Ross, in the matter of Print Mail Logistics (International) Pty Ltd (in liq) v Elias
[2021] FCA 419
•23 April 2021
FEDERAL COURT OF AUSTRALIA
Ross, in the matter of Print Mail Logistics (International) Pty Ltd (in liq) v Elias [2021] FCA 419
File number: QUD 240 of 2019 Judgment of: REEVES J Date of judgment: 23 April 2021 Catchwords: CORPORATIONS – directors’ statutory duties – whether directors entered into an unreasonable director-related transaction per s 588FCA of the Corporations Act 2001 (Cth) (the Act) – whether directors breached their duties under ss 180, 181 and 182 of the Act – whether directors entered into an insolvent transaction in breach of s 588G of the Act and entered into an uncommercial transaction under s 588FB of the Act – consideration of principles relating to ss 588G and 588FB of the Act. Legislation: Corporations Act 2001 (Cth)
Evidence Act 1995 (Cth)
Federal Court Rules 2011 (Cth)
Cases cited: Asden Developments Pty Ltd (in liq) v Dinoris (No 3) (2016) 114 ACSR 347; [2016] FCA 788
Ashby v Slipper (2014) 219 FCR 322; [2014] FCAFC 15
Australian Securities and Investments Commission v Australian Lending Centre Pty Ltd (No 3) (2012) 213 FCR 380; [2012] FCA 43
Blatch v Archer (1774) 98 ER 969
Briginshaw v Briginshaw (1938) 60 CLR 336
Chan & Ors v First Strategic Development Corporation Limited (in liq) & Anor [2015] QCA 28
Chetcuti v Minister for Immigration and Border Protection (2019) 270 FCR 335; [2019] FCAFC 112
Claremont Petroleum NL v Cummings (1992) 110 ALR 239
Clifton (Liquidator) v Kerry J Investment Pty Ltd trading as Clenergy (2020) 379 ALR 593; [2020] FCAFC 5
Fair Work Ombudsman v Hu (2019) 289 IR 240; [2019] FCAFC 133
First Equilibrium Pty Ltd v Bluestone Property Services Pty Ltd (in liq) (2013) 95 ACSR 654; [2013] FCAFC 108
G v H (1994) 181 CLR 387
Henderson v State of Queensland (2014) 255 CLR 1; [2014] HCA 52
Jones v Dunkel (1959) 101 CLR 298
Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11
Kumar v Minister for Immigration and Border Protection (2020) 274 FCR 646; [2020] FCAFC 16
Lewis v Doran (2004) 184 FLR 454; [2004] NSWSC 608
Lewis v Doran (2005) 219 ALR 555; [2005] NSWCA 243
Lithgow City Council v Jackson (2011) 244 CLR 352; [2011] HCA 36
Manly Council v Byrne [2004] NSWCA 123
Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; [2001] NSWSC 621
Treloar Constructions Pty Limited v McMillan (2017) 318 FLR 58; [2017] NSWCA 72
Austin RP, Ramsay IM, Ford, Austin and Ramsay’sPrinciples of CorporationsLaw (17th ed, 2018)
Division: General Division Registry: Queensland National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 141 Date of last submissions: 9 October 2020 Date of hearing: 24 September 2020 Counsel for the Plaintiffs: Mr BA Hall Solicitor for the Plaintiffs: AJ & Co Lawyers Counsel for the Defendants: Ms AG Rae Solicitor for the Defendants: Bridge Brideaux ORDERS
QUD 240 of 2019 IN THE MATTER OF PRINT MAIL LOGISTICS (INTERNATIONAL) PTY LTD (IN LIQUIDATION) ACN 142 144 830
BETWEEN: DAVID ROSS AND BLAIR PLEASH AS LIQUIDATORS OF PRINT MAIL LOGISTICS (INTERNATIONAL) PTY LTD (IN LIQUIDATION) ACN 142 144 830
First Plaintiff
PRINT MAIL LOGISTICS (INTERNATIONAL) PTY LTD (IN LIQUIDATION) ACN 142 144 830
Second Plaintiff
AND: NIGEL BENJAMIN ELIAS
First Defendant
LUIS GARCIA
Second Defendant
JOHN WILLIAM WOODS (and another named in the Schedule)
Third Defendant
ORDER MADE BY:
REEVES J
DATE OF ORDER:
23 APRIL 2021
THE COURT ORDERS THAT:
1.The plaintiffs’ originating application filed on 10 April 2019 is dismissed.
2.The plaintiffs pay the defendants’ costs of the proceeding to be taxed failing agreement.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
REEVES J:
INTRODUCTION
Mr David Ross and Mr Blair Pleash, the first plaintiffs, are the Liquidators of the second plaintiff, Print Mail Logistics (International) Pty Ltd (PMLI or the company). In this proceeding, they have sought relief under various provisions of the Corporations Act 2001 (Cth) (the Act) against present and past directors of PMLI. Their claim for this relief revolves around two loan transactions: the Armstrong Unsecured Loan Agreement (the Armstrong Agreement) which was allegedly made on or about 14 July 2015; and the Wellington Secured Loan Agreement (the Wellington Agreement) which was made about two weeks later.
The Liquidators allege that, under the Wellington Agreement, PMLI took responsibility for the personal debts of Mr Nigel Elias, the first defendant, including a debt of $100,000 allegedly due under the Armstrong Agreement and that it became insolvent by entering into that agreement. With respect to the former, that is, the transfer of personal liabilities allegation, the Liquidators allege in their fourth further amended statement of claim (4FASC) that the defendants, as directors of PMLI, entered into an unreasonable director-related transaction (s 588FDA of the Act) and in the process breached their duties as directors of PMLI (ss 180, 181 and 182 of the Act). With respect to the latter, that is, the insolvency allegation, they alleged that the defendants entered into an insolvent transaction in breach of s 588G of the Act and entered into an uncommercial transaction (s 588FB of the Act). Consequently, they claimed that the defendants were liable to pay PMLI compensation under ss 588FF(1)(a), 588M(2) and/or 1317H(1) of the Act.
Prior to closing submissions at the trial, the parties agreed that there were three closely interconnected factual issues in dispute. The first related to the existence of the Armstrong Agreement and the other two related to the effect of the Wellington Agreement. The Liquidators bear the onus on all three issues. For the reasons that follow, I do not consider the evidence that they adduced at trial was sufficient to discharge their onus on any of those issues. Their originating application will therefore be dismissed with costs.
PMLI was registered on 19 February 2010. It was then known as PML Media Pty Ltd. Mr Elias was a director of the company from the outset and remains so. The other three defendants served as directors of the company from time to time. They were: Mr Luis Garcia (the second defendant) from 3 March 2014 to 4 August 2017; Mr John Woods (the third defendant) from 24 March 2010 to 1 December 2016; and Mr Adrian Pereira (the fourth defendant) from 19 February 2010 to 24 June 2016.
PMLI was a subsidiary of Print Mail Logistics Limited (PML) and a part of the PML group of companies. PML was also incorporated on 19 February 2010. It was, at all relevant times, a public company listed on the National Stock Exchange (NSX). It operated a printing and mailing business which it conducted from an address at Dowsing Point in Tasmania.
There are three other companies that are not parties to this proceeding but which have nonetheless figured in the events to which it relates. They are:
(a)Wellington Capital Pty Ltd (Wellington), which has since changed its name to Southland Stokers Pty Ltd (Southland Stokers);
(b)Armstrong Registry Services Limited (Armstrong) which is now deregistered; and
(c)Babylon Nominees Pty Ltd (Babylon).
During the period pertinent to this proceeding, all of these companies were controlled by Ms Jennifer Hutson. In these reasons, they will generally be referred to collectively as “the Hutson entities”.
Armstrong provided advisory services to PML and this formed the basis of the relationship that developed between Armstrong and the PML Group. Consequently, at least up until the end of 2015, there was a good relationship between the principals of each group of companies, Ms Hutson and Mr Elias; so much so that each of Wellington, Armstrong and Babylon, from time to time, advanced funds to the PML group and/or Mr Elias to assist them to conduct their business activities.
As a part of that process, on 21 December 2011, Armstrong loaned the sum of $50,000 to Mr Elias pursuant to a secured loan agreement which was signed and dated on that date. It is not in dispute that that sum was loaned to Mr Elias in his personal capacity and that the amount of interest that was outstanding on that loan as at 29 July 2015 was $11,980.01.
