AMLG was incorporated in 2006. At that time its two directors were Mr Hashman and Ms Mandy Holland. They had equal shareholdings in AMLG. They were the only shareholders of AMLG. They were then in a domestic relationship. The company carried on a business of arranging for the provision of medico-legal reports. The domestic relationship broke down, apparently by September 2010 (Blue 147). On 14 June 2011 Mr Hashman, Ms Holland and AMLG entered into an agreement as part of a settlement reached between Mr Hashman and Ms Holland under the Family Law Act 1975 (Cth). Mr Hashman brought proceedings in the Equity Division of the Supreme Court on 6 June 2014. Ultimately, both Mr Hashman and Ms Holland sought an order that pursuant to s 233 of the Corporations Act Ms Holland purchased Mr Hashman's shares in AMLG. In the separate oppression proceeding Brereton J made an order for Ms Holland to purchase Mr Hashman's shares.
[2]
Evidence of the Lender's Identity
Mr Hashman gave evidence in the loan proceeding. Ms Holland did not. Mr Hashman deposed that in 2006 he and Ms Holland decided to incorporate AMLG as a vehicle initially for providing independent medical opinions on the level of impairment, management and treatment of claims for physical and mental injury. He said that Ms Holland did not have capital to contribute to the establishment of AMLG. He did. He deposed to having had a conversation with Ms Holland to the following effect:
"Me: 'I know you don't have any cash to start the business. I have some money which I can use to start up the business till my Gosford development starts. I'll lend the company money to cover the establishment costs, until it is able to repay me. It should be able to stand on its own, repay its loans within the first couple of years and give us a return within about 3 years.'
Mandy: 'If we can get the right staff and doctors we should be able to get to 10 appointments a day very quickly which should cover all the costs and part of the rent, and we should be able to be able to grow enough to cover all costs from year 2 onwards. I will run the business, keep an eye on all costs and keep a record of all the money you put in. I will make sure that you are repaid at the earliest. You will see that this will be the best business decision you ever made.'"
Mr Hashman was not cross-examined on that evidence.
In his affidavit Mr Hashman identified the following payments. The payments that went to make up the total amount of the moneys lent to AMLG were as follows:
Date Amount Payer
1 12 July 2006 $6,240.66 Mr Hashman
2 13 July 2006 $8,762.69 and Claireleigh
2A $45,513.19
3 13 July 2006 $2,063.95 and Mr Hashman
3A $17,145.54
4 18 August 2006 $5,000.00 Mr Hashman
5 9 October 2006 $20,000.00 Mr Hashman
6 5 March 2007 $20,000.00 Claireleigh
7 13 June 2007 $105,000.00 Claireleigh
8 25 June 2009 $40,000.00 Mr Hashman as trustee for the IH Superannuation Fund
$269,726.03
[3]
The reference to the "Payer" in the above table is to the person whom Mr Hashman initially identified as the provider of the funds used in the making of advances. In relation to the first payment of $6,240.66 on 12 July 2006, the third payment on 13 July 2006 of $2,063.95 and the fifth payment on 18 August 2006 of $5,000 (which total $13,304.61) Mr Hashman deposed that he was unable to identify a single bank account transaction for the payment, but it was not unusual for him to make payments for AMLG in cash and he may have made those payments in cash or from bank accounts for which he did not keep records. In cross-examination he accepted that it was more likely than not that those payments would have come from a Claireleigh account (Black 65.J). It was also possible that they were an amalgamation of payments made on different days. AMLG's ledger under the heading "Shareholder Loan Account" recorded these payments as a credit to Mr Hashman's shareholder loan account.
The payments of $8,762.69 on 13 July 2006, $20,000 on 5 March 2007 and $105,000 on 13 June 2007 were also recorded in AMLG's general ledger as a credit to Mr Hashman's loan account with AMLG. Those payments and the payment of $45,513.19 on 13 July 2006 were paid from an account in the name of the Claireleigh Trust or a term deposit in the name of Claireleigh Holdings. The payment of $17,145.54 on 13 July 2006 was the result of a transfer of funds to AMLG from an account in the name of Mr Hashman, as was the payment of 9 October 2006 which was a withdrawal from Mr Hashman's bank account with the St. George Bank. The payment of 25 June 2009 was made from an account with the St. George Bank in the name of the I H Superannuation Fund of which Mr Hashman was trustee.
On 2 December 2010 Mr Hashman sent an email to Ms Holland seeking clarification of his loan accounts. He said:
"I am going through my loan accounts to see where I have put my money either by way of loans to AMLG or to you directly."
Ms Holland responded later that day saying:
"This is a copy of the shareholders loan account. All the credit that do not have your name have been paid by me.
…
Mandy Holland
Director
Australian Medico-Legal Group"
AMLG does not dispute that this was a confirmation given and signed on behalf of AMLG within the meaning of s 54 of the Limitation Act. Attached to the email was an extract from the general ledger of AMLG entitled "Shareholder Loan Account" that recorded each of the payments the subject of the plaintiff's claim (other than the payment of $45,513.19) as being a loan from "Ian".
As noted earlier, in AMLG's financial statement as at 30 June 2009 that was signed by the directors on 24 July 2009 AMLG recorded as non-current liabilities "loans to [sic] Shareholders" of $374,151.35. The total of the shareholder loans recorded in the general ledger up to 30 June 2009 was $371,854.82. There was no dispute that the loans claimed by Claireleigh or Mr Hashman were included in the debt acknowledged in AMLG's financial statement as loans to shareholders.
In the case of the claim by Mr Hashman, the confirmation in the balance sheet of 30 June 2009 would have been too early to prevent his claim from being statute-barred, but no issue arises under the Limitation Act in respect of his claim.
