Earthworks Today Pty Ltd (In Liquidation) v Butler

[2018] FCA 1386

FEDERAL COURT OF AUSTRALIA

Earthworks Today Pty Ltd (In Liquidation) v Butler [2018] FCA 1386

File number(s):	QUD 375 of 2018
Judge(s):	GREENWOOD J
Date of judgment:	6 September 2018
Catchwords:	CORPORATIONS – consideration of an application for summary judgment under s 31A of the Federal Court of Australia Act 1976 (Cth)
Legislation:	Federal Court of Australia Act 1976 (Cth), s 31A
Cases cited:	Spencer v The Commonwealth (2010) 241 CLR 118
Date of hearing:	6 August 2018
Registry:	Queensland
Division:	General Division
National Practice Area:	Commercial and Corporations
Sub-area:	Corporations and Corporate Insolvency
Category:	Catchwords
Number of paragraphs:	46
Counsel for the Plaintiff	Mr D Harrison
Solicitor for the Plaintiff	Macpherson Kelley
Counsel for the First Defendant	The First Defendant did not appear
Counsel for the Third Defendant	The Third Defendant appeared in person

ORDERS

QUD 375 of 2018

BETWEEN:

EARTHWORKS TODAY PTY LTD (IN LIQUIDATION) (ACN 162 124 147)

Plaintiff

AND:

MATTHEW JAMES BUTLER

First Defendant

ZEMMA HOPE BUTLER (ALSO KNOWN AS ZEMMA HOPE LAING AND ZEMMA HOPE CUST)

Third Defendant

JUDGE:	GREENWOOD J
DATE OF ORDER:	6 SEPTEMBER 2018

THE COURT ORDERS THAT:

1.The Plaintiff submit to the Court within seven days proposed Orders giving effect to the reasons for judgment pronounced today.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

GREENWOOD J:

1. These proceedings (described later in these reasons as the “Earthworks proceedings”) are concerned with an application by the plaintiff for summary judgment against the third defendant in the principal proceeding, Mrs Zemma Hope Butler.  Mrs Butler is also said, by the plaintiff, to be known as Ms Zemma Hope Laing and Ms Zemma Hope Cust.  The plaintiff in the proceeding is Earthworks Today Pty Ltd (In Liquidation).  The plaintiff/applicant is represented by counsel and solicitors.  Mrs Butler is self‑represented. She appeared on the application for summary judgment.   

2. The application is made under s 31A of the Federal Court of Australia Act 1976 (Cth) which provides, relevantly for present purposes, that the Court may give judgment for a plaintiff (applicant) against a defendant (respondent) in relation to the whole or any part of a proceeding if the Court is satisfied that the defendant (respondent) “has no reasonable prospect of successfully defending the proceeding or that part of the proceeding”: s 31A(1). For the purposes of s 31A(1), a defence need not be “hopeless” or “bound to fail” for it to have “no reasonable prospect of success”: s 31A(3).

3. As to the principles to be applied in considering an application under s 31A by a plaintiff (applicant) against a defendant (respondent), Hayne, Crennan, Kiefel and Bell JJ made the following observations in Spencer v The Commonwealth (2010) 241 CLR 118:

   51First, the central idea about which the provisions pivot is “no reasonable prospect” [original emphasis].  The choice of the word “reasonable” is important …

   52Secondly, effect must be given to the negative admonition in sub-s(3) [relevantly quoted above] that a defence … may be found to have no reasonable prospect of [success] even if it cannot be said that it is “hopeless” or “bound to fail”.  It will be necessary to examine further the notion of “no reasonable prospect”.  But before undertaking that task, it is important to begin by recognising that the combined effect of sub‑ss (2) and (3) is that the inquiry required in this case is whether there is a “reasonable” prospect of prosecuting the proceeding, not an inquiry directed to whether a certain and concluded determination could be made that the proceeding would necessarily fail: [the relevant two sub-sections engaged by the Earthworks proceedings is sub‑ss (1) and (3) although the same principle applies.]

   …

   56Because s 31A(3) provides that certainty of failure (“hopeless” or “bound to fail”) need not be demonstrated in order to show that a plaintiff has no reasonable prospect of prosecuting an action [or a defendant has no reasonable prospect of successfully defending a proceeding], it is evident that s 31A is to be understood as requiring a different inquiry from that which had to be made under earlier procedural regimes.

