Rambaldi v Mullins (No 2)
[2016] FCA 977
•22 August 2016
FEDERAL COURT OF AUSTRALIA
Rambaldi v Mullins (No 2) [2016] FCA 977
File number: VID 193 of 2014 Judge: MURPHY J Date of judgment: 22 August 2016 Catchwords: BANKRUPTCY AND INSOLVENCY – application by trustees in bankruptcy for declarations of entitlement - agreements entered by bankrupt and bankrupt’s associate for transfer of interests in business – agreements intended to conceal bankrupt’s property
AGENCY – whether bankrupt’s associate entered agreement for transfer of business as agent for bankrupt – trustees in bankruptcy entitled to enforce rights under agreement
TRUSTS AND TRUSTEES – whether bankrupt’s associate declared an express trust in respect of monies payable to bankrupt under agreement
EVIDENCE – admissibility of transcript of examination pursuant to ss 81(17) and 255 of the Bankruptcy Act 1966 (Cth)
HIGH COURT AND FEDERAL COURT – Jurisdiction – exclusive jurisdiction of federal courts in bankruptcy matters – Orders made by Supreme Court of New South Wales declared against the title of the trustees in bankruptcy – Status of orders made without jurisdiction – Orders of a superior court of record are to be observed until appealed or set aside
Legislation: Bankruptcy Act 1966 (Cth)
Bankruptcy Legislation Amendment (Anti-avoidance) Act2006 (Cth)
Defamation Act 2005 (NSW)
Evidence Act1995 (Cth)
NSW Trustee and Guardian Act 2009 (NSW)
Probate and Administration Act 1898 (NSW)
Cases cited: Apple Computer Australia Pty Ltd v Wily [2002] NSWSC 855
Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (In liq) (2000) 202 CLR 588; [2000] HCA 25
Attorney-General v Kowalski [2015] SASC 123
Baker v Perpetual Trustee Company Limited [2012] FCA 553
Belhaven and Stenton Peerage (1875) 1 App Cas 278, 279
Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1
Branir v Owston Nominees (No 2) (2001) 117 FCR 424; [2001] FCA 1833
Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34
Bulun Bulun & Anor v R & T Textiles Pty Ltd& Anor (1998) 157 ALR 193; [1998] FCA 1082
Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26
Calverley v Green (1984) 155 CLR 242; [1984] HCA 81
Cameron v Cole (1944) 68 CLR 571
Chamberlain v The Queen (No 2) (1985) 153 CLR 521; [1984] HCA 7
Citicorp Australia Ltd v Official Trustee in Bankruptcy (1996) 71 FCR 550; [1996] FCA 1115
Colonial Life Assurance Society Ltd v Donnelly (1998) 82 FCR 418; [1998] FCA 364
Commonwealth v Verwayen (1990) 170 CLR 394; [1990] HCA 39
Garrett v L’Estrange (1911) 13 CLR 430; [1911] HCA 67
Gissing v Gissing [1971] AC 886
Harpur & Ors v Levy & Ors (2007) 16 VR 587; [2007] VSCA 128
Hawes v Dean [2014] NSWCA 380
Hawksford v Hawksford [2008] NSWSC 31
Heperu Pty Ltd v Belle (2009) 76 NSWLR 230; [2009] NSWCA 252
HP Mercantile Pty Ltd v Dierickx (2013) 306 ALR 53; [2013] NSWCA 479
Hunter v Chief Constable of the West Midlands Police [1982] AC 529; [1981] 3 All ER 727
Inland Revenue Commissioners v Raphael [1935] AC 96
Insurance Commissioner v Joyce (1948) 77 CLR 39; [1948] HCA 17
International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co (1958) 100 CLR 644; [1958] HCA 16
J W Broomhead (Vic) Pty Ltd (in liq) v J W Broomhead Pty Ltd [1985] VR 891
James v Abrahams (1981) 51 FLR 16; [1981] FCA 49
James v Commonwealth Bank of Australia (1992) 37 FCR 445; [1992] FCA 617
Jarrett v Seymour (1993) 46 FCR 521
Korda v Australian Executor Trustees (SA) Limited (2015) 255 CLR 62; [2015] HCA 6
Lauren Kay Cordes as Trustee for Alexander George v Dr Peter Ironside P/L & Ors [2010] 2 Qd R 235; [2009] QCA 302
Lee v R (1998) 195 CLR 594; [1998] HCA 60
Legal Services Board v Gillespie-Jones (2013) 249 CLR 493; [2013] HCA 35
Meriton Apartments Pty Ltd & Anor v Industrial Court of New South Wales & Anor (2008) 171 FCR 380; [2008] FCAFC 172
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449; [1992] HCA 66
Nguyen v Cosmopolitan Homes [2008] NSWCA 246
Papas v Grave [2013] NSWCA 308
Paul v Constance [1977] 1 All ER 195; [1976] EWCA Civ 2
Permanent Mortgages Pty Ltd v Vandenbergh (2010) 41 WAR 353; [2010] WASC 10
Perpetual Trustee Company Limited v Nebo Road Pty Ltd & Ors [2011] QSC 283
Rambaldi v Mullins [2014] FCA 361
Re Anderson; Ex parte Alexander (1927) 27 SR (NSW) 296
Re Armstrong (dec’d) [1960] VR 202
Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491; [1991] FCA 344
Re Macks; Ex parte Saint (2000) 204 CLR 158; [2000] HCA 62
Registrar, Accident Compensation Tribunal v FCT (1993) 178 CLR 145; [1993] HCA 1
Reitano v Reitano [2012] NSWSC 1127
Rothmore Farms Pty Ltd (in liquidation) v Belgravia Pty Ltd (1999) 31 ACSR 88; [1999] FCA 598
Scott v Bagshaw (2000) 99 FCR 573; [2000] FCA 816
Seeley International Pty Ltd v Jeffrey & Anor [2013] VSCA 288
Siminton v Australian Prudential Regulation Authority (2006) 152 FCR 129; [2006] FCAFC 118
Sivritas v Sivritas & Anor [2008] VSC 374
Smith v Lucas (1881) 18 Ch D 531
South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611; [2000] FCA 1541
Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462
Tonto Home Loans Australia Pty Ltd v Tavares; FirstMac Ltd v Di Benedetto; FirstMac Ltd v O’Donnell (2011) ASC 155-107; [2011] NSWCA 389
Date of hearing: 18-19 May 2015 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-Area: General and Personal Insolvency Category: Catchwords Number of paragraphs: 474 Counsel for the Applicants: Mr P Fary Solicitor for the Applicants: ICA Lawyers Counsel for the First Respondent: The First Respondent did not appear Counsel for the Second to Eighth Respondents: Mr M A Ashhurst SC and Mr L Corbett Solicitor for the Second to Eight Respondents: Whittens & McKeough Lawyers Counsel for the Ninth Respondent: The Ninth Respondent did not appear ORDERS
VID 193 of 2014 BETWEEN: GESS MICHAEL RAMBALDI
First Applicant
ANDREW REGINALD YEO
Second Applicant
AND: TEAGAN MULLINS
First Respondent
CIVIL PACIFIC SERVICES GROUP PTY LTD
Second Respondent
GLOBAL HR GROUP PTY LTD (and others named in the Schedule)
Third Respondent
JUDGE:
MURPHY J
DATE OF ORDER:
22 AUGUST 2016
THE COURT ORDERS AND DECLARES THAT:
1The Applicants (“the Trustees”), the trustees in bankruptcy of George Alex (“the Bankrupt”), are vested with half (in number and value) of the shares:
(i) held by AR & KH Pty Ltd in the Fifth Respondent, GHR Custodian Pty Ltd (“GHR Custodian”); and
(ii) held by GHR Custodian in the Second and Fourth Respondents, namely Civil Pacific Services Group Pty Ltd (“Civil Pacific Services Group”) and Global Civils Group (NSW) Pty Ltd (“Global Civils Group”) respectively,
(“the identified shares”).
2The Second to Eighth Respondents shall transfer the identified shares to the Trustees within 21 days, and shall do all things and sign all documents necessary to give effect to these orders. As directors of AR & KH Pty Ltd the seventh and eighth respondents shall take all steps necessary to transfer to the Trustees half (in number and value) of the shares held by that company in GHR Custodian.
3The Second to Eighth Respondents are restrained from transferring, selling, encumbering or dealing in any way with the shares held by AR & KH Pty Ltd in GHR Custodian or held by GHR Custodian in Civil Pacific Services Group or Global Civils Group unless or until they have transferred the identified shares to the Trustees as ordered.
4Antoun entered into a Deed of Settlement dated 22 October 2013 (described in the reasons for judgment as “the October Deed”) as the Bankrupt’s agent in respect to half of the $5 million consideration under the deed, payable by parties that include the Second, Fourth, Sixth, Seventh and Eighth Respondents. The Trustees are vested with the Bankrupt’s rights under the deed.
5The Second to Eighth Respondents shall pay $2,395,000 to the Trustees, plus interest to be calculated, within 21 days.
6The parties are granted liberty to apply generally, including in relation to the form of these orders and for further or varied orders.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
MURPHY J:
INTRODUCTION
This proceeding concerns the affairs of Mr George Alex, a bankrupt (“Alex” or “the Bankrupt”). The applicants, Mr Gess Rambaldi and Mr Andrew Yeo, are the trustees in Alex’s bankruptcy (“Trustees”). They brought proceedings to recover property of the Bankrupt which they allege is vested in them by operation of ss 58, 115 and 116 of the Bankruptcy Act 1966 (Cth) (“the Act”), namely the Bankrupt’s interest in shares in a labour hire business operating in Queensland (“the Global business”) and/or monies payable in relation to that interest under deeds of agreement with the sixth, seventh and eighth respondents, Mr James Byrnes (“Byrnes”), Mr Kevin McHugh (“McHugh”) and Mr Angelo Russo (“Russo”) and their associated companies in the Global business.
The proceeding was brought against nine respondents:
(a)the first respondent, Ms Teagan Mullins (“Mullins”), the former partner and the next of kin of Mr Joseph Antoun (deceased) (“Antoun”) who was shot and killed on 16 December 2013. He was a business associate and friend of the Bankrupt, and the trustee of JA Investments Trust (“the purported trust), in which Mullins is the “protector”. (There are some indications in the materials that the name of the first respondent is properly spelt as “Mullens”. I have spelt the first respondent’s name as in the pleadings);
(b)the second, third and fourth respondents, Civil Pacific Services Group Pty Ltd (“Civil Pacific Services Group”), Global HR Group Pty Ltd (later renamed RK Qld Pty Ltd, now in liquidation) (“Global HR Group”), and Global Civils Group (NSW) Pty Ltd (“Global Civils Group”), which are or were the operating companies in the Global business (“the Operating Companies”);
(c)the fifth respondent, GHR Custodian Pty Ltd (“GHR Custodian” or “New Parent Company”), which became the parent company of the Operating Companies on 19 March 2014;
(d)the sixth, seventh and eighth respondents, Byrnes, McHugh and Russo, who now jointly control the Global business, and are parties to deeds under which the Bankrupt and/or Antoun agreed to transfer the business to them in return for valuable consideration; and
(e)the ninth respondent, NSW Trustee and Guardian (“NSW Trustee”), which is a statutory corporation constituted pursuant to s 5 of the NSW Trustee and Guardian Act 2009 (NSW). Antoun died intestate and the NSW Trustee is deemed to be vested of his real and personal estate until such time as probate or administration is granted to another person: see s 61 of the Probate and Administration Act 1898 (NSW).
