Deputy Commissioner of Taxation v Haritos

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION

S CI 2012 01564

DEPUTY COMMISSIONER OF TAXATION	Plaintiff
v
EFFIE HARITOS & ORS	Defendants

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JUDGE:	SLOSS J
WHERE HELD:	Melbourne
DATES OF HEARING:	18, 19, 20, 24, 25 and 26 March, 3 April 2014. (A further supplementary written submission was filed by the plaintiff on 30 April 2014, a response from the defendants was filed on 19 May 2014 and a reply submission was filed by the plaintiff on 27 May 2014.)
DATE OF JUDGMENT:	15 August 2014
CASE MAY BE CITED AS:	Deputy Commissioner of Taxation v Haritos & ors
MEDIUM NEUTRAL CITATION:	[2014] VSC 379

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INCOME TAX – Proceeding seeking declaratory relief as to the beneficial ownership of issued shares in a company – Deputy Commissioner sought declarations that defendant company on register as shareholder was beneficially entitled to shares held – Whether proceeding seeking declaratory relief only is a ‘recovery proceeding’ under sch 1 of the Taxation Administration Act 1953 (Cth) or one ‘relating to recovery’ – Whether proceeding is one ‘to recover an amount of a tax-related liability’ – Whether Deputy Commissioner has standing to bring current proceeding –Taxation Administration Act 1953 (Cth) ss 3A, 8, and 255-5 of sch 1.

DECLARATORY RELIEF – Standing of Deputy Commissioner to seek purely declaratory relief under s 36 of the Supreme Court Act 1986 (Vic) – Substitution of Commissioner as plaintiff pursuant to rr 9.06(b)(i) and 9.06(c) of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) – Commissioner relied on contemporaneous corporate documents as prima facie evidence of beneficial ownership of the shares in company – Evidence adduced by the defendants failed to displace that evidence – Entitlement to declaratory relief sought was established – Purported declarations of trust were not valid and effective and did not operate to alter or affect the manner in which the shares were held - Declarations made accordingly.

PROPERTY LAW – Declarations of trust and associated share transfers were executed by defendants in advance of the shareholder being placed in liquidation - Whether declarations of trust and associated share transfers were voidable transactions pursuant to 172 of the Property Law Act 1958 (Vic).

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P Crutchfield SC and Ms M Schilling	Australian Government Solicitor
For the 1^st, 2^nd and 3^rd Defendants	Mr T Mitchell	Stephen Peter Byrne, Solicitor
For the 4^th Defendant	No appearance
For the 5^th Defendant	Neesham White Gentle

Table of Contents

Page	Paragraph
Introduction	2	[1]
Summary of the rival contentions	4	[8]
Preliminary Issues	5	[13]
The standing of the Deputy Commissioner to bring this proceeding	5	[13]
Conclusion	13	[30]
The burden of proof referable to the declaratory relief sought by the Deputy Commissioner	14	[33]
First limb of the Deputy Commissioner’s case	16	[36]
Evidence given by or on behalf of the Deputy Commissioner	16	[36]
Evidence given by or on behalf of the defendants	20	[46]
The defendants’ application for leave to amend their defence	23	[57]
Factual material advanced on the first limb of the Deputy Commissioner’s case	24	[60]
The beneficial owner of the four shares in Jinacan from 25 August 1987 to 11 August 2006	52	[140]
August 2006 Declarations of Trust	58	[156]
Second limb of the Deputy Commissioner’s case	77	[214]
Are the transfers voidable pursuant to s 172 of the Property Law Act?	77	[214]
Section 172 of the Property Law Act	78	[218]
Intention to defraud	84	[233]
Intention to defraud – ‘contextual evidence’	91	[255]
Conclusions	93	[260]
Conclusion on relief sought	96	[270]

HER HONOUR:

Introduction

In this proceeding the Deputy Commissioner of Taxation of the Commonwealth of Australia (‘the Deputy Commissioner’) seeks declaratory relief as to the beneficial ownership of the four issued shares in a company named Jinacan Pty Ltd (‘Jinacan’), the fifth defendant. Jinacan’s only asset is a commercial property located at 624 Sydney Road, Brunswick, Victoria (‘624 Sydney Road’). The property is valued conservatively at $8.5 million. [1]
[1]In May 2009, the Australian Valuation Office valued 624 Sydney Road at approximately $8,500,000.

The Deputy Commissioner contends that the beneficial owner of the four issued shares in Jinacan is the fourth defendant, Glen Geriatric Services Pty Ltd (in liquidation) (‘Glen’). At all relevant times, Glen operated a commercial contract cleaning business under the trading name AES Property Services. Glen ceased trading in around December 2004 and its assets and goodwill, excluding the four shares in Jinacan, were acquired by a new corporate vehicle named AES Services Pty Ltd (‘AES Services’) operated by Mr George Haritos, the third defendant, and his brother-in-law, Mr Alex Kyritsis.

Glen was placed in liquidation pursuant to a creditors’ voluntary winding up on 17 October 2006, and was dissolved on 19 May 2008. The Commissioner of Taxation (‘the Commissioner’) was an unsecured creditor of Glen in the amount of $514,093.87 at the time of its entry into liquidation and received no dividend in respect of that debt. The defendants initially denied Glen’s indebtedness to the Commissioner but during the course of opening on the first day of the trial, Counsel for the defendants, Mr Mitchell, confirmed that they no longer ask the Court to make a finding that Glen had no indebtedness at the time of dissolution. In so doing, the defendants effectively acknowledged that the ‘running balance account’ (‘RBA’) operated by the Australian Taxation Office (‘ATO’) showed that there was a debt owed and that the Commissioner did not receive any dividend from the liquidation.

At the time Glen was wound up, the shares in Jinacan were not listed as an asset in its Report as to Affairs required to be submitted to the liquidator. It seems that Glen’s apparent ownership of the Jinacan shares only came to light following a covert audit conducted by the ATO in 2009, in respect of the tax affairs of Mr Haritos and Mr Kyritsis, and as a result of amended assessments and work undertaken preparatory to freezing orders being sought by the Commissioner.

On 10 June 2009, the Commissioner sought and obtained a freezing order from Mandie J directed at Mr Haritos, Mr Kyritsis and their new contract cleaning company, AES Services, and concerning properties in Prahran, Toorak and South Yarra registered in their names. A number of third party freezing orders were also made by Mandie J on the same day, directed at Mr Haritos’ wife, Mrs Effie Haritos, who is the first defendant in this proceeding, Mr Kyritsis’ wife, Mrs Betty Kyritsis, who is the second defendant in this proceeding, Stella Haritos, Steven Kyritsis, Anastasios Haritos, Grattan Heights Pty Ltd (‘Grattan Heights’), Kyritsis Nominees Pty Ltd (‘Kyritsis Nominees’), Diamond Sun Pty Ltd (‘Diamond Sun’), Jinacan and Bega Nominees Pty Ltd (‘Bega Nominees’). These third party freezing orders concern various properties in Toorak, South Yarra, Prahran, Camberwell, Caulfield North and Brunswick. Insofar as a freezing order relates to Jinacan, it applies to 624 Sydney Road.[2]
[2]The third party freezing order was varied by Justice Ferguson on 8 October 2010 to allow Jinacan to grant a mortgage to the ANZ Bank over 624 Sydney Road to secure an overdraft facility in favour of Transclean Facilities Pty Ltd.

On 30 January 2012, Efthim AsJ granted the Deputy Commissioner’s application for orders that Glen be reinstated pursuant to s 601AH(2) of the Corporations Act 2001 (Cth) (‘Corporations Act’), and gave leave pursuant to s 500(2) of the Corporations Act to prosecute this claim against Glen. Glen was reinstated by the Australian Securities Investment Commission (‘ASIC’) on 10 February 2012 with Mr Kenneth Lamb of Worrells as its liquidator. Mr Lamb wrote to the solicitors for the Deputy Commissioner by letter dated 29 October 2013, noting that as the subject matter of the proceeding relates to events prior to his appointment he ‘neither consent[s] or oppose[s] the application … and will abide by the decision of the Court provided that [the Deputy Commissioner] does not seek to enforce any order or judgment against the company and/or the Liquidator’.

Mr David Misso of Neesham White Gentle appeared on the first day of the hearing as the solicitor for Jinacan. He informed the Court that the fifth defendant would not be appearing at the hearing and would abide by the order of the Court. Accordingly, in these reasons, a reference to ‘the defendants’ is a reference to the three active defendants in this proceeding: Mr Haritos, Mrs Haritos and Mrs Kyritsis.

Summary of the rival contentions

In this proceeding, the Deputy Commissioner seeks declaratory relief as follows:

(1)A declaration that, as at the date of its dissolution, Glen was the beneficial owner of four, alternatively three, Jinacan shares.
(2)Declarations that:

(1) the purported declaration of trust signed by George Haritos on 11 August 2006 was void, invalid and of no effect; and/or

(2) the purported declarations of trust executed by Effie Haritos and Betty Kyritsis on 11 August 2006 were void, invalid and of no effect.[3]

[3]A further declaration set out in paragraph C of the prayer for relief was not pressed by the Deputy Commissioner in final submissions.

The Deputy Commissioner’s claim has two alternative limbs. The first limb argument is based on the information recorded on the ASIC register and in the corporate books and records of Jinacan, showing that at all material times prior to 11 August 2006 or thereabouts the four issued shares in Jinacan were held as follows:

(a)Mr Haritos held one share in his name but he was not the beneficial owner; and
(b)Glen was the beneficial owner of the remaining three shares.

The Deputy Commissioner alleges that the ASIC register and those books and records establish that:

(a)at all material times the beneficial owner of the four Jinacan shares was Glen; and
(b)the purported transfers of the beneficial ownership of two shares in Jinacan to each of Mrs Haritos and Mrs Kyritsis by declarations of trust dated 11 August 2006 were void, invalid and of no effect.

The defendants contend, however, that the ASIC register was incorrect and that at all material times each of Mrs Haritos and Mrs Kyritsis beneficially owned two shares in Jinacan. In this regard, they rely upon the three declarations of trust dated 11 August 2006, which purport to declare that the shares in Jinacan are held on trust for Mrs Haritos and Mrs Kyritsis (as to two shares each).

The Deputy Commissioner’s alternative or second limb argument addresses the position that would apply if, contrary to his primary or first limb contentions, the Court finds that the transfers associated with the declarations of trust dated 11 August 2006 were valid and effective to vest the beneficial ownership of the Jinacan shares in each of Mrs Haritos and Mrs Kyritsis. In that event, the Deputy Commissioner says the transfers are voidable at the instance of the Deputy Commissioner pursuant to s 172 of the Property Law Act 1958 (Vic) (‘Property Law Act’).

