Bulic v Melbourne City Nominees Pty Ltd

SUPREME COURT OF VICTORIA

CORPORATIONS LIST

Not Restricted

No. 5885 of 1997

ALFIO BULIC AND ENRICK BULIC	Applicants
and
MELBOURNE CITY NOMINEES PTY
LTD (ACN 007 449 532) (SUBJECT TO
DEED OF COMPANY
ARRANGEMENT) AND LEON
ALFRED LUMSDEN (IN HIS
CAPACITY AS ADMINISTRATOR OF A DEED OF COMPANY ARRANGEMENT DATED 10 JULY 1995 IN RESPECT OF
MELBOURNE CITY NOMINEES PTY
LTD) (ACN 007 449 532)	First Respondent
and
CORKRAN (AUST.) PTY LTD	Second Respondent

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JUDGE:	ASHLEY, J.
WHERE HELD	Melbourne
DATE OF HEARING:	25, 26, 29, 30 June and 1 July 1998
DATE OF JUDGMENT:	20 July 1998
MEDIA NEUTRAL CITATION	[1998] VSC 11

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CATCHWORDS:

Corporations - Company under administration - Rejection of
proofs of debt - Appeal

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	MR D. WILLIAMS	Gaspare Sirianni
For the First Respondent	MR M.D. WYLES	Hall and Wilcox
For the Second	MR T. ARTEMI	Lennon Settle

Respondent
HIS HONOUR:

