Killen v Rennie; Aroona Developments v Rennie
[2003] NSWSC 1154
•8 December 2003
Reported Decision:
48 ACSR 483
Supreme Court
CITATION: Killen v Rennie; Aroona Developments v Rennie [2003] NSWSC 1154 HEARING DATE(S): 20 & 21 May 2003 JUDGMENT DATE:
8 December 2003JURISDICTION:
EquityJUDGMENT OF: Austin J DECISION: Appeals dismissed CATCHWORDS: EQUITY - resulting trusts - evidence of actual intention - oral contract for disposition of equitable interest - whether minute of meeting a note or memorandum for purposes of Statute of Frauds - whether minute accurate in view of other evidence of indebtedness LEGISLATION CITED: Companies Act, 1961 (NSW), s 123
Conveyancing Act, 1919 (NSW), s 54ACASES CITED: Allied Pastoral Holdings Pty Ltd v Commission of Taxation (1983) 1 NSWLR 1
Calverley v Green (1984) 155 CLR 242
Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353
Commercial Union Insurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389
Cresvale Far East (in liq) v Cresvale Securities Pty Ltd (No 2) (2001) 39 ACSR 622
Dyer v Dyer (1788) 2 Cox Eq Cas 92 [30 ER 42]
Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549
Irons v Merchant Capital Ltd (1994) 116 FLR 204
Jones v Victoria Graving Dock Company (1877) 2 QBD 314
Kirwan v Cresvale Far East (in liq) (2002) 44 ACSR 21
Permanent Trustee Company Ltd v FAI Insurances Ltd [2003] 8 HCA 25
Roden v International Gas Applications (1995) 18 ACSR 454
Woolworths Ltd v Kelly (1991) 22 NSWLR 189PARTIES :
4112/02
1810/02
Rosanne Lyle Fulton Killen (P)
Kenneth John Rennie (D1)
Aroona Developments Pty Ltd (D2)
Aroona Developments Pty Ltd (P)
Kenneth John Rennie (D1)
Rosanne Lyle Fulton Killen (D2)FILE NUMBER(S): SC 4112/02; 1810/02 COUNSEL: 4112/02
1810/02
Mr M D Young (P)
Mr R D Hugh (Sol) (D1)
Mr J T Johnson (D2)
Mr J T Johnson (P)
Mr H K Insall SC (D1)
Mr M D Young (D2)SOLICITORS: 4112/02
1810/02
McKell's (P)
Hugh & Associates (D1)
Watson Mangioni (D2)
Watson Mangioni (P)
Hugh & Associates (D1)
McKell's (D2)
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
AUSTIN J
MONDAY 8 DECEMBER 2003
4112/02 ROSANNE LYLE FULTON KILLEN V KENNETH JOHN RENNIE & ANOR
1810/02 AROONA DEVELOPMENTS PTY LTD V KENNETH JOHN RENNIE & ANOR
HIS HONOUR:
The proceedings
1 In these two proceedings the plaintiffs appeal under s 1321 of the Corporations Act against decisions by Mr Rennie, the liquidator of Rotor-Work Pty Ltd ("Rotor-Work"), to reject their proofs of debt. The claims of the two plaintiffs relate to the same facts and transactions. Each is a party to the other proceedings and the two plaintiffs are contradictors of one another. The liquidator, Mr Rennie, submits to the order of the court except with respect to costs. The Court has ordered that the two proceedings be heard together, and that the evidence in one be evidence in the other.
2 In proceeding No 1810 of 2002 Aroona Developments Pty Ltd (in liquidation) ("Aroona Developments") as plaintiff seeks to prove in the liquidation of Rotor-Work for a debt of $616,041. In proceeding No 4112 of 2002 Rosanne Killen ("Mrs Killen") seeks to prove for the same debt. In the alternative, Mrs Killen seeks a declaration that if the appeal by Aroona Developments is successful, any moneys received by it upon its being admitted to prove in the liquidation of Rotor-Work are held in trust for her.
The winding up of the companies, and the proofs of debt
3 Rotor-Work was incorporated in 1963, and Aroona Developments was incorporated in 1964. They were part of a group of companies which has been referred to in evidence as "the Killen Group". At all material times Mrs Killen's husband, Bryce Killen ("Mr Killen"), was a director and shareholder of Rotor-Work, and Mrs Killen was a director and shareholder of Aroona Developments. Mr Killen was not a director of Aroona Developments until 1979.
4 Rotor-Work was wound up in a creditors' voluntary winding up pursuant to a resolution passed on 20 January 1993, and Mr Rennie was appointed liquidator. Aroona Developments was wound up by an order of the Federal Court of Australia made on 9 March 1995. John Vouris became the liquidator of that company on 1 May 2000 and remains in office.
5 Aroona Developments (by its liquidator) lodged a proof of debt with Mr Rennie on 31 March 2000, and Mrs Killen lodged a proof of debt with him on 30 May 2000. The latter proof of debt, for "moneys advanced", was either withdrawn or rejected a few months before Mrs Killen lodged another proof of debt, on 30 April 2002. The proofs of debt the subject of the two appeals are Aroona Developments' proof of debt and Mrs Killen's second proof of debt. The amounts claimed are in fact different, but the hearing has proceeded on the basis that both Aroona Developments and Mrs Killen claim the sum of $616,041.
