Re Lawrence Waterhouse Pty Ltd (in liq) - [2011] NSWSC 964

Supreme Court

New South Wales

Medium Neutral Citation: In the matter of Lawrence Waterhouse Pty Ltd (in liq) - Shaw v Minsden Pty Ltd [2011] NSWSC 964
Hearing dates: 13, 17-20 May 2011
Decision date: 24 August 2011
Jurisdiction: Equity Division - Corporations List
Before: Ward J
Decision:
First defendant holds land subject to a charge in favour of the second plaintiff for indemnification of costs incurred by the latter as trustee for the second defendant. Deed of Charge set aside as having been granted with intention to defraud creditor(s). Finding that second defendant breached statutory duty as director of second plaintiff in having failed to put in place proper means to keep proper books and records of intercompany loans.

Catchwords: CORPORATIONS - whether transfer of land and/or creation of charge over land is/are insolvent transaction(s) pursuant to s 588FC of the Corporations Act 2001 (Cth) or unreasonable director-related transaction(s) pursuant to s 588FDA (and, in either case, voidable pursuant to s 588FE) - in the alternative, whether transfer and/or creation of charge is/are alienation(s) of land with intent to defraud a creditor pursuant to s 37A of the Conveyancing Act 1919 (NSW) - CONTRACTS - whether rights and equitable interest arising under transfer have been abandoned - TRUSTS - whether transferee (Minsden) holds land and/or charge on constructive trust for transferor (Lawrence Waterhouse) - whether Lawrence Waterhouse held land as trustee for its director (Wayne Lawrence) and, if so, whether Lawrence Waterhouse is entitled to indemnification - whether, if transfer void or set aside, land is held on constructive trust for Wayne Lawrence and subject to an equitable charge in his favour - HELD - abandonment not established - Lawrence Waterhouse held land as trustee for Wayne Lawrence at time of transfer - Lawrence Waterhouse entitled to indemnification and to trace land into hands of Minsden for that purpose - charge set aside as unreasonable director-related transaction and alienation of property with intent to defraud creditor - CORPORATIONS - whether Lawrence Waterhouse has kept proper books and records for purposes of s 286 of the Corporations Act - if not, whether presumption of insolvency has been rebutted - whether Wayne Lawrence has breached any civil penalty provisions and exculpatory relief should be granted - HELD - failure to keep proper books and records - presumption of insolvency rebutted up to date of withdrawal of support by Wayne Lawrence - breach of statutory duty established - exculpatory relief not granted so as to absolve director from obligation to account for any loss sustained through breach of that duty
Legislation Cited: Conveyancing Act 1919 (NSW)
Corporations Act 2001 (Cth)
Duties Act 1997 (NSW)
Legal Profession Act 2004 (NSW)
Uniform Civil Procedures Rules 2005 (NSW)
Cases Cited: Arena Management Pty Ltd (Admin App) (Rec and Mgrs App) and Anor v Campbell Street Theatre Pty Ltd [2010] NSWSC 957
Australian Securities and Investments Commission v ABC Fund Managers Ltd [2001] VSC 383; (2001) 39 ACSR 443
Australian Securities and Investments Commission v Healey [2011] FCA 717
Australian Securities Commission v Fairlie (1993) 11 ACLC 669
Barton v DCT (1974) 131 CLR 370
Black Uhlans v New South Wales Crimes Commission [2002] NSWSC 1060; (2002) 12 BPR 22,421
Brooks v Heritage Hotel Adelaide Pty Ltd (1996) 20 ACSR 61
Calverley v Green (1984) 155 CLR 242
Cannane v J Cannane Pty Ltd (in liq) (1998) 192 CLR 557; 153 ALR 163
Chief Commissioner of Stamp Duties v Buckle (1998) 72 ALJR 243
Claremont Petroleum v Cummings & Anor (1992) 110 ALR 239
Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115
Commonwealth of Australia v McLean (1996) 41 NSWLR 389
Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438; 16 ACSR 607; 13 ACLC 614
Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535; 15 ACLC 1716
Dowse v Gorton [1891] AC 190
DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; 19 ALR 223
Fitzgerald v Masters (1956) 95 CLR 420
Grossman v E Katz Manufacturing Jewellers (ACT) Pty Ltd [2004] NSWSC 1224
Intergraph Public Safety Pty Ltd v Tess Lawrence Media Services Pty Ltd (1996) 19 ACSR 523; 14 ACLC 1234
Jones v Dunkel (1959) 101 CLR 298
Kenna & Brown Pty Ltd v Kenna [1999] NSWSC 533; (1999) 32 ACSR 430
Lam Soon Australia Pty Ltd v Molit (No 55) (1996) 70 FCR 34
Lawrence Waterhouse Pty Ltd v Port Stephens Council [2008] NSWCA 235
Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344; (2008) 74 NSWLR 550
Levi v Guerlini (1997) 24 ACSR 159; 15 ACLC 913
Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran [2005] NSWCA 243; (2005) 54 ACSR 410
Lewis v Doran [2004] NSWSC 608; (2004) 50 ACSR 175
Lo v Nielsen [2008] NSWSC 407; (2008) 26 ACLC 497
Longtom Pty Ltd v Oberon SC (1996) 7 BPR 14,799
Love v ASC [2000] WASCA 404; (2000) 36 ACSR 363
Maguire v Makaronis (1997) 188 CLR 449
Manning v Cory [1974] WAR 60; (1974) CLC 40-140
McDonald v Hanselmann (1998) 144 FLR 463
Mulkana Corporation Pty Limited (in liq) v Bank of New South Wales (1983) 8 ACLR 278
New World Alliance Pty Limited; Sycotex Pty Limited v Baseler (No 2) (1994) 51 FCR 425
Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360
O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262
Old Kiama Wharf Company Pty Ltd (in liq) v Betohuwisa Investments Pty Ltd [2011] NSWSC 823
Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211
Re International Vending Machines Pty Limited and the Companies Act (1962) NSWR 1408
Re Kazar; Frontier Architects Pty Ltd (in liq) [2010] FCA 1381; (2010) 81 ACSR 158
Re Leisure Developments (Qld) Pty Ltd (in liq); Ell v Palmer (2002) 41 ACSR 276
Re Northumberland Insurance Co Ltd (No 2) (1975) 1 ACLR 142
Re Suco Gold Pty Ltd (1983) 33 SASR 99; 7 ACLR 873
Re World Expo Park Pty Ltd (1994) 12 ACSR 759
Repforce International v Master Lease Properties [2003] NSWSC 970
Sandhurst Trustees Ltd v Harvey (2004) 88 SASR 519
Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd [2002] NSWSC 239; (2002) 41 ACSR 369
Southern Wine Corp Pty Ltd (in liq) v Frankland River Olive Co Ltd [2005] WASCA 236; (2005) 31 WAR 162
Stott v Milne (1884) 25 Ch D 710
Stratti Ocean and Earthworks Pty Ltd v Deputy Commissioner of Taxation [2003] NSWSC 509
Summers v Commonwealth (1918) 25 CLR 144
Van Reesema v Flavel (1992) 7 ACSR 225; 10 ACLC 291
West v Mead (1984) 155 CLR 242; (1984) 56 ALR 483
White v Conroy (1921) 21 SR (NSW) 257; 38 WN (NSW) 63
Ziade Investments Pty Ltd v Welcome Homes Real Estate Pty Ltd [2006] NSWSC 457; (2006) 57 ACSR 693
Texts Cited: Carter on Contract
Ford's Principles of Corporations Law
Halsbury's Laws of Australia
Heydon and Leeming, Jacobs' Law of Trusts in Australia (7th edn)
Category: Principal judgment
Parties: James Alexander Shaw (First Plaintiff)
Lawrence Waterhouse Pty Ltd (in liq) (Second Plaintiff)
Minsden Pty Ltd (First Defendant)
Wayne Lawrence (Second Defendant)
Representation: Counsel
R Marshall (Plaintiffs)
Solicitors
Harris Wheeler (Plaintiffs)
G Lancaster (Access Law Group) (Defendants)

File Number(s): 09/287488

Judgment

HER HONOUR : These are proceedings brought by James Alexander Shaw (the first plaintiff), in his capacity as the liquidator of the second plaintiff (Lawrence Waterhouse Pty Ltd (in liquidation)) and in the name of that company, seeking relief pursuant to ss 180, 588FF and 1317H of the Corporations Act 2001 (Cth), s 37A of the Conveyancing Act 1919 (NSW) and the general law, against Minsden Pty Ltd (the company to which land at Nelson Bay, formerly registered in the name of Lawrence Waterhouse, was transferred) and against Wayne Lawrence, formerly a director of Lawrence Waterhouse and a current director of Minsden.

Broadly, what the liquidator seeks is to set aside both the transfer of the land in question and a fixed and floating charge granted over the assets of Lawrence Waterhouse in favour of Mr Lawrence, as well as orders that Mr Lawrence account for all moneys received and paid from the bank accounts of Lawrence Waterhouse and pay equitable compensation to the company for the alleged breach of his statutory and fiduciary duties as director in relation to the keeping of the books and records of the company.

The claims made by the liquidator as at the time of the hearing are contained in a Second Further Amended Originating Process filed 13 December 2010 and Second Further Amended Points of Claim also filed on that date. The defendants have filed separate defences, the final iterations of which (pursuant to orders made during the course of the hearing on 19 May 2011) are the Amended Points of Defence to Second Further Amended Points of Claim filed by each of the defendants.

The defendants deny the claims made against them. In the case of Mr Lawrence, he seeks relief (to the extent that he may be found liable for breach of any civil penalty provision under the Corporations Act ) pursuant to s 1317S on the following bases: that at all material times he acted honestly and ensured (either from his own resources or from the resources of related entities) that all creditors of Lawrence Waterhouse (with the exception only of the Port Stephens Council) were paid; by reference to certain conduct pleaded on the part of the Council (to which I will refer in due course); and that he suffered from medical conditions in 2006 that impacted on his ability to manage the day to day financial and other affairs of Lawrence Waterhouse.

In further reply to the plaintiffs' claims, each of the defendants asserts various matters in criticism of the conduct of the liquidator (paras [26]-[27] of Minsden's defence and [50]-[51] of Mr Lawrence's defence, respectively).

In particular, it is alleged that the liquidator has:

failed to act independently of the interests of the Council (by, inter alia, obtaining indemnity and payment for his remuneration as well as these proceedings from the Council and by engaging the solicitors for the Council to act for him in these proceedings rather than independent solicitors);
failed to review or update his expert report (though that has in any event not been read) in these proceedings, after new financial information was supplied by Mr Lawrence;
submitted to ASIC incorrect information when presenting his accounts (in that it did not include the Mr Lawrence as a creditor and did not record payments from a third party);
advanced the interests of the Council "without regard to the commerciality of such proceedings";
failed properly or fully to investigate the claims of Mr Lawrence to be a creditor of Lawrence Waterhouse;
created a schedule of payments which omitted payments to Lawrence Waterhouse by Mr Lawrence and related entities;
failed to correct the schedule of payments after the errors were drawn to his attention by Mr Lawrence;
acknowledged Mr Lawrence as a creditor in his report of 2 July 2009 but failed to treat or recognise Mr Lawrence as a creditor of Lawrence Waterhouse thereafter;
failed to pursue or realise, for the benefit of creditors as a whole, the sale of the Nelson Bay land which had been negotiated prior to his appointment by Mr Lawrence (a somewhat surprising assertion when it is said by the defendants that the Nelson Bay land has at all times been held on trust for Mr Lawrence and is the subject of a valid transfer to Minsden);
failed to realise by sale, leasing or otherwise the value in the real property at Old Bar for the benefit of creditors as a whole (a matter to which no submissions were directed and which seems to be inconsistent with Mr Lawrence's contention, accepted by the liquidator, that the Old Bar property is held on trust for the superannuation fund); and
failed to recognise that Lawrence Waterhouse had, apart from Mr Lawrence, only one external creditor, whose debt would be met by the sale of the Old Bar property (inconsistent with the submission now put that there are other creditors of the company to which the liquidator failed to have regard, being related companies with which Mr Lawrence is associated).

When the hearing before me commenced, there was an application by the defendants for the proceedings to be dismissed pursuant to Rule 29.7 of the Uniform Civil Procedures Rules 2005 (NSW) on the ground that Mr Shaw was not physically present in the Court (though he was represented by his Counsel, Mr Marshall, and his solicitor). I dismissed that application for the reasons given orally at the time.

One consequence of Mr Shaw's unavailability to attend was that his affidavit (and expert report) was not read in the proceedings (although his partner, Mr Newton, did adopt the views set out in a small portion of that report, relating to the adequacy of the books and records of the company).

There was much complaint made by the solicitor appearing for the defendants (Mr Lancaster) as to the unavailability of Mr Shaw for cross-examination - I was reminded of this no less than three times in closing submissions. As I understand it, Mr Lancaster wished, no doubt on instructions, to cross-examine Mr Shaw as to his conduct of the liquidation in order to bolster the submissions made for Mr Lawrence as to a lack of independence on the liquidator's part.