The Matters Before The Court

Before the court are appeals by Alfio Bulic (AB) and Enrick Bulic (EB) against rejection of, in the one case all, and in the other case most, proofs of debt lodged by them with Leon Alfred Lumsden (LL) the administrator of a deed of company arrangement in respect of Melbourne City Nominees Pty Ltd (MCN).
These appeals are brought pursuant to regulation 5.6.54(2) of the Corporations Regulations. A notice of motion raising the appeals was filed on 13 June 1997. That was outside the period specified by the notices of grounds of rejection; see also regulation 5.6.54(1)(b)(i). Although the notice of motion as framed did not specifically seek relief under regulation 5.6.54(2)(b) and (3), that issue was in fact set down for hearing by Hansen J on 25 July 1997. Counsel who then appeared informed me at trial that His Honour had determined that matter. Today, however, I have been told that I was inadvertently misled, and that it was common ground that the issue had not been determined. That accords with the court record of orders made on 27 July 1997. It falls to me then to determine that issue, and having regard to what has passed between counsel and myself today, I shall do so shortly.
I am satisfied that, as was conceded by counsel for the administrator at trial, in some measure the applicants' appeals have merit. In those circumstances it appears to me to be appropriate to extend the time within which notices of appeal may be filed. I shall make a formal order to that effect.
Also before the court, by the notice of motion in its amended form, is an appeal against the administrator's decision to admit a proof of debt lodged by Corkran (Aust.) Pty Ltd (Corkran) in the amount of $351,708.67. As is the case with the appeals against the administrator's decisions to reject (in whole or part) proofs lodged by AB and EB, the appeal lies under section 1321 of the Corporations Law. It was not suggested at trial that such an appeal was not competently brought by the applicants. Corkran's proof of debt, it is convenient to say, was rejected by the administrator as to $33,599.33. Corkran has brought no appeal against that partial rejection of its claim.
Finally before the court there is a summons filed on 30 June 1998 by which the administrator seeks certain directions concerning the claims by AB and EB.
An Overview Of The Proceedings
Leafane Pty Ltd, a shelf company, was registered on 23 July 1990. Later that year it was acquired by individuals previously associated with Melbourne City (JUST) Ltd (JUST). The business of JUST, the circumstances of its demise, and the renaissance of its business in the new corporate cloak of Leafane Pty Ltd, must later be described. In any event, Leafane formally changed its name to MCN on 10 September 1991. In practice, those controlling the company used the name MCN from a much earlier time. AB, EB, and Oscar Crino were directors of MCN from the time of the company's acquisition. They were, and remain, shareholders.
On 2 June 1994 Hayne J, as his Honour then was, found in proceeding 10422 of 1993 that four other men, namely Kenneth Knight, Carlo D'Appio, Peter Stankovic and Frank Simunovic, had been and remained shareholders and directors of MCN. Those other men have been called "The Knight group". There was at the time of the proceeding heard by Hayne J, and evidently remains, a schism between the Knight group and the other shareholders and directors.
On 22 March 1995 those directors of MCN who comprised the Knight group resolved to appoint an administrator to the company pursuant to Part 5.3A of the Corporations Law. Two days later LL was appointed administrator. On 19 June 1995 a meeting of creditors of MCN resolved that the company enter into a deed of company arrangement. On 10 July 1995 MCN and LL entered into such a deed. It was to continue in operation for 12 months. Its operation has from time to time been extended. It continues still.
The only significant asset of MCN was such value as attached to the lease which it held of about 10 hectares of Crown land in Footscray. The lease was entered into in November 1991 and was for a 20 year period. The leased land was and is known as Schintler Reserve (the reserve). At the time of the administrator's appointment the reserve included two soccer pitches, terracing and a large clubroom.
Now I go back in time. The reserve had earlier been sub-leased to JUST. The messrs Bulic had been directors of that company also, as had all or most of the members of the Knight group. During the period of the JUST lease the reserve had been used by the Melbourne JUST (sometimes called the Footscray JUST) Soccer Team; and the clubroom had been completed to lock-up stage. Most of the construction work in connection with the clubroom - sometimes described as a grandstand and social club - was apparently done between 1988 and 1989.
It seems that a problem arose concerning the solvency of JUST. By August 1990 the company was being pressed very hard by its creditors. The directors agreed that a shelf company would be acquired and that the activities previously conducted by JUST should be conducted through this new company - a company which was somehow to start life free from debt. That company, as it turned out, was Leafane Pty Ltd. Apparently it took over the sublease of the reserve previously held by JUST. Later, in November 1991, it took a new lease of the reserve - a head lease from the Crown, not (as previously) a sublease from the City of Melbourne.
It is convenient to move forward to November 1991. On 7 November, as Hayne J found, the shareholders of MCN, excepting Simunovic, agreed to sell their shareholdings to any interested purchaser; and agreed that AB should seek out a purchaser and negotiate for the sale of the shares. That appears to have marked the last involvement in the affairs of MCN by any member of the Knight group until late 1993. This retreat was understandable. It appears that the directors and shareholders of JUST had put a good deal of money into that company and that this money had been lost. Renewed interest of the Knight group in MCN, the successor to JUST, probably resulted from those men perceiving an opportunity of recouping their outlays - in consequence of improvements that had been effected to the reserve, particularly after late 1992. But their motivation in bringing the 1993 proceeding need not be determined.
It seems that, during the period when JUST was sublessee of the reserve, AB and Knight were the moving spirits in such activities as were conducted at the reserve. Knight's involvement apparently continued in the very early days when MCN became sublessee. But it terminated in 1991. There appear to have been two reasons for this: first, Knight was made bankrupt and that imposed various pressures upon him. Second, soccer activities at the reserve were taken over by the Argentine Centre of Victoria - a group with which Knight (and for that matter none of the other members of the Knight group) had any particular affinity.
The evidence shows that in the period between November 1991 and March 1994 the affairs of MCN were managed by AB. It further shows that day-to-day activities necessary to maintain and improve the soccer pitches and to maintain and improve the clubroom and associated facilities were undertaken principally by AB, but to an extent by EB - AB working throughout that period, and EB working between early 1992 and late 1993. There was, the evidence shows, a period of months when work was also done at the venue by Colin Murphy (CM) and James Byrnes (JB). That work was done between late 1992 and March 1993.
The amount of work - managerial, administrative and physical - undertaken by AB in the period November 1991 to March 1994 was a matter of dispute before me. Likewise, the amount of work performed by EB. A further question arose whether either AB or EB could establish a legally enforceable claim against MCN regardless of what conclusion I reached as to the amount of work they had respectively performed.
I referred a moment ago to work done by CM and JB. The latter was, in 1992, and remains, one of two directors and shareholders of Corkran. The other director and shareholder has been, and remains, his wife. The company was registered on 6 June 1990. Its principal activity is described as "trustee investments". JB is, by occupation, a school teacher. He professed little knowledge of business matters. I accept the accuracy of that self-assessment. CM is a cousin of JB. In 1992 and 1993 he was an hotelier. JB told me that he relied on CM for business advice, CM having had a lifetime in business. I accept that evidence. I am, however, doubtful that CM was at relevant times, in matters where commerce and law interface, particularly well- informed.
The evidence showed that CM had a solicitor son working in the USA in late 1992 and early 1993, and that he provided his father and JB with advice concerning their dealings with MCN and AB. It is not clear that all his advice was understood or acted upon.