Preliminary Issues
The standing of the Deputy Commissioner to bring this proceeding

The Deputy Commissioner’s stated purpose in bringing this proceeding is to enable him to pursue the recovery of taxation debts owed to the Commissioner by Glen, Mr Haritos and Mr Kyritsis.[4] Mr Haritos and Mr Kyritsis are the equal beneficial shareholders of Glen. The Deputy Commissioner submits that, if he is successful in establishing an entitlement to the declaratory relief sought in relation to Jinacan, he anticipates that:

(a)steps will be taken by the liquidator of Glen (as owner of the four shares in Jinacan) to wind up Jinacan and realise its assets;
(b)those assets will be distributed to Glen (as the asserted sole shareholder of Jinacan) after payment of any outstanding liabilities;
(c)Glen will then be wound up and its assets distributed to its shareholders after payment of any outstanding liabilities, including the outstanding liability to the Commissioner of Taxation; and
(d)distributions paid to Mr Haritos and Mr Kyritsis as shareholders of Glen upon its winding up will be available to the Commissioner in satisfaction of their respective tax liabilities.

[4]Messrs Haritos and Kyritsis brought proceedings challenging the assessments pursuant to Part IVC of schedule 1 of the Taxation Administration Act 1953 (Cth). On 1 March 2013, the Administrative Appeals Tribunal constituted by Deputy President Forgie affirmed the assessments (with the exception of certain minor amounts and several adjustments conceded by the Commissioner): see Confidential and Commissioner of Taxation [2013] AATA 112 (1 March 2013). On 20 February 2014, Pagone J dismissed as incompetent the appeals of Messrs Haritos and Kyritsis from the AAT to the Federal Court. Messrs Haritos and Kyritsis now seek leave to appeal to the Full Federal Court.

The Deputy Commissioner’s pleading avers by way of preamble that:

The Plaintiff is a Deputy Commissioner of Taxation of the Commonwealth of Australia and under section 255-5 of Schedule 1 of the Taxation Administration Act 1953 (Cth) … is entitled to bring this proceeding in his official name.[5]

[5]Further Amended Statement of Claim (‘Statement of Claim’), [1].

Division 255 of schedule 1 of the Taxation Administration Act 1953 (Cth) (‘the Taxation Administration Act’) prescribes general rules about collection and recovery of tax-related liabilities. Section 255-5 sits within sub-div 255-A, headed ‘Tax-related liabilities’, and provides as follows:

Recovering a Tax-Related Liability That is Due And Payable

(1)      An amount of a tax-related liability that is due and payable:
(a)        is a debt due to the Commonwealth; and
(b)        is payable to the Commissioner.
(2)The Commissioner, a Second Commissioner or a Deputy Commissioner may sue in his or her official name in a court of competent jurisdiction to recover an amount of a tax-related liability that remains unpaid after it has become due and payable.

A ‘tax-related liability’ is defined in s 255-1(1) to mean ‘a pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is not yet due and payable).’

In advance of closing submissions, I raised with counsel for the respective parties the question of whether, in circumstances where the only relief sought by the Deputy Commissioner was declaratory, the proceeding was relevantly to be regarded as one brought ‘to recover an amount of a tax-related liability that remains unpaid after it has become due and payable’, and thus one that was capable of being commenced by the Deputy Commissioner in his official name. A written submission addressing this issue was filed on behalf of the Deputy Commissioner after the conclusion of oral argument. A responding submission was filed on behalf of the defendants, to which the Deputy Commissioner replied.

The Deputy Commissioner contended that s 255-5(2) of schedule 1 conferred power on him to bring the proceeding and that the expression ‘to recover an amount of a tax-related liability’ should be given a liberal construction. Reliance was placed upon the decisions in Bluehaven Transport Pty Ltd v Commissioner of Taxation,[6] DCT v Broadbeach Properties Pty Ltd,[7] Re W Carter Smith; Ex Parte DCT,[8] Hutchins v Commissioner of Taxation,[9] and DCT v Casualife Furniture International Pty Ltd[10] as supporting ‘a wide construction of the power conferred on the Deputy Commissioner under s 255-5(2)’.[11] It was said that the power under s 255-5(2) ‘is not confined to initiating proceedings which will, in themselves, directly result in the payment to the Commissioner of an amount of a tax-related liability, but extend[s] to the initiation of proceedings which form part of a process of such recovery, involving a number of discrete litigation steps’ and that the ‘current declaratory proceedings are proceedings of that nature and have been brought ‘in the course of’ recovery proceedings in the relevant sense.’[12] Further, the Deputy Commissioner asserted that ‘[t]he only purpose of these proceedings is the recovery of taxation liabilities.’[13]
[6](2000) 157 FLR 26 (‘Bluehaven’), 30 [14]-[15] and 32 [20].
[7](2008) 237 CLR 473, 496 [58], where the High Court endorsed the view taken by Williams J in Bluehaven (2000) 157 FLR 26.
[8](1908) 8 SR (NSW) 246, 249-250.
[9](1996) 65 FCR 269, 273 (Black CJ), 276 (Lockhart J) and 279 (Spender J).
[10](2004) 9 VR 549, 568 [440].
[11]Plaintiff’s Further Supplementary Submissions, 30 April 2014 [15].
[12]Ibid (emphasis in original).
[13]Ibid [16].

In Sarkis v Deputy Commissioner of Taxation (2005) 59 ATR 33 (‘Sarkis’), a case where the Deputy Commissioner had been granted judgment against the taxpayers for an amount of over $5,000,000, the Court of Appeal confirmed the appropriateness of the Deputy Commissioner seeking declaratory relief similar to that sought in the present case. Nettle JA, with whom Warren CJ and Charles JA agreed, upheld the trial judge’s finding that the Deputy Commissioner did have standing to seek the sort of declaratory relief that was awarded. His Honour found that the question raised was a real one, concerning the real interest of the parties and not a theoretical one. He said:

In this case the Deputy Commissioner had a real interest in establishing that Fadi and Claudette Sarkis [the taxpayers] were beneficially entitled to the property. She wished to ensure that in the event of execution proceedings the Sarkis’s could not contend that the property was immune from execution. It is not to the point that the question might just as well have been determined in subsequent proceedings or even that that is the way in which it would usually be done. A plaintiff is not necessarily to be refused declaratory relief just because another form of relief is available, and here a declaration was a more satisfactory remedy because it enabled the Deputy Commissioner to ascertain in advance of execution proceedings whether the property would be available for execution. Practically speaking, it would have been a waste of time and resources to insist that execution proceedings be instituted in order to determine whether the property was available for execution.[14]

[14]Sarkis (2005) 59 ATR 33, 42 [21] (citations omitted).

In Sarkis, however, the Court of Appeal was not addressing the question of whether the proceeding was relevantly one brought ‘to recover an amount of a tax-related liability that remains unpaid after it has become due and payable’ within the meaning of s 255-5(2) and thus whether the Deputy Commissioner had standing to seek the declaratory relief.[15] Rather, the argument before the Court focussed on whether the Deputy Commissioner had a sufficient interest in the subject matter of the proceeding to substantiate standing. The Court of Appeal found that in circumstances where the Deputy Commissioner had been granted judgment against the taxpayers, the Deputy Commissioner demonstrably had a real interest in raising the question of whether the taxpayers were beneficially entitled to the property, and thus in seeking the declaratory relief.
[15]As Elliott J noted in DCT v Karas (2013) 278 FLR 402, 407-408 [33], Nettle JA made no reference to s 255-50(1) in his judgment, although the subsection was in existence at the time.

Recently, in Deputy Commissioner of Taxation v Karas (2013) 278 FLR 402 (‘Karas’), the defendants applied to strike out a statement of claim brought by the Deputy Commissioner, or alternatively to have the averment in the preamble struck out, on the basis that the Deputy Commissioner did not have standing to prosecute the proceeding. The only relief sought by the Deputy Commissioner in the proceeding was declaratory relief and there was no issue that the first defendant was indebted to the Deputy Commissioner in the sum of $47,147,983. The defendants contended that the Deputy Commissioner was required to establish something more than being an unsecured creditor in order to have standing to make the claims advanced in the proceeding.

Elliott J dismissed the application to strike out the proceeding for want of standing, finding that the case was indistinguishable from Sarkis. However, in dealing with the application, his Honour found that there was ‘no legitimate basis’ upon which the proceeding could be characterised as a proceeding to recover ‘an amount’ of a tax-related liability within the meaning of s 255-50(1) of schedule 1 of the Taxation Administration Act.[16] He said:
[16]Ibid 407 [29].

Senior [C]ounsel for the Deputy Commissioner properly conceded that this proceeding relates to recovery of an amount of a tax-related liability, rather than being a proceeding to recover such an amount. He also accepted that the proceeding was but a step in relation to the ability to recover. However, he submitted that the language of s 255-50(1) should be construed broadly to include such concepts.
In my view there is no legitimate basis upon which this proceeding can be characterised as a proceeding to recover an amount.
If the Deputy Commissioner succeeds in obtaining the declarations sought, and does nothing further, he would recover nothing. To actually recover any part of the judgment debt, the Deputy Commissioner needs to take steps which are entirely outside this proceeding. Moreover, there is no need to bring this proceeding to take those steps; that is, this proceeding is not a necessary step to recovery. It is a step the Deputy Commissioner has chosen to take, to use the words of Nettle JA in Sarkis, to ‘ensure that in the event of execution proceedings [the taxpayer] could not contend that the property was immune from execution’.
The conclusion I have reached is not just a question of form, it is a matter of substance.[17]

Accordingly, his Honour struck out the preamble to the statement of claim.

[17]Ibid 407 [28]-[31] (citations omitted).

In this case, while no application was made to strike out the preamble, the same reasoning as Elliott J gave in Karas would apply. That is, the present proceeding could not be characterised as one to recover ‘an amount’ of a tax-related liability within the meaning of s 255-50(1) of schedule 1 of the Taxation Administration Act; rather, it is merely a proceeding that relates to the recovery of such an amount. Thus the question arises whether, in those circumstances, the Deputy Commissioner is empowered to commence a proceeding in his official name in the Supreme Court seeking purely declaratory relief.

The long title to the Taxation Administration Act describes it as ‘[a]n Act to provide for the administration of certain Acts relating to Taxation, and for purposes connected therewith’. Section 3A of the Taxation Administration Act provides that ‘[t]he Commissioner has the general administration of this Act.’ (A similar power is conferred on the Commissioner under s 8 of the Income Tax Assessment Act 1936 (Cth) and s 1-7 of the Income Tax Assessment Act 1997 (Cth)). Section 7 provides that ‘[t]here shall be such Deputy Commissioners of Taxation as are required’, and s 8 permits the Commissioner to delegate certain powers or functions, as follows:

(1)The Commissioner may, either generally or as otherwise provided by the instrument of delegation, by writing signed by the Commissioner, delegate to a Deputy Commissioner or any other person all or any of the Commissioner’s powers or functions under a taxation law or any other law of the Commonwealth or a Territory, other than this power of delegation.
…
(4)A delegation under this section does not prevent the exercise of a power or the performance of a function by the Commissioner.
…

Relevantly for present purposes, s 36 of the Supreme Court Act 1986 (Vic) (‘Supreme Court Act’) empowers the Court to make binding declarations of right without granting consequential relief. The power to seek declaratory relief is one that would be available to the Commissioner when exercising his powers under the umbrella of the general administration of the Taxation Administration Act or one or other of the Income Tax Assessment Acts. What is not clear, however, is whether the power to seek only declaratory relief, absent any relief directed to recovery of an amount of a tax-related liability, is one that could be delegated to a Deputy Commissioner. In that regard, the power under s 36 of the Supreme Court Act would not readily fall within the description of a power or function capable of delegation under, for example, s 8 of the Taxation Administration Act, namely the Commissioner’s power or function ‘under a taxation law or any other law of the Commonwealth or a Territory.’