Issues

The issues raised on the pleadings can broadly be grouped as follows:

(i) as to the transfer of the Nelson Bay land to Minsden:

(a) whether, as the plaintiffs contend, the transfer (or the steps there involved) is an insolvent transaction within the meaning of s 588FC of the Corporations Act or an unreasonable director related transaction within the meaning of s 588FDA of the Corporations Act (and, in either case, voidable pursuant to s 588FE of that Act) or an alienation of land with the intent to defraud the Council, as a creditor of Lawrence Waterhouse, voidable pursuant to s 37A of the Conveyancing Act ;

(b) whether, again as the plaintiffs contend, Minsden holds the Nelson Bay land on constructive trust for Lawrence Waterhouse (it having been knowingly concerned in, and directly benefiting from, a breach by Mr Lawrence of his fiduciary duty to Lawrence Waterhouse in relation to the steps taken for the transfer of the Nelson Bay land to Minsden); or

(c) whether, as the defendants contend, Lawrence Waterhouse from 2003 held the land as trustee for Mr Lawrence (following the execution of a Deed for the transfer of the land to him and execution of a transfer for that purpose) and later validly transferred to Minsden the Nelson Bay land in accordance with a direction by Mr Lawrence (which then gives rise to the further question as to whether, if so, Lawrence Waterhouse is entitled to be indemnified by Mr Lawrence out of the Nelson Bay land in respect of costs liabilities owed by the company to the Council in relation to the proposed development of the Nelson Bay land and is entitled to recoup that amount by tracing the land in the hands of Minsden); and

(d) whether, if the transfer of the Nelson Bay land is declared void and/or set aside, the land is held on constructive trust or resulting trust for Mr Lawrence and/or a related company, Champerslife Pty Ltd, and is subject to an equitable charge (or equitable charges) in favour of Mr Lawrence and/or Champerslife to secure payments made towards the acquisition of the said land (as now asserted by Mr Lawrence);

(ii) as to the charge granted to Mr Lawrence by Lawrence Waterhouse in or about December 2007:

(a) whether, as the plaintiffs contend, it was an unreasonable director related transaction within the meaning of s 588FDA of the Corporations Act , and voidable pursuant to s 588FE of that Act, or an alienation of property with the intent to defraud the Council (as a creditor of Lawrence Waterhouse) and voidable pursuant to s 37A of the Conveyancing Act; and

(b) whether, again as the plaintiffs contend, the charge is held on constructive trust for Lawrence Waterhouse (having been executed and procured in breach of Mr Lawrence's fiduciary duty to the company) or is void because it secures no debt or obligation of Lawrence Waterhouse to Mr Lawrence;

(iii) as to the state of the books and records of Lawrence Waterhouse:

(a) whether Mr Lawrence is obliged to account to Lawrence Waterhouse (by way of repayment of the balance of a loan account to be ascertained by the Court) or is liable for damages or equitable compensation in relation to alleged breaches of his duties, as a director of Lawrence Waterhouse, to keep written records correctly recording the company's transactions and its financial position that would enable true and fair financial statements to be prepared and audited; and

(b) whether, if Mr Lawrence is liable for breach of any civil penalty provision in relation to the keeping of the company's books and records, exculpatory relief should be granted in his favour.

Summary

In summary, for the reasons set out below, I find that:

(i) at the time of the transfer of the Nelson Bay land to Minsden, Lawrence Waterhouse held the land as trustee for Mr Lawrence (following the execution of the 2003 Deed and transfer, the rights and equitable interest arising under which I find had not been abandoned by Mr Lawrence);

(ii) at the time of the transfer to Minsden (at Wayne Lawrence's direction), Lawrence Waterhouse was entitled, as trustee, to be indemnified by Mr Lawrence out of the Nelson Bay land in respect of any costs incurred in relation to the proposed development of the Nelson Bay land (including costs liabilities owed by the company to the Port Stephens Council) and is entitled to recoup that amount by tracing the land into the hands of Minsden;

(iii) there was a failure by Lawrence Waterhouse (and a breach by Mr Lawrence of his duties under s 180 and s 334 of the Corporations Act ) to keep proper books and records as required by s 286 of the Corporations Act in order to permit the company (and now its liquidator) to ascertain its financial position vis a vis the entities to whom or by whom it is, or may be, owed money in its capacity as 'banker' to the Lawrence Waterhouse group of companies; therefore, a presumption of insolvency has arisen (which presumption, after some hesitation, I find has been rebutted for the period up to the withdrawal by Mr Lawrence, in or about late 2008, of financial support for Lawrence Waterhouse to be able to meet all of its debts as and when they fell due);

(iv) had I found that the Nelson Bay land was not, at the time of transfer, held on trust in favour of Mr Lawrence, I would nevertheless not have found that it was an uncommercial and insolvent transaction within the meaning of s 588FC of the Corporations Act (by reason of the finding in (iii) above) nor would I have found it to be an unreasonable director-related transaction (by reason that it was not a transfer to a close associate as that term has been construed in this context). I would, however, have found that it was an alienation of land with the intent to defraud the Council as a creditor of Lawrence Waterhouse and that it should be declared to be void pursuant to s 37A of the Conveyancing Act ;

(v) in light of the findings in (i) and (ii), I find that Minsden holds the Nelson Bay land impressed with a charge in favour of Lawrence Waterhouse in the amount necessary to discharge the costs judgment against the company (in the sum of $57,683.45 plus interest) plus the costs orders (as in due course to be assessed) made in relation to the Court of Appeal proceedings in favour of Lawrence Waterhouse and any interest payable thereon;

(vi) had I made the finding indicated in (iv) and declared the transaction void pursuant to s 37A of the Conveyancing Act , it would not have been necessary to make any further finding in relation to the land held by Minsden (however, it seems to me on the probabilities that a case has been established that Minsden would otherwise have held the Nelson Bay land on constructive trust for Lawrence Waterhouse, having been knowingly concerned in, and directly benefiting, from a breach by Mr Lawrence of his fiduciary duty to Lawrence Waterhouse in relation to the transfer of the Nelson Bay land to Minsden for no value or at less than market value);

(vii) had I not made the findings in (i) - (ii), I would have held that as at 2008 the Nelson Bay land was not held on constructive trust or resulting trust for Mr Lawrence and/or Champerslife (and was not subject to an equitable charge or equitable charges to Mr Lawrence and/or Champerslife to secure payments made towards the acquisition of the said land) in circumstances where the evidence of Mr Lawrence is that moneys paid to Lawrence Waterhouse by himself or companies associated with him were paid by way of loan by him and therefore any claim in relation to the moneys paid which were applied to the acquisition of the Nelson Bay land would be recoverable as an unsecured loan;

(viii) the charge granted to Mr Lawrence by Lawrence Waterhouse in or about December 2007 was an unreasonable director related transaction within the meaning of s 588FDA of the Corporations Act and should be set aside pursuant to s 588FE of that Act and, further, is an alienation of property with the intent to defraud the Council as a creditor of Lawrence Waterhouse and should be declared void pursuant to s 37A of the Conveyancing Act;

(ix) Mr Lawrence is obliged to account to Lawrence Waterhouse by way of repayment of any outstanding balance of his loan account; if that cannot be determined due to his failure to ensure that proper accounting records were kept by the company then he should account for any monies so unaccounted for (to be assessed by an associate justice or otherwise referred to a referee for determination) by way of damages for breach of s 180 and/or 334 of the Corporations Act ; similarly, he is liable for damages (to be assessed) suffered by the company to the extent that it is unable to recover outstanding loans from or moneys paid on behalf of related companies; (I also consider that Mr Lawrence would (had the land not been held on trust for him at the time of transfer) have been liable for breach of fiduciary duty in the transfer of the land to an associated company at less than market value or for no value but this issue does not arise given my earlier findings);

(x) exculpatory relief should not be granted in Mr Lawrence's favour for breach of his statutory duties to the extent that this would absolve him from responsibility to account for the sums expended by the company on his behalf or on behalf of companies associated with him and for which the company (by reason of the inadequacy of financial records) is, or is likely to be, unable to recover (such relief does not arise in relation to the breach of fiduciary duty).

As to the final form of orders and costs (and as to whether any order should be made granting priority to the Council as creditor of Lawrence Waterhouse for any recovery out of the Nelson Bay land under Lawrence Waterhouse's right of indemnity as trustee), I will hear further submissions.

Background Facts

General

Lawrence Waterhouse was incorporated on 23 September 1999. It is not disputed that at all material times since then (up to January 2009, when his wife, Valerie, who had previously been a director of the company was reappointed as director and Mr Lawrence resigned as director), Mr Lawrence was the company's director and that Mr Lawrence has at all material times been the company's controlling shareholder.

Mr Lawrence has carried on business over the years, through various corporate entities, as a property developer - acquiring land for development and on-sale. Lawrence Waterhouse was described by Mr Lawrence as a management company (acting as the 'banker' for Mr Lawrence and the various companies associated or controlled by him) and not a 'developer' as such. In Mr Lawrence's own words (T 284.16):

the company is the bank, the company that controls all the different identities works, so they manage it. I put all the money into Lawrence Waterhouse, I keep pumping it full of money so it can operate all the accounts for all the other people. In other words it is a management company so it is managing. It doesn't develop or anything it just manages.

Lawrence Waterhouse was also, until shortly prior to its winding up, the trustee of a superannuation fund established on behalf of Mr Lawrence and of which he is a beneficiary. (The trustee of that fund is now the first defendant, Minsden.)

Mr Lawrence has at all material times been a director of Minsden (a company that had been incorporated some years earlier, on 14 March 1979) and its only shareholder (and Mr Lawrence admits that he gave instructions to Minsden in regard to all its affairs). There are at least two other companies with which Mr Lawrence was associated and to which reference will be made in relation to the affairs of Lawrence Waterhouse (Bulevi Pty Ltd, incorporated on 6 June 1986, and Champerslife Pty Ltd, incorporated on 19 February 2002.)

It is submitted by Mr Lancaster that Mr Lawrence was the main source of income for each of Minsden, Bulevi, Lawrence Waterhouse and Champerslife (and this was indeed Mr Lawrence's evidence), and that he used the companies as 'vehicles to make loans from himself'. Intercompany payments were said to be loans made by or on behalf of Mr Lawrence .

The liquidator's complaint in this regard is that the company's books and records do not permit him to determine the status of the loan accounts as between Lawrence Waterhouse and the various other entities on whose behalf payments were made by the company and from whom payments were made into the company, so as to enable the liquidator to pursue any amounts that may be owing to Lawrence Waterhouse or to determine amounts that may be owing by the company to third parties related to Mr Lawrence.

As at 2008, Lawrence Waterhouse did not appear to have any substantial income producing assets. It had earlier purchased land at Boorowa, in around 2001 or 2003, on which there was a house (according to Mr Lawrence in such a state that there were sheep running through it) that Mr Lawrence then renovated but, apart from a short period, it does not appear that Lawrence Waterhouse derived much by way of rental income for the property and it was sold in 2006. It was, however, the registered proprietor of 3 lots in a strata plan over a property in Nelson Bay (which had been acquired by the company in about 2001). I refer to these lots as the Nelson Bay land. (Lawrence Waterhouse had leased the land or part of it to the Owners Corporation for use as a carpark but rental income from the land was the subject of a set-off arrangement in respect of rates that would otherwise be payable in respect of the lots.)

Other than its holding of the Nelson Bay land (the subject of the impugned transfer in 2008 to Minsden), it appears that by around 2008 Lawrence Waterhouse carried on no particular business in its own right, although payments were made in and out of its accounts (said to be as 'banker' for the various companies in which Mr Lawrence had an interest and through which Mr Lawrence carried out property developments from time to time).

Mr Lawrence explained (at T 250.15) that he would pay for all the bills from his personal account in relation to Lawrence Waterhouse "because the company never had an income" adding that the "problem for 5 years or 6 years was that it wasn't a developer it was a banker all it did was lend money for the other companies and to be able to buy properties".

Mr Lawrence gave evidence, in effect, that he had carried on the operations of the companies with which he was associated through the Lawrence Waterhouse accounts, and that this was on his (and his companies') accountant's advice. (I will refer to the various companies through which Mr Lawrence seems to have operated as a property developer generally as the Lawrence Waterhouse group of companies - those including but not limited to Minsden, Bulevi, Lawrence Waterhouse itself, and Champerslife.)

Acquisition of Nelson Bay land

The circumstances in which the Nelson Bay land was acquired are of relevance having regard to the claims now made by Mr Lawrence as to the existence of one or more equitable charges over the land.

On 14 August 2001, Lawrence Waterhouse completed the purchase of the Nelson Bay land for $72,000. The purchase price was paid in part by contributions from Lawrence Waterhouse (as to $9,182.75) and by Mr Lawrence (as to $20,817.25). The balance ($42,000) was advanced to Lawrence Waterhouse by Elliot Tuthill Mortgages Ltd (a finance company with whom Mr Lawrence had had a longstanding arrangement, as described by Mr Lawrence in the witness box, since 1975 whereby he would put up 35% of the money (and Elliot Tuthill would advance 65%) for properties he wished to acquire (T 211) because "the banks would not lend on development sites"). (Mr Lawrence said that he had to have a "bank" to deal with Elliot Tuthill - T 283.)