The involvement of Corkran came about this way: From the time that MCN became lessee of the reserve, it faced practical problems. It was always short of cash. To get adequate cash flow, it needed to best utilise the pitches and the clubroom. Best utilisation depended on the pitches being maintained and improved, facilities such as terracing being expanded and improved, and upon completion of the clubroom (so that it could be used for multiple purposes). Absent best utilisation of pitches and clubroom, it could not be supposed that the shareholdings in MCN could be sold - at least for any worthwhile sum. Indeed, absent adequate cash flow, the ability of the company to meet lease payments was compromised (the only directors of MCN who had been willing to guarantee the payments were AB, EB and Crino). If the lease was lost, the shareholdings were worthless. It was in these circumstances that in mid-1992 AB approached Mr Ian Grey of the Victorian Rugby League. He was evidently looking for a sublessee with the cash available to undertake necessary improvements. It seems that Mr Grey spoke to CM and that he in turn spoke to JB about the matter. Each of JB and CM was a rugby league enthusiast. In due course, they had initial discussions with AB concerning the reserve.
It is unnecessary to go into the detail of the discussions to which I have just referred. It is enough to say that by October 1992 an oral agreement is said to have been reached - I put to one side whether it was legally enforceable - that Corkran acquire 50 per cent of the shares in MCN for $300,000. Of that sum, part was to be put into ground improvements and part retained by the shareholder(s). It was apparently contemplated that Corkran (or some special-purpose corporate vehicle) would sublease the reserve, the sublessee deriving revenue by conducting there a rugby league competition and by making full use of the clubroom.
In late 1992 it was evident that, to put the pitches and facilities into the required order, a substantial injection of funds was needed. There was pressure to get the work done in time for the start of the 1993 football season. No share acquisition agreement had been drawn up by that time. In the event, between November 1992 and March 1993, work was done improving the pitches and clubroom at a cost of some $250,000. That cost was met in part by Corkran and in part by Melcor Products Pty Ltd, a company of which JB and his wife were directors and shareholders. JB has deposed that Melcor advanced moneys for and on behalf of Corkran. That allegation has not been disputed and I accept it. For simplicity, I shall refer hereafter to advances made by Corkran, rather than refer both to Corkran and Melcor.
Part of the moneys to which I have been referring were paid directly to suppliers of goods and services to MCN, part of the moneys were paid to AB, and in part they were paid to MCN. The evidence shows that moneys advanced to AB and MCN were also used to pay suppliers of goods and services in connection with improvements to the pitches and clubroom. That this was so was not in debate at trial.
According to Corkran, the moneys advanced were by way of loans to MCN repayable on demand. Demand for repayment was made in June 1993. Repayment was not made. The amount of the alleged advances, plus interest and legal fees, was the subject matter of Corkran's proof of debt.
According to AB, however, the moneys paid by Corkran to suppliers, MCN and himself were part satisfaction of the share acquisition agreement. So they could not found the claim that Corkran had made on the administrator. Moreover, insofar as moneys had been paid to him, they were his moneys and had been used by him to the benefit of MCN - that is, in purchases of equipment and so on. It followed that moneys so used were properly part of his proof of debt.
I should return to the general narrative. I noted earlier that the administrator was appointed as at March 1995 and that he became deed administrator on 12 July 1995. The main asset of MCN was, as I have said, the value of the unexpired portion of the 20 year lease. Ultimately, in October 1996, the administrator negotiated surrender of the lease. After deduction of rates and taxes owing, he received a little over $1 million.
The administrator has admitted claims by creditors totalling $596,317.69. The largest admitted creditor is Corkran. The administrator rejected altogether a proof lodged by AB in an amount of $282,256.69. He admitted only $36,845.25 of a much larger sum claimed by EB.
The issues for my determination become clear enough: the claim of AB, rejected by the administrator, was partly for recompense for work done and in part for reimbursement of moneys expended to the benefit of MCN. As to the latter aspect, the claim could not succeed unless the moneys received by AB from Corkran were paid pursuant to the share purchase agreement - rather than being part of loans made to MCN by Corkran. The claim of EB was simply for recompense for work done and own moneys expended to the benefit of MCN. The fate of the appeal against admission of Corkran's claim depends upon the basis upon which moneys were advanced to MCN, AB and by payment direct to suppliers. In part, as will be appreciated, the claims made by AB and Corkran overlap.
The administrator, by reason of evidence adduced at trial, modified his position to an extent concerning the claims lodged by AB and EB. By his counsel he ultimately sought a direction that AB's claim should be allowed to this extent: that he had an enforceable claim to recompense as a manager for the period November 1991 to March 1993 at the rate of $30,000 per annum. It appears that the reference to March 1993 was in error. Counsel, in substance, conceded so much in his final address. The end point should have been March 1994, not March 1993.
The administrator further sought a direction that EB's claim should be admitted as to a further $2383.45. But he otherwise persisted in his position that the claims of AB and EB should be rejected; and he persisted in his position that the claim by Corkran had rightly been accepted.
Counsel for the administrator ultimately conceded, I think, that findings by me that particular claims should be allowed in particular sums would obviate the need for the directions sought by the summons recently filed on his client's behalf. There has been, I note, some judicial disapproval of the giving of directions - Re Magic Australia Pty Ltd (in liq.) (1992) 7 ACSR 742 at 745. Counsel submitted that the circumstances in the present case were different to those encountered in Re Magic. There are differences. But whether for that reason the expressed disapproval lacks force is another matter.
Principles Governing Determination Of The Appeals
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Each of the appeals by AB and EB and the challenge to the admission of Corkran's claim proceeds as a hearing de novo: Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 at 341 per Brennan and Dawson JJ.
* The court must decide the rights of the claimant "in the light of the evidence which is before the court" which "is very commonly much fuller than the evidence available to the (administrator) at the time when he decides to reject the proof": In re Kentwood Constructions Ltd [1960] 1 WLR 646 at 648; Westpac Banking Corporation & Ors v Totterdell & Anor (1997) 25 ACSR 769 at 772 (Templeman J, Supreme Court of Western Australia). The fact that those cases concerned appeals against the decisions of liquidators does not, in my opinion, make the propositions inapplicable.
* There is an onus upon the party challenging an administrator's decision - an onus of showing that the decision was wrong: Totterdell at 773; Re Interwest Hotels Pty Ltd (in liq.) (1993) 12 ACSR 78 at 121 (Eames J, Supreme Court of Victoria). It is the sine qua non of proof that an administrator's decision was wrong that an unsuccessful claimant establish that he has a legally enforceable claim against the company under administration.
* Possibly opposed to a formulation of the onus borne by an appellant in terms that the court must be satisfied that the decision of (an administrator) was wrong is the approach adopted in Re Mineral Securities Australia Ltd (in liq.) [1973] 2 NSWLR 287 at 230-232. There, challenge being made to the exercise by a liquidator of his commercial judgment, Street CJ in Eq. held, in substance, that a court will not interfere unless the liquidator - a court appointed officer - is doing that which is so utterly unreasonable and absurd that no reasonable man could, would or should so act. Although in Totterdell, at 774-775, Templeman J referred to Re Mineral Securities, he did not determine that the approach there taken was applicable in a case such as the present. The two contexts appear to me to be very different. In a matter such as the present, I do not accept that an appellant must show more than that, upon the evidence adduced on the appeal, the decision of the administrator (whether to reject a proof or to accept a proof - as the case may be) was wrong. In some measure, of course, debate as to the precise formulation of the appropriate test is academic in the present case. For ultimately the administrator himself sought directions that AB be admitted as a creditor in a certain sum and that part of EB's claim previously rejected be now admitted.
AB's Claim
The proof of debt lodged for AB on 23 August 1995 was for $282,256, being as to recompense for work done $237,630, and as to loans to the company $44,626.69. The first aspect of the claim - I shall conveniently, though argumentatively, call it the wages claim - has never changed. According to AB, it is the amount due to him from MCN for 7921 hours of work done between 2 December 1991 and 12 March 1994, charged at the rate of $30 per hour. In support of the quantification of hours worked he relies upon copy work sheets submitted to the administrator. According to my calculations, those work sheets show the total number of hours worked to be 8003. This discrepancy was not adverted to by any counsel during the trial.

