In the matter of Hot Frog Pty Ltd

Case •

[2022] NSWSC 6

•

25 February 2022

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: In the matter of Hot Frog Pty Ltd [2022] NSWSC 6
Hearing dates: 24 and 25 November 2021; last submissions 9 December 2021.
Decision date: 25 February 2022
Jurisdiction:Equity
Before: Rees J
Decision:

Judgment for the plaintiff in the amount of $7,760.10; proceedings otherwise dismissed.

Catchwords:

CORPORATIONS — directors and officers — director accused of appropriating company’s funds for personal use — no constitution – no board meetings – no minutes – few records – cash business – whether director authorised to expend funds without resolution of board, principles at [89] – onus of proof – serious allegation – Briginshaw – insufficient evidence – strict liability to account for unauthorised payment of home electricity bill.

Legislation Cited:

Corporations Act 2001 (Cth)

Evidence Act 1995 (NSW)

Cases Cited:

A v New South Wales (2007) 230 CLR 500; [2007] HCA 10

Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297; [2011] FCAFC 151

Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17

BCI Finances Pty Ltd (In Liq) v Binetter (No 4) [2016] FCA 1351; (2016) 348 ALR 227

Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 225 FLR 1; [2008] WASC 239

Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 39 WAR 1; [2008] WASC 239

Blatch v Archer (1774) 98 ER 969

Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279; (1991) 6 ACSR 464

Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 38

Carr v Baker (1936) 36 SR (NSW) 301

Caswell v Powell Duffryn Associated Collieries Ltd [1940] AC 152

Chew v The Queen (1992) 173 CLR 626

Crowe-Maxwell v Frost (2016) 91 NSWLR 414; [2016] NSWCA 46

Federovich v St Albans Pty Ltd [1999] NSWSC 506

Gerard Cassegrain & Co Pty Limited v Cassegrain [2013] NSWCA 453; 305 ALR 612

Great Investments Ltd v Warner (2016) 243 FCR 516; [2016] FCAFC 85

Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [179]

Horizon Star Pty Ltd v Carina Holdings Pty Ltd [2003] WASCA 94

Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41

Howard Smith Ltd v Ampol Petroleum Ltd (1974) 48 ALJR 5

In the matter of Idylic Solutions Pty Ltd [2012] NSWSC 1276

In the matter of Ledir Enterprises Pty Ltd [2013] NSWSC 1332

In the matters of Earth Civil Australia Pty Ltd, RCG CBD Pty Ltd, Bluemine Pty Ltd, Diamondwish Pty Ltd and Rackforce Pty Ltd (all in liq) [2021] NSWSC 966

Jones v Great Western Railway Co (1930) 47 TLR 39

Neville v Lam (No 3) [2014] NSWSC 607

Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146

Perkins v National Bank Ltd (1999) 30 ACSR 256; [1999] SASC 280

Poole v Chubb Insurance Company of Australia Ltd [2014] NSWSC 1832

Pope v Flinders Management Pty Ltd [2001] SASC 278

Re Wan Ze Property Development (Aust) Pty Ltd [2012] NSWSC 722

Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134; [1942] 1 All ER 378

Residues Treatment and Trading Co Ltd v Southern Resources (No 2) (1989) 15 ACLR 770

Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd [2008] NSWCA 39

Roden v International Gas Applications (1995) 18 ACSR 454

Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262; [2000] NSWCA 29

Texts Cited:

Ford, Austin & Ramsay's Principles of Corporations Law (LexisNexis Butterworths, as at December 2021)

Category:Principal judgment
Parties: Hot Frog Pty Ltd (Plaintiff)
David Barker (Defendant)
Representation: Counsel:
Mr A Hopkins (Plaintiff)
Mr C Dobbs (Defendant)
Solicitors:
Brander Smith McKnight Lawyers (Plaintiff)
Robertson Saxton Osborne Lawyers (Defendant)
File Number(s): 2020/267733

Judgment

  1. HER HONOUR: This is a claim by Hot Frog Pty Ltd (the Company) against its former director, David Barker, for compensation of some $118,000 for breach of directors’ duties and fiduciary obligations. Mr Barker denies the Company’s claim entirely.

WITNESSES

  1. For the Company, evidence was given by director, John Hedison, who was cross examined. He was an older fellow, who was straight forward and made reasonable concessions. Mr Hedison did not appear to have particularly good recall. Nor was he a sophisticated businessman. Mr Hedison appears to have left the running of the Company’s business to Mr Barker at the time, and had little involvement in day-to-day transactions.

  2. Mr Barker gave evidence and was cross-examined. He was nervous but gave precise and succinct answers. Mr Barker was younger than Mr Hedison and had a good understanding of accounting and technology. He was a little smug when explaining why he had not repaid the Company for hire purchase payments on his ute, although his explanation was not easy to understand. Mr Barker’s evidence that purchases from Bunnings were for Company purposes was sincere. Mr Barker ultimately accepted that the Company paid electricity bills for his home, but blamed his ex-wife. I got the impression that it only became apparent to him in the witness box that the electricity bills related to his home rather than the business premises, although it was a little surprising that, over the course of these proceedings, he had been unable to work out this out from the electricity bills. His denial of this part of the case damaged his credibility.

FACTS

  1. Mr Hedison is an engineer by training. Since the 1990s, Mr Hedison was involved in aquaculture, through which he met Mr Barker, who was working for Fisheries NSW. In 2000, Mr Hedison leased a site on Captain Cook Drive, Woolooware (the site) from Roads & Maritime Services (RMS). The site has a shed. He operated a fish farm there for some years.

  2. In 2009, after leaving Fisheries NSW, Mr Barker went into business with Emmanuel Simitzis. They incorporated a company, The Shire Oyster Supply Pty Ltd. In 2013, Mr Barker and Mr Simitzis signed a Deed of Understanding with Mr Hedison, under which Mr Barker and Mr Simitzis would seek a licence from RMS for the site. Nothing came of this.

Mr Barker joins the Company

  1. In 2015, Mr Hedison understood that Mr Barker and Mr Simitzis had parted ways. Mr Hedison asked Mr Barker if he would consider joining the Company, which Mr Hedison had incorporated a few years earlier. He asked whether Mr Barker would consider providing $7,500 in working capital and become a shareholder. Mr Hedison said that he was unable to carry out manual work because of his knees and age, but would be able to assist with delivery, pick-ups and general housekeeping for the business.

  2. To this suggestion, Mr Barker prepared a document in April 2015 entitled “Proposal to join business assets & shareholding / directors” and a Business Development Plan. In the proposal, Mr Barker summarised what each would bring:

  1. Mr Hedison and the Company’s contribution to the proposed business was, essentially, the site and accompanying leases, shed and equipment together with Mr Hedison’s aquaculture, engineering and property development experience.

  2. Mr Barker had access to two other oyster leases as well as farming, hatchery and transport equipment (including a 2013 Mitsubishi Triton utility, “the ute”) and oyster stock. In addition, Mr Barker stated that he had “business operations & management skills/experience”, “business accounting requirements & procedures … this aspect may seem to be of minimal value but the experience of rolling a high cashflow business without capital funding has been a challenge …”

  1. In the proposal, Mr Barker suggested that, by combining his business with the Company, each brought a contribution of similar value. He proposed: (emphasis added)

•   All non-tangible & Tangible assets associated with DB ongoing concern/business be transferred to Hot Frog Pty Ltd to combine both DB existing business with JH, Hot Frog P/L to establish one business within the company.