6 The proof of debt by Aroona Developments describes the debt as "loan funds", and attaches some of its own financial records in which the amount claimed is described as a current asset. Mrs Killen's proof of debt describes the amount claimed as "moneys beneficially owned by me loaned by my trustee, Aroona Developments Pty Ltd, to Rotor-Work Pty Ltd", and attaches a copy of a minute of a meeting of directors of Aroona Developments dated 8 July 1974, and a copy of a letter from Sly and Weigall to Mr Killen dated 29 March 1990, documents which I shall describe below.
7 On 21 February 2002 Mr Rennie issued a Notice of Rejection of Formal Proof of Debt in relation to the proof by Aroona Developments. He issued a similar Notice of Rejection in relation to Mrs Killen's second proof on 10 July 2002. The two Notices of Rejection stipulated detailed grounds for Mr Rennie's decision. It suffices to say that he regarded the claims as insufficiently supported by particulars, primary documentary evidence and other evidence and information. In the case of Mrs Killen's proof, the Notice of Rejection also referred to the proof by Aroona Developments, saying Mr Rennie had decided to reject it and his decision was subject to an appeal in proceeding No 1810 of 2002. The Notice of Rejection of Mrs Killen's debt said that the claim by Aroona Developments appeared to be in respect of the same debt. Mr Rennie gave evidence that, given the factual and legal complexity, he was unable to resolve the competing claims.
The acquisition and mortgaging of the Piccadilly Gardens property, 1964-5
8 By a memorandum of transfer dated 27 August 1964, Aroona Developments became the registered proprietor of three strata lots comprising Unit 82 (and two car spaces), Piccadilly Gardens, in Woollahra ("Piccadilly Gardens"). Mr and Mrs Killen lived in Piccadilly Gardens from that time until 1969, when they moved to a house in Vaucluse. They moved back into Piccadilly Gardens in 1977 and continued to live there until the property was sold in 1995.
9 On 18 September 1964 the solicitors for Aroona Developments wrote to Mrs Killen what appears to be a standard settlement letter in respect of the acquisition of Piccadilly Gardens. The letter referred to payment of purchase money of 24,500 pounds. The letter did not say anything about the source of this money. It said that Aroona Developments would have a subsequent financial obligation with respect to a retention fund, not suggesting any arrangement that Mrs Killen would pay that amount. The letter was addressed to Mrs Killen rather than to any officer of the company, but Mrs Killen was at the time one of the three directors of the company, the other two being the accountants, Mr Leigo and Mr Allen.
10 On 14 April 1965 another firm of solicitors, acting for Aroona Developments, wrote to the secretary of the company care of Mrs Killen, confirming settlement of a mortgage to MLC, for an advance of 25,000 pounds, secured over Piccadilly Gardens. The mortgage was subsequently registered. The net amount of the loan was credited to the company's account. There is nothing in the document to suggest that Mrs Killen had any role in the transaction other than as recipient of the letter addressed to the secretary of the company. However Mr Killen was recorded in an annexure to the letter as a guarantor of the obligations of Aroona Developments under the mortgage, and it was noted that additional security in the form of shares in the Dalgety & New Zealand Loan Ltd in the name of Mr Killen had been provided.
The 1974 accounts
11 A document that purports to be a copy of the balance sheet and profit and loss accounts of Aroona Developments for the year ended 30 June 1974 was received into evidence, notwithstanding an objection on behalf of Mrs Killen. The document is of some significance, as I shall explain. It was found in the files of Rotor-Work by Mr Rennie when he became liquidator that company, and he produced it to the Court in response to a notice to produce.
12 The financial statements for Aroona Developments for later years are also in evidence. In the case of some of those other documents, there are copies of signed directors’ reports and auditors’ reports, as well as minutes of annual general meetings concerning the adoption of "drafts", from which it may be inferred that the financial statements for those other years were duly adopted by the directors and the company in general meeting.
13 There is no such evidence in respect of the financial statements for 1974, but there is evidence that the document for the year ended 30 June 1974 is the only documentary record for Aroona Developments found by its liquidator in respect of any period prior to 1975. An employee of Mr Vouris has given evidence that he has searched the books and records of Aroona Developments in the possession of Mr Vouris as its liquidator, and has not been able to find any other documents or financial statements for the company for the financial year ended 30 June 1974, or any loan account ledgers or statements in respect of loans from or to Aroona Developments in the period from 1964 to 30 June 1974. Moreover, the figures in the 1974 document correspond with the 1974 figures listed in the audited financial statements for the year ended 30 June 1975. In all the circumstances I am satisfied, on the balance of probabilities, that the document purporting to be a copy of the financial statements for the year ended 30 June 1974 is indeed a copy of those financial statements, and not merely a draft.
