[2007] HCA 10
Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297
[2011] FCAFC 151
Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345
[2012] HCA 17
BCI Finances Pty Ltd (In Liq) v Binetter (No 4) [2016] FCA 1351
(2016) 348 ALR 227
Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 225 FLR 1
Source
Original judgment source is linked above.
Catchwords
[2007] HCA 10
Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297[2011] FCAFC 151
Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345[2012] HCA 17
BCI Finances Pty Ltd (In Liq) v Binetter (No 4) [2016] FCA 1351(2016) 348 ALR 227
Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 225 FLR 1[2008] WASC 239
Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 39 WAR 1[2008] WASC 239
Blatch v Archer (1774) 98 ER 969
Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279(1991) 6 ACSR 464
Briginshaw v Briginshaw (1938) 60 CLR 336[2016] NSWCA 46
Federovich v St Albans Pty Ltd [1999] NSWSC 506
Gerard Cassegrain & Co Pty Limited v Cassegrain [2013] NSWCA 453305 ALR 612
Great Investments Ltd v Warner (2016) 243 FCR 516
[2016] FCAFC 85
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296
Judgment (5 paragraphs)
[1]
These proceedings
On 13 November 2018, the Company's solicitor sent a letter of demand to Mr Barker and his wife, querying a number of transactions totalling some $71,900. It was suggested that Mr Barker had breached his duties as a director. Demand for repayment of the money was sought. On 23 November 2018, Mr Barker's solicitors replied: any liability was denied; immediate withdrawal of the demand was sought.
One year later, on 13 November 2019, a second letter of demand was sent, seeking repayment of monies used to pay Mr Barker's home electricity account, hire purchase payments on the ute and unauthorised transfers of some $12,000, ATM withdrawals of some $2,000 and cash withdrawals of some $67,000, the purpose of which was uncertain. On 20 November 2019, demand was made for some $122,000 to be repaid. On 18 December 2019, Mr Barker's solicitor responded in detail, denying the allegations. Nine months later, these proceedings were commenced in September 2020.
Mr Hedison said that he and Mr Barker did not discuss or agree that the Company would pay for electricity at Mr Barker's home, nor payments on his ute, nor the Bunnings purchases, ATM withdrawals or cash withdrawals. Mr Barker denies that he paid any personal invoices using Company funds. Mr Barker said he never took cash from the Company for non-company purposes. Shortly before the hearing, Mr Barker returned to the site and retrieved the manilla folder containing the Tosca Seafood invoices and the handwritten running tally, which was still in the shed.
[2]
SUBMISSIONS
The Company submitted that Mr Barker misapplied company funds for his own personal benefit whilst a director, in breach of his statutory duties under sections 181 and 182 of the Corporations Act 2001 (Cth) and his fiduciary obligations: Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 97-8, 103 per Mason J; Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 39 WAR 1; [2008] WASC 239; Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [179]; Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134; [1942] 1 All ER 378. The payment of personal electricity bills, hire-purchase payments on the ute, Bunnings' purchases, ATM and cash withdrawals were said to be for his benefit, not approved by the Company nor a majority of the directors. The Company sought an account for the misappropriated funds.
The Company submitted that, as it had no constitution, section 198A of the Corporations Act 2001 applied the replaceable rules such that the board of directors had the power to manage the company and exercise its powers, not individual directors: Ford, Austin & Ramsay's Principles of Corporations Law, online edition, (LexisNexis Butterworths, as at December 2021) at [13.060.3]. In any company with several directors, a director acting individually has no usual authority to bind a company: Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146 at 205; Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 at 303; (1990) 3 ACSR 649 at 672 on appeal Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 at 361; (1991) 6 ACSR 464 at 476; Perkins v National Bank Ltd (1999) 30 ACSR 256; [1999] SASC 280; Pope v Flinders Management Pty Ltd [2001] SASC 278 at [52]; Horizon Star Pty Ltd v Carina Holdings Pty Ltd [2003] WASCA 94; Federovich v St Albans Pty Ltd [1999] NSWSC 506 at [24]. To bind the Company, it was submitted that a director must be the company's agent, delegated by the appropriate organ: Ford, Austin & Ramsay's Principles of Corporations Law at [13.080]. This did not happen in this case.
The Company submitted that, once it was accepted that each of the transactions was unauthorised by a board of directors, or by some resolution delegating authority to Mr Barker, it was sufficient for the Company to prove that the transaction had been entered into without authority such that the onus then shifted to Mr Barker to give a commercial explanation for the transaction, being evidence which it was particularly within his ability to adduce: Gerard Cassegrain & Co Pty Limited v Cassegrain [2013] NSWCA 453; 305 ALR 612 at [26] per Beazley P; Crowe-Maxwell v Frost (2016) 91 NSWLR 414; [2016] NSWCA 46 at [89]-[90] per Beazley P. As such, unless Mr Barker's evidence was to be believed, the Court would be satisfied that the plaintiff has discharged its onus.
