Tremco Pty Ltd v Thomson
[2018] QDC 101
•12 June 2018
DISTRICT COURT OF QUEENSLAND
CITATION:
Tremco Pty Ltd v Thomson [2018] QDC 101
PARTIES:
TREMCO PTY LTD ACN 000 024 064 (Plaintiff)
VCAROLYN MARY THOMSON (Defendant)
AND
BENTLEYS (SUNSHINE COAST) PTY LTD (formerly known as PWA FINANCIAL GROUP PTY LTD) ACN 010 527 876) (First Third Party)
AND
PETA WENDY GENFELL (Second Third Party)
AND
ULRIKE BENDLE (Third Third Party)
AND
CHERYL BLINCO (Fourth Third Party)
FILE NO/S:
DC No 3868 of 2017
DIVISION:
Civil
PROCEEDING:
Trial
ORIGINATING COURT:
District Court at Brisbane
DELIVERED ON:
12 June 2018
DELIVERED AT:
Brisbane
HEARING DATE:
16, 17, 18, 19, 20, 23, 24, 26 April 2018, 3 May 2018
JUDGE:
Porter DCJ QC
ORDER:
1. Judgment be entered in favour of the plaintiff in the amount of $372,016.10 plus interest pursuant to Section 58 Civil Proceedings Act 2011 (Qld).
CATCHWORDS:
CORPORATIONS – MANAGEMENT AND ADMINISTRATION – DUTIES AND LIABILITIES OF OFFICERS OF A CORPORATION – OFFICERS OF INSOLVENT CORPORATION – DUTY TO PREVENT INSOLVENT TRADING – where from about March 2010 the Company ceased paying the plaintiff’s invoices – where the Company had one director formally appointed – where the plaintiff alleges the defendant was at all times a de facto director and seeks to recover compensation from the defendant – whether the alleged insolvent trading debts were incurred by the Company – whether the defendant was a director at the time the alleged insolvent trading debt – whether the alleged insolvent trading debt was proved to have been incurred during the relevant period or became insolvent from incurring those debts and others – whether there were reasonable groups for suspecting insolvency during the relevant period – whether the defendant was aware of those grounds or a reasonable person would have been so aware – whether the defendant has a defence – whether the plaintiff is entitled to recover loss or damage in relation to the plaintiff debts suffered because of the Company’s insolvency – whether costs of obtaining judgment for the relevant debt prior to insolvency are recoverable.
Legislation
Civil Proceedings Act 2011 (Qld) s 58
Companies Act 1981 (Cth) s 556
Corporations Act 2001 (Cth) ss 9, 95A(2) 588G, 588M, 588R, 597(14)
Corporate Law Reform Bill 1992 (Cth)
Uniform Civil Procedure Rules 1999 (Qld) r 149Cases
ASIC v Plymin [2003] VSC 123
Bank of Australasia v Hall (1907) 4 CLR 1514
Australian Securities and Investments Commission v Plymin (2003) 175 FLR 124
Crema Pty Ltd v Land Mark Property Development Pty Ltd (2006) 58 ACSR 631Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565
Duke Group Ltd (in liq) v Hilmer (1994) 15 ACSR 255
Edenden v Bignell [2007] NSWSC 1122
Elliott and Another v Australian Securities and Investments Commission (2004) 185 FLR 245
Grimaldi v Chameleon Mining NL (No 2) (2012) 287 ALR 22
Hatfield v Health Insurance Commission (1987) 15 FCR 487
Hungerfords v Walker (1989) 171 CLR 125
Jelin Pty Ltd v Johnson (1987) 5 ACLC 463
Jones v Dunkel (1959) 101 CLR 298
Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 10 ACLR 395; (1986) 4 ACLC 215
M & R Jones Shopfitting Co Pty Ltd (in liq) v National Bank of Australia Ltd (1983) 68 FLR 504
March v E & MH Stramare Pty Ltd (1991) 171 CLR 506
Mistmorn Pty Ltd (in liq) v Yasseen (1996) 21 ACSR 173Perrine v Carrello [2017] WASCA 151
Powell v Fryer (2001) 37 ACSR 589
Re Bufalo Corporation Pty Ltd (2002) 172 FLR 382
Re Newark Pty Ltd (in Liq) [1993] 1 Qd R 409
Re Salfa Pty Ltd (in liq) [2014] NSWSC 1493
Re Swan Services Pty Ltd (In Liquidation) [2016] NSWSC 1724
Rexel Electrical Supplies Pty Ltd v Morton [2015] QCA 235
Robertson v Hollings [2009] QCA 303
Ross v Hallam [2011] QCA 92Smith v Boné (2015) 104 ACSR 528
Smith v Offermans [2015] QCA 55
The Duke Group Limited (in liq) v Arthur Young (Reg) & Anor (1991) 9 ACLC 49
Tourprint International Pty Ltd (in liq) v Bott [1999] NSWSC 581
Travel Compensation Fund v Tambree (T/As R Tambree and Associates) & Ors (2005) 222 ALR 263Wiley v Lo Presti (1997) 16 ACLC 82
Woodgate v Davis (2002) 42 ACSR 286
Other
Australia Law Reform Commission Reports, Annual Reports, General Insolvency Inquiry, Report No 45 (1988)Explanatory Memorandum, Corporate Law Reform Bill (1992) (Cth)
COUNSEL:
M T De Waard for the plaintiff
Defendant, C M Thomson, appearing in person
SOLICITORS:
Mills Oakley for the plaintiff
Table of Contents
Introduction
The factual background
Setting up the Kadoe
Kadoe begins to trade
Kadoe’s credit application to Tremco
Kadoe’s appears to trade successfully
Kadoe’s early dealings with Tremco
Kadoe’s difficulties emerge
Taxation liabilities
The dispute with Tremco
Company administration
The dispute with PWA and the invalid trust issue
Taxation implications
The PWA proceedings
Ceasing operation of the business
Impact on ANZ and other banks
The trial of the Tremco claim
Winding up and subsequent events
Statutory Framework
Debts incurred
Was Mrs Thomson a director in the relevant period?
Preliminary observations
Relevant principles
Grimaldi v Chameleon Mining
Mistmorn v Yasseen
DCT v Austin
Analysis of the evidence
Mrs Thomson was responsible for setting up the Company and the Trust
Mrs Thomson’s role in the Company’s operations
Mrs Thomson had control of the Company accounts
Mrs Thomson’s role in dealing with the Company’s creditors
Mrs Thomson’s self-identification as General Manager
Mr Thomson’s evidence
Use of Mr Thomson’s public examination transcriptConclusion
Insolvency
Preliminary observations
Relevant principles
Analysis
Kadoe was insolvent from March 2010
Mr Hudson’s report
Challenges to Mr Hudson’s report
Reasonable grounds to suspect insolvency and Mrs Thomson’s position: s. 588G(1)(c) and s. 588G(2)?
Requirements relating to suspicion of insolvency are met
Mrs Thomson’s responses
The 2010 financial statements
The disputes about the Tremco debts
The invalid Trust
Mrs Thomson has breached s. 588G(2)
Mrs Thomson has no defence
Loss in relation to the Tremco debts caused by the insolvency
Relevant principles
“in relation to”
“because of the company’s insolvency”
The statutory context
The Tremco debts
Judgment interest on Tremco debts
Costs of the trial
Mrs Thomson’s counterfactual contentions
Mrs Thomson as a self-represented litigant
Conclusion
Introduction
In about March 2009, Kadoe Pty Ltd (the Company or Kadoe) was incorporated and began carrying on a waterproofing business, trading as Kadoe Commercial Coatings. The plaintiff (Tremco) was the principal supplier of waterproofing products used by Kadoe in its business. Kadoe had one director formally appointed as such, Mr Thomson, the husband of the defendant. Tremco contends, however, that the defendant (Mrs Thomson) was at all times a de facto director of the Company.