In 2012, PMLI purchased some vacant land at an address in Cambridge, Tasmania (the property). The intention was that the whole of PML’s printing and mailing business would move to that site. The property was purchased in two tranches and was valued in PMLI’s books at $922,517.61. The purchase was financed, in part, with loan funds obtained from the Maitland Mutual Building Society, which loan was secured against the property. Since PMLI did not trade, its principal source of income to meet its financial obligations, including its loan repayments to the Maitland Mutual Building Society, was the financial support provided to it by PML. For this purpose, PMLI and PML maintained a running inter-company loan account.
At about the time the property was purchased, there was also the prospect of PMLI being able to purchase a third adjoining block of vacant land. However, that purchase became the subject of litigation between PMLI and the vendor. That litigation was settled in late 2015. As a result, the vendor repaid PMLI the $10,000 deposit it had paid, together with a further sum of $40,000. The adjoining block was never purchased.
As mentioned at the outset, the Armstrong Agreement was allegedly made on or about 14 July 2015. Under that agreement, Armstrong was alleged to have loaned a further sum of $100,000 to Mr Elias at an interest rate of 8% per annum and to be repaid on or before the termination date of 14 August 2015.
As also mentioned at the outset, on or about 29 July 2015, PMLI entered into the Wellington Agreement. There is no dispute in this proceeding that, under that agreement, Wellington loaned $420,000 to PMLI. The agreement was in writing and was comprised of:
(a)a secured loan agreement between PMLI and Wellington dated 29 July 2015;
(b)a fixed and floating charge over the assets of PMLI dated 29 July 2015 and registered on the Personal Property Security Register (PPSR) on 13 August 2015; and
(c)a second mortgage over the property dated 4 August 2015 and registered on 11 September 2015.
On the same date, Wellington, PMLI and PML also entered into a deed whereby PML guaranteed to pay to Wellington any monies due and payable in the event of a default by PMLI under the Wellington Agreement.
To complete the chronology, the original repayment date for the loan made under the Wellington Agreement was 31 January 2016. It was not paid by that date. Subsequently, however, on 29 February 2016, PMLI and Wellington agreed on an extension of the repayment date to 1 July 2017. At the same time, in return for a payment of $1,000, Wellington agreed to release PML from its guarantee obligations mentioned above with respect to any default by PMLI under the Wellington Agreement.
On 2 October 2018, PMLI was placed in voluntary administration. By resolution passed at its second meeting of creditors on 5 November 2018, it was placed in liquidation and the Liquidators were appointed.
THE ISSUES
As already mentioned, prior to closing submissions at the trial, counsel for the parties agreed that the following three factual issues fell to be determined in this matter:
[Issue 1]
Did Mr Elias and Armstrong enter into [the Armstrong Agreement] on or about 14 July 2015 in respect of an advance of $100,000 to Mr Elias?
[Issue 2]
On 29 July 2015, did PMLI become liable for debts of Mr Elias owing to Armstrong at that time, being
(a)[a] debt of $100,000 [alleged] by the plaintiffs to be owing pursuant to [the Armstrong Agreement]; and
(b)a debt of $11,980.01 [agreed] to be owing as interest by Mr Elias [to Armstrong] on [the] personal loan [advanced in December 2011 (see at [8] above)].
[Issue 3]
[Did] PMLI [become] insolvent on 29 July 2015 by virtue of its entry into the [Wellington Agreement]?
ISSUE 1 – DID MR ELIAS AND ARMSTRONG ENTER INTO THE ARMSTRONG AGREEMENT?
Introduction
To establish that Mr Elias entered into the Armstrong Agreement, the Liquidators relied on the following records and documents:
(a)first, the PML ledger for the period 1 July 2015 to 31 July 2015 which records a credit of $100,000 on 14 July 2015, together with the notation “funds received from Nigel Elias”;
(b)secondly, the Australia and New Zealand Banking Group Limited (ANZ Bank) bank statement relating to PML’s bank account which shows a credit of $100,000 on the same date;
(c)thirdly, a document, of which there are at least three copies, entitled “Unsecured Loan Agreement”, namely the Armstrong Agreement, apparently signed by Mr Elias and witnessed by Ms Greaves.
The evidence
It is convenient to begin with the two records described at [17(a)] and [17(b)] above. They are recorded in the evidence as exhibits D31 and P20, respectively, as follows:
(a)The PML ledger
(Emphasis added)
(b)The ANZ Bank statement
(Emphasis added)
In respect of these records, Mr Elias said in his outline of evidence:
…
62.I am … aware that there is a record of me paying $100,000 to PML on or about 14 July 2015. I do not recall where these funds came from. Regardless, this payment is between PML and myself, and Armstrong is evidently not a party to it.
63.I have never transferred any personal obligation of my own to PML or to PMLI.
…
In cross-examination at the trial, Mr Elias said, among other things, that he had “no idea” what the ledger entry related to. He claimed he had no responsibility for that entry. He also stated that the funds concerned did not come from him and he had no knowledge as to where they came from. When asked whether he had investigated the source of the funds, he said:
I found that the proposition that I had somehow paid in $100,000 into PML’s account or PMLI’s account or any other account, was unadulterated nonsense. I went to the ANZ bank, and I asked them to produce whatever they could produce in respect of this $100,000 that appeared in PML’s account. And a lady at the ANZ bank in Hobart, produced a piece of paper which – I’m really stretching my memory now, basically said that this money came from Armstrong into PML’s account. And there was reference in that to – the reference was Elias.
He added that he was told by the ANZ Bank that the reference to “Elias” was information provided by Armstrong. This evidence was supported by an email dated 13 August 2019 (Exh P7) that Mr Elias received from Ms Jennie Fox, Assistant Manager, Retail, at the Hobart branch of the ANZ Bank. In that email, Ms Fox stated:
When pressed about these answers on the footing that PML was “strapped for cash, in July 2015 [and therefore he] would have been aware of [the] receipt of $100,000”, Mr Elias said:
I can’t recall that I would – I assume that I would know about the receipt of $100,000 from whichever source. And I would’ve assumed – I don’t take any exception to the proposition that Armstrong paid PML, Print Mail Logistics Limited, $100,000. I take considerably [sic] exception and know nothing about the insertion of the word, Elias, into that.
Mr Pereira, who is a Chartered Accountant and was in 2015 PML’s Chief Financial Officer, gave the following evidence about this transaction. First, in his affidavit filed 13 June 2019, he said that (at [37(b)]:
… I know nothing about a loan of $100,000.00 to [Mr Elias] from Armstrong on 14 July 2015. Further no loan of that amount was recorded in the records of PML as received at that time or, so far as l am aware, thereafter. However, PML did in fact owe Armstrong such a sum as at 30 June 2015, and up to 29 July 2015, as the then capital balance of a running loan which had existed since May 2014, details of which, on the capital side, are as follows:
Advance Repayment (i) 14 May 2014 $10,000.00 (ii) 05 June 2014 $90,000.00 (iii) 30 June 2014 $30,000.00 (iv) 01 August 2014 $25,000.00 (v) 21 August 2014 $55,000.00
All of these amounts are recorded in the financial records of PML and are evidenced in PML’s bank statements.
…
Secondly, by the time Mr Pereira made his written outline of evidence in this proceeding in May 2020, he had attended a public examination conducted by the Liquidators in August 2019. Having, through that process, obtained some further information about the transaction, he gave the following evidence in that outline:
62.On 14 July 2015, PML received $100,000.00 from Armstrong. This amount was recorded in the books and records of PML as a loan from Elias to PML.
63.In my affidavit sworn on 11 June 2019 and filed with the Court on 14 June 2019, I swore at paragraph 37 (b) that I knew nothing about a loan of $100,000.00 to Elias from Armstrong.
64.In the days leading up to my public examination on 19 August 2019, I was made aware of the fact that PML had received the sum of $100,000.00 from Armstrong on or about 14 July 2015 and I was provided a copy of PML’s bank statement evidencing the receipt of $100,000.00 on that day. I disclosed that fact and provided a copy of the relevant bank statement at the public examination of 19 August 2019.
65.Regardless of the fact that PML received $100,000.00 from Armstrong on 14 July 2015, PML did not repay that actual sum to Armstrong on behalf of Elias on 29 July 2015 from the proceeds of the [Wellington Agreement].