Mrs Killen's claim to an interest arising out of financial contributions
14 According to the evidence of Mr and Mrs Killen, Mrs Killen provided the funds for the purchase of Piccadilly Gardens, although the property was transferred into Aroona Developments' name. They said Mrs Killen made mortgage payments to MLC and attended to other outgoings for a long time. Their son Gregory Killen gave evidence that before February 1988 he heard his mother and father say, in conversations from time to time, that Piccadilly Gardens was owned by his mother. Their evidence on this subject was not challenged in cross-examination. No documents are available to support or cast doubt upon that evidence. When Mrs Killen's counsel called upon a Notice to Produce issued by her to Aroona Developments for production of cheque butts evidencing payments for any part of the purchase price, mortgage repayments, and other outgoings for the period from 1964 to 8 July 1974, counsel for Aroona Developments informed the Court that nothing was produced. In the circumstances, I accept the factual evidence of Mr and Mrs Killen and Gregory Killen as to the source of funds for the purchase and later payments (but not evidence of general statements as to Mrs Killen’s alleged beneficial ownership).
15 Counsel for Mrs Killen submitted that this evidence was sufficient to establish a resulting trust of Piccadilly Gardens in favour of Mrs Killen as beneficiary. I do not accept this submission.
16 Counsel for Mrs Killen relied on such well-known authorities as to resulting trusts as Dyer v Dyer (1788) 2 Cox Eq Cas 92 [30 ER 42], Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353, and Calverley v Green (1984) 155 CLR 242. Those cases make it clear that equity will presume that a person acquiring the legal title to property with funds provided by someone else is intended to hold the property in trust for that other person, in the absence of evidence of a contrary intention. In the present context, it is important to emphasise that the presumption of a resulting trust operates in the absence of other evidence of intention.
17 In my opinion, when one assesses the evidence in this case as a whole, what emerges is that at the time of acquisition of the Piccadilly Gardens property, and subsequently while any mortgage instalments paid by Mrs Killen were paid by her, neither she nor the company intended that the property be held upon any trust. I say so for four reasons.
18 First, the circumstances surrounding the acquisition of the property in 1964 and its mortgage in 1965 suggest an intention that the company was to hold it beneficially. The evidence indicates that the company was incorporated in 1964 to hold the property, in circumstances where it was apparently open to Mrs Killen to have acquired the property in her own name. She was aware of the purchase of the property by the company, and registration of title in its name. She was aware that the company borrowed money from MLC secured against the property, and she executed the mortgage on its behalf, without providing any instrument of acknowledgement of the mortgagee's interest as beneficiary. As a director of the company at all relevant times, she was aware of the way in which the ownership of the property was reflected in the financial statements and records of the company.
19 Secondly, no evidence was given by Mr or Mrs Killen explaining the circumstances in which the payments were made and as to any arrangements that may have been made between Mrs Killen and the company leading to the vesting of legal title to the property in the company rather than her. The contemporary evidence tendered by Mrs Killen (the solicitors' letters of 18 September 1964 and 14 April 1965) gives no hint that she may have made any payments or that there was any arrangement for her to make payments in respect of the property.
20 Thirdly, the proposition that, as from 1964, Mrs Killen was the beneficiary of the property, is at odds with her own claim in reliance on the minute of a meeting of directors of Aroona Developments on 8 July 1974. The minute of their meeting of 8 July 1974 is inconsistent with the assertion that before that time Mrs Killen was already the beneficiary of the property on a resulting trust, rather than a creditor of the company in respect of payments she may have made.
21 Fourthly, the proposition that Mrs Killen was the beneficiary of the property as from 1964 is not supported by the financial statements of Aroona Developments for the year ended 30 June 1974 (a document which is inconsistent with the minute of 8 July 1974 in another respect, as I shall point out). The balance sheet to 30 June 1974 shows Piccadilly Gardens as a fixed asset of the company, with no notation of any beneficial interest on the part of Mrs Killen, and it records a mortgage to Mutual Life & Citizens Assurance Company Ltd secured over Piccadilly Gardens as a long-term liability of the company, without any suggestion that mortgage payments were being made by Mrs Killen.
22 In my opinion, this evidence is sufficient to rebuff any presumption of a resulting trust, with the consequence that Aroona Developments was the legal and beneficial owner of the Piccadilly Gardens property up to July 1974.
The directors' meeting of 8 July 1974
23 Central to Mrs Killen's case is the minute of a meeting of the directors of Aroona Developments purportedly held on 8 July 1974, and attended by her and Mr R P Leigo as directors. Mr Killen and a solicitor, Mr Rofe, were also in attendance. The minute provides as follows:
- "It was noted that the Company’s indebtedness to Mrs R L F Killen at 30th June 1974 was $67,922.87. It was agreed that the Company should immediately repay as much of this debt as possible and that a firm arrangement covering its repayment should be entered into with Mrs Killen.”
- "It was decided that part of the debt should be satisfied by the sale to Mrs Killen of the Company’s beneficial interest in Unit 82, Piccadilly Gardens and it was agreed that the current market value of Unit 82, Piccadilly Gardens was $70,000 and that since at 30 June 1974, an amount of $41,009.83 was still outstanding on Unit 82 under the mortgage to MLC the value of the Company’s beneficial interest to be transferred to Mrs Killen was $28,990.17 and that, in consideration of this sale that the Company’s indebtedness to Mrs Killen should be reduced as from today by the amount of $28,990.17. It was agreed that in order to further reduce the balance of its debt to Mrs Killen that the Company should continue to make all payments in respect of Unit 82 Piccadilly Gardens including payments of principal and interest to MLC, payments for maintenance, Council rates, water and electricity rates and Land Tax and that the Company’s indebtedness to Mrs Killen would be thus progressively reduced by the amount of each payment and that at the termination of the mortgage with MLC the full free and unencumbered legal title would be transferred to Mrs Killen, her heirs or assignee.”