The financial statements of Claireleigh Holdings as trustee for the Claireleigh Trust for the financial year ended 30 June 2010 recorded the assets of the Claireleigh Trust as at 30 June 2010 as including a debt of $300,588 owed by AMLG to it. The balance sheet stated that the same amount had been owed by AMLG as at 30 June 2009 (Blue 105). However the financial statements of the Claireleigh Trust as at 30 June 2009 showed that the assets of the trust included a debt owed by AMLG of $179,276 (Blue 140).
Mr Hashman said that the balance as at 30 June 2009 was adjusted in the 30 June 2010 accounts as a result of an exercise undertaken by his accountants.
In his affidavit of 20 November 2015 Mr Hashman stated that the sum of $300,588 (being the amount then claimed) "… was made up of loans attributed to me, made by Claireleigh Holdings as trustee of the Claireleigh Trust." (Blue 11.U)
Mr Hashman was cross-examined on a schedule to a financial agreement entered into with Ms Holland on 14 June 2011 to finalise property issues between them (Black 59). That agreement was not reproduced in the appeal books. It appears from the cross-examination that in a schedule to that agreement Mr Hashman claimed that an amount of $375,000 was owed to him in respect of loans to AMLG. He said that his focus was on making sure that the bottom line was not understated and whether the moneys were Claireleigh moneys that had been paid out of Claireleigh's accounts and that were in his name but on Claireleigh's behalf was not his focus as the schedule was a disclosure document and he wished to be sure that the debt had not been under-disclosed. The primary judge accepted this evidence (Red 34.W). Mr Hashman gave the following evidence:
"Q. I'll put it to you squarely, Mr Hashman. These loans are claimed as your asset when it suits and are claimed as Claireleigh Holdings assets at other time when it suits. That's the position, isn't it?
A. They're claimed as Claireleigh - Claireleigh Holdings assets because that's where they have been accounted for and that's where they're shown." (Black 62.D)
That answer explains why Claireleigh Holdings was the initial plaintiff and why Mr Hashman was not joined as a plaintiff until immediately before the commencement of the hearing. The decision to join only Claireleigh Holdings and not Mr Hashman as a plaintiff was made on the basis that the loan debt was accounted for as an asset of the Claireleigh Trust.
It was common ground that all this evidence, including the subsequent conduct of the parties that evidenced their subjective beliefs as to the identity of the lender, could be taken into account in determining with whom AMLG entered into a contract or contracts of loan.
I do not dissent from the position taken by the parties. It is consistent with the established principle that post-contractual conduct can be taken into account in determining if a contract has been fo8rmed (e.g. Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, 163-164, [25] per Heydon JA; [2001] NSWCA 61) and is consistent with Lord Hoffmann's reasoning in Carmichael v National Power plc [1999] 1 WLR 2042; [1999] UKHL 47 at 2050-2051. But if this issue arises in later cases, it should be noted that the question of what evidence can be had regard to in determining the identity of the parties to an oral contract was not an issue on this appeal.
As noted above the primary judge relied upon AMLG's financial statements and ledger in concluding that so far as AMLG was concerned Mr Hashman was the sole lender personally, regardless of the source of the funds.
I do not place the same weight on AMLG's financial statement as did the primary judge. The expression "Loan to Shareholders" was a mistake and it is not possible to identify precisely what words should be substituted to correct the mistake. If the words are read as "Loans due to Shareholders" then they would be an admission that the debt owed was owed to Mr Hashman. On the other hand, if the words are read as "Loans from Shareholders" or "Loans by Shareholders" they would be apt to refer either to a loan made by the shareholder or to a loan procured by the shareholder. They could apply either to a loan by Mr Hashman or a loan by Claireleigh Holdings.
Nor do the financial statements of the Claireleigh Trust clearly identify that Claireleigh Holdings was a party to the contract of loan. The trust financial statements are consistent with that position, but they do not necessarily indicate that position. They are also consistent with Claireleigh Holdings' asserting that the debt owed by AMLG, whether to it or to Mr Hashman, is beneficially held by Claireleigh Holdings on the trusts of the Claireleigh Trust.
To support its submission that the lender was Claireleigh Holdings, AMLG referred to the rationale for the rule that prima facie a cause of action for recovery of money lent repayable on demand, accrues from the time of the loan and not from the date of demand. In Ogilvie v Adams Fullagar J said (at 1043):
"The common law has always regarded the fact of indebtedness as a continuing detention by the debtor of the creditor's money, and this whether the creditor brought an action of debt or an action in indebitatis assumpsit. Therefore if A lends money to B, then instantly B is detaining A's money. In order to prevent a cause of action for recovery arising in A instantaneously on paying the money, the parties must expressly contract out of that situation by words clearly inconsistent with that situation. The courts have long since settled it that a mere statement or agreement that the money is repayable on demand (or request or at call) is not sufficient to contract out of that situation where all else that is known of the terms of the contract is that A has paid money to B by way of loan. The lender's cause of action still arises instanter on the receipt of the money by the borrower, so that the lender's cause of action becomes statute barred at the expiry of six years after the receipt of the money."
As I understood AMLG's submission, it was that because the cause of action for recovery of money lent is premised on the continuing detention by the debtor of the creditor's money, where there is doubt as to who is the lender under a contract of loan, the doubt can be resolved by asking whose money has been detained.
