Re Line Accord Pty Ltd
[2016] VSC 203
•2 May 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S CI 2014 02279
IN THE MATTER of LINE ACCORD PTY LTD (ACN 106 210 244)
| LINE ACCORD PTY LTD (ACN 106 210 244) | Plaintiff |
| v | |
| MINKEN PTY LTD (IN LIQUIDATION) & ORS | Defendants |
- and -
S CI 2012 05296
| MASTERPLAN PROPERTIES PTY LTD | Plaintiff |
| v | |
| THE REGISTRAR OF TITLES & ORS | Defendants |
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JUDGE: | Robson J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 8, 9, 10 and 11 February 2016 |
DATE OF JUDGMENT: | 2 May 2016 |
CASE MAY BE CITED AS: | Re Line Accord Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2016] VSC 203 |
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CONTRACT — Whether parties intended a loan agreement, mortgage and guarantee and indemnity to be legally binding.
EVIDENCE — Failure of plaintiff to call the accountant who the plaintiff alleged witnessed the agreement — Jones v Dunkel applied — More readily drawing inferences that otherwise open.
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APPEARANCES: | Counsel | Solicitors |
S CI 2014 02279 | ||
| The plaintiff: Line Accord Pty Ltd | Mr GT Bigmore QC and Mr DV Aghion with Mr CR Brown | Kyard Business Law |
| The first defendant: Minken Pty Ltd (in liquidation) | JL Evans | Russell Kennedy |
| The third defendant: Adam McGoldrick as Trustee of Rasco Family Trust | Mr PJ Bick QC and Mr L Glick QC with Ms GSJ Berlic | Isakow Lawyers |
S CI 2012 05296 | ||
| The second defendant: Minken Pty Ltd (in liquidation) | Mr JL Evans | Russell Kennedy |
| The third defendant and third third party: Line Accord Pty Ltd; the first third party: Dr Entwisle; and the second third party: Baraman Pty Ltd | Mr GT Bigmore QC and Mr DV Aghion with Mr C Brown | Kyard Business Law |
| The fourth defendant: Adam McGoldrick as Trustee of Rasco Family Trust | Mr PJ Bick QC and Mr L Glick QC with Ms GSJ Berlic | Isakow Lawyers |
HIS HONOUR:
Introduction
In 2004, Ian McGoldrick and Dr Timothy Entwisle agreed, as joint venturers, to buy an office block investment property at 17–27 Cotham Road, Kew (Cotham Road) for $8.5 million. The property was acquired by private treaty.
The contract of sale nominated the purchaser of the property as Ian McGoldrick and/or nominee. Ian McGoldrick signed the contract of sale. Dr Entwisle paid the deposit of 5 per cent, being $425,000. Ian McGoldrick did not contribute to the deposit.
Ian McGoldrick and Dr Entwisle agreed that the property would be purchased in the name of Minken Pty Ltd (now in liquidation) (‘Minken’). Minken was to act as trustee of a unit trust. The units were to be owned equally by a company controlled by each of Ian McGoldrick and Dr Entwisle. In the case of Ian McGoldrick, his share was held by Racso Pty Ltd as trustee of the Racso Family Trust. The Rasco Family Trust was held for the benefit of Ian McGoldrick and his family. Adam McGoldrick, Ian McGoldrick’s son, is now the trustee of the Racso Family Trust. Dr Entwisle’s share was held by Baraman Holdings Pty Ltd (‘Baraman’) as trustee of the Entwisle Family Trust.
The property has now been sold and the balance of moneys after the payment of the first mortgage have been paid into court. For the reasons explained below, Dr Entwisle’s company, Line Accord Pty Ltd (‘Line Accord’) claims it holds a charge over the funds that have been paid into court. Minken is now in liquidation. The liquidator of Minken, and Adam McGoldrick dispute that Line Accord has a valid charge.
During the hearing, Adam McGoldrick sought to argue that Walturn Pty Ltd (in liquidation) (‘Walturn’), a company associated with Ian McGoldrick, also had a charge over the moneys in court. On the final day of the hearing, however, Adam McGoldrick’s counsel informed the court that Adam McGoldrick no longer sought to pursue that claim.
During the previous day, it had become apparent during the cross‑examination of Ian McGoldrick by Mr Evans on behalf of Minken, that Ian McGoldrick had substituted a page in a security document that he was relying on to enable Walturn to make a claim as a secured creditor of Minken, that was not in the original security document when it was executed. The substituted page provided the basis for Walturn’s claim of the moneys of Minken in court and was prepared on the instructions of Ian McGoldrick. The conduct of Ian McGoldrick in substituting the page and presenting the amended document to the court in support of a claim for his own financial benefit, amounted, in my opinion, to grossly improper conduct on Ian McGoldrick’s part.
I find that Ian McGoldrick is not a man of credit. I am not prepared to accept the evidence of Ian McGoldrick unless confirmed by other acceptable evidence.
Walturn is now in liquidation. Mr Leonidas, the solicitor for the liquidator of Walturn, has informed the court that the liquidator would abide the court’s decision. There was no appearance for Walturn at the hearing. In the circumstances I propose to dismiss the claim by Walturn.
Thus the sole issue before the court is whether Line Accord is able to make out its claim to have a valid charge over the funds in court for the amount claimed by Line Accord.