Nevertheless, in his supplementary written submissions and reply submissions, the Deputy Commissioner sought to rely upon two separate instruments headed in each case ‘General Delegation’ under the Taxation Administration Act and dated 2 July 2012 and 13 December 2011 respectively. These instruments were produced as attachments to the Deputy Commissioner’s primary and reply submissions respectively. The defendants objected to the Court receiving evidence of a delegation in this way, after evidence had closed. Further, the defendants noted that the instrument dated 2 July 2012 post-dated the commencement of the proceeding.

Perusal of the two instruments reveals that neither instrument deals expressly with powers available under the Supreme Court Act. This is perhaps not surprising given the limited scope of the power to delegate conferred by s 8. Furthermore, each of the instruments expressly excludes from the ‘general delegation’ the Commissioner’s powers under s 3A of the Taxation Administration Act concerning the general administration of the Act. Thus, I am not satisfied that even if the instruments were received in evidence, either delegation would assist to establish the standing of the Deputy Commissioner to seek declaratory relief in isolation from the recovery of ‘an amount’ of a tax-related liability within the meaning of s 255-50(1) of schedule 1 of the Taxation Administration Act.

The Deputy Commissioner also advanced a further submission to the effect that if, contrary to his earlier submissions, the Court were to find that s 255-5(1) does not empower the Deputy Commissioner to bring this proceeding, then he applied instanter for orders that the Commissioner of Taxation be substituted as plaintiff pursuant to rules 9.06(b)(i) and 9.06(c) of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) (‘Supreme Court Rules’). The Deputy Commissioner confirmed in his reply submissions that he ‘has the consent of the Commissioner to propose, if necessary, that the Commissioner be substituted as the Plaintiff in these proceedings.’[18]
[18]Plaintiff’s Reply to the Defendants’ Further Supplementary Submissions, 27 May 2014, [1.1].

Rule 9.06 of the Supreme Court Rules permits an order for substitution of a plaintiff to be made ‘[a]t any stage of a proceeding’. The Deputy Commissioner contends this to be the appropriate course having regard to the manner in which the trial has been conducted, the lack of any prejudice to the defendants and the absence of any objection by the defendants to the standing of the Deputy Commissioner.[19]
[19]See Plaintiff’s Further Supplementary Submissions, 30 April 2014, [25]. When para 1 of the pleading and the issue of the Deputy Commissioner’s standing was first raised in Court on 26 March 2014, Counsel for the defendants expressed the view that he did not think the standing point had any effective substance.

The defendants now appear to oppose that course and contend that the proper plaintiff for a declaration of the kind sought in this proceeding is the liquidator of Glen and that accordingly, the Court should refuse to grant the declaratory relief sought by the Deputy Commissioner.

Conclusion

For the reasons set out above, I am satisfied there is a real doubt about the standing of the Deputy Commissioner to seek only declaratory relief in this proceeding. The point is an important one if any declaratory relief is to be granted, and the proceeding should not be allowed to founder on a technical issue.

In circumstances where the proceeding was conducted by all parties on the basis that there was no effective substance to the issue of standing, I am not satisfied that the defendants will suffer any prejudice if the substitution sought by the Deputy Commissioner is granted. Moreover, having regard to the requirements of the Civil Procedure Act 2010 (Vic) (‘Civil Procedure Act’) and, in particular, the overarching purpose and the requirements imposed under s 8, that the Court must seek to give effect to it in the exercise of any of its powers, and under s 9, that the Court shall further the overarching purpose in making any order or giving any direction in a civil proceeding, an order for substitution will best achieve those objectives.

For the reasons which follow, I am also satisfied that there is a proper basis for the Commissioner to seek declaratory relief in the terms sought. Here, as in Sarkis, the Commissioner has demonstrated a real interest in establishing that Glen was beneficially entitled to the shares in Jinacan.[20] If granted, the relief sought will be of utility in the sense that it will enable the Commissioner to ascertain in advance of execution proceedings that property will be available for execution. In my view, the Commissioner is a proper plaintiff and it is not to the point that such a proceeding might also have been commenced by the liquidator of Glen. Accordingly, I will allow the Commissioner to be substituted as plaintiff.
[20]Sarkis (2005) 59 ATR 33, 42, [21] (Nettle JA, with whom Warren CJ and Charles JA agreed).

The burden of proof referable to the declaratory relief sought by the Deputy Commissioner

At the outset of closing submissions, Counsel for the defendants, raised an issue about the burden of proof that applies in respect of the various declarations sought by the Deputy Commissioner. He pointed to the first declaration sought, concerning Glen’s beneficial ownership of the Jinacan shares, and characterised it as being a ‘positive’ declaration, whereas the second and third declarations sought, concerning the alleged invalidity or ineffectiveness of the Declarations of Trust signed by Mr Haritos and Mrs Haritos and Mrs Kyritsis on 11 August 2006, were in the nature of ‘negative’ declarations. He contended that in the case of the ‘negative’ declarations, the Deputy Commissioner has to satisfy a more difficult onus in order to establish an entitlement to the relief sought, in the sense that he needs not only to make out a cause of action as a foundation but also needs to negative any defence to that cause of action.

In support of this contention, Counsel relied on a decision of McClelland CJ in Equity in Massoud v NRMA Insurance Ltd (1995) 62 NSWLR 657 (‘Massoud’) where the question of onus in the context of declaratory relief was considered and dealt with in some detail by his Honour. Massoud was a case where the defendant, an insurer, had cancelled Mr Massoud’s policy, on the basis (so it alleged) that he had knowingly made false statements in connection with a claim. Mr Massoud responded by issuing proceedings seeking declaratory orders that the insurer’s purported avoidance of the policy was wrongful and void. McClelland CJ found that a declaration having been sought, Mr Massoud was required to prove that he had not made false statements, notwithstanding the fact that if the matter had proceeded in the usual way, the legal or evidentiary onus may have been the other way. His Honour summarised the guiding principles by which the incidence of the onus of proof is to be determined, as follows:

(1)a party who seeks relief has the burden of satisfying the court of facts which (in the absence of proof of other facts) would justify the grant of that relief;
(2)what those facts are depends primarily upon:
(a)the nature of the relief sought; and
(b)the operation of any relevant presumptions;

(3)in the case of relief by way of declaratory order, the precise terms of the declaration assume particular significance in that (subject to any relevant presumption) the party seeking the declaration has the burden of proof of any matter which is a necessary element of the declaration sought (even if in proceedings by that party for relief of another kind, or in proceedings by the other party, that matter would not arise unless raised (and the burden of proof consequently assumed) by the other party).[21]

See also Hume v Munro (No 2) (1943) 67 CLR 461 where Latham CJ said:

… In an action for a declaration that a right alleged to be claimed by the defendant does not exist the onus rests upon the plaintiff of establishing first that a claim sufficiently definite and intelligible in its terms to be a proper subject of adjudication has been made against him by the defendant. … Next, the plaintiff seeking a declaration denying any possible foundation for the alleged claim of right must exhaust the possibilities and show that the claim cannot possibly be supported. It is not for the defendant in such a proceeding to make a claim and to justify that claim.[22]

[21]Massoud (1995) 62 NSWLR 657, 660-661.

[22](1943) 67 CLR 461, 474.

In my reasons set out below dealing with the declarations of invalidity sought, I have considered the entirety of the evidence adduced and reached the requisite state of satisfaction for the making of such declarations. I am satisfied that the purported declarations of trust cannot possibly be supported and that the Deputy Commissioner has established a proper foundation for the declarations sought.

First limb of the Deputy Commissioner’s case
Evidence given by or on behalf of the Deputy Commissioner

The case advanced by the Deputy Commissioner at trial relied for the most part on documentary evidence. However, evidence was given by Mr Aris Zafirou, an Executive Level Officer in the Australian Public Service, employed in the Strategic Recovery branch of the ATO as the Operational Director for Debt – Project Wickenby, to explain the ATO’s electronic record keeping systems, the liquidation of Glen and steps taken by the ATO to seek to recover Glen’s RBA deficit debt. The evidence given by Mr Zafirou was of most relevance in the context of the second limb argument advanced by the Deputy Commissioner. Mr Zafirou gave evidence honestly and frankly and sought to assist the Court wherever possible. His evidence should be accepted in its entirety. Counsel for the defendants did not suggest to the contrary.

In addition to calling evidence from Mr Zafirou, the Deputy Commissioner relied upon a large body of documentary material. In all, six volumes of Court Book were received in evidence and made the subject of a joint tender by the parties. They contained corporate records, taxation records and other documents that had been obtained from ASIC by conducting searches of Jinacan, Glen and other related entities, documents obtained on subpoena from financial institutions such as the Commonwealth Bank of Australia (‘CBA’), and affidavit material that had been filed by or on behalf of the defendants in opposition to the various freezing orders made by the Court commencing in June 2009.

The Deputy Commissioner contended that the documentary evidence tendered establishes unequivocally that as at 11 August 2006, the beneficial owner of the four Jinacan shares was Glen.

Before closing the Deputy Commissioner’s case, Senior Counsel for the Deputy Commissioner, Mr Crutchfield SC, stated that ‘we intend to hold the defendants to their pleaded case’. This precautionary statement was made against a background where interlocutory orders had been made for the provision of ‘outlines’ of the substance of the evidence that the defendants proposed to give. However, the ‘outlines’ filed by them were sketchy and incomplete, and did not address or reflect some of the matters raised in the pleading by way of defence or the arguments foreshadowed by their counsel, Mr Mitchell, in their written and oral outline of opening submissions.

In essence, the defendants’ pleaded case was that:

(a) Glen never in fact had an interest in Jinacan;[23]
[23]Defence to Statement of Claim (‘Defence’), [42].

(b) Glen did not beneficially own shares in Jinacan;[24]

(c) at all material times, Mrs Haritos and Mrs Kyritsis were the beneficial owners of two Jinacan shares each;[25]

(d) the distributions of Jinacan dividends to Glen, and the financial statements showing Glen as the owner of the four Jinacan shares, were errors made by Gillards, the accountants.

[24]Ibid.

[25]Ibid [40].