66.On 29 July 2015, PML repaid to Armstrong the $100,000.00 that it already owed in cash advances and repayments (i.e. the running loan account) between 14 May 2014 and 21 August 2014 as described at paragraph 37 (b) of my affidavit sworn on 11 June 2019 and filed with the Court on 14 June 2019.
67.The Liquidators claim that on 29 July 2015, PMLI paid a personal liability of $100,000.00 owing by Elias to Armstrong. I consider this allegation to be untrue and not supported by the evidence. Firstly, PMLI did not make any payment to Armstrong on behalf of Elias. Secondly, while PML did make a payment to Armstrong that included the sum of $100,000, it was in repayment of the running loan account between it (PML) and Armstrong and was unrelated to any liability of Elias to Armstrong.
68.The Liquidators allege that Elias entered into a loan agreement with Armstrong on or about 14 July 2015 in the sum of $100,000.00. I am aware that Elias strongly disputes that allegation.
69.The running loan account between PML and Armstrong comprised the following:
Advance Repayment (i) 14 May 2014 $10,000.00 (ii) 05 June 2014 $90,000.00 (iii) 30 June 2014 $30,000.00 (iv) 01 August 2014 $25,000.00 (v) 21 August 2014 $55,000.00 All of these amounts are recorded in the financial records of PML and are evidenced in PML’s bank statements …
Mr Pereira gave similar evidence during his cross-examination at the trial of this matter. In particular, he said about the “genesis of that transaction” that:
Yes. So what I then knew was that by receiving a copy of PMLs ANZ bank account statement for that time, that $100,000 did turn up, and then – and inquiry had been made by [Mr Elias] to understand through the ANZ what that $100,000 was, and then that the remittance detail provided to the ANZ show the remitter as being Armstrong registry, and a reference to [Mr Elias] as well.
(Errors in original)
The Armstrong Agreement mentioned at [17(c)] above is the third record or document relied upon by the Liquidators in respect of this issue. As already mentioned, there are at least three copies of that agreement in evidence. They are all annexed to the affidavit of Ms Greaves, the person who allegedly witnessed Mr Elias’ signature on the agreement. While the details of the differences between the three copies of the agreement are set out in Ms Greaves’ evidence below (see at [39]), the broad differences are as follows.
The first page of the first copy of the Agreement bears the notations “Not dated Not signed by Armstrong” and “safe custody Armstrong. Box 1/2015 Packet #3”. It also contains a bar code on the top right hand corner below which appears the letters and number “GEM.0083.0002.0001”. On the subsequent pages, the last number of the bar code increases sequentially 2, 3, etc up to 6.
Each page of that copy of the agreement bears an initial in the bottom right hand corner as follows:
On the bottom left hand corner of the Table of Contents page of that copy (the second page), there appears the symbol and number “#13442”. Consistent with the notation on the first page, there is a blank beside the words “Agreement” and “Dated” on the third page of that copy.
Finally, the execution page of that copy of the agreement is in the following form:
Except that the second copy of the Armstrong Agreement bears no notations on the first page and the bar code on the top right hand corner is: “GEM.0083.0002.0007”; and, on the subsequent pages, the last number increases sequentially (8, 9, etc up to 12), that copy is in essentially the same form as the first copy of the Agreement described above.
The third copy of the Agreement is, however, quite different in several respects. First, it bears no notations or bar codes at all. Secondly, beside the words “Agreement” and “Dated” on the third page of that copy, there appears the handwritten date “14 July 2015”. As already noted, this part of the other two copies is blank. Thirdly, and perhaps most importantly, the execution page of that copy is in the following form:
With respect to the Armstrong Agreement, Mr Elias said in his outline of evidence that:
I am aware that the plaintiffs allege that Armstrong lent me $100,000 in a separate unsecured loan. I have seen the loan document upon which they make that allegation. I have no recollection of that document. The signature on the document appears to be mine, but I do not recollect signing it.
In his oral evidence he reiterated his agreement that the signature on the execution page of each copy of that agreement looked “very similar to my signature”. Despite this acknowledgement, he gave the following reasons why he did not believe he actually signed that agreement:
… First of all, I have absolutely no recollection of signing this document. Secondly, it’s axiomatic that I therefore have no recollection of Mary-Anne Greaves’ signature witnessing a signature that I can’t recall. Thirdly, I would have total recall, absolutely 100 per cent recall in the event that I executed a document for which I was personal [sic] liable for $100,000. Fourthly, there is no direction to pay at all that has been tendered by nobody to my knowledge, because it doesn’t exist, in respect of $100,000 and fifthly, there is no $100,000 that appears in any bank account of mine.
(Errors in original)
Further, when he was asked later in his cross-examination whether it was possible he had signed it, he said: “[i]t is not possible”.
During his cross-examination, Mr Elias was taken to the execution page of the third copy of the agreement (see at [32] above) and it was put to him that “this document was executed on about 14 July 2015”. He replied “It may have been executed by them – by whoever, but I have no recollection, I repeat, of executing any document of this nature, whichever version you’re referring to … on or around 14 July. Or any other date for that matter” . He added that “[t]he only thing I can add to that is that the handwriting for the date is – I would, from my dealings with her, would know it was Jennifer Hutson’s handwriting for the date. That’s all” . Given that the other two copies of the agreement are not dated, I infer that this evidence refers to the handwritten date on the third copy as mentioned above at [32].
Mr Elias agreed in cross-examination that he attended a meeting with Ms Greaves in Sydney on or about 13 July 2015. However, he denied signing the Armstrong Agreement on that date. With respect to that meeting, he said “There was no documentation executed other than the documentation that was presented to me by the young lawyer, whose name I have forgotten, who was sitting in and – in the board – one of the boardrooms of McCullough Robertson in Sydney”. He then denied that documentation related to the affairs of PML.
As already mentioned, Ms Greaves was the person who, on the face of each copy of the Armstrong Agreement, witnessed Mr Elias’ signature. She was called as a witness by the defendants. Ms Greaves holds a Master of Laws degree and was admitted as a solicitor in Queensland in 2004. By the time she gave her evidence at the trial, she had held a practising certificate for 16 years. She joined Wellington in 2005 and left it in 2016. Initially her role with Wellington was as a Compliance Officer. Thereafter she variously served as Assistant Company Secretary, as Company Secretary, as a Company Director and as the company’s General Counsel. She also served as the Company Secretary of Armstrong. She said in her evidence that throughout the period of her employment with Wellington she acted on the instructions of Ms Jennifer Hutson who, as already mentioned (see at [6]), was the principal of the Hutson entities.
Ms Greaves’ evidence-in-chief was confined to adopting her outline of evidence and advancing a further reason why she doubted the authenticity of at least the third copy of the Armstrong Agreement. She did that by answering the following question in the negative: “[D]o you ever write your name with a hyphen between the word ‘Anne’ and the word ‘Greaves’?”. This evidence refers to her name as it is written below her signature where it first appears on the third copy of the agreement (see at [32] above).
In her written outline of evidence, Ms Greaves gave the following evidence with respect to the three copies of the Armstrong Agreement:
(a)First copy [see at [27] above]
7.This document has the words “safe custody Armstrong. Box 1/2015 Packet#” written on the first page.
8.I understand that the [Liquidators have] referred to this document as a counterpart.
9.This document purports to bear my signature as witness to Nigel Elias’ signature.
10. I dispute that this is my signature for the following reasons:
a.in my career as a solicitor I would always use my stamp to verify my name. If I did not have my stamp with me at the time, I would write my full name in my own handwriting. On this document I note there is simply a signature and nothing else. I consider that that is highly unusual.
b.I believe that quite possibly this an electronic signature;
c.I have no recollection of witnessing an undated Loan Agreement between [Armstrong]and Mr Elias.
11. Further I note the Table of Contents page bears document number #13442.
12.I recall that [Armstrong]would always have the document numbering on all pages of the documents except for the cover page. which would follow through on every page of a document created by [Armstrong]. It strikes me as highly unusual that the document numbering only appears on the Table of Contents page. This causes me to question the authenticity of this document.