The Company submitted that, at all relevant times, the ute belonged to The Shire Oyster Supply. The hire purchase contract was a liability of that company. Hire purchase payments made by the Company benefitted The Shire Oyster Supply, being a company controlled by Mr Barker. In making the payments, it was said that Mr Barker breached both the 'no profit' rule as he later sold the ute for his own benefit and thus enjoyed the equity created in the asset by the payments. He was said to have also breached the 'no conflict' rule as he had an interest as a director of The Shire Oyster Supply in reducing that company's indebtedness.
[3]
WERE THE TRANSACTIONS UNAUTHORISED?
As I understood it, the Company submitted that, as the Company did not have a constitution, a director could only be authorised to expend company monies pursuant to a resolution passed in a duly convened meeting documented in a minute. The Company acknowledged that it had not ever passed any resolutions formally, and "it may well be that every single transaction that the company entered into was … an unauthorised transaction". Whilst the Company is correct to submit that section 198A does not confer authority on a single director, the directors may nevertheless make 'informal decisions' by a "meeting of the minds" which have the effect of a resolution passed in a duly convened meeting. Whether there was any such decision is a question of fact in each case: Roden v International Gas Applications (1995) 18 ACSR 454 at 456 per McClelland CJ in Eq. See also In the matter of Ledir Enterprises Pty Ltd [2013] NSWSC 1332 at [122] per Black J.
As already observed at [17], the evidence in this case is that Mr Barker was given authority to make day-to-day purchases without the need to consult Mr Hedison, apart from "high value" capital purchases. This arrangement was agreed between the directors in their initial discussions when Mr Barker joined the business and is corroborated by the organisational chart prepared by Mr Barker. Mr Barker's authority did not extend beyond expenditure for the purpose of the Company; he agreed that he was not authorised to use Company funds for personal expenses.
Subject to defences such as change in position and bona fide purchase for value without notice (which are not raised in the present case), the recipient of an unauthorised transfer of company assets is under a strict liability to make restitution of the benefit received: Great Investments Ltd v Warner (2016) 243 FCR 516; [2016] FCAFC 85 at [60]-[69] per Jagot, Edelman and Moshinsky JJ. Questions of knowing receipt do not arise: Great Investments Ltd v Warner at [53]-[55]. Accordingly, the only issue is whether the Company has discharged its onus in proving that the payments were unauthorised.
It has been said that the "difficulty of proving a negative is well known": A v New South Wales (2007) 230 CLR 500; [2007] HCA 10 at [60]. As Campbell JA (with whom McColl JA and Handley AJA agreed) explained in Rockcote Enterprises Pty Ltd v FS Architects Pty Ltd [2008] NSWCA 39 at [78]:
If a plaintiff has the onus of proving a negative proposition, the fact that the defendant has greater means to produce evidence which contradicts that negative proposition, does not mean that the plaintiff ceases to have the onus of proof of that negative proposition. However, once the plaintiff establishes sufficient evidence from which, if that evidence is accepted, the negative proposition may be inferred, an evidential onus shifts to the defendant to adduce evidence that tends to show that the negative proposition is incorrect. If a defendant adduces such evidence, the plaintiff must then, as part of its overall burden of proof, deal with that evidence either by submission or argument. …
[4]
ORDERS
For these reasons, I make the following orders.
1. Judgment in the amount of $7,760.10.
2. Proceedings otherwise dismissed.
3. In respect of the costs of the proceedings:
1. Direct the plaintiff to provide any affidavits or submissions in support of the costs order sought by 11 March 2022.
2. Direct the defendant to provide any affidavits or submissions in reply by 25 March 2022.
3. The question of costs is to be decided on the papers.
[5]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 25 February 2022
Mr Barker submitted that, while section 198A(2) vests decision making power in the company's board of directors, the precise mechanisms and ambit of decision making power that then flows to each director was a creature of the consensual compact between directors, and the authority that flows from the principal/agent relationship between the director and company: section 140(1)(a). There was nothing inherent in section 198A(2) that required an exercise of director power to be made by the directors collectively.
To determine whether the director have breached his duties, it was necessary to consider the subjective intentions of the director and then to determine objectively whether a reasonable board could possibly think the exercise of power to be in the interests of the company: Howard Smith Ltd v Ampol Petroleum Ltd (1974) 48 ALJR 5 at 77 per Wilberforce LJ; Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 225 FLR 1; [2008] WASC 239 at [4619] per Owen J; Re Wan Ze Property Development (Aust) Pty Ltd [2012] NSWSC 722 at [35] per Black J; Residues Treatment and Trading Co Ltd v Southern Resources (No 2) (1989) 15 ACLR 770 at 787-8 (Perry J); Chew v The Queen (1992) 173 CLR 626 at [13]. It was submitted that Mr Barker's authority at least extended to managing business operations, bills and supplier payments and determining the management of company finances. This included the payment of business expenses and improvements to Company premises.
