Re The Knowledge Warehouse Pty Ltd
[2020] VSC 617
•25 September 2020
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2020 01102
IN THE MATTER of THE KNOWLEDGE WAREHOUSE PTY LTD (ACN 123 770 356)
| THE KNOWLEDGE WAREHOUSE PTY LTD (ACN 123 770 356) as Trustee for the Knowledge Warehouse Unit Trust | Plaintiff |
| v | |
| MALCOLM SLINGER & ANOR | Defendants |
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JUDGE: | Randall AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 23 June 2020 |
DATE OF JUDGMENT: | 25 September 2020 |
CASE MAY BE CITED AS: | Re The Knowledge Warehouse Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2020] VSC 617 |
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CORPORATIONS – Application to set aside a statutory demand under s 459G of the Corporations Act 2001 (Cth) – Whether there is a genuine dispute under s 459H of the Corporations Act 2001 (Cth) – Whether there is a debt that is due and payable – A book kept by a body corporate is prima facie evidence of any matter stated in the book under s 1305 of the Corporations Act 2001 (Cth) – Other evidence can rebut or outweigh the prima facie evidence provided for in s 1305 – Hearsay and opinion evidence are admissible in interlocutory applications including applications to set aside a statutory demand – Meetings of directors can be made out when there is concurrence between directors in closely held companies – Resolutions and determinations of a company may be made informally where all directors have assented – Duties of a trustee.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Lorbeer | Peer Legal |
| For the Defendants | Mr J Richardson | Gadens Lawyers |
TABLE OF CONTENTS
Issues.................................................................................................................................................... 1
Background.................................................................................................................................... 1
The trust deed................................................................................................................................ 3
The plaintiff’s position................................................................................................................. 5
The defendants’ position.............................................................................................................. 8
Is there a genuine dispute?............................................................................................................ 10
Section 1305 of the Act................................................................................................................ 12
Duties of a trustee....................................................................................................................... 20
In this proceeding....................................................................................................................... 21
HIS HONOUR:
This is an application to set aside a statutory demand dated 12 February 2020.
The statutory demand was served on behalf of Malcolm Robert Slinger and Krystina Leokadia Slinger as trustees for the Cadre Family Trust and/or Cadre Family Trust No 2. The affidavit accompanying the statutory demand was declared and affirmed by Malcolm Robert Slinger. Mr Slinger is now deceased.
Issues
The issues in this application are:
(a) the characterisation and quantification of the amount said to be due; and
(b) whether the quantified amount was ‘due and payable’ at the date of the service of the statutory demand.
Background
The plaintiff conducts market research data collection services. It conducts that business as the trustee of The Knowledge Warehouse Unit Trust (‘TKW Unit Trust’).
Andre Phillippe Le Grand is a director of the plaintiff, and holds 81 of the plaintiff’s 100 shares. Mr Le Grand also holds, jointly with his wife, 81 of the 100 issued units in the TKW Unit Trust as trustees of the Le Grand Family Trust No 2.
The first defendant was Mr Slinger who, since the commencement of this proceeding, has passed away. Mr Slinger was also a director of the plaintiff and held the remaining 19 shares in the plaintiff. Mr Slinger and Ms Slinger, the second defendant, jointly held the remaining 19 units in the TKW Unit Trust as trustees of the Cadre Family Trust No 2.
Mr Slinger’s death does not bear on the issues as the statutory demand was served in his capacity as a trustee of the Cadre Family Trust and/or Cadre Family Trust No 2. Ms Slinger continues in that capacity.
Mr Slinger advised to the effect that he would retire from the plaintiff’s business on 30 September 2019. Since that time, Mr Slinger has played no active role within the plaintiff’s business. Since that time, neither Mr Le Grand nor Mr Slinger had been able to resolve issues in connection to the buyout of shares and units in the plaintiff and the TKW Unit Trust, and in connection to payment in relation to distributions concerning the TKW Unit Trust.
On 20 December 2019, the plaintiff received a demand from Patrick Walsh of Gadens Lawyers, solicitors for the defendants, which sought payment of $684,674.00 with respect to ‘unpaid trust distributions’ concerning the Cadre Family Trust No 2.
Since that time, there have been communications passing between the plaintiff’s solicitors and the defendants’ solicitors with respect to that issue.
On 13 February 2020, Mr Le Grand received an email from the plaintiff’s accountants, which forwarded an email from Mr Walsh which had attached a statutory demand by Mr and Ms Slinger, and an accompanying affidavit affirmed by Mr Slinger.
The creditor’s statutory demand dated 12 February 2020 set out the following:
The [plaintiff] owes Malcolm Robert Slinger and Krystina Leokadia Slinger … in their capacity as trustees of the Cadre Family Trust and/or the Cadre Family Trust No 2 (the Creditor), the amount of $684,674.00, being the total amount of the debts described in the Schedule.
The schedule set out the following:
Description of Debt:
Pursuant to clause 10.3 of The Knowledge Warehouse Unit Trust Deed dated 6 February 2007, a debt in the amount of $684,674.00 (the Debt) recorded in the Financial Statements for the year ended 30 June 2019 for The Knowledge Warehouse Pty Ltd as Trustee for The Knowledge Warehouse Unit Trust ABN 12 781 566 028.
The total amount of the Debt is $684,676.00
The statutory demand was accompanied by an affidavit of Mr Slinger, affirmed on 12 February 2020.
The trust deed
The trust deed of the TKW Unit Trust (‘Trust Deed’) set out the following:
7 REDEMPTION OF UNITS
7.1 Redemption at request of a Unit Holder
If:
(a)a Unit Holder requests the Trustee in writing to redeem all or part of the Units held by such Unit Holder at the Unit Price or such lesser amount as the Unit Holder may agree to; and
(b)the Trustee determines that the Units may be redeemed without detriment or disadvantage to the other Unit Holders or to the Trust Fund; and
(c)the Unit Holders (including the Unit Holder whose Units are to be redeemed) by Special Resolution approve the redemption,
then the Trustee may redeem such Units and advise the Unit Holder accordingly.