(Errors in original)
(b)Second copy [see at [31] above]
13.When reviewing this document it is apparent that the signature (purporting to belong to Mr Elias) on the bottom right hand corner of the page with the word “Agreement” at the top left hand corner is different to the signature in the same position on “MG1”. It is apparent that there is a loop at the commencement of the signature on “MG1” that is not found at the commencement of the signature on “MG2”.
14.When reviewing this document it is apparent that the signature (purporting to belong to Mr Elias) at the bottom right hand corner of page “2” is different to the signature in the same position on “MG1”. Again there appears to be a loop at the commencement of the signature on “MG2” that is not found on “MG1”. Further it is apparent that there are other clearly noticeable differences which indicate that it is not the same signature.
15.When reviewing this document it is apparent that the signature (purporting to belong to Mr Elias) at the bottom right hand corner of page “3” is different to the signature in the same position on “MG1”. There are clearly noticeable differences which indicate that they are not the same signature.
16.When reviewing this document it is apparent that my signature on the last page as “witness” is different between the two documents. I note that “MG2” contains what appears to be a full stop and the other document does not.
17.My signature on “MG1” is further away from the words ‘Signature of Witness’ below the line than in “MG2”.
(c)Third copy [see at [32] above]
18.When reviewing this document I note that in the signing clauses my signature when allegedly witnessing Mr Elias’ signature is different to that of my signature when allegedly signing in my capacity as Director/Secretary of [Armstrong].
19.I note that in my signature witnessing Mr Elias the G for “Greaves” appears to show under the line and the other signature on this document does not go below the line. This seems very unusual to me.
20. Further I note that my name is hand written on both signing clauses.
21.As I stated earlier in this witness statement and also at the public examination held on 19 August 2019 that in my experience as a solicitor I always applied my stamp as opposed to writing my name.
22.Further, I am very familiar with Jennifer Hutson’s hand writing and the hand written words stating “MARY-ANNE-GREAVES” and ‘MARY-ANNE GREAVES” appear to be Ms Hutson’s hand writing.
23.I have no recollection of witnessing this document.
24.I recall that my recollection or otherwise of allegedly witnessing Mr Elias’ signature on 14 July 2015 was raised at the public examination and I denied witnessing Mr Elias’ signature in that regard.
25.I recall that I left the employment of [Armstrong]and Jennifer Hutson in general on or about the 7 July 2016. I commenced work as Company Secretary at Michael Hill on 11 July 2016.
26.I recall that at some date in or about July 2016 Jennifer Hutson requested and arranged to meet me at the coffee shop near my office and asked me to sign a number of documents. I do not recall what documents they were now and she effectively placed them before me and demanded that I sign. Regrettably I did affix my signature to a number of documents without first enquiring as to their purpose. I believe that there is a possibility that if my original signature is shown to be on any of the documents as “MG1”, “MG2” or “MG3” then quite possibly they were procured this way.
In cross-examination, Ms Greaves said that she first met Mr Elias in 2009. At about that time, she said Mr Elias would, from time to time, borrow money from Wellington or Armstrong on behalf of PML. She said that, so far as she was aware, Ms Hutson and Mr Elias had a “good working relationship, at least up until about 2015”. While she did not specifically recall this happening, she accepted that, on occasions, she would “formalise loan documents, after advances had been made”. When taken to the copies of the Wellington Agreement annexed to her outline of evidence, she agreed that she had signed that agreement on behalf of Wellington. However, she said she did not recall doing that. Nonetheless, she said that she recalled drawing the agreement at the request of Ms Hutson. She also said that, because the transaction concerned was quite involved, she remembered discussing it with Ms Hutson.
Ms Greaves said that she could not remember a loan of $100,000 being made by Armstrong to Mr Elias some 14 days before the Wellington Agreement. She said she did, however, recall one instance where Mr Elias borrowed money for the purposes of making a payroll tax payment, but she did not “believe it was for that amount, that high, no”. She said that, if such an advance were made, Mr Ted Savage, the company’s Finance Controller, would have been involved in processing it. She also said that, if a person had borrowed monies from Armstrong or Wellington and directed that those monies be paid to a third party, she personally would not have been willing to accept such a direction because “under anti-money laundering, you shouldn’t pay it to a third party”.
Ms Greaves was cross-examined at some length with respect to her claims about the discrepancies in the three copies of the Armstrong Agreement set out above (see at [39]). To begin with, she agreed that she had no expertise as a handwriting expert. Next, she confirmed that she had no recollection of signing any of the three copies of that agreement. Then she was asked about her statement at [26] in her outline of evidence set out above at [39].
With respect to this statement, she reiterated that she could remember signing documents at the meeting in July 2016, but she did not know what those documents were. She agreed it was possible that those documents were the various copies of the Armstrong Agreement. Ms Greaves said she “usually … tried to” be quite careful about witnessing documents of this kind. She was then asked a series of questions on that subject as follows:
And you would have understood, as a solicitor practicing in compliance, the importance of properly witnessing documents?---Yes.
And you would have understood that it would have been a breach of your ethical obligations if you were to witness a document not in the presence of the deponent or the person executing it. That’s correct?---Yes.
And can I suggest to you that that’s something that you would not have been likely to do?---You can suggest it, but at the time when Jenny came to meet me in 2016, I was very vulnerable and in a very bad way. So it was possible I did do something like that.
Can I suggest to you that it’s not likely? Can I suggest to you - - -?---Yes, yes.
Can I suggest to you that the more likely scenario is that you actually did the right thing, as a prudent lawyer, and when a document was witnessed it was witnessed in the presence of the witness. Here, Mr Elias?---Yes, you can suggest that.
Do you agree with that?---Yes, you can suggest that. Yes.
I know I can suggest it, but what I’m asking is do you agree with me that that is the more likely scenario? That you witnessed the document?---Yes, yes.
So when I go to the first document, can I suggest to you that the most likely scenario is that you did, in fact, witness Mr Elias’ signature?---Yes.
And further:
Okay. And in terms of witnessing Mr Elias’ signature, what I’m putting to you is that the most likely scenario is that you did witness Mr Elias’ signature?---Yes.
And that you wouldn’t have written your name in the witness section later on at a later date, because you would have understood that was a breach of your obligations?---Yes, I just don’t understand why I would have witnessed his signature and not written my name.
Okay. But putting that aside, you wouldn’t have witnessed a signature after the event. You would have only done that in the presence of the person?---Yes, in 99.9 per cent of cases, yes.
When asked about her signature above the words “Director/Secretary” on the execution page of the third copy of the agreement (see at [32] above), she said:
… So can I suggest to you that the most likely scenario is that you did execute that document?---I don’t recall executing that document, and I always write – stamp my name. If I don’t have my stamp, I write it, and I didn’t write my name or use my stamp.
Yes, I think in your evidence, you thought it might have been Ms Hutson that filled in your name?---Correct.
Yes. But can I ask you about the execution. What I’m putting to you is that the most likely scenario is that you did, in fact, execute that document yourself?---I can’t agree with that.
You can’t agree, or you don’t remember?---I don’t remember.
With respect to the notations and bar codes appearing on the top right hand corner of the first copy of the agreement (see at [27] above), she gave the following evidence:
Does that mean anything to you? Could you explain that to me please?---I wrote Safe Custody Armstrong, so it normally goes into – goes to somebody else who looks after our Safe Custody.
Okay, so is that when you get the document back signed, and it goes away into archives to be stored and looked after the original? Is that right?---Yes, for – yes, for safe-keeping – yes.
Okay, so does box 1/2015 – does that mean that it would have gone into Safe Custody in – when – 2015?---I would have thought so.
Okay, so doesn’t that weigh against the suggestion that it might have been in about July 2016 that you attested the document?---Sorry, can you just repeat that?
Doesn’t that weigh against the likelihood that it was in 2016 that you completed the execution of the document?---Well, no – it wasn’t signed by Armstrong at that point.
Well, I’m suggesting that before you put it in Safe Custody, wouldn’t you have ensured that it was executed by all parties?---Not necessarily. The person who does Safe Custody should have arranged that.
But that’s your writing there – Safe Custody Armstrong – that’s correct?---Yes. The rest of it’s not my writing.
But you wouldn’t write that on the document until the document was complete – would you – in the usual course?---In the usual course – yes.