In April 1997 the second aspect of the claim was amended from $44,626.69 to $75,384.60. The latter sum was said to represent moneys paid by AB to suppliers of goods and services to MCN. It included something over $6000 in solicitors' fees. Later the applicant enlarged this aspect of his claim by $2200, being for additional amounts paid to two solicitors.
I deal first with the wages claim. I am well satisfied that from late 1991 to March 1994, apart from such work as was done by EB, JB and CM, and apart from such work as was done by contractors, the main burden of managerial, administrative and physical work at the reserve was undertaken by AB. I am well satisfied, for reasons previously set out, that it was very much in the interests of MCN and all of its directors and shareholders that he performed such work. To those reasons I add one further consideration: absent regular and adequate income from usage of the pitches and clubroom, MCN could not have hoped to purchase the reserve, which was an available option from at least mid-1992.
Work, then, had to be done throughout the period - or at least until the shareholdings could be sold in the course of selling MCN as a going concern. But MCN was, until late 1992, cash strapped; and it was again short of money after Corkran's involvement ended. Logic dictates a conclusion that AB did, as he claimed, undertake the main burden of managerial, administrative and physical work in the period under discussion. That he did so was compatible with what appears to have been his longstanding major involvement in the activities at the reserve. I consider that it was also the inevitable and intended consequence of the conduct of the members of the Knight group. Those men were shareholders and directors of MCN. As shareholders, they commissioned AB to find a buyer and make a sale of their shares so that the company could be disposed of as a going concern. As directors, they must have known what had to be done to at least preserve (and hopefully enhance) the value of their shares. Having commissioned AB as they did, they then retired from the scene, leaving behind them a company with assets which needed to be preserved and improved. I consider that their conduct, in all the circumstances described, was only consistent with their intention that AB run the company in the period until their shares could be sold. He was, I consider, invested with actual authority to do so, that authority deriving from the conduct not only of the Knight group, but of EB and Crino. Running the company necessarily involved managerial, administrative and physical work - as well as expending moneys (rental at least) on the company's behalf from time to time.
There is some confirmatory evidence that AB engaged in work of the kinds that I have described during the period for which he makes claim for payment. Eight statements pertaining to the matter were provided to the administrator in early 1997. Three affidavits were tendered in evidence; one being an affidavit by a man who had earlier made a statement. Many of the statements were non-specific. But one statement (of Sam Lombardo dated 27 February 1997) and a number of affidavits (of Nicola Grbavac, sworn 4 August 1997; of Salvatore Pantano, sworn 4 August 1997; and of Bruno Basile, sworn 4 August 1997) dealt with AB's work involvement at the reserve during specific periods of time. Other documents are in point. For example, AB was involved in the sale of advertising space at the reserve, in protracted negotiations for the purchase of the freehold of the reserve by MCN, and in attempts to find subtenants (one of which attempts led on to the involvement of Corkran).
It is one thing to be satisfied that AB performed the main burden of managerial, administrative and physical work at the reserve between late 1991 and March 1994. It is another thing whether he has shown an enforceable claim to payment for that work; and another thing again to quantify any enforceable claim that he may have.
At the time when his proof of debt was lodged in August 1995 AB (by his trustee in bankruptcy) provided a copy document dated 30 November 1991, sealed with the seal of MCN and signed by each of Crino, EB and AB. Headed "agreement", it "confirmed" that MCN had entered into an agreement to pay AB $30 per hour for managing and caretaking the company; and to reimburse him for any moneys which he expended on the company's behalf. Also provided at the time were the copy work sheets to which I earlier referred. Later, a copy company minute dated 3 January 1992 was produced. This showed that at a meeting of directors attended by AB, EB and Crino, it was resolved "that any director working at ground or club house will be paid by Melbourne City Nominees wages, traveling (sic) expenses and material".
AB's wages claim, then, was founded upon there being an agreement between he and the company, and upon the work sheets said to document work done by him in pursuance of the agreement. But when the administrator took the position that the "agreement", by its terms, merely confirmed another agreement (which was not produced), that it was not shown that the company's seal had been applied in accordance with the company's articles of association, and that the company was not bound by the resolution of the three directors at the meeting held on 3 January 1992, it was contended for AB that he had done the work in good faith in reliance upon the documentation and to the benefit of the company - in which case he was entitled to be recompensed for the fair value of work done. So, before me, evidence was adduced of the wages rates applicable to tradesmen and others in the period in question.
I accept that the agreement dated 30 November 1991 and the minute dated 3 January 1992 are copies of documents made and signed on those dates. It was not put to either AB or EB, I add, that the documents were later concoctions. The fact that the two documents were made on the dates they bear shows an intention of the three directors that - if and when funds were available - AB and EB, and for that matter Crino, should be paid for their work and any outlays. I do not doubt that AB and EB each worked (and in the case of EB expended moneys) on that basis. Very probably they believed, at the time, that the documentation bound the company.
Counsel for AB and EB did not contend, however, that either the agreement or the minute bound the company. The articles of association of the company were not put in evidence and so were not relied upon. Counsel did not call in aid any provision of the Corporations Law. In the circumstances, I should approach the matter on the basis that neither document constitutes or evidences a contract between AB and the company.
