Pitard v One Managed Investment Funds Ltd
[2020] VSC 666
•14 October 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S ECI 2020 01498
| SKYE PITARD | Plaintiff |
| v | |
| ONE MANAGED INVESTMENT FUNDS LTD (ACN 117 400 987) (as trustee of the STELLER SECURITY TRUST) | Defendant |
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JUDGE: | McDonald J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 21 July 2020 |
DATE OF JUDGMENT: | 14 October 2020 |
CASE MAY BE CITED AS: | Pitard v One Managed Investment Funds Ltd |
MEDIUM NEUTRAL CITATION: | [2020] VSC 666 |
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REMEDIES – Declaratory relief – Plaintiff a beneficiary of discretionary trust – Trustee placed in liquidation – Plaintiff claiming a declaration that her loan account balance and unpaid present entitlements do not constitute collateral under security deed – Insufficient evidence of plaintiff’s entitlement to loan account balance or unpaid present entitlement – Insufficient evidence that funds will be available for distribution to the plaintiff as an unsecured creditor – Lack of utility in granting relief – Application dismissed – Constitution Act 1975 (Vic) s 85 – Supreme Court Act 1986 (Vic) s 36 – Corporations Act 2001 (Cth) s 1305.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Collins QC with Mr BC Ryde | Strongman & Crouch |
| For the Defendant | Dr C Button QC with Ms V Bell | Allens |
HIS HONOUR:
Introduction
The plaintiff is the beneficiary of a discretionary trust. The plaintiff and the defendant have lodged proofs of debt with the liquidators of the former trustee of the trust. The proofs of debt relate to the balance of the plaintiff’s loan account with the trustee and unpaid present entitlements from the trustee. The defendant claims that it has a security interest in respect of these debts as ‘Collateral’ pursuant to security deeds entered into in 2018 and 2019.
The plaintiff seeks declarations that neither the balance of her loan account or the unpaid present entitlements are ‘Collateral’ under the security deeds. If granted, the declarations would invalidate the proofs of debt lodged by the defendant.
There is a dispute between the plaintiff and the defendant as to whether the plaintiff’s loan account balance and unpaid present entitlements are ‘Collateral’ within the meaning of the security deeds. Notwithstanding the existence of this dispute I have declined to grant the declaratory relief sought by the plaintiff. First, the relief is hypothetical. I am not satisfied that the plaintiff is owed a debt in respect of either her loan account balance or unpaid present entitlements. Further, I am not satisfied that if the plaintiff is owed a debt there will be any funds available to be distributed to the plaintiff as an unsecured creditor. Second, the basis upon which the plaintiff’s application was conducted is inconsistent with assurances given to the liquidators prior to the hearing that the application for declaratory relief would not put in issue the existence of any debt owing to the plaintiff. Third, the declaratory relief sought by the plaintiff will not necessarily determine finally the competing claims of the plaintiff and the defendant in respect of her unpaid present entitlements.
Background
The following matters are not controversial. They are based on an agreed statement of facts filed on 29 May 2020. The Pitard Trust is a discretionary trust constituted by a deed of settlement dated 13 March 2012.[1] The ‘primary beneficiaries’ of the Trust are the plaintiff and her husband, Simon Pitard. On 11 April 2012 Les Denny Pty Ltd (‘Les Denny’) was appointed trustee of the Trust. Between 15 October 2013 and 1 July 2019 the plaintiff was the sole director and shareholder of Les Denny.[2]
[1]Plaintiff, ‘Agreed Statement of Facts’, 29 May 2020, [2].
[2]Ibid [3]-[5].
On 1 July 2019 the defendant appointed receivers and managers to the plaintiff’s shares in Les Denny pursuant to Specific Security Deeds (‘SSDs’) which had been entered into by, among others, the plaintiff (as Grantor) and the defendant (as Secured Party). Following the appointment of receivers and managers the defendant caused Mr John Georgakis to replace the plaintiff as Les Denny’s sole director. On 3 July 2019, the ‘Appointer’ under the Pitard Trust Deed resolved to remove Les Denny as trustee of the Pitard Trust.[3] Pitard Consortium Pty Ltd was appointed as trustee.
[3]Ibid [6].
An SSD was entered into by the plaintiff, the defendant and others on 21 December 2018 (‘2018 SSD’). Pursuant to the 2018 SSD the plaintiff granted the defendant a secured interest in the ‘Collateral’. ‘Collateral’ is defined as ‘all the present and after-acquired Interests in which at any time the relevant Grantor has a sufficient right, interest [and] or power to grant a security interest and any Proceeds of the Collateral (including Proceeds)’.[4] ‘Interests’ is defined as, among other things, any ‘Marketable Security’ (which is defined as having the same meaning as ‘securities’ in s 92(3) of the Corporations Act 2001 (Cth), but also including, among other things, a unit or other interest in a trust) in particular entities listed in the definition. Those entities relevantly included Les Denny and the Pitard Trust.[5]
[4]Ibid [23].
[5]Ibid [24].
A further specific security deed was entered into by, among others, the defendant and the plaintiff on 19 March 2019 (‘2019 SSD’). Pursuant to the 2019 SSD, the plaintiff granted the defendant a security interest in the ‘Collateral’. The 2019 SSD defined ‘Collateral’ and ‘Proceeds’ in the same terms as the 2018 SSD. ‘Interest’ is defined in the 2019 SSD in the same terms as the 2018 SSD, but refers to different entities. Les Denny and the Pitard Trust are referred to.
On 13 December 2019 Les Denny was placed into liquidation. The plaintiff and the defendant have both lodged proofs of debts in respect of:
(a) the plaintiff’s unpaid present entitlement (UPE) to payment from Les Denny; and
(b) the balance of the plaintiff’s loan account with Les Denny.
The plaintiff has lodged two proofs of debt. The first proof is for ‘Various Debts’ totalling $5,046,919.62. The second proof is for ‘Various UPE’s’ totalling $2,154,733.50.[6] The defendant has lodged a single proof of debt claiming:
[6]Exhibit P1, Formal Proofs of Debts, 30 March 2020.