Ms Greaves said she could recall having lunch with Mr Elias in Sydney in June/July 2015. She said the purpose of that lunch was “[j]ust to catch up on what [PML] was doing … what they were doing”. She said she did not recall taking any documents to that meeting. She also said that she had other meetings with Mr Elias in Sydney at the offices of McCullough Robertson Lawyers. However, she said she did not recall witnessing any documents at any of those meetings.
Finally, Ms Greaves confirmed that she gave evidence in the Magistrates Court at Brisbane when a copy of the Armstrong Agreement was shown to her. However, she said she did not know whether, or not, the copy that she was shown was the original of that agreement.
Before concluding this review of the evidence in respect of this first issue, it is important to record the following matters. First, as already noted, despite the fact that she was a former officer of two of the Hutson entities, Ms Greaves was called by the defendants at the trial of this proceeding. Secondly, in his oral evidence, Mr Pleash, one of the Liquidators, revealed that the liquidation, and therefore this proceeding, was being funded by a secured creditor of PMLI, called Southland Stokers. As already noted, Southland Stokers is Wellington’s current name (see [6(a)] above. Thirdly, despite this connection with the plaintiffs, Ms Hutson did not give evidence at the trial. In this respect, Mr Elias gave evidence that, so far as he was aware, Ms Hutson was alive and living somewhere in Brisbane. Fourthly, the plaintiffs did not call any other former officer or employee of Armstrong to give evidence about its document record system, including the significance of the bar codes that appear on the top of the first and second copies of the Armstrong Agreement.
The contentions
While the Liquidators accepted that Mr Pereira “presented as a credible and helpful witness at all times”, they contended that Mr Elias’ explanations for the first two records above (at [17(a)] and [17(b)] was “unlikely”. In support of the latter contention, they claimed that Mr Elias “denied being aware that such a significant sum had being [sic] received at the time and denied that he had arranged the advance. Notwithstanding this, the monies were utilised immediately by PML and at a time when it was in financial difficulty”. Additionally, they contended that Mr Elias’ claim that he had no knowledge of the $100,000 transfer was “not credible in circumstances where the whole of the $100,000 was used on 15 July 2015 to meet the majority of the $110,097.70 payroll payment the day after its receipt”. They also contended that Mr Elias was evasive when cross-examined about these issues and that his claim to have no recollection of signing the Armstrong Agreement “was convenient to him”. Further, they contended he was “guarded when it suited him and less than candid” and that “his evidence should be weighed accordingly”.
Relying on the New South Wales Court of Appeal judgment in Manly Council v Byrne [2004] NSWCA 123 (Manly Council), the Liquidators contended that the rule in Jones v Dunkel did not apply to allow an inference to be drawn with respect to Ms Hutson’s absence as a witness at the trial because her evidence was “relevant to” the case advanced by the defendants and that she was equally available to be called by both parties. However, they contended that an inference should be drawn against the defendants arising from their failure to adduce evidence from the other directors of PMLI, Mr Woods and Mr Garcia.
In summary, the Liquidators contended that this Court should find that Mr Elias and Armstrong entered into the Armstrong Agreement on or about 14 July 2015 based upon inferences being drawn from some, or all, of the following matters:
(a)the denial of Mr Elias in relation to all 4 intonations of the Unsecured Loan Agreement includes the copy of the original certified as such by Senior Registrar Mahoney of the Magistrates Court, which the Court should accept was an original signed by Mr Elias and Ms Greaves in circumstances where Mr Elias and Ms Greaves accept that the signature looks like their respective signature, it is submitted that it is right for the Court to conclude that it is on the basis that a certified original has been provided;
(b)Mr Elias and Ms Greaves were together in Sydney on 13 July 2015, and it is probable, despite their lack of recollection that this is when Mr Elias signed in the presence of Ms Greaves as witness;
(c)$100,000 was deposited in PMLI’s account by Armstrong on 14 July 2015 with a notation that it related to Mr Elias;
(d)the accounts of PML prepared by the finance team supervised by CFO Mr Pereira record and account for this $100,000 as “Funds received from Nigel Elias”;
(e)the $100,000 has never been disputed or queried by Mr Elias or returned to Armstrong and the accounting records of PML which is a public company have not been adjusted nor has the money been returned following enquiries made by both Mr Elias and Mr Pereira about this $100,000 that confirmed the remitter was Armstrong;
(f)the evidence of Mr Elias at paragraph 62 of his statement where he says “this payment is between PML and myself and Armstrong is evidently not a part of it” is false on his own evidence.
Finally, the Liquidators sought to emphasise Ms Greaves’ evidence in cross-examination (set out at [43]-[45] above) that the most likely scenario was that she did actually witness Mr Elias signing the Armstrong Agreement.
In response, first, with respect to the first two records above (at [17(a)] and [17(b)]), the defendants contended that there was no evidence that Mr Elias had ever personally received $100,000 from Armstrong and they pointed to Mr Elias’ denial that he had any association with the transaction to which those two records related. Further, they contended that there was no evidence that Mr Elias knew about that transaction until August 2019 when he received the information set out earlier from Ms Fox at the ANZ Bank in Hobart (see at [21] above).
They also contended that, as a Director of Armstrong, Ms Hutson was in a position to give evidence about that transaction and since she had not done so, a Jones v Dunkel inference should be drawn that her evidence would not have assisted the plaintiffs. In this respect, they contended that “Ms Hutson is well-known to the plaintiffs as she is funding the liquidation of PMLI”. With respect to the plaintiffs’ assertion that the $100,000 deposit was immediately used by PML to pay its payroll tax, the defendants pointed to the fact that both Mr Elias and Mr Pereira had denied this. Furthermore, they contended that there was no evidence from anyone “with contemporary knowledge of PML’s financial position in July 2015” that it was in financial distress at that time.
With respect to the Armstrong Agreement, they contended that, because of the following factors, “the only safe conclusion … to draw” was that Mr Elias did not sign it:
(a)Mr Elias’ evidence that he did not sign the document;
(b)Ms Greaves’ evidence that she does not recall signing the document;
(c)the peculiar features of the similarities between [the second copy] (only partly signed) and [the third copy] (dated and fully signed), which might suggest that [the second copy] was later changed by Ms Hutson in order to create [the third copy];
(d)the physical evidence that Ms Greaves’ name is mis-spelled;
(e)the failure to make the original of [the third copy] available for inspection; and
(f)the Jones v Dunkel inference to be drawn from the plaintiff’s failure to lead evidence from Ms Hutson,
The relevant principles
Both parties have relied extensively on inferences to prove their case. For instance, the Liquidators have sought to draw inferences from the contents of the accounting and banking records at [17(a)] and [17(b)] above and the presence of the signatures of both Mr Elias, as the borrower, and Ms Greaves, as the witness, on all three copies of the Armstrong Agreement. For their part, the defendants have sought to rely on the rule in Jones v Dunkel to draw inferences from the failure of Ms Hutson to give evidence at the trial of this matter. It is therefore appropriate to begin by reviewing the relevant principles bearing on the drawing of inferences.
The process of drawing an inference was described by Brennan and McHugh JJ in G v H (1994) 181 CLR 387 at 390 in the following terms:
An inference is a tentative or final assent to the existence of a fact which the drawer of the inference bases on the existence of some other fact or facts. The drawing of an inference is an exercise of the ordinary powers of human reason in the light of human experience; it is not affected directly by any rule of law.
The manner in which a party may rely upon an inference to prove an aspect of their case was outlined by Gageler J (dissenting on the outcome) in Henderson v State of Queensland (2014) 255 CLR 1; [2014] HCA 52 (Henderson) as follows (at [89]):
Generally speaking, and subject always to statutory modification, a party who bears the legal burden of proving the happening of an event or the existence of a state of affairs on the balance of probabilities can discharge that burden by adducing evidence of some fact the existence of which, in the absence of further evidence, is sufficient to justify the drawing of an inference that it is more likely than not that the event occurred or that the state of affairs exists. The threshold requirement for the party bearing the burden of proof to adduce evidence at least to establish some fact which provides the basis for such a further inference was explained by Kitto J in Jones v Dunkel:
“One does not pass from the realm of conjecture into the realm of inference until some fact is found which positively suggests, that is to say provides a reason, special to the particular case under consideration, for thinking it likely that in that actual case a specific event happened or a specific state of affairs existed.”
