Plus Recruitment Pty Ltd v Phillips (No 2)
[2019] VSC 611
•13 September 2019
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST – LYONS J
S ECI 2017 00079
| PLUS RECRUITMENT PTY LTD (ACN 159 257 093) | Plaintiff |
| v | |
| SIMON JOHN PHILLIPS (IN HIS OWN CAPACITY AND AS TRUSTEE OF THE PHILLIPS FAMILY TRUST) | First Defendant |
| CHANTELLE RENEE FRANKS | Second Defendant |
| AND | |
| SIMON JOHN PHILLIPS | Plaintiff by Counterclaim |
| v | |
| PLUS RECRUITMENT PTY LTD (ACN 159 257 093) | First Defendant by Counterclaim |
| INSTITUTE OF TRAINING AND FURTHER EDUCATION PTY LTD (ACN 086 004 097) | Second Defendant by Counterclaim |
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JUDGE: | LYONS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 4 September 2019 |
DATE OF RULING: | 13 September 2019 |
CASE MAY BE CITED AS: | Plus Recruitment Pty Ltd v Phillips (No 2) |
MEDIUM NEUTRAL CITATION: | [2019] VSC 611 |
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PRACTICE AND PROCEDURE – Freezing order – Undertaking or order over limited assets of defendant – Carve out sought for payment of legal expenses and tax debt – Evidential burden on defendant to establish insufficient available assets to meet those costs – Evidential burden not met on facts.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff/Applicant | Mr C G Juebner with Mr T M Dowling | Mills Oakley |
| For the First Defendant/First Respondent and Mrs Natasha Phillips, the Second Respondent | Mr D J Williams QC with Mr S P Woolley | Hall & Wilcox |
HIS HONOUR:
Summary
In this application the plaintiff seeks a freezing order over three properties registered in the name of the defendant’s wife, Mrs Phillips, and, given that some of the properties have been sold, that 50% of the net proceeds of sale be frozen pending the hearing and determination of this proceeding.
Mrs Phillips is content to give an undertaking to that effect. However Mr and Mrs Phillips seek that Mr Phillips be entitled to withdraw or ‘carve out’ from those frozen proceeds of sale funds to pay both Mr Phillip’s legal costs in defending this proceeding and his liability to the Australian Taxation Office for the 2018 financial year of $451,667.10 plus interest accrued to August 2019 in the order of $75,000 (the ‘ATO debt’). The plaintiff opposes such a carve out on the basis that Mr Phillips has not shown that he has an inability to pay these liability from other assets.
I have concluded that, on the evidence before me, Mr Phillips has not met the evidential burden that he does not otherwise have sufficient assets to meet his legal expenses and the ATO debt. As a result, at this time, I will not order a carve out of the kind sought.
This proceeding
In this proceeding, the plaintiff seeks damages allegedly suffered as a result of the purchase of a business of and shares in the Institute of Training and Further Education (‘ITFE’) from the defendant Mr Phillips pursuant to a sale agreement dated 31 May 2014. The purchase price was in the order of $5 million and was paid in late 2014. The plaintiff brings claims for breach of that agreement, including for breach of vendor warranties, and for misleading or deceptive conduct. The claim includes allegations of serious misconduct relating to the development of a plan to recover government funding for tertiary courses to which ITFE was not entitled, including by submitting false statistical reports that students had attended training courses when they had not.
This proceeding was issued on 28 March 2017. On 12 May 2017, the defendant filed its defence and counterclaim against the plaintiff and ITFE. Discovery was provided in August 2017. On 17 November 2017, orders were made listing the proceeding for trial after 1 July 2018 with an estimated duration of 20 days. On 8 December 2017, the trial was fixed for 17 September 2018. In July 2018, the plaintiff obtained leave to amend its statement of claim. As a result, the trial date was vacated. Orders were made for further pleadings, discovery and witness statements. The proceeding has not yet received another trial date.
This application
By Summons filed 6 May 2019, the plaintiff sought a limited freezing order over three properties registered in the name of the defendant’s wife, Mrs Phillips, namely:
(1) 21 Danks Street, Albert Park, which has now been sold;
(2) 6 Old Tom Morris Lane, Fingal, which is now on the market; and
(3) 7 Old Tom Morris Lane, Fingal, which is now the subject of a contract of sale.