(a) $3,289,466.19 in respect of the plaintiffs’ loan account balance;
(b) $569,750 for cumulative unpaid trust distributions as at 30 June 2018; and
(c)unpaid trust distribution of $3,607,829.20 as at 30 June 2019.[7]
[7]Exhibit MCW-8 to the Affidavit of Matthew Cresdee Whittle, affirmed 1 May 2020.
The defendant’s proof of debt is based upon the plaintiffs’ loan account and UPE’s being ‘Collateral’ within the meaning of the 2018 SSD and 2019 SSD. The plaintiff disputes this. The plaintiff contends that neither her loan account balance nor her UPE’s are ‘Collateral’ within the meaning of the 2018 SSD and 2019 SSD.
On 26 March 2020 the plaintiff commenced the present proceeding by way of originating motion. The plaintiff filed an amended originating motion on 24 July 2020 pursuant to leave granted on 23 July 2020.
The originating motion filed on 26 March 2020 is supported by an affidavit sworn by the plaintiff’s solicitor, Mr Jonathan Guy Joseph. In Mr Joseph’s affidavit, he deposes as follows:
My understanding is that there is no substantive factual dispute between the parties relating to the relief sought above. That understanding is based on:
(a)my involvement in proceeding S ECI 2019 03341 (the 2019 proceeding) which was commenced on 26 July 2019 by various corporate trustees including Pitard Consortium Pty Ltd (ACN 634 588 980) (Pitard Consortium) which is the trustee of The Pitard Trust, of which Les Denny was the former trustee. S&C act, and continues to act, for the plaintiffs in that proceeding; and
(b)correspondence between S&C and the defendant’s solicitors, Allens. This correspondence is identified below.
Accordingly, this proceeding has been commenced by originating motion pursuant to Rules 4.06 and 5.02(2) of the Supreme Court (General Civil Procedure) Rules 2015.
I understand that it is not in dispute that Les Denny owes Ms Pitard a UPE (the Skye Pitard UPE) and a loan (the Skye Pitard Loan) arising from when it was the trustee of The Pitard Trust. Both of these items are reflected in Les Denny’s balance sheets from time to time, including:
(a)the balance sheet as at June 2019, a copy of which comprised Exhibit MCW-50 to the affidavit of Matthew Cresdee Whittle dated 20 August 2019 and filed in the 2019 proceeding (a copy of this exhibit is now produced and shown to me marked ‘JGJ-1-);
(b)a balance sheet as at December 2019 provided by S&C to Allens on 2 March 2020, a copy of which is now produced and shown to me and marked ‘JGJ-2’.
In particular, on both balance sheets, I understand that the Skye Pitard UPE is described as ‘UPE —Skye Pitard’ and the Skye Pitard loan is described as ‘Loan —S Pitard’.
The parties have not agreed on the quantum of the Skye Pitard UPE or the Skye Pitard Loan. I am instructed by Ms Pitard and I verily believe that:
(a)Ms Pitard does not seek a determination of the amount of the Skye Pitard UPE or Skye Pitard Loan in this proceeding;
(b)Ms Pitard considers that the amount of the Skye Pitard UPE and the Skye Pitard Loan are matters to be determined by the liquidators of Les Denny, and, if the subject of dispute, will need to be determined in proceedings to which the liquidators are parties.[8]
[8]Affidavit of Jonathan Guy Joseph, sworn 26 March 2020, [5]–[9].
The amended originating motion seeks the following relief:
1.A declaration that the terms of the Specific Security Deeds dated 21 December 2018 and 19 March 2019 (the SSDs) do not grant the defendant a security interest in:
(a)the plaintiff’s unpaid present entitlement arising from a determination made by Les Denny Pty Ltd (in liq) (ACN 156 618 825) (Les Denny) pursuant to clause 4 of The Pitard Trust deed to pay, apply or set aside Income to the plaintiff recorded in the accounts of the trust as at 30 June 2017; and
(b)the plaintiff’s unpaid present entitlement arising from the operation of clause 4.1 of The Pitard Trust deed as a result of Les Denny not having exercised the discretion to pay, set aside or accumulate any part of the Income for the Accounting Period ending on 30 June 2019.
2.A declaration that the terms of the SSDs do not grant the defendant a security interest in any amount owing to the plaintiff in respect of the balance of her loan account with Les Denny (in respect of which the receivers and managers appointed by the defendant have included an amount of $3,289,466.19 in a Proof of Debt dated 30 March 2020 submitted to the liquidators of Les Denny) (the Loan).
3.A declaration that the unpaid present entitlements and the Loan referred to above do not constitute ‘Collateral’ within the meaning of the SSDs.[9]
[9]Plaintiff, ‘Amended Originating Motion’, 24 July 2020, 3 [1]–[3].
The liquidators of Les Denny are not parties to the proceeding and did not participate in the hearing on 21 July 2020. The defendant tendered a letter from the solicitors acting for the liquidators to the solicitors for the plaintiff and the defendant. The letter includes the following:
As we indicated in our email of 23 April 2020, the liquidators have received competing proofs of debt for Les Denny Pty Ltd ACN 156 618 825 (in Liquidation) from each of One Managed Investment Funds Ltd (OMIF) and Ms Skye Pitard.
The proofs of debt lodged by your respective clients appear to be in relation to the same underlying liabilities (being ‘UPEs’ and ‘unsecured loan(s)’ owing to Ms Pitard) but are inconsistent as to the quantum claimed for those liabilities.
Since our last correspondence, the liquidators have been undertaking investigations into the company’s affairs, including in relation to the existence and quantum of the UPEs and unsecured loans which are the subject of the proceeding. These investigations are not yet concluded and remain ongoing.
As you know, we have previously indicated that the liquidators intend to seek directions from the Court regarding these and other proofs of debt and, on that basis, it would seem sensible that the questions raised in this proceeding be dealt with concurrently with the broader directions that will be sought.
That said, we also indicated that the liquidators will be guided by the Court’s determination in this proceeding, to the extent that the dispute the subject of this proceeding is confined to matters which can be determined without the liquidators’ involvement — that is, the parties do not seek to have any declarations or findings made as to the existence or quantum of unpaid present entitlements or unsecured loans claimed to be owing by Les Denny to Ms Pitard.
