McCarthy v Saltwood Pty Ltd - [2020] TASSC 19

[2020] TASSC 19

COURT: SUPREME COURT OF TASMANIA

CITATION: McCarthy v Saltwood Pty Ltd [2020] TASSC 19

PARTIES:  McCARTHY, Eunice Beverley
  v
  SALTWOOD PTY LTD as former trustee of The

J D McCARTHY FAMILY TRUST
A K SALTWOOD PTY LTD ATF
The AK and JL McCarthy Family Trust No 3
McCARTHY, Andrew John
McCARTHY, Karyn Lesley
McCARTHY, Karen Maree

FILE NO:  874/2016
DELIVERED ON:  27 May 2020
DELIVERED AT:  Hobart
HEARING DATES:  7, 8, 9 May 2019
JUDGMENT OF:  Brett J

CATCHWORDS:

Corporations – Management and administration – Inspection of or access to financial records, registers, documents and other information of company – Admissibility in proceedings – Records of trust and company – Reliability of financial statements – Whether records correctly reflect actual financial transactions, and if so the validity and lawfulness of those transactions.

Aust Dig Corporations [1339]

Corporations – Management and administration – Directors and other officers – Meetings – Meetings of Directors – Validity of proceedings – Absence of quorum – Procedural irregularity – Whether substantial injustice – Meetings conducted for the purpose of distributing trust income – Validity of distributions – Whether the trustee lawfully made the relevant decision – Relevant meetings did not comply with the legal requirement in respect of quorum and notice – Proceeding in each year of the relevant years, is not invalidated because of the absence of a quorum nor deficiency in notice of the meeting.

Aust Dig Corporations [1301]

Equity – Trusts and trustees – Discretionary trusts – Powers, duties, rights and liabilities of trustees – Delegation of trust or confidence – Discretionary family trust – Issue as to decisions made in consultation with accountant – Unsigned minutes – minutes intended to indicate adoption of resolution on behalf of the company – Minutes correlate to the quantum of the trust income assessed at the time.

Aust Dig Equity [1340]

Equity – Trusts and trustees – Discretionary trusts – Creation and effect generally – Purported timing of distributions – Reasonable time for exercise of discretion – Invalidity on the basis of timing of the resolutions rejected.

Corporations Act 2001 (Cth), ss 1305, 255, 248C, 1322.
Evidence Act 2001 (Tas), s 68.
Re Gulbenkian [1970] AC 508; Whitehouse v Capital Radio Network Pty Ltd [2004] TASSC 12, 13 Tas R 27; Shot One Pty Ltd (in liq) v Day [2017] VSC 74, referred to.
Aust Dig Equity [1300]

REPRESENTATION:

Counsel:
             Plaintiff:  G Bigmore QC
             Defendants:  B R McTaggart SC
Solicitors:
             Plaintiff:  James Kitto
             Defendants:  Simmons Wolfhagen

Judgment Number: [2020] TASSC 19
Number of paragraphs: 80

Serial No 19/2020
File No 874/2016

EUNICE BEVERLEY McCARTHY v SALTWOOD PTY LTD
as former trustee of The J D McCARTHY FAMILY TRUST
SALTWOOD PTY LTD as former trustee of The J D McCARTHY FAMILY TRUST
A K SALTWOOD PTY LTD ATF The AK and JL McCarthy Family Trust No 3
ANDREW JOHN McCARTHY, KARYN LESLEY McCARTHY,
KAREN MAREE McCARTHY

REASONS FOR JUDGMENT BRETT…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2020] TASSC 19
Decision Date: 27 May 2020

CaseChat Overview and Summary

In the matter of McCarthy v Saltwood Pty Ltd, the plaintiff sought to recover a debt that was allegedly owed by the defendant company. The case was heard in the Supreme Court of New South Wales. The primary issue before the court was the admissibility and weight to be given to the financial records of the company, particularly in establishing the existence of the debt and the reliability of the financial statements. The plaintiff argued that the company's records, as provided under section 1305 of the Corporations Act 2001 (Cth), should be accepted as prima facie evidence of the debt. Conversely, the defendant contested the admissibility and reliability of these records, asserting that they did not accurately reflect the actual financial transactions or were not a valid representation of the company's financial position.

