Biramo Pty Limited v Biramo Books Pty Limited

[2002] NSWSC 861

CITATION:	Biramo Pty Limited v Biramo Books Pty Limited [2002] NSWSC 861
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 1802 of 1998
HEARING DATE(S):	30 and 31 July 2002, 1 August 2002 and 16 September 2002
JUDGMENT DATE:	20 September 2002
PARTIES :	Biramo Pty Limited (First Plaintiff) Dianne Allen and Colleen Murphy as Executors of the Estate of Anna Rutherford deceased Biramo Books Pty Limited (Second Defendant) Allan Frederick Rich (Third Defendant) Bisas (Warners Bay) Pty Limited (Fourth Defendant) Simcos (Management) Pty Limited (Fifth Defendant)
JUDGMENT OF:	Windeyer J at 1

COUNSEL :	Mr J E Thomson (Plaintiffs) Mr T Hancock with him Ms C Champion (Defendants)
SOLICITORS:	Sparke Helmore (Plaintiffs) Church & Youll (Defendants)
CATCHWORDS:	CORPORATIONS - directors' duties - whether director breached his duties to the company in making payments from the company to himself and other companies controlled by him - TRUSTS - whether company with similar name to plaintiff company and in associated business formed and controlled by same director holds assets and business on trust for the first company
DECISION:	See paragraph 39

- 23 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WINDEYER J

FRIDAY 20 SEPTEMBER 2002.

1802/98 BIRAMO PTY LIMITED (IN LIQ) & ANOR V BIRAMO BOOKS PTY LIMITED & ORS

JUDGMENT

Outline

1 There are two questions to be decided in this case. The first is whether the third defendant breached his duties as a director of Biramo Pty Limited in making payments from the company to himself and to the fourth and fifth defendants. The second is whether the first defendant, Biramo Books Pty Limited holds its assets and business on trust for Biramo Pty Limited.

Background

2 This action has had an unfortunate history. It was commenced by summons filed on 24 March 1998 by Professor Anna Rutherford (Rutherford) as plaintiff against Biramo Pty Limited (Biramo), Biramo Books Pty Limited (Biramo Books), Allan Frederick Rich (Rich), Bisas (Warners Bay) Pty Limited (Bisas) and Simcos (Management) Pty Limited (Simcos) as defendants. The summons sought an order that Biramo be wound up and that Mr Hicks be appointed liquidator. It sought a declaration that Biramo Books holds its assets on constructive trust for Biramo and that Rich, Bisas and Simcos be held liable to account to Biramo for the sums of $30,000, $40,000 and $80,000 paid to them respectively from the funds of Biramo together with other ancillary orders including an assets preservation order. On 27 March 1998 an order was made that Biramo be wound up and that Mr Hicks be appointed as liquidator. The hearing on the balance of the summons commenced before Simos J on 29 November 2000. On that day counsel for Rutherford informed the judge that the liquidator consented to the company becoming a plaintiff providing Rutherford indemnified him for costs. That appeared to be an appropriate procedure as the claim in the summons was always a claim made by Rutherford on behalf of Biramo. The action seems to have proceeded on that basis from then on, although the formal order joining Biramo as a plaintiff seems not to have been made until 2 March 2001. Whatever the position, the claim has always been a derivative action brought by Rutherford on behalf of Biramo.

3 The hearing continued before Simos J on 29 and 30 November and 1 December 2000; and 19 February 2001. On 19 February Simos J directed that an expert nominated by the plaintiffs and one nominated by the defendants, meet in the absence of legal representatives, for the purpose of identifying areas of agreement and difference on the loan account balances of Rutherford and the defendants with Rutherford. Mr Bell, the defendants’ expert, produced a report reconciling the bank statements with the deposit books and cheque butts, and calculating the loan account positions at various dates on the basis of those documents and reconciliation and a different figure having regard to transactions not recorded in the books but identified by Mr Rich. After the joint meeting at which Mr Bell represented the defendants and Mr Hicks the plaintiffs, substantial agreement was reach, although it is fair to say this required acceptance of the information of Mr Rich. Rutherford died on 21 February 2001. On 9 March 2001 Dianne Allen and Colleen Murphy, the present second plaintiffs, who had obtained a grant of special letters of administration, were joined as plaintiffs in place of Rutherford and the hearing continued on that day when it was stood over until 5 April 2001 for further hearing. Unfortunately, Simos J then became ill and retired without being able to conclude the hearing. To this time there were no pleadings in spite of there being an allegation in the summons of misappropriation of company funds.

