Bannon v Nauru Phosphate Royalties Trust

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

EMPLOYMENT & INDUSTRIAL LIST

S CI 2015 03354

PAUL BANNON	Plaintiff
v
NAURU PHOSPHATE ROYALTIES TRUST	Defendant
and
NAURU PHOSPHATE ROYALTIES TRUST	Plaintiff by Counterclaim
v
PAUL BANNON	Defendant by Counterclaim

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JUDGE:	McDONALD J
WHERE HELD:	Melbourne
DATES OF HEARING:	16 to 20, 23, 24 and 26 April, 14 May, 4 to 7 and 25 to 27 June, 17 and 20 July 2018
DATE OF JUDGMENT:	14 September 2018
CASE MAY BE CITED AS:	Bannon v Nauru Phosphate Royalties Trust
MEDIUM NEUTRAL CITATION:	[2018] VSC 532

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CONTRACT — Contract of employment — Claim for unpaid fees for acting as Secretary/Director of 19 subsidiaries of defendant — Estoppel by convention — Defendant assumed that it had no liability to pay plaintiff fees for acting as Secretary/Director of subsidiaries — Plaintiff acquiesced in assumption — Whether estoppel by convention suspensory or permanent — Plaintiff estopped from claiming fees — Whether claims for fees prior to June 2009 statute barred — Claims for accrued annual and long service leave —Claims for redundancy pay and payment in lieu of notice — Claims for superannuation entitlements — Whether such claims subject to maximum superannuation salary base in Superannuation Guarantee (Administration) Act 1992 (Cth) — Corporations Act 2001 (Cth) Part 1.5, ss 46, 50AAA, 188, 204C — Superannuation Guarantee (Administration) Act 1992 (Cth) ss 11, 12, 15, 19 — Limitation of Actions Act 1958 ss 5, 27 — Nauru Phosphate Royalties Trust Act 1968 (Nr) s 32.

EQUITY — Fiduciary obligations — Counterclaim for repayment of funds advanced to plaintiff in excess of funds expended on behalf of the defendant — Adequacy of evidence — Claim dismissed in respect of financial years for which defendant failed to discover financial records which may have assisted plaintiff’s defence of claim — Claim upheld in respect of 2014 financial year — Civil Procedure Act 2010 s 7 — Supreme Court (General Civil Procedure) Rules 2015 r 48.03.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr T J North QC with Mr M G Rinaldi	Lander & Rogers
For the Defendant	Mr R A Millar	HMB Employment Lawyers

HIS HONOUR:

Introduction

The Nauru Phosphate Royalties Trust (‘NPRT’) is a body corporate established under the Nauru Phosphate Royalties Trust Act 1968 (Nr) (‘the Act’). The Act established the Nauruan Land Owners Royalty Trust Fund. The beneficiaries of the fund are landowners in Nauru. Phosphate mining in Nauru generated millions of dollars of income. This money was invested in assets, particularly real estate, in other countries, including Australia. A principal function of the NPRT is the administration and distribution of payments to beneficiaries of the fund.

Mr Bannon was employed by NPRT between October 1994 and 30 June 2014. From July 2003 until 30 June 2014 Mr Bannon was the Secretary of NPRT. In this position he was the most senior employee of the Trust. Throughout his employment NPRT’s office was based in Melbourne. During the period relevant to the current proceedings there were four employees in the Melbourne office, including Mr Bannon.

The present proceedings arise out of the termination of Mr Bannon’s employment on 30 June 2014. His principal claim is for damages for breach of contract in respect of fees he contends he is entitled to by reason of acting as Secretary and/or Director of 19 subsidiary companies of NPRT between July 2003 and 30 June 2014. In addition, Mr Bannon claims damages for unpaid accrued annual, long service and sick leave, unpaid superannuation, annual leave loading, payment in lieu of notice of termination and redundancy payments. He also claims unpaid salary for the period 22 May 2013 to 30 June 2014 in respect of a $60,000 per annum salary increase, which was approved by the Board, but which he never actually received. His total claim for damages is $4,020,733.01.[1]
[1]Plaintiff’s final particulars of loss 13 July 2018.

I have dismissed Mr Bannon’s claim for Secretary/Director fees. Throughout the period August 2007 to 1 March 2013 relations between Mr Bannon and NPRT were conducted on the basis that NPRT had no liability to pay Mr Bannon Secretary/Director fees. This course of conduct resulted in an estoppel by convention which precludes Mr Bannon claiming Secretary/Director fees.

I have dismissed Mr Bannon’s claim for damages equivalent to 12 weeks’ salary for notice of termination of employment. I have concluded that Mr Bannon was provided with 12 weeks’ notice of termination on 31 March 2014. I have upheld Mr Bannon’s claim for accrued annual leave, but have reduced the quantum of his leave entitlement from the 305.8 days claimed to 288.8 days. Mr Bannon is entitled to damages calculated on the basis of an annual salary of $200,000. I have rejected NPRT’s contention that damages for unpaid accrued entitlements should be calculated on the basis of an annual salary of $140,000. Mr Bannon is entitled to damages in respect of his accrued annual leave entitlements of $222,153.62. I have rejected Mr Bannon’s claim for 17.5 per cent leave loading. I have upheld Mr Bannon’s claim for back pay of the $60,000 salary increase approved by the Board in May 2013. This translates to an entitlement of $71,045.18 inclusive of superannuation. Mr Bannon is entitled to damages of $46,153.80 for 12 weeks’ redundancy pay.

As at 30 June 2014 Mr Bannon had accrued long service leave entitlements of 17.2 weeks. Based on his annual salary of $200,000 per annum at the time of termination of his employment, this translates to an entitlement to damages of $66,153.85.

Mr Bannon had a contractual entitlement to 50 per cent of accrued sick leave upon termination of employment. Based on an annual salary of $200,000 Mr Bannon is entitled to $105,769.13.

In its final form, NPRT's counterclaim was comprised of the following elements:

(a) 'Unauthorised payments' to Mr Bannon of $211,197 during the period 1 July 2011 to 30 June 2014. The sum of $211,197 is comprised of the difference between:

(i) The quantum of funds advanced to Mr Bannon for Trust related expenses; and

(ii) The amount of expenses actually incurred by Mr Bannon.

(b) $238,711, being the balance of Mr Bannon's 'debtor account' as at 30 June 2014;

(c) $295,475, being alleged unauthorised payments of back pay and taxation comprised of:

(i) A back payment to April 2003 of a $60,000 salary increase approved by the Trust Board on 17 October 2007; and

(ii) Superannuation contributions of $24,396 on the sum of $271,077;

(d) $77,500 being the amount of loans advanced to Romys Eobob which were approved by Mr Bannon.

I have upheld the Trust’s claim that in respect of the 2014 financial year, Mr Bannon was advanced funds which exceeded the amount he expended on behalf of the Trust. The Trust is entitled to an order that Mr Bannon pay it damages in the sum of $141,052.91. I have rejected the remaining elements of the counterclaim.

Background

On 3 October 1994 Mr Bannon commenced employment with NPRT as an administrative assistant. His annual salary was $28,000. In November 2000 his salary was increased to $40,000. In April 2003 Mr Bannon was appointed to the position of Acting Secretary. On 22 July 2003 Mr Bannon was appointed Secretary on an on-going basis. At the time he did not sign a written contract of employment.

On 2 July 2003, Mr Bannon was appointed to act as Company Secretary of Central Pacific (Downtowner) Pty Ltd. On 17 July 2003, Mr Bannon was appointed to act as Company Secretary of a further 22 companies.[2] On 26 August 2003, Mr Bannon was appointed as a Director of Randwick Nominees Pty Ltd.[3] As discussed below, there is an issue between the parties as to whether Central Pacific (Downtowner) Pty Ltd and Randwick Nominees Pty Ltd are subsidiaries of NPRT.
[2]Exhibit D Affidavit of Paul Bannon sworn 20 June 2016, [6], [10].
[3]Ibid [7].

In April 2004 the Republic of Nauru Finance Corporation, Nauru Phosphate Royalties (Washington DC) Inc, and Ronsi Business Pty Ltd defaulted on loan repayments to GE Capital. On 8 April 2004 receivers were appointed to Ronsi Business Pty Ltd. On 16 April 2004 receivers were appointed to Randwick Nominees Pty Ltd, Spencer Investments Pty Ltd, Central Pacific (Downtowner) Pty Ltd and Ronsi Holdings Pty Ltd (‘the Nauru entities’). The receivers assumed control of:

·Randwick Shopping Centre (owned by Randwick Nominees Pty Ltd as Trustee for the FPC Randwick Trust);
·The Savoy Park Plaza Hotel (owned by Spencer Investments Pty Ltd);
·Downtowner on Lygon (owned by Central Pacific (Downtowner) Pty Ltd); and
·The Mercure Hotel Sydney (owned by Ronsi Business Pty Ltd).

The companies referred to above, along with NPRT, continued in receivership until 27 June 2014.[4]

[4] Reconciliation of Director/Secretaries of NRPT Australian companies (CB 8432–8449).

On 20 August 2007 Mr Bannon forwarded an unsigned draft contract of employment (‘the 2007 contract’) to the Chair of the NPRT, Alvina Aremwa. The covering email included the following:

I would therefore be appreciative if you would look to formalize the attached contract of employment via affixing your signature as the Chair of the Trust as well as the signature of another Trustee and faxing the signature page of the document to the Trust offices in Melbourne as soon as possible. The original (x2) should be sent to my attention from Nauru and upon receipt I will affix my signature, such that the Trust and I have an original of the document.
Madam Chair, I would also welcome the opportunity of the Board giving consideration to updating the terms and conditions to which I am currently employed. It can be seen from the contract the basis of my employment consists of a base salary of $80,000 per year, with superannuation at 9% and the use of a company car. Having reviewed the basis of my remuneration, I would like to highlight a number of issues for the benefit of the Board:
·The Terms of my employment have not changed since April 2003. During such time the Trust has approved wages increases to the other members of the Trust of (on average) 25% over the equivalent period.

…
Madam Chair, I appreciate the Trust needs to maintain a strong control over its expenditure to ensure the maximum protection is afforded the beneficiaries of the trust, however I also think it is within the authority of the board to address the terms and conditions provided to me in my capacity as Secretary to the Trust. It is my understanding similar positions within other Nauruan enterprises are paid well in excess of my current entitlements and whilst I am not looking to match the other terms and conditions paid, I consider my involvement with the Trust to be far superior in terms of commercial value, than the services provided to the other Nauruan instrumentalities.
Aside from the good work and value I consider I have and continue to provide the Trust, I must declare my personal circumstance have also changed with my family having recently increased and with the imminent burden of both primary and secondary school fees needing to be funded.
Therefore I would welcome your consideration to the following changes:
1.Increasing the base salary paid from $80,000 to $140,000 per annum
2.Ceasing the provision of the company car within the terms and Condition offered. Value reduction $24,000. The car could be sent to Nauru or offered for sale and would assist the Trust in reducing its Fringe Benefit obligations
3.No change in Superannuation

The aforementioned changes represent a monetary increase over that currently paid of $36,000.

On 24 August 2007 Mr Bannon signed the 2007 contract. It was signed on behalf of NPRT by the Chair, Alvina Aremwa and Board Member, Ruby Thoma. The recitals to the contract provided:

A.The Employee has been in the full time continuous employment of the Employer since 3 October 1994;
B.On 22 July 2003 (hereinafter called “the Commencement Date”) the Employee was appointed by the Employer to act as Secretary to the Employer on and subject to the terms and conditions hereinafter contained and the Employee accepted such terms and conditions;
C.The Parties hereto agreed prior to the Commencement Date to record the terms and conditions of the Employee’s said Employment by the Employer but had not done so and are now desirous to record all of the agreements and understandings made between the Parties hereto concerning such employment in this Contract of Employment with the intention that the terms and conditions hereinafter contained shall be legally binding on the Parties hereto and shall apply in respect of the Employees (sic) employment at all times from the Commencement Date.