- "It was also agreed that at a more suitable time in the future the Company should endeavour to accelerate the repayment of its present debt to Mrs Killen and of any further advances from her by obtaining satisfactory finance from an alternative source."
24 Mr Killen gave evidence that, in the statement that "the Company should continue to make all payments in respect of Unit 82 Piccadilly Gardens", the word "continue" was incorrect and should have read to the effect "from now on".
25 Mrs Killen says that the minute of 8 July 1974 is evidence that on that day she entered into a transaction with Aroona Developments for the acquisition by her of the equitable ownership of the Piccadilly Gardens property. Under the transaction she would acquire equitable ownership of the property in consideration of reduction of the company's debt to her in an amount equivalent to the net value of the property. While Mrs Killen would become liable to MLC to make payments of principal and interest under the mortgage, the company was to make those payments for her (as well as other outgoings) in further reduction, progressively, of its debt to her.
26 If there was a legally effective and specifically enforceable contract under which the company promised to convey the equitable interest to her, it would be appropriate to treat her as the equitable owner on and from the time that the contract was made, pursuant to the maxim that equity regards is done that which ought to be done. There are, however, issues as to whether the contract was legally effective, and specifically enforceable.
27 As to whether the transaction was legally effective, an obvious issue is that, according to the minute, Mrs Killen participated as a director in the decision of Aroona Developments to enter into the transaction, in which she was personally interested. In my opinion, the contract was not vitiated by this conflict of interest, for the following reasons.
28 Article 64 of the articles of association of Aroona Developments provided that a director was not disqualified from contracting with the company, and no such contract was avoided, but the director was required to disclose the nature of his or her interest at the meeting of directors at which the contract was first taken into consideration. Section 123 of the Companies Act 1961 (NSW) required a director who was directly or indirectly interested in a contract or proposed contract with the company to declare the nature of his or her interest at a meeting of the directors of the company as soon as practicable after the relevant facts came to his or her knowledge.
29 The minute of the meeting of 8 July 1974 does not record any disclosure of interest by Mrs Killen, but the nature of her interest was plain on the face of the materials before the board as recorded in the minute. In these circumstances further disclosure would have been otiose and was probably not necessary: Woolworths Ltd v Kelly (1991) 22 NSWLR 189. Even if disclosure was required and not made, the absence of disclosure would not have invalidated the contract to which the minute referred: Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549; Roden v International Gas Applications (1995) 18 ACSR 454.
30 As to whether the contract was specifically enforceable, an obvious issue is that it was an oral contract for the disposition of interest in land. In my opinion, the contract was specifically enforceable although oral, because the minute of 8 July 1974 was a note or memorandum in writing of the contract, signed on behalf of Aroona Developments, containing sufficient information to satisfy the requirements of s 54A of the Conveyancing Act 1919 (NSW). A minute of a meeting of directors is capable of constituting a note or memorandum for the purposes of s 54A: Jones v Victoria Graving Dock Company (1877) 2 QBD 314. It has not been stamped but was admitted into evidence under Part 36 rule 10A of the Supreme Court Rules after Mrs Killen's solicitor gave the "solicitor's usual undertaking as to payment of stamp duty".
31 There is, nevertheless, a deficiency in the minute which, in my view, is fatal to the contention that it is evidence that on 8 July 1974 Mrs Killen acquired a beneficial interest in Piccadilly Gardens.
32 Amongst the current assets of the company according to the balance sheet for the year ended 30 June 1974 was the sum of $47,282.96, appearing next to Mrs Killen's name. I infer that this records a loan by the company to Mrs Killen, that amount being the loan balance as at 30 June 1974. The document records the sum of $4,249 against her name in respect of 1973, suggesting that she was indebted in the smaller sum in 1973 and that her debt had increased by 30 June 1974. I note that the company's balance sheet for 30 June 1974 also records a current liability in the sum of $149,037.43 against the name "BGL Killen", suggesting that Mr Killen was a creditor of the company for that amount, but it has not been suggested that this entry has any relevance to Mrs Killen's financial position vis-a-vis Aroona Developments.
33 The balance sheet for 30 June 1974 satisfies me, on the balance of probabilities, that merely eight days before the meeting of directors which is the subject of the minute of 8 July 1974, Mrs Killen was a debtor rather than a creditor of Aroona Developments. It has not been alleged that anything happened in those eight days to convert her position from debtor to creditor. Mrs Killen had the opportunity to adduce evidence to explain the matter, and did not do so. No evidence was given on her behalf by Mr Wood, the auditor who signed the audit certificate for the 1975 accounts, or by Mr Allen, one of the company's accountants at the time, persons who may have been able to explain the position, and no reason was advanced for not calling them. No evidence was given on her behalf by Mr Leigo, who was present at the meeting, although there was an explanation in his case, having regard to Mr Leigo’s involvement in litigation with the Killen family. I infer, from the absence of evidence by Mr Wood and Mr Allen, that there was no explanation to be given by them that would have been favourable to Mrs Killen: see Commercial Union Insurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389, 418-9 per Handley JA.