From about March 2010, Kadoe ceased paying Tremco’s invoices. By about December 2010, Kadoe had incurred debts to Tremco totalling $146,410.20 (the Tremco debts). Those debts were never paid. Kadoe subsequently disputed the Tremco debts. Those disputes were resolved in Tremco’s favour by a judgment of this Court given on 27 February 2015 (the Tremco judgment). Tremco incurred substantial costs in the trial. Kadoe was wound up on Tremco’s application on 29 April 2015. It appears there will be no dividend in the winding up.
By this proceeding, Tremco seeks to recover compensation from Mrs Thomson as a director under s. 588M(3) Corporations Act 2001 (Cth) (the Act) for loss it suffered in relation to the Tremco debts. To recover that loss from Mrs Thomson, Tremco has to establish, in general terms:
(a)That the Tremco debts were incurred by the Company;
(b)That Mrs Thomson was a (de facto) director at the time the Tremco debts were incurred (the relevant period),
(c)That Kadoe was insolvent during the relevant period, or became insolvent from incurring those debts and others;
(d)That there were reasonable grounds for suspecting insolvency during the relevant period; and
(e)That Mrs Thomson was aware of those grounds or a reasonable person would have been so aware.
Mrs Thomson disputed each of these matters. She also pleaded by way of defence that she had reasonable grounds to expect the company was solvent at the time the debt was incurred, inter alia, because she relied on information supplied to her by a competent person. (Those defences were not developed to any degree in the evidence nor addressed in her submissions.)
My conclusions on those matters, and a brief summary of the main reasons for those conclusions, are as follows:
(a)First, the Tremco debts were incurred by the Company. That issue was admitted on the pleadings;
(b)Second, Mrs Thomson was a de facto director of Tremco at all times, including the relevant period. Mrs Thomson and Mr Thomson shared the management and control of Kadoe, with Mr Thomson having responsibility for activities on site and Mrs Thomson having responsibility for, and authority over, the balance of the Company’s affairs, operational and administrative;
(c)Third, I find that Kadoe was insolvent at the time the Tremco debts were incurred and at all times thereafter. The evidence discloses that Kadoe failed to pay Tremco, and its taxation liabilities, because it did not have the funds to pay. This was not an instance of temporary illiquidity. Kadoe never had sufficient capital to fund its operations;
(d)Fourth, Mrs Thomson had reasonable grounds for suspecting Kadoe was insolvent. The evidence disclosed that she communicated with Tremco and the ATO about payment plans and was familiar with the bank accounts and funds available to Kadoe from time to time;
(e)Fifth, Mrs Thomson does not make out her defence. She was the person with the overview of the Company’s affairs. Any suggestion that she relied on the Company book-keeper or the Company account in any relevant way is not credible.
Given those conclusions, Tremco is entitled to recover loss or damage in relation to the Tremco debts suffered because of Kadoe’s insolvency: s. 588M(1)(b). In that regard, I accept that that loss includes loss equal to the value of the Tremco debts and the loss comprised in unrecovered costs incurred in obtaining the Tremco judgment prior to the winding up of Kadoe. I reject Mrs Thomson’s contentions that factors other than the insolvency caused those losses. Accordingly, Tremco is entitled to judgment in the amount of $372,016.10.
Tremco is also entitled to interest pursuant to Section 58 Civil Proceedings Act 2011 (Qld) from the date of the winding up order.
The factual background
Mr and Mrs Thomson were married in about 1984. They had one son in 2002. Mr Thomson left school at year 10 and is a water-proofer by trade. Mrs Thomson had conducted a knitwear business with some success. That business was apparently sold or discontinued in the period leading up to the introduction of the GST legislation in about 2000. Thereafter, the Thomsons conducted a bed and breakfast in Pakenham Upper in Victoria jointly in their own names, trading as The Gums on Morrison. At some stage around 2003, the Thomsons moved to Queensland. There is no evidence as to their business or activities in Queensland prior to setting up Kadoe.
Setting up the Kadoe
The circumstances of the setting up of Kadoe were extensively canvassed at trial. Each party had a different reason for doing so:
(a)From Tremco’s perspective, Mrs Thomson’s involvement in setting up the Company and the structure of the business was said to support its contention she was a de facto director;
(b)Mrs Thomson on the other hand, focused on the apparent failure of the accountants advising at the time (PWA) properly to create the trust which was intended to be part of the trading structure as relevant to various aspects of the claim.
Mrs Thomson swore to the circumstances of the setting up of the Kadoe structure twice: once in an affidavit in these proceedings while they were underway in the Supreme Court (the Supreme Court affidavit) and once in the Tremco proceedings in this Court (the District Court affidavit).[1] The Supreme Court affidavit was sworn on 8 December 2014. The Kadoe proceedings affidavit was sworn on 13 February 2015.
[1] Trial Exhibit 5 and 6 respectively.
The Supreme Court affidavit relevantly states:
6. In or about February 2009 I retained the plaintiff and/or PWA Financial Group Pty Ltd ABN 43 659 242 106 (“PWA”), to advise in respect to the required and most suitable business structure for a new business.
7. The plaintiff’s and/or PWA’s advice, provided by Cheryl Blinco, an employee account of the plaintiff was to establish a trust with a corporate trustee and that the plaintiff could organize this for the fourth defendant and I.
8. Cheryl Blinco, advised the third and fourth defendant to establish a trust with a corporate trustee as taxation under this structure would be minimized with the distribution of profits reducing the amount of tax payable.
9. Cheryl Blinco advised that the use of a corporate trustee would limit the liability to the company and reduce the fourth defendant’s personal liability.
10. Cheryl Blinco also advised me that the first defendant should not trade in any other capacity other than as a corporate trustee of the trust as there was the possibility of confusion surrounding any private transactions as opposed to transactions of the trust as there may be adverse tax implications if not.
11. Based on this advice, the plaintiff and/or PWA was engaged by me to perform those duties which included incorporating the first defendant to act as a corporate trustee of the trust, establishing a discretionary trust, applying for an Australian Business Number and tax file number for the trust.
12. The plaintiff has disclosed the documents relating to it performing those duties at documents 194 to 216 inclusive and 223 to 229 of its list of documents dated 18 March 2014 exhibited to this affidavit and marked “CMT-1”.
13. The plaintiff and/or PWA incorporated the first defendant on or about 20 March 2009.
14. The plaintiff and/or PWA ordered the trust documents from National Tax & Accountant Association (“NTAA”) and Cheryl Blinco telephoned me on or about 21 March 2009 to advise I could collect the trust deeds for executing by the Trustee so that a bank account could be opened in the name of the trust.
15. The only document I collected from Cheryl Blinco was four copies of the trust deed. There were three bound copies and one unbound copy of the trust deed. There was nothing else given to me on that day, so the bank account could not be opened at that time.
16. By letter dated 25 March 2009 the plaintiff and/or PWA sent a letter enclosing all the documents relating to the incorporation of the first defendant and the establishment of the For Three Trust.
[underlining added]
In the District Court affidavit, Mrs Thomson swore:
1. I was General Manager of the Defendant between 21 March 2009 and 18 November 2014 and was in the position to have knowledge of this matter before the Court. I am duly authorised to make this Affidavit on behalf of the defendant.
2. The Defendant was incorporated on 21 March 2009 for the sole purpose of being corporate trustee for The For Three Trust (“the trust”) on the advice of Cheryl Blinco (“Ms Blinco”) an accountant employed by PWA Finance Group Pty Ltd (“PWA”).
3. Ms Blinco provided advice to me in or about February 2009 in regard to the appropriate business structure for a new business.