   60[F]ull weight must be given to the expression [no reasonable prospect] as a whole. The Federal Court may exercise the power under s 31A if, and only if, satisfied that there is “no reasonable prospect” of success … At this point in the development of the understanding of the expression and its application, it is sufficient, but important, to emphasise that the evident legislative purpose revealed by the text of the provision will be defeated if its application is read as confined to cases of a kind which fell within earlier, different, procedural regimes.

4. The background to the application is this.

5. On 29 January 2013, Earthworks Today Pty Ltd (“Earthworks”) was incorporated.  On 19 April 2017, the Supreme Court of Victoria made an order that Earthworks be wound up in insolvency and that Kenneth Stewart Sellers and Alice Fay Ruhe be appointed as Joint and Several Liquidators of Earthworks.  Prior to its winding up, Earthworks operated a cartage and transport business.  Its sole director, secretary and shareholder from the date of incorporation was Mr Matthew James Butler (Mr Butler), the first defendant in the principal proceeding.  He is the husband of Mrs Zemma Hope Butler (Mrs Butler).  Earthworks was also the registered owner of the business name “Earthworks Today” and the business name “EWT Transport & Earthmoving Group”.

6. Prior to the winding up, Earthworks operated four bank accounts with Bendigo Bank.  The signatories listed on the records of Bendigo Bank in relation to those accounts were Mr Butler and Mrs Butler.  The liquidators say that Earthworks did not operate any bank accounts other than the four Bendigo Bank accounts.

7. The liquidators say that prior to the winding up Order of 19 April 2017, Earthworks operated an accounting system described as a “Xero” accounting system which involved recording financial information on a database described as the “Xero” database.  No other accounting system was used by Earthworks.  Access to the Xero database was provided to nominated “subscribers”.  The liquidators say that one of those subscribers was Mrs Butler.  The Xero database operates as an on-line accounting system.  The liquidators say that the Xero accounting system and the use of the Xero database involves interrogating data held on a series of servers to which access is given (a “cloud accounting system”) rather than storing data on computers operated by Earthworks or by using accounting software installed on the computers of Earthworks (such as a typical accounting business system like “MYOB”). 

8. The evidence of the liquidators is that from around 20 April 2017 to 30 August 2017, Mr Butler contacted various debtors of Earthworks and told those debtors that the Earthworks’ bank account had changed or alternatively said that “EWT is no longer”.  The solicitors for the liquidators caused applications to be made for the issue of subpoenaes for the production of documents held by particular debtors of Earthworks including (without using the full company names), Hi Trans Express, Cutting Edge Grader Hire, Ron Finemore Transport, Samwell Plumbing, Freight Assist, Freighting Solutions, Aurizon, Toll Group, Transconnect and Camerons Interstate.  Some examples of the steps taken by Mr Matthew Butler are these.  On 27 April 2017, he sent an email to Freighting Solutions saying that the “old account” (for Earthworks) “is no longer active and all payments must be sent to our new bank account details as below”.  “Our new bank account details” were described as “Bendigo Bank BSB 633 000, ACC [Account] 159851369” followed by the words “M Butler Family Trust”.  The same approach and statement can be seen in emails sent by Mr Butler to Cutting Edge Grader Hire, Ron Finemore Transport, Samwell Plumbing, Freight Assist and other debtors as reflected in the emails at “DT‑3” of the affidavit of Mr Daniel Teoh, the solicitor for the liquidators.  Mr Butler seemed to have no difficulty whatsoever in systematically diverting debts payable to the company from the company (for the satisfaction of claims by creditors) to an account which he described in the emails as an account of the M Butler Family Trust.    

9. On 27 June 2017, three new companies were incorporated: Mezz Trans Logistics Pty Ltd.; M B & Z B Family Holdings Pty Ltd; and Elite Earthmoving & Civil Pty Ltd.  Mr Butler is recorded as the registered director of those companies.