On this point, we understand from Mr Joseph’s email of 23 April 2020 at 4.09pm that Ms Pitard does not seek to have issues of quantum or existence determined in this proceeding.
We would be grateful if the parties can provide a copy of this correspondence, setting out the liquidators’ position, to the Court.[10]
[10]Exhibit D1, Letter from Minter Ellison to Jonathan Joseph and Jonathan Leung, Strongman & Crouch and Matthew Whittle and Jessica Alley, Allens, 20 July 2020.
Mr Joseph’s email of 23 April 2020 referred to above, is as follows:
I am instructed as follows in relation to your below email.
1.As you are aware, the only issue that our client seeks to have determined in her proceeding is whether OMIF has a security interest over UPEs and loans owed to her by Les Denny. That is, you are aware that our client does not seek to have issues of quantum or existence determined in the proceeding. That this is so is self-evident from our client’s originating motion and the affidavit in support dated 26 March 2020 (both of which have been provided to you), as well as our previous correspondence.
2.Our client considers that the security interest question which she seeks to have determined is not relevant to the liquidators. The relevant parties are before the Court for the determination of that question. Indeed, any participation by the liquidators in our client’s proceeding may involve the liquidators favouring one creditor over another, and will almost certainly involve the incurrence of unnecessary costs to the detriment of creditors generally.
3.In our client’s view, there is no reason why the liquidators should not simply await the Court’s determination of the security interest question raised by our client’s proceeding and then act in accordance with that determination. It is irrelevant in this regard that the liquidators are not party to our client’s proceeding and will thus have no control over the timing in which the proceeding will be dealt with.
4.For the avoidance of doubt, our client accepts that the liquidators have a legitimate interest in the broader question of whether certain debts exist and their quantum. If the liquidators consider it necessary, they can seek directions on this question in the usual way. That question does not, however, overlap with the issue that our client seeks to have determined or otherwise serve as an impediment to the determination of our client’s proceeding.[11]
[11]Exhibit MCW-10 to the Affidavit of Matthew Cresdee Whittle, affirmed 1 May 2020.
It is apparent from the contents of Mr Joseph’s affidavit that it was considered appropriate to commence the proceeding by way of originating motion because of the absence of any factual dispute as to the existence of the plaintiff’s loan account balance and unpaid present entitlements. It is also apparent from the email exchange between Mr Joseph and Minter Ellison, on behalf of the liquidators, that an assurance was provided to the liquidators that the plaintiff would not seek any determination in the current proceeding that the plaintiff has an extant entitlement to her loan account balance and unpaid present entitlements. As discussed below, absent the Court being satisfied that the plaintiff does have an extant entitlement to her loan account balance and unpaid present entitlements the declaratory relief she seeks is hypothetical.
The Court’s jurisdiction and power to grant declaratory relief
The Court’s jurisdiction to make a binding declaration of right without granting consequential relief arises under s 85 of the Constitution Act 1975 (Vic) read in conjunction with s 36 of the Supreme Court Act 1986 (Vic). Section 36 is a source of power to grant declaratory relief as distinct from a source of jurisdiction to hear and determine a claim for declaratory relief.[12] A declaration is not an equitable remedy. It is a statutory remedy that is conferred in terms emphasising that its grant or refusal is within the discretion of the Court.[13]
[12]CGU Insurance Ltd v Blakeley (2016) 259 CLR 339, 359 [51].
[13]AWB Ltd v Cole (No 2) (2006) 253 ALR 288, 299 [45]–[46]; see also Ambridge Investments Pty Ltd (in liq) (rec apptd) v Baker [2010] VSC 59, [61]–[63].
Declaratory relief is directed to the determination of legal controversies and not to answering abstract or hypothetical questions.[14] An applicant for declaratory relief must have ‘a real interest’ and relief will not be granted if the question is purely hypothetical, if relief is claimed in relation to circumstances that have not occurred and might never happen or if the Court’s declaration will produce no foreseeable consequence for the parties.[15]
[14]Ainsworth v Criminal Justice Commission (1992) 175 CLR 564, 582.
[15]Ibid; see also Gardener v Dairy Industry Authority (NSW) (1977) 52 ALJR 180, 188 (Mason J), 189 (Aickin J).
In Bass v Permanent Trustee Co Ltd[16] the plurality stated:
As the answers given by the Full Court and the declaration it made were not based on facts, found or agreed, they were purely hypothetical. At best, the answers do no more than declare that the law dictates a particular result when certain facts in the material or pleadings are established. What those facts are is not stated, nor can they be identified with any precision. They may be all or some only of the facts. What facts are determinative of the legal issue involved in the question asked is left open. Such a result cannot assist the efficient administration of justice. It does not finally resolve the dispute or quell the controversy. Nor does it constitute a step that will in the course of the proceedings necessarily dictate the result of those proceedings. Since the relevant facts are not identified and the existence of some of them is apparently in dispute, the answers given by the Full Court may be of no use at all to the parties and may even mislead them as to their rights. Courts have traditionally declined to state — let alone answer — preliminary questions when the answers will neither determine the rights of the parties nor necessarily lead to the final determination of their rights. The efficient administration of the business of courts is incompatible with answering hypothetical questions which frequently require considerable time and cause considerable expense to the parties, expense which may eventually be seen to be unnecessarily incurred.[17]
[16](1999) 198 CLR 334.
[17]Ibid 357 [49].
Neither the plaintiff nor the defendant put in issue the Court’s jurisdiction to hear and determine the plaintiff’s application for declaratory relief. However, as discussed below, the defendant did submit that the Court should decline to exercise the power to grant the relief sought. In the absence of any submission to the contrary, I proceed on the basis that the Court’s jurisdiction to grant declaratory relief is enlivened.