4. Ms Blinco’s advice at that time was to incorporate a company to act as trustee of a discretionary trust and that the trustee should not act in any other capacity other than as trustee as there are issues with a corporate trustee acting it in its own capacity as well as that of trustee.
5. Ms Blinco advised in that advice in or about February 2009 that she could act as Settlor.
6. On or about 20 March 2009, the Defendant was incorporated and four copies of the trust deed for the trust was provided to the defendant for execution.
7. I collected four copies of the trust deed from Ms Blinco at PWA’s offices in Caloundra Queensland, three bound copies and one unbound copy.
8. When I collected the four copies of the trust deed from Ms Blinco for the trustee to execute, she had not executed the document as Settlor. The signature page of the trust was blank.
As noted, it was hotly contested as to whether Mrs Thomson was responsible for taking advice and giving instructions for setting up the trading structures, or whether she was merely a conduit for Mr Thomson. The underlined parts are those which were relied upon by Tremco in respect of that dispute.
Thereafter, the business structure was put in place as described in the affidavits. That is:
(a)On 21 March 2009, the Company was incorporated;
(b)On or about that date, PWA provided four copies of a trust deed creating the “For Three Trust” to Mrs Thomson for execution;
(c)On or about 11 June 2009, Mrs Thomson returned the copies of the trust deed executed by Kadoe as trustee; and
(d)On 30 July 2009, the business name Kadoe Commercial Coatings was registered.
Mr Thomson was appointed as the sole director of the Company. The Company had 100 shares, 50 owned by Mr Thomson and 50 owned by Mrs Thomson.
The For Three Trust (the Trust) was a discretionary trust. Mr and Mrs Thomson were the primary beneficiaries of the Trust. As will be seen, it is contended that the Trust was never validly created because Ms Blinco never signed the trust deed as settlor and/or the settlement sum was not paid.
Kadoe begins to trade
It appears that Kadoe began to trade in the last few weeks of the 2009 financial year. the 2009 Balance sheet shows:
(a)Trade debtors of $19,619; and
(b)Liabilities of $6,369 payable as trust distributions to each of the Thomsons. .
The balance sheet shows no material liabilities to the Company’s banker (ANZ) nor any other assets. It also shows the settlement sum of $10 as an asset and $10 cash as cash on hand. The Thomson’s have contended in documents tendered at the trial that this amount was not paid.
Kadoe’s credit application to Tremco
Tremco is a supplier of products used in waterproofing. It was conceded by Mrs Thomson in cross examination[2] that Tremco was the key supplier to Kadoe of the products needed by Kadoe to carry on its business. The relationship was, briefly, a close one.
[2] TS 7-48-49.
While Kadoe might have purchased products from Tremco prior to September 2009, it did not apply for credit until its written application for credit on about 21 September 2009 (the Credit Application).
The Credit Application relevantly provided (handwritten parts in italics):
STEVE BORZIER APPLICATION FOR CREDIT ACCOUNT
TRADING NAME: KADOE COMMERCIAL COATINGS
POSTAL ADDRESS: PO BOX 3465, CALOUNDRA DC QLD 4551
STREET ADDRESS: UNIT 1, 30 TECHNOLOGY DRIVE, WARANA
PHONE: 07 5437 9872
FAX: 07 5438 8170
MOBILE: 0408 602 049
WEB PAGE:
EMAIL: [email protected]
TYPE OF BUSINESS: TRUST (TICKED)
COMPANY NAME: KADOE PTY LTD ATF THE FOR THREE TRUST
ABN: 95 868 608 864
REGISTERED OFFICE: PETER WILSON & ASSOCIATES
12 BALWIN ST CALOUNDRA QLD 4551
ACN: 135 978 604
BUSINESS ADDRESS OWNED (TICKED), YES (TICKED) REGISTERED:
NOMINAL CAPITAL: $100.00
PAID UP CAPITAL: $100.00
NAME & ADDRESS OF SOLE TRADE, SPOUSE, PARTNERS OR DIRECTORS (ALL DIRECTORS REQUIRED):
FULL NAME: WAYNE ROBERT THOMSON
SPOUSE’S NAME: CAROLYN MARY THOMSON
ADDRESS: 26 BELLABOE CIRCUIT,
PELICAN WATERS QLD 4551
PHONE #: 0408 779 769
DOB: 4/1/1957
LICENCE #: 84 225 953 (QLD)
PLEASE STATE WHETHER APPLICANT IS TRUSTEE FOR ANY TRUST: YES NO (If answer is yes please complete the following):
FULL NAME OF TRUST:
CONTACT FOR ACCOUNT PAYMENT QUERIES: CAROLYN THOMSON
CONTACT FOR ACCOUNT QUERIES: CAROLYN THOMSON
ESTIMATED CREDIT REQUIRED: $10, 000
NATURE OF BUSINESS: WATERPROOFING, EXPOXY FLOORING
BUSINESS LICENCE NO: 1169229
DATE BUSINESS COMMENCED: 19/6/2009
NAME OF TRADING BANK: ANZ
BSB NO: 014 306
TRADING BANK ACCOUNT NAME: KADOE COMMERCIAL COATINGS
ACCOUNT NO: 2536 94637
…
I certify that the above information is accurate to the best of my knowledge and I/we acknowledge that:
1. A supply account, if granted, does not oblige Tremco Pty Limited to supply goods, and
2. I/we have read and understood the terms and conditions attached to this application for credit; and
3. I/we acknowledge that all goods are supplied subject to the terms and conditions of sale of Tremco Pty Limited, which may be varied from time to time.
The supplier may give information about you to a credit reporting agency, but only limited kinds of information allowed by the Privacy Act 1966 (Commonwealth)) Section 18E(8)(0). This includes:
Identity details – It only includes your name, ACN, date of birth, current known address, two previous addresses, your current or last known employer, and your drivers license;
The fact that you have applied for credit and this account;
The fact that the supplier is a credit provider to you;
Payments overdue for at least 60 days when the supplier has taken steps to recover;
Advice that payments are no longer overdue;
Cheques drawn by you which have been dishonoured more than once;
The opinion of the supplier that you have committed a serious credit infringement;
When the credit provided to you had been discharged,
Giving information to a Credit Reporting Agency (Section 18E(8)(c) Privacy Act 1985)
The creditor has informed me that it may give certain personal information about me to the credit reporting agency.
…
SIGNATURES OF COMPANY DIRECTOR/S, SOLE TRADER, OR ALL PARTNERS AS APPLICABLE
Signature: [Signature] Signature Name: Wayne Thomson
Signature of Witness: [Signature] Full Name of Witness: Carolyn Thomson[3]
[3] Affidavit of Stephen Miller sworn 21 February 2017 (filed 24 February 2017, DC proceeding 3868/17, Court Doc 24) at Ex No. CMT-9 pages 107-109.
I note the reference to a business address in Technology Drive, Warana. However it was not in dispute that Kadoe traded from the home of the Thomsons located at Pelican Waters, though Mr Thomson was usually on site carrying out the waterproofing work of the Company.
The Credit Application discloses that Tremco was purporting to trade as trustee for the Trust. Much of Mrs Thomson’s pleading and submissions focused on this consideration. As will be seen, she contended that the Trust was never created and as a consequence, amongst other things, Kadoe was not liable for debts incurred to Tremco because Kadoe was not trading in its own right. There is no evidence from which it could be concluded that the terms upon which Kadoe traded with Tremco were such as to limit its liability to the assets of the Trust, much less that Kadoe’s liability was excluded if the Trust had not been created as represented.
The contention that the invalidity of the Trust excused Kadoe and Mrs Thomson from responsibility for Kadoe’s trading activities was an enduring theme of Mrs Thomson’s case. There was no basis in law for that contention.