The basis of the application for a freezing order was that the presumption of advancement in favour of Mrs Phillips’ absolute ownership of these properties should be rebutted in this case due to the common intention of Mr and Mrs Phillips as to the true beneficial ownership of these properties i.e. in equal shares between them. It is not alleged in this proceeding that the plaintiff has any proprietary interest in the properties.
There has been no previous application for a freezing order. No application was made against the defendant. Paragraph 3 of the Summons provided that Mrs Phillips may withdraw funds to meet reasonable legal costs incurred by Mr Phillips in defending this proceeding. That was subject to a regime contemplating the giving of notice to the plaintiff before any such legal costs were paid from the frozen funds.
At the return of the Summons on 9 May 2019, Mrs Phillips gave interim undertakings which obviated the need for a contested hearing at that time. In short, Mrs Phillips undertook not to deal with the three properties other than in accordance with an agreed regime and to pay 50% of the net proceeds of sale of any property into a designated account.
The regime is reflected in the undertakings given by Mrs Phillips to the Court set out in the Order I made on 9 May 2019. At the time that those undertakings were given, the Albert Park property had been sold, but not yet settled. The Fingal properties were on the market but had not been sold. On 9 May 2019, I also ordered the hearing of this application on 7 June 2019.
Mr Phillips filed his first affidavit in opposition to this application on 28 May 2019 (the ‘first Phillips affidavit’). He deposed as to his assets and liabilities. I will deal with these further below. He also deposed as to how he applied the proceeds of sale of ITFE, including to buy 7 Old Tom Morris Lane which was then listed for sale for $500,000. He further deposed that $1.8 million of the proceeds of sale was applied into offset accounts for the Albert Park property (sold on 29 April 2019 for $2.65 million) and 6 Old Tom Morris Lane then listed for sale for $1,350,000. Relevant bank statements were produced. Further, he set out details of the amounts owing on each of the properties. Relevantly, the balance of the loan account for the Albert Park property was then approximately $1.5 million.
He also deposed that he had set up three businesses since the sale of ITFE, namely:
(1)Search Engine Optimisation Australia Pty Ltd (’SEO’) which was established in 2015: it provides advice on how best to optimise the digital precedents inside search engines;
(2)Australian Property & Building Inspection Pty Ltd (‘APBI’) which was established in December 2016: it provides property advisory services; and
(3)Community Home Loans Australia Pty Ltd (‘CHL’) which was established in 2017.
Relevantly, Mr Phillips deposed that none of those businesses were currently making a profit and he was not receiving income from them. He produced the financial statements and income tax returns for SEO for 2016, 2017 and 2018; and for APBI for 2017 and 2018.[1] He deposed that CHL (which had been renamed ‘Custom Home Loans Australia’) did not trade and ‘accordingly financial statements have not been prepared’. Mr Phillips also deposed to other businesses in which he had had an interest which are not now relevant. I note in passing that the bank statements and financial statements exhibited by Mr Phillips totalled almost 600 pages.
[1]That is, for the financial year ending 30 June for each year. I will use this form of reference for financial years in these reasons.
As a consequence, Mr Phillips deposed relevantly that:
I do not have sufficient funds available in my personal bank accounts to meet these outstanding debts. I also do not have any assets to sell to obtain the money to pay these debts.
…
I do not have funds available to meet the ongoing costs of defending this proceeding. My wife … has agreed to lend me some funds from the proceeds of sale of her three properties to contribute toward these costs. Without these funds, I will not be able to engage solicitors to defend this proceeding.[2]
[2]First Phillips affidavit [36], [41].
Prior to the scheduled return date of this application on 7 June 2019, the sale of the Albert Park property had settled and 50% of the net proceeds of sale had been paid into an account controlled by the Phillips’ solicitors with the consent of the solicitors for the plaintiff. As a result, revised undertakings were provided to the Court pending the determination of this application. Orders were made on 5 June 2019 recording the revised undertakings. In substance, Mrs Phillips undertook also not to deal with 50% of the proceeds of sale of the Albert Park property. She also undertook to notify the plaintiff of any contract of sale to sell either of the Fingal properties. Further orders were made for the hearing of the substantive application in late July or early August 2019.