In seeking to meet that pleaded case, the Deputy Commissioner relied in particular on:

(a) the company register for Jinacan;

(b) minutes of meeting of directors and shareholders of Jinacan, the majority of which had been signed by Mr Haritos;

(c) the initial declaration of trust made by Mr Haritos dated 25 August 1987;

(d) financial statements prepared by Gillards up to the date of signing of the August 2006 Declarations of Trust (and excluding the 2005 income year statements, which were prepared after that date);

(e) Jinacan’s annual returns submitted to ASIC, the majority of which had been signed by Mr Haritos or Mr Kyritsis; and

(f) other documents comprising books of the companies.

The Deputy Commissioner contended that each of those documents relied upon was prima facie evidence of its contents. In this regard, he relied upon s 1305 of the Corporations Act, which provides:

(1)A book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book.
(2)A document purporting to be a book kept by a body corporate is, unless the contrary is proved, taken to be a book kept as mentioned in subsection (1).

Under s 9 of the Corporations Act, the term ‘books’ includes a register; any other record of information; financial records however compiled, recorded or stored and a document.

In Australian Securities and Investments Commission v Rich (2009) 236 FLR 1, Austin J explained the effect of s 1305(1) in the following terms:

The statement in s 1305(1) that the company’s books are prima facie evidence of a matter stated or recorded in them does more than merely to convey that they are the starting point to proof or a ‘first view’. All other things being equal, the fact that a matter is stated in a book kept by a company is sufficient to prove that matter in civil proceedings. That does not reverse the onus of proof in the proceedings in any general way, but it means that the tendering of the book is evidence of the matter recorded in it, and that matter will be thereby proven unless other evidence convinces the tribunal of fact to the contrary, on the balance of probabilities.
Section 1305(1) does not make the company’s books conclusive evidence of the matters they contain, in the sense of requiring the tribunal of fact to make a finding in terms of the content of the books in the absence of proof to the contrary by the opposing party. The books are prima facie evidence of the matters stated in them, but the weight of that evidence is to be measured in accordance with the common sense of the tribunal of fact.[26]

[26](2009) 236 FLR 1, 82 [396]-[397] (citations omitted).

Relevantly, in respect of the minutes of meetings of directors and shareholders, s 251A of the Corporations Act provides:

(1)A company must keep minute books in which it records within 1 month:
(a)proceedings and resolutions of meetings of the company’s members; and
(b)proceedings and resolutions of directors meetings (including meetings of a committee of directors)

…
(2)The company must ensure that minutes of a meeting are signed within a reasonable time after the meeting by 1 of the following:
(a)the chair of the meeting;
(b)the chair of the next meeting.

…
(6)A minute that is so recorded and signed is evidence of the proceeding, resolution or declaration to which it relates, unless the contrary is proved.

However, the Deputy Commissioner argued that, irrespective of whether the technical requirements of s 251A are satisfied, the minutes are admissible as business records because they were maintained systematically and methodically at all relevant times by Gillards (the accountants), and thus are evidence of the truth of the matters they represent. In this regard, the Deputy Commissioner relied on the decision of the High Court in Australian Securities andInvestments Commission v Hellicar (2012) 247 CLR 345, where their Honours in the plurality explained the reliance that may be placed on minutes as a contemporaneous record, stating:

But the minutes were more than just one of several pieces of evidence from whose united force ASIC sought to have the tribunal of fact draw an inference. The minutes were a formal and near contemporaneous record (adopted by the board as an accurate record) of the proceedings at the meeting. The minutes were evidence of what they represented. They were more than a foundation for some further inference. Absent evidence to the contrary, ASIC proved its case by tendering the minutes and, through the evidence of Mr Baxter, identifying the document referred to as the ‘ASX Announcement’. [27]
[27](2012) 247 CLR 345, 403 [138].

Evidence given by or on behalf of the defendants

The Deputy Commissioner’s first limb case rests primarily upon the contemporaneous documentary evidence, and does not rely upon adverse credit findings being made.[28] Nevertheless, I propose to make some brief observations about the witnesses who were called by the defendants to give evidence to challenge the accuracy of the documentary records.
[28]Plaintiff’s Supplementary Submissions, 2 April 2014, [33].

Oral evidence was given by each of the defendants (Mr Haritos, Mrs Haritos and Mrs Kyritsis), their accountant, Mr Leon Moscovitch, and the liquidator of Glen, Mr Samuel Richwol. The defendants argued that this oral evidence effectively contradicted or raised questions about the accuracy of the information recorded in the documents relied upon by the Deputy Commissioner. Much of the evidence adduced by or on behalf of the defendants at trial had not been outlined in their summaries of evidence. Further, and perhaps more importantly, little if any of the evidence given by Mr and Mrs Haritos and Mrs Kyritsis was corroborated by any written documentation or by any independent witness.

Mrs Betty Kyritsis

Mrs Kyritsis was the first of the defendants to give evidence. She is the sister of Mr Haritos and the wife of Mr Kyritsis. Neither Mr Haritos nor Mrs Haritos was present in Court when she gave her evidence. Mrs Kyritsis had a poor recollection of the detail of the transactions in issue and the corporate affairs of the companies involved. She readily admitted that she left most of the business to her husband and her brother. For the most part, she responded frankly to questions asked, both in examination in chief and cross-examination, often admitting that she had no recall of the matter, but acknowledging that she had signed relevant documents put before her. She purported to have a good recollection about the initial purchase of 624 Sydney Road and how and why it was purchased, and her resignation as a director of Glen in February 2005.

Mrs Effie Haritos

Mrs Haritos was the next defendant to give evidence. She was a late inclusion in the list of witnesses to be called on behalf of the defendants. A brief summary of her evidence was provided on 19 March 2014 in advance of her being called on 20 March 2014. Mr Haritos was not present in Court when she gave evidence.

The substance of the evidence given by Mrs Haritos was very similar to that of Mrs Kyritsis. She also had a poor recollection of the detail of the transactions in issue and the corporate affairs of the companies involved, and readily admitted that she left most of the business to her husband. She also purported to have a reasonably good recollection about the initial purchase of 624 Sydney Road and how and why it was purchased, and her resignation as a director of Glen in February 2005. Once again, however, there was a lack of detail in the evidence she gave about the purchase of the property and the means by which it was funded, and no supporting documents were produced.

Mr George Haritos

When Mr Haritos gave evidence, both his wife and his sister (who by then had already given their evidence) were present in Court for much of the time. Mr Haritos is a successful businessman. He undertook tertiary education at RMIT, holds directorships in a number of companies and has been a director for more than 25 years. He said that in the early days he did not have a good understanding of his obligations as a company director, but he has ‘got a fair understanding today.’

Mr Haritos was a less impressive witness than either his wife or his sister. His evidence lacked the frankness that was evident in many of the responses given by the women. He also sought to give long-winded answers and explanations in response to questions. On some occasions, when asked about particular documents his response was framed in terms that appeared to suggest he did not understand the basics of the transaction, or was incredulous at what the document showed. For example, under cross-examination, in response to a question about the initial share transfers and allotments that took place when Jinacan was purchased as a shelf company on 23 August 1987, Mr Haritos responded:

And when my solicitor completed the purchase of the company, he told me to take it to my accountants. So the property purchased in Sydney Road goes into Jinacan. How can me and Alex possibly hold a one share each of for [sic] in the company, in Jinacan, which meant that we would have owned half the premises. That was not the intention. That's not what the girls' money went in for.
(emphasis added)

At other times, he sought to convey the impression that he simply did what the accounting firm of Gillards told him to do – holding meetings as directed, signing important documents without understanding them and not having any real understanding of what had taken place – and suggested that Gillards had simply mucked everything up. For the most part, I was not persuaded by his evidence. Gillards and Mr Moscovitch had performed work for Mr Haritos and Mr Kyritsis and their companies over many years. Mr Haritos never challenged Gillards or Mr Moscovitch about any of the work undertaken by them, or the accuracy of what was recorded in those documents, and he paid their bills on a regular basis. I think it is most unlikely that Mr Haritos did not understand the affairs of the corporate entities involved, particularly Jinacan and Glen, and what was happening with them over time.

Mr Leon Moscovitch

The defendants put forward their accountant, Mr Moscovitch, a director of Gillards, as a person whose evidence should be accorded real weight because he ‘is independent and impartial’ as he ‘no longer provides services to [Mr Haritos] his family or their associated entities.’[29] Mr Moscovitch gave his evidence candidly and frankly. He said that he had suffered some health issues and had gone through an illness in May 2006. He acknowledged that there were some matters he could not recall, and that sometimes he could not readily explain what had taken place. But for the most part, in giving his evidence, Mr Moscovitch sought to assist the Court.

Mr Samuel Richwol

[29]First to Third Defendants’ Outline of Opening Submissions, 13 March 2014, [19].

Mr Richwol is a liquidator, with the firm O’Keefe Walton Richwol. He was appointed as the liquidator to Glen following a meeting of creditors in October 2006. Mr Richwol gave evidence about the events concerning Glen being placed in liquidation, and work undertaken by Mr Con Kokkinos, a manager with his firm, who handled the Glen file under Mr Richwol’s supervision and chaired the relevant meetings of creditors of Glen. The evidence given by Mr Richwol is of most relevance in the context of the second limb argument advanced by the Deputy Commissioner.

Mr Richwol gave his evidence candidly and frankly and sought to assist the Court.

The defendants’ application for leave to amend their defence

For the most part, the evidence given by Mr Moscovitch supported a different version of events to that advanced by the defendants at trial. In my view, the fairly consistent theme of Mr Moscovitch’s evidence was that the four shares in Jinacan were beneficially owned by Mr and Mrs Haritos and Mr and Mrs Kyritsis as to one share each.[30] This contradicted the evidence given by the defendants themselves, to the effect that at all material times, Mrs Haritos and Mrs Kyritsis were the beneficial owners of two Jinacan shares each.
[30]In the First to Third Defendants’ Outline of Closing Submissions, 13 March 2014, they acknowledged that the conflict in the oral evidence was that Mr Moscovitch believed strongly that his instructions had been that Mr and Mrs Haritos and Mr and Mrs Kyritsis would hold one share each beneficially, whereas the defendants contended that the Jinacan shares had always been held on trust for Mrs Haritos and Mrs Kyritsis as to two shares each: at [9].

In virtually the final breath of their closing submissions, Counsel for the defendants sought leave to amend their defence to embrace Mr Moscovitch’s version of events as an alternative argument. The Deputy Commissioner strongly opposed the application for leave, primarily on the basis of the evident prejudice that would arise if the late amendment were granted. Having expressly stated at the closing of the Deputy Commissioner’s case that he was holding the defendants to their pleaded case, Senior Counsel contended that he was not required to cross-examine witnesses or tender documents to meet a case he did not know existed.

