Metal Manufacturers Limited v GMJ Electrical Projects Pty Ltd

DISTRICT COURT OF QUEENSLAND

CITATION:	Metal Manufacturers Limited v GMJ Electrical Projects Pty Ltd & Ors [2019] QDC 62
PARTIES:	METAL MANUFACTURERS LIMITED (ACN 003 762 641) (Plaintiff) AND GMJ ELECTRICAL PROJECTS PTY LTD (ACN 139 383 618) (First Defendant) AND GREGORY JOHNSTON (Second Defendant) AND ALFRED STOCKILL (Third Defendant) AND MARIA JOHNSTON (Fourth Defendant)
FILE NO/S:	4794 of 2013
DIVISION:	Civil
PROCEEDING:	Trial
ORIGINATING COURT:	District Court at Brisbane
DELIVERED ON:	29 April 2019
DELIVERED AT:	Brisbane
HEARING DATE:	18-21 February 2019, 11 March 2019
JUDGE:	Porter QC DCJ
ORDER:	1.     The Plaintiff’s claim is dismissed. 2.     The Third Defendant’s third party claim is dismissed.
CATCHWORDS:	CORPORATIONS – MANAGEMENT AND ADMINISTRATION – DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION – FIDUCIARY AND RELATED STATUTORY DUTIES – DUTIES INVOLVING CONFLICTS OF INTEREST – where the Third Defendant was employed as a Profit Centre Manager by the Plaintiff – where the Third Defendant made supplies of goods to the First Defendant on unauthorised credit – where the Third Defendant obtained no personal benefit from the unauthorised credit supplies – whether the Third Defendant owed fiduciary duties to the Plaintiff as an employee – whether the Third Defendant breached his fiduciary duty by using his position to obtain a personal benefit – whether the Third Defendant breached his fiduciary duty not to prefer his personal interests over those of the Plaintiff – whether the Third Defendant improperly used his position to gain an advantage for himself or cause a detriment to the Plaintiff in breach of s. 182 Corporations Act 2001 (Cth) – whether the Plaintiff is entitled to equitable compensation or equitable damages, or compensation pursuant to the Corporations Act2001 (Cth) CORPORATIONS – MANAGEMENT AND ADMINISTRATION – DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION – FIDUCIARY AND RELATED STATUTORY DUTIES – ACCESSORIAL LIABILITY – where the Plaintiff and Third Defendant alleges the Second Defendant made representations that he would pay for unauthorised supplies of goods – where the Plaintiff alleges the Second Defendant knew that the Third Defendant was not authorised to make the unauthorised credit supplies –  whether the Second Defendant knowingly assisted in a dishonest breach of fiduciary duty by the Third Defendant – whether the Second Defendant has accessorial liability for any breaches of the Corporations Act 2001 (Cth) committed by the Third Defendant Barnes v Addy (1874) LR 9 Ch App 244 Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2013] FCA 1341 Chan v Zacharia (1984) 154 CLR 178 Chew v R (1992) 173 CLR 626 EagleBurgmann Australia Pty Ltd v Leabeater (2012) 219 IR 449 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 Hodgson v Amcor [2012] VSC 94 Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Limited [2017] FCAFC 74 Pilmer v Duke Group Ltd (In liq) (2001) 207 CLR 165 R v Byrnes (1992) 183 CLR 501 Corporations Act 2001 (Cth), s 79, s 182, s 1317H
COUNSEL	G Coveney for the Plaintiff The Second, Third and Fourth Defendants each appeared on their own behalf
SOLICITORS:	Case Legal for the Plaintiff The Second, Third and Fourth Defendants each appeared on their own behalf

Contents

Introduction

Mr Stockill’s proceedings
The issues

Haymans’ evidence

Mr Gallard
Mr Osborne
Mr Hart
Mr Hardy
Mr Raj

Mr Stockill’s evidence

Mr Johnston’s cross examination of Mr Stockill

Mr Johnston’s evidence

Mr Coveney’s cross examination of Mr Johnston
Mr Stockill’s cross examination of Mr Johnston

Uncontentious facts
Resolving the conflicting accounts of Messrs Stockill and Johnston

The competing versions summarised

Demeanour
General attacks on Mr Johnston’s credit
Mr Stockill’s previous statement
The documentary record of dealings between GMJ and Haymans
The intercom and switchboard supply
Inferences from GMJ’s supply needs
Other factors generally favouring Mr Stockill’s account

Findings

Discussions prior to May 2013

Haymans’ claims against Mr Stockill

The pleaded case
General principles

Fiduciary duty as employee?
Breach of s. 182(1) as an employee

Analysis of the plaintiff’s claims against Mr Stockill

Was Mr Stockill a fiduciary?
Did Mr Stockill breach the pleaded fiduciary duty?
Did Mr Stockill breach s. 182(1)?
Concluding observation

Haymans’ Claims against Mr Johnston

Introduction
Mr Johnston’s accessory liability for breach of fiduciary duty

The Law
The plaintiff’s case on knowing assistance
Mr Johnston’s knowledge
Mr Johnston’s acts of assistance

Analysis

Mr Johnston’s liability for accessory liability for breach of s. 182(1)

Haymans’ remedies
Mr Stockill’s claims against Mr Johnston

Orders
Annexure A
Annexure B

INTRODUCTION

1. The plaintiff is a well-known supplier of electrical products under the name “Haymans” (Haymans).  The first defendant (GMJ) was an electrical contractor providing fit out services to small to medium sized projects.  It carried on business with Haymans from about 2010 until about August 2013.  It was placed into administration in January 2014 and wound up soon after.  GMJ took no part in this proceeding.

2. The second defendant (Mr Johnston) was the sole director and shareholder of GMJ and its guiding mind.  He also directed and managed GMJ’s projects with the assistance of a number of employees. 

3. The third defendant (Mr Stockill) was a “Profit Centre Manager” for Haymans.  He was responsible for management of Haymans’ Ipswich branch. 

4. The fourth defendant (Ms Johnston) is the wife of Mr Johnston. 

5. In September 2012, after a trading history of about two years with the Ipswich branch, GMJ entered into a credit facility with Haymans, administered through Mr Stockill’s Ipswich branch.  The credit limit was $20,000.  On 20 March 2013, the credit limit was increased to $50,000.  The circumstances of that event are contentious, but it is not contentious that Mr Stockill had by that date permitted GMJ’s account to exceed its $20,000 credit limit at that time by some $24,000 without authorisation by Haymans’ credit department. 

6. Thereafter, Haymans and Mr Stockill contend that from April to July 2013 further supplies of goods totalling $275,797.50 were permitted by Mr Stockill on credit which exceeded the approved credit limit.  That left a sum due for goods supplied of $325,797.50.  GMJ did not pay that sum and following its insolvency, it appeared unlikely that the sum would be paid by GMJ.  In late 2013, Haymans brought these proceedings to recover its losses from GMJ and failing that, from the other defendants. Mr Stockill sought indemnity from Mr Johnston for any such loss.