Orders were also made on 5 June 2019 adjourning the further hearing of this application. One of the orders made on 5 June 2019 was for the plaintiff to file an amended Summons. An amended Summons was filed on 2 July 2019. It deleted paragraph 3 which permitted Mr Phillips to draw on the frozen funds to pay Mr Phillips’ legal costs. It did not seek a freezing order over any of the assets of Mr Phillips deposed to in his affidavit.
At that time, the plaintiff filed an affidavit of Ms Joffe sworn 2 July 2019. Ms Joffe deposed to further enquiries in relation to Mr Phillips’ capacity to pay legal costs and living expenses. Further, she deposed that the plaintiff had engaged a forensic accountant, Mr Ranieri, to undertake an analysis of the documents and evidence in the first Phillips affidavit.
Two reports of Mr Ranieri were produced, the first dated 12 June 2018 and the second dated 28 June 2019. In the first report, Mr Ranieri identified further information which he required. However he noted an apparent substantial understatement of Mr Phillips’ net wealth potentially in the amount of approximate $3.6 million, being ‘unaccounted funds represented in undisclosed cash and other assets’.
The first report was provided to Mr Phillips at about the time it was prepared. In response, he provided a large number of additional documents. These were analysed in the second report of Mr Ranieri. The second report noted that not all documents he considered necessary were provided by Mr Phillips. However the second report noted that the ‘net unknown withdrawals’ assessed in the first report as being approximately $3.6 million were reduced to approximately $1.45 million. It also noted it was likely that SEO’s revenue is flowing or possibly being diverted to an alternative as yet undisclosed entity.
A further Summons was filed by the plaintiff on 8 July 2019 seeking an order that Mr and Mrs Phillips each swear an affidavit setting out their respective assets worldwide. I note that this Summons is not now pursued.
Mr Phillips filed a second affidavit on 26 July 2019 (the ‘second Phillips affidavit’). He deposed as to his assets and liabilities at that time. In summary, his liabilities were approximately $766,000 consisting of the ATO debt (then $515,841 including interest) and a debt to Hall and Wilcox of $183,916. His assets at bank were less than $2000.
He again deposed that:
(1)he did not have sufficient funds available in his personal bank accounts to meet his outstanding debts;
(2) he did not have any assets to sell to satisfy these debts;
(3)Mrs Phillips has agreed to sell three properties which she owned and then to loan him some money from the proceeds of those sales to pay his outstanding debts and their ongoing cost of this proceeding.
Mr Phillips exhibited the most recent statements of his bank accounts. He noted the further documents provided to the solicitors for the plaintiff including in response to Mr Ranieri’s first report. He then exhibited additional documents produced pursuant to the requests of the solicitors for the plaintiff and pursuant to the second report. Over one thousand pages of documents were provided.
Mr Phillips then responded to particular aspects of the first report and the second report. Some of those issues related to SEO.
Mr Phillips deposed that he had made loans to SEO and APBI as disclosed in the financial statements previously provided. The amount of these loans total $1,182,000. He deposed that the loaned funds were paid to get those businesses up and running, that there were no loan agreements, that interest was not accruing and that there is no repayment timeline. He said he intended that the loans would be repaid from future earnings of the businesses. He confirmed that, at that time, neither SEO or APBI were making money and, accordingly, no repayments of the loans had been made.
Mr Phillips exhibited the bank account records for SEO for the period 20 September 2016 to 20 March 2019. He exhibited the financial statements and income tax returns for SEO for 2016, 2017 and 2018. These comprised 60 pages. He then exhibited the general ledger from SEO’s accountant system and internal management software. This totalled over 200 pages.
Mr Phillips deposed that Mr Ranieri was correct in concluding that the SEO account did not show any revenue being received. He deposed this was because, despite his best endeavours, no customers had engaged and paid SEO to conduct any work. At [49] of the second Phillips affidavit, he deposed:
The staff of SEO have undertaken some work in building the websites for [APBI] and [CHL] (a failed business I tried to set up); however, SEO was not paid for this work.
Mr Phillips also deposed that:
(1)SEO did not have any other assets, save for the money held in its bank account, which is detailed below;[3] and
(2)to date, SEO had failed to contract with any clients who were willing to pay for its services and accordingly no revenue has been collected.[4]
[3]Second Phillips affidavit [77].