10. On 12 July 2017, the liquidators secured access to the Xero database for Earthworks.  Various statements and reports were downloaded from that database including information described as “History & Notes Activity” statements and Invoice History statements.  The evidence, derived from those records, show that eight debtors of Earthworks made payments to Mrs Butler rather than making payments to Earthworks.  That came to pass because, according to the subpoenaed records, all of the invoices from Earthworks to those eight debtors were “voided” either by Mr Butler or Mrs Butler in May 2017 after the date of the appointment of the liquidators which was on 19 April 2017.  For example, one of the invoices is Invoice No. 1245 to “Daracon Group”.  The Invoice date is 31 March 2017 with a due date of 30 April 2017 in a total amount $25,271.40.  The Invoice is stamped by Daracon Group as having been received on 15 May 2017.  The Invoice nominates as the account for payment, an account described as Bendigo Bank Account, BSB 633 000, Account Number 15985 1369 (described as “Account 1369”).  The subpoenaed documents show that the invoice, so far as Earthworks was concerned, was “voided by Matthew Butler on 9 May 2017 at 13.16pm”.  Mrs Butler was the sole holder of Account 1369.  The electronic funds transfer from Daracon occurred on 16 May 2017 in an amount of $25,271.40, into Mrs Butler’s account.  Mrs Butler does not dispute having received those funds from Daracon. 

11. In the application for summary judgment for recovery of all amounts due to Earthworks but paid into Mrs Butler’s account, the liquidators claim recovery of, and judgment for, $134,704.75.  That is the claim made in the principal proceeding on a number of grounds including a contention that the money is held on trust by Mrs Butler for Earthworks and a contention that Earthworks is entitled to recover the money as moneys had and received by Mrs Butler. 

12. As to the quantum, Mrs Butler admits having received into her account an amount of $116,193.23. The liquidators accept that figure, for the purposes of the application under s 31A, as the basis for the quantification of the claim. The details of the debtors, the invoices and the amounts are set out in Annexure A to these reasons.

13. The subpoenaed documents concerning the transaction history related to the relevant invoices the subject of the claim show that steps were taken either by, or in the name of, Mr Butler or Mrs Butler to “void” an invoice otherwise payable to Earthworks and substitute it with a contended obligation to pay the same amount as the invoice to another entity or party, other than Earthworks.  In all cases, the relevant contracts were made with Earthworks and the work giving rise to the invoice was done by Earthworks.  As to Mrs Butler’s engagement in relation to “voiding” particular invoices, the subpoenaed documents show that, for example, Invoice 1244, dated 17 March 2017 with a due date of 24 March 2017 in an amount of $29,370.00 was “voided by Zemma Butler on 18 May 2017 at 20.38pm”.  Invoice No. 1215, dated 23 February 2017 with a due date of 2 March 2017 in an amount of $2,640.00 was “voided by Zemma Butler on 18 May 2017 at 20.38pm”.  Invoice No. 1201, dated 16 February 2017 with a due date of 23 February 2017 in an amount of $9,801.00 was “voided by Zemma Butler on 18 May 2017 at 20.38pm”.  Invoice No. 1254, dated 6 April 2017, with a due date of 13 April 2017, in an amount of $21,912.00 was also “voided by Zemma Butler on 18 May 2017 at 20.38pm”.  Invoice No. 1307, dated 17 May 2017 with a due date of 24 May 2017, in an amount of $396.00 was “voided by Zemma Butler on 18 May 2017 at 7.29am”.  Other invoices relevant to the claim as particularised in Annexure A were “voided” by Matthew Butler. 

14. The position then is that there is no dispute that Mrs Butler received an amount of $116,193.23 representing amounts actually due to Earthworks. 

15. The liquidators contend that Mrs Butler was an employee, servant or agent of Earthworks.  They say that on 23 March 2017 Mrs Butler was listed as a “contact person” for Earthworks and that from at least January 2017 she was a user and subscriber to the Xero accounting system operated by Earthworks.  The evidence is that as at 26 April 2017 Mrs Butler was a signatory to all four of the Bendigo Bank accounts operated by Earthworks. 

16. The evidence then is that Mrs Butler had that degree of engagement with the activities of Earthworks.  Thus, not only has Mrs Butler received into her account an amount of $116,193.23 due to Earthworks, Mrs Butler is a person who had a role to play with Earthworks at least in the way the evidence discloses as described at [10] and [15] of these reasons.

17. I emphasise this evidence of Mrs Butler’s engagement in the activities of Earthworks because of the basis upon which Mrs Butler resists summary judgment for recovery of the amount of $116,193.23.  I will turn to those matters shortly.   

18. On 22 August 2017, the liquidators sought and obtained freezing orders so as to preserve the funds in issue in the principal proceeding.  Those orders required Mrs Butler to file an affidavit identifying, to the best of her knowledge and ability, her assets and associated liabilities.  As to transactions involving Mrs Butler’s Account 1369, she said the following things in an affidavit sworn on 31 August 2017. 