…
10 INCOME AND CAPITAL
10.1 Determination of income and capital
The Trustee may determine whether a receipt or outgoing is to be regarded as being on account of capital or income or partly on account of one and partly on account of the other. In determining the income of the Trust Fund for the Financial Year the Trustee may so far as is reasonably possible exercise the powers conferred on it under this clause so as to minimise the liability to income tax and capital gains tax of the Unit Holders. If the Trustee fails to make a determination under this clause prior to midnight on 30 June in a Financial Year, the amount which under the provisions of the Act represent the ‘net income’ (within the meaning of section 95 of the Act) [Income Tax Assessment Act 1936 or where appropriate the Income Tax Assessment Act 1997] for that year in relation to the Trust Fund is to be taken to be the income of the Trust Fund for the purposes of this Deed.
10.2 Accumulation of income
The Trustee may before the end of a Financial Year resolve to accumulate a part of the income of the Trust Fund for that Financial Year:
(a)to recoup any losses of the Trust Fund in any prior Financial Year; or
(b)as reserves to meet contingencies, to provide for repairs or maintenance, for depreciation or for any other purpose,
whereupon such amount will, subject to the provisions of this Deed, form part of the capital of the Trust Fund.
The Trustee may pay tax in respect of an accumulation out of the amount accumulated or out of capital.
10.3 Distribution of income to Unit Holders
Subject to any special rights as to sharing of income attached to any Units, the remaining income of the Trust Fund for a Financial Year is distributed to the persons who at midnight on the last day of the Financial Year are the Unit Holders in proportion to the Units registered in their respective names.
The Trustee may determine that a part, not exceeding 50 per cent, of such distributed income is to be retained by the Trustee (‘Retained Moneys’) which must be dealt with as provided by clause 10.4.
If the Trustee has not prior to midnight on 30 June of a Financial Year resolved to distribute the remaining income due to a Unit Holder in one or more of the means available to it under clause 12.1, such income must be credited to a separate account in the books of the Trust in the name of the Unit Holder so that such moneys will constitute a debt due to the Unit Holder at call and will not bear interest.
10.4 Retained Moneys
The following provisions apply to Retained Moneys:
(a)the Trustee must set aside the Retained Moneys in separate accounts in the names of the Unit Holders;
(b)interest will not accrue in respect of Retained Moneys;
(c)moneys standing to the credit of a Retained Moneys account is a debt due to the Unit Holder which is payable at the earliest of:
(i)the Termination Date [which is defined as ‘the date the Trust is to be wound up in accordance with clause 22 of this Deed’];
(ii)at such time as the Trustee determines; and
(iii)in respect of a particular account, upon the Unit Holder giving not less than six months’ notice in writing to the Trustee requiring payment;
(d)Retained Moneys may be invested or otherwise dealt with by the Trustee in the same manner as the Trustee is authorised to invest or deal with the Trust Fund;
(e)income derived from Retained Moneys is part of the income of the Trust Fund; and
(f)the amount from time to time standing to the credit of the Retained Moneys accounts is to be taken into account as a debt due by the Trust in determining the value of the Trust Fund or the value of a Unit where such valuation is to be made under a provision of this Deed.
…
12 PAYMENT TO UNIT HOLDERS
12.1 Means of payment
Subject to clause 10.3, a requirement in this Deed to distribute, pay, apply or set aside any amount for a Unit Holder may be effected by the Trustee by any one or more of the following means:
(a)with the consent of the Unit Holder, by placing the amount to the credit of the Unit Holder in a 24 hour call account;
(b)by drawing a cheque … ;
(c)with the consent of the Trustee, by paying the amount by cheque or in cash to a third party at the direction of the Unit Holder;
(d)by applying all or part of the amount in or towards satisfaction of moneys owing by the Unit Holder to the Trustee on any account;
(e)if the Trustee in its discretion thinks fit, by transferring any of the investments of the Trust Fund in specie to the Unit Holder … ;
(f)if the Trustee, with the approval of an Ordinary Resolution, so resolves, by issuing Units to Unit Holders entitled to such amount as though the amount not distributed has been first paid to them and thereafter paid to the Trustee … ; or
(g)by setting the amount aside to a separate account in the books of the Trust …
The plaintiff’s position
The draft financial statements for the TKW Unit Trust for the year ended 30 June 2019 (‘Draft 2019 Statements’) were unsigned. The Draft 2019 Statements had been prepared under the instruction of Mr Slinger who was formerly the chief financial officer of the plaintiff. The amount in the Draft 2019 Statements was relied upon by the defendants in the statutory demand.
The subsequent finalised and signed financial statements for the year ended 30 June 2019 (‘Final 2019 Statements’) record the following under Note 12, ‘Unpaid trust distributions’:
Note 2019 2018 $ $ 12 Unpaid trust distributions … Cadre Family Trust Balance at Beginning of Year - 530,785 Drawings - (530,785) - - … Cadre Family Trust No 2 Balance at Beginning of Year 626,726 248,910 Capital Introduced - 370,575 Share of Profit 190,662 7,241 Drawings (273,400) - 543,988 626,726
The plaintiff identifies the discrepancy between the Draft 2019 Statements and the Final 2019 Statements as giving rise to a genuine dispute. However, the defendants, for the purpose of this application, were willing to accept that the Final 2019 Statements could be taken into account and, in any event, the amount of the indebtedness was still $543,988.00 (‘the Balance’).
The plaintiff contends that although the defendants assert that the alleged debt is owing pursuant to cl 10.3 of the Trust Deed, it is important to identify what the defendants need to prove to establish the existence of such rights.
