Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd

• Gordon in His Capacity as Liquidator of Lyon Form Pty Ltd (in liq) v Leon Plant Hire Pty Ltd (in liq) [2015] NSWSC 397 - Grimaldi Chameleon Mining NL (No 2) (2012) 87 ACSR 260; [2012] FCAFC 6 - Hancock Family Memorial Foundation Ltd v Porteous (2000) 22 WAR 198; [2000] WASCA 29 - Hans Pet Constructions Pty Ltd v Cassar [2009] NSWCA 230 - Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; (2014) 101 ACSR 167; [2014] NSWCA 266 - Hylepin Pty Ltd v Doshay Pty Ltd (2020) 148 ACSR 30; [2020] FCA 1370 - John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd; Walker Corp Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 - JR Consulting & Drafting Pty Ltd v Cummings (2016) 329 ALR 625; [2016] FCAFC 20 - Kalls Enterprises Pty Ltd (in liq) v Baloglow (2006) 58 ACSR 63; (2006) 24 ACLC 920; [2006] NSWSC 617 - Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557; [2007] NSWCA 191 - KQ International Trading Pty Ltd v Yang [2016] VSC 146 - Lewis Securities Ltd (in Liq) v Carter (2017) 120 ACSR 327; [2017] NSWSC 412 - Linton v Telnet Pty Ltd (1999) 30 ACSR 465; [1999] NSWCA 33 - Morley v Australian Securities and Investments Commission (ASIC) (2010) 274 ALR 205; (2010) 247 FLR 140; (2010) 81 ACSR 285; [2010] NSWCA 331 - Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343; [2009] NSWSC 342 - One.Tel Ltd (in liq) v Rich [2005] NSWSC 226 - Parker v Tucker (2010) 77 ACSR 525; [2010] FCA 263 - Paul A Davies (Aust) Pty Ltd (in liq) v Davies (No 2) [1983] 1 NSWLR 440 - Primacy Underwriting Agency Pty Ltd v Kilborn (2007) 25 ACLC 160; [2007] NSWSC 158 - Ramsay v BigTinCan Pty Ltd (2014) 101 ACSR 415; [2014] NSWCA 324; BC201407664 - Re AJ Roberts Removals & Storage Pty Ltd [2017] NSWSC 1054 - Re Bluemine Pty Ltd (In Liq) [2019] NSWSC 1807 - Re Central Management (NSW) Pty Ltd (in liq) [2017] NSWSC 1258 - Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789 - Re Elsmore Resources Ltd [2016] NSWSC 884 - Re FAL Healthy Beverages Pty Ltd and FAL Retail Pty Ltd [2017] NSWSC 476 - Re Felan's Fisheries Pty Ltd [2017] NSWSC 1502 - Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547 - Re Mudgee Dolomite & Lime Pty Ltd v Murdoch [2020] NSWSC 1510 - Re Pure Nature Sydney Pty Ltd [2018] NSWSC 914 - Shot One Pty Ltd (in liq) v Yeo in his capacity as liquidator of Shot One Pty Ltd (in liq) [2017] VSC 741 - Taxa Australia Pty Ltd v Wang (2018) 130 ACSR 531; [2018] NSWSC 1412 - Thomson v STX Pan Ocean Co Ltd [2012] FCAFC 15 - Twigg v Twigg (No 4); Lambert v Twigg Investments Pty Ltd (No 3) (2020) 147 ACSR 389; [2020] NSWSC 1159 - UBS AG v Tyne (2018) 265 CLR 77; (2018) 360 ALR 184; [2018] HCA 45 - Vrisakis v Australian Securities Commission (1993) 9 WAR 395; (1993) 11 ACSR 162 - Watson v Foxman (1995) 49 NSWLR 315 - Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; (2012) 89 ACSR 1; [2012] WASCA 157 Category: Principal judgment Parties: Gregory Thomas Harris (First Plaintiff) Monica Mary Brown (Second Plaintiff) Sirrah Pty Limited (First Defendant) William Francis Harris (Second Defendant) Michelle Joy Harris (Third Defendant) Harris Health Care Pty Limited (Fourth Defendant) Representation: Counsel: S A Wells/J Anderson (Plaintiffs) J S Tobin (First Defendant) A F Fernon SC/E A Walker (Second - Fourth Defendants)

Solicitors: Lloyd & Lloyd (Plaintiffs) Watson Mangioni (First Defendant) Yates Beaggi (Second - Fourth Defendants) File Number(s): 2017/383731