Schedule 2 provided:

Remuneration
The Employee’s remuneration whilst employed by the Employer will consist of the following:
1. Yearly Salary: $80,000 to be paid on a Fortnightly basis;
2.The use of a company car for private and business use which at the time of this agreement is a 2001 Holden Commodore Acclaim. The provision of this car includes running expenses such as fuel, oil, maintenance and repairs as required;
3.Any entitlement at law to leave loading or other forms of salary loading or payment required by law to be made;
4.During each period that the Employee acts as a Director or Secretary of a subsidiary company of the Nauru Phosphate Royalties Trust, a Monthly Entitlement of $1,500 in respect of each such subsidiary company;
5. All unpaid entitlements from the Employee’s previous employment with the employer will be carried forward;
6.The payment of such other payments and such other entitlements as is provided for in this Agreement;
7.Superannuation contributions equivalent to 9% of the Employee’s base salary and the Employee’s entitlements under paragraph 4 of this Schedule 2, pursuant to the Superannuation Guarantee (Administration) Act 1992 (Cth) to a superannuation fund selected by the Employee or, if no fund is chosen by the Employee, to an eligible fund nominated by the Employer;
8.At any time the Employee may request the Employer to pay part of the salary component into the Employee’s nominated super fund. This is in addition the (sic) statutory requirement of the Employer’s contribution under the Superannuation Guarantee (Administration) Act 1992 and the Superannuation Guarantee Charge Act 1992. Provided that there is no detriment to the Employer in so doing and such payment is permitted by law and deductible to the company then the company will comply with that request. The Employee’s salary shall be reduced by the amount of such payment.

Subject to one qualification, Mr Millar, who appeared for NPRT, accepted that cl 4 of sch 2 conferred upon Mr Bannon an entitlement to be paid $1,500 per month in respect of each subsidiary of NPRT to which he had been appointed to act as Secretary and/or Director. The one qualification arises from the opening words of cl 4 ‘[d]uring each period that the Employee acts as a Director or Secretary of a subsidiary company.’

Mr Millar focussed attention on the words ‘acts as’. He submitted that these words imposed a pre-condition upon Mr Bannon to establish not only that he had been appointed as Secretary/Director, but that he had also actually performed duties during any given month. I reject this submission. The Corporations Act 2001 (Cth) (‘Corporations Act’) equates ‘acts as’ Company Secretary with ‘holding the office/position’ of Company Secretary. S 204C, ‘[c]onsent to act as secretary’ provides:

(1) A company contravenes this subsection if a person does not give the company a signed consent to act as secretary of the company before being appointed.

Part 1.5 of the Corporations Act, the Small Business Guide, at 1.5.5 provides:

…
A company secretary must consent in writing to holding the position of company secretary. The company must keep the consent and must notify ASIC of the appointment.
…

Further, the Corporations Act imposes numerous obligations upon a Company Secretary whenever he/she holds the office. See for example the potential liability of a Company Secretary for twelve discrete contraventions of the Corporations Act prescribed by s 188(1).[5]

[5]See also Corporations Act 2001 (Cth) ss 180–183.

The phrase ‘acts as’ in cl 4 of sch 2 is engaged in circumstances where Mr Bannon held the office of Secretary/Director in any given month. During the period July 2003 to June 2014 Mr Bannon ‘acted’ as Secretary/Director of the relevant subsidiaries, in the sense that he held the office of Secretary/Director during that period. His entitlement to be paid fees under cl 4 of sch 2 is not contingent upon him establishing that he in fact performed specific duties of Secretary/Director during any particular month during which he claimed an entitlement to receive fees. Mr Bannon had a prima facie entitlement to be paid $1,500 per month during the period July 2003 to 30 June 2014 in respect of each subsidiary to which he had been appointed to act as Secretary/Director.

When the 2007 contract was signed the base salary was $80,000 per annum. On 18 October 2007 Ms Aremwa, together with the three other Board Members of NPRT (Ruby Thoma, Doneke Kepae and Clarissa Jeremiah), signed a memorandum in the following terms:

The Trustees of the Nauru Phosphate Royalties Trust, in a meeting held on Wednesday 17 October 2007 have unanimously agreed to increase the base salary paid to Trust Secretary, Mr Paul Bannon, from $80,000 − $140,000 per annum a monetary increase over the currently paid of $36,000 since April 2003 up to present.

Shortly after 18 October 2007 Mr Bannon arranged for a payment to be made to himself totalling $295,475. This represented back pay for the period April 2003 to 17 October 2007 of the salary increase approved by the Board, plus superannuation, as recorded in the memorandum of 18 October 2007. In the current proceedings NPRT contends that this back pay was not authorised and seeks recovery of this sum.

Following the execution of the 2007 contract Mr Bannon never received any of the fees prescribed by cl 4 of sch 2. Nor did he seek recovery of the retrospective entitlement of the fees and superannuation in respect of the period 22 July 2003 to 24 August 2007. With two exceptions, Mr Bannon never made any reference in any of his dealings with the Board and/or the Minister with responsibility for NPRT, of the existence of his entitlement to receive Secretary/Director fees under sch 2. This silence occurred in circumstances where, as Secretary of NPRT, from April 2009 when s 32 was inserted into the Act, Mr Bannon had a statutory responsibility to prepare an annual administration budget. Section 32 provides:

(1)The Secretary to the Trust shall prepare an Annual Administration Budget for the Trust which shall be submitted before 30th June each year for consideration and approval by the members of the Trust.
(2)The Annual Administration Budget shall set out the projected administration costs and related expenses of the Trust (including taxes, rates, charges, duties and other like amounts, commissions and fees) likely to be incurred by the Trust on behalf of the funds administered by the Trust in the ensuing financial year.
(3)Following approval of the Annual Administration Budget by the Trust, the Secretary shall provide to the Minister responsible for the Trust a copy of the Annual Administration Budget.

No administration budget prepared by Mr Bannon ever made any reference to his accrued or ongoing entitlement to receive payments pursuant to cl 4 of sch 2.

The exceptions to Mr Bannon’s silence regarding his entitlement to payments under cl 4 of sch 2 are a letter which he forwarded to the then Chair of NPRT, Mr Alexius Namaduk, on 1 March 2013 and an email on 19 March 2013. The letter included the following:

Dear Chairman,
Re: Secretary to the Trust – Salary review/increase
The purpose of this paper is to seek your approval to grant an increase in the annual salary paid to myself in performance of the role of Secretary to the Nauru Phosphate Royalties Trust.
Background
·           I have been in full time employment with the Trust since October 3^rd 1994.
·           On July 2^nd 2003, I was appointed to the position of Secretary to the Trust.
·           The current employment contract between the Nauru Phosphate Royalties Trust Board and myself was executed on August 24^th 2007.
· Details specific to my remuneration are found in Schedule 2, items 1−4.
·           Further, on October 18^th 2007, the Board unanimously agreed to increase the annual salary paid to me from $80,000 to $140,000.
·           By agreement, the Trust has not had to outlay the expense of a company car as this represented part of the justification behind the salary increase that occurred on October 18^th 2012.
·           Although payable under my contract of employment, I have not sought payment of the fees payable to myself under Schedule 2 item 4, as a result of the continued receivership of the Trust and the associated tight financial liquidity associated with it.
·           No review of my salary has occurred since October 2007.
…
Proposal
·           Mr Chairman, I would welcome your consideration to the following variations of my contract:
·An increase in the Annual base salary from $140,000 to $200,000 pa. Given the financial assets of the Trust amount to approximately $100m, a salary of $200,000 represents a cost of 0.02 of 1% of the total funds under management. This is on the low side of similar financial institutions remunerations, where 2.5% (on average) of funds under management is paid as a base salary.
·The provision of a fully funded company car to a maximum of $40,000. In this regard I propose my current car be purchased from me by the Trust at an agreed rate.

Mr Chairman, I realise the increases sought represent a significant increase over and above the current level paid, however in my opinion they are reflective of the fact that no increase has been forthcoming for in excess of 5 years. The increase of $60,000 represents an increase of approx. 43% or 8.5% for each of the five years no increase was provided.[6]

[6]Emphasis added.

On 19 March 2013 Mr Bannon sent an email to Mr Namaduk:[7]
[7]Exhibit T email Paul Bannon to Alex Namaduk 19 March 2013.

Chairman,

I realise the timing may well be inappropriate, however I attach for your kind consideration a letter from myself seeking your consideration for an increase in the annual salary paid. I further attach a copy of my employment contract as well as the variation to it dated October 185^th (sic) 2007.

I would welcome the opportunity of discussing this matter with you further should you desire.

I had wanted to discuss this matter with you in Fiji or whenever we were due to meet next.

Kind regards

Paul Bannon

Secretary to the Trust

The letter of 1 March 2013 was signed under a notation ‘Approved’ by each of the four members of the Board. The letter also contained a handwritten notation ‘From PPE 22/5/2013’. It is agreed that this is a reference to the Board approving the salary increase with effect from the pay period ending 22 May 2013. Although the salary increase had been approved, Mr Bannon did not seek to implement the increase until 24 June 2014. In an internal memorandum to Romys Eobob, NPRT’s finance manager, Mr Bannon stated:

Romys,
For your kind information and action, would you please refer to the attached wages letter dated March 31^st 2013 duly signed by the former Chairman of the Trust Mr Alex Namaduk. The wages letter was ratified by the board at a meeting in Melbourne on May 13^th 2013.
I have elected not to give effect to the increase as yet as a means of implementing an enforced savings program upon myself as the speculation concerning the Trust and its future was subject to increased speculation and uncertainty.
With the closure of the Trust scheduled for Monday June 30^th 2014, would you kindly:
1.Refer to the attached worksheet and arrange for payment of my back pay adjustment in the amount of $46,400 (net).
2.Ensure the back pay adjustments are included within the 2013/2014 wage records summaries.
3.The final pay from 18 June to 30 June 2014 is calculated at the new rate.
4.My superannuation adjustments are calculated and paid accordingly.
…

As events unfolded, Mr Bannon did not receive the requested back pay prior to the termination of his employment on 30 June 2014. NPRT contends that any liability which it has to pay Mr Bannon damages based upon his accrued entitlements as at 30 June 2014, is to be determined by reference to the base annual salary of $140,000 which he was paid up to 30 June 2014. Mr Bannon submits that his accrued entitlements should be paid on the basis of the $200,000 per annum base salary which he submits was agreed to by the Board in May 2013.

On 9 November 2012, the receivers, Stephen James Parbery and Mark Julian Robinson paid into the New South Wales Supreme Court the sum of $85,215,466.21. This sum was paid into Court pursuant to provisions of the Trustee Act 1925 (NSW). The amount represented a surplus arising from sales by the receivers of properties of the various Nauru entities for the purpose of repayment of loan facilities granted by GE Capital to Ronsi Business Pty Ltd and Republic of Nauru Finance Corporation on securities granted by the Nauru entities. During the course of the receivership of each of the Nauru entities, the receivers realised assets which secured the loan facilities and, from the proceeds of sale of the securities, discharged the debts owing under the facilities. They held the surplus proceeds of sale as Trustees of the Nauru entities.