The plaintiff relies upon Fischer v Nemeske Pty Ltd:[1]
[1](2016) 257 CLR 615.
It is a long established proposition that no action at common law for money had and received lies against a trustee in respect of its equitable obligations even if those obligations extend to the payment of money. The same authorities which established that proposition also established the proposition that a trustee can end a trust with respect to capital or income in whole or in part and create a creditor/debtor relationship with a beneficiary. In Edwards v Lowndes, Lord Campbell CJ said:
If … the trustee, by appropriating a sum as payable to the cestui que trust, or otherwise, admits that he holds it to be paid to a cestui que trust, and for his use, the character of the relation between the parties is changed; and the trustee does not hold it as a trustee properly so called, but as a receiver for the plaintiff’s use.
The general proposition was set out in the third edition of Bullen and Leake’s Precedents of Pleadings:
A trustee who has received trust-money is accountable for it to the cestui que trust in the Court of Chancery, but in the courts of law he is treated for most purposes as the absolute owner, and no action can in general be maintained by the cestui que trust against him to recover trust money … If, however, he admits to the cestui que trust that he holds such money as the money of the cestui qui trust to be accounted for to the latter, he is debarred from setting up his character of trustee, and becomes liable at law to the cestui que trust for money received to his use.[2]
[2]Ibid 626–7 [16] (citations omitted).
The plaintiff does not concede that the recording of the Balance in the Final 2019 Statements is an admission by the plaintiff that the Balance is due and payable to the defendants under cl 10.3 of the Trust Deed.
Albeit that the Balance is part of the ‘Unpaid trust distributions’ which is recorded under the ‘Current liabilities’ section of the balance sheet, ‘the description of current liability does not indicate a debt presently due and payable, because the concept of currency in accounting standards contemplates a debt or amount that may be payable within a 12 month period’.[3]
[3]Re Norwest Legal Services Pty Ltd [2019] NSWSC 1896, [7] (Black J).
The plaintiff contends that the entry of ‘Unpaid trust distributions’ in the balance sheet comprises of a number of different components and not just ‘share of profit’. The plaintiff contends that one of the components is ‘capital introduced’ and another is ‘loans’. Each is distinct from ‘share of profit’/income distributions under cl 10.3 of the Trust Deed.
Mr Le Grand contends that capital introduced was:
not repayable on demand. It would not be feasible or practical to obtain and return funds the subject of the loans at a moment’s notice. Reasonable notice was required. … A valid demand for the immediate repayment of the Loan Amounts would potentially render the TKW Unit trust insolvent and require it to be placed into administration. It was not my intention, in agreeing to the reinvestment of the loan amounts by [the plaintiff], to leave the TKW Unit Trust in such a vulnerable position vis-à-vis its respective unitholders.
The plaintiff contends that a ‘reasonable time’ has not elapsed. That contention is based upon the nature of the relationship between the unit holders and the trustee as established by the Trust Deed. Reference is made to the provisions relating to redemption of units in cl 7.1 and termination in cl 22.
The plaintiff also contends that the evidence reveals that drawings were made from time to time by the defendants. The source of such drawings cannot be identified as to whether they accrued from ‘share of profit’ or ‘capital introduced’. Accordingly, the plaintiff contends that it is at least reasonably arguable that the drawings were from any accumulated share of profit and there is a genuine dispute that the Balance is not due and payable, subject to the Final 2019 Statements.
The plaintiff accepts that the entry in the Final 2019 Statements for the share of profit for Cadre Family Trust No 2 of $190,662 is an admission that the plaintiff appropriated that amount for the benefit of the defendants. However, the plaintiff does not concede that such amount was due and payable at the time of the service of the statutory demand.
The plaintiff contends that the amount of $190,662 is Retained Moneys under the Trust Deed and relies upon cl 10.4(c)(iii) to contend that the defendants were required to give not less than six months’ notice in writing to the trustee requiring payment. The plaintiff contends that there is a genuine dispute as to whether $190,662 (or any greater amount) is due and payable.
The defendants’ position
The defendants rely upon s 1305 of the Corporations Act 2001 (Cth) (‘the Act’). Section 1305 provides as follows:
Admissibility of books in evidence
(1)A book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book.
The defendants contend that ‘[t]he effect of this is such that any statement of fact in a book kept by a company is sufficient to prove that matter in civil proceedings, unless other evidence convinces the court to the contrary on the balance of probabilities’.[4]
[4]Malcolm Slinger and Krystina Slinger, ‘Defendants’ Submissions’, in Re The Knowledge Warehouse Pty Ltd, S ECI 2020 01102, 18 June 2020, [15], citing Australian Securities and Investments Commission v Rich (2009) 236 FLR 1, 82 [396]–[397].
The defendants contend that:
[C]lause 10.3 sets out the treatment of income for a Financial Year, namely that any income will be distributed proportionately to the Unit Holders as at 30 June. Clause 10.3 is subject to two further qualifications, and one pertinent clarification:
(i)first, the Trustee must determine an amount ‘not exceeding 50 per cent’ may be set aside as Retained Moneys unless the Trustee makes a determination pursuant to clause 10.4 … ;
(ii)second, the income must be credited in a separate account to the Unit Holders, in the books of the Trust, unless the Trustee resolves by 30 June of a Financial Year, that such income will be distributed under clause 12.1;[5]
(iii)critically, the income that must be credited in a separate account to the Unit Holders in the books of the Trust will constitute a debt due and payable to the Unit Holder at call and will bear no interest.
(c)Clause 10.4 requires any Retained Moneys to be set aside in separate accounts with deferral of payment terms.
[5]Clause 12.1 provides payment mechanisms available to the trustee.
The defendants contend that on a proper construction of the clauses of the Trust Deed, by 30 June in a financial year, the income must be credited in a separate account and is a debt due and payable. Further, there is nothing in the Trust Deed that gives the trustee the power to convert moneys held to the credit of a unit holder from previous years from a debt due and payable.