Nature of the application and background facts

1. By Amended Statement of Claim filed on 1 June 2020, the Plaintiffs, Mr Gregory Harris and others, brought a derivative claim on behalf of the First Defendant, Sirrah Pty Ltd ("Sirrah") and also sought relief in their personal capacity. I return to the nature of the relief sought below. A number of matters are common ground between the parties and others are established by documentary evidence, so that there is ultimately no real dispute about them.
2. The Plaintiffs are the executors of the estate of the late Mrs Aileen Harris, and hold, in that capacity, approximately 47% of shares in Sirrah. The Second Defendant, Mr William Harris ("WH") was appointed a director of Sirrah on 30 October 2002 and a challenge to the validity of that appointment is no longer pressed by the Plaintiffs. The Third Defendant, WH's daughter, Ms Michelle Harris ("MH"), was appointed a director of Sirrah on 9 November 2017. The claim against her is no longer pressed by the Plaintiffs and was dismissed in the course of the hearing. The Fourth Defendant, Harris Health Care Pty Ltd ("HHC"), is the holder of the majority of shares in Sirrah and WH and MH are its directors.
3. Prior to 15 December 2017, Sirrah carried on business as a provider of aged care services from premises at Westmead in New South Wales (FASOC [26A], AD [26A]). On 16 November 2017, Sirrah entered a contract for the sale of its assets and undertaking to a third party (FASOC [26B], AD [26B]), which paid a deposit of $2,250,000 into the trust account of Sirrah's solicitors at about the time of entry into that contract and Sirrah received that deposit on 18 December 2017. Completion of the contract took place on 15 December 2017 and Sirrah received, in addition to the deposit, net cash consideration in the amount of $25,065,478.30, after discharging its liabilities on the property (FASOC [26D], AD [26D]). Sirrah has had no ongoing trading operations since about 15 December 2017 (FASOC [26E], AD [26E]). I note that WH sought to contend to the contrary in his cross-examination.
4. At its highest point, Sirrah held unencumbered funds in excess of $27.6m in its bank accounts following the sale. From 15 December 2017 until a provisional liquidator was appointed to Sirrah on 14 October 2019, its funds held in those accounts were reduced by approximately $19 million to $8,519,664.71, which it held in cash in its operating account with the National Australia Bank ("NAB 6400 Account"). That reduction partly resulted from the payment of a tax liability of $5,272,271.40 as to which there is no contest in these proceedings. It also resulted from other transactions which are in issue in these proceedings, comprising payment of monthly "management fees" by Sirrah to HHC and further advances made to HHC quantified by the Plaintiffs as $6,556,623.16; further advances being made to WH of $745,000, which included payments by Sirrah including to purchase and renovate a villa in Bali, to purchase a motor vehicle in Bali and make a loan to a third party for a development in Fiji; and payments made in respect of a business credit card by WH (referred to in the proceedings as the "Disputed Expenses") which the Plaintiffs quantify as at least $1,847,166.53, and which are now, other than for three transactions, conceded to have comprised WH's personal expenses.

The Second-Fourth Defendants' further application to vacate the hearing date

1. On 22 March 2021, the afternoon before the hearing of the proceedings were due to commence, the Second-Fourth Defendants filed an Interlocutory Process which sought orders that the hearing due to commence on 23 March 2021 be vacated to a date to be fixed, and that costs thrown away be paid by the provisional liquidator and not from Sirrah's assets. The second of those orders was not pressed. Because of the lateness of that application, and because of difficulties with the admissibility of the evidence on which the Second-Fourth Defendants relied, it was adjourned to be heard on 26 March 2021. The affidavits in the substantive hearing were read in the interim, but cross-examination of witnesses was deferred, by the parties' agreement, until after the application to vacate the hearing date was determined. I dismissed the application to vacate the hearing date, and indicated that I would set out my reasons for doing so in this judgment, and I now do so.
2. The Second-Fourth Defendants' application to vacate the hearing date was partly directed to a foreshadowed future application to withdraw admissions made by them in respect of paragraphs 45-47 of the Further Amended Statement of Claim. Paragraph 45 pleads that, during the period from about 2012 to 2019, Sirrah lent monies to HHC and WH in particularised amounts, totalling over $11 million in respect of HHC and further amounts in respect of WH. Paragraph 46 pleads that WH caused Sirrah to lend those monies to HHC and himself in specified circumstances. Paragraph 46 of the Amended Defence not only admits that the specified loans from Sirrah to HHC and from Sirrah to WH were made in those circumstances, but adds an affirmative defence that: "[T]he making of the Loans, and each of them, resulted in the discharge, forgiveness, extinguishment or other reduction of debts owed to Sirrah by either or both of [WH] and [HHC], in return for debts from either or both of [WH] and [HHC] which were unsecured and undocumented insofar as the terms of the Loans were documented in the financial reports and accounts of Sirrah"; and otherwise den[ies] the paragraph." Paragraph 47 pleads that the loans to HHC and WH have not been repaid, and the corresponding paragraph of the Defence admits that the loans have not been repaid, and otherwise denies the paragraph. The Application to vacate the hearing date also addressed to the Second-Fourth Defendants' late discovery of the possibility that WH may be able to rely on professional indemnity insurance, a matter to which I return below.

Evidence in the further application to vacate the hearing date

1. The Second-Fourth Defendants relied, in support of the application to vacate the hearing date, on WH's affidavit dated 9 August 2020. Significant parts of that affidavit and other affidavit evidence on which the Second-Fourth Defendants relied in the application were not admissible and were, predictably enough, not admitted over objection. WH there referred to the fact that he had engaged a previous firm of solicitors who had carriage of the proceedings, until his current solicitor, Mr Amirbeaggi of Yates Beaggi Lawyers, assumed carriage of the proceedings on 17 June 2020, nearly nine months before the commencement of the hearing.
2. By her affidavit dated 13 August 2020, read without objection, Ms Michelle Harris indicated that she was not provided with the pleadings in the proceedings by her former solicitors, and they were first provided to her after Mr Amirbeaggi was engaged, now some nine months ago. In the event, as I noted above, the proceedings have now been dismissed by consent as against MH, reserving the question of costs. By an affidavit dated 14 August 2020, Mr Madders, who is an accountant with a firm of accountants that had previously provided services to Sirrah, referred to an engagement of that firm to undertake certain work after the sale of Sirrah's business and to the extent of work involved in that process. By a further affidavit dated 8 February 2021, Mr Madders referred to having continued attempts to properly characterise transaction records for Sirrah and HHC, but to difficulties resulting from a lack of information and access to records and to difficulties with access to records previously held on a cloud system operated by a third party on Sirrah's behalf.
3. By an affidavit dated 12 February 2021, Mr Saccaro, who is assisting Mr Madders, referred to the circumstances of his inspection of a hard drive containing a copy of Sirrah's server at the offices of the provisional liquidator on 11 February 2021. Mr Saccaro fairly accepts that there was over a week's delay in his seeking to access Sirrah's financial records, after an agreement was reached with the provisional liquidator for him to do so on or about 3 February 2021, which he attributes to pressures of work. I give little weight to that matter as an explanation for delay, where parties to proceedings which have been set down for hearing need to make appropriate arrangements to ensure that the experts they retain to provide assistance give sufficient priority to that work. Mr Saccaro refers to information he was then provided by the provisional liquidator's staff as to the difficulties that had been experienced in obtaining live access to the server. Mr Saccaro's evidence is that he opened the main file on the hard drive and noted that it contained a large number of sub-files which related to the period from 2000 to 2019 and he refers to the fact that the records previously contained on the server had been assembled in a structure which would have allowed documents more easily to be searched. Mr Saccaro also referred to the provisional liquidator's advice to him, at that time, that he was dealing with a third party which maintained the cloud server and was trying to obtain access to that server for the Second-Fourth Defendants. Mr Saccaro's evidence makes clear that, at least from 12 February 2021, the Second-Fourth Defendants have had access to the documentation comprising the accounting files of Sirrah, in substantial volume, although I recognise his evidence that that hard drive contained information in a less convenient form to navigate than server access. The Second-Fourth Defendants, then and later, appear to have made no serious attempt to access the documents held on the hard drive, whether by a sampling or other process.

