Giacci v Giacci Holdings Pty Ltd
[2010] WASCA 233
•8 DECEMBER 2010
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: GIACCI -v- GIACCI HOLDINGS PTY LTD [2010] WASCA 233
CORAM: MARTIN CJ
NEWNES JA
MURPHY JA
HEARD: 19 JULY 2010
DELIVERED : 8 DECEMBER 2010
FILE NO/S: CACV 138 of 2009
BETWEEN: ANTONIO CARMINO GIACCI
Appellant
AND
GIACCI HOLDINGS PTY LTD
Respondent
ON APPEAL FROM:
Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA
Coram :SCHOOMBEE DCJ
Citation :GIACCI -v- GIACCI HOLDINGS PTY LTD [2009] WADC 166
File No :CIV 1066 of 2008
Catchwords:
Limitation of actions - Limitation Act 1935 (WA), s 44 - Acknowledgement of debt - Relevant principles - Independent valuation of respondent prepared by accountants on respondent's instructions for use in litigation between shareholders - Whether note of respondent's instructions in accountants' report was acknowledgement of debt to appellant shareholder - Whether accountants were agents of respondent for purpose of recording instruction - Whether respondent ratified or adopted statement in accountants' report
Legislation:
Limitation Act 1935 (WA), s 38, s 44
Result:
Appeal dismissed
Category: B
Representation:
Counsel:
Appellant: Mr M L Bennett
Respondent: Mr J L Sher
Solicitors:
Appellant: Lavan Legal
Respondent: Taylor Smart
Case(s) referred to in judgment(s):
Bowring‑Hanbury's Trustee v Bowring-Hanbury [1942] Ch 276
Bowring‑Hanbury's Trustee v Bowring-Hanbury [1943] 1 Ch 104
Bucknell v Commercial Banking Co of Sydney Ltd (1937) 58 CLR 155
Chinnery v Evans (1864) 11 HL Cas 115; (1864) 11 ER 1274
Davison v Vickery's Motors Ltd (in liq) (1925) 37 CLR 1
Dungate v Dungate [1965] 1 WLR 1477
Eicke v Nokes (1834) 1 M & Rob 359
Fuller v Redman (1859) 53 ER 1035
Giacci Holdings Pty Ltd v Giacci [2007] WASC 187
Giacci v Giacci [2006] WASC 239
Giacci v Giacci [2006] WASC 239(S)
Giacci v Giacci Holdings Pty Ltd [2009] WADC 166
Hepburn v McDonnell [1918] HCA 43; (1918) 25 CLR 199
Hipworth v Mahar (1952) 87 CLR 335
Howard Smith & Co Ltd v Varawa [1907] HCA 38; (1907) 5 CLR 68
Jiwunda v Trustees of the Travel Compensation Fund [2006] NSWSC 741; (2006) 12 BPR 23
Jones v Bellgrove Properties Ltd [1949] 2 KB 700
Jones v Dunkel (1959) 101 CLR 298
McGuffie v Burleigh (1898) 78 LT 264
McLaughlin v Daily Telegraph Newspaper Co Ltd [1904] HCA 51; (1904) 1 CLR 243
McLean Bros & Rigg Ltd v Grice [1906] HCA 1; (1906) 4 CLR 835
Motor Terms Co Pty Ltd v Liberty Insurance Ltd [1967] HCA 9; (1967) 116 CLR 177
Re Atlantic and Pacific Fibre Importing and Manufacturing Co Ltd [1928] Ch 836
Re Beavan; Davies, Banks & Co v Beavan [1912] 1 Ch 196
Re The Coliseum (Barrow) Ltd [1930] 2 Ch 44
Re Transplanters (Holding Company) Ltd [1958] 1 WLR 822
Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; (2000) 200 CLR 121
Spencer v Hemmerde [1922] 2 AC 507
Stage Club Ltd v Millers Hotels Pty Ltd [1981] HCA 71; (1981) 150 CLR 535
Stamford, Spalding & Boston Banking Co v Smith [1892] 1 QB 765
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
VL Finance Pty Ltd v Legudi [2003] VSC 57; (2003) 54 ATR 221
Wright v Pepin [1954] 1 WLR 635
MARTIN CJ: I agree with Newnes JA and Murphy JA that this appeal should be dismissed for the reasons which each give.
Put shortly, the appellant no longer asserts that the Fordham memorandum is itself capable of constituting an acknowledgement of debt. Rather, it was put on appeal that the Fordham memorandum records the instruction given by the company to Mr Calder, the author and signatory of the KPMG report as to the amount of the debt. The instruction to treat those amounts as a debt owed is said to be recorded in the KPMG report which the appellant relies upon as having been signed by Mr Calder as the agent of the company.
However, it is clear that the KPMG report was not prepared for any purpose of the respondent company. Rather, it was prepared for the purpose of a dispute between the shareholders of the company. The fact that the respondent company may have paid for the KPMG report is not, in my view, to the point. Because the report was not prepared for the purpose of the company, it cannot be concluded that the statements within the report were made for the purpose, or with the authority, of the company any more than statements within a company's annual return can be said to be made for the purpose of constituting an acknowledgement of debt owed by the director to the company - see VL Finance Pty Ltd v Legudi [2003] VSC 57; (2003) 54 ATR 221 per Nettle J at [67]. Nor can it be inferred that Mr Calder's record of the assumptions he was instructed to make for the purposes of the valuation which he undertook were intended by the company to constitute an acknowledgement of liability. These were simply assumptions to be made for the purposes of valuation. For the same reason, Mr Calder, who was engaged to give an expert opinion and ultimately gave evidence of that opinion in proceedings between the shareholders, could not properly be considered to be an agent of the company at the time he signed the report, and certainly not for the purpose of acknowledging any debt or debts owed by the company.