As I have noted, Mr Moscovitch’s version of events on several important issues was contrary to the evidence given by the defendants themselves. No notice of that alternative case had been given to the Deputy Commissioner. The matter had been conducted, and witnesses had been cross-examined, on the basis that the defendants contended the shares in Jinacan were beneficially owned by Mrs Haritos and Mrs Kyritsis as to two shares each. The evidence given by the defendants did not support the alternative case and the Deputy Commissioner argued that he might have run the case quite differently had he known that, contrary to what was pleaded, it would be contended that the shares in Jinacan were held as to one share each by Mr & Mrs Haritos and Mr & Mrs Kyritsis. In those circumstances I refused leave to amend. In so doing, I also referred to the requirements of the Civil Procedure Act, and in particular the requirement stated in s 8 that the Court, in exercising any of its powers, must seek to give effect to the overarching purpose of facilitating ‘the just, efficient, timely and cost-effective resolution of the real issues in dispute.’[31]
[31]Civil Procedure Act s 7.

Factual material advanced on the first limb of the Deputy Commissioner’s case

I turn now to consider the factual material advanced by the Deputy Commissioner on the first limb of his case as a foundation for the declaratory relief sought. Where relevant, I will also refer to evidence that was given about those matters by or on behalf of the defendants.

Background to the purchase of 624 Sydney Road

In 1987, Mr Haritos was working in the real estate industry. Prior to the purchase of Jinacan, Mr Haritos had identified the commercial property at 624 Sydney Road, on which a supermarket was operated, as a good investment prospect. Some discussion took place between the Haritos and Kyritsis families, which culminated in Mrs Haritos and Mrs Kyritsis apparently entering into a contract to buy the property. A short time later, Jinacan, a newly incorporated shelf company, was nominated as the purchaser of the property under the contract of sale.

Purchase of Jinacan by the Haritos and Kyritsis families

On 23 August 1987, Jinacan was effectively ‘sold’ to the Haritos and Kyritsis families and used as a corporate vehicle to facilitate the purchase of 624 Sydney Road. A succession of meetings of the directors of Jinacan took place that day to give effect to the change in ownership. At the first meeting, held on 23 August 1987 in the presence of the initial directors, the initial directors resigned and each of Mr and Mrs Haritos were appointed as directors in their place, each of them having consented to act as directors. The initial secretary also resigned and Mr Haritos was appointed as the new secretary and public officer.

On the same day, each of Mr and Mrs Haritos respectively also became registered as the holder of one ordinary share in Jinacan in place of the subscriber shareholders, and the registered address of Jinacan was changed to 5 Grattan Street, Prahran. The minutes record that a second meeting of directors followed, held in the presence of Mr and Mrs Haritos, and resolutions were passed recording that two shares be issued at par, one to each of Mr and Mrs Kyritsis (then known as ‘Curtis’), and that they also be appointed as directors. Later that day, the names of each of Mr and Mrs Haritos and Mr and Mrs Kyritsis were entered on the Jinacan register of members and also on the register of directors.

Share transfers and initial declaration of trust on 25 August 1987

Two days later, on 25 August 1987, a meeting of the directors of Jinacan was held at 5 Grattan Street, Prahran, with each of Mr and Mrs Haritos and Mr and Mrs Kyritsis recorded as being present. The minutes, signed by Mr Haritos as Chairman, record the approval of certain share transfers, as follows:

Resolved that the following transfers as submitted to the Meeting be approved and that the new share certificates be issued to the transferee under the common seal of the company.

Transferor Transferee No. of Shares

G. Haritos A. & J.P. Cleaning Service Pty Ltd 1 Ordinary

E. Haritos ‘           ‘             ‘ 1 Ordinary

A. Curtis [Kyritsis] ‘           ‘             ‘ 1 Ordinary

B. Curtis [Kyritsis] ‘           ‘             ‘ 1 Ordinary

A. & J.P. Cleaning Service Pty Ltd G. Haritos (held in trust for A. & J.P. Cleaning Service Pty Ltd) 1 Ordinary

That same day, five security transfer forms were executed and duty stamps were affixed and cancelled. The first four recorded the transfer by each of Mr and Mrs Haritos and Mr and Mrs Kyritsis respectively of their one ordinary share in Jinacan to Glen (then A & JP Cleaning Service Pty Ltd) for consideration of $1.00. At that time, Glen operated a commercial cleaning business and Mr Haritos and Mr Kyritsis were its directors.

The fifth transfer, from Glen to Mr Haritos, was expressed to be ‘held in trust’ for Glen (then A & JP Cleaning Service Pty Ltd) and the consideration for that transaction was stated as ‘transfer to trustee’. These transfers were then entered in both the Transfer Journal and the Register of Members of Jinacan.

A document entitled ‘Declaration of Trust in respect of shareholding’ was also executed by Mr Haritos on 25 August 1987 (‘the initial Declaration of Trust’). The declaration stated:

I/We the undersigned [George Haritos] hereby declare that the following shareholding registered in my/our name in the following company/ies is held by me/us IN TRUST FOR the undermentioned beneficial owner.
I/We further declare that I/We have no title right or interest whatsoever in the said shareholding and agree to deal with the said shareholding at such time and in such manner as the undermentioned beneficial owner may require.

SHAREHOLDING

BENEFICIAL OWNER

Company

No. of Shares

JINACAN PTY. LTD. ONE ORDINARY A. & J.P. CLEANING SERVICE PTY LTD

The appointment of officers and other transactions undertaken on 25 August 1987 were recorded in the Register of Officers, the Transfer Journal and also the Register of Members of Jinacan.

Accounting services provided to the Haritos and Kyritsis families and their businesses

In August 1987, when 624 Sydney Road was being purchased, the accounting firm of Gillards provided accounting services to both the Haritos and Kyritsis families and their businesses. Gillards is an incorporated accounting practice located in Malvern, Victoria.

Mr Moscovitch, a director of Gillards, said that he first undertook work for the Haritos and Kyritsis families and their associated entities in 1986, commencing with work undertaken for their contract cleaning company, Glen (then A & JP Cleaning Service Pty Ltd), and Jinacan shortly thereafter. Mr Moscovitch supervised the accounting work performed by members of Gillard’s staff for them. Mr Moscovitch said Gillards did the accounting work for all of the corporate entities and for the individual returns of Mr Haritos and his wife, and Mr Kyritsis and his wife. He said Gillards did so on instructions and information provided by the husbands, mostly Mr Haritos but Mr Kyritsis also to a lesser extent, and never from their wives. Gillards was also involved in incorporating entities such as Kyritsis Nominees and Diamond Sun and probably also Grattan Heights, although Mr Moscovitch did not recall any personal involvement in the latter at the time of its incorporation. Each of those corporate entities was set up for the purpose of making property acquisitions.

Instructions given to Gillards by Mr Haritos

On or about 25 August 1987, prior to the settlement of the purchase of 624 Sydney Road, Mr Haritos saw Mr Moscovitch at Gillards. Mr Haritos delivered the corporate secretarial file for Jinacan and gave instructions to him, including about the holding of the four issued shares in Jinacan. The evidence given by each of Mr Haritos and Mr Moscovitch presented different versions of what those instructions were.

When giving his evidence in chief, Mr Moscovitch was asked about the substance of his initial conversation with Mr Haritos concerning the ownership of the shares in Jinacan, as follows:

COUNSEL FOR THE DEFENDANTS: When Mr Haritos came to you with Jinacan and the purchaser of the property, were there discussions about shareholding, the shareholders of Jinacan?---I brought up with George the issue of why the shares were owned in the company.
And what was George's answer?---And George's answer to that was that he did not want to involve the wives' names in - or the wives in the company at that time but they were the beneficial owner of shares.
What was your response to that?---I didn't necessarily agree with it and had - I did point out to George had he - because George brought all the documents to me initially and I said I would not have set the structure up that way but that was the way George was, being he's - being of Greek background his attitude was that he handles all the affairs, his wife has no direct involvement even though it's for her benefit. He's grown up that way, he's brought his kids up that way - - -

…
COUNSEL FOR THE DEFENDANTS: I'm sorry, Mr Moscovitch. Please go on?---Yeah. And he's brought up his family that way and that's just been the way George is. He - - -

Mr Moscovitch said that he did not necessarily agree with that and he pointed out to Mr Haritos that he would not have set up the structure that way, with the corporate entity holding the shares, in circumstances where they were for the family. He said that as best he could recall, when he said to Mr Haritos that he would not have set the structure up this way, Mr Haritos said that he wanted to leave it that way because he did not want ‘the girls' names involved directly’.

Mr Moscovitch said that his firm did not prepare the initial share transfers dated 23 August 1987. He said his firm, and usually staff in the corporate secretarial area working under his supervision, prepared most of the corporate documentation for Jinacan. He thought their work probably commenced with the share transfers dated 25 August 1987, from each of Mr and Mrs Haritos and Mr and Mrs Kyritsis to Glen (then A & JP Cleaning Service Pty Ltd)’, but he could not be sure about that. Mr Moscovitch said that the fifth share transfer executed that day, from Glen to Mr Haritos as trustee for Glen, was undertaken because at that time the law required a minimum of two shareholders for each company.

In summary, the evidence Mr Moscovitch gave about the preparation of Jinacan’s corporate books and records was that:

(a) Gillards carried out the company secretarial function for Jinacan;
(b)Gillards internal records were in most cases kept up to date and were generally accurate;
(c) annual documents were produced by Gillards based on those records;
(d)corporate documents were usually prepared using proforma documents as a base and they were often pre-filled by Gillard’s staff;
(e)a member of Gillards staff would check the ASIC returns before filing them; and

(f) a copy of the forms would be printed out in hard copy and stored.
Defendants’ version of events of 1987

The defendants, on the other hand, contended that 624 Sydney Road was purchased for Mrs Haritos and Mrs Kyritsis as to 50 per cent each. They said that, upon advice given by their then solicitors, they nominated Jinacan as the purchaser. In their defence, the defendants say that at all times, Mrs Haritos and Mrs Kyritsis were the beneficial owners of two shares in Jinacan and ‘Glen never in fact had an interest in Jinacan nor did it ever beneficially own shares in Jinacan’.[32] They contend that the four shares were beneficially owned by Mrs Haritos and Mrs Kyritsis as to two shares each.

Mrs Kyritsis’ evidence

[32]Defence, [42].

Mrs Kyritsis said that in 1987, Mr Haritos was working in real estate and he came across the supermarket property at 624 Sydney Road. The four of them, Mr and Mrs Haritos and Mr and Mrs Kyritsis, discussed it and decided it would be a good investment.