19. As to the money received from Hi Trans Express of $4,950.00 and $4,301.00 (both Invoice No. 1288), Mrs Butler says that those moneys were applied (transferred) to a particular Bendigo Bank loan account on 11 May 2017 and 18 May 2017.

20. As to the money received from Ron Finemore Transport of $5,280.00 (Invoice No. 1302), Mrs Butler says that those funds were used to pay amounts due to Komatsu, Ryanie Pty Ltd, “BP” at Beresfield and United Southbrook on 8 June 2017, 9 June 2017 and 13 June 2017.

21. As to the money received from Cutting Edge Grader Hire of $12,000.00 Mrs Butler says that those moneys were used to pay amounts due to United Southbrook, Unicoop‑Tavarnel (Tavarnelle VA), and an international transaction fee ($3.19).  These amounts were paid on 13 June 2017.  Further amounts were paid on 14 June 2017 to Peretola Nord CA, Sesto Fiorent, an international transaction fee, an amount to La Fornace Di Pa Tarvanelle VA and another international transaction fee.  As to some of these payments, the liquidators say that they seem to be payments made to restaurants and shops in Italy in the course of a trip or holiday. 

22. Amounts, paid out of the same $12,000.00 are said by Mrs Butler to have been paid on 15 June 2017 to International Ristorante Il Ga, Monterosso AL, an international transaction fee, an amount to International Drogheria Franci 71, Montalcino and another international transaction fee.  From the same moneys amounts were paid on 16 June 2017 to a Bendigo Bank loan account, Glen Rest Tourist at Glen Innes and an amount to Doms Diesel, Glen Innes.  On 17 June 2017, amounts were paid to Coles Express and to Unicoop‑Tavarnel, Tavarnelle VA and an international transaction fee.  On 18 June 2017, amounts referrable to the same funds are said to have been paid to CNP Castello Di, Barberino Val, an international transaction fee, an amount to Farmacia Tangane, Tavarnelle VA, an international transaction fee, an amount to La Locanda Di Pi, Tavarnelle VA, another international transaction fee, a payment to Pacific Petroleum, a payment to Staz Serg Erg Go, Tavarnelle VA, and another international transaction fee.  Amounts referrable to the same $12,000.00 are said to have been paid on 20 June 2017 to Giraffe T3C3 Dubai, BP Beresfield, Caltex Wyong, Mychef, international transaction fees, Buffet Firenze, Dufrital Spa, Ferno, Avis Rent‑a‑Car, Decisions Café Birtinya, Bayres 30 S.A.S. Di Ro, Milano.  Amounts referrable to the same funds are said by Mrs Butler to have been paid on 21 June 2017 to Shell Aratula, Allianz Insurance, Dan Murphy’s Buddina, Decisions Café Birtinya, Cin Cin Milano and another international transaction fee.  Amounts were paid on 22 June 2017 to 7‑Eleven Warana and HP Automotive, Coomera. 

23. As to an amount received from Cutting Edge Grader Hire of $12,345.75, Mrs Butler says that payments were made as follows:  22 June 2017 - HP Automotive, Oporto Bundamba, Pacific Petroleum and a Bendigo Bank loan account; 23 June 2017 – BP Beresfield, Pline PH Chancello, Pacific Petroleum, Salisa Thamachaichusak, Warana, “The Sushi”, Samios Wholesale, Archerfield; 25 June 2017 – “The Sushi”, and Coles Express. 

24. As to an amount received from Cutting Edge Grader Hire of $6,351.93, Mrs Butler says that payments were made as follows:  21 July 2017 – Flash Fibres, Birtinya, Warana Markets, “The Sushi”, Paypal; 22 July 2017 – Jimmy’s Gourmet, Warana Markets, AGL, Unity Water, Telstra, ANZ Bank Loan, Pickles Auctions, Spice Bar Pty Ltd, Dan Murphy’s, Xero, Sunglass Hut, Bar B Kool Birtinya, Micks Meat Barn, One On La Balsa, Buddina.

25. As to an amount received from Cutting Edge Grader Hire of $941.50, Mrs Butler says that payments were made as follows: 25 July 2017 – One on La Balsa, Buddina, Meat Hall Gympie, Hashtag Phresh; 26 July 2017 – Sunshine Coast CNCL.