I do not agree. I accept that the source of funds is relevant to deciding who is the lender, where that is doubtful. But I do not accept that the nature of the cause of action is of assistance in deciding the question. If a creditor makes a loan using someone else's money, e.g. by writing a cheque drawn on the creditor's bank or making an electronic transfer from the creditor's bank account, for the purpose of the cause of action in debt or indebitatus assumpsit, the money lent is the creditor's money. That is so even though the money paid is sourced from the assets of a third party, such as the bank in the example given.
It does not matter whether Mr Hashman made the loans by directing payment from Claireleigh Holdings so that he became Claireleigh Holdings' debtor under a loan account, or whether he declared himself trustee of the funds advanced or whether he misappropriated moneys of the Claireleigh Trust for his own purposes, so that he holds the debt on trust for the trustee of the Claireleigh Trust. If the agreement between Mr Hashman and Ms Holland was that he would be the lender, then the nature of his liability to the trustee of the Claireleigh Trust in respect of his use of trust funds is by the way.
Mr Hashman's evidence that loans attributed to him were made by Claireleigh Holdings as trustee of the Claireleigh Trust (para [66] above) was opinion evidence that would have been admissible (if objected to) only as an admission against him. It carries little weight and is explained by the fact that the loan debt was accounted for as an asset of the Claireleigh Trust.
It may be true in many cases that the identity of the lender will be a matter of indifference to the borrower where the lender is either the director or the company he or she controls. That will not always be so. It will not be so if there is a change in control of the company, or if either or both of the director and the company becomes insolvent. If the loan is repayable on demand there could be a question as to who can demand repayment, in which case the identity of the lender will be important to the borrower. As in this case, the identity of the lender will be important to the borrower if one, but not both, of the candidates for the status of lender sues for recovery of the loan.
In my view, the communications between the borrower and the director, rather than the financial statements or internal ledgers, of either the borrower, the company, or the director, should be afforded greatest weight in determining the identity of the lender. At best, the latter are only reflective of who the directors, accountants or bookkeepers think the lender is. They might be reflective of who the directors, accountants or bookkeepers would like the lender to be.
In my view the most important evidence of the lender's identity was the evidence given by Mr Hashman of his conversation with Ms Holland quoted at [19] above. Mr Hashman and Ms Holland agreed that he would lend moneys to AMLG. There was no evidence of any later conversation between them from which it could be concluded that Ms Holland agreed that the lender would be Claireleigh Holdings, rather than Mr Hashman. To the contrary, AMLG's general ledger identified Mr Hashman as the lender.
For these reasons I consider that the primary judge was correct in concluding that Mr Hashman was the lender.
[4]
Claireleigh Holdings as Lender
If Claireleigh Holdings were the lender in respect of all or any of the loan, subject to s 54 of the Limitation Act, its claim would be statute-barred, save as to the advance of $40,000 on 25 June 2009.
The primary judge found that if Claireleigh Holdings were the lender, AMLG's 2009 balance sheet provided to Mr Hashman constituted an effective acknowledgment that postponed the running of the limitation period. For the purposes of this part of its argument, AMLG contended that the expression "Loan to Shareholders" be given its plain and ordinary meaning. On that construction, the expression referred to a loan by Mr Hashman, and therefore it could not be a sufficient acknowledgment. I do not accept that argument. As I have said, the expression "Loan to Shareholders" was ambiguous. It did not have a plain or ordinary meaning. It did not identify by name or sufficiently by description who might be the lender whose debt was acknowledged. Extrinsic evidence can be adduced to show what were the loans made from or by shareholders, whether made or procured by them, referred to in the balance sheet (Jones v Bellgrove Properties Ltd [1949] 2 KB 700 at 704-705; In re Compania de Electricidad de la Provincia de Buenos Aires Ltd [1980] 1 Ch 146 at 193-194; Giacci v Giacci Holdings Pty Ltd [2010] WASCA 233 at [36]). There is no dispute that the amounts showed as "Loans to Shareholders" (sic) included the moneys advanced by Mr Hashman or by Claireleigh Holdings, or by Mr Hashman and Claireleigh Holdings, to AMLG. The balance sheets were provided to Mr Hashman both in his capacity as a shareholder and director of AMLG and also in his capacity as the director of Claireleigh Holdings. The acknowledgment of the debt in the balance sheets was the acknowledgment of the debt to Claireleigh Holdings (if it were the lender) (Stage Club per Wilson J at 566). For these reasons even if the appellant succeeded in its primary claim that Mr Hashman was not the lender, a defence to a claim by Claireleigh Holdings would fail. Because it was accepted that Claireleigh Mosman could make the same claim as Claireleigh Holdings could have made against AMLG, this alternative ground would also fail against Claireleigh Mosman.
Claireleigh Mosman did not file a notice of cross-appeal against the eventuality that it might be found that Claireleigh Holdings had been the lender and its debt was not statute-barred. Orders could have been made to correct the record were it necessary to do so. On the conclusion to which I have come that is not necessary.
A separate argument was advanced in relation to the costs orders. The primary judge ordered that AMLG's claim be dismissed with costs. AMLG contends that his Honour erred in the exercise of his discretion because it was Mr Hashman who obtained judgment. He was only joined shortly before the hearing. AMLG submitted that the plaintiffs had made a forensic decision not to join Mr Hashman as a co-plaintiff. That argument was rejected by the primary judge in his judgment on the application to join Mr Hashman as a co-plaintiff. The primary judge's reasons for ordering costs do not disclose any error capable of review on the principles of House v The King (1936) 55 CLR 499; [1936] HCA 40. To the contrary, in my view his Honour was plainly correct in awarding the respondents their costs of the proceeding. The appellant's defence to the proceeding had no intrinsic merit. It relied upon legal arguments that failed. Costs should have followed the event, as they did.