There is a dispute between the plaintiff and the defendant as to whether any UPEs owing to the plaintiff for the 2017 (‘2017 UPE’) and 2019 (‘2019 UPE’) financial years constitute ‘Collateral’ within the meaning of the SSDs. There is also a dispute as to whether any amount owing to the plaintiff in respect of the balance of her loan account with Les Denny constitutes ‘Collateral’. However, even if the plaintiff’s contentions as to the meaning of ‘Collateral’ are accepted, it does not follow that the Court should exercise the discretion to grant the declaratory relief sought. The utility of resolving the dispute between the parties as to the proper construction of the SSDs is contingent upon:
(a) the availability of funds to be distributed to the plaintiff as an unsecured creditor in respect of any entitlements which she has; and
(b) the plaintiff establishing that she is in fact owed money by Les Denny under her loan account and for UPEs for the 2017 and 2019 financial years.
In addition to the question of utility, there are two additional discretionary considerations which weigh upon the exercise of the Court’s power to grant declaratory relief. First, whether submissions in support of the application for declaratory relief in respect of the 2017 UPE are inconsistent with advice provided to the liquidator by the plaintiff’s solicitors that the plaintiff would not seek to have the existence of the loan account and the UPEs determined in the proceeding. Second, whether, if the Court is satisfied that there is a proper basis for granting declaratory relief in respect of some aspects of the plaintiff’s claim, but not others, the Court should grant declaratory relief in respect of part of the plaintiff’s claim, leaving other aspects unresolved.
The availability of funds to pay any loan account debt and UPEs
Mr Joseph’s affidavit filed in support of the originating motion refers to a balance sheet as at June 2019 (‘JGJ-1’) and a balance sheet as at December 2019 (‘JGJ-2’) in support of Mr Joseph’s understanding that there was no dispute that Les Denny owes the plaintiff a UPE and a loan arising from when it was trustee of the Pitard Trust.[18]
[18]Affidavit of Jonathan Guy Joseph, sworn 26 March 2020, [7].
The balance sheet for June 2019 which is exhibit JGJ-1 came into the possession of Mr Georgakis following his appointment as a director of Les Denny on 1 July 2019.[19] The June 2019 balance sheet includes an entry under ‘Other Current Liabilities’: Loan — S Pitard $3,348,369.29.[20] This corresponds with the plaintiff’s loan account balance as recorded in the Les Denny MYOB[21] as at 24 June 2019, the final entry for the 2019 financial year. I infer that the MYOB Record is the source of the entry in the June 2019 balance sheet for the plaintiff’s loan account. The June 2019 balance sheet records Les Denny as having total assets of $83,652,317.82, total liabilities of $50,462,745.97 and net assets of $33,189,611.85.[22]
[19]Exhibit MCW-3 to the Affidavit of Matthew Cresdee Whittle, affirmed 1 May 2020 (Letter dated 29 March 2020 from Allens to Strongman & Crouch).
[20]Exhibit JGJ-1 to the Affidavit of Jonathan Guy Joseph, sworn 26 March 2020.
[21]Exhibit SEP-1 to the Affidavit of Skye Elizabeth Pitard, sworn 5 June 2020.
[22]Ibid.
The December 2019 balance sheet (Exhibit JGJ-2) was prepared on behalf of the plaintiff. The balance sheet was forwarded to the defendant’s solicitors by Strongman & Crouch on 2 March 2020.[23] The preparation of the December 2019 balance sheet was foreshadowed in a letter from Strongman & Crouch to Allens on 7 February 2020.[24] That letter includes the following:
[23]Exhibit JGJ-22 to the Affidavit of Jonathan Guy Joseph, sworn 26 March 2020 (Email Jonathan Joseph to Tania Cini and Matthew Whittle, 2 March 2020).
[24]Ibid.
We have sought instructions from our clients on the distributions or determinations of income by Les Denny, including for the financial year ended 30 June 2019.
As part of this process, our clients have interrogated the document repositories accessible by them and have sought advice on relevant (and complex) taxation and trust issues, including from Andrew Broadfoot QC.
Having undertaken the above steps, our clients’ position is as follows.
(a)Determinations of income were not made at all by Les Denny for the financial year ended 30 June 2019.
(b)Determinations of income were purportedly made by Les Denny for the financial year ended 30 June 2018, but they were not valid. In particular:
(i)the purported resolutions providing for the determination of income in respect of the financial year ended 30 June 2018 were, in fact, passed a considerable time after 30 June 2018; and
(ii)those resolutions were therefore beyond power and invalid having regard to the terms of the trust deed (specifically, cl 4 thereof).
(c) The consequences of the above include:
(i)that, pursuant to s 99A(4) of the Income Tax Assessment Act 1936 (Cth), the net income of Les Denny for the financial years ended 30 June 2018 and 30 June 2019 is taxable in the hands of Les Denny; and
(ii)adjustments being required to the books and records of Les Denny to:
· revoke any unpaid present entitlement liabilities of Les Denny that were recorded based on the invalid determinations of income in respect of the financial year ended 30 June 2018; and
· account for the taxation liabilities arising as a result of the matters referred to in paragraph (c)(i) above.
Our clients are continuing to take advice on the consequences referred to above with a view to providing you with a balance sheet for Les Denny that accounts for those consequences.[25]
[25]Ibid.
The balance sheet forwarded to Allens on 2 March 2020 is that which was foreshadowed in the final sentence of the quotation set out above.
Exhibit JGJ-2 presents a starkly different picture of Les Denny’s finances compared to the June 2019 balance sheet (Exhibit JGJ-1). It records total assets of $32,893,362.65, which is $50,758,995.17 less than the assets recorded in JGJ-1. Total liabilities are recorded as $30,525,295 with net assets of $2,368,067.65. The three principal components of the assets of $32,893,362.65 are:
(a) the value of equity in 11 properties;
(b) loans owing to Les Denny by third parties, including parties who appear to be part of the Steller Group of companies; and
(c)UPEs owed to Les Denny by third parties, including parties who appear to be part of the Steller Group.
It is not possible, on the basis of the evidence before the Court, to form a concluded view as to whether:
(a) the valuations of the properties recorded as assets are reasonable; and
(b) the liquidators have any prospect of recovering the loans and UPEs from third parties which are recorded as assets.