It is relevant to note that Elliot Tuthill's loan seems to have been one made to Lawrence Waterhouse (not to Mr Lawrence personally) and was secured by a first registered mortgage over the property and by a personal guarantee from Mr Lawrence and his wife. (Mr Lawrence's personal financial contribution to the purchase price was thus $20,817.25, although he had provided a guarantee to secure Lawrence Waterhouse's borrowings for the balance or most of the balance of the purchase price.)

Mr Lawrence says that during the period from the acquisition of the land until 9 August 2002 he advanced moneys to Lawrence Waterhouse to enable it to make interest repayments from time to time to Elliot Tuthill.

On 8 August 2002, Mr Lawrence directed Champerslife to pay Elliot Tuthill the sum of $43,639.85 to discharge the amount then due and owing under the mortgage over the Nelson Bay land. As I understand it, Elliot Tuthill applied, towards the discharge of the mortgage, funds then held by Elliot Tuthill on behalf of Champerslife. Thereupon, Lawrence Waterhouse held the property unencumbered by any mortgage.

Champerslife was not recorded as having any interest in the Nelson Bay land. Consistent with Mr Lawrence's own account of the intercompany dealings, it would seem that this should be treated as a loan from Champerslife to Mr Lawrence personally (which he then directed to be applied on his behalf to the discharge of the mortgage) (see T 273 - 274) or an intercompany loan from Champerslife to Lawrence Waterhouse on Mr Lawrence's behalf. (In either case, while Champerslife would be the ultimate creditor, the arrangement would seem to have been between it and Mr Lawrence). It does not appear to have been the intention for Champerslife itself to acquire any interest in the Nelson Bay land, nor has Champerslife asserted any such interest. (Mr Lawrence gave evidence that Champerslife obtained money from Elliot Tuthill and from Mr Lawrence himself and that Champerslife would lend the moneys to Lawrence Waterhouse (T 273) but this was "via my instructions as director" - T 274.29.)

2003 Deed and transfer

Mr Lawrence says that in about early 2003 he started to think about retirement. At that stage he says that Lawrence Waterhouse was indebted to him for the total amount of approximately $300,000 in respect of loans he had made to the company (although it is not clear how that amount was quantified).

A Deed was signed, dated 2 January 2003, between Lawrence Waterhouse and Mr Lawrence in which there was recorded the agreement of Lawrence Waterhouse to transfer the Nelson Bay land to Mr Lawrence in lieu of the repayment of the sum of $80,000 said to be due by Lawrence Waterhouse to Mr Lawrence (and in partial satisfaction of the total debt said to be due by Lawrence Waterhouse to Mr Lawrence).

The sum of $80,000 does not seem to be referable to any particular loan(s) but may have been calculated by reference to the approximate value of the land, since there was reference in the Deed to the details of a ('desktop') valuation of the Nelson Bay land as at 18 November 2002 at $80,000, apparently obtained at the request of Elliot Tuthill "to ensure the valuation was independent", somewhat curiously after its mortgage had already been discharged.) (The Deed recorded an acknowledgement that there were no other creditors of the company at that date (at [6]) and that Lawrence Waterhouse would not be in a position to repay the amounts owing to Mr Lawrence (at [4].)

Counsel for the plaintiffs, Mr Marshall, notes that the Deed is to some extent inconsistent with the facts as they were in early 2003. In particular, it is noted that clause 1 refers in the present tense to the Elliot Tuthill mortgage (though that had been discharged six months before the date of the deed) and that clause 2 does not take into account the fact that, of the original purchase price, $42,000 was provided by Lawrence Waterhouse by way of a loan from Elliot Tuthill (not provided by Mr Lawrence himself). Nevertheless, the document must have been created around that time as it was stamped for duty in 2003.

The Deed, as headed, describes Mr Lawrence as the purchaser and provides in clause 5 that "The parties have agreed in lieu of loan accounts to the value of $80,000 to transfer the land to Wayne Lawrence". (There is no record of $72,000 being received by the company or deposited into Lawrence Waterhouse's bank account at around this time, which Mr Marshall accepts would be consistent with the Deed - under which the consideration was the partial discharge of the company's debt to Mr Lawrence.)

A transfer document was prepared in registrable form (the consideration for the transfer being stated to be $72,000) and stamp duty was paid on both the Deed and the form of transfer on 3 February 2003. However, the transfer was not registered until 2008. At all material times from 2003 until early 2008 the Nelson Bay land remained in the name of Lawrence Waterhouse. (As will be seen, Mr Lawrence made no reference to the transfer or to the existence of an equitable interest on his part in the Nelson Bay land in the context of Land and Environment Court proceedings commenced in 2005/6 (as he conceded at T 242.6) or in the later Court of Appeal proceedings in 2007/2008.)

Proposed development of Nelson Bay land

The foreshadowed retirement of Mr Lawrence is in itself somewhat curious since, within some two years or so after entry into the Deed, Mr Lawrence (through Lawrence Waterhouse) seems to have commenced taking steps to develop the Nelson Bay land. That, however, proved to be a source of various disputes - between Mr Lawrence and the Owners Corporation of the strata plan in question and between Mr Lawrence and the Port Stephens Council (being the local approval authority), ultimately leading to these proceedings.

The overall site, of which the 3 lots owned by Lawrence Waterhouse formed part, had been the subject of an original development consent in the 1970's, pursuant to which a strata plan had been registered and 8 residential units or townhouses had been built (in two separate developments). Lawrence Waterhouse apparently acquired the remaining 3 lots from the initial developer (Cool Rush). The difficulty for the owners of the by then developed lots was that the 3 lots owned by Lawrence Waterhouse effectively 'landlock' the other lots, preventing access by vehicle to the other residents' car parking spaces. (The original development consent had apparently envisaged the building of a motel on the front lots, through which access to the other lots could be obtained.)

Mr Lawrence explained in the witness box the difficulty that had thus arisen in relation to the proposed development of the 3 lots in question (9, 18 and 19) - first, that the Owners Corporation (whose consent was necessary for any fresh development application) insisted that the development be in the name of Lawrence Waterhouse (perhaps, though nothing turns on this, to ensure the provision of vehicular access to their lots as a condition of any development of the land held in Lawrence Waterhouse's name) (T 231.29) and, secondly, that he did not wish to prejudice the lease in existence between the company and the Owners Corporation in respect of the lots, and he was therefore "stuck with" the name Lawrence Waterhouse (T 232).

Land and Environment Court proceedings

The upshot of this was that Mr Lawrence sought to proceed on the basis of the original development consent and commenced Class 1 proceedings in the name of Lawrence Waterhouse in September 2005 in the Land and Environment Court for that purpose. Port Stephens Council was joined as the respondent to those proceedings. Those proceedings were subsequently discontinued and then, on 17 November 2006, Lawrence Waterhouse effectively reconstituted the proceedings as Class 4 proceedings, seeking a declaration that the 1973 development consent had not lapsed (due to substantial commencement of the development).

The capacity in which Lawrence Waterhouse commenced those proceedings becomes relevant when considering issue (i)(c). At T 228, Mr Lawrence denied that the reason that the Land and Environment Court case was brought by Lawrence Waterhouse was because it was the registered proprietor of land; rather, he said that it was because he could not file an application himself without the consent of the Owners Corporation. At T 227.33, Mr Lawrence said that the company was "technically" not the owner at that time because the land had been sold to him but accepted that it was the owner as per the rates notices (T 227.36). He also stressed that the development consent was over the whole of the land (not just the lots owned by Lawrence Waterhouse) (T 227).

Mr Lawrence accepted that the company would have received a benefit (if it had obtained the declaration that had been sought as to the substantial commencement of the development in respect of the original approval over the whole of the site and not just lot 9) (T 231) but emphasised that such a benefit "could have been for any company".

Mr Lawrence conceded that the Court was not told about the transfer (T 242), (though Mr Lancaster submits there was no need for it to be so informed).

On 1 May 2007, Mr Lawrence swore an affidavit in the Land and Environment Court proceedings, expressly in his capacity as director and on behalf of Lawrence Waterhouse, in which he deposed that the "company purchased the site in or about 2001" (with no suggestion that, by reason of later events, the company had come to hold the legal title to the land on trust for him). By a further affidavit dated 11 April 2007, Mr Lawrence deposed to the existence of a 'continuous 12 months lease' granted by Lawrence Waterhouse to the proprietors of the strata plan which was then current for the 'motel carpark' (that presumably being a reference to the motel the subject of the initial development consent). Those affidavits form part of Exhibit O (the plaintiffs' cross-examination bundle).

On 30 May 2007, Lloyd J dismissed the Class 4 proceedings. Lawrence Waterhouse was ordered to pay the Council's costs, as agreed or assessed. Those costs orders (which remain unsatisfied and in respect of which the Council ultimately based its winding up application) are what have, in substance, led to the present dispute.

The irony of this is that Mr Lawrence was adamant in the witness box that he was happy to pay the Council's costs (at least once they had been properly assessed). At T 236.18, Mr Lawrence said "I was quite happy to pay their costs. I do not have a problem in paying costs if they are fair and reasonable"; at T 239.44, he maintained that "I had no intention not to pay Council their costs"; at T 239.48 that "I was going to pay their costs. I don't have a problem in paying their costs"; at T 244.15 that he was happy with the amount determined by the costs assessor (but adding that the costs assessor did not deal with his complaint as to the former solicitors' conduct of the matter); at T 244.19 that "I wanted to pay the amount. I had no problem with paying the amount"; at T 244.40 that "I didn't have a problem with paying them"; at T 252 "I didn't have a problem in paying council costs" and at T 252.49" I didn't have problem with them getting their costs".

Had those costs orders been satisfied then it seems unlikely that matters would ever have reached the present stage and hence the adequacy of the accounting for intercompany arrangements may not have been called into review.

Costs Assessment/Appeal procedures

The Council made application on 7 November 2007 under the costs assessment processes in this Court for the assessment of its costs of the Class 4 proceedings. Meanwhile, a holding appeal had been filed in respect of those proceedings on 25 June 2007 and, on 21 September 2007, a Notice of Appeal without Appointment and a Notice of Motion to extend the time for the filing of that Notice of Appeal were filed on behalf of Lawrence Waterhouse in the Court of Appeal. A Notice of Motion seeking a stay of the enforcement of judgment in the Land and Environment Court proceedings was also filed in early November 2007. (The former motion was successful, the latter not. Lawrence Waterhouse was ordered to pay the costs of both.)

On 11 December 2007, the Council filed an application for security for costs in the Court of Appeal proceedings, that application being listed for hearing in February 2008. By affidavit sworn 11 December 2007 in relation to the Land and Environment Court proceedings, the solicitor then acting for the Council (Ms Dianna Grant) deposed (at [9]) to the receipt of two cheques from Champerslife in payment of the costs that had been ordered to be paid by Lawrence Waterhouse in relation to the post-judgment motions (i.e. not the principal costs order but costs relating to the unsuccessful application for a stay of Lloyd J's judgment and then for the successful motion for leave to extend time for an appeal from his Honour's judgment in relation to the question of substantial commencement of the development).

Mr Lawrence responded to that affidavit (in an affidavit of 25 January 2008, on which he advised the Council he would rely in respect of the then forthcoming Court of Appeal security for costs application) in which (significantly) he deposed (at [30]) that the payment had been offered through Champerslife because "it [i.e. Champerslife not Lawrence Waterhouse] is the Development company that will be developing the site" and therefore that the payment had been made in that fashion to allow for a tax deduction in respect of the costs of the development application and approval ([30]). (This, I note, is inconsistent with the submission now made in the proceedings before me that Lawrence Waterhouse was not incurring costs in the Land and Environment Court proceedings as trustee for the beneficial owner, Mr Lawrence, but, rather, as a development company).

Deed of Charge

Shortly after the security for costs application was filed (at least on Mr Lawrence's version of events) and in any event at some time between the filing of the application for security for costs and the day after that application was dismissed, a Deed of Charge was entered into under which Lawrence Waterhouse granted a fixed and floating charge (to a maximum of $1 million) to secure all present and future loans made to it by Mr Lawrence. (In his notes to the liquidator of February 2009 Mr Lawrence states that the charge was to secure funding for the appeal proceedings.) Lawrence Waterhouse agreed in the Deed that, in consideration of Mr Lawrence providing the sum of $102,000 and such other amounts as may be advanced from time to time by Mr Lawrence to Lawrence Waterhouse, the company charged its undertaking, assets and rights with the payment or repayment of such secured money.

The Deed was dated (in handwriting) 27 December 2007. It was put to Mr Lawrence, in effect, that he had back-dated the document and that it was not brought into existence until after the security for costs application in 2008). The basis for the allegation that the charge had in fact been created in 2008 (and not in 2007) was that the copy document exhibited to Mr Lawrence's affidavit of 20 April 2010 had a typed date of 2004 date on its first page (explicable because it seems that it was prepared by reference to an earlier document in relation to a different transaction and that the number "4" in "2004" had been crossed out by hand and replaced with an "8" so that the date read "200[4]8"; but this was then crossed out and the handwritten date of "2007" was added. Mr Lawrence seemed at one stage to suggest that this was because he was dyslexic but in any event he denied that he had created the document in 2008 (T 229) and he was clearly concerned in the witness box as to why a 2008 date would be on the document.

