely drawn the facts from the first McHugh affidavit, the evidence given and documents produced in the public examinations, and submissions titled “Costs Applicant’s Narrative and Submissions” made on McHugh’s behalf in the Supreme Court proceeding (“the costs submissions”). I infer that the costs submissions were approved by Byrnes as the evidence shows that he instigated and funded the Supreme Court proceeding. The Trustees relied on the costs submissions and the respondents did not suggest they were incorrect.

103    Although the trial was short, the documentary evidence is voluminous. The documents exhibited to the Rambaldi affidavits comprise six lever arch binders. I was taken to comparatively few of these documents but it was unfortunately necessary to look beyond the materials to which I was directed. The Court should not be required to pick through such voluminous materials and often irrelevant materials in search of pearls of relevance.

Alex’s bankruptcy

104    There is no issue that the Bankrupt’s bankruptcy predates the relevant events.

105    It is common ground that on 8 December 2008 the Deputy Commissioner of Taxation obtained judgment against the Bankrupt for $179,652.93 and that on 20 July 2009 the Bankrupt committed an act of bankruptcy. On 19 April 2011 a sequestration order was made against the estate of the Bankrupt. Mr Mark Roufeil was initially appointed trustee of the bankrupt estate and the Trustees were appointed in his place on 10 April 2013.

106    The act of bankruptcy was committed within six months before the date of presentation of the creditor’s petition, and by operation of s 115 of the Act the bankruptcy is taken to have relation back to, and to have commenced, on 20 July 2009. The relevant events all take place after the date of commencement of Alex’s bankruptcy.

The Global business

107    The evidence is that McHugh has worked in the labour hire industry in Queensland for some 30 years and from about 1995 he operated a labour hire business in Queensland as a manager and then part-owner, supplying contract skilled and unskilled labour in the construction and mining industries.

108    That business was, in commercial if not legal terms, the predecessor to the Global business. I use the description “the Global business” to refer to the labour hire business that is the central in the proceeding, notwithstanding that the business had different owners and was run through different companies over the years.

109    In the relevant period the Global business comprised:

(a)    the three Operating Companies, Civil Pacific Services Group, Global HR Group and Global Civils Group;

(b)    the Parent Company, Global Human Resources Group, which held the shares in the Operating Companies; and

(c)    GHR No 3, which held the shares in the Parent Company.

Shortly before the trial, on 7 March 2014, Russo and McHugh registered GHR Custodian. On 11 March 2014 Global Human Resources Group transferred all of the shares it held in the Operating Companies to GHR Custodian, and it became the New Parent Company. Russo was the sole director of Global Human Resources Group at the time.

110    As at May 2013 the business employed between 100 and 200 full-time and part-time employees.

111    It is uncontentious that:

(a)    from about 1995 Mr Michael Stefanovski (“Stefanovski”) was the owner of the labour hire business, which operated under the name of All Trades Pty Ltd and then under the business name Workforce One. McHugh managed the business;

(b)    in 2001 Stefanovski sold the business to Mr Michael Byrne (“Byrne”) for $3.2 million. McHugh continued to manage the business;

(c)    in 2005 Byrne sold the labour hire business to Zenith Workforce Pty Ltd (“Zenith”) for $3 million, the sole shareholder of which was Mr Dennis Xenos (“Xenos”). Zenith was backed by a small group of investors which included, amongst others, the Bankrupt, Xenos and the well-known former boxer Mr Jeff Fenech (“Fenech”). McHugh continued to manage the business;

(d)    in about May 2006 McHugh caused Civil Pacific (Qld) Pty Ltd (“Civil Pacific Qld”), a company which he controlled, to license the Global business from Zenith;

(e)    in about late 2007, a dispute arose between the investors in Zenith. At around the same time McHugh concluded that the licence fee was too high for him to generate an operating profit and he informed Xenos that he would not continue to operate the business under the licence agreement;

(f)    in late 2007/early 2008 McHugh reached an agreement for Stefanovski and Mr Gary Samuel to invest in the Global business pursuant to which Stefanovski would contribute the necessary monies and McHugh would manage the business. In February 2008 Zenith agreed to transfer the Global business to McHugh, Stefanovski and Samuel for $500,000. Those monies were paid to Fenech. The gist of Byrnes’ evidence was that the Bankrupt was aggrieved by the fact that he was not paid any of those monies. That may or may not be so. In my view it is unnecessary to decide.

(g)    The Bankrupt (and each of the other Zenith investors) executed a “Deed of Recognition of No Legal Interest and Release” dated 26 February 2008 (“Deed of No Legal Interest”), in which he declared that he had no legal or equitable interest in the business and providing a broad release and discharge from all claims or demands which he may have had against the companies conducting the Global business;

(h)    from February 2008 until May 2011 McHugh was the day-to-day manager of the Global business, Stefanovski was responsible for arranging finance to support the business and Samuel was responsible for the preparation of accounts and the provision of accounting advice. In this period the business expanded by commencing to also provide labour hire in the mining industry.