7. At trial, Haymans contended:

   (a)Mr Stockill permitted unauthorised credit supplies in knowing breach of his authority and pursuant to an agreement with Mr Johnston that supplies would be paid for when GMJ had the funds available;

   (b)Mr Stockill was induced to do so by Mr Johnston’s continuous promises that GMJ would pay for the unauthorised credit supplies;

   (c)Mr Stockill’s actions were in breach of his fiduciary duties, Corporations Act 2001 (Cth) duties and accordingly he is liable for the loss arising from the unauthorised supplies;

   (d)Mr Johnston was involved in those breaches in a manner which gives rise to accessory liability in respect of the fiduciary and Corporations Act breaches by Mr Stockill so as to make Mr Johnston liable for the loss from the unauthorised supply.  That involvement was pleaded as comprising (in summary):

   (i)Reaching the agreement alleged;

   (ii)Representing to Mr Stockill that supplies on credit under the agreement would be paid for from GMJ’s successful projects; and

   (iii)Doing those acts knowing Mr Stockill’s acts were unauthorised.

8. By its pleading, Haymans also alleged that:

   (a)Ms Johnston had accessory liability for the loss from the unauthorised supply (that claim was dismissed by consent on the second day of the trial); and

   (b)Mr Stockhilll breached contractual employment duties and GMJ, through Mr Johnston, had engaged in misleading and deceptive conduct in breach of the Australian Consumer Law by inducing Mr Stockill to make the unauthorised supplies, and that Mr Johnston had accessory liability for that loss.  Those claims were not pressed in submissions.

9. Mr Stockill’s defence disputed the claims advanced against him. He did not dispute the unauthorised credit supplies but said:

   (a)That it was within his authority to permit supplies on credit exceeding the credit limit; and

   (b)If doing so was not within his authority, his error was the result of inexperience and inadequate training and management abilities which were known to Haymans.

10. Notably, he also:

    (a)Admitted the unauthorised credit supplies were made, though did not admit the precise amount;

    (b)Alleged that the making of the supplies was not a breach of duty because he exercised his discretion to make those supplies for the benefit of Haymans; and

    (c)Alleged that he did not obtain any personal benefit from making the unauthorised supplies.

11. Mr Stockill changed his position substantially at trial.  At trial, he made clear that he was not disputing the factual basis of Haymans’ claim against him.  He admitted that he knew he was not authorized to supply goods outside of the approved credit limit,[1] that he took active steps to conceal the unauthorised supplies from Haymans by not generating tax invoices until there was available credit under the approved credit limit,[2] and that he reached an agreement as alleged by Haymans with Mr Johnston to do so.[3]  He also accepted the amount claimed by Haymans.

    [1] Exhibit 21, paragraph 40.

    [2] Exhibit 21, paragraph 44.

    [3] See the first page and second last page of Mr Stockill’s trial submission.

12. Although Mr Stockill was not represented at trial, I am satisfied that he understood the nature and effect of his admissions.  He did maintain his position that he received no personal benefit from the unauthorised supply.  There was no evidence at trial to the contrary and no submission to the contrary by Haymans.  Notwithstanding Mr Stockill’s factual concessions and very effective cross examination of Mr Johnston, it was plain that he had only a very  limited appreciation of the legal issues arising in the proceedings, both in respect of Haymans’ claims and in respect of his claim against Mr Johnston (dealt with from [16] below).

13. Mr Johnston’s defence rejected Haymans’ claims against him.  In summary, Mr Johnston pleaded:

    (a)He reached no agreement with Mr Stockill to make the unauthorised supplies and conceal them from Haymans;

    (b)Mr Johnston did not know that Mr Stockill had no authority to make the supplies and in fact Mr Stockill had actual or ostensible authority to make supplies on credit outside the approved credit limit;

    (c)That he did not make the extensive representations promising payments alleged, in fact he had little to do with Mr Stockill; and

    (d)That there were no unauthorised supplies to the value alleged under any agreement.

14. Mr Coveney, counsel for the plaintiff, contended that the value of the unauthorised supplies was the subject of a deemed admission in Mr Johnston’s defence.  Mr Johnston consistently sought to dispute the amount at trial.  Ultimately, Mr Coveney sought to establish the amount claimed on the evidence tendered at trial and did not press the deemed admission agument.

15. Like Mr Stockill, Mr Johnston was initially represented.  His pleadings were settled by counsel.  His solicitors withdrew just days before the commencement of the trial.  At trial, he maintained his pleaded case except in one important respect.  His evidence in chief, given by tender of a statement prepared with legal assistance, accepted that he knew Mr Stockill did not have authority to sell goods on credit above the approved credit limit.[4]  The actual or ostensible authority contention was thereby unmaintainable.

    [4] Exhibit 25, paragraphs 27 and 28.

Mr Stockill’s proceedings

16. Mr Stockill brought his own third party proceeding against Mr Johnston.  By his statement of claim, Mr Stockill repeated the allegations contained in the Haymans statement of claim of representations by GMJ (through Mr Johnston) that GMJ could and would pay for the unauthorised supplies.  

17. Further he alleged that in the circumstances where Mr Johnston knew Mr Stockill was breaching his duties in making the unauthorised supplies, it was misleading conduct for Mr Johnston not to warn Mr Stockill if there was a risk that the promises of payment would not be forthcoming and, by not doing so, Mr Johnston impliedly represented that he had reasonable grounds to make the representations.

18. Mr Stockill alleged that the representations were untrue and that there were no reasonable grounds for making them, primarily because the payments were never made and GMJ ultimately became insolvent. Mr Stockill alleges he relied on those representations to make the unauthorised supplies and that if they had not been made, he would not have made supplies on credit above the $50,000 limit and would have avoided any liability to Haymans, including for costs.  If he is found liable, he claims that loss against Mr Johnston, as a person involved in GMJ’s contraventions.

19. Mr Stockill also sought contribution or indemnity from Mr Johnston in respect any liability he has to Haymans for breach of fiduciary duty and/or breach of s. 182(1) Corporations Act 2001 (Cth).

The issues

20. The issues to be resolved in the proceedings are as follows:

    (a)First, whether Mr Johnston and Mr Stockill reached the agreement alleged;

    (b)Second, if no such agreement was reached, whether and to what extent Mr Johnston knew that Mr Stockill was in fact making unauthorised credit supplies to GMJ;

    (c)Third, whether promises were made by Mr Johnston to Mr Stockill about payment for unauthorised credit supplies and if so what they were;

    (d)Fourth, whether Mr Stockill’s conduct breached one or more of the duties alleged by Haymans;

    (e)Fifth, whether Mr Johnston’s conduct and knowledge were sufficient to attract accessory liability for any such breaches;

    (f)Sixth, if Mr Stockill is liable, whether Mr Johnston’s conduct is such as to cause him to be liable to Mr Stockill for any liability of Mr Stockill to Haymans; and

    (g)Seventh, the amount of any such liabilities.