34 I should mention that in final submissions, counsel for Mrs Killen foreshadowed an application for leave to reopen to adduce evidence from Mr Rofe, a solicitor who was also at the meeting on 8 July. In my view such an application for leave should not be entertained after the conclusion of the evidentiary hearing of a case such as this. It was a case where the precise nature of the transaction recorded in the minute was likely to be an issue once it became clear, as it did before the hearing, that the two appeals would be heard together and so the real protagonists would be Aroona Developments by its liquidator and Mrs Killen. Although the 1974 accounts came into evidence at a later stage, the pertinence of evidence explaining the 8 July transaction should have been apparent. I take into account that the two companies in question are in liquidation, and I infer that the funds available to them to conduct litigation are limited.
35 In my view the transaction recorded as a "sale" in the minute of the meeting of directors cannot have been anything more than a voluntary transaction. Being unsupported by valuable consideration, it was not a specifically enforceable transaction. The minute of the directors’ meeting does not purport to be itself an instrument creating or disposing of an equitable interest in favour of Mrs Killen, but rather to record a decision of the directors. I have treated it as evidence of a contract for the sale and purchase of the equitable ownership of property. If one were to treat it as evidence of a decision by the company purporting for forthwith vest the equitable ownership in Mrs Killen, the absence of writing would mean that the decision would be ineffective having regard to s 23C(1)(a) of the Conveyancing Act.
36 Counsel for Mrs Killen pointed out that his client was not challenged in cross-examination on the level of Aroona's indebtedness to her as stated in the minute. He submitted that the contention put forward by the liquidator of Aroona Developments that Mrs Killen in fact owed the company money on 8 July 1974, rather than the reverse, was in substance an allegation of fraud on her part, since she participated in the decision recorded in the minute. Then he submitted that an allegation of fraud should be clearly and distinctly put to the witness: Permanent Trustee Company Ltd v FAI Insurances Ltd [2003] 8 HCA 25. In the absence of the cross-examiner fairly putting questions to give the witness the opportunity to explain the matters to be the subject of submissions, the submissions ought not to be entertained: Allied Pastoral Holdings Pty Ltd v Commission of Taxation (1983) 1 NSWLR 1, 26 per Hunt J.
37 I disagree with this submission, as applied to the present case. In my opinion the Court is presented in a case such as this with the need to construe documents in the light of the oral evidence, to reach a conclusion as to the nature of the transaction in question. What emerged from the evidence was an inconsistency between the terms of the minute of 8 July 1974 and the balance sheet of the company reflecting its financial position merely eight days earlier. The absence of any explanation for it, on Mrs Killen’s part, is relevant to be taken into account in deciding whether to prefer one document (the financial statements) to another (the minute), but that does not imply an allegation of fraud against her.
The company's financial statements, 1975-1995
38 The Directors' Report accompanying the financial statements for the year ended 30 June 1975 contained the following statement:
"6. On 8th July 1974, the Directors approved the sale of the Company's unencumbered interest in Unit 82, Piccadilly Gardens to Mrs RLF Killen, a Director of the Company, as part satisfaction of the Company's indebtedness to Mrs Killen at 30 June, 1974."
39 The balance sheet as at 30 June 1975 recorded, as a fixed asset, the Unit at Piccadilly Gardens at directors' valuation on 1 July 1974 of $70,000 (up from $55,704 in 1974), and then added the following:
- "Less Assignment of Unencumbered Interest to RLF Killen $29,916.56".
The small discrepancy between this latter figure and the consideration of $28,990.17 stated in the minute of 8 July 1974 has not been explained. The net value of the Unit was shown at $40,083.44.
40 The current assets included an item "Loan: RLF Killen $12,763.99". The balance sheet showed the corresponding entry for 1974 as a loan to Mrs Killen of $47,283. This corresponds with the entry in the 1974 balance sheet. However, there is a discrepancy between this information and the minute of 8 July 1974, according to which company owed Mrs Killen $67,922.87. The current liabilities in the 1975 balance sheet included "BGL & RLF Killen $73,330.69 (down from $149,037 in the previous year). Mr Killen gave oral evidence that he was not owed the latter amount individually on 30 June 1974. But there is no obvious basis for treating this as, or as including, the debt of $67,922.87 referred to in the minute.
41 The notes to the financial statements for the year ended 30 June 1975 included the following:
- "Note 2 HOME UNIT: 82 PICCADILLY GARDENS
The property is subject to a charge which secures a registered first mortgage in favour of The Mutual Life and Citizens Assurance Company Ltd in respect of mortgage loan and interest thereon. On 8 July, 1974, the Directors revalued the property to $70,000 and approved the sale of the Company's unencumbered interest in the property to Mrs RLF Killen, a Director of the Company, as part satisfaction of the Company's indebtedness to Mrs Killen as at 30 June, 1974."