The Bankrupt acquires the Global business in May 2011

112    The costs submissions filed on McHugh’s behalf state:

[McHugh] has for many years operated a labour force hire business in Queensland and New South Wales. In about 2005, and up until 2008, George Alex became and was an investor in the business. In about mid 2011 George Alex reinserted himself into [McHugh’s] business and shortly thereafter introduced the first defendant Joseph Antoun into the business. The manner and circumstances in which George Alex became re-involved and Joseph Antoun became involved in [McHugh’s] business were matters of dispute in the proceedings.

113    McHugh said that in mid-May 2011 he was required by the Bankrupt to attend a meeting with the Bankrupt, Xenos and Mr Mick Gatto (“Gatto”) at the Oasis Hotel on the Gold Coast. McHugh’s evidence is the only evidence of the meeting. He said that at the meeting the Bankrupt and Xenos each said that he owned the Global business. McHugh denied this and said that he and Stefanovski had purchased the Global business from Zenith in 2008 and that the former investors in Zenith had each signed a Deed of No Legal Interest. The Bankrupt made statements such as “Kevin, forget about all that, we own the company. We’re here to sort it out” and “we don’t care, we’re here to take the company back.” During these exchanges Gatto listened.

114    McHugh’s evidence is that Gatto then announced: “From what I’ve heard, the businesses are owned by George Alex. I don’t give a fuck what you say, I’ve listened to everyone’s story, and I’ve made a decision.” McHugh said he then sat in silence for a few minutes and Gatto said: “Kevin, you’ve heard what I’ve had to say. We’re here to sort this out. The business is going back to George Alex. That’s the way it is.”

115    McHugh said that at that time the Global business had a tax debt of about $2.4 million for which McHugh was personally liable, a debt factoring facility with Westpac Bank (“Westpac”) secured by his personal guarantee, and that he had a loan from the company for about $800,000. He said that he explained this to the Bankrupt and Gatto and said that he was “tied up in the company” and that he couldn’t just be “kicked out”. The Bankrupt responded by saying: “Hang on Kevin, we’re not kicking you out. We need you to stay on and manage the business. We know that if you go, the business will fail. We know you have the contacts.” The Bankrupt also said: “Don’t worry Kevin, we know you have to stay. We know you’ve got the contacts. We want you to manage the business. We’ll make arrangements for the finance. Don’t worry about that. Leave it to us. We’ll also pay the tax.”

116    McHugh said he left the meeting shortly afterwards saying “there’s really nothing more to say”. The Bankrupt said that he would be back in touch after getting some documents drawn.

117    In written submissions the respondents argued that Gatto announced that the business was owned by Xenos and the Bankrupt. That is not my view of the evidence. The essence of McHugh’s evidence is that Gatto purported to announce that McHugh was to transfer the Global business to the Bankrupt. McHugh said that he accepted that, as he said he had no choice.

118    McHugh said he then telephoned Stefanovski and told him what had happened. Stefanovski said that he had also had a “visit” (I infer from the Bankrupt) and that he had told the Bankrupt that he would be happy if he got back the $500,000 that he paid for the business in 2008.

McHugh’s alleged fear of the Bankrupt and Gatto

119    McHugh said that he had heard stories and read press reports that Gatto was a standover man and a gangster, and that he was aware that Gatto was closely associated with a number of violent and dangerous criminals in Melbourne. He also said that he was aware that the Bankrupt was closely associated with violent criminals in Sydney, and members of bikie gangs. It is unnecessary to decide whether McHugh’s views regarding Gatto are correct. I have no difficulty in accepting that McHugh thought the Bankrupt and Gatto had criminal associations and a propensity for violence.

120    The thrust of McHugh’s evidence is that he agreed to do as the Bankrupt and Gatto said because he had no choice. In his view the Bankrupt had no legitimate interest in the Global business but he feared that he might be physically hurt or even killed if he did not do what he was told.

121    Obviously, on McHugh’s account the issue of duress can be said to arise. However, as I later explain (at [286]-[293]) the respondents expressly disavowed any allegation that McHugh suffered actual duress. Further, as I explain (at [298]) there are reasons to doubt McHugh’s account in relation to duress.

122    Putting to one side the question of duress, on my view of the evidence McHugh agreed to transfer the Global business to the Bankrupt in about May 2011. The evidence tends to show an agreement at that time between McHugh and Stefanovski on the one hand, and the Bankrupt on the other, in which they agreed to transfer their interest in the business to the Bankrupt in return for his paying the taxation liabilities of the business for which McHugh was personally liable, refinancing the business so as to cover McHugh’s loan account, repaying Stefanovski the $500,000 he had paid in 2008, and paying McHugh to manage the business. McHugh was paid $250,000 per annum to manage the business.

123    There is nothing in McHugh’s evidence to suggest that Antoun was involved in any way at this point. I note that the costs submissions state that it was the Bankrupt who “reinserted” himself into the Global business, and they made no mention of Antoun.