HAYMANS’ EVIDENCE

21. The plaintiff called four witnesses: Messrs Gallard, Osborne, Hart and Hardy, and relied on Mr Raj’s affidavit evidence.

Mr Gallard

22. Mr Gallard was the Regional General Manager of Haymans at the relevant time.  He gave evidence that Mr Stockill had no authority to supply on credit above approved credit limits.  He gave evidence that Mr Stockill successfully completed a number of management training courses.  He gave evidence of Mr Stockill’s admissions to him on 7 November 2013 (the 7 November meeting) that Mr Stockill had supplied GMJ with goods on credit over the credit limit.  Those admissions were ruled inadmissible against Mr Johnston.[5]  I have acted on this basis where other such evidence was led without express objection by Mr Johnston.

    [5] Mr Stockill’s admissions might have been admissible against Mr Johnston by analogy with the cases dealing with civil conspiracy and preconcert in the criminal law: Ahern v R (1988) 165 CLR 87. This was not raised at the trial.

Mr Osborne

23. Mr Osborne was the Regional Credit Manager for Haymans at the relevant time.  He also gave evidence that there was no discretion to branch managers to approve supplies on credit above the credit limit.  He proved the various credit applications and approvals for September 2012 ($20,000), March 2013 ($50,000) and August 2013 (an application for a credit limit of $100,000, to be discussed further below).  He also gave some evidence of discussions at the 7 November 2013 meeting about Mr Stockill’s explanation as to how he permitted and concealed supplies above the credit limit.  The comments about the admissibility and weight of this evidence as evidence against Mr Johnston in the previous paragraph apply equally here. 

24. Mr Osborne also gave evidence of a meeting with Ms Johnston and a solicitor, Mr Jones, in November 2013 following Mr Stockill’s admissions.  He had little recollection of what was said except that he promised to cause delivery of supporting documentation.

25. The Haymans account statement for GMJ as at 31 January 2014[6] and the payment history report for GMJ produced from Haymans’ accounting system[7] were tendered through Mr Osborne.  In cross examination, Mr Johnston tendered a letter sent by Mr Osborne[8] following the November 2013 meeting with Ms Johnston and Mr Jones which recorded, amongst other things, that:

    (a)Mr Stockill had supplied documents supporting the claimed amount of $281,295.57 said by Haymans to have been supplied by Mr Stockill above the credit limit; and

    (b)Mr Stockill said that he had supplied those documents at the end of July 2013 in a meeting with the Johnstons and Mr Stephenson (GMJ’s Project Manager).

    [6] Exhibit 9.

    [7] Exhibit 10.

    [8] Exhibit 12.

Mr Hart

26. Mr Hart is the current Regional Credit Manager for Haymans. He was called primarily to tender the tax invoices generated by Haymans after Mr Stockill admitted the unauthorised supplies in November 2013. There was a question raised as to the admissibility of the tax invoices as books of account or entries in the books of account of Haymans pursuant to s. 84 Evidence Act 1977 (Qld). The issue (raised by me, bearing in mind the unrepresented status of Mr Johnston) was whether they were entries “made in the usual and ordinary course of” Haymans business (see s. 85(1) Evidence Act). The question arose from the evidence that the tax invoices were prepared after Mr Stockill entered all the unauthorised transactions which he said he had kept off the books of Haymans until November 2013. I deal with that further below but observe that the documents were in any event admissible under s. 1305 Corporations Act. 

Mr Hardy

27. Mr Hardy was a long standing employee of Haymans who had for many years worked as an internal auditor for the business.  He had conducted an audit following Mr Stockill’s revelations, but did not personally carry out the reconciliation and entry of the unauthorised credit supplies into the records of Haymans (Mr Stockill did that).

28. He did, however, explain Haymans’ order and billing processes.  He explained a customer order (called a telephone order book (TOB) for historical reasons) was raised when an order was received.  On supply in accordance with the order, a tax invoice was raised.  Supply should be accompanied by some proof of supply.  Where it was delivered by Haymans, there should be signed manifest by the customer.  Where collected by a courier, the courier should sign.  Where the customer collects, they should have signed for delivery on the tax invoice.  The raising of the tax invoices is done at branch level.[9]

    [9] TS2-7.13 to .14.

Mr Raj

29. Mr Raj’s affidavit proved the admissions by Mr Stockill in his statements.  These were only admissible against Mr Stockill.  The statements were ultimately tendered by Mr Stockill in his case, making them evidence admissible against Mr Johnston.  That was the only evidence led by Haymans on the precise character of the dealings between Mr Johnston and Mr Stockill.  Both of those gentlemen gave evidence in their own cases.

MR STOCKILL’S EVIDENCE

30. Mr Stockill’s evidence in chief included two signed statements,[10] tendered under s. 92 Evidence Act, supplemented by some brief questions asked by me.  His first, longer, statement was signed on 12 December 2013 and a short supplement was signed the next day.

    [10] Exhibits 21 and 22.

31. His evidence was significantly expanded through cross examination by Mr Coveney.  Because Mr Stockill’s position was almost entirely supportive of the plaintiff’s factual case at trial, Mr Coveney cross examined without asking leading questions.  He was correct to adopt that course.  I would not have permitted cross examination in the ordinary way on issues where there was a close co-incidence of interest of the plaintiff and Mr Stockill.[11]  Mr Coveney’s examination was in the nature of further evidence in chief.

    [11] J D Heydon, Cross on Evidence (Lexis Nexis) [17475].

32. Mr Stockill said he was employed by Haymans for 22 years and was a Profit Centre Manager for the Ipswich branch from 2010.  From about 2010, he knew Mr Johnston as a regular cash customer of Haymans through GMJ.  He said that in around September 2012, Mr Johnston asked him if GMJ could have a credit account and one was approved by Haymans at $20,000 on 14 September 2012.  He told Mr Johnston that the account was a standard 30 day account and had to be kept in terms. He said that thereafter he was the point of contact for Mr Johnston at Haymans.

33. He said that until March 2013 GMJ operated within terms and that he would speak at times on the telephone and in person at the branch with Mr Johnston about their respective business activities.  He says he told Mr Johnston that the branch was under pressure from losing Queensland Rail as a customer.

34. He said that at the end of March 2013, Mr Johnston asked to increase his credit limit to $50,000 and signed an application to that effect. He said GMJ’s account was at $44,435.44 at that stage, some $24,000 over the approved limit.  The credit limit increase was approved.

35. He explained the circumstances of the March 2013 increase in detail.  He said that in March 2013, Mr Johnston gave Mr Stockill orders which, if supplied on credit, would have taken GMJ’s account well outside the credit limit.  He said that he met at least some of those orders on unauthorised credit to the extent that the outstanding sum due from GMJ by the end of March 2013 was $44,435.44.[12] 

    [12] TS2-54.11 to .29.

36. He gave a version in testimony as to how the initial unauthorised credit supply came about.  This was the only evidence which in my view touched on the alleged express oral Credit Limit Circumvention Agreement:[13]

    [13] TS2-43.12 to 44.28.