The Credit Application was approved by Tremco with a credit limit of $3000. There were no terms or conditions of credit approval in evidence other than a requirement notified by Tremco that accounts were to be paid “strictly 30 days”.
Kadoe’s appears to trade successfully
Kadoe appears to have been very active in its first full year of trading, being the 2010 Financial year. The 2010 Financial Statements show that the Company made a profit before tax of $26,853 on sales of $399,729.
Income adjustments (non-deductible superannuation and other expenses identified in the profit and loss) of $26,465 resulted in a taxable income of $53,318, which was distributed in equal shares to the Thomsons (with a small sum being paid to their son).
The balance sheet, however, showed a deficiency. In that regard:
(a)The main assets were some $47,344 in trade debtors and a loan made to the Thomson Family Trust valued at $304,740. There was no cash on hand of any significance;
(b)The main liabilities were trade creditors ($46,014), and an overdraft account ($75,235) and loan ($200,063) from the ANZ Bank;
(c)It also recorded a liability of $38,574 in respect of its GST Control Account. The note to that item showed GST paid and collected in reasonable balance but also showed a liability on an Integrated Client Account of $33,243.
Bearing in mind that the solvency of the Company is in issue for the period March 2010 to January 2011 (as explained in paragraph [220] below), it is worth noting a couple of matters.
(a)First, the Company would be clearly insolvent on balance sheet basis if the loan made to the Thomson Family Trust was not reasonably recoverable. Mr Hudson dealt with this loan in his solvency report. For the reasons given there (at pages 24 to 25), he concluded that the loan to the Trustee of the Thomson Family Trust (Thomson FT) was not recoverable. I find in paragraph [234] below that this loan was not recoverable for this and other reasons.
(b)Second, the Integrated Client Account of $33,243 is consistent with the evidence that the Company was indebted to the Commissioner of Taxation from at least 3 March 2010, when it owed debts of $11,131. The Company was consistently indebted to the Commissioner from that time and never cleared its taxation liabilities.
(c)Third, there was no cash available as at 30 June 2010 to pay the distribution to the Thomsons as beneficiaries.
Kadoe’s sudden burst of apparently successful activity in the waterproofing business seems also to be reflected in various awards given by local industry associations to the Company and, notably, also to Mrs Thomson personally.
The Company received one award: the 2011 Building Manufacturing Small Business Award given as part of the Sunshine Coast Excellence in Business Awards. That Award was included on Company signing blocks.
Mrs Thomson was more successful in the awards stakes. She received:
(a)The 2010 Outstanding Business Person of the Year awarded by the Caloundra Chamber of Commerce (the 2010 Award);
(b)The 2011 Professional Businesswoman of the Year awarded by the Sunshine Coast Business Women’s Network (the 2011 Award); and
(c)The 2012 winner of the Queensland Telstra Businesswoman’s Innovation Award.
Of particular interest was the 2010 Award to Mrs Thomson. She accepted that her work for Kadoe was a factor in her receiving that award.
Kadoe’s early dealings with Tremco
Initially, Kadoe dealt with Mr Bozier of Tremco. He was not called as a witness. In February 2010, Mr Bozier left Tremco and Kadoe dealt with Ms Willson. Ms Willson did give evidence. She has 27 years’ experience in the building industry and had worked as a technical sales representative for Tremco for over 12 years.
She gave evidence that she dealt exclusively with Mrs Thomson in relation to the affairs of Kadoe from February 2010. She said she only recalled meeting Mr Thomson on one occasion in December 2010.
Mrs Willson described Mrs Thomson as having a good knowledge of the Company’s business and margins. She described how in February 2010, Mrs Thomson negotiated a specific pricing agreement for Tremco which differed from the standard price list. She also described her observations of Mrs Thomson’s role in Kadoe’s business as follows:
36. The Defendant managed the operations of Kadoe day to day that I was aware of, including ordering products, ascertaining work in the market place, organising staff, dealing with other contractors and developers, deliveries, accounts, contract tenders, market research, marketing Kadoe, etc. Mr Thomson performed the labour for Kadoe and performed no other role to the best of my knowledge during the entire period that I had dealings with the Defendant and Kadoe.
37. From in or around February 2010 until in or around January 2011, I would speak with the Defendant on a very regular basis in relation to the Plaintiff’s products that the Defendant required for jobs for Kadoe.
38. The topics of these conversations included, but were not limited to, discussing prices, different types of products of the Plaintiff and the use of such products, product warranties, different types of jobs that Kadoe was performing, different jobsites and different people in the market place.
39. Between February 2010 and July 2011, the Defendant discussed with me the work she had personally secured and arranged for Kadoe, which included but was not limited to the following:
(a) Rive Apartments, 32 Agnew Street, Albion – Vecchio Group;
(b) Ocean Reach Apartment 53 Grand Parade, Kawana Island – RGD Constructions;
(c) Gary Cruick Workshop, Owen Creek Road, Forest Glen – Evans Hart Constructions;
(d) Assisi College, Betty Street, Upper Coomera – Badge Constructions;
(e) Office building, Commercial Road, Newstead;
(f) Wacol Taylor – accommodation and forensic secure cluster buildings – project services – Sommer and staff;
(g) Regis Fairland Manor, 5 Cansdale Street, Yeronga, McNab Constructions;
(h) Vista Estate, 50 Aspland Street, Nambour;
(i) Creekwood Street, Caloundra;
(j) Yalta Street, Clontarf;
(k) Fairshore Apartment, Hastings Street, Noosa;
(l) Westholme Circuit, Pelican Waters;
(m) DES, Credit and Furniture Store, Lloyd Street, Enoggera – John Holland; and
(n) Jobsites referred to by the Defendant as:
(i) Leighton Road;
(ii) Gemlin Street;
(iii) Ozz Homes;
(iv) CBD; and
(v) VOC.
40. From around the end of November 2010 until in or around May 2011, I was talking on a regular basis with the Defendant in relation to the Oxygen project. The Oxygen project involved the application of Diamond Hard product to floors located at various newly built Masters stores. These sites were Morayfield, Tingalpa, Nerang and Springfield.
41. In or around November 2010, the Defendant expressed immense interest to me in Kadoe securing all four stores work. This work would be very good work as the Oxygen project was being operated by Woolworths.
42. The project would also be of interest to the Plaintiff because of the considerable amount of product of the Plaintiff that would be supplied to Kadoe.
43. My contact with the Defendant in relation to this project was very regular throughout November and December 2010.
44. On 22 November 2010, I received email correspondence from the Defendant in relation to Project Oxygen floor polishing. The Defendant had forwarded on to me email correspondence received from the Defendant on 22 November 2010. Exhibited hereto and marked “MJW-3” is a true copy of the email correspondence received from the Defendant on 22 November 2010.
45. On 1 December 2010, I attended a function with the Defendant at the Caloundra City Private School, which commenced at approximately 4:30 pm. Mr Shea also attended this function with me.
46. At this function I spoke with the Defendant and Mr Thomson and discussed the Oxygen project and the four different stores.
47. Mr Shea from the Plaintiff was in South-East Queensland at that time for the specific purpose of dealing with the Oxygen project and various stores that were going to be involved.[4]
[4] Affidavit of Merle Willson sworn 28 April 2017 (filed 28 April 2017, DC proceeding 3868/17, Court Doc 51) at paras 36-47.
In cross examination, Mrs Thomson suggested that Mrs Willson had met her husband more often, particularly at the house when Mrs Willson visited there to meet with Mrs Thomson. Mrs Willson did not recall that. Mrs Thomson also sought to establish with Mrs Willson that Mrs Thomson’s dealings with Mrs Willson was limited to tenders. Mrs Willson responded that the role was tenders and pricing.[5] When cross examination directly on paragraph 36 of Mrs Willson’s evidence provided no basis to doubt that it was substantively accurate.[6]
[5] TS 2-116.27-.28.