The first and ninth respondents did not play an active role in the proceeding, and I usually refer to the second to eighth respondents as “the respondents”. The Bankrupt is not a party to the proceeding.
The Trustees alleged that the property vested in them is the Bankrupt’s interest or rights:
(a)in shares in GHR Custodian and in shares held by GHR Custodian in the Operating Companies.
(b)under deeds made on 11 March 2013 (“March Deeds”) in which McHugh, Byrnes and Russo their associated companies in the Global business agreed to pay a total of $12 million by instalments to the Bankrupt and Antoun (as trustee of the purported trust) apportioned as follows:
(i)$5.65 million to be paid to Antoun (as trustee of the purported trust) for the transfer of shares in the Global business to the parent company, Global Human Resources Group Pty Ltd, (“Global Human Resources Group” or “Parent Company”) of which Russo was the sole director at the time;
(ii)$6.35 million to be paid to the Bankrupt and Antoun to settle purported defamation claims, to be paid in the following proportions;
(1)$6.2 million to be paid to the Bankrupt; and
(2)$150,000 to be paid to Antoun (as trustee of the purported trust); and/or
(c)under a deed made on 22 October 2013 (“October Deed”) in which McHugh, Byrnes and Russo and their associated entities agreed to pay $5 million by instalments to Antoun (as trustee of the purported trust) for the settlement of unspecified claims for damages.
In broad terms the Trustees contended that:
(a)the Bankrupt had beneficial ownership of all or part of the companies in the Global business;
(b)Antoun acted as either the Bankrupt’s agent or as his trustee in entering into the March Deeds; and
(c)Antoun acted as either the Bankrupt agent or as his trustee in entering into the October Deed.
To the extent that it is necessary for the Trustees to choose between claims that are alternatives, the Trustees seek judgment in the following order of priority:
(a)first, judgment for amounts owing under the October Deed;
(b)second, judgment for amounts owing under the March Deeds; and
(c)third, judgment in respect of the Bankrupt’s interest in GHR Custodian and shares in the Operating Companies.
Obtaining a clear view of the facts in this matter has not been straightforward. The Trustees are strangers to the Bankrupt’s affairs and he did not cooperate with them. The Bankrupt did not give evidence. The evidence tends to show that he operates in a criminal netherworld and it strongly supports the inference that he concealed his business interests from the Trustees. The evidence tends to show that Antoun operated in the same shadowy world as the Bankrupt. He was unable to give evidence, having been fatally shot in his driveway on 16 December 2013.
The picture was also obscured because the Bankrupt and Antoun, with the cooperation of McHugh, Byrnes and Russo, signed legal documents which hid the substance of their agreements. For example:
(a)the March Deeds falsely described $6.2 million to be paid to the Bankrupt (and $150,000 to be paid to Antoun) by McHugh, Byrnes and their associated entities as being for defamatory statements and imputations made about them. In reality the amount to be paid to the Bankrupt was consideration for the transfer of his beneficial interest in the Global business to McHugh, Byrnes, Russo and their associated companies in the Global business. Describing the monies in that way was to the Bankrupt’s benefit because a payment for defamation would be exempt monies under s 116(2)(g) of the Act which would not vest in the Trustees; and
(b)the October Deed falsely described $5 million to being paid to Antoun alone, to settle claims for damages outside of the claims made in a Supreme Court of New South Wales proceeding brought by McHugh against Antoun, the Bankrupt and others (“the Supreme Court proceeding”). In reality the monies were to be paid to Antoun in consideration for the transfer of all interests in the Global business (including the Bankrupt’s beneficial interest) to McHugh, Byrnes, Russo and their associated companies and on the understanding that Antoun would pay half to the Bankrupt.
In different ways the evidence of each of McHugh, Byrnes and Russo was unsatisfactory and I take a dim view of their credibility. The respondents largely did not offer a positive case and instead they relied on asserted gaps in the Trustees’ case to contend that the evidence was insufficient to allow the Court to form a reasonable and definite inference that the Bankrupt had a beneficial interest in the Global business and/or an interest under the relevant deeds. I do not agree.
For the reasons I explain I consider that:
(a)after the commencement of his bankruptcy the Bankrupt acquired beneficial ownership of half of the shares in the companies in the Global business. The Bankrupt’s rights in relation to those shares vested in the Trustees;
(b)the Bankrupt has contractual rights to be paid $2,395,000 plus interest (being half of the $5 million payable under the October Deed less $105,000 already paid to his benefit). The Bankrupt’s rights under the October Deed vested in the Trustees; and
(c)under the March Deeds the Bankrupt had contractual rights to be paid $6.2 million in his own name, but those deeds were declared void, unenforceable and of no effect by order of the Supreme Court of NSW on 22 October 2013. As a result of those orders the Trustees cannot enforce the Bankrupt’s rights under the deeds.
In broad summary, I have made declarations and orders requiring the second to eighth respondents:
(a)to transfer to the Trustees half of the shares held by AR & KH Pty Ltd in GHR Custodian, and half of the shares held by GHR Custodian in the Operating Companies; and
(b)to pay $2,395,000 to the Trustees, plus interest to be calculated.
However, such orders may allow double recovery for the Trustees and I will hear further submissions from the parties as to whether further or varied orders should be made. The orders I have made do not finally determine the proceeding.
THE PROCEEDING
The application for interim injunctive relief
The proceeding was commenced by an urgent application filed on 28 March 2014, made returnable the same day, in which the Trustees alleged that the relevant property of the Bankrupt was vested in them as trustees in bankruptcy. The Trustees relied on documents from the Supreme Court proceeding, being Supreme Court of NSW proceeding No 2013/158050 brought by McHugh against Antoun, the Bankrupt and others, regarding a dispute about ownership of the Global business, effectively between McHugh, Byrnes and Russo on one side and the Bankrupt and Antoun on the other. In reliance on these documents the Trustees contended that:
(a)the assets vested in them as trustees in bankruptcy include rights purportedly held in the name of Antoun (deceased) (as trustee of the JA Investments Trust) under the October Deed;
(b)the JA Investments Trust was a sham designed by the Bankrupt and Antoun to conceal the Bankrupt’s interest under the October Deed and in the Global business;
(c)under the October Deed the respondents and their associated entities were required to pay $5 million by way of instalments to Antoun (as trustee) for the Bankrupt’s (or alternatively the Bankrupt’s and Antoun’s) interest in the Global business, with the third instalment being due to be paid the following business day, 31 March 2014; and
(d)the October Deed replaced the earlier March Deeds in which the respondents and their associated entities were required to pay $12 million to the Bankrupt and Antoun (as trustee of the JA Investments Trust. Although the March Deeds attributed $6.2 million of that sum to a payment for defamation of the Bankrupt the Trustees contended that the true nature of the payment was, in whole or in part, consideration for the Bankrupt’s interest in the Global business.
The Trustees sought orders, essentially to preserve the status quo, that:
(a)before the second to eighth respondents made any payment under the October Deed the person making the payment was required to give the Trustees as much notice of the payment as was reasonably practicable;
(b)Mullins, Antoun’s next of kin, and any trustee of the JA Investments Trust pay into Court any further payments made under the October Deed;
(c)the second to eighth respondents be restrained from dealing with, disposing of or otherwise encumbering any amounts received in respect of the October Deed, except for paying the amount into Court; and
(d)the second to eighth respondents be restrained from exercising any rights under the October Deed in relation to the transfer of shares in Civil Pacific Services Group, Global HR Group or Global Civils Group, Global Human Resources Group or GHR No 3.
I made the urgent orders the Trustees sought: Rambaldi v Mullins [2014] FCA 361.
The substantive proceeding
The matter was then conducted on pleadings. Following amendments the pleadings comprise:
(a)an Amended Application dated 19 May 2014, and a Further Amended Statement of Claim dated 18 May 2015 (“FASOC”);
(b)a Second Further Amended Defence of the second to eighth respondents dated 19 May 2015; and
(c)a Reply to Second Further Amended Defence dated 19 May 2015.
THE EVIDENCE
The Trustees’ evidence
The Trustees obtained leave of the Supreme Court of NSW to use evidence filed in the Supreme Court proceeding. They filed the following evidence:
(a)affidavits of Mr Rambaldi:
(i)sworn 28 March 2014 (“the first Rambaldi affidavit”);
(ii)sworn 9 April 2015 (“the second Rambaldi affidavit”) which includes five lever arch binders of exhibits, including transcripts of the evidence given by various persons in public examinations of the affairs of the Bankrupt conducted under s 81 of the Act (“public examinations”) and documents produced in the examinations or otherwise obtained by the Trustees; and
(iii)sworn 16 May 2015 (“the third Rambaldi affidavit”);
(b)affidavits of Mr Innis Cull, the solicitor for the Trustees:
(i)sworn 28 March 2014 (“the first Cull affidavit”);
(ii)sworn 12 May 2014 (“the second Cull Affidavit”);
(iii)sworn 13 May 2015 (“the third Cull Affidavit”). The Trustees did not read paragraphs 23 to 26 of this affidavit; and
(iv)sworn 18 May 2015 (“the fourth Cull Affidavit”);
(c)an affidavit of Ms Alison Lee affirmed 18 August 2014 which went to service of orders on Mullins.
The deponents were not required for cross-examination.
The respondents’ evidence
The second to eighth respondents filed the following evidence:
(a)affidavits of McHugh:
(i)sworn 15 May 2015 in this proceeding, which did no more than exhibit his affidavit in the Supreme Court proceeding sworn 20 May 2013 (“the first McHugh affidavit”); and
(ii)sworn 18 September 2013 in the Supreme Court proceeding which was tendered in evidence in this proceeding.
McHugh was cross-examined.
(b)affidavits of Byrnes sworn 11 May 2015 (“the first Byrnes affidavit”) and 18 May 2015 (“the second Byrnes affidavit”). Byrnes was not required for cross-examination;
Russo and Ms Filomena Kyriacou (“Kyriacou”), a director of Wentworth Williams & Associates, did not put on affidavits. They gave viva voce evidence and were cross-examined.
The first respondent, Mullins, was served with the proceeding and for a short period a solicitor was on record as acting for her. The ninth respondent, the NSW Trustee, filed a Notice of Appearance and indicated that it did not intend to take part in the proceeding. Neither Mullins nor the NSW Trustee put on evidence or participated in the trial.