Mr Lawrence candidly said that the Deed was a document that was done at the time "because of an application by Port Stephens Council for security for costs" (T 229.49). He used the template of another company charge to prepare it (T 229).

After his cross-examination had concluded, Mr Lawrence located and produced the original document (stamped at the higher rate) that showed no such reference to 2008. Having regard to that document, I do not accept the submission by Mr Marshall that I should infer that the charge was in fact created during 2008 (whether on 4 or on 5 February 2008, just after the motion for security had been dismissed) by reference to the handwritten annotation on the counterpart copy of the deed of charge.

However, I do think that the evidence warrants an inference that the creation of the charge (and its registration only after the security for costs application was heard and dismissed) was in order to obtain priority for Mr Lawrence's personal position (over that of the Council) and an attempt to place assets of the company beyond the Council's grasp for the purposes of satisfaction by the Council of the outstanding costs orders in its favour.

I reach that conclusion for two reasons. First, there seems to be no logic in Mr Lawrence taking a charge over land that, on his evidence, he already owned beneficially. Mr Lawrence accepted that the property that had been charged was his land ("that is my land" - T 235.49) but explained the grant of the charge on the basis that at the time the land was still in the company's name. (At T 241.4, Mr Lawrence denied that the charge was created or entered into for the reason that he did not think the transfer of the land to Minsden was valid.) Second, because of the timing of the charge. At T 235.34, Mr Lawrence agreed that he knew that if security was ordered to be provided then the company would be ordered to pay money into court (or to provide security in some other way) (though he went on to say (at T 235.40) that he did not have a problem with that). He accepted that he had resisted the motion for security because he did not want to pay the money (T 233.50 - 234.3). At T 235.12, Mr Lawrence said "I granted the charge because the security for costs application was made, when a security for costs application is made most of the time it is granted to the other side for security for costs. They were asking for $25,000. I believed they would continue asking ... so I granted the charge because I would then be pumping money into covering the security for costs each time". At T 241.2, Mr Lawrence said that the charge was "to protect the money I advanced to the company during the course of the appeal".

As events transpired, far from Mr Lawrence pumping money into the company to enable it to meet demands for continual security for costs, Lawrence Waterhouse was either not put in funds to pay, or chose not to pay, even the first amount ordered by way of security, notwithstanding that there was then a charge registered in favour of Mr Lawrence (that he said had been registered for precisely that purpose).

Security for costs application

There was no indication by Lawrence Waterhouse (or Mr Lawrence) at the time of the first security for costs application in early 2008 that the Nelson Bay land (registered in the company's name) was held by it other than as legal and beneficial owner. There was no mention of the 2003 Deed, by reference to which Mr Lawrence maintains that he was at that time the equitable owner of the land, nor was there any mention of the charge that Mr Lawrence said had been granted by then. Mr Lawrence agreed that at the time the Council's first security for costs application was heard on 4 February 2008, no company charge had been registered at ASIC (T 226.44 "no, I hadn't stamped the document") and that he had not told the solicitors or the Council or the Court of Appeal that he had been granted a charge by the company. Mr Lawrence (at T 235.15) agreed that nothing had been put before Court of Appeal by him (on the Council's application for security for costs) that would indicate that anyone other than the company had interest in the three lots but said that he did not think about anyone else's interest in the land in that context (T 235.26). Mr Lawrence's explanation for this was "No, because that was the security for costs application and Dianna Grant [the Council's then solicitor] in her affidavit in December made no mention of the real estate in Nelson Bay as at the time it was in the name of Lawrence Waterhouse."

Mr Lawrence conceded in the witness box that a deliberate decision had been made not to register the charge until after the security for costs application had been determined. At T 242.15, Mr Lawrence quite candidly said "I was not doing anything in the course of the security for costs application between December and 2 March. It is not good business to do anything during the course of a security for costs application".

Mr Lawrence was seemingly content to allow the Court of Appeal to proceed to determine (unfavourably to the Council) the initial security for costs application in the (mistaken) belief that the company owned beneficially an unencumbered asset available to meet any unfavourable costs judgment against it (something that did not take into account either the existence of the charge that Mr Lawrence says was granted to him on 27 December 2007 or the 2003 Deed). Mr Lawrence does not seem to have appreciated that, by not disclosing the existence of the charge (let alone the existence of the Deed entered into in 2003) he was, in effect, misleading the Court of Appeal as to the company's true financial position.

On 5 February 2008 (the day after the Council's security for costs application had been heard and dismissed), stamp duty was paid on the charge. Mr Lawrence admitted that by 5 February 2008 he had decided that he would no longer pursue the transfer of the Nelson Bay land to him personally (T 250.25; 29) and instead he wished the land to be transferred to Minsden. (He said that this was done on his accountant's advice, following discussions in relation to his superannuation.) Mr Marshall submits that this would explain why Mr Lawrence thought it was appropriate to charge the land in his favour (there being no point in so doing if Mr Lawrence still wished to pursue the transfer of the land to himself), reliance being placed on this in support of the submission that Mr Lawrence had abandoned any rights in relation to the 2003 transfer in his favour. (It seems to me that there is force in the submission that if Mr Lawrence's entitlement to a beneficial interest in the property had not been abandoned, there would have been no point in charging the land as opposed to registering the transfer in his favour - particularly as the charge was to secure up to $1m of advances and Mr Lawrence, or his real estate agent(s), seems to have formed the view that the land was worth at least that much - having advertised it for sale in 2008 at $1.19m. However, I consider this in more detail later.)

On 5 March 2008 the charge was registered with the Australian Securities and Investment Commission.

Costs assessment

On 10 March 2008, the Costs Assessor wrote to each of the Council and Lawrence Waterhouse, advising that he had completed his assessment. A week later, on 17 March 2008, Mr Lawrence applied to have a transfer to Minsden in respect of the Nelson Bay land (for the stated consideration of $72,000) stamped at nominal duty and on 18 March 2008 the transfer to Minsden was executed and was stamped at nominal duty in accordance with s 18(3) of the Duties Act 1997 (NSW).

On 6 May 2008, a certificate of determination of costs was issued in respect of the Council's costs as ordered to be paid in the Class 4 Proceedings. Those costs were assessed in the amount of $57,683.45. (The costs claimed had been nearly double that amount, a matter emphasised by Mr Lancaster in the context of the dispute which later arose as to the circumstances in which the Council had indicated it might be prepared to withdraw its winding up application against the company.)

It is not disputed that on the formal assessment of the costs in May 2008, Lawrence Waterhouse became liable to pay the Council the sum of $57,683.45. This gave rise to what I have already referred to as the irony of the present situation. Mr Lawrence was only too keen to assure me that he (the controlling mind of Lawrence Waterhouse) was happy to meet the costs orders against the company. At T 237.12, he said that he had offered to pay the Council's costs, as assessed, but that the Council had broken off all communication (T 237.10). (However the only offer, as such, seemed to be put at the time of the winding up application itself.) At T 238.5, Mr Lawrence said that he did not pay the costs judgment obtained when the costs certificate was filed with the Local Court because he was considering whether he should apply to take the matter back to court.

Mr Lawrence agreed (T 235) that at the time that the charge was granted he knew that the company had costs orders against it, the amount or quantum of which was in the process of assessment; that he considered the claim by the solicitors for costs to be excessive; and that he did not trust the costs assessment system to give him a fair outcome (although he then said that he considered the system to be good but to have a few flaws (T 236.1), a rather more charitable assessment than that expressed in a website set up under Minsden's copyright in 2009). (Mr Marshall adduced evidence - forming part of Exhibit O - of a website apparently set up by Mr Lawrence and copyrighted by Minsden in 2009 entitled PhoneLaw, in which assistance in advocacy against the costs assessment system, amongst other services, was offered - in particular, it was said that PhoneLaw would "strive to spot" abuses and unethical billing practices, referring to over 14 years having "continually highlighted the mental abuse within the system" and offering trained "interlectural [sic] counsel" - as supporting an inference that Mr Lawrence did not want to pay, or have his company pay, the Council's legal costs.)

What was in fact done was that, on 30 May 2008, an application for review by the Costs Review Panel was lodged by Lawrence Waterhouse (as was its right) in respect of that costs certificate (this having the effect of suspending the operation of the certificate of determination pursuant to s 377 of the Legal Profession Act 2004 ( NSW)). That application was ultimately unsuccessful, in the sense that on 29 August 2008 the Costs Review Board confirmed the assessment of costs in the amount of $57,683.45. On 10 September 2008 the Council entered judgment for that sum against Lawrence Waterhouse in the Local Court based on the costs assessment certificate.

Further security for costs application

Meanwhile, on 12 June 2008, the Council had filed a further Notice of Motion in the Court of Appeal seeking security for its costs of the appeal. (By that stage, the Council had become aware of the registration of the charge in favour of Mr Lawrence) and on 7 July 2008, Lawrence Waterhouse was ordered to pay $25,000 as security for costs of the appeal (by way of cash deposit or bank guarantee by 18 August 2008.)

On the same date, Minsden registered the transfer to it of the Nelson Bay land. (As at 20 May 2009 there were no documents showing a receipt of $72,000 from Minsden (or anyone else) on the company's records between 1 March 2008 and 7 July 2008 (T 107).) For the defendants it is submitted that if, at the time, Mr Lawrence was the beneficial owner of the Nelson Bay land pursuant to the 2003 Deed, Minsden attained the transfer derivatively through Mr Lawrence and the transfer is valid.

Lawrence Waterhouse failed to comply with the order for provision of security for costs and on 15 September 2008 the appeal proceedings were dismissed with an order that Lawrence Waterhouse pay the Council's costs. (Those further costs have not yet been assessed. The Council's legal officer, Ms Lisa Marshall, gave evidence that the solicitor/client costs of the appeal proceedings were in excess of $40,000.)

McColl JA (in her judgment dismissing the appeal proceedings for failure to pay the security ordered - Lawrence Waterhouse Pty Ltd v Port Stephens Council [2008] NSWCA 235), referred to the circumstances in which the charge was created as follows:

Mr Lawrence did not dispute that the effect of the charge registered on 5 February 2008 was to place an obstacle in the way of the respondent enforcing any costs orders of which it is currently, or may become, the beneficiary...

I am concerned that the steps the appellant has taken either to burden its property and/or to dispose of it in circumstances where the respondent has been agitating to secure its costs of appeal appear to demonstrate that the appellant is doing all it can to expose the respondent to the risk of irrecoverable costs...

The vague statements which Mr Lawrence made, after some pressure I should add from myself, to see whether the appellant could in any way meet the order for security for costs offers the Court no comfort that the order for security for costs will be complied with in a time which would accommodate an efficient hearing of the appeal, if at all

Statutory demand/winding up

On 18 September 2008, the Council served a statutory demand on Lawrence Waterhouse pursuant to s 459E of the Corporations Act , in relation to the judgment debt comprising the costs as assessed of the Class 4 proceedings. Lawrence Waterhouse failed to comply with the statutory demand within the 21-day period allowed under the Act and on 17 November 2008 the Council filed an application for the winding up of Lawrence Waterhouse in insolvency relying upon the statutory presumption of insolvency arising by reason of non-compliance with the statutory demand.

Prior to the hearing of that winding up application, there was correspondence between the parties in which a compromise was sought in relation to the winding up proceedings. By letter dated 9 December 2008 (on which reliance is placed by Mr Lancaster for a submission that the winding up proceedings or their continuation were an abuse of process), solicitors for the Council advised Mr Lawrence that the Council 'might' consider withdrawing the winding up application if it received a bank cheque in the judgment amount, plus a bank cheque for its costs of the winding up proceedings to that date (an amount of about $4,000) and (this being the contentious point) if Lawrence Waterhouse paid the sum of $40,000 into the solicitors' trust account to be held pending an assessment or agreement as to the amount of costs payable by Lawrence Waterhouse pursuant to the costs orders in the Court of Appeal proceedings. This was characterised by Mr Lancaster (incorrectly in my view) as a demand for moneys not then due and payable.

The letter in question conveyed instructions from the Council that it "would consider seeking leave to withdraw from the winding up proceedings" in the following terms:

We are instructed that Port Stephens Council would consider seeking leave to withdraw from the winding up proceedings against Lawrence Waterhouse Pty Ltd if the following amounts are paid by 4pm on 15 December 2008:

1.Bank cheque in favour of Port Stephens Council in the amount of $57,683.45 being the amount of assessed costs in the Land and Environment Court proceedings (excluding interest); and

2.Bank cheque in favour the Harris Wheeler Trust Account in the amount of $40,000 to be deposited into the Harris Wheeler Trust account against the costs incurred by the Council in the Court of Appeal, to be held until those costs have been agreed or assessed at first instance whereon the amount agreed or assessed at first instance will be immediately released to the Council, and any balance returned to you; and

3.Bank cheque for the amount of $4,323 being the Council's costs incurred in connection with these winding up proceedings to date (excluding counsel's fees).

If the bank cheques for the amounts specified above are not received on or before 4pm on 15 December 2008 Council will proceed with its application to wind-up Lawrence Waterhouse Pty Ltd on 16 December 2008.