[6] TS 2-119.25 to TS 2-121.7.
Mrs Willson was a person with considerable industry experience. She was the principal operational contact between the Company and its main supplier. She presented as a reliable witness of fact who generally confined herself to her own observations and recollections. She did not appear to have any animus to Mrs Thomson. Her evidence was not materially impugned during cross examination. In my view she was well placed to comment on Mrs Thomson’s role in the Company. I accept her evidence. It is of particular importance as it covers the key period of March 2010 to early 2011.
Mrs Willson also gave evidence about Mrs Thomson’s 2010 Award. She gave evidence that when the Award was conferred, she made arrangements for an advertisement to be published in the Sunshine Coast Daily in the following terms:
Congratulations to Carolyn Thomson of Kadoe Commercial Coatings on winning the Prestigious Award Businessperson of the Year 2010
From Tremco Pty Ltd[7]
[7] Affidavit of Merle Willson sworn 28 April 2017 (filed 28 April 2017, DC proceeding 3868/17, Court Doc 51) at Ex No. MJW-4 page 18.
Mrs Thomson responded as follows by email on 9 September 2010:
Hi Bill, Peter, Merle and John,
I just wanted to say thank you for the “congratulations” advertisement that you placed in The Sunshine Coast daily on Tuesday. It is not often that we find suppliers, but most importantly of all, people of the highest calibre, as you and all the staff of Tremco are.
Awards such as the one I was so privileged to be awarded are not the efforts of one person alone. Without the support both professionally and personally that not only myself, but also Wayne, receive from you all is one of the major reasons Kadoe has been able to receive such high recognition but most importantly make a significant mark in the Queensland Construction Industry.
All of your names, along with Tremco should also be engraved on the Award alongside mine.
Each and every one of you are outstanding in your own individual way.
Regards,
Carolyn Thomson[8]
[8] Trial Exhibit 12.
This email is consistent with the conclusion that the award was related to the success of Kadoe and that Mrs Thomson was happy to share the credit for her success in conducting that business.
Kadoe’s difficulties emerge
The financial difficulties suggested by the 2010 financial statements manifested themselves when the Company’s two main creditors, the Commissioner and Tremco, began to press for payment. Mrs Thomson handled the dealings with both creditors.
Taxation liabilities
The starting point is the March 2010 BAS statement. Although that document was not in evidence, it was referred to in an email sent on 19 April 2010 by Mrs Thomson to Ms Blinco (of PWA). That email stated:
Hi Cheryl,
Could you please lodge this BAS asap.
Once it is lodged could be please make a payment arrangement for the total which will be about $36, 500. The arrangement should be for $250 per week. I need to stress the payment arrangement needs to be put in place after this current BAS has been lodged.
If you have any queries could you please let me know.
Regards,
Carolyn Thomson[9]
[9] Trial Exhibit 19.
Ms Thomson accepted that the March 2010 BAS was attached as described and that she wrote that email. Her evidence continued:
Ms Thomson, that is an email that you sent to Cheryl Blinco of PWA in April of 2010, isn’t it?‑‑‑Yes.
And you’re saying to her:
Could you please lodge this BAS ASAP?
Correct? First line?‑‑‑Yes. Yes.
So you’re directing her to lodge the BAS on behalf of the company?‑‑‑Yes.
And included in the attachments, although it’s not included on this email, is in fact the BAS statement for March of 2010; correct?
HIS HONOUR: Well, perhaps ‑ ‑ ‑
HIS HONOUR: Yes. It is. It says it up the top.
MR DE WAARD: Yeah?‑‑‑It says BAS statement up the top. Yeah.
HIS HONOUR: Yeah. All right.
MR DE WAARD: And that is – using the ATO language, that’s for the first quarter of 2010? So January, February, March, the first quarter. That’s – BAS is paid quarterly; correct?‑‑‑Yes.
So that’s for the first quarter of 2010?‑‑‑I assume so.
And you say, don’t you:
Once it’s lodged could you please make a payment arrangement for the total which will be about 36 and half thousand dollars.
?‑‑‑Mmhmm.
The arrangement should be $250 per week.
?‑‑‑Mmhmm.
I need to stress the payment arrangement needs to be put in place after this current BAS has been lodged.
?‑‑‑Mmhmm.Why is that?‑‑‑Because that’s what the bookkeeper asked me to do.
That’s what the bookkeeper asked you to do?‑‑‑Mmhmm.
You had no idea why you asked that?‑‑‑No.
And then – so when you say:
If you have any queries could you please let me know.
You – what you actually mean is if you have any queries please let me know so I can pass them on to the bookkeeper?‑‑‑Yes. That's correct.[10]
[10] TS 6-125.6 to 6-126.14.
The evidence obtained from the Tax Office by Mr Rose contained notes of dealings between the ATO and persons on behalf of Kadoe. It did not have any entry documenting such payment arrangement. The Running Balance Account (RBA) Statement provided by the Commissioner showed that payments of $410.76 per week were made from 7 May 2010 until 6 August 2010. I could find no other evidence of a payment agreement with the ATO which deferred the March quarter BAS payment. There was a payment agreement reached in August 2010, but that was later breached by Kadoe.
Further, the RBA demonstrates that while regular payments were made between May and December 2010, the amount outstanding grew through that period from the initial $36,529 to $48,347.55 by the end of January 2011. The amount continued to grow until the Company stopped trading in June 2013 (in circumstances discussed in paragraph [74](e) below), when its RBA liability was $65,155.58.
The dispute with Tremco
It is alleged in the Statement of Claim that the Company incurred the Tremco debts over the period October 2009 to July 2011. That allegation was admitted in the Amended Defence. In the course of the trial, however, it was common ground that the Tremco debts were incurred in the narrower period of March to December 2010 (though I have taken January 2011 as the end of the relevant period). December 2010 period coincides with Tremco taking steps to address Kadoe’s outstanding accounts.
On about 9 November 2010, Mrs Willson and Mr Boslem were informed by Mrs Thomson that Kadoe’s account with Tremco had been put on hold. Neither Mr Boslem nor Mrs Willson had been aware that Tremco was taking that step. It appears the decision was made in the Sydney office of Tremco. At that time, the outstanding account was some $140,000. Mrs Willson said that Mrs Thomson told her that Kadoe would pay the debt and Mrs Willson assumed that would occur.
Mrs Willson continued in her affidavit:
73. On around 15 November 2010 I spoke with Mr Colin Hooper, who managed the Brisbane warehouse for the Plaintiff at that time, in relation to the Defendant’s Kadoe account with the Plaintiff. The Defendant’s Kadoe account was still on stop as payments had not been made to pay down the account as planned. I was aware, through the Defendant, that Kadoe needed product for the Rive Apartments job at Albion in the State of Queensland.
74. At this time, I contacted the Defendant and she advised me that she planned to pay off the Defendant’s Kadoe account with the Plaintiff.
75. On or around 16 November 2010 I received a telephone call from the Defendant. She advised me that she had emailed Mr Boslem with a bank transfer receipt for a part payment of the Defendant’s Kadoe account with the Plaintiff. This was to facilitate the Defendant collecting 15 rolls of paraseal for the Rive Apartments located at Albion in the State of Queensland. I said to the Defendant, in words to the effect, that I saw no issue with this if Mr Boslem was happy with her repayment plan.
76. Mr Boslem was, at that time, responsible for making decisions in relation to a customer’s account once it is in default for a significant amount.
77. On or around 19 November 2010, I spoke once again with the Defendant and discussed all of Kadoe’s current projects, which the Defendant told me that she was managing. In particular we spoke in detail about the Rive Apartments project in Albion. She advised me that as at that day she completed roughly 1, 100 square metres of flooring.