MY ASSESSMENT OF THE WITNESSES
McHugh’s evidence
I accept much of the factual narrative set out in McHugh’s first affidavit largely because much of it is uncontentious, much of it is consistent with my view of other evidence, and some of it is contrary to his interests in the present case. The evidence in McHugh’s second affidavit is largely not relevant. There are various aspects of McHugh’s evidence which I consider unreliable and overall I take a dim view of his credibility.
First, for the reasons I set out below (at [294]) I consider McHugh’s evidence that in about May 2011 he was forced by duress into handing over his interest in the Global business to the Bankrupt is implausible.
Second, McHugh provided a substantially different account in his first affidavit from that which he gave in a statutory declaration in January 2013. In his statutory declaration he made no mention of coercion. Instead he declared that he had sold his interest in the Global business to Antoun in October 2011 because of difficult trading conditions and a concern about the outstanding taxation liabilities of the business. Unlike the account in his affidavit he declared that he retained 4.7% of the business for himself.
Third, as I have said (at [7]), McHugh entered into legal agreements with the Bankrupt and Antoun which mischaracterised the substance of the agreements and laid down a false trail.
Fourth, while cross-examination of McHugh largely related to matters which are not central to my decision, it led me to conclude that he was more concerned to protect the respondents’ interests than to give a frank account. Amongst other things:
(a)he initially said that he was unsure why he ceased to be the director of Global HR Group but then, when pressed, he said that while he was not absolutely sure, “it could have something to do with workers’ comp”. Russo later gave evidence that McHugh ceased to be the director because a large volume of workers compensation claims were made against Global HR Group, and if that company were to go into liquidation with McHugh as a director, then the Global business would lose its Westpac loan facility. In my view McHugh must have known why he ceased to be a director. A troubling but unexplored aspect of this evidence is that it appears that, as a director and the manager of the Global business, McHugh allowed Global HR Group to run up significant workers compensation liabilities, then simply ceased to be director of Global HR Group and continued as director and manager of the other companies in the Global business, running the same labour hire operation;
(b)he tried to suggest that he could not remember much because he had suffered injuries in some assaults. I do not accept this. Neither of the assaults about which he gave evidence appear to have been sufficient to have caused him memory loss or brain damage, he proffered no medical evidence in that regard, and throughout the relevant period he continued to manage a large labour hire business. Kyriacou corroborated his account of memory impairment to an extent but I found her evidence unreliable too. It is more likely that his claimed memory impairment was an attempt to avoid difficult questions in cross examination;
(c)when questioned as to whether he received legal advice about the March Deeds before he signed them, he said that he was under stress at the time and “wouldn’t have a clue what was going on”. Then, when pressed, he accepted that he did receive legal advice;
(d)he had no difficulty in remembering particular forms lodged with ASIC when it suited him. He readily recalled three ASIC Form 484 Change of Company Details forms, lodged with ASIC on 26 October 2011, on which he said his signature had been forged; and
(e)when asked whether the October Deed was intended to supersede the March Deeds he initially answered that he “would say so, yes”. Then he said that there were “that many deeds going around backwards and forwards, I’m not up-to-date with it at all. I don’t know.” That answer is implausible when the October Deed was much more favourable for him than the March Deeds. It reduced the price, from $12 million down to $5 million, that he, Byrnes, Russo and their associated entities agreed to pay for the transfer of the Global business.
Byrnes’ evidence
Byrnes put on two short affidavits. He was not cross-examined on his evidence but, even so, I am not satisfied as to the reliability of his evidence.
First, his evidence in his first affidavit relating to the Bankrupt’s claims to a proprietary interest in the Global business is inconsistent with the thrust of his evidence in his public examination, inconsistent with an email which he sent to the solicitor for the Trustees and others a short time prior to the hearing of this case, and incompatible with the view I have reached of the evidence overall. In his public examination and his email Byrnes accepted that the Bankrupt had a beneficial interest in the Global business but before me he tried to undercut that testimony.
Second, Byrnes entered into legal agreements with the Bankrupt and Antoun which mischaracterised the substance of the agreements entered into and laid down a false trail, as I described above (at [7]). He acknowledged that he was aware at the time he entered into the March Deeds that the $6.2 million defamation payment to the Bankrupt was a sham.
Third, his second affidavit essentially concerns a set-off claim for $3.4 million. He did not disclose various significant matters and for such a substantial claim his evidence is far from complete. It is likely that he did not provide the Court with the full picture.
In the finish I found the contentious parts of his affidavit evidence to be self-serving and implausible. I do not give his evidence much weight.
Russo’s evidence
Russo only gave evidence on some discrete issues, but I found his evidence on those issues to be unreliable.
First, for the reasons I set out below (at [261] to [279]) I do not accept that he wrongly made declarations of solvency in relation to GHR No 3 and Global Human Resources Group by mistake. In my view it is likely that he wrongly made the declarations of solvency as part of an attempt by the respondents to avoid their obligations under the October Deed (and any outstanding obligations under the March Deeds) and to defeat the Trustees’ claims.
Second, as I have said, Russo too entered into legal agreements with the Bankrupt and Antoun which mischaracterised the substance of the agreements and laid down a false trail. He must have known that.
I give his evidence little weight.
Kyriacou’s evidence
Kyriacou gave evidence on similar discrete issues to Russo and she essentially corroborated his account. However, I did not find her a reliable witness either.
I reached this view, first, for the reasons I set out below (at [261] to [279]). I also found other parts of her testimony unsatisfactory, including that:
(a)she was sometimes vague or evasive in her answers; and
(b)she said that in March 2014 she arranged the sale of Global HR Group and McHugh ceased to be a director of that company on 11 March 2014. In my view she feigned that she could not remember the name of the person who purchased the company. She did not provide the name of that person until she was required to do so;
(c)she said that in March 2014 she mistakenly failed to lodge an ASIC Form 484 Change to Company Details form to record that McHugh was no longer a director and shareholder in Global HR Group. On her account, upon discovering the error she corrected it by lodging the appropriate form on 12 May 2015, backdating the change to 11 March 2014. I found that evidence implausible when:
(i)McHugh had no explanation for why the notice was lodged with ASIC more than one year after he ceased to be a director and shareholder; and
(ii)other ASIC records showed that McHugh was still acting as a director of Global HR Group as at 12 March and 19 March 2014.
The backdated change was not made until immediately prior to the trial of this case.
I give Kyriacou’s evidence little weight on the limited issues to which it goes.
EVIDENTIARY ISSUES
The standard of proof
The applicable standard of proof is the balance of probabilities. However, in applying that standard it is appropriate to take into account the factors listed in s 140(2) of the Evidence Act1995 (Cth) (“Evidence Act”). Although in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 at 361-362 (“Briginshaw”), Dixon J was speaking of the common law position, it is settled that the Court is required to take into account similar considerations through s 140(2): see Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449; [1992] HCA 66 at 449-450.
Some of the factual findings I have made relate to serious allegations against a party. In particular I have found that:
(a)Russo and McHugh took steps to register the New Parent Company and to register a new company to hold the shares in it. Then, as a director of the existing Parent Company, Global Human Resources Group, Russo resolved to transfer the shares it held in the Operating Companies to the New Parent Company. As a director Russo wrongly made Declarations of Solvency in respect to Global Human Resources Group and GHR No 3. As a member Russo resolved to put the Parent Company and GHR No 3 into members’ voluntary liquidation. Russo took those steps as part of an attempt by the respondents to avoid their obligations under the October Deed (and any outstanding obligations under the March Deeds) and to defeat the Trustees’ claim.
(b)the Bankrupt and Antoun characterised $6.2 million that was to be paid to the Bankrupt under the March Deeds as being for defamation in order that it be treated as exempt monies in the bankruptcy and so as to avoid the Bankrupt’s obligations to his creditors. McHugh, Byrnes and Russo cooperated in the Bankrupt’s and Antoun’s mischaracterisation of the substance of the March Deeds;
(c)Antoun (I infer with the Bankrupt’s agreement) mischaracterised the substance of the October Deed in order to assist the Bankrupt to defeat the Trustees’ claim. McHugh, Byrnes and Russo cooperated in that mischaracterisation at a time when they knew that Alex was a bankrupt.
I did not make those findings lightly. In doing so I followed the approach in Briginshaw and had regard to s 140(2).
Objections to evidence
I now deal with the respondents’ submissions in which they objected to the admissibility of various parts of the Trustees’ case, and in the alternative argued that the use of the evidence should be limited.
The Cavric email
On 5 February 2013 at 7:19 pm Mr Ned Cavric (“Cavric”) the Practice Director of NSW Compensation Lawyers sent an email to Mr Christopher Rumore (“Rumore”) a partner of the legal firm, Colin Biggers & Paisley, which said in part:
Yes, Mr Alex is a beneficial owner of the shares held by Mr Antoun.
The respondents submitted that the relevant statement is inadmissible as hearsay under s 59 of the Evidence Act, and alternatively that the use of the statement should be limited pursuant to s 136 of that Act, because Cavric did not have personal knowledge of the asserted fact, it is therefore second-hand hearsay and there is no evidence that Cavric was not available to give evidence. The respondents submitted that if the email is a business record (which they did not admit) then s 69 of the Evidence Act does not apply because Cavric did not have personal knowledge of the asserted fact, and it cannot be reasonably assumed that the information was directly or indirectly supplied by someone who did.
In the alternative, the respondents contended that if the statement is admitted, s 136 of the Evidence Act should apply to limit its use because its reception as proof of the truth of the fact asserted is unfairly prejudicial when the respondents are unable to test it. They argued that the statement is unreliable because at best it is hearsay which must be based on what someone else had told Cavric, and there is no evidence as to the source of the hearsay. They contended that the information did not come from the Bankrupt himself. Cavric said in his public examination that the Bankrupt “on most occasions, referred to the Queensland businesses as Mr Antoun’s businesses”.
The respondents relied on Cavric’s evidence about why he made the subject statement in the email. In his public examination he said that:
I’m pretty certain what happened was that Moloney Lawyers wanted George Alex in this deed, and then Mr Rumore would have asked in what capacity, and then I would have asked someone in what capacity, and someone would have told me he was a beneficiary of the trust….I can’t recall, but it would either be Joseph Antoun or Manny from MKP [Antoun’s accountant.]
They noted that the email states that the subject statement was Cavric’s “initial response” and that Cavric testified in his public examination: “I think that that’s a mistake” and that “I must have asked someone and someone would have told me this, but it was incorrect”. Cavric was not cross-examined on his disavowals of the subject statement and the respondents submitted there is no reason to suspect that he gave false evidence.
The respondents also pointed to Cavric’s evidence that the Settlement Deed recites that the Bankrupt is a beneficiary of the JA Investments Trust when in fact that is not the case, and that Cavric said that he did not see the JA Investments Trust deed at the time he sent the email. They argued that Cavric was not at the time a practising solicitor who was acting for the Bankrupt or Antoun, and he was conveying information to Rumore and submitted that it is not clear that he conveyed the information on instructions from Antoun or the Bankrupt.