    All right.  Do you ever remember agreeing to supply goods above the credit limit of the company?‑‑‑Yes, I do.

    And do you recall how that came about?‑‑‑Yes, I do.

    And how do you recall that coming about?‑‑‑It came about, basically, it started at the $20,000 limit.  And the Logan job, the super clinic job, was a big job and I got an order for about 30,000-odd of lighting.  He was already at his limit and – to supply the lighting and I got a phone call asking for the – the lighting to be delivered on-site and I spoke to – obviously I spoke to Greg at the time and said to him, “Mate, the – you exhausted your limit and that I couldn’t provide the gear.”  I was advised that he’d sort payment out.  So sometimes, even though it’s not permitted to extend someone’s limit, it has happened from time to time.  And I took the trust of the customer to say that he would provide ‑ ‑ ‑

    Well, hold on?‑‑‑Sorry.

    You said that this happened in the context of the Logan job?‑‑‑Yes.

    Where there was an order for, I think you said ‑ ‑ ‑?‑‑‑30,000-odd of lighting.

    ‑ ‑ ‑ 30,000-odd of lighting?‑‑‑Yes.

    And you told me that you recall saying to Mr Johnston that you couldn’t supply because it was over the limit?‑‑‑Yep.

    He was at his limit.  So what do you recall being said around this time after that?‑‑‑I just recall us having a general common – conversation ‑ ‑ ‑

    Yes?‑‑‑ ‑ ‑ ‑ about his need for the gear to be on-site at a certain time to get his job going and us making an agreement for me to supply that gear outside of the terms of the contract on the proviso that I would get a payment that would bring him back inside his terms.

    All right.  Well, do you remember how the issue of payment outside the scope of the credit terms came up?  Do you remember who raised the question of supply outside the credit limit?‑‑‑Who raised the question with me to supply ‑ ‑ ‑

    Yes?‑‑‑Yes, the – the – Mr Johnston.

    Right.  And do you remember the substance and effect of what he said to you to raise that issue?‑‑‑Again, just that the fact that he had lots of jobs going and needed the gear and – I suppose we had many conversations of an agreeance to – to supply that gear.

    All right.  Well, do you recall him asking you to advance the – to supply the goods outside the credit limit?  Do you recall him asking you ‑ ‑ ‑?‑‑‑Yeah, I do.  Yes, I do.

    Well, what do you recall was the substance and effect of how he asked you that?‑‑‑Well, basically, he asked me to supply the gear, like I said, because he needed the gear on-site.  He – he knew what his credit limit was at the time.

    Well, I’m not interested in what he knew, I’m just want to know what he asked you, Mr Stockill.  You said he asked you to supply the gear on-site?‑‑‑He asked me to supply the gear ‑ ‑ ‑

    Yes?‑‑‑ ‑ ‑ ‑ on-site on the proviso that he would make a payment.

    All right.  Do you recall any discussion between him and you at that time about the credit limit?‑‑‑About the credit limit?

    Yes?‑‑‑Yeah, I don’t recall.

37. He later gave this evidence:[14]

    Right.  And did you speak to Mr Johnston about an increase in the credit limit so that you could supply those further items?  Yeah, at the – at the time, because of what I could see going forward in – and where I was in the situation of where the balance was, I couldn’t process the sales orders to invoices.  So the only way to do that would be to interviews [sic: increase] the credit limit.

    All right.  And did you have that conversation or a conversation about that with Mr Johnston?  Yes, I did.

    And what did you say?  Well, I actually said – basically said to him at the time that I’ve got invoices that I can’t – sorry, I’ve got sales orders that I can’t process into invoices because of the purchase orders that he’d been supplying me and that they were basically off-the-books.  So what we used to call it is under-the-counter transactions, and so I could at least start to process some of those under-the-counter transactions that would have to increase the limit.

    Was doing under-the-counter transactions, as you tell me, was that permitted as part of your employment?  No.

    Did you explain that to Mr Johnston?  Yes, I did.

    How did you explain that to him?  Verbally.  I explained to him that, you know, I could lose my job over it, and that, you know, obviously the balance – because the balance of the accounts was where it was, I couldn’t charge things and I explained to him that I couldn’t charge him invoices and that’s why we would need to increase the credit limit and that by doing what I’m doing – by doing what I was doing, I potentially would lose my job over it.

    All right.  And just to give this the right timeframe, this is the time – the point in time in around March 2013 where a $50,000 increase – sorry, an increase in the credit limit of 50,000 was contemplated?  That’s correct.

    [Underlining added]

    [14] TS2-54 to 55.

38. This was an important piece of evidence in the trial. Mr Johnston disputes any such conversation.  Precision in the language used is hard to achieve years after the event.  But it is to be noted that Mr Stockill did not seem to say that he used the expression “under the counter transactions” in discussion with Mr Johnston.  Rather, he referred to purchase orders which were off the books.  The distinction probably does not matter much if I accept the evidence in the above underlined passage, which appears to reflect Mr Stockill’s recollection of what was said.

39. Mr Stockill subsequently said as follows:[15]

    …So I’m just talking about that period in March 2013 where the $20,000 limit was in place, not yet increased to 50 and you’d said to me that there was some off the book invoices or transactions    ?  Yes.

    that you were doing and you’d also said that you told Mr Johnston about those, that doing them that way you could lose your job.  That was    ?  Yes.

    what I understood you had said.  I just wanted to know in those conversations when you told him you could lose your job, did he say anything back to you about that?  No, Greg always give me faith in saying things to the contrary of, “Mate, I will get it sorted out.  I – I’ll speak to Maria.  I’ll get a payment made.”  He always made me feel as if everything was going to be okay, in the words that he used.

    [15] TS2-56.4 to .15.

40. Despite the form of the question, the answer was seemingly a reference to discussions over the whole period of the unauthorised supply. 

41. Mr Stockill wrote in his statement that after the $50,000 credit limit was established, Mr Johnston started to order a lot of goods from Haymans.  He said he would call Mr Johnston every one to two days to ask for payment because he was “either just within, or just outside of the credit limit”.  He wrote that Mr Johnston would give him reassurances that he would sort it out and make a small payment to keep under the limit.  He wrote that by the end of April Mr Johnston was ordering goods in an amount that greatly exceeded the $50,000 credit limit but when he spoke to him about this, Mr Johnston “would tell me that he would sort it out and make payment”.  Mr Stockill wrote that based on those assurances, he “decided to keep on supplying the goods to Greg even though it was outside the $50,000 credit limit”.[16] 

    [16] Exhibit 21, paragraphs 35 to 39.

42. As set out above, Mr Stockill also gave oral evidence about orders for a large job at Logan (the Logan Job) valued at about $30,000 which was placed by Mr Johnston.  While Mr Stockill referred to an agreement to supply the goods above the credit limit, when pressed as to what was actually said, the evidence seemed to be that Mr Johnston asked for the supply when he knew he was at the credit limit (seemingly because Mr Stockill had told him that) and promised to make payment if the goods were supplied.  It is not clear when this conversation is said to have occurred.[17] 

    [17] TS2-43 to 44.