The evidence
Ian McGoldrick gave evidence that the joint venture agreement was not strictly a simple 50/50 share between Ian McGoldrick and Dr Entwisle. Ian McGoldrick was asked about the arrangement that he had with Dr Entwisle to finance the purchase. Ian McGoldrick said that his understanding of the joint venture was that it was a 50/50 joint venture, where both would contribute funds equally ‘and that we would borrow the balance of the funds and it would be a venture where if one of the joint venturers was unable to contribute his share of funds, the other would contribute them, expecting to be reimbursed or to be adjusted later, and that if they — if they couldn’t reimburse the equality — equalness of the joint venture, it would be adjusted appropriately.’
Dr Entwisle said in his evidence in chief, that ‘initially the idea was to share the contributions in halves.’ Dr Entwisle said that over time Ian McGoldrick indicated to him that that he did not have the money to contribute at the time and he would contribute it later. Dr Entwisle said that he was able to make those contributions at the time with the idea that it would be an equal contribution overall.
Dr Entwisle was not challenged by counsel for Adam McGoldrick on this version of the agreement with Mr Ian McGoldrick despite Ian McGoldrick putting forward a different version of the joint venture agreement where he said the agreement was that the interests in the joint venture would be adjusted to reflect the contributions by each party over time.
Ian McGoldrick and Dr Entwisle were able to secure a first mortgage from Perpetual Trustees to assist in the purchase of the Cotham Road property. Further moneys were required to complete the purchase. Dr Entwisle provided a further $467,500 from the Timothy J Entwisle Pty Ltd Superannuation Fund (the ‘Old Fund’) that he controlled.
Dr Entwisle contends, however, that by a loan agreement, mortgage and guarantee and indemnity (the ‘Loan Security Documents’) entered into between Minken, Line Accord (and in the case of the guarantee and indemnity, Ian McGoldrick and Dr Entwisle), all dated 1 January 2005 but entered into in December 2006, Minken acknowledged that the $467,500 used to complete the purchase of Cotham Road was lent to Minken by Line Accord as trustee of the Entwisle Directors Superannuation Fund (the ‘New Fund’). Line Accord makes its claim to the charge over the funds in court under the Loan Security Documents.
Garry Angus was the accountant for the joint venture and the personal accountant for Ian McGoldrick and Dr Entwisle. According to Dr Entwisle there were a number of discussions between himself, Ian McGoldrick and the accountant Garry Angus about how the purchase of the building would be financed. Dr Entwisle said that there was a significant amount needed to make up the gap between the first mortgage and the price of the building. Dr Entwisle said that he was going to borrow some moneys against his house in Richmond to contribute his share. Dr Entwisle said the amount borrowed against his house in Richmond and the amount that Ian McGoldrick could contribute were insufficient to fill the gap between the price and first mortgage finance.
Dr Entwisle said that Mr Angus suggested to him that contributions from Dr Entwisle’s superannuation fund (the Timothy J Entwisle Superannuation Fund, which I have called the Old Fund) would get them across the line. Dr Entwisle said that Mr Angus advised him that Dr Entwisle’s superannuation fund could lend to the joint venture so long as the loan from the superannuation fund was secured. Dr Entwisle said that Mr Angus pointed out to him that there were certain regulations that had to be complied with on behalf of the superannuation fund at the time of the loan. Dr Entwisle said that Ian McGoldrick was present at those discussions with Mr Angus. Dr Entwisle said that he agreed with Ian McGoldrick that the moneys advanced by his superannuation fund would be in the form of a secured loan. Ian McGoldrick denied that any such discussion took place, or that any such agreement was entered into.
Dr Entwisle claims that the discussion about the use of the superannuation moneys being loaned under a secured loan was raised before the contract for the purchase of the property was entered into.
Dr Entwisle said that his discussions with Ian McGoldrick concerning the use of Dr Entwisle’s superannuation moneys were among many meetings that were held at Ian McGoldrick’s office at what he called the Grassmore building. Ian McGoldrick said that in 2004 he did not have an office in the Grassmore building.
Dr Entwisle said that he told Ian McGoldrick and Mr Angus that he would be prepared to enter into that arrangement to finance the purchase of Cotham Road using his superannuation moneys if that was possible.
Dr Entwisle was asked whether Ian McGoldrick said anything about this proposal. Dr Entwisle said that he could not remember the words actually said, but the best he could remember Ian McGoldrick was in agreement with that proposal.
Dr Entwisle said that Mr Angus strongly recommended that the old trustee of the Old Fund be replaced with a corporate trustee. Dr Entwisle said that Ian McGoldrick offered to provide a shelf company, Line Accord, to act as the trustee. Dr Entwisle said that he accepted that offer. Ian McGoldrick denied that he offered Line Accord to Dr Entwisle to act as the trustee of the New Fund.
According to Ian McGoldrick in his evidence in chief, in 2003, before the contract for the purchase of Cotham Road was entered into, Dr Entwisle had told him that he was intending to close down his superannuation fund and invest the moneys in property development. Ian McGoldrick was asked whether at any stage before or after 11 August 2004 when the contract of sale was entered into, but prior to settlement on 5 January 2005, there was a discussion with Dr Entwisle about the use of his superannuation money in the acquisition of Cotham Road. Ian McGoldrick said no.
Ian McGoldrick was also asked whether at any stage before or after the acquisition of the property he indicated, said or suggested, that he would make available or give Dr Entwisle Line Accord for the purposes of investing in the joint venture. Ian McGoldrick said ‘never.’