Until the Court of Appeal costs had formally been assessed, there was no liquidated sum payable in respect of those costs. Nevertheless, in accordance with the Court of Appeal's orders there was a liability to pay those costs once agreed or assessed and what this letter seems to have been contemplating was a regime to secure moneys in respect of those costs until such time as the amount was determined. I do not read the letter in its terms as a demand. It puts Mr Lawrence on notice, in effect, that unless certain things happened the Council intended (as was its right) to proceed with the winding up application on the basis of the existing judgment debt. It was open to Lawrence Waterhouse to tender a cheque for the judgment debt or to pay that amount into Court (whereupon the Council might have been in a position to seek its costs of the proceedings and/or to seek the winding up on a different ground but would no longer have been in a position to rely on non-compliance with the statutory demand as a basis for moving on the winding up application). Lawrence Waterhouse, despite Mr Lawrence's many protestations to me of willingness to pay the costs judgment against the company, chose not to pay even the amount of the undisputed judgment debt.

On 5 February 2009, on the Council's application, an order was made for the winding up in insolvency of Lawrence Waterhouse and the first plaintiff, Mr Shaw was appointed the company's Official Liquidator.

Present proceedings

Mr Shaw (and this is the source of much of Mr Lawrence's complaints as to the conduct of the liquidator) then retained as his solicitors the same firm that had acted for the Council in the winding up application (and had acted from around February 2008 for the Council in the Court of Appeal proceedings), Harris Wheeler. (Another firm had acted for the Council in the Land and Environment Court proceedings and up to early 2008. The change of solicitors was apparently the outcome of a tender process for the provision of legal services to the Council conducted at that time.) The Council has been one of the (if not the) largest client of that firm.

These proceedings were commenced by the liquidator and Lawrence Waterhouse shortly after the liquidator's appointment, orders being sought and obtained on an interlocutory basis to restrain Minsden from dealing with the Nelson Bay land. This was in the context that, at the time Mr Shaw was appointed as liquidator, Minsden was advertising the Nelson Bay land for sale for $1,190,000 through Ray White Port Stephens. Interestingly, the real estate agent's website had described the land as:

Land Development Site

DA approved for 3 unit development

Close to shops and mariner [sic].

Offer placed and accepted awaiting in exchange.

Mr Lawrence denied that he had instructed the agent to advertise the land in that way (although Mr Marshall pointed to Mr Lawrence's incorrect spelling of 'marina' in the witness box - T 267 - as suggesting that it was he who had given the relevant instructions). In particular, Mr Lawrence denied having instructed the agent to refer to a DA approval for a 3-unit development of the site (which he knew to be false) (T 268). There were in fact two website versions of the advertisement in question (one nominating as a contact within the real estate agency a Mr Dorrity, a copy of which was in Exhibit O, and one nominating Mr Mirosevich as the contact, that copy being Exhibit M), but both referred to a DA approval for 3-unit development and contained the words "Close to shops and mariner [sic]". Mr Lawrence said (at T 266) that Mr Dorrity had been retained in relation to the sale of other land at Salt Ash (held by the trustee of the superannuation fund) and denied that Mr Dorrity had been involved in the advertisement of the Nelson Bay land. (Nevertheless there was no challenge to the authenticity of the respective website publications.)

Further, Mr Scott Newton (Mr Shaw's partner in the firm Shaw Gidley, who is also a registered liquidator and who had the day-to-day conduct of the present liquidation over the period up to November 2009) deposed (in his affidavit of 10 February 2009, Exhibit 22) to a conversation with Mr Mirosevich in which he says the latter confirmed in February 2009 that a "DA had been approved" (and that "it came through in the last couple of months"). Mr Newton was not challenged on that conversation. Mr Marshall submits that information as to the status of the development application could only have been obtained from Mr Lawrence, since the Council knew that that such an approval had not been given. (Mr Lawrence of course also knew that there was a problem with such an approval at that stage.)

Reliance seemed to be placed on this evidence as indicating a willingness by Mr Lawrence to paint an inaccurate picture of events to suit his position (much as it was suggested he had later done in conveying to the liquidator the impression that the Nelson Bay land was land held on trust for his superannuation fund, in notes prepared in early 2009 to which I will refer shortly).

It seems to me inherently implausible that real estate agents would have advertised the Nelson Bay land for sale by reference to an approved DA without some form of instructions or information from a director or other responsible officer of the vendor (Minsden). I consider the probability is that Mr Lawrence did give some such information to the agents in relation to the development of the land. However, it may be that there was a genuine miscommunication in that regard and ultimately I think little turns on this.

After the filing of the Originating Process, Mr Lawrence was joined as a defendant to these proceedings and orders were sought in relation to a claimed debt owing by him to the company (first, in the sum of $88,228.46 as per the Amended Points of Claim filed on 8 February 2010 and later in the increased amount of $142,317.19 as per the Further Amended Points of Claim filed on 13 April 2010).

By the time of the hearing (for reasons which I will explore below), the liquidator's position was that the amount owing by Mr Lawrence (or any other entity) to the company was unknown due to the state of the books and records of the company. In the Second Further Amended Originating Process and Second Further Amended Points of Claim filed on 13 December 2010, an account was sought of the amounts paid to and by the company over the period. (Although it was suggested that orders could be made for payment of particular amounts by reference to a revised schedule of payments proposed by the liquidator's office, ultimately what was urged by Mr Lawrence was that there now be a "full audit".

From November 2009, the liquidator's employed manager, Mr David Irving, has undertaken the day-to-day conduct of the liquidation. Both Mr Newton and Mr Irving gave evidence at the hearing as to the obstacles they say they have encountered in the task of winding up the company (largely due to inadequacy of record-keeping).

Requests for documents

Almost immediately following the appointment of the liquidator, pro forma (T 104.20) letters were issued (on 6 February 2009) to Mr and Mrs Lawrence, requiring the production of the company's books and records, and a report as to the affairs of the company was sought from Mr Lawrence as its director. On 27 February 2009 a similar letter was sent to the company's accountant (Mr Ronald Smith). That followed one day after a subpoena seeking similar documents was issued on 26 February 2009 to Mr Smith or his accounting practice. A notice to produce was issued on 25 February 2009 to Minsden.

As to the liquidator's other queries, a subpoena was issued to Elliot Tuthill, and other enquiries had been made in due course at least of the Commonwealth Bank (T 107) and possibly (though there was no copy of any written enquiry) also of the ANZ Bank. On 25 May 2009 Mr Smith wrote (CB 390) saying he had no knowledge in relation to any other documents of the company. Mr Newton deposed to having made telephone calls to Mr Smith in relation to the documents sought by him. (Mr Smith, however, remained an elusive figure in these proceedings.)

On 2 March 2009, Mr Lawrence responded to the requests made of him by the production of certain documents (those contained in CB 499-789, containing both ANZ and CBA company bank statements), copies of company tax returns going back to 2001, as well as unsigned financial statements apparently prepared by Mr Smith. (Insofar as complaint is made that Mrs Lawrence produced no documents, Mr Newton says that he assumed the material so produced was only by Mr Lawrence (hence his affidavit evidence that no documents were produced by Mrs Lawrence) (T 104). However, if Mrs Lawrence did not occupy an independent role from that of her husband in the company, then I accept that the production by Mr Lawrence may be expected to have encompassed any materials his wife also held.)

Mr Lawrence also completed a pro forma document advising as to the records held by the company (a copy of which is Exhibit L). Mr Lawrence says that he completed this report with the assistance of, or in accordance with instructions given by, a member of the liquidator's staff (to whom he referred as Lucinda but who, having regard to the correspondence, is more likely to be a Ms Lucretia Sutherland). Mr Lawrence completed that report by noting the letters "N/A"s against a number of items. In the witness box he said at first that those letters meant "Not Available" but then conceded that in respect of some items the letters probably meant "Not Applicable" (T 237).

Those items (either "not available" or "not applicable" as the case may be) included a large number of accounting records including item 11 (General Ledger posted and balanced to date of liquidation); item 12 (Journal with explicit narrations to all entries); item 13 (Cash Book Reconciled); item 14 (Purchase Journal and Supplier Invoices); item 15 (Sales Journal and Sales Invoices); item 16 (Petty Cash Book); item 17 (Wages Book, and Employee Records, including unused Group Certificates) and item 21 (Payment Vouchers).

Items 18 and 19 (Debtors' and Creditors' Ledgers balanced and reconciled with General ledger) were initially marked "N/A" then the entries were crossed out and the items initialled (but it is not clear that any separate ledgers were in fact produced, Mr Lawrence's evidence as to how he completed this form being somewhat confusing).

Also marked "N/A" was item 31 (Any other documents which relate to the Company and should be in the possession of the liquidator), relevant since Mr Lawrence seemingly did not produce personal records now said to be of relevance to the company's financial position (and to which he sought to refer when responding to questions in cross-examination - such as at T 280). Mr Lawrence expressed confidence that the records would be found in his MYOB entries and suggested that he would be able to identify exactly the entries from a "box of receipts" that he might have yet when he attempted to do so in response to particulars queries both that day and overnight he was unable to produce the relevant records.

At the same time, on 2 March 2009 Minsden's lawyers wrote (in a letter marked without prejudice but tendered by Mr Lancaster as Exhibit 19) providing particulars in relation to the transfer of the Nelson Bay land. Curiously, that letter (which raised a conflict of interest issue) asserted that had the Court of Appeal been advised that the Nelson Bay land was in the name of Lawrence Waterhouse Pty Ltd then it would not have allowed the security for costs, yet went on to assert that Lawrence Waterhouse Pty Ltd had been unable to bring to the Court of Appeal's attention, on the security for costs application, that the company had contracted the sale of the property to Mr Lawrence.

In the records initially produced, there were some documents described as 'MYOB style management accounting materials'. On 26 March 2009, Mr Shaw wrote to Mr Lawrence acknowledging the delivery of documents by Mr Lawrence and seeking the MYOB software for Lawrence Waterhouse. Mr Lawrence said that he spoke to 'Lucinda' of Mr Shaw's office, and then sent a letter to her [T 215]. (No such letter was able to be produced when a call was made for it during the hearing.) As far as the MYOB documents sought by the liquidator were concerned, (at T 215.48) Mr Lawrence claimed that he had offered to provide these "if I was given time to separate the companies, all the interlocutory companies and personal matters ... so that the liquidator would have just the Lawrence Waterhouse". He maintained that he had, in effect, already had a "full audit" comprised by the MYOB records since 2004 (T 281).

Some MYOB records were eventually produced (only a few weeks before the hearing when Mr Lawrence served his most recent affidavit). Mr Newton accepted that he had received reconciliation reports apparently produced on MYOB (CB 695/700) (T 101) but said that he had no information as to how those reports had been prepared.

(When he received no MYOB reports in respect to his request in 2009, Mr Newton reported the breach to ASIC but took no further action, noting in the witness box that it was the directors' duty to produce all the records of the company. Mr Lawrence at T 245.30 conceded that he knew he had a duty to produce all books and records to the liquidators and at T 245.37 agreed that the position as at the present time was that there was nothing else to produce (though he then sought to search for other documents in bags he had with him in the court when asked about particular invoices, which suggests that he may have other documents).)

The report as to the company's affairs completed by Mr Lawrence recorded only one creditor (the Council) but noted Mr Lawrence as a secured creditor. (There was no notation of any debts owed to other companies in the Lawrence Waterhouse group.)

Mr Lawrence also provided some notes (dated 12 February 2008) for the liquidator's assistance as to the company's affairs (T 210). Those notes (at para [18]) state that Lawrence Waterhouse provided the charge over the company in Mr Lawrence's favour to secure further funds for the Court of Appeal proceedings from the Land and Environment Court action and (at [19]), which Mr Lawrence agreed referred to the Nelson Bay land (T 211) state:

19. April 2008 - trustee for Super Fund the Wayne Lawrence Super Fund Lawrence Waterhouse Pty Limited acting as trustee was transferred to Minsden Pty Ltd as trustee for Wayne Lawrence Superannuation Fund. The second deed and transfer were signed by the Stamp Duties Office of NSW to allow this property to be put into the name of Minsden Pty Ltd in April 2008.

Insofar as this suggests that Lawrence Waterhouse had held the Nelson Bay land as trustee for the Lawrence Superannuation Fund, Mr Marshall submits that Mr Lawrence was thereby seeking to deter the liquidator from attempting to recover the land from Minsden. While Mr Lawrence denied (at T 211.26) that this paragraph was conveying that Minsden was to hold the land as trustee or of the superannuation fund or that this was the intent of the above paragraph, he did confirm that the land was not held on trust for the beneficiaries of the superannuation fund (which makes the response given to the liquidator at the outset of the liquidation difficult to explain other than as painting the picture that the land was an asset of the superannuation trust fund). Mr Lawrence further agreed that he had previously refused to concede (what he now accepts) namely that the Nelson Bay land has nothing to do with his superannuation fund (T 213.18). It seems to me difficult not to read this note as an attempt to portray the land as an asset of the superannuation fund and I do not accept Mr Lawrence's assertions to the contrary.

Initial report by liquidator

Mr Shaw prepared an expert report dated July 2009 (ultimately not relied upon as such in these proceedings) as to the insolvency of Lawrence Waterhouse. (Mr Lawrence was referred to in that report as a creditor in the sum of $107,000.)