Antoun indicates an intention to acquire an interest in the business - June 2011

124    About one month later (I infer in June 2011) the Bankrupt arranged to meet McHugh at Coolangatta Airport the following day , and said:

I’ve arranged a meeting with a bloke who is going to sort out the tax and the refinancing. Remember we spoke about it at the last meeting.

I infer that at the May meeting the Bankrupt indicated that he intended to involve another person in the business.

125    When McHugh met the Bankrupt at the airport he was introduced to Antoun and another man. They went to a nearby cafe and the Bankrupt said:

Joe [Antoun] is going to invest in the business so that we can pay the tax, and arrange new finance. He’s a developer and and he is in the process of completion and 11 units townhouse development in Marrickville. The development is almost complete, and Joe is going to refinance it so that we have money to pay the tax.

Antoun said:

I’m going to buy into George’s business. I should have my Marrickville development completed soon, and I have money coming from that. Kevin, tell me how the business is going.

(Emphasis added in italics.)

126    McHugh’s evidence was that the Bankrupt informed him of the business arrangements the Bankrupt intended, rather than seeking his agreement. The Bankrupt said that Antoun was going to invest so that “we” can pay the tax and arrange to refinance the business, and that Antoun said that he was buying “into George’s business”. McHugh did not say that he disagreed with Antoun’s statement that it was the Bankrupt’s business nor did he say that the Bankrupt disagreed. This strongly points away from the respondents’ contention that the Global business was transferred to Antoun, alone.

McHugh’s alleged fear of Antoun

127    McHugh said that he subsequently made inquiries about Antoun and was told that Antoun was involved in organised crime in Sydney, provided security and protection for a number of Kings Cross nightclubs, was paid protection money and had been jailed on several occasions including following a conviction for armed robbery. He said that he performed a Google search of Antoun which revealed that he and his brother had been charged and convicted of demanding money with menaces. Again, it is unnecessary to decide whether McHugh’s view of Antoun is correct. I have no difficulty in accepting that McHugh thought that Antoun had criminal associations and a propensity for violence.

Gatto telephones McHugh in late June/early July 2011

128    McHugh said that he was telephoned by Gatto two weeks later (I infer in late June/early July 2011). I accept that Gatto was with the Bankrupt and Antoun. Gatto said that the agreement was that Antoun would pay the tax debts of the business, pay off McHugh’s $800,000 loan, arrange refinance of the business, and pay Stefanovski $500,000. After a conversation between Gatto, the Bankrupt and Antoun, Gatto then said that Antoun would also pay McHugh a profit share.

129    The respondents relied on this telephone conversation to support their submission that the business was transferred to Antoun, alone. However, that submission is against the evidence. It is worth noting that the next paragraph of McHugh’s affidavit indicates that the payment obligations were joint. He deposed that “Joseph Antoun or George Alex were to have repaid to Michael Stefanovski the sum of $500,000”. That the obligations were joint is apparent at various points in McHugh’s affidavit and in a raft of other evidence.

130    On my view of the evidence by this time the Bankrupt was effectively running the Global business. He invited Antoun to invest in the business in order that “we” (meaning the Bankrupt and Antoun) could make the relevant payments. Apart from the decision to provide McHugh a profit share (to which the Bankrupt was a party) there was no material change in the agreement from the position reached in May. In my view the telephone conversation between McHugh and Gatto in late June/early July 2011 (with Antoun and the Bankrupt in the background) when weighed against the other evidence is insufficient to support the inference that McHugh agreed to transfer his interest to Antoun, alone.

The Bankrupt introduces Byrnes into the Global business - September 2011

131    In September 2011 the Bankrupt introduced Byrnes, the sixth respondent, to McHugh. The bankrupt said that Byrnes was to assist in arranging to refinance and restructure the Global business.

132    In his public examination Byrnes said that at the time he was introduced to the Global business he understood that the Bankrupt and Antoun were jointly obliged to make the relevant payments to McHugh. He said that:

…the original agreement…which was subsequently overtaken by further admissions by Mr McHugh, was that there was an agreement for Mr Antoun and Mr Alex to pay $1.8 million to the Australian Tax Office, pay a gentleman in Queensland, who was the investor who paid out Jeff Fenech $500,000, and to pay out Mr McHugh an intercompany loan of $800,000 and they were entitled to take 100 per cent of the shares of the company....as I understood it, they had an agreement to buy on those terms.

While that agreement pre-dated Byrnes’ involvement in the business his evidence was not merely based on what he was told.

133    In his public examination (when describing the breakdown of the agreement between the parties) Byrnes said that the obligations of the Bankrupt and Antoun were “to pay the balance of the tax money, to pay the money to Mr McHugh that he was owed and to pay Mr Stefanovski, the original $500,000 investor.”

134    Byrnes repeated that view in an email he sent to Cavric on 12 January 2013. In it he referred to the plural “purchasers” rather than in the singular, which can only have been a reference to the Bankrupt and Antoun. He said:

… It has always been my understanding that the purchasers had four obligations

1    pay the tax debt (2.4m)

2    pay 500,000 to a shareholder Michael Steffanoski [sic]

3    pay Kevin [McHugh] $800,000 being a loan from him to the company and agreed to be paid out in consideration for the purchase of the mining civil company he owned beneficially

4    for the purchasers to arrange their own finance so that a change of control could be effected without causing a default.