26. Accordingly, Mrs Butler says in her affidavit of 31 August 2017 that these amounts described at [19] to [25] of these reasons, were payments made from the amounts received from debtors to Earthworks but which were applied for the benefit of Earthworks thus giving rise to a set‑off.  Mrs Butler says, orally, that many of these amounts were identified based on information identified by her husband, Mr Butler. 

27. In answer to the application, Mrs Butler swore an affidavit on 25 July 2018 filed on that date. 

28. In that affidavit she says these things.

29. Mrs Butler has been a personal trainer since 2009 and she has run her own personal training business called “Ms Z Wellness”.  She started a business called “Bambini Wellness” on 27 February 2018 which sells an educational toy she developed and artwork.  She says that she has never worked for Earthworks in any capacity.  On 14 December 2016, she gave birth to her first child.  She ceased all work while recovering from the birth of her child.  At the date of her affidavit (19 June 2018), Mrs Butler was seven months pregnant with her second child.  She says that from 8 March 2017 she resumed working in the business called Ms Z Wellness.  She also gives evidence concerning her work at the Mirvac Kawana Shopping Centre and her work filming television commercials and 27 episodes for a cooking show all of which occurred up to 30 June 2017.  Mrs Butler then sets out the work she undertook from July to November 2017 and aspects of her workload and motherhood commitments. 

30. Mrs Butler says that on 30 March 2017 her husband initiated the process of opening a bank account in Mrs Butler’s name.  She says that she misunderstood the purpose of the bank account.  She says that she “signed the paperwork when my husband requested me to sign [it]”.  Mrs Butler says this at para 7 of her affidavit:

    I was unaware the bank account was to be used for his business transactions.  My number one focus was on being the primary carer of a young baby, second was running my own business, thirdly the household.  I was also suffering lack of sleep, due to my baby not sleeping and me being on my own.  I was at maximum capacity, I did not work in my husband’s business and kept out of his affairs and believe this contributed to my lack of understanding of the bank accounts purpose.

    [emphasis added]

1. Mrs Butler says at para 9 of her affidavit:

   My understanding, from what my husband shared with me was that Earthworks operated a Xero Accounting System (Xero Database) and no other accounting system.  My husband was the only operator of this system.  Our accountant, Mr David Mason, and Mr Butler’s bookkeeper at the time, Elisha Williams had access to the Xero account for tax lodgement purposes.

   [emphasis added]

2. Mrs Butler says that in April 2017 she commenced a “free trial” of the Xero Database for her business.  She says that on 6 July 2017 she changed the “subscriber” for her trial account from Zemma Butler to the name “Bobcats Today” because she could not justify the expense of the accounting software for the turnover of her business.  Mrs Butler says that she transferred her account (under that name) to her husband so that he would be able to “keep track of his invoices whilst working under his own ABN until the new companies were set up”.  The new companies were to be Mezz Trans Logistics Pty Ltd, M B & Z B Family Holdings Pty Ltd and Elite Earthmoving & Civil Pty Ltd, as earlier mentioned.  They were incorporated on 27 June 2017.  Mr Butler was the director of each company. 

3. One of the officers acting on behalf of the liquidators is Mr Adrian Roca (Senior Manager).  After the appointment of the liquidators, steps were taken to secure access to the Xero accounting system.  To that end, Mr Roca sought access from the operators of the accounting system.  They are described as “Xero Support”.  In order to gain access, particular documents had to be signed and sent to Xero Support.  On 6 July 2017, Xero Support (through a person called Rob) acknowledged receipt of the documents and said that the “Product team” would add Mr Roca as a “Xero user” to the file.  In his email, Rob then said this:  “Please note the Subscriber has recently changed the name of the organisation to “bobcats today”.  This will be the name that appears when you access the organisation”.  The subject line of the email exchanges between Rob and Mr Roca is this:  “Xero Support – Earthworks Today Pty Ltd (In Liquidation), ACN 162 124 147, formerly t/as EWT Transport & Earthmoving Group.  As mentioned earlier, “EWT Transport and Earthmoving Group” is a business name owned and operated by Earthworks.  The reference in Rob’s email of 6 July 2017 to “the organisation” is a reference to the entity in the subject line, namely Earthworks. 

