Senes v Empress Electric (Sydney) Pty Ltd

[1966] HCA 23

HIGH COURT OF AUSTRALIA

Barwick C.J., McTiernan and Taylor JJ.

SENES v. EMPRESS ELECTRIC (SYDNEY) PTY. LTD.

(1966) 114 CLR 622

27 April 1966

Companies

Companies—Winding up—Books and papers of company—When prima facie evidence of truth of matters recorded therein—Misfeasance summons against director—Companies Act, 1961 (N.S.W.), ss. 284*, 305.

Decisions

April 27.
The following written judgments were delivered:-
BARWICK C.J. Empress Electric (Sydney) Pty. Limited (the Company) was incorporated under the Companies Act, 1936 of the State of New South Wales on 9th November 1956 under the name Cross T. V. Centre Pty. Limited, changing to its present name on 9th June 1961. Until 7th July 1962 the shares in the company were all beneficially owned by Senes and Co. Pty. Ltd. which was in turn a wholly-owned subsidiary of Leslie Senes Holdings Pty. Ltd. In the latter Company the shareholding was held exclusively by Mr. and Mrs. Senes, the appellant, and members of their family. After July 1962 the control of the Company passed to Empress Finance Pty. Ltd. in which the Senes family only held forty-eight per cent of the shareholding and Electronic Industries Limited held directly and indirectly the remaining fifty-two per cent. (at p623)

2. On 13th February 1963 the Company was wound up by order of the Supreme Court and an official liquidator appointed. Thereafter the husband of the appellant and the appellant were examined before the Master in Equity upon a summons issued under s. 249 of the Companies Act, 1961 (The Act) and a transcript record was taken of the evidence each gave with respect to the affairs of the Company. (at p623)

3. On 10th September 1964 a summons was issued against the husband of the appellant and one against the appellant, each under s. 305 of the Act. The summons against the husband of the appellant claimed the repayment of a total sum of 5,294 pounds 3s. 11d., made up of 4,700 pounds claimed to have been unauthorizedly received as fees for his services as a director of the Company, a sum of 594 pounds 3s. 11d. claimed to have been interest payable to the Company but wrongfully diverted to his own account and the return of a motor car or the payment of its value. (at p623)

4. The summons against the appellant claimed only the repayment of 2,100 pounds said to be money paid to her purporting to be director's fees but without the authority of the Company. (at p623)

5. In the result, the Chief Judge in Equity, who heard the summonses, ordered the repayment by the husband of the appellant of the sum of 5,294 pounds 3s. 11d. and of the sum of 2,100 pounds by the appellant. (at p624)

6. In this appeal, the appellant has submitted that there was no evidence before the learned Chief Judge upon which he could find that she had been guilty of any misfeasance or that she had received any money for which she remained accountable to the Company. In giving his reasons for judgment upon the summonses, his Honour said: "The first questions for consideration are the claims in respect of moneys received by Mr. and Mrs. Senes as being for director's fees. In the books of the Company there are entries showing that on 22nd December 1961 two cheques were drawn for directors' fees, one for 3,200 pounds and one for 600 pounds. I am satisfied that Mr. Senes received the 3,200 pounds represented by the first cheque and that Mrs. Senes received the 600 pounds represented by the other. There are also entries showing that on 4th May 1962 a cheque was drawn for 3,000 pounds in favour of L. &C. Senes dissected in the entries as being 1,500 pounds Mr. Senes and 1,500 pounds Mrs. Senes and described as "directors' fees". I am satisfied that Mr. Senes and Mrs. Senes each received 1,500 pounds, making up the 3,000 pounds represented by the cheques." (at p624)

7. His Honour decided that directors' fees in the amounts in question had not been determined by the Company in general meeting nor had their payment been authorized by the Company. He found that the husband of the appellant had made all the decisions in relation to the Company - meaning thereby, as I read his reasons, to include the decision to pay out of the Company's funds the amounts of the directors' fees in question. (at p624)