Finally, the respondents noted that Cavric was replying to questions asked by Rumore by email at 6:09 pm, which questions are not in evidence. They submitted that there is a risk of unfairness in considering the statement by Cavric without the proper context, and said that it is possible Cavric made the statement because he erroneously understood Alex to be a beneficiary of the JA Investments Trust.
In my view the relevant statement in the email is admissible as a business record, kept in the course of the business of NSW Compensation Lawyers (and/or the business of Colin Biggers & Paisley) pursuant to s 69 of the Evidence Act. That section relevantly provides:
(1) This section applies to a document that:
(a) either:
(i)is or forms part of the records belonging to or kept by a person, body or organisation the course of, or for the purposes of, a business; or
(ii)at any time was or formed part of such a record; and
(b)contains a previous representation made or recorded in the document in the course of, or for the purposes of, the business.
(2)The hearsay rule does not apply to the document (so far as it contains the representation) if the representation was made:
(a)by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact; or
(b)on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact.
At the time Cavric was employed as the Practice Director of Petrovich Law Group Pty Ltd trading as NSW Compensation Lawyers (“NSW Compensation Lawyers”). Although he was legally qualified he did not hold a practising certificate. For the reasons I set out below (at [188]-[197]) I consider that, through Cavric, NSW Compensation Lawyers acted for the Bankrupt and Antoun. I infer that Cavric undertook legal work for that firm pursuant to the practising certificate(s) and under the supervision of the principal(s) of that firm.
Cavric sent the email to Rumore under the subject heading “Advice in relation to Global Group” which is the name of the Colin Biggers & Paisley file relating to the March Deeds. He sent it as a member of the legal team negotiating and drafting those deeds and it forms part of the records belonging to or kept by NSW Compensation Lawyers and Colin Biggers & Paisley for the purpose of their respective businesses. The requirements of s 69(1) of the Evidence Act are met in my view.
The next question is whether the relevant statement meets the requirements of s 69(2). It is uncontentious that the email was in reply to questions asked by Rumore in an email at 6:09 pm that day, which questions are not in evidence. Cavric sent an email to Rumore at 6:12 pm and said:
I am meeting with Joe [Antoun] and George [Alex] tonight and will draft a response to the issues raised late evening.
The evidence shows that Cavric acted for the Bankrupt and Antoun and regularly conveyed instructions from them to Rumore. It also shows that Cavric conferred with the Bankrupt and Antoun on the evening of 5 February 2013 so as to obtain instructions. Cavric told Rumore that he would provide a response to his questions later that evening and he did so in the subject email.
Cavric and Rumore were jointly engaged in negotiating and drafting complex commercial deeds for the Bankrupt and Antoun and it is unlikely that Cavric would have made the relevant statement unless he had a proper basis for doing so. I infer that he took instructions from the Bankrupt and/or Antoun as to whether the Bankrupt had a beneficial interest in shares held by Antoun and it is more likely than not that he made the subject statement on the basis of instructions given to him by the Bankrupt and/or Antoun.
Each of the Bankrupt and/or Antoun had or might reasonably be supposed to have had personal knowledge of whether the Bankrupt was the beneficial owners of shares held by Antoun. In my view the requirements of s 69(2) of the Evidence Act are satisfied and the relevant statement is admissible as a business record.
I accept that Cavric said that it was his “initial response” and he was not cross-examined on his evidence that his statement was a mistake, but I do not consider it appropriate to limit the use of the evidence pursuant to s 136 of the Evidence Act. In my view:
(a)it is not to the point that Cavric did not hold a practising certificate. He was legally qualified and employed as the Practice Director by NSW Compensation Lawyers. He undertook legal work pursuant to the practising certificate(s) and under the supervision of the principal(s) of that firm. Nor do I accept that Cavric was just a conduit to Rumore. However, even if he was a conduit, he and Rumore were jointly engaged in negotiating and drafting complex commercial deeds and he is likely to have been careful when providing information at Rumore’s request;
(b)there is no merit in the respondents’ contention that without knowing the question Cavric was asked there is a real risk of unfairness to the respondents. It can only have been a question which concerned the legal or beneficial ownership of the shares in the Global business;
(c)there are grounds for treating Cavric’s disavowal of the statement with caution. As I later explain I found his evidence in his public examination that he did not act for the Bankrupt to be implausible; and
(d)the respondents knew the use that the Trustees proposed to make of Cavric’s statement. It was open to the respondents to call Cavric to clarify the evidence he gave in his public examination and they did not do so;
I consider the subject statement is admissible and its use should not be limited. However, taking account of the fact that it was Cavric’s “initial response” and paying some regard to his disavowal of the statement I give it reduced weight. The statement is just one strand in my conclusion that the Bankrupt had a beneficial interest in the shares in the Global companies. My conclusion would be the same whether or not the statement is admitted into evidence.
The Byrnes email
On 16 March 2014 Byrnes sent an email to his solicitor, Mr Alistair McKeough (“McKeough”) of Whittens Lawyers, which he copied to various other people including the solicitor for the Trustees. The email includes the statement:
The trustee as everyone else believes that Antoun was just a front for Alex and never put in any of his money.
The respondents contended that this statement is inadmissible on grounds of relevance and that it is in any event unreliable. They argued that what Byrnes thought is irrelevant and contended that it is not clear that the email expresses Byrnes’ own view of the matter rather than what he thought everyone else believes. They submitted that the evidence should not even be admitted as proof of Byrnes’ state of mind because that is not relevant or admissible as proof of the legal relations between the Bankrupt and Antoun. On their contentions even if the email did express Byrnes’ view (rather than what he thought the Trustees and “everyone else” believed) the probative value of the email as to the property rights of Antoun and the bankrupt is limited. They also contended that Byrnes was available to give evidence and it should have in fairness been put to him that the email expressed his belief.
In my view the subject statement is relevant and admissible. The passage to which the respondents objected must be seen in context. In the relevant passages of the email Byrnes said:
Mr Alex at that mediation in front of you and every other lawyer and myself and Russo said this is my company, I own it and you can’t show me where you paid me for it.
He made several similar comments and Antoun said this is our company and you have stolen it from us.
I later said to G Alex, “George even if we wanted to pay you, how would we because you’re a bankrupt”
GA “just pay Joe [Antoun] and he will pay me”.
When asked again he said pay Joe and we will work it out between us.
The trustee as everyone else believes that Antoun was just a front for Alex and never put in any of his money.
The respondents only objected to the final sentence.
In my view the respondents’ objection lacks real force because:
(a)while the relevant statement is somewhat ambiguous (in referring to what “the trustee as everyone else believes”) on a fair reading of the email overall the statement indicates Byrnes’ view that Antoun was just a “front” for the Bankrupt. That reading is consistent with the rest of the email and Byrnes’ other evidence to the same effect in his public examination;
(b)the probative value of Byrnes’ view is not as limited as the respondents said. Byrnes worked for the Bankrupt and Antoun on restructuring the Global business from about September 2011. In his public examination he said that he reconstructed the accounts of the business and arranged a forensic audit. He also said that, through a company he controlled, Construction Financial Management Pty Ltd (“Construction Financial Management”) he transferred $3.42 million to Antoun in the period March to October 2012 and that he acquired a one third interest in the business (of an unspecified nature). It is likely that he had a close understanding of the Global business including whether the Bankrupt held a beneficial interest in it and whether Antoun acted as the Bankrupt’s agent or trustee to assist in concealing the Bankrupt’s property (colloquially as a “front”); and
(c)whether Antoun acted as an agent, trustee or “front” for the Bankrupt is a central question in the proceeding and the statement is against Byrnes’ interests. Byrnes was on notice of the Trustees’ proposed use of the email and he put on no evidence to qualify or correct the subject statement. I do not accept that it was unfair of the Trustees not to require him to attend the cross examination to put to him that the email expressed his belief.
I consider the relevant statement is relevant and admissible as setting out Byrnes’ view that the Bankrupt had a proprietary interest in the Global business and used Antoun as a front man to conceal that interest. I do not treat it as admissible in setting out the views of other persons, including the Trustees. However, the statement has little probative value standing alone because Byrnes only states his own view, but when viewed with other evidence it is a minor strand of the evidence supporting the inferences I have drawn.
The admissibility of transcripts of the public examinations generally – the statutory context
The balance of the respondents’ objections to evidence relate to statements in the transcripts of evidence given in the public examinations.
Section 81(17) of the Act provides:
Notes taken down and signed by a person in pursuance of subsection (15), and the transcript of the evidence given at the examination of a person under this section:
(a)may be used in evidence in any proceedings under this Act whether or not the person is a party to the proceeding; and
(b)shall be open to inspection by the person, the relevant person, the trustee or a person who states in writing that he or she is a creditor without fee and by any other person on payment of the fee prescribed by the regulations.
(Emphasis added.)
The expression “proceedings under this Act” in s 81(17) encompasses any action seeking to take a step, or assert or establish an entitlement, provided by under the Act: Rothmore Farms Pty Ltd (in liquidation) v Belgravia Pty Ltd (1999) 31 ACSR 88; [1999] FCA 598 (“Rothmore Farms”) at [14] (Mansfield J). It is uncontentious that the present case is a proceeding under the Act.
Section 255 of the Act provides:
(1)A transcript or electronic or magnetic recording that purports to be a record of proceedings under section 77C or 81, or of proceedings before a court, is to be taken to be a record of that kind, unless the contrary is proved.
(2)The transcript or recording is admissible as evidence of the matters described by a person whose words are recorded in the transcript or recording, unless the Court, or a court in which the transcript is sought to be introduced, makes an order to the contrary.
….
(Emphasis added.)
The respondents contended that a transcript of a public examination under s 81 is prima facie hearsay (as an out of court representation) but accepted that it was made admissible by s 255. However, they argued that s 255 does not displace the rules of evidence as they apply to proceedings in this Court and that there is no reason to suppose that the effect of s 255 is to displace the restriction in the Evidence Act to the reception and use of only first-hand hearsay. They also submitted that if s 255 does allow second-hand or third-hand hearsay to be used as proof of the facts asserted then ss 135 and 136 of the Evidence Act should be brought to bear to ensure that remote hearsay is not admitted into evidence as proof of the truth of the fact asserted where neither the person who made the representations nor the person whose words they repeat are parties to the proceedings.
On the respondents’ submissions there is an important distinction between admissions made by the Bankrupt about what he or she did being admitted in proceedings against the Bankrupt and a third party, and the evidence of persons who are not parties to the proceeding of what other people said being admitted as evidence of proof of the truth of what those other people said. In this regard the respondents pointed to the warning about the unreliability of hearsay evidence by the High Court in Lee v R (1998) 195 CLR 594; [1998] HCA 60 at [32]; [34]-[35] (Gleeson CJ, Gummow, Kirby, Hayne and Callinan JJ).