[5]
Summons for Leave to Appeal
AMLG and Ms Holland seek leave to appeal from the costs order made by the primary judge in the oppression proceeding.
That proceeding was commenced by summons filed by Mr Hashman on 6 June 2014. Amongst other relief he sought orders to enable him to have access to the documents of AMLG and orders requiring the financial statements of AMLG to be audited and a declaration that he was entitled to vote at meetings of members of AMLG. By a deed called "Shareholders Deed of Agreement" dated 14 June 2011 (Blue 161) AMLG, Mr Hashman and Ms Holland agreed that Mr Hashman would resign as a director and concur in Ms Holland's continuing as the sole director of AMLG. The agreement provided for Mr Hashman to have certain rights including the right on giving reasonable notice to inspect all of the documents and records of AMLG to which he would have been entitled to have had access had he remained a director. The agreement included a term that Ms Holland should declare a dividend each year consisting of 50 per cent of the audited net profit of the company after tax in relation to the "A Class" shares, being shares to be held by Mr Hashman until such time as he had been paid $2 million.
On 18 December 2014 AMLG and Ms Holland served a cross-summons in which, amongst other relief, they sought an order under s 233(1)(d) or (e) of the Corporations Act that Mr Hashman's shares be sold to Ms Holland at a price determined in accordance with a clause of the Shareholders' Deed of Agreement, or such other prices as the Court might determine.
Ms Holland had become the sole director of AMLG. The primary judge observed that her claim to relief on the ground that the affairs of AMLG were being conducted oppressively to members was far-fetched.
In a statement of claim filed by Mr Hashman on 4 May 2015 he also sought an order that Ms Holland purchase his shares. He sought an order that the shares be purchased for a price of $2 million, or such other amount reflecting their true value.
On 19 June 2015 the primary judge noted that the essential issue in the proceedings was the price at which Ms Holland should acquire Mr Hashman's shares in AMLG and made orders for the service of evidence in relation to that issue, including the service of expert's reports.
On the assumption that AMLG was liable as at 30 June 2015 for a loan debt of $302,703, an accountant, Mr Katehos, who was retained by Ms Holland, opined that the value of Mr Hashman's shares in AMLG was $8,073. On the same assumption an accountant retained by Mr Hashman opined that the value of his shares was $174,680. Following preparation of a joint statement of the experts, Ms Cusack provided a report dated 11 November 2016 in which she opined that the value of Mr Hashman's interest in the shares was $70,234. The primary judge ordered that Ms Holland purchase the shares for a price of $29,500.
On 14 November 2016 Mr Hashman's solicitors made an offer to compromise the part of the claim consisting of the issue of the value of Mr Hashman's shares in AMLG by proposing that the price be agreed in the sum of $30,000 with the issue of costs to be pursued separately.
In his reasons of 1 May 2017 (Hashman v Australian Medico-Legal Group Pty Ltd & Anor; Claireleigh Mosman Pty Ltd & Anor v Australian Medico-Legal Group Pty Ltd [2017] NSWSC 496), the primary judge noted the defendants' submission that on the question of what price should be paid for Mr Hashman's shares, Ms Holland succeeded, at least to the same extent as Mr Hashman succeeded.
Ms Holland relied on an accountant's opinion that valued the shares at $8,073. She gave reasons as to why the initial opinion of Ms Cusack valuing the shares at $174,680 could not be sustained (White 90-91). AMLG had a deficiency of assets to liabilities, particularly if it were liable for the debt arising from the advances the subject of the loan proceedings. Under s 254T(1)(a) of the Corporations Act AMLG is precluded from paying a dividend, except if there is an excess of assets over liabilities sufficient for the payment of the dividend. It was on the assumption that s 254T applied that Ms Cusack made her alternative valuation of $70,234.
AMLG and Ms Holland submitted that as the issue was what price should be paid for Mr Hashman's shares, Mr Hashman should not be seen as having been a successful party in the oppression proceedings when the price was fixed at $29,500 that was closer to the price contended for by Ms Holland than that for which Mr Hashman had contended.
The applicants accepted that no question of principle was involved. They submitted that there was a substantial injustice that Ms Holland should be required to pay all the costs of the oppression proceeding, not limited to the issue of the price to be paid, and also the costs of that issue in which she had a measure of success in reducing the price sought by Mr Hashman.
These matters were taken into account by the primary judge in the exercise of his discretion. In oral argument on appeal the respondent emphasised that in substance Mr Hashman brought the proceedings to seek to enforce his rights as a shareholder and ultimately obtained the documents and audited accounts he sought prior to the issue being crystallised as one of price. Some of those costs would be recoverable under earlier costs orders, but, so the respondent contended, not all such costs would be recoverable under the earlier order. The primary judge had case-managed the proceedings from the outset and was in a position that is not enjoyed by this Court to assess what costs orders were appropriate having regard to the entirety of the oppression proceeding.
The primary judge said:
"[7] In my view, when one has regard to the substance rather than the form of the proceedings, they involved Mr Hashman seeking to enforce his rights as a shareholder - ultimately through a compulsory purchase order against Ms Hashman [sic]. It is true that Mr Hashman did not secure so high a price as he propounded. But a plaintiff who has to come to court and litigate to obtain the relief it gains is not disentitled from receiving its costs by the circumstance that it does not obtain the full relief sought. The defendant's remedy to avoid incurring liability for costs is to make an offer which the plaintiff does not better at trial. The defendants here did not do so. In order to obtain the price that he did, the plaintiff had to litigate the matter to judgment.