The defendants have noted the plaintiff does not allege that the trustee determined to give effect to any of the mechanisms referred to in cls 10.1, 10.2, 10.4 or 12.1 of the Trust Deed prior to 30 June 2019, or at all. Accordingly, the accuracy of the 2018/19 accounts does not affect the characterisation of the alleged debt as a debt due and payable. At most, it can be referenced to the quantum.
The defendants contend that the construction of cl 10.4 of the Trust Deed is that 50 per cent of that particular year’s income (and not the money standing to the account of the unit holder for the previous years, which remains a debt due and payable) is the maximum amount that can be Retained Moneys.
With respect to the plaintiff’s contention that the unpaid trust distributions included other amounts, including loans, the defendants contend that the evidence does not reflect that there are any loan agreements, nor that there are any terms which had been agreed. No term that the amounts were due and payable on a reasonable notice could be implied. The plaintiff is unable to satisfy the test set out in BP Refinery and in Codelfa.[6]
[6]Respectively, BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 347, 404.
The defendants contend that the onus to demonstrate ‘a reasonable term’ is upon the plaintiff and that the plaintiff has provided no evidence to suggest how reasonableness might be assessed. In any event, the plaintiff’s contention about the loans would make $100,000 subject to its reasonableness term.
Is there a genuine dispute?
In Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (in liq),[7] the Court of Appeal summarised the principles to set aside statutory demands as follows:
The terms of s 459H of the Corporations Act and the authorities make clear that, on an application to set aside a statutory demand, the applicant is required only to establish a genuine dispute or offsetting claim. The applicant is required to evidence the assertions relevant to the alleged dispute or offsetting claim only to the extent necessary for that primary task. It is not necessary for the applicant to advance a fully evidenced claim. Therefore, the task faced by an applicant is by no means at all a difficult or demanding one.
In determining such an application, it is not necessary or appropriate for a court to engage in an in-depth examination or determination of the merits of the alleged dispute. This is because an application alleging a genuine dispute or offsetting claim is akin to one for an interlocutory injunction and requires the applicant to establish that there is a ‘plausible contention requiring investigation’ of the existence of either a dispute as to the debt or an offsetting claim. It is therefore not helpful to perceive that one party is more likely than the other to succeed or that the eventual state of the account between the parties is more likely to be one result than another. Further, the determination of the ‘ultimate question’ of the existence of the debt at a substantive hearing should not be compromised.
The court is required to determine whether the dispute or offsetting claim is ‘genuine’. It has been said that the criterion of a ‘genuine’ dispute requires that the dispute be bona fide and truly exist in fact and that the grounds for alleging the existence of a dispute be real and not spurious, hypothetical, illusory or misconceived. It has also been observed that the dispute or offsetting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion. It must also have sufficient factual particularity to exclude the merely fanciful or futile. A rigorous curial approach is essential to the effective operation of the statutory scheme.
The court is not required to accept uncritically every statement in an affidavit however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself, it may be, as it may not have sufficient prima facie plausibility to merit further investigation as to its truth. The court is also not required to accept uncritically a patently feeble legal argument or an assertion of facts unsupported by evidence, although this should not be read as suggesting that the applicant must formally or comprehensively evidence the basis of its dispute or off-setting claim. Except in such extreme cases, the court should not embark upon an inquiry as to the credit of a witness or a deponent whose evidence is relied on by the applicant to set aside a statutory demand.
Solarite Air Conditioning Pty Ltd v York International Australia Pty Ltd involved a demand for payment of a debt alleged to be due under a contract for the supply of goods. The applicant relied on four matters, each of which had the potential to affect the respondent’s entitlement to be paid the entire amount of the debt. Barrett J held that all four matters were sufficiently plausible to raise a genuine dispute. He relevantly stated:
The [applicant] will fail in [the] task [of establishing a genuine dispute] only if … the contentions upon which it seeks to rely … are so devoid of substance that no further investigation is warranted. Once the [applicant] shows that even one issue has a sufficient degree of cogency to be arguable, a finding of genuine dispute must follow. The court does not engage in any form of balancing exercise between the strengths of competing contentions. If it sees any factor that, on rational grounds, indicates an arguable case on the part of the [applicant], it must find that a genuine dispute exists, even where any case apparently available to be advanced against the [applicant] seems stronger.[8]
[7][2015] VSCA 330 (‘Malec’).
[8]Ibid [47]–[51] (citations omitted).
Section 1305 of the Act
The defendants submit that the debt is confirmed by the recording of the same in the financial accounts and, in particular, when Mr Le Grand was responsible for the matters contained in the financial accounts since the resignation of Mr Slinger in September 2019. Further, the Final 2019 Statements were produced after consideration of the Draft 2019 Statements.
Sloss J addressed the application of s 1305 in Shot One Pty Ltd (in liq) v Day.[9] Her Honour said:
[9][2017] VSC 741.
The plaintiffs contend that the financial statements and general ledger files of Shot One listed above are clearly ‘books’ within the meaning of s 1305(1) and thus provide (and would have provided at the time the Deed of Settlement was entered into) prima facie evidence of the loans made by Shot One to Rising Rocket.
The defendants, on the other hand, accept that a company’s general ledger and financial accounts are books for the purposes of s 1305(1), but they do not accept that the loan account entries recorded in the books of Shot One can be relied upon as prima facie evidence of their contents. Relying upon observations made by their Honours in Whitton v Regis Towers Real Estate Pty Ltd and Livingspring Pty Ltd v Kliger Partners, the defendants submit that the mere existence of entries in a company’s general ledger and financial accounts does not establish a presumption that the matters stated therein are prima facie true and correct and accurate. Rather, they submit, the true or correct position is, as Austin J explained in ASIC v Rich, that while the books are treated as prima facie evidence of the matters stated in them, the weight to be attached to that evidence is a matter which is to be measured in accordance with the common sense of the tribunal.
