Gandega & Fulmali
[2023] FedCFamC1F 308
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Gandega & Fulmali [2023] FedCFamC1F 308
File number(s): PAC 4811 of 2016 Judgment of: RIETHMULLER J Date of judgment: 21 April 2023 Catchwords: FAMILY LAW – PROPERTY – Where the husband and second respondent jointly owned a business – Determination of the value of the husband’s interest in the business required – Signed agreement for the husband to resign as director to receive 50 per cent of profits and value of business in return – Second respondent failed to fulfil his obligations under the agreement – Where accounting records for the business were scarce and inconsistent – Where the second respondent engaged in conduct to frustrate the calculation of the husband’s entitlement – Property pool generally agreed between the wife and husband – Declaration that the husband is owed funds in respect to funds contributed to a joint venture with the second respondent – Judgment against second respondent for fixed sums and interest in favour of the husband – 60/40 adjustment of the property pool in wife’s favour – Difficulties of enforcement and costs – Submissions as to the form of final orders and costs Legislation: Family Law Act 1975 (Cth) ss 79, 75(2) Cases cited: Konskier v B Goodman Ltd [1928] 1 KB 421 Division: Division 1 First Instance Number of paragraphs: 162 Date of hearing: 22–31 August 2022 Place: Parramatta Counsel for the Applicant: Mr Reeves Solicitor for the Applicant: Marsdens Law Group Counsel for the First Respondent: Mr Dura Solicitor for the First Respondent: Crumpton Lawyers Counsel for the Second Respondent: Mr Ford Solicitor for the Second Respondent: KPL Lawyers ORDERS
PAC 4811 of 2016 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS GANDEGA
Applicant
AND: MR FULMALI
First Respondent
MR AKBAR
Second Respondent
order made by:
RIETHMULLER J
DATE OF ORDER:
21 April 2023
THE COURT DECLARES THAT:
1.The husband is entitled to the sum of $290,692 from the monies held by KPL Lawyers in their trust account with respect to the D Pty Ltd venture.
THE COURT ORDERS THAT:
2.The second respondent pay the husband the sum of $2,165,310.
3.The balance of the sum held on trust by KPL Lawyers (in excess of the husband’s entitlement to a refund of $290,692) be paid to the husband in part satisfaction of the judgment sum.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Gandega & Fulmali has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
RIETHMULLER J:
INTRODUCTION
In 2016, when the husband, the first respondent, was visiting Asia, he was charged with criminal offences and remanded in custody until he was acquitted over a year later. The applicant wife filed an Application for Final Orders on 12 October 2016 seeking property settlement orders, although her marriage with the first respondent had broken down in around 2012. The husband’s business partner, Mr Akbar (“the second respondent”), then pressed the husband, whilst he was on remand, to transfer his interest in the business to him. The husband entered into an agreement and transferred his company share, however never received any payment from the second respondent.
The second respondent is the former business partner of the husband. Together they operated a business known as C Pty Ltd. The husband transferred his interests in the business to the second respondent in 2016, pursuant to an agreement in writing that provided for the husband receiving half of the profits of various projects and half of the value of the business assets. However, the husband never received such payment from the second respondent. The husband pursues a claim against the second respondent, either pursuant to a sale agreement or in equity. The husband’s claim is supported by the wife, who contends that the husband’s interest in the business is an asset that should form part of the parties’ marital property for the purposes of s 79 of the Family Law Act 1975 (Cth) (“the Act”). The second respondent contends he has no obligation to the husband as a result of their business dealings and denies that there exists any basis for such a claim at common law or equity.
There is no claim by the wife that the second respondent has any obligation directly to her. Instead, the wife’s claim is for a property settlement pursuant to s 79 of the Act and, as an incident of that claim, she pursues a case against the second respondent to establish that the husband is entitled to a significant sum as a result of the business dealings between them.
BACKGROUND
The husband was born in 1966 and the wife was born in 1968.
The husband and wife commenced cohabitation in Country Y in around 1996 and were married in Country Y in late 1996. In 1997, the husband ceased operating his own business and changed careers. In 1998, the wife and husband migrated to Sydney, Australia, where they spent time in a detention centre before being released in 2000 and 2021 respectively, and resumed cohabitation in New South Wales.
After release from immigration detention, the husband obtained employment in the services industry and, later, the wife obtained work in the health care sector.
There is one child of the relationship, born 2006, who is 16 years of age.
In 2006 or 2007, the husband met the second respondent whilst undertaking a course. At around this time, the husband registered a business under the name C Pty Ltd. He and the second respondent became friends and the husband attended the second respondent’s wedding in Country Y in 2008. In 2008, the husband and the second respondent established two companies to operate their business, being B Pty Ltd (BPL) and C Pty Ltd.
By 2012, the business was trading well. The husband and the second respondent had commenced importing equipment direct from Country Z and Country BB, rather than purchasing it from local suppliers. During this period, the husband and the second respondent were spending time travelling overseas.
The wife contends that she and the husband separated in around 2012 under the one roof, however the husband contends that they separated at a later stage, albeit some time prior to August 2016. The husband commenced a relationship with a woman in Asia around this time.
In 2014, the husband and the second respondent had a business dispute with a client, which resulted in C Pty Ltd being placed in voluntary liquidation. However, in the same year, they secured a large contract with CC Pty Ltd. In 2015, the husband and the second respondent register a company, D Pty Ltd, to purchase and develop a property in Suburb DD. By 2015, the business had a total revenue of over $4.9 million and generating a net profit of over $421,000 per annum.
Whilst the business relationship appeared to be proceeding well, the second respondent had been establishing other companies, such as N Pty Ltd (trading as EE Pty Ltd), FF Pty Ltd, W Pty Ltd, and GG Pty Ltd.
In 2016, when visiting Asia, the husband was arrested and held on remand until late 2017, when he was acquitted of all charges. Whilst on remand, the husband suffered a severe illness. During this period, the second respondent declined to provide funds from their jointly owned business for the husband’s support or medical treatment.
The business relationship between the husband and the second respondent broke down. The second respondent pressed the husband (whilst he was on remand in Asia) to resign as a director of the business and transfer his shares to the second respondent, telling the husband that his arrest in Asia had resulted in clients no longer wishing to deal with their business.
As a result, in late 2016, the husband and the second respondent signed an agreement (“the 2016 agreement”) that the husband would transfer his shares in the business to the second respondent in exchange for 50 per cent of the profits of all of the business’ current projects less contingent liabilities, with the accounts to be finalised by nominated accountants, L Pty Ltd.
Following this agreement, the business interests of BPL were moved to other entities controlled by the second respondent. BPL was placed in liquidation in late 2018. The liquidator noted at pages 4 and 6 of their report that:
Based on the minimal records provided to me, it appears as though the Company's records were insufficiently maintained with records either being incomplete or incorrectly and insufficiently detailed. Therefore, the accuracy of the books and records kept by the Company cannot be verified.
This likely would have affected the ability of the Director to make timely and informed strategic business decisions.
…
My review of the debtor's ledger indicates that approximately 90% of the debtor's ledger consists of amounts owing from [GG Pty Ltd]. I have since obtained information from [GG Pty Ltd] indicating that the Company is involved in a legal dispute in respect of a damages claim and unpaid invoices totalling approximately $455,980. I note that [GG Pty Ltd] has lodged a claim in the Liquidation for this amount. My investigations in respect to this are ongoing.
Proceedings were commenced in the Supreme Court of New South Wales by the liquidator seeking to recover funds identified as “inappropriate” withdrawals of company funds. In early 2022, the Supreme Court of New South Wales made orders for the Supreme Court proceedings to be transferred to this Court to be heard concurrent with the matrimonial property dispute. The liquidator subsequently did not pursue action against either the husband or the second respondent.
The second respondent ultimately paid nothing to the husband pursuant to their 2016 agreement, alleging that there were no profits. However, the second respondent put in place no accounting arrangements to track the profits of the existing projects separately from any new projects after the date of the agreement, nor did he engage the nominated accountants to prepare the accounts.
There is no dispute that the issues between the husband and the second respondent must first be determined in order to determine the husband’s assets for the purpose of the property settlement proceedings between the husband and wife, nor is there any dispute that it is just and equitable to make property settlement orders as between the husband and the wife in the circumstances of this case.
THE EVIDENCE
The parties each gave evidence in the proceedings, as did a number of witnesses who had had involvement with the business, along with two experts, one engaged as a joint expert and one engaged by the second respondent. Aside from the wife and the second respondent (for reasons discussed below), I generally found that those who gave evidence in these proceedings presented as honest and credible witnesses in the witness box (or virtually). Whilst the valuation experts differed on some matters which I must resolve, I have no doubt as to their integrity or expertise.
The wife’s evidence
The wife gave evidence that she lives in the former matrimonial home with her and the husband’s son and relies upon Centrelink benefits. Remarkably, she did not bring her reading glasses when coming to give evidence where, one would presume, documents were to be read. Her answers were often not particularly responsive to the questions she was asked. When questioned by counsel for the second respondent in particular, she had difficulty accepting any proposition put to her, even if correct on her own evidence. I found her to be a witness who was clearly partisan and have treated her evidence with considerable caution.