135    Subsequently, in his first affidavit filed shortly before the hearing Byrnes sought to move away from his earlier evidence. He deposed that the Bankrupt had agreed with him “that there is a deal where Joe [Antoun] will buy the Global companies from Kevin [McHugh]”. He also said that statements by the Bankrupt that he was entitled to a share of the Global business were based in a view that he had been insufficiently remunerated when the business was sold by Zenith. I see Byrnes’ evidence in this regard as inconsistent with his evidence in his public examination, inconsistent with his January 2013 email above and inconsistent with a raft of other evidence which I prefer. I see that evidence as a self-serving and implausible attempt to bolster the respondents’ contention that McHugh transferred the Global business to Antoun, alone.

Antoun conducts due diligence - October 2011

136    On 13 October 2011 the Bankrupt arranged a meeting at the offices of the Global business between McHugh, the Bankrupt, Antoun and Antoun’s accountant, Mr Tony Khoury (“Khoury”). McHugh said that he was informed by the Bankrupt that Khoury was present in order to conduct a “due diligence” of the business. McHugh asked the financial controller to locate and photocopy the required financial records and provide them to Khoury. After about an hour the Bankrupt told him Khoury had the necessary information and that they were going back to Sydney.

137    I infer that this due diligence investigation preceded Antoun investing in the business, and that he took up an interest in the business in about October 2011. This conclusion is consistent with the evidence given by Cavric in his public examination. Cavric acted for Antoun and he testified that Antoun acquired an interest in the Global business in about October 2011 following the due diligence by Mr Khoury.

McHugh signs undated share transfers

138    McHugh said that he drove the Bankrupt, Antoun and Khoury to Coolangatta airport and on the way they stopped to allow the Bankrupt to collect some documents. He said that after the Bankrupt had left the car, Antoun requested him to sign some documents in relation to shares in the business. Antoun said: “There are a lot of George’s debts which need to be fixed up. I need the shares signed over” and “Kevin you’ve got to sign these papers. I’m paying a lot of George’s debts and that is my security.”

139    McHugh objected to doing so and said: “Joe, this is not the arrangement. You’re meant to pay off the tax debts, repay the company’s loan to me and arrange the refinance. That was the arrangement.” Antoun responded by saying: “You will sign the fucking transfers. They will be signed now. Tony, give Kevin the papers to sign.”

140    McHugh informed Antoun that the documents could not be lodged with ASIC before the company was refinanced because the company’s finance facility with Westpac was arranged and guaranteed by McHugh, and Westpac would withdraw the facility if he was not the shareholder. Antoun accepted that he was just holding the share transfers as security. McHugh signed the documents where Khoury indicated and handed them back.

141    McHugh said he did not read the documents he was provided and did not know what documents he signed. To the extent that he sought to suggest that he did not know that he signed share transfer documents I do not accept his evidence. On his own account he understood what the documents were. He only provided them as security and they were not intended to be lodged with ASIC.

The October 2011 Share Transfers

142    It is common ground between the parties that on 26 October 2011 Antoun was issued the following shares in the Operating Companies:

(a)    2,400 shares in Global Civils Group;

(b)    2,400 shares in Global HR Group; and

(c)    20 shares in Civil Pacific Services Group;

(“the 2011 Share Transfers”).

143    McHugh was the other shareholder in the Operating Companies. He held 120 shares in Global Civils Group, 120 shares in Global HR Group and one share in Civil Pacific Services Group.

The Bankrupt directs a debt arrangement with Elite Cranes - late 2011/early 2012

144    From about mid-2011 the Global business provided labour hire services to Elite Cranes in Victoria through an associate of Gatto, Mr Matt Thomas (“Thomas”). Over a period of four to five months in the second half of 2011 Thomas came to owe the business about $570,000 and McHugh was unable to recover those monies.

145    McHugh said that in late 2011/early 2012 the Bankrupt contacted him about the debt and said that it was to be offset against the $500,000 “that we owe to Michael [Stefanovski]”. The Bankrupt said: “it’s better to offset that with Michael. Let Michael chase Thomas for the money. It solves two problems.” McHugh objected to this course because he said the sum of $500,000 was supposed to be paid by Antoun to Stefanovski rather than coming out of the Global business. However, the Bankrupt said that the course he proposed was better. McHugh said that the result was that the Global business paid the monies owed to Stefanovski, as opposed to the Bankrupt or Antoun meeting their obligations under the agreement.

146    In my view McHugh’s evidence that the Bankrupt or Antoun were obliged to pay Stefanovski points away from the respondents’ contention that in the conversation with Gatto in late June/early July 2011 McHugh agreed to transfer the Global business to Antoun, alone.