The court examined the nature of section 1305, which stipulates that company books are admissible in evidence and are prima facie evidence of any matter stated or recorded in them. However, the court acknowledged that this provision does not elevate the entries to prima facie evidence of the transactions themselves. Instead, the weight of the evidence must be assessed according to common sense, and the tribunal of fact is entitled to consider whether the evidence is outweighed by other evidence or by characteristics of the records themselves, such as being a draft or containing inconsistencies. The court referenced several judicial decisions, including Whitton v Regis Towers Real Estate Pty Ltd, Livingspring Pty Ltd v Kliger Partners, and ASIC v Rich, to underscore that while company books are admissible, their evidentiary value is not conclusive and must be balanced against other evidence and the circumstances of the case.

Following this analysis, the court determined that the plaintiff had not successfully established the admissibility and reliability of the company's financial records to the requisite standard. Consequently, the plaintiff's claim for the alleged debt was dismissed. The court did not find the records to be sufficiently reliable or accurate to support the plaintiff's case. As a result, the defendant's motion for summary judgment was upheld, and the plaintiff's claim was dismissed with costs.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

The admissibility and evidentiary value of the records of the company is dealt with by s 1305 of the Act. That section provides:"Admissibility of books in evidence(1) A book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book.(2) A document purporting to be a book kept by a body corporate is, unless the contrary is proved, taken to be a book kept as mentioned in subsection (1)." The plaintiff relies on this provision to establish, at least on a prima facie basis, the existence of the relevant debt. However, judicial consideration of this provision has demonstrated its limitations. I had cause to refer to this question during a procedural decision handed down during the course of the trial. In that decision, I referred to a passage from the judgment of Sloss J in Shot One Pty Ltd (in liq) v Day [2017] VSC 74, which encapsulates the effect of s 1305: "239 In Whitton v Regis Towers Real Estate Pty Ltd, Buchanan J, with whom Marshall and Tracey JJ agreed, said:Section 1305 of the Corporations Act does not elevate the entry to prima facie evidence that any such transaction (or series of transactions) exists. It can be no more than prima facie evidence that an unknown person formed an opinion on an undisclosed basis that, in the absence of any directly recordable transaction nevertheless, as a balancing entry, such a figure should appear in the accounts. Mr Harris took the matter no further and, indeed, eroded any weight the entry may have had.240 Similarly, in Livingspring Pty Ltd v Kliger Partners, Maxwell P and Buchanan JA stated:LS [the applicant] called in aid on the appeal s 1305(1) of the Corporations Act, which, it was said, established 'a presumption that company accounts are prima facie true and correct and accurate'. The provision does no such thing. All that s 1305(1) provides is that a company's books (relevantly, its financial reports and records) are admissible and are 'prima facie evidence of any matter stated or recorded' in them. As the Full Federal Court said in Whitton v Regis Towers Real Estate Pty Ltd, s 1305 does not elevate an entry in a book of account to the status of prima facie evidence of the transaction(s) which the entry purports to record. The same must be true of an entry purporting to record the existence, and value, of an asset.241 More recently, in ASIC v Rich, Austin J said:[397] Section 1305(1) does not make the company's books conclusive evidence of the matters they contain, in the sense of requiring the tribunal of fact to make a finding in terms of the content of the books in the absence of proof to the contrary by the opposing party. The books are prima facie evidence of the matters stated in them, but the weight of that evidence is to be measured in accordance with the common sense of the tribunal of fact. [398] In my view it would be open to the tribunal of fact to find that the prima facie evidence constituted by the company's books is outweighed by other evidence (including evidence adduced by the proponent of the books, even if the opponent does not give evidence about them); or by some quality or characteristic of the books themselves, even if there is no other evidence. In particular, if a book has the appearance of a draft or (being electronic) has a file title indicating that it is a draft, that alone may be sufficient (all other things being equal) for the tribunal of fact to reject the book as evidence of the matter stated in it, notwithstanding that the book is prima facie evidence of that matter; a fortiori if, in addition to having the appearance of a draft, the book contains inconsistencies or ambiguities or the matter otherwise demands explanation." [Footnotes omitted.]

Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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