In Whitton v Regis Towers Real Estate Pty Ltd, Buchanan J, with whom Marshall and Tracey JJ agreed, said:
Section 1305 of the Corporations Act does not elevate the entry to prima facie evidence that any such transaction (or series of transactions) exists. It can be no more than prima facie evidence that an unknown person formed an opinion on an undisclosed basis that, in the absence of any directly recordable transaction nevertheless, as a balancing entry, such a figure should appear in the accounts. Mr Harris took the matter no further and, indeed, eroded any weight the entry may have had.
Similarly, in Livingspring Pty Ltd v Kliger Partners, Maxwell P and Buchanan JA stated:
LS [the applicant] called in aid on the appeal s 1305(1) of the Corporations Act, which, it was said, established ‘a presumption that company accounts are prima facie true and correct and accurate’. The provision does no such thing. All that s 1305(1) provides is that a company’s books (relevantly, its financial reports and records) are admissible and are ‘prima facie evidence of any matter stated or recorded’ in them. As the Full Federal Court said in Whitton v Regis Towers Real Estate Pty Ltd, s 1305 does not elevate an entry in a book of account to the status of prima facie evidence of the transaction(s) which the entry purports to record. The same must be true of an entry purporting to record the existence, and value, of an asset.
More recently, in ASIC v Rich, Austin J said:
Section 1305(1) does not make the company’s books conclusive evidence of the matters they contain, in the sense of requiring the tribunal of fact to make a finding in terms of the content of the books in the absence of proof to the contrary by the opposing party. The books are prima facie evidence of the matters stated in them, but the weight of that evidence is to be measured in accordance with the common sense of the tribunal of fact…
In my view it would be open to the tribunal of fact to find that the prima facie evidence constituted by the company’s books is outweighed by other evidence (including evidence adduced by the proponent of the books, even if the opponent does not give evidence about them); or by some quality or characteristic of the books themselves, even if there is no other evidence. In particular, if a book has the appearance of a draft or (being electronic) has a file title indicating that it is a draft, that alone may be sufficient (all other things being equal) for the tribunal of fact to reject the book as evidence of the matter stated in it, notwithstanding that the book is prima facie evidence of that matter; a fortiori if, in addition to having the appearance of a draft, the book contains inconsistencies or ambiguities or the matter otherwise demands explanation.
Austin J then referred to the purpose of s 1305(1) as outlined in the explanatory memorandum to the Companies Bill 1981, which introduced the provision, and said:
Therefore s 1305(1) allows a company’s books to be introduced in evidence as they are, without any ‘authenticating’ evidence by any witness, and allows the books to be relied upon to prove transactions recorded in them. But it does not elevate the matters contained in the books to a plane of probative value that requires the court to disregard the context in which the matters relied on appear in the tendered document. If, for example, there is some doubt as to whether a particular transaction is ‘recorded’ in a book because of some uncertainty about the status of the document or ambiguity about what it contains, s 1305(1) does not overcome the problem.[10]
[10]Ibid [237]–[242] (citations omitted).
Her Honour went on to follow the approach of Austin J, determining that while the books in question were ‘generally to be treated as prima facie evidence of the matters stated in them’,[11] that prima facie evidence was ‘rebutted or “outweighed” (to adopt Austin J’s language) by … other evidence’.[12]
[11]Ibid [244].
[12]Ibid.
The TKW Unit Trust income statement for the year ended 30 June 2019 included the following:
2019
$
Net profit
1,003,485
Retained earnings (accumulated losses) at beginning of the financial year
-
Total available for distribution
1,003,485
Distribution to Beneficiaries
1,003,485
Retained earnings (accumulated losses) at the end of the financial year
-
Unitholders distribution:
Le Grand Family Trust No 2
812,823
Cadre Family Trust No 2
190,662
1,003,485
The TKW Unit Trust balance sheet for the year ended 30 June 2019 records the entry ‘Unpaid trust distributions’ as $2,801,289 under ‘Current liabilities’. Note 12 to that entry relating to ‘Unpaid trust distributions’ includes those with respect to the Cadre Family Trust No 2, which I have set out in paragraph 17 hereof.
Accordingly, I accept that the Final 2019 Statements are prima facie evidence of the following:
(a) the defendants’ share of profit or income for the year ended 30 June 2019 was $190,662; and
(b) the total of unpaid trust distributions for the year ended 30 June 2019 was $543,988. That amount included the share of profit for the year ended 30 June 2019 and the balance at the beginning of the year of $626,726, less drawings of $273,400.
The question then becomes whether that prima facie evidence has been rebutted or ‘outweighed’ by other evidence.
Before considering whether there is any other evidence, I need to consider the characterisation of evidence which is to be taken into account on an application to set aside a statutory demand. The defendant has objected to the admission of evidence which does not rise above mere contention. It was contended on behalf of the plaintiff that, historically, the directors acted so as not to jeopardise the financial soundness of the company. Such actions included retaining the funds which were available for distribution and not repaying capital and loans.
In Pravenkav Group Pty Ltd v Diploma Construction (WA) Pty Ltd (No 3),[13] the Court of Appeal noted:
Counsel for PG submitted that Mr Farrelly’s evidence was hearsay, and that Mr Farrelly had not given any evidence that the particular invoices were associated with rectification work undertaken. On this appeal, the parties proceeded on the basis, supported by authority, that the proceedings below were interlocutory. That approach is followed at first instance in this jurisdiction. Hearsay evidence is admissible where an affidavit ‘is made for the purposes of interlocutory proceedings’.[14]
[13](2014) 46 WAR 483.
[14]Ibid 503 [73] (citations omitted).
