Stabil Pty Ltd (in Liq) v Lathwell - [2001] WASC 52

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: STABIL PTY LTD (IN LIQ) -v- LATHWELL & ANOR [2001] WASC 52

CORAM: MASTER BREDMEYER

HEARD: 22 FEBRUARY 2001

DELIVERED : 1 MARCH 2001

PUBLISHED : 2 MARCH 2001

FILE NO/S: CIV 2017 of 2000

BETWEEN: STABIL PTY LTD (IN LIQ)
Plaintiff
AND
RONALD JOHN LATHWELL
COLLEEN ISABEL LATHWELL
Defendants

Catchwords:

Summary judgment - Defendants' evidence inherently incredible

Legislation:

Nil

Result:

Application allowed

Representation:

Counsel:

Plaintiff: Mr C E Chenu
Defendants: Mr R H B Pringle QC & Mr B P Wheatley

Solicitors:

Plaintiff: Durack & Zilko
Defendants: Murfett & Co

Case(s) referred to in judgment(s):

Nil

Case(s) also cited:

Nil

MASTER BREDMEYER: This is an application by the plaintiff for summary judgment for $453,565. That sum is shown as owing by the defendants to the plaintiff in the accounts of the plaintiff to 30 June 1999. The sums shown as owing by them in the accounts for the previous years are as follows:
Year Ending
30.6.95  $178,042
30.6.96  $192,637
30.6.97  $285,780
30.6.98  $317,840
The plaintiff company was placed in liquidation on 21 July 1999. It was wound up on the application of the Deputy Commissioner of Taxation for failing to pay about $63,000 of tax deducted from the pays of its employees but not sent to the Tax Office. The debts stated in the accounts are owed by Bill Lathwell & Co, a business name owned by the two defendants.
It appears that in early 1994 the plaintiff company was registered. It took over the existing shearing business for the first year ending 30 June 1995 and has since run the shearing contracting business. Bill Lathwell & Co also run a large farm. In 1999 the gross income from the farm was $1.44 million. The first year the company ran the shearing business the gross income was $1,174,013 and the expenses $1,195.947, showing a small loss of $9,716. Included in the expenses for that year was $100,000 paid to Bill Lathwell & Co as management fees. The accounts were similar for the next year 1996, when the farm showed a small profit of $283 on a gross income of $1,249,419. Again, management fees of $100,000 were paid to Bill Lathwell & Co. In 1997 the management fees paid to the defendants were $50,000. In 1998 the management fees paid were $56,000 and in 1999 the management fees paid were $45,000.
So, over the years of the company's life, the moneys owed by the defendants to the company steadily increased. These accounts were prepared by the company and the partnership accountant before the company was put into liquidation. The 1999 accounts were prepared after the date of liquidation but, again, they were done by the company's accountant, Mr Stan Braithwaite, and not from information supplied by the liquidator. The liquidator has had great trouble getting possession of the books of the company.
To come back to the issue in this case, the 1999 company accounts showed the debt owed by the defendants to the company as $453,565. In that year management fees of $45,000 were paid to the defendants. These accounts are consistent with the company's 1999 tax return. The company has not got a copy of its return but a copy has been obtained from the Australian Tax Office. It shows the same figures as in the company accounts. The company had a gross income of $1,192,767 from shearing contracts, less expenses, producing a small loss of $6,574. The expenses include $45,000 management fees paid to Bill Lathwell & Co.
What are the defences raised to this claim?
Firstly, the defendants say they sold the property on 19 November 1999 to pay off an ANZ debt owed by the company. The plaintiff accepts, for the purposes of this application, that is an arguable set‑off of $246,416.08.
Secondly, in Mr Lathwell's first affidavit he states, on behalf of himself and his wife, that they ran the shearing business and deserved to get paid for that and had never received any remuneration or been reimbursed for expenses. He left these matters to his accountant. Fair remuneration for his work would be $30,000 per annum and $20,000 per annum for his wife, a total of $50,000 per annum. For the four years ending 1995, 1996, 1997, 1998 - I refer to the financial years - that reimbursement would total $200,000. This claim is contradicted by the accounts. The defendants received management fees in each of those years, as follows:
1995  $100,000
1996  $100,000
1997  $ 50,000
1998  $ 56,000
I do not believe the defendants. Their evidence is not credible. It is clearly contradicted by those accounts which were prepared before the company was put in liquidation, in the normal course of the company's business.
Thirdly, the defendants claim motor vehicle expenses. In Mr Lathwell's initial affidavit he also said that his partnership, Bill Lathwell & Co, loaned four vehicles to the company at a cost of about $12,000 per annum each, equals $48,000 per annum. That sum for the four years mentioned totals $192,000. In a later affidavit, sworn 5 February 2001, he says those details are wrong. His partnership supplied two motor vehicles (two utilities) to the company for the shearing business. One was a Falcon utility which did about 100,000 kilometres a year on the shearing business. The other was a Triton utility which did about 40,000 kilometres a year on the shearing business. His partnership paid for the fuel, servicing, licensing, insurance, new tyres for those vehicles. He has worked out the cost of that and in this has had some skilled assistance from a Mr John Blaxill, a financial adviser. He says the cost of owning those vehicles is $40,000 per annum for the Ford Falcon and $16,000 per annum for the other utility, a total of $56,000 per annum, times four years, equals $224,000. That is sufficient to wipe out the plaintiff's debt.