On 3 May 2013 Lindsay J ordered that the amount of $85,215,466.21 paid into Court on 9 November 2012, and any interest accrued on that amount, be paid out of Court (net of any expenses payable in the ordinary course) to Messrs Baker & McKenzie as solicitors on the record for the Nauru entities. The funds paid out of Court were ultimately released to NPRT by Baker & McKenzie on or about 1 November 2013.[8]
[8]See Order of Judd J, 25 October 2013, in Baker & McKenzie v Nauru Phosphate Royalties Trust (S CI 2013 03786).

On 31 March 2014 Mr Bannon, together with the three other employees of NPRT, received an email from Andrew Jacobson, the principal of a Melbourne based law firm, Black & White Legal. The email was copied to Mr Shadlog Bernicke, the Minister responsible for NPRT. The subject of the email was ‘Notice of Redundancy’. The email stated in part:

Dear Paul, Mary, Kham & Romys,
I confirm as has been made known previously, that Nauru Phosphate Royalties Trust (NPRT) will be closing down its Melbourne Branch office on Monday 30 June 2014 and that the current employment positions of all staff of the Melbourne office shall be made redundant on 30 June 2014.
…

Mr Bannon disputes that this email constituted valid notice of termination of his employment contract. He contends that he was an employee of NPRT and that Mr Jacobson had no authority on behalf of the Trust to provide him with notice of termination. Mr Bannon’s employment was in fact terminated on 30 June 2014. He was told by Mr Jacobson on the afternoon of 30 June 2014 that his employment would be terminated with effect from that day. Mr Bannon contends that he is entitled to damages equivalent to 12 weeks’ notice of termination, in accordance with his contract. He contends that the notice given on 31 March 2014 was of no legal effect. In addition to damages equivalent to 12 weeks’ notice of termination, Mr Bannon seeks 12 weeks’ redundancy pay in accordance with the provisions of his contract.

When Mr Bannon’s employment was terminated he was not paid accrued annual and long service leave entitlements. Whilst NPRT accepts that Mr Bannon is entitled to accrued leave entitlements it disputes the quantum of the annual leave claimed and the rate at which Mr Bannon is to be paid.

The annual leave records of NPRT disclose that Mr Bannon had 291 days of accrued annual leave as at October 2013, which translates to an entitlement of 305.8 days as at 30 June 2014.

Mr Bannon had a contractual entitlement to be paid 50 per cent of accrued but untaken sick leave as at 30 June 2014. He claims damages in the sum of $105,807.69 being 50 per cent of his accrued sick leave as at 30 June 2014.

The meaning of ‘subsidiary company’ in sch 2 of the 2007 contract

Mr Bannon’s claim for damages based on his entitlement to Secretary/Director fees in the sum of $3,111,000 relates to 19 companies. There is an issue as to whether two of those companies are subsidiary companies within the meaning of sch 2 of the 2007 contract. The two companies are Central Pacific (Downtowner) Pty Ltd and Randwick Nominees Pty Ltd. The following matters are not contentious. First, of the five million shares in Central Pacific (Downtowner) Pty Ltd, all but one share is owned by the Nauru Superannuation Board. Second, the sole shareholders in Randwick Nominees Pty Ltd are Theodore Moses and Kenneth Walker. Third, Mr Bannon claims $18,000 in unpaid fees in respect of Central Pacific (Downtowner) Pty Ltd. Fourth, Mr Bannon claims $195,000 in unpaid fees in respect of Randwick Nominees Pty Ltd.

Mr Bannon submits that the objective common intention of the parties to the 2007 contract was not to have regard to the strict legal definition of ‘subsidiary’ but to regard all relevant companies within the Nauruan government’s effective control as ‘subsidiary companies’ of the defendant. Mr Bannon submits that ‘subsidiary company’ in the context of the 2007 contract should be read and understood as being similar to an ‘associated entity’ as defined in s 50AAA of the Corporations Act.[9] Mr Bannon submits that both Randwick Nominees Pty Ltd and Central Pacific (Downtowner) Pty Ltd were subsidiary companies of NPRT in this sense.[10]
[9]Plaintiff’s closing submissions 13 July 2018, [7].
[10]Ibid [8]–[9].

The phrase ‘subsidiary company’ has an unambiguous meaning in accordance with s 46 of the Corporations Act. Neither Randwick Nominees Pty Ltd nor Central Pacific (Downtowner) Pty Ltd is a subsidiary of NPRT within the meaning of s 46. Mr Bannon’s submission that ‘subsidiary company’ should be read as being similar to an ‘associated entity’ is an invitation to rewrite cl 4 of sch 2. I reject this submission. Neither Randwick Nominees Pty Ltd nor Central Pacific (Downtowner) Pty Ltd is a subsidiary company of NPRT within the meaning of cl 4 of sch 2 of the 2007 contract.

Is Mr Bannon estopped from claiming the Secretary/Director fees?

The principal component of Mr Bannon’s claim for damages is a claim for $3,111,000 for unpaid fees under cl 4 of sch 2 in respect of his acting as Company Secretary/Director of 19 subsidiary companies of the Trust. In addition, he claims a further $282,028.13 by way of superannuation entitlement in respect of those fees pursuant to cl 7 of sch 2. NPRT submits that Mr Bannon is estopped from claiming these sums. Its primary contention is that Mr Bannon represented to the Trust that he had no entitlement to the fees. It submits that the Trust relied upon this representation and that if Mr Bannon is permitted to depart from it, it will suffer detriment. It relies upon the doctrine of equitable estoppel. In addition, the Trust invokes common law estoppel by convention. It submits that throughout the period August 2007 to 30 June 2014 relations between Mr Bannon and the Trust were conducted on the basis of an assumption on the part of the Trust, acquiesced in by Mr Bannon, that he had no entitlement to be paid Secretary/Director fees by the Trust.

NPRT sought leave during the trial to amend its defence to plead estoppel by convention. The application was opposed. I granted NPRT leave to amend for the following reasons. First, Mr Bannon did not point to any prejudice arising from the amendment. No submission was advanced to the effect that he would have conducted his case differently if estoppel by convention had been pleaded from the outset. Second, the amendment to the pleading did not impact adversely on the hearing of the proceeding. Save for legal submissions, no additional hearing time was required as a result of the amendment. Third, I considered that the amendment facilitated the just resolution of the real issues in dispute and was therefore consistent with the overarching purpose prescribed by s 7 of the Civil Procedure Act 2010.

The terms of the 2007 contract are unambiguous. Clause 4 of sch 2 conferred upon Mr Bannon a monthly entitlement of $1,500 (plus 9 per cent superannuation) for acting as Secretary/Director of a subsidiary of NPRT. He had done so for the four years preceding August 2007 without receiving any additional remuneration. Mr Bannon does not have any entitlement to fees in respect of Randwick Nominees Pty Ltd and Central Pacific (Downtowner) Pty Ltd. In respect of the 17 subsidiary companies for which he does have an entitlement, there is some variation in respect of the period he acted as Company Secretary. There are 12 companies to which he was appointed Company Secretary for the entire period July 2003 to 30 June 2014. These 12 companies gave rise to an entitlement to $18,000 per month and $216,000 per annum. He was Company Secretary of the remaining five companies for disparate periods of time.

In August 2007 his fee entitlement was over two and a half times his base salary of $80,000. Further, the 2007 contract records the parties’ agreement that the fees entitlement operated retrospectively to 22 July 2003. Upon execution of the contract on 24 August 2007 NPRT was immediately liable to pay Mr Bannon a sum of approximately $1.15 million.[11] There was no discussion between the parties, let alone any agreement, that either Mr Bannon’s retrospective or prospective monthly entitlement would be deferred until such time as the Trust was no longer in receivership. The 2007 contract created an immediate liability for NPRT to pay Mr Bannon a sum of approximately $1.15 million. Due to the receivership and the liquidity situation which it created, the Trust could not have met this liability. Mr Bannon gave evidence that the reason he never made a claim for payment of the outstanding fees prior to the termination of his employment was that he did not wish to create a situation which would have placed the Trust in liquidation.[12] Whatever Mr Bannon’s motivation for not making a claim, the 2007 contract conferred upon him an unqualified entitlement to be paid forthwith a sum which, in all likelihood, would have triggered the liquidation of the Trust.
[11]Calculated on the basis of 49 months for each of the 13 subsidiaries for which Mr Bannon was Company Secretary for the entire period 22 July 2003 to 24 August 2007, 36 months for each of Central Pacific Holdings Pty Ltd and Southern Cross Properties Pty Ltd, 33 months for Central Pacific Securities Pty Ltd, and 29 months for Nauru House Maintenance Services Pty Ltd.
[12]Transcript of Proceedings (18 April 2018) 356.1–356.8.

Mr Millar submitted that Mr Bannon’s prima facie entitlement was defeated on two alternative basis. First, he submitted that Mr Bannon was estopped from claiming the entitlement prescribed by cl 4 of sch 2. In the alternative, he submitted that if Mr Bannon was not estopped, any claim for fees was statute barred prior to June 2009.

NPRT’s estoppel defence invoked both equitable promissory estoppel and common law estoppel by convention, which precludes either party from denying an assumption which has formed the conventional basis of a relationship between them.[13] The foundation of NPRT’s reliance upon both equitable estoppel and conventional estoppel is Mr Bannon’s conduct during the period 24 August 2007 to 30 June 2014. NPRT submits that the relationship between NPRT and Mr Bannon was conducted on the basis that he had no entitlement to receive the fees prescribed by cl 4 of sch 2. NPRT relies upon Mr Bannon’s failure to have made any claim for payment prior to the termination of his employment. In addition, it points to Mr Bannon’s repeated failure to include in any of the financial documents which he prepared for the Trust any reference to the existence of his accrued or ongoing entitlement to receive fees.
[13]Moratic Pty Ltd v Gordon (2007) 13 BPR 24,713 [30].

As to Mr Bannon’s silence regarding his entitlements under cl 4 of sch 2, there is no dispute between the parties that at no time prior to 30 June 2014 did Mr Bannon make any claim for such fees. The only occasion he made any reference to the existence of any entitlement was the letter which he sent to the Chairman of the Board on 1 March 2013 in support of his claim for a $60,000 salary increase. The same letter, together with the 2007 contract, was emailed to the Chairman on 19 March 2013.

As to the second matter, Mr Bannon repeatedly failed to make any reference to the existence of his accrued and/or ongoing entitlement to fees in any of the administration budgets which he prepared. He accepted that his failure to do so for the year ending 30 June 2010 meant that the document which he had produced was ‘materially misleading’.[14] This concession applies equally to all of the administration budgets prepared by Mr Bannon for the financial year ending 30 June 2009 and thereafter. Whilst Mr Bannon did not prepare an administration budget for the year ending 30 June 2008, he did prepare unaudited accounts. Those accounts included an entry for the accrued entitlements of employees in the sum of $278,530. That sum did not include Mr Bannon’s accrued entitlements under cl 4 of sch 2.
[14]Transcript of Proceedings (19 April 2018) 438.11–438.13.

Earlier in this judgment I have set out the terms of s 32 of the Act which operated post-April 2009. Mr Bannon’s entitlement to the fees prescribed by cl 4 of sch 2 was an administration cost which Mr Bannon, as the Trust’s Secretary, was required by s 32 to include in the annual administration budget. Further, s 32 imposed an obligation upon Mr Bannon to report to both the Board of the Trust and the Minister responsible for the Trust. I reject Mr Bannon’s contention that the Trust’s liability to make payment of the Secretary/Director fees did not crystallise until he submitted an invoice in September 2014. The liability to make payment crystallised at the conclusion of each month in respect of each subsidiary to which he had been appointed to act as Secretary/Director.