43. Mr Stockill then gave evidence that thereafter he would receive purchase orders from GMJ, prepare sales orders (TOBs) for those purchase orders and supply the goods, keeping the purchase orders and TOBs as records of transactions done over the credit limit but not invoiced.[18]  A bundle of emails from GMJ comprising orders with purchase orders allocated were tendered for the period April to July 2014 by way of example. 

    [18] Exhibit 21, paragraphs 40 to 49 and see TS2-57.

44. Mr Stockill gave further evidence about what he told Mr Johnston about what he was doing.  He said:[19]

    And if you received it – let’s say, on a particular day you received some large orders to go out and in the knowledge that GMJ was at its credit limit already, or exceeding it, would you telephone Mr Johnston to speak to him about that?  Oh, I regularly spoke to Greg because the more purchase orders I got, the more pressure, obviously, it put on myself and I had to convey that to – to Greg, how sometimes you want to do some things and sometimes you – you – you don’t want to.  But, yeah, it was conveyed.  Definitely. 

    Right.  How did you convey that?  Sometimes verbally over the phone.  Sometimes I’d – I’d go to a job site and deliver the gear myself and reinforce that I – I needed the payment.  I needed a payment. 

    And did you – did you reiterate at all what you’d said earlier, which was that your employment depended upon getting paid?  On – on a regular basis because I’d made it known that what I was doing was wrong and – and I just     

    HIS HONOUR:  Just could I stop you there.  When you say you made it known what you’re doing was wrong, do you remember the substance and effect of what you ever said in that regard?  Yeah.  I – I told – I – there was many occasions – to specifically – do you want me to specifically point one or just     

    MR COVENEY:  Please?  Specifically, I mean, are we – I – I’d often say to Greg, I mean, we had plenty of chats and I’d often say to Greg, “If I ever got caught out by – by doing what I’m doing, by providing gear to you that I can’t invoice out that I’d lose my job” and – and not only that, that it was – you know, the way we were doing things were well-outside the terms in the – you know, in my mind the only person that was in a situation to lose was probably myself.

    [Underlining added]

    [19] TS2-59 to 61.

45. Mr Stockill then gave evidence about the meeting in May 2013 with Mr Johnston.  It was uncontentious that there were two such meetings, one in May 2013 and one in late July or early August 2013.  There is also some agreement as to what happened at that meeting.

46. As to the May 2013 meeting, it is uncontentious that:

    (a)The meeting occurred in May between Mr Stockill and Mr Johnston at GMJ’s office in Fortitude Valley; and

    (b)That Mr Stockill asserted that he had $75,000 worth of supplies which had not been invoiced over and above the credit limit.

47. Otherwise the versions of the participants differ.  Mr Stockill wrote that:[20] 

    (a)The meeting was the first time he and Mr Johnston physically met to discuss the account;

    (b)That it occurred at the start of May;

    (c)That he told Mr Johnston he would lose his job over the supplies he had made over the credit limit and that he had made the supplies based on Mr Johnston’s promises to pay;

    (d)He gave Mr Johnston all the TOBs relating to unauthorised supplies;

    (e)Mr Johnston said that he would pay all arrears and pay $75,000 for un-invoiced goods supplied and a further $75,000 in June to sort out the account; and

    (f)That there was some $150,000 to $200,000 in un-invoiced goods at this time.

    [20] Exhibit 21, paragraphs 52 to 63.

48. Mr Stockill gave consistent evidence orally, but his oral evidence was much less detailed.[21]

    [21] TS2-44 to 45.

49. Thereafter, Mr Stockill said that the promises of payment made at this meeting were not kept, but he continued to supply goods outside the credit limit because he would be dismissed for his conduct to that point, so he just had to keep supplying GMJ and trust the customer to pay as promised.[22]  He said Mr Johnston continued to promise payment.[23] He said in evidence that, while GMJ made some payments, they were never large enough to permit invoicing of the unauthorised supplies.

    [22] TS2-62.20 to .25.

    [23] TS2-62.27; see also exhibit 21, paragraphs 66 to 72.

50. Mr Stockill gave up on GMJ in July 2013 when he decided to stop supplying. 

51. Mr Stockill then arranged another meeting with Mr Johnston.  It is not contentious that at the meeting, Mr Stockill said that a large amount of unauthorised credit supplies remained un-invoiced and outstanding.  However, the events at the meeting are otherwise in dispute.

52. Mr Stockill’s version was as follows:[24]

    (a)The meeting was attended by Mr and Mrs Johnston and Mr Stephenson;

    (b)Mr Stockill provided all the documents relating to the un-invoiced goods and said that he was “fucked” and that he was “going to lose his job” over the unauthorised supplies;

    (c)He told Mr Johnston and Mr Stephenson that he needed them to pay the account and left them looking at the documents;

    (d)About an hour later he rang Mr Johnston, who told him GMJ would pay $75,000.  Mr Stockill said that was not enough;

    (e)At no point did Mr Johnston say he would not pay or dispute the fact that the unauthorised supplies had been made; and

    (f)No payment was made as promised. 

    [24] TS2-64; see also exhibit 21, paragraphs 75 to 86.

53. That version is contested by Mr Johnston.

54. What is not contentious is that on 23 August 2013, Mr Johnston sought a further increase in the credit limit for GMJ from $50,000 to $100,000 by signing a Haymans application form to that effect.[25]  The circumstances of that occurrence were described by Mr Stockill as follows:[26]

    All right.  There was, subsequent to that, in August, there was another application for a credit limit increase?  That’s correct, to go from 50,000 to 100,000.

    Yes, did you discuss that with Mr Johnston?  Yeah, I did at Chermside.

    Right, and so give me the circumstances of the meeting between you at Chermside?  So   

    Was that at the Wheller on the Park site?  That’s correct.  Yeah, the meeting there was – I was really struggling to – to sort out how I was going to invoice any gear and I conveyed that again to Greg, that I’ve got so many sales orders that I can’t invoice.  My thought – and we both agreed to try to get the limit taken to 100,000.  That would allow me to – to book out more gear on the account, and in my mind, then that would become on the statement that – because it seemed to be that the statement values were the only ones getting paid.

    Right.  And by this time in August, had you stopped supply altogether to GMJ?  Yes, I had.

    [Underlining added]

    [25] Exhibit 8.

    [26] TS2-64.43 to 65.13.

55. This evidence appears to assume the existence of another meeting between Mr Stockill and Mr Johnston at Chermside.  No more appears to have been said about that meeting in evidence.  However, that the two men did meet around 23 August 2013 tends to be supported by Mr Stockill witnessing the $100,000 credit application on that date.

