Logan and Logan & Anor
[2017] FamCA 193
•27 March 2017
FAMILY COURT OF AUSTRALIA
| LOGAN & LOGAN AND ANOR | [2017] FamCA 193 |
| FAMILY LAW – PROPERTY – interim orders – where intervenor liquidator seeks orders for summary judgment – where liquidator seeks summary judgment for a loan owing by a trust – where liquidator also seeks summary judgment for a loan owing by the wife – where summary judgment granted with respect to the loan owing by the trust – where trust could not claim set off as no mutuality – where trust’s case had no reasonable likelihood of success – where summary judgment dismissed with respect to loan owing by the wife – where wife’s loan may be incorrectly recorded – where wife could clarify the details and amount of the loan with further time – where summary judgment refused in respect of the loan owing by the wife FAMILY LAW – JURISDICTION – whether the Family Court is the appropriate forum to determine loan liabilities owing to a company in liquidation – where liquidator’s application is for summary judgment – where summary judgment is granted the liquidator must demonstrate that the wife’s case has “no reasonable likelihood of success” |
Corporations Act2001 (Cth) ss 286, 555C(1), 555C(2), 588(4)
Family Law Rules 2004 (Cth) rr 6.10, 26.01
| Bretton & Bondai [2013] FamCAFC 168 |
Korsky & Bright [2007] FamCA 245
Linden v the Commonwealth (No 2) (1996) 80 ALJR 541
| APPLICANT: | Mr Logan |
| RESPONDENT: | Ms Logan |
| INTERVENOR: | Mr Kirk |
| FILE NUMBER: | ADC | 1196 | of | 2013 |
| DATE DELIVERED: | 27 March 2017 |
| PLACE DELIVERED: | Adelaide |
| PLACE HEARD: | Adelaide |
| JUDGMENT OF: | Berman J |
| HEARING DATE: | 17 February 2017 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | No appearance |
| SOLICITOR FOR THE APPLICANT: | AD Byrne Lawyer |
| COUNSEL FOR THE RESPONDENT: | Mr White |
| SOLICITOR FOR THE RESPONDENT: | Tindall Gask Bentley Lawyers |
| COUNSEL FOR THE INTERVENOR: | Mr Lazarevich |
| SOLICITOR FOR THE INTERVENOR: | O'Toole Lawyers |
Orders
That B Pty Ltd as trustees for the Logan Family Trust repay the loan from L Pty Ltd (in liquidation) ACN …2 (“the company”) to the intervenor on behalf of the company in the sum of ONE HUNDRED AND EIGHT THOUSAND TWO HUNDRED AND SEVENTY DOLLARS ($108,270).
That the Application in a Case filed 20 December 2016 be dismissed.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Logan & Logan and Anor has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT ADELAIDE |
FILE NUMBER: ADC 1196 of 2013
| Mr Logan |
Applicant
And
| Ms Logan |
Respondent
REASONS FOR JUDGMENT
INTRODUCTION
On 20 June 2014 Mr Logan (“the husband”) filed an Initiating Application seeking orders for property settlement.
On 27 November 2014 Ms Logan (“the wife”) filed a Response to the orders sought by the husband for property settlement, seeking orders that would cause property to be transferred to their children.
On 5 August 2016 I heard submissions in respect of an Application in a Case filed 10 June 2016 by the husband’s then case guardian Mr Patterson.
By Amended Response on 4 August 2016 the wife sought orders for the removal of the case guardian.
On 11 August 2016 orders were made that discharged the appointment of the case guardian.
Subsequently and by order dated 16 September 2016, Mr M Logan was appointed the husband’s case guardian pursuant to r 6.10 of the Family Law Rules 2004 (“the Rules”).
At all material times the husband and wife were directors and shareholders of L Pty Ltd (“the company”).
On 30 September 2015 a Registrar of the Federal Court of Australia ordered that the company be wound up in insolvency pursuant to the Corporations Act 2001 (Cth) (“the Corporations Act”). Mr Kirk was appointed as the liquidator.