NEWNES JA: This is an appeal against a decision of Schoombee DCJ in the District Court in which her Honour gave judgment for the appellant in the sum of $2,948.66 but dismissed the balance of the appellant's claim for outstanding directors' remuneration and superannuation, finding that it was statute‑barred.
The appellant appeals against the dismissal of the balance of his claim, contending that the primary judge should have found that the total debt of $193,562.85 had been acknowledged by the respondent in a valuation report prepared by accountants on the respondent's instructions
or in a memorandum prepared by a different accountant at the respondent's request. The effect of the acknowledgement, it was contended, was to start time running afresh under the Limitation Act 1935 (WA) (the Act) with the result that the appellant's claim was within time.
Background
The appellant started a trucking business in Bunbury, Western Australia, in 1953. In 1968, the appellant caused the respondent to be incorporated and the respondent took over the conduct of the business. The appellant gave each of his younger brothers, Mr Peter Giacci and Mr Mario Giacci, shares in the respondent and they were appointed as directors. (For convenience, I will refer to Mr Peter Giacci as Peter, and Mr Mario Giacci as Mario.)
Some years later the relationship between the appellant, on the one hand, and Peter and Mario, on the other, deteriorated and Peter and Mario passed a resolution in January 1997 removing the appellant as managing director of the respondent. The relationship did not improve subsequently and from time to time there were discussions between the appellant, Peter and Mario concerning the possibility of the appellant purchasing the shares held by Peter and Mario. Those discussions appear to have foundered on the question of the value of the shares (exhibit 9, par 88).
In 2005, Mr Duncan Calder of KPMG Corporate Finance (Aust) Pty Ltd (KPMG) was engaged by the respondent to provide an independent valuation of the respondent and its subsidiaries to 'assist in ascertaining an appropriate price' for the appellant to purchase the shares held by Peter and Mario (exhibit 3, page 64). A draft report was prepared in November 2005.
In the meantime, the appellant had commenced proceedings under the Corporations Act 2001 (Cth) against Peter and Mario alleging oppression in their conduct of the affairs of the respondent.
In the first part of 2006, an accountant, Mr John Fordham, was instructed by the appellant to complete a reconciliation of payments made to the directors of the respondent for the period 1 July 2001 to 30 June 2002 to identify any differences in payments made to the appellant, Peter and Mario respectively (exhibit 10, par 6). Mr Fordham had previously provided some accounting services to the respondent. He produced a memorandum dated 15 March 2006 (the Fordham memorandum), addressed to 'The Directors' of the respondent. It was in the following terms:
We have been requested to complete a reconciliation of payments made to the Directors and calculate any variances or outstanding payments made for the period 1 July 2001 to 30 June 2002. From 1 July 2002 onwards payments and distributions have apparently been maintained on an equal basis.
…
In summary the amounts owing to the Directors are:
AC Giacci
PL Giacci
$
$
Wages
186 931.00
2 871.00
Superannuation
14 711.60
190.12
Less: Land Tax
5 158.66
0.00
Rates
2 921.09
0.00
193 562.85
3 061.12
In the original calculation there was also an allowance for interest to be calculated on the outstanding amounts. We have not verified as to how this was arrived at and this is a matter for the Directors to consider further.
Please advise Casey if these amounts are to be reimbursed and if any allowance for interest is to be included (exhibit 7).
In or about May 2006, KPMG was engaged by the respondent to prepare a valuation of the respondent as at 21 December 2005. The purpose was to enable the value of the shares in the respondent to be determined so that the oppression action might be resolved by the acquisition of the appellant's shares by Peter and/or Mario. That valuation report (the KPMG report) (exhibit 5), headed 'Independent Indicative Valuation', was provided in June 2006.
By the time the oppression action came on for trial the parties were substantially in agreement that Peter and Mario should purchase the appellant's shares. There remained, however, issues as to the value at which the shares should be purchased and the financial capacity of Peter and Mario to complete the purchase. On the question of the value of the shares, Peter and Mario tendered the KPMG report in evidence.
In those proceedings, the appellant initially took the position that the sum of $197,000, referred to in the KPMG report under the heading 'Amount owing to director', was not, in fact, owing to the appellant by the respondent and that for the purposes of the valuation the assets of the respondent should be increased by that amount. In the course of argument, however, that assertion was withdrawn after the trial judge, Martin CJ, observed that such a stance seemed contrary to the appellant's interest because as a one‑third shareholder he would receive, at best, only an increment in the value of his shareholding equal to one‑third of the debt. Counsel for the appellant then indicated that the appellant would take separate steps to recover that amount from the respondent in due course and that it could be excluded from consideration in the valuation of the company.
In ex tempore reasons for judgment delivered on 3 August 2006, Martin CJ concluded that a reasonable price for the appellant's shares was $8 million: Giacci v Giacci [2006] WASC 239. The action was adjourned to allow Peter and Mario to determine whether they were able to purchase the shares, on the basis that if they informed the court that they were able to do so an unconditional order for the purchase of the shares would be made. Otherwise, directions would be made for argument on alternative remedies.
Subsequently, Peter and Mario determined that they were able to purchase the shares and, on 7 November 2006, Martin CJ made orders, in effect, for the purchase by Peter and Mario of the appellant's shares for the sum of $8 million: Giacci v Giacci [2006] WASC 239(S).
In the meantime, on or about 30 August 2006, the appellant served a statutory demand on the respondent claiming the sum of $197,000 by way of outstanding employee entitlements. The claim was based, in part, on an assertion that the respondent had acknowledged that debt in the KPMG report. The respondent applied to have the statutory demand set aside on the basis, amongst others, that the claim, or at least part of it, was statute‑barred. The statutory demand was set aside on the basis that there was a genuine dispute as to the debt: Giacci Holdings Pty Ltd v Giacci [2007] WASC 187.