(Footnote omitted)
And further (at [91]):
The process of inferential reasoning involved in drawing inferences from facts proved by evidence adduced in a civil proceeding cannot be reduced to a formula. The process when undertaken judicially is nevertheless informed by principles of long standing which reflect systemic values and experience. One such principle, forming “a fundamental precept of the adversarial system of justice”, is 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”. Another such principle, “reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct”, is that “a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct”. The reluctance of a court to infer fraudulent or criminal conduct is ordinarily somewhat stronger in respect of a person who is not a party to litigation and who is for that reason denied an opportunity to explain and justify his or her conduct as consistent with the conventional perception.
(Footnotes omitted)
It is to be noted that his Honour cited, among other authorities, Blatch v Archer (1774) 98 ER 969 (Blatch) at 970 for the first principle above (at [91] of Henderson) and Briginshaw v Briginshaw (1938) 60 CLR 336 at 362 for the second.
In Chetcuti v Minister for Immigration and Border Protection (2019) 270 FCR 335; [2019] FCAFC 112 (Chetcuti), the majority of the Full Court (Murphy and Rangiah JJ) identified the connection between the rule in Jones v Dunkel and Blatch in the following terms (at [89]):
The rule in Jones v Dunkel has been described as an application of the principle in Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970 that, “All evidence is to be weighed according to the proof which was in the power of one side to have produced, and in the power of the other to have contradicted”. It was entirely within the knowledge of the Minister and his advisors as to when he began his consideration of the material, and it was within his power to produce direct evidence as to that matter.
See also the discussion in Fair Work Ombudsman v Hu (2019) 289 IR 240; [2019] FCAFC 133 at [50]-[52] per Flick and Reeves JJ.
In Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11, the plurality explained the context of the rule in the following terms (at [63]-[64]):
The rule in Jones v Dunkel is that the unexplained failure by a party to call a witness may in appropriate circumstances support an inference that the uncalled evidence would not have assisted the party’s case. That is particularly so where it is the party which is the uncalled witness. The failure to call a witness may also 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 …
The rule in Jones v Dunkel permits an inference, not that evidence not called by a party would have been adverse to the party, but that it would not have assisted the party.
(Citations omitted.)
However, in Chetcuti, their Honours did identify two limits to the application of the rule. The first was that “although the rule allows the Court to draw with greater confidence an inference unfavourable to the party that failed to call the witness, it cannot be used to fill evidentiary gaps or convert conjecture into inference” (at [91]). The second was that “the facts proved must give rise to a reasonable and definite inference, not merely to conflicting inferences of equal degree of probability so that the choice between them is a mere matter of conjecture” (at [95]). See also Lithgow City Council v Jackson (2011) 244 CLR 352; [2011] HCA 36 at [94] per Crennan J; Ashby v Slipper (2014) 219 FCR 322; [2014] FCAFC 15 at [71]-[73] per Mansfield and Gilmour JJ and Kumar v Minister for Immigration and Border Protection (2020) 274 FCR 646; [2020] FCAFC 16 at [123]-[124] per Derrington and Thawley JJ.
A number of other limits were identified in the judgment of Manly Council which was relied upon by the Liquidators. In that judgment, Campbell J (with whom Beazley JA and Pearlman AJA agreed) identified the following limits:
(a)there must first be direct evidence of facts from which the inference is open to be drawn (at [54]);
(b)the inference may not be drawn where the evidence adduced is already sufficient to prove the case for the party who failed to call the witness (at [55]);
(c)the rule does not require a party to call “comparatively unimportant”, or “merely cumulative”, or “inferior” evidence which has been dispensed “on general grounds of expense and inconvenience”, although this does not justify a party deliberately choosing to call less favourable witnesses (at [61], [64] and [65]); and
(d)where the witness is equally available to both parties, however, that may still not be sufficient to avoid an inference being drawn against either or both parties (at [71]).
Consideration
With these principles in mind, I turn to consider the inferences upon which the Liquidators sought to rely to prove that Mr Elias and Armstrong entered into the Armstrong Agreement on or about 14 July 2015. Dealing first with the accounting and banking records at [17(a)] and [17(b)] above, two things are clear on the face of those records (see at [18] above). First, that $100,000 was paid into PML’s bank account on 14 July 2015. Secondly, that PML’s ledger entitled “At Call - Loan Nigel Elias” shows a credit entry for 14 July 2015 of $100,000 with the notation “Funds Received From Nigel Elias – 14/07/2015”. Given the identical dates and amounts recorded in these two records, it can be readily inferred that they both relate to the same transaction. However, the critical question on this issue is whether it can be further inferred that that transaction was connected with the Armstrong Agreement whereby Armstrong allegedly loaned $100,000 to Mr Elias.
The first difficulty with drawing that inference is that the accounting record, namely the ledger entry at [17(a)] above, records funds being received by PML from Mr Elias. Even assuming the fact that entry appears in Mr Elias’ “At Call - Loan” ledger and therefore may evidence a loan, the receipt of the funds by PML from Mr Elias can only, by itself, (see further below) support the inference that the loan concerned was one made by Mr Elias to PML. Conversely, on that assumption, that ledger entry does not provide a basis for inferring that a loan in that amount was made by Armstrong to Mr Elias. It follows that the payment recorded by that entry is, as Mr Elias said in his outline of evidence, “between PML and myself, and Armstrong is evidently not a party to it”. For these reasons, I reject the Liquidators’ contentions at [52(d)] and [52(f)] above with respect to this ledger entry and the falsity of Mr Elias’ evidence concerning it.
The second difficulty with drawing that inference is that the banking record, namely the 14 July transfer shown on the ANZ Bank statement at [17(b)] above, relates to a payment that was made by Armstrong to PML. That fact is established by the contents of the email from the ANZ Bank dated 13 August 2019 (set out at [21] above). That email also records the payment details as “LOAN FROM NELIAS”. Putting aside a direction by Mr Elias to Armstrong to pay those monies to PML, that payment does not therefore evidence a loan payment by Armstrong to Mr Elias. The possibility that the payment was made by direction can also be put aside for a number of reasons. First, no such direction was pleaded by the Liquidators in their 4FASC. Secondly, and in any event, Mr Elias denied any such direction existed (see at [34] above). Thirdly, and most importantly, the Liquidators have not adduced any evidence that any such direction was ever given. For these reasons, assuming the Liquidators’ contention at [52(c)] above was intended to refer to PML, rather than PMLI, I also reject that submission.
The third difficulty with drawing that inference concerns Ms Hutson’s absence as a witness at the trial of this proceeding. On this aspect, I reject the Liquidators’ submission that no Jones v Dunkel inference should be drawn as a result of their failure to call Ms Hutson as a witness (see at [51] above). I do so for the following reasons. To begin with, as already noted, through the current manifestation of Wellington, namely Southland Stokers, Ms Hutson is funding the Liquidators in their pursuit of this proceeding. In my view, that state of affairs places her firmly in the same camp as the Liquidators (see Claremont Petroleum NL v Cummings (1992) 110 ALR 239 at 259 per Wilcox J and Australian Securities and Investments Commission v Australian Lending Centre Pty Ltd (No 3) (2012) 213 FCR 380; [2012] FCA 43 at [153] per Perram J). Furthermore, as the principal of Armstrong in July 2015, Ms Hutson was very likely to be able to explain why Armstrong transferred $100,000 to PML on 14 July 2015 such that it could be inferred that the records described above were connected with that transaction and, therefore, the loan Armstrong allegedly made to Mr Elias as reflected by the Armstrong Agreement. Put differently and expressed in Blatch terminology, that evidence was peculiarly within Ms Hutson’s power to produce and it was plainly pertinent to the question whether the Armstrong Agreement was made as the Liquidators allege and the defendants deny.
Having regard to the principles relating to the rule in Jones v Dunkel outlined earlier, I therefore consider that two things follow from Ms Hutson’s absence as a witness at the trial of this matter. First, I infer that her evidence would not have assisted the Liquidators’ case on the matters mentioned above. Secondly, in the absence of her evidence on those matters, I am not willing to draw the inference advanced by the Liquidators to connect the 14 July 2015 transfer with the Armstrong Agreement loan.