The parties were also the directors and shareholders of B Pty Ltd as trustee for the Logan Family Trust (“the trust”).
By Application in a Case filed 10 June 2016 the husband sought the following order:-
[2e.] That the wife do all such things as may be necessary, in conjunction with the applicant herein, to discharge the debt owing by the [Logan] Family Trust as required by the liquidator of [L Pty Ltd].
On 12 July 2016 leave was granted for the liquidator to intervene in the proceedings.
The intervenor (herein referred to as the “liquidator”) supported the husband’s application that the parties discharge the debt to the company in the sum of $108,270.
The balance sheet for the company sets out the current assets and includes a loan made to the trust in the sum of $108,270 as at 30 June 2013. The wife’s position is summarised in her affidavit filed 15 July 2016:-
[23]In relation to paragraph 23 of [Patterson’s] affidavit I say that I have never seen the letter marked “C” and note this was addressed to the previous accountants in [N Town]. In any event I say that the amount allegedly owed by [Logan] Family Trust is based on a balance sheet as at 30 June 2013. I say that between 2009 and 2014 [L Pty Ltd] has not paid rent for the use of the properties known as [Property H], [Property G] and [Property F] which were all owned by [B Pty Ltd] as trustee for the [Logan] Family Trust. On my calculations of rental being worth about $30,000 to $35,000 per annum there is at least $175,000 owed in rent by [L Pty Ltd] to the [Logan] Family Trust which more than offsets the amount of $108,270 allegedly owed as at 30 June 2013.
The notes to the financial statements for the same year records a loan to the wife in the sum of $41,733 by way of debit loan account. As at 30 June 2012 the amount owing by the wife was $26,880. There are no further financial statements for 2014 and 2015.
The wife’s response is that the financial statements for the company were only completed to 2013. If they had been completed to 2015 (noting that the date of liquidation was 30 September 2015), the loan would have been removed “on account of unpaid wages due to [the wife] throughout the period”. The wife claims that the loan was a book entry and that she did not receive the money as alleged.
The Application
By Application in a Case filed 20 December 2016 the liquidator seeks the following orders:-
[2] The Intervener seeks an order that [B Pty Ltd] as trustee for the Logan Family Trust repay the loan from [L Pty Ltd] (In Liquidation) ACN … (“the Company”) to the Intervener on behalf of the Company in the sum of $108,270.00.
[3] That the loan referred to in paragraph 2 above be paid out of the proceeds of sale from [Property H] and [Property F] as held (or to be held) in trust in the [O Lawyers] Trust Account to the Intervener on behalf of the company.
[4] That the wife repay the loan from the Company in the sum of $41,733.00 to the Intervener on behalf of the Company.
Jurisdiction
It is not argued that the Court does not have jurisdiction to hear and determine the application of the liquidator.
It is suggested that whilst jurisdiction exists, proceedings for property settlement may not necessarily be “an appropriate venue” (or forum) to determine liability in respect of the trust loan and the wife’s personal liability to the company, there was a concession by her that the determination of the liquidator’s application was necessary to crystalize the property pool and enable the parties to have regard to their legal and equitable interests in the property that remains.
Whilst a balance sheet was not provided, it is a reasonable inference that the amounts in question would represent a significant proportion of the property of the parties available for division.
The principal argument by the wife is that the liquidator’s application is for summary judgment.
Consideration is given to r 26.01 of the Rules that for summary judgment there must be “no reasonable prospect of successfully defending…part of the proceedings”.
It is further argued that the evidence relied upon by the liquidator is circumstantial and based upon inference and supposition.
In order to successfully argue for an order of summary judgment, the liquidator must establish that the wife’s case has “no reasonable likelihood of success”. This test has been described by Finn and Strickland JJ as being “conceptually different” to the previous “doomed to fail” test. See Bretton & Bondai [2013] FamCAFC 168.