The appellant then commenced proceedings against the respondent in the District Court to recover the sum of $193,562.85 by way of outstanding employee entitlements. The only issue in the action was whether the appellant's claim was statute‑barred. The appellant contended that it was not, arguing that in both the Fordham memorandum and the KPMG report the respondent had acknowledged the debt and, accordingly, the limitation period had then begun to run afresh. The trial judge rejected that contention and, apart from the sum of $2,948.66 conceded by Peter and Mario, dismissed the appellant's claim: Giacci v Giacci Holdings Pty Ltd [2009] WADC 166.
Findings of the primary judge
The primary judge found that the relevant legislation was the Act, rather than the subsequent Limitation Act 2005 (WA), as the cause of action arose before the commencement date of the latter Act (15 November 2005): Limitation Legislation Amendment and Repeal Act 2005 (WA), s 4(2). That finding is not challenged and is clearly correct.
It was not in issue that the appellant's claim was founded on a simple contract. Accordingly, pursuant to s 38(1)(c) of the Act, any action had to be commenced within a period of six years after the cause of action arose. The writ in the District Court was instituted on 9 May 2008.
It was conceded by the respondent's counsel at trial that any amount owing to the appellant in respect of the months of May and June 2002 was not statute‑barred. That amount, the respondent said, was $2,948.66 [17]. The primary judge rejected a submission made by the appellant's counsel that the cause of action for any amounts due to the appellant in respect of director's fees and superannuation accrued on an annual basis, so that amounts in respect of the financial year ended 30 June 2002 did not become payable until 30 June 2002. Her Honour found that the entitlements accrued on a weekly or monthly basis and therefore the only amount to which the respondent's limitation defence could have no application was for May and June 2002 [19]. That finding is not challenged on the appeal.
The primary judge then turned to the respondent's limitation defence in respect of the balance of the appellant's claim.
Her Honour held that the Fordham memorandum did not contain an acknowledgement of the debt. It simply contained a reconciliation, prepared from certain records of the respondent, of the payments actually made to each of the directors. It did not purport to express any opinion as to whether the appellant was entitled to receive the same payments as Peter and Mario. The primary judge noted that Mr Fordham had acknowledged in evidence that he was not privy to any arrangements between the directors regarding payments in the relevant period and he had used the expression 'amounts outstanding' in the memorandum because that was the terminology used by the appellant in instructing him. In addition, the memorandum had been prepared on the instructions of the appellant and her Honour found that there was no evidence that in giving those instructions the appellant was representing the respondent, rather than looking after his own personal interests [28] ‑ [32].
The appellant's contention that the respondent had acknowledged the debt in the KPMG report was also rejected by the primary judge [41]. Her Honour held that the purpose of the KPMG report was not to arrive at an opinion as to what payments were due and owing to the appellant, but to arrive at a valuation of the respondent which would enable Peter and Mario to purchase the appellant's interest. Whilst KPMG had been instructed that the appellant had a claim and to allow this claim as part of the respondent's liabilities, that did not amount to an acknowledgement that the amount was in fact due and owing to the appellant. The primary judge considered that the words 'amounts owing to director' in the report were neutralised by a footnote indicating that KPMG had been instructed that the appellant had a claim in that regard [38]. Her Honour concluded that the mere fact that the claim was shown as a liability in the KPMG report for the purposes of arriving at a value of the respondent did not mean that the respondent acknowledged that it was due and payable [40].
The primary judge then turned to two further issues which her Honour considered must also be decided adverse to the appellant. The first was the requirement in s 44(3) of the Act that an acknowledgement of debt must be in writing and signed by the acknowledging party or its duly authorised agent. The Fordham memorandum was signed by Mr Fordham and the KPMG report by Mr Calder of KPMG. The question, therefore, was whether Mr Fordham and KPMG respectively were agents of the respondent authorised to make such an acknowledgement [42].
The primary judge found that they were not. There was no evidence that Mr Fordham had any such authority. He had been engaged by the appellant and he had been engaged simply to prepare a reconciliation of the payments to directors. Nor was there any evidence that KPMG had the necessary authority. KPMG had been engaged by the respondent to prepare the valuation report and there was no evidence that KPMG had been authorised by the respondent to make admissions to third parties, such as the appellant in his personal capacity. Her Honour considered that in fact it was doubtful that KPMG could properly be called an agent of the respondent at all, noting that in Re Transplanters (Holding Company) Ltd [1958] 1 WLR 822, auditors who had signed off a company's accounts had been held not to be agents of the company [51].
The second issue was whether the respondent had ratified or adopted any acknowledgement of the debt by either Mr Fordham or KPMG. The primary judge found that the respondent had not. Her Honour rejected the appellant's submission that by providing the Fordham memorandum to KPMG with instructions to include the amount in question in the valuation as a liability of the respondent, and by allowing the KPMG report to be tendered in evidence in the oppression proceedings (to which the respondent was not a party), the respondent had ratified or adopted the contents of the Fordham memorandum and the KPMG report. Her Honour considered that that conduct showed only that the respondent was prepared to rely on those documents for the purpose for which they were made, namely reconciling the actual payments to directors and arriving at a valuation of the company. Neither document had been made for the purpose of acknowledging that the amounts referred to were actually due and owing and the respondent did not rely on them for that purpose [56].
Finally, the primary judge concluded that, had she found that the Fordham memorandum or the KPMG report contained an acknowledgement of the debt, she would have held that those acknowledgements had been adequately communicated to the appellant so as to constitute an acknowledgement effective at law [63].
Grounds of appeal
The appellant contended that the trial judge erred in concluding that:
1.neither the Fordham memorandum nor the KPMG report separately or together constituted at law an acknowledgement that the sum representing the short‑fall in remuneration and superannuation paid to the appellant in comparison to the other two directors was a legal liability which was then due and owing by the respondent to the appellant;
2.neither Mr Fordham nor Mr Calder had authority on behalf of the respondent to acknowledge the debt; and
3.the respondent did not ratify or adopt any acknowledgement made by Mr Fordham or Mr Calder.
