Peter James Callaughan v Icognition Pty Ltd

[2013] ACTCA 2

PETER JAMES CALLAUGHAN v ICOGNITION PTY LTD
[2013] ACTCA 2 (15 January 2013)

APPEAL AND NEW TRIAL – in general and right of appeal – where correctness of trial judge’s conclusion regarding liability for loan repayments not challenged – appeal dismissed.

APPEAL AND NEW TRIAL – jurisdiction, practice and procedure – natural justice – appeal against decision of trial judge not to grant leave to call witness after case closed – where witness testimony not directed to the critical issue – no denial of natural justice – appeal dismissed.

Corporations Act 2001 (Cth), pt 2B.3

ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

No. ACTCA 5 – 2012
No. SC 174 of 2008

Judges:         Refshauge, Penfold and Buchanan JJ
Court of Appeal of the Australian Capital Territory
Date:            15 January 2013

IN THE SUPREME COURT OF THE       )          No. ACTCA 5 – 2012
  )          No. SC 174 of 2008
AUSTRALIAN CAPITAL TERRITORY    )
  )

COURT OF APPEAL  )

ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN:PETER JAMES CALLAUGHAN

Appellant

AND:ICOGNITION PTY LTD

Respondent

ORDER

Judges:  Refshauge, Penfold and Buchanan JJ
Date:  15 January 2013 
Place:  Canberra

THE COURT ORDERS THAT:

1. The appeal is dismissed with costs.

IN THE SUPREME COURT OF THE       )          No. ACTCA 5 – 2012
  )          No. SC 174 of 2008
AUSTRALIAN CAPITAL TERRITORY    )
  )

COURT OF APPEAL  )

ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN:PETER JAMES CALLAUGHAN

Appellant

AND:ICOGNITION PTY LTD

Respondent

Judges:  Refshauge, Penfold and Buchanan JJ
Date:  15 January 2013 
Place:  Canberra

REASONS FOR JUDGMENT

THE COURT:

1. The present appeal is nominally against an order made on 10 February 2012 that the appellant pay the respondent $557,990.20.  That sum represented the amount in loans which was liable to be repaid by the appellant to the respondent, together with interest on those loans.  The matters sought to be agitated by the appellant on the present appeal could have no bearing upon his liability to make the payment ordered by the trial judge.  Accordingly, the appeal should be dismissed for that reason alone.  It should also be dismissed because it reveals no basis for legitimate criticism of the trial judge.

BACKGROUND

1. The appellant registered the respondent on 19 March 2003.  The appellant and his wife were the initial directors.  At the time the appellant was working at a company known as Alphawest Pty Limited (earlier CVSI Pty Limited).  At that time Joe Mammoliti and Nigel Carruthers-Taylor were also working at Alphawest.  They, like the appellant, had begun to work at CVSI in or around 1997.

1. Subsequently, on 15 November 2003, Mr Mammoliti became a director of the respondent, having left Alphawest in June 2003.  Mr Carruthers-Taylor left Alphawest in May 2004 and on 6 July 2004 he also became a director of the respondent.  On that date the appellant’s wife ceased to be a director.  The appellant left the respondent in or around May 2007 and ceased to be a director of the respondent in or around August 2007.

1. In the period from 2003 until May 2007, while he was a director of the respondent, the appellant drew sums of money from the respondent, which the trial judge found to have exceeded any remuneration to which he was entitled as a director.  The amounts were shown in the books of the respondent as loans to the appellant. 

1. Schedule 8 of the Constitution of the respondent provided that loans to shareholders and directors who may be associates of shareholders were subject to repayment on terms there set out. The trial judge found that loans taken before 27 April 2006 by the appellant were subject to Schedule 8 of the Constitution.

1. In a letter dated 2 December 2005 to the directors of the respondent (by this time the appellant, Mr Mammoliti and Mr Carruthers-Taylor), the chartered accountant who provided services to the respondent advised that loan agreements should be executed by the directors to avoid loan draw-downs being deemed to be an unfranked dividend and subject to tax.  At this point the amount shown in the appellant’s loan account, as owed to the respondent, was $194,648.30.

