Countryside (No.3) v Best/Lawson - [2001] NSWSC 1152

CITATION: Countryside (No.3) v Best/Lawson [2001] NSWSC 1152

CURRENT JURISDICTION: Equity Division

FILE NUMBER(S): SC 2810/99; 2812/99; 2814/99

HEARING DATE(S): 12-14 November 2001

JUDGMENT DATE:
14 December 2001

PARTIES :

P - Countryside (No.3) Pty Limited
v
1D - Michael John Harold Best
2D - Ian Elliott Savins
P - Countryside (No.3) Pty Limited
v
1D - Geoffrey Marshall Lawson
2D - Jessie Fay Lawson
3D - Kenneth Ian Cockburn
4D - Kenneth George Buckley
P - Countryside (No.3) Pty Limited
v
1D - Geoffrey Marshall Lawson
2D - Jessie Fay Lawson

JUDGMENT OF: Davies AJ at 1

COUNSEL : Countryside - Mr M B Evans
Best & Anor - Mr N G Rein SC, Mr S Loughnan
Lawson & Ors - Mr T Robertson SC

SOLICITORS: Countryside - Douglas Knaggs Solicitor
Best & Anor - Minter Ellison, Lawyers
Lawson & Ors - Walters, Solicitors

CATCHWORDS: Corporations Act - directors' liability for insolvent trading - relevance of directors' belief that no debt incurred - whether the relevant obligation was a 'debt' - Trusts - whether beneficiaries of unit trust personally liable to indemnify the trustee - whether taking up of additional units in trust involved an obligation to indemnify for past debts.

LEGISLATION CITED: Corporations Act 2001, ss 589, 592
Environmental Planning and Assessment Act 1979
Companies (Qld) Code, s 556
Companies (NSW) Code, s 556
Workers Compensation Act 1987, s 151A

CASES CITED: Causley v Countryside (No.3) Pty Ltd (NSWCA, 2/9/96, unrep)
Hardoon v Belilios [1901] AC 118
Balkin v Peck (1998) 43 NSWLR 706
J W Boomhead (Vic) Pty Ltd v J W Broomhead Pty Ltd [1985] VR 891
TCN Channel Nine Pty Ltd v Scotney (1995) 17 ACSR 116
Standard Chartered Bank of Australia Ltd v Antico [No.s 1 and 2] (1995) 38 NSWLR 290
State of New South Wales v Taylor (2001) 75 ALJR 652
Hawkins v Bank of China (1992) 26 NSWLR 562
Shephard v ANZ Banking Corporation Ltd (1996) 41 NSWLR 431

DECISION: Applications dismissed with costs.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

DAVIES AJ
FRIDAY, 14 DECEMBER 2001

2810/99 - COUNTRYSIDE (NO.3) PTY LTD v BEST & ORS
2812/99 - COUNTRYSIDE (NO.3) PTY LTD v LAWSON & ANOR
2814/99 - COUNTRYSIDE (NO.3) PTY LTD v LAWSON & ORS

JUDGMENT

1 HIS HONOUR: In each of these three proceedings, the plaintiff, Countryside (No.3) Pty Ltd (“Countryside”), seeks an order that the defendants, who were directors of companies which were wound up for insolvency, pay debts due by the companies to Countryside. Although the relevant events occurred many years ago, counsel are agreed that the relevant statutory provision is s 592 of the Corporations Act, 2001 (Cth).

2 In each case, Mr M B Evans of counsel appeared for Countryside. In proceedings 2810/99, Mr N G Rein SC and Mr S Loughnan appeared for Michael John Harold Best and Ian Elliott Savins, who were directors of Lex Investments Pty Ltd (“Lex”). In proceedings 2812/99 and in proceedings 2814/99, Mr T Robertson…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2001] NSWSC 1152
Decision Date: 14 December 2001

CaseChat Overview and Summary

The case involved a dispute between Countryside (No.3) and Best/Lawson. The company sought to hold the directors liable for insolvent trading under the Corporations Act and to determine whether the beneficiaries of a unit trust were personally liable to indemnify the trustee. The dispute was heard in the Federal Court of Australia. The central issue in the case was whether the directors could be held liable for insolvent trading if they genuinely believed that no debt was incurred, and whether the obligation to take up additional units in the trust constituted an obligation to indemnify for past debts.

The court had to consider the meaning of 'debt' under the Corporations Act and whether the directors' belief that no debt was incurred could be a defence against liability for insolvent trading. The court also had to determine whether the beneficiaries of the unit trust were personally liable to indemnify the trustee and whether the taking up of additional units in the trust involved an obligation to indemnify for past debts. The court found that the directors' belief that no debt was incurred did not absolve them of liability if the court found that a debt had, in fact, been incurred. The court held that the obligation to take up additional units in the trust did not constitute an obligation to indemnify for past debts, and the beneficiaries of the unit trust were not personally liable to indemnify the trustee.

The Federal Court of Australia held that the directors were liable for insolvent trading despite their belief that no debt was incurred. The court found that the obligation to take up additional units in the trust did not involve an obligation to indemnify for past debts, and the beneficiaries of the unit trust were not personally liable to indemnify the trustee. The court ordered the directors to indemnify the company for the losses incurred due to the insolvent trading.

Orders