The disposition of the appeal
Grounds 1 and 2
On the hearing of the appeal, the appellant did not seek to rely on the Fordham memorandum itself as containing an acknowledgement of the debt. Rather, it was submitted that the respondent had adopted the amounts stated in it and used it to instruct KPMG as to the specific amount of the debt owing to the appellant to be included in the KPMG report (ts 20). In those circumstances, it is convenient to consider the first two grounds of appeal together.
It was submitted on behalf of the appellant that the acknowledgement of the debt was the recording in the KPMG report of the respondent's instruction to KPMG to treat the unpaid salary and superannuation as a liability of the respondent. That instruction clearly expressed an intention by the respondent to admit the debt. Counsel for the appellant argued that whilst in providing its report KPMG was not acting as the agent of the respondent, it was the agent of the respondent for the purpose of recording in its report the respondent's instruction to include the sum of $197,000 as a liability of the respondent (ts 25). It was submitted that the primary judge erred in concluding that KPMG was not the authorised agent of the respondent for that purpose.
The appellant submitted that the Fordham memorandum was provided by the respondent to KPMG to be used in the preparation of the valuation and the amount of the debt as stated in the KPMG report is plainly taken from the Fordham memorandum. The documents, read together, acknowledged the debt of $193,562.85 owing by the respondent to the appellant.
The respondent, on the other hand, submitted that it was clear from the language of the KPMG report that it was not an acknowledgement of liability. The amount in question was described as a 'claim' by the appellant. The authors of the report were doing no more than recording their instructions that the amount was claimed and they were doing so simply to articulate one of the bases upon which their opinion was reached. In addition, KPMG was not the agent of the respondent but an independent expert engaged to provide a valuation for the purpose of litigation between shareholders. Nor, it was submitted, was there any evidence that the respondent had adopted the KPMG report.
The starting point in the resolution of the appeal is s 44 of the Act which, so far as relevant, is in the following terms:
(1)Except as expressly provided in this Act, nothing in section 38 contained shall take away or lessen the effect of any acknowledgment or promise … and except as aforesaid any such acknowledgment or promise shall have the same effect as if this Act had not been passed.
…
(3)In actions in the nature of actions founded upon simple contract, no acknowledgment or promise by words shall be deemed sufficient evidence of any new or continuing contract whereby to take any case out of the operation of section 38, or to deprive any party of the benefit thereof, unless such acknowledgment or promise is made or contained by or in some writing signed by the party chargeable, or by his agent duly authorised.
The principle that a promise to pay or an acknowledgement of a debt takes the debt outside the operation of a statutory limitation period and starts the period running afresh is one of considerable antiquity. It was, as Viscount Cave noted in Spencer v Hemmerde [1922] 2 AC 507, 512, 'originally judge made law', or as Lord Sumner put it perhaps rather more trenchantly, 'the result of … decisions of three centuries … decorously disregarding an Act of Parliament' (519). It is unnecessary to trace the development of the principle. Suffice it to say that in most jurisdictions it has long since received statutory recognition, and in many cases statutory modification.
In this State, at the relevant time the statutory contribution was limited to the recognition of the principle in s 44(1) of the Act and the requirement in s 44(3) that in actions founded on a simple contract the acknowledgement or promise must be in writing, signed by the acknowledging party or their duly authorised agent.
The relevant principles can be stated quite shortly. In order to take a debt out of the operation of s 38 of the Act, it is necessary that there be a promise by the debtor to pay the debt. A promise need not be express and a promise to pay will be implied from an unconditional acknowledgement of the debt: Hepburn v McDonnell [1918] HCA 43; (1918) 25 CLR 199, 210; Bucknell v Commercial Banking Co of Sydney Ltd (1937) 58 CLR 155, 163 ‑ 165. In order to constitute such an acknowledgement there must, upon the fair construction of the words read in the light of the surrounding circumstances, be an admission that the debt is owed: Hepburn v McDonnell (210). But it is not necessary that the acknowledgement specify the precise amount of the debt so long as it is ascertainable from extrinsic evidence: Jones v Bellgrove Properties Ltd [1949] 2 KB 700, 704; Dungate v Dungate [1965] 1 WLR 1477, 1487. Nor need the acknowledgement be contained in a single document but a number of documents can be combined to make up an acknowledgement: McGuffie v Burleigh (1898) 78 LT 264; VL Finance Pty Ltd v Legudi [2003] VSC 57; (2003) 54 ATR 221 [60].
A promise to pay or acknowledgement of debt must be made to the creditor or the creditor's agent: Fuller v Redman (1859) 53 ER 1035, 1038 ‑ 1039; Stamford, Spalding & Boston Banking Co v Smith [1892] 1 QB 765, 769; Bowring‑Hanbury's Trustee v Bowring-Hanbury [1942] Ch 276, 277; on appeal [1943] 1 Ch 104, 109. Such a promise or acknowledgement need not be made direct to the creditor or the creditor's agent but it is sufficient that the debtor intends that it be communicated to the creditor or the creditor's agent as an admission of the debt: see Hipworth v Mahar (1952) 87 CLR 335, 344; Stage Club Ltd v Millers Hotels Pty Ltd [1981] HCA 71; (1981) 150 CLR 535, 548.
It is clear from s 44(3) of the Act that an acknowledgement signed by an agent of the debtor is only effective if the agent is duly authorised to sign it. But it is not necessary that the agent have express authority to do so if it is within the agent's general authority: Chinnery v Evans (1864) 11 HL Cas 115; (1864) 11 ER 1274; Wright v Pepin [1954] 1 WLR 635. The authority of the agent is to be determined according to the ordinary principles of agency.
Ultimately, what amounts to an acknowledgement is a question of construction in each case and previous cases are therefore of little assistance: Spencer v Hemmerde (519).