The wife gave evidence that she withdrew $309,369 from an HH Financial Services mortgage offset account and deposited the funds into an ANZ bank account operated for the benefit of her son. The wife deposes that she is the only person who had access to the account and that the subsequent withdrawals from those funds were made by her. Whilst the funds were first deposited in early 2017, they were completely exhausted by August 2018. Initially, the wife said she had applied about $50,000 to her legal fees and also met the mortgage repayments for a period of 15 months, which came to around $50,000 (the precise figure being $49,336.95). In addition, the wife deposes applying $23,010 to the purchase of a motor vehicle in mid-2017, explaining that the lower amount (compared to the $24,000 she mentioned initially in her evidence) was because she obtained a discount for paying cash.
Initially, in her evidence, the wife said that the balance of the withdrawn funds was used to meet day to day living expenses, however, this represented around $11,560 per month over the period between early 2017 and mid-2018. When pressed to explain the use of the monies, she was unable to provide details beyond the three specific items earlier set out. The wife did, however, recall that on 19 and 20 June 2017, where the bank statements show she withdrew $5,000 one day after the other, she applied $2,000 of this to the building of a fence. She also said that though there was a car accident in which her previous car had been written off, the money was not used to repair it; the money was ultimately said by her to be for insurance. It remains unclear what that money was applied to, or to whom it was paid or given.
The bank statements also indicated $10,000 withdrawals on two separate occasions, being 28 November 2016 and 8 February 2017. The wife could not recall what she did with these sums on either occasion. She also made withdrawals of large sums from ATMs; for example, on 27 March, 30 March, and 6 April 2017, the wife withdrew $1,000 on the first two occasions, and $1,500 on the third occasion.
During re-examination, the wife recalled that she had paid for their child's dental work/orthodontics in the sum of approximately $9,500, and that she had taken her son on a holiday to Country BR, costing $7,000 to $8,000. She also claimed that their son had a tutor at $150 per week, although this seemed improbable given the cost and the difficult financial position she was confronting, on her own evidence.
I accept that some of these funds were applied to ordinary living expenses of the wife. However, I do not accept that the total amount, beyond the purchase of the car, repayments on the mortgage and the payment of lawyer's fees, was spent on day to day expenses. Whilst there is little evidence on the point, it appears that around half the withdrawals should be treated as reasonable living expenses.
When cross-examined by counsel for the second respondent, the wife appeared to have real difficulty accepting any proposition put to her. For example, she denied that the second respondent had assisted her with money at all, despite earlier accepting that he had given her $9,000 soon after the husband’s arrest.[1]
[1] Transcript 22 August 2022, p.62 line 30 to p.64 line 1.
Considerable focus was placed upon interactions between the wife and the second respondent after the husband was placed on remand in Asia. The wife deposes in her affidavit that the second respondent called to inform her that the husband’s car was found at the airport and that the second respondent had then driven her to his office, where the following occurred:
63.[Mr Akbar] picked me up and drove me to his office. At the office, [Mr Akbar] said to me in words to the effect of:
(a)"[Mr Fulmali] told me he hates you. He is staying with you for his son. He says that you are divorced."
(b)"[Mr Fulmali] married [an Asian] woman and he took her to [Country Y] and I can prove it for you. She has changed her name to his surname. She has changed her religion […] and I can prove it to you.
(c)"Leave this man, if you help me leave [Mr Fulmali] in jail, I can help you with your divorce, change your name, and your son's name. Don't worry about anything. I can help you buy an apartment."
(d)"If you don't believe me, open these bags and you can see for yourself."
64.[Mr Akbar] then handed me two bags. I was shaking in his office. [Mr Akbar] then decided to drive me home. When [Mr Akbar] left, I opened the bag that [Mr Akbar] gave me. I found the following items in the bag:
(a) [Asian] marriage certificate;
(b) Photos of [Asia];
(c) [Mr Fulmali’s] expired passport;
(d) Photocopy of [Mr Fulmali’s] birth certificate;
(e) Application for Visa;
(f) Other personal items.
The wife was challenged about these claims. She was asked to produce the bags referred to, but was only able to produce a small number of the named documents. When asked to describe the office of the second respondent, she was unable to provide any real detail, simply saying it was dark and had a computer desk.[2] I am not persuaded that the wife’s evidence in this regard is reliable.
[2] Transcript 23 August 2022, p.89 line 44 to p.90 line 16.
I did not find the wife to be an impressive witness and, in those circumstances, generally prefer the evidence of the husband to that of the wife.
The husband’s evidence
The husband and the second respondent had established and developed a very profitable services business. The husband was largely responsible for the physical work (undertaken by himself personally and supervising employees) while the second respondent was responsible for the administration of the business. The business was such that husband and second respondent had started to explore importing equipment directly, rather than purchasing from Australian suppliers.
In mid-2016, the husband travelled to Asia and spent time with Ms JJ (with whom he deposes at paragraph 37 of his affidavit he was previously in a ‘temporary’ marriage arrangement with under religious law). When at the airport awaiting his return flight, the husband was arrested. Two days after his arrest, a member of the police asked him for local currency equivalent to over AUD$500,000 to allow him to return home. The husband maintained his innocence. The police then referred him to a lawyer, who asked the husband for money for bail and a retainer fee. The husband asked the second respondent to send him AUD$20,000, which the second respondent agreed to do. However, the second respondent only sent AUD$5,000 each day for three days (citing the wire transfer limit being AUD$5,000 per day). The husband provided that AUD$15,000 to the lawyer, but never heard from the lawyer again. He deposes that one of the other prisoners told him that the person may have been an associate of the police, rather than a lawyer, and that the husband should not have trusted them. The husband then engaged a different lawyer.
Whilst in jail awaiting trial, the husband suffered two medical events. He was acquitted in late 2017 and set to be released within 15 days, however this did not occur. The husband deposes that the presiding judge had received a visit from someone from Australia who claimed to have fresh evidence against him, which had delayed his release. The husband contends his lawyer sought that the matter be transferred to a different judge, which occurred. The second judge ordered his immediate release. The papers attached to the husband’s affidavit indicated that the first judge acquitted him on what was described as a ‘demurrer’, it seems, on the basis that there was insufficient prosecution evidence. The prosecutor subsequently sought a review of that decision, which appears to have been allowed by the same judge who initially acquitted the husband on the demurrer. Upon review of the first judge’s decision by a second judge, the original acquittal was confirmed and orders were made for the husband’s release. The court papers attached do not mention any visit from an unknown person to the first judge.
On the material before this Court, it is clear that the husband was charged with offences and, after a long period in prison, acquitted and released. I accept his evidence that the police in Asia attempted to extort money from him. There is no basis for concluding that he had committed any offences. The suggestion of a person from Australia attending upon the first judge is entirely hearsay and I have no regard to it.
The husband is currently working in his own business, KK Pty Ltd, which he established around two years ago. He explained that his accountant had lent him money so that he could re-establish himself. In his personal tax return for the 2021 financial year, the husband attests to earning around $60,000 per annum from his business,[3] however counsel for the husband confirmed that he also retains a further amount of around $50,000 within his business, earning, in substance, a total of $110,000 per annum. He owns a second hand motor vehicle and is renting accommodation at present. The husband estimates that his business has a limited value of only around $5,000 and deposes to now making repayments on the HH Financial Services mortgage.
[3] Transcript 25 August 2022, p.217 lines 8–20.
At the time of the trial, the husband’s tax return for the 2022 financial year had not been completed. Not unusually for a small business, there is some intermingling of business and personal expenses on his credit card statements.
The husband seeks $7 million from the second respondent (a figure that represents roughly half of the likely gross profits of the projects being undertaken at the time of the 2016 agreement). In giving his evidence, the husband became emotional when describing how he was deprived of funds when he was remanded in Asia, such that he could not pay lawyers or meet his medical expenses. The husband appeared very genuine when cross-examined and his sense of betrayal was almost palpable.
It is clear that the husband had trusted the second respondent and felt betrayed by the events that took place. He confirmed that he had signed the 2016 agreement to sell his interests in the business to the second respondent and had transferred his share in the business.
The husband was critical of the way in which the second respondent conducted the business, saying he believed that the second respondent operated the business poorly. The husband admitted that he had expressed poor opinions of the second respondent to others. However, when cross-examined about some emails the husband was alleged to have sent to a company expressing negative views of the second respondent, it transpired that the impugned emails came from an Outlook email address, whereas the husband deposed to only operating a Gmail address.[4]
[4] Transcript 23 August 2022, p.116 lines 19–46.
The husband appeared to have a good understanding of the functions of the business. He said that there was only one security token for operating the business’ bank accounts and that this was not operated by him as he is not familiar with internet banking.[5]
[5] Transcript 23 August 2022, p.124 line 27 to p.125 line 11.