4 On 1 November 2001, the Chief Judge in Equity made an order for a new trial. He ordered pleadings. The parties agreed that the evidence before Simos J be read as evidence in the new trial. That new trial commenced before me on 30 July 2002. To confirm what was happening the following orders and notations were made by consent at the commencement:

1. Order that the affidavits read at the hearing before Simos J which commenced on 29 November 2000 (“the First Hearing”) be taken as read at the present hearing subject to all rulings as to admissibility made by Simos J.
2. Order that the transcript of evidence of the first hearing be marked Exhibit “AF” on the present hearing and that the evidence of witnesses recorded in that transcript be treated as the evidence of those witnesses in these proceedings.
3. Order that the Exhibits tendered at the First hearing be exhibits at the present hearing bearing the numbers and letters previously assigned to them.
4. Note that:
(a) On 29 November 2000, the liquidator of Biramo Pty Ltd consented to the Biramo Pty Ltd becoming a Plaintiff in the proceedings on the basis that the then Plaintiff, Prof. Rutherford indemnified him for his costs and any adverse order for costs which might be made against him.
(b) On 2 March 2001, the Court ordered that Biramo Pty Ltd be joined as a Plaintiff in the proceedings.
(c) On 9 March 2001, the Court gave leave to Dianne Allen and Colleen Murphy as the executors of the will of the Anna Rutherford be joined to the proceedings as Plaintiff in lieu of the named Anna Rutherford.

Pleaded claims

5 The plaintiffs allege that Rutherford and Rich acquired Biramo as a shelf company for the purpose of publishing and distributing books of Dangaroo Press in Australia; that Rutherford’s mother died in January 1991; that Rutherford had inherited from an aunt a property at Leichhardt; that Rich arranged that this property be leased by Rutherford to Biramo and then sub-leased to two tenants; that on 4 March 1993, Rutherford as beneficiary in her mother’s estate arranged for the proceeds of sale of her mother’s home amounting to $91,351.56 to paid into the bank account of Biramo and that upon those funds being paid in, cheques were drawn by Rich for $40,000, $18,000 and $30,000 in favour of Bisas, Simcos and himself respectively on 16, 17 and 18 March 1993, respectively. It is claimed these payments were made for the benefit of Rich and his companies not for the benefit of Biramo, and in beach of the fiduciary duty Rich owed to Biramo.

6 Paragraphs 11 and 12 of the statement of claim are as follows:

11. In May 1994, Rutherford sought an explanation from Rich as to the whereabouts of the money deposited. Rich falsely said that he had invested those funds at a better rate of interest. He assured Rutherford that everything was alright.
12. In late 1995, Rutherford again inquired as to the use which had been made of her funds, and Rich told Rutherford that he had borrowed money to reduce the high rate of interest he was paying on his property at Warners Bay.

7 The statement of claim then alleges that Rich was responsible for the books and financial records of Biramo, which he failed to keep, that he was under a duty not to use funds of Biramo for his own purposes and not to intermingle his affairs with those of Biramo.

8 The second substantive claim in the statement of claim is that in June 1992 Rich arranged the incorporation of Biramo Books for the purpose of taking over the business of distributing Dangaroo Press books in Australia, which business belonged to Biramo.

9 Orders are sought that Bisas and Simcos account to Biramo for the moneys received by them; and that Rich account for those moneys together with the sum of $30,000 paid to him. A declaration is sought that Biramo Books holds its assets and business on trust for Biramo.

10 The defendants admit receipt of the moneys but say that payment was not made without consent of Rutherford; say that in March 1993 Biramo was indebted to each of the three defendants receiving money for an amount greater than the amounts paid by the cheques; say that Rutherford drew constantly on the Biramo account for her personal expenses; say that Rutherford consented to Biramo using the services of Simcos and Bisas to manage its affairs and to Biramo borrowing money from the defendants and the defendants deny and Biramo Books denies the constructive trust.

Facts

11 Perhaps as a result of there being no pleadings before Simos J a great deal of the oral evidence before him, which is evidence before me, has little if any relevance to the pleaded issues. However, the following appear to be the material facts.

12 Rich and Rutherford met in about 1950. Rutherford left Australia in 1966 to take up a position of professor of English at a university in Denmark and she remained there until 1997, although she visited Australia quite regularly. She was, apparently, interested in and an expert in what was described as “post colonial literature”. She established Dangaroo Press in 1975 to publish books on this topic. Rich probably became a partner in this business. In 1985 Biramo was purchased as a shelf company. Its purpose was to conduct the business of Dangaroo Press in Australia. Rutherford and Rich each held one share and were the two directors. Minutes of a meeting of directors held on 4 December 1985 record the following:

A. That a bank account was to be opened with Westpac Banking Corporation at its Hamilton branch.

B. That David Dabydeen be appointed a director and issued one share.

C. That the company use the name Dangaroo Press in relation to its publishing business and the owners of the business had agreed to this.