Mr Barker submitted that there was insufficient evidence on the Briginshaw scale that Mr Barker acted improperly in relation to any of the impugned transactions. The civil standard of proof requires the Court to reach an 'actual persuasion' of the alleged facts, where the degree of satisfaction demanded depends on the nature of the issue pleaded: Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 38 at 36; section 140, Evidence Act 1995 (NSW). The more serious an allegation, the inherent unlikelihood of an occurrence of a given description or the gravity of the consequences flowing from a particular finding, are considerations which push the degree of satisfaction required higher up the scale.
The Company accepts that it bears the onus in proving that the relevant payments were unauthorised. However, it relies on Lord Mansfield CJ's maxim in Blatch v Archer (1774) 98 ER 969 at 970. In Gerard Cassegrain at [26], Beazley P said, "That case is authority for the proposition that where material evidence is peculiarly within a party's knowledge, it may be sufficient for the opposing party to adduce slight evidence of a matter in issue": at [26], [89]-[90]. I note that Gleeson J likewise summarised in BCI Finances Pty Ltd (In Liq) v Binetter (No 4) [2016] FCA 1351; (2016) 348 ALR 227 at [125]:
All evidence "is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted": Coshott v Prentice (2014) 221 FCR 450; [2014] FCAFC 88 at [80], quoting Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970. This maxim also bears upon the appropriateness of deciding whether a fact has been proved when only limited evidence is available. In Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168 at [14], [15], Hodgson JA (with whom Beazley JA agreed) said:
[I]n deciding facts according to the civil standard of proof, the court is dealing with two questions: not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision …
In considering the second question, it is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so …
However, the principle from Blatch v Archer does not alter the onus of proof, nor the position that "the circumstances in which … the absence of evidence may be taken to account are confined by known and accepted principles": Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17 at [165] per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ. Mr Barker's evidence was that, apart from company monies expended towards his personal expenses, Mr Hedison approved the payments. After Mr Barker ceased to be a director, he handed over the books and records to Mr Hedison, both in a box and the MYOB data file. In the years which followed, Mr Hedison appears to have reviewed these documents carefully before bringing this claim. It is not apparent that Mr Barker has any greater means of producing evidence on the issue of whether the transfers were authorised than the Company. True it is that his wife was responsible for the MYOB entries and, on his evidence, may have been responsible for arranging for their personal electricity bill to be paid from the Company's bank account. But they are no longer married. Mr Barker's ability to call evidence from his wife on the subject is, for practical purposes, no greater than the ability of the Company to have called her to give evidence.
The Court may draw inferences to choose between competing versions of events. However, as Lord Macmillan cautioned in Jones v Great Western Railway Co (1930) 47 TLR 39 at 45:
The dividing line between conjecture and inference is often a very difficult one to draw. A conjecture may be plausible but it is of no legal value, for its essence is that it is a mere guess. An inference in the legal sense, on the other hand, is a deduction from the evidence, and if it is a reasonable deduction it may have the validity of legal proof.
Similarly, Jordan CJ (Davidson and Stephen JJ agreeing) explained in Carr v Baker (1936) 36 SR (NSW) 301 at 306:
The existence of a fact may be inferred from other facts when those facts make it reasonably probable that it exists; if they go no further than to show that it is possible that it may exist, then its existence does not go beyond mere conjecture. Conjecture may range from the barely possible to the quite possible.
Likewise, in Caswell v Powell Duffryn Associated Collieries Ltd [1940] AC 152, Lord Wright explained at 169-170:
Inference must be carefully distinguished from conjecture or speculation. There can be no inference unless there are objective facts from which to infer the other facts which it is sought to establish. In some cases the other facts can be inferred with as much practical certainty as if they had been actually observed. In other cases the inference does not go beyond reasonable probability. But if there are no positive proved facts from which the inference can be made, the method of inference fails and what is left is mere speculation or conjecture.
More recently, Buchanan J summarised in Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297; [2011] FCAFC 151 at [31]: (citations omitted)
Inference does not mean conjecture, even in a civil case. In civil proceedings the inferential process "may fall short of certainty, [but] must be more than an inference of equal degree of probability with other inferences, so as to avoid guess or conjecture" … A court is not authorised to choose between guesses, even on the ground that one guess seems more likely than another or others.
See also Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262; [2000] NSWCA 29 at [84]-[88] per Spigelman CJ.