The principles for governing summary relief as was stated by Kirby J in Linden v the Commonwealth (No 2) (1996) 80 ALJR 541 at 544-55 and quoted in Korsky & Bright [2007] FamCA 245:-
[1] It is a serious matter to deprive a person of access to the courts of law for it is there that the rule of law is upheld, including against government and other powerful interests. This is why relief…is rarely and sparingly provided;
[2] To secure such relief, the party seeking it must show that it is clear, on the face of the opponent’s documents, that the opponent lacks a reasonable cause of action or is advancing a claim that is clearly frivolous or vexations;
[3]An opinion of the court that a case appears weak and such that it is unlikely to succeed is not, alone, sufficient to warrant summary termination. Even a weak case is entitled to the time of a court. Experience teaches that the concentration of attention, elaborated evidence and argument and extended time for reflection will sometimes turn an apparently unpromising cause into a successful judgment;
[4]Summary relief of the kind provided for by [the rules] for absence of a reasonable cause of action, is not a substitute for proceeding by way of demurrer. If there is a serious legal question to be determined, it should ordinarily be determined at a trial for the proof of facts may sometimes assist the judicial mind to understand an apply the law as it is invoked and to do so in circumstances more conducive to deciding a real case involving actual litigants rather than one determined on imagined or assumed facts.
[5] If, notwithstanding the defect of pleadings, it appears that a party may have a reasonable cause of action which it has failed to put in a proper form, a court would ordinarily allow that party to reframe its pleadings…
[6] The guiding principle is, as stated in Order 26 Rule 18(2), doing what is just. If it is clear that proceedings within the concept of a pleading under scrutiny are doomed to fail, the court should dismiss the action to protect the defendant from being further troubled, to save the plaintiff from further costs and disappointment and to relieve the court of the burden of further wasted time which could be devoted to the determination of claims that have real legal merit.
The loan owed by the trust
The husband accepts that the trust owes the company $108,270. The wife does not dispute the liability in favour of the company, but asserts that there is a set-off.
The wife argues that the loan should be the subject of a set-off in respect of rental payments that should have been payable by the company for the trust for its use of the land. Whilst historically rental has been charged and paid from time to time, the financial statements for the most recent years were not prepared and it is the wife’s assertion only, that rental should have been charged and as yet an undetermined sum remains outstanding.
There is reliance of the provisions of s 555C of the Corporations Act:-
553C(1) [Company Insolvent] Subject to subsection (2), where there have been mutual credits, mutual debts or other mutual dealings between an insolvent company that is being wound up and a person who wants to have a debt or claim admitted against the company:
(a)an account is to be taken of what is due from the one party to the other in respect of those mutual dealings; and
(b)the sum due from the one party is to be set off against any sum from the other party; and
(c)only the balance of the account is admissible to proof against the company, or is payable to the company, as the case may be.
553C(2) [No set off where knowledge that company insolvent] A person is not entitled under this section to claim the benefit of a set off if, at the time of giving credit to the company, or at the time of receiving credit from the company, the person had notice of the fact that the company was insolvent.
Accordingly, the issue is whether the wife should be given an opportunity to adduce evidence that the company owes rent to the trust and that this should be set off against the loan.
The company was insolvent as at 30 June 2013. It is argued by the liquidator, but also relied upon by the wife, that the failure to file financial statements for the 2014 and 2015 financial years is a relevant factor. As discussed, the wife argues that if the tax returns had been filed for 2014 and 2015 then it is likely that a rental amount would have been included in the financial statements and the outstanding rental could be considered as a set off.
The difficulty with that argument is that the financial statements do not exist and notwithstanding that this issue was raised by the husband in his early affidavit and claimed by the liquidator in the affidavit dated 20 June 2016, the wife has not taken up the opportunity to present evidence as to rental or an explanation as to why rental has not been claimed.