I do not quibble with the High Court’s warning and there can be no question as to the danger associated with hearsay evidence. However, in the present case it must be kept in mind that the respondents’ objection to the admissibility of this evidence is made in the statutory context of evidence taken in a public examination by a trustee in bankruptcy.
The Full Court dealt with s 255 of the Act in Colonial Life Assurance Society Ltd v Donnelly (1998) 82 FCR 418; [1998] FCA 364 (“Colonial”) at 434 (Wilcox, O’Connor and Sackville JJ). As the Court explained:
…this provision was intended to make the transcript of evidence admissible as evidence not merely of the words spoken by the examinee, but of the matters described by the examinee in his or her evidence. If there were any doubts that this was the intended effect of the subsection, they are resolved by the Explanatory Memorandum accompanying the 1996 Bill. The Memorandum (par 182.2) states that the:
“provision is designed to overcome the common law rules excluding hearsay evidence, and to enable evidence given at examinations and recorded interviews to be put on the record in proceedings in a court without the need for witnesses to repeat their account of events.”
This does not mean that the contents of a transcript of a s 81 examination are automatically admissible in subsequent proceedings. First, s 255(2) itself provides that the court in which the transcript is sought to be introduced may make an order to the contrary. Secondly, s 255(2) must be read together with s 81(17). As we have said, s 81(17) is intended, in part, to impose a restriction on the use to which a s 81 transcript can be put in subsequent proceedings. Thus the apparently broad terms of s 255(2) must be qualified so as to make a s 81 transcript admissible (subject to the power of the court to make an order to the contrary) only in proceedings under the Bankruptcy Act to which the examinee is a party.
(Emphasis added.)
As the Explanatory Memorandum indicates, at that time s 81(17) of the Act provided that a transcript could only be used in evidence in proceedings under the Act in which the person whose evidence is sought to be adduced was a party to the proceeding: Colonial at 425. It is significant that there is no longer any restriction to the use of transcripts only to proceedings to which the examinee is a party. That is made clear by the current s 81(17)(b), into which the words “whether or not the person is a party” were inserted by the Bankruptcy Legislation Amendment (Anti-avoidance) Act2006 (Cth).
Section 255 is intended to overcome the significant difficulties that trustees in bankruptcy may have in proving matters in court proceedings. The present case is a good example of the difficulties that may arise: the Trustees are strangers to the business arrangements between the Bankrupt and Antoun; Antoun is dead; the Bankrupt has not cooperated with the Trustees; and the Bankrupt, Antoun and the respondents entered into deeds which mischaracterised the substance of the agreements. In my view McHugh, Byrnes and Russo cooperated with the Bankrupt’s attempts to conceal property from the Trustees and his creditors.
Section 81(17) of the Act, read together with s 255, provides that in proceedings under the Act a transcript of evidence of a public examination under s 81 “is admissible as evidence of the matters described by a person whose words are recorded”, subject to any order to the contrary by a court in which the transcript is sought to be introduced. A transcript is admissible, whether or not the examinee is a party to the proceeding, and against “all parties”: Rothmore Farms at [9].
The question is whether, and if so to what extent, ss 135 or136 of the Evidence Act may impinge on evidence made admissible by s 255 of the Bankruptcy Act. The parties made no submissions and I was taken to no authority as to the proper interaction of s 255 of the Act with ss 135 or 136 of the Evidence Act. In those circumstances I decline to decide the question. I proceed on the assumption that it is open to me to rely on ss 135 or 136 of the Evidence Act to exclude evidence otherwise admissible pursuant to s 255 and to limit the use of evidence admitted pursuant to s 255.
Byrnes’ evidence of statements by the Bankrupt at the mediation
The respondents objected to the admissibility of parts of the transcript of Byrnes’ public examination in which he gave evidence of statements made by the Bankrupt at the mediation in the Supreme Court proceeding. Byrnes testified that the Bankrupt:
(a)basically thumped the table and said:
This is my company and you guys have stolen my company. You’ve taken this – this is my business…
(b)and also said:
Well, you will just pay…Joe and we’ll sort it out between us.
…
You pay Joe and he will pay me.
The respondents argued that the transcript of what the Bankrupt said is hearsay, there is no evidence that the Bankrupt is unavailable under s 63 of the Evidence Act, and no basis to apply s 64 of that act. They contended that pursuant to s 136 of the Evidence Act the use of the evidence should be limited to proof of the words that were said by the Bankrupt, but not as proof of the facts (alleged) to be asserted. They submitted that Byrnes did not intend to assert the truth of what the Bankrupt said, and he had no knowledge of the matters that the Trustees seek to prove by the statements made by the Bankrupt. They also argued that even if Byrnes thought the Bankrupt was a beneficial owner of the shares, the statement is not capable of proving that to be true (especially absent evidence of why he thought that). On their submissions, the language purportedly used by the Bankrupt is consistent with a number of different legal relationships (including a contractual relationship) and the objective evidence does not support the Trustees’ case.
The respondents contended that the evidence is unreliable because Byrnes said in his first affidavit that the Bankrupt had referred to the Global business as “his” business since entering into a Deed of No Legal Interest in 2008 in which he declared that he had no legal interest in the business. They also pointed to McHugh’s evidence that, in June 2011, the Bankrupt said to him “Joe [Antoun] is going to invest in the business so that we can pay the tax and arrange new finance”. The respondents contended that the Bankrupt could not have had a legal or equitable interest in the shares before they were transferred to Antoun in October 2011.
I consider the relevant statements are hearsay, made admissible by s 255. I do not consider it appropriate to exclude the evidence or to limit its use in the way the respondents contended, essentially because:
(a)the statements are far from remote hearsay. They are direct evidence of what Byrnes saw and heard the Bankrupt say in the setting of a formal mediation in the Supreme Court proceeding;
(b)the statements are against Byrnes’ interests in this proceeding;
(c)Byrnes gave evidence on oath, and there is nothing to indicate that he gave false evidence. Indeed, the statements to which objection is made are consistent with his other evidence as to what took place at the mediation, including his 16 March 2014 email;
(d)the respondents put on no evidence to qualify or contradict Byrnes’ statements as to what the Bankrupt said, even though the other persons present at the mediation included the respondents’ solicitors and senior counsel; and
(e)whether the Bankrupt enjoyed beneficial ownership of some or all of the shares in the companies in the Global business is a central issue in the proceeding, as is whether Antoun acted as agent or trustee for the Bankrupt when he entered into the October Deed. Byrnes is a party and he was on notice of the use to which the Trustees proposed to put his earlier testimony yet he put on little evidence to qualify it. While in his first affidavit Byrnes (unconvincingly) tried to explain away the Bankrupt’s statements about ownership of the Global business, he did not otherwise contradict that evidence.
I do not accept the respondents’ contention that Byrnes had no knowledge of the matters that the Trustees sought to prove through this evidence. As I have said, Byrnes worked for the Bankrupt and Antoun on restructuring the Global business from about September 2011 and he reconstructed the accounts of the business and arranged a forensic audit. Through his company he transferred $3.42 million to Antoun in the period March to October 2012 and he said that he acquired a one third interest in the business (of an unspecified nature). It is likely that he had a close understanding of the Global business and a good understanding of whether the Bankrupt had beneficial ownership of the companies in the business and whether, and to what extent, the Bankrupt stood behind Antoun, using him as an agent, a trustee or a “front”.
I do not accept the respondents’ contention that the Bankrupt could not have had a legal or equitable interest in shares in the Global business before they were transferred to Antoun in October 2011. On my view of the evidence in about May 2011 McHugh agreed to dispose of his interest in the companies in the Global business to the Bankrupt. I accept that by October 2011 Antoun also had an interest in the companies in the business. The evidence tends to show that from about that point they had joint beneficial ownership, in equal shares.
Byrnes’ evidence of statements made by Antoun
The respondents also objected to the admissibility of the transcript of Byrnes’ evidence in his public examination in which he testified that in a meeting with Antoun to settle the Supreme Court proceeding, held in a café in the MLC Centre in Sydney in the period 16 October 2013 to 21 October 2013, Antoun said to Byrnes:
I will sort George out. I will pay George.
and that:
any payment would be…paid to him …and he would look after and he would pay George his half.
The respondents submitted that the evidence of what Antoun said is hearsay. They argued that pursuant to s 136 of the Evidence Act the use of the evidence should be limited to proof of the words that were said by Antoun and it should not be admitted as proof of the facts alleged to be asserted. They also contended that the language used by Antoun was consistent with a number of different legal relationships between Antoun and the Bankrupt (including a contractual relationship) and that the objective evidence does not support the Trustees’ case.
They also contended that the evidence assumes that Byrnes remembered the conversation accurately. For example, they argued that Antoun could have said “pay George half” rather than “pay George his half”. The respondents argued that even if Byrnes had accurately recalled the statement, Antoun was most likely referring to an agreement he had with the Bankrupt to pay him half of whatever he received from the respondents, rather than any trust relationship.
Finally, the respondents argued that the evidence is unreliable because McHugh gave evidence that:
(a)on 13 October 2011 Antoun demanded that he sign share transfers and said: “There are a lot of George’s debts which need to be fixed up. I need the shares signed over” and “Kevin you’ve got to sign [the share transfers]. I’m paying a lot of George’s debts and that is my security” ; and
(b)on 7 July 2013 Antoun sent him a text message which said “I paid for the company you have stolen”.
I consider that Byrnes’ evidence of Antoun’s statements is hearsay made admissible by s 255 of the Act. Section 59 of the Evidence Act does not apply, but if it did the evidence would be admissible pursuant to the exception in s 63 as Antoun is deceased.
I do not consider it appropriate to limit the use of the evidence, essentially because:
(a)the statements are direct evidence of what Byrnes saw and heard Antoun say, in the presence of a witness, while they were negotiating the settlement of Supreme Court proceedings;
(b)Byrnes gave evidence on oath and there is nothing to indicate that he gave false evidence. Indeed, the evidence is consistent with other evidence as to the nature of the relationship between the Bankrupt and Antoun, including Byrnes’ other evidence;
(c)the statements are against Byrnes’ interests in this case;
(d)whether Antoun acted as agent or trustee for the Bankrupt in relation the monies received pursuant to the October Deed are central issues in the proceeding. Byrnes is a party, and he was on notice of the use to which the Trustees proposed to use this testimony, yet he put on no evidence to qualify or contradict it. Byrnes sought (implausibly in my view) to explain away the Bankrupt’s statements about his ownership of the Global business. However, he put on no evidence to essentially contradict or qualify his testimony in his public examination that he told the other parties at the mediation of the Supreme Court proceedings that the case could be settled by the respondents paying monies to Antoun, or that he and Antoun would then sort it out between them, or that in their meeting at the MLC Centre Antoun told him that the Supreme Court proceeding could be resolved by the respondents paying Antoun, and that Antoun would pay the Bankrupt “his half”; and
(e)for the reasons I explain I do not accept the respondents’ contention that the evidence shows that McHugh disposed of his interest in the Global business to Antoun, rather than to the Bankrupt.