•   In exchange for DB business and assets, he is established as a director, alongside JH, of Hot Frog P/L with a 50% shareholding of the company.

•   All directors loans/funds required for the business will be shared equally between directors

•   All company profits shall be divided equally between directors

•   We establish roles and responsibilities of directors and expected input into operations

•   Working Directors shall be paid according to their hours of work and roles/responsibilities

•   Directors will meet mutual agreement to make decisions regarding financial, capital, direction of business etc.

  1. In the Business Development Plan, Mr Barker identified the importance of capital to allow stock purchases at Christmas time, noting that “Xmas can be as big as we can afford to let it be. Again, the capital required will be the main limiting factor …” As for accounting, Mr Barker advised that MYOB was being used for banking transactions and wholesale invoicing, with work being done on using MYOB to manage all aspects of the business. “We have also implemented an XLS for calculation of daily cash takings and cash expenditure. We are still working on incorporating the retail cash takings into MYOB.” Presumably, this was a reference to the accounting procedures at Mr Barker’s then business, which he proposed to implement in their combined operations with the Company.

  2. Finally, Mr Barker suggested various matters which should be attended to at the outset. Some work needed to be done on the site, including satisfying corrective items listed in a Safe Food Audit. “Fortunately we have been offered $10000 compensation from Sydney Water that will … address the critical items required for our Retail licence. However the recent power issue will likely cost another $6000 to rectify and it is again critical that this be rectified ASAP. … I am concerned and sceptical that we will be able to generate enough working capital to be able to fund our critical items and our stock purchases for the Xmas period …”.

  3. Also in evidence is a single page entitled “NSW Food Authority requirements for retail and processing licence”. When read together with the Business Development Plan, it is apparent that this document was an attachment to the plan. In it, Mr Barker set out the works which needed to be done to the site to comply with NSW Food Authority requirements, with an estimated cost for each item, totalling some $11,100. In addition, it was necessary to repair and upgrade the electricity supply (estimated to cost $6,000) and replace other building elements of the building at the site at a cost of some $12,000.

  4. In addition to works which needed to be done at the site, Mr Barker set out his calculations on the funds needed to acquire oysters and prawns for the Christmas week. Some $19,000 was needed to fund oyster stock, on which he estimated an 80% profit would be enjoyed, being sales revenue of $34,200. In addition, $60,000 was needed for prawns and other seafood, on which it could be expected to earn a 50% profit of $30,000. In total, some $80,000 was needed in capital funds.

  5. According to Mr Barker, he discussed his proposal with Mr Hedison, who was agreeable (Mr Hedison does not suggest otherwise). On 30 June 2015, Mr Barker became a director of the Company and a 50% shareholder. The Company began operating a seafood business known as “Wetland Oysters” at the site, distributing and supplying oysters and live seafood from the site. On 20 July 2015, $7,500 was deposited to the Company’s bank account, with the description “Director’s loan DB”. On 3 September 2015, a further director’s loan of $600 was deposited to the Company’s bank account, with the description “Director loan DB”.

Mr Barker’s authority

  1. The Company was run without formalities. So far as is known, there was no constitution. The Company had no formal meeting process; no resolutions were passed nor minutes of meetings kept. No resolution was passed or recorded in any minutes of meeting that Mr Barker was authorised to expend the monies in dispute. Mr Barker said that, when he and Mr Hedison formed the business, they discussed his position in the Company, which was basically to manage it, including purchasing all items and stock. Mr Barker understood that he was authorised to make purchases, “however, on large purchases I would definitely discuss those with Mr Hedison.” He understood that, as a director of the Company, he had authority to make transfers from the Company’s bank account without the need to seek further authority from Mr Hedison. Whilst Mr Barker said it was intended that they would have regular meetings to discuss the business’ finances, in practice these meetings were held every three months or so.

  2. Mr Barker’s evidence is corroborated by a handwritten document exhibited to Mr Hedison’s affidavit, setting out the organisational structure of the Company and the roles of its directors and staff. The document was prepared by Mr Barker. As the document referred to Allan Pascoe, who joined the Company in April 2016, presumably the document was prepared at or after April 2016. Mr Barker said that he presented the document to Mr Hedison and later placed it on the shop noticeboard. Mr Hedison did not disagree with its contents.

  3. The organisational chart records that Mr Barker and Mr Hedison were each directors and held 50% in the Company. Mr Barker was the “business managing director”, whose role was to manage business operations, manage staff, supplier and client relations ‘+ purchases’, determine capital purchases (distinguishing between high value and low value purchases, and communicating with Mr Hedison in respect of the former), directing farm operations, ensuring licence requirements, occupational health and safety and insurance, and “determine movement of $ manage A/C”. He was to communicate on these matters and agree with Mr Hedison (including in respect of high value capital purchases) and to determine the direction of the Company, with company issues to be discussed between the directors.

  4. For Mr Hedison’s part, his role was to provide part-time assistance with tasks and site establishment requirements. Mr Hedison was to liaise with Mr Barker on major capital purchases, the Company’s financial status and direction, assist with daily and long-term tasks (clearly stating the time he had available), communicating and resolving the RMS licences, dealing with insurance claims and other duties as they arose in relation to the Company.

  5. As I read this organisational chart, Mr Barker had authority to made decisions in respect of day-to-day transactions including purchases. He was to consult with Mr Hedison on high value capital purchases, and the financial position of the Company generally, but not on every single transaction. This allocation of authority is unsurprising, as it appears to have been intended that Mr Barker would run the business, with Mr Hedison providing a supporting role. Mr Hedison said that he had a minor role in the Company compared to Mr Barker and was not involved in the purchasing of products.

Accounting arrangements

  1. In December 2015, the Company employed Mr Barker’s wife, Helen, as a casual bookkeeper and cashier. According to the organisational chart, Ms Barker was “part-time” and responsible for financial accounts payable and receivables management and organising office operations. Ms Barker was assisted by Katherine Hendricks of Sage Accounting at Erina. No financial statements, BAS statements or tax returns are in evidence.

  2. The Company used Excel spreadsheets and MYOB for accounting and record keeping. In particular, Account No. 1115 was entitled “Purchases”. Mr Barker said that he had never used the MYOB system. Mr Hedison said that he had a minor role in the Company compared to Mr Barker and had little input into the MYOB file system. Mr Barker said that cash sales were recorded in a daily takings sheet and used to pay cash suppliers and out of till expenses. None of these daily taking sheets are in evidence.

Banking

  1. On 3 February 2015, the Company opened a St George Bank account. Bank statements were mailed to Mr Hedison’s home. Mr Hedison and Mr Barker had access to the account by internet banking and a bank card. Mr Barker’s wife also had access to the account from time to time. It is apparent that there was a certain amount of cash floating around the business, with cash deposits being made into the Company’s bank account several times a month, presumably from cash sales.

  2. According to Mr Barker, he attended to the daily management of purchases and sales and paid the Company’s regular operating expenses. Almost every day that Mr Hedison visited the shop, Mr Barker observed him log-on to the Company’s bank account and check the credits and debits. Sometimes he asked questions of Mr Barker, who told him what the payments were for.