Byrnes introduces Russo to the business - early 2012

147    McHugh said that in early 2012 Byrnes introduced him to Russo, an accountant. Russo became responsible for discussions with Westpac to extend its loan arrangements and the debt factoring facility, pending a refinancing of the business.

Difficulties with Westpac - March 2012

148    In late 2011/early 2012 the Bankrupt and Antoun unsuccessfully attempted to refinance the Global business.

149    In March 2012 McHugh was telephoned by Mr Kelvin Cheong (“Cheong”), the Westpac relationship manager for the Global business, who advised him that the 2011 Share Transfers was a breach of loan facility with Westpac. Cheong said that McHugh must have the shares transferred back to him or arrange refinance.

Construction Financial Management puts money into the Global business - March 2012

150    Byrnes gave evidence in his public examination that when he was introduced to the Global business he undertook some due diligence and made some recommendations which were adopted and which successfully improved the cash flow of the business. Following that (I infer in about February 2012) he said that the Bankrupt and Antoun invited him:

…to acquire a third interest in the company in consideration for me paying a third of the obligations that they were obligated to pay. Subsequently, I accepted, and I put in my third share…

This also points away from the respondents’ submission that Antoun, alone, acquired the Global business from McHugh. It tends to show that at that time the Bankrupt and Antoun each had a 50% beneficial interest in the business.

151    Although Byrnes said in his public examination that he acquired a one third interest in the business, before me he gave different evidence. In his second affidavit Byrnes said only that between March and October 2012, Construction Financial Management, which he controlled, “caused funds to be transferred” to Antoun in the sum of $3,421,810.79. Before me he did not say (and there was no pleading to the effect) that he transferred those monies to purchase an interest in the Global business. He did not say who acquired an interest and he did not describe the nature of any interest acquired. He did not say whether the monies were paid to acquire an interest, loaned, or advanced on some other commercial basis. In their submissions the respondents made no reference to Byrnes’ evidence in his public examination.

The 2012 Share Transfers – July 2102

152    On or about 1 July 2012 the shares in the Operating Companies owned by Antoun and McHugh were transferred to Global Human Resources Group (“the 2012 Share Transfers”).

153    The respondents submitted that the evidence suggests that the 2012 Share Transfers were made without Antoun’s consent. There is some evidence pointing that way but McHugh did not refer to these transfers in his evidence and I can draw no firm conclusion. Nothing appears to turn on it.

The dispute with the Bankrupt and Antoun - November 2012

154    McHugh said that in around November 2012 the business relationship between Byrnes and McHugh on the one hand and the Bankrupt and Antoun on the other substantially deteriorated. He said that:

Notwithstanding that I had been forced to sign Share Transfers which transferred my shareholding in the companies that operate the work force business, and forced to sign documents acknowledging the transfer, neither George Alex nor Joseph Antoun paid any of the tax liability for which I was personally liable, arranged the refinance of the company’s loan and factoring facilities such that I could be released from my personal guarantees, or repaid the company loans to me such that I could repay the mortgage on my house. They did not honour any of those obligations.

155    McHugh’s statement that the parties fell out because the Bankrupt and Antoun did not honour their obligations again points away from the respondents’ submission that Antoun, alone, acquired the business from McHugh.

156    Byrnes’ evidence in his public examination confirmed that the business relationship between the Bankrupt and Antoun with the respondents came to an end because the Bankrupt and Antoun failed to make the payments that were due. He said:

… I put in my third share and it became apparent that they [Alex and Antoun] were not putting in any money - in fact, quite the opposite - and I then had to protect my interest, and side with Mr McHugh and encourage them as robustly, but politely, as I could to meet their obligations. That was to pay the balance of the tax money, to pay the money to Mr McHugh that he was owed and to pave Mr Stefanovski, the original $500,000 investor. That went on, and on and on, those continued requests, and request for payment, request for payment, request for payment and, notwithstanding the fact that I knew first hand that they were both in receipt of many millions of dollars, none of it was being paid as it was supposed to be and therefore it culminated on 22 November 2012 me having a rather…heated argument with the gentlemen telling them that they had not met their obligations and any interest or entitlement they may have thought that they would have, or any agreement they had, was now repudiated and a new investors would put the balance of the money into meet the obligations to the Tax Department and to the outgoing investors. (Emphasis added.)

The January 2013 Deed of Trust

157    McHugh said that on 4 January 2013 the Bankrupt requested that he attend a breakfast meeting at the Mirage Resort the following morning. When the Bankrupt arrived for the meeting the following morning he was accompanied by Antoun, and they all went to the resort breakfast room.

158    At the meeting Antoun asked McHugh to sign some more documents. McHugh said that he objected because Antoun had not paid the tax obligations of the business, had not refinanced the business, and not repaid his loan so that he could repay his mortgage. He said that, at that point, Antoun spoke in a raised voice and an aggressive manner and said: “You’ll fucking sign them Kevin” and smashed his fist on the table disturbing the plates and food. McHugh said that the Bankrupt suggested to Antoun that he calm down. After Antoun walked away, McHugh said the Bankrupt told him that he should do what Antoun requested because: “You don’t know what he is going to do.”

