Gammon Investments P/L & Anor v Perry & Ors No. Scgrg-99-1645

[2000] SASC 309

GAMMON INVESTMENTS PTY LTD (IN LIQUIDATION) ANOR
V ALAN PERRY ANORS

Full Court: Prior, Lander and Bleby JJ (Ex Tempore)

1................ PRIOR J......................... I agree with the orders proposed by Lander J and the reasons he has given.

2................ LANDER J....... The plaintiffs, who are the appellants before this Court, brought proceedings in the District Court of South Australia against the three defendants.

The first plaintiff is a company in liquidation ordered to be wound up by the Federal Court of Australia on 1 February 1994. The second plaintiff was an appointed liquidator of the first plaintiff by order of the Federal Court on the same day.
The first and third defendants were, until their resignations on 30 June 1992, directors of the first plaintiff.
The plaintiffs claim that by reason of the first and third defendants being directors of the first plaintiff they owed statutory and fiduciary duties to the first plaintiff. In particular, it was claimed that they owed duties pursuant to s.232 of the Corporations Law:
1...... To act honestly in the exercise of their powers and the discharge of their duties of office.
2. To exercise their duties with a degree of care and diligence that a reasonable director would exercise.
3...... Not to make improper use of information acquired by virtue of their position to gain directly or indirectly an advantage for themselves or any other person, or to cause a detriment to the first plaintiff.
4. Not to make improper use of their position to gain directly or indirectly an advantage for themselves or for any other person or to cause detriment to the first plaintiff.
The first and third defendants were also directors of the second defendant.

Golden Point Debt

It was the plaintiffs’ claim immediately prior to 30 June 1992 that the second defendant was indebted to the first plaintiff in the amount of $64,380 (“the Golden Point debt”).
It was the plaintiffs’ claimed on 25 June 1992 that the first and third defendants at a meeting of directors of the first plaintiff resolved to write off the amount owing by the second defendant to the first plaintiff as at 30 June 1992. At a corresponding meeting of the second defendant, the first and third defendants resolved that the amount then owing by the second defendant to the first plaintiff would no longer be payable.
It was the plaintiffs’ case on 30 June 1992 a journal entry in the books of the first plaintiff recorded the writing off of the amount owing by the second defendant to the first plaintiff as at 30 June 1992. The plaintiffs claimed that the amount was written off for no consideration, or at least, for no proper consideration.
The plaintiffs claimed that at the time the amount owing by the second defendant to the first plaintiff was written off, the first plaintiff was not trading profitably and its liabilities exceeded its assets and, in particular, its current liabilities exceeded its current assets.
The plaintiff claimed that the liquidator was entitled to avoid that transaction pursuant to s.120(1) of the Bankruptcy Act 1996 and s.565(1) of the Corporations Law because a transaction advantaged the second defendant by writing off the amount owing as at 30 June 1992.
The plaintiffs also claimed that the second and third defendants were liable to the first plaintiff because both had not acted in the best interests of the first plaintiff and they had made improper use of their position as directors of the second defendant to again an advantage for the first or third defendants.

Blue Crescent Land

The second aspect of the plaintiffs’ claim against the defendants related to a property which was described in the pleadings as the “Blue Crescent land”.
The first plaintiff purchased that land situate at 20 Blue Crescent, Woodforde some time prior to 3 June 1991, at a cost of $84,152.
By a journal entry made in the books of account of the first plaintiff the Blue Crescent land was written off at a value of $90,750 under a note:
“Transfers as at 30/6/92 as per property settlement under Family Law Act.”
A memorandum of transfer, executed by the first plaintiff, was lodged at the Lands Titles Office on 20 July 1992.
The first plaintiff claimed that it transferred its interest in the Blue Crescent land to the first defendant for no consideration.
Again it was the plaintiffs’ case that at the time of the transfer of the Blue Crescent land, the first plaintiff was not trading profitably and its liabilities exceeded its assets. Again, the second plaintiff claimed to be entitled to avoid the transaction pursuant to s 120(1) of the Bankruptcy Act and s 565(1) of the Corporations Law.
The plaintiffs also claimed to be entitled to succeed against the first defendant in respect of that transaction on the basis that the first defendant had not exercised his powers honestly and with a degree of care and diligence, and had made improper use of his position as a director of the first plaintiff and had created an advantage for himself to the detriment of the first plaintiff.
In the alternative, it was claimed that the first defendant held the Blue Crescent land on trust for the liquidator and was liable to account to the liquidator for that land or its value.