  3. Mr Hedison denied having access to the Company’s bank account at the site. Although there was a computer there, he did not have the log-in and password, so he never accessed or used the computer (Mr Barker denies this, saying the computer in the shop did not require a password to access). In any event, Mr Hedison said he received the bank statements each month by mail. However, Mr Hedison said he only began carefully monitoring the Company’s accounts after Mr Barker’s daughter was discovered to have used the Company’s E-toll: see [57].

ATM withdrawals

  1. On 27 August 2015, $150 was withdrawn from an ATM in Pyrmont. Mr Barker said this was the ATM at the Sydney Fish Markets. The Company often purchased stock from the Fish Markets, paid for in cash withdrawn from that ATM. The same amount is recorded in the “Purchases” account, albeit for 25 August 2015, with the narration as “withdrawal”. The MYOB printout was made on 8 August 2018, from a MYOB file provided by Mr Barker after he had left the Company but before any allegation of wrongdoing was made: see [75]-[76]. Presumably the MYOB entry was made contemporaneously. As such, it is likely that the ATM withdrawal related to a ”Purchase” for the Company, such as inventory.

  2. On 20 January 2016, $260 was withdrawn from an ATM at Pagewood. Mr Barker said that $260 was the exact purchase price for Pacific oysters that the Company regularly purchased from Eastgardens Seafood in Pagewood. Often the staff member collecting the oysters went to the ATM just near the supplier and withdrew the specific amount. It also appears in the MYOB ”Purchases” account and, as such, was likely used to purchase inventory. Another ATM withdrawal of $260 on 30 January 2016 at Pagewood is recorded in the MYOB “Purchases” account as “Wdl”.

  3. On 29 March 2016, $260 was withdrawn from an ATM at Caringbah. Mr Barker says this was also for Pacific oysters. It is recorded in the MYOB “Purchases” account as “wdl”. Presumably, it was for the purchase of inventory.

  4. A general ledger is also in evidence with entries from 1 July 2016 to 30 June 2017. On 14 July 2016, $1,000 was withdrawn from an ATM in Caringbah. It is recorded in the general ledger as “ATM WITHDRAWAL”. Mr Barker said this was paid to Tosca Seafood. This seems unlikely, as the general ledger journal did record a number of purchases from Tosca Seafood but did not refer to the supplier on this occasion.

  5. On 9 December 2016, $200 was withdrawn from an ATM at the Woolooware Golf Club. It is not recorded in the general ledger. Mr Barker said he withdrew this amount and gave it to Mr Hedison as “wages”. Mr Hedison denies this.

  6. On 3 February 2017, $200 was withdrawn from an ATM at Engadine. It is not recorded in the general ledger. Mr Barker has produced an ATM receipt, which is faded and illegible, on which his wife has written “Engadine market”. Mr Barker said the amount was market stall fees for its Engadine market stall.

  7. The final ATM withdrawal was made on 8 November 2017, when $50 was withdrawn from an ATM at Hurstville. The available accounting records shed no light on how these funds were used. Mr Barker said the amount was spent on consumables purchased from a grocery store in Hurstville called “Adam’s Apple”, being salad and lemons used at the market. This seems less likely as Mr Hedison said the Company had then ceased to operate: see [60]. Against this, the Company bank statement for November 2017 indicates that wages and expenses continued to be paid, and sales deposited.

Tosca Seafood

  1. The Company bought seafood from Tosca Seafood at Hurstville. According to Mr Barker, Tosca Seafood supplied almost all of the Company’s produce, particularly over the Christmas and New Year period. The majority of the business’ yearly revenue was earned over Christmas, New Year and Australia Day. This appears to have been a strictly cash arrangement.

  2. Mr Barker said that the Company had an account with Tosca Seafood. Seafood would be supplied with invoices “to the dollar” and then the Company would pay instalments off the account; Mr Tosca “gave us credit”. There was no signed contract to provide credit; “he had a book that he kept which had all of the invoices in it, and it also had payments made against it as well. And we kept a record of cash payments made towards that.”

  3. Tosca’s name appears in the general ledger with reasonable frequency. In addition, in evidence is a manilla folder containing a bundle of original handwritten dockets issued by Tosca, together with some handwritten notes, which appear to have kept a running tally on payments made to Tosca and the amount which remained owing.

  4. On 5 January 2016, $31,000 was withdrawn from the Company’s bank account. Mr Barker said this amount was withdrawn after the busy Christmas/ New Year period of trade. Mr Barker recalled withdrawing the cash, “I recall it very well.” He agreed that Tosca did not issue an invoice for $31,000 “because it was an account and that was a payment towards the account. Mr Tosca supplied all the seafood, the majority of the seafood for the Christmas and most of those sales were retail so that money had gone into the bank account, and to make a payment to him in cash … I had to withdraw that money to give to him as a cash payment.”

  5. The contents of the manilla folder do not assist, as the Tosca invoices and handwritten running tally concern transactions from late 2016 on. The transaction is recorded in the MYOB accounts: the withdrawal of $31,000 is recorded in the Company’s “Purchases” account as, simply, “cash withdrawal”. As such, it is likely that the cash withdrawal related to a ”Purchase” for the Company, such as inventory. I note the recurring theme in Mr Barker’s comments in his proposal and Business Development Plan, of the importance of capital to allow stock purchases at Christmas, “Xmas can be as big as we can afford to let it be. Again, the capital required will be the main limiting factor …”; sufficient working capital was needed to fund “stock purchases for the Xmas period”. He calculated the funds needed to acquire oysters and prawns for the Christmas week. Mr Barker’s evidence that he withdrew a large sum of cash shortly after the Christmas and New Year period, to pay the Company’s main seafood supplier, is consistent with these contemporaneous observations.

  6. On 27 February 2017, $25,000 was withdrawn in cash from the Company’s bank account. Mr Barker says this amount was withdrawn after the busy Australia Day period of trade. It is not recorded in the general ledger. However, the handwritten running sheet for the Tosca invoices records payment of $25,000 on 27 February 2017 by bank withdrawal. The customer receipt issued by the bank is in evidence, bearing what Mr Barker says is his wife’s handwriting, “Tosca”.

  7. Mr Barker said this payment was part of the credit account that he was trying to reduce to zero before the Company closed, “I was finalising the account”. When it was pointed out to him that the payment was in February 2017 – when the Company was not even close to ceasing to trade – he said “Sorry, I misunderstood that.” He denied, however, that he was “just making this up”. I suspect this was something of an unnecessary flourish on Mr Barker’s part when being cross-examined. Whilst the cash withdrawal is not recorded in the general ledger – and the quality of the accounting records appears poor – the record of the payment in the handwritten running sheet does support a conclusion that Mr Barker’s evidence should be accepted, together with the customer receipt issued by the bank.

  8. On 14 June 2017, $11,000 in cash was withdrawn from the Company’s bank account. Mr Barker has produced the bank customer receipt, which bears his handwriting, “Tosca”. Mr Barker said this amount was a standard amount for the previous month’s stock and was paid to Tosca Seafood in arrears. The handwritten running tally of Tosca invoices does not extend until this date. Tosca Seafood was, however, issuing invoices in June 2017. On 14 June 2017, Tosca Seafood issued an invoice for $1,736.48 and, on 27 June 2017, a further invoice for $12,172.87 The substantial purchase in the latter invoice may be consistent with the cash withdrawal of $11,000 at this time. It is, however, not recorded in the general ledger, where other payments made to Tosca Seafood at this time are recorded: payments were made to Tosca Seafood on 5 June 2017 ($3,200), 13 June 2017 ($1,500) and 19 June 2017 ($2,800). If the $11,000 had been used to pay Tosca Seafood, one might expect to see it recorded in the general ledger together with other payments to that supplier at that time. That said, the quality of the accounting appears poor.