If the Court is unable to choose between competing versions, the party on whom the onus lies will not succeed. As Beech-Jones J explained in Neville v Lam (No 3) [2014] NSWSC 607 at [99]: (citations omitted)
[I]n some circumstances a Court may find itself unable to choose between competing versions. In such a case, the party upon whom the burden of proof lies will have failed to discharge it.
See likewise Kuligowski v Metrobus (2004) 220 CLR 363; [2004] HCA 34 at [60], citing Rhesa Shipping Co SA v Edmunds [1985] 1 WLR 948 at 955.
Where it is alleged that a party is guilty of fraudulent conduct, the Court must proceed in accordance with the principles enunciated in Briginshaw at 361-362; [1938] HCA 34 and section 140 of the Evidence Act 1995 (NSW). As Ward CJ in Eq summarised in In the matters of Earth Civil Australia Pty Ltd, RCG CBD Pty Ltd, Bluemine Pty Ltd, Diamondwish Pty Ltd and Rackforce Pty Ltd (all in liq) [2021] NSWSC 966 at [579]:
[I]n cases where serious allegations of the present kind (of equitable fraud and dishonesty, or which may expose defendants to criminal liability or a civil penalty) are made, the evidence must be assessed in accordance with the principle stated by Dixon J, as his Honour then was, in Briginshaw (at 361-362), namely that proof to reasonable satisfaction should not be produced by, inter alia, inexact proofs or indirect inferences (see, for example, Nadinic at [47]); Farah Constructions at [170]; and s 140 of the Evidence Act). …
Thus, it may not be appropriate to draw inferences against a party who is alleged to have engaged in fraudulent conduct for failing to provide evidence. As Stevenson J explained in Poole v Chubb Insurance Company of Australia Ltd [2014] NSWSC 1832 at [99]-[100]:
99 [The defendant's] Jones v Dunkel submission really amounts to the proposition that once [the plaintiff] was able to see just what [the defendant] sought to make of the documentary material, [the plaintiff] should have embarked in a case in reply by calling the persons who created the documents, or were mentioned in them … and that his failure to do so should lead to an inference that those witnesses were unable to give evidence supportive of his case. I do not accept that proposition. This is a fraud case, and although a fraud case can be proved from circumstantial evidence, it was for [the defendant] to make good the very serious allegations it made against [the plaintiff] by clear and cogent admissible evidence. It was not for [the plaintiff] to "explain" that he had not behaved as [the defendant] contends; it was for [the defendant] to prove he had. It was not for [the plaintiff] to "contradict" inferences that might be available from documents by calling their author, or others named in them.
100 If more than one inference is available from documents tendered by [the defendant], or if some documents leave important questions unanswered, the result will be that [the defendant] has failed to discharge its burden of proof. [The defendant] cannot, in effect, throw the burden of clearing up ambiguities or unanswered questions on [the plaintiff] by use of a Jones v Dunkel submission.
Here, the burden of proof rests on the Company. The standard of proof is the civil standard, being proof on the balance of probabilities but qualified having regard to the gravity of the questions to be determined: section 140(2), Evidence Act 1995 (NSW); Briginshaw at 362; [1938] HCA 34. As Dixon J observed in Briginshaw at 361, "The truth is that, when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found."
Ultimately, I am not satisfied to the requisite standard that Mr Barker misappropriated the Company's funds, this being a serious allegation. It is apparent that the Company was run informally and operated in a cash environment. Few records survive. Now that the directors have parted ways, Mr Hedison is asking the Court to conclude that, if the accounting entry or business record does not clearly confirm that the expenditure was for a particular and company purpose, then it was misappropriated by Mr Barker. But having left it to Mr Barker to run the Company at the time, largely without interference or comment, it is difficult for Mr Hedison to now hold Mr Barker to standards which were not in place at the time and where Mr Hedison had the ability, as a director, to kerb Mr Barker's authority or monitor day-to-day business transactions if he wished. As a consequence of how the Company was run then - with Mr Hedison's agreement - the Company does not now have enough evidence to discharge its onus of proof.
However, there is no doubt that the payment of Mr Barker's home electricity bill was not authorised. Whether Mr Barker appreciated at the time that his home electricity bill was being paid by the Company is unclear. It may be that his then wife took it upon herself to pay the bill, although I imagine she would have asked her husband before doing so. It does not much matter. The payment was unauthorised, and Mr Barker received a benefit for which he is liable to account. As Ward J noted in In the matter of Idylic Solutions Pty Ltd [2012] NSWSC 1276 in respect of a section 182 of the Corporations Act, at [1491]:
It is noted that the requirement of acting "improperly" does not necessarily equate to dishonest conduct (Kwok v R (2007) 64 ACSR 307 at [80] (per Santow JA) and that a director of a company may act improperly with no intention of acting dishonestly or otherwise than in the best interests of the company as a whole (Chew v R (1992) 173 CLR 626 at 640).