D. “Loan accounts – it was resolved that loans be accepted from A Rutherford and A F Rich. These loans are to be on an unsecured basis and any interest or repayment requirements to be determined at a future date”.

13 Mr Dabydeen can be introduced and then dismissed from this story. He was to assist with the business in England. Rich and Rutherford were later issued with a further ninety-nine shares each so that his interest after that was minimal.

14 In 1971 Rutherford had inherited a property in Leichhardt from an aunt. In August 1986 this was leased by her to Biramo for $2,000 per annum. Biramo then sublet this property at a profit to various tenants. Rutherford says that she was not really aware of this but while of course I did not see her in person, or hear her oral evidence, I cannot accept that to be the position. She signed the lease and wrote to the agents about it. There are various letters and documents in evidence which she said she could not remember signing, the suggestion being I think that signatures are placed on blank pieces of paper or documents but I do not find it established that to be the position. While it is impossible to see any possible advantage to Rutherford in the lease to Biramo that is irrelevant. If Biramo made a gain there can be no complaint as the proceedings are brought on its behalf.

15 On 12 June 1992 Biramo Books was incorporated, the shareholders and directors being Rich and his daughter. Rich says that he picked the name as he knew it would be available. He said that he thought it might be a good business for his daughter. The purpose of Biramo Books was to act as a book distributor in Australia for Dangaroo Press books and books from other publishers. Prior to this time Hale & Iremonger had distributed Dangaroo Press books in Australia, apart from some direct sales by Rutherford. According to Rich, Hale & Iremonger had gone out of business when Biramo Books was set up. Rich says in an affidavit that he had told Rutherford of his intentions and that she had no objection to the establishment of Biramo Books for the purpose of acting as a book distributor. Rutherford denied this in an affidavit. As there was no cross-examination on this before me and obviously there could not have been of Professor Rutherford, it is difficult to decide. There is no doubt that some distribution of books was being carried out by Biramo prior to the incorporation of Biramo Books, albeit on a relatively small scale. I am inclined to think that Rutherford did not give consent, but certainly she became aware of what was happening some short time thereafter and there is no suggestion of complaint. In any event Biramo, while it may have distributed limited numbers of Dangaroo Press books, never acted as distributor for other publishers. Biramo Books distributed books for many publishers.

16 On 4 March 1993, Mr Randall, the solicitor for Rutherford at the time, paid on her instructions the proceeds of sale of the home in her mother’s estate to the bank account of Biramo. Those funds amounted to $91,351.56. On 16 March Rich signed a cheque withdrawing $40,000 from the account of Biramo and paid it to Bisas. On 17 March he signed a cheque for $18,000 in favour of Simcos and paid it to that company and on 18 March he withdrew $30,000 and paid it into his own bank account.

17 Rutherford came to Australia in March 1994. She inquired from the bank as to the balance in the Biramo account and found it was a small amount of about $230.00. In her affidavit of 23 March 1998 she said at paragraphs 20 and 21:-

20. In 1994, I was in Australia during the period March to May. Shortly prior to my return to Denmark towards the end of May 1994, I went to the Westpac branch at Charlestown to enquire as to the current balance in the Biramo account. There was only a small credit balance in the account at that time.
I was staying with Rich and his wife at the time. On returning to their home I had a conversation with Mrs Rich to the following effect:
I said, “I’ve been to Westpac at Charlestown today to check the balance in Biramo’s cheque account. Do you know what has happened to the money I put in their [sic] from the sale of my mother’s house?”
Mrs Rich said, “I don’t know anything about that. You’ll have to ask Allan.”
I subsequently spoke to Rich in which I asked him the same question. He replied:
“You wouldn’t leave any money in the bank with the interest they’re paying. I have invested it at a better rate of interest. Everything is all right but if you’re desperate I can get the money for you.”
I accepted Rich’s explanation.

21. I next returned to Australia in July 1994. Rich met me in Sydney and drove me to Newcastle. During this trip he said to me words to the following effect:

“What actually happened to the money you put into the Biramo account from the sale of your mother’s house was that I borrowed it to reduce the high interest I was paying on my property at Warners Bay.”
I did not make any comment.