[8] I do not regard it as sensible to describe Ms Holland as having succeeded on her cross-claim. While it is true that she was the first to seek an order for the purchase of Mr Hashman's shares, as was ultimately made, the notion that she had a viable claim of oppression against him, given their respective positions vis-a-vis the company, is far-fetched; rather, her claim for that relief reflected a realistic appreciation that his continued membership of AMLG would be a continuing disruption and nuisance of which she wished to be rid.
[9] In the absence of a superior offer, Mr Hashman had to litigate to obtain a fair price for his shareholding. The price ultimately fixed by the court exceeded any offer made by the defendants, and Mr Hashman should thus be seen as having substantially succeeded in the oppression suit. On that basis he is prima facie entitled to a costs order."
The primary judge also observed that Mr Hashman had made an offer on 14 November 2016 that was only $500 higher than the value determined by the primary judge. Had the offer been accepted the applicants would have been better off than they were as a result of further litigating the matter. His Honour rejected a contention that a different costs order should be made to reflect the applicant's success on the particular issue relating to s 254T of the Corporations Act.
The primary judge did not fail to have regard to relevant considerations. He did not have regard to irrelevant considerations. The applicants do not submit that he applied a wrong principle, nor that he mistook the facts. His Honour's decision does not produce an obviously unreasonable or unjust result.
In my view his Honour's costs order in the oppression proceeding was within the ambit of a proper exercise of his Honour's discretion as to costs and there is no ground for appellate intervention.
[6]
Conclusion and Orders
For these reasons I propose the following orders:
1. Appeal dismissed with costs.
2. Summons seeking leave to appeal dismissed with costs.
[7]
Amendments
01 September 2017 - Coversheet - Cases cited
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Decision last updated: 01 September 2017
Solicitors:
Clyde & Co (Appellant/Applicant)
Mills Oakley (Respondents)
File Number(s): 2017/69998 (Appeal Proceedings); 2017/227712 (Application for Leave to Appeal)
Decision under appeal Court or tribunal: Supreme Court of New South Wales
Jurisdiction: Equity Division
Citation: [2016] NSWSC 1773;
[2017] NSWSC 496
Date of Decision: 01 December 2016
Before: Brereton J
File Number(s): 2014/170226;
2015/187123
Judgment
BASTEN JA: I agree that the orders proposed by White JA in both proceedings should be made. With respect to the reasoning, White JA accords significant weight to a conversation between Ms Holland and Mr Hashman as to the funding of the appellant. Leeming JA would not accord dispositive weight to the conversation, but reaches the same conclusion as to the recoverability of the debt on the basis that it was payable to Claireleigh Holdings Pty Ltd, and not Mr Hashman personally. On either approach, the appellant must fail. Both approaches are available; accordingly, it is sufficient to agree with the reasons in both judgments.
LEEMING JA: I have had the advantage of reading the judgment of White JA in draft. I agree with the orders proposed by his Honour, and his Honour's judgment enables me to express my own reasons concisely.
Mr Hashman was the sole director and shareholder of Claireleigh Holdings Pty Ltd, and there was no challenge to the finding by the primary judge at [26] that he was that company's alter ego. Mr Hashman caused funds held by Claireleigh to be transferred to the appellant, Australian Medico-Legal Group Pty Ltd (AMLG). He did so by (to take the example mentioned in oral address) personally causing amounts held in a St George bank account in the name of Claireleigh to be paid (a) to the bank account of a creditor of AMLG which had rendered a WorkCare Medical Invoice and (b) to the bank account of AMLG (which in turn used it to fund computer equipment).
An issue commonly arises when a natural person performs an act which is connected with a company of which he or she is the sole director and shareholder. Is the natural person, in such a case, acting on his or her own behalf, or is the natural person to be regarded as an agent of the company, noting that the company cannot itself perform most actions other than through its agents?
A third party who deals with a natural person who is the alter ego of a company wholly owned and controlled by that person may be left in doubt as to whether, in point of law, the third party is dealing with the natural person or the company. From the borrower's point of view, it may be entirely unclear whether the undocumented loans were made to it personally by Mr Hashman, or whether instead Mr Hashman procured his company Claireleigh to lend the funds to it. And, also from the borrower's point of view, very commonly nothing turns on whether a lender is the natural person or that person's corporate alter ego. In the case of a loan repayable on demand, it often matters not whether the lender is a natural person or the company of which the natural person is the sole shareholder and director; in either case, any demand will be made at a time of the natural person's choosing.
In contrast, the natural person will commonly be able to determine unilaterally whether he or she is acting personally or on behalf of his or her company, and often he or she will be forced to do so in a formal fashion (not least because of accounting or taxation considerations).
Those considerations tend to suggest that greater regard ought to be had in the present case to how Mr Hashman and Claireleigh treated the moneys transferred to AMLG, than how AMLG treated them in its financial statements.
The balance sheet of Claireleigh as trustee for the Claireleigh Trust as at 30 June 2010 disclosed as current assets some $1.89 million in "Trade and other receivables". A note recorded that that total included, as at both 30 June 2009 and 2010, an amount of $300,588 as an amount receivable from Australian Medico-Legal Group. The $300,588 reflects (precisely) the 15 amounts pleaded in all three statements of claim.
(Two qualifications should be noted to the above. The first is that White JA has explained the basis on which, it is to be inferred, a different corporate plaintiff brought those proceedings. The second is that the final component of $40,000 was, on any view, a loan made by Mr Hashman. It was said without opposition that that was so, and the appellant's written submissions referred to $40,000 being lent by Mr Hashman as trustee for his superannuation fund. There appears to have been some confusion at the time - one of Mr Hashman's affidavits states that Claireleigh was the trustee of that superannuation fund and refers to correcting an error. Nothing turns on either of those qualifications for the purposes of this appeal.)