4. As to the critical matters in issue in the present application, Mrs Butler says that a dispute has arisen between her husband and the liquidators “over pre/post liquidation contracts and contractors”.  Mrs Butler says that the invoices paid into “the account with my name on it [Account 1369]” total $116,193.23.  She says that the expenses paid by Mr Butler “from the account with my name on it” total $117,349.64.  Mrs Butler exhibits to her affidavit as ZHB‑1 a true copy of the statement for Account 1369 for the period 30 March 2017 to 29 September 2017.  That exhibit highlights the invoices paid into the account and the expenses paid out of the account.   The expenses paid out of the account are said to be expenses referrable to the activities of Earthworks.  In other words, put simply, (although Mrs Butler does not use this term), Mrs Butler in effect seems to be saying that Mr Butler was using “the account with my name on it” as an administration account for Earthworks with the result that although Mrs Butler is required to account for the money had and received by her (the quantum of which she admits), she claims to be entitled to bring to account all of the expenses paid out of the account on behalf of the company as, in effect, an equitable set‑off which would operate as a defence to the principal claim.  Mrs Butler says that an examination of the bank account statement of income and expenses does not justify the claim of the liquidators.  She says that on 22 August 2017 she was served with documents naming her as the Third Defendant in the principal proceeding.  She says that her husband disclosed to her that the bank account he had opened in her name on 30 March 2017 (Account 1369) “was being used for his business purposes” and that she “was not previously aware of this information”. 

5. Mrs Butler says that a proposition was put to her by the solicitors for the liquidators to the effect that Mrs Butler “as a senior staff member or agent of Earthworks and Matthew’s wife”, knew or should have known, “in doing what she did” that she “breached the law” and that she should have known that she was assisting her husband in “breaching his legal obligations”.  As to these matters, Mrs Butler returns to her central factual contention which is that she has never drawn a wage nor worked for nor acted as an agent for Earthworks. Rather, she says that she has been a full time mother operating the Ms Z Wellness business during the time of the transactions in issue. 

6. As to the payments by the eight debtors into Mrs Butler’s account, Mrs Butler says that she has had to have regard to the documents provided to her by the solicitors for the liquidators and statements made to her by Mr Butler “pertaining to each invoice in question”.  She says that she has had to rely upon the documents provided to her and answers given to her by Mr Butler to questions she asked of him about each transaction as she has not worked for Earthworks and has “no idea about each of these transactions”. 

7. It should be noted that Mr Butler was the subject of a bankruptcy sequestration order made by the Federal Court of Australia on 14 March 2018.  Nevertheless, there is no good reason identified by Mrs Butler in the course of oral submissions and questions from the Court as to why Mr Butler has not put on an affidavit assisting Mrs Butler in explaining in some detail each of the contended set‑offs.  There is no evidence from anyone on Mrs Butler’s side, of the record who can speak with any authority about the contentions she advances concerning each of the items of expenditure in Annexure B, because Mr Butler has not filed an affidavit and Mrs Butler has “no idea about these transactions”.    

8. As to Annexure B, the expenses paid from the account identified by Mrs Butler based on Mr Butler’s statements to her, are set out in a document (Schedule) attached to her affidavit filed on 25 July 2018, marked ZHB‑10.  That Schedule is attached to these reasons marked Annexure B.  As can be seen from Annexure B, there are only two payments which pre‑date the order for the winding up of Earthworks. They are expenses paid on 5 April 2017 in an amount of $29,000.00 to Pacific Petroleum for “fuel” and $430.00 paid to Sunshine Concrete for “supplies”.  Of course, Earthworks ceased trading at the latest on 19 April 2017, the date of the winding‑up order. 

9. In her defence in the principal proceeding, Mrs Butler says that prior to the incorporation of Earthworks (on 29 January 2013) and on and from 18 April 2011, Mr Butler traded as a sole trader under the business name “Bobcats Today”.  It will be recalled that that was the subscriber reference mentioned earlier in these reasons to which Mrs Butler transferred her subscriber entitlements when dealing with the Xero accounting system and the Xero database, in emails to Xero Support.  At para 5(c)(iii) of her defence, Mrs Butler says that Mr Butler “traded alongside [Earthworks] during its incorporation providing the same services as those provided by the plaintiff, with the plaintiff’s informed consent”.  Mrs Butler also says, at para 5(c)(iv) of her defence, that Mr Butler carried on his business through the “EWT Group”, which she asserts “was a colloquial reference to the various entities related to [Mr Butler] which would interchangeably undertake transport work, as and when required”. 