Bunnings

  1. The Company’s bank statements record regular expenditure at Bunnings. The Company points to various purchases from Bunnings from January 2016 on as related to Mr Barker rather than to Company expenses. The bank statements are of little assistance in this regard, beyond pointing to the fact that a purchase was made. Mr Hedison has obtained records from Bunnings which indicate what some of these purchases were for. As I understand it, Mr Hedison has selected some only of the Bunnings expenditures; other expenses are not challenged, presumably because the expenditure related to the Company’s business.

  2. On 17 January 2016, $601.56 was spent on timber, structural flooring panels and MDF panels, nails, screws. On 18 January 2016, $132.39 was spent on an internal door and accessories. On 8 February 2016, $120.53 was spent at Bunnings on hose plumbing and clamps and line trimmer for a Victa accessory. On 25 February 2016, $52.76 was spent at Bunnings on masonite and pine. On 28 February 2016, $275.83 was spent on structural plywood and cladding. On 1 March 2016, $83.74 was spent on an internal door, filler, sealant and sheeting. On 19 March 2016, $149.48 was spent on decking pine and drill bits.

  3. On 22 March 2016, $170.05 was spent on a toilet. According to an invoice later rendered by a plumber, on 23 and 24 March 2016, a plumber attended at the site and ran water to a shed on site, for a bathroom and completed drainage underneath. On 29 March 2016, a sewer pump was installed and a concrete pit put in place. Work was done on a toilet and laundry tub and a new hose tap installed. A further $47.79 was spent on 31 March 2016, said to be for a sink mixer and paint, although no receipt from Bunnings is in evidence to indicate what the money was spent on.

  4. On 1 April 2016, $146.39 was spent at Bunnings on builder’s sealant and epoxy and water connectors, presumably to install the toilet, together with a basin waste, toilet sign, towel rail, toilet roll holder, silicon and spray paint. According to a later plumbing invoice, on 2 April 2016, the plumber attended on site and finished off the laundry tub and taps in the oyster opening room. On 5 April 2016, a further $40.35 was spent at Bunnings on water connectors, screws and screwdriver bits. According to a later plumbing invoice, on 8 April 2016, a plumber attended on site and hooked up water for a shower on the outside of the shed. According to a later plumbing invoice, on 11 April 2016, a plumber attended on site and worked on a plug and waste for the shower and bath. On 18 April 2016, $34.15 was spent at Bunnings on MDF mouldings, filler, paint brushes and rollers.

  5. On 17 May 2016, $98.62 was spent on paint. On 14 June 2016, $56.19 was spent at Bunnings on paint. On 22 June 2016, $90.78 was spent on plywood, bathroom silicon and fence posts. On 29 June 2016, $66.78 was spent at Bunnings on painting materials. In July 2016, five trips to Bunnings resulted in $835.42 being spent on paint and door supplies, timber and MDF panels, stormwater pipes, waterproof sealant and concrete pavers. In August 2016, $345.73 was spent at Bunnings on timber and hinges, pine decking and structural plywood. In October 2016, a further $117.71 was spent on timber.

  6. In December 2016, $355.23 was spent at Bunnings on structural pine, screws and bolts, fly screens, downlights, garden gloves and insect traps. In January 2017, $170.61 was spent at Bunnings on awnings and treated pine. In February 2017, $67.06 was spent at Bunnings on paint and timber supplies. In May 2017, $87.00 was spent at Bunnings on a power tool, safety glasses and safety gloves. In total, the Company says $4,051.72 was spent on Mr Barker on non-Company purchases, although I have not been able to reconcile each sum claimed with the bank statements and Bunnings receipts. The figure I have been able to reconcile with the documentary evidence totals $4,126.15.

  7. Mr Barker denies that any of the monies expended at Bunnings were for personal purchases. All items were installed into the shop fitout and renovations or used for the business’s farming equipment. The timber and associated hardware bought in January 2016 went into the back room renovation of the shop. The shop had a bathroom built and a toilet and plumbing installed; sealants and paints also went into that. The Company also built short-term accommodation quarters for its overseas workers. The downlights were used in the shopfront renovations on the roof built over the serving counter and installed by electricians. The concrete pavers became weights for securing oyster growing equipment in the Company’s oyster beds. A number of the items were used to maintain the Company’s oyster structures.

  8. Mr Hedison says that in about December 2016, renovation work was undertaken at the site to ensure that the retail area complied with NSW Food Authority Regulations. The work included enclosing the existing timber framework with steel cladding. Mr Hedison said that, once the shop was completed at the site in December 2016, there was no requirement for any further capital works nor any ongoing repairs or renovations. Mr Hedison denied that the toilet purchased at Bunnings was used on the site. A photograph of the toilet at the site is in evidence, although Mr Barker says it is the same one that he purchased at Bunnings. Mr Hedison said the items purchased were not used to build short-term accommodation at the Company’s business as the short-term accommodation measured 2.1 metres by 2.8 metres whilst the sheeting purchased was 161.2 square metres. He also denied that any downlights were installed, providing instead photographs of the fluorescent tube lights in use. He denied the concrete pavers were used as weights in oyster farming; there were plenty of concrete blocks available for that purpose. No pine timber was used on site as it is not sufficiently durable and long-lasting to be used in that setting.

  9. In response, Mr Barker estimated that in excess of 200 lineal metres of timber was used in the main building alone, including to frame the walls of the accommodation sheds and bathroom. The plywood sheeting was used in the bathroom and second accommodation area. The downlights were purchased to be fitted as he had earlier described, but had not yet been fitted when they closed the business at the site, “but I’m very sure that that’s what they were purchased for … so the idea was to put those downlights there. … They definitely were purchased for that purpose.” The concrete pavers were placed on the top of oyster tray lids to help weigh them down; other concrete blocks were not suitable as they were not flat and heavy enough. Large lengths of pine were also used to secure the barge in its fixed location. Shorter lengths were used as poles to hold the punt in place when working on the leases. Whilst hardwood timber is preferable, it is far too expensive.

  10. It is apparent from the Business Development Plan and attached “NSW Food Authority requirements for retail and processing licence” that a range of building work was needed to comply with the requirements of the retail licence for the shop operated at the site. Photographs of the site suggest that repair and maintenance jobs were plentiful. There can be no doubt, based on the invoice rendered by a plumber, that a toilet, laundry tub, shower and bath were installed. Mr Hedison accepts that the retail area was renovated and short-term accommodation was constructed. Whilst I am in no position to say whether the toilet purchased at Bunnings is the same toilet as appears in the photographs, there is no doubt that a toilet was installed. The toilet purchased on 22 March 2016 was probably the toilet installed by the plumber the following week. The items purchased from Bunnings were likely used on site; few appear suitable for use at Mr Barker’s home. There is insufficient evidence for me to identify particular items as unrelated to the Company’s business.

Mr Barker’s electricity bills

  1. In August 2016, payment was made from the Company’s bank account to AGL for $1,175.21, where the account number recorded on the bank statement corresponds to the supply address of Mr Barker’s house in Miranda. Thereafter, each quarter, a further payment for this electricity account was made from the Company’s bank account until February 2018, totalling $7,760.10.