[4]Second Phillips affidavit [80]–[82].
In response, Mr Levin swore an affidavit on 27 August 2018 which produced a third report of Mr Ranieri. In the third report, Mr Ranieri recorded that he had reviewed the APBI ledger and the SEO ledger. He considered further information was required. However, he concluded that the claim by Mr Phillips that SEO has received no payment for its services to APBI may be inaccurate. In relation to the 2018 financial year, he concluded that the total sales or revenue of SEO was $1,089,952 (excluding GST) less trade debtors of $559,332 (excluding GST) with an unexplained ‘Cash Sales Revenue’ of $530,620. He requested this be explained if incorrect. This suggested that income had been received by SEO.
One of the issues that had been raised by this time in relation to the income and expenses of SEO and APBI related to the expenses incurred in relation to ‘Google AdWords’. On the evidence before me, Google AdWords are purchased to optimise the results produced for a particular business when a potential customer uses a search engine to locate a product or service provided by that business. By that time, Mr Phillips had provided invoices issued by Google International to support these expenses. Mr Ranieri noted that, while it was asserted that SEO paid the Google AdWords invoices, the invoices were in fact invoiced to APBI. He concluded that the Google AdWords documentation did not provide sufficient detail to establish there was no income from other customers of SEO other than APBI.
I note the third report of Mr Ranieri did not otherwise address unknown withdrawals assessed in the second report of $1.4 million. That issue was not pressed before me in this application.
Mr Levin then deposed that, until Mr Phillips made full disclosure which adequately demonstrates that he cannot meet the expenses from the funds available to him, the plaintiff opposed any carve-out of the freezing order.
Mr Phillips swore a further affidavit on 2 September 2019 (the ‘third Phillips affidavit’). He deposed that the property at 7 Old Tom Morris Lane had been sold for $465,000 and that the solicitors for the plaintiff were informed of this on 12 August 2019.
Mr Phillips produced the accounting ledger for APBI for 2017 and 2018. He noted he had previously provided the general ledger for the period 1 July 2017 to 30 June 2018.
As to the business of SEO, Mr Phillips deposed that he set up the business for the purpose of advising clients on how best to optimise the digital precedents inside search engines and that, to optimise a business’ search engine presence, it is often necessary to purchase Google AdWords.
Paragraphs 21 and 22 of the third Phillips affidavit state:
At paragraph 49 of my Second Affidavit, I gave evidence to the effect that SEO has conducted some work setting up websites and purchasing Google AdWords for my businesses but it has not been paid for this work. This evidence is correct, however, when Google AdWords are purchased on behalf of one of my businesses, the disbursement cost of this purchase is passed on to that business on whose behalf the AdWord(s) was purchased. This is why in the tax return for SEO for the 2018 year, SEO has declared a gross income of $1,022,870. This income is from repayment of disbursements associated with Google AdWords.
SEO has not been paid for its services by any customer.
The current position
For the purpose of this application, Mrs Phillips is willing to continue her undertaking until the determination of this proceeding to the effect that:
(1)50% of the net sale proceeds of the Albert Park property and 7 Old Tom Morris Lane, Fingal will be frozen; and
(2)the other Fingal property may not be dealt with otherwise than by sale on notice to the plaintiff and, in that event, 50% of the net proceeds will be frozen.
However, she seeks to be entitled to apply some of the 50% of the net proceeds of sale of these properties for payment of Mr Phillips’ legal fees of this proceeding and the ATO debt. I note that Mr Philips has deposed to the fact that Mrs Phillips is prepared to loan Mr Phillips funds from the proceeds of sale of the three properties to pay outstanding debts and ongoing cost of this proceeding. In argument, senior counsel for Mr and Mrs Phillips clarified that her undertaking, including to freeze 50% of the net proceeds of sale of the properties, was given in substitution for any offer to loan funds to Mr Phillips.
The plaintiff submitted that no such order should be made. This is because it submitted that it is only seeking a limited freezing order of the assets of the Mr Phillip. It submitted that, in the case of a limited freezing order, the Court will only grant a carve out if it is satisfied that the respondent has no other assets from which to pay such expenses. It relied relevantly upon the decision of Drummond J in Clout v Anscor Ltd[5] (‘Clout’) and the decision of Robson J in Legal Services Board v Forster[6] (‘Forster’). It submitted that Mr Phillips has not so satisfied the Court in this case.