18 In oral evidence Rutherford said that the July 1994 date was incorrect and that the correct date was towards the end of 1995. She was not cross-examined on any of this evidence. Paragraphs 35 and 36 of the affidavit of Rich sworn 26 March 1998 are as follows:

35. Before that occurred, the Plaintiff and I had a telephone conversation. She was in Denmark. She said:

“The Mayfield sale is about to be completed. I have directed the solicitor to pay the proceeds to Biramo. I want them credited against my loan account.”
I said:
“What do you want to do with it?”
She said:
“I’ll leave that to you to invest as you see fit. You’ve been dealing with my affairs for years, but I want you to send me $15,000 immediately so I can buy a trip to Europe for a friend of my mother’s and her husband. It was one of my mother’s wishes”
I said:
“I will do that.”
36. I refer to Annexure “B” to the Plaintiff’s Affidavit”
36.1 To the best of my recollection, I drew a cheque for $18,000 to Simcos and then directed Simcos to transfer $15,000 to the Plaintiff’s bank account in Denmark. I do not recall precisely what the additional $3,000 was for, but I presume it was for management fees and costs owed by Biramo to Simcos.
36.2 I drew a cheque payable to myself for $30,000 which was approximately the amount Biramo owed me on my loan account for monies I had advanced to it for printing costs, freight charges and other expenses.
36.3 Biramo had no need at that time for funds, and so it loaned $40,000 to Bisas which loan was repayable on demand. Bisas paid interest on the loan and subsequently repaid it. The loan is recorded in books of both Bisas and Biramo.

19 Rich amended this in a subsequent affidavit by saying that Simcos did not send the $15,000 to Rutherford although later it sent a sum of over $7,000, and that Bisas did not pay interest. He did not correct the statement about the Bisas loan being repaid but in fact it was not repaid. Rich did not deny the evidence of Rutherford in his first affidavits, although he did subsequently in cross-examination.

20 In early 1997 there was a curious transaction involving a motor vehicle. Rutherford said that it was intended to be purchased by her using moneys she had in her loan account with Biramo. The documents show it to have been leased by Biramo. The pleaded case involves no issue about this unless it bore on the accounts but a lot of time was spent on it. Rutherford denied all pages of the contract were with it when she signed. It does not seem to me to matter one way or the other, but her evidence on this reads unconvincingly and I am inclined to think that she accepted the advice of Rich as to how the transaction should take place. Perhaps the only relevance is the suggestion that Rich knew that there was no money in the Biramo account to pay for the vehicle, whereas it is clear that Rutherford thought there would be money there.

21 Rutherford raised some inquiries with her solicitor, Mr Randall in about March 1997 and Mr Randall wrote to her on 3 April 1997, saying:

Dear Anna,
I again contacted Alan Rich on 25 March.
He tells me that he is still working on all of the details of your current financial situation and will contact you direct when it is ready.
He again wishes to reassure you that all is well in this regard.
He did mention that the monies from the sale of your late mother’s cottage at Mayfield which were placed in the Biramo account were subsequently used by you in relation to various projects overseas and for a new mother vehicle etc.
He assures me that monies that were originally deposited to the company’s account have been recognised in the form of a loan account in the company’s financial statements. …

22 Rich did not contact Rutherford with the details. The moneys were certainly not used as he said. Mr Anicich, solicitor, wrote to Rich about the withdrawals and other matters on 15 October 1997. Rich replied saying:

Your questions involve considerable investigation and will be attended to as quickly as possible.
One matter that is urgent is the Toyota Motor Vehicle.
Firstly, the copy of the purchase order we hold and signed by your client was made out to this company BIRAMO PTY LTD.

Secondly, no discussion or arrangement was ever had or made as described by you.
Thirdly, we reject your suggestion of any intervention, and point out that all documents for the lease were signed by your client. Also note she is a guarantor to the lease company.
Fourthly, your clients wishes are impractical.
The vehicle was purchased by the company for company use. Your client as director was to use the vehicle for business purposes in Wollongong, Sydney and Newcastle with some limited private use. Full records details to be maintained on usage.

23 In evidence in chief of Rich before Simos J in relation to proceeds of sale of the Mayfield property at T2-95 the following appears:

Q. Can you tell the court to the best of your recollection at this time what you said to Professor Rutherford and she said to you about that matter?
A. As I recall she said to me, “I’m instructing John Randall to deposit part of the money from my mother’s estate into the Biramo account against my loan account” and “I know I’ve been spending heavily for a few years and this will enable you to recover some of your money”.
Q. Did you say anything in response to Professor Rutherford?
A. As I recall I commented “That would be nice”.