  2. In cross-examination, Mr Barker accepted that the Company’s funds had been transferred to pay for electricity at his personal address. He denied, however, organising for these payments to be made using the Company’s money, nor did he make the payments. He did not know who made the payments, but said that his ex-wife also had access to the bank account and handled paying bills for their home. Mr Barker accepted that the electricity bill was paid using company funds but insisted that he did not make the payments himself.

Company ceases to trade

  1. On 19 April 2017, RMS issued a notice to vacate the site. The Company requested an extension of the vacation date, which was extended until 9 October 2019.

  2. In July 2017, Mr Hedison said that he spoke to Mr Barker after noticing charges and penalties relating to the Company’s E-toll in the bank statements over an 18-month period. Mr Hedison asked whether Mr Barker had an explanation, and Mr Barker said that he had given the E-toll to his daughter for her personal use, “I thought the company could authorise family members to incur costs against the business. I don’t deny that I’ve paid personal or family expenses. I’ll calculate the amounts and reimburse the company.” On 21 September 2017, the Company bank account was reimbursed by Mr Barker for $504.93 to repay toll fees. On 5 October 2017, a further $1,000 was credited to the Company’s bank account by his daughter for tolls.

  3. Mr Barker says that his daughter’s use of the E-tag arose from his error, when giving her an E-tag which he thought was their family personal E-tag when, in fact, it had come from The Shire Oyster Supply and Mr Barker had changed the bank payment details for that E-tag to the Company’s bank account. By the time Mr Hedison had noticed the E-toll charges, Mr Barker had already noticed the problem himself and calculated how much his daughter needed to repay; the matter was already in hand. That may well be right. I note that, on 28 August 2015, $400 was deposited to the Company’s bank account by his daughter, described as “Payment 1”. The significance of the E-toll payments, as I understand it, is not that the Company seeks to be reimbursed for these amounts but, rather, that Mr Hedison thereafter became concerned about how the Company’s bank account was being used and began to pay attention to bank statements.

  4. As the Company’s occupation of the site drew to a close, Tosca Seafood rendered its last invoice to the Company on 21 September 2017. In October 2017, Mr Hedison said that the Company’s business ceased operations due to RMS evicting the Company from the site. In November 2017, discussions were held between Mr Hedison, Mr Barker and accountant Ms Hendricks regarding the future of the Company. Mr Barker said he wanted to keep the bank account open to assist with his Christmas and New Year holiday plans.

Further payments to Tosca Seafood

  1. On 25 November 2017, Mr Barker started a new account with Tosca Seafood. Mr Barker began trading as Wetlands Oysters & Seafood in early December 2017 from a kiosk near the site, supplying oysters and seafood. By December 2017, the balance of the bank account was some $13,000 in credit. Various deposits were made, bringing the balance to some $21,000.

  2. On 11, 12 and 18 December 2017, internet withdrawals were made from the Company bank account totalling $19,969.25, described in the bank statement as “Tosca statement 1.12.2017”. A further $4,000 was transferred from the Company bank account on 15 January 2018, with the bank statement narration, “Tosca statement final payment”. Mr Hedison said these withdrawals were not for seafood supplied to the Company, as it was not trading from December 2017. Mr Barker denied making these payments to buy seafood for his new venture.

  3. Whether the “Tosca statement 1.12.2017” payments related to the Company or Mr Barker’s new business is unclear. The internet transfers were unusual as, historically, Tosca Seafood appears to have been paid in cash. The manilla folder containing Tosca Seafood invoices issued to the Company, and the handwritten running tally, do not assist. Certainly, Tosca Seafood issued invoices to Mr Barker’s new account on 25 November 2017, 6 December 2017 and 22 December 2017, although the amounts purchased is not legible.

  4. Mr Barker agreed that all payments made to Tosca were done by cash payments “apart from at the end when I was trying to wind down all of the accounts and debtors and creditors of Hot Frog, I had to pay Tosca with transfers”. What is known is that Tosca Seafood rendered its last invoice to the Company on 21 September 2017. The fact that the bank statement includes the description “Tosca statement 1.12.2017” suggests that Tosca issued a statement of account to the Company in respect of the final amount owing, now that the Company had ceased buying seafood.

The ute

  1. Mr Barker said that when The Shire Oyster Supply ceased trading, he and the other director each resolved to take ownership of a company vehicle, with his being the ute. In April 2015, he told Mr Hedison that he had a ute previously used for The Shire Oyster Supply (the ute is certainly referred to in Mr Barker’s “Proposal to join business assets & shareholder/directors”). Mr Barker said the Company could use the ute but there was still some hire-purchase finance owing; the business could just take over the remainder of the finance payments. According to Mr Barker, they agreed that the business would pay the repayments and retain the ute after it was paid off. Mr Hedison apparently said he was happy with that arrangement.

  2. Mr Hedison denies this. Rather, the Company used Mr Barker’s ute and Mr Hedison’s Mazda Bravo. The only vehicle expenses he ever agreed would be paid by the Company were operating costs such as petrol, insurance and registration. Mr Hedison denies any conversation agreeing that the Company would pay for hire purchase finance on the ute.

  3. From 24 June 2015 on, a regular monthly payment was made from the Company’s bank account for $500.92. These were hire-purchase payments for the ute. According to Mr Barker, in June 2015, Mr Hedison asked him for the finance details of the ute, which Mr Barker gave him, including the specific monthly amount, the bank account details of the financier and the payment reference. Mr Hedison set up an automatic debit. Mr Hedison denied this. From June 2015 to October 2017, a total of 26 monthly payments were made. These payments totalled $13,195.20.

  1. The ute remained in the name of The Shire Oyster Supply as Mr Barker did not pay out the loan or change over the finance, but he did change the registration of the vehicle. Mr Barker said that the ute was used solely for the Company’s business purposes. Other employees regularly drove it. He also drove it home because he often used it to do deliveries and pick-ups on his way to and from the shop. Mr Barker also had his own personal car and a family car, which he used for personal trips. In August 2017, Mr Barker told Mr Hedison that the finance pay-out figure for the ute was some $7,000 and the business could either pay out the lump sum or refinance the vehicle for a further three to five years. Mr Barker suggested that they both contribute to pay out the loan and then transfer the ute into the Company’s name. Mr Hedison did not agree, and the hire-purchase agreement was refinanced and continued.

  2. On 29 September 2017, the hire purchase arrangement on Mr Barker’s utility vehicle was paid out. The final payment for the utility vehicle from the Company’s bank account was made on 4 October 2017 for $171.28, closing the hire purchase account. From then on, Mr Barker paid the monthly hire-purchase payments himself.

  3. On 6 February 2018, emails were exchanged between Mr Hedison and Mr Barker regarding various ‘loose ends’, in particular, Mr Barker was concerned that his ute had been affected by corrosion, presumably as a consequence of being used for the Company’s activities, such that the re-sale value was now less than the pay-out figure. The email exchange suggests that Mr Hedison understood that the ute was owned by the Company whilst Mr Barker appears to have been proceeding on the basis that, whilst he was working for and trading within the Company, “all expenses were incurred by the company”, apparently including any repayments in respect of the ute and, “From the day you requested we stop trading I began trading under my own ABN and my own business trading name … At this time I transferred the [motor vehicle] loan and insurance repayments for the ute to be drawn from my own business account”.