[5][2001] FCA 174.
[6][2015] VSC 136.
In Clout, Drummond J held that, where the Court has previously ordered restraint on only part of the assets of a respondent in an action, the respondent who seeks relaxation of the restraint has an evidentiary onus, if not the full persuasive onus, to show that there are no other assets beyond those covered by the injunction to which the respondent could resort to meet the expenses in question.
This decision was followed by Davies J (when a member of this Court) in Allomak Limited v Allan[7] (‘Allomak’), a case involving an application to vary a freezing order over particular assets to permit access to working capital to a business. Her Honour’s judgment in Allomak was in turn followed in Forster,[8] another case involving an application to vary a freezing order over particular assets to permit access to working capital to a business.
[7][2010] VSC 287 [24].
[8]Forster [56], [77].
Senior counsel for Mr and Mrs Phillips did not accept that the principle asserted by the plaintiff applied in this case. That was for two reasons. First, senior counsel submitted that this is not a case where a variation to an existing freezing order was sought. Rather, this is the return of the application for an interlocutory injunction in circumstances where the respondent to that application indicated a willingness to give an undertaking to the effect of a freezing order subject to payment of her husband’s legal costs and the ATO debt.
Second, senior counsel submitted that it was the forensic choice of the plaintiff to seek only a freezing order over part of the assets of the defendant: it would be an odd result if the ordinary order, reflected in the practice note for provision to be made for reasonable legal expenses, did not apply as a result of that forensic decision. However he conceded that the issue of the sufficiency of the respondent’s assets to meet the amounts sought to be carved out was likely to be a relevant consideration in the Court’s discretion.
In resolving this issue, it is important to have regard to the nature and purpose of a freezing order. A freezing order enables a court to protect its processes from an abuse of process. In this regard, I adopt with respect the summary of the nature of freezing orders in the judgment of Derham AsJ in Vasilaras & Co Pty Ltd v Laprese[9] (‘Laprese’):
The function of the order is to minimise the possibility of an unscrupulous defendant rendering itself judgment proof by taking steps which are liable to produce the result that no assets are within the jurisdiction on the day of judgment.
The exception that is always made in a freezing order for living expenses and legal costs reflects a recognition of the nature of the order. Because it is not security, and because the object is to prevent an abuse of process of the Court by the defendant disposing of his assets to defeat any judgment, the freezing order cannot extend to prevent a respondent from having access to its own assets to the extent necessary to meet legitimate expenses such as ordinary living and business and legal expenses.
The aim is not to stop people spending their money. It is to stop them spending it in ways which are not legitimate having regard to the interests of the claimants in ensuring that there is no untoward removal of assets from the ownership of the person against whom a judgment may in due course be entered. The denial of access to funds needed to fund the conduct of the very litigation the integrity of which the order is designed to protect goes beyond the proper protective province of the jurisdiction.
[9](2019) 135 ACSR 248 [70]–[72] (citations omitted).
Laprese was a case in which a respondent sought to have a freezing order varied for the payment of legal expenses. Derham AsJ went on to consider the principles in such an application. He said:[10]
[10]Laprese [73] (citations omitted).
Where there is an application for a variation of the terms of the freezing order, the variation is dictated by what justice demands in the particular circumstances of the case. The following matters are established by the authorities:
(a)the Court may vary the terms of the order to give the defendant access to assets in order to meet, amongst other things, legal expenses of defending proceedings providing the purpose does not conflict with the purpose for which the order was made;
(b)having made a freezing order, a Court should not be quick to reverse it save for good reason and the dictates of justice;
(c)the defendant carries the burden of establishing the lack of assets, other than those bound by the injunction, out of which the expenses might be paid;
(d) a general assertion about inability to pay expenses is insufficient;
(e)when a defendant seeks a variation of a freezing order allowing a specific dealing, even for intended permitted purposes, it is relevant to take into account whether the defendant has access to other sources of funds for those purposes;
(f)where the plaintiff seeks the recovery of money allegedly held by the defendant on trust, an order allowing the defendant to use part of the money to pay legal expenses does no more than permit to be done what would otherwise constitute a contempt of court …;
(g)it may be appropriate in the interests of justice to refuse a variation where the variation requested, if granted, would give rise to a substantial risk that any judgment obtained by the plaintiffs would be rendered nugatory due to the limited remaining assets held by the defendants, so that the effect of the variation, if ordered, would more than likely frustrate the plaintiffs in their attempt to seek a remedy at law.