In addition to the statutory obligation imposed upon him by s 32, there was a significant practical consideration that from the time s 32 commenced operation in April 2009 until 30 June 2014, no audited accounts of the Trust were finalised. Throughout this period, the Board of the Trust, and the government of Nauru, were entirely reliant upon the administration budgets and unaudited accounts prepared by Mr Bannon as the source of information regarding the financial position of the Trust.

From 2002 until the end of his employment no audited accounts were tabled. Initially, the Trust did not have funds to continue its existing engagement with PKF, and then receivers and managers were appointed.[15] The Trust had no working capital to fund the appointment of auditors and accountants.[16] Auditors were eventually appointed in 2008.[17] There were significant delays and a ‘litany of problems’ in relation to the timely production of the Trust’s accounts.[18] The annual report of the Trust required the consolidation of ‘upwards of 19 entities’ and before the Trust’s accounts could be finalised, all of the subsidiaries needed to be brought ‘current’.[19]
[15]Ibid 428.25–429.1.
[16]Ibid 429.1–429.7.
[17]Transcript of Proceedings (17 April 2018) 245.15–245.20.
[18]Transcript of Proceedings (19 April 2018) 429.14–429.15.
[19]Ibid 429.19–430.1.

Post 2008, the auditors working on the accounts relied upon Mr Bannon for the provision of information regarding contingent liabilities.[20] Despite such reliance, Mr Bannon never gave the accountants any information in relation to his accrued entitlement to Secretary/Director fees.[21] He did not do so because at the time his employment ended no draft set of accounts had been produced to him, or the Board, for discussion, alteration or amendment.[22]
[20]Ibid 428.2–428.10.
[21]Ibid 428.11–428.13.
[22]Ibid 428.14–428.23.

Immediately upon executing his contract of employment in August 2007, the Trust became liable to pay Mr Bannon a sum of approximately $1.15 million. With each passing year this liability, inclusive of superannuation, increased by more than $250,000. Mr Bannon’s failure to include any reference to this accrued and ongoing liability in the financial records which he prepared meant that those records were misleading. The records seriously misrepresented the extent of the Trust’s liabilities.

Mr Bannon prepared unaudited accounts for the Trust for the year ending 30 June 2008. Those accounts made provision for employee entitlements of $278,530.[23] Mr Bannon accepted that the accounts were inaccurate in failing to disclose his entitlement to Secretary/Director fees, which at that time was an amount of approximately $1.8 million.[24] His evidence was that the failure to include any reference to his $1.8 million entitlement ‘was an omission rather than an intentional lack of inclusion’.[25]
[23]Ibid 430.24–430.25.
[24]Ibid 432.12–432.13.
[25]Ibid 433.19–433.21.

Mr Bannon’s evidence was that the accrued and ongoing liability was not included in annual administration budgets ‘on the basis that the Trust did not have the capacity to pay the claim as it would have been valued at that particular time.’[26]
[26]Ibid 436.25–436.29.

Mr Bannon sought to draw a distinction between the requirement to include in the annual budget items of expenditure such as annual and long service leave which were likely to be incurred during the forthcoming year, and his claim for fees, which was not:

The budget, again is an attempt obviously to include the expenditure that is likely to be incurred in the next 12 months. I did not anticipate the receivership of the Trust – sorry, the receivership of the Trust may or may not have concluded during that particular period of time and, if it did, it was then my intention obviously to raise the director and secretarial fees, but because of the uncertainty I limited the budget inclusion to just the statutory amounts that were payable by the Trust in the event that the office closed. But, as I said, the budgets were prepared in this manner since 2004, and actually – and we worked within this environment that may or may not be the case.[27]

[27]Ibid 437.6–437.19.

Notwithstanding the evidence set out above, Mr Bannon conceded that the accumulated value of the Secretary/Director fees entitlement should have been included in the annual administration budget.[28] He agreed that by reason of the omission the annual budget he prepared for the year ending 30 June 2010 was ‘materially misleading’.[29]
[28]Ibid 438.5–438.10.
[29]Ibid 438.11–438.13.

NPRT administration budget for the years ending 30 June 2010 and 30 June 2011

Mr Bannon agreed that the administration budgets for the years ended 30 June 2010 and 30 June 2011 did not provide for the Secretary/Director fees he now claims.[30] However, he did not agree that there should have been provision for the prospective Secretary/Director fees, as the Act governing the Trust required the budget to include ‘expected expenditure for the next 12 months,’ and whilst the Melbourne office was expected to close, he had not submitted, and nor had the receivership ‘concluded’ for him to submit, an invoice in respect of those fees.[31]
[30]Ibid 433.27–434.2.
[31]Ibid 434.23–435.4.

Mr Bannon agreed the administration budget for the year ending 30 June 2010 included provision for ‘Salaries – Expatriate’ at $720,000, intended to include provision for accruing entitlements such as annual leave, long service leave, sick leave, and should have included his claimed Secretary/Director fees.[32] However, he explained the claimed Secretary/Director fees were not included on the basis the Trust did not have the capacity to pay the claim as it would have been valued at that time (approximately $2.3 million).[33] According to him, the budget was an attempt to include expenditure likely to be incurred in the next 12 months, and the receivership of the Trust may or may not have concluded during that particular period of time.[34] If it did, it was his intention to raise the Secretary/Director fees.[35]
[32]Ibid 436.16–436.26.
[33]Ibid 436.26–437.2.
[34]Ibid 437.6–437.11.
[35]Ibid 437.11–437.13.

Given the uncertainty regarding the Melbourne NPRT office closure, Mr Bannon limited the budget to the ‘statutory amounts’ that were payable by the Trust in the event the office closed.[36] Mr Bannon stated that if he anticipated the receivership was going to conclude during the year ending 30 June 2010, he should have included his claim for Secretary/Director fees in the budget.[37] He conceded that if he was approaching the framing of the budget with the need to include provision for employee expenses upon closure of the Trust, he should have included the accumulated value of Secretary/Director fee entitlement, and as he did not, the document was materially misleading.[38] Mr Bannon agreed that the budget for the year ending 30 June 2011 suffered from the same deficiencies in failing to include his Secretary/Director fee claim.[39]
[36]Ibid 437.13–437.16.
[37]Ibid 437.20–437.24.
[38]Ibid 438.5–438.13.
[39]Ibid 438.23–439.1.

The administration budget for the year ending 30 June 2011, together with a note to the Trustees in respect of agenda item number 4 for the Special Meeting of the Board of Trustees of the NPRT on 25 June 2010, were prepared by Mr Bannon.[40] The note included the following:

The 2010/2011 Administration Budget of the Nauru Phosphate Royalties Trust endeavours to encapsulate all potential liabilities facing the Nauru Phosphate Royalties Trust for the financial year in question.[41]

Mr Bannon presented this note and the administration budget to the Trustees, and confirmed it included no mention of his Secretary/Director fees claim.[42] He agreed that he could have presented to the Trust, at any time, a claim for Secretary/Director fees, and the potential liability associated with those fees would have turned into an actual liability.[43] Mr Bannon had no intention of submitting the liability to the Trust, or exercising the liability, whilst the receivership was ongoing, and for that reason he did not include it in the budget.[44] However, Mr Bannon conceded the reality was that it was a potential liability and it should have been included.[45]

[40]Ibid 439.2–439.5.

[41]Agenda Item No 4 - Meeting No 2 of 2010 - 25th June - Special Meeting of The Board of Trustees of - Nauru Phosphate Royalties Trust - Consideration of the Nauru Phosphate Royalties Trust - Administration Budget For the Year Ending 30th June 2011 (CB 1507–1508).

[42]Transcript of Proceedings (19 April 2018) 439.6–439.13.

[43]Ibid 439.14–439.25.

[44]Ibid 439.22–439.30.

[45]Ibid 439.31–440.3.

The note to the Trustees prepared by Mr Bannon also included the following regarding expatriate salaries:

Salaries expatriate (14 – 203) has been prepared on the basis of a worst case scenario in which staff entitlements are not utilised during the financial year in question – that is no annual leave is utilised during the financial year.[46]

[46]Agenda Item No 4- Meeting No 2 of 2010 - 25th June - Special Meeting of The Board of Trustees of - Nauru Phosphate Royalties Trust - Consideration of the Nauru Phosphate Royalties Trust - Administration Budget For the Year Ending 30th June 2011 (CB 1507–1508).

Mr Bannon explained that he was presenting the worst case scenario of what the Trust would be liable for if it ceased operations during that year insofar as the statutory obligations that would be immediately payable.[47] Secretary/Director fees were not included on the basis that the receivership had not concluded, and once the receivership had concluded and the money returned to the Trust, the fees would then be negotiated.[48] The residual from the receivership was returned to the Trust on or about 1 November 2013. No discussion took place between Mr Bannon and the Board regarding his fees entitlement between November 2013 and 30 June 2014.
[47]Transcript of Proceedings (19 April 2018) 440.4–440.27.
[48]Ibid 440.27–440.31.

When Mr Bannon presented the budget for the financial year ended 30 June 2011, his covering email to the Chair, Mr Keke, included the following:

I consider the Budget submitted to be an accurate portrayal of the anticipated expenditure likely to face the Trust during the next 12 month period.[49]

Mr Bannon agreed that this was an assurance to the Board that it was an accurate portrayal of the anticipated expenditure likely to face the Trust during the next 12 month period, with the proviso that if the Board knew something that he did not, they were free to change and amend the budget as they wished.[50] Mr Bannon disagreed that he was the only person who knew about the prospective exposure to his Secretary/Director fee claim, and stated that the people aware of the entitlement within his contract, being himself and the Board, knew the clause was in there, even though it had not been exercised or disclosed in the budget.[51] He reiterated that it was not disclosed within the budget because the receivership continued and there was no expectation that whilst it continued he was going to be placing that type of invoice before the Trust.[52]

[49]Email from the plaintiff to Chair Leo Keke with subject header ‘NPRT Administration Budget 2010/2011’ (CB 1542).

[50]Transcript of Proceedings (19 April 2018) 442.12–442.21.

[51]Ibid 442.26–443.2.

[52]Ibid 443.2–443.6.

Mr Bannon’s email to Mr Keke also included:

…we have a quantifiable liability due to the Trust auditors, PKF, with regards to the preparation and finalization of the Trust’s Annual Reports… .[53]

Mr Bannon agreed that a quantifiable liability should have been included in the budget, on the proviso the liability is exercisable within the next 12 months.[54] Expenses expected to become ‘real’ within the next 12 months should be allocated within the budget, and expenses that are not, that are contingent, should be included as liabilities within the balance sheet.[55] So far as the Trust was concerned, Mr Bannon said the ‘statutory requirements’ had been included since 2004 as the risk existed that the office would be closed at any point, the receivership would come to a conclusion and the monies paid back to the Trust and landowners.[56]

[53]Email from the plaintiff to Chair Leo Keke with subject header ‘NPRT Administration Budget 2010/2011’ (CB 1542).

[54]Transcript of Proceedings (19 April 2018) 444.22–444.26.

[55]Ibid 445.11–445.17.

[56]Ibid 445.17–445.24.

Mr Bannon attempted to explain the distinction he made between ‘statutory entitlements’ included in the budget, and his Secretary/Director fees not included in the budget, as follows:

I have not included the directors and entitlement fees on the basis that the receivership was ongoing and the forecast date of its conclusion was unknown. Whereas the statutory fees have been included because, as I said, if the officer was - if the Trustees and/or a creditor came along that was unable to be satisfied the office could be closed tomorrow but the Nauru office could continue, and therefore the staff that were within the Melbourne office by way of their accrued entitlements that were payable to them under law would receive - would - at least there's been an allocation within the budget of those particular costs. That's the distinction. I'm sorry, I can't give Your Honour more qualified advice in relation to the accountancy, because I'm sure that more qualified accountants than I would maybe answer perhaps differently.[57]

[57]Ibid 446.1–446.18.