These conclusions also affect the inferences that the Liquidators seek to have drawn in respect of the third document upon which they rely, namely the Armstrong Agreement. First, with respect to their contention at [52(a)] above, so far as I can ascertain, the certification of the Senior Registrar of the Magistrates Court was not tendered in evidence at the trial of this matter. Even if it were, without further information as to the circumstances of the hearing before the Magistrates Court, I do not see how it can be inferred that the document produced under subpoena from that Court is the original copy of the Armstrong Agreement. This is supported by the fact that, in her evidence, Ms Greaves was not able to say whether or not the copy of that document shown to her during the Magistrates Court hearing was the original copy of that agreement (see at [48] above).
Secondly, and in any event, the crucial version of the Armstrong Agreement, for the purposes of inferring that Armstrong and Mr Elias entered into that agreement, is the third copy. That is so because only that copy purportedly bears the date of the agreement and the duly witnessed signatures of all the parties to the agreement, namely Mr Elias on his own behalf and Ms Hutson and Ms Greaves on behalf of Armstrong. It therefore contains the essential evidence from which an inference may be drawn that an agreement in the terms of that document was reached between those parties on that date. On the other hand, since the first and second copies do not contain all that essential evidence, they do not, in my view, permit of that inference. However, for the following reasons, I do not consider the third copy of that agreement provides evidence of the requisite facts upon which that inference could be drawn. The first concern relates to the handwritten date “14 July 2015” which appears beside the words “Agreement made” on the third page of that copy of the document and none of the other copies (see at [32] above). The evidence of Mr Elias, which I accept, is that that handwriting is Ms Hutson’s. That being so, if she had given evidence at the trial, Ms Hutson should have been able to confirm that she wrote that date on the document on or about 14 July 2015 and she should have been able to describe the circumstances in which she came to do that. In her absence, I infer that her evidence on these matters would not have assisted the Liquidators’ case.
The second concern relates to the discrepancies in that copy of the agreement highlighted by Ms Greaves in her evidence (see at [39] above). They include the absence of her personal stamp verifying her signature and the fact that her name is instead written on that copy in Ms Hutson’s handwriting. In this respect, I should add that I reject the proposition inferentially raised during Ms Greaves’ cross-examination that she had to have some expertise as a handwriting expert to identify those deficiencies. Accordingly, if she had given evidence at the trial, Ms Hutson should have been able to explain some, or all, of these discrepancies. That includes the circumstances in which she came to sign that third copy of the agreement. Again, in her absence, I infer that her evidence on these matters would not have assisted the Liquidators’ case. Conversely, in Ms Hutson’s absence as a witness at the trial of this matter, I am not willing to draw an inference in the Liquidators’ favour that the Armstrong Agreement was duly executed and made by all of the relevant parties on or about 14 July 2015 as may be reflected by that copy.
In their written submissions, the defendants acknowledged that, because PMLI did not trade and had no source of income, its “ongoing solvency depended on its ability to rely on PML for financial support”. They contended that the relevant question was therefore “whether, at 29 July 2015, the directors of PMLI could have reasonably considered they could rely on PML to be able and willing to provide the necessary financial support” (emphasis in original). They then proceeded to identify several reasons why it was reasonable for them to have that expectation. They included that:
(a)PML had provided a guarantee in respect of PMLI’s debt to Wellington. If PML did not meet that guarantee, the whole PML Group would be at risk and Mr Elias and Mr Pereira gave evidence that they would not have allowed PML to fail;
(b)PML had been willing and able to provide PMLI with financial support in the past and there was every expectation it would continue to do so in the future. Further, PMLI had met its debts before July 2015 and continued to do so in the two years up to July 2017 and, similarly, PML has continued to trade and meet its debts up to the present time;
(c)PMLI had a reasonable expectation of obtaining funds from the sale of the [property] and from the settlement of its litigation in respect of the sale of the neighbouring block. In fact, from August 2015, PML received, by instalments, the sum of approximately $50,000 from the settlement of that litigation; and
(d)To the extent there was any shortfall in the funds available to PMLI, PML had numerous sources of funds to meet that shortfall, including the funds it could reasonably expect to receive from: the reduction in its lease guarantee of $50,000; the increase in its overdraft facility of $70,000; the leasing of its plant and equipment which it owned and was valued at up to $250,000; its ability to use its cash flow from its primary business activities; and its ability to obtain funds from its investors and shareholders as detailed by Mr Elias in his evidence.
Consideration
Although trite, it is important to note at the outset that this insolvency issue falls to be determined by reference to the case as pleaded by the Liquidators in their 4FASC (see at [96]-[98] above) and the provisions of the Act upon which they have relied, namely ss 588G and s 588FB.
Section 588G relevantly provides:
(1)This section applies if:
(a)a person is a director of a company at the time when the company incurs a debt; and
(b)the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and
(c)at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and
(d)that time is at or after the commencement of this Act.
(1A)For the purposes of this section, if a company takes action set out in column 2 of the following table, it incurs a debt at the time set out in column 3.
When debts are incurred [operative table] Action of company When debt is incurred … 7 entering into an uncommercial transaction (within the meaning of section 588FB) other than one that a court orders, or a prescribed agency directs, the company to enter into when the transaction is entered into (2)By failing to prevent the company from incurring the debt, the person contravenes this section if:
(a)the person is aware at that time that there are such grounds for so suspecting; or
(b)a reasonable person in a like position in a company in the company's circumstances would be so aware.
Note: This subsection is a civil penalty provision (see section 1317E).
…
And s 588FB provides:
(1)A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to:
(a)the benefits (if any) to the company of entering into the transaction; and
(b)the detriment to the company of entering into the transaction; and
(c)the respective benefits to other parties to the transaction of entering into it; and
(d)any other relevant matter.
(2)A transaction may be an uncommercial transaction of a company because of subsection (1):
(a)whether or not a creditor of the company is a party to the transaction; and
(b)even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.
Accordingly, the pertinent question under s 588G is whether the defendants were aware, or whether a reasonable person in their position in PMLI, in its circumstances, would be so aware, that at the time PMLI incurred the Wellington loan debt there were reasonable grounds for suspecting that PMLI would become insolvent as a consequence.
However, that question is, in this matter, significantly affected by the form in which the reasonable grounds for suspecting that outcome were particularised in the Liquidators’ 4FASC. Specifically, that PMLI’s consequent insolvency stemmed from the fact that PML did not have the ability to provide the financial support that it had historically provided to PMLI and without that support PMLI did not have the income or resources to enable it to pay the Wellington loan debt.
In contrast, the pertinent question posed by s 588FB, as pleaded in the 4FASC, focuses more broadly on the Wellington Agreement as a transaction and the benefits and detriments flowing from it, rather than on the Wellington loan debt that was incurred by entering into that agreement. It asks, having regard to those matters, whether a reasonable person in the position of PMLI “may be expected” not to have entered into that transaction.
Additionally, s 588FB poses its question retrospectively: “would not have entered into the transaction”, rather than prospectively: “at the time” the Wellington loan debt was incurred, as is prescribed by s 588G. As well, s 588FB: is limited to an objective assessment of the benefits and detriments associated with the transaction concerned; in making that assessment it permits regard to be had to the benefits other parties to the transaction concerned may have received; and it also permits regard to be had to “any other relevant matter”.
However, despite these statutory differences, in their 4FASC the Liquidators have essentially raised the same solvency issue with respect to s 588FB as they have raised with respect to s 588G. That is so because, putting aside the allegation in particular (c) (see at [98] above) which I have determined against the Liquidators above, but with the addition of the relatively minor detriment that is alleged to have arisen from having to pay the interest on the Wellington loan debt (the second part of particular (b), see also at [98] above), the lack of benefit and detriment that are alleged to stem from the Wellington Agreement are essentially founded on the same alleged consequence as that described above, namely that neither PMLI nor PML could repay the monies owing under that agreement.
For present purposes, several things follow from this analysis. First, arising from a point made earlier: because their case on this issue is that PMLI became insolvent by entering into the Wellington Agreement, it necessarily follows that its solvency immediately before that event is not in issue.
Secondly, s 588G pivots on the debt that was incurred under the Wellington Agreement, namely the Wellington loan debt, and the effect that incurring that debt had on PMLI’s solvency. Further, it requires that question to be determined either subjectively or objectively by reference to whether there were reasonable grounds to suspect that outcome “at that time”.
Thirdly, on the other hand, s 588FB is directed to the transaction concerned namely the Wellington Agreement. It focuses on the benefits and detriments associated with PMLI entering into that transaction and requires an objective and retrospective assessment to be made.