…
79. In or around January 2011, I received several telephone calls from the Defendant in relation to various issues. One of the issues was the fact that Brisbane in January 2011 experienced extreme flooding. The Defendant advised me that due to the floods Kadoe had been unable to attend upon various sites to perform work. As a result they were unable to attend to any payments to the Plaintiff.
80. A second issue was that the Defendant disputed approximately $30, 0000.00 of Kadoe’s account with the Plaintiff.
81. During these conversation in or around January 2011, I would say words to the effect to the Defendant that if she disputed $30,000.00 of the account it made sense that Kadoe would simply pay the remaining (approximately) $110,000.00 of the account and then we could sort out the $30,000.00 balance thereafter.
82. The Defendant’s responses to this suggestions were various in nature but always consisted of excuses as to why payment could not be made. Such excuses included the fact Kadoe was unable to perform any work at that point of time due to floods.
83. The Defendant would say words to the following effect “I can categorically say that payment will be able to made on x date” or “I can categorically say we will be able to attend further work on x date”.
84. Ultimately, I could never get the Defendant to agree to a figure that would be paid in settlement of the account that she was happy with or when that amount would be paid.
85. As such Mr Boslem took over negotiations with the Defendant in relation to the payment of the Defendant’s Kadoe account with the Plaintiff from in or around January 2011.[11]
[11] Affidavit of Merle Willson sworn 28 April 2017 (filed 28 April 2017, DC proceeding 3868/17, Court Doc 51) at paras 73-85 (excluding para 78).
This evidence was not challenged in cross examination.
Mrs Willson’s summary of the dealings between Kadoe and Mrs Thomson is also a fair description of the correspondence in evidence covering the period from November 2010 until proceedings were commenced in June 2011. That correspondence was between Mr Boslem and Mrs Thomson. There is no suggestion in that correspondence that Mrs Thomson is negotiating with Mr Boslem on instructions from Mr Thomson. He is not mentioned. Rather, the tenor of the correspondence is that Mrs Thomson is principal in the negotiations.
It is worth noting the following further aspects of that correspondence.
On 17 November 2010, Mrs Thomson sent Mr Boslem a detailed explanation to the effect that “the short term problem” (with payment) was the result of one project, the problems with which were expected to resolve shortly. In the meantime, Mrs Thomson requested further credit to complete the job. She also raised the issue of some credits claimed, involving small sums. She then wrote that based on those matters: “I would be able to commit to pay $12,500 by 7th December 2010 and a further $12,500 to be paid by 19th December 2010.”[12]
[12] Trial Exhibit 26.
The second payment was not made as promised. Rather on 1 February 2011, Mrs Thomson wrote another sophisticated email explaining the impact of wet weather followed by the January 2011 floods on Kadoe’s business. Mr Boslem responded challenging the “flood excuse” and pointing out that Kadoe incurred significant unpaid debts up to December 2010. [13]
[13] Trial Exhibit 28.
There was thereafter further negotiations in writing in a similar vein up to June 2011, during which time nothing was paid off the debt. It was not until June 2011, in response to an email from Mr Boslem, that Mrs Thomson raised issues as to deliveries of some products invoiced. Her correspondence does not identify any particular sum affected, nor did she offer to pay any amount.[14]
[14] Trial Exhibit 30.
Proceedings against Kadoe were commenced by Tremco in June 2011.
There are numerous examples in the correspondence of Mrs Thomson apparently conducting the affairs of the Company in a manner indicative of her having primary responsibility for those affairs and exercising independent judgment in respect of them. The negotiations with Tremco are but one example. As will be seen, Mrs Thomson’s case is that she acted on Mr Thomson’s instructions. However, Mr Thomson’s evidence of such instruction was of the most vague and general kind. Mr Thomson’s evidence of instructions he gave in respect of the negotiations with Tremco, for example, were “Just make contact and see if we could come to …a payment arrangement”.[15] Even if that instruction was given at some point, it is evident that Mrs Thomson carried out the negotiations independently on behalf of the Company and Mr Thomson was willing to acquiesce in any arrangement she reached.
Company administration
[15] TS 8-73.35-.36.
After giving the structuring advice, PWA commenced acting as accountants and tax agents for the Company. It also appears that PWA also acted for Peradena (as trustee of the Thomson FT). It seems to have been contemplated by both PWA and the Thomsons that the Company’s activities were to be exclusively as trustee. The same appears to have been the case for Peradena. Accordingly, the documents sometimes refer to the trusts rather than to the trustees.
For about 3 years to mid-2012 PWA, relevantly:
(a)Lodged taxation documents for the Company including its BAS; and
(b)Prepared financial statements and tax returns for the Company including the financial statements for 2009 and 2010 referred to above.
PWA did not, however, provide bookkeeping services. Rather, as is common practice, the Company kept financial accounts using MYOB. The data entry into the MYOB accounts was done by the Company and the information forwarded to PWA to prepare financial accounts and tax returns. Similarly, the information contained in the Company BAS was prepared by the Company and the figures forwarded to PWA for lodgement.
The MYOB data was entered primarily by an employee of the Company. From July 2010 to May 2014, this person was Ms Pamela Jeppesen. She gave evidence at the trial.
Her evidence was important because it went to the disputed question as to who was responsible on behalf of the Company for supervision of data entry and maintenance of the MYOB database and for giving instructions to PWA as to BAS particulars and other matters. Ms Jeppesen gave evidence that Mrs Thomson supervised the maintenance of the accounts and was responsible for instructions to PWA. Mrs Thomson disputed that.
Ms Jeppesen’s evidence went further than that. She gave evidence that during her employment, Mrs Thomson was primarily responsible for:
(a)the day to day business activities and finances;
(b)banking and postage;
(c)entering Kadoe’s financial data into its computer and accounting software;
(d)placing orders on behalf of Kadoe with suppliers;
(e)paying bills on behalf of Kadoe;
(f)directing the employees of Kadoe;
(g)processing the payroll;
(h)paying Kadoe’s employees their wages into their nominated bank accounts;
(i)dealing with accountants and lawyers on behalf of Kadoe;
(j)managing the tender process and procurement of new work for Kadoe; and
(k)managing the contracts performed by Kadoe for customers.[16]
[16] Affidavit of Pamela Jeppesen sworn 21 February 2017 (filed 24 February 2017, DC proceeding 3868/17, Court Doc No 22) at para 5.
She swore that Mr Thomson was primarily responsible for the labour on behalf of Kadoe and that Mrs Jeppesen took instructions almost exclusively from Mrs Thomson.
Mrs Thomson challenged Mrs Jeppesen’s evidence, both in cross examination and submissions. I deal with that challenge further below from paragraph [174] below. There I give reasons for accepting the substance of Mrs Jeppesen’s evidence. I consider that Mrs Thomson was responsible for the affairs of the Company identified by Mrs Jeppesen including dealings with, and instructions to, PWA.
Returning to the financial accounts, PWA was retained by Kadoe (along with Peradena and the Thomsons personally) up until 27 July 2012. Prior to that time, however, PWA had begun to express concerns about unpaid fees. By letter dated 4 April 2011, PWA wrote to the Thomsons in the following terms:
Dear Wayne and Carolyn,
Reminder of Outstanding Accounts
Total amount due - $12, 320
I refer to our conversation late last year regarding your outstanding accounts. You advised that you had almost finished a payment arrangement with one of your creditors and would look to set up a payment plan with us once that was completed. To date we have not received any further payments or notification of when we might receive a payment.
We understand that due to recent economic events some people are finding cashflow a challenge. While we empathise with your situation, we cannot continue to carry this debt and ask that you contact our office to advise when we may expect full payment, or alternatively to arrange a regular payment plan to clear the outstanding amount.