24 Rich also stated in relation to the agreement made on the starting up of the company at T2-101:

HIS HONOUR: Q. What were the circumstances in which Professor Rutherford was given a cheque book of the company? Who said what and to whom and when was it said and when did it happen, the first time?
A. At the first meeting of the company at the time of the minutes I suggested that we open a bank account and that I obtain cheque books, that she would have one and I would have one and that we both used the cheque books as we felt appropriate and as said in the minutes, that two loan accounts be established, one in her name and one in mine, that any non-company deposits or withdrawals would go to those loan accounts.
Q. What was done about the establishment of those loan accounts after the meeting?
A. They commenced as soon as, virtually as soon as deposits or cheques were drawn, deposits made or cheques were drawn.
Q. What deposits were made?
A. I can't recall without looking at records to know which was the first deposit.
Q. How do you create a loan account, what did you have in mind when you said a loan account should be created, what did you do to create the loan account?
A. Money was deposited into the --
Q. Whose money?
A. Money from Anna and money from me.
Q. Personal money?
A. Personal money.
Q. Personal money?
A. Was deposited in to the loan --
Q. Did you ask her to do that?
A. Yes.
Q. What did you say to her and what did she say to you?
A. I said, "To establish the company, we will need some money to buy the shelf company and for the money to start the company going" and she asked me how much would be needed and I suggested that we both put in $1,000 each personally and that formed the initial start of the company and the loan accounts too of course.

25 In cross-examination of Rich before Simos J in relation to the withdrawals at T2-163 is the following evidence:

Q. I wanted to ask you, is the conversation, the conversation which you depose to in paragraph 35 of your affidavit of 26 March 1999 which had Professor Rutherford saying, "I will leave it to you to invest it as you see fit" is that evidence true?
A. No, that is incorrect, yes.
Q. It is not true to say as you have in this affidavit, paragraph 35, Professor Rutherford said "I will leave it ... as you see fit"?
A. Those words were not used on reflection and I thought they were corrected in the next affidavit. That was what was supposed to happen. If it was not clear that is what was supposed to happen.
Q. So, is it still correct to say that the plaintiff phoned you and said, "The Mayfield sale is about fully completed" is that correct?
A. In general terms, as I said, this morning.
Q. "I have directed the solicitor to pay the proceeds to Biramo"?
A. As I said, I had no idea what the amount of money was to be.
Q. And "I. want them credited ... loan account" is that still correct?
A. In general terms.
Q. Paragraph 35 is giving an account of the same conversation, albeit it is incorrect, about which you gave evidence this morning, is it?
A. Yes.
Q. And in that account which you give on oath on 26 March 1998 in your affidavit you had Professor Rutherford leaving the money with you to invest it as you saw fit. Today you give evidence suggesting that she was paying it to you to allow you to be refunded for money you paid on her behalf?
A. That is not what I said this morning. I said she said she wanted it credited to a loan account, I forget the exact wording this morning, so I could get some of the money back. If we are going to talk about precise wording I have to know what I said but, if I could be picked up on something that I said this morning, I can't recall my exact words this morning. I remember generally what I said.
Q. You have Professor Rutherford saying, "I know I have been spending heavily for a few years and that will enable you to recover some of your money"?
A. Yes I agree with that.
Q. That is a version or account of this same conversation which is diametrically opposed to which you have deposed in paragraph 35 of your affidavit?
A. It is different, yes
Q. And you say - which one is correct? The one you gave this morning was it?
A. Yes I think that the circumstances of this first affidavit would need explaining.
Q. You did explain it, you explained the circumstances in your second affidavit and you failed to correct what appears, if your present evidence is right, to be an obvious and serious error in your first affidavit?
A. There was a serious error in my first affidavit I agree.

26 There was some further cross-examination on this at the new trial. At T20 Rich gave the following evidence:

Q. As close you can to the words that were used.
A. That she told me that she was – she said that she was getting her solicitor John Randall to deposit money into the Biramo account and that was the first part as far as I recall and, as I recall, I said something like, “Well, what do you want to do with it?” or, “What are your plans?” or something like that and she said, “I want you to handle it as you think fit”. I think at that time she said that I’ve – “You’ve been putting money in”, I can’t quite remember, and – well, maybe that was the conversation before, but the main thing is, “You handle it as you think fit”, I think that was the basis part of it.