Exhibit JGJ-2 is not the only balance sheet for December 2019 for Les Denny in evidence. A balance sheet for December 2019 for Les Denny is annexed to the proof of debt which was lodged by the defendant on 30 March 2020.[26] This balance sheet identifies total assets of $62,161,357.56, total liabilities of $26,906,721.99 and net assets of $35,254,635.57.
[26]Exhibit MCW-8 to the Affidavit of Matthew Cresdee Whittle, affirmed 1 May 2020.
During the hearing on 21 July 2020 I invited Mr Collins QC, who appeared with Mr Ryde for the plaintiff, to take the Court to evidence which could support a finding that there will be funds available in due course to make a distribution to the plaintiff as an unsecured creditor in respect of her loan account balance and UPEs. In response, Mr Collins took me to the December 2019 balance sheet annexed to the defendant’s proof of debt.[27] This balance sheet cannot be relied upon as evidencing the true financial position of Les Denny. The December 2019 balance sheet prepared on behalf of the plaintiff (Exhibit JGJ-2) identifies assets of $32,893,362.65 instead of $62,161,357.56 and liabilities of $30,525,295 instead of $26,906,721.99.
[27]Transcript of Proceedings, 21 July 2020, T 34 L 5–12.
The December 2019 balance sheet annexed to the defendant’s proof of debt does not provide a sound basis for an inference that if the Court grants the plaintiff’s claim for declaratory relief there will be funds available in due course for distribution to her as an unsecured creditor. Further, although Exhibit JGJ-2 records Les Denny having net assets of $2,368,067.65, I do not accept this balance sheet entry as evidence that these funds are presently available for distribution to unsecured creditors.
Mr Collins also submitted that the legal costs which have been incurred by the plaintiff and the defendant, together with the steps taken by the liquidator to date, support an inference that if the plaintiff is granted declaratory relief there will be funds available for distribution to her. I reject this submission. The plaintiff could have subpoenaed the liquidators to give evidence of their assessment of financial position of Les Denny and the likelihood of funds being available for distribution to the plaintiff. As the plaintiff could have led direct evidence from the liquidators regarding the financial position of Les Denny it is not appropriate for the Court to draw an inference favourable to the plaintiff based on the conduct of the parties.[28] In light of this finding, there is no utility in granting the plaintiff the declaratory relief she seeks. If I am wrong in reaching this conclusion, in order for there to be utility in the grant of the declaratory relief the plaintiff seeks, it is necessary for the plaintiff to establish that Les Denny is indebted to her in respect of her loan account and UPEs.
[28]AusNet Electricity Services Pty Ltd v Liesfield [2014] VSC 474, [125]–[129].
The plaintiff’s loan account
The declaration sought by the plaintiff in respect of her loan account is framed by reference to ‘any amount owing to the plaintiff in respect of the balance of her loan account with Les Denny’.[29] In an affidavit sworn 5 June 2020 the plaintiff deposed as follows:
[29]Plaintiff, ‘Amended Originating Motion Between Parties (Filed Pursuant to Orders of McDonald J Made on 23 July 2020)’, [2].
In the period from around 15 October 2013 to 1 July 2019, I was the sole director of Les Denny.
During that period:
(a)my monies were used to advance loans to companies of which I was (then) the sole director/sole shareholder;
(b)I did not actively monitor the use of my monies for such loans;
(c)those loans were entered into for the general purposes of paying the borrowing company’s expenses, facilitating its purchase of assets or for its cash flow purposes; and
(d)those loans were made on an informal basis. That is, the terms of the loans were not reduced to writing or recorded in loan agreements. Rather, it was my understanding and intention at all relevant times that:
(i)the loans would be repayable on demand;
(ii)the loans would not carry interest; and
(iii)a record of loan accounts and repayments would be maintained in the borrowing company’s books and records.
Now produced and shown to me marked ‘SEP-1’ is a true copy of the ‘loan account transactions’ extracted on my behalf from MYOB records maintained by Les Denny (MYOB Records).
I do not recall the specific details of each advance and repayment recorded in the MYOB Records however I have reviewed the MYOB Records and I have no reason to say they are inaccurate.
The advances on my behalf to Les Denny were in the form of monetary transfers to Les Denny or payments which were made on my behalf of expenses owed by Les Denny.
The repayments by Les Denny to me were in the form of monetary transfers or payments of expenses on my behalf.
If I was not the sole director/sole shareholder of Les Denny at the relevant times, I would not have agreed to loan money to Les Denny on the terms outlined in paragraph 7 above.[30]
[30]Affidavit of Skye Elizabeth Pitard, sworn 5 June 2020, [6]–[12].
The MYOB Records exhibited to the plaintiff’s affidavit disclose that as at 26 August 2019 the plaintiff’s loan account balance was $3,289,466.19.[31] The plaintiff submits that pursuant to s 1305 of the Corporations Act 2001 (Cth) the MYOB Record is admissible in evidence and is prima facie evidence of any matter stated or recorded therein.[32]
[31]Cross Examination Bundle, ‘SEP-1: Les Denny MYOB Records from 1 April 2010 to 23 April 2020’, 84.
[32]Plaintiff, ‘Outline of Submissions’, 30 June 2020, [7].
The plaintiff was cross-examined by Dr Button QC, who appeared with Ms Bell for the defendant. The plaintiff had no personal involvement in the preparation or maintenance of the MYOB or any of the other accounting records of Les Denny.[33] The plaintiff has no recollection of being consulted about entries which were made in her loan account.[34] Not all of the advances recorded in the loan account were made directly by the plaintiff to Les Denny. The advances could also have come from another company or trust which the plaintiff controlled.[35] The decision to put transactions through the loan account in her name was made by employees of the Steller Group.[36] The plaintiff was not able to say to what extent the entries in the loan account reflect money advanced by her personally as opposed to money advanced through trusts and other sources of funds.[37]
[33]Transcript of Proceedings, 21 July 2020, T 48 L 29–30.
[34]Ibid T 49 L 10.
[35]Ibid T 49 L 24–9.
[36]Ibid T 50 L 1-5.
[37]Ibid T 50 L 18–21.