Mr Newton (who had, as I understand it, been responsible within the liquidator's office for much of the preparation of that insolvency report) readily accepted in the witness box that the assumption made in the liquidator's report (para [10.3.13]) was that no additional income or funding was available from Mr Lawrence (T 122.11). (That assumption would seem to have been warranted at least in relation to any funding necessary to discharge the company's costs liabilities to the Council, since Mr Lawrence's own submissions in these proceedings make it clear that, unlike the position with other creditors, he was not prepared to ensure that Council's costs would be met). Nevertheless, Mr Lawrence's evidence (and the lack of any other pressing creditors in this period) supports the conclusion that as a general principle Mr Lawrence did provide funding for the company over the period up to at least 2008.

Mr Newton accepts that no request was made of Mr Lawrence for details of his personal financial position (T 122.39) and none seems to have been proffered by Mr Lawrence. Mr Newton said that, as at 2008, for the purposes of the balance sheet test it was assumed that there were liabilities of the company not being met by Mr Lawrence (T 125).

Mr Newton adopted only a small portion of the liquidator's initial report ([8.1] - [8.3], dealing with the adequacy of the books and records of the company) and accepted that, for the purposes of the present application, the only basis presently put forward as to the insolvency of Lawrence Waterhouse is the presumption arising from the alleged failure to keep proper books and records (though reserving the position as to whether, on a more complete review of the additional documents provided by Mr Lawrence since Mr Shaw's report, the company would be said to be insolvent - T 66.48).

Position as at 20 April 2010

Preparation of a schedule of payments in and out of the company's bank account(s) was commenced by the liquidator's office towards the end of December 2009. Mr Newton accepted that as at December 2009, when the schedule of payments started to be prepared, he was (at least in part) looking to ascertain what Mr Lawrence's position was as a lender or borrower (T127.33). (Although some criticism seemed to be made of this by Mr Lancaster, criticism was also made to the effect that the liquidator did not enquire sufficiently as to Mr Lawrence's position as creditor of the company - which is at least partly the issue to which the task of preparing the schedule seemed to be addressed.)

Mr Irving accepted that at a meeting with Mr Lawrence that took place after November 2009, a generally cooperative meeting (T 177), Mr Lawrence had brought with him some cheque books (relating to Champerslife) and had a highlighted schedule showing deposits by that company. Mr Irving said he had not considered at the time that these were necessary to review as he was not then aware of any dispute as to what money had gone into the account from the amounts he had already identified (T 197).

I therefore draw the inference that the charge was granted with the intent to defraud the company's creditor(s) and accordingly I find that the deed of charge is voidable and should be set aside. (It is not necessary therefore to consider whether the charge is held by Minsden or constructive trust for Lawrence Waterhouse as was the alternative submission, although the reasoning explored above in relation to the transfer of land would lead to a similar conclusion on this issue.)

(iii) Claim for damages/equitable compensation for breach of duty

An important part of directors' responsibilities (and part of their duty of loyalty to the company) is the obligation to maintain proper financial records. This duty is embodied in the statutory scheme (s 344 of the Corporations Act ) and has been the subject of much judicial discussion. In Australian Securities and Investments Commission v Healey [2011] FCA 717, Middleton J stated, in relation to the obligation to keep proper financial records, (at [124]):

In my view, the objective duty of competence requires that the directors have the ability to read and understand the financial statements, including the understanding that financial statements classify assets and liabilities as current and non-current, and what those concepts mean . This classification is relevant to the assessment of solvency and liquidity. Equally, a director should have an understanding of the need to disclose certain events post balance sheet date. It would not be possible for a director to form the opinion required by s 295(4)(d) without such an understanding. (my emphasis)

A director who fails to take all reasonable steps (tested objectively by reference to the particular circumstances of each case, as explained in Healey at [150] and [179]) to secure compliance with Parts 2M.2 and 2M.3 of the Act contravenes s 344(1), which is a civil penalty provision.

Ford's notes that, in its application to the duty to keep financial records, s 344(1) is similar in wording to the former s 591(1) and that it was a defence to s 591(1) if the person charged proved that he or she had reasonable grounds to believe, and did believe, that a competent and reliable person was charged with the duty of seeing to compliance with those provisions and was in a position to discharge that duty.

In Australian Securities Commission v Fairlie (1993) 11 ACLC 669 Zeeman J held that the test in s 591(1) was an objective test which did not depend on the director's state of mind and was of the view that it was not sufficient for the managing director to employ a competent bookkeeper and to engage a consultant (no action having been initiated at board level).

It is submitted by Mr Marshall, and it seems to me to be a matter of commonsense, that in order to be a responsible banker in a group of companies such as this, it would be necessary to characterise payments made for the benefit of others in the group and there might be a need to apportion the benefit of payments as between the recipients. To do so, it is said that a record of the primary documents (invoices or bills paid by cheque) would be necessary as well as a record of who had made payments into the company and the capacity in which such payments were made (or on whose account the payments were made). The scope for confusion becomes evident when it is noted that Mr Lawrence gave evidence that when Champerslife paid money into the company it did so as a lender to the company but in earlier evidence/submissions it had been suggested that a payment made by a related company, such as Champerslife, was a payment made on Mr Lawrence's own behalf and at his direction (and therefore Mr Lawrence not Champerslife was the creditor).

Mr Lawrence says that he went to his accountant in about early 2005 and instructed him to prepare accounts of the previous period of (say) 5 years (T 216) and that Mr Smith did all the accounts and his bookkeeper all the cheque books (T 216.47). Mr Lawrence accepted that the company paid expenses on properties it did not own (T 219.44) (having been taken through a list of properties owned by him or other entities associated with him), but maintained that though the company did not own the properties it had an interest in them (though he couldn't explain what that interest was and said he "would have to go back to the books and find out what it is actually for" (T 220). When asked to identify what books and records, he said the "liquidator has got them").

Mr Lawrence's disbursement of funds without keeping records is said to amount to a breach of his statutory and fiduciary duties as a director of Lawrence Waterhouse. I am satisfied that such a conclusion should be drawn. The evidence does not satisfy me that there was in place a proper system for the keeping of books and records from which the intercompany dealings could be monitored and recorded.

I note that Mr Lawrence's position seemed to shift from a submission that the company was solvent (because he had ensured that all creditors except the Council had been paid out) and had only one creditor or external creditor (the Council) apart from himself, and the position reflected in the submissions made as to what would be the case if Lawrence Waterhouse had a claim for reimbursement of expenses paid for his benefit as constructive trustee of the land (namely that any such amount would be shared pro rata with other creditors such as Champerslife and Bulevi, not hitherto suggested to be current creditors of the company).

I was left with the impression that Mr Lawrence operated his various companies as little more than corporate emanations of himself and moved money through Lawrence Waterhouse's bank account for convenience or otherwise, but without a clear differentiation between the different entities as to what money belonged to which.

As to Mr Lawrence's duties, I am satisfied that he is in breach of his duties by having failed to put in place a system whereby proper books and records were kept by the company so as to enable the company to rely upon and recover where applicable amounts owing to it by other companies within the group. The difficulty may be tested by asking how the liquidator could, for example, pursue Champerslife or Bulevi for moneys paid on behalf of those companies - or, conversely, whether he could be satisfied that amounts were properly owing to those or other related companies.

The question then is what flows from that breach of duty. The liquidator's position is that Mr Lawrence, as the managing director and the controlling mind of the company, should account for all the payments made by the company (for which he cannot now account) and, in particular, that where the liquidator is unable from the records to determine how an allocation should be made between the companies then Mr Lawrence should be liable for those amounts.

It is submitted by Mr Marshall that, for the purpose of evaluating equitable compensation in such a circumstance, a company director is treated as a trustee who is in breach of trust and that therefore a 'but for' test applies in respect of causation, and if causation is established the defendant is liable to restore the company to the position it would have in the absence of breach. Reference was made in this regard to O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 where the Court of Appeal concluded that the approach to causation which has been adopted for the trustee of a traditional trust should be applied to the exercise of fiduciary power by a company director.

In Re International Vending Machines Pty Limited and the Companies Act (1962) NSWR 1408, Jacobs J said (at [1420]):

The question still remains whether any of the duties of a director and of a trustee are alike and more particularly in this case it falls to be determined whether a director of a company, who disposes of property of the company in an ultra vires manner is liable in the same way as a trustee would be liable for disposing of trust property in a manner beyond the powers conferred on him by the trust instrument.... The act is wrongful; the director knows the wrongful circumstances and the director in this regard is in the same position as a trustee who disposes of trust property in breach of the law or of the terms of the trust instrument.

In Mulkana Corporation Pty Limited (in liq) v Bank of New South Wales (1983) 8 ACLR 278 Powell J said:

... while directors are not, properly speaking trustees, but fiduciary agents, the range of duties and obligations to which they are subject or obligations which place them, in relation to moneys or property which are in their possession, or over which they have control, in a position analogous to, although not identical with, that of trustees ... (I)t is analogous since, just as, in such a case, trustees would be liable to recoup the trust for any loss, directors who misapply, or are parties to the misapplication of funds or other property of the company, are, subject to the court's powers to relieve them from so doing, liable to recoup the company for any loss thereby sustained. (279).

Mr Marshall submits that Mr Lawrence's pattern of conduct was a misapplication of company property and a breach of the director's fiduciary duty analogous to the circumstances considered in O'Halloran , Mulkarna , and International Vending Machines .

Insofar as it appeared that a distinction was sought to be drawn between companies of the kind here in question and larger public companies, I note that in Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115, Tadgell J noted at [126], in relation to the statutory duty of care and diligence, that:

As the complexity of commerce has gradually intensified (for better or for worse) the community has of necessity come to expect more than formerly from directors whose task it is to govern the affairs of companies to which large sums of money are committed by way of equity capital or loan. In response, the parliaments and the courts have found it necessary in legislation and litigation to refer to the demands made on directors in more exacting terms than formerly; and the standard of capability required of them has correspondingly increased.

Having chosen to incorporate and to operate his business through a corporate structure, Mr Lawrence assumed the duties of a director that have been recognised as onerous duties. Mr Lawrence's mantra was that he left matters, such as allocation of expenses, to his accountant. That, however, does not address the question as to the proper performance of his duties as a director if he had no way of determining how much was lent to or owed by the company.

As to quantum, it is submitted that Mr Lawrence is liable not only for the misapplied funds which can be identified, but also for those funds which were paid out of the company and cannot now be identified because of the failure to maintain adequate financial records, Mr Marshall citing Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211, where Street J (as his Honour then was) said (at [215]):

Caffrey v Darby , supra, is consistent with the proposition that if a breach has been committed then the trustee is liable to place the trust estate in the same position as it would have been in if no breach had been committed. Considerations of causation, foreseeability and remoteness do not readily enter into the matter ... The principles embodied in this approach do not appear to involve any inquiry into whether the loss was caused by or flowed from the breach. Rather the inquiry in each instance would appear to be whether the loss would have happened if there had been no breach.

In Maguire v Makaronis (1997) 188 CLR 449, where the High Court considered the question in the context of a solicitor's breach of fiduciary duty through non disclosure to the client, the High Court said that questions of foreseeability, remoteness and novus actus are irrelevant to the calculation of equitable compensation (See also Claremont Petroleum v Cummings & Anor (1992) 110 ALR 239 ) .

Mr Marshall submitted (with some force having regard to Mr Lawrence's own evidence) that this was a case where Mr Lawrence treated his companies as one and where Lawrence Waterhouse paid the expenses for all (including personal expenses of Mr Lawrence and expenses of other companies) and that from time to time money was deposited by him to the company, such as payments from Mr Lawrence's AMP deposits. Criticism was not made as to the existence of an arrangement of that kind between the corporate entities and Mr Lawrence. Where criticism was levelled at the conduct was that it was said that, having treated the 880 bank account as an account for both Mr Lawrence and the group, and not having retained adequate underlying records to assist in determining what amounts were owing by whom, the difficulty is in now arriving at the correct position in relation to the loan accounts.

For Mr Lawrence it is suggested that the starting balance from which to calculate loan accounts can be found in the unsigned financial accounts prepared by the company's accountant in April 2005. However, Mr Newton cogently explained why those accounts were unreliable and, insofar as they seem to be dependent on assertions by Mr Lawrence with no supporting documentation, I have some concern as to the ability to rely on them. Mr Smith was not called to give evidence to rebut any presumption of insolvency arising from the state of the records or to explain why the records were adequate for the statutory purposes. (Mr Irving criticised the MYOB as a "conglomeration" and said they were unhelpful when attempting to put together a balance sheet for the company.)

It is asserted that Mr Lawrence did not comply with his obligations under s 483(1) of the Corporations Act in that he did not deliver up when required all the company's records. Such a conclusion would seem to follow from the piecemeal fashion in which those documents that were produced have seen the light of day. Mr Lawrence also maintains that there are other documents in his possession that are relevant to the payments made out of the company - yet did not see fit to produce them at an earlier time and was seemingly unable to produce them at the hearing before me. Mr Lawrence now says that he knows of no more documents of the company (although again he seems not to include personal statements in that, at least insofar as he said in cross-examination that he had a statement to match the entry for 'Buyers Edge' in the schedule at item 87 and seemed to think that this was something he could have produced had he known it was required - though the documents ultimately produced overnight were not relevant to the evidence that had been given).