In Aussie Hoist Property Pty Ltd v Mulqueen,[15] Griffiths J said:
In Tokich,[16] White J held at [21] that evidence which may be inadmissible as hearsay or opinion to establish a fact relevant to indebtedness would not on that account be inadmissible to establish a fact relevant to whether there was a genuine dispute about indebtedness (citing McClelland J in Geoffrey W Hill & Associates v King (1992) 27 NSWLR 228 at 230).
Justice White added at [22] that, although a mere assertion that a debt is denied is insufficient, evidence in the form of conclusions as to primary facts which would be inadmissible as proof of the relevant facts under either ss 76 or 135 of the Evidence Act may be admissible as evidence that there is a dispute as to the existence or amount of the debt, and as to whether that dispute is genuine (citing Young J in John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250 at 253). Importantly, at [25], White J acknowledged that whether evidence is sufficient to establish a genuine dispute is a different question from whether the evidence is admissible for that purpose.
The distinction drawn by White J in Tokich was approved by the Court of Appeal in Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd [2013] NSWCA 344; 85 NSWLR 601. Their Honours stated at [37] that in a proceeding for the purposes of setting aside a statutory demand, the hearsay rule will not apply with the same strictness as is required in a fully contested hearing of a principal dispute and hearsay may be admissible provided that evidence of the source of the hearsay is adduced.[17]
[15][2018] FCA 1493 (‘Aussie Hoist v Mulqueen’).
[16]Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) (2004) 185 FLR 130.
[17]Aussie Hoist v Mulqueen (n 15) [49]–[51].
In TR Administration Pty Ltd v Frank Marchetti & Sons Pty Ltd,[18] Dodds-Streeton JA (as her Honour then was) said:
As the terms of s 459H of the Corporations Act and the authorities make clear, the company is required, in this context, only to establish a genuine dispute or off-setting claim. It is required to evidence the assertions relevant to the alleged dispute or off-setting claim only to the extent necessary for that primary task. The dispute or off-setting claim should have a sufficient objective existence and prima facie plausibility to distinguish it from a merely spurious claim, bluster or assertion, and sufficient factual particularity to exclude the merely fanciful or futile. As counsel for the appellant conceded however, it is not necessary for the company to advance, at this stage, a fully evidenced claim. Something ‘between mere assertion and the proof that would be necessary in a court of law’ may suffice. A selective focus on a part of the formulation in South Australia v Wall, divorced from its overall context, may obscure the flexibility of judicial approach appropriate in the present context if it suggests that the company must formally or comprehensively evidence the basis of its dispute or off-setting claim. The legislation requires something less.[19]
[18](2008) 66 ACSR 67.
[19]Ibid 79 [71].
Accordingly, subject to the circumstances of each application, it would be fair to say that generally hearsay and opinion evidence will be admissible to bear upon the question of whether there is a genuine dispute or a genuine offsetting claim and that the usual strictures placed upon such evidence will not be so strictly applied in interlocutory applications such as this.
In the absence of a ‘determination’ pursuant to cl 10.3 of the Trust Deed, the income distributed to beneficiaries in any financial year must be credited to a separate account in the books of the trust in the name of the unit holder, and such moneys constitute a debt due to the unit holder at call. No interest is payable.
The plaintiff referred to the principle in Swiss Screens (Australia) Pty Ltd v Burgess (‘Swiss Screens’),[20] which is that where the directors of a company have a close personal relationship, irregularities in the records of the company will not preclude a decision being made because a directors’ meeting can be inferred where there is a concurrence between the directors for that matter.[21] It is contended that that principle applies to the plaintiff as there were only two relevant directors who each had an interest in the unit holding.
[20](1987) 11 ACLR 756 (‘Swiss Screens’).
[21]Ibid 758 (Bryson J).
Swiss Screens was referred to in Jarrett v Perpetual Trustee Co Ltd (‘Jarrett’),[22] where Hall J stated:
The decision in Swiss Screens (above) emphasises:
· That irregularities and anomalies in the records of a company will not always or necessarily negate corporate decision‑making in the context of a ‘family company’ or a tightly held companies.
· With companies of that kind, concurrence between directors in the course of a company’s affairs which form part of the management of the business of the company may be evident from the conduct of directors and be the equivalent of a ‘meeting’. That may be so, notwithstanding irregularities or anomalies in company record-keeping.[23]
[22](2007) 64 ACSR 552 (‘Jarrett’).
[23]Ibid 572 [111].
In Swiss Screens,[24] the company’s two directors were married to each other and the company records had irregularities and anomalies. Bryson J held that the evidence established that a decision had been made even without a resolution being passed at a formal directors’ meeting because the directors had concurred in their decision and it can be taken to be a directors’ meeting. This principle is ‘not restricted to directors who are married to each other’.[25]
[24]Swiss Screens (n 20).
[25]Mercanti v Mercanti (2016) 50 WAR 495, 532 [176] (Buss P) (‘Mercanti appeal’).
In Mercanti v Mercanti,[26] Swiss Screens was referred to and also other relevant authorities, and Buss P held that:
In summary:
(a) directors may meet informally;
(b) directors may meet without being physically together;
(c)the critical point is that there must be a meeting of minds as distinct from a physical meeting; and
(d)the directors must concur informally in the company taking a particular action, but they must concur in their capacity as directors in the management of the company’s affairs.[27]
[26]Mercanti appeal (n 25).
[27]Ibid 533 [184].
In Mercanti v Mercanti,[28] Buss P observed that a corporation ordinarily makes decisions by its directors passing a resolution at a directors’ meeting or passing a circulating resolution pursuant to s 248A of the Corporations Act 2001 (Cth).
[28]Ibid 531 [172].
In Jarrett, Hall J also referred to Re Duomatic Ltd.[29] In Re Duomatic Ltd,[30] the company's articles of association required the remuneration of directors to be determined in a general meeting, but no resolution was ever passed. Buckley J held that if:
… it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be.[31]
[29]Jarrett (n 22) 573–4 [119]–[121].