Ian McGoldrick was asked whether at any stage prior to the date of settlement there was a discussion with Dr Entwisle where the question arose of his superannuation fund being used in the acquisition and the taxation requirement that the fund be documented and secured on an arm’s length basis. Ian McGoldrick said ‘no.’
Ian McGoldrick denied that there was any discussion in his presence about the use of superannuation funds or the need to provide arm’s length security.
Ian McGoldrick agreed, in his evidence in chief, that Dr Entwisle had told him some time previously that he was proposing investing his superannuation moneys in a real estate venture as he was unsatisfied with his existing investments but denied he mentioned this in respect of the purchase of Cotham Road.
Ian McGoldrick, in his evidence in chief, says that there was no discussion at any stage between him and Dr Entwisle about the superannuation moneys being advanced as a loan or a secured loan. According to Ian McGoldrick he did not become aware that Dr Entwisle had used moneys from his superannuation fund as a loan until Mr Angus told him in late 2006. Mr McGoldrick said that he thought Dr Entwisle was going to vest his funds and use the money to put it into more rewarding investments. Mr McGoldrick said that in late 2006 he was informed by Mr Angus that Dr Entwisle ‘used his super funds as a contribution but not as a loan.’
Dr Entwisle did not call Mr Angus to give evidence to support his evidence of the discussions he said were held with Ian McGoldrick in the presence of Mr Angus or the advice he said was given to him by Mr Angus about the use of his superannuation moneys to assist the purchase of Cotham Road. Dr Entwisle provided no explanation for his failure to call Mr Angus other than informing the court that he did not intend to call Mr Angus. There was no suggestion that Mr Angus was unable to give evidence.
The purchase of Cotham Road was settled on 5 January 2005. Dr Entwisle says that at settlement and thereafter he overlooked making sure that the superannuation moneys he contributed at settlement were recorded as a secured loan to Minken, the purchaser. Dr Entwisle says that later in 2006 he received an enquiry from the ATO about a failure to make a BAS payment, and he realised that he had not obtained the documentation for treating the advance from the superannuation fund to Minken as a secured loan.
As mentioned, Ian McGoldrick says that the subject of using Dr Entwisle’s superannuation moneys was first raised with him by Mr Angus in late 2006. Ian McGoldrick says that Dr Entwisle was not present during the discussion with Mr Angus. Ian McGoldrick said that Mr Angus told him that some of the money that Dr Entwisle had contributed to the purchase of Cotham Road had been contributed by his superannuation fund. Mr Angus told Ian McGoldrick that he was the auditor of Dr Entwisle’s superannuation fund. Ian McGoldrick said that Mr Angus told him that he had been advised by a CPA in his office, a John Brown, that what he was proposing to do with Dr Entwisle’s contribution did not ‘stack up.’ Ian McGoldrick said that Mr Angus had been advised by Mr Brown:
that that would not stack up and he asked me if I would be prepared to sign an agreement that he alone could rely on – to do an audit. And I immediately said as long as it is never used for a proper tax audit or was never used for a – a security, an enforceable security, I’d be prepared to assist.
Ian McGoldrick was asked whether Mr Angus indicated what sort of agreements he wanted Ian McGoldrick to sign. Ian McGoldrick said:
My understanding that it would be a loan document and I didn’t know – it didn’t emphasise it was going to be a mortgage or a guarantee. He wanted a loan document that he could rely on.
Adam McGoldrick did not call Mr Angus to give evidence support Ian McGoldrick’s evidence of the conversation with Mr Angus. No explanation was given for the failure of Adam McGoldrick to call Mr Angus.
Ian McGoldrick said that in late December 2006, he got a call from Dr Entwisle saying he had some documents for Ian McGoldrick to sign. Ian McGoldrick says that he thought that what Dr Entwisle was referring to were the security documents.
Ian McGoldrick said that Dr Entwisle came to see him at about 6.00–6.30 one evening after work, and he had in his possession the loan agreement, the mortgage and a guarantee and indemnity. Ian McGoldrick denied that he already had possession of the documents and said that Dr Entwisle brought the documents with him. Dr Entwisle said that on the occasion the documents were signed he went to Ian McGoldrick’s office and the documents were on a table in the office and that he did not bring them with him.
Adam McGoldrick’s counsel suggested to Ian McGoldrick that there was no discussion with Dr Entwisle about the terms of the agreement — in particular, the rate of interest, the term of the loan, the default interest and such like. Ian McGoldrick was asked by Adam McGoldrick’s counsel whether he agreed with Dr Entwisle’s recollection ‘which is there was only if at all a very perfunctory discussion of the documents but it was all a discussion about something else?’
Ian McGoldrick replied:
That’s – there was – there was the confirmation I asked – confirmed that the documents would never be relied on. They were just to help him out for the – for Doctor – Mr Angus’ internal audit.
Was this confirmation sought? --- At the time, just as we’re signing them. I said, “You’re not relying on these.”
Counsel for Adam McGoldrick did not ask Ian McGoldrick what the response of Dr Entwisle was to that question ‘you’re not relying on these’, if any. I can only infer that counsel for Adam McGoldrick had not been instructed on this conversation. In fact, my inference is supported by the fact that it was put by counsel for Adam McGoldrick to Ian McGoldrick that the conversation he had with Dr Entwisle about the document was only ‘perfunctory’, whereas according to Ian McGoldrick critical words were said to Dr Entwisle that ‘you’re not relying on these’, referring to the Loan Security Documents being signed.