But that is not an end to the matter. The effect of the resolutions of the meeting of directors and shareholders of MCN held on 7 November 1991 was, as I have said, to constitute AB the person in control of the company during such period as it continued to operate pending sale of the company as a going concern. In my opinion, that circumstance assists a conclusion that AB is entitled to recompense for the work that he performed. The situation after 7 November 1991 was different to that which had obtained during the life of JUST and in the earlier period of MCN's existence - when, as it appears, directors (of JUST then MCN) apparently worked without thought of reward. It could not sensibly have been thought that (if funds were or became available) AB would devote his time and energies to the affairs of MCN after November 1991, at no cost to the company, in order to maximise the return on sale of shares - which would largely benefit others.
Counsel for the administrator submitted that although there was no contract between MCN and AB for provision of his services for reward, AB provided necessary management and administration services. They benefited and were accepted by the company. For those services he was entitled to reasonable remuneration. In support of those submissions, counsel cited British Steel Corporation v Cleveland Bridge & Engineering Co Ltd [1984] 1 All ER 504; Steele v Tardiani [1946] 72 CLR 386; and Pavey & Matthews Pty Ltd v Paul [1987] 162 CLR 221 at 227-228 per Mason and Wilson JJ and at 255-257 and 262-264 per Deane J. Looking at the matter this way, the agreement dated 30 November 1991 and the minute dated 3 January 1992 - despite their inability to give AB a remedy in contract - may be said to assist him. Likewise, the fact that AB was constituted the person in control of the company after 7 November 1991, in the context to which I referred a moment ago.
In the event, accepting the thrust of the submissions advanced for the administrator, and in light of the other considerations to which I have referred, I have concluded that AB is entitled to be fairly recompensed for his work. I consider that the administrator's decision to the contrary was wrong.
How is reasonable recompense to be determined? I do not consider that it is to be ascertained by an exhaustive computation of hours worked (even if such a computation was possible) and then by the multiplication of that number of hours by some hourly rate. The situation appears to have been one where AB needed to be on hand to do such work as was necessary from time to time. In that work were elements of management and administration, as well as hands-on work of a number of different kinds. Having account of this variety of duties and the variable hours involved (some of which were likely spent simply being on site) I consider that the proper approach is to fix upon an annualised salary. Such sum must reflect the variety of duties which AB took, and what I conclude were the quite long hours which he spent on site.
What, then, is the proper sum? There was no evidence directed to the point precisely. But some guidance is available by reference to the hours probably worked by AB and by evidence as to the hourly rates of pay for tradesmen, supervisors and managers in the period 1991-1994.
I do not accept the viva voce evidence of AB that he completed the work sheets to which I earlier referred each day (that evidence may be contrasted with paragraph 9 of his affidavit sworn 19 September 1997); or even that the entries were made relatively contemporaneously with the work that was done. Their style and set out suggests to the contrary. AB's viva voce evidence about the matter was not impressive - and probably in part contradictory.
I further consider that the time sheets do not accurately reflect the hours actually worked by AB. I consider that they are an overestimate. I consider it very probable that AB attempted to mislead the administrator (and me) upon the matter. To an extent, the evidence of JB and CM supports such a conclusion.
On the other hand, I consider that the evidence generally - in which I include the spread of tasks disclosed by the work sheets, the statements and affidavits which confirm that AB did undertake certain work, and the various negotiations which he is shown to have conducted on behalf of MCN - leads to a conclusion that AB spent many hours per week undertaking the affairs of the company. That is a conclusion I have reached notwithstanding the view I have taken of the unreliability of the work sheets in respect of hours actually worked; and notwithstanding AB's generally unimpressive evidence.
According to the work sheets, AB worked, on average, more than 67 hours per week each week between 2 December 1991 and 12 March 1994. I have said that in my opinion that is an overestimate. The evidence generally leads me to conclude that AB spent at least 40 hours per week on the company's business in the relevant period.
The work which AB undertook was, as I have said, managerial, administrative and hands-on. The evidence of wages rates paid to skilled and unskilled workers, supervisors and managers in the period 1991 to 1994 discloses a low figure of $15 per hour and an upper figure of $35 per hour (in the latter case, plus commission in some circumstances). Taking a median figure of $25 an hour and multiplying that by 40 hours per week for 52 weeks, a sum of $52,000 is arrived at.
Counsel for the administrator submitted I should allow AB $30,000 per annum. In my opinion, there is too great a discrepancy between that sum and the amount that would probably have been payable on a wages basis for the hours worked. Some discrepancy may be accepted. Experience shows that very often annualised salaries lag behind remuneration calculated on an hourly basis. Doing the best I can, I consider that $40,000 per annum represents a reasonable remuneration for the work performed by AB between 2 December 1991 and 12 March 1994. AB has established an enforceable claim for wages in the sum of $91,200.
I turn to the claim for reimbursement of $77,584.60 (which includes $2200 in additional legal fees - see paragraph 8 of AB's affidavit sworn 19 September 1997). Of that amount, about $75,384.60 was drawn out of account 9664 at the National Australia Bank, Balwyn, variably shown as being operated by "Mr and Mrs A. Bulic" and