Mr Marshall submits that in circumstances where Mr Lawrence was given time by Palmer J to put on his evidence to support his comments in the schedule to explain the transactions; where a 'guillotine order' (criticised by Mr Lancaster as an attempt to preclude evidence from Mr Lawrence but more likely in my view to have been a concern to proceed expeditiously to a hearing) was ultimately made; where Mr Lawrence finally served an affidavit sworn in November 2010 and where, despite supplementing that evidence with his April 2011 affidavit, there are still no primary documents to explain numerous unexplained payments made by the company, Mr Lawrence (who bears the onus in regards to proving that the payments were made for the benefit of the company or that they can somehow be brought to account) has not satisfied that onus.

The liquidator seeks an award of equitable compensation to the company for the director's fiduciary breach, such compensation to be assessed at the time of hearing and with the full benefit of hindsight and common sense. Mr Marshall submits that had there been proper accounts kept, then Mr Shaw could have gathered up any debts owing on the loan account and then made a distribution to the creditors, including the Council, who had (and pressed) valid claims against the company. As a creditor, Mr Lawrence would have had an expectation that his debts would be paid pro rata in the order of priorities under s 556. Mr Marshall submits that Mr Lawrence should fill all 'black holes' and that he then await the outcome of the distributions to creditors to see if there is a surplus that he would receive back as a shareholder of the company.

Mr Marshall did hand up in closing submissions a schedule setting out the manner in which the liquidator suggested that certain items should be accounted for (which, needless to say, was not adopted by Mr Lancaster). However, while Mr Marshall submits that the 2010 schedule prepared by the liquidator (as annotated by Mr Lawrence and later revised) is the only reliable summary of Lawrence Waterhouse transactions (and says that the fact that it has no starting balance from which to calculate loan accounts is a problem caused by Mr Lawrence's failure to keep debtors and creditors ledgers at all, and his failure to keep primary records from which such ledgers could be derived), Mr Lancaster pointed to various errors in the schedule and the revised schedule which make me doubt that it is a suitable starting point. Mr Irving frankly conceded that the schedule is not in itself particularly reliable.

Therefore, I do not consider it appropriate to make orders in relation to the payment of particular schedule items in respect of which either the party to whose account payments were made cannot be identified or that party is said to be Mr Lawrence personally. For completeness, however, I note that the suggested allocation was as follows:

A. Car Expense: $37,528.94 (BMW) - Items 1, 76, 115, 173, 216, 243, 875 (it is said that these should all be to Mr Lawrence's personal account since there was no evidence as to the arrangement in place between Mr Lawrence and group companies in relation to reimbursement of expenses incurred when using the leased BMW motor vehicle for company purposes)
AA. CBA 880 Bank Account - Unidentified Expenses: $85,659.36 (the liquidator submits that these expenses are unable to be identified and therefore should be to Mr Lawrence's account; Mr Lawrence's general response in relation to these items is that they are shared expenses of Lawrence Waterhouse, Bulevi and Champerslife. However, when pressed as to the basis on which it is said these should be treated as shared expenses, he had no real explanation and indeed his evidence was that he left it to his accountant to make the relevant allocation)
AB. Bateman's Bay property: $10,000 - Item no. 1732 (the liquidator accepts this is as accounted for as a company expense, it being a one-off transaction in relation to the payment of a deposit for a property transaction that did not proceed and was then refunded to the company)
AC. Booker Taylor: $3,262.50 - Items 1720, 1995, 1960, 1961, 2025, 2028 (Booker Taylor carried out bookkeeping services for the company. The question identified by the liquidator is whether the expense should be apportioned between the companies in the group or whether it should just be charged to the company as the banker. It is suggested that this should be treated as a company expense and apportioned pro rata as between the company and each of Mr Lawrence, Champerslife or Bulevi, who were also included in the conglomeration of accounts.)
B. Car Expense - Ute: $43,166.55 - Items 008, 0058, 099, 0895, 0898, 1336 (these expenses relate to the ute(s) driven by Mr Lawrence, for which expenses and lease repayments were made. The liquidator is prepared to accept Mr Lawrence's 80:20 assessment, i.e. that 20% of the use was private use by Mr Lawrence and therefore that he should account for 20% of these payments as being for his benefit.)
C. Darlington Drive, Hilltop Land when owned by Bulevi: $4,602.77 - Items 0079, 0123, 0135, 0199, 0204 (this is conceded to be an expense of Bulevi.)

D. Darlington Drive, Hilltop Land after transfer to Mr Lawrence on 20 May 2003: $2,965.42 - Items 0753, 0809 (these items relate to expenses incurred on an asset owned by Mr Lawrence and the liquidator says should be accounted for by him.)
E. Banksia Street, Hilltop Land: $135.05 - Items 0379, 0479 (the liquidator says that as the land was owned by Bulevi, the expenses are to its account.)
F. Elizabeth Way Hilltop Land: $88.04 - Items 0413, 0414,0477 (the liquidator says that as the land was owned by Bulevi, the expenses are to its account.)
G. Romney Avenue, St. Ives: $3,624.35 - Items 0014, 0036, 0382 (this is land owned by Mr Lawrence or Wayne Lawrence Pty Ltd (a company associated with Mr Lawrence) and the expenses are thus said to be for his personal benefit and ones for which he should account.)
H. Cambourne Road, St Ives: $3,479.87 - Items 0141, 0142, 0149, 0150 (these expenses were incurred in relation to a contract for sale in respect of land proposed to be purchased by Mr Lawrence personally and thus are said to be expenses for his personal benefit and for which he should account.)
I. Bindook Crescent, Terrey Hills: $11,006.12 - Items 0050, 0057, 0074, 0258, 0005 (this is land owned or exploited by Mr Lawrence, the expenses are said to be for his personal benefit and for which he should account.)
J . Gascoigne Street, Braemar: $6,276.40 - Items 0271, 0317, 0352, 0459 (this land is owned by Champerslife and the liquidator says the expenses should be treated as to its account.)
K. Biggera Street, Braemar: $6,113.03 - items: 0744, 0759, 0771 (this land was owned by Champerslife; was subdivided and Mr Lawrence became the owner of Lot 6. No submission is made in this regard but it is said that there needs to be some apportionment as between the expenses referable to each and if that cannot be identified then it would be treated as an unidentifiable expense for which Mr Lawrence should account).
L. Telstra Bills: $35,781.61 - Items 0749, 0956, 0975, 1001, 1162 (Mr Lawrence was the party with whom Telstra had its agreement for the provision of telephonic services but it is accepted that the Telstra invoices (not sighted by the liquidator) were paid by Lawrence Waterhouse. The liquidator proposes a pro rata allocation with these expenses treated in the accounts as being shared equally between each of Lawrence Waterhouse, Mr Lawrence, Champerslife and Bulevi).
M. AMP Expense: $42,581.57 - Items 1163, 1166, 1171, 1188,0031 (the liquidator accepts that Mr Lawrence had life or other policies with AMP and accounts with them and that deposits were made to Lawrence Waterhouse from AMP. It is submitted that these payments were for the benefit of Mr Lawrence and accountable for by him.)
N. Credit Card Payments: $274,559.29 - Items 0054, 0064, 0065, 0226, 02294, 0229 (the credit care payments were made for Mr Lawrence's Visa card, Gold Amex and Citibank. The liquidator submitd that there was no benefit to Lawrence Waterhouse in the reimbursement of these accounts and this should all be to Mr Lawrence's account.)
O. Elliot Tuthill Borrowings: $66,573.84 - Items 271, 281, 361, 424, 557 (the liquidator accepts that there were borrowings by Lawrence Waterhouse for the period 2001-2002 in relation to the Nelson Bay land. Any other borrowings from Elliot Tuthill are said to be those of Champerslife. As the payments appear to be loan repayments of borrowings by Champerslife either on instalments or as discharge, it is said that they should be to its account.)
P. Macquarie Bank Trust: $ 100.00 - item no. 278 (the liquidator says that there is no known information about this item other than it was to do with the Lawrence Superannuation Fund. It is submitted that it should be to Mr Lawrence's account.)
Q. Loan Repayment to Wayne Lawrence: $38,839.54 - Items 0640, 0685, 0755, 0776 (the liquidator submits that these expenses should be treated as payments to the direct benefit of Mr Lawrence and accountable for by him.)
R. Amex Tolls: $2,942.37 (the liquidator submits that this was a regular payment by Lawrence Waterhouse to an Amex card dedicated to payment of road tolls, that could have been of negligible benefit to the company and that the expense should be allocated one-third each to Mr Lawrence, Champerslife and Bulevi respectively.)
S. ASIC Charge over Champerslife: $405.00 Item 1156 (the liquidator says that the only charges granted by Champerslife were to Elliot Tuthill, processed on 22 August 2003, and to Mr Lawrence, processed on 23 February 2006. As the date of the transaction the subject of this item is 23 February 2006, and Mr Lawrence concedes it related to Champerslife, it seems to be suggested that this should be to the latter's account.)
T. ATO Super Return: $192.00 (the liquidator says that nothing is known about this transaction which is said to have occurred on 24 May 2006 and, as I understand it, would therefore submit that it be to Mr Lawrence's account).
U. Gunner Lawrence Exchange: $1,000.00 - item 2083 (the liquidator notes that this transaction was on 7 March 2007, after the appointment of the liquidator and he submits it should be paid by Mr Lawrence; Mrs Frances Gunner being Mr Lawrence's sister in law. Mr Marshall notes that Mr Lawrence is given credit in the schedule for Mrs Gunner's deposits into the account.)
V. Company Expense: $306.50 (this category is an expense that was previously thought not to be company expense, but is now conceded by the liquidator to be a company expense.)
W. VIP Personal Wages Expense & Wages Exchange: $131,919.96 (these expenses relate to the ANZ 565 bank account in respect of a business carried on by Mr Lawrence's son David. Mr Marshall submits that Lawrence Waterhouse was in effect also acting as banker for David Lawrence's business and points out that no primary documents have been seen. It is said that any deficiency should be to Mr Lawrence's account.)
X. Other Personal Wages Expense and Wages Exchange: Nil
Y. Shared Expense - Hilltop: $19,567.47 - Items 805, 807, 809, 849, 851, 853 (these expenses relate to different parcels of land at Hilltop owned respectively by Bulevi, by Mr Lawrence and by Bulevi and another company (Davhand) jointly. Mr Lawrence's explanation was that these items were shared expenses. Mr Marshall submits that as one piece of land is distinguishable from another the holding and development costs should therefore be able to be distinguished and that Mr Lawrence and Bulevi should be equally liable for these amounts.)
Z. 'No Pattern': $48,814.94 - Other items: 1034, 1096, 1102, 1129, 1201 (these are said to be random expenses which are unable to be identified and bear similarity to the expenses in category AA. It is submitted that Mr Lawrence should be liable for these expenses.)

Mr Lancaster does not accept the above suggested allocations. He submits that the net effect of the identified errors in the schedules prepared by the liquidator is to turn the original deficit of $66,770.99 (calculated by the summary) into a surplus of payments in the amount of $108,539.81. He submits that as Lawrence Waterhouse had no source of funds other than through the defendants and their related entities (in addition to car parking licence fees of $300.00 per annum), the surplus must be attributable to the defendants or their related entities. Thus it is submitted that the schedule shows that moneys are payable to Mr Lawrence and his related entities and that reliance cannot be placed upon the document as being a useful forensic document.

It is submitted by Mr Lancaster that the only real use to which the schedule can be put is to demonstrate the clear pattern that the company was used to pay for expenses, including personal expenses of Mr Lawrence and his related entities and that substantial payments were made into it on a regular basis with descriptions of the payments on the face of the cheque butts and deposit slips being 'loan'.

Mr Lancaster submits that in circumstances where the liquidator now acknowledges that he is unable to calculate the loan accounts, a primary step should be to undertake that exercise. It is suggested that this would reveal that Mr Lawrence is a creditor of Lawrence Waterhouse in a sum that may exceed any obligation that Mr Lawrence may have to pay money back to Lawrence Waterhouse, particularly where some of the actions sought in the Points of Claim are actions of the liquidator only, whilst some of the actions are actions by Lawrence Waterhouse.

For his part, by the close of his evidence, Mr Lawrence was calling for a full audit (although maintaining that there was already such an exercise contained in the MYOB accounts). It seems to me to be a remarkable situation that, in circumstances where it must have been apparent to Mr Lawrence that the liquidator was seeking to have an explanation as to the payments in and out of the company (and was not satisfied as to the explanation that these were all in the MYOB records), it is put at the end of a 5 day hearing that what should now be done is a full audit so that Mr Lawrence can prove his assertions (particularly when Mr Lawrence also tells the Court that he does not have any further documents to assist in that regard).

Nevertheless (and leaving aside the question of who should bear the costs that would follow from the above course), I consider that the question of damages/equitable compensation should be referred to an associate justice (or referee) for the full audit that Mr Lawrence now suggests is necessary to determine how much is owed to the company (so that as assessment can be made as to the loss suffered if the company is unable now to recover it due to the state of the records). That determination cannot be made on the basis of the schedule (which Mr Irving concedes not to be reliable in the absence of a more complete analysis of the records made available).