[30][1969] 2 Ch 365.
[31]Ibid 373.
Hall J stated that the Duomatic principle ‘applies where all director/shareholders are fully informed on a matter and, having duly considered it, give their unqualified consent to a course of action proposed’.[32]
[32]Jarrett (n 22) 574 [123].
In Jarrett, the companies’ articles of associations required dividends to be declared in a particular way.[33] However, Hall J found that the evidence showed that there were directors’ meetings, whether formal or informal, and that there was unanimous consent in declaring and paying the dividends.[34] The two directors of the companies had concurred in declaring the dividends,[35] and:
… despite any irregularities or shortcomings that exist in minutes of resolutions, the evidence establishes a determination or decision by the directors of the plaintiff companies to declare and pay the disputed dividends. Whether or not the constitutional requirements for the declaration of dividends were met, the exhibited material … establishes that the shareholders in RH & M and UIGI approved the disputed dividends which, in my opinion, were validly declared.[36]
[33]Ibid 562–3 [62]–[68].
[34]Ibid 577 [143].
[35]Ibid 576–7 [138]–[144].
[36]Ibid 577 [144].
The principles in Swiss Screens and Re Duomatic Ltd were applied in the context of trustee companies in Mercanti v Mercanti.[37] In that case, the trustee companies had executed deeds of variation of the trust deeds without passing a resolution. Le Miere J found, inter alia, at first instance, that there was a meeting of minds between all three directors of the trustee companies in entering into the deeds of variation, and accordingly there was a valid directors’ meeting when the directors attended a meeting with a solicitor to vary the trust deeds.[38] In addition, Le Miere J held that there was unanimous consent by the directors to vary the trust deeds and execute the deeds of variation and it was therefore a valid decision.[39] On appeal, the first instance judgment on these points was upheld. Newnes and Murphy JJA held that it was open on the evidence for the primary judge to conclude that there had been a directors' meeting despite the lack of formality,[40] and Buss P held that the Duomatic principle applied.[41]
[37][2015] WASC 297.
[38]Ibid [118]–[120].
[39]Ibid [121]–[130].
[40]Mercanti appeal (n 25) 567–8 [366]–[369].
[41]Ibid 536–8 [205]–[213].
However, the decision in Mercanti v Mercanti was in the context of a finding that the trust deed did not require a resolution to be passed in order to vary the trust deed as the terms of the trust deed regarding the passing of a resolution was only ‘permissive and not prescriptive’.[42]
[42]Ibid 534 [195] (Buss P).
In CPB Contractors Pty Ltd v Rizzani De Eccher Australia Pty Ltd,[43] the joint venture deed required a decision to be made as a result of a vote at a board meeting. It was held that a vote was required but there was no reference as to the manner in which the vote must be taken; however, the more informal the manner was, ‘the more doubt there may be as to whether a decision made as a result of a vote was in fact reached’.[44] On the evidence, it could not be concluded that there was a vote (even applying the meeting of minds test) and accordingly there was no binding decision.[45] This decision indicates that the principle in Swiss Screens may apply to deeds; however, this is in the context of a joint venture rather than a trust deed as in the present case, which is arguably more strict.
[43][2017] NSWSC 1798.
[44]Ibid [298].
[45]Ibid [299]–[301].
Duties of a trustee
A trustee company will have fiduciary duties under the trust.
A trustee has a duty to comply with the terms of the trust deed. This may mean that in order for a trustee's action to be valid, the trustee must exercise their powers in accordance with the terms of the trust. In Green v Wilden Pty Ltd,[46] Hasluck J found at first instance that a purported resolution was invalid as it did not comply with the terms of the trust deed.[47] In that case, the terms required, inter alia, that an issue of units required the written approval of at least 75 per cent of the unit holders; however, this was not done. As the resolutions were found invalid for various reasons, the purported issue of units were void.[48] However, the first instance judgment of Hasluck J on this point was overturned on appeal as it was held that there was written approval prior to the issue and the terms of the trust deed had been complied with.[49]
[46][2005] WASC 83.
[47]Ibid [841]–[842].
[48]Ibid [867].
[49]Wilden Pty Ltd v Green (2009) 38 WAR 429, 462 [141] (McLure JA, Newnes AJA agreeing), 485 [238] (Pullin JA).
A trustee also has a duty to keep accounts and to disclose such accounts to the beneficiaries when required, which includes ‘proper financial records’.[50] This is due to the trustee’s duty to account to the beneficiaries for their control of the trust property.
[50]Re Simersall (1992) 35 FCR 584, 589 (Gummow J), quoting Wentworth v De Montfort (1988) 15 NSWLR 348, 356.
In this proceeding
If the Duomatic principle is applicable, then despite the fact that no formal resolution was passed by the directors of the trustee company, the resolution or determination is nevertheless valid if all the directors have assented to that matter. The plaintiff does not need to point to actual assent, but assent which can be distilled from conduct.
In the present case, the plaintiff company had two directors and may be considered a closely held company within the meaning of the principle in Swiss Screens. However, the plaintiff is a trustee company and therefore has a duty to comply with the terms of the trust deed. In Mercanti v Mercanti,[51] where the principles in Swiss Screens and Re Duomatic Ltd were found to apply, the trustee company was found to not have an obligation under the trust deed to exercise discretion by passing a resolution. Therefore, Mercanti v Mercamti may be distinguished.
[51]Mercanti v Mercanti (n 37); Mercanti appeal (n 25).
In the present case, cl 10.3 of the Trust Deed states that ‘[t]he Trustee may determine that a part, not exceeding 50 per cent, of such distributed income is to be retained by the Trustee (“Retained Moneys”) …’ It is unclear from the Trust Deed as to what is required for a determination under the trust; however, the plaintiff accepts that, in the present case, there was no formality of the determination as ‘contemplated by the Trust Deed or the plaintiff's constitution’.