As you are a long standing valued client of our firm we have continued to do work for you in good faith, even though the outstanding invoices date back several years. Unfortunately this is not something we can continue to do. As such until we receive a commitment from you regarding payment of these accounts, we are unable to continue to complete any further work.
Wayne and Carolyn, we would like to work with you to resolve this matter. Please feel free to contact me on 5436 0300 if you would like to discuss your options further.
Kind regards,
PWA FINANCIAL GROUP PTY LTD [17]
[17] Trial Exhibit 15.
Mrs Thomson made the point at trial that the PWA debt was not, or was not exclusively, a debt of Kadoe. There is merit in that proposition. Work the subject of unpaid invoices as at April 2011 was done by PWA for the Thomsons and both of their trustee companies. It was not clear from time to time what fees were owed in respect of which client, although the pleadings in the PWA proceedings suggest the Kadoe account was for about $2700.
However, Mrs Thomson apparently made a payment, possibly from Kadoe’s account, on 5 April 2011. I note that the Company overdraft account shows a payment of $50 to PWA on that date. Ms Neven of PWA responded with gratitude. Mrs Thomson replied on 6 April 2011 in the following terms:
Hi Tina,
I did this in response to your letter. I know it is not a lot, as we are still getting over the effect of the floods. In time I will set up a direct debit or something, but at the moment our cashflow is so erratic that it would probably not be the best idea.
I will keep the payments coming through regularly, for as much as I can possibly send through. Even if just for small amounts.
Thank everyone for me for their absolute patience. We are very hopeful that later this year our cashflow will be much improved so we are able to reduce the debt faster.
Regards
Carolyn Thomson [18]
[18] Trial Exhibit 16.
It is a reasonable inference that Mrs Thomson is speaking of Kadoe’s position. There was no evidence of any other source of income to the family at the time. It is also a reasonable inference that the payment which was “not a lot”, was the $50 payment made.
Not much progress was made reducing the outstanding fees. In late June 2012, Mrs Thomson (using an email footer identifying Kadoe and referring to her 2010 and 2011 Awards) was exchanging emails with PWA relating to the preparation of the 2011 tax returns for the two trusts and for Mr and Mrs Thomson. This exchange led to PWS terminating its retainer. There were two important consequences of the termination of PWA’s retainer.
First, the Company ceased to retain accountants. No properly prepared financial statements were created and signed by Mr Thomson for the Company after the 2010 Financial Statements. Only management accounts were able to be prepared from MYOB for the 2012 and 2013 years. Mr Hudson (who provided an insolvency report) considered those management accounts to be inaccurate. Whether that is so or not, it remains the case that there are no financial statements prepared by the independent accountants for the Company after the 2010 accounts.
Second, PWA purported to return all the documents held for, inter alia, Kadoe on about 6 August 2012. This appears to have included a version of the MYOB database which included entries up until about the time of the termination of the retainer. It also is said by Mrs Thomson to have included three copies of the trust deed for the Trust. This latter event precipitated the dispute over the allegedly invalid creation of the Trust.
The dispute with PWA and the invalid trust issue
The dispute about whether the Trust was validly created ultimately has little significance for the resolution of the issues raised in this trial. However, given its importance to Mrs Thomson’s pleadings and submissions, it needs to be dealt with.
On Mrs Thomson’s account[19]:
(a)When she received the documents from PWA she reviewed them. That included reviewing the For Three Trust Deeds returned;
(b)There had been four originals, only three were returned;
(c)Mrs Thomson found that none of those were executed by Ms Blinco as settlor;
(d)Mrs Thomson appears to have immediately sought legal advice and received advice that there was “no valid operative trust and never had been”;
(e)She thereafter recounts extensive dealings between PWA, its professional indemnity solicitors and PWA’s debt collectors. The tenor of those dealings is that Mrs Thomson was treating the matter as a crisis not only for the Trust but also for the business of the Company. She says she was advised by the Company’s lawyers, Thomsons Lawyers (no relation) that the Company should cease trading. She says she followed that advice and that the Company stopped trading from 1 July 2013.
[19] In a statement dated 22 June 2015 prepared in relation to proceedings involving PWA: Trial Ex 18.
It can be seen that the invalidity of the Trust was only an issue from August 2012. Mrs Thomson knew nothing about it before then.
At least part of the correspondence about this issue between November 2012 to March 2014 involving Mrs Thomson and Thomsons Lawyers (who acted for the Thomson parties including Kadoe in the counterclaim) on the one hand; and variously PWA and their solicitors, along with the underwriters of PWA’s professional indemnity policy and their solicitors on the other, appears in Mr Rose’s long affidavit (amongst other places).[20] Without attempting to fully summarise that extensive correspondence, it includes the following relevant features:
(a)The correspondence shows that the PWA side consistently maintained that the Trust was validly created and that any problems with formalities could be addressed, while Mrs Thomson cavilled with all these matters. While there might have been some basis for her to do so, in my view her correspondence shows an inclination to expand and extend the dispute rather than to resolve it;
(b)Mrs Thomson wrote very long and extensive correspondence of on behalf of, at least, Kadoe as putative trustee; and
(c)Continual efforts to settle the matter failed.
[20] See for example, Affidavit of Terrence Rose sworn on 23 February 2017 (filed 24 February 2017, DC proceeding 3868/17, Court Docs 27, 30, 31) at Ex. Nos. TJR-2 to, 7, pages 243 to 320 and Ex. Nos. TJR-27 to 42, pages 1097-1226.
The discovery of the alleged invalidity of the Trust precipitated a number of consequences which are of some relevance to this matter.
Taxation implications
One consequence of the alleged invalidity was the impact on the administration of the taxation affairs of Kadoe. The events are complicated and difficult properly to understand because the documentary record is incomplete and no direct evidence was led properly explaining what occurred. However, the following summary seems to identify the main points.
First, a Private Ruling was sought from the Commissioner nominally by Kadoe as to whether the Trust was validly created for tax purposes. That Ruling was delivered on 29 April 2013, addressed to the Trustee for the Trust (the 2013 Ruling). In that Ruling, the Commissioner determined that the Trust existed and made valid distributions.[21] That Ruling seems to have been based on PWA’s version of events: that the settlement sum was paid and that Ms Blinco did sign the Trust Deed. The 2013 Ruling led Thomsons Lawyers to advise that the counterclaim in the PWA proceedings (see from [88] below) had weak prospects. Strangely, Mrs Thomson complained to the ATO about the prospect of some form of fraud or corruption relating to this Ruling. The ATO advised that there was no evidence of any such conduct.[22] Mrs Thomson appeared to accept this result as communicated to Thomsons Lawyers in her email to 19 August 2013.[23]
[21] Affidavit of Terrence Rose sworn on 23 February 2017 (filed 24 February 2017, DC proceeding 3868/17, Court Doc 29) at Ex. No. TJR-20, page 936.
[22] Affidavit of Terrence Rose sworn on 23 February 2017 (filed 24 February 2017, DC proceeding 3868/17, Court Doc 31) at Ex. No. TJR-31, page 1138.
[23] Trial Exhibit 20.
Second, for reasons that remain unclear, this Ruling was indirectly challenged by the Thomsons nearly 18 months later. The Thomsons objected to the 2013 Ruling in October 2014, but did not pursue that objection. Rather, they chose to object to their personal assessments to tax as beneficiaries of the Trust in the 2010 year (some $53,010, see paragraph [27] above). I could not locate these objections but I infer from the text of the objection decisions that they were based on the view expressed by Mrs Thomson in correspondence that the $10 settlement sum was never paid.[24]
[24] Affidavit of Terrence Rose sworn on 23 February 2017 (filed 24 February 2017, DC proceeding 3868/17, Court Doc 27) at Ex. No. TJR-2, pages 276-279.