The parties' submissions in the further application to vacate the hearing date

1. Mr Fernon, who appears for the Second-Fourth Defendants, submits that the basis for their again seeking to vacate the hearings is their "inability" to access financial and transactional documents held by the provisional liquidator relating to the financial affairs of Sirrah and HHC. That submission is imprecise, since relevant documents were originally provided to WH in November 2020, and again in February 2021, on a hard drive; those documents were also located on a server controlled by a third party, access to which was under WH's control throughout the large part of the proceedings, until the provisional liquidator was appointed, and was again made available to him by the provisional liquidator from March 2021; access to documents was again made available on the USB produced in response to the subpoena on 24 March 2021; and HHC's financial records are not under the provisional liquidator's control. Mr Fernon submitted that these financial documents were sought to assist the Second-Fourth Defendants to establish defences to the claims made against them, "including a possible application to withdraw admissions made in their Defences concerning loans alleged to have been made by Sirrah to HHC and [WH]". As matters developed, no aspect of those defences other than the foreshadowed further application to withdraw the admissions in paragraphs 45-47 of the Amended Defence was advanced.
2. Mr Fernon submitted that the issue of access to the server and Sirrah records was first raised by WH shortly after the provisional liquidator was appointed in 2019, although I have noted above that that occurred in respect of the provisional liquidator's requirement that he provide information, not in respect of the proceedings; that WH raised the issue of access to documents in his affidavit of August 2020 and further requests for documents have been made since November 2020. I have referred above to the fact that Sirrah was under WH's control for a substantial period prior to the provisional liquidator's appointment, and he had full access to its cloud server in that period; there is no evidence that the provisional liquidator has not taken reasonable steps to seek to obtain access to that server since requests were made by WH, where that server is not under his control; and WH has had access to the relevant documents since at least February 2020, on a hard drive although in a form that his advisers regard as difficult to access, and although he and his representatives have not devoted any significant time to reviewing them.

The applicable principles and determination of the further application to vacate the hearing date

1. The manner in which this application was framed raised issues, first, as to the circumstances in which the Court would grant leave to the Second-Fourth Defendants to withdraw the admissions in paragraphs 45-47 of the Amended Defence, since the application was partly directed to seeking further time (beyond the several years the proceedings are on foot) for WH to locate evidence that might support a further application for that leave. It also raised issues as to the principles applicable to vacating a hearing date.
2. In my earlier ex tempore judgment dealing with the Second-Fourth Defendants' earlier application to withdraw several admissions, which was ultimately not pressed, I referred to the summary of the applicable principles in my judgment in Re Bluemine Pty Ltd (in liq) [2019] NSWSC 1807 (at [4], [6]-[7]) as follows: "In written submissions, [the relevant defendant] acknowledges that, by reason of r 12.6 of the Uniform Civil Procedure Rules 2005 (NSW), an admission made in a defence cannot be withdrawn except by consent or by leave of the Court. He also points to the fact that, unless and until leave is given to withdraw an admission, no evidence may be led which is contrary to the admission and no submissions can be made which are contrary to the admission: Nominal Defendant v Gabriel [2007] NSWCA 52 at [110]; (2007) 71 NSWLR 150. He acknowledges that a defendant, in seeking to withdraw an admission, must adduce clear evidence of how it was that the admission was made and why it should be permitted to be withdrawn: Rigato Farms Pty Ltd v Ridolfi [2000] QCA 292; [2001] 2 Qd R 455 at 459-460. [Counsel who appears for the relevant defendant] also submits that it may be appropriate to grant leave to withdraw an admission where it was made in circumstances where it was contrary to the actual facts or without due consideration of the relevant matters, and refers to the decision in Drabsch v Switzerland General Insurance Co Ltd (unreported, Supreme Court of New South Wales, Santow J, 16 October 1996) to which I will refer further below. He emphasises that the Court will have regard to all the relevant circumstances, with the overall question being the need for each party to receive a fair trial. … In submissions in response, the Plaintiffs in turn refer to the case law applicable to the withdrawal of an admission. The relevant principles are set out in the judgment of Santow J in Drabsch v Switzerland General Insurance Co Ltd above, to which reference has been made in many of the subsequent cases. Those principles were in turn applied by Brereton J in Re Dymocks Book Arcade Pty Limited [2013] NSWSC 298, which quoted those principles at length, and noted the several cases which subsequently applied them. Those principles in turn have been summarised by White J (as his Honour then was) in SLE Worldwide Australia Pty Limited v Wyatt Gallagher Bassett Pty Limited [2005] NSWSC 816 at [56], where his Honour observed that: "It is legitimate and it may be necessary to consider whether the party making the admission did so deliberately, or whether he did so in error, whether the significance of the admission has changed since it was made, for example by reason of other amendments … or whether new evidence has come to light. … Where a party, who is legally advised and does not suffer any disability, deliberately and without mistake, admits liability in whole or in part, and there are no relevant changes of circumstance, prima facie, justice or fairness to both parties does not require it be allowed to change its mind. That is why admissions made with deliberateness and formality are not ordinarily permitted to be withdrawn." [citation omitted] In that case, his Honour also held that the existence of the reasonable argument against liability, in that case, did not provide sufficient basis to permit withdrawal of the admission. Equally, as the Full Court of the Federal Court observed in Jeans v Commonwealth Bank of Australia Limited (2003) 204 ALR 327 at [18] … the question is one of the attainment of justice rather than trying to apply an artificial approach and, as the case law has also noted, the Court is "after the truth" so that, in principle, an erroneous admission should be able to be withdrawn unless other factors outweigh that factor."