Findings on the property sale proceeds

27 I consider the evidence of Rutherford as to the conversations set out in her affidavit and the statement of claim should be accepted. There is the obvious difficulty that I did not see her in the witness box. The fact is, however, that the withdrawal of funds was the main subject of this litigation. Conversations deposed to by Rutherford were of significance and were not denied by Rich in his first affidavit. The evidence of Rich about the conversations preparatory to the withdrawals was inconsistent. Investment was not repayment of loans. The wording of the defence seems to be careful and does not deny the crucial paragraphs. Rich’s evidence about the purpose of payment and terms was altered. I do not accept the evidence of Rich on that. I find that there was no consent to the withdrawals; it is clear that the minutes of the meeting in 1985, which were relied upon, particularly by counsel, did not authorise the withdrawals. Unless Biramo was indebted to the payees of the cheques or perhaps to Rich, at the time that the payments were made, then they were of no benefit to the company, should not have been made, were made without authority of Rutherford, and were made in breach of the duty that Rich owed to Biramo. It is of course correct to say that once the moneys were lodged with the company then Biramo could use the moneys for its proper purposes. It is, I think, also true to say that, if Biramo owed moneys to Rich on loan account, then Rich could direct payment of the amount owed wheresoever he chose, provided those payments were debited to his loan account. The fact is that no proper reply was given to Rutherford’s solicitor, Mr Randall. No sensible reply was given to Mr Anicich. This supports the conclusion at which I have arrived. Rich admitted in giving evidence that from time to time he just withdrew funds from Biramo and paid them to one of his companies and in particular to Simcos, if there were moneys available in Biramo. He seems to some extent to have treated it as his banker, dealing with its moneys as suited him. He had no authority to do so.

Status of the joint report

28 This report is Exhibit P in the proceedings. It states it was based on the expert report of Mr Bell “and was restricted to the scope of assignment as detailed in the report”. In summary the report states that the assignment was to testify as to the loan account balances of the defendants with Biramo at 15 March 1993 and 24 March 1998. Mr Bell had reported on this. In short he found the following balances:

Account 15.03.93 24.03.98
Simcos 45,040.11 23,474.93
Bisas 178.98 895.74
Rich 31,725.92 1,269.41

These figures are debts of Biramo.

29 The figures agreed by the experts did not vary the figures at 15 March 1993. There was some disagreement as to subsequent figures but these result only in respect of relatively minor amounts in the Simcos and Rich accounts and a more substantial figure in the Bisas account which I will explain. The final balances are not the subject of this action. They will be decided in proceedings on the proofs of debt. There was no disagreement on the loan account balances at 15 March 1993 as between the experts. As I will explain counsel for the plaintiff cast doubt on these figures but he did not call Mr Hicks to give further evidence. Without that, and bearing in mind the problems with lost books of account, incomplete records, and obviously incorrect accounts the task of the plaintiff to establish the joint report was flawed was a very difficult one. There was agreement of experts. The court is not bound to accept that agreement but it would need clear evidence of mistake to enable it to do so.

What were the loan balances in 1993?

30 It is not to the point whether or not Rutherford’s loan account was in debit to Biramo in March 1993. The relevant question is whether Biramo was indebted to Bisas, Simcos and Rich at that time. If it was not then it could not be said that it was for the proper purpose of Biramo to lend money to Rich or his companies unsecured and without any arrangement for interest. It is apparent that moneys which belonged to Biramo, being payments from sub-tenants of the Leichhardt property, were on numerous occasions paid into the bank account of Simcos. It is equally clear from the evidence that Rutherford drew on the company account or on a credit card company account for personal expenses, which should have been debited to her loan account with the company and were probably so debited.

31 The difficulties which have occurred with this matter arise from the fact that the books and accounts of all companies concerned were kept by an accountant, Mr Waldron, who died in 1997, and for the most part his records have disappeared.