8. It is necessary in order to determine the question raised by the appeal to trace the course pursued in the Supreme Court in hearing the summonses. At the outset the hearing of the summons against the husband of the appellant was entered upon. Objections were taken to paragraphs of the liquidator's affidavit in support of the summons which sought to introduce into evidence the cash book of the Company of which the liquidator had taken possession. But the learned Chief Judge admitted it against the objection. (at p624)

9. Thereafter, evidence was given on behalf of the liquidator and by the husband of the appellant on his own behalf. In addition, the transcript of his evidence given before the Master in Equity was admitted into evidence. The husband gave evidence which would support a finding against him that he had authorized all the challenged payments as unauthorized directors' fees and that such moneys had been paid to Leslie Senes Holding Company with the intention on his part that he and his wife should receive them or the advantage of them. He also gave evidence that at a meeting which he claimed to have been a shareholders' meeting at which his wife was present, it was decided that the first of the payments of directors' fees should be made. He had said before the Master in Equity that the cash book entries were correct. The items in the Company's dissecting cash book were -

December 22 Directors' fees 3,200 pounds Directors' fees 600

carried out in the same terms in the dissection to the column headed "sundries"

May 4 L. and C. Senes 3,000 pounds carried out in the dissection under a column headed "sundries" as

1,500 pounds L. Senes directors' fees

1,500 C. Senes (at p625)

10. At the conclusion of the evidence given on the hearing of the summons against the husband of the appellant discussion took place between counsel as to the procedure to be followed in the hearing of the summons against the appellant. In the result, the record of the hearing contains the following:

"His Honour: There is the question of the summons. Is it going to be agreed that the evidence in one can be evidence in the other? Mr. Cohen: I think a decision in this matter may well resolve the other matter. (His Honour's question discussed by counsel.) His Honour: It is agreed that the evidence in each of the summonses in which Mr. Senes and Mrs. Senes are the respondent be treated as evidence in the other." (at p625)

11. Counsel for the liquidator then sought to read the affidavit of the liquidator in support of the summons against the appellant. It is clear that the appellant's counsel objected to those parts of this affidavit which sought to introduce into the evidence against the appellant the cash book of the Company and the entries to which I have referred. These paragraphs were then read subject to objection. (at p625)

12. It is quite clear that the question of the sufficiency of the evidence to establish the receipt by the appellant of any of the moneys which she has been ordered to repay was taken and kept alive before the Supreme Court. (at p625)

13. The case made against the appellant by the liquidator was, at least principally, if not entirely, that she was accountable for moneys of the Company actually received by her. Of course, it would have been a misfeasance on her part to have authorized the disbursement of those moneys for whose payment no proper authority by the Company existed. In that case, her actual receipt of the moneys so authorized by her to be disbursed would not be an indispensable ingredient of the misfeasance. (at p626)

14. But, although it was at one time during the hearing of the appeal claimed that this case had been made, there are no findings of the Chief Judge directed to it and there is a finding by his Honour to which I have referred made perhaps alio intuitu, which at least tends to negate the appellant's participation in the decision to make the impugned payments. Consequently, the case against the appellant rests upon her actual receipt of the sums in question: and it was so treated by the learned Chief Judge in his reasons for judgment. (at p626)

15. Apart from any relevant consequence which flows from s. 284 of the Act and from the agreement of counsel which is recorded by his Honour in the passage which I have quoted, it seems to me to be indisputable that there was no evidence before the Supreme Court of the receipt by the appellant of any of the said moneys. Whilst as I have indicated in reciting the basic facts of the matter there was evidence given by the appellant's husband that the payments out of the Company's funds were intended ultimately to reach or to benefit the appellant and her husband, if any conclusion at all can be drawn from the oral evidence as to the identity of the payee of the cheques, which were not produced but were spoken of as the method of payment of the moneys in question, it could only be that they were drawn in favour of Leslie Senes Holdings Pty. Ltd. (at p626)