As I have mentioned, the KPMG report was entitled 'Independent Indicative Valuation' (exhibit 5). In the Executive Summary, under the heading 'Introduction and purpose of report' there was reference to the oppression proceedings then in progress and to an order of the court that Peter and Mario were to purchase the appellant's shares in the respondent. The report stated that KPMG had been engaged to prepare an independent valuation of the respondent to assist in ascertaining an appropriate price for those shares and that the report had been prepared solely for that purpose.
The report noted that KPMG had been instructed to value the equity of the respondent, as at 21 December 2005, on three bases: as a going concern, on a liquidation basis, and on an asset value basis. The assessment of the indicative value of the respondent both as a going concern and on an asset value basis (which, it had been indicated earlier in the report, would be identical), was set out in table 12. That table included, amongst other things, an item 'Provisions and other liabilities' in the sum of $923,000. A note to that item (note 8) referred to table 20. Table 20 '[detailed] the assessed values of provisions and other liabilities'. It included items for unpaid dividends, employee entitlements, a loan, and provision for redundancies. It also contained an amount of $197,000 described as 'Amount owing to Director'. That item was explained in a statement under table 20 in the following terms:
We have been instructed to provide for amounts of underpaid salary and superannuation to [the appellant] and [Peter].
A footnote to that statement is as follows:
We are instructed that [the appellant] and [Peter] have claims for unpaid salary and superannuation less expenses totalling $196,624 (exhibit 5, p 24).
A disclaimer at the end of the report made it clear that KPMG had not conducted an audit or independently verified the information in the report and that the statements and opinions in the report were based on information given to or obtained by KPMG.
It is clear that the figures of $197,000 and $196,624 in the KPMG report were derived from the Fordham memorandum. The total of the amounts referred to in the Fordham memorandum as owing to the appellant and Peter was $196,623.97. There was no evidence, however, as to who on behalf of the respondent gave KPMG instructions to treat that amount as a liability of the respondent for the purposes of the valuation.
I accept the appellant's submission that the fact that the KPMG report refers only to the composite figure of $196,624, as opposed to the amount of $193,562.85 said to be owing to the appellant, is not fatal to the appellant's claim. But I am unable to accept that the KPMG report contains an acknowledgement of the debt under s 44 of the Act.
The KPMG report must be read in its context. The purpose of the report was, and was expressed to be, solely to provide a valuation of the respondent by independent accountants to enable the appellant's shares to be valued in connection with the oppression proceedings between the appellant on one side, and Peter and Mario (in their capacity as shareholders) on the other. It was not prepared for the purposes of the respondent or its use. In that regard, at the least, it stands in a quite different position to the cases, on which the appellant relied, in which a balance sheet issued by a company as a true statement of its financial position has been held to be an effective acknowledgment of the debts of the company; as to which see, for instance, Re Atlantic and Pacific Fibre Importing and Manufacturing Co Ltd [1928] Ch 836; Bellgrove Properties; Re The Coliseum (Barrow) Ltd [1930] 2 Ch 44; Stage Club v Millers Hotels.
When read in their proper context, the statements relied upon by the appellant do not, in my view, constitute an admission by the respondent that the debt is in fact owed. The statement in the KPMG report 'We have been instructed to provide for amounts of underpaid salary and superannuation to [the appellant] and [Peter]' was described by the primary judge as being 'neutralised' by the footnote referring to the 'claims' by the appellant and Peter. As the appellant's counsel argued, it is, I think, more accurate to describe it as being explained by the footnote (ts 14). But it does not seem to me that, however it is described, the footnote assists the appellant. The footnote is a statement that claims have been made against the respondent by the appellant and Peter in that sum. The effect of the statements, when read together, is simply that for the purposes of the valuation in the oppression proceedings the respondent has instructed KPMG to make provision for the sums claimed as a liability of the respondent. In that context, it does not, in my view, constitute an admission by the respondent that the debt is in fact owed.
There is, in any event, a more fundamental problem facing the appellant. In the course of argument on the appeal, counsel for the appellant accepted (rightly in my view) that KPMG was not the agent of the respondent for the purpose of preparing the KPMG report. Rather, the appellant's case was put on the basis that KPMG was the respondent's agent for the purposes of recording in the report the instruction it received from the respondent to provide for the sum of $197,000 as a liability of the respondent. In doing so, it was submitted, KPMG was recording, on behalf of the respondent, the respondent's admission of the debt (ts 7, 25).
I do not accept that submission. There was no evidence that KPMG was expressly authorised by the respondent to include the relevant instruction in its valuation report and, in my view, there was nothing to support the conclusion that it fell within any general authority of KPMG on behalf of the respondent.
In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 [70], the High Court observed that in any ordinary case the question whether one person authorised another to do an act or series of acts on his behalf is best answered by considering for whose benefit or in whose interest it was intended it should be done. Such a consideration may not be conclusive, but it is a useful practical starting point.
In the present case, I think it is quite clear that KPMG recorded the instruction in question in the KPMG report, not for the benefit or in the interests of the respondent, but simply to explain the approach that KPMG had taken in forming the opinion that it had been engaged to express. On the evidence, there is no basis upon which it could be concluded that to include the instruction fell within the scope of any authority KPMG might have had to act as an agent of the respondent. Indeed, in light of the concession by the appellant that KPMG was not the agent of the respondent for the purpose of preparing the valuation report, it is difficult to see that KPMG had any authority to act as an agent of the respondent in any relevant respect. The mere fact that it chose to include the instruction in the KPMG report does not mean that it is to be regarded as the agent of the respondent for that purpose. In my opinion, in doing so it was not acting as the respondent's agent.