The husband did not accept that any loss of contracts for the business resulted from him being charged with offences in Asia. It was put to the husband that LL Pty Ltd (a supplier) had cancelled the business’ credit as a result of the charges, as alleged by the second respondent at paragraph 38 in his affidavit filed 27 May 2022. The husband denied this and when the relevant correspondence was produced (marked Exhibit “3”), it showed that the credit account was cancelled in 2014 as a result of C Pty Ltd being placed in liquidation. Having regard to the terms of the letter from LL Pty Ltd to BPL (which referred specifically to their underwriter having cancelled the debtor’s insurance cover as the reason for the cancellation of the credit account), it seems likely that the references made to insurance by other suppliers when cancelling their respective accounts (as set out in the second respondent’s affidavit at paragraph 38) were for the same reasons.
The husband explained that the second respondent managed the books of the company. He explained that cash transactions were noted in a cash book that would have been either in his car or the office. In response to a line of questioning whereby counsel for the second respondent put a number of expenses from the second respondent’s personal credit card to the husband as business related expenses, the husband was dubious about whether all such expenses were in fact business related. In that respect, the husband noted that the second respondent was building a house himself at the time and that there were no invoices available to him confirming whether the expenses were undertaken for the benefit of the business or personal use.[6]
[6] Transcript 24 August 2022, p.154 line 25 to p.156 line 26.
The husband confirmed that he had asked the second respondent to provide the cash in his car, which amounted to around $26,000 to $27,000, to the wife. I accept his evidence as to the cash in the car and am persuaded that the second respondent retained $26,000 of the husband’s cash.
I generally accept the evidence of the husband, whom I found to be an impressive witness when giving his evidence.
The accountants
Mr P is an accountant with L Pty Ltd, the firm that undertook the accounting and tax work for the husband, the second respondent and their businesses until late 2016. He continues in his accounting role for the husband, in whom he has considerable trust, even advancing funds to the husband for him to purchase a motor vehicle and tools after his return to Australia in 2018 (affidavit of Mr P filed 24 June 2022, paragraph 55).
Mr P explained that most of BPL’s business dealings with L Pty Ltd involved the second respondent and Mr NN, who was the internal accountant for BPL. He further sets out in his affidavit that the business’ tax return for 2015 was not able to be finalised as there was insufficient information provided, for example, a lack of complete bank statements to enable a proper reconciliation of the accounts. Mr P also sets out at paragraph 22 of his affidavit that:
The company accounts for 2016 sent to us by [Mr NN] and reviewed by me at the time stated a net profit of $321,410 .00. The accounts prepared by [Mr NN] also stated that [Mr Fulmali] [the husband] had lent the company $118,800.00 and there were directors loans to the company in the sum of $85,999.20, however there were never any loans from the company to [Mr Fulmali].
Mr P also notes that he was told of the husband’s arrest by the second respondent, and continues at paragraph 25:
I recall at that time, and subsequently, [Mr Akbar] said he would look after [Mr Fulmali’s] interests and make sure he received his 50 share of all the profits from the projects still underway. I recall [Mr Akbar] said to me:
[Mr Akbar] said: “I promise [Mr Fulmali] will get all his entitlements including outstanding wages, as well as his share of the profits for our past and current projects and the business’ assets. You will be able to tell him this as you will still be the accountants and will have all the paperwork so that you are satisfied he has received everything he is due. I just need to deal with this now so we don't have contracts cancelled and we don’t get paid”.
Mr P drafted the 2016 agreement entered into between the husband and the second respondent which reflected this conversation. He said he was aware that considerable pressure was placed upon the husband to sign the agreement to resign as director (affidavit of Mr P filed 24 June 2022, paragraph 30).
However, at paragraph 26 of his affidavit, Mr P deposes that he was never shown any documents indicating that suppliers had declined to provide credit as a result of the charges against the husband, nor did he see bank statements confirming that the business was unable to pay its suppliers. In that respect, Mr P set out a number of interactions with the second respondent at paragraph 43 of his affidavit:
I say this as [Mr Akbar] made 3 separate approaches to me with a offer that I would profit by assisting him in his treatment of [Mr Fulmali]. The following took place:
•On the first occasion [Mr Akbar] approached me in or about [late] 2016 and we had a verbal exchange to the following effect:
[Mr Akbar] said: “If you help me, I won’t worry about the cost. You can charge what you like”.
I said: “I only charge for the time I spend on a matter, no more”.
•On the second occasion [Mr Akbar] approached me in or about [late] 2016 and we had a verbal exchange to the following effect:
[Mr Akbar] said: “If you help me solve the matter with [Mr Fulmali], I know you will have extra charges and I don’t care what it costs”.
I said: “My charge is only according to the time I spend. That’s it”.
•On the third occasion [Mr Akbar] approached me in or about [late] 2016 and we had a verbal exchange to the following effect:
[Mr Akbar] said: “I want you to get [Mr Fulmali] to transfer his shares in [D Pty Ltd] to me”.
I said: “I won’t do that, [Mr Fulmali] owns those shares”.
[Mr Akbar] said: “By the way, [Mr Fulmali] will never come back from [Asia], but I will have plenty of business”.
I said: “I will only do what I believe is right”.
During cross-examination, Mr P explained that the reference to D Pty Ltd in paragraph 43 was made to Mr MM, not himself directly, but he had a clear recollection of the second respondent’s claim that the husband would never return from Asia, recalling that the second respondent had placed his hand on his shoulder when saying this.[7]
[7] Transcript 24 August 2022, p.188 lines 3–17.
Soon after these interactions, Mr P deposes that the second respondent ceased using the services of L Pty Ltd, despite their services being a requirement of the 2016 agreement.
Mr P had calculated 50 per cent of the business’ assets and profits as being $8,318,661.31 (as set out in annexure “K” to his affidavit), however this figure did not account for costs. I am not persuaded that this calculation is of assistance, save that it is of a similar magnitude to one half of the gross profits calculated using the list of projects given by the second respondent to his expert valuer, Ms JJ (as will be discussed further).
Mr P’s credit was also attacked by counsel for the second respondent on the basis that he had been suspended as a tax agent for two years. It appears, however, that this was a result of Mr P failing to attend to his own personal tax affairs, rather than the result of any dealings with clients or returns prepared on behalf of clients.
I found Mr P to be an impressive witness and, whilst he may have failed to properly lodge his own tax documents on time, this does not lead me to conclude that he was not frank and reliable in his evidence. He accepted that some comments he recounted came to him from another person. I note that had Mr P not been a person of integrity, his financial interests would have been well served by assisting the second respondent at the time he was requested to do so. I am persuaded that I should accept his evidence.
Mr MM
Mr MM is an accountant at L Pty Ltd and was the person who primarily worked on the business accounts of BPL and a number of other entities owned by the husband and second respondent. He regularly dealt with Mr NN, BPL’s bookkeeper, and the second respondent, albeit less frequently. Mr MM noted that the husband did not attend meetings concerning the accounts and he understood from his dealings with Mr NN and the second respondent that the husband worked in the construction side of the business.
Mr MM noted that, in 2015, the accounts showed a very high income for the husband, however Mr NN said this was because the husband had paid contractors and they had added these amounts to the husband’s salary. In that respect, Mr NN provided a list of the subcontractor payments, which revealed that the actual income of the husband was only around $90,000, not the $348,000 originally listed in the accounts and the husband’s draft individual tax return for 2015. However, from 2013 to 2015, Mr MM was unable to complete tax returns for the company as he was not provided with the relevant bank statements.
Mr MM notes that in an email dated 18 November 2016, the second respondent forwarded an email from CC Pty Ltd noting that a scheduled progress payment of around $400,000 would not be made to BPL and asked that this be shown to Mr P, presumably to show that the husband’s arrest was causing difficulties. However the email chain reveals that the difficulty in completing the scheduled payment was a building dispute. In fact, annexed to Mr MM’s affidavit are bank statements confirming a payment of around $366,000 from CC Pty Ltd to BPL in late 2016, and the evidence of Mr MM is that significant payments continued into the next month (affidavit of Mr MM filed 27 June 2022, paragraph 32).
Mr MM attests to being provided with a share transfer form in respect to D Pty Ltd by the second respondent, which appeared to be signed by the husband, changing the interests of the husband from 50 per cent to 40 per cent in favour of the second respondent. Mr MM did not question the second respondent at the time, but later heard from the husband that he had never signed such a form.
During the hearing, Mr MM was cross-examined about why his profit and loss statement differed from that of Ms JJ’s. In that respect, he explained that he did not have the documents required to undertake a reconciliation of the accounts and, therefore, his figures were on a cash basis. Considering the general state of the accounts and bookkeeping, however, it is not surprising that Ms JJ later produced different figures.
I generally accept the evidence of Mr MM.
The technicians
Mr PP
Mr PP is a technician who was employed by the business in 2013 and continued to work there until his employment was terminated by the second respondent in 2017. He said that he first heard of the husband’s arrest from the second respondent at a work site. Mr PP recounted at paragraphs 10–13 of his affidavit filed 24 June 2022 that:
In [late] 2016 I attended a meeting arranged by [Mr Akbar] with [BPL] staff. [Mr Akbar] said to the staff:
[Mr Akbar] said: “[Mr Fulmali] is in jail, I own this company. I have taken the business from [Mr Fulmali], and now I'm going to throw his wife and son out onto the streets”.