The wife has been silent on the issue other than to assert that that the trust had claimed rental, from time to time, in the past. The liquidator relies upon s 588E(4) of the Corporations Act:-
Subject to subsection (5) to (7), if it is proved that the company:-
(a)has failed to keep financial records in relation to a period as required by subsection 286(1); or
(b)has failed to retain financial records in relation to a period for the 7 years required by subsection 286(2);
the company is to be presumed to have been insolvent throughout the period.
The wife does not rely upon the exceptions provided for in s 588E(5)-(7) and it is argued that even though there is no mutuality between the company and the trust in its capacity as both lessor and borrower, the simpler consideration is that for the relevant time that financial records had not been prepared, the company was deemed to be insolvent and a set off is not available to the wife.
There is a limit to which a creditor can rely upon a set-off. In order to claim a set-off it must be established that the trust did not have notice that the company was trading insolvently. A number of issues arise in respect of the commonality and therefore the knowledge of the directors of each of the entities. Consideration has been given to the consequences of the company failing to file financial statements.
Of more relevance is that a right of set-off only exists where there have been mutual credits. “Mutuality” should properly denote the concept of reciprocity. Whilst the same parties may be involved, it is a requirement that their claims be the same. If a party has a personal claim against another, but the others claim is not founded upon a personal right, then it could not be said that there is mutuality.
It is argued in the present case that the claims of the trust and the company are not the same in that the set-off is based upon the company being a tenant.
Whilst the submissions made on behalf of the liquidator have significant merit, the issue is determined by other considerations namely, the complete lack of any cogent evidence to support the wife’s contention in circumstances where the wife is unlikely to be able to adduce further evidence if given an opportunity to do so.
The issue is further complicated by the ready acceptance of the husband of the loan being due, owing and payable.
The wife has not filed any affidavit from the accountants, nor has she given any indication of what further evidence could or would be filed by her if given the opportunity to do so.
In the absence of any assistance from the wife, I consider that her affidavit material is the high water mark of her opposition to the liquidator’s claim.
I consider the wife’s opposition in relation to the loan owed by the trust has no reasonable likelihood of success.
The wife’s loan to the company
The balance sheet for the company provides for a loan to the wife of $41,733. The liquidator seeks the repayment of that loan.
The wife argues that she knows little about the loan and is uncertain as to how it has been generated.
The liquidator is critical of the wife’s assertions given that they may amount to a breach of s 286 of the Corporations Act namely, that as a director of a company, the wife has failed to keep written financial records.
The wife argues that “the accounts establish no more than a summary of book entries and do not satisfy the Court’s obligation to determine disputed issues and found any rulings on an assessment of the evidence”.
The wife acknowledges that the loan account first appeared as at 30 June 2011 in the sum of $26,880 increasing to $41,733 in the accounts as at 30 June 2013.
The wife is uncertain as to the detail of the loan account, but would wish to investigate the accounts in the belief that the entries may relate to:-
·Expenses of the company, or
·Payment of the wife’s expenses as a director, or
·Payments to the wife’s benefit in lieu of wages.
Of more relevance however is her assertion that the amount may be incorrectly recorded, or that there may have been an error in the allocation of the amount.
There is no prejudice caused to the liquidator in allowing the wife to have an opportunity to consider the manner in which the loan account has accrued. If there is an error then it can be corrected. If there is no error then the liquidator can pursue the wife independently of the proceedings.
The wife seeks to dispute the loan and I consider that she should be given an opportunity to do so.
CONCLUSION
The liquidator seeks an order that the trust repay the loan from the company in the sum of $108,270. I am prepared to make that order.
The liquidator also seeks that the loan be repaid from the proceeds of the sale of the Property H and Property F properties from monies held in trust in O Lawyers Trust Account. At the conclusion of the hearing I was advised that there had been an issue raised in respect of the sale of one or both of the properties and that there may be litigation by a prospective purchaser for specific performance.
At this stage I am not prepared to order that monies be paid from a specific source in circumstances where I am not satisfied that the funds are held, or that it would be appropriate to do so.
I certify that the preceding fifty two (52) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Berman delivered on 27 March 2017.
Associate:
Date: 21 March 2017
0
2
1