It seems to me that if counsel for Adam McGoldrick had been instructed about the statement by Ian McGoldrick to Dr Entwisle, that Dr Entwisle was not going to rely upon the documents as security, that would have been front and centre of the evidence led from Ian McGoldrick. The evidence went to the heart of Adam McGoldrick’s case, that the security documents were merely a sham.
I should mention that at all times, save when giving evidence, Ian McGoldrick was present in court right behind counsel for Adam McGoldrick. I am not able to say whether or not he was providing instructions to counsel for Adam McGoldrick, but he acted as if he was.
The fact that counsel for Adam McGoldrick did not ask Ian McGoldrick about any conversation with Dr Entwisle about the documents not being relied on raises doubts in my mind about the veracity of what Ian McGoldrick said.
The onus of proof to establish the loan as secured is on Dr Entwisle. However, the evidentiary onus, to establish that it was a sham, lies on Adam McGoldrick.
Counsel for Adam McGoldrick said that his case did not depend on the oral evidence of Ian McGoldrick. I interpolate to say I can well understand Adam McGoldrick’s case not relying on the oral evidence of Ian McGoldrick. Rather, counsel for Adam McGoldrick submitted that the objective facts established by inference that there was no intention on behalf of Ian McGoldrick and Dr Entwisle that the Loan Security Documents would be legally binding. In substance, Adam McGoldrick said that there were several factors from which that inference could be drawn.
Adam McGoldrick posed the question how would commercial people act and contrasted the behaviour of the parties in this case.
Adam McGoldrick said that there was no evidence from either Ian McGoldrick or Dr Entwisle that any details of the secured loan were discussed, such as the rate of interest, the default rate, terms of repayment, or length of the loan. On the contrary, Dr Entwisle’s evidence was that the Loan Security Documents were prepared without any instructions from him as to the terms and that the documents were merely sitting on a desk in Mr McGoldrick’s office in a form ready for signature. Ian McGoldrick denied that and said they were brought to his office by Dr Entwisle.
Ian McGoldrick said that the attitude of Dr Entwisle was that the secured loan was of no importance to him, and that the secured loan was to be of no legal effect for his benefit. It was Dr Entwisle’s evidence that Mr Angus suggested the details of the security, including the interest rates and term.
If Dr Entwisle is correct in his assertion that the documents were prepared without his instructions and that they were sitting in Ian McGoldrick’s office where they were signed by both parties without any discussion of the terms, the inference does arise that the parties did not intend for the documents to be legally binding.
The documents, if valid, effected a significant change in the joint venture relationship where neither party obtained security for any money put into the joint venture. It seems hardly conceivable that the parties would not discuss such a significant change and the terms of the change.
The draft of the loan agreement indicates the draft is for a loan made under Queensland law.
The interest rate fixed was 13 per cent and the default rate, 18 per cent. Interest that was not paid was capitalised. These seem extraordinary terms to agree to in a joint venture.
Adam McGoldrick submits that it is inherently improbable that Ian McGoldrick would sign Loan Security Documents without receiving them prior to signing, reading the documents or knowing what the terms were unless he was told by Dr Entwisle that they were to have no effect and would not be called upon.
David John Aubrey, the brother‑in‑law of Dr Entwisle, worked for Ian McGoldrick and Dr Entwisle as a project manager. He was asked:
Are you aware that this case involves in part a question that His Honour will have to determine about, putting it in lay terms, the enforceability of a mortgage loan and guarantee in favour of a company called Line Accord given by Minken?---I understand that.
Were you party to any conversation between Dr Entwisle and
Mr McGoldrick about that Line Accord mortgage loan agreement and guarantee?---I assumed the companies that I were working for were joint venture companies between Dr Entwisle and Mr McGoldrick. It came to my attention during some meetings in late 06 I think or 07 that another mortgage was - another loan was in existence and I questioned that because the income from the building that that loan was documented against was barely enough to cover the existing interest let alone further interest. I was then told that - or made aware that the mortgage was for the purposes of a tax audit by the accountants of the Entwisle superannuation fund.
Let me just deal with that point by point. Thinking back on it, I know it's a long time ago, are you able to with any confidence place that discussion or conversation in a particular year?---Not really. I think late 06 is my best recollection.
Would you tell His Honour were you present at a meeting? Was this at one meeting, more than one meeting?---We had some regular meetings. I think it was only one meeting. It was something that I was made aware of and after - there were no - there was no reason for me to look any further. I just presumed that was the case and the payments, I never saw any payments being made, loan repayments. As I said before, the Perpetual, the loan, the existing loans against the building were barely being covered by the income.
The building that you're talking about is what?---17-27 Cotham Road, Kew, which was the Minken property.
Counsel for Dr Entwisle did not challenge this evidence. There was no challenge to the evidence that the income from the building was barely enough to cover the interest on the first mortgage and by inference could not have met the interest terms of the purported secured loan thus leading to immediate default and the payment of default interest.
Adam McGoldrick also relied on the delay on the part of Dr Entwisle in organising the Loan Security Documents and the circumstances that prompted the documents to be prepared to support his contention that the documents were not intended to have legal effect between the parties.
Adam McGoldrick further relied on the context in which the secured loan documents were prepared to infer that the parties did not intend for the documents to have legal effect.