Affidavit evidence and credit in the substantive proceedings

1. I now turn to the affidavit evidence in the substantive proceedings. I bear in mind the fallibility of human memory, particularly when disputes intervene, in assessing the affidavit evidence led in the proceedings: Watson v Foxman (1995) 49 NSWLR 315 at 319. I summarised the applicable principles in Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547 at [7], as follows: "It is important in this context to have regard to the fallibility of human memory which increases with the passage of time, particularly where disputes or litigation intervene: Watson v Foxman (1995) 49 NSWLR 315 at 318-319 per McLelland CJ in Eq; Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810 at [41] per Rares J; Varma v Varma [2010] NSWSC 786 at [424]-[425] per Ward J. To the extent that credit issues need to be determined in respect of particular conversations, I have also had regard to the fact that objective evidence is likely to be the most reliable basis for determining them. I summarised the relevant principles in Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789 at [10], where I noted that the credibility of a witness and his or her veracity may be tested by reference to the objective facts proved independently of the testimony given, in particular by reference to the documents in the case, by paying particular regard to the witness's motives and the overall probabilities: Armagas Ltd v Mundogas SA [1985] 1 Ll R 1 at 57; Camden v McKenzie [2007] QCA 136; [2008] 1 Qd R 39 at [34]; Craig v Silverbrook [2013] NSWSC 1687 at [141]; State of New South Wales v Hunt [2014] NSWCA 47 at [56]."
2. The Plaintiffs rely on an affidavit dated 14 March 2018 of their solicitor, Mr See, which referred to an undertaking given by WH not to reduce the cash assets of the Plaintiffs below $13,341,794, which was breached prior to the appointment of the provisional liquidator to Sirrah. The Plaintiffs rely on the affidavit of Ms Monica Brown dated 6 August 2018 which responds to WH's earlier affidavit of WH dated 18 June 2018. Significant parts of that affidavit were not relevant, or were not in proper form and were not admitted.
3. The Plaintiffs also rely on several affidavits of Mr Gregory Harris. In his affidavit dated 31 July 2018, significant parts of which were also not read or were rejected, Mr Gregory Harris refers to the transfer of shares to HHC which are no longer in issue and to loans made by Sirrah to HHC. In his affidavit dated 8 March 2019, Mr Gregory Harris set out the history of Sirrah, referred to correspondence between the parties anterior to the commencement of these proceedings, and exhibited copies of the financial reports of Sirrah for the financial years ending 30 June 2012 - 30 June 2017. By a further affidavit dated 27 September 2019, Mr Gregory Harris exhibited a bundle of documents produced by the Defendants. Significant parts of that affidavit dealt with matters which are not in issue in the proceedings and were not read or not admitted. Mr Gregory Harris also there referred to the expenditure of funds received by Sirrah following the sale of the Cabrini nursing home in December 2017, including in loans relating to WH's purchase of a Bali property, which I address below, and travel expenses incurred by WH which WH now concedes were in the nature of personal expenses. By his further affidavit dated 10 October 2019, Mr Gregory Harris again referred to the undertaking provided by WH to retain the specified amount in Sirrah, and to issues as to production of bank records of Sirrah. By his affidavit dated 22 September 2020, Mr Gregory Harris exhibited further documents including bank records of Sirrah, financial reports, tax returns and Sirrah's general ledger, on which the Plaintiffs rely to establish expenditures made by Sirrah under WH's control.

The pleaded duties

1. The Plaintiffs plead (FASOC [27]) that WH owed certain duties to Sirrah since October 2002, being the duties owed by a director at general law in respect of the no conflict and no profit rules and the statutory duties under ss 180, 181 and 182 of the Corporations Act. The Defendants admit the existence of those duties although not necessarily their content (AD [27]). It will be convenient to address the legal content of those duties at this point and then return to their application below.
2. Mr Wells and Mr Anderson note that the Plaintiffs invoke the statutory directors' duties of care and diligence under s 180(1) of the Corporations Act, the good faith duty under s 181(1) and the use of position duty under s 182(1) and corresponding duties in equity. They point out that s 180(1) requires a director to exercise his or her powers and discharge his or her duties with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in the corporation's circumstances and occupied the office held by, and had the same responsibilities as, the director. They also rightly submit that that duty "adopts an objective standard of care, measured by reference to what a reasonable person of ordinary prudence would do, enhanced where an appointment to the board of directors is based on the appointee having some special skill, by an objective standard of skill referable to the circumstances": Australian Securities and Investments Commission v Vines (2005) 55 ACSR 617; [2005] NSWSC 738 at [1058]. They also refer to my observation in Re Central Management (NSW) Pty Ltd (in liq) [2017] NSWSC 1258 at [20], referring to Vrisakis v Australian Securities Commission (1993) 9 WAR 395 at 450; 11 ACSR 162 and Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209; [2016] FCA 1023 at [479] that "[w]hether a breach of the duty of care and diligence is established is determined by reference to a balancing of the foreseeable risk of harm against the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question." They also point out that, where a transaction has the potential for conflict between a director's interest and duty, the duty of care and diligence requires "special vigilance" and demands "scrupulous concern" on the part of those officers who become aware of that transaction to ensure that any necessary corporate approvals are obtained and safeguards put in place: Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72; [2002] NSWSC 171 at [372]; Re FAL Healthy Beverages Pty Ltd [2017] NSWSC 476 at [55]. I will return to the significance of that principle in this case below.