16. Two questions therefore remain: first, does s. 284 make the contents of the Company's cash book evidence against the appellant and, if so, do those contents establish the receipt by the appellant of the sums in question as fees for acting as director of the Company? Second, does the agreement of counsel as to the use to be made in the hearing of the summons against the appellant of the evidence given in the hearing of the summons against her husband make all of that evidence, including those parts of it which would otherwise be inadmissible against her, both admissible and relevant to the matters to be decided upon the summons against her. (at p626)

17. Section 284 is in the following terms: "284. (1) Where a company is being wound up all books and papers of the company and of the liquidator that are relevant to the affairs of the company at or subsequent to the commencement of the winding up of the company shall as between the contributories of the company be prima facie evidence of the truth of all matters purporting to be therein recorded." (at p627)

18. Its substance has appeared in Companies Acts in England since the Companies Act of 1862. It has been in the Companies Act of New South Wales since 1874. The extent of the operation of a section in the terms of s. 284 or substantially in such terms has not been the subject of judicial decision so far as I have been able to ascertain either in England or in Australia. The expression "as between contributories" is clearly a limitation upon the use which can be made of the books and papers of the Company by virtue of the section. Unaided by authority, I am of opinion that the words confine the operation of the Act to proceedings in which the party against whom the books or papers of the Company are tendered is sued, or has been made a party to the proceedings, in his character of contributor, which, under the Act, includes a fully paid-up shareholder. The proceedings need not necessarily be between contributories but may be between the Company and a contributory. But, in my opinion, the section does not operate to make the books and papers of the Company evidence against a respondent to a misfeasance summons who is not sued in the character of contributory. Accordingly, in my opinion, the paragraphs of the affidavit of the liquidator to which objection was taken and the entries in the cash book ought to have been rejected in the hearing of the summons against the appellant. (at p627)

19. However, I ought to say that even if contrary to my own view the cash book entries were admissible against the appellant, they do not, in my opinion, evidence the receipt by her of the moneys in question. They tend to prove that the Company disbursed the money and regarded it as money paid out in purported payment of directors' fees in respect of service in that capacity by the appellant and her husband. As kept by the Company, the cash book, in respect of the payments firstly made does not purport to record the person to whom these payments were made and even in respect of the second payments the book does not purport to record the identity of the person by whom they were actually received. The entries, even if admissible, do not, in my opinion, carry the matter any further. (at p627)

20. The remaining question is as to the effect of counsel's arrangement. In the first place, in my opinion, the agreement as evidenced in the passage I have cited amounted to no more than a dispensation on the part of the appellant of the necessity to repeat or re-tender any evidence which formed part of the material already before his Honour which would have been admissible if tendered or given in the hearing of the summons against the appellant. In my opinion, it did not amount to an abandonment of all objections to admissibility or relevance so as to make otherwise inadmissible or irrelevant matters evidence against the appellant. Indeed, apart from what I would have concluded from its familiar terms, it is quite clear that the appellant's counsel, in making the arrangement so far from abandoning his objection to the admission against the appellant of the Company's books of account, was actually expressly repeating that objection. (at p628)

21. In my opinion, the appellant's submission that there was no evidence before the Supreme Court of the receipt by the appellant of any of the moneys the subject of its order for repayment should be accepted. Accordingly, the appeal should be allowed, the order of the Supreme Court set aside and in lieu thereof an order made dismissing the summons under s. 305 of the Act against the appellant. The respondent should pay the costs of the appellant of the hearing of the summons and of this appeal. (at p628)

McTIERNAN J. I am of the same opinion as the Chief Justice. (at p628)

TAYLOR J. I have had the opportunity of considering the reasons prepared by the Chief Justice in this matter and I agree with him that the appeal should be allowed. (at p628)

Orders

Appeal allowed with costs. Order of the Supreme Court in Equity set aside and in lieu thereof order that respondent's application to that Court be dismissed with costs.