The plaintiff was unable to explain[38] the discrepancy between:
[38]Ibid T 53 L 25.
(i) her loan account balance as at 30 June 2017 of $4,204,237.74; and
(ii) the notes to the financial statements for the Pitard Trust for the 2017 financial year which record her loan account balance at $6,393,929.[39]
[39]Exhibit MCW-3 to the Affidavit of Matthew Cresdee Whittle, affirmed 1 May 2020, 96.
The plaintiff was also unable to explain[40] the discrepancy between:
[40]Transcript of Proceedings, 21 July 2020, T 54 L 27.
(i) her loan account balance recorded in MYOB of $3,702,541,93 as at 25 June 2018; and
(ii) her loan account balance recorded as zero in the notes to the financial statements for the Pitard Trust as at 30 June 2018.[41]
[41]Exhibit MCW-3 to the Affidavit of Matthew Cresdee Whittle, affirmed 1 May 2020, 115.
The MYOB Records dividend payments total $3,558,064.12 between 30 June 2016 and 30 September 2016 to the plaintiff by Steller Elite Pty Ltd as debit entries in the plaintiff’s loan account.[42] The plaintiff was not able to explain why dividends from Steller Elite Pty Ltd were being paid through her loan account.[43] In addition to the Steller Elite Pty Ltd dividends totalling $3,555,064.12 between 30 June 2016 and 30 September 2016, the MYOB records further dividend payments from Steller Elite Pty Ltd of $200,000 on 30 November 2016 and $395,000 on 30 December 2016.[44] On 30 June 2017 the plaintiff’s loan account was credited with $1,091,000.[45] The notation for this entry is ‘reversing dividend received from Steller Elite — not enough franking credits available’.[46]
[42]Cross Examination Bundle, ‘SEP-1: Les Denny MYOB Records from 1 April 2010 to 23 April 2020’, 82.
[43]Transcript of Proceedings, 21 July 2020, T 56 L 9–11.
[44]Cross Examination Bundle, ‘SEP-1: Les Denny MYOB Records from 1 April 2010 to 23 April 2020’, 83.
[45]Ibid.
[46]Ibid.
There are significant discrepancies between the plaintiff’s loan account balance as recorded in the MYOB and in the notes to the financial statements for the Pitard Trust for the financial years ending 30 June 2017 and 30 June 2018. The loan balance recorded in the MYOB as at 25 June 2018 is $3,702,541.93.[47] The final entry on 26 August 2019 records a balance of $3,289,466.19.[48] If the notes to the financial statements for the Pitard Trust for the year ending 30 June 2018 are accurate in recording a zero balance, prima facie, the plaintiff is indebted to Les Denny for $413,074.81, being the amount of payments made to her during the period 2 July 2018 to 26 August 2019.
[47]Ibid 84.
[48]Ibid.
I do not accept the MYOB Record as evidence that Les Denny is indebted to the plaintiff for any amount, let alone the sum of $3,289,466.19, being the final entry in the MYOB Record. There is no evidentiary foundation for the declaratory relief sought in paragraph 2 of the amended originating motion in respect of the plaintiff’s loan account balance. The relief sought is hypothetical. It assumes the existence of a debt which has not been established.
The plaintiff’s UPEs
The plaintiff seeks a declaration in respect of her UPEs as follows:
A declaration that the terms of the Specific Security Deeds dated 21 December 2018 and 19 March 2019 (the SSDs) do not grant the defendant a security interest in:
(a)the plaintiff’s unpaid present entitlement arising from a determination made by Les Denny Pty Ltd (in liq) (ACN 156 618 825) (Les Denny) pursuant to clause 4 of The Pitard Trust deed to pay, apply or set aside Income to the plaintiff recorded in the accounts of the trust as at 30 June 2017; and
(b)the plaintiff’s unpaid present entitlement arising from the operation of clause 4.1 of The Pitard Trust deed as a result of Les Denny not having exercised the discretion to pay, set aside or accumulate any part of the Income for the Accounting Period ending on 30 June 2019.[49]
The plaintiff also seeks a declaration that the unpaid present entitlements do not constitute ‘Collateral’ within the meaning of the SSDs.
[49]Plaintiff, ‘Amended Originating Motion’, 24 July 2020, 3 [1].
The declaratory relief which the plaintiff seeks in respect of the 2019 UPE is premised on a default distribution of trust income pursuant to clause 4.1 of the Pitard Trust deed as a consequence of Les Denny not having exercised the discretion to pay, set aside or accumulate any part of the Income for the 2019 financial year. The claim for declaratory relief in respect of the 2017 UPE proceeds on a different basis, namely that Les Denny did make a determination to pay, apply or set aside Income to the plaintiff. Whether the plaintiff’s entitlement to a UPE arises from a determination made by Les Denny, or alternatively, pursuant to the default provisions of clause 4.1 of the Pitard Trust deed is relevant to the plaintiff’s contention that the UPEs are held on a separate trust and are therefore not within the meaning of ‘Collateral’.[50]
[50]Plaintiff, ‘Amended Reply Submissions’, 20 July 2020, [19]–[22].
The agreed statement of facts records the following matters in respect of the plaintiff’s UPE:
The plaintiff has an unpaid present entitlement to payment from Les Denny (the Skye Pitard UPE). The Skye Pitard UPE arises from determinations of trust income being made in her favour as follows:
(a)in the financial year ending 30 June 2017, Les Denny, as trustee of The Pitard Trust, determined to pay, apply or set aside part of the trust income to the plaintiff pursuant to clause 4 of the trust deed (the FY17 Determination). There is no dispute between the parties concerning the validity of the FY17 determination.
(b)in the financial year ending 30 June 2018:
(i)the plaintiff’s position is that there was no valid determination by Les Denny pursuant to clause 4 of the Trust Deed;
(ii)the defendant’s position is that Les Denny, as trustee of The Pitard Trust, determined to pay, apply or set aside part of the trust income to the plaintiff pursuant to clause 4 of the Trust Deed (the FY18 Trustee Determination);
(iii)the parties agree that, if there was no valid determination by Les Denny pursuant to clause 4, then, pursuant to clause 4.1 of the Trust Deed, the plaintiff, as one of two primary beneficiaries of The Pitard Trust, became presently entitled to 50% of the income of the trust during that financial year (the FY18 Default Determination); and
(iv)whether the Skye Pitard UPE arises from the FY18 Default Determination or the FY18 Trustee Determination bears only on the quantum of the entitlement (which will be the subject of agreement or determination outside this proceeding, whether by separate court proceeding or otherwise).