Payment to Bisas

32 In one of his affidavits Rich said that this payment was made because the moneys were in Biramo and were not needed, so he paid those moneys to Bisas. Insofar as this was done it supports the truth of the statement which Rutherford said was made to her by Rich, that he had done this to reduce the higher rate of interest which he was paying. It is not suggested that any moneys were due to Bisas from Biramo at the time. This is supported by the reconstructed loan accounts prepared by Mr Bell, the expert accountant retained by Rich. The payment was clearly unauthorised and was clearly in breach of the fiduciary duty which Rich owed to the company. Biramo got no benefit whatsoever from the payment. Rich should be ordered to repay it. As he controlled Bisas it must be taken to have received the money with knowledge of the breach. Bisas should also be ordered to repay it. Both Bisas and Rich should be ordered to pay interest on that amount. Bisas however claims that its account with Biramo was brought into credit by October 1997. Most of the matters said to bring this about occurred around 1997 and relate to what are described as “car expenses” and property expenses. Prior to that time Mr Hicks had accepted some ordinary car expenses as being proper charges, although it is necessary to say that one of the other Rich companies also seems to be credited with car expenses and the claims are contrary to the figures in the Biramo accounts. There were, however, two amounts not accepted by Mr Hicks. The first was a figure of $3,208 for garaging and cleaning the Laser motor vehicle. For the year in question an amount of $5,277.93 for car expenses was claimed and apparently accepted but not checked by Mr Bell, but accepted only as to part by Mr Hicks. The second amount not accepted is a claim for $32,097.87 claimed as a credit against the loan account but not paid and said to be amounts due by Biramo to Bisas for repair work on the Leichhardt property in the second half of 1996 and in 1997. Rich says that this Leichhardt property was to be developed as a joint development, but that he was eventually locked out. It is difficult enough to see why Rutherford went along with the head lease; it would be far more difficult to accept that Rutherford would have ever agreed to hand the Leichhardt property to Biramo and thus fifty percent of its value to Rich. But in any event, the accounts produced by Bisas to support its claims have not been accepted by the liquidator. Again the claim is in conflict with the expenses shown in the Biramo accounts. The liquidator has rejected in part the proof of debt of Bisas as he has of other claimants. The appeals against the rejection of the proofs are not before me although as a matter of form they bear the same number as these proceedings as a result of the winding up order being made in these proceedings and therefore proof of debt claims being properly brought in these proceedings. Prior applications to have them determined as the same time as the issues before me were refused by Austin J and Simos J. From the form of accounts for work done on the Leichhardt property one can understand why the liquidator was not satisfied that the claim was established. That does not mean that he was correct in this, but I accept it was proper for him to put the claimant to proof. If it is ultimately established that the proofs should have been accepted, then leaving aside the question of interest, it may turn out that Biramo has suffered no loss as a result of the payment of $40,000.

Simcos claim

33 The version given by Rich seemed to change over time. At the beginning he was saying that Rutherford had asked that $15,000 be sent to her, that he had arranged for this to be done by Simcos and had written a cheque to Simcos for the $18,000, saying that the balance of $3,000 may have been due to Simcos on loan account with Biramo. Nothing further seems to have been said about that particular claim and as I have said the evidence changed. On the joint report of Mr Bell and Mr Hicks it was agreed that the loan account of Simcos with Biramo was in credit in favour of Simcos in the sum of $45,040.11 as at 15 March 1993. Payments of $20,500, which were said to include the $18,000, were debited against that loan account. None of this is supported by the accounts of Biramo or the accounts of Simcos. Mr Hicks was not recalled to explain the basis of his agreement with Mr Bell and on that basis it is just not possible for me to find that the plaintiff has proved that Simcos’ loan account was not in credit with Biramo, for an amount of at least $18,000 when the cheque was paid. On that basis the claim in respect of Simcos must fail. I bear in mind that Mr Bell said he did not see the accounts of Biramo and Simcos. I accept that although I am unable to find one way or the other whether his assistant, who did not give evidence, saw the Biramo accounts, although I am unable to accept Mr Bell’s evidence as to an incorrect date in his report. Mr Bell placed some reliance on what Rich said. It is obvious one cannot rely on the accounts. It is established that Simcos made some payments for Biramo and collected some moneys of Biramo. Insofar as it made payments direct to Rutherford I accept it was intended these be accounted for through the loan accounts in Biramo. The evidence is not sufficient to establish misappropriation or a payment not for the benefit of Biramo. Rich said that payments to Biramo by Simcos and payments by Biramo to Simcos were adjusted through his loan account. This is certainly not entirely correct but that cannot determine the matter. The Simcos claim fails.

Rich claim

34 The accountants agreed the loan account of Rich at 3 October 1997 was in debit to Biramo in the sum of $1,067.59. That figure was arrived at as shown in Exhibit AS. That exhibit showed a loan account balance to the credit of Rich with Biramo in the sum of $31,725.92 prior to the cheque for $30,000 being paid. In other words, Biramo owed to Rich that amount and therefore the payment of $30,000 was debited against his loan account with the company. On those figures it follows that as Biramo owed to Rich an amount in excess of $30,000 there was no breach of duty in Rich arranging for Biramo to pay that amount. After that was done, the loan account remained at a relatively small balance until 1997. The two accountants agreed on this. There are as many problems with this as there are with the Simcos figures. Again the allegation is a serious one. I am not satisfied the plaintiff has established the misappropriation claimed. There is no doubt that Rich advanced funds to Biramo. The evidence is not such as to require me to disregard the experts’ agreement.