Other Claims

The plaintiffs also included in their proceedings two other claims against all defendants. One related to a loan of $6,000 made to the third defendant, and the other related to the transfer by the first plaintiff to the first defendant of two motor vehicles.
The claim relating to the motor vehicles was dealt with in the no case to answer ruling. The plaintiffs did not seek to continue their claim in respect of those vehicles. The claim against the third defendant failed in that the learned Trial Judge accepted the evidence of the first and third defendants that the loan had been repaid by the third defendant.
No appeal is brought from the dismissal of those parts of the plaintiffs’ case.

Submission Of No Case To Answer

At the close of the plaintiffs’ case all three defendants submitted no case to answer in respect of the Golden Point debt and the Blue Crescent land. The Trial Judge did not call upon the defendants to elect: Residues Treatment & Trading Co Ltd v Southern Resources and Others (1989) 52 SASR 54.
He found the plaintiffs had failed to discharge the onus cast upon them and failed to establish a prima facie case against any of the defendants. He therefore dismissed those parts of the plaintiffs’ claim.
He went on to consider that part of the plaintiffs’ claim relating to the debt of $6,000 which the plaintiffs claim had been written off without any proper consideration. But, as I have already said, he accepted the defendants evidence in that regard that the moneys had been repaid and dismissed that part of the plaintiffs’ claim.
This appeal is only against the ruling by the Trial Judge that the plaintiffs’ claim in respect of the Golden Point debt and the Blue Crescent land should be dismissed because the plaintiffs had failed to make out a case to answer.