Claims in respect of management fees

1. The Plaintiffs bring several claims in respect of management fees paid by Sirrah to HHC. The Plaintiffs rely on a Service Agreement entered into in 1997 ("1997 Service Agreement") between Sirrah and HHC, pursuant to which remuneration was payable to HHC on a monthly basis at a specified rate. It is common ground that the terms of that agreement included provision for HHC to be paid remuneration of $8,080 per month (or at the rate the parties otherwise agreed) together with a yearly increase commencing on the first anniversary of that agreement equal to the percentage rate of increase in the Consumer Price Index ("CPI"); that agreement was for a term of five years; and HHC had an option to renew that agreement or a period of five years (FASOC [29], AD [29]). The Plaintiffs contend that the terms of the 1997 Service Agreement were not varied and that Agreement was not renewed, and no other agreement in relation to the provision of management services by HHC to Sirrah was entered into from June 1997 to 30 November 2016 (FASOC [30]). The Defendants respond that, during that period, WH was employed by Sirrah as its chief executive officer; he provided services to Sirrah in that role, by himself or through HHC; and either or both WH and HHC were entitled to reasonable remuneration for those services, or would be entitled to an allowance for such remuneration in respect of any remedies to which Sirrah might otherwise be entitled (AD [30]).
2. It is common ground that, from 2007 to 1 December 2016, Sirrah paid a total amount of $3,796,547 to HHC by way of management fees, as recorded in its financial statements (FASOC [31], AD [31]). The Plaintiffs plead that those payments substantially exceeded the remuneration payable to HHC pursuant to the 1997 Service Agreement (FASOC [32]). The Defendants admit that the amount of management fees paid by Sirrah substantially exceeded what would have been payable under the 1997 Service Agreement, but otherwise deny that allegation (AD [32]). The Plaintiffs allege, and the Defendants deny, that these payments constituted a breach of WH's statutory and fiduciary duties owed to Sirrah and that Sirrah has suffered loss and damage in the relevant circumstances (FASOC [33]-[34]; AD [33]-[34]). The alleged breaches are particularised, rather than pleaded as they should have been, as breach of ss 180-182 of the Corporations Act and breach of the no conflict rule and no unauthorised profits rule giving rise to a breach of fiduciary duty. The Plaintiffs plead claims for equitable compensation and compensation under s 1317H of the Act or for an accounting of monies received by WH from Sirrah in respect of management fees (FASOC [35]-[36]), although those fees appear to have been received by HHC rather than by WH personally. They contend that the amount paid in that period exceeded the amount which would properly have been payable, as quantified by expert evidence and by reference to the 1997 Service Agreement, although I will address below an issue raised by Mr Fernon as to the scope of their pleaded case in this respect.

Loans by Sirrah to WH and HHC

1. The Plaintiffs also plead the making of loans in substantial amounts by Sirrah to WH and HHC over the relevant period, and an occasion on which an amount of indebtedness was written off. That conduct is also alleged to amount to a breach of fiduciary and statutory duties owed by WH to Sirrah, so far as the transactions benefitted either WH or HHC.
2. It is common ground that, from 2012 to 2019, Sirrah lent substantial amounts to HHC and WH; WH caused Sirrah to lend those funds to HHC and himself in specified circumstances; and that, during the year ended 30 June 2016, Sirrah recorded a provision for impairment in the amount of $250,000 in respect of the loans. The Plaintiffs submit that, as at 30 September 2019, the running balance of the loan to HHC was recorded in Sirrah's financial records as $11,044,660.24; the running balance of the loan to WH was recorded in Sirrah's books as $764,244; and they contend those amounts are admitted in paragraph 46 of the Amended Defence. In closing submissions, Mr Fernon takes a different view and submits that the loans admitted on the Amended Defence are, as against HHC, $11,044,660.24 and, as against WH, $269,244.00. However, little turns on the difference where Mr Fernon accepts that additional loans totalling $745,000 are also owed by WH to Sirrah, increasing the amount of his debt to Sirrah to $1,014,244.00. The difference in these figures may reflect a reallocation of amounts previously recorded in the accounts of Sirrah as owing by WH so that they were treated as owing by HHC rather than WH.
3. Schedule 3 to the Plaintiff's submissions in turn sets out evidentiary references for some of the amounts lent, totalling $6,566,623.16. Schedule 4 to those submissions sets out evidentiary references for payments made by Sirrah to fund the Second-Fourth Defendants' legal costs of the proceedings, prior to the provisional liquidator's appointment, and Schedule 5 contains evidentiary references, including to WH's cross-examination, in relation to several further payments made by Sirrah to WH after the sale of the Cabrini business. It is largely not necessary to address the particular transactions where the fact of the loans is admitted by WH and HHC, the parties have not identified any issue of quantification that remains in dispute in this respect, and the determination of the question whether the loans amounted to a breach of duty is not significantly advanced by an inquiry into the purpose for WH or HHC as borrower expended the funds.