Finally, the Liquidators have, in their 4FASC, effectively confined both of these questions to the effect incurring the Wellington loan debt, by entering into the Wellington Agreement transaction, had on the continuing financial support PMLI could expect to obtain from PML and whether PML would be able to provide that support.
Whether it is approached subjectively or objectively, or prospectively or retrospectively, for the reasons that follow, I do not consider incurring the Wellington loan debt, and entering into the Wellington Agreement transaction, had the pleaded effect on PMLI’s solvency. To begin with, the Wellington loan debt was not an additional debt for PMLI but rather one that replaced the debt that it already owed to PML. Unsurprisingly, therefore, the evidence of Mr Pleash, one of the Liquidators, Mr Pereira, one of the defendants, and both expert witnesses called by the parties was variously to the effect that PMLI owed approximately the same level of debt after it incurred the Wellington loan debt and that there was no material change to its balance sheet.
Since PMLI is accepted to have been solvent immediately before the Wellington loan debt was incurred, it necessarily follows from the above that, at the time it was incurred, there was no reasonable ground to suspect that, by incurring it, PMLI would become insolvent. Alternatively, having regard to the events that occurred subsequently, reflected broadly by the fact that both PMLI and PML continued to pay their debts as they fell due for at least two years after PMLI entered into the Wellington Agreement transaction, there is no relevant reason (in the terms of s 588FB) to expect that PMLI should not have entered into that transaction.
These conclusions are not affected, in my view, by the facts that Wellington replaced PML as one of PMLI’s two major creditors and that the date for repayment of the Wellington loan debt was fixed at 31 January 2016. That is to say, neither of these factors gave rise to the reasonable grounds, or the expectation, upon which the Liquidators have relied in their 4FASC, namely the removal of PMLI’s reliance on PML’s financial support through PML’s inability to provide that support.
The former – the removal of PMLI’s continuing support from PML – does not follow because it fails to take account of the fact that, concurrently with entering into the Wellington Agreement, PML provided a guarantee to Wellington that it would pay the Wellington loan debt should PMLI fail to do so. This gave a high level of assuredness to PMLI that PML would continue to provide the financial support to it that it had in the past and that it would, in particular, do so in respect of the Wellington loan debt.
Furthermore, this level of assuredness was reinforced, if that were necessary, by the commercial realities associated with existential threat that PML’s failure to comply with the terms of that guarantee posed for the whole PML group. On this aspect I find as a fact that the defendants, as directors of PMLI, were aware of both of these matters because of the overlapping directorships between PMLI and PML.
In reaching these conclusions, I do not consider the February 2016 agreement to set aside that guarantee can be taken into account under s 588G because that event was not in contemplation at the time PMLI incurred the Wellington loan debt. Conversely, however, that event can be factored into the considerations under s 588FB because of the retrospective focus of that provision, as discussed earlier.
The latter – PML’s inability to continue to provide its historical financial support to PMLI – does not follow, in the circumstances of this matter, for two reasons. First, it confuses the pertinent questions under ss 588G and 588FB reviewed above. In particular, it confuses PMLI’s conduct of entering into the WA transaction and incurring the Wellington loan debt with PML’s separate and distinct conduct of providing the guarantee to Wellington and/or incurring the contingency of having to pay the Wellington loan debt in the event of PMLI’s default. Specifically, the Liquidators’ case on this issue as pleaded in their 4FASC and the two statutory provisions upon which they rely, as reviewed above, are solely directed to the former and do not, therefore, engage the latter.
Secondly, and in any event, even if PML’s ability to provide that support were a relevant issue, I consider that the defendants have adduced ample evidence to demonstrate that PML retained that ability. That evidence, which I accept, came from Mr Elias and Mr Pereira. It was to the effect that, in or about the period from July 2015, including January 2016 and beyond, PML could have reasonably expected funds to become available to it from the following sources:
(a)the imminent reduction in its lease guarantee with its lessor of approximately $50,000;
(b)the negotiated increase in its overdraft facility with the CBA of approximately $70,000;
(c)making use of the periodic cash flow fluctuations available from its business activities, noting Mr Cotter’s evidence that in January 2016 that amounted to a sum in excess of $200,000 and that PML had an estimated annual turnover at the time of $753,000 EBITDA and $525,000 EBDA (see at [106(h)(iii)] and [106(h)(v)] above, respectively);
(d)securing finance against some or all of the equipment which it owned, noting Mr Cotter’s evidence that between $50,000 and $250,000 may be available form this source (see [106(h)(x)] above); and
(e)raising short term unsecured loans from the pool of investors and shareholders as outlined by Mr Elias (see at [110] above.
Together, these sources of funds and their total likely quantum demonstrate that, if pressed, PML was likely to be able to meet the whole of the Wellington loan debt by 31 January 2016, or within a short period thereafter. However, this conclusion fails to take account of the extent of the financial support that was likely to be required by PMLI. If, as the following demonstrates, PMLI’s requirement for support was less than the full amount of the Wellington loan debt, then there is even more reason to conclude that PML was able to provide that support.
On this aspect, as Mr Cotter and Ms Trenfield have outlined in their reports, PMLI’s main resource was its ability to sell the property and use the proceeds of that sale to reduce the Wellington loan debt. On that footing, while they disagreed as to the timing of that sale, they both agreed that the likely shortfall would be in the vicinity of $178,000. The other resource available to PMLI was the likely settlement of the litigation concerning the adjoining property purchase. It resulted in a payment of approximately $50,000 to PMLI in late 2015 (see Mr Cotter’s report at [106(h)(vi) above). These resources therefore put the likely level of financial support required from PML at between $128,000 and $178,000.
To sum up, whether the financial support that PMLI required from PML in this period was $128,000, $178,000 or $ 420,000, I consider this evidence shows that PML had the ability to provide it. This conclusion means that PML would have had the capacity to avoid PMLI defaulting on the payment of the Wellington loan debt entirely, or if not, to itself meet any demand under the guarantee, assuming that demand was issued shortly after PMLI’s partial default. Finally on this aspect, it is important to reiterate a finding made earlier in these reasons, namely that PML was not in financial distress in this period in 2015 (see at [73]).
In reaching these conclusions, I have not found it necessary to rely, to any significant extent, on the evidence of the expert witnesses called by the parties: Ms Trenfield and Mr Cotter. I have not, therefore, conducted a detailed analysis of that evidence. Nonetheless, the following brief observations are appropriate. First, I did not gain assistance from either expert insofar as they purported to express opinions about the performance of the real estate market in Tasmania. I do not consider that subject matter fell within their areas of expertise as elaborated in their reports.
Secondly, I did not gain a great deal of assistance from Ms Trenfield’s opinions because, among other things, she:
(a)disregarded the significance of the guarantee PML provided to Wellington, contrary to the conclusions I have reached above;
(b)relied on PML being in financial distress in the apposite period in 2015, again contrary to the conclusions I have reached above; and
(c)did not take sufficient account of the range of sources of funds available to PML as outlined above.
On the other hand, with the exception of the matters mentioned above, I generally gained greater assistance from Mr Cotter’s opinions to the extent that they were relevant to this issue as pleaded by the Liquidators and the statutory provisions upon which their pleadings relied.
Conclusion
For these reasons, I do not consider the Liquidators have established their insolvency allegation against the defendants. Specifically, they have not established that the defendants breached s 588G of the Act, as a consequence of PMLI incurring the Wellington loan debt, or that they caused PMLI to enter into an uncommercial transaction as defined in s 588FB. The former all the more so having regard to the fact s 588G is a civil penalty provision and the resultant degree of satisfaction that is required to conclude that it had been breached (see at [101(e)] above). The Liquidators’ case on this third issue therefore fails.
CONCLUSION
To sum up, for the reasons set out above, I do not consider the Liquidators have adduced the evidence necessary to establish, on the balance of probabilities, affirmative answers to any of the three issues set out above (at [16]). Their originating application filed on 10 April 2019 must therefore be dismissed with costs. Orders will be made accordingly.
I certify that the preceding one hundred and forty-one (141) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Reeves. Associate:
Dated: 23 April 2021
SCHEDULE OF PARTIES
QUD 240 of 2019 Defendants
Fourth Defendant:
ADRIAN JOSEPH PEREIRA
4
15
3