Line Accord’s accounts for the New Fund for 30 June 2006, disclose mortgage loans of $577,450 for 2005 and $661,860 for 2006. On 5 October 2006, the ATO wrote to Line Accord as trustee of the New Fund advising that the sum of $695.20 was overdue to the ATO.
On 21 November 2006, Dr Entwisle wrote to Mr Angus concerning Line Accord Activity Statements. The letter referred to documents received from the ATO including a penalty for failing to lodge an Activity Statement on time.
Dr Entwisle said that it was obvious that ‘we’ have come to the notice of the ATO and he would have preferred that not to occur.
Subsequently, in December 2006, the Loan Security Documents were prepared and signed. A caveat over the Burke Road property notifying a charge in favour of Line Accord was lodged on 2 January 2007.
In July 2007, the ATO contacted Mr Angus (as Dr Entwisle had feared might happen as the fund had come to the attention of the ATO) and informed him that the ATO wished to review the mortgage loan disclosed in the New Fund 2006 Regulatory Return of $661,860.
On 8 August 2007, Mr Angus wrote a letter to the ATO attaching the Loan Security Documents and stated that in the event that the ATO were not satisfied that the loan was arm’s length, Dr Entwisle would retire ‘taking his portion of the Superfund monies tax free … thereby closing the fund.’
Accordingly, this evidence cuts both ways. It supports Dr Entwisle’s claim that he was prompted to get loan documents prepared when he was contacted by the ATO about late payment. The documents also support the inference that the Loan Security Documents were only prepared when the activities of Line Accord came to the attention of the ATO and thus were prepared to satisfy any potential inquiry by the ATO about the validity of the Regulatory Returns filed by Line Accord with the ATO that showed investment in secured mortgages.
Neither Mr Angus nor Dr Entwisle discussed the terms of the Loan Security Documents with Ian McGoldrick. It seems hardly credible that if the parties intended the Loan Security Documents to be binding, that Mr McGoldrick would not wish to discuss such matters as the rate of interest and the penalty rate of interest.
I do not accept Dr Entwisle’s explanation for the delay in having the Loan Security Documents executed.
Dr Entwisle instructed Pamela Sell, a conveyancer and not a solicitor, to prepare the Loan Security Documents. I find that they were brought to the meeting with Ian McGoldrick for signature by Dr Entwisle.
The evidence established beyond any doubt that Dr Entwisle was dishonest in his business dealings and with the ATO. Dr Entwisle represented to the tax office that secured loans had been made from the New Fund, whereas in fact, the loans were made from the Old Fund and were not secured at the time relevant returns were lodged with the ATO describing them as secured.
This dishonest conduct was compounded by Dr Entwisle procuring the Loan Security Documents to be signed in about December 2006 showing the lender as the New Fund but backdating them to 1 January 2005 and sending them to the tax office to support the false entries in the returns that the moneys were lent from the New Fund whereas in fact the moneys had come from the Old Fund.
Dr Entwisle lodged personal income tax returns for the tax years 2008 and 2009 that falsely claimed expenses in relation to a farm that was involved in another venture with Ian McGoldrick when Dr Entwisle did not incur the expense and the manager running the farm had claimed the expenses.
Adam McGoldrick also relies on the circumstances in which the New Fund was created and submits that those circumstances suggest that the arrangement was never intended to have legal consequences.
The trust deed for the New Fund is dated 1 June 2004 and cites its corporate trustee as Line Accord. The New Fund was not issued with an Australian Business Number (ABN) until 6 April 2005. The trust deed of the New Fund was affixed with the company seal and signed by Dr Entwisle and Thomas Entwisle as directors of Line Accord. On 27 July 2005 Frederique Bentley ceased as a director and secretary of Line Accord and disposed of her shareholding. On the same date Thomas Entwisle was appointed as a director and secretary of Line Accord and acquired Bentley’s shareholding. It was not until 29 May 2006 that Dr Entwisle was appointed a director of Line Accord. As mentioned above, settlement of the purchase of the Burke Road property took place on 10 January 2005, before the New Fund came into existence.
The relevant funds were lent to Minken when the New Fund did not yet exist and well before Dr Entwisle was appointed a director of Line Accord.
Dr Entwisle received repeated advice informing him that he needed to secure any loan from his Superannuation Fund by way of a mortgage, in particular:
(a)a letter from Telford Story, the solicitors who acted for the purchaser of Cotham Road, to Dr Entwisle dated 22 December 2004;
(b) a letter from Telford Story to Dr Entwisle dated 10 February 2005; and
(c) a letter from Telford Story to Dr Entwisle dated 28 February 2005.
Despite the repeated advice from Telford Story, Dr Entwisle did not arrange for the Loan Security Documents to be executed until December 2006. Further, the Loan Security Documents were dated 1 February 2005 when they were not signed on that date. Line Accord did not register the caveat AE815929L until December 2006.
I also find that the taking of security by Dr Entwisle was inconsistent with the initial agreement between Ian McGoldrick and Dr Entwisle according to the version given by Dr Entwisle. Dr Entwisle said that although the payments were initially unequal that over time they would be equalled. The taking of a secured loan is not consistent with such an arrangement.
Dr Entwisle and Mr Ian McGoldrick had other properties in their joint venture dealings. The taking of security on a particular contribution was not how they had been doing business on their other ventures and was inconsistent with their mode of financing the projects.