"Mrs F. Bulic". Those drawings were made between 4 November 1992 and 6 March 1995. In most instances the payee was identified. Putting to one side $6850 said to have been paid to solicitors, I am satisfied that the other moneys drawn on that account were used to pay suppliers of goods or services to MCN. I am satisfied that the payments were made by AB (rather than by his wife). I am further satisfied that payments made to AB by Melcor (on behalf of Corkran) were the effective source of the drawings to which I have referred. As will later appear, I am satisfied that the payments made by Melcor were made pursuant to a loan agreement between Corkran and MCN. In the event, the drawings on the National Australia Bank account to which I am presently referring did not constitute payments by AB to which he has a proper claim for reimbursement.
Payments by AB to solicitors amounted, in all, to $9050. Some at least of those payments could not properly be regarded as payments made by AB on behalf of MCN. The extent to which they could be so regarded remained opaque at the end of the trial. The likelihood is that, to the extent to which they could be so regarded, they were in substance funded by advances to AB by Melcor.
Viewed overall, I do not consider that the administrator was wrong to reject AB's claims to reimbursement for moneys expended.
The Claim By EB
EB having not pursued a claim for reimbursement of moneys paid by him during the period of JUST's existence, and certain parts of his claim having been admitted by the administrator, the items in dispute at the commencement of the trial were these:
* a claim for reimbursement of expenditure of
$2383.45 incurred on behalf of MCN by EB;
* a claim for reimbursement for work done and for travelling expenses (the "wages" component being $49,200 and "travelling" $9416);
* a claim for reimbursement of legal expenses and annual fees paid by EB allegedly on behalf of MCN ($2000 in each instance).
The administrator conceded during the trial - properly in my opinion - EB's claim to reimbursement of $2383.45. He persisted in his denial of EB's claim for wages and travelling expenses. The claim in respect of legal expenses and annual fees was not the subject of discrete submissions.
In my opinion EB is entitled to recompense for the work that he did. I consider that it was wrong for the administrator to have rejected the claim. EB is so entitled because I am satisfied that he was engaged by AB to do the work on the basis that he would be paid if and when funds become available. By that I do not mean that the agreement was conditional unless and until funds did become available. AB, after 7 November 1991, was empowered to make such an engagement on behalf of the company. I am satisfied that the basis of engagement was that EB should be paid $30 per hour for such work as he did. I accept the accuracy, so far as it is presently relevant, of paragraph 6 of AB's affidavit sworn 13 June 1997. I do not accept that there was any term of the engagement that EB be paid travelling expenses, notwithstanding that to AB's knowledge his brother lived in Ballarat.
The evidence of what hours EB worked is not as clear as might superficially appear to be the case. EB, whom I consider was a frank and truthful witness, told me that copy work sheets in respect of the period 6 January 1992 to 9 October 1993 were a reconstruction of documents which had earlier been sent to the administrator, but which - it appears - had been lost in transit. EB did not suggest that the days or hours revealed by the copy work sheets were exact. But he did say that they reflected the total number of hours which he recalled his lost work sheets showed him to have worked - that is 1640 hours. His evidence suggested that this was the total of working hours, that is, by distinction with travelling time. I am prepared to accept EB's evidence. He has established, I consider, an enforceable claim to remuneration for work performed in the sum of $49,200.
There is clear evidence that the solicitor who acted for MCN from the time of its acquisition as a shelf company in August 1990 was paid $2000 by EB on 22 January 1991, and that the National Soccer League was paid a $2000 affiliation fee on that day. Although at one point EB described those payments as being part of loans that he made to JUST, the cheque butts were stamped with the MCN seal and otherwise refer to that company; contrast cheque butts pertaining to payments made for JUST. It is the case that the solicitor had also acted for JUST, but the weight of evidence favours a conclusion that the payment of $2000 was a payment for work done by him for MCN. Likewise, the weight of evidence favours a conclusion that MCN, rather than the defunct or soon to be defunct JUST, affiliated with the NSL in 1991. It has been shown that the administrator was wrong to have rejected those items.
In the event, I consider that EB's proof of debt should have been admitted as to an additional $55,583.45 - that is in all in an amount of $92,428.70.
The Corkran Claim
I have already described the circumstances in which JB and CM began their dealings with AB. I must build upon that description.
In mid to late October 1992 JB met AB. Despite paragraph 7(2) of his affidavit sworn 25 May 1998, he did not then know that MCN had six shareholders. He thought that AB was the only and sole shareholder; or perhaps that Crino and EB had minor holdings also. He knew nothing of the sale resolution referred to in paragraph 7(1) of his affidavit.
JB gave evidence that in October 1992 Corkran and AB orally agreed that Corkran would purchase 50 per cent of the issued share capital of MCN for $300,000. No time frame was set for completion of the purchase. In giving evidence, JB did not find it easy to distinguish between the company and its shareholders. Any agreement must have been made, of course, with the shareholders.
JB further gave evidence that on or about 13 December 1992 the share purchase agreement was varied in writing to this effect:
* Corkran would advance to MCN moneys to a total of $350,000;
* amounts advanced were to be repayable on demand;
* MCN would pay 16 per cent interest on moneys advanced (in the event of default of repayment);
* if there was default in repayment, MCN would pay legal expenses incurred by reason of the default;
* if and when the share purchase was completed, the amounts advanced to MCN would be applied towards the purchase price;
* AB guaranteed the obligations of MCN.
A document containing this so-called variation exists. JB gave evidence that he only ever saw a faxed copy of the document, that he signed that copy and that it was later returned by CM signed by AB.
The document purports to be an agreement between Corkran and MCN as principals, and between Corkran and AB as guarantor of MCN's obligations. It does not purport to be an agreement between Corkran and shareholders. I should refer to a few aspects of the document.