Mr Bannon’s evidence was that liability for annual leave and long service leave was included in the budgets, on the basis that it would be payable if the Trust closed.[58] He conceded this was no different from his claim for Secretary/Director fees, which would also be payable if the Trust closed, save for a difference in quantum.[59] He explained the different treatment of his fees entitlement as being that the Trust did not have access to sufficient funds whilst the receivership continued to address the Secretary/Director fees, and for that reason he withheld them until the receivership concluded.[60] On the other hand, the Trust had the funds available to meet the ‘statutory demands’ of the employees’ immediate entitlements (including annual leave, sick leave, leave loading and long service leave).[61]
[58]Ibid 446.20–446.25.
[59]Ibid 446.26–446.30.
[60]Ibid 447.18–447.24.
[61]Ibid 447.24–448.1.

Mr Bannon believed his entitlement to 50 per cent of his sick leave balance upon termination of employment was included in the budget calculations.[62] He believed this entitlement was accounted for in the budget within the provision made for employee entitlements.[63]
[62]Ibid 448.12–448.20.
[63]Ibid 449.7–449.15.

It was put to Mr Bannon that if the budget provision for employee entitlements extended to a contractual entitlement, like his entitlement to 50 per cent of his sick leave balance upon termination of employment, the budget should have also included the Secretary/Director fee liability.[64] Mr Bannon stated that contractual entitlements of staff, readily expected to be received by an employee if ‘sacked tomorrow’ were included in the budget.[65] Mr Bannon agreed his claim for Secretary/Director fees was a quantifiable liability, and he could have at any time worked out exactly what was owed, however, he did not go through that exercise until after the termination of his employment on 30 June 2014.[66]
[64]Ibid 449.16–449.21.
[65]Ibid 449.22–449.31.
[66]Ibid 452.12–452.22.

Administration budget for the year ending 30 June 2012

When presenting the administration budget for the year ending 30 June 2012 to the Trustees, the note Mr Bannon prepared for the Special Meeting of the Board of the Trustees included the words ‘the administration budget endeavours to encapsulate all potential liabilities within the Trust.’[67] Mr Bannon said those words were designed to communicate to the Trustees, to the best of his knowledge, that the budget had been prepared and if they had any changes he was not aware of, to incorporate them.[68] Mr Millar put to Mr Bannon that he went further by stating the budget ‘endeavours to encapsulate all potential liabilities,’ thereby saying the Trustees had every reason to have confidence and be comforted by the diligence with which he had prepared the records.[69] Mr Bannon expected the Trustees to be of the opinion that the budget was as comprehensive as possible, but he did not assume the budget was 100 per cent complete unless the Trustees resolved to support it.[70] However, he agreed the Trustees should have confidence in what he presented, as the Secretary of the Trust.[71]
[67]Special Meeting of the Board of Trustees of Nauru Phosphate Royalties Trust, Agenda Item No. 4 for Meeting No. 3 of 2011 - 28 June (CB 1788–1790).
[68]Transcript of Proceedings (19 April 2018) 452.23–453.6.
[69]Ibid 453.7–453.11.
[70]Ibid 453.11–453.15.
[71]Ibid 453.16–453.20.

In an email to Mr Bannon from the then Chairman, Leo Keke, regarding the 2011/2012 budget, a query was raised by the Trustees ‘re the redundancy of 12 weeks for continuous service after 10 years in Note 3 to Sub-Head 203.’[72] Mr Bannon agreed that this showed the Trustees had reviewed the budget in considerable detail, and this was an employment-related query about which the Trustees needed reassurance.[73]
[72] Emails between the plaintiff and Chairman, Leo Keke subject ‘Re: FW: Agenda’ (CB 1792).
[73]Transcript of Proceedings (19 April 2018) 452.25–453.30, 454.17–454.25.

‘Budget Working Papers 2012 – 2013’

During cross-examination, Mr Bannon was taken to a document labelled ‘Budget Working Papers 2012-2013,’ which he believed was a draft for the 2013/2014 year, and had not been formally presented to the Board.[74] However, he agreed a budget for the 2012/2013 financial year was put before the Board and approved.[75]
[74]Ibid 455.5–455.22.
[75]Ibid 456.10–456.13.

Mr Bannon agreed the document included provision for Trustee fees of $2,400 for the three non-chair Trustees, that was the ‘going base rate’, and in some years the Trustees made decisions to include additional fees, approved by a Board resolution.[76] He confirmed that on an annual basis he was presenting the Board with a budget which provided a base remuneration of $2,400 per Trustee, save for the Chair, unless otherwise known, which equated to $7,200.[77] At the time of presenting those figures, Mr Bannon never said he was entitled to approximately $300,000 per annum in fees, or that he was owed back pay for Secretary/Director fees.[78] Mr Bannon agreed that during the process of establishing the budget for any financial year he did not disclose his Secretary/Director fees claim.[79]
[76]Ibid 457.3–457.21.
[77]Ibid 457.31–458.4.
[78]Ibid 457.5–457.15.
[79]Ibid 459.24–459.27.

There was no agreement between Mr Bannon and the Trust that payments of his entitlements under cl 4 of sch 2 would be deferred until the receivership had concluded. The issue of deferral of payment was never discussed between Mr Bannon and any member of the Board. Further, if the Trust office had closed down during any of the years in respect of which Mr Bannon produced administration budgets, his Secretary/Director fees would have been no different than the statutory leave entitlements which would have been payable by the Trust. Therefore, the basis upon which Mr Bannon contends that he did not include his Secretary/Director fees entitlement in the annual administration budget has no rational foundation. However, of greater significance to the current proceeding is the fact that at no stage prior to Mr Bannon’s correspondence to the Chairman dated 1 March 2013 was there any reference by Mr Bannon to the existence of an entitlement for him to be paid fees by the Trust under cl 4 of sch 2.

In the letter of 1 March 2013 Mr Bannon stated that he had not sought payment of the fees payable under cl 4 of sch 2 ‘as a result of the continued receivership of the Trust and the associated tight financial liquidity associated with it.’ Two aspects of this statement are noteworthy. First, the statement that Mr Bannon had not sought payment of fees under cl 4 of sch 2 was a matter he relied upon in support of his claim for a $60,000 per annum salary increase. Mr Bannon was not contending that he was entitled to all of the fees which had accrued since July 2003. Such a contention would have undermined his claim for a $60,000 pay increase. Second, it is implicit in Mr Bannon’s identification of the reason for him not having sought payment of the fees (the continued receivership of the Trust and the tight financial liquidity associated with it) that he reserved the right to seek payment of fees once the receivership was concluded and the Trust’s financial position improved.

When it was put to Mr Bannon that he was the only person who knew about the Trust’s prospective exposure to a Director’s fee claim he replied:

No. The only person that was – sorry, the people that were aware of the directors fee entitlement being within my contract, being the Board and myself, knew obviously that the clause was in there. Had it been exercised? No, it didn’t (sic) been exercised. Had it been disclosed within the budget? No, it hadn’t been disclosed within the budget because the receivership continued and there was no expectation that while the receivership had continued that I was going to be placing that type of invoice before them.[80]

[80]Ibid 442.28–443.6.

As to Mr Bannon’s evidence that there was no expectation that whilst the receivership continued he was going to place an invoice before the Board, there is no evidence, save for Mr Bannon’s letter of 1 March 2013 and email of 19 March 2013, of there being any basis for the Board to have shared that expectation.

Mr Bannon contends that there is no basis upon which the Board could have assumed that he did not have an entitlement to the fees prescribed by cl 4 of sch 2. As set out in his evidence above, he contends that ‘obviously’ the Board was aware of the existence of the entitlement because the contract had been signed by the Chair, Alvina Aremwa, and a Trustee, Ruby Thoma. I reject this contention. Although the 2007 contract was duly executed by them on behalf of the Board, Ms Aremwa and Ms Thoma assumed that the Trust was not liable to pay Mr Bannon $1,500 per month in respect of each subsidiary company to which he had been appointed Secretary/Director.

In Krakowski v Eurolynx Properties Ltd[81] the High Court approved the following statement of Bright J in Brambles Holding Ltd v Carey:[82]

Always, when beliefs or opinions or states of mind are attributed to a company it is necessary to specify some person or persons so closely and relevantly connected with the company that the state of mind of that person or those persons can be treated as being identified with the company so that their state of mind can be treated as being the state of mind of the company.[83]

[81](1995) 183 CLR 563, 582−583.

[82](1976) 15 SASR 270.

[83]Ibid 279.

A corporation cannot know or believe two contradictory things at once. It is rational belief, not schizophrenia, which is to be attributed to the company.[84]
[84]Brambles Holding Ltd v Carey (1976) 15 SASR 270, 276; Pacific National (ACT) Ltd v Queensland Rail [2006] FCA 91 [61].

The 2007 contract was signed on behalf of NPRT by Alvina Aremwa and Ruby Thoma. Ms Aremwa was the Chair of the Board between 20 November 2006 and 16 January 2008, 2 March 2012 and 22 June 2012, and 17 June 2013 and 31 March 2014.[85] At all other times between 1 November 2004 and 31 March 2014 Ms Aremwa was a Board Member.[86] Ms Thoma was a Board Member continually between 1 November 2004 and 30 June 2014.[87]
[85] Updated Schedule of Trustees (CB 8431A–G).
[86]Ibid.
[87]Ibid.

The other two members of the Board at the time the contract was signed on 24 August 2007 were Doneke Kepae and Clarissa Jeremiah. Ms Jeremiah gave evidence in the current proceeding. Mr Kepae did not.

Ms Aremwa was the Chair of the Board when the 2007 contract was signed. Mr Bannon dealt directly with Ms Aremwa in the lead up to the execution of the contract. He provided her with drafts of the contract prior to 24 August 2007. Ms Aremwa was ‘closely and relevantly connected’ with the execution of the contract on behalf of the Board. Her state of mind can properly be treated as the state of mind of the Board.

Ms Aremwa was questioned regarding the unaudited financial accounts prepared by Mr Bannon for the year ending 30 June 2008. She relied on the accuracy on the information that was presented to the Board by Mr Bannon.[88] When she made decisions for the Trust she assumed that the information that Mr Bannon had presented was accurate.[89] Ms Aremwa was questioned regarding the entry in the unaudited accounts of 30 June 2008: Employee Entitlements - $278,530. Mr Bannon never made any reference in any meetings to the existence of an accrued or ongoing liability to pay him Secretary/Director fees.[90]
[88]Transcript of Proceedings (23 April 2018) 668.15–668.19.
[89]Ibid 669.13–669.15.
[90]Ibid 669.9–669.12, 670.11.

Ms Aremwa was aware that Mr Bannon was working for subsidiaries of NPRT ‘[a]nd then there’s all these entities under NPRT that he works with, a lot of them.’[91]
[91]Ibid 683.19–683.20.

When asked whether Mr Bannon had told her how much he was receiving for that work or was entitled to receive, Ms Aremwa answered:

I don’t know. I think I knew but those – those entities, they were all – they’re not – there’s nothing to them, only the names and the accounts and all that.[92]

[92]Ibid 683.22–683.25.

Ms Aremwa knew that Mr Bannon would be getting something for working for the subsidiaries but did not know how much he was getting.[93] She thought that he was working for less than ten subsidiaries.[94] She ‘knew he was entitled to something’ in relation to working for the subsidiaries.[95] However, Ms Aremwa did not think that the payments were coming from NPRT but rather from the subsidiaries themselves.[96]
[93]Ibid 684.5–684.9.
[94]Ibid 684.16–684.18.
[95]Ibid 685.13–685.14.
[96]Ibid 686.30–687.4.