Critically, for the issue of whether or not Ian McGoldrick agreed to give security for the moneys advanced by Dr Entwisle from his Old Fund, as mentioned above, Dr Entwisle did not call Mr Angus who was advising Dr Entwisle on his superannuation arrangements and who, according to Dr Entwisle, was present when Mr McGoldrick allegedly agreed to the secured loan. Adam McGoldrick contends that the principles of Jones v Dunkel[1] should be applied in drawing inferences adverse to Dr Entwisle’s case.
[1](1959) 101 CLR 298 ‘(Jones v Dunkel’).
In ASIC v Hellicar,[2] French CJ, Gummow, Hayne, Crennan, Keifel and Bell JJ discussed the evidentiary consequences of a party failing to call a witness, as follows:[3]
Disputed questions of fact must be decided by a court according to the evidence that the parties adduce, not according to some speculation about what other evidence might possibly had been led. Principles governing the onus and standard of proof must faithfully be applied. And there are cases where demonstration that other evidence could have been, but was not, called may properly be taken into account in determining whether a party has proved its case to the requisite standard. But both the circumstances in which that may be done and the way in which absence of evidence may be taken to account are confined by known and accepted principles which do not permit the course taken by the Court of Appeal of discounting the cogency of the evidence tendered by ASIC.
Lord Mansfield’s dictum in Blatch v Archer that “[i]t is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted” is not to be understood as countenancing any departure from any of these rules. Indeed, in Blatch v Archer itself, Lord Mansfield concluded that the maxim was not engaged for “it would have been very improper to have called” the person whose account of events was not available to the court.
This Court’s decision in Jones v Dunkel is a particular and vivid example of the principles that govern how the demonstration that other evidence could have been called, but was not, may be used. The essential facts of the case, though well known, should be restated. The personal representative of a driver who had died in a collision with another vehicle brought an action for damages on her behalf and on behalf of the deceased driver’s dependents. The plaintiff’s case depended on demonstration that the other driver’s negligence was a cause of the accident. The plaintiff sought to demonstrate negligence by having the tribunal of fact (in that case a jury) infer from facts concerning the road and the two vehicles involved that the collision had occurred when the defendant’s vehicle was on the wrong side of the road. One of the defendants, the surviving driver, did not give evidence at the trial. The Court divided about whether the inference which the plaintiff sought to have the jury draw about where the collision occurred was an inference that was open on the evidence. But the Court held “that any inference favourable to the plaintiff for which there was ground in the evidence might be more confidently drawn where a person presumably able to put the true complexion on the facts relied on as the ground for the inference has not been called as a witness by the defendant and the evidence provides no sufficient explanation of his absence”.
[2](2012) 247 CLR 345 (‘Hellicar’).
[3]Hellicar, 412–413 (citations omitted). These statements of principle were recently applied in Competition and Consumer Commission v Yazaki Corp (No 2) [2015] FCA 1304 at [33] per Besanko J.
Heydon J said of the inference that may be drawn from the failure of a witness to be called:
One is that the trier of fact may infer that the evidence of the absent witness would not assist the case of that party. The other is that the trier of fact may draw an inference unfavourable to that party with greater confidence. But Jones v Dunkel does not enable the trier of fact to infer that the evidence of the absent witness would have been positively adverse to that party.[4]
[4]Hellicar, 432 (my emphasis, references omitted).
Windeyer J in Jones v Dunkel explained the first proposition as follows:
Then, I think, his Honour should, when the juryman asked his question, have given an answer in accord with the general principles as stated in Wigmore on Evidence as follows: “The failure to bring before the tribunal some circumstance, document, or witness, when either the party himself or his opponent claims that the facts would thereby be elucidated, serves to indicate, as the most natural inference, that the party fears to do so, and this fear is some evidence that the circumstance or document or witness, if brought, would have exposed facts unfavourable to the party. These inferences, to be sure, cannot fairly be made except upon certain conditions; and they are also open always to explanation by circumstances which made some other hypothesis a more natural one than the party’s fear of exposure. But the propriety of such an inference in general is not doubted.”
This is plain common sense. If authority be needed, two passages from R. v. Burdett may be cited. Abbott C.J. said: “No person is to be required to explain or contradict, until enough has been proved to warrant a reasonable and just conclusion against him, in the absence of explanation or contradiction; but when such proof has been given, and the nature of the case is such as to admit of explanation or contradiction, if the conclusion to which the proof tends be untrue, and the accused offers no explanation or contradiction; can human reason do otherwise than adopt the conclusion to which the proof tends? The premises may lead more or less strongly to the conclusion, and care must be taken not to draw the conclusion hastily; but in matters that regard the conduct of men, the certainty of mathematical demonstration cannot be required or expected.” And Best J. said: “Nor is it necessary that the fact not proved should be established by irrefragable inference. It is enough, if its existence be highly probable, particularly if the opposite party has it in his power to rebut it by evidence, and yet offers none; for then we have something like an admission that the presumption is just.”
As Wigmore points out, exactly the same principles apply when a party, who is capable of testifying, fails to give evidence as in a case where any other available witness is not called. Unless a party’s failure to give evidence be explained, it may lead rationally to an inference that his evidence would not help his case.[5]
[5]Jones v Dunkel, 320 (references omitted).
Adam McGoldrick relies on Jones v Dunkel, particularly through the failure of Mr Angus to give evidence. The Court of Appeal in Chong v CC Containers Pty Ltd[6] made particularly pertinent observations on the failure of a party to give evidence, when the Court said:
[6][2015] VSCA 13 (‘Chong v CC Containers’).