First, it refers to an agreement to lease dated 8 December 1992 and to a "side letter" of that date. No such documents were introduced into evidence. A draft "side letter" was, however, produced. Second, paragraph 2 suggests that the share purchase agreement was far from complete. Third, paragraph 3 suggests that the share purchase agreement was conditional upon the purchase of the reserve by MCN, it borrowing the $600,000 to effect that purchase. Fourth, paragraph numbered 4 provides the basis for the claims by Corkran to payment of interest and reimbursement of legal expenses. Fifth, the meaning of paragraph numbered 5 is obscure. If it was intended to mean that advances to MCN were to be deducted from the share purchase price, then it purported to infringe on the rights of shareholders - that is, if there was a share purchase agreement in place or if such an agreement was later consummated. But perhaps its import was that MCN bind itself to repatriate the advances to shareholders in the event that a share purchase agreement proceeded.
It seems to me wrong to describe the document dated 13 December 1992 as a variation agreement. If there was in existence before that date a share purchase agreement, it was an agreement made between different parties. That does not mean, however, that the document could not constitute an agreement between Corkran and MCN, the latter acting by AB - he being, in circumstances earlier described, the person in control of the affairs of MCN.
Mainly after 13 December 1992 - though in a few instances prior to that date - payments amounting to $253,568 were made by or on behalf of Corkran - some to suppliers of goods or services, some to AB, some to MCN (which did not have its own bank account until February 1993, as it appears). If the document dated 13 December 1992 did constitute an agreement binding upon MCN, then whatever moneys were advanced in accordance with its provisions should be recoverable, demand for repayment having been made in June 1993.
On its face, the alleged agreement did not depend upon there being an oral share purchase agreement between Corkran and the MCN shareholders. It could as easily have been made in the absence of any such agreement. Subject to one matter, no counsel submitted that the document - if executed by the parties - did not constitute an enforceable contract. The one matter was this: counsel for the applicants submitted that this was on its face a contract made between Corkran and MCN which purported, by clause 5, to affect the rights of non-contracting parties - the MCN shareholders. Clause 5, he submitted, was central, and could not be blue-pencilled out. The whole contract must be considered to fail.
I do not accept that submission. If there was no enforceable share purchase agreement as at 13 December 1992, and if no such agreement later came into existence, then clause 5 could have no operation. If there was such an agreement as at 13 December 1992, or if such an agreement was later finalised, clause 5 could not have affected the rights of the shareholders (as non-contracting parties). It would have been a clause upon which Corkran could not rely as against the shareholders. But if the real import of clause 5 was that MCN agreed with Corkran to repatriate moneys advanced by Corkran to the shareholders, then in the event of a claim by the shareholder vendors against Corkran the latter could have brought third party proceedings against MCN. I need not, and do not, decide whether there was a concluded share purchase agreement as at 13 December 1992.
On the footing, then, that the document dated 13 December 1992 could constitute an enforceable contract, these questions arose for my determination: first, was the document signed by AB? For he denied that signatures on the document twice appearing were his. Second, if yes, did his signing it bind MCN?
The evidence of CM and JB was criticised by counsel for the applicants so far as it touched upon when the document was received by CM, when it was first seen by JB, and when and where it was signed by AB, as CM deposed was the case. CM, particularly, was accused of concocting an incredible story to get over the problem that JB would not offer necessary support for a more credible account.
At the heart of the case put for the applicants is that someone - it could only have been JB or CM - forged AB's signature on the document. That serious allegation was not put squarely to either of those men. I do not accept the submission of counsel for the applicants to the contrary.
The evidence strongly suggests that CM received the document from his son, by fax from the United States, on or about 13 December 1992. At that time no written share purchase agreement had been prepared, yet money was being advanced and was likely to be required in greater amounts in the near future for pitch and facilities improvements. MCN had no money and Corkran wanted the ground and clubroom in shape for the 1993 rugby season. It seems likely, as JB and CM said, that Corkran would have sought to protect its position as soon as possible, by obtaining some security as against the chance that the share purchase agreement did not come to finalisation. It seems to me unlikely that the document prepared by Murphy's son was just ignored by his father and JB. Counsel for the applicants submitted to the contrary. He pointed out - seeking to make an analogy - that according to CM the draft "side letter" dated 25 November 1992 was never reworked - though CM's son had said this was necessary. I doubt the accuracy of CM's evidence on that matter, particularly in light of the reference in the document dated 13 December to a side letter dated 8 December. But even if the draft side letter was not reworked, that does not persuade me that JB and CM did not seek to act on the document dated 13 December. It seems, to the contrary, much more likely that they would have done so.
CM gave evidence that it took him some time to get AB's signature, but that AB did not demur to signing the document. AB not only denied signing it, but denied, in effect, ever being asked to sign it. The first time he saw it, he said, was in March 1993. It seems to me inherently unlikely that with the document in hand and money going out, JB and CM would not at least have attempted to get AB to sign the document. Yet AB's evidence really suggests that JB and CM made no attempt to obtain his signature on the document in December 1992; but that in March 1993 one of them forged his signature on it in an attempt to remedy a failing situation.
As I said earlier, I do not regard AB as having been a reliable witness. In my opinion his evidence on this issue was unreliable. I reject his denial that he signed the document. I further accept the evidence of CM that at a meeting held on about 12 March 1993 AB accepted MCN's liability to repay moneys expended by Corkran; and that only later did he first deny having signed the 13 December document. It seems very improbable that AB would have conceded a liability in MCN to repay moneys if he had not signed the 13 December document. His later denial that the document had been signed probably reflected his realisation that the money could not in fact be repaid; and also the circumstance, as I conclude it probably was, that he had not told either his brother or Crino what he had done.
Concerning the question of AB's signature on the document of 13 December, I should add two matters: first, evidence was adduced by the applicants from a handwriting expert, Mr Holland. In the event, counsel for the applicants did not rely upon it in connection with the matter now under discussion. Holland's evidence was, oddly, non-contributory to resolution of the issue raised by AB's denial that he had signed the document.
Second, having myself compared the signatures admitted by AB to be his, a specimen signature which he made in the course of the trial, and the signatures alleged to be his which are appended to the document dated 13 December, I am fortified in the conclusion I have otherwise reached - that is, that the disputed signatures are his.
What, then, was the effect, if any, upon MCN of execution of the document by AB? In my opinion, for reasons already set out, AB was in fact authorised to sign the document on behalf of MCN.
But if AB did not have actual authority to sign the document on behalf of MCN, nonetheless, in my opinion, his signing it bound the company. As between MCN and Corkran, it would be pertinent to consider whether AB had ostensible or implied authority to act as he did: see ss.164 and 182 of the Corporations Law. In my opinion, the evidence shows that he had both ostensible and implied authority to do so.
Section 182 of the Corporations Law deals, inter alia, with the making of contracts by a person on behalf of a company. See particularly subsections 1 and 2. The necessary prerequisite is that a person act with the express or implied authority of the company.
Section 164 of the Corporations Law deals with ostensible authority. It is a section designed for the benefit of a person dealing with a company. It will aid such a person where a person making a contract purportedly on behalf of the company lacks express or implied authority to do so.
In Morley v Statewide Tobacco Services Ltd [1993] 1 VR 423 Ormiston J, speaking of the predecessor legislation, said (at 431) that implied authority appeared to have been read as comprehending ostensible authority. Certainly it has been proposed that holding out is important to the concept of implied authority; and holding out is specifically addressed by section 164(3) of the Corporations Law.
Speaking generally, holding out must be the act of the company, not the act of the agent whose authority is in question. But in some circumstances the actual representation may be made by the agent: Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Company Pty Ltd (1975) 133 CLR 72 at 78:
" There are circumstances where the actual representation of authority may be made by agent but in such cases it will be found that the relevant representation is made by the principal (or by the person to whom the principal has given actual authority) either by a previous course of dealing or by putting the agent in a position or by allowing him to act in a position from which it can be inferred that his actual representation of authority in himself is in fact correct. It is therefore always necessary to look at the conduct of the principal (or the person to whom he has actually delegated authority)."