The note is very curious, given that Mrs Killen was not recorded individually as a creditor anywhere in the balance sheet.
42 The company's financial statements for 1976 adopted the same approach, with minor variations to the figures. There is, however, another document in evidence, which is a single page headed "Aroona Developments Pty Ltd Statement of Assets and Liabilities at 30 June 1976". That document lists the following as an asset:
"Home Unit, 82 Piccadilly Gardens-a Directors Valuation $80,000
(Beneficially owned by RL Killen) Cost $55,704"
43 The document is undated and unsigned. There is no satisfactory evidence of its provenance. Since formerly prepared financial statements and a Directors' Report, signed by Mr and Mrs Killen, only evidence in respect of the 1976 year, the document cannot be regarded as a reliable statement of assets and liabilities as at 30 June 1976.
44 Certain financial statements of the company for the years 1990, 1991, 1992, and 1995, are in evidence. They all preserve the structure of showing the Piccadilly Gardens property as a fixed asset at the 1974 directors' valuation of $70,000, less a figure for the assignment of the unencumbered in interest to Mrs Killen. The amount deducted for the assignment had increased substantially since 1976. By 1995 the figure was shown as $70,000, leaving a nil balance. In 1990 a loan to Mrs Killen of $25,555.07 was shown as a current asset, but in 1991 that figure had been reduced to nil, while in 1992 it reverted to $25,555.07. In 1995 there was no loan to Mrs Killen shown as a current asset, but a loan from Mrs Killen of $3,387.48 was shown as a current liability.
45 In my opinion these later financial statements shed very little further light on the matter before me for decision. There appear to have been financial transactions between Mrs Killen and Aroona Developments on a continuing basis, making it risky to draw any inferences as to the true nature of arrangements made in 1974 from the later financial records. It can be said, however, that they are consistent with the claim by the Aroona Developments, and inconsistent with Mrs Killen's claim, to the extent that the accounts for 1990-1992 show Rotor-Work's indebtedness to Aroona Developments as a current asset, without any qualification concerning Mrs Killen's alleged beneficial interest.
Mortgage to ANZ Bank, and mortgage to FAI
46 The mortgage to MLC was discharged in 1989. By a mortgage instrument dated 17 February 1988 and subsequently registered, Aroona Developments granted security over the Piccadilly Gardens property in favour of the ANZ Banking Group Ltd. Mr Killen gave evidence that the mortgage was required by the Bank in order to provide additional security in respect of the indebtedness of Rotor-Work. That is consistent with a minute of a meeting of the directors of Aroona Developments held on 16 December 1987, recording a resolution to confirm arrangements for a mortgage in favour of ANZ Banking Group Ltd, the proceeds of which were to be paid to the account of Rotor-Work Pty Ltd.
47 On its face, the mortgage to ANZ makes no reference to Mrs Killen having a beneficial interest in the property. However, Mr Killen gave evidence of his recollection that, shortly prior to the execution of the mortgage, a document was prepared, which he refers to as "Document (1)", by legal officers of the Bank, showing Mrs Killen as a beneficial owner of the property. No copy of that document has been located, notwithstanding searches by Mr Killen.
48 In his oral evidence Mr Killen said he recalled that his wife signed Document (1) twice. He said it was only a short document, and that the effect was that Aroona Developments was providing security as the titleholder, and Mrs Killen signed as a director of Aroona Developments in respect of that part of the document. Mr Killen said that in another part of the document Mrs Killen "signed on" as owner of the unencumbered interest or the equity.
49 Mr Killen gave evidence that in about March 1990 the ANZ Bank insisted on repayment of Rotor-Work's indebtedness to it. In order to repay that debt, a loan was negotiated from FAI Finance Corporation Ltd, secured over the Piccadilly Gardens property. There is a minute of the meeting of directors of Aroona Developments, held on 12 December 1989, recording a resolution that the company should proceed to borrow an amount not exceeding $800,000 "for making advances to Bargibal Pty Ltd and Rotor-Work Pty Ltd to refinance certain debts and for working capital".
50 The mortgage, dated 28 March 1990, makes no reference to the beneficial interest of Mrs Killen. However, Mr Killen gave evidence that at the time the mortgage was entered into, the ANZ Bank's legal officers prepared a similar document to Document (1), which Mr Killen has referred to as "Document (2)". He said that the document was executed by himself and his wife as directors of Aroona Developments, and was executed by her in respect of the beneficial interest in the property.
51 Mr Kill's evidence about the contents of Documents (1) (2) is very vague. It seems, however, that they were documents generated for the benefit of security holders rather than for any purpose of Aroona Developments conferring a benefit on Mrs Killen. At no stage in his evidence did Mr Killen say that Document (1) or (2) included any acknowledgement by Aroona Developments in favour of Mrs Killen of the existence of her beneficial interest.
52 Mr Killen gave evidence that he had searched for Document (2) just as he had searched for Document (1), but without success. He said that he recalled seeing a copy of Document (2) three years ago at his son's residence, but his son subsequently moved house and the document was lost in the move.