Mrs Kyritsis said that she contributed money of her own to the purchase – from her earnings and money from her parents and from her in-laws - and Mrs Haritos did likewise, contributing her share from earnings and gifts from her parents. She could not recall precisely, but thought that she and Mrs Haritos contributed about $150,000 each. A little later on both families sold some properties in Caulfield, in Keeron Street, Fitzgibbon Crescent and Burrindi Road, that were also used to fund the purchase. The gist of Mrs Kyritsis’ evidence was that from day one Jinacan, and thus 624 Sydney Road, would belong to Mrs Haritos and her and that it was to be for their benefit in case anything went wrong. She said ‘we owned Jinacan, Effie and I, … that was ours in case something went wrong.’ She added, ‘[t]hat’s what we understood from the beginning, that it was ours.’ She said that she and Mrs Haritos generally deferred to their husbands to handle business dealings. Mrs Kyritsis did not know whose idea it was to undertake the purchase in the name of Jinacan and she said she was not involved in that decision.

No documentation concerning the purchase of 624 Sydney Road, such as the contract of sale, settlement statement, etc, was provided by the defendants by way of discovery of documents. In that regard, Mrs Kyritsis said that she did not think anyone had asked her to find and provide documents for the purpose of this proceeding – she admitted that she did not understand her obligations to make discovery, and no one had explained them to her.

Mrs Kyritsis said she recognised her signature on the security transfer form pertaining to the share in Jinacan that she held initially, but she was unable to recall anything about the creation of the document, her execution of the transfer or any discussions about selling or transferring her share. She noted, however, that the relevant events had taken place nearly 30 years ago. Perusal of the corporate documentation and records did not assist to refresh her memory.

Mrs Haritos’ evidence

The evidence given by Mrs Haritos was very similar in substance to that given by Mrs Kyritsis. She said that her husband worked in real estate and ran a cleaning business in 1987 when they first discussed the prospect of purchasing 624 Sydney Road. At that time, she and her husband owned a house in Kooyong Road, Caulfield and they jointly owned two houses with Mr and Mrs Kyritsis in Keeron Street, Caulfield. Mrs Haritos also had money of her own, having worked since she was 15 years old, and when she married she was gifted the proceeds of a property her father sold in Bowen Street, Prahran. She could not recall the exact amount she contributed to the purchase of 624 Sydney Road. She recalled signing the contract to purchase the property, and that it was later registered in the name of Jinacan, but could not recall why or where she went to do so – she said ‘I don’t recall seeing accountants’ but she thought that lawyers were involved.

Mrs Haritos said that she did not have any idea about how the acquisition of 624 Sydney Road was to be structured – she said she did not give any instructions and it was her husband, who consulted the lawyers. Under cross-examination, she agreed that she did not care who owned 624 Sydney Road in a legal sense, but said that this was because she knew that a half share belonged to her and the other half belonged to her sister-in-law.

Mrs Haritos could not recall the meeting of Jinacan in August 1987 approving the transfers of shares nor the signing of the security transfer form in 1987 recording the transfer by her of her initial one ordinary share in Jinacan to Glen (then A & JP Cleaning Service Pty Ltd) for consideration of $1.00.

Mrs Haritos gave evidence that the shares in Jinacan were held beneficially by her and Betty because ‘it’s always been the case’ and she did put a lot of personal money into it. The property was security for her and her sister-in-law – they had young children at the time and it was ‘an investment that would have secured our future.’

Mr Haritos’ evidence

Mr Haritos said that in 1987, when he was looking around at properties, 624 Sydney Road was the one he identified as being the most feasible – it was close to the city, and it had growth and stability of income. Mr Haritos went on to mention, in vague terms, several properties in Caulfield that he said were sold in or around 1987 to fund the purchase of 624 Sydney Road – a property in Kooyong Road, another two side by side in Keeron Street, the Kyritsis residence at 4 Fitzgibbon Crescent and the Kyritsis residence at Burrindi or Baliba Street (he could not recall precisely). He could not recall how much was raised by the sales but said that the selling of the properties, plus whatever money ‘the girls’ (a reference to his wife and his sister) had or were given at the time, paid for the purchase. Mr Haritos said that his father had also advanced his sister, Mrs Kyritsis, a considerable amount of money. In addition, he said, the property market was booming at that time and all of the properties that the families had earlier purchased were earmarked for development. He said that these other properties were sold after the purchase price was paid, and that in the meantime, finance for the purchase was arranged through a number of financial institutions and mortgage trusts, with mortgages being placed over the properties earmarked for sale.

Mr Haritos said that the other properties had been purchased by the families in the names of the relevant individuals jointly rather than in a corporate entity. The purchase of 624 Sydney Road was the first time that he had used a company.

Mr Haritos described the conversations that took place between them at the time of purchase as being to the effect that they ‘needed to secure something for the girls and the family that was growing at the time.’ At that stage, each family had one child. Each family agreed that they would contribute their share to the purchase price, and they committed to selling the other real estate they owned in order for 624 Sydney Road to be paid off. There was only the one registered mortgage to the ANZ Bank at the time of purchase, but Mr Haritos said that he ‘would have arranged alternate finance within the banking sector.’

Mr Haritos was questioned about the security transfer forms executed in August 1987. He said that he could not remember signing the document but readily acknowledged that it bore his signature, as did the minutes of the directors meeting. He said that it would have been Mr Moscovitch at Gillards that set up the shareholding structure of Jinacan. He said that he gave Mr Moscovitch instructions that 624 Sydney Road was to be ‘for the women 50/50’ and was ‘bought for the security of the girls on a 50/50 basis.’

Mr Haritos also gave evidence in chief about the purchase of 624 Sydney Road in the name of Jinacan. He was taken to the declaration of trust of the one ordinary share in Jinacan that was made on 25 August 1987, showing him as the registered holder and Glen (then A & JP Cleaning Service Pty Ltd) as the beneficial owner. He then gave evidence as follows:

COUNSEL FOR THE DEFENDANTS: And on its face what this document does is to declare a trust over the share you hold in favour of Glen which was the company operating the cleaning business. Can you explain to Her Honour why you would do that?---I got no explanation. This was done by Gillards.
It's your signature?---That's my signature.

When Mr Haritos was cross-examined about the documents that were executed in August 1987, which show Glen as the beneficial owner of all four shares in Jinacan, he professed not to understand them. Mr Haritos said that until recent times, the contents of these corporate documents were meaningless to him and he had believed that when he signed documents on earlier occasions, he signed them on the basis that they gave effect to the instructions he had given to Mr Moscovitch.

Mr Haritos was then taken to the documents recording the share transfers that took place on 25 August 1987, that were apparently prepared by Gillards. He acknowledged that he had signed the share transfers to Glen, the later share transfer from Glen back to him as trustee, and the relevant minutes of meeting giving effect to them, but said that they were not his instructions. He said he simply ‘signed where it was indicated’. Senior Counsel for the Deputy Commissioner then put to Mr Haritos the gist of Mr Moscovitch’s evidence:

COUNSEL FOR THE PLAINTIFF: Mr Moscovitch said to you, didn't he, that the effect of setting up this structure was that so far as the world was concerned, the shares in Jinacan were going to be regarded as legally and beneficially owned by Glen. He told you that, didn't he?---No.
And he told you that if you wanted to set up a structure whereby the wives would be the owners of the supermarket, this was not the way to do it. He told you that too, didn't he?---No.
Because the effect of this, as it's plain from the document, is that Glen is the beneficial owner of all of the shares in Jinacan. That's right, isn't it?---That's not correct.
…
If you go please to Tab 44. That's a declaration of trust, that you executed on the same day we were looking at, 25 August 1987. Do you see that?---I see the document.
Yes. And by that document you declared that you held your one share in Jinacan on behalf of Glen, didn't you?---No. I was asked to sign the document as where indicated.
Yes. And - what? Are you telling Her Honour you didn't read it?---It wouldn't have made any sense to me. I couldn't.
Well, Mr Haritos, I'll be submitting in due course to Her Honour that Her Honour will reject your evidence that you are some simple cleaner who doesn't understand corporate documents. Do you understand that? What do you say to that?---This document was prepared by Gillards.
Yes?---I did not instruct Gillards to prepare this document.
Well, why didn't you say to Mr Moscovitch, ‘Leon, what you've prepared here doesn't reflect my instructions. Fix it up, please’?---My instructions were plain at the beginning and I knew my instructions stood till 2009.
Yes?---I did not know of all this mess that's going on.

I regard this evidence given by Mr Haritos as implausible. As noted earlier, Mr Haritos holds directorships in a number of companies and has been a director for more than 25 years.[33] Further, Mr Moscovitch described Mr Haritos as an intelligent and experienced businessman who was familiar with basic financial principles relating to companies and trusts. Mr Moscovitch’s evidence was that he raised with Mr Haritos at the outset why it was that the shares in Jinacan were owned by the company and Mr Haritos directed him to leave it that way. In these circumstances, I do not accept that Mr Haritos did not understand the share transactions or the documents recording them.

Paucity of documentation concerning the 1987 events

[33] See para [51] above.

No documentary evidence was produced by the defendants in support of their oral evidence about the sales of other properties undertaken to fund the purchase of 624 Sydney Road, or the financial contributions said to have been made by them, and in particular by each of Mrs Haritos and Mrs Kyritsis.

The joint tender bundle does not include any minutes of meetings of directors of Jinacan in 1987 dealing with the purchase of the property, covering matters such as affixing the company seal to the instrument of transfer and the like. The title search for the property shows that Jinacan became registered as the proprietor of 624 Sydney Road on 9 December 1987. The defendants gave evidence that the consideration for the purchase of the property was $1,500,000 or thereabouts. The title search for the property also shows that a mortgage to the ANZ Banking Group Limited, stamped to secure $10,000, was registered over the title contemporaneously with the transfer to Jinacan.

Meetings of directors and annual general meetings: 1988-1991

The minutes of meeting of directors of Jinacan held on 15 December 1988, 13 December 1989, 14 December 1990 and 31 December 1991 respectively, prepared by Gillards, record the tabling and approval of the balance sheet, the profit and loss account for the year and the adoption of the directors’ report. Save for the 1988 meeting, where the minutes record only Mr Haritos and Mr Kyritsis in attendance, the minutes for each of the other directors meetings record that Mr and Mrs Haritos and Mr and Mrs Kyritsis were in attendance at the meeting and the minutes were signed by one or other of the men as Chairman.

Annual general meetings of shareholders of Jinacan were held on 30 December 1988, 29 December 1989, 31 December 1990 and 31 December 1991. The minutes, which were prepared by Gillards, record in each case that Mr Kyritsis, representing Glen (then A & J P Cleaning Service Pty Ltd), and Mr Haritos were present. At these meetings, the members resolved that the balance sheet and profit and loss statement for the respective year ended 30 June, together with the accompanying reports and statements be received, approved and adopted, and that no auditor be appointed. In each case, the minutes were signed by Mr Haritos as Chairman or Chairperson.

What these minutes show clearly is that from the outset, the shareholders attending the meetings of members of Jinacan reflected or accorded with what was recorded in the share register, namely that Glen and Mr Haritos were the shareholders of Jinacan.