In Freeman & Lockyer v Buckhurst Park Properties (Magnal) Ltd & Anor [1964] 2 QB 480, an authority cited with approval by the High Court in Crabtree Vickers, and again by the High Court in Northside Developments Pty Ltd v The Registrar General & Ors (1990) 170 CLR 146, the relevant principles were described by Diplock LJ this way (at 503-6):
"An 'apparent' or 'ostensible' authority, on the other hand, is a legal relationship between the principal and the contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted upon by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the 'apparent' authority, so as to render the principal liable to perform any obligations imposed upon him by such contract. To the relationship so created the agent is a stranger. He need not be (although he generally is) aware of the existence of the representation but he must not purport to make the agreement as principal himself. The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract. It is irrelevant whether the agent had actual authority to enter into the contract.
In ordinary business dealings the contractor at the time of entering into the contract can in the nature of things hardly ever rely on the'actual' authority of the agent. His information as to the authority must be derived either from the principal or from the agent or from both, for they alone know what the agent's actual authority is. All that the contractor can know is what they tell him, which may or may not be true. In the ultimate analysis he relies either upon the representation of the principal, that is, apparent authority, or upon the representation of the agent, that is, warranty of authority.
The representation which creates 'apparent' authority may take a variety of forms of which the commonest is representation by conduct, that is, by permitting the agent to act in some way in the conduct of the principal's business with other persons. By so doing the principal represents to anyone who becomes aware that the agent is so acting that the agent has authority to enter on behalf of the principal into contracts with other persons of the kind which an agent so acting in the conduct of his principal's business has usually 'actual' authority to enter into.
In applying the law as I have endeavoured to summarise it to the case where the principal is not a natural person, but a fictitious person, namely, a corporation, two further factors arising from the legal characteristics of a corporation have to be borne in mind. The first is that the capacity of a corporation is limited by its constitution, that is, in the case of a company incorporated under the Companies Act, by it memorandum and articles of association; the second is that a corporation cannot do any act, and that includes making a representation, except through its agent".
.... "The second characteristic of a corporation, namely, that unlike a natural person it can only make a representation through an agent, has the consequence that in order to create an estoppel between the corporation and the contractor, the representation as to the authority of the agent which creates his 'apparent' authority must be made by some person or persons who have 'actual' authority from the corporation to make the representation. Such 'actual' authority may be conferred by the constitution of the corporation itself, as, for example, in the case of a company, upon the board of directors, or it may be conferred by those who under its constitution have the powers of management upon some other person to whom the constitution permits them to delegate authority to make representations of this kind. It follows that where the agent upon whose 'apparent' authority the contractor relies has no 'actual' authority from the corporation to enter into a particular kind of contract with the contractor on behalf of the corporation, the contractor cannot rely upon the agent's own representation as to his actual authority. He can rely only upon a representation by a person or persons who have actual authority to manage or conduct that part of the business of the corporation to which the contract relates.
The commonest form of representation by a principal creating an 'apparent' authority of an agent is by conduct, namely, by permitting the agent to act in the management or conduct of the principal's business. Thus, if in the case of a company the board of directors who have 'actual' authority under the memorandum and articles of association to manage the company's business permit the agent to act in the management or conduct of the company's business, they thereby represent to all persons dealing with such agent that he has authority to enter on behalf of the corporation into contracts of a kind which an agent authorised to do acts of the kind which he is in fact permitted to do usually enters into in the ordinary course of such business".
.... "If the foregoing analysis of the relevant law is incorrect, it can be summarised by stating four conditions which must be fulfilled to entitle a contractor to enforce against a company a contract entered into on behalf of the company by an agent who had no actual authority to do so. It must be shown:
(1) that a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced was made to the contractor;
(2) that such representation was made by a person or persons who had'actual' authority to manage the business of the company either generally or in respect of those matters to which the contract relates;
(3) that he (the contractor) was induced by such representation to
enter into the contract, that is, that he in fact relied upon it; and
(4) that under its memorandum or articles of association the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent."
It has been said that an ordinary individual director of a company does not have ostensible authority to bind a company, absent some representation made by the company: Northside Developments at 205 per Dawson J. In the present case, control of the affairs of the company was in substance given over to AB by the other directors of MCN as from November 1991. AB acted consonantly with his possessing such power. He did so in his dealings with JB and CM. The company, by its conduct, at the least permitted AB to act as its agent in the management and conduct of its affairs. He was, in substance, represented as being its managing director or chief executive officer. True it is that he represented himself to JB and CM as having the authority that those positions would suggest. But those "actual representations" cannot obscure the relevant representation - made by the company "in putting (AB) in a position or allowing him to act in a position from which it (could) be inferred that his actual representation of authority in himself is in fact correct". That representation carried with it the clear implication that AB had authority, in the ordinary course of business of MCN, to enter an agreement such as that effected by the document dated 13 December 1992.
In my opinion, then - whether because AB had actual, implied or ostensible authority to bind MCN - the document dated 13 December was an enforceable contract made between Corkran and MCN. The administrator was correct to conclude that Corkran was entitled to prove in the amount of the relevant advances.
On the assumption that I accepted that the 13 December document was signed by AB, he having authority to do this on behalf of MCN, and putting to one side the argument founded on clause numbered 5 of the document, counsel for the applicant specifically did not submit that the document did not pick up moneys advanced by Corkran prior to 23 December 1992. He did, however, submit that not all advances could be characterised as advances to fund, or payments for "improvements to the property" - see clauses 2 and 3 of the agreement. I agree with his submission. "The property" was defined by the agreement to be "Schintler Reserve". The word "improvements", in context, connotes physical works. Such a construction is quite consistent with the aim of the advances - to enable MCN to do the necessary work to get the pitches and facilities into an acceptable state for the 1993 season. It is also quite consistent with the way in which advances were mainly spent.
Some moneys were expended for another purpose. JB and CM intended, when the pitches and facilities had been improved, that the venue should be a centre for rugby league football in this State. If that transpired, then, by subleasing the ground and the facilities, Corkran (or some other corporate vehicle set up for the specific purpose) would obtain income on its investment. To that end Corkran expended moneys in investigating possibilities for ground usage, and in encouraging its usage by rugby league clubs. I do not consider that such expenditure can fairly be described as funding for improvements to the property. Corkran's proof should not have been admitted in respect of the items: Total Sport $1000 and $3500; Herald and Weekly Times $1145.80; VRL (conference expenses) $152; Kew Laminators (card laminator) $338; a total of $6135.80.

In my opinion, then, the appeal against the administrator's admission of Corkran's proof of debt succeeds to this extent: that the claim in respect of recoupment of advances made by or on behalf of Corkran should be reduced by $6135.80 - this necessitating a recalculation of interest.
Conclusion:
First, I should make orders formally extending the time within which each of AB and EB may file an appeal against rejection of in one case all and in the other case part of their proofs of debt to 4.15 pm on 13 June 1997.
Second, I shall give judgment on the appeals by AB and EB in respect of their proofs of debt in accordance with my reasons for decision. I consider it unnecessary, and perhaps inappropriate, to give directions as sought by the administrator's summons filed 30 June 1998. That summons should be dismissed, without order as to costs.
Third, I shall give judgment on the appeal by AB and EB against the administrator's admission of Corkran's proof of debt in accordance with my reasons for decision. That will, as I noted a moment ago, require a recalculation of interest, which I ask the parties to attend to.
I will hear the parties as to the appropriate terms of my orders and judgment.

[1998] VSC 11

20 July 1998