While I consider that the schedule prepared by Mr Marshall puts forward a sensible way of addressing the various categories of items, I do not consider that it can be adopted in that form given some of the discrepancies in the schedule and given that it is not known whether a demand for payment of some or all of the amounts would be met by the related companies on whose behalf the payments were made. (I am inclined to think, however, that an order could properly be made, in the abstract, on the basis of the schedule for reimbursement of payments apparently made on Mr Lawrence's personal behalf (subject to a set-off for moneys demonstrated to the satisfaction of the associate justice to have been lent by him to the company) but this is a matter on which I will hear further submissions.)

(iv) Exculpatory relief

As to the exculpatory relief sought, it is noted by Mr Marshall that this is not available for a claim for breach of fiduciary duty. Insofar as it is raised as a defence to the civil liability provisions Mr Marshall does not take issue with the evidence of Mr Lawrence as to his ill health but submits that this is as a case where there was an unskilled, unsuitable and unconscientious single director. It is submitted that Mr Lawrence should bear the responsibility for the problems that have arisen as a result of the manner in which the accounts of the company were kept in relation to its role as banker for the group.

Reluctantly, I am forced to conclude that Mr Lawrence has been prepared to adopt whatever position seemed at the moment best suited to protecting his company or his assets from the need to meet the costs liabilities incurred by the company on his instructions and for his benefit. I see no reason to assist that endeavour and to the extent that there is a discretion to be exercised in that regard it seems to me that it lies in favour of the plaintiffs and not the defendants.

Orders

It seems to me that the appropriate orders would include a declaration that Minsden holds its interest in the Nelson Bay land subject to a charge in favour of Lawrence Waterhouse for all costs for which it is liable to the Port Stephens Council in relation to the Land and Environment Court proceedings and subsequent appeal (by the judgment debt, plus interest, and the costs still to be assessed ordered by the Court of Appeal in respect of the appeal proceedings). Further, there should be an order that the Deed of Charge be set aside. There should also be a declaration that Mr Lawrence was in breach of his statutory duties as director of the company in relation to the failure to keep proper books and records as required by s 286 or otherwise to explain and account for the loan transactions between the various entities.

It was submitted by Mr Lancaster (in the context of the claim made pursuant to the trustee's right of indemnity), that even if the defendants have rights as creditors to be subrogated to the rights of Lawrence Waterhouse to indemnification out of the trust assets, other creditors would be entitled to compete on a pro rata basis. This does not sit happily with the numerous submissions that were made to the effect that there was only one external creditor (or that Mr Lawrence had ensured that all creditors other than the Council had been paid). It rather bespeaks of the shifting sands in Mr Lawrence's position throughout (and highlights the difficulty posed by the inadequacy of financial records from which a conclusion could be drawn as to the loan balances as between Lawrence Waterhouse and related companies). That said, the question whether priority should be granted to any amount recovered through the efforts of the Council's funding of the present application was raised and not fully argued. Therefore, it seems to me that it would be appropriate to invite any brief final submissions on that issue.

I will hear further submissions on the orders to be made, having regard to the above findings, and on costs. (As to costs, it was noted by Mr Lancaster that there remains a reserved costs order in the respect of the last amended Points of Claim and Originating Process that should be granted in favour of the defendants in respect of costs thrown away by that late amendment.)

Finally, in the interest of the just, quick and cheap resolution of the real issues in dispute between the parties, I question the need for a costly exercise of determining whatever amounts may be payable by Mr Lawrence by way of damages or equitable compensation if the only creditor with an interest in that exercise could be paid its debt out of funds otherwise available to the company. Mr Lawrence told me on his oath on numerous occasions in the witness box (as noted earlier) that he was happy to pay the Council's costs (qualified as it was on occasion by the requirement that they be fair and reasonable or the like). As I understood it, Mr Marshall for the liquidator acknowledged that if (as between the related companies) the group companies wished to enter into particular arrangements whereby the status of the loan accounts between them could not be precisely determined and did not press for a final accounting as between themselves, then that was a matter with which the liquidator would not have an issue provided that the debts of external creditors not privy to such an arrangement were satisfied). None of the related companies now identified as potential creditors seems to have made any claim for repayments of amounts that may have been owing to it and none may have an interest in the outcome of a costly exercise of determining the state of the intercompany accounts.

I invited the parties to consider their position in that regard during closing submissions. I again invite them to do so, failing which I will make orders to reflect the findings above and I will consider submissions as to whether the recovery of the moneys referable to the trustee's indemnity in respect of costs of the proceedings before the Land and Environment Court and Court of Appeal should be the subject of an order for priority to be given to the Council over other creditors (those other creditors being Mr Lawrence and potentially other related companies, none of which has hitherto suggested it has a claim and for which Mr Lawrence has in submissions in effect already disclaimed the existence of a claim except when responding to the suggestion that the Council might recover its debt(s) through subrogation to the trustee's right of indemnity).

I will list the proceedings at a convenient time for submissions as to the orders and costs.

**********

Decision last updated: 25 August 2011

Medium Neutral Citation:	In the matter of Lawrence Waterhouse Pty Ltd (in liq) - Shaw v Minsden Pty Ltd [2011] NSWSC 964
Hearing dates:	13, 17-20 May 2011
Decision date:	24 August 2011
Jurisdiction:	Equity Division - Corporations List
Before:	Ward J
Decision:	First defendant holds land subject to a charge in favour of the second plaintiff for indemnification of costs incurred by the latter as trustee for the second defendant. Deed of Charge set aside as having been granted with intention to defraud creditor(s). Finding that second defendant breached statutory duty as director of second plaintiff in having failed to put in place proper means to keep proper books and records of intercompany loans.
Catchwords:	CORPORATIONS - whether transfer of land and/or creation of charge over land is/are insolvent transaction(s) pursuant to s 588FC of the Corporations Act 2001 (Cth) or unreasonable director-related transaction(s) pursuant to s 588FDA (and, in either case, voidable pursuant to s 588FE) - in the alternative, whether transfer and/or creation of charge is/are alienation(s) of land with intent to defraud a creditor pursuant to s 37A of the Conveyancing Act 1919 (NSW) - CONTRACTS - whether rights and equitable interest arising under transfer have been abandoned - TRUSTS - whether transferee (Minsden) holds land and/or charge on constructive trust for transferor (Lawrence Waterhouse) - whether Lawrence Waterhouse held land as trustee for its director (Wayne Lawrence) and, if so, whether Lawrence Waterhouse is entitled to indemnification - whether, if transfer void or set aside, land is held on constructive trust for Wayne Lawrence and subject to an equitable charge in his favour - HELD - abandonment not established - Lawrence Waterhouse held land as trustee for Wayne Lawrence at time of transfer - Lawrence Waterhouse entitled to indemnification and to trace land into hands of Minsden for that purpose - charge set aside as unreasonable director-related transaction and alienation of property with intent to defraud creditor - CORPORATIONS - whether Lawrence Waterhouse has kept proper books and records for purposes of s 286 of the Corporations Act - if not, whether presumption of insolvency has been rebutted - whether Wayne Lawrence has breached any civil penalty provisions and exculpatory relief should be granted - HELD - failure to keep proper books and records - presumption of insolvency rebutted up to date of withdrawal of support by Wayne Lawrence - breach of statutory duty established - exculpatory relief not granted so as to absolve director from obligation to account for any loss sustained through breach of that duty
Legislation Cited:	Conveyancing Act 1919 (NSW) Corporations Act 2001 (Cth) Duties Act 1997 (NSW) Legal Profession Act 2004 (NSW) Uniform Civil Procedures Rules 2005 (NSW)
Cases Cited:	Arena Management Pty Ltd (Admin App) (Rec and Mgrs App) and Anor v Campbell Street Theatre Pty Ltd [2010] NSWSC 957 Australian Securities and Investments Commission v ABC Fund Managers Ltd [2001] VSC 383; (2001) 39 ACSR 443 Australian Securities and Investments Commission v Healey [2011] FCA 717 Australian Securities Commission v Fairlie (1993) 11 ACLC 669 Barton v DCT (1974) 131 CLR 370 Black Uhlans v New South Wales Crimes Commission [2002] NSWSC 1060; (2002) 12 BPR 22,421 Brooks v Heritage Hotel Adelaide Pty Ltd (1996) 20 ACSR 61 Calverley v Green (1984) 155 CLR 242 Cannane v J Cannane Pty Ltd (in liq) (1998) 192 CLR 557; 153 ALR 163 Chief Commissioner of Stamp Duties v Buckle (1998) 72 ALJR 243 Claremont Petroleum v Cummings & Anor (1992) 110 ALR 239 Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 Commonwealth of Australia v McLean (1996) 41 NSWLR 389 Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438; 16 ACSR 607; 13 ACLC 614 Demondrille Nominees Pty Ltd v Shirlaw (1997) 25 ACSR 535; 15 ACLC 1716 Dowse v Gorton [1891] AC 190 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; 19 ALR 223 Fitzgerald v Masters (1956) 95 CLR 420 Grossman v E Katz Manufacturing Jewellers (ACT) Pty Ltd [2004] NSWSC 1224 Intergraph Public Safety Pty Ltd v Tess Lawrence Media Services Pty Ltd (1996) 19 ACSR 523; 14 ACLC 1234 Jones v Dunkel (1959) 101 CLR 298 Kenna & Brown Pty Ltd v Kenna [1999] NSWSC 533; (1999) 32 ACSR 430 Lam Soon Australia Pty Ltd v Molit (No 55) (1996) 70 FCR 34 Lawrence Waterhouse Pty Ltd v Port Stephens Council [2008] NSWCA 235 Lemery Holdings Pty Ltd v Reliance Financial Services Pty Ltd [2008] NSWSC 1344; (2008) 74 NSWLR 550 Levi v Guerlini (1997) 24 ACSR 159; 15 ACLC 913 Lewis (as liquidator of Doran Constructions Pty Ltd (in liq)) v Doran [2005] NSWCA 243; (2005) 54 ACSR 410 Lewis v Doran [2004] NSWSC 608; (2004) 50 ACSR 175 Lo v Nielsen [2008] NSWSC 407; (2008) 26 ACLC 497 Longtom Pty Ltd v Oberon SC (1996) 7 BPR 14,799 Love v ASC [2000] WASCA 404; (2000) 36 ACSR 363 Maguire v Makaronis (1997) 188 CLR 449 Manning v Cory [1974] WAR 60; (1974) CLC 40-140 McDonald v Hanselmann (1998) 144 FLR 463 Mulkana Corporation Pty Limited (in liq) v Bank of New South Wales (1983) 8 ACLR 278 New World Alliance Pty Limited; Sycotex Pty Limited v Baseler (No 2) (1994) 51 FCR 425 Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360 O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 Old Kiama Wharf Company Pty Ltd (in liq) v Betohuwisa Investments Pty Ltd [2011] NSWSC 823 Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWR 211 Re International Vending Machines Pty Limited and the Companies Act (1962) NSWR 1408 Re Kazar; Frontier Architects Pty Ltd (in liq) [2010] FCA 1381; (2010) 81 ACSR 158 Re Leisure Developments (Qld) Pty Ltd (in liq); Ell v Palmer (2002) 41 ACSR 276 Re Northumberland Insurance Co Ltd (No 2) (1975) 1 ACLR 142 Re Suco Gold Pty Ltd (1983) 33 SASR 99; 7 ACLR 873 Re World Expo Park Pty Ltd (1994) 12 ACSR 759 Repforce International v Master Lease Properties [2003] NSWSC 970 Sandhurst Trustees Ltd v Harvey (2004) 88 SASR 519 Skouloudis Group Pty Ltd (in liq) v Planet Enterprizes Pty Ltd [2002] NSWSC 239; (2002) 41 ACSR 369 Southern Wine Corp Pty Ltd (in liq) v Frankland River Olive Co Ltd [2005] WASCA 236; (2005) 31 WAR 162 Stott v Milne (1884) 25 Ch D 710 Stratti Ocean and Earthworks Pty Ltd v Deputy Commissioner of Taxation [2003] NSWSC 509 Summers v Commonwealth (1918) 25 CLR 144 Van Reesema v Flavel (1992) 7 ACSR 225; 10 ACLC 291 West v Mead (1984) 155 CLR 242; (1984) 56 ALR 483 White v Conroy (1921) 21 SR (NSW) 257; 38 WN (NSW) 63 Ziade Investments Pty Ltd v Welcome Homes Real Estate Pty Ltd [2006] NSWSC 457; (2006) 57 ACSR 693
Texts Cited:	Carter on Contract Ford's Principles of Corporations Law Halsbury's Laws of Australia Heydon and Leeming, Jacobs' Law of Trusts in Australia (7th edn)
Category:	Principal judgment
Parties:	James Alexander Shaw (First Plaintiff) Lawrence Waterhouse Pty Ltd (in liq) (Second Plaintiff) Minsden Pty Ltd (First Defendant) Wayne Lawrence (Second Defendant)
Representation:	Counsel R Marshall (Plaintiffs) Solicitors Harris Wheeler (Plaintiffs) G Lancaster (Access Law Group) (Defendants)
File Number(s):	09/287488