Byrnes’ other evidence
The respondents objected to the admissibility of the transcript of Byrnes’ evidence in which he said:
…in late 2013, George Alex approached Ned Cavric…with a view to protecting his interest on any payments that might have been paid in relation to any settlements between the parties and Mr Antoun.
In my view this objection is well made. The transcript shows that Byrnes expressed some uncertainty before he made this statement and he provided no explanation as to how he came to know the reason for the Bankrupt’s alleged approach to Cavric. For example, he did not say that he was told this by the Bankrupt, by Cavric or by somebody else. It is unclear whether it is first-hand, second-hand or even more remote hearsay. I also note that the statement that the Bankrupt approached Cavric in late 2013 is inconsistent with evidence in the public examinations which shows that Cavric acted for the Bankrupt in the period February to May 2013. It is appropriate to exclude this evidence under s 255(2) of the Act.
The respondents also objected to the admissibility of the transcript of Byrnes’ evidence in which he said that in an unidentified period after the execution of the October Deed on 22 October 2013:
Mr Alex has had various Sydney underworld figures approach me with a view to telling me that I have to pay.
Byrnes did not identify which alleged members of the Sydney underworld approached him, when they did so, what they said, or the basis for his belief that that they did so at the Bankrupt’s behest. In my view this evidence is unreliable, has limited relevance and little probative value. It is appropriate to exclude it under s 255(2).
Dona’s evidence of statements by the Bankrupt
The respondents objected to the admissibility of the transcript of the public examination of Noel Dona (“Dona”), a law clerk, who was friendly with and who had performed legal work for the Bankrupt. Dona testified that the Bankrupt told him (in about late 2012) that:
…he and Joe [Antoun] had an interest in a labour hire business in Queensland… And I said “What do you mean?” they said “Well, we’re getting some big money out of that. We’re selling our shares”. That was virtually the extent of it. I said “Whose shares?” and I didn’t get much details out of it.
And in relation to the labour hire business in Queensland:
I know that they’re being bought out.
The respondents submitted that this evidence should not be admitted because its probative value is substantially outweighed by the danger that it might be unfairly prejudicial to them. They argued that the evidence has little probative value and the language used by Dona as to what he remembered is an unreliable basis from which to infer that the Bankrupt had a proprietary interest in the Global business.
Dona’s evidence is hearsay made admissible by s 255 of the Act. It is direct evidence, given on oath, of what the Bankrupt said to him. There is no reason to think that he gave false evidence. Although only a minor strand, when viewed with the other evidence it is rationally probative of my conclusion that the Bankrupt had beneficial ownership of half of the companies in the Global business. I do not consider it appropriate to exclude the evidence.
The objection to tendency evidence
In opening submissions the Trustees relied on the transcripts of various public examinations to show that the Bankrupt used other people to “front” for him. They relied on the evidence of:
(a)Byrnes - that the Bankrupt used Mazen (aka “Mace”) Hourani (“Hourani”) as a front for him, and that “George is an undischarged bankrupt, and can’t be a director of any companies and he puts up a lot of people who aren’t very smart to be directors on his behalf”;
(b)Michael Cohen (“Cohen”) - that Hourani “is definitely a front for George”;
(c)Jimmy Kendrovski (“Kendrovski”) - that the Bankrupt “puts certain front men in to deal with certain matters”;
(d)Cohen - that he held one sixth of the shares in Elite Highrise Services Pty Ltd as a front for the bankrupt; and
(e)Athina Alex, the Bankrupt’s sister - from which the Trustees’ argued it should be inferred that she acted as a front for the Bankrupt in the Active companies.
The respondents flagged their objection to this evidence in the course of the opening of the Trustees’ case. They contended that it is tendency evidence, they had not been served with notice under s 97 of the Evidence Act, and that the unreliability of the evidence was exacerbated by the fact that the Trustees were able to rely on hearsay evidence pursuant to s 255 of the Bankruptcy Act. They argued that the Trustees must call the relevant witnesses, and submitted that an order should not be made to dispense with notice pursuant to s 100 of the Evidence Act.
The respondents’ objection was put over for submissions to be made the following day by both sides, but the following day the objection was not further argued. Then, in written submissions after the close of the case the respondents put on detailed objections to evidence. They did not, however, detail any objection to this evidence. I was left unclear as to the whether the respondents maintained their objection to this evidence but I proceed on the assumption that they do.
By operation of s 255(2) of the Act, unless an order is made to the contrary, the transcripts are admissible as evidence of the matters described by the person examined. At the core of the respondents’ objection is the proposition that s 97 of the Evidence Act may operate to exclude evidence otherwise admissible pursuant to s 255 of the Bankruptcy Act. The parties did not take me to any authority or make any submissions in this regard, and in the circumstances it is inappropriate to decide the issue. I proceed on the assumption that s 97 applies. Even if it does not strictly apply s 97 reflects well accepted principles and it is a useful guide in the exercise of my discretion to exclude evidence pursuant to s 255(2).
Section 97 provides that tendency evidence shall not be adduced unless the party seeking to adduce the evidence provides reasonable notice in writing, and the court considers that the evidence will have significant probative value, either by itself or having regard to other evidence adduced. Section 100 of the Evidence Act allows the Court to prospectively or retrospectively dispense with the requirement for notice.
I consider the respondents had sufficient notice that the Trustees intended to rely on this evidence. Whether the Bankrupt used Antoun as a trustee, agent or “front”, so as to conceal his interest in the Global business and under the March Deeds and October Deed from the Trustees, are central issues in the case, and the relevant transcripts were exhibited to the second Rambaldi affidavit.
I can see little substance to the respondents’ contention that they were denied the opportunity of cross-examining these witnesses. It is quite unlikely that they would have done so having regard to the defence they ran, and the fact that Byrnes put on nothing to qualify or contradict his earlier testimony in this regard. It is particularly unlikely that the respondents would have cross-examined Cohen when he provided first-hand sworn testimony from his personal knowledge that notwithstanding ASIC records to the contrary the Bankrupt and Antoun each had a one sixth beneficial interest in the company.
However, it is appropriate to exercise my discretion under s 255 to exclude the relevant parts of the transcripts of Athina Alex’s evidence, Cohen’s evidence in relation to Hourani and Kendrovski’s evidence. Although Ms Alex displayed a gross lack of knowledge in regard to the various companies in which she had been a director the Trustees did not take the Court to any specific parts of her evidence to support the inference they sought. Kendrovski and Cohen did not explain the basis of their beliefs and Kendrovski’s evidence is vague. In my view this evidence has little probative value.
The evidence of settlement negotiations
The Trustees accepted that Byrnes’ evidence regarding the Bankrupt’s statements at the mediation and his evidence regarding Antoun’s statements in the meeting at the MLC Centre are evidence of settlement communications pursuant to s 131(1) of the Evidence Act. This provision prohibits adducing evidence of communications between people in a dispute in connection with an attempt to negotiate a settlement of the dispute.
Section 131(2) of the Evidence Act provides the following relevant exceptions to the prohibition on adducing evidence of settlement communications:
(2)Subsection (1) does not apply if:
…
(f)the proceeding in which it is sought to adduce the evidence is a proceeding to enforce an agreement between the persons in dispute to settle the dispute, or a proceeding in which the making of such an agreement is in issue;
…
(i)making the communication, or preparing the document, affects a right of a person;
(j)the communication was made, or the document was prepared, in furtherance of the commission of a fraud or an offence or the commission of an act that renders a person liable to a civil penalty;
Section 263(1) of the Bankruptcy Act sets out various offences in relation to defrauding creditors of a bankrupt, concealing the property of a bankrupt, receiving the property of a bankrupt with intent to defraud creditors or assisting a bankrupt to do so.
In my view the evidence of settlement negotiations falls within the exceptions in subs 131(2)(f) and (i). In respect of s 131(2)(j), for the purposes of these proceedings, I am satisfied that the Bankrupt’s statement was made as part of an attempt to conceal from the Trustees that he was to be paid substantial monies for his interest in the Global business. In my view the evidence is admissible.
THE FACTS
In setting out the facts I set out my view of the evidence. I have largely drawn the facts from the first McHugh affidavit, the evidence given and documents produced in the public examinations, and submissions titled “Costs Applicant’s Narrative and Submissions” made on McHugh’s behalf in the Supreme Court proceeding (“the costs submissions”). I infer that the costs submissions were approved by Byrnes as the evidence shows that he instigated and funded the Supreme Court proceeding. The Trustees relied on the costs submissions and the respondents did not suggest they were incorrect.
Although the trial was short, the documentary evidence is voluminous. The documents exhibited to the Rambaldi affidavits comprise six lever arch binders. I was taken to comparatively few of these documents but it was unfortunately necessary to look beyond the materials to which I was directed. The Court should not be required to pick through such voluminous materials and often irrelevant materials in search of pearls of relevance.
Alex’s bankruptcy
There is no issue that the Bankrupt’s bankruptcy predates the relevant events.
It is common ground that on 8 December 2008 the Deputy Commissioner of Taxation obtained judgment against the Bankrupt for $179,652.93 and that on 20 July 2009 the Bankrupt committed an act of bankruptcy. On 19 April 2011 a sequestration order was made against the estate of the Bankrupt. Mr Mark Roufeil was initially appointed trustee of the bankrupt estate and the Trustees were appointed in his place on 10 April 2013.
The act of bankruptcy was committed within six months before the date of presentation of the creditor’s petition, and by operation of s 115 of the Act the bankruptcy is taken to have relation back to, and to have commenced, on 20 July 2009. The relevant events all take place after the date of commencement of Alex’s bankruptcy.
The Global business
The evidence is that McHugh has worked in the labour hire industry in Queensland for some 30 years and from about 1995 he operated a labour hire business in Queensland as a manager and then part-owner, supplying contract skilled and unskilled labour in the construction and mining industries.
That business was, in commercial if not legal terms, the predecessor to the Global business. I use the description “the Global business” to refer to the labour hire business that is the central in the proceeding, notwithstanding that the business had different owners and was run through different companies over the years.
In the relevant period the Global business comprised:
(a)the three Operating Companies, Civil Pacific Services Group, Global HR Group and Global Civils Group;
(b)the Parent Company, Global Human Resources Group, which held the shares in the Operating Companies; and
(c)GHR No 3, which held the shares in the Parent Company.
Shortly before the trial, on 7 March 2014, Russo and McHugh registered GHR Custodian. On 11 March 2014 Global Human Resources Group transferred all of the shares it held in the Operating Companies to GHR Custodian, and it became the New Parent Company. Russo was the sole director of Global Human Resources Group at the time.
As at May 2013 the business employed between 100 and 200 full-time and part-time employees.