53 It is unnecessary for me to decide whether to accept Mr Killen's evidence about Documents (1) and (2). Putting that evidence at its highest, it would establish that the ANZ Bank protected position in light of the possibility that Mrs Killen might have a beneficial interest in the property, by taking some form of acknowledgement by her of the Bank's interest as mortgagee. Mr Killen's evidence does not indicate that the document contained any purported disposition by Aroona Developments in favour of Mrs Killen. He did not say that, by either or both of the documents, Aroona Developments acknowledged or made any representation about the existence of Mrs Killen's beneficial interest, so as to create some form of estoppel against it. From Mrs Killen's point of view, the most that can be derived from the evidence of the two documents is that they explain why no reference was made in the mortgage instruments to Mrs Killen's equitable ownership.
54 According to a letter from Sly and Weigall, who were acting for Aroona Developments, to Mr Bryce Killen dated 29 March 1990, the mortgage advance from FAI was settled on 28 March. The loan was in the sum of $630,000, the balance after deducting expenses being $616,041.50. The letter records that this latter sum was provided to Rotor-Work. After setting out all the payments made on settlement, including the payment to Rotor-Work, the letter says:
- "The payments referred to above were made on our direction in accordance with the Authority given by Aroona Developments Pty Ltd. … As you are aware, the cheque in favour of Rotor-Work Pty Ltd was paid into that company's account with the ANZ Bank in exchange for the discharge of the mortgage over the Unit and two car spaces that 'Piccadilly Gardens'."
55 Mr Killen gave evidence that the sum of $616,041.50 reduced Rotor-Work's overdraft with the ANZ Bank to about $250,000. He also said that, a few days before the execution on settlement of the mortgage with FAI, at a time when he was a director of Rotor-Work, he said to Mrs Killen:
- "Unfortunately the ANZ Bank insists that we reduce Rotor-Work's overdraft to $250,000 from its present $865,000 approx. It is necessary therefore that you transfer the mortgage over your unit to FAI for $630,000 and lend it to Rotor-Work. Rotor-Work is a very strong company and you interest in the Unit should be well protected."
56 According to the analysis that I have made, at the time of settlement of the FAI advance the Piccadilly Gardens property was owned by Aroona Developments. Mrs Killen did not have any equitable interest in it. Consequently the funds raised from FAI on the security of the Piccadilly Gardens property belonged to Aroona Developments, which on-lent them to Rotor-Work . Therefore Aroona Developments is entitled to prove in the liquidation of Rotor-Work for the amount on-lent, $616,041.50 according to Sly & Weigall's figures.
Subsequent events and documents
57 My analysis is reinforced by a document signed by Mrs Killen and dated 1 March 1990, directed to FAI Finance Corporation. In that document Mrs Killen stated that she occupied the Piccadilly Gardens property "at the will of" Aroona Developments, of which she was a shareholder and a director, and she continued:
- "I do not have any agreement with the Company relating to my occupancy of the property nor do I have any interest by way of tenancy of or a licence to occupy the property."
58 An unregistered mortgage was granted over the Piccadilly Gardens property to Castanair Pty Ltd by instrument of mortgage under the Real Property Act dated 3 July 1992. The mortgagors are described as "Aroona Developments Pty Ltd for its legal interest and Roseanne Lyle Fulton Killen for her equity and beneficial interest". That description cannot amount to any disposition of an equitable interest by Aroona Developments to Mrs Killen. Nor, in my opinion, can be regarded as a representation founding of estoppel in her favour. Rather, it was a description operating to bring into the mortgage any equitable interest that Mrs Killen might have, for the protection of the mortgagee.
59 Mrs Killen gave evidence that, when the Piccadilly Gardens property was sold at the sale completed on 8 March 1995, she received no money. That evidence, not otherwise amplified, is consistent with her having no beneficial interest in the property, and also with her having a beneficial interest that was extinguished by the claims of prior ranking security holders.
60 After the liquidation of Rotor-Work commenced, a Report as to Affairs was lodged with Mr Rennie as Liquidator. The report was dated 13 January 1993 and was signed by a director. It listed Aroona Developments as an unsecured creditor for $615,308. Mrs Killen was not listed as a creditor.
61 On 24 February 1994 Mr Killen wrote to the receiver/manager of another company in the group, saying among other things that Aroona Developments was a creditor of Rotor-Work as to $615,308. He did not mention any interest of Mrs Killen as a creditor. He wrote another letter of the same person on the same day, headed "without prejudice" but tendered in evidence before me, saying again that Aroona Developments was an unsecured creditor of Rotor-Work in the sum of $615,308, and also saying that the company "has titular interest" in the Piccadilly Gardens property, which was to be sold, the proceeds of sale being made available after payment of valid securities. No mention was made of Mrs Killen's alleged interest.
62 Mr Killen's two letters tend to reinforce the conclusion that Mrs Killen did not have any equitable interest in the Piccadilly Gardens property. Mr Killen gave evidence that he used the expression "titular interest" to indicate that the title to the property was in the name of Aroona Developments as trustee for a different beneficial owner. But in the same letter, he was in effect communicating to the receiver that the net proceeds of sale would be available to creditors, without reference to any beneficial ownership.
