Simpson v Tropical Hire Pty Ltd (in liq)

Case [2017] QCA 274

SUPREME COURT OF QUEENSLAND

CITATION:

Simpson & Anor v Tropical Hire Pty Ltd (in liq) [2017] QCA 274

PARTIES:

SANDE PALGRAVE SIMPSON
(first appellant)
KAREN SIMPSON
(second appellant)
v
TROPICAL HIRE PTY LTD (in liquidation)
(respondent)

FILE NO/S:

Appeal No 397 of 2017
DC No 216 of 2016

DIVISION:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

District Court at Townsville – Unreported, 2 December 2016 (Baulch SC DCJ)

DELIVERED ON:

10 November 2017

DELIVERED AT:

Brisbane

HEARING DATE:

17 August 2017

JUDGES:

Sofronoff P and McMurdo JA and Boddice J

ORDERS:

1.   Allow the appeal.

2.   Set aside the orders made by the trial judge on 2 December 2016.

3.   Declare that any entitlement of the company to be paid money by Investors Central Pty Ltd was an entitlement held by the company solely as a trustee.

4.   Order the respondent to pay to the appellants their costs of the proceeding in the District Court and of this appeal.

CATCHWORDS:

CORPORATIONS – WINDING UP – CONDUCT AND INCIDENTS OF WINDING UP – AVOIDANCE OF DISPOSITIONS OF PROPERTY – TERMINOLOGY – OTHER TERMS – where the appellants caused to be paid, from a bank account in their names, $250,000 to an investment company by way of unsecured loan – where the transaction document recorded the lender as the respondent company – where the respondent company was ordered to be wound up in insolvency – where, subsequent to the winding up, the first appellant directed the investment company to pay out the funds to the second appellant – where the liquidator claimed that the payout was a void disposition according to s 468(1) of the Corporations Act 2001 (Cth) – where the appellants claimed that the investment was made by the respondent company as trustee of their family trust – whether a trust existed – where a trust was found to exist – whether the disposition of the legal title in trust property is a disposition of property for the purposes of s 468(1) – whether the disposition of a trustee’s lien over trust assets is a disposition of property for the purposes of s 468(1) – where, for the purposes of this judgment, it was assumed that the disposition of legal title in trust property is void by the operation of s 468(1) – where there was no basis for a claim that the trust property should be available in the winding up, and consequently there could be no basis for the company resisting an order that it hand over the property – whether there was any basis for requiring the appellants to restore the trust property to the company

Corporations Act 2001 (Cth), s 468

Ng v Van Der Welde [2011] FCAFC 35, considered
Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; [1979] HCA 61, considered
Palette Shoes Pty Ltd v Krohn (1937) 58 CLR 1; [1937] HCA 37, considered
Re Androma Pty Ltd [1987] 2 Qd R 134, considered
Re Margart Pty…

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Details
AGLC
Simpson v Tropical Hire Pty Ltd (in liq) [2017] QCA 274
Case
[2017] QCA 274
Decision Date

CaseChat Overview and Summary

In Simpson v Tropical Hire Pty Ltd (in liq), the appellants challenged orders made by the District Court of Queensland that they restore funds to the respondent company, Tropical Hire Pty Ltd, which had been wound up. The dispute centred on a $250,000 investment made by the appellants from their personal account to an investment company, which was recorded as having been made by Tropical Hire Pty Ltd. Following the winding up of Tropical Hire Pty Ltd, the liquidator sought to recover these funds, claiming they were void dispositions under s 468(1) of the Corporations Act 2001 (Cth).

The primary legal issues were whether a trust existed and, if so, whether the disposition of the legal title in trust property, or the disposition of a trustee’s lien over trust assets, constituted a disposition of property for the purposes of s 468(1). For the purposes of this judgment, it was assumed that the disposition of legal title in trust property was void under s 468(1). The court also considered whether the appellants should be required to restore the trust property to the company.

The court found that a trust did exist, as evidenced by the trust deed, which was not contested. This trust was created around the same time the investment was made. The judge had erred in asserting that no documents supported the appellants' claims that the funds were trust property. Given that the trust existed, the property in question was held by Tropical Hire Pty Ltd solely as a trustee. Consequently, there was no basis for the company to resist an order that it hand over the property, nor any basis for requiring the appellants to restore the trust property to the company.

The court allowed the appeal, set aside the orders made by the trial judge, and declared that any entitlement of the company to be paid money by Investors Central Pty Ltd was held solely as a trustee. The respondent was ordered to pay the appellants' costs of the proceeding in the District Court and of the appeal.

Orders

Orders of the court

1. Allow the appeal.

2. Set aside the orders made by the trial judge on 2 December 2016.

3. Declare that any entitlement of the company to be paid money by Investors Central Pty Ltd was an entitlement held by the company solely as a trustee.