Ms Aremwa gave evidence regarding a discussion which she had with Mr Bannon regarding fees for work done for Randwick Nominees Pty Ltd. She was aware that Mr Bannon was ‘getting something from the Randwick Nominees, which he was working for.’[97] Mr Bannon had spoken to her by telephone and told her that he had done the accounts for Randwick Nominees Pty Ltd. Ms Aremwa was the Chair of Randwick Nominees Pty Ltd at the time. Mr Bannon told her that she had been paid $40,000 ‘or something like that…because you’re the chairman…’.[98] Mr Bannon also told her that a government Minister, ‘Roland’, was to be paid ’60,000 or 80,000’.[99] Ms Aremwa then had a discussion with the Minister who told her he did not wish to be paid the money. She gave the following evidence:

So I went back to Bannon and I told him, ‘Roland doesn't want to be paid’ and I'm like Roland, I won't get paid either, so you just get your own pay, ‘we're not getting paid’, so we didn't get paid.[100]

[97]Ibid 680.22–680.24.

[98]Ibid 680.30–681.4.

[99]Ibid 681.24–681.30.

[100]Ibid 682.6–682.10.

The following exchange also took place with Ms Aremwa:

The evidence that you gave before concerning the subsidiaries and you thought he was entitled to something regarding subsidiaries, that was payments that you thought he might get from the subsidiaries like Randwick Nominees?---Yeah.

They weren't payments from NPRT?---M'mm.

That's right?---Yes, that's right.[101]

[101]Ibid 686.30–687.4.

This evidence supports a finding that Ms Aremwa believed that any payments received by Mr Bannon for the work he performed for subsidiaries was not sourced from NPRT, but rather from the subsidiary he worked for. Mr North criticised Mr Millar’s questioning as being misleading.[102] I do not accept this criticism. The reference to ‘subsidiaries like Randwick Nominees’ was simply a reference to an entity separate from, but associated with, the Trust. The point of the question, plainly understood by Ms Aremwa, was whether Ms Aremwa believed Mr Bannon was being paid by NPRT or by the subsidiaries themselves for the work he performed. Having closely observed Ms Aremwa give the evidence I have no doubt that she clearly understood the point of the question. Her evidence that the payments were not coming from NPRT was consistent with the absence of any reference to Mr Bannon’s accrued or ongoing liability in any of the accounts prepared by him post August 2007.
[102]Plaintiff’s short reply submissions to Defendant’s outline of closing submissions, 17 July 2018, [16].

This conclusion is not altered by Ms Aremwa’s evidence ‘[w]ell, I know (sic) Trust owes him a lot but I don’t know how much.’[103] Immediately following this evidence Ms Aremwa stated ‘I could have known but I can’t remember.’[104] Ms Aremwa then gave evidence that she had not been told by Mr Bannon in October 2007 that he had already accrued Secretary/Director fees of approximately $1.5 million.
[103]Transcript of Proceedings (23 April 2018) 660.15–660.16.
[104]Ibid 660.17.

Ms Aremwa believed that the contents of the financial reports prepared by Mr Bannon were accurate and relied upon those reports when making decisions as a Board Member. Those reports never included any reference to Mr Bannon’s accrued or ongoing entitlements to Secretary/Director fees. Ms Aremwa believed that Mr Bannon was entitled to be paid something for the work which he was undertaking for subsidiaries. However, she thought there were less than ten subsidiaries. There was ‘nothing to them, only the names and the accounts and all that.’ She believed that any liability to pay Mr Bannon the fees for Secretary/Director duties he undertook rested with the subsidiary companies themselves. Ms Aremwa’s evidence supports a finding that between August 2007 and March 2013 (being the date of Mr Bannon’s letter of 1 March 2013 requesting a pay increase) NPRT assumed that Mr Bannon had no entitlement to be paid Secretary/Director fees by NPRT.

The other signatory to the 2007 contract on behalf of NPRT was Ruby Thoma. Ms Thoma was a Board Member from 24 July 2003 to 13 August 2003 and 1 November 2004 to 30 June 2014. Although Ms Thoma was a signatory to the contract, I do not consider that she was as closely connected with the making of the contract as Ms Aremwa. Thus, for the purposes of determining the state of mind of the NPRT, I place greater weight on the evidence of Ms Aremwa.

Ms Thoma was aware that Mr Bannon worked not only for NPRT, but that the Nauruan government also used him for their entities, such as the Superannuation Board.[105] Ms Thoma ‘knew about the entities, I knew they were paid money, but I didn’t ask to be exactly how much.’[106]
[105]Ibid 730.23–730.25.
[106]Ibid 731.24–731.26.

Throughout the period Ms Thoma was a Board Member, Mr Bannon provided financial accounts and budgetary information which she relied upon when making decisions as Trustee, such as decisions relating to the eventual return of capital to landowners.[107] During the period she was a Trustee, Mr Bannon never mentioned that he had a large and growing claim for Secretary/Director fees that were owing to him.[108] Ms Thoma had no recollection of ever being informed by Mr Bannon that the Trust should include in the employee costs of the business from one year to next an extra amount for his remuneration for his Secretary/Director fees.[109]
[107]Ibid 731.31–732.11.
[108]Ibid 732.12–732.15.
[109]Ibid 732.24–732.28.

Ms Thoma agreed that by mid-2013 when Mr Bannon’s total accrued fees were in the vicinity of $3 million, there would have been $3 million less to be distributed to the beneficiaries of the fund managed by NPRT.[110] She considered that it was ‘very right’ that:

What has happened with the distribution of monies to the beneficiaries is if Mr Bannon’s claim is valid, and let’s say it’s $3 million, then $3 million too much has gone back to the land owners in Nauru.[111]

I infer from Ms Thoma’s evidence that she assumed that Mr Bannon did not have an entitlement to be paid Secretary/Director fees by the Trust.[112] Any belief to the contrary would have been at odds with the reliance she placed upon the financial accounts and budgetary information prepared by Mr Bannon when making decisions as a Board Member, which contained no reference to any liability of the Trust to pay Mr Bannon’s fees.

[110]Ibid 732.29–733.5.

[111]Ibid 733.6–733.10.

[112]Cf LCY Pty Ltd v Ma [2017] VSCA 383 [46].

In addition to Ms Aremwa and Ms Thoma three other Board Members gave evidence: Clarissa Jeremiah, Elvin Brechtefeld and Sharain Hiram. Ms Jeremiah was one of four members of the NPRT Board in August 2007 when Mr Bannon’s contract was executed, and October 2007 when he received approval for a $60,000 pay increase. Ms Jeremiah had no knowledge of the 2007 contract having been entered into.[113] Ms Jeremiah had no knowledge of Mr Bannon having an entitlement to receive Secretary/Director fees.[114]
[113]Transcript of Proceedings (24 April 2018) 860.30.
[114]Ibid 862.13–862.14.

Mr Brechtefeld was first appointed to the Trust Board on 22 June 2012. He continued to be a Board Member until 30 June 2014 when Mr Bannon’s employment was terminated. Ms Hiram was first appointed to the Board on 31 March 2014. Neither Mr Brechtefeld nor Ms Hiram had any knowledge of Mr Bannon having an entitlement to receive Secretary/Director fees under his contract of employment. However, I do not consider this evidence to be of any weight for the purpose of determining the state of mind of the corporation as to the existence of Mr Bannon’s entitlement to receive Secretary/Director fees. By reason of their having signed the 2007 contract on behalf of the Board, Ms Aremwa and Ms Thoma were the individuals most closely and relevantly connected with the Trust’s state of mind as to whether Mr Bannon had an entitlement to be paid Secretary/Director fees by NPRT.

Detriment

Mr North submits that NPRT has suffered no detriment by reason of the delay in Mr Bannon making his claim for Secretary/Director fees. He relies upon the judgment of Smith J in Aufgang v Kozminsky Nominees Pty Ltd[115] where Smith J, in reference to an employee’s failure to claim his legal entitlements stated:

[Aufgang] merely deferred the liability of the defendant to [pay] him. His actions did not create a loss or detriment. Arguably it was in fact a bonus because the defendant had the use of its money.[116]

[115][2008] VSC 27.

[116]Ibid [42].

Whether detriment arises from an obligation to pay a lump sum in respect of accrued entitlements involves a question of degree. In the present case, immediately upon signing the 2007 contract, NPRT was indebted to Mr Bannon for a sum of approximately $1.15 million. That sum was comprised of a retrospective entitlement to fees in respect of the period July 2003 to August 2007. Post-August 2007 the Trust’s indebtedness grew at a rate of $1,500 per month (plus 9 per cent/9.25 per cent superannuation) for each subsidiary Mr Bannon was acting as Company Secretary. By 30 June 2014 the Trust’s liability had grown to approximately $3 million.

In May 2013, $85,215,466.21 which had been paid into the New South Wales Supreme Court by the receivers of the Trust and a number of associated entities, was released to the Trust’s solicitors, Baker & McKenzie. The funds ultimately came under the control of the Trust in late 2013. Of the $85,215,466.21, an amount of $60 million was made available for distribution to beneficiaries of the Trust.[117] The distribution of the $60 million had been underway for more than six months when Mr Bannon made his claim for payment in September 2014 from NPRT.
[117]Transcript of Proceedings (17 April 2018) 256.11–12; Transcript of Proceedings (24 April 2018) 825.25–26.

I do not accept that Mr Bannon’s failure to claim his fees between August 2007 and September 2014 conferred any benefit on NPRT. First, the size of the accrued claim is significant. Second, in September 2014 the Trust had for more than six months been undertaking a final distribution of capital and income to beneficiaries. If NPRT had been placed on notice at an earlier time of Mr Bannon’s claim, the Trust would have been able to make appropriate provision. No such provision was made, with the inevitable consequence that if Mr Bannon’s claim is valid, landowners have received distributions in excess of what would otherwise have been available for distribution.[118] Mr Bannon’s letter of 1 March 2013 did make reference to the existence of an entitlement to be paid fees. However, the letter did not quantify the entitlement. Also, to the extent it was implicit in the letter that Mr Bannon would seek the fees once the receivership was over, he did not do so. He made no claim for payment between November 2013 and 30 June 2014. This occurred notwithstanding Mr Bannon had been given written notice of termination of employment on 31 March 2014. As discussed later in this judgment I reject Mr Bannon’s evidence that he believed that he would continue as an employee post 30 June 2014 notwithstanding the notice of termination.
[118]Je Maintiendraiv Quaglia (1980) 26 SASR 101, 107, 116.

The present case does not simply involve detriment by reason of the size of the lump sum claimed by Mr Bannon and no allowance for the claim having been made when distributing funds to landowners.[119] If the Trust is liable to pay the lump sum claimed by Mr Bannon, the annual administration budgets prepared by Mr Bannon for the financial years 30 June 2008 onwards fundamentally misrepresented to the Board and the Minister responsible for the Trust the true state of the finances of the Trust.
[119]Cf Moratic Pty Ltd v Gordon (2007) 13 BPR 24,713 [41]; Je Maintiendraiv Quaglia (1980) 26 SASR 101, 107, 116.

Estoppel by convention

Estoppel by convention is ‘a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of affairs, which both will be estopped from denying.’[120] The assumed state of affairs ‘takes as a given the terms of the contract between the parties, but from which the parties have departed in the course of furthering their relationship under the contract.’[121]
[120]Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226, 244.
[121]Strategic Property Reservoir Pty Ltd v Condec Pty Ltd [2012] VSC 634 [178]; Amcor Ltd v Barnes [2016] VSC 707 [379].