159    In the resort foyer the Bankrupt presented a document to McHugh which he signed. McHugh said that he did not read the document and was not provided with a copy. In my view his evidence that he signed without reading it is implausible when Byrnes and McHugh were in dispute with the Bankrupt and Antoun at that time. I do not accept his evidence. Having subsequently been shown a document titled “Deed of Acknowledgement of Trust” McHugh said, and I accept, that was the document he signed on 5 January 2013.

160    Importantly, the deed states:

Mr McHugh hereby declares and acknowledges that he holds two (2) ordinary shares in Global Human Resources Group Ltd…registered in his name as well as any additional share capital that may be allotted or transferred to him upon trust for Mr Joseph Antoun absolutely.

I call this “the January 2013 Deed of Trust.”

161    In closing submissions the respondents submitted that McHugh was coerced by the Bankrupt and Antoun to sign the January 2013 Deed of Trust. I do not accept this submission when the respondents disavowed any allegation of duress and, as I explain, if it were necessary to decide there are good reasons to doubt Mr McHugh’s account in relation to duress.

The January 2013 Statutory Declaration

162    McHugh deposed that on 10 January 2013 the Bankrupt telephoned him and said there was a problem with the document he had signed the previous week, and that it was necessary for his signature to be witnessed by a Justice of the Peace. McHugh agreed to meet Antoun that afternoon and after some unsuccessful attempts he was able to sign the document provided by Antoun before a JP in a chemist shop.

163    McHugh again said that he did not read the document, was not provided with a copy, but assumed that the document he signed was the same document that he had signed in the foyer of the Mirage Resort (the January 2013 Deed of Trust). In my view his evidence that he signed the document without reading it is quite implausible when he and Byrnes were in dispute with the Bankrupt and Antoun at the time and when, even at a glance, the two documents are very different.

164    McHugh said he was subsequently shown a copy of a Statutory Declaration. It is dated 10 January 2013 and was made before Ms Hilda Reaburn JP at Mermaid Beach, Queensland (“the January 2013 Statutory Declaration”). In the declaration McHugh states:

1.    From approximately 17 September 2008, I was the owner of all share capital in Civil Pacific Services Pty Ltd ACN 118 756 960 (“CPS”), Global HR Pty Ltd ACN 129 542 114 (“GHR”) and Global Civils (NSW) Pty Ltd ACN 130 003 744 (“GC”) together the “Companies”. The Companies own and conduct labour hire businesses primarily operating in Queensland and New South Wales.

2.    On or about October 2011, I decided to sell my ownership of the Companies as they were facing difficult trading conditions and I was concerned about their solvency, particularly as a result of debts owed to the Australian Taxation Office.

3.    On or about mid to late October 2011, I agreed to sell my ownership of the Companies to Mr Joseph Antoun. Once we agreed to the terms of sale, we signed a Term Sheet on or about mid to late 2011 to effect the sale of the Companies.

4.    It was agreed that Mr Antoun would be issued with ordinary shares in each of the Companies such that his ownership of each of the Companies would be approximately 95% of the issued share capital. It was also agreed that I would retain approximately a 4.7% interest of the Companies. Amongst other things, Mr Antoun agreed to assume my liability in respect of all claims and actions against me personally resulting from my ownership and directorship of the Companies.

5.    I agreed to stay on as Director of each of the Companies and agreed to continue managing the Companies and the labour hire businesses. It was agreed that I would be paid $250,000 annually for my services.

6.    I obviously agreed to act in the best interests of Mr Antoun and at his direction and believe that I always have.

7.    However, from a review of the current organisational extract of the Companies from ASIC, it appears that the ownership of the Companies was incorrectly altered on or about 11 July 2012. From the extract, the current ownership of the entire share capital of each of the Companies is held by Global Human Resources Group Pty Limited ACN 156 139 276.

8.    It is my understanding that Mr Antoun did not sign any documents relating to a transfer of shares in the Companies or authorise any change of ownership of the Companies.

9.    It is also my understanding that Mr Antoun did not receive any consideration in respect of this purported transfer of ownership of the Companies.

10.    This purported transfer of ownership of the Companies to Global Human Resources Group Pty Limited is obviously an error. It may have arisen as a result of the appointment of a new accountant for the Companies and a possible misunderstanding around the timing of a new business and ownership structure which was being planned as a part of a proposed trade sale or initial public offering of shares in the Companies.

11.    In any event, I will ensure that this incorrect recording of the purported transfer of ownership of the Companies is corrected on the ASIC register as soon as possible.

12.    I have also made an undertaking to Mr Antoun to increase my vigilance in relation to any changes the Companies details or information as registered on the ASIC register.

13.    I also note that I am listed on the current organisational extract in respect to Global Human Resources Group Pty Limited from ASIC register as a shareholder. These shares are recorded as not being beneficially owned by me. I acknowledge that I hold this shareholding on trust for Mr Antoun and will deal with the shareholdings and any rights associated with such ownership as directed by Mr Antoun. I will also account to Mr Antoun for any dividends or profits derived therefrom until this error is corrected.