1. It might be noted, at this point, that no income tax had been declared or paid by the appellant on this amount, or on its constituent drawings, he having been content to have the drawings made by him treated as loans in the books of the respondent. 

1. On 27 April 2006 the appellant executed a written loan agreement with the respondent covering all loans from that date.  Subsequently further drawings were made by the appellant.  Those drawings, together with the ones referred to earlier, when interest was added, represented the amount for which judgment was ordered.

THE PROCEEDINGS

1. On 27 February 2008 the respondent commenced proceedings to recover the loans which appeared in its books.  In the proceedings at first instance the appellant denied his liability on various grounds.  The appellant’s position in respect of which judgment was given against him was finally stated in a second further amended defence.

1. One contention, stated in his second further amended defence, was that “any funds received by him were by way of income and were not subject to any written agreement”.  This contention was rejected by the trial judge. 

1. Another contention was that it was agreed by the respondent, at the time the respondent was established, that the appellant would be entitled to salary and dividends in an amount no less than the income he had been receiving from Alphawest, namely $120,000 per annum.  The records of the respondent did not support this contention, and it was rejected by the trial judge.  Those records showed that there was an initial decision that directors would be paid a salary of $100,000, but by 20 October 2004, the directors’ remuneration had been decreased to $45,000 per year owing to the incapacity of the respondent’s financial position to support a greater level of remuneration than that. 

1. A further contention was that, prior to the establishment of the respondent, the appellant had agreed with Mr Mammoliti and Mr Carruthers-Taylor that the appellant should be compensated in the sum of $120,000 per annum.  This contention also was rejected by the trial judge. In any event, no conversations occurring prior to the establishment of the respondent could, in the circumstances of the present case as disclosed by the evidence, have denied the respondent its own right to demand payment of loans taken by the appellant from the respondent’s funds.

GROUNDS OF APPEAL

1. The grounds of the present appeal do not challenge the findings of the trial judge:

·    

that the amounts identified by the trial judge which were taken prior to

27 April 2006 were governed by Schedule 8 of the Constitution of the respondent;

·    

that the amounts identified by the trial judge which were taken on or after

27 April 2006 were governed by a written loan agreement; and

·    that all of the relevant amounts were properly recorded in the accounts of the respondent as loans to the appellant; that the loans were repayable; and that the outstanding amounts repayable (including interest properly calculated) totalled, at the time of judgment, $557,990.20.

1. Rather, the appeal was concentrated upon the proposition that the appellant had been denied natural justice because the trial judge had refused an adjournment to permit the appellant to call a particular witness, Mr Harwood.  Mr Harwood had also worked at Alphawest (and earlier at CVSI).  In an affidavit sworn on 8 June 2012, the witness recorded that he recalled a conversation during 2003 in which Mr Mammoliti forecast that the appellant would leave Alphawest to set up a new business and Mr Mammoliti and Mr Carruthers-Taylor would “follow him in due course”. 

1. This forecast was said, on the appeal, to represent evidence of a commitment by Mr Mammoliti to join the respondent.  That was said to be important because it “directly contradicted [evidence] of Mr Mammoliti on the crucial question of whether or not Mr Mammoliti had expressed an intention to join [the respondent] prior to its incorporation”.  From this alleged circumstance, several things were said to follow.

1. First, Mr Mammoliti’s credit would be in doubt.  This was important because Mr Mammoliti had been found to be a truthful witness by the trial judge, but he had denied the suggested commitment.  Secondly, it was suggested that a different view would have been taken of the appellant’s credit and the question of whether the appellant had been given some guarantee about his income by Mr Mammoliti and Mr Carruthers-Taylor.  The appellant’s case was “that he, Mr Mammoliti and Mr Carruthers-Taylor had jointly resolved to establish [the respondent] and that the appellant would blaze the trail for the others but not be financially any worse off as a result”.

1. None of these contentions can have any significance in light of the unchallenged findings by the trial judge that vindicated the respondent’s claim to repayment of loans based on the Constitution of the respondent and the written loan agreement.