"Reimbursements" to HHC

1. The Plaintiffs plead that WH caused Sirrah to pay HHC the amount of $875,173 during the financial year ended 30 June 2014, being a "purported reimbursement" for payment of employee entitlements made to employees of HHC, and contend that Sirrah was not under an obligation to make that payment and that no documentation or evidence of the incurring of such expenses by HHC was produced to Sirrah to justify that payment; the Defendants do not admit the payment of that amount and otherwise deny the relevant allegations. The Plaintiffs again contend, and the Defendants deny, that WH preferred his own interests or HHC's interests; that WH breached his general law and statutory duties and that WH is liable to pay equitable compensation to Sirrah, compensation under s 1317H of the Act, or to account to Sirrah the monies paid or benefits received by him (FASOC [56]-[59]). The Defendants again rely on a limitations defence in this respect, and otherwise deny the claim.
2. Mr Wells and Mr Anderson submit that this payment occurred in circumstances where there was no obligation on Sirrah to make the payment, nor was any evidence ever provided to Sirrah to substantiate the purported expense. They submit that no agreement was in place between HHC and Sirrah at that time (or at any other time) which permitted HHC to require that payment to be made, or which required HHC to make the payment. They point out that the Defendants were ordered to provide discovery of documents in relation to this aspect of the claim; that no relevant documents were produced and that it is open to the Court to draw the inference that there are no such documents to support the transaction, where WH also gave no evidence in chief to explain it.
3. Mr Fernon characterised this claim as depending on a proposition that the record of that amount in the financial statements of Sirrah was false. It does not depend on that proposition, since the Plaintiffs do not dispute either the fact that that amount was paid, as recorded in the financial accounts, or that it was recorded as a reimbursement for the payment of employee entitlements. Instead, they contend that, even if the payment had that character, there was no obligation on Sirrah to reimburse that amount; no evidence was provided to Sirrah to substantiate the purported expense; and there was no agreement in place between HHC and Sirrah which permitted HHC to require that payment. The Plaintiffs rely, in this respect, on the Defendants' failure to produce, on discovery, any documents which would support the basis of that payment.

Disputed expenses

1. It is common ground (FASOC [59A], AD [59A]) that Sirrah maintained a business credit card facility, that WH had the use of that business card and that Sirrah paid all liabilities associated with that business credit card. The Plaintiffs contend that, from 15 December 2017 to at least 30 September 2019, WH incurred personal expenses which were accounted for in Sirrah's records as business expenses; that there was no legitimate business purpose to incur those expenses; that each of those expenses was properly characterised as a personal expense of WH and not a business expense of Sirrah; and again plead a breach of statutory and general law duties in that respect and seek equitable and statutory compensation or an accounting (FASOC [59E]-[59H]).
2. In paragraph 59B of the Amended Defence, the Defendants admit that WH incurred personal expenses which were accounted for as business expenses during the relevant period, but deny, ambiguously, that "all of the expenses" identified by the Plaintiffs within this category were "Disputed Expenses" as defined. They also admit that there was no legitimate business purpose of Sirrah for the incurring of any of the Disputed Expenses and that any Disputed Expenses are properly characterised as personal expenses of WH and not business expenses of Sirrah and that, by causing the disputed expenses to be incurred, WH preferred his own interests to those of Sirrah and that Sirrah had suffered some detriment by reason of the disputed expenses having been incurred and had suffered some loss or damage in that respect. They contend that, from time to time, WH incurred debts to Sirrah by way of loans in amounts corresponding to the amounts of the disputed expenses, and do not admit the claims for compensation or an accounting. In substance, the Defendants' response to these allegations appeared to put in contest which expenses fall within the category of "Disputed Expenses" as defined.
3. WH accepted in cross-examination (albeit with a possible qualification by reference to other expenses which he might have wished to put in issue on further review) that only three of the eleven amounts that his solicitors had identified (in Ex P6) as having a proper business purpose for Sirrah had that character. Those three amounts are described as payments to "AirBNB Australia" and total $10,738.52. WH's evidence is that they were proper company expenses because they relate to TSH. Mr Wells and Mr Anderson submit even if that evidence were to be accepted, that expenditure does not amount to a legitimate company expense of Sirrah where it has never had any interest in TSH. Mr Fernon did not seek to support this proposition in submissions, and it seems to me that amounts expended to advance the business of TSH were not proper expenses of Sirrah, where Sirrah then had no equity or other interest in the business of TSH.

Loans to TSH and Scooti

1. I have referred to aspects of the transactions involving TSH and Scooti above, in dealing with the Defendants' application to vacate the hearing date. It is common ground (FASOC [59O]-[59P], AD [59O]-[59P]) that WH was a director of TSH from 3 December 2018 to 30 December 2019 and a director of Scooti at all times from 21 May 2018, and that Harris Health Care No 2 Pty Ltd ("HHC2") was controlled by WH and was the owner of 49 out of 100 ordinary fully paid shares in TSH. The Plaintiffs allege (FASOC [59S]) that WH caused Sirrah to lend monies to TSH totalling $221,500 and to Scooti totalling $6,715 in specified circumstances. The Defendants deny that allegation and say that the funds were provided by Sirrah to HHC and HHC2 for the purpose of investment in TSH and Scooti; those funds were held on trust for the purpose of contributing those funds as a capital investment in TSH and Scooti, to establish an "international scooter ride share delivery platform and/or business"; and that Sirrah was to be the ultimate beneficiary of shares in TSH and Scooti; and the documentation of the share structure and contributions were interrupted by the appointment of a provisional liquidator to Sirrah, and Sirrah is the ultimate beneficiary of the shares in TSH and Scooti. The Plaintiffs contend, and the Defendants deny, that these matters gave rise to breaches of WH's statutory and fiduciary duties and that the Plaintiffs are entitled to equitable compensation and compensation under s 1317H of the Act.
2. Mr Wells and Mr Anderson submit that WH breached his statutory and general law duties by the payments made to TSH and Scooti, where he was a director of both of those entities, those advances were not documented, were unsecured, and Sirrah derived no benefit from them, and that the use of Sirrah's funds for those purposes was clearly to its detriment and for the benefit of WH and speculative ventures by his related entities. Mr Fernon responds that the Second and Fourth Defendants contend that such monies were paid as an "investment" on behalf of Sirrah in such companies and refers to affidavit evidence of WH, MH and Mr Whitten to that effect (WH 21.1.21 [283]; MH 21.12.20 [52]; Whitten 8.2.21 [87]). I cannot accept that submission. I am not persuaded by the evidence of WH, MH and Mr Whitten asserting, in general terms, a future intention that the funds paid for the benefit of HHC, HHC2, TSH and Scooti would at some time be treated as a future capital investment in TSH and Scooti, still less that there existed any intention to create a "trust" rather than a debt until that occurred, and I have referred to the fact that no further equity was issued by TSH or Scooti in dealing with the application to vacate the hearing date above.