I subsequently contacted [Mr Fulmali’s] wife, [Ms Gandega], to warn her about [Mr Akbar’s] intention, I told her what [Mr Akbar] said to the staff in the meeting.
[In early] 2017 I was informed by [Mr NN] of the termination of my employment. I recall [Mr NN] came to the work site and he said to me “[Mr Akbar] says Friday is your last day you are finishing on Friday. You are fired”.
I believe I was terminated because [Mr Akbar] became aware I had spoken to [Ms Gandega] about what he said to the staff in the meeting referred to in paragraph 10 above.
At the time his employment was terminated in 2017, there was ongoing work in the business.
Mr PP’s evidence was challenged in cross-examination, however he remained firm and clear in his account. I accept his evidence.
Mr QQ
Mr QQ was also a technician who worked for the business. He commenced employment with the business in 2014, which was subsequently terminated by Mr NN in 2017. He gives evidence of having worked on the second respondent’s home whilst being paid wages by the business, assisting in the installation of window frames and even cleaning the garage after construction was completed. Mr QQ said he never saw any friction on work sites between BPL staff and other workers.[8]
[8] Transcript 25 August 2022, p.213 lines 39–47.
Mr QQ said that he heard of the husband’s arrest from someone in the office around two to three months after the fact. He also recalled the meeting with the staff and the second respondent, saying at paragraph 13 of his affidavit:
In [late] 2016, [Mr Akbar] organised a meeting with the [BPL] staff. I attended that meeting during which he said in the [Country Y] language “I have taken the company from [Mr Fulmali] and now I'm going to get his house and throw his wife and kid out onto the street”.
Mr QQ, as with Mr PP, was an employee of the business. Whilst both are known to the husband, neither have significant ongoing connections with him. Mr QQ also presented as a credible and honest witness. I accept his evidence.
Mr RR
Mr RR is another of the technicians who worked for the business. His evidence was given by video and subsequently telephone due to technical difficulties. Mr RR was employed by the husband in 2014 and worked for the business until 2017, when his employment was transferred by the second respondent to W Pty Ltd, but continued working on the same site. Around five months later, his employment was transferred to another of the second respondent’s companies, EE Pty Ltd. He produced old payslips confirming his evidence in that respect. In early 2019, his employment was terminated by the second respondent and he was not given a reason for the termination. He did not recall how he heard that the husband was arrested in Asia. I accept his evidence.
Mr SS
Mr SS was employed by the husband in 2013 as a technician and later a supervisor, a role he remained working in for the business until he left in early 2017. He left that position after learning that the second respondent had given a large job at Suburb TT to another company, which meant that the employees of BPL would lose work. He considered that this showed a lack of interest in the welfare of the employees, who relied upon their employment for their income (affidavit of Mr SS filed 24 June 2022, paragraphs 14–16).
At paragraph 10 of his affidavit, Mr SS recalls carrying out work on the second respondent’s home for at least nine days whilst being paid wages by the business.
Mr SS was a supervisor on the Suburb UU work site and does not recall any offensive or disparaging remarks or lack of staff. He does recall at paragraph 11 of his affidavit, however, that the second respondent said to him “as you know [Mr Fulmali] is in jail and I am now the only director and owner of this business. Just as I took the company away from [Mr Fulmali], now I'm going to get his house and throw his wife and son out on the streets”. Mr SS was shocked by this and told the wife to be very careful of the second respondent.
Whilst Mr SS gave evidence by video and telephone and I did not have the opportunity to see his demeanour in person, I nonetheless found Mr SS to be a credible witness and accept his evidence.
Mr VV
Mr VV gave evidence by video from the United Kingdom. Mr VV is a technician who worked for the business from early 2016 until he resigned in early 2017. He explained that he resigned because he was told by other employees that his employment was about to be terminated by the second respondent as a result of him being related to one of the husband’s relatives. He openly confirmed that he had not heard this from the second respondent directly. Mr VV married a relative of the husband and had known the husband for around 15 years (although had only seen him from time to time at family functions and was not close to the husband).
At paragraph 10 of his affidavit filed 24 June 2022, Mr VV recalls a meeting where the second respondent said: “as you know [Mr Fulmali] is in jail and I am now the only director and owner of this business. Just as I took the company away from M[r Fulmali], now I 'm going to get his house and throw his wife and son out on the streets”. Mr VV said he was shocked by this and felt threatened and scared. He also deposes to subsequently advising the wife and the husband via a Viber call.
Mr VV does not recall any offensive or disparaging remarks being made on work sites, nor any staff shortages. His recollection is that remarks about the husband’s arrest were made by the second respondent, not those outside the business.
Mr VV said that he did not take a bag of documents to the wife in 2016, but only delivered a laptop to her.
I found Mr VV to be an impressive witness. Whilst I note that he has a family connection to the husband, I am not of the view that this has coloured his evidence. I accept his evidence.
The second respondent’s evidence
The second respondent described his occupation as an educator but said that he had also been in business for 20 years. He confirmed his understanding that he and the husband were operating the business for equal pay and benefits, and that they were contributing equal efforts. He was aware that the husband trusted him and his responsibilities included supervising the bookkeeper and Mr NN.
The second respondent rejected criticisms as to the adequacy of the business’ record keeping, although sought to explain the lack of documents on the basis that, when shifting offices in 2017, they lost documents off the back of a vehicle. When asked if he had ever included this evidence in an affidavit in the proceedings, given that the asserted events occurred after the wife had filed her Initiating Application, he only admitted that he hadn’t after considerable prevarication.[9] The second respondent stated that he informed the liquidator of the events and informed his own lawyers a couple of days before giving evidence. The second respondent also maintained that he had given the books of the company to the liquidator and had thereafter disposed of all backup copies thereafter. Whilst giving evidence, his evasiveness about taking responsibility for the lack of adequate record keeping in the business, despite this being a core part of his responsibilities, was quite striking. I am not persuaded that his evidence in this regard is accurate or reliable.
[9] Transcript 26 August 2022, p.260 line 35 to p.261 line 37; p.285 lines 24–42.
Despite his evidence that the arrest of the husband was well known, the only public articles concerning the husband’s arrest in Asia produced by the second respondent in evidence were an article from a media organisation in Asia and an article in an Asian newspaper. The emails produced by the second respondent did not, contrary to his assertions, show any business associates raising the issue. No termination notices provided by any of the companies working with BPL were produced.
The second respondent also attests that he knew of the impact of the husband’s arrest upon the staff, which he disclosed to his adversarial expert, Ms JJ, via responses from his solicitors. This is confirmed at paragraph 37 of Ms JJ’s expert report, which reads:
Around [mid] 2016, [Mr Fulmali] was arrested in [Asia] (“the Event”). I am advised that the Event caused a substantial negative impact on the Business being operated by [BPL] with almost all staff having resigned and contracts with clients being terminated, soon after the news of the arrest.
However, the wages transactions in the second respondent’s tender bundle show that 28 people were paid in mid-2016 and, further, in late 2016, 20 employees of BPL were still being paid wages. The second respondent produced no documents showing termination pays that would support this claim. Ultimately, the second respondent accepted that the number of staff lost, as given by him, was an exaggeration.[10] He was unable to produce termination notices concerning the business’ major projects at AE Building or City WW.
[10] Transcript 26 August 2022, p.328 lines 46–47.
I am not persuaded that the husband’s arrest was well known, other than through the second respondent advising others of it. I am also not persuaded that it caused any significant difficulties beyond the absence of the husband from performing his role in the business.
It appears that the husband’s arrest was seized upon by the second respondent as a justification for pressing the husband to leave the business. The second respondent relying upon these claims, at a time that the husband was in a very vulnerable position (incarcerated on remand in Asia, unwell and receiving no monies from the business for the support of himself or his family), appears to have been solely to pressure the husband to resign and to provide a pretext for the second respondent to move all of the work contracts (and key staff) to another company that he owned and in which the husband had no interest.
In 2016, whilst the husband was still incarcerated in Asia, an agreement was reached between him and the second respondent in respect to the sale of his interest in the business. This agreement was recorded in writing and signed by the parties (as well as being accepted in a resolution of their company). The countersigned resolution and agreement, as set out in its original form, provided as follows:
Date of Meeting: […] 2016
The Resolution: A RECOMMENDATION HAS BEEN MADE TO THE MEMBERS THAT THEY RESOLVE BY SPECIAL RESOLUTION:
This resolution is to confirm the agreement between the directors and shareholders of [BPL] [Mr Akbar] & [Mr Fulmali] for the following:
[Mr Fulmali] is entitled to wages up to […] 2016.
[Mr Fulmali] is entitled to profit of the company according to his current shareholding (50%) for all current projects till end of currently running projects: […].
Any contingent Liabilities will be deducted before profit distribution
All profits and remaining assets and net shareholding equity will be distributed to the shareholders after all accounts are prepared and finalized by [L Pty Ltd].
(As per the original)
It is apparent that this 2016 agreement was to effect the exit of the husband from the business on the basis that he would receive one half of the profits upon the conclusion of the four projects specifically identified and one half of the remaining assets and shareholding equity. The agreement clearly contemplated appropriate record keeping to ensure that the profits of the company were clearly documented and that the accounts would be prepared by the named accountant at the conclusion of the last of the four mentioned projects.