It is uncontentious that:
(a)from about 1995 Mr Michael Stefanovski (“Stefanovski”) was the owner of the labour hire business, which operated under the name of All Trades Pty Ltd and then under the business name Workforce One. McHugh managed the business;
(b)in 2001 Stefanovski sold the business to Mr Michael Byrne (“Byrne”) for $3.2 million. McHugh continued to manage the business;
(c)in 2005 Byrne sold the labour hire business to Zenith Workforce Pty Ltd (“Zenith”) for $3 million, the sole shareholder of which was Mr Dennis Xenos (“Xenos”). Zenith was backed by a small group of investors which included, amongst others, the Bankrupt, Xenos and the well-known former boxer Mr Jeff Fenech (“Fenech”). McHugh continued to manage the business;
(d)in about May 2006 McHugh caused Civil Pacific (Qld) Pty Ltd (“Civil Pacific Qld”), a company which he controlled, to license the Global business from Zenith;
(e)in about late 2007, a dispute arose between the investors in Zenith. At around the same time McHugh concluded that the licence fee was too high for him to generate an operating profit and he informed Xenos that he would not continue to operate the business under the licence agreement;
(f)in late 2007/early 2008 McHugh reached an agreement for Stefanovski and Mr Gary Samuel to invest in the Global business pursuant to which Stefanovski would contribute the necessary monies and McHugh would manage the business. In February 2008 Zenith agreed to transfer the Global business to McHugh, Stefanovski and Samuel for $500,000. Those monies were paid to Fenech. The gist of Byrnes’ evidence was that the Bankrupt was aggrieved by the fact that he was not paid any of those monies. That may or may not be so. In my view it is unnecessary to decide.
(g)The Bankrupt (and each of the other Zenith investors) executed a “Deed of Recognition of No Legal Interest and Release” dated 26 February 2008 (“Deed of No Legal Interest”), in which he declared that he had no legal or equitable interest in the business and providing a broad release and discharge from all claims or demands which he may have had against the companies conducting the Global business;
(h)from February 2008 until May 2011 McHugh was the day-to-day manager of the Global business, Stefanovski was responsible for arranging finance to support the business and Samuel was responsible for the preparation of accounts and the provision of accounting advice. In this period the business expanded by commencing to also provide labour hire in the mining industry.
The Bankrupt acquires the Global business in May 2011
The costs submissions filed on McHugh’s behalf state:
[McHugh] has for many years operated a labour force hire business in Queensland and New South Wales. In about 2005, and up until 2008, George Alex became and was an investor in the business. In about mid 2011 George Alex reinserted himself into [McHugh’s] business and shortly thereafter introduced the first defendant Joseph Antoun into the business. The manner and circumstances in which George Alex became re-involved and Joseph Antoun became involved in [McHugh’s] business were matters of dispute in the proceedings.
The respondents advanced various arguments in opposition to these contentions, but it is unnecessary to go to them. I accept that there is a contradiction between the position taken by Byrnes, Russo and their associated Global companies in the Supreme Court proceeding in opposing the Trustees’ application to set aside the 22 October 2013 Orders, and the position which the respondents took before me. However, I do not consider the Trustees can obtain the relief they seek.
In my view the Bankrupt was not permitted to provide consent to the 22 October 2013 Orders as they dealt with his rights to property under the March Deeds and those rights had vested in the Trustees. In my view senior counsel’s statements were essentially incorrect and, in my respectful view, his Honour was wrong in relying upon them. In practical terms the Trustees had lost substantive rights through the 22 October 2013 Orders. Had the March Deeds not been declared void, the Trustees would have had an entitlement to enforce the Bankrupt’s rights to the $6.2 million and to rely on the PPSR security. They lost those rights upon the making of the declarations and orders.
However, any grant of relief under the March Deeds would be directly contrary to judicial orders of a superior court of record. Those orders stand and are to be observed until set aside, even if it is authoritatively determined that the orders should not have been made or were without jurisdiction: Meriton Apartments Pty Ltd & Anor v Industrial Court of New South Wales & Anor (2008) 171 FCR 380; [2008] FCAFC 172 (“Meriton”) at [30] (Branson J); Siminton v Australian Prudential Regulation Authority (2006) 152 FCR 129; [2006] FCAFC 118 at [27]-[30] (North, Goldberg and Weinberg JJ). The effect of the relief the Trustees seek is to avoid the operation of the 22 October 2013 Orders and in my view that should not be permitted. Amongst other things, I would not allow it as “a matter of common sense, practical convenience and federal comity”: see Meriton at [31], citing Jarrett v Seymour (1993) 46 FCR 521 at 554. The power to supervise the Supreme Court of New South Wales is to be exercised by that State’s Court of Appeal and the High Court, and the appropriate course for the Trustees was to appeal the orders. In my view the Trustees’ collateral attack on the orders cannot be permitted. If they want the orders set aside they must appeal them.
The interdependency argument
In passing I note an issue between the parties based in the interdependency of the March Deeds.
There is no question that the March Deeds were interdependent. Clause 5 of the Settlement Deed provided:
The Defamation Agreement, the Share Transfer Agreement and this document are all interdependent.
If any of the Share Transfer Agreement, the Defamation Agreement or this document are rescinded, terminated or come to an end for any reason whatsoever, then the others shall similarly be rescinded, terminated or come to an end.
This clause was matched by corresponding provisions in the other deeds.
The Trustees contended that in order to terminate the Settlement Deed all parties needed to agree to do so. They argued that the termination of the Settlement Deed depended on the Bankrupt’s consent to the 22 October 2013 Orders (through Ms Subeska). They said, and I accept, that the Bankrupt was not permitted to consent because his rights under the March Deeds had vested in the Trustees.
In response the respondents contended that the interdependency of the March Deeds meant that it was unnecessary for the Bankrupt to consent to their termination. They submitted that Antoun and Global Human Resources Group, who were the only parties to the Share Transfer Deed, could rescind or terminate that deed and by operation of cl 5 of the Settlement Deed the other deeds were then automatically rescinded or terminated. I accept this. There is, however, no direct evidence that Antoun and Global Human Resources Group did so agree.
From their consent to the 22 October 2013 Orders it would be open to infer that Antoun and Global Human Resources Group agreed to rescind the Share Transfer Deed but there is no evidence that they did so. In the finish, the 22 October 2013 Orders were made and the orders are valid unless or until they are set aside on an appeal.
I do not accept the Trustees’ various contentions, which in my view constitute an impermissible attack on the validity of the 22 October 2013 Orders.
K THE CLAIMS FOR SET-OFF
It is convenient to now deal with the respondents’ claims for set-off. The respondents contended that if the consideration payable under the October Deed is found to be payable to the Trustees the respondents are entitled to set-off against that amount:
(a)the sum of $1,500,000 paid pursuant to the March Deeds; and
(b)the sum of $3,421,810 “advanced” to Antoun by Byrnes, said to be “Payments” pursuant to clause 13(iv) of the Settlement Deed (in the March Deeds),
being a total of $4,921,810.
The Trustees denied that any set-off was applicable. The relevant statutory provisions are as follows. Section 86 of the Act provides:
(1)Subject to this section, where there have been mutual credits, mutual debts or other mutual dealings between a person who has become a bankrupt and a person claiming to prove a debt in the bankruptcy:
(a) an account shall be taken of what is due from the one party to the other in respect of those mutual dealings;
(b)the sum due from the one party shall be set off against any sum due from the other party; and
(c)only the balance of the account may be claimed in the bankruptcy, or is payable to the trustee in the bankruptcy, as the case may be.
(2)A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the person who has become a bankrupt or at the time of receiving credit from that person, he or she had notice of an available act of bankruptcy committed by that person.
Section 126 of the Act provides:
Dealings with undischarged bankrupt in respect of after-acquired property
(1)A transaction by a bankrupt with a person dealing with him or her in good faith and for valuable consideration in respect of property acquired by the bankrupt on or after the day on which he or she became a bankrupt is, if completed before any intervention by the trustee, valid against the trustee, and any estate or interest in that property which, by virtue of this Act, is vested in the trustee shall determine and pass in such manner and to such extent as is necessary for giving effect to the transaction.
…
Under the Act, a set-off is not available unless the claims sought to be set-off are “mutual and due in the same right”: Re Anderson; Ex parte Alexander (1927) 27 SR (NSW) 296; James v Abrahams (1981) 51 FLR 16; [1981] FCA 49 at 27 (Fisher J). The requirement that the two claims be “in the same right” is directed to the capacities in which the respective claimants make their claim: Baker v Perpetual Trustee Company Limited [2012] FCA 553 (Katzmann J) at [89] and the cases there cited.
In broad terms the Trustees contended, and I accept, that:
(a)section 86 of the Act has no application as the relevant transactions all took place after the commencement of the bankruptcy;
(b)the respondents did not rely on s 126 of the Act and, in any event, an order under that section would be unavailable. I assume the Trustees did so on the basis that they contended that the respondents could not establish the necessary element of good faith; and
(c)set-off at common law or in equity was not applicable in any case, including because of the vesting provisions of the Act.
The $1,500,000 paid pursuant to the March Deeds
I deal first with the claimed set-off relating to $1.5 million paid by the March Deed Payers in March 2013 pursuant to the March Deeds. In my view there is no merit to the claim.
I say this, first, because the October Deed was a fresh settlement of the Supreme Court proceeding about the ownership of the Global business following the collapse of the settlement embodied in the March Deeds. There is nothing in the terms of the October Deed to indicate that payments made by the March Deed Payers (in effect the respondents) under the March Deeds were to be taken into account in satisfaction of the respondents’ obligations under the October Deed. While the October Deed is silent in that respect, it is appropriate to infer from its timing and its contents that it was entered into taking account of the payments made under the March Deeds. At least in part, the lower amount the respondents paid for the transfer of the Global business under the October Deed is likely to reflect the $1.5 million they had earlier paid.
Second, the March Deeds provided that the consideration payable under the deeds would first be paid to Antoun in satisfaction of $5.65 million to be paid to him pursuant to the Share Transfer Agreement. It was only after all monies payable under the Share Transfer Agreement had been fully paid to Antoun that the Bankrupt was to be paid $6.2 million under the Defamation Deed. I infer that $1.5 million paid by the respondents was paid to Antoun rather than to the Bankrupt, and it would be inappropriate to set off that amount against monies due to the Trustees.
Third, I accept the Trustees’ contention that s 86 of the Act does not apply because the respondents’ payment of $1.5 million occurred after the Bankrupt’s bankruptcy commenced. Even if that provision did apply I would not be persuaded that any amount paid to the Bankrupt pursuant to the March Deeds is mutual and due in the same right as the Trustees’ entitlement in respect to the Bankrupt’s rights through the October Deed.
The claimed set-off of monies transferred to Antoun
Next I deal with claimed set-off of $3,421,810 paid by Construction Financial Management to Antoun between March and October 2012. In support of this claim the respondents relied on Byrnes’ unchallenged evidence in his second affidavit that:
Between about March 2012 and October 2012, I caused funds to be transferred from Construction Financial Management Pty Ltd to Joseph Antoun totalling approximately $3,421,810.79. These are the “Payments” referred to in clause 13(a)(iv) of the Deed of Settlement and Release dated 11 March 2013.