I consider that argument not credible. There are no documents supporting this loan of vehicle arrangement from his partnership to the company. Moreover, it was never done before. Before the plaintiff company was put into liquidation and before its liquidator began to chase this debt, the loan of the motor vehicles to the company was never heard of. It was not reflected in the accounts. Each year the partnership claimed all fuel, tyres, insurance, licence fees, repairs etc as expenses in its accounts and tax returns and also the benefit of depreciation. The Falcon utility was turned over every 18 months. Each business had about the same turnover, over $1 million a year, and each business showed a loss. The defendants got the benefit of those motor vehicle expenses as deductions on their farm income. With both businesses of equal size and both normally showing a small loss it could not have mattered to them on which accounts these expenses were shown.
This arrangement to hire vehicles or loan vehicles to the company was not recorded in any agreement or in any company or partnership minutes. I consider the defendants have dreamt up this arrangement to manufacture a defence in this action.
I consider Mr Lathwell's credibility very poor. His evidence of four vehicles loaned to the company was later changed to two. He should know how many vehicles were used in the shearing business. It is not an accounting matter. It is a matter of simple fact.
Also, he tried to offset management fees for himself and his wife. He said they had never been paid for their work managing the shearing business for the company. That is clearly contradicted by the accounts going back to the first trading year of the company. In every year his partnership was paid management fees, initially of $100,000 per annum and later lesser, but still substantial, sums. These amounts are shown as both expenses of the company and corresponding income for the partnership.
Then he also said the company did not trade in the financial year 1999. He said the ANZ Bank froze the bank account, so the partnership ran the shearing business. This is contradicted by the 1999 company accounts and tax return. These were prepared after liquidation but, as I have said, by the defendants old accountant without input or instructions from the liquidator. I do not consider that the accountant would compile completely false accounts for both company and partnership for 1999 on his own initiative. The defendants say the plaintiff did not trade. I cannot believe that. The company's long term accountant, in my view, is extremely unlikely to have produced false accounts for two large businesses, each doing over $1 million worth of business, when in truth the company was not trading.
A further matter is the report as to affairs signed by Mr Lathwell on 30 August 1999 shortly after the company went into liquidation. In that, he listed the debts of the company (unsecured as $73,950 as per Schedule H). He failed to fill in "H". That sum may represent the Australian Taxation Office debt. I have searched the COR file relating to the winding up. The statutory demand issued by the Deputy Commissioner of Taxation in November 1998 was for $63,103. That debt had increased to $69,480 in February 1999. The company was wound up in July 1999. The debt might have increased with interest then to $73,950. It does not really matter for the purposes of this case. The ATO debt may have been in Mr Lathwell's mind when he signed the report as to affairs. After all, his company was wound up for non‑payment of that debt.
But whatever the state of debts of the company for $73,950 were, no sums were claimed as being owed by the company for management fees or for use of motor vehicles. Those claims were not thought of then, which leads me to think that they are now a recent invention.
Fifthly, in Mr Cribbs' affidavit of 7 November 2000, he says he searched Local Court proceedings No 43748 of 1999 where Mr Lathwell was a defendant. He says he saw a statutory declaration of Mr Lathwell giving his financial position in those proceedings in which he states that he owed the company $318,000. I accept that evidence with some caution because it is secondary evidence of a statutory declaration which has not been produced. It should have been produced. However, it has not been refuted and the amount squares with the amount showing as owing by the partnership in the 1998 accounts. Those accounts show a debt of $317,840 owing by Mr Lathwell and his wife. The $318,000 mentioned in the affidavit could well be a rounding‑up of that sum to the nearest $1,000. The statutory declaration was dated 31 October 1999. At that time the 1998 accounts were the latest accounts. The 1999 company accounts had not then been prepared, which increased the debt, nor had the house been sold, which reduced the debt. Overall, it is an admission which assists the plaintiff's case.
I am satisfied on the requisite standard for a summary judgment that the defendants have not raised any real question to be tried, except in relation to the sale of the house, and that this is an appropriate case to give summary judgment for:
$453,565.00
- $246,416.08
$207,148.92