165    The contents of McHugh’s January 2013 Statutory Declaration are materially inconsistent with the sworn account he gave in his first affidavit. The gist of his affidavit is that he was coerced by the Bankrupt and Gatto into transferring his interest in the Global business in about May 2011. He said that he transferred his whole interest in the business and did not state that he continued to hold an interest in the business thereafter. In his statutory declaration he said that he sold his interest in the Global business to Antoun in October 2011 because of difficult trading conditions and a concern about the outstanding taxation liabilities of the business. He declared that Antoun owned 85% of the business and he retained 4.7% for himself. The significant differences in his sworn accounts affected my view of the reliability of his evidence.

Antoun threatens legal proceedings - 10 January 2013

166    In January 2013 Antoun’s lawyers, NSW Compensation Lawyers, sent a letter of demand which threatened legal proceedings against Russo and Global Human Resources Group if they continued to claim an interest in the shares in the Operating Companies. Attached to the letter of demand was a draft Interlocutory Process in the NSW Supreme Court naming Antoun and McHugh as plaintiffs and Russo and Global Human Resources as defendants. The draft proceeding sought, amongst other things, a declaration that the 2012 Share Transfers be declared invalid. The proceeding was not issued.

The March Deeds

167    In his first affidavit McHugh said that in February 2013 there were negotiations to resolve the dispute between Byrnes, the Bankrupt and Antoun, predominantly between their respective lawyers.

168    He said that in March 2013 Byrnes came to him asking him to sign agreements that had been drafted as a result of these negotiations. He tried to paint a picture of minimal involvement but in cross-examination he accepted that he authorised Byrnes to negotiate the agreements on his behalf, that he had read and understood the deeds of agreement, including by receiving legal advice from Byrnes’ solicitors, Moloney Lawyers.

169    McHugh said that Byrnes told him:

Kevin as you know, we have been negotiating with George [Alex] and Joe [Antoun] earlier this year. We have finally reached a form of agreement. The agreement lets us buy out their interest in the business.

…We’ve reached a final agreement which would take them out altogether. The documents have been prepared by the lawyers. I need you to sign three agreements.

…It’s an agreement to buy out George and Joe once and for all. We’ll pay them out over a period of time…There are two other agreements, which just relate to how the monies are apportioned as between George and Joe. They don’t have much to do with us. It’s just what their lawyer has requested. It’s better for them for tax.

(Emphasis added.)

To the extent that McHugh sought to suggest that he did not understand that the March Deeds mischaracterised the substance of the agreement with the Bankrupt I do not accept his evidence. He must have known that there was no basis upon which the Bankrupt could be entitled to a payment of $6.2 million for defamatory statements by him or the other respondents.

170    The costs submissions on McHugh’s behalf state:

In late 2012 a dispute arose between George Alex and Joseph Antoun, on one side, and [McHugh], James Byrnes and Angelo Russo on the other, as to the structure and future operation of the business. After negotiations in early 2013 an agreement was reached that George Alex and Joseph Antoun would relinquish any interest and involvement they claimed in the business in return for certain scheduled payments to be made or organised by [McHugh], James Byrnes and Angelo Russo. The agreement was embodied in four documents prepared for George Alex and Joseph Antoun by their then solicitors Colin Biggers & Paisley.

171    It is common ground that on 11 March 2013 the parties executed the following deeds:

(a)    a Deed of Settlement and Release (“Settlement Deed”);

(b)    a Defamation Settlement Deed (“Defamation Deed”);

(c)    a Share Transfer Deed (to which McHugh was not a party) (“Share Transfer Deed”); and

(d)    a General Security Deed (“General Security Deed”).

These are the documents I have described as the “March Deeds”.

The Settlement Deed

172    One set of parties to the Settlement Deed were:

(a)    the Bankrupt;

(b)    Antoun (as trustee of the purported trust); and

(c)    Active Labourforce Pty Ltd, ACN 158 827 993 and Active Labour Pty Ltd (“the Active companies”) which are companies associated with the Bankrupt and Antoun.

173    The other parties were:

(a)    McHugh, Byrnes and Russo;

(b)    the Operating Companies - Civil Pacific Services Group, Global HR Group, Global Civils Group;

(c)    the Parent Company - Global Human Resources Group;

(d)    GHR No 3, which held the shares in the Parent Company; and

(e)    Byrnes’ company, Construction Financial Management, which had transferred monies to the Global business;

174    Under the Settlement Deed, McHugh, Byrnes, Russo, the three Operating Companies, Global Human Resources Group, and GHR No 3 (“the March Deed Payers”) agreed to pay $12 million to the Bankrupt and Antoun (as trustee of the purported trust) by way of 12 unequal instalments.

175    The recitals to the Settlement Deed state, amongst other things, that:

(a)    Antoun (as trustee of the purported trust) acquired the majority shareholding in the Operating Companies in November 2011 on behalf of the trust;

(b)    the Bankrupt is one of the beneficiaries of the JA Trust.