A regularly cited[122] Australian authority on estoppel by convention is the judgment of Brereton J in Moratic Pty Ltd v Gordon.[123] In Sze Tu v Lowe[124] Gleeson JA, with whom Meagher and Barrett JJA agreed, summarised Brereton J’s reasoning as requiring five elements to be satisfied before an estoppel by convention can arise, precluding a denial of the assumed state of affairs:
[122]See Mineralogy Pty Ltd v Sino Iron Pty Ltd (No. 6) (2016) 329 ALR 1, 120 [760] and the cases cited therein.
[123](2007) 13 BPR 24,713.
[124](2014) 89 NSWLR 317 [431].

(iii) The plaintiff has adopted an assumption as to the terms of its legal relationship with the defendant;

(iv) The defendant has adopted the same assumption;

(v) Both parties have conducted their relationship on the basis of that mutual assumption;

(vi) Each party knows or intends that the other will act on that basis; and

(vii) Departure from the assumption will cause detriment to one of them.[125]

As to the second and third elements, an estoppel by convention may also arise where parties to a transaction act on an assumed state of facts or law, where the assumption is made by one and acquiesced in by the other.[126] Mr North accepted this.[127]

[125]Mineralogy Pty Ltd v Sino Iron Pty Ltd (No. 6) (2016) 329 ALR 1, 120 [760].

[126]India v India Steamship Co Ltd; The Indian Endurance and The Indian Grace (No 2) [1997] 4 All ER 380, 391; Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603, 645 [198]; Strategic Property Reservoir Pty Ltd v Condec Pty Ltd [2012] VSC 634 [179]; Amcor Ltd v Barnes [2016] VSC 707 [380]; Miller Heiman Pty Ltd v Sales Principles Pty Ltd (2017) 94 NSWLR 500, 511 [54].

This note was written by Kham. During the period July/August 2014 she undertook a reconciliation of Mr Bannon’s GL acc. She identified $50,800 of expenses which had been incurred by Mr Bannon between 30 April 2008 and 11 August 2011, but which had not been credited to his account.

Kham was called to give evidence in the proceeding. Kham undertook the reconciliation shortly before her employment with the Trust ended in August 2014.[302] Kham had not completed the reconciliation because she did not have enough information. She thought there were more documents available which would have further reduced Mr Bannon’s debit balance beyond the $50,800 she identified.[303] In the second half of the 2014 financial year she was busy processing payments to landowners of the receivership residual and did not have the time to locate more supporting documents.[304] She believed that the supporting documentation for the period post August 2011 was located in the Trust’s office but she did not have time to look for the documents.[305]
[302]Transcript of Proceedings (20 April 2018) 606.28−607.3.
[303]Ibid 607.6−607.11.
[304]Ibid 608.3−608.9.
[305]Ibid 609.18−609.20.

Kham was questioned by Mr Millar regarding the entry on the first page of Annexure B ‘Personal Loans – Cash Advances’. Her response was that after she had gone through all of the entries in the general ledger she considered that Mr Bannon had received personal loans totalling $235,210.95 ‘at that point’ of her reconciliation.[306]
[306]Ibid 612.4−612.14.

Kham had a poor recollection of the details relating to the reconciliation which she undertook. She could not recall what documents she had accessed.[307] Kham’s evidence was that the reconciliation showing the balance of $235,210.95 was a ‘completed task’ and she had finished doing what she needed to do to come up with the right figure.[308] However, she considered ‘there could be more expenses coming down to reduce his debtor.’[309]
[307]Ibid 615.4−615.20.
[308]Ibid 617.5−617.8.
[309]Ibid 622.20−622.22.

I have no doubt that Kham endeavoured to answer questions to the best of her ability. However, she had a poor recollection of the detail relating to the reconciliation process. Her evidence as to whether she had completed the reconciliation task was inconsistent. Nevertheless, three matters do clearly emerge. First, Mr Bannon’s GL acc included $50,800 of reimbursement expenses which had not been credited to his account as at 30 June 2014. Second, post 11 August 2011 the only credit entry in the GL acc was for an amount of $248.50 on 23 November 2012. Third, between August 2011 and 5 December 2013 the debit balance increased from $170,136.92 to $286,010.95.

Prior to the reconciliation undertaken by Kham in July/August 2014 there had been no reconciliation of Mr Bannon’s GL acc. Although Annexure B is a business record of the Trust, I am not satisfied that it accurately records the quantum of any, and if so, what level of debt was owed by Mr Bannon to the Trust. On the other hand, the evidence supports a finding that Annexure B does not adequately record and give credit for expenses which were incurred by Mr Bannon on behalf of the Trust. For example, Mr Bannon’s account was debited with $7,000 on 22 November 2013 and $15,000 on 27 November 2013. No corresponding credit entries appear. However, MYOB records for these dates contain the notation: Paul Bannon/Expenses.[310] The MYOB records support a finding that $22,000 was advanced to Mr Bannon for the purpose of anticipated expenditure on his credit card. It is clear from the expense claim in Exhibit A that Mr Bannon incurred significant expenditure on his credit card in November 2013. The expense claim form which he prepared, which is incorporated in Exhibit A, for the period 8 November to 6 December 2013 records credit card expenditure totalling $16,654.13. For the period 10 December 2013 to 3 January 2014 he incurred expenditure of $33,176.70. It is highly likely that a significant proportion of the $22,000 advanced to Mr Bannon on 22 and 27 November 2013 was offset by Trust related expenditure on his credit card. In order for the GL acc to accurately reflect the level of Mr Bannon’s indebtedness, it was necessary for his account to be credited with the expenditure which he had incurred.
[310]Exhibit H MYOB records relating to Annexure 1 of Mr Fitzgerald’s report, Part 4, tabs 20 and 21.

Further examples, in line with those set out above, arise in respect of debit entries in the GL acc for the 2011 and 2012 financial years. The MYOB records for the 2011 financial year record the following payments to Mr Bannon:

(a) 29 July 2010 - $20,000;

(b) 26 August 2010 - $9,500;

(c) 23 September 2010 - $13,000;

(d) 18 October 2010 - $4,070; and

(e) 29 October 2010 - $2,108.70.

In each instance the notation in the MYOB records is: ‘Paul Bannon/ Reimbursements’. This description is consistent with the payments having been made to Mr Bannon by way of upfront reimbursement of expenses he was to incur on behalf of the Trust. It is possible, as I have found to be the case for the 2014 financial year, that Mr Bannon did not actually spend all of the money which was advanced to him by way of upfront reimbursement. However, it is extremely unlikely that none of these funds would have been spent on Trust related expenditure. The absence of any credit entries in the GL acc during the 2011 financial year in respect of the advances referred to, points strongly to the conclusion that the accounts were not properly maintained.

The MYOB records for the 2012 financial year include records of payments to Mr Bannon of $9,000 on 22 September 2011 and $40,000 on 25 November 2011. The notation in respect of the $9,000 payment is: ‘reimbursement of expenses by Paul Bannon (need supporting documents).’ The narration in respect of the $40,000 payment on 25 November 2011 is: ‘accountable allowance in repayment of costs re Dube, and Amwano, Detenamo, Bannon and Keke.’ This description is consistent with the payment of $49,000 being in respect of work related expenses. There are no corresponding credit entries in the GL acc for the 2012 financial year in respect of these payments.

Mr Bannon bears some of the responsibility for the Trust’s failure to properly maintain his GL acc. He was the senior employee of the Trust and supervised Romys Eobob who, together with Kham, was responsible for maintaining his account.[311] Mr Bannon was aware during the course of his employment that his account had a large debit balance but he was not concerned about this because he believed he would be able to account for the expenditure in due course.[312] The fact that Mr Bannon did not submit expense claim forms during the 2014 financial year would have been a significant impediment to the reconciliation of his account. His failure to take steps to ensure that the account was properly maintained does not provide a sound foundation, however, for imposing liability upon him for the debit balance recorded in the account.
[311]Transcript of Proceedings (25 June 2018) 1563.23−1563.24.
[312]Ibid 1562.26−1563.2.

The Trust bears the onus of establishing the extent of Mr Bannon’s indebtedness as evidenced by Annexure B. The Trust has not established that the debit balance of $235,210.95 after Kham’s reconciliation of the account in July/August 2014 represents personal loans advanced to Mr Bannon. There is evidence which points strongly to the conclusion that a proportion of this balance reflected advances made to Mr Bannon for the purposes of Trust related expenditure. Further, I am satisfied that at least a proportion of such sums would have been expended on behalf of the Trust. However, the evidence does not permit a rational assessment of the extent to which the balance of $235,210.95 records personal loans advanced to Mr Bannon prior to the termination of his employment. Accordingly, this aspect of the Trust’s counterclaim must be rejected.

Unauthorised payment of back pay and tax in the sum of $295,475

On 18 October 2007 four Board Members signed a memorandum in the following terms:

The Trustee of the Nauru Phosphate Royalties Trust, in a meeting held on Wednesday 17 October, 2007 have unanimously agreed to increase the base salary paid to Trust Secretary, Mr. Paul Bannon from $80,000 - $140,000 per annum a monetary increase over the currently paid of $36,000 since April 2003 up to present.

Shortly after 18 October 2007 Mr Bannon arranged for a payment to be made to himself totalling $295,475. This sum was comprised of back pay for a period of 4.5 years to April 2003 together with amounts in respect of superannuation and taxation. Mr Bannon’s evidence was that he facilitated this payment to himself because he believed that the memorandum of 18 October 2007 conferred upon him an entitlement to a retrospective payment.[313]
[313]Transcript of Proceedings (18 April 2018) 376.6−376.13.

Alvina Aremwa was the chair of the Board in October 2007 and one of the signatories to the memorandum set out above. Her unchallenged evidence was that around 18 October 2007 she had a telephone conversation with Mr Bannon during which she told him that the $60,000 increase would be retrospective to April 2003.[314] This is direct evidence that the payment was authorised by the Board. It is therefore unnecessary to consider Mr Millar’s contention that the Trust’s claim for recovery of the sum of $295,475 is not statute barred by reason of s 27(c) of the Limitations of Actions Act 1958, that is, the back payment was made as a consequence of a mistake by Mr Bannon in misinterpreting the memorandum of 17 October 2007. No question of mistake arises in circumstances where the back payment was authorised by the Chair of the Trust. This aspect of the Trust’s claim must be rejected.
[314]Transcript of Proceedings (23 April 2018) 659.10−660.6.

Loans to Romys Eobob

NPRT seeks to recover $77,500 from Mr Bannon, being the amount of personal loans advanced by NPRT to Ms Eobob prior to 30 June 2014, with Mr Bannon’s approval. This claim must be rejected. On 18 June 2014 the Chairman of the Trust, Charmi Depaune, agreed with a request from Ms Eobob that her debt to the Trust should be forgiven. This was recorded in a memorandum forwarded to Mr Bannon and the Minister for the Trust, Shadlog Bernicke. The memorandum states in part:

By the authority vested in me as Chairman of NPRT I have agreed to Mrs Romys Eobob’s request to offset her Debtor’s Account against the loss of salaries she suffered over the past ten (10) years by being underpaid while performing the various duties of Finance Manager of NPRT. I agree with her that her lower salary has contributed to her financial hardship.
…
The amount approved to offset her Debtor’s Account at 21/05/2014 is $77,500.00.

Mr Millar did not submit that Mr Depaune did not have authority to forgive Ms Eobob’s debt to the Trust. In these circumstances, there is no basis for holding Mr Bannon liable for Ms Eobob’s failure to have paid to the Trust the amount advanced to her by loans, albeit with his approval. This aspect of the Trust’s counterclaim must also be rejected.