Alderson B recognised that a failure by a party in civil proceedings to deny a fact which it was in their power to deny ‘gives a colour to the other evidence against him’. In Bridge v The Queen, Windeyer J quoted what Frankfurter J said in Adamson v California:
Sensible and just-minded men, in important affairs of life, deem it significant that a man remains silent when confronted with serious and responsible evidence against himself which it is within his power to contradict.
The inference, now usually described as the rule in Jones v Dunkel, is a particular application of Lord Mansfield CJ’s maxim ‘that all evidence is to be weighed according to the proof which it was in the power of one side to have produced and in the power of the other to have contradicted’. The failure of a party to give evidence in his or her own defence may give rise to an inference that his or her evidence would not assist him or her in the case. As Windeyer J put it in Jones v Dunkel:
But silence may amount to much more than an acquiescence in the primary facts. It may be eloquent in support of an inference to be drawn from those facts.
The rule does not enable the absence of a witness to make up any deficiency of evidence. It will not support an adverse inference unless the evidence otherwise provides a basis on which that unfavourable inference can be drawn. But where evidence has been left uncontradicted, any inference favourable to a party for which there was ground in the evidence might be more confidently drawn when a person, presumably able to put the true complexion on the facts relied on as the ground for the inference, has not been called as a witness and the evidence provides no sufficient explanation of his or her absence. The reasoning involves the treatment of the failure to adduce evidence as a reason for increasing the weight of the proofs of the opposite party or reducing the weight of the proofs of the party in default.
In RPS v The Queen, Gaudron ACJ, Gummow, Kirby and Hayne JJ quoted the passage from the judgment of Menzies J in Jones v Dunkel in which he said:
[W]here an inference is open from facts proved by direct evidence and the question is whether it should be drawn, the circumstance that the defendant disputing it might have proved the contrary had he chosen to give evidence is properly to be taken into account as a circumstance in favour of drawing the inference.
Their Honours also said:
In a civil trial there will very often be a reasonable expectation that a party would give or call relevant evidence. It will, therefore, be open in such a case to conclude that the failure of a party (or someone in that party’s camp) to give evidence leads rationally to an inference that the evidence of that party or witness would not help the party’s case.
That passage was quoted with approval by the majority in Azzopardi v The Queen. In Weissensteiner v The Queen, Mason CJ, Deane and Dawson JJ said:
We have quoted rather more extensively from the cases than would otherwise be necessary in order to show that it has never really been doubted that when a party to litigation fails to accept an opportunity to place before the court evidence of facts within his or her knowledge which, if they exist at all, would explain or contradict the evidence against that party, the court may more readily accept that evidence. It is not just because uncontradicted evidence is easier or safer to accept than contradicted evidence. That is almost a truism. It is because doubts about the reliability of witnesses or about the inferences to be drawn from the evidence may be more readily discounted in the absence of contradictory evidence from a party who might be expected to give or call it. In particular, in a criminal trial, hypotheses consistent with innocence may cease to be rational or reasonable in the absence of evidence to support them when that evidence, if it exists at all, must be within the knowledge of the accused.
In Dilosa v Latec Finance Pty Ltd [No 2], Street J recognised that where the absent witness is a party then considerable importance may well attach to the inference that nothing which the party could say would assist his or her case. As Gleeson CJ said in Azzopardi, the judgments in Weissensteiner recognise that the inference that may be drawn from the silence of a party to civil litigation may be significant. Santow J drew such an inference in ASIC v Adler because the parties who were available and not called had a personal involvement in the transactions in question. Where a party elects not to give evidence ‘the court is entitled to be bold’. As Heydon, Crennan and Bell JJ stated in Kuhl v Zurich Financial Services Australia Ltd, the rule has a particular application where it is the party which is the uncalled witness and may permit the court to draw, with greater confidence, any inference unfavourable to the party that failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn.[7]
[7]Chong v CC Containers [206]–[212] (references omitted).
Applying the principles from Jones v Dunkel and the other cases above, I can only assume that Mr Angus would not have assisted Dr Entwisle’s case and his absence gives me greater confidence in drawing the inference that is otherwise open as discussed above, that the parties did not intend the Loan Security Documents to have a legally binding effect.
Ian McGoldrick said that he made the agreement about signing security documents in favour of his companies, with Mr Angus. Adam McGoldrick did not call Mr Angus to support Ian McGoldrick’s evidence. I can only assume that Mr Angus’ evidence would not have supported Adam McGoldrick’s case either.
As it is, I have found both Ian McGoldrick and Dr Entwisle to be unreliable witnesses. Dr Entwisle has the benefit of the signed Loan Security Documents. The evidentiary burden of establishing that Ian McGoldrick and Dr Entwisle did not intend for the Loan Security Documents to have legal effect lies on Adam McGoldrick.
I place little weight on the evidence of either Ian McGoldrick and Dr Entwisle. However, the undisputed chain of events surrounding the execution of the Loan Security Documents, their inconsistency with the basic structure of the joint venture, the timing of their creation when the New Fund came to the attention of the ATO, the commercial unreality of the parties not discussing the terms of the Loan Security Documents and particularly the failure of Dr Entwisle to call Mr Angus, who according to Dr Entwisle witnessed the agreement by Ian McGoldrick to security being given for the loan, when there is a reasonable inference open that the parties did not so agree, satisfies me on the balance of probabilities that there was no intention between Line Accord and Minken to enter legally binding contracts.