The second respondent confirmed that his signature appears on the document and that he discussed it with Mr P before signing it. However, he attests that he did not think that the husband was at any disadvantage at that time, despite being incarcerated in Asia and without funds.
The second respondent agreed in cross-examination that he was to account to the husband for 50 per cent of the profits of all current projects of the business as at the date of the agreement. Initially, the second respondent denied that there were projects other than the four specified in the first clause of the agreement underway, although acknowledging that there were other projects still in the defect liability period.[11] The material he provided to his expert valuer, Ms JJ, however, differed from his evidence in Court. Ms JJ listed a large number of projects in various stages in her report (as will be discussed further below). At one point, the second respondent said that, in providing that list to Ms JJ, he did not understand her request. He later said that the information provided by his solicitors to Ms JJ was not from him. At another point, he said that the list was just from memory as he had no documents and he didn’t know if the information he gave was reliable. The second respondent was also not able to explain why his solicitors did not provide Ms JJ with both sets of company books (despite him being aware that there were two sets of books).[12] The evidence of what the second respondent told Ms JJ as to the projects that were ongoing in the business is important, particularly in light of him neither keeping appropriate records at the time nor producing the records that were kept or providing a satisfactory explanation as to why he gave that particular list to Ms JJ.
[11] Transcript 26 August 2022, p.296 line 26 to p.297 line 23.
[12] Transcript 26 August 2022, p.302 lines 28–40.
The second respondent gave evidence that their projects start in the design phase, progress through construction, then continue to the defects liability period. He conceded in cross-examination that there were other projects in the design phase at the time of the 2016 agreement. Whilst he maintained that the design and installation phases were done as separate contracts, he did not produce a contract to demonstrate this claim. I accept that each project was a contractual arrangement that had a number of phases. The 2016 agreement does not refer to specific contracts, but ‘projects’.
Despite much evidence from him as to which projects he thought would be within the terms of the agreement, it is clear that the second respondent did not, at any time, establish any accounting arrangements to properly account for these projects and profits that he saw as being within the terms of the arrangement. Rather, the accounts continued as they had before, indicating that the second respondent either did not see the agreement as being limited to any particular projects or, alternatively, that he simply had no intention of ever making payments to the husband.
In late 2016, the husband transferred his share in the company to the second respondent as contemplated in the 2016 agreement. As the case unfolded, the husband relied upon the agreement, despite the circumstances in which it was signed.
It appears that the second respondent thereafter set about moving BPL’s contracts to other companies that he operated. For example, with CC Pty Ltd, the second respondent contends that company had cancelled their contract with BPL as a result of the news of the husband’s arrest. However, as is apparent from the bundle of emails marked Exhibit “8” in the proceedings, the second respondent informs CC Pty Ltd that he is setting up a new company and wanting them to move their contracts to his new company. There is also evidence that the Suburb TT project was transferred to the second respondent’s company, EE Pty Ltd, by way of a deed executed in mid-2017. Further, the EE Pty Ltd web pages (marked Exhibit “9”) list jobs previously completed by BPL as part of its own profile. Similarly, there was no evidence that suppliers had cancelled their credit as a result of the difficulties that the husband faced in Asia. Indeed, the business still maintained accounts with XX Ltd twelve months later.
The second respondent also attests that, in 2016, the husband signed an agreement with N Pty Ltd (a company operated by the second respondent) containing a long schedule of prices which effectively provided for marked up amounts for supplies to the business. The second respondent contended that the document, which was marked for identification as Exhibit “B”, was dated 2014 and that it had been with the husband for a year waiting to be signed. However, the schedule of prices annexed as an appendix to the agreement is dated 2016; no 2014 price schedule was produced. The husband says that he did not sign the document and the original was never produced. At least one of the signatures within the document was inconsistent and did not appear similar to that of the husband, although the second respondent contends that it is. The effect of this contract would have been to allow the second respondent to mark-up the supplies used in the business so as to obtain a greater share in the profits of the operation. It is difficult to see what interest of the business or the husband such an arrangement would have met. In those circumstances, I am not persuaded that the husband signed this document.
The second respondent did not engage L Pty Ltd to prepare the books for BPL, despite the terms of the 2016 agreement. He attempted to explain this failure on the basis that Mr P had ‘revoked’ the agreement, thus he had to use a different accountant from the one specified in the agreement. This had never been set out in an affidavit of the second respondent, nor was it put to Mr P that he had revoked the agreement. In cross-examination, the second respondent sought to explain the change of accountants on the basis of allegations that Mr P had offered to facilitate transactions in a way that would show no profits to the company, so as to minimise any property settlement to the wife. He also said, for the first time, that there had been a tax office audit that prompted this change, but later attested that the audit showed BPL was compliant. The second respondent later explained that the audit concerned superannuation contributions, an area for which the second respondent would have been responsible in the management of the business. He said his solicitors at the time advised him to change accountants, although there was no such evidence from the solicitors nor notice to the husband of such advice (which one would expect if the solicitors were advising the second respondent to take a step in breach of the 2016 agreement). I am not persuaded that Mr P terminated the arrangement, nor that he offered to act inappropriately. Rather, I am persuaded that the second respondent wished to change accountants for his own purposes, despite this being a breach of the 2016 agreement with respect to calculating profit shares. In this respect, the second respondent was indeed in breach of one of the terms of the 2016 agreement.
During cross examination, the second respondent acknowledged informing the liquidator, when the business was placed in liquidation, that the money moving into the husband’s private account was him withdrawing money from the business and affecting its cash flow, however no full explanation was given.[13] The liquidator brought proceedings against the husband, but later abandoned them.
[13] Transcript 26 August 2022, p.334 line 30 to p.335 line 20.
Remarkably, when the husband sought $10,000 for hospital expenses from the second respondent whilst held on remand in Asia, it was not provided, yet around the same time, it appears from BPL’s bank statements that he had $750,000 paid from the business into his own accounts (marked Exhibit “12”), although some of those funds may have been moving between his personal accounts and the company. Later in evidence, the second respondent attested that his lawyers advised him not to provide the funds to the husband,[14] although no evidence of such advice was provided.
[14] Transcript 29 August 2022, p.38 lines 29–32.
The second respondent’s evidence as to his interaction with the wife following the husband’s arrest was not consistent with the evidence of the wife. As I found neither witness convincing, it is difficult to determine what occurred in those interactions. Fortunately, these interactions do not appear to be significant to the ultimate determination of the matter.
The second respondent accepted that there appeared to be no figures for “stock”, “tools” or “office furniture” in the books, but attempted to explain the absence of stock figures by saying that all stock was delivered directly to work sites. However, he also acknowledged that the company had a warehouse for the purpose of storing stock and went on to concede that stock would be an asset but it was never recorded in the books.[15] When taken to the list of stock that the husband had compiled (which is annexed to his affidavit), the second respondent denied that it represented the stock of the business, saying that all stock was delivered to work sites. However, he conceded that the warehouse was for “bits and pieces for tools, scaffolds and some smaller spare materials, a few […] things like that. It was a small – the warehouse was probably as big as here”, referring to the size of the courtroom. Later, the second respondent said that lists of the business’ assets did exist but he no longer knew where those lists were. He also contended that tools purchased by BPL did not remain as its assets as employees would effectively buy their own tools from the business to use on work sites.[16] These explanations seem most unlikely given that the business’ work involved installing equipment, which would have required a multitude of fixtures and other small parts, as well as tools, in a business with many employees.
[15] Transcript 29 August 2022, p.49 lines 36–39.
[16] Transcript 29 August 2022, p.53 lines 13–46.
The second respondent agreed that when he had Mr YY take over the accounts from Mr P, he would have given Mr YY lists of stock, tools and other assets but was unable to state where copies of those lists would be. In particular, when asked about whether he considered having Mr YY called to give evidence, the second respondent replied “no. Maybe we do that on Wednesday”.[17] Mr YY was never called as a witness.
[17] Transcript 29 August 2022, p.54 lines 26–27.
The second respondent also accepted that there appears to be large payments from BPL to his credit card, however the bank statements provided by the second respondent were considerably redacted by him.[18] No further documents have been provided explaining those transactions or, at least, showing that they were for business purposes.
[18] Transcript 29 August 2022, p.55 line 13 to p.57 line 27.
The second respondent was remarkably unimpressive in the manner in which he gave his evidence. I am not persuaded that any reliance can be placed upon any of the second respondent’s evidence, save where it is against his interests. I am comfortably satisfied that the second respondent embarked upon a course of conduct designed to pressure the husband to transfer his interest in the business to him and then to avoid the husband receiving his entitlements under the 2016 agreement.
Mr NN and Mr YY
Mr NN was never called to give evidence, nor did he swear an affidavit. He was a bookkeeper engaged by the second respondent in the business. Mr PP and Mr SS set out in their affidavits, at paragraphs 16 and 14 respectively, evidence of a conversation where Mr NN explained his involvement in the bookkeeping of the business on the basis that he simply did what he was instructed by the second respondent. Such evidence is hearsay and I place no reliance upon them in the circumstances of the case. However, it matters little, as the second respondent was supervising Mr NN in the business. I am not persuaded that an inference can be drawn with respect to the failure of either party to call Mr NN, as he does not appear to have been sufficiently aligned with either party by the time of trial to draw such an inference.