Byrnes annexed to his affidavit Westpac Bank account statements for “Construction Financial Management Pty Ltd Custodial Account 1”, which show a series of credits into that account in the period nominated which total more than the set-off claimed. The account statements also show approximately 130 withdrawals by cash and by bank cheque by an unnamed person or persons at about six branches in New South Wales, in various amounts ranging between $255 and $140,000. Byrnes provided no explanation as to who withdrew the monies.
The release to which Byrnes referred in cl. 13 of the Settlement Deed states:
Releases
(a)Subject to the rights and obligations contained in this document, each of the parties hereby releases and discharges and forever holds harmless each other on and from any and all rights, demands, Claims, or other entitlements of whatsoever kind, whether in law or in equity whether present or future arising out of or in relation to or in connection with (whether directly or indirectly):
(i) the Disputes
(ii) the Companies
(iii) the Businesses, and
(iv) the Payments.
…
(c)Each party may assert and plead the releases contained in the clauses above as a complete defence and bar to any claim, demand or asserted right in respect of any matter which forms the subject matter of the release or releases.
(d)for the avoidance of any doubt, the parties acknowledge and agree that the releases and discharges set out above, do not release or discharge any of the parties from complying with their respective obligations created by the terms of this document.
(Emphasis added.)
The Settlement Deed provided a broad definition of “Payments” as follows:
funds advanced or loaned or provided by CFM [Construction Financial Management], Byrnes or any Related Body Corporate of CFM or any person or corporation related to or associated with Byrnes on any basis whatsoever to the Parent Company, the Companies, Active, Alex and/or Antoun.
(Emphasis added.)
It was for the respondents to make out their claimed set-off, which is for a substantial sum. The sufficiency of the evidence on which they rely must be weighed having regard to the substantial quantum of their claim.
In my view the respondents did not establish the set-off they claimed. I say this, first, because the October Deed is an agreement to settle the Supreme Court proceeding about ownership of the Global business, and there is nothing in the terms of the deed to indicate that payments earlier made by Construction Financial Management were to be taken into account in satisfaction of the October Deed Payers’ obligations. It is more likely than not that the settlement in the October Deed was reached taking account of the earlier payments. I see it as inherently unlikely that under the deed Antoun (with the Bankrupt’s agreement) agreed to transfer the Global business to the respondents for $5 million, while remaining liable to a claim by the respondents for $3.42 million in connection with the amounts paid to Antoun earlier.
The release in cl. 13 of the March Deeds provides that the respondents expressly released and discharged the Bankrupt and Antoun from:
…any and all rights, demands, Claims or other entitlements of whatsoever kind, whether in law or in equity whether present or future arising out of or in relation to or in connection with (whether directly or indirectly)…the Payments.
“Payments” was defined to include payments made by Construction Financial Management to the Bankrupt and/or Antoun. Under this release the respondents gave up any right they had to claim a set-off in relation to the monies loaned, advanced or provided by Construction Financial Management. Although there was no such release in the October Deed, this also points to the inherent unlikelihood that, under the October Deed, Antoun (with the Bankrupt’s agreement) would have agreed to transfer the Global business to the respondents for $5 million while remaining liable to a $3.42 million set-off claim by the respondents.
Second, even though the proper characterisation of the $3.42 million said to have been transferred to Antoun by Construction Financial Management is significant to the claimed set-off, Byrnes said nothing to explain the nature or purpose of those transfers. The proper characterisation of the funds paid is important in deciding whether a set-off applies, and it is insufficient that Byrnes only said, in effect, that those funds were “advanced or loaned or provided” and adduced no evidence of any underpinning agreement.
If for example the respondents asserted the money was loaned I would expect such evidence to have included material going to any loan repayments that had been made and/or whether (and if so to what extent) the respondents had recouped the loan including through ‘self-help’ after the business was transferred to them in October 2013. Byrnes did not do so and he did not explain the various withdrawals, some parts of which may well have reverted to him or the other respondents by some route. If the respondents asserted that the monies were advanced on some other commercial basis then I would expect the evidence to include material establishing that basis, and evidence as to whether (and if so to what extent) those moneys had been recouped. Absent such evidence the Court is not in a position to allow the set-off claims.
Byrnes’ failure to provide a complete picture to the Court supports the inference that the alleged transfer of $3.42 million to Antoun gives rise to more complex issues in relation to the claimed set-off than he was prepared to disclose.
Byrnes’ evidence in his public examination was that he paid those monies to the Bankrupt and Antoun in order to obtain a one third interest in the Global business, but he put no reliance on that evidence before me. He did not depose that he had caused those monies to be paid in order to acquire such an interest and he said nothing other than that the monies had been transferred and (by reference to the March Deeds) that they had been “advanced or loaned or provided”. It is unnecessary to decide, but even if I accept that Byrnes paid those monies to acquire a one third interest in the business there is no evidence as to the terms upon which he paid the monies or the nature of the interest he acquired. In my view the evidence is insufficient to establish that it is appropriate to set-off those amounts against the Trustees’ claim.
Third, the evidence does not establish that $3.42 million that Byrnes caused to be transferred to Antoun between March and October 2012 (or some of it) was for the benefit of the Bankrupt, such that it was appropriate to be set-off against the Trustees’ entitlement in right of the Bankrupt. The thrust of the respondents’ case was that Antoun owned the companies in the Global business (not the Bankrupt) and Byrnes said the transfer was made to Antoun. He did not say that the Bankrupt received or took the benefit of those monies.
Fourth, Construction Financial Management is not a party to the proceeding, and it was not one of the October Deed Payers. The Trustees submitted that, if the evidence established a set-off, the person obliged to satisfy the set-off would be Antoun’s estate or the Bankrupt but on no view the Trustees. They argued that there could be no claim against the Trustees because they did not incur the relevant obligation to Construction Financial Management. I am not satisfied that the claimed set-off is mutual and in the same right as the Trustees’ entitlement to monies payable to the Bankrupt. While a set-off might be open against Antoun’s estate the respondents did not make such a claim.
In the finish I am not persuaded that there is any amount to be set-off against the Trustees’ claim.
The respondents did not plead or argue for an equitable set-off, but for completeness I note that such a claim would have failed on the evidence. In HP Mercantile Pty Ltd v Dierickx (2013) 306 ALR 53; [2013] NSWCA 479 Emmett JA (Beazley P and Meagher JA concurring) said (at [136]), referring to the decision of Gummow J in James v Commonwealth Bank of Australia (1992) 37 FCR 445; [1992] FCA 617:
For there to be an equitable set-off, the set-off must essentially be bound up with and go to the root of, challenge, call in question, or impeach the title of the claimant. Equitable set-off is available where the party seeking it can show a recognised equitable ground for being, to the relevant extent, protected from its adversary’s demand. The mere existence of a cross-claim is not sufficient. There must be some ground for equitable intervention beyond the mere existence of a cross-claim, such that it can be said that the equity of the defendant impeaches the claimant’s title to the legal demand being enforced.
That passage was cited by Barrett JA in Hawes v Dean [2014] NSWCA 380 at [63]. At [74] his Honour stated the view that:
While equity will sometimes countenance set-off otherwise than between the same parties, some particularly compelling factor making reliance on separate rights unconscionable must be found to justify set-off in circumstances of glaring lack of mutuality.
For the reasons I have already set out there is insufficient evidence to establish a claim of equitable set-off. However, if that view is put to one side, the lack of mutuality between Construction Financial Management’s transfer to Antoun on the one hand and the Trustees’ entitlement in right of the Bankrupt against the October Deed Payers on the other, the respondents have not pointed to any compelling factor that makes it unconscionable for the Trustees to rely on their separate right.
The amounts paid pursuant to the October Deed
The respondents did not seek a set-off of the amounts totalling $1.35 million they paid under the October Deed and (as I explain at [254]-[262]) apart from an amount of $105,000 paid to City Nominees there is no evidence that any of these payments went to the benefit of the Bankrupt.
L CONCLUSION
I have made orders that the second to eighth respondents:
(a)within 21 days, transfer to the Trustees half (in number and value) of the shares held by:
(i)AR & KH Pty Ltd in GHR Custodian; and
(ii)GHR Custodian in Civil Pacific Services Group and Global Civils Group;
(“the identified shares”);
For the reasons I explained I have not made an order for the transfer of shares previously held by GHR Custodian in Global HR Group;
(b)be restrained from transferring, selling, encumbering or otherwise dealing with any shares held by AR & KH Pty Ltd in GHR Custodian or by GHR Custodian in Civil Pacific Services Group and Global Civils Group until they have transferred the identified shares to the Trustees;
(c)within 21 days, pay the Trustees $2.395 million (plus interest to be calculated) in respect to the Bankrupt’s rights under the October Deed.
I am concerned that there may be some double recovery by the Trustees as the relief ordered includes half (in number and value) of the shares in the Operating Companies as well as payment of $2.395 million under the October Deed. I say this because, although the Bankrupt’s beneficial ownership of half of the shares in the companies in the Global business vested in the Trustees, in my view the Bankrupt’s rights to payment through the October Deed were based in a promise to abandon his claims to ownership and transfer his beneficial interest in the Global business to the October Deed Payers. The Trustees’ submissions were not clear as to whether they intended to elect between these remedies, whether they were in the alternative, or whether they were cumulative. I will hear submissions from the parties in this regard and vary the orders or make further orders as appropriate. The parties must file written submissions in this regard within 14 days, and any submissions in response within seven days thereafter.
I am satisfied that the payments to be made to the Bankrupt under the Defamation Deed were not in respect to any defamation of him, and were payments for the transfer of his beneficial interest in the Global business. However, because the March Deeds are void and unenforceable by operation of the 22 October 2013 Orders, I can presently see no utility in a declaration in that regard. Nor can I see any utility in a declaration that the JA Investments Trust did not come into effect. If the Trustees seek such declarations they must file written submissions in this regard within 14 days, and the respondents must file any submissions in response within seven days thereafter.
I grant leave generally to the Trustees and the second to eighth respondents to file submissions seeking variation of the present orders or orders further to those made within 14 days, and any submissions in response within seven days thereafter.
I am aware of no reason why costs should not follow the event, and I presently propose to order that the second to eighth respondents pay the Trustees’ costs of and incidental to the proceeding. I will allow the respondents 14 days to put on submissions if they oppose that course and I will allow the Trustees seven days thereafter to put on submissions in response.
I certify that the preceding four hundred and seventy-four (474) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Murphy.
Associate:
Dated: 22 August 2016
SCHEDULE OF PARTIES
VID 193 of 2014 Respondents
Fourth Respondent:
GLOBAL CIVILS GROUP (NSW) PTY LTD
Fifth Respondent:
GHR CUSTODIAN PTY LTD
Sixth Respondent:
JAMES WARREN BYRNES
Seventh Respondent:
KEVIN JOHN MCHUGH
Eighth Respondent:
ANGELO PHILIP RUSSO
Ninth Respondent:
NSW TRUSTEE AND GUARDIAN
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