4. Order the respondent to pay to the appellants their costs of the proceeding in the District Court and of this appeal.

Background

Background to the litigation

This is an appeal against those orders. The principal ground of the appeal is that the property in question was owned by the company as a trustee and that, on that basis, they should not have been ordered to pay any sum to the company. For the reasons that follow, those grounds are established. I would allow the appeal and set aside the orders which were made.The facts On 17 November 2016 (which was the day before the trial of this case), the same judge tried a related proceeding, in which the company claimed equitable compensation from Mr Simpson for alleged breaches of his duties as a director of the company. The judgment in that case was given at the same time as the judgment in the present case. The facts of that case are relevant also to the present one.[1][1]They are detailed in the judgment of Boddice J, with which I agree, in the dismissal of Mr Simpson’s appeal in that other case. The company was incorporated in 2006. The company conducted a successful business until it was sold in May 2009. The company received the sale proceeds, totalling in excess of $900,000, over three payments in 2009, 2010 and 2011. The proceeds were distributed by payments by the company to Mr and Ms Simpson in 2012 and 2013. Unfortunately, when those payments were made to Mr and Ms Simpson, the company had not complied with its responsibilities under the revenue laws. In particular, it had not lodged business activity statements. By distributing the proceeds of sale, the company was left without sufficient funds to pay its likely debts to the Australian Taxation Office (ATO). Ultimately, the ATO issued a statutory demand, which was not met, and on its application, the company was wound up. In that other case, Baulch SC DCJ found that Mr Simpson had breached his duties which he owed under the general law to the company as its director, by paying away the proceeds of sale when he knew or ought to have known that they might be required to discharge liabilities to the ATO. He gave judgment for the company against Mr Simpson in the sum of $291,661.82 together with interest of $66,083.29. He dismissed Mr Simpson’s third party claim against his accountants, against whom he had claimed that by their fault, he had been unaware of the extent of the company’s likely debts to the ATO. One of those third parties was Mr O’Connor, who was a material witness in the case which is the subject of the present appeal. After its business was sold, the company did not trade. As the company pleaded in that other case, the business which the company had sold had been its only significant asset.[2] That allegation was not substantially disputed. But Mr Simpson alleged that he was always willing and able to support the company, so that it was not insolvent and he had not breached his duties by causing the company to distribute the sale proceeds. Importantly, in that other case, there was no claim for a tracing remedy against the sale proceeds in the hands of Mr Simpson. Instead, the claim was for equitable compensation.[2]Third Amended Statement of Claim filed 17 November 2016, paragraphs 9, 13 and 15.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

In the company’s case, there was an affidavit by the liquidator, Mr Offermans. The affidavit exhibited a copy of the investment application and pointed out that it contained a specification of the company’s bank account details. Mr Offermans said only this about the origin of the funds which were invested:“7.I believe that the Investment was made with funds of the Applicant company.8.The Investment was property of the Applicant company.”The judgment of the trial judge His Honour rejected the evidence of Mr Simpson and Mr O’Connor. He said that their evidence was unsupported by a single document. He said that it was notable that Ms Simpson had not given evidence, which was “a significant obstacle to the making of findings that the respondent (sic) wishes me to make, that the property was in fact trust property.” He noted that Ms Simpson had provided some written submissions, but said that “[i]t was obvious that she was quite out of her depth and did not understand what the difference is between property that is personal property and property that is the property of the trust.” The judge accepted the evidence of Mr Offermans and also that of a Ms Hennessey, an employee of Mr Offermans’s firm, “that they encountered significant difficulty obtaining detail of the investment from Mr Simpson and Mr O’Connor” and that “in the early stages of the liquidation”, Mr Simpson and Mr O’Connor did not suggest that the funds were trust funds. The judge inferred that they had attempted to hide the investment from the liquidator. His Honour noted that there was no tax file number or an ABN number for “this alleged trust”, and that there was never a bank account which was opened for it. His Honour concluded as follows:“What is not demonstrated is that the property, the subject of this application was ever held on trust …. [A]bsent any mention of a trust in respect of the making of the investment within Investors Central Proprietary Limited or the payment out of the funds to Mrs Simpson, I cannot be satisfied that the funds were trust funds.My conclusion on this matter does not really depend upon the onus of proof. If it were necessary to do so, I would conclude affirmatively that it has been proved that the funds the subject of this application were not at any time trust funds.” Although the funds had been paid only to Ms Simpson, both appellants were ordered to restore that amount (with interest) to the company. In my respectful opinion, the judge was wrong to say that there was not a single document that independently supported the evidence of Mr Simpson and Mr O’Connor. There was the trust deed itself, the authenticity of which was not challenged in the cross examination of either of those witnesses. Of course, it was another thing to say that this investment was an asset of that trust; but the existence of the trust, and its creation at effectively the same time as the investment was made, was independent support for their evidence.

Ratio Decidendi

Legal Principle Established

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