Liability of Sirrah to "Trustee of the Imagineer Trust"

1. Paragraphs 59X and following of the Further Amended Statement of Claim pleaded that, on or about 30 June 2018, Sirrah incurred a purported liability for unpaid commissions to the Imagineer Trust in the amount of $1 million; that Imagineer Collective Pty Ltd is the trustee of that Trust; and Ms Maryanne Harris was the sole director and shareholder of that entity, and a niece of WH and the cousin of MH; and the Defendants admitted each of those matters. The Plaintiffs contended that the purported liability was incurred at a time when Sirrah had no ongoing trading operations (FASOC [59AA]); that these matters gave rise to a breach of duty by WH and Ms Harris; and that Sirrah has suffered loss and damage and claim equitable compensation and compensation under s 1317H of the Act.
2. This claim had fundamental difficulties, since a liquidator has not yet been appointed to Sirrah and has not yet admitted a proof of debt by Imagineer Collective or the Imagineer Trust in the liquidation; so far as the liability was incurred in the circumstances for which the Plaintiffs contend, the liquidator may reject that proof of debt; and the Plaintiffs had made no serious attempt to quantify what, if any loss, Sirrah could incur by the admission and rejection of a proof of debt in these circumstances. Sirrah did not press this claim, which was the only claim made against Ms Harris, and the proceedings against her were dismissed in consequence.

Claims for accessorial liability

1. The Plaintiffs also advance claims by Sirrah for accessorial liability, and specifically for knowing involvement or knowing receipt at general law or for knowing involvement for the purposes of s 79 of the Corporations Act, against HHC, and contend that WH's knowledge is attributed to HHC so far as he is a director of that company. Mr Fernon responds that accessorial liability is dependent upon the Plaintiffs establishing primary liability on WH's part for a breach of his directors' duties to Sirrah; that no breach of directors' duties can be established; and that, although significant loan monies are to be repaid by HHC and WH, the making of such loans does not establish a breach of duty. This claim extends to a claim for knowing participation, knowing receipt or knowing involvement in the breach of WH's statutory duties within the meaning of s 79 of the Corporations Act in respect of HHC's receipt of management fees beyond the amount payable under the 1997 Service Agreement, as adjusted for CPI (FASOC [63]ff) and several alternative formulations of this claim; to the same claims in respect of loans made to HHC (FASOC [69]ff); and to the same claims in respect of the amount of the "reimbursement" of expenses paid to HHC (FASOC [72]ff).
2. There is, of course, a considerable body of authority as to the circumstances in which liability for knowing receipt may arise, and it is not necessary to undertake a full review of that authority, particularly where it was not addressed by Counsel. Broadly, under the first limb of the rule in Barnes v Addy (1874) LR 9 Ch App 244, a person who receives company property from a director will hold it on trust for the company if he or she knows, or the circumstances are such that he or she ought to know, that the director is acting in breach of duty in respect of the relevant transaction. In Kalls Enterprises Pty Ltd (in liq) v Baloglow above at [152]-[159], the Court of Appeal examined the case law in which the first limb of Barnes v Addy above had been applied to breach of fiduciary duty by a company director. In order to succeed in a claim for knowing receipt, the Plaintiffs must establish the relevant breach of fiduciary duty by WH and that HHC received the relevant property by reason of the breach of duty and, at the time of receiving that property, knew of the relevant duty and of the misapplication of the relevant property: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22; Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; 89 ACSR 1; [2012] WASCA 157; Grimaldi v Chameleon Mining NL (No 2) (2012) 87 ACSR 260; [2012] FCAFC 6. I have drawn on my summary of the relevant principles in Gordon in His Capacity as Liquidator of Lyon Form Pty Ltd (in liq) v Leon Plant Hire Pty Ltd (in liq) [2015] NSWSC 397 at [61] in this respect.