1. Nevertheless, it was argued that a new trial was necessary to permit the evidence to be given by Mr Harwood and to overcome the denial of natural justice said to be constituted by preventing the appellant from calling Mr Harwood.

THE TRIAL

1. The trial commenced on 5 September 2011.  The first witness for the respondent (then the plaintiff) was Mr Carruthers-Taylor.  During his evidence in chief Mr Carruthers-Taylor gave the following evidence:

Right.  And in his defence, the defendant states that a representation was made to him that he would be paid a salary of $120,000 per year.  Did you make that representation to him?---No, I did not.

Did you ever agree to the defendant being paid $120,000 per year before Icognition started up?---No, I did not.  I wasn’t ---

Did you ever agree to the defendant paying $120,000 per year after Icognition started up and prior to him resigning on 4 May 2007?---No, I did not.

1. The contrary was not put to Mr Carruthers-Taylor in cross-examination.  Nor was his evidence in that respect sought to be qualified in any way. 

1. The next witness was Mr Mammoliti.  During his evidence in chief he was asked:

Did you have discussions with Mr Callaughan at any time before he left Alphawest about you joining with him and establishing another business?--- We – I thought it was the three of us – always talked about, it’d be nice to start a company.

Who’s the three of us---Myself, Nigel Curruthers-Taylor [sic] and Peter.

Right.  And in his defence, he says that you – in the discussions he had with you, you promised him that he would be paid a salary of $120,000 for each year that he was involved in this new business?---No, that’s not – not correct.

Is that true or false?---False.

and:

Now in the further and better particulars, after identifying the locations that you have conceded discussions took place at, this is what Mr Callaughan says: “On each occasion the defendant said words to the effect …” that’s him.  He says he said to you, “I will only be prepared to start the company while you are still receiving salaries if I am not financially disadvantaged and am no worse off than if I stayed at Alphawest.”  Did that occur?---No.

“On each occasion, Nigel Curruthers-Taylor [sic] and Joe Mamoletti [sic] said words to the effect, ‘I agree.  You should not be any worse off.  We understand the need to maintain your income’”.  Did that occur?---No.

1. On the following day Mr Mammoliti was cross-examined by the appellant who represented himself at the hearing. In his cross-examination it was put to Mr Mammoliti:

… that in discussions, numerous discussions during January and March 2003 and earlier, so before the company was there, that we had discussions around the fact that no-one other than yourself would be actually worse off than they were at Alpha West?---No, no, and I wasn’t in the position to make that commitment.

and:

... were there any discussions where we committed to aiming that no-one would be worse off?---No, because if we go into business it’s an unknown area, we assume they’re going to be successful if we went into business, but you can’t talk about those salaries, it’s only conjecture.

Did we have discussions around the fact that I would be leaving, I would be setting up the vehicle and that I would only do that if I was not financially worse off in those early years to setting up Icognition?---No, because at the end of the day you have to make that decision yourself.

1. The evidence extracted above was directed to whether there had been any agreement amongst the appellant, Mr Mammoliti and Mr Carruthers-Taylor, before the establishment of the respondent, that the appellant would, by agreement amongst them, be entitled to draw a salary of $120,000 per annum.  That was not the issue to which the evidence of Mr Harwood was directed.  The proposed evidence of Mr Harwood said nothing about the question of a contemplated salary for the appellant of $120,000.  Instead, Mr Harwood’s evidence was said to be relevant to a different proposition, namely that Mr Mammoliti had committed himself to leaving Alphawest and joining the respondent. 

1. In his evidence, both in chief and in cross-examination, Mr Mammoliti repeatedly rejected this assertion, saying that he did not regard himself as having made any commitment until he actually joined the respondent in November 2003.  The trial judge accepted Mr Mammoliti’s evidence that, in fact, his employment with Alphawest ceased because he was unexpectedly made redundant in June 2003, and he thereafter spent some months considering his future before then deciding to join the respondent in November 2003. 