The accountant, Mr YY, was engaged by the second respondent after he terminated the services of L Pty Ltd, which was provided for in the 2016 agreement. Mr YY was also not called to give evidence, despite the second respondent suggesting in evidence at one point that he may call him as a witness. He was engaged by the second respondent to prepare the accounts pursuant to the 2016 agreement. No adequate explanation was given for why Mr YY was not called as a witness.
The expert valuers
Mr ZZ and Ms JJ
Mr ZZ and Ms JJ are both expert valuers. Mr ZZ was engaged as the joint expert, and the second respondent later engaged Ms JJ to give evidence as to the valuation of the business. In some respects, Ms JJ’s evidence was hampered by the fact that she had not received all of the relevant information. Both experts found the lack of stock figures unusual.[19]
[19] Transcript 30 August 2022, p.457 lines 17–29.
Whilst there was no discovery by the second respondent as to the state of the company contracts at the time of the 2016 agreement, the second respondent provided the following information to Ms JJ, which appears at page 8 of her report:
B Pty Ltd (BPL) Contracts Client Project Stage Percentage of Completion Value CC Pty Ltd AB Street, Suburb AC Construction 85% Approximately $2,600,000 AD Street Suburb UU Construction 85% Approximately $2,300,000 AE Building Design 90% Approximately $3,900,000 (Design fee was approximately $50,000) AF Building, City WW Design 5% Approximately $8,000,000 (Design fee was approximately $70,000) AG Pty Ltd AH Street, Suburb TT Construction 50% Approximately $500,000 AM Pty Ltd AJ Building, Suburb AK Construction 98% Approximately $300,000 AL Street, Suburb AK Design 95% Approximately $350,000 (Design fee was approximately $8,000) AN Pty Ltd BP Street, Suburb BQ Construction 100% Approximately $380,000 Suburb BN Building Design 3% Approximately $800,000 (Design fee was approximately $15,000) BT Pty Ltd AO Building, Suburb AP Design 2% Approximately $3,700,000 (Design fee was approximately $50,000)
Ms JJ was also informed of a large number of other tenders that the company was providing at the time of the husband’s arrest, stating at paragraph 44 of her report:
I am further advised that the [BPL] was in the process of providing tender pricing for the following companies, which did not ultimately proceed following the news of [Mr Fulmali’s] arrest:
a) AQ Pty Ltd;
b) AR Pty Ltd;
c) AS Pty Ltd;
d) AT Pty Ltd;
e) AU Pty Ltd;
f) AV Pty Ltd;
g) AW Pty Ltd;
h) AX Pty Ltd;
i) AY Pty Ltd;
j) AZ Pty Ltd;
k) BA Pty Ltd;
l) BC Pty Ltd;
m) BD Pty Ltd;
n) BE Pty Ltd;
o) BF Pty Ltd;
p) BG Pty Ltd; and
q) BH Pty Ltd.
I accept that the information provided to Ms JJ came from the second respondent and that it represented the second respondent’s estimate of the value of the projects at the time. It transpired that this was crucial information as it was relied upon by the husband to quantify the amount owed to him by the second respondent pursuant to the 2016 agreement (as calculated in Exhibit 22). Given the tenor of the evidence of the second respondent, I am comfortably satisfied that this estimate would, if in error, be in the second respondent’s favour. Whilst I doubt that the business failed to obtain contracts in any of the long list of projects identified above, there is no evidence of particular contracts being put in place.
Mr ZZ had access to both sets of books and valued the business on the basis that there were no intermediate companies. Mr ZZ did not treat the second company, BPL, as part of a different business, rather conducted two valuations: one based on each set of books. He noted that whilst he used a figure of 10 per cent for variations, Ms JJ used 10 to 20 per cent. Mr ZZ valued the business on a value to owner basis.
Ms JJ was informed that BPL’s employees were leaving and that contracts were being cancelled by customers and undertook her valuation based upon that information. As I am not persuaded that the events in Asia led to the difficulties that the second respondent claimed and given the view I have taken of the reliability of the second respondent’s evidence, the second set of books should be relied upon, rather than those provided to Ms JJ. Thus, I prefer the second valuation undertaken by Mr ZZ, subject to consideration of the criticisms raised by Ms JJ as to Mr ZZ’s approach.
When assessing the profitability of the enterprise, Ms JJ used the income figures for the husband rather than an industry figure, noting that she is not a remuneration specialist. Mr ZZ admitted that although he was also not a remuneration expert, he is an expert valuer and remuneration rates are an aspect of his expertise in valuing businesses. There is no specific expert evidence as to any remuneration paid to anyone to replace the husband in his role in the company, nor a remuneration expert’s evidence. I am not persuaded that the payments to the husband, as a 50 per cent owner of the business, are a good guide to the costs of employing someone to carry out the tasks and responsibilities he held. Whilst a remuneration expert would likely have greater expertise, I am not persuaded that remuneration estimates are outside of the expertise of Mr ZZ when undertaking business valuations generally.
When one has regard to the terms of the 2016 agreement, including the expectation that the amounts payable would be determined by the accountants preparing the accounts, I am not persuaded that the phrase ‘remaining assets and net shareholding equity’ as used in the agreement was intended to mean more than the figures that would appear on the company balance sheet in its accounts. That is, the phrase was not intended to include a sum for good‑will, as this would have required an expert valuation, which is not provided for in the terms of the agreement. Thus, it is the net asset position of the business that must be considered for the purpose of determining the amount due to the husband pursuant to the 2016 agreement (together with the profit that would have flowed from the various projects up until the four named projects ended).
The remaining question relates to the remuneration figures that should be used when calculating the profitability of the contracts for the purpose of the 2016 agreement between the parties. The approach by Ms JJ would have ongoing costs of what was effectively a profit share of the husband taken into account when calculating the profitability of the business, even though he wasn’t receiving that share of the profit. There is no evidence from the second respondent that he incurred any costs in replacing the husband and it is questionable whether any adjustment is warranted for salary payment to a person occupying that position. In the absence of evidence from the second respondent as to any costs incurred in replacing the husband, it is arguable that no remuneration should be considered at all. However, this would be too generous as the husband was an active worker in the business. His drawings do not provide a good estimate of the costs of an employee to replace him. The best evidence of appropriate remuneration is the material relied upon by Mr ZZ. Whilst Mr ZZ is not a remuneration specialist, I am persuaded that, in the absence of any other evidence, his expertise is sufficient to estimate remuneration from published data (which he has done). I therefore find that the profitability of the business was in the order of 7.5 per cent to 8.86 per cent, as identified by Mr ZZ.[20]
[20] Transcript 30 August 2022, p.489 lines 6–19.
When considering the profitability of the business, Ms JJ reached a figure of 6.1 per cent using earnings before interest, taxation, depreciation and amortisation (“EBITDA”) and Mr ZZ 7.5 per cent and 8.86 per cent (depending upon which books one considers) using earnings before interest and taxation (“EBIT”) calculations. In respect to the joint report, Ms JJ agreed that because there was no depreciation expense recognised in the financial years 2015 and 2016, no difference in the earnings figure arises due to the adoption of EBIT by Mr ZZ and EBITDA by herself.[21] It appears that their differences largely result from the approach taken to director remuneration (Ms JJ using actual payments and Mr ZZ using market rates) and to the sudden increase in ‘office supplies’ of around $43,000 in one year (when revenue decreased), which Mr ZZ adjusted for rather than averaging as was done by Ms JJ. I prefer the approach of Mr ZZ to the office supplies figures as I have no confidence that, in the absence of documents showing the genuineness of the figures, the difference would be actual business expenses.
[21] Transcript 30 August 2022, p.495 lines 33–37.
In order to calculate the share of profits that the husband was entitled to under the 2016 agreement, the only evidence available due to the conduct of the second respondent is the list of projects and the percentage completion provided to Ms JJ and set out earlier at [104]. Using those figures and the profitability figure of Mr ZZ, the profits calculated in accordance with the 2016 agreement were in the order of $1,490,695, as set out in Exhibit 22.
When determining the net equity of the business, Mr ZZ considered both of the B Pty Ltd and C Pty Ltd companies together, as they were operated in that way, whereas Ms JJ did not consider C Pty Ltd, valuing only the main BPL trading entity. Whilst the 2016 agreement expressly refers to only one of the companies, it appears that the parties must have intended the agreement to mean both, as they were operated together and the husband was removed from the other company as well. The second company was, in essence, simply a puppet that held certain assets and never operated independently. I am satisfied that it was simply treated as an incident of the business operated by the primary company, at least for the purposes of the agreement. To conclude otherwise would mean that the 2016 agreement did not deal fully with the exit of the husband from the business, which was not how the parties approached the agreement.