Based on the authorities to which I was referred in argument, I am unable to conclude that there is invariable requirement, as contended by the plaintiff, that in the case of a limited freezing order, the defendant carries the onus of otherwise establishing that he or she does not have other available assets out of which expenses might be paid. My reluctance to accept such an invariable requirement is also because I am conscious that, in making such a freezing order, the Court is exercising a discretion: a variety of considerations may be relevant.[11] The task of the Court is to consider all the evidence and circumstances to determine, in light of the matters relevantly identified in Rule 37A.05 of the Supreme Court (General Civil Procedure) Rules 2015, what is just and convenient.[12]
[11]Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 [53] (Gaudron, McHugh, Gummow and Callinan JJ).
[12]See, eg, Distinctive FX Pty Ltd v Wright [2015] VSC 299 [38] (Elliott J).
However, I accept that, in an application for a limited freezing order where the defendant seeks a carve out to meet legal costs or other expenses:
(a) a relevant factor will usually be whether the defendant has sufficient available assets (other than those which are the subject of the freezing order) to meet those costs; and
(b) the defendant will bear the evidential burden to establish that he or she does not have sufficient available assets to meet those costs.
Analysis
In the present case, the relevant assets which Mr Phillips has deposed to as having are his shares held directly and indirectly in SEO and APBI (the ‘Phillips shares’) and the loan he has advanced to each of those companies (the ‘Phillips loans’). For the purpose of this application, senior counsel for Mr Phillips conceded that SEO and APBI were Mr Phillips’ companies. I note that Mr Phillips also controls the Phillips Family Trust: however, counsel for the plaintiff did not dispute that this trust had negligible assets.
Counsel for the plaintiff submitted that the Court should not accept the statements in Mr Phillips’ affidavits to the effect that SEO had performed work for APBI and has not been paid anything for that work as it is inconsistent with the financial statements and tax returns of SEO in evidence. As a result, he submitted that the Court could not be satisfied that Mr Phillips did not have access to assets to meet his legal costs and the ATO debt from the income and assets of SEO.
The plaintiff relied upon the 2018 financial statements and tax returns of SEO. The 2018 financial statements record:
(1)SEO had ‘gross receipts’ of $1,022,879 (this is consistent with SEO’s 2018 tax return);
(2)SEO has expenses of $1,401,230 of which $923,197 was for advertising and $277,774 was for wages; and
(3) SEO had trade debtors of $615,266.61.
Counsel for the plaintiff submitted that:
(1)based on Mr Phillips’ assertion that no revenue had been paid to SEO but that SEO recorded gross receipts in its financial statements, SEO used the accrual accounting method;
(2)on that basis, given that trade debtors were only $615,266, SEO must have been paid $407,604 in 2018.
Counsel for the plaintiff submitted that the third Phillips affidavit further obscured the financial position of SEO. This is because the APBI general ledger makes express reference to APBI having spent $575,776.39 in 2018 in advertising costs with SEO. As noted above, in that same year, SEO recorded income of $1,022,8700 with the result that, counsel for the plaintiff submitted, $447,094 appears to have been received from another source.
This is in a context where the Google AdWords invoices in fact produced by Mr Phillips were all invoiced to APBI, not SEO, and those invoices for the 2018 year total $493,243.25.
Counsel for the plaintiff then referred to [21] of the third Phillips affidavit which I have set out above. First, counsel noted that Mr Philips deposed in that paragraph that, at [49] of the second Phillips affidavit, he gave evidence to the effect that SEO had purchased Google AdWords ‘for my businesses’. However, no such reference is made to the purchase of Google AdWords by SEO or any other entity in [49] of the second Phillips affidavit.