In circumstances where a formal determination is required under the trust deed, the principles in Swiss Screens and Duomatic may not apply, given that a trustee company must comply with the terms of the trust deed, and any informal determinations purportedly made under the trust may be invalid.
In addition, as a trustee company, the plaintiff has a duty to keep accounts, and this may indicate that a formal determination or resolution is required, or at least a written record of the decision. In the absence of such, even if the principles in Swiss Screens and Duomatic applied, it may indicate that there was no such concurrence or assent for that decision.
The plaintiff concedes that no resolutions were passed. However, the plaintiff points to past conduct where funds were retained by consensus. The financial statements for the year ended 30 June 2018 demonstrate that of the balance of the unpaid trust distributions of $626,726, only $7,241 represented a share of profit for that period.
There were no drawings during the period ending 30 June 2018. Accordingly, it cannot be distilled on what basis the share of profit of $7,241 was held. Nor can it be determined on what basis the balance brought forward and ‘capital introduced’ was held. The financial statements do not reveal whether the sum of $7,241 or the other amounts were held pursuant to cls 10.3 or 10.4 of the Trust Deed.
For the period ending 30 June 2019, the amount distributed to the Cadre Family Trust No 2 is greater than the share of profit available for distribution. I cannot determine if the sum of $273,400 distributed on an ad hoc basis during that period is with respect to the share of the profit available for distribution or past balances or a combination of both.
However, I can confidently determine that for the period ending 30 June 2019, after taking into account the balance brought forward and the drawings, there was an amount of $190,662 available to Cadre Family Trust No 2 as a share of profit.
Whilst I accept that the plaintiff has raised an argument with respect to the repayment of capital and loans and has raised arguments with respect to past income distributions, for example, with respect to monthly payments and ad hoc payments in the financial year ended 30 June 2019, the plaintiff does not point to any evidence to support a contention that, in the absence of a resolution of the trustee, there was any consensus between Mr Le Grand and Mr Slinger as to the treatment of the income allocated for the year ended 30 June 2019. That is understandable given Mr Slinger’s advice that he no longer wished to participate in the management of the plaintiff and that the plaintiff’s major contention about the 2019 accounts was that the draft initially relied upon by the defendants was inaccurate and needed to be adjusted.
In the absence of any other corroborative material, such as the maintenance of separate bank accounts, I am satisfied that the sum of $190,662 was due and payable at call prior to the service of the statutory demand. That sum has remained due and payable throughout the period up until this determination.
It was submitted that, as the trustee had power to retain 50 per cent of the share of profit pursuant to cl 10.3, I ought to adjust the statutory demand to take into account only 50 per cent of $190,662. I can see no logical reason to do so. Accordingly, I determine that the plaintiff has not raised a genuine dispute with respect to that amount.
As to the balance of the claim in the statutory demand, I determine that albeit that the prima facie evidence of the amount payable to the defendants has not been displaced, the issue of whether the amount was due and payable prior to the service of the statutory demand is, at least arguable. Notwithstanding that the prima facie evidence of the Final 2019 Statements has not been displaced, an arguable genuine dispute has been raised.
In any event, I also refer to the decision of Barrett AJA set out in Ligon 158 Pty Ltd v Huber.[52] Barrett AJA identified the principal question in that appeal as:
whether, in the light of the evidence as I have described it, the primary judge correctly concluded that the contention of Ligon 158 as to the status of the payment to it by Ms Huber (that is, that it was related to steps to raise her bank balance temporarily, following her earlier non-refundable contribution to legal expenses) was so devoid of plausibility that no further investigation was required.[53]
[52](2016) 117 ACSR 495.
[53]Ibid 508 [73].
Barrett AJA concluded:
… it cannot be said that the proposition that Ms Huber made a non‑refundable contribution as distinct from a loan is so devoid of plausibility as to warrant no further investigation. On the material before the primary judge and this Court, an ultimate conclusion of non-refundable contribution might well be considered less likely than an ultimate conclusion of loan. But that is beside the point, given that it is not the function of the Court to weigh the merits of the competing contentions. The only question is whether Ligon 158’s case, based on non-refundable contribution, is so lacking in substance that it can be dismissed without further examination. The primary judge erred in giving a positive answer to that question.[54]
[54]Ibid 510–11 [84].
Accordingly, I conclude that whether or not the balance of the claim set out in the statutory demand is due and payable warrants further investigation.
Given the statement by Brooking and Charles JJA in Spacorp Australia Pty Ltd v Myer Stores Ltd:[55]
The only question for us is whether the judge erred in determining that there was no genuine dispute. One can of course differ from the judge without deciding that the debt did not exist. A great range of states of mind on what we might call the ultimate question — the existence of the debt — may accompany the view that there is a genuine dispute, ranging from a clear conviction that the debt does not exist to the opinion that the genuine dispute hurdle has only just been cleared.
We think, if we may say so, that, except in a case in which it is as plain as a pikestaff that there is no debt (where bluntness may be in the interests of both sides), judges should, in general at all events, in dealing, whether at first instance or on appeal, with the question of genuine dispute, be at pains to perform the admittedly delicate task of disposing of that question without expressing a view on what we have called the ultimate question. For otherwise, on an application which resembles if it is not in law an interlocutory one, things may be said which embarrass the judge before whom the ultimate question comes.[56]
It is not appropriate for me to express any views on the ultimate outcome of litigation which may ensue.
[55](2001) 19 ACLC 1270.
[56]Ibid 1271 [3]–[4].
Accordingly, I will rewrite the statutory demand and make the following orders:
1. Pursuant to s 459H the substantiated amount of the demand is $190,662.00.
2. The plaintiff pay the defendants’ costs, including reserved costs, on a standard basis.
I require the parties to provide formal orders which include the amendment to the title of the proceeding if necessary.
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