In using the second valuation, the joint report recorded a difference in the net equity (excluding good-will) of the business, largely due to Mr ZZ adopting an approach of valuing the two companies as one business, which I accept is the appropriate approach in this case. I therefore accept Mr ZZ figure of $495,251. As I prefer the approach taken by Mr ZZ in calculating the assets of the business, I find that the ‘remaining assets and net shareholding equity’, as that term is used in the 2016 agreement, is the sum of $495,251 together with the stock and equipment that were not listed in the business books but set out in the affidavit of the husband, less the figure listed in the balance sheet of $13,039 apparently representing these items (appendix 5 of Ms JJ’s report dated 9 September 2021).
Both experts were given different instructions about the underlying assets of the business. Mr ZZ was given figures from the husband, which appear at appendix 23 of his report, totalling over $1 million for stock, tools and furniture. Comparatively, Ms JJ was instructed that the stock, furniture and tools were sold for only $5,310. Both experts were surprised that these types of assets did not appear in the books of the company. As I accept the husband’s evidence as to the other assets, it is appropriate to take up the value of those assets as considered by Mr ZZ.
CLAIMS AS BETWEEN THE HUSBAND AND THE SECOND RESPONDENT
There are three claims as between the husband and the second respondent: the sale of the business, the money left in the husband’s care at the airport, and the return of the D Pty Ltd venture funds.
Whilst some complaint was raised concerning the state of the pleadings, it was noted in the hearing of the case that this Court is not a court of pleadings. Only points of claim (not a statement of claim) were ordered on 15 December 2021. A claim for breach of contract was alleged in the wife’s Initiating Application dated 14 April 2020, through which the wife seeks property adjustment orders. There was clear notice of the issues of fact alleged as they were set out in detail in the affidavit material. I am not persuaded that the second respondent has been caught by surprise. In any event, the points of claim do identify that the husband relies upon the 2016 agreement (paragraph 2) and that the second respondent had failed to fulfil the terms of that agreement (paragraphs 3 and 8). Even if it were a case confined to pleadings, pleadings are to identify the facts relied upon for a claim and are not limited to any particular legal remedy that arises on the facts as pleaded. In that respect, for example, in Konskier v B Goodman Ltd [1928] 1 KB 421, a claim was pleaded in negligence, however the facts as pleaded enabled a judgment in nuisance to be entered. I am not persuaded that the second respondent has suffered any procedural unfairness.
Sale of the business
The case of the husband against the second respondent is that they had struck an agreement setting out terms for his exit from the business. That agreement provided for him to receive half the profits of the business’ existing work (until the end of specified contracts) and half of the ‘remaining assets and net shareholding equity’ of the business. This was in accord with his 50 per cent shareholding. There is some lack of clarity as to the meaning of the equity of the business, however, given that the agreement provided for an accountant to calculate the amount, it appears clear that it was intended to be the assets of the company as would ordinarily appear on its balance sheet, not including good-will, which would have required an expert valuer. This agreement provided a simple mechanism for determining the price at which the second respondent acquired the husband’s interest.
As set out above, it is clear that the second respondent subsequently set about shifting the project contracts from the business to other entities which he controlled. To shift the work of the business to other companies was prima facie a breach of his fiduciary obligation to the company and a course of conduct designed to defeat the entitlements of the husband pursuant to the 2016 agreement. Further, the second respondent failed to keep appropriate records and terminated the services of the nominated accountant, frustrating the husband’s ability to determine the amount due and owing. The second respondent failed to call the new accountant Mr YY to give evidence, whom he engaged to replace the nominated accountants in the 2016 agreement and who would likely have been able to shed considerable light on the company accounts.
Where a person in breach of an agreement takes steps that make it difficult to calculate the innocent party’s entitlements, the Court must act on what evidence is available and do the best that it can on the material. I am comfortably satisfied that the second respondent undertook such a course. However, this does not mean that the onus of proof can shift to the second respondent.
Profit share clauses
I note that Ms JJ suggested a higher figure of between 10 per cent and 20 per cent for variations on the contracts. On her evidence, the overall project prices could well have been as high as $19 million, or at least $17.9 million using the mid-point of her estimate. I also note that this figure contains no allowance for further projects that may have been in place, beyond the list given by the second respondent to Ms JJ. For this reason, it appears that the list used in Exhibit 22 is likely to be conservative, however there is no other evidence upon which to make calculations to estimate any further projects’ profits.
In this case, I proceed on the basis of the list of contracts provided by the second respondent to Ms JJ and the profit margins as calculated by Mr ZZ from the second of the two sets of books that were produced.
The calculation of this amount is difficult due to the lack of evidence being produced to the Court as a result of the second respondent’s conduct. I prefer the figures calculated by Mr ZZ with respect to profitability and adopt the higher of them. However, in so preferring the joint expert’s evidence on this issue, I do not take up a higher variations figure as suggested by Ms JJ. For the reasons set out above, the profit in which the husband would have been entitled to share was $1,490,695. The husband’s one half share under the 2016 agreement therefore comes to $745,347.50.
Equity in the business clauses
The husband’s case with respect to the sum for the ‘remaining assets and net shareholding equity’ is, relying upon the calculations of Mr ZZ (see above) and the husband’s evidence, the total of several figures. The first is $495,251, which represents the underlying assets of the company reasonably necessary for its operation, as best can be determined from the books (expert report of Mr ZZ at appendix 19). There are debts of the second respondent and D Pty Ltd included in this figure and, as such, it is not appropriate to add the debt owing by the second respondent ($261,678) to this figure, as argued by counsel for the husband, nor should the D Pty Ltd debt be added again. Given the amount left in the D Pty Ltd monies, it is clear that the second respondent has repaid that D Pty Ltd debt since the figures were done, or taken the money himself. As Mr ZZ has included obligations to BPL in the overall enterprise value, it is appropriate to include the realised value of the motor vehicles of approximately $60,400. I note that while the approach of Mr ZZ in taking both companies as one enterprise results in a lower figure for the husband, it nonetheless reflects the practical reality of the business arrangements. When these figures are added, the total is $555,651, of which one half is $277,826.
The husband set out in his affidavit, at paragraphs 242, 329 and an annexure, copies of documents listing stock, tools and furniture. He was not cross-examined on these lists, which contained his estimates of the value of each item. On that evidence, Mr ZZ provides an updated list of relevant stock, tools and furniture at appendix 23 of his report, one half of which amounts to the following figures:
(a)Stock $406,297.50
(b)Tools $88,025.00
(c)Furniture $76,200.00
(d)Total $570,522.50
Whilst the figure for stock is large, I note that the business had a very large turnover and the parties had been contemplating importing stock to minimise costs. The figures represent the estimate of the husband, who had been heavily involved in the day to day running of the business and thus a person one would expect to have knowledge of such matters, at least with respect to stock and tools. The husband was not challenged on this evidence and the second respondent gave no evidence of any records showing the stock or tools, despite the second respondent’s role in the business. The total, however, should be reduced by half of the sum of $13,039, which was included in the figures used by Mr ZZ, thus reducing the total to $564,003.
The overall total of the assets of the business would therefore be $841,829.
Impugned transactions on the company accounts
Whilst I accept the evidence that there were many transfers of money and credit card payments with respect to the second respondent, it is difficult to make a clear finding as to any further amounts that should have been included in the company’s value on the state of the evidence. I also accept that the second respondent had work done on his own residence at the expense of the company, however, I have no evidence from which to assess the value of that work.
Conclusion with respect to the 2016 agreement
For the reasons I have set out, I therefore find that there should be judgment in favour of the husband against the second respondent, with respect to the 2016 agreement for the sale of the business, in the sum of $1,587,177 (being the total of $745,348 for the profit share clause and $841,829 for the ‘remaining assets and net shareholding equity’).
Cash in the husband’s car at airport
The husband also seeks orders for the return of the money that was left in his car, which he contends was an amount of $26,000 at paragraph 110 of his affidavit. The car was left at the airport when the husband travelled to Asia and the husband attests that the money was left in a purse in the glove compartment. There is no evidence that the car was broken into prior to the second respondent collecting it from the airport. I accept the evidence of the husband as to the money and find that the second respondent took the sum of $26,000 from the car. The husband should, therefore, have judgment against the second respondent in this sum.
The D Pty Ltd venture
The husband and the second respondent had entered into a contract to purchase land for the purpose of development. The purchase required a deposit of $600,000 and payment of stamp duty. The husband contributed $316,000 from his own funds and the second respondent contributed the balance. The purchase contract did not proceed and the monies were, in large part, retained in a solicitor’s trust account. There are legal fees of $50,617 for which the husband and the second respondent are responsible as noted in a letter from those solicitors dated 20 August 2022 (marked Exhibit “25”).
There was an issue concerning the proportions in which the husband and the second respondent were involved in this venture. The second respondent alleged that the husband transferred a 10 per cent interest to him, resulting in a 60/40 split. The husband denied this claim. I prefer the husband’s evidence that he did not transfer a share in this venture to the second respondent.
It appears that the second respondent contributed the balance of the funds, although he had borrowed a significant part of his contribution from the business (which has been taken up above in the value of the business). As a result, it is important to avoid double counting these sums in the calculations with respect to the business and the D Pty Ltd venture.