The accounting of the loan in Claireleigh's balance sheet, and the fact that the funds transferred to AMLG were (save for the $40,000) drawn from an account in the name of Claireleigh, suggest that Claireleigh was the lender. Against this, there is the conversation between Mr Hashman and Ms Holland in which Mr Hashman said, "I'll lend the company money to cover the establishment costs, until it is able to repay me". Neither side suggested that there was anything in the evidence pointing to any intrinsic considerations which would make the interest-free loan more or less advantageous if it were made by Mr Hashman personally, or by Claireleigh.
I am reluctant to give dispositive weight to the conversation. It was a relatively informal statement, by a man who was used to operating businesses through companies and trustees of which he controlled, to his commercial and domestic partner. Between those two parties, the words "I'll lend the company" and "until it is able to repay me" are apt to be taken to convey "I will procure a loan from a company controlled by me". The previous paragraph in Mr Hashman's affidavit states, "At the time, I had cash of some $1,500,000 from my property development business". That paragraph cannot be read literally. For one thing, Mr Hashman did not have $1,500,000 in banknotes in his possession. More importantly, I think that Mr Hashman was conveying that companies controlled by him had liquid assets amounting to some $1,500,000. As it happens, the evidence discloses that at around the time of the conversation, Claireleigh had some $1.35 million in funds held on 30 day term deposits with St George Bank, and Mr Hashman's superannuation fund had some $170,000 in another St George account in 2008. Given that there is nothing to suggest that Mr Hashman held $1.5 million in bank accounts in his own name at the time, it seems likely that the $1,500,000 to which Mr Hashman referred reflected the sum of those two bank accounts, both of which were held by bodies corporate controlled by Mr Hashman.
It is not necessary to decide this appeal by identifying whether the loans were made by Mr Hashman or his alter ego Claireleigh, and given the exiguous nature of the evidence I prefer not to do so.
The acknowledgement in AMLG's 30 June 2009 balance sheet was for non-current liabilities of $374,151.35 described as "loans to Shareholders". Although the description is imprecise, the amount described a non-current liability of AMLG, and must be read as an obligation owed by it. AMLG accepted that it was to be read with an email dated 2 December 2010 sent by Ms Holland to Mr Hashman, attaching an extract of the general ledger, showing the shareholders' loan account. The email, and the entries in the ledger, referred to payment being made by Mr Hashman.
Mr Hashman was a shareholder of AMLG, and it was at all times common ground that if the loans were made by him personally, then the line in the balance sheet (read, if necessary, with the email) was an acknowledgement to him for the purposes of s 54 of the Limitation Act 1969 (NSW).
Let it be assumed, favourably to ALMG, that the lender was Claireleigh. Mr Hashman was the sole director and shareholder of Claireleigh. Mr Hashman was also a shareholder of ALMG. The debtor ALMG plainly acknowledged in its accounts that it owed an amount of $374,151.35. Two (related) issues potentially arise in relation to the operation of s 54:
1. was the acknowledgement made to Claireleigh (as opposed to an acknowledgement to Mr Hashman solely in his personal capacity); and
2. was the acknowledgment of a debt to Claireleigh (as opposed to a debt to a shareholder).
The former was at the forefront of ALMG's submissions. Thus it was submitted that there was "no reading of [the balance sheet and email] which could see them as implicitly addressed to all creditors of AMLG" and that, to the contrary, those documents "are addressed to a specific and discrete class of creditors, namely those who were both shareholders of, and lenders to, AMLG".
The financial statements were unquestionably delivered to Mr Hashman, who also received the email. It has long been the law that the question to whom an acknowledgement is made, for the purposes of s 54 and cognate legislation, is not approached narrowly. I shall follow the course adopted by the parties and pass over the considerable body of law developed at common law, and on the various statutes modifying that body of law, noting only that much is illuminatingly reviewed by Lord Sumner in Spencer v Hemmerde [1922] 2 AC 507 at 520-535. For present purposes, it suffices to start with the statement by Wilson J (with whom Murphy J agreed) in The Stage Club Ltd v Millers Hotels Pty Ltd (1981) 150 CLR 535 at 566 that "this is an area where flexibility in approach is evident". Wilson J relied on the broad approach taken in Hipworth v Mahar (1952) 87 CLR 335, where the joint judgment of Dixon CJ, Webb and Fullagar JJ reviewed the effect of an acknowledgement to a particular creditor in a bankrupt's statement of affairs, and went on to say at 344:
"[I]t is made with the intention that it shall be communicated to the creditor and for the purpose of enabling a compromise of rights as between all creditors. Having that intention and that purpose, it is fairly and properly regarded as a statement made to each and every creditor: 'I admit to you that I owe you so much, and I inform you that I owe so much to so many other creditors'. This view represents, as Sir Edward Sugden said, 'a just and fair construction of the statute'."
The reference to Sir Edward Sugden (at that time the future Lord St Leonards was Lord Chancellor of Ireland) was to his decision in Blair v Nugent (1846) 9 Ir Eq Rep 400; 3 Jo & Lat 658. The last point debated in Blair v Nugent was whether an acknowledgement contained in the debtor's answer to a bill brought by one of two creditors was an acknowledgement on which the other creditor could rely. It was in that context that the Chancellor (as reported in the Irish Equity Reports) said:
"Then the question is, whether it is an acknowledgment to the party or his agent? The cases show that the Court has not held itself bound within narrow limits as to the nature of the acknowledgment. It may be made in a schedule or affidavit or answer. It may be said that an answer is addressed to the Court and not to the party or his agent. But the Courts have put a liberal construction on the statute, which meant that the claim should not be barred where the party had really acknowledged it. The objection here is of a technical nature. John Ardill [the other creditor] was a party to the suit. The bill was filed for the whole demand on behalf of the plaintiff and his co-salvager. The money was advanced in one sum which was received by the lessor, and the suit was for the benefit of the plaintiff and the other party who had advanced the money. It appears to me therefore on principle and authority that this is a sufficient acknowledgment in writing to save the bar of the statute. I must, therefore, overrule the exception."