56. Mr Stockill’s comment that “the statement values were the only ones getting paid”[27] is not disputed by Mr Johnston and is confirmed by the evidence.  GMJ adopted the practice of paying each month the amount shown on monthly statements as overdue (that is, over 30 days).  The following material payments were made from March 2013 to September 2013:

    (a)$12,938.94 on or about 12 April 2013;

    (b)$31,396.50 on or about 10 May 2013; and

    (c)$18,589.45 on or about 12 June 2013;

    (d)$31,223.54 on or about 8 July 2013;

    (e)$18,644.11 on or about 7 August 2013;

    (f)$10,000 on or about 2 September 2013.

    [27] TS2-65.9.

57. The amounts paid equal the amounts identified as overdue in the monthly statements issued immediately prior to those payments.[28]  The exception is the payment on 2 September 2013, the circumstances of which are as follows.

    [28] Exhibit 35.

58. Mr Stockill said that he faced a crisis when the Haymans stocktake was looming at the end of August 2013.  He said that he told Mr Johnston that he required payment in full before the stocktake and that if he could not account for the unauthorised supplies he would be in a lot of trouble.  His statement says that he told the auditor he had supplied goods to GMJ that he could not account for and that the Haymans auditor told him he had two days to account.  It is evident that the auditor only picked up discrepancies of some $10,000 worth of goods.

59. He says he told Mr Johnston about that deadline and that after that the $10,000 one-off payment was made.  In oral evidence, it appeared that Mr Stockill had somehow otherwise prevented the auditor from detecting the other unauthorised credit supplies which, on his version, would have totalled over $250,000 at that time.[29] 

    [29] TS2-65.40 to .44.

60. Thereafter, Mr Stockill wrote, Mr Johnston ceased taking his calls or responding to his emails.

61. The denouement of these events was brought on by a decision by Mr Stockill to reveal his conduct to his employers.  As Mr Gallard said, Mr Stockill rang him and told him about the unauthorised credit supplies. The subsequent discussions with Mr Osborne and Mr Osborne’s meeting with Ms Johnston are dealt with in their evidence.

62. Mr Stockill, for his part, was put to work by his employers entering the unauthorised credit supplies into the accounting system.  As Mr Johnston challenges the sum claimed, it is useful to set out what Mr Stockill says he did:[30]

    So after – after I put my hand up to Mr Gallard, they sent me to work for 36 hours to put all the information in, just sales orders, proof of deliveries mainly, what they were chasing, that I could collate all them.  They opened up the account, took it off stock and opened up the account so I could invoice everything to the account.

    Right?  And in doing so, I had to then put a proof – so I had to go to head office, to regional office and spend about a – at least four or five days there, putting all the paperwork together.  And then they sent me to Mr Johnston’s office to – to deliver them.

    So when you say “put the paperwork together”, did that involve putting together a sales order together with some delivery docket or other type of evidence and then the invoice?  Yeah, it would have had an invoice on top, the original sales order that I had hidden and a – a signature proof of delivery that the goods had been supplied.

    All right.  And so do I understand your evidence is that you personally were the one who, having told your employer about the situation, sat down and invoiced all of the sales orders?  Yeah.  Overnight I was.  So it went back to the office or was told to go back to the office about 7.30 at night.  So I spent until 6.30 when we opened the next day and then Mr Gallard had a manager some Sumner Park come and start helping me invoice the gear out.

    Right.  And that involved taking the sales orders which had, to this point, not been converted invoices and converting them into invoices;  is that right?  Yeah, that’s correct. 

    [30] TS2-68.9 to .34.

63. Mr Stockill accepted that this work was not supervised by any officer of Haymans.  We have already seen that the auditor, Mr Hardy, did not check that work beyond some spot checks.  Mr Stockill said that he provided copies of his working documents to Mr Johnston at a meeting in November 2013.

Mr Johnston’s cross examination of Mr Stockill

64. Mr Johnston cross examined Mr Stockill.  Mr Johnston and Mr Stockill both conducted some effective cross examination.

65. Mr Johnston focussed on an earlier affidavit given by Mr Stockill in defence of an application for summary judgment by Haymans sworn on 3 June 2014. 

66. In that affidavit Mr Stockill relevantly swore: 

    31.On behalf of the Plaintiff, I advised the Second Defendant that I could not supply more Goods on credit to the First Defendant, as the Credit Facility was in excess of the Credit Limit.

    […]

    34.Based on my knowledge of the First Defendant’s business and my prior dealings with the First and Second Defendants, I made an operational and/or managerial decision in the interests of the Plaintiff, to advance the First Defendant Goods in excess of the Credit Limit, as I had previously done on a [sic] in my role as Profit Centre Manager.

    35.I made the decision to advance the First Defendant Goods in excess of the Credit Limit as we had been told recently in a manger’s meeting (involving all of the Profit Centre Managers in South East Queensland) that the business was not taking enough ‘risks’ in Australia. I made a decision to take this particular risk in an attempt to address the significant shortfall in revenue that had arisen as a result of the Plaintiff being unsuccessful in retaining Queensland Rail as a customer and the subsequent drop in sales.

    36. As previously advised, it was my experience that that [sic] the Plaintiff permitted us to make operational decisions and exceed the formal credit limits. The decision to exceed the credit limited [sic] was made on a case by case basis, and involved consideration of what I knew about the customer. In this case, I knew the First Defendant to be a regular customer of the Plaintiff, that the Plaintiff had agreed to grant the First Defendant a credit facility, and that it had confidence to increase the credit limit. I also knew that the First Defendant had a number of large projects on the go at that time. My knowledge of those projects came from what I was being told by the Second Defendant and the fact that we were delivering the Goods to the project sites themselves.

    37.Based upon the above matters, I was of the belief that the First Defendant would pay its outstanding balance under the Credit Facility.

    38.There was no Agreement, written or verbal, between myself and the Second Defendant on this issue. I made the decision as to whether to continue providing Goods to the First Defendant on credit on a case by case basis.

67. Mr Stockill said that the contents of in paragraphs 31, 34 and 35 were still correct (with one minor irrelevant correction).  As to paragraph 36, he said that it was not true that the plaintiff permitted branch managers to make operational decisions and exceed formal credit limits except in respect of very small amounts.  Mr Stockill said paragraph 37 was still correct.  However, not surprisingly, he said paragraph 38 was incorrect.  He said there was a verbal agreement with Mr Johnston.

68. Mr Johnston then indicated an intention to cease cross examination.  That afternoon I suggested he think about putting any contrary version of his to Mr Stockill as to the specific evidence Mr Stockill gave, particularly his statements that he told Mr Johnston about losing his job by supplying over the credit limit and that Mr Johnston gave the reassurances of payment. 

69. Mr Johnston then continued his cross examination.  He returned to Mr Stockill’s June 2014 affidavit.  He cross examined him on statements made generally in paragraphs 4 to 16 of that statement.  In doing so he established relevantly:

    (a)Mr Stockill’s statement (in paragraph 6 of the affidavit) that he was “never trained for the role of manager” was accepted by Mr Stockill as being incorrect; and

    (b)Mr Stockill accepted that he made a statement in the affidavit that it was the practice for other branch managers to supply goods despite a credit stop order and then invoice when payments were made.  He said that it was untrue to the extent it attributed that behaviour to other managers, but true for him.