Meetings of directors and annual general meetings: 1992-2000

At the trial, the Deputy Commissioner also referred to the minutes of meeting of directors of Jinacan held on 16 December 1992, 19 October 1993, 7 December 1994, 15 November 1995, 16 December 1996, 4 November 1997, 15 October 1998, 16 September 1999, and 24 August 2000. These minutes, prepared by Gillards, record that in each year the directors passed similar resolutions tabling and adopting the Balance Sheet and Notes thereto, the Profit and Loss Statement, the Directors’ Report and Statement, and the Annual Return. In each case, Mr and Mrs Haritos and Mr and Mrs Kyritsis were noted as being present, and the minutes were signed by Mr Haritos, or occasionally by Mr Kyritsis as Chairman or Chairperson.

During that period, Annual General Meetings of members of Jinacan were held on 31 December 1992, 3 November 1993, 22 December 1994, 30 November 1995, 31 December 1996, 19 November 1997, 6 November 1998, 8 October 1999, and 15 September 2000. The minutes record that Mr Kyritsis, representing Glen (then A E S Property Services Pty Ltd), and Mr Haritos were present, and usually Mr Haritos was elected as Chairman. Relevantly, at each of these meetings, the shareholders resolved that the Balance Sheet and Notes thereto, the Profit and Loss Statement and the Directors Report and Statement thereon as at 30 June be received, approved and adopted by the meeting. It was also resolved that the recommendation of the directors with regard to dividends and emoluments be confirmed. In each case, the minutes were signed by Mr Haritos as Chairman or Chairperson.

Once again, these minutes consistently record the active presence of representatives of Glen at meetings of members of Jinacan, and serve to confirm knowledge on the part of Mr Haritos of Glen’s status as the shareholder of Jinacan at all relevant times.

Meetings of directors and annual general meeting: 2001 – dividend declared

At a meeting of directors of Jinacan held on 15 June 2001, at which the minutes record Mr and Mrs Haritos and Mr and Mrs Kyritsis as present, the directors resolved ‘to recommend the declaration of a dividend of $129,236 out of the profits of the Company.’ The minutes record that the dividend was ‘declared, pursuant to Section 160AQF(1) of the Income Tax Assessment Act, [and] that the recommended dividend of $129,236 be franked to the extent of 100%.’ The minutes were signed by Mr Haritos as Chairperson.

The minutes of meeting of directors of Jinacan held on 27 August 2001, at which Mr and Mrs Haritos and Mr and Mrs Kyritsis were noted as being present, record that the directors passed resolutions, relevantly as follows:

ANNUAL RETURN:

It was resolved that the contents of the 2001 Annual Return be adopted and one director sign the declaration certifying that:

- the information contained in the Annual Return is correct, and

- there are reasonable grounds to believe that the company will be able to pay its debts as and when they fall due.

REPORTS AND STATEMENTS:

…

It was resolved that the Balance Sheet and Notes thereto as at 30 June 2001, the Profit and Loss Statement for the year ended 30 June 2001 and the Directors Report and Statement thereon be adopted.

Further, it was resolved that two directors be authorised to sign the Directors Report and Statement on behalf of the board.

…

DIVIDEND:

It was resolved to recommend to the Annual General Meeting that no dividend be paid.

DIRECTORS EMOLUMENTS:

It was resolved to recommend to the Annual General Meeting that no directors emoluments (excluding fixed salaries of full time directors) be paid.

The form 507 Report as to Affairs dated 17 October 2006 was signed and certified by Mr Haritos as being ‘true to the best of [his] knowledge and belief’. The shares in Jinacan were not listed as an asset of Glen. Schedule H of the Report as to Affairs set out the list of unsecured creditors as follows:

Name & address of creditor

Amount claimed by creditor

Amount admitted as owing

Reasons for difference between amount claimed and admitted (if any)

$ $

Australian Taxation Office

507,478.43

507,478.43

Gillards Accountants

3,817.00

3,817.00

George Haritos

380,648.50

380,648.50

Alex Kyritsis

380,648.50

380,648.50

1,272,592.43

1,272,592.43

The meeting of creditors held on 17 October 2006 was chaired by Mr Kokkinos and attended by Mr Moscovitch as proxy for Gillards and Mr Richwol as proxy for Mr Kyritsis and Mr Haritos. The minutes of meeting record that the directors attributed the failure of the company to ‘bad debts, increases in [W]ork[C]over premiums which could not be passed on in existing agreements and numerous [W]ork[C]over claims and unfair dismissals.’ The meeting also passed unanimously a resolution authorising ‘the liquidator to destroy the books and records of the company within a period of five years after dissolution of the company subject to obtaining prior approval from [ASIC] pursuant to Section 542(4) of the Corporations Act’.

Following the meeting of creditors, by notice dated 2 November 2006, Mr Kokkinos informed the ATO that no dividend was likely to be paid. The Deputy Commissioner lodged a formal proof of debt dated 24 November 2006 in place of that earlier submitted, claiming that on 17 October 2006 Glen was, and remained, indebted to the Deputy Commissioner for the total amount of $580,093.87. This figure comprises a RBA deficit debt in respect of Business Activity Statements amounts of $514,032.19 and Superannuation Guarantee Charge general interest charge of $66,061.68.

On 21 June 2007, Mr Richwol reported to creditors by letter. He noted that the company had ceased trading on 1 January 2005 after the sale of the company assets to an entity in which the directors had an interest. However, it appeared that ‘most trade creditors were satisfied from the available assets of the company and or from additional funds contributed by the directors to the company.’ He reported that he had identified a preference amounting to $42,432.17 received by a company associated with the directors but added that he did not have funds to commence public examinations and to pursue the preference claim. He invited creditors who might have an interest in providing funding to do so to contact Mr Kokkinos.

The First Annual Meeting of Creditors was held on 18 December 2007. In his report to creditors, Mr Richwol informed them that as no creditor had been willing to contribute funding for the actions outlined in his earlier report, a settlement of the preference matter was negotiated resulting in the receipt of $23,337.68. He noted that no other claims that were identified were of commercial value to pursue. In addressing the issue of insolvent trading, he reiterated his earlier observations that the trade creditors were paid with the contribution of additional funds from the directors. In respect of Glen’s liability to the ATO, he observed that the directors were of the opinion that the debt to the ATO had been extinguished, and that the amount outstanding related to penalties and interest that was incorrectly applied. He noted that the directors’ view was one that was shared by their accountants. He invited creditors who may have had knowledge of any transaction or behaviour that they considered suspicious or dishonest, or of the whereabouts of concealed assets, to draw them to his attention for investigation. The ATO did not come forward at that point or seek to draw anything to his attention. Mr Zafirou agreed that the Deputy Commissioner had not attended the meeting of creditors of Glen nor did he take any steps to stop the destruction of the books of Glen.

Mr Richwol said that once the liquidation was complete, the creditors authorised him to destroy the books and records of the company after its dissolution. Following permission from ASIC (usually six months after the company has been de-registered), the documents would be destroyed as and when space restrictions in the liquidator’s storeroom required that space be made available for new matters.

Mr Haritos also gave evidence about various amounts that he said were paid to creditors of Glen in the 18 months before it went into liquidation, namely between 1 January 2005 and 30 June 2006. In this regard, Mr Haritos referred to a document entitled ‘Supplier Payments’ which apparently recorded payments made to creditors of Glen after it had ceased trading. He said that it was prepared by the liquidator. However, when Mr Richwol was shown the document he said that he did not recognise it and it was not the type of document that would be generated by his firm. He also confirmed that the handwriting on the document was not that of Mr Kokkinos.

Mr Haritos said that in addition to the payments made to the ATO, substantial payments were made to Central Cleaning Supplies ($138,068.24), Aspect Protective Services ($91,587.80), Crown International Properties ($93,700.00), State Revenue Office – payroll tax ($90,655.02), wages ($668,220.60) and to Wyatt Gallagher for WorkCover premiums ($420,058.25). Mr Haritos said that the suppliers listed in the document were paid from monies that were transferred into Glen from AES Services, the newly incorporated entity, moneys received from the directors of Glen (Mr Haritos and Mr Kyritsis) and moneys received into Glen’s account at the end of December 2005 for the most part as a result of cleaning contracts coming to an end. He said Mr Kyritsis provided about $50,000, he put in $750,000 and AES Services would have provided around about $1 million. There was also about another $300,000 to $400,000 that came in to Glen by way of income.

Mr Haritos’ understanding was that everyone who was a creditor of Glen was paid in full and he said he made the payments because he believed that he had a moral obligation to see that everyone was paid. In the case of the ATO, and the ongoing dispute about the allocation of moneys received, Mr Haritos also explained that payments made to the ATO were often not entered correctly and his secretary spent countless hours on the telephone trying to track payments that had been made. In the meantime, however, the ATO continued to charge penalty interest.

According to the statement of affairs set out in the Report as to Affairs, the Commissioner was the only substantive creditor of Glen that was not paid. Mr Zafirou agreed that this was the statement of affairs showed.

Intention to defraud – ‘contextual’ evidence

The Deputy Commissioner also sought to rely upon a host of other matters involving a number of related entities, Kyritsis Nominees, Diamond Sun and Grattan Heights, the timing of their incorporation and identity of their shareholders, and the purchase of seven properties in and around Melbourne by them and relatives of the defendants from May 2006 through to January 2009. The Deputy Commissioner also relied on the defendants’ admissions, made formally in their defence, that:

(a) between March 2005 and January 2009, payments in excess of $45 million derived from the trading operations of AES Services were deposited into a Westpac Bank business cheque account in the names of Mr Haritos and Mr Kyritsis trading as AES Services;[77]
[77]Statement of Claim, [48], which is admitted.

(b) AES Services’ income tax returns for the 2005, 2006, 2007 and 2008 income tax years failed to disclose as assessable income any of the moneys deposited in AES Services’ Westpac Bank business cheque account;[78]

(c) between May 2006 and January 2009, Mr Haritos and/or Mr Kyritsis applied funds drawn substantially from these deposits made to AES Services’ Westpac Bank business cheque account, for private purposes;[79] and

(d) the personal income tax returns of Mr Haritos and Mr Kyritsis for the 2005, 2006, 2007 and 2008 income years failed to disclose as assessable income any of the funds that were withdrawn substantially from the deposits made to AES Services’ Westpac Bank business cheque account.

[78]Ibid [49], which is admitted.

[79]Ibid [54], which is admitted.

In essence, the Deputy Commissioner said that the three new companies were incorporated in early 2006 by Gillards. Kyritsis Nominees and Diamond Sun had Betty and Effie as their respective sole shareholders, directors and secretaries, but neither of the women had any real involvement in the business activities of those companies. Between May and October 2006, properties valued at $6,310,000 were purchased and registered in the names of the new corporate entities, and in the case of one property, in the name of the daughter of Mr and Mrs Haritos. The defendants admit that the funds for those purchases were drawn substantially from the undisclosed income of AES Services. Thereafter, until early 2009, the defendants continued to acquire further assets in the names of the corporate entities and family members.