1. However, Mr Mammoliti showed no resistance in his evidence to agreeing that he, the appellant and Mr Carruthers-Taylor had frequently discussed the idea of setting up a separate business.  Mr Mammoliti referred to it as “the dream”.  The trial judge found:

It was common ground between Mammoliti, Curruthers-Taylor [sic] and the defendant that in the years leading up to the defendant leaving Alphawest in 2003 they discussed the possibility of setting up an information management company through which they would operate on their own account.

1. The day after Mr Mammoliti concluded his evidence, the case for the respondent (the plaintiff) closed after a further two witnesses had been called and Mr Carruthers-Taylor had been briefly recalled.  A short adjournment was then taken.  The following exchange then occurred:

HIS HONOUR:  Now, Mr Callaughan, are you proposing to give evidence?

MR CALLAUGHAN:  Yes, I am.

HIS HONOUR:  Would you go up into the witness box please?  You may take any documents that you need with you.

MR CALLAUGHAN:  Your Honour, is just the evidence that I’m allowed to give or am I allowed to call future - - -

HIS HONOUR:  You will certainly be allowed to call witnesses but I expect that they will be here when required.

MR CALLAUGHAN:  I would like to, at this stage, I would like to request some time.  I’ve tried to contact a witness regarding some evidence that was given yesterday.

HIS HONOUR:  What was that evidence?

MR CALLAUGHAN:  It was Mr Mammoliti’s evidence.

HIS HONOUR:  About?

MR CALLAUGHAN:  That no commitment by him was given and that he had no commitment to Icognition previous to his becoming a director.

HIS HONOUR:  Well, what does that matter whether he had a commitment to Icognition?

MR CALLAUGHAN:  It matters in so much as there were commitments given to myself.

HIS HONOUR:  Yes I understand.

MR CALLAUGHAN:  And given to me that represented - - -

HIS HONOUR:  I understand that you say that representation was made to you that you would be no worse off if you set up Icognition than you had been whilst you were an employee of Alphawest.

MR CALLAUGHAN:  Yes.

HIS HONOUR:  Now, that has always been the - - -

MR CALLAUGHAN:  The key plan[k] to our defence.

HIS HONOUR:  Yes that’s right.  So nothing’s changed with the evidence of Mr Mammoliti.  If Mr Mammoliti says that he had no commitment to Icognition, well, that doesn’t change the nature of your defence.  And as such you should have had that witness available to give evidence.

MR McLEAN:  Your Honour, could I rise perhaps to, first of all object to this but to do it in a way that it might provide some comfort.  Mr Mammoliti conceded they had lots of discussions about establishing a business.

HIS HONOUR:  Yes I know.

MR McLEAN:  He said he didn’t make a commitment to Icognition until he became a director so it’s a matter of interpretation by your Honour as to what he meant by the word commitment.

HIS HONOUR:  Commitment.

MR McLEAN:  But critically both witnesses, Curruthers-Taylor [sic] and Mammoliti, when it was put to them that they’d agreed that he would get the salary he was receiving at Alphawest denied that there was any ever such agreement.  That’s the critical issue here.

HIS HONOUR:  And that’s the point that I’m making to Mr Callaughan that if he has some witness who is able to give evidence in relation to that critical issue as identified by you, Mr McLean, then that witness should have been available and unless there is some very good reason to adjourn the proceedings to have that witness brought before the court then I wouldn’t propose to do so.  But I’ll hear from you in due course about that.

At the moment of course if you’re proposing to give evidence it’s customary for you to give evidence before any other witnesses for the defence.

1. The appellant then gave evidence and was cross-examined. 

1. At the end of his evidence the following further exchange occurred:

MR McLEAN:  If that’s the end of the defendant’s case I call on him to formally close his case, your Honour.

HIS HONOUR:  Yes.  Is that the end of your case?

MR CALLAUGHAN:  Yes, it is, your Honour.

HIS HONOUR:  All right, thank you.

DENIAL OF NATURAL JUSTICE

1. From these exchanges the appellant seeks to support the contention that he was denied a reasonable opportunity to make out a central element of his case.  The contention should not be accepted.