  4. When Mr Barker ceased to be a director of the Company, he did not transfer the ute to the Company nor give the keys to Mr Hedison. Mr Barker said, “Mr Hedison had already said that I could retain the vehicle...” He offered to sell the ute and pay any money that it may have realised to the Company but Mr Hedison declined; in any event, the vehicle was then in deficit. When he ceased to be a director, Mr Barker did not repay the Company for any monies which it had paid towards finance on the vehicle. “I had already spoken to John about that and … we had no discussion that I would need to.” Mr Barker has since paid out the hire purchase on the ute and traded it in on another vehicle in his name.

  5. Again, it is hard to know what happened here. The fact that the direct debit was established on 24 June 2015, before Mr Barker became a director, suggests that whatever agreement was made was effected before Mr Barker joined the Company, being when Mr Hedison was the sole director. It may be that Mr Hedison agreed that the Company would make the hire purchase payments for the ute on the understanding that the ute would become the Company’s vehicle, which never happened. It may be that Mr Barker discussed the matter with Mr Hedison and understood (or misunderstood) that the Company’s payment of vehicle expenses extended to the hire purchase payments. The fact that a monthly payment was made for 26 months and went without comment from Mr Hedison – including after he began to pay attention to the bank statements – is consistent with either possibility. No MYOB records are in evidence to indicate how the expenditure was recorded by the Company at the time. Thus, it is difficult to decide whose version of events should be accepted.

Questions and answers

  1. On 27 February 2018, Mr Barker ceased to be a director of the Company. Mr Hedison asked for the Company’s books and records. Mr Barker told him to collect a box from his house, which Mr Hedison did. On 15 March 2018, the Company bank account was closed.

  2. On 6 July 2018, Mr Barker sent an email to Mr Hedison and Saige Accountants, attaching an archive MYOB file as requested. Mr Barker advised that, “Before I left the company, I tidied up as many loose ends as I could and I discussed our MYOB account with John and he said that he was going to do future BAS himself and would not need to use MYOB. So I cancelled it … The people at MYOB talked me through manually archiving a backup of the files to my PC (attached). … I think everything was up to date for the last BAS …”

  3. Mr Hedison said that he asked Mr Barker for a code to open the MYOB file, received no reply and, thus, could not open it. However, I note that a partial printout of the file (being for “Purchases” and part of the general ledger) is exhibited to Mr Hedison’s affidavits so, presumably, somebody was able to open the MYOB file and print it on 6 and 8 August 2018.

  4. On 26 July 2018, Mr Hedison sent Mr Barker a list of information required for clarification. Mr Barker suggested that he should consult the MYOB files, which would tell him what each payment was for. “I have given you all the paperwork that I have and the rest will be in the office at the shed. However, looking at your list I know off the top of my head what most of queries are for, so I have answered what I can of them below.” Of the large cash withdrawals, Mr Barker advised, “Cash withdrawals should match cash payments in MYOB but I know the larger ones were for xmas stock purchases”. For ATM withdrawals, “Cash withdrawals should match cash payments in MYOB or will be attached to the daily cash sheet with invoice and ATM withdrawal slip. I know I have given you all of the daily cash sheet for the whole period of trading from day 1 to finish.” In respect of Tosca Seafood, “All these and other stock invoices should be in a folder I have given you, or they will be down the shed with the rest of the paperwork.”

  5. On 15 August 2018, having reviewed the bank statements, Mr Hedison arranged to meet with Mr Barker and said that he wanted to investigate various transactions. According to Mr Hedison, Mr Barker said that, as business managing director, he could determine the movement of money. According to Mr Barker, he offered to go through the accounts with Mr Hedison and said he was not aware of any mistakes but, if he had made a mistake, then he would accept responsibility. He was not aware of ever spending company money on himself but, if Mr Hedison showed him otherwise, then it could be deducted from the director’s loan which had yet to be repaid.

These proceedings

  1. On 13 November 2018, the Company’s solicitor sent a letter of demand to Mr Barker and his wife, querying a number of transactions totalling some $71,900. It was suggested that Mr Barker had breached his duties as a director. Demand for repayment of the money was sought. On 23 November 2018, Mr Barker’s solicitors replied: any liability was denied; immediate withdrawal of the demand was sought.

  2. One year later, on 13 November 2019, a second letter of demand was sent, seeking repayment of monies used to pay Mr Barker’s home electricity account, hire purchase payments on the ute and unauthorised transfers of some $12,000, ATM withdrawals of some $2,000 and cash withdrawals of some $67,000, the purpose of which was uncertain. On 20 November 2019, demand was made for some $122,000 to be repaid. On 18 December 2019, Mr Barker’s solicitor responded in detail, denying the allegations. Nine months later, these proceedings were commenced in September 2020.

  3. Mr Hedison said that he and Mr Barker did not discuss or agree that the Company would pay for electricity at Mr Barker’s home, nor payments on his ute, nor the Bunnings purchases, ATM withdrawals or cash withdrawals. Mr Barker denies that he paid any personal invoices using Company funds. Mr Barker said he never took cash from the Company for non-company purposes. Shortly before the hearing, Mr Barker returned to the site and retrieved the manilla folder containing the Tosca Seafood invoices and the handwritten running tally, which was still in the shed.

SUBMISSIONS

  1. The Company submitted that Mr Barker misapplied company funds for his own personal benefit whilst a director, in breach of his statutory duties under sections 181 and 182 of the Corporations Act 2001 (Cth) and his fiduciary obligations: Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 97–8, 103 per Mason J; Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 39 WAR 1; [2008] WASC 239; Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [179]; Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134; [1942] 1 All ER 378. The payment of personal electricity bills, hire-purchase payments on the ute, Bunnings’ purchases, ATM and cash withdrawals were said to be for his benefit, not approved by the Company nor a majority of the directors. The Company sought an account for the misappropriated funds.

  2. The Company submitted that, as it had no constitution, section 198A of the Corporations Act 2001 applied the replaceable rules such that the board of directors had the power to manage the company and exercise its powers, not individual directors: Ford, Austin & Ramsay's Principles of Corporations Law, online edition, (LexisNexis Butterworths, as at December 2021) at [13.060.3]. In any company with several directors, a director acting individually has no usual authority to bind a company: Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 205; Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 at 303; (1990) 3 ACSR 649 at 672 on appeal Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 at 361; (1991) 6 ACSR 464 at 476; Perkins v National Bank Ltd (1999) 30 ACSR 256; [1999] SASC 280; Pope v Flinders Management Pty Ltd [2001] SASC 278 at [52]; Horizon Star Pty Ltd v Carina Holdings Pty Ltd [2003] WASCA 94; Federovich v St Albans Pty Ltd [1999] NSWSC 506 at [24]. To bind the Company, it was submitted that a director must be the company’s agent, delegated by the appropriate organ: Ford, Austin & Ramsay's Principles of Corporations Law at [13.080]. This did not happen in this case.

  3. The Company submitted that, once it was accepted that each of the transactions was unauthorised by a board of directors, or by some resolution delegating authority to Mr Barker, it was sufficient for the Company to prove that the transaction had been entered into without authority such that the onus then shifted to Mr Barker to give a commercial explanation for the transaction, being evidence which it was particularly within his ability to adduce: Gerard Cassegrain & Co Pty Limited v Cassegrain [2013] NSWCA 453; 305 ALR 612 at [26] per Beazley P; Crowe-Maxwell v Frost (2016) 91 NSWLR 414; [2016] NSWCA 46 at [89]-[90] per Beazley P. As such, unless Mr Barker’s evidence was to be believed, the Court would be satisfied that the plaintiff has discharged its onus.