Against that background, the Deputy Commissioner contended that the Court should infer that Mr Haritos’ and Mr Kyritsis’ purpose in acquiring assets in the names of relatives and entities controlled by them was to distance themselves from their creditors. Further, it was said that the Declarations of Trust were consistent with that course of conduct in that they operated to remove the value of the Jinacan shares, for no consideration, from the assets against which the Commissioner could recover the Glen Tax Debt and any subsequent tax debts owed in respect of undisclosed income. That is, if the Declarations of Trust were effective to transfer the beneficial interest in the Jinacan shares for no consideration, then the pool of funds available to Glen to satisfy the Glen Tax Debt was substantially reduced and the Deputy Commissioner was ‘thereby prejudiced.’

The defendants objected to these contextual matters being ‘tacked on’ or called in aid to support the Deputy Commissioner’s allegations concerning the Declarations of Trust relating to the Jinacan shares. To the extent that the defendants admitted that funds drawn from deposits made to AES Services’ Westpac Bank business cheque account were applied by Mr Haritos and/or Mr Kyritsis between May 2006 and January 2009 for private purposes, they say they were loans made by AES Services to them. Further, the defendants say the character of funds drawn from AES Services’ Westpac Bank business cheque account has been the subject of determination in another proceeding and the Deputy Commissioner is estopped by the earlier judgment and/or is estopped from re-agitating the allegation in this proceeding. [80]
[80]Confidential and Commissioner of Taxation [2013] AATA 112 (1 March 2013). See fn 4 above.

The defendants also contended that it was impermissible for the Court to consider any subsequent conduct for the purpose of divining prior fraudulent intent: see Williams.[81]
[81](1934) 50 CLR 341, 372 (Dixon J, with whom Rich, Evatt and McTiernan JJ agreed), that the donor’s conduct and declarations after his insolvency could not, having regard to his motives, have any retroactive effect as evidence of intention. See also 377 (Evatt J).

Conclusions

I turn now to consider the question of whether if, contrary to the findings I have made in respect of the first limb of the Deputy Commissioner’s case, the August 2006 Declarations of Trust were nevertheless found to be valid and effective to transfer the beneficial ownership of two shares in Jinacan to each of Mrs Haritos and Mrs Kyritsis, they were made with the intent to defraud creditors within the meaning of s 172 and are rendered voidable at the suit of the Deputy Commissioner. In doing so, I am mindful of the gravity of the matter and the seriousness of making such a finding.

The evidence established that at all relevant times, Mr Haritos, rather than Mr Kyritsis, was the controlling mind of Glen and the relevant decision maker. I accept Mr Moscovitch’s evidence that prior to Glen being placed in liquidation, Mr Haritos gave him instructions requesting ‘that the beneficial owners [of the shares in Jinacan] be noted.’ Of course, it is implicit in that request that the registered holders at that time were not themselves the beneficial owners. It will be recalled that when the request was made, Glen was recorded as the holder in respect of three Jinacan shares and Mr Haritos was recorded as the legal owner in respect of the fourth share with Glen being the beneficial owner, as stated in the initial declaration of trust.

The suite of documents prepared by Gillards to give effect to Mr Haritos’ instructions were, for the most part, expressed in terms of effecting a ‘change of beneficial ownership’ rather than as an acknowledgment of a pre-existing trust arrangement. As I explained above, the Declarations of Trust are, in each case, expressed in terms which do not accord with, and reflect, information recorded in other corporate records and documents that were prepared by Gillards.

Furthermore, in the form in which they were prepared, the Declarations of Trust sought to achieve a situation whereby the Jinacan shares would be beneficially owned by each of Mrs Haritos and Mrs Kyritsis as to 50 per cent, that is, two shares each. That was the version of events contended for by Mr Haritos in the evidence he gave, but as I have said, there was an absence of any independent or objective evidence supporting it and I have not accepted it. Gillards responded to the request Mr Haritos made and sought to give effect to it, but Mr Moscovitch could not explain why the Declarations of Trust effectively recorded Mrs Haritos and Mrs Kyritsis as the beneficial owner of two shares each and he acknowledged that that position did not accord with his original instructions. He also confirmed that the Declarations of Trust had been backdated.

At the time when Mr Haritos gave instructions to Mr Moscovitch to liquidate Glen, he was of the view that the ATO was not owed any money. Mr Haritos also believed that everybody was paid in full and there were no outstanding creditors of Glen. He maintained that position through to the commencement of the trial but during the opening, Counsel for the defendants effectively conceded that as at the date of its liquidation, Glen owed a debt to the Commissioner. It also seems clear that initially the Commissioner had claimed more than was later found to be due, as Mr Zafirou acknowledged, and this may have exacerbated any misunderstanding of the position on the part of both Mr Haritos and his advisers.

If the position was as Mr Haritos asserted, and there were no creditors of Glen, the question arises as to why in August 2006 Mr Haritos requested Mr Moscovitch to take action to ‘note’ the beneficial owners of the shares in Jinacan in advance of Glen being placed in liquidation.

It will be recalled that Mr Haritos said he had ‘no idea’ why the Declarations of Trust were executed – he thought they were something that Mr Moscovitch had to do with regards to the company going into liquidation – and he believed they were administrative steps that had to be taken because the company was going into liquidation. But Mr Haritos’ version of events is contradicted by Mr Moscovitch’s evidence, which I have generally preferred and accepted over his.

As I have noted earlier, when it was put to Mr Moscovitch, he agreed that Mr Haritos had told him that the purpose of the Declarations of Trust was to ensure that there was no argument whatsoever that Glen owned any shares in Jinacan. Mr Moscovitch also agreed that the reason for that was because the shares in Jinacan were a valuable asset. In these circumstances, Mr Moscovitch’s evidence provides the foundation for a credible explanation for the execution of the Declarations of Trust.

Even if there was not consensus between the rival parties as to what amount, if any, was due to the Commissioner at the time Glen was placed in liquidation, Mr Haritos was aware that the Commissioner disputed his view and claimed to be owed in excess of $500,000, and would seek to enforce that debt notwithstanding Glen’s attempts to resolve the dispute. The position in the present case is quite different from that before the Court in Williams,[82] in the sense that here, viewed from the perspective of Glen, there was something to fear, namely that the Commissioner would maintain his view and seek to prove the indebtedness of Glen in any liquidation. Moreover, it was evident from the Report as to Affairs signed by Mr Haritos, which did not disclose the Jinacan shares as an asset, that Glen was unable to pay the Glen Tax Debt.
[82]In Williams (1934) 50 CLR 341, 371-372 (Dixon J, with whom Rich, Evatt and McTiernan JJ agreed.) Dixon J found that the bankrupt was in a perfectly sound financial position and had nothing to fear, and the persuasions of the bankrupt’s wife to make over the property were apparently directed ‘not to protecting it against future creditors but to withdrawing the capital from the danger of what she thought improvident or at the least hazardous investment.’

If the Declarations of Trust were found to be valid and effective, a valuable asset of Glen would effectively disappear, in the sense that the transfers of the beneficial ownership of two shares in Jinacan to each of Mrs Haritos and Mrs Kyritsis would result in a ‘subtraction of assets’ available for payment of creditors and thereby would operate to hinder, defeat or delay creditors. Against the background of the events that took place concerning Glen in the period leading up to the making of the Declarations of Trust, I am satisfied that, were it necessary to do so, there would be a proper basis for the Court to draw the inference and make a finding that, in effecting the transfer of the beneficial interest in the Jinacan shares, Mr Haritos, as the controlling mind of Glen, intended to defraud creditors of Glen within the meaning of s 172 of the Property Law Act. Accordingly, if they were otherwise valid and effective, the Declarations of Trust and transfers would be voidable at the suit of the Commissioner, being relevantly ‘a person thereby prejudiced’, and should be set aside.

Conclusion on relief sought

In light of the view I have formed on the preliminary issue concerning the standing of the Deputy Commissioner to seek purely declaratory relief, I will make orders for the substitution of the Commissioner in place of the Deputy Commissioner as plaintiff.

On the matters raised on the first limb argument, I am satisfied that it is appropriate to grant declaratory relief, and I will make declarations substantially in the form sought as follows:

(1) A declaration that as at 19 May 2008, being the date of its dissolution, Glen was the beneficial owner of four Jinacan shares.

(2) A declaration that in each case the purported declaration of trust signed on 11 August 2006 by:

(a) George Haritos;

(b) Effie Haritos; and

(c) Betty Kyritsis,

respectively was void, invalid and of no effect.

In light of the relief granted on the first limb argument, no relief is called for on the second limb argument.

I will hear the parties on the precise form of the appropriate orders, including on the question of costs.

See Barton v Official Receiver (1986) 161 CLR 75, 86, where the High Court held that: ‘a

“purchaser … for valuable consideration” within the meaning of s 120(1) of the [Bankruptcy Act 1966 (Cth)] is one who has given consideration for his purchase “which has a real and substantial value, and not one which is merely nominal or trivial or colourable”’ (citations omitted).

Transferor	Transferee	No. of Shares
G. Haritos	A. & J.P. Cleaning Service Pty Ltd	1 Ordinary
E. Haritos	‘ ‘ ‘	1 Ordinary
A. Curtis [Kyritsis]	‘ ‘ ‘	1 Ordinary
B. Curtis [Kyritsis]	‘ ‘ ‘	1 Ordinary
A. & J.P. Cleaning Service Pty Ltd	G. Haritos (held in trust for A. & J.P. Cleaning Service Pty Ltd)	1 Ordinary

SHAREHOLDING		BENEFICIAL OWNER
Company	No. of Shares
JINACAN PTY. LTD.	ONE ORDINARY	A. & J.P. CLEANING SERVICE PTY LTD

ANNUAL RETURN:	It was resolved that the contents of the 2001 Annual Return be adopted and one director sign the declaration certifying that: - the information contained in the Annual Return is correct, and - there are reasonable grounds to believe that the company will be able to pay its debts as and when they fall due.
REPORTS AND STATEMENTS:	… It was resolved that the Balance Sheet and Notes thereto as at 30 June 2001, the Profit and Loss Statement for the year ended 30 June 2001 and the Directors Report and Statement thereon be adopted. Further, it was resolved that two directors be authorised to sign the Directors Report and Statement on behalf of the board.
…
DIVIDEND:	It was resolved to recommend to the Annual General Meeting that no dividend be paid.
DIRECTORS EMOLUMENTS:	It was resolved to recommend to the Annual General Meeting that no directors emoluments (excluding fixed salaries of full time directors) be paid.

Name & address of creditor	Amount claimed by creditor	Amount admitted as owing	Reasons for difference between amount claimed and admitted (if any)
$	$
Australian Taxation Office	507,478.43	507,478.43
Gillards Accountants	3,817.00	3,817.00
George Haritos	380,648.50	380,648.50
Alex Kyritsis	380,648.50	380,648.50
1,272,592.43	1,272,592.43

[2014] VSC 379

15 August 2014