I am persuaded that the husband should have returned to him his own contributions to the D Pty Ltd venture (less one half of the legal costs) from the monies held in trust, that is, the sum of $290,692.
Interest on the judgment
The calculation of interest to the date of judgment requires consideration of the date upon which each of the sums would have been payable.
Business sale judgment sums
Under the 2016 agreement, the date contemplated for the final amount payable was the conclusion of the last of the four nominated projects. It appears that this would have been some time later, possibly around two years. The absence of evidence from the second respondent in this regard makes it difficult to strike any precise date or figure. I accept that interest on the total amount from the date of the agreement would be inappropriate for this reason. On the evidence, each of the projects finished at different times and neither party has attempted a precise mathematical calculation. As a result, it appears that a lump sum for interest for the period from the date of the agreement (late 2016) until late 2018, at half the interest that would accrue on the total of the profit share component, is appropriate, with interest calculated in the usual way for the subsequent period. I would imply a reasonable time for payment of two months for the share of the company assets, and thus interest should accrue from late 2016 until the date of these reasons, being 21 April 2023.
I therefore calculate interest, using the rates set out in the husband’s schedule, as follows:
Profit Share First period $43,557.71 Remainder of period $147,752.36 Total $191,310.07
Interest on the company assets, using the rates in the schedules from late 2016, comes to $265,158. Thus, the total interest component comes to $456,468.
Airport cash judgment
The interest payable on this sum should be calculated from the date it was taken by the second respondent, being sometime in mid-2016. For convenience, I have calculated interest from 1 September 2016 using the rates in Exhibit 22, which amounts to $8,488.
D Pty Ltd judgment
The husband’s counsel argued that the second respondent had returned some of the money he contributed with an interest component and thus, the husband should also receive interest. The question of interest on the husband’s share does not turn upon the joint venture arrangements, rather, that the husband had an entitlement to the return of his share which was opposed by the second respondent, holding him out of his entitlement until judgment. At least by early 2017, monies were being repaid from the D Pty Ltd venture. The husband should have interest as claimed in his schedule on the sum from early 2017 until judgment, which amounts to $87,177.
Conclusion on claims against second respondent
As earlier noted, I find that the husband should have a declaration that he is entitled to the sum of $290,692 currently held on trust with respect to the D Pty Ltd venture.
I also find that the husband should have judgment against the second respondent for the following sums:
(a)With respect to the sale of the business: $1,587,177
(b)Interest on the sale of the business: $456,468
(c)With respect to the cash taken from the husband’s car: $26,000
(d)Interest on the money taken from the car: $8,488
(e)Interest on the D Pty Ltd monies of the husband: $87,177
(f)Total $2,165,310
I am satisfied that the sum held on trust in excess of the husband’s entitlement of a refund of $290,692 should also be paid to the husband in part satisfaction of the judgment sum owed by the second respondent.
I will hear the parties with respect to consequential orders that may be appropriate, such as any applications for injunctions to restrain dealings with assets and with respect to costs, following delivery of these reasons.
PROPERTY SETTLEMENT AS BETWEEN THE HUSBAND AND WIFE
The wife and husband were largely agreed as to their assets, which were set out in a joint balance sheet, save for a small number of items that can be dealt with briefly:
(a)Whilst the value of the claim against the second respondent is clearly a significant asset of the wife and husband, it is appropriate for it to be dealt with separately in the orders so as to accommodate the complexities that may arise as a result of questions of the costs of the litigation against the second respondent and the possibility that the award may be difficult to enforce. However, I am persuaded that the same considerations with respect to contributions and other factors apply to this asset.
(b)I am satisfied that the monies that the husband borrowed from Mr P should be included as a debt of the husband, as there is no doubt the monies were advanced and that they must be repaid at some point. The husband used these monies for living expenses, to establish a business and has, through the relevant period, attended to the mortgage repayments on the home.
(c)I accept that the reason the husband has a tax liability is because he could not meet all of his expenses at a time when he was also meeting mortgage repayments. In the very unusual circumstances of this case, it is not a tax debt that has arisen because the husband has wasted money or mismanaged his affairs. As a result, the tax debt should also be included in the balance sheet.
(d)The superannuation amount of $565 is so minor that it is suitable to simply include it in the balance sheet of assets, rather than dealing with it in a separate superannuation pool.
As a result, the assets and liabilities of the husband and wife, save for the claim against the second respondent and taking account of the monies spent by the wife on legal fees, are as follows:
Asset Value Husband BJ Street, Suburb M NSW $1,600,000 Husband Entitlements against second respondent $2,165,310 Husband D Pty Ltd Money: BK Bank term deposit (account number: …13) $290,692 Husband Motor Vehicle 1 $12,000 Wife Motor Vehicle 2 $11,000 Husband Tools, equipment & materials $15,000 Wife Add-back of legal fees paid $50,000 Total $4,144,002 Liabilities Joint HH Financial Services Loan (…53) $400,000 Joint HH Financial Services Loan (…86) $424,619 Wife NAB Visa $520 Husband Credit card debts to ANZ, NAB & BL Financial Services – now due to BM Limited $69,160 Husband Loan from Mr P $150,000 Husband Outstanding tax liability $11,180 Total $1,055,479 Superannuation Husband Superannuation Fund 1 – Accumulation Fund $565 Overall Total $3,088,523
Whilst there is likely to be variation in the amount ultimately received from the second respondent due to the effect of any costs argument and the costs of any potential enforcement proceedings, the sum set out above is sufficient for the purpose of determining the entitlements of the husband and wife pursuant to s 79 of the Act.
Is it just and equitable to make orders under s 79 of the Act?
It is apparent that it is just and equitable that the wife receive property settlement orders under s 79 of the Act, as the husband has the legal title to the two most significant assets in the proceedings (the home in which the wife and their child live and the claim against the second respondent). The husband made no arguments to the contrary.
Contributions assessment
There was no dispute between the husband and wife that contributions should be assessed as being equal in the circumstances of this case, subject to any adjustment under s 75(2)(o) for the use the wife had of monies withdrawn from the bank accounts while the husband was remanded in Asia. I accept that the parties’ contributions should be assessed at 50/50.
Other factors
The parties agreed that there are a number of other factors that are relevant in determining the adjustment pursuant to s 75(2) of the Act. The wife argues for a 10 per cent adjustment and the husband contends a 15 per cent adjustment in his favour.
The wife is not working and is unlikely to engage in paid employment in the future, given her age, experience, and language skills.
The husband is again operating a business and, as discussed above at [35], it appears that he holds a total earning capacity in the order of $110,000 per annum. Whilst he is a man in his fifties and working in the area of service delivery, he has built a successful business in the past and has good prospects of doing so again. He had also previously been able to employ technicians to do manual work. However, the husband has also had health difficulties.
The wife has the care of their child, who is in the latter part of his teens but likely to be supported by the wife for several more years. Whilst the husband has not had a child support assessment, he has contributed to the wife and child’s lives, indeed maintaining mortgage repayments on the home in which the wife and child live. I accept that either voluntarily or, if necessary, by the intervention of the Child Support Agency, the husband will make a reasonable contribution to the financial needs of the child.
Soon after the husband was incarcerated in Asia, the wife withdrew over $300,000 from their accounts. $50,000 of the funds was used for her legal fees and appears as an addback in the balance sheet. Over $20,000 was used to buy a modest car. A considerable part of the sum was used to meet mortgage repayments. However, counsel for the husband noted that the wife expended the sum very quickly in the early months, which I accept. That spending was excessive, however, at least part of it was reasonably required for living expenses. It is therefore a factor to take into account, albeit a rather modest factor in the scheme of the case.
There remains the risk that the judgment against the second respondent may not be recoverable, which may significantly reduce the pool and which I take into account in assessing the adjustment amount.
Considering all of the matters bearing upon an adjustment to the contribution assessment, I am satisfied that a 10 per cent adjustment is appropriate, resulting in property settlement orders providing for a 60/40 distribution in favour of the wife.
Is the outcome between the spouses just and equitable?
On the overall figures, the property settlement is as sought by the husband. Whilst it is slightly less than the figures pressed by the wife, it remains in the range of the figures she sought. The figures leave the wife with substantially greater assets than the husband, however this must be seen in light of the s 75(2) factors discussed above. I am persuaded that the proposed property settlement figures result in a just and equitable result for the wife and husband.
However, in this case there remain uncertainties with respect to the enforcement of the judgment against the second respondent and the ultimate figures with respect to costs. As a result, the orders must be crafted to ensure that the husband and wife share in the uncertainties in this regard.
CONCLUSIONS
For the foregoing reasons, I publish my reasons and give judgment against the second respondent in the sums I have set out.
I will invite the parties to provide submissions as to costs with respect to the claim against the second respondent.
I will also invite the husband and wife to make submissions as to the form of orders appropriate to effect a property settlement reflecting these reasons. Importantly, the form of orders should also ensure that the husband and wife share in the risks with respect to enforcement of the judgment and that adjustments are made with respect to the costs incurred by the husband and wife in pursuing the second respondent (less any costs recovered from the second respondent).
I certify that the preceding one hundred and sixty-two (162) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Riethmuller. Associate:
Dated: 21 April 2023
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