(c) in the financial year ending 30 June 2019:
(i)the plaintiff’s position is that there was no valid determination by Les Denny pursuant to clause 4 of the Trust Deed;
(ii)the defendant is presently investigating whether there was a valid determination by Les Denny pursuant to clause 4 of the Trust Deed and will update its position on this issue prior to trial;
(iii)the parties agreed that, if there was no valid determination by Les Denny pursuant to clause 4, then, pursuant to clause 4.1 of the Trust Deed, the plaintiff, as one of two primary beneficiaries of The Pitard Trust, became presently entitled to 50% of the income, if any, of the Trust during that financial year (the FY19 Default Determination); and
(iv)whether there was a valid determination or a FY19 Default Determination bears only on the quantum of the Skye Pitard UPE (which will be the subject of agreement or determination outside this proceeding, whether by separate court proceeding or otherwise).[51]
[51]Plaintiff, ‘Agreed Statement of Facts’, 29 May 2020, 2–3 [8].
There is no dispute between the parties as to the validity of the 2017 UPE. The notes to the financial statements of the Pitard Trust for the year ending 30 June 2017 record the plaintiff’s UPE in the sum of $272,000.[52] The distribution to the plaintiff for the 2017 financial year was made pursuant to clause 4.1(f) of the Trust Deed which provides:
Any amount set aside for any Beneficiary shall not form part of the Trust Fund but shall upon such setting aside be held by the Trustee upon trust for such Beneficiary absolutely with power to the Trustee pending payment over to such Trustee to invest or apply for the benefit of such Beneficiary or deal with such amount or any part thereof and any result in Income therefrom in the manner provided for in this Deed in relation to the Trust Fund.[53]
[52]Exhibit MCW-3 to the Affidavit of Matthew Cresdee Whittle, affirmed 1 May 2020, 96.
[53]Exhibit JGJ-3 to the Affidavit of Jonathan Guy Joseph, sworn 26 March 2020 (Trust Deed of The Pitard Trust dated 13 March 2012).
As set out in the agreed statement of facts there was no agreement between the parties prior to the trial as to whether there had been a valid determination of the 2019 UPE.[54] If there was no valid determination by Les Denny, then pursuant to clause 4.1 of the Trust Deed, the plaintiff as one of two primary beneficiaries of the Trust became presently entitled to 50 per cent of the income, if any, of the Trust during the 2019 financial year. This is the ‘FY19 Default Determination’ referred to in the agreed statement of facts set out above.[55]
[54]Plaintiff, ‘Agreed Statement of Facts’, 29 May 2020, [8].
[55]Ibid.
In written submissions filed in conjunction with the amended originating motion, the plaintiff submits that the parties conducted the trial on the basis that no determination had been made for the 2019 financial year.[56] In written submissions addressing the amended originating motion the defendant denies that there is an agreed fact that the 2019 financial year UPE arose from an automatic distribution pursuant to clause 4.1 of the Trust Deed. The defendant submits that the Court should not make a declaration which assumes that there was an automatic distribution pursuant to clause 4.1. The defendant submits that this matter was not litigated and has not been agreed.[57]
[56]Plaintiff, ‘Submissions Addressing the Amended Declarations’, 24 July 2020, [4].
[57]Defendant, ‘Submission Regarding the Plaintiff’s Amended Originating Motion’, 29 July 2020, [5].
On 12 March 2020 the plaintiff’s solicitors wrote to the defendant’s solicitors. The letter included the following:
Our clients note, however, that, in their report to creditors dated 6 March 2020 (a copy of which we expect to be in your client’s possession), the liquidators of Les Denny state that:
…
(b)the liquidators understand that ‘the UPEs relate to distributions which were declared, but not paid, for the 2017, 2018 and 2019 financial years. Based on discussions with the Director, there may be a dispute arising with respect to:
(i)the existence of the UPEs;
(ii)the quantum of the UPEs in the event that they do exist (either partially or in full); and
(iii)the creditor or creditors who are entitled to claim for each UPE in the liquidation.[58]
[58]Exhibit JGJ-24 to the Affidavit of Jonathan Guy Joseph, sworn 26 March 2020 (Letter from Strongman & Crouch to Allens dated 12 March 2020).
As set out earlier in this judgment, on 23 April 2020 the plaintiff’s solicitors advised the liquidator’s solicitors that the plaintiff does not seek to have the existence of the plaintiff’s loan account or UPEs determined in this proceeding. Notwithstanding this advice, the declarations sought by the plaintiff in respect of the 2017 and 2019 UPEs assume that the plaintiff does in fact have an entitlement to a UPE for each year. In respect of the 2017 financial year the plaintiff points to the entry in the notes to the financial statements of the Pitard Trust recording the plaintiff’s UPE of $272,000 as evidencing the existence of the entitlement. Responding to the Court’s observation that writing a judgment addressing the declaratory relief sought by the plaintiff in respect of her loan account would be a waste of time if the liquidators subsequently determined that no debt is owing, Mr Collins submitted:
The problem doesn’t arise in respect of the unpaid (present) entitlement, because that’s matured the determination. There’s an agreed fact of the UPEs.[59]
[59]Transcript of Proceedings, 21 July 2020, T 142 L 26–8.
Mr Collins’ submission is inconsistent with the assurance provided to the liquidators that the plaintiff would not seek a determination as to the existence of the UPE. The declaration which the plaintiff seeks in respect of the 2017 UPE is premised upon the existence of an entitlement to $272,000.