I do not consider there is any substance in the appellant's contention that, by reason of the failure of the respondent to call Peter or Mario to give evidence as to KPMG's authority, the primary judge should have drawn a Jones v Dunkel inference that their evidence would not have assisted the respondent's case on the question of the authority of KPMG: see Jones v Dunkel (1959) 101 CLR 298. The onus of proving KPMG's authority rested on the appellant. On that issue the appellant led no evidence which called for an answer by the respondent and accordingly there was no basis upon which such an inference could be drawn: Jones v Dunkel (322); Schellenberg v Tunnel Holdings Pty Ltd [2000] HCA 18; (2000) 200 CLR 121 [51].
It follows that the statements in the valuation report on which the appellant relies were not signed by a duly authorised agent of the respondent and do not therefore constitute an acknowledgement of the debt for the purposes of s 44 of the Act.
Ground 3
It was submitted on behalf of the appellant that the primary judge had erred in finding that the respondent had not adopted or ratified the acknowledgement of the debt in circumstances where the respondent had commissioned and paid for the KPMG report to assist Peter and Mario in the oppression action and had made it available to Peter and Mario to tender in that action.
As I understand the submission, it is contended, in effect, that by its conduct the respondent adopted the relationship of agency assumed by KPMG in admitting the debt and retrospectively invested KPMG with
authority to make the admission: see Davison v Vickery's Motors Ltd (in liq) (1925) 37 CLR 1, 21. The first difficulty for the appellant, however, is that KPMG did not assume any relationship of agency with the respondent. It did not purport to act as the agent of the respondent.
In addition, assuming, without deciding, that for the purposes of s 44(3) of the Act, KPMG could be 'duly authorised' retrospectively in that manner, I do not consider there is any basis upon which it could be found that the respondent adopted the admission. As I have mentioned, the KPMG report was expressly prepared for the purpose of valuing the respondent so as to enable the value of the appellant's shares to be determined in the oppression action. How it came about that the respondent, rather than one or other of the parties to that action, engaged KPMG to prepare the report and paid for it, is not apparent. Be that as it may, I am unable to see how the conduct of the respondent in doing so, and in permitting Peter and Mario to use it for the purpose for which it had been prepared, could be regarded as vesting in KPMG the authority to make admissions on behalf of the respondent as to the debt owed by the respondent to the appellant. In my view, the conduct referred to was not capable of constituting an adoption of the statements concerned in the KPMG report.
Conclusion
I would dismiss the appeal.
MURPHY JA: Newnes JA has set out the background (factual and legislative) relevant to this appeal which, together with the abbreviations he has used, I gratefully adopt. The critical steps contended for by the appellant in the appeal in relation to grounds 1 and 2 were that the respondent's instruction to KPMG constituted an acknowledgement of the debt claimed by the appellant, and that the 'acknowledgement' (ie, the instruction) was 'contained ... in writing signed' by KPMG as the respondent's 'agent' within the meaning of s 44 of the Act. As Newnes JA notes, the appellant did not press the Fordham memorandum as constituting a separate admission or acknowledgement of debt. I agree that the appeal should be dismissed, for the reasons which follow.
In Bucknell v Commercial Banking Co of Sydney Ltd (1937) 58 CLR 155, 163 ‑ 165, Dixon J said:
The rules of law and construction which govern the revival by acknowledgment of debts against which time has run or is running under 21 Jac, c 16, s 3, have been fully explained in the House of Lords in
Spencer v Hemmerde, [1922] 2 AC 507. Hepburn v McDonnell (1918) 25 CLR 199 contains an explanation to the same effect. ... An express promise in writing by the debtor to pay revives his liability. But the liability is revived only according to the tenor of the promise. If it is so expressed as to be conditional or subject to limitations, the conditions must be fulfilled before the liability becomes enforceable and the limitations must be observed. ... But, although a document relied upon as an acknowledgment contains no express promise, it may effect a revival of the debtor's liability if there is found in it a distinct admission of the debt. The law implies from an acknowledgment of the existence of the liability a promise to discharge it. Words clearly acknowledging that the writer is liable suffice to raise the implication. But, although the promise is implied as an artificial legal consequence of the written admission of liability and is not the result of a search after the true meaning disclosed by the writing, yet if the document in which the admission occurs expresses an intention inconsistent with the making of such a promise or an intention consistent only with the making of a qualified promise, the implication will be rebutted or qualified accordingly. ... Lord Sumner said, in Spencer v Hemmerde, [1922] 2 AC 507 at p 531:‑
'After all, what the promise effects expressly, the acknowledgment effects by implication. With an express promise, whether it is qualified or unqualified, absolute or nullified, and with an acknowledgment, the question must be the same; if it is accompanied by other words we have to ask do they nullify or qualify the acknowledgment or simply leave it absolute?'
Again:‑
'The acknowledgment, which is alternative to a promise, was intended to be a promissory acknowledgment, as contrasted with a repudiatory one, an acknowledgment which can be regarded as the foundation of a promise, and is not the expression of a denial of liability or a refusal to pay.' (emphasis added)
See also Motor Terms Co Pty Ltd v Liberty Insurance Ltd [1967] HCA 9; (1967) 116 CLR 177, 179, 186, 189, 192.
In order to raise the implication of a promise to pay, 'an admission must be made as an acknowledgement. That is it must be so made as to stand on its own footing, and to be made as an admission': Hepburn v McDonnell [1918] HCA 43; (1918) 25 CLR 199, 210 (original emphasis). The admission must be sufficiently clear or distinct upon the fair construction of the language used, read as a whole and in light of the surrounding circumstances: Bucknell v Commercial Banking Co of Sydney Ltd, 165; Hepburn v McDonnell, 209 ‑ 211; Spencer v Hemmerde [1922] 2 AC 507, 515.