63 The Report as to Affairs for Aroona Developments, dated 2 June 1995, was signed by Mr Killen. It showed the Piccadilly Gardens property as an asset of the company, subject to a "contingent liability" in favour of Mrs Killen, described as the "equity" in the property. It showed Rotor-Work as a debtor for $596,801.44, an amount presumably reflecting the advance from the FAI mortgage. Mr Killen gave evidence that he believed Mrs Killen was the equitable owner of the property and said he did not turn his mind to the question of beneficial interest of the amount advanced to Rotor-Work. In my opinion, having regard to that evidence the Report as to Affairs for Aroona Developments has no probative value in this case.
Conclusion as to the claims by Aroona Developments and Mrs Killen
64 The evidence does not support Mrs Killen's claim to an equitable interest in respect of the Piccadilly Gardens property or the loan monies advanced by Aroona Developments to Rotor-Work, borrowed on the security that property.
65 There is sufficient evidence to show, on the balance of probabilities, that Rotor-Work incurred a debt to Aroona Developments in the sum of $616,041.50 when it borrowed that amount upon the settlement of Aroona Development's mortgage to FAI Finance Corporation. Subsequent financial statements of Aroona Developments recorded the Rotor-Work debt in a different amount, but no explanation has been advanced for the difference, and the hearing was conducted on the basis that the amount of the debt is the net amount stated in Sly & Weigall's letter dated 29 March 1990, namely $616,041.50.
66 Consequently Aroona Developments is entitled to succeed, in proceeding No 1810 of 2002, in its appeal against Mr Rennie's decision as liquidator of Rotor-Work to reject its claim. Mrs Killen's appeal against Mr Rennie's decision to reject her claim, in proceeding No 4112 of 2002, must fail. Her alternative application for a declaration that any monies received by Aroona Developments upon its being admitted to prove in the liquidation of Rotor-Work are held in trust for her, is also unsuccessful.
Costs
67 The true protagonists before me, at the combined hearing of the two proceedings in both of which they were parties, were Aroona Developments by its liquidator, and Mrs Killen. Mrs Killen was unsuccessful. In my view the appropriate order for costs (subject to what follows) is that Mrs Killen be ordered to pay the costs of Aroona Developments in respect of both proceedings.
68 Mr Rennie's attitude, that he would submit to the order of the Court except as to costs, was disclosed in his affidavit of 2 October 2002. I agree with his counsel that it is appropriate, in this case, to order that Aroona Developments' costs in proceeding No 1810 of 2002, up to that date, be paid by Mr Rennie out of the assets of the company in liquidation, and that he be entitled to recoup his own costs of both proceedings from those assets: Irons v Merchant Capital Ltd (1994) 116 FLR 204.
69 To the limited extent indicated in the last paragraph, Aroona Developments will have the benefit of cost orders against Mr Rennie, as well as a costs order in both proceedings against Mrs Killen. But both orders will be subject to an exception that I shall explain.
70 Counsel for Aroona Developments urged me to make an order obliging Mr Rennie to pay its costs personally, without limitation to the available assets of Rotor-Work. I see no adequate basis for doing so. Mr Rennie rejected the proof of debt by Aroona Developments essentially on the ground that he regarded it as a complex claim insufficiently supported by particulars, documents and other evidence. Faced with the difficult circumstances of this case, in which it was evident from the Report as to Affairs and other documents that Mrs Killen claimed a beneficial interest in the Piccadilly Gardens property and may well have wished to claim a beneficial interest in the money lent to Rotor-Work, it was reasonable for Mr Rennie to reject the proof of debt by Aroona Developments, and the subsequent proof of debt by Mrs Killen, and in the appeals against his decisions, to submit to any order of the Court except with respect to costs. This is not one of those exceptional cases where a liquidator unsuccessfully defending proceedings should be held personally liable to pay the plaintiff's costs: see, as to the applicable principles, Cresvale Far East (in liq) v Cresvale Securities Pty Ltd (No 2) (2001) 39 ACSR 622; Kirwan v Cresvale Far East (in liq) (2002) 44 ACSR 21.
71 The qualification to both of the costs orders in favour of Aroona Developments is that it should not have its costs with respect to the claim against Mr Rennie personally. But for that claim, it would not have been necessary for Mr Rennie to retain counsel and appear at the hearing. As a practical matter, he was forced to do so solely in order to defend the claim for costs against him personally. The claim against him having failed, he is entitled to an order for costs against Aroona Developments limited to costs incurred with respect to Aroona's claim against him personally. Mrs Killen should not be required to pay costs in respect of that matter.
72 Mr Rennie is entitled to an order against Mrs Killen for his costs in proceeding No 4112 of 2002.
73 For the purpose of assessing costs, it should be assumed that half of the hearing time was devoted to each of the two proceedings, with the exception that 10% of the hearing time should be treated as directed to the claim by Aroona Development against Mr Rennie personally. I make these assessments on the basis of my personal observation of the amount of time taken on the issues at the hearing.
74 I shall direct Aroona Developments to prepare and circulate draft short minutes of orders to reflect these reasons for decision. It there is no disagreement about the terms of the orders, I shall make the orders in chambers. Otherwise it will be necessary to have a brief hearing to settle the terms of the orders.
Last Modified: 12/11/2003
0
10
2