  4. The Company submitted that, at all relevant times, the ute belonged to The Shire Oyster Supply. The hire purchase contract was a liability of that company. Hire purchase payments made by the Company benefitted The Shire Oyster Supply, being a company controlled by Mr Barker. In making the payments, it was said that Mr Barker breached both the ‘no profit’ rule as he later sold the ute for his own benefit and thus enjoyed the equity created in the asset by the payments. He was said to have also breached the ‘no conflict’ rule as he had an interest as a director of The Shire Oyster Supply in reducing that company’s indebtedness.

  5. Mr Barker submitted that, while section 198A(2) vests decision making power in the company’s board of directors, the precise mechanisms and ambit of decision making power that then flows to each director was a creature of the consensual compact between directors, and the authority that flows from the principal/agent relationship between the director and company: section 140(1)(a). There was nothing inherent in section 198A(2) that required an exercise of director power to be made by the directors collectively.

  6. To determine whether the director have breached his duties, it was necessary to consider the subjective intentions of the director and then to determine objectively whether a reasonable board could possibly think the exercise of power to be in the interests of the company: Howard Smith Ltd v Ampol Petroleum Ltd (1974) 48 ALJR 5 at 77 per Wilberforce LJ; Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 225 FLR 1; [2008] WASC 239 at [4619] per Owen J; Re Wan Ze Property Development (Aust) Pty Ltd [2012] NSWSC 722 at [35] per Black J; Residues Treatment and Trading Co Ltd v Southern Resources (No 2) (1989) 15 ACLR 770 at 787–8 (Perry J); Chew v The Queen (1992) 173 CLR 626 at [13]. It was submitted that Mr Barker’s authority at least extended to managing business operations, bills and supplier payments and determining the management of company finances. This included the payment of business expenses and improvements to Company premises.

  7. Mr Barker submitted that there was insufficient evidence on the Briginshaw scale that Mr Barker acted improperly in relation to any of the impugned transactions. The civil standard of proof requires the Court to reach an ‘actual persuasion’ of the alleged facts, where the degree of satisfaction demanded depends on the nature of the issue pleaded: Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 38 at 36; section 140, Evidence Act 1995 (NSW). The more serious an allegation, the inherent unlikelihood of an occurrence of a given description or the gravity of the consequences flowing from a particular finding, are considerations which push the degree of satisfaction required higher up the scale.

WERE THE TRANSACTIONS UNAUTHORISED?

  1. As I understood it, the Company submitted that, as the Company did not have a constitution, a director could only be authorised to expend company monies pursuant to a resolution passed in a duly convened meeting documented in a minute. The Company acknowledged that it had not ever passed any resolutions formally, and “it may well be that every single transaction that the company entered into was … an unauthorised transaction”. Whilst the Company is correct to submit that section 198A does not confer authority on a single director, the directors may nevertheless make ‘informal decisions’ by a “meeting of the minds” which have the effect of a resolution passed in a duly convened meeting. Whether there was any such decision is a question of fact in each case: Roden v International Gas Applications (1995) 18 ACSR 454 at 456 per McClelland CJ in Eq. See also In the matter of Ledir Enterprises Pty Ltd [2013] NSWSC 1332 at [122] per Black J.

  2. As already observed at [17], the evidence in this case is that Mr Barker was given authority to make day-to-day purchases without the need to consult Mr Hedison, apart from “high value” capital purchases. This arrangement was agreed between the directors in their initial discussions when Mr Barker joined the business and is corroborated by the organisational chart prepared by Mr Barker. Mr Barker’s authority did not extend beyond expenditure for the purpose of the Company; he agreed that he was not authorised to use Company funds for personal expenses.

  3. Subject to defences such as change in position and bona fide purchase for value without notice (which are not raised in the present case), the recipient of an unauthorised transfer of company assets is under a strict liability to make restitution of the benefit received: Great Investments Ltd v Warner (2016) 243 FCR 516; [2016] FCAFC 85 at [60]-[69] per Jagot, Edelman and Moshinsky JJ. Questions of knowing receipt do not arise: Great Investments Ltd v Warner at [53]-[55]. Accordingly, the only issue is whether the Company has discharged its onus in proving that the payments were unauthorised.

  4. It has been said that the “difficulty of proving a negative is well known”: A v New South Wales (2007) 230 CLR 500; [2007] HCA 10 at [60]. As Campbell JA (with whom McColl JA and Handley AJA agreed) explained in Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd [2008] NSWCA 39 at [78]:

If a plaintiff has the onus of proving a negative proposition, the fact that the defendant has greater means to produce evidence which contradicts that negative proposition, does not mean that the plaintiff ceases to have the onus of proof of that negative proposition. However, once the plaintiff establishes sufficient evidence from which, if that evidence is accepted, the negative proposition may be inferred, an evidential onus shifts to the defendant to adduce evidence that tends to show that the negative proposition is incorrect. If a defendant adduces such evidence, the plaintiff must then, as part of its overall burden of proof, deal with that evidence either by submission or argument. …

  1. The Company accepts that it bears the onus in proving that the relevant payments were unauthorised. However, it relies on Lord Mansfield CJ’s maxim in Blatch v Archer (1774) 98 ER 969 at 970. In Gerard Cassegrain at [26], Beazley P said, “That case is authority for the proposition that where material evidence is peculiarly within a party's knowledge, it may be sufficient for the opposing party to adduce slight evidence of a matter in issue”: at [26], [89]-[90]. I note that Gleeson J likewise summarised in BCI Finances Pty Ltd (In Liq) v Binetter (No 4) [2016] FCA 1351; (2016) 348 ALR 227 at [125]:

All evidence “is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted”: Coshott v Prentice (2014) 221 FCR 450; [2014] FCAFC 88 at [80], quoting Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970. This maxim also bears upon the appropriateness of deciding whether a fact has been proved when only limited evidence is available. In Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168 at [14], [15], Hodgson JA (with whom Beazley JA agreed) said:

[I]n deciding facts according to the civil standard of proof, the court is dealing with two questions: not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision …

In considering the second question, it is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so …

  1. However, the principle from Blatch v Archer does not alter the onus of proof, nor the position that “the circumstances in which … the absence of evidence may be taken to account are confined by known and accepted principles”: Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17 at [165] per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ. Mr Barker’s evidence was that, apart from company monies expended towards his personal expenses, Mr Hedison approved the payments. After Mr Barker ceased to be a director, he handed over the books and records to Mr Hedison, both in a box and the MYOB data file. In the years which followed, Mr Hedison appears to have reviewed these documents carefully before bringing this claim. It is not apparent that Mr Barker has any greater means of producing evidence on the issue of whether the transfers were authorised than the Company. True it is that his wife was responsible for the MYOB entries and, on his evidence, may have been responsible for arranging for their personal electricity bill to be paid from the Company’s bank account. But they are no longer married. Mr Barker’s ability to call evidence from his wife on the subject is, for practical purposes, no greater than the ability of the Company to have called her to give evidence.