(c)    various dispute had arisen between the parties to the deed with respect to the Global business, the Operating Companies and the agreements, arrangements, negotiations and discussions relating to the Global business and the Operating Companies;

(d)    there “have been allegations by the parties against some or all of the other parties with respect to alleged wrongdoings, fraud and improper conduct” with regards to the Operating Companies and the Global business; and

(e)    the parties agree to resolve the disputes on the terms and conditions set out in the Settlement Deed, having simultaneously entered into the Share Transfer Deed and the Defamation Deed.

176    The instalments and the parties responsible for the payment may be summarised as follows:

177    Under the Settlement Deed:

(a)    the Bankrupt and Antoun acknowledged that the instalment payments of $12 million would first be paid to Antoun in satisfaction of $5.65 million due pursuant to the Share Transfer Deed, with the payments thereafter being applied between the Bankrupt and Antoun in accordance with the Defamation Deed;

(b)    the Bankrupt and Antoun covenanted and agreed with the March Deed Payers not to compete with the Operating Companies and the businesses in the Queensland for five years from the date of the Deed;

(c)    the Operating Companies, the Parent Company and GHR No 3 agreed to provide appropriate documents capable of creating security interests in favour of the Bankrupt and Antoun;

(d)    McHugh, Byrnes, Russo, the Bankrupt and Antoun each represented and warranted to the other parties, amongst other things, that each had read and understood the contents of the Deed, had obtained legal advice about the subject matter of the Deed, and acknowledged that he entered into the deed voluntarily upon his own information and investigations, of his own free will and without compulsion;

(e)    the Operating Companies accepted various restrictions until such time as $12 million was paid in full, including a restriction on paying dividends to its members, paying more than $50,000 per annum to Russo for directors fees, paying more than $150,000 per annum to Russo for accountancy fees, paying more than $100,000 per annum to Byrnes for consultancy fees, and paying more than $250,000 in salary to McHugh;

(f)    each party was prohibited, except by consent of the other parties, from making any disclosure of the terms of the Settlement Deed to Westpac. It provided a mechanism whereby, if the Bankrupt or Antoun were alleged on reasonable grounds to have made contact with Westpac, then they were required to pay $250,000 into the trust account of the legal firm, Colin Biggers & Paisley subject to the conclusion of an investigation into the alleged disclosure by a person nominated by the President of the Law Society of New South Wales. I infer that the March Deeds were intended to be kept secret from Westpac;

(g)    each party provided comprehensive releases, subject to the rights and obligations set out in the Settlement Deed.

The Defamation Deed

178    The Bankrupt and Antoun (as trustee of the purported trust) constituted one group of parties to the Defamation Deed. The other group was comprised of Byrnes, McHugh, Civil Pacific Services Group and Global Civils Group.

179    The parties agreed that $6.35 million of the monies to be paid pursuant to the Settlement Deed would be made as payments for defamation, apportioned as follows:

(a)    $6,2000,000 to the Bankrupt; and

(b)    $150,000 to Antoun.

180    The Defamation Deed provided only a broad description of the alleged defamatory statements and did not identify which of the March Deed Payers made the statements. It only stated that the payments were to be made in relation to unidentified:

…comments, imputations and allegations relating to Alex and Antoun with respect to their collective and individual relationships with the Payers and each of them, their dealings and association with an involvement in the Companies and the Businesses and their alleged involvement in criminal and other illegal activities.

The Share Transfer Deed

181    Under the Share Transfer Deed, Antoun (as trustee of the purported trust), and described as the vendor, agreed to transfer his beneficial interest in:

(a)    2,400 shares in Global Civils Group;

(b)    2,400 shares in Global HR Group; and

(c)    20 shares in Civil Pacific Services Group

to Global Human Resources Group, as purchaser, in consideration of $5.65 million to be paid under the Settlement Deed.

182    The Share Transfer Deed relevantly provided:

2    Sale of Shares

(a)    On the date of this document the Vendor as beneficial owner shall transfer to the Purchaser the Shares.

(b)    The Price will be paid in accordance with the Deed of Settlement.

(c)    The Purchaser acknowledges that, since being acquired by the Vendor, the full beneficial ownership in the Shares have remained with Antoun as trustee for the Trust to the date of this document and that the Shares have not, prior to the date of this document, been effectively transferred or assigned for the benefit of or vested in the Purchaser at law, in equity or otherwise.

(d)    For the avoidance of doubt the parties acknowledge and agree that the Price does not constitute an amount payable in addition to the Consideration as defined in accordance with the Deed of Settlement, and the provisions of this document do not give rise to any obligation to pay an amount over or in addition to the Consideration payable pursuant to the Settlement Deed.

3    Acknowledgements

The Purchaser and the Vendor acknowledge, each to the other, the following:

(a)    On 1 July 2012, the Shares were inadvertently and incorrectly transferred into the name of the Purchaser.

(b)    From 1 July 2012, the Purchaser has held the Shares on constructive trusts for the Vendor.

The General Security Deed