10. Having regard to these factual contentions of Mrs Butler in her defence to the principal proceeding, it becomes important for Mrs Butler to identify the extent to which the expenses in the Schedule at Annexure B are related truly to the trading activities of Earthworks.  It might be, for example, that these expenses relate to the activities of Mr Butler in his various business activities whether operating in the name of the M Butler Family Trust, some other business name or, theoretically, on behalf of one or more of the companies he has formed, as earlier described: see [9] of these reasons.  

11. Mrs Butler says that all of the items of expenditure in Annexure B relate to the trading activities of Earthworks but there is simply no reliable evidence of that matter at all.  Importantly, there is no attempt by Mrs Butler to identify the item of expenditure and its relationship with an invoice in the sense of seeking to explain or describe how the item of expenditure engages activities undertaken by Earthworks so as to give rise to an adjustment or set‑off in respect of Mrs Butler’s obligation to account for $116,193.23 which she accepts was paid into her account and truly represents debts payable to Earthworks, on the evidence.  As to the relationship between each item of expenditure in Annexure B and a corresponding invoice for that expenditure, Mrs Butler simply says this:  “Information provided for what expenses pertained to which invoice was gathered by Mr Butler, as I have not and did not work for Earthworks”:  para 51.  As Annexure B demonstrates, the total of all of the expenditure items is $117,349.64 which exceeds the amount diverted from Earthworks into Mrs Butler’s account. 

12. In addition, there is no attempt by Mrs Butler to reconcile her analysis of expenditures from the account as set out in her affidavit sworn on 31 August 2017 (as to which see [18] to [25] of these reasons) with the version of the expenditures set out in her affidavit sworn on 25 July 2018. 

13. Earthworks ceased trading at the latest on 19 April 2017.  It was not incurring expenses after that date (at least as set out in Annexure B).  It may be that expenses were incurred for and on behalf of Earthworks prior to 19 April 2017 which resulted in an invoice from a creditor generated after 19 April 2017.  If a generous assumption is made that that circumstance may have existed up to 31 May 2017 (which is highly unlikely), there could be little doubt that the expenses reflected in the invoices from 2 June 2017 have nothing to do with expenses incurred for and on behalf of Earthworks.  They would not be expenses which would amount to an equitable set‑off in relation to the claim of the liquidators for recovery of the monies deposited into Mrs Butler’s personal account which ought to have been paid into the account of Earthworks for the benefit of creditors generally.

14. If the invoices to 31 May 2017 are taken into account in the sense described above, they might arguably give rise to an equitable set‑off, of $66,707.12.  That is a matter which would need to be tested at trial.  

15. Mrs Butler accepts that $116,193.23 was paid into her account.  That amount represents debts payable to Earthworks.  The creditors of Earthworks are entitled to secure recovery of that sum from Mrs Butler subject to any defence or right of set‑off she may enjoy.  Mrs Butler understands and does not contest that that money is the product of debts diverted to her account.  She contends that in determining the extent of any obligation to account for the money she received into her account, she is entitled to take into account expenditures from the account made for and on behalf of Earthworks.  I am satisfied and find that Mrs Butler must account to Earthworks for the money received into her account subject to any set‑off.  I am satisfied that, for the purposes of this application, Mrs Butler has demonstrated an arguable basis for a set‑off of $66,707.12.  Therefore, I am satisfied that there is a question to be tried as to $66,707.12.  I am satisfied that, subject to the set‑off, Mrs Butler holds the money deposited into her account on trust for the plaintiff.  Subject to the right of set‑off, I am satisfied that Mrs Butler has been enriched by the amount deposited into her account representing debts payable to Earthworks. I am satisfied that the enrichment is at the expense of the plaintiff.  I am satisfied that it is plainly unjust for Mrs Butler to retain the benefit of the plaintiff’s money which ought to be applied in the administration for the benefit of the creditors.  I am satisfied that no evidence has been put on by Mrs Butler which justifies the receipt and retention of the money. 

16. I am satisfied that judgment is to be entered in an amount of $49,486.11 together with the costs of and incidental to the application.  Directions are to be made for the trial of the question of whether the first four items in Annexure B give rise to a set-off.  Leave will be granted to the plaintiff to issue all such subpoenaes as may be necessary to Mr Butler or otherwise in relation to that matter.  The plaintiff/applicant will be directed to submit proposed orders to the Court within seven days.

I certify that the preceding forty‑six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.

Associate:

Dated:       6 September 2018

Annexure “B”