The relief sought in respect of the derivative claims

1. The Plaintiffs originally sought, on Sirrah's behalf, orders for an accounting in several respects. It is not necessary to make such orders where the evidence has sufficiently identified the relevant transactions, and it is not necessary to decide whether the Court would have had power to make them.
2. The Plaintiffs sought an order that monies paid to HHC under a management contract or other arrangement and to WH or HHC under any loan arrangement are held on constructive trust for Sirrah. A constructive trust would not ordinarily be imposed where a relationship of creditor and debtor is already in place and any loan agreement has not been rescinded. A constructive trust is also not necessarily imposed as a remedy for breach of fiduciary duty, and the court will generally only impose a constructive trust if no other appropriate remedy is available which is capable of doing full justice: Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566; [1998] HCA 59 at [42]; Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10 at [10]. In John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 at [128]-[129], in a case of alleged breach of fiduciary duty, the High Court observed that a constructive trust "ought not to be imposed if there are other orders capable of doing full justice" and that: "[I]t is not a complete answer to … reliance on Giumelli that remedies other than a constructive trust may lack practical utility because of the impecuniosity of those against whom they are sought. One point made in the Giumelli line of cases is that care must be taken to avoid granting equitable relief which goes beyond the necessities of the case. Another point in those cases is that third party interests must be borne in mind in deciding whether a constructive trust should be granted …" I am not persuaded that, assuming that a breach of fiduciary duty by WH and accessorial liability on the part of HHC were established, it would have been appropriate to make that order where it would have had the result that Sirrah would stand in priority to other third party creditors of HHC, which will have had no opportunity to be heard as to that result.
3. The Plaintiffs seek declarations under s 1317E of the Corporations Act and the general law that WH breached his duties to Sirrah in specified respects. No declaration of a contravention should be made under s 1317E of the Act, since the balance of authority indicates that that section only applies to proceedings in which relief is sought by the Australian Securities and Investments Commission: One.Tel Ltd (in liq) v Rich (2005) 190 FLR 443; 53 ACSR 623; [2005] NSWSC 226 at [69]-[70]; Primacy Underwriting Agency Pty Ltd v Kilborn (2007) 25 ACLC 160; [2007] NSWSC 158 at [6]-[8]. I do not consider that such a declaration should be made in respect of any breach of fiduciary duty where it would be merely anterior to the other relief that I have ordered.

Winding up application

1. Finally, the Plaintiffs bring claims in respect of oppression and relief is sought by way of an order to wind up the Company. Mr Fernon submits that , where WH consents to the winding up of Sirrah, no findings of oppression are required and such findings should not be made
2. At least where a company was established on the basis of relationships of mutual confidence, a winding up order may be made on the just and equitable basis under s 461(1)(k) of the Corporations Act where irreconcilable differences emerge between its members, and the Court may make a winding up order on that basis in circumstances that do not amount to oppression: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672; [2001] NSWCA 97 at [89]; Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343; [2009] NSWSC 342 at [96]-[98], [117]. I summarised the applicable principles in Re AJ Roberts Removals and Storage Pty Ltd [2017] NSWSC 1054 and Re Pure Nature Sydney Pty Ltd [2018] NSWSC 914. There is no absolute rule that the Court will not wind up a solvent company, while accepting that winding up is a last resort: Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd (2008) 66 ACSR 325; [2008] VSCA 86 at [119]; Re Pure Nature Sydney Pty Ltd above at [76].
3. On the first day of the hearing, the Defendants indicated that they consent to Sirrah being wound up. The Plaintiffs submit that the Court would be comfortably satisfied that, in all the circumstances, a winding up order should be made, and Mr Hayes appointed as Sirrah's liquidator under s 461(1)(k) of the Corporations Act, notwithstanding the extant application to remove and replace him as provisional liquidator made by the Second, Third and Fourth Defendants. The matters set out above, and the history of litigation between the parties, are sufficient to warrant a winding up order on the just and equitable grounds. Mr Hayes should be appointed liquidator, given his familiarity with Sirrah's affairs and the additional costs which would arise from now appointing a different liquidator, and where no findings have been made at this point that are adverse to his conduct of the provisional liquidation. The Second-Fourth Defendants may, of course, amend and pursue their application for his removal, to address his position as liquidator rather than provisional liquidator, if so advised.

Orders and costs

1. After I had reserved judgment, I requested further submissions as to the orders that the Plaintiffs sought, if they were successful in whole or in part, and as to the basis on which any money amounts contained in those orders are calculated. I have had regard to the Plaintiffs' proposed orders and the parties' further submissions in formulating proposed orders as set out below.
2. I should first address several issues that arise in respect of those orders. As I noted above, it is now common ground that a winding up order should be made, and I will appoint the existing provisional liquidator as Sirrah's liquidator. In doing so, I recognise that the Second and Fourth Defendants have brought an application to replace him as provisional liquidator, but they have not complied with the directions made to progress that application and it has not been determined. I do not propose to make declarations in the form sought by the Plaintiffs in orders 7, 9, 11-12, 14, 16 and 18 for the reasons noted in paragraph 158 above.
3. The Plaintiffs' proposed orders, and in particular orders 3, 8, 13, 15 and 19 against WH and orders 5, 10 and 17 against HHC include overlapping money judgments against WH in respect of the separate heads of liability, for example, in respect of loan balances and disputed expenses, and seek to address that overlap by a qualification that the amount payable would not exceed the total amount of the liability of WH and HHC in respect of the loan balances. I do not consider that is an appropriate form of order, where it would leave at least WH to engage in further calculations to seek to work out what he had to pay to meet any judgment, and it does not expose or resolve any dispute between the parties in that respect. I have reformulated the orders that I propose to make to quantify the total amounts payable by each of WH and HHC, in respect of all heads of liability, and I will allow the parties the opportunity to make further submissions as to that matter. The judgment against WH comprises the amount of his loan account ($1,014,244); the amount of HHC's loan account ($11,044,660.24) where I have found that loan was made in breach of his fiduciary duty; a portion of the management fees paid to HHC ($3,754,902.58), which I have held was paid in breach of that duty; and the amount of the "reimbursement" to HHC ($875,173) which I have held was also paid in breach of that duty. The judgment against HHC comprises the amount of its loan account ($11,044,660.24), that part of the management fees which it received ($3,754,902.58) and the "reimbursement" to it ($875,173). The judgments against WH and HHC do not include any additional amount in respect of the "disputed expenses" where it appears they are already reflected, wholly or partly, in WH's loan account and the Plaintiffs have not quantified the amount of any overlap. The Plaintiffs rightly accept that they cannot recover more than their total loss against WH (under paragraphs 3 and 4) and HHC (under paragraphs 5 and 6) under these judgments.

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