70. Mr Stockill accepted that he felt pressure to replace Queensland Rail as a customer and pressure of the responsibility for the employment of his staff if the branch performed badly.

71. The next day Mr Johnston turned to challenging Mr Stockill’s evidence as to the value of unauthorised sales.

72. He suggested that Mr Stockill could not rule out other sale staff raising TOBs for GMJ which were not referable to orders from GMJ.  Mr Stockill rejected that suggestion: he said sales staff would only have raised a sales order on receipt of an instruction or purchase order from GMJ and would have got proof of delivery of the item.

73. Mr Stockill rejected the suggestion that his knowledge of GMJ’s affairs came from purchase orders, not discussions with Mr Johnston, and maintained that there on-going discussions between September 2012 and March 2013.

74. Mr Johnston also put to Mr Stockill that his decision to make unauthorised credit supplies was based on the fact that GMJ made payments that kept the credit account in terms, not because of Mr Johnston’s promises of payment.  Mr Stockill accepted that he knew of the payments but rejected the suggestion.

75. The balance of the cross examination involved putting matters of Mr Johnston’s case to Mr Stockill.  No material concessions were made.

MR JOHNSTON’S EVIDENCE

76. Mr Johnston’s evidence in chief was contained in a s. 92 statement which he tendered.[31]  His evidence was as follows.

    [31] Exhibit 25.

77. GMJ operated from 2009 to 2014.  It sourced supplies of goods for its business from “numerous electrical goods wholesalers”, including Haymans.  He accepted the entry into the credit facility at $20,000 in September 2012.

78. Mr Johnston understood that Haymans could only debit the account if a purchase order was issued by GMJ and that “if the Credit Facility was at a limit, GMJ staff could not rely on the Credit Facility to purchase product.  It was Mr Johnston’s expectation and understanding that no goods were supplied to GMJ if the Credit Facility was maxed out”.[32]

    [32] Exhibit 25, paragraph 7.

79. Mr Johnston says that in March 2013, Mr Stockill telephoned him and offered an increase in the Credit Facility.  Mr Johnston said that, as he knew GMJ had substantial work forecast, he agreed and executed the credit limit increase application.  He says that thereafter he would receive emails from Mr Stockill seeking payment of outstanding balances on the account and would arrange for payment in order to keep the account within terms.  As noted in paragraph [56] above, it is not contentious that this occurred.  The issue in this case is whether other supplies were made off the books.

80. Mr Johnston drew a completely different picture of his dealings with Mr Stockill prior to May 2013.  He wrote that he rarely saw or spoke to Mr Stockill prior to the May 2013 meeting.  He admits only to receiving calls from Mr Stockill on a couple of occasions to tell him that the Credit Facility was nearing its limit and that if GMJ wanted to buy more equipment, it would have to make a payment.  He wrote that on no occasion did Mr Stockill say that he would supply goods on credit in excess of the credit limit.

81. Mr Johnston said that he understood that if the account was at its limit, goods would have to be paid for on delivery or collection by GMJ staff and that this was what occurred.[33] He expressly recognised (as I have already noted) that he knew that Mr Stockill and his staff could not debit the Credit Facility over the limit without authorisation from Haymans’ credit department.

    [33] And see his affirmation of that position in his cross examination at TS3-64 to 65.

82. He rejected that he made any statements about payments to be made for unauthorised supplies or any statements about payment other than the undertaking to pay overdue amounts on the Credit Facility when they were drawn to his attention.

83. On Mr Johnston’s case, the May meeting came as a complete surprise.  He writes:

    (a)Mr Stockill told him he had $75,000 worth of unauthorised supplies to be invoiced (not a total of $150,000);

    (b)He asked for proof of these supplies which Mr Stockill promised to provide; and

    (c)He had and has no idea how the Credit Facility limit could have been exceeded.

84. He wrote that a couple of weeks later Mr Stockill attended at his office with “a handful” of sales orders said to sustain his allegations and some documents bearing signatures which Mr Johnston did not recognise.  Mr Johnston says he reviewed the documents and concluded they did not prove the supplies alleged. He says he “believed them to be false and continued to make payments on the balance of the existing Credit Facility as normal”.[34]  Neither in his statement nor in cross examination does he give evidence of doing anything else in response to this apparent misconceived demand for $75,000 supported by false documents.

    [34] Exhibit 25, paragraph 39.

85. Mr Johnston’s statement takes up the narrative with the August 2013 meeting.  It states:

    (a)The meeting occurred in or about August 2013;

    (b)Mr Stockill told him the total sum due was likely to reach $120,000;

    (c)Mr Johnston was shocked by this, particularly where “GMJ’s average monthly spend with Haymans was in the order of $20,000”;[35] and

    (d)Mr Johnston asked for Mr Stockill to provide further documents to substantiate the claims.

    [35] Exhibit 25, paragraph 42.

86. At that time (that is in or about August 2013), GMJ stopped purchasing with Haymans on the Credit Facility.

87. He then writes that Mr Stockill provided him with an application to increase the Credit limit on 23 August 2013 to $100,000 which he signed because:

    (a)At that time the Credit Facility was near its limit;

    (b)He did not want the dispute about unauthorised supplies to affect GMJ’s credit rating; and

    (c)He was yet to work out to what extent any unauthorised supplies had occurred.

88. Mr Johnston’s account then turns to November 2013.  He does not accept any meeting occurred but does accept a box of documents was supplied.  He says he tried to reconcile them with his purchase orders and could not.  He say he no longer has copies of the documents provided.

89. He expressly denied any discussion in the nature of the alleged Credit Limit Circumvention Agreement.  He said he had no concerns about the solvency of GMJ until December 2013.  Mr Johnston was cross examined by Mr Coveney and Mr Stockill.

Mr Coveney’s cross examination of Mr Johnston

90. Mr Coveney started by establishing Mr Johnston’s chequered business history:

    (a)Mr Johnston was a director of a company operating a data cabling business called Total Network Solutions.  It failed in 2005 as a result, according to Mr Johnston of the failure of the Walter Construction Group.  Mr Johnston became bankrupt as a consequence and accepted he was keen to avoid a repeat of that experience (which arose from giving personal guarantees).  He set up GMJ in 2009, after being discharged. 

    (b)He also set up another company called Korr Electrical to undertake electrical projects in 2012.  That company was also wound up.  Mr Johnston said the cause was industrial action by the Electrical Trades Union; he did not recall if it had any creditors.

    (c)He also gave evidence about the winding up of a company called KNX, which was an electrical goods supply company which sold to contractors.  It was wound up in 2014 by a supplier, Siemens.  It had another supplier called ABB.  Mr Johnston said Haymans was not a supplier to KNX.

91. Mr Coveney asked Mr Johnston about the circumstances of the increase in the credit limit in March 2013.  Ultimately, Mr Johnston gave evidence that he had asked Mr Stockill for a credit application to increase the credit limit because he had larger jobs coming up.  This differs from his evidence about this in his statement, where he said Mr Stockill approached him.