As set out earlier in this judgment there are significant discrepancies in the accounts of Les Denny. Although the notes to the financial statements for the Pitard Trust for the 2017 financial year record the plaintiff having a UPE of $272,000 I do not accept that this entry is proof that the plaintiff in fact has such an entitlement. The liquidators’ report to creditors of 6 March 2020 foreshadows the prospect of a dispute as to the existence of the UPEs. Until the liquidators have concluded their investigation into Les Denny’s accounts there is no proper factual foundation for granting declaratory relief in respect of either the 2017 or 2019 financial years. Further, in respect of the 2019 financial year, there is no agreement between the parties that there was a default distribution to the plaintiff pursuant to clause 4.1 of the Trust Deed as a result of Les Denny not having exercised the discretion to pay, set aside or accumulate any part of the Income for the accounting period ending 30 June 2019. Absent agreement between the parties, there is no evidence which would permit a finding that the 2019 UPE arises from the operation of clause 4.1 as a result of Les Denny not having exercised the discretion to pay, set aside or accumulate any part of the Income of the Trust for the accounting period ending 30 June 2019.
Should the Court grant declaratory relief limited to the 2017 UPE?
If, contrary to the conclusions set out above, the entry in the notes to the financial statements for the Pitard Trust recording the plaintiff as having a $272,000 UPE, is evidence of that entitlement, I would nevertheless decline to grant declaratory relief in respect of the 2017 financial year.
I have concluded that there is no utility in granting declaratory relief in respect of the balance of the plaintiff’s loan account because I am not satisfied Les Denny is indebted to the plaintiff. I have also concluded that there is no utility in granting the declaration sought by the plaintiff in respect of the 2019 financial year UPE because there is a factual dispute, which I am not in a position to resolve, as to whether any entitlement is a result of Les Denny not having exercised the discretion to pay, set aside or accumulate any part of the income of the trust for the accounting period ending 30 June 2019.
It is not appropriate to determine the plaintiff’s application for declaratory relief in a piecemeal fashion by hiving off the application for declaratory relief in respect of the 2017 UPE.[60] Assuming, in the plaintiff’s favour, that relief is granted in the terms sought in respect of the 2017 UPE, this would leave unresolved the question of whether the balance of the plaintiff’s loan account and the 2019 UPE are ‘Collateral’. It would also leave unresolved the question of whether or not the plaintiff’s UPE for the 2018 financial year is ‘Collateral’.
[60]Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334, 357 [49].
The agreed statement of facts filed in advance of the hearing recorded the party’s respective positions in respect of the 2018 financial year UPE. There was no agreement between the parties as to whether or not there had been a valid determination by Les Denny pursuant to clause 4.1(f) of the Trust Deed.
The plaintiff’s originating motion filed on 26 March 2020 sought a declaration that the terms of the SSDs ‘do not grant the defendant a security interest in the plaintiff’s unpaid present entitlement to payment from Les Denny Pty Ltd (in liq) (ACN 156 618 825) (Les Denny)’.[61] The declaration sought by the plaintiff included her UPE for the financial year ending 30 June 2018. However, the amended originating motion filed on 24 July 2020 does not seek any relief in respect of the plaintiff’s UPE for the financial year ending 30 June 2018. If the Court granted the plaintiff declaratory relief in respect of the 2017 financial year UPE this would leave unresolved the question of whether the balance of the plaintiff’s loan account with Les Denny and her 2018 financial year and 2019 financial year UPEs are ‘Collateral’ within the meaning of the Trust Deed.
[61]Plaintiff, ‘Originating Motion’, 26 March 2020, 3 [2].
The undesirability of fragmenting the proceeding by hiving off consideration of the plaintiff’s claim for declaratory relief in respect of the 2017 financial year UPE is reinforced by the complex nature of the legal issues which fall for determination in respect of the 2017 UPE. The plaintiff submits that income distributed to the plaintiff pursuant to clause 4.1(f) of the Trust Deed is not held as part of the Trust Fund but is held absolutely for the plaintiff pursuant to a new trust and therefore not as part of or an interest in the Pitard Trust.[62] As such, the plaintiff submits that the plaintiff’s UPE in the sum of $272,000 for the 2017 financial year is not ‘Collateral’.[63] I accept Mr Collins’ submission that this is a difficult question.[64] The joint list of authorities filed by the parties is comprised of 41 authorities. In addition to consideration of these authorities, any judgment addressing the plaintiff’s claim for declaratory relief in respect of the 2017 UPE will need to address the issue of whether the plaintiff, as a beneficiary or object of a discretionary trust, has an ‘interest’ in the trust or the income thereof. Of itself, this is a difficult question, particularly in light of the fact that the plaintiff was the sole director and sole shareholder of Les Denny from October 2013 until 1 July 2019.[65] I do not consider that it is an efficient use of judicial resources for the Court to hive off the plaintiff’s claim for declaratory relief in respect of the 2017 UPE.
[62]Plaintiff, ‘Amended Reply Submissions’, 20 July 2020, [19]–[22].
[63]Ibid.
[64]Transcript of Proceedings, 21 July 2020, T 43 L 1.
[65]See Australian Securities and Investments Commission v Carey (No 6) (2006) 153 FCR 509, 520–1 [36]–[37]; Deputy Commissioner of Taxation v Vasiliades (2014) 323 ALR 59, 69 [60].
Conclusion
The plaintiff’s application is premature. The liquidators’ investigation of the accounts of Les Denny is ongoing. It is likely that the liquidators’ investigation will address:
(iii) whether there are sufficient funds to pay any debt owing to the plaintiff as an unsecured creditor;
(iv) whether the plaintiff is owed a debt in respect of her loan account;
(v) whether the plaintiff is owed a UPE in respect of the 2017, 2018 and 2019 financial years; and
(vi) whether the UPEs arise pursuant to a default distribution made under clause 4.1, or alternatively, a distribution made under clause 4.1(f) of the Trust Deed.
If the matters at (i)-(iii) above are answered in the affirmative, and there is a determination under (iv) of whether or not the UPEs arise pursuant to a default determination, the declaratory relief sought by the plaintiff will have actual consequences. However, on the material presently before the Court there is no utility in granting the relief sought.
The plaintiff’s application is dismissed. I shall provide the parties with an opportunity to make submissions on the question of costs.
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