It is to be noted that Hepburn v McDonnell and Spencer v Hemmerde, to which Dixon J referred in Bucknell v Commercial Banking Co of Sydney Ltd, were cases concerning Lord Tenterden's Act, 1828 (9 Geo 4, c 14), the terms of which were relevantly set out by Viscount Cave in Spencer v Hemmerde (512 ‑ 513). The wording of Lord Tenterden's Act is in substance the same as s 44(3) of the Act, except that the former does not expressly make allowance for the written acknowledgement to be signed by the party chargeable's (debtor's) agent.
In neither Lord Tenterden's Act, nor s 44(3) of the Act, is express provision made for the acknowledgement of the debtor to be 'given to' the creditor or its agent. Those provisions may thus be contrasted with other legislative provisions referred to in various cases cited by the parties in this appeal: s 304 and s 305 of the Property Law Act 1928 (Vic) referred to in Hipworth v Mahar (1952) 87 CLR 335, 344; s 24(3) and s 25(2) of the Limitation of Actions Act 1958 (Vic), as to which see VL Finance Pty Ltd v Legudi [2003] VSC 57; (2003) 54 ATR 221 [61] ‑ [63]; s 24(2) of the Limitation Act 1939 (UK) referred to in Jones v Bellgrove Properties Ltd [1949] 2 KB 700; and s 54 of the Limitation Act 1969 (NSW) referred to in Stage Club Ltd v Millers Hotels Pty Ltd [1981] HCA 71; (1981) 150 CLR 535. Section 54 of the Limitation Act 1969 (NSW) replaced Lord Tenterden's Act as the relevant law in New South Wales: Stage Club Ltd v Millers Hotels Pty Ltd, 553. After the enactment of the Limitation Act 1939 (UK) and the Limitation Act 1969 (NSW), it was not necessary, in those jurisdictions, to find an express or implied promise to pay: Stage Club Ltd v Millers Hotels Pty Ltd, 563 ‑ 564.
Hipworth v Mahar itself was a case involving a mortgage debt to which s 304 of the Property Law Act 1928 (Vic) applied. It was not a case of a simple contract debt, and the decision turned 'wholly upon' the interpretation of the statute, and not on the common law doctrine of acknowledgement: Hipworth v Mahar, 338 ‑ 339, 341. It was not necessary accordingly, in that matter, to find a promise to pay implied in the admission of liability, as was the case with acknowledgements of simple contract debts under Lord Tenterden's Act: Hipworth v Mahar, 341.
Nevertheless, as the court observed in Hipworth v Mahar (342), with reference to Stamford, Spalding & Boston Banking Co v Smith [1892] 1 QB 765, 768 ‑ 769, in the case of a simple contract debt, where it is necessary that a promise to pay should be implied, the law was that 'such a promise could not be implied unless the acknowledgement were made "to" the creditor or his agent': Hipworth v Mahar, 342. See also Re Atlantic and Pacific Fibre Importing and Manufacturing Co Ltd [1928] Ch 836, 839; Re Beavan; Davies, Banks & Co v Beavan [1912] 1 Ch 196, 205 ‑ 206.
Although Hipworth v Mahar involved the proper construction of s 304 of the Property Law Act 1928 (Vic), the court in its review of the authorities referred to Eicke v Nokes (1834) 1 M & Rob 359 (174 ER 123) where Tindall CJ held that an admission of a debt by a bankrupt in the bankrupt's examination was an admission of the debt, in the first instance, to be paid under the bankruptcy laws and, if not in that way, then according to the ordinary course of law. That case concerned a simple contract debt.
In Hipworth v Mahar, the court, having referred to a substantial body of authority (including Eicke v Nokes) to the effect that an admission by a bankrupt in his or her statement of affairs that a debt is owing to a particular creditor is to be regarded (if there is no sequestration or the bankruptcy is annulled) as a sufficient acknowledgement given to the creditor concerned, said:
The reasons stated in the authorities are not very clear, but the reasons are not far to seek. The admission is not made directly to the creditor, but it is made with the intention that it shall be communicated to the creditor and for the purpose of enabling a compromise of rights as between all creditors. Having that intention and that purpose, it is fairly and properly regarded as a statement made to each and every creditor: 'I admit to you that I owe you so much, and I inform you that I owe so much to so many other creditors'. This view represents, as Sir Edward Sugden said, 'a just and fair construction of the statute'. (344)
As I would understand it, whilst the above passage was directed to the proper construction of s 304 of the Property Law Act 1928 (Vic) in relation to mortgage debts, the court's apparent acceptance of Eicke v Nokes indicates that the principle expressed in the passage may also be applied to simple contract debts for the purposes of Lord Tenterden's Act and its statutory equivalents. Accordingly, for the purpose of s 44(3) of the Act, the admission of a debt must be made to the creditor or its agent, or made with the intention or purpose of the admission being communicated to the creditor or its agent such that it may be fairly and properly regarded as a statement to the creditor that the debt is owed.
The following features are relevant as to whether the respondent's instruction to KPMG was an acknowledgement of the debt claimed by the appellant.
First, the nature of the instruction was explained in the footnote to table 20 of the KPMG report, to the effect that the appellant (and Peter) had 'claims for unpaid salary and superannuation expenses'. In other words, KPMG was instructed to make provision for these 'claims' when undertaking a valuation of the respondent. The written record of the instruction does not, by its language, signify a clear and distinct acknowledgement of the existence of the debt. That construction of the language used is reinforced by two other points. One is that the alleged debt was not recorded as a liability in the accounts of the respondent to which reference is made in the KPMG report. The other is that, historically, the respondent, having regard to the merits of the claim, irrespective of any limitation issue, had disputed any liability to the appellant (primary judge's reasons [21]).
Secondly, the instruction was given to KPMG for the purpose of KPMG preparing a report on the valuation of the respondent in circumstances where it is evident (from cl 1 of the report and from the instructions which KPMG recorded in their letter dated 31 May 2006) that the respondent intended that the report would be available as evidence in the oppression proceedings between the shareholders of the respondent. The respondent was not a party to those proceedings and the disputes addressed in those proceedings were disputes which had arisen between and amongst its shareholders. The respondent did not intend to use or rely on the report itself. That circumstance indicates that the instruction was not made as an admission of the debt.