Second, counsel noted that in [21] of the third Phillips affidavit, Mr Phillips deposed that ‘when Google AdWords are purchased on behalf of one of my businesses, the disbursement cost of this purchase is passed onto that business on whose behalf the AdWord(s) were purchased’. Counsel submitted that this evidence, to the extent it suggested that Google AdWords was purchased for a company other than APBI, was nonsensical. Counsel submitted that it was clear from the documents produced by Mr Phillips that all Google AdWords were purchased for APBI: that was the entity to whom Google AdWords issued the invoices. Further, counsel noted that in [49] of the second Phillips affidavit, Mr Phillips deposed that the only companies that the staff of SEO have undertaken some work in building websites for was APBI and the failed CHL.
Third, counsel noted that Mr Phillips’ statement that ‘the gross income of $1,022,870 … is from repayment of disbursements associated with Google AdWords’ is inconsistent with the invoices received from Google Australia issued to APBI for 2018 in the sum of $493,243.25.
In all of these circumstances, counsel for the plaintiff submitted that I should not accept Mr Phillips’ evidence that SEO had not been paid any income in the 2018 financial year. To the contrary, he submitted that the documents point to the fact that it had been paid revenue of over $400,000.
By contrast, senior counsel for Mr Phillips submitted that I should accept what his client had deposed to in his affidavits, in particular that SEO had not been paid income in 2018. This was in a context where Mr Phillips had:
(1) disclosed all of his assets being his cash at the bank, his shares in SEO and APBI, and his outstanding loans to those companies; and
(2) provided substantial documentation in relation to his assets and liabilities and those of SEO and APBI.
As to the submission of counsel for the plaintiff in relation to the income in fact paid in the 2018 year, senior counsel for Mr Phillips submitted it was premised on the assumption that both SEO and APBI reported on an accruals basis, which had not been established. Further, he submitted that [21] of the third Phillips affidavit adequately explained the receipts of SEO for the 2018 year. He submitted that for that year, in addition to APBI, Google AdWords had been purchased for one or more of the businesses of Mr Phillips as he deposed. He submitted that this should be accepted notwithstanding that the relevant other ‘business’ was not identified and relevant documents were not produced.
I do not accept these submissions. I do not consider that Mr Phillips has adequately explained why he deposed that SEO had not been paid income in 2018. This is substantially for the reasons submitted by counsel for the plaintiff. The financial statements relating to SEO indicate that revenue for 2018 in the order of $400,000 to $500,000 was received.
To the extent that Mr Phillips asserted that Google AdWords were purchased by SEO for APBI during that year, the amounts in the accounts of APBI for such expenses do not correspond with the amounts in the accounts of SEO. In producing the accounts of SEO and APBI, Mr Phillips did not suggest that they were prepared on two different accounting bases. Further, the accounts of APBI and SEO for 2018 relating to advertising do not correspond with the amounts of the Google AdWords invoices in fact issued to APBI for 2018.
In these circumstances, given the inconsistencies between the evidence of Mr Phillips and the financial documents of SEO and APBI, I am unable to accept Mr Phillips’ evidence that no revenue has been received by SEO. In any event, on the evidence before me, Mr Phillips has not adequately explained why he says no revenue has been received by SEO.
Further, these inconsistencies causes me to doubt more generally the evidence of Mr Phillips relating to the business of SEO, its assets and liabilities. For example, counsel for the plaintiff noted that Mr Phillips deposed in the second Phillips affidavit that ‘SEO does not have any assets, save for the money held in its bank account’.[13] He submitted that this was demonstrably wrong given that the financial accounts for 2018 recorded trade debtors – a receivable – at $615,266. That submission appears to be correct. In any event, on the evidence before me, Mr Phillips has not explained why he deposed SEO has no assets when its 2018 financial statement records trade debtors of $615,266.
[13]Second Phillips affidavit [77].
I am conscious that Mr Phillips has provided a considerable amount of information which has reduced significantly the scope of the issues pursued by the plaintiff at the hearing of this application. However, the issues identified above relating to the revenue and assets of SEO, which Mr Phillips controls, remain unexplained.
As a result, I have concluded that Mr Phillips has not met the evidential burden that he does not have sufficient assets to meet his legal expenses in this proceeding and the ATO debt. Of course, should further evidence be provided, a different result might follow.
In these circumstances, I do not intend to order any carve out of the kind sought by Mr and Mrs Phillips.
I will hear the parties on the question of the costs of this application.
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