1. Two issues should be immediately distinguished: whether there was any representation about maintenance, in a new business, of the appellant’s existing level of remuneration as salary; and, any question about Mr Mammoliti’s commitment to join the respondent after establishment by the appellant.  It was to the first issue that the trial judge’s remarks were principally addressed (“that critical issue as identified by you, Mr McLean”).  That first issue was not addressed by the proposed evidence from Mr Harwood.  The second issue (to which the proposed evidence was addressed) did little to advance the appellant’s pleaded case.

1. Relevantly, the appellant in his second further amended defence pleaded:

23.Further and in the alternative, during the period between January 2002 and March 2003 the defendant had several conversations with Joseppi Mammoliti and Nigel Carruthers-Taylor in which Joseppi Mammoliti and Nigel Carruthers-Taylor represented (the Establishment Representations) to the defendant that:

(i)Each of Mr Carruthers-Taylor and Mr Mammoliti wished to leave their employment and work on their own account through a company structure but were not yet in a financial position to do so;

(ii)The defendant should establish the plaintiff company as soon as possible from the defendant’s personal funds and resources;

(iii)If the defendant operated the plaintiff during the establishment phase each of Joseppi Mammoliti and Nigel Carruthers-Taylor would join the plaintiff in the business of the plaintiff company as officers or shareholders once the plaintiff generated cashflow the defendant should be compensated by the plaintiff in the total sum of $120,000.00 per annum, representing the defendant’s salary at Alphawest Pty Ltd in March 2003 such that the defendant would be no worse off by reason of having established the plaintiff company.

24.In reliance upon the Establishment Representations the defendant established the plaintiff and commenced to draw compensation from the plaintiff at the agreed rate of $120,000.00 per annum.

…

27.At the date of the Statement of Claim in these proceedings and at all subsequent material times, the sole directors of the plaintiff were Mr Joseppi Mammoliti and Mr Nigel Carruthers-Taylor.

28.By reason of the Establishment Representations the Plaintiff is now estopped from asserting any right title or interest in, or repayment of, the moneys drawn by the defendant in the period to 27 June 2006.

1. The content and nature of the so-called “Establishment Representations” must be borne in mind. The claim against the appellant was made by the respondent, in respect of debts owed by the appellant to the respondent. No question of estoppel against the respondent would arise (on the facts of the present case) from any conversation with Mr Mammoliti or Mr Carruthers-Taylor before the respondent was established. Before the appeal hearing, the appellant had his attention drawn to Part 2B.3 of the Corporations Act 2001 (Cth) which deals with pre-registration contracts, but at the hearing he did not assert that the facts of this case permitted reliance on those provisions such that the respondent was bound by any such contract. Suggestions of Mr Mammoliti’s commitment to joining the respondent were also therefore irrelevant to the assertion pleaded in [28] of the second further amended defence. 

1. Furthermore, in a formal reply, the respondent expressly denied that the matters pleaded were capable of representing an estoppel.  Pursuit of the matter, from an evidentiary point of view, was in the hands of the appellant from that time.

1. Notwithstanding the duty of a trial judge to an unrepresented litigant, the complaint by the appellant about the remarks of the trial judge in relation to the appellant’s wish to call Mr Harwood to give evidence are misconceived and without any substance.  In any event, none of them touches upon the soundness of the judgment against the appellant. 

CONCLUSION

1. In summary:

·           the matters raised on appeal by the appellant do not challenge the correctness of the trial judge’s conclusion that the repayments sought by the respondents were payable under loan agreements properly executed by the appellant in 2006; and

·           the appellant’s claim on appeal that a new trial should be ordered because he was denied natural justice in relation to his wish to call Mr Harwood at the first trial has no substance, and must be rejected.

1. The appeal must be dismissed with costs.

   I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

   Associate:

   Date:  15 January 2013

Counsel for the Appellant:  Dr C Ward
Solicitor for the Appellant:  DibbsBarker
Counsel for the Respondent:  Mr D Williams, Mr T McLean
Solicitor for the Respondent:  Nicholl & Co
Date of hearing:  5 November 2012 
Date of judgment:  15 January 2013