The High Court in Hipworth v Mahar reproduced, with evident approval, what they described as the "high authority" of the same passage, as reported in Jones and La Touche's reports:
"The next question is whether it is an acknowledgment 'to the person entitled thereto or his agent'. The cases show that the Court has not, in that respect, restricted itself within narrow limits. If it be made in a schedule, affidavit or answer, it is sufficient, although it may be said that in these cases it is made to the Court and not to the party. The decisions are, I think, right. They proceed upon a liberal, but yet a just and fair, construction of the statute."
Whichever report be more authoritative, it is clear that no narrow approach is to be taken to determining whether an acknowledgement is made to the creditor.
There is a question whether the debtor's intention can play a part in confining the effect of an acknowledgement. Wilson J rested his judgment in The Stage Club Ltd on the proposition that "the absence of an intention on the part of the debtor to communicate to the creditor or his agent is immaterial so long as the document is actually delivered to him": at 566. Wilson J went on to say that such an intention could in any event be inferred, which was the approach adopted by Gibbs CJ (dissenting) at 548. Brennan J also dissented, and appears to have required an intention on the part of the debtor (see at 579). Murphy J agreed with Wilson J, but the third member of the majority, Aickin J, did not express a view on this issue. Consistently with the different approaches in The Stage Club Ltd, it has been said that "it is sufficient that the debtor intends that it be communicated to the creditor or the creditor's agent as an admission of the debt": Giacci v Giacci Holdings Pty Ltd [2010] WASCA 233 at [37].
In all these cases, "intention" must be taken as a reference to the objectively manifested intention, no different from the position in contract or trust. As it was put in Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26 at [53], the question to be answered is "What is the meaning of what the parties have said?", rather than "What did the parties mean to say?" One does not search for the uncommunicated subjective motives or intentions of the debtor: cf Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95; [2002] HCA 8 at [25] and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [40].
It is tempting to proceed on the basis that intention is irrelevant, as Lord Sumner did following his review in Spencer v Hemmerle, for:
"the only practical point now is the unconditioned and uncontrolled character of the acknowledgment, and not its intention in truth or its novelty as a fresh cause of action in law."
However, this point was not argued in this appeal, and for the reasons which follow, it is not necessary for its disposition.
It is sufficient to observe that, given the broad approach to the provision, even if it is necessary to find an objectively manifested intention that the acknowledgement be made to Mr Hashman in his capacity as controller of Claireleigh, such an intention is present. Any other conclusion would be artificial, and would sit ill with the finding that Mr Hashman was Claireleigh's alter ego. Indeed, although it was not put in this fashion, I cannot see how one could construe either the balance sheet or the email as having been sent to Mr Hashman solely in his capacity as shareholder. Once it be assumed that the lender was Claireleigh, how could one impute an intention to the effect that the documents were not to be regarded as an acknowledgement of indebtedness made to Mr Hashman as controlling mind of Claireleigh?
AMLG also submitted that the failure of the balance sheet and email to refer to Claireleigh took those documents outside the scope of s 54:
"On the assumption that Claireleigh is a creditor of AMLG, its debts are not referred to in either of the [balance sheet and email], only those of Mr Hashman.
It is respectfully submitted that the only party who can rely on the [balance sheet and email] is Mr Hashman as the only Respondent who is both a creditor and shareholder of AMLG".
This second submission, although framed in terms of the identification of the creditor in the acknowledgement rather than its recipient, overlaps with the first, and may be resolved similarly. The words "loans to Shareholders" cannot bear their literal meaning. I see no reason to read them as confined to loans made by Shareholders personally, and excluding loans made by companies which are the alter ego of a shareholder. Nothing in the email detracts from that conclusion; I do not read Ms Holland as distinguishing payments made by Mr Hashman personally on his own account as opposed to payments caused to be made by Mr Hashman from companies controlled by him.
Further, if ALMG's submission were to be accepted as to how the balance sheet is to be read, then (on the assumption that Claireleigh is the lender) the accounts would not give a fair presentation of the company's financial position, and that is something not lightly to be inferred. There is commonly good reason for a private company's balance sheet to distinguish non-current indebtedness to shareholders from other non-current debt owed to external lenders. It is often important to know the total amount of non-current liability of the company to shareholders, as opposed to arms-length lenders, so as to understand the extent to which the company's funds are at risk of being called on to repay other shareholders. The enthusiasm of a third party lender to demand repayment which may lead to the winding up of the company may be very different from the enthusiasm of a lender who is also a shareholder, especially if the lender is also a director who has certified that the company is solvent. For those reasons, it would be quite artificial in a balance sheet which distinguishes shareholder debt from other debt to regard a loan from Mr Hashman's company Claireleigh as being anything other than shareholder debt.
There is also authority supportive of that conclusion. Care must be taken, because the decisions are numerous, and cannot all be reconciled. Nevertheless, in Hartley v Wharton (1840) 11 Ad & El 934; 113 ER 669, the acknowledgement in the debtor's hand specified neither the sum nor the creditor. It was merely a note, given to the creditor's agent who had called upon the debtor at home, as follows:
"Sir - I am sorry to give you so much trouble in calling, but I am not prepared for you; but will without neglect remit you in a short time. Yours respectfully, Frederick Wharton."