Witnesses who did not attend

The NPRT has succeeded in respect of five issues in the proceedings. First, it has successfully defended the claim for fees by reason of having established an estoppel by convention. Second, it has successfully argued that the Trust’s obligation to make superannuation contributions is capped by the maximum superannuation contribution base in s 19(3) of the SGA Act. Third, it has established that the 31 March 2014 email from Andrew Jacobson constituted valid notice of termination of Mr Bannon’s employment. Fourth, it has established that Mr Bannon’s fees claim is statute barred prior to 29 June 2009. Fifth, it has established that for the 2014 financial year the amount of funds advanced to Mr Bannon for the purpose of the Trust related expenditure exceeded the amount actually expended by $141,052.91.

Mr Bannon submits that an adverse inference should be drawn against NPRT arising from the failure of the Trust to call a number of witnesses. Mr Bannon points to the fact that Charmi Depaune did not attend to explain his forgiveness of Romys Eobob’s debt. I have dismissed this aspect of NPRT’s counterclaim. As such, nothing turns on the failure to call Mr Depaune.

Mr Bannon submits that it is ‘striking that Mr Jacobson has not been called by the defendant as a witness in this proceeding.’ I do not consider that there is any basis for drawing an adverse inference against NPRT from the failure to call Mr Jacobson. The rule in Jones v Dunkel only applies where a party is ‘required to explain or contradict’ something.[315] Mr Bannon has not identified any matters in respect of the five issues upon which NPRT succeeded which required the attendance of Mr Jacobson as a witness.
[315](1959) 101 CLR 298, 321.

Mr Bannon submits:

No person with any accounting knowledge of the defendant was called by it. This includes Ms Boyd, any relevant Board member, any persons performing any audits of the Trust and Mr Javan Tamakin as the Finance Manager. Mr Tamakin could have provided relevant information and assistance to Mr Fitzgerald, but his services were not used. No existing annual accounts of the Trust Funds operated by the defendant were discovered or tendered in the trial.[316]
[316]Plaintiff, ‘Plaintiff’s closing submissions’, 13 July 2018, [76] (footnote omitted).

This submission may have had force if I had accepted NPRT’s contentions that:

(a) the upfront reimbursement sums advanced to Mr Bannon were unauthorised; and

(b) the GL acc debit balance of $235,210.95 recorded personal loans to Mr Bannon.

I have rejected both those contentions. None of the five issues upon which NPRT succeeded required any of the individuals identified in the submission set out above to give evidence on behalf of NPRT.
Conclusion

Mr Bannon is entitled to damages in the sum of $511,275.58 made up as follows:

(a) Accrued annual leave: $222,153.62;

(b) 50 per cent of accrued sick leave: $105,769.13.

(c) $60,000 salary increase, approved but not received, for the period 22 May 2013 to 30 June 2014: $65,769;

(d) Superannuation on $60,000 salary increase: $5,276.18;

(e) Redundancy pay: $46,153.80; and

(f) Long service leave: $66,153.85.

NPRT is entitled to damages in the sum of $141,052.91. When allowance is made for this sum, NPRT is liable to pay damages to Mr Bannon of $370,222.67.

I shall provide the parties with an opportunity to make submissions on interest and costs, including reserved costs.

ANNEXURE A

Cash Withdrawals for the 2013/14 financial year.[317]

[317]Shaded boxes indicate where the total cash withdrawn in a single day is ≥ $1,000.

Table 1: Cash Withdrawals from Westpac Classic Plus Account:

DATE	AMOUNT
1 July 2013	$50 $50 $100
5 July 2013	$100 $300
8 July 2013	$100 $100
9 July 2013	$100
10 July 2013	$100
11 July 2013	$100 $300
15 July 2013	$70 $100 $100 $100 $200 $300 $300 $300
17 July 2013	$100 $1050
18 July 2013	$100 $100
19 July 2013	$50
22 July 2013	$20
29 July 2013	$100
31 July 2013	$100
1 August 2013	$50
2 August 2013	$300
8 August 2013	$100 $100 $150 $300
12 August 2013	$50
16 August 2013	$100 $500
19 August 2013	$80 $300
23 August 2013	$100
26 August 2013	$100 $100 $100
27 August 2013	$100 $300
28 August 2013	$100
29 August 2013	$100
30 August 2013	$50
2 September 2013	$100 $550
3 September 2013	$100
5 September 2013	$100
9 September 2013	$100
10 September 2013	$100
11 September 2013	$50
12 September 2013	$50
20 September 2013	$200 $300
23 September 2013	$300 $300 $300 $300
24 September 2013	$100
2 October 2013	$100
7 October 2013	$70
9 October 2013	$50
14 October 2013	$100
15 October 2013	$50
18 October 2013	$100 $200
21 October 2013	$100
24 October 2013	$100
28 October 2013	$100
30 October 2013	$50
31 October 2013	$50
1 November 2013	$400 $900
4 November 2013	$50 $100 $200
5 November 2013	$300 $200 $300 $300 $300
11 November 2013	$70 $100
12 November 2013	$50
13 November 2013	$100
14 November 2013	$100 $100 $100 $200 $200 $300
15 November 2013	$100 $100 $300
18 November 2013	$50 $100 $70
20 November 2013	$50 $100
22 November 2013	$100
25 November 2013	$100 $100 $200 $450
26 November 2013	$100
28 November 2013	$50 $100 $300 $300
29 November 2013	$100 $250 $250 $300
2 December 2013	$70 $150
3 December 2013	$100
4 December 2013	$200
6 December 2013	$500
9 December 2013	$200 $50 $250 $300
16 December 2013	$1000 $100
23 December 2013	$100 $200
27 December 2013	$100 $200
30 December 2013	$100 $100 $100 $100
31 December 2013	$250 $300 $300
2 January 2014	$100 $300 $300 $300
3 January 2014	$100 $300
6 January 2014	$300
8 January 2014	$100
10 January 2014	$300 $300 $400 $400 $400
13 January 2014 [318]	$100 $100 $300 $300
15 January 2014	$40 $70
16 January 2014	$100
17 January 2014	$400 $200 $600
20 January 2014	$100 $150 $600
22 January 2014	$70
24 January 2014	$100
29 January 2014	$50
3 February 2014	$100 $100 $100 $200 $200 $900
4 February 2014	$50
5 February 2014	$70
6 February 2014	$70
7 February 2014	$70
10 February 2014	$20
14 February 2014	$70
17 February 2014	$300 $400
18 February 2014	$100 $300
20 February 2014	$100 $300
24 February 2014	$100
26 February 2014	$50
27 February 2014	$100
28 February 2014	$100 $400
3 March 2014	$100 $200 $100 $100
4 March 2014	$100
5 March 2014	$100
7 March 2014	$100 $300
10 March 2014	$100 $100
11 March 2014	$2000
12 March 2014	$100
14 March 2014	$100
17 March 2014	$150 $100
18 March 2014	$100
19 March 2014	$100 $400
20 March 2014	$100
24 March 2014	$300 $100 $100
25 March 2014	$100 $700
26 March 2014	$100
27 March 2014	$100 $300
28 March 2014	$700 $200
31 March 2014	$200 $900
7 April 2014	$60 $100 $200 $300 $300 $400
8 April 2014	$100 $300 $350 $750
10 April 2014	$100
11 April 2014	$100
15 April 2014	$100 $100
17 April 2014	$100
22 April 2014	$200 $200
28 April 2014	$200 $100
1 May 2014	$100
2 May 2014	$300 $500
5 May 2014	$100 $100 $300
6 May 2014	$70
7 May 2014	$100
8 May 2014	$70
9 May 2014	$100
15 May 2014	$100
16 May 2014	$100
19 May 2014	$1500 $100
20 May 2014	$100
21 May 2014	$50
23 May 2014	$60
26 May 2014	$20 $100
27 May 2014	$100
28 May 2014	$70
29 May 2014	$100
30 May 2014	$50
2 June 2014	$750
4 June 2014	$100
6 June 2014	$50 $100
9 June 2014	$50 $100 $250
10 June 2014	$70
11 June 2014	$100
12 June 2014	$50
13 June 2014	$100
16 June 2014	$100 $250
19 June 2014	$100
20 June 2014	$100
23 June 2014	$100
24 June 2014	$300
25 June 2014	$100
26 June 2014	$60
30 June 2014	$100 $150
SUB TOTAL	$54,960
ATM FEES	$486.10
TOTAL	$55,446.10

[318]The total amount withdrawn on 13 January 2014 is >$1,000 when combined with the $700 withdrawn on this same date from the Westpac Altitude Platinum (MasterCard) Account: See Table 2.

Table 2: Cash Withdrawals from Westpac Altitude Platinum (MasterCard) Account:

DATE	AMOUNT
1 July 2013	$100 $100 $100
3 July 2013	$100 $50
19 July 2013	$70
21 July 2013	$50
22 July 2013	$100
23 July 2013	$100 $80
25 July 2013	$100
26 July 2013	$70 $40
27 July 2013	$100 $100
28 July 2013	$200
29 August 2013	$60
24 September 2013	$20
29 September 2013	$50
18 October 2013	$100 $300 $50
31 October 2013	$50
1 November 2013	$100
10 December 2013	$52.90 [319]
13 January 2014	$300 $400
15 January 2014	$100
25 March 2014	$40
29 March 2014	$50
10 April 2014	$300
SUB TOTAL	$3,432.90
ATM AND CASH ADVANCE FEES	$125
INTEREST	$59.27
FOREIGN TRANSACTION FEE	$1.59
TOTAL	$3,618.76

[319]Foreign cash withdrawal.

ANNEXURE B

ANNEXURE C

COURT BOOK PAGES	EXPENSE REIMBURSEMENT JOURNAL DATES	CREDIT CARD	CASH	OTHER
6601	8/6/12 – 8/7/12	$1,916.50	$84.20
6602-6603	9/7/12 – 7/8/12	$47,088.97	$2,933.44
6614-6615	8/8/12 – 9/9/12	$11,000.82	$1,917.28
6618-6619	10/9/12 – 7/10/12	$40,159.54	$2,223.50
6620-6621	8/10/12 – 7/11/12	$15,209.61	$940.00
6622-6623	8/11/12 – 9/12/12	$9,015.16	$8,349.50
6624	10/12/12 – 7/1/13	$2,819.04	$29.90
6626	8/1/13 – 7/2/13	$7,642.62	$0.00
6627	8/2/13 – 7/3/13	$6,667.48	$5,000
6628	8/3/13 – 7/4/13	$1,314.88	$0.00
6629-6630	8/4/13 – 7/5/13	$18,146.01	$1,112.00
6634-6635	8/5/13 – 9/6/13	$17,508.22	$3,387.66	$1,420.00
6641-6643	10/6/13 – 7/7/13	$36,416.54	$168.60
TOTAL:	$214,905.39	$26,146.08	$1,420.00

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Citations

Bannon v Nauru Phosphate Royalties Trust [2018] VSC 532

Most Recent Citation

Lanshan Pty Ltd v F3 Enterprises Pty Ltd [2022] VCC 1850

Cases Citing This Decision

4

Bannon v Nauru Phosphate Royalties Trust [2019] VSCA 303

Maxim Media Inc. v Nuclear Enterprises Pty Ltd [2024] FCA 1443

Old Hume Truck and Car Repairs Pty Ltd v Million Miles Pty Ltd [2023] VSC 551

Cases Cited

10

Statutory Material Cited

0

Moratic Pty Ltd v Gordon [2007] NSWSC 5

Pacific National (ACT) Ltd v Queensland Rail [2006] FCA 91

Agar v Hyde [2000] HCA 41

[2018] VSC 532

14 September 2018