The Plaintiffs’ Evidence

The plaintiffs have sought to prove their case at trial by the tender of documents. They called no oral evidence in support of their case.
In respect of the Golden Point debt it was conceded by the defendants’ counsel, before the plaintiffs’ had closed their case, that the amount of the Golden Point debt ($64,380) was not in dispute. The plaintiffs’ tendered a minute of a resolution of the directors of the first plaintiff of 25 June 1992 to the following effect:
“Under the terms of the order of the Family Court the balance due if any, by Golden Point Electronic Amusements Pty Ltd or to Golden Point Electronic Amusements Pty Ltd by the company is null and void as at 30 June 1992 and will no longer be recovered or payable.”
The Family Court order to which I will refer shortly did not, in fact, refer to the Golden Point debt.
A journal entry was tendered which showed the Golden Point debt was subsequently written out of the financial statements and the accounts of the first plaintiff “as per property settlement under Family Law Act”.
Evidence was led that in both the financial statements of the first plaintiff and the second defendant the debt was written off and ceased to be an asset of the first plaintiff and ceased to be a liability of the second defendant.
The plaintiffs established that the Blue Crescent land was acquired by the plaintiffs for $80,000 on 9 March 1990. The plaintiffs tendered the financial statements of the first plaintiff for the financial years ended 30 June 1990 and 30 June 1991, and established thereby, that the Blue Crescent land appeared as an asset in the balance sheet of the first plaintiff for each of those years.
The plaintiffs tendered a memorandum of transfer dated 22 June 1992 which showed that the first plaintiff had transferred the Blue Crescent land to the first defendant:
“Pursuant to an order of the Family Court in proceedings No. AD3183 of 1992 made the 12th day of June 1992.”
The memorandum of transfer was lodged for registration on 20 July 1992.
The first plaintiff’s financial statements for the year ended 30 June 1992 discloses the absence of the Blue Crescent land as an asset of the first plaintiff.
The plaintiffs also tendered the order of the Family Court made on 12 June 1992 which showed that the Family Court had made in proceedings between the first defendant and his former wife the following orders:
“(b).. that within 14 days of the date of this order the parties do all such things as may be necessary to transfer to the husband (at the cost of the husband in all things) and cause to be delivered up to the husband a Memorandum of Transfer in registrable form in his favour of all the right title estate and interest of Gammon Investments Pty Ltd in the land and improvements situate at and known as 20 Blue Crescent, Woodford in the State of South Australia being the whole of the land comprised and described in Certificate of Title Register Book Volume 2984 Folio 54 to the intent that thereafter the husband shall be entitled to be the sole registered proprietor thereof and hold the same for his sole use and benefit absolutely.
...
(h).... as to the company Gammon Investments Pty Ltd (hereinafter referred to as “the said company”);
(i)the husband do forthwith resign from any and all positions he may hold in the said company.
(ii)that the wife do indemnify the husband and keep him forever indemnified in relation to all or any liabilities of the husband arising out of the said company or the husband’s position in the said company including any taxation liability that may arise in the past, present or future and any liability that the husband may incur in the future arising out of director’s guarantees signed by the husband in relation to Gammon Investments Pty Ltd.
(iii)the husband shall forthwith transfer to the wife and or the wife’s nominee all his shares in the said company provided that if the husband shall refuse or neglect to execute a transfer of shares in the proper form within seven days after the same shall have been tendered to him or on behalf of the wife for that purpose then and in such case a Registrar or Deputy Registrar upon proof by affidavit of such refusal or neglect is hereby appointed to execute and if in his or her opinion it shall be necessary so to do to settle the same and do all other acts and things and execute such other document as shall be necessary to give full force and effect thereto and shall execute and do the same accordingly.
(iv)the husband shall have no further claim against the wife in relation to the said company or its assets or any monetary entitlement the husband may have in the said company either in the past present or in the future.
(v)the husband forthwith and he is hereby directed to transfer to the wife his loan account in the said company.”
The parties, in the Family Court, seemed to treat the first plaintiff as though it was no more than an extension of the parties and the order of the Family Court rather suggests the Court treated it that way.
The plaintiffs also tendered a journal entry showing that the books of accounts of the first plaintiff recorded the Blue Crescent land having been removed from its account “as an asset as at 30 June 1992 as per property settlement under the Family Law Act.”
The plaintiffs on this appeal seek an order setting aside the dismissal by the Trial Judge of the plaintiffs’ claim in respect of the Golden Point debt and the Blue Crescent land and a referral back to the Trial Judge for determination of those claims.
It is therefore not for this Court to make any decision whether or not the plaintiffs’ claim has or will be made out. It is only for this Court to determine whether the plaintiffs established an arguable case.
In my opinion there is no doubt that the plaintiffs discharged their onus and established a prima facie case against all three defendants in respect of both the Golden Point debt and the Blue Crescent land. In my opinion, the plaintiffs’ evidence established immediately prior to 12 June 1992 the first plaintiff was possessed of two assets, namely, the Golden Point debt and the Blue Crescent land. Thereafter, apparently as a result of a compromise by one of the directors of his Family Court proceedings with his former wife, the first plaintiff transferred those assets in the manner described to the advantage, it may be argued, of the first named defendant.
In my opinion the plaintiffs did establish a prima facie case which all three defendants were called upon to answer.
The Trial Judge concluded the plaintiffs had not established the transactions were not made in favour of the plaintiff in good faith and for valuable consideration.
In my opinion the transactions which, on the face of it, did not advantage the first named plaintiff were of a kind that it might be inferred they had not been made in good faith and for valuable consideration. In that respect, in my opinion, a prima facie case was made out.
The learned Trial Judge also found the plaintiffs had not advanced any evidence to enable a finding under s 232 of the Corporations Law against the directors. In my opinion in that respect his Honour erred. There was such evidence which, if uncontradicted, could have led to a finding that the directors had not acted in the best interests of the first plaintiff and were therefore liable in that regard.
It is not for this Court, at this stage, to determine whether or not the evidence led to that conclusion. It is only for this Court, at this stage, to determine whether a prima facie case was made out. In my opinion, such a case was made out.

Conclusion

In my opinion the complaints made by the plaintiffs have been made out and the order of the Trial Judge dismissing the plaintiffs’ claim against the defendants in respect of the Golden Point debt and the Blue Crescent land should be set aside and the matter remitted to the Trial Judge for hearing and determination according to law.
The order for costs made in favour of the defendants should also be set aside and the question of the costs of the action determined after the hearing of the matters remitted to the Trial Judge by this decision.
I would make the following orders:
1...... The appeal be allowed and the order of the Trial Judge dismissing the plaintiffs’ claim against the defendants be set aside.
2. That part of the plaintiffs’ action relating to the Golden Point debt and the Blue Crescent land be remitted to the Trial Judge in the District Court of South Australia for determination.
3...... The order for costs made in the District Court set aside.
4. The defendants to pay the plaintiffs’ costs of this appeal.

52.............. BLEBY J.......... I agree.

[2000] SASC 309

4 September 2000