  1. The Court may draw inferences to choose between competing versions of events. However, as Lord Macmillan cautioned in Jones v Great Western Railway Co (1930) 47 TLR 39 at 45:

The dividing line between conjecture and inference is often a very difficult one to draw. A conjecture may be plausible but it is of no legal value, for its essence is that it is a mere guess. An inference in the legal sense, on the other hand, is a deduction from the evidence, and if it is a reasonable deduction it may have the validity of legal proof.

  1. Similarly, Jordan CJ (Davidson and Stephen JJ agreeing) explained in Carr v Baker (1936) 36 SR (NSW) 301 at 306:

The existence of a fact may be inferred from other facts when those facts make it reasonably probable that it exists; if they go no further than to show that it is possible that it may exist, then its existence does not go beyond mere conjecture. Conjecture may range from the barely possible to the quite possible.

  1. Likewise, in Caswell v Powell Duffryn Associated Collieries Ltd [1940] AC 152, Lord Wright explained at 169-170:

Inference must be carefully distinguished from conjecture or speculation. There can be no inference unless there are objective facts from which to infer the other facts which it is sought to establish. In some cases the other facts can be inferred with as much practical certainty as if they had been actually observed. In other cases the inference does not go beyond reasonable probability. But if there are no positive proved facts from which the inference can be made, the method of inference fails and what is left is mere speculation or conjecture.

  1. More recently, Buchanan J summarised in Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297; [2011] FCAFC 151 at [31]: (citations omitted)

Inference does not mean conjecture, even in a civil case. In civil proceedings the inferential process “may fall short of certainty, [but] must be more than an inference of equal degree of probability with other inferences, so as to avoid guess or conjecture” … A court is not authorised to choose between guesses, even on the ground that one guess seems more likely than another or others.

See also Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262; [2000] NSWCA 29 at [84]-[88] per Spigelman CJ.

  1. If the Court is unable to choose between competing versions, the party on whom the onus lies will not succeed. As Beech-Jones J explained in Neville v Lam (No 3) [2014] NSWSC 607 at [99]: (citations omitted)

[I]n some circumstances a Court may find itself unable to choose between competing versions. In such a case, the party upon whom the burden of proof lies will have failed to discharge it.

See likewise Kuligowski v Metrobus (2004) 220 CLR 363; [2004] HCA 34 at [60], citing Rhesa Shipping Co SA v Edmunds [1985] 1 WLR 948 at 955.

  1. Where it is alleged that a party is guilty of fraudulent conduct, the Court must proceed in accordance with the principles enunciated in Briginshaw at 361-362; [1938] HCA 34 and section 140 of the Evidence Act 1995 (NSW). As Ward CJ in Eq summarised in In the matters of Earth Civil Australia Pty Ltd, RCG CBD Pty Ltd, Bluemine Pty Ltd, Diamondwish Pty Ltd and Rackforce Pty Ltd (all in liq) [2021] NSWSC 966 at [579]:

[I]n cases where serious allegations of the present kind (of equitable fraud and dishonesty, or which may expose defendants to criminal liability or a civil penalty) are made, the evidence must be assessed in accordance with the principle stated by Dixon J, as his Honour then was, in Briginshaw (at 361-362), namely that proof to reasonable satisfaction should not be produced by, inter alia, inexact proofs or indirect inferences (see, for example, Nadinic at [47]); Farah Constructions at [170]; and s 140 of the Evidence Act). …

  1. Thus, it may not be appropriate to draw inferences against a party who is alleged to have engaged in fraudulent conduct for failing to provide evidence. As Stevenson J explained in Poole v Chubb Insurance Company of Australia Ltd [2014] NSWSC 1832 at [99]-[100]:

99    [The defendant’s] Jones v Dunkel submission really amounts to the proposition that once [the plaintiff] was able to see just what [the defendant] sought to make of the documentary material, [the plaintiff] should have embarked in a case in reply by calling the persons who created the documents, or were mentioned in them … and that his failure to do so should lead to an inference that those witnesses were unable to give evidence supportive of his case. I do not accept that proposition. This is a fraud case, and although a fraud case can be proved from circumstantial evidence, it was for [the defendant] to make good the very serious allegations it made against [the plaintiff] by clear and cogent admissible evidence. It was not for [the plaintiff] to "explain" that he had not behaved as [the defendant] contends; it was for [the defendant] to prove he had. It was not for [the plaintiff] to "contradict" inferences that might be available from documents by calling their author, or others named in them.

100    If more than one inference is available from documents tendered by [the defendant], or if some documents leave important questions unanswered, the result will be that [the defendant] has failed to discharge its burden of proof. [The defendant] cannot, in effect, throw the burden of clearing up ambiguities or unanswered questions on [the plaintiff] by use of a Jones v Dunkel submission.

  1. Here, the burden of proof rests on the Company. The standard of proof is the civil standard, being proof on the balance of probabilities but qualified having regard to the gravity of the questions to be determined: section 140(2), Evidence Act 1995 (NSW); Briginshaw at 362; [1938] HCA 34. As Dixon J observed in Briginshaw at 361, “The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found.”

  2. Ultimately, I am not satisfied to the requisite standard that Mr Barker misappropriated the Company’s funds, this being a serious allegation. It is apparent that the Company was run informally and operated in a cash environment. Few records survive. Now that the directors have parted ways, Mr Hedison is asking the Court to conclude that, if the accounting entry or business record does not clearly confirm that the expenditure was for a particular and company purpose, then it was misappropriated by Mr Barker. But having left it to Mr Barker to run the Company at the time, largely without interference or comment, it is difficult for Mr Hedison to now hold Mr Barker to standards which were not in place at the time and where Mr Hedison had the ability, as a director, to kerb Mr Barker’s authority or monitor day-to-day business transactions if he wished. As a consequence of how the Company was run then – with Mr Hedison’s agreement – the Company does not now have enough evidence to discharge its onus of proof.

  3. However, there is no doubt that the payment of Mr Barker’s home electricity bill was not authorised. Whether Mr Barker appreciated at the time that his home electricity bill was being paid by the Company is unclear. It may be that his then wife took it upon herself to pay the bill, although I imagine she would have asked her husband before doing so. It does not much matter. The payment was unauthorised, and Mr Barker received a benefit for which he is liable to account. As Ward J noted in In the matter of Idylic Solutions Pty Ltd [2012] NSWSC 1276 in respect of a section 182 of the Corporations Act, at [1491]:

It is noted that the requirement of acting “improperly” does not necessarily equate to dishonest conduct (Kwok v R (2007) 64 ACSR 307 at [80] (per Santow JA) and that a director of a company may act improperly with no intention of acting dishonestly or otherwise than in the best interests of the company as a whole (Chew v R (1992) 173 CLR 626 at 640).

ORDERS

  1. For these reasons, I make the following orders.

  1. Judgment in the amount of $7,760.10.

  2. Proceedings otherwise dismissed.

  3. In respect of the costs of the proceedings:

  1. Direct the plaintiff to provide any affidavits or submissions in support of the costs order sought by 11 March 2022.

  2. Direct the defendant to provide any affidavits or submissions in reply by 25 March 2022.

  3. The question of costs is to be decided on the papers.

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Decision last updated: 25 February 2022

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Cases Cited

41

Statutory Material Cited

2

A v New South Wales [2007] HCA 10
A v New South Wales [2007] HCA 10
A v New South Wales [2007] HCA 10