I am satisfied that the parties did not intend for the Loan Security Documents to be legally enforceable.
The Superannuation Industry (Supervision) Act 1993[8]
[8]‘SIS Act’.
Both Adam McGoldrick and Minken submitted that the evidence established that if the moneys provided from the Old Fund were not to be treated as a contribution by Dr Entwisle to the joint venture but a loan by the trustee of the Old Fund, then under the SIS Act it was not legal to transfer the asset to a related superannuation fund, the New Fund.
As I have decided that the there was no secured loan by Line Accord to Minken, I do not consider it necessary to consider this issue. I have been told that the matter at issue is one of priority in the winding up of Minken. I do not consider it necessary therefore to decide whether the moneys contributed by Dr Entwisle should be treated as a loan by the trustees of the Old Fund, or the trustee of the New Fund, or a capital contribution of Dr Entwisle as a joint venturer, and the parties have not asked that I do so.
There were no pleadings in these matters. As discussed below, they were both commenced by originating motions. I have been guided on the issues by the submissions of the parties.
The proceedings
There are two proceedings on foot that have been heard together.
In the first proceeding (S CI 2012 5296), an originating motion was issued on 18 September 2012. The plaintiff is Masterplan Properties Pty Ltd (the plaintiff did not appear before me). The first defendant is the Registrar of Titles, the second defendant is Minken and the third defendant is Line Accord. Adam McGoldrick was added as a fourth defendant.
On 19 December 2014, Adam McGoldrick as the fourth defendant issued a third party notice against Timothy John Entwisle (as the first third party), Baraman (as the second third party) and Line Accord (as the third third party).
On the matter coming on for hearing, I was informed by Mr Aghion that an application to join Baraman as a second third party would be made. Mr Aghion said the application would not be opposed and that he and Mr Brown appeared for Baraman.
The second proceeding is an originating motion filed on 12 May 2014 in proceeding S CI 2014 2279. The plaintiff is Line Accord. The defendants are Minken, the first defendant, Walturn, the second defendant and Adam McGoldrick, as trustee of the Racso Family Trust, is the third defendant.
Appearances
Initially, in proceeding S CI 2012 5296, Mr Aghion with Mr Brown appeared for Line Accord (the third defendant and the third third party to the third party notice of the fourth defendant, Mr Adam McGoldrick) and for Dr Entwisle (the first third party). As mentioned, Mr Aghion and Mr Brown also appeared for Baraman as the second third party.
On 16 October 2015, Mr Bick QC announced that he appeared with Dr Bigos for Adam McGoldrick.
In proceeding S CI 2014 2279, Mr Aghion and Mr Brown appeared for the plaintiff, Line Accord.
On 16 October 2015, Mr Bick QC announced that he appeared with Dr Bigos in that proceeding for Adam McGoldrick and Walturn.
The hearing of the two proceedings continued for two days, 16 October 2015 and 17 October 2015. On 18 October 2015 the hearing was adjourned to a date to be fixed by consent.
The hearing came on again on 8 February 2016.
In proceeding S CI 2012 5296, Mr Bigmore QC with Mr Brown appeared on behalf of Line Accord as the third defendant and third third party, Baraman, the second third party and Dr Entwisle, the first third party.
In proceeding S CI 2014 2279, Mr Bigmore QC and Mr Brown appeared for the plaintiff, Line Accord.
Thus, Mr Bigmore QC and Mr Brown appeared for Line Accord, Dr Entwisle and Baraman in their respective interests in both proceedings.
Mr Glick QC with Ms Berlic appeared for Adam McGoldrick in both proceedings.
Mr Glick QC expressly said that he did not seek to appear for Walturn.
On 3 February 2016, the solicitor for the liquidator of Walturn appeared at a directions hearing. He informed the court that Walturn would not take an active role.
On 11 February 2016, the solicitor for the liquidator informed the court that he had been informed there was an application to dismiss the claim of Walturn. He advised that the liquidator would abide the decision of the court. He advised the liquidator was without funds.
Mr Evans announced that he appeared for Minken (the second defendant in both proceedings) on the instructions of the liquidator in both proceedings.
I have been informed that the relevant pleading in the first proceeding is the third party notice filed by Adam McGoldrick on 19 December 2014 (and refiled with some minor amendments on 10 February 2015) and a defence to that third party notice filed by Line Accord and Dr Entwisle on 9 February 2015.
The third party notice lists an extensive prayer for relief.
The originating motion in the second proceeding seeks orders on the basis that Line Accord made a secured loan to Minken as the trustee of the unit trust and seeks other relief.
In light of the procedural background set out above, I propose to make findings on the issue argued before me and relist the matter to ascertain whether the parties wish any further issues to be determined before I pass judgment in the matter.
On the issue argued before me — that is, whether the agreement for loan and acknowledgment of debt entered into between Line Accord and Minken dated 1 February 2005, the mortgage of land entered into between Minken as mortgagor and Line Accord as mortgagee dated 1 February 2005, and the guarantee and indemnity entered into between Ian McGoldrick and Timothy John Entwisle as Guarantors and Line Accord as creditor dated 1 February 2005 were intended to be legally binding on the parties — I find that the relevant parties to that agreement did not intend the agreements to have legal effect.
I find that the purported agreements are void and of no effect.
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