These objections were made on 7 October 2014 and the objection decisions were given on 19 November 2014 (the 2014 Objection Decisions). They overturned the 2010 personal assessments to tax as beneficiaries on the basis that because the settlement sum was not paid, there was no trust and therefore the Thomsons could not as a matter of law be assessed to a distribution as beneficiaries. The reasons are brief and contain no detailed legal reasoning. At first blush, the conclusion sounds an odd one (even if the settlement sum was not paid, which has never been properly determined). Given that the settlor plainly intended to create a trust and Kadoe knew that and acted in all respects as a trustee, one would imagine that the possibility of some form of constructive trust should have been at least considered.
The 2014 Objection Decision relating to Mr Thomson also purports to include the whole of the income assessed to him and Mrs Thomson as beneficiaries in Mr Thomson’s assessable income because he was a sole trader. This surprising conclusion is accompanied by no further reasoning. Mr Thomson swears that an amended assessment was issued on 29 November 2014 giving effect to this conclusion.
Third, Mr Thomson then objected to his amended assessment on 24 December 2014, submitting that the income in question was assessable in the hands of Kadoe or even Ms Blinco. On 25 March 2015, the relevant Deputy Commissioner gave his objection decision (the 2015 Objection Decision). He concluded again that the Trust was invalidly created because of the failure to pay the settlement sum. He continued that therefore Kadoe could not be liable for the tax, nor could Ms Blinco. But because Mr Thomson held a QBCC licence which could have authorised the work done, and be because Mr Thomson operated as a sole trader, he must be liable for the tax. The reasons show that this conclusion was based on Mrs Thomson’s advice to the ATO in those terms, something which also seems rather odd.[25] Mrs Thomson gave evidence that she informed the ATO of those matters because an officer of the ATO had earlier informed her of the same matters. There is no mention of this in the 2015 Objection Decision.
[25] Affidavit of Wayne Thomson sworn 4 April 2017 (filed 4 April, DC proceeding 3868/17, Court Doc 46) at Ex No. WRT-3, pages 94-95.
Fifth, all the above relates only to the liability for the assessable income of the business for the 2010 year, not the taxation liabilities incurred by Kadoe. In particular, the 2014 and 2015 Objection Decisions do not deal with the GST and Superannuation liabilities of Kadoe, which were the subject of the tax debts incurred by Kadoe. It seems these issues were not considered.
Following the winding up of the Company, the ATO began to grapple with these issues. Ultimately on 7 December 2017, Deputy Commissioner Hastings wrote to the Liquidators confirming the position that the ATO considered that the Trust was invalid, but that Kadoe was liable for outstanding GST and Superannuation liabilities in its own right rather than as trustee.[26]
[26] Affidavit of Terrence Rose sworn on 23 February 2017 (filed 24 February 2017, DC proceeding 3868/17, Court Doc 28) at Ex. No. TJR-17, pages 579-581.
These events are of limited relevance to this case. Mrs Thomson seems primarily to rely on them as showing that Kadoe never traded because it was supposed to trade as trustee and the Trust was invalid, and therefore Kadoe was not liable for any debts. This notion has been an article of faith for the Thomsons all through the winding up process. A great deal of Mrs Thomson’s evidence and cross examination was directed to showing that Kadoe traded expressly as trustee of the Trust and that the various parties including the Liquidators and the Commissioner of Taxation acted on the basis that it did so.
The second point was also related to the invalid trust issue. Doing the best I can to understand the contention, it seems that Mrs Thomson contends that the Court must find that the Trust was not validly created and that therefore Kadoe never owed any debts and only became insolvent because of the negligence of those who failed properly to create the trust.
I reject this contention:
(a)First, as I observed above, I am not satisfied that a trust did not come into existence which would have been regular for taxation purposes. Whether the Trust was invalid as a matter of law was not an issue which was litigated in the trial, nor was evidence led which would have permitted that matter properly to be determined;
(b)Second, it is trite law that Kadoe was liable for debts it incurred as trustee, whether the trust was properly constituted or not; and
(c)Third, the solvency of the Company had nothing to do with the invalid trust.
Mrs Thomson as a self-represented litigant
Mrs Thomson showed herself to be a person of determination and intelligence in the manner that she conducted the trial. She was willing to make far reaching forensic judgments in the interests of efficiency in conduct of the trial. She did a reasonable job as advocate and cross-examiner, sometimes conducting effective cross examination. She endeavoured to remain professional and calm and generally did so.
This is not to disregard the disadvantage which she had arising from her lack of legal training in what was a complex area. However, she was usually able (with some guidance) to identify relevant issues. Mrs Thomson claimed at various times to be caught up by lack of understanding of how the rules of pleading operated. That might have occurred on occasions. However, in my view, indulgence to Mrs Thomson on the pleading issues which arose would have been quite unfair to Tremco, who is after all entitled to the benefit of the rules in the conduct of a complex trial, regardless of whether it has a represented or unrepresented opponent.[97]
[97] Ross v Hallam [2011] QCA 92; Robertson v Hollings [2009] QCA 303.
Conclusion
In the circumstances, I find that Tremco has made out its claim to loss or damage in the amount of $372,016.10. Tremco is therefore entitled to recover that amount as a debt due to Tremco under s. 588M(3).
The plaintiff also seeks interest pursuant to s. 58 CPA on the debt it alleges in these proceedings. That section plainly applies in this case: see ss. 58(1) and (2). Accordingly the Court has a discretion to include in its judgment an amount for interest at the appropriate rate from when the cause of action arose (or at a later date) until judgment.
The question of when a claim under s. 588M arises was deal with the Full Court of the Supreme Court of South Australia in Powell v Fryer (2001) 37 ACSR 589 where Olsson J (with whom Duggan and Williams JJ agreed) observed[98]:
[114] Finally, there is a need to refer to that aspect of the appeals which joined issue with the inclusion in the judgment of the sum of $62,657.77 for interest. Both notices of appeal sought to place the allowance of interest from the date of liquidation of the Company in issue.
[115] As Professor O'Donovan pointed out, the making of a demand is not a pre-requisite to a cause of action pursuant to s588M. Further, unlike proceedings related to undue preferences (where the transaction remains valid unless and until it is avoided), s588M gives rise to liability, as and when each debt is inappropriately incurred and is not satisfied according to its terms. Theoretically, interest ought, as a matter of logic, to be computed as from when each relevant debt fell due and was not met. As a matter of convenience, interest has been allowed to run from the date of appointment of a liquidator. This is consistent with Re Mike Electric (Aust) Pty Ltd (In Liq) (1983) 7 ACLR 600 and a series of authorities stemming from it. These cases all related to preference claims. There is an even greater reason to apply the practice to a claim such as that now before the Court.
[98] See also Smith v Bone [2015] FCA 389 at [17].
I see no reason not to follow this approach. I therefore award interest on the judgment sum pursuant to s. 58 CPA from the date of the winding up order. The plaintiff sought interest at the relevant default judgment interest rate up to the last day of the trial in the amount of $64,579.20. As I read the submission, this is calculated on the amount of the debt awarded in these reasons: i.e. $372,016.10. However, will hear the parties on the correct calculation of the interest due.
Finally, it should be noted that these proceedings also include third party proceedings by Mrs Thomson against PWA and Ms Blinco, Ms Bendle and Ms Grenfell. On 6 October 2017 Justice Applegarth directed that the proceedings between Tremco and Mrs Thomson be heard in this Court on the basis of an undertaking from the Third Parties “not to controvert a finding at any trial in the proceedings between” Tremco and Mrs Thomson as to any debt owed by Kadoe to Tremco and the liability Mrs Thomson has for any debt owed by Kadoe to Tremco.
I will hear the parties as to costs.
Tremco Pty Ltd v Thomson [2018] QDC 101
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