92. Mr Coveney then took Mr Johnston through a number of projects of GMJ in the period of about March to July 2013 and tendered various tax invoices and other financial documents relating to work done by the company in that period.[36]  They supported the view that GMJ was conducting a number of projects over that time.  That evidence led to this exchange:[37]

    MR COVENEY:  So, Mr Johnston, through 2013, it seems, GMJ is working on, from what I can tell, at least three projects, the total value of which those contracts exceeds $3 million.  That’s correct, isn’t it?‑‑‑I can’t say.

    Right.  And although you don’t seem to be able to recall, I put it to you that Haymans is the party supplying electrical components to you, to your company, for those projects.  That’s correct, isn’t it?‑‑‑Not alone, no.

    Right.  And you’re being paid, your company is being paid on its payment claims fairly regularly by the contractors to those projects?‑‑‑Yes.

    Yes.  And according to your statement, you say that you’re aware that in April or May 2013, the credit facility was at or near its limit, its limit being $50,000, and that you knew you were unable to – that the staff couldn’t debit the credit facility without authorisation, otherwise it would have to be purchased ad hoc.  There was certainly no substantial ad hoc cash purchases in April or May 2013, were there?‑‑‑No, I don’t recall.

    [36] Exhibits 27 to 32.

    [37] TS3-78.21 to .37.

93. Mr Johnston gave evidence that the percentage of turnover which was ordinarily required to fund stock was 20 to 30 per cent.  He accepted that assuming $200,000 worth of work was carried out in a month, stock would amount to $40,000 to $60,000.  He accepted that in the relevant period, that amount would not be unusual, though he said it would have been spread over three suppliers.[38]  He accepted it was conceivable that GMJ needed between $80,000 and $120,000 in stock over April and May. 

    [38] TS3-81.1 to .10.

94. Mr Coveney then took Mr Johnston to Exhibit 23 and suggested that it showed orders being placed on an urgent basis with Haymans even though GMJ was at the limit or near the limit from time to time.  Mr Johnston accepted that but said they were very minor orders. 

95. Mr Johnston was asked directly about Mr Stockill’s evidence that he told Mr Johnston repeatedly what he was doing and that Mr Johnston repeatedly reassured him he would cause GMJ to pay for the unauthorised supplies.  Mr Johnston rejected the proposition that any such discussions occurred.

96. He was cross examined about Mr Stockill’s account and rejected that version directly.  He did give evidence that he never took up Mr Stockill’s allegations from the May meeting with anyone more senior at Haymans.[39]

    [39] TS4-9.

97. He was cross examined about the August meeting.  He specifically rejected the suggestion that Mr Stockill said he was “fucked” and going to lose his job over the unauthorised supplies.  Mr Johnston suggested that these statements were the sort of thing he would recall if they had been made.  He also agreed that Mr Stockill did not appear stressed.

98. He explained that his failure to raise the issue of Mr Stockill’s claims with Haymans’ management arose from the fact that he had not been provided at the meeting with documents to prove Mr Stockill’s claims. His evidence was he was not supplied with any materially relevant documents until November 2013.  He said his response in the meantime after the August 2013 meeting was to stop trading with Haymans.

99. He reiterated his version as to the November 2013 events: he did not meet Mr Stockill at all.  He also denied recalling frequent telephone calls from Mr Stockill between August and November 2013.  He also agreed with Mr Coveney that, after his reconciliation of the documents delivered, he took no steps to dispute or query the claim.

100. Mr Coveney also cross examined Mr Johnston about the reasons for GMJ’s winding up.  He said the major concern was the Haymans’ account issues and that there were some taxation issues, though he could not recall the amounts.  The Report as to Affairs (RATA) was later tendered.  It showed some $250,000 owing to the Australian Taxation Office (ATO) for GST, it showed debts to a number of suppliers including Haymans and identified the unauthorised credit supply claim made in this proceeding as disputed.[40]

     [40] Exhibit 44.

101. Mr Coveney then cross examined Mr Johnston at length on the company trading account statements.  The ultimate purpose of that cross examination was summarised in the exhibits tendered by Mr Coveney in his closing, which summarised the evidence Mr Johnston gave.

102. First, the statements showed payments to GMJ by builders totalling $1,068,955.76 in the period April to August 2013 inclusive (which would cover work done and supplies acquired from March to July 2013 assuming payment of progress claims the month after work was done).[41]  Mr Coveney relied on this to support the inference that some $200,000 to $300,000 worth of supplies were needed in this period.  He said the Court could also draw the inference that Haymans supplied these goods to a large degree by the unauthorised supplies. 

     [41] Exhibit 46.

103. Second, some $78,500 was paid to Korr Electrical in circumstances Mr Johnston could not explain.[42]  There were also small amounts paid to another related company.  This was said to be evidence, added to other evidence adduced, from which I would “be more comfortable in drawing the conclusion that it's more likely than not that Mr Johnston's business scruples did not prevent him from engaging in the conduct to induce or otherwise be involved in Mr Stockill's conduct so that he could obtain a benefit for himself.”[43]

     [42] Exhibit 47.

     [43] TS5-41.32 to .35.

104. Third, that there were transfers of some $707,000 out of GMJ’s account from April to August 2013 for which Mr Johnston could not recall a purpose. This was said also to support the conclusion stated in the previous paragraph.

105. Fourth, there were payments of $77,500 to the personal accounts of Mr and Ms Johnston; seemingly relevant for the same purpose.

106. Ultimately, Mr Coveney put to Mr Johnston (and asked me to infer) that Mr Johnston operated GMJ as a cash machine to fund his lifestyle and other companies, had no intention of paying Haymans and used Haymans in part to fund that conduct.  Mr Johnston rejected that suggestion.

Mr Stockill’s cross examination of Mr Johnston

107. Mr Stockill had Mr Johnston identify a series of examples where orders were sent to Haymans with a purchase order number given (then or subsequently) by email and then delivery of the items ordered established by a signed delivery manifest.  Exhibits 40 to 42 contained a number of examples from the March to April 2013 period. 

108. Mr Stockill moved to the supply by Haymans of a switchboard and intercom.  Both items were the subject of emailed purchase order numbers and informal orders sent by Mr Stephenson to Mr Stockill by email on 20 March 2013.  Both were the subject of sales orders prepared by Haymans which identified the costs of the items as $16,728.23 and $6,884.06 respectively, a total of $23,612.29.  Signed delivery manifests were identified for delivery of the goods.  Mr Johnston identified the signature as being that of an employee, Matthew Fordham. Delivery was shown as occurring on 22 March 2013.[44]  Mr Johnston also accepted that the statement of account for GMJ with Haymans did not show in March, April or any month that these goods were supplied and invoiced.[45]  There was no suggestion from Mr Johnston that the goods were paid for by cash on delivery.

     [44] See Exhibit 43.

     [45] See Exhibit 35.

ANNEXURE B