Final remarks

35 There are all sorts of difficulties with the accounting records. The main accounts of Biramo as shown in Exhibit C cannot be reconciled properly with the figures agreed upon by the accountants. They are presented in an extraordinary way with shareholders loan accounts being shown under the heading “issued and paid up capital” rather than being shown as a liability. In most years, the figure shown for sales has no relationship to the amount banked into the Westpac bank account for sales, so that the figure is either the figment of somebody’s imagination or includes those sales identified by the deposits into the bank account and sales overseas, plus grant moneys with the moneys from overseas sales being paid into bank accounts overseas. The combined shareholders loan accounts shown in the Biramo accounts were as at 30 June 1992 amounted to $95,976. The combined totals shown on Exhibits AO and AS being the loan accounts of Rutherford and Rich with the company prepared by Mr Bell, amount to $16,805. There is no way in which these can be reconciled or perhaps more correctly no way of reconciliation was explained to me. As at 30 June 1993 on the Bell figures the loan accounts are Rich $1,725 and Rutherford $78,540 being a total of $81,273. The Simcos figures and records are just as unreliable. The figure shown in the company accounts for shareholders loan accounts at 30 June 1993 is $49,955. The figures just cannot be worked out and the claim of the plaintiff other than that for the Bisas $40,000 has therefore not been established.

36 One of the pleaded claims is that Rich was responsible for the accounts and failed to keep proper accounts for Biramo. As the accountant responsible for the books and records has died and important records are not available, all that it is possible to find is that it is unlikely that proper and accurate financial records and accounts were ever kept. Some of this was the fault of Rutherford, some the fault of Rich and some may have been the fault of Mr Waldron, but that is not established. No relief is sought in respect of these claims for breach of duty and no loss has been established. To that extent they can be disregarded. Claims of intermingling were not put forward in any relevant way apart from the payment of the three cheques. The problems in the case, and particularly on the new trial, were I think caused by the lack of pleadings on the first trial and connecting the evidence at the first trial, particularly the exhibits, to the pleaded issues on the second trial.

37 The question then is how to draft orders giving effect to my decision that the payment from Biramo to Bisas amounted to a breach of fiduciary duty by Rich. The appropriate way to do it is probably to order repayment of the sum of $40,000 plus interest, but to stay the operation of that order insofar as it may be reduced by final decision on the proof of debt claim. As it will be necessary for these proceedings to be stood over for draft minutes to be prepared, this will give an opportunity for the parties to consider the final form of orders which ought to be made.

Biramo Books Pty Limited

38 Apart from selling some books published by Dangaroo Press I consider that the evidence establishes that Biramo did not act as a distributor of books in Australia published by other publishers and not exclusively Dangaroo Press books. Biramo Books acted and acts as a distributor for a number of publishers. It may have got some benefit from the Biramo name, but I do not think that it appropriated to itself the Biramo business, which was predominantly a publishing business. The evidence was that originally Rich owned seventy-five percent of the shares in the company and his daughter, twenty-five percent. The position now appears to be that Rich owned ninety-nine percent and his daughter one percent, although when the change occurred it not established by the evidence. The evidence also establishes that at the present time Biramo Books has a surplus of liabilities over assets. In all the circumstances the claim that Biramo Books holds its assets and business on trust for Biramo must fail. Most of the business has nothing to do with Biramo. If there were a breach of fiduciary duty by Rich on the conflict of interest principle the proper remedy would have been for an account of profits against Rich. That was never sought. This claim must fail. It is important to remember this was not a passing off case, or a misleading and deceptive conduct case against Biramo Books.

Orders

39 The claims against Biramo Books and Simcos will be dismissed. I will need submissions on the form of orders against Rich and Bisas. My tentative view is that they should be ordered to pay $40,000 plus interest at court rates on that figure but that proceedings on the judgment should be stayed pending determination of the appeal of Bisas on the proof of debt so that the amounts can be set off. It may however be proper to order that the interest component be paid, as there is no entitlement in Bisas to interest. It may also be appropriate for security to be given as the price of a stay. The parties should consider the question of entitlement to any certificate under the Suitors Fund Act so that any application for a certificate can be dealt with when orders are made.

Last Modified: 11/22/2002