Thirdly, although the report was intended to be available for use in the proceedings between the shareholders, and would thereby come to the appellant's attention, the instruction was not made by the respondent to the appellant. Also, unlike a statement of affairs by a bankrupt, the instruction was not made with the intention or purpose of it being communicated to the appellant such that it could properly and fairly be regarded as a statement made to the appellant that the debt was admitted. In its context, in my view, the instruction to make provision for the claimed debt was no more than an instruction to assume, for valuation purposes, that the appellant had a valid and enforceable claim. It left for debate between the shareholders in the oppression proceedings the validity of the KPMG opinion, and the assumptions on which it was based, including the instruction. The point is illustrated by the position first taken by the appellant in the oppression proceedings. He contended, in effect, that KPMG had underestimated the value of the respondent by understating its net assets because, he said, the debt was not due and owing by the respondent to the appellant (primary judge's reasons [6]).
These considerations combine to indicate that the instruction to KPMG was not an acknowledgement of the debt, as claimed by the appellant, within the meaning of s 44(3).
The appellant, nevertheless, says that the respondent, in effect, elected to treat the debt claimed by the appellant as a liability in the respondent's balance sheet, rather than to treat related claims which it would otherwise have had against the other two directors as an asset in its balance sheet. This submission by the appellant requires an explanation of the basis upon which the appellant claimed the debt and the basis on which the respondent disputed the debt. The appellant claimed the debt on the basis that the two other directors (and shareholders) had been paid more directors' fees than he had, contrary to Article 64 of the respondent's Articles of Association which, the appellant said, required that all directors be paid fees equally. The respondent had alleged that the appellant was not entitled to an equalising payment in any event, because Article 64 also required that directors' fees be determined by the respondent in general meeting, and payment to all directors beyond a certain date, including those to the other two directors relied on by the appellant as the basis for his equalisation claim, had not been approved in general meeting.
The appellant in this appeal says, in effect, that rather than treating the 'overpayments' to the other two directors as an asset, the respondent treated the debt to the appellant as a liability. The appellant contends that the acknowledgement of the debt for the purpose of s 44 of the Act may be inferred from the election. I do not accept that submission. Whether the respondent had a good defence on the merits to the debt claimed by the appellant and whether the respondent had good claims in restitution against the other two directors for 'overpayment' were matters which it was not necessary for the respondent to reach and disclose any concluded view about in its instruction to KPMG. The instruction, in my view, could not be treated as expressing an intention to admit the debt, any more than its omission to instruct KPMG to incorporate as an asset of the respondent any claim in restitution against the other two directors, could signify an intention that the respondent had no claim, or had waived any claim it may have had, against those directors. As noted above, it seems to me that the instruction to make provision for the claimed debt was no more than an instruction to assume, for valuation purposes, that the appellant had a valid and enforceable claim.
It follows, in my view, that the respondent's instructions to KPMG could not be characterised as an acknowledgement or admission by the respondent that it owed to the appellant the debt claimed. In my view, the primary judge was not in error in this regard.
Further, even if (contrary to the above) the KPMG report did contain, by the recording of the instruction, an acknowledgement of the debt claimed by the appellant, it was not signed by the respondent, and nor, in my view, was it signed by an agent 'duly authorised' by the respondent. It was not disputed in this appeal that authority, for the purpose of s 44(3), denotes any authority by which, under the general law of agency, one person will become legally bound by the acts of another. Some support for that proposition may be found by analogy in Jiwunda v Trustees of the Travel Compensation Fund [2006] NSWSC 741; (2006) 12 BPR 23, 857, per Palmer J [73] ‑ [80] (construing the words 'thereunto lawfully authorised' appearing in s 54A(1) of the Conveyancing Act 1919 (NSW)).
In this matter, the KPMG report was signed by a representative of KPMG, Mr Calder. KPMG was an independent contractor engaged by the respondent to prepare a report for the respondent, but it was not the agent of the respondent. The respondent did not confer actual authority on KPMG to act on its behalf, nor did it hold out KPMG as having any authority to act on its behalf. KPMG prepared and signed the report as principal. For this reason, too, the primary judge has not been shown to be in error. I also agree with Newnes JA on the Jones v Dunkel submission of the appellant. The onus was on the appellant to prove agency: McLaughlin v Daily Telegraph Newspaper Co Ltd [1904] HCA 51; (1904) 1 CLR 243, 276.
Accordingly, the appellant has not made out the first two grounds of appeal.
That leaves the appellant's third ground of appeal for consideration. By this ground, the appellant contends, in effect, that even if, at the time that he signed the report, Mr Calder was not the authorised agent of the respondent, the respondent, nevertheless, 'ratified' or 'adopted' the 'acknowledgement' contained in the report. This ground, and the arguments in support of it, proceed on the basis that Mr Calder made an 'acknowledgement' that the respondent was indebted to the appellant as claimed by the appellant. In my view, Mr Calder's report may not be construed as an 'acknowledgement' by him of the respondent's indebtedness. He was merely recording his instructions. His recording of his instructions did not signify any intention to affirm or acknowledge the debt claimed by the appellant.
Moreover, under the doctrine of ratification, the agent whose act is said to be ratified must have purported to, or professed to, be acting as agent for the principal when the unauthorised act was done: McLean Bros & Rigg Ltd v Grice [1906] HCA 1; (1906) 4 CLR 835, 857 ‑ 858; Howard Smith & Co Ltd v Varawa [1907] HCA 38; (1907) 5 CLR 68. Here, KPMG, when recording the acknowledgement, did not purport or profess to do so as an agent for the respondent. In my view, the third ground of appeal also fails.
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