It was submitted that the note could not be relied on as an acknowledgement because it neither named the creditor nor the amount of the debt. The Court of Queen's Bench, sitting en banc, confirmed that it sufficed, and that the amount of the debt and the identity of the creditor could be proven otherwise. Lord Denman CJ said that "The mischief to be provided against was, not the want of particularity as to the sum, but looseness of proof as to the fact of acknowledgement": at 938; 670. Littledale J said that "it is not necessary that the creditor should be named in the writing": at 938-9; 671. Patteson J said that it was sufficient that the writing was signed by the debtor, so long as other evidence could show that it referred to the debt on the record: at 939; 671. Coleridge J's agreement was more reluctant:
"Here we have a ratification expressing neither date, nor the name of the party to whom it is made, nor the debt for which it is made. But, it is said, there being express decisions that the name and amount need not be specified, we now may as well go on and dispense with the date. It is with very great regret that I find myself bound to decide so, in conformity with the authorities" (at 941; 671).
If it is not necessary for the acknowledgement to identify the name of the lender or the amount of the debt, how can an acknowledgement which identifies the name of the controlling mind of the lender and the debt owed fail to engage the statute?
For those reasons, I agree that the primary judge was correct to conclude that ALMG's limitation defence failed, even if Claireleigh was the lender.
Two questions of costs arise. The first is ALMG's contention that even if it fails on its limitation defences, the costs discretion miscarried and should have reflected Mr Hashman's late joinder. It was said that the Court should infer that not joining Mr Hashman was a considered forensic decision.
Once again, I see no reason to reach a concluded view on the identity of the lender in order to determine this aspect of the appeal. The additional costs attributable to the late joinder of Mr Hashman are negligible. The debtor failed in its defence. There is no error in costs following the event.
In relation to the costs of the oppression suit, leave is required, and there is good reason not to grant leave. It was conceded, very properly, that no question of principle arose. It was asserted that there was merely a significant injustice. The amount of that injustice is not established by the evidence, but let it be assumed that it is significant. The gravamen of the complaint is that from 19 June 2015 until the trial some 18 months later, the only issue was as to price of the purchase of shares, and that Mr Hashman's price was for the large majority of litigation very substantially in excess of what was ordered while Ms Holland's price was quite close to what was ordered.
It is true that Ms Holland was right to assert, and Mr Hashman was wrong to deny, that the value of the shares was relatively small. But the difficulty is that the materials available to this Court do not provide details of the (evidently complex) procedural history of the litigation, which both sides acknowledged involved a series of interlocutory applications in which it was said (without opposition) that Mr Hashman was substantially successful. This Court could not, if leave were granted, re-exercise the discretion as to costs in a meaningful way, and, as was acknowledged in submissions in reply, the applicant for leave bore the onus of placing before the Court all that was sufficient to do so. It is on this basis that I would refuse to grant leave.
Finally, I would echo the acknowledgement made by the primary judge at [13] of the assistance provided by the economical and efficient conduct of the case by counsel on both sides, who appeared in this Court as well as below. The orders proposed by White JA should be made.
WHITE JA: This is an appeal from a judgment and orders of Brereton J (the primary judge) of 7 December 2016 in favour of the second respondent, Mr Ian Hashman, against the appellant (AMLG) and from a costs order made on 1 May 2017. There is also an application for leave to appeal from costs orders made on 1 May 2017 in related proceedings.
The primary judge gave judgment in favour of Mr Hashman in the sum of $329,094.66. This sum comprised ten advances made to AMLG between 12 July 2006 and 25 June 2009 that totalled $269,726.49 and interest. His Honour found that the principal amounts had been lent to AMLG by Mr Hashman.
The majority of the funds advanced were paid from a bank account of Claireleigh Holdings Pty Ltd (Claireleigh Holdings). Mr Hashman was the sole director and shareholder of Claireleigh Holdings. It was the trustee of a trust known as the Claireleigh Trust. The primary judge described Claireleigh Holdings as Mr Hashman's alter ego.
Claireleigh Holdings commenced proceedings in the District Court on 25 June 2015 claiming payment of a principal sum of $300,587.81. Claireleigh Holdings' statement of claim was verified by Mr Hashman as its sole director. Claireleigh Holdings alleged that pursuant to an oral agreement between Mr Hashman as sole director on behalf of Claireleigh Holdings and Ms Mandy Holland and/or Mr Hashman in their respective capacity as directors of and on behalf of AMLG, Claireleigh Holdings agreed to lend moneys to AMLG and/or to make payments for and on its behalf in relation to its business activities. As at 25 June 2015, being the date of filing of the statement of claim, prima facie the causes of action for money lent were barred by s 14 of the Limitation Act 1969 (NSW) in respect of all of the advances claimed by Claireleigh Holdings, save for a last advance of $40,000 on 25 June 2009. In the circumstances of this case the cause of action for recovery of the moneys lent ran from the date of the advances (Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 566; [1956] HCA 51; Ogilvie v Adams [1981] VR 1041 at 1043). Such causes of action are not maintainable if brought after six years running from the date on which the causes of action first accrued (s 14). Claireleigh Holdings pleaded that the bar was postponed by reason of s 54 of the Limitation Act by AMLG's having confirmed the cause of action. Section 54 relevantly provides:
"54 Confirmation
(1) Where, after a limitation period fixed by or under this Act for a cause of action commences to run but before the expiration of the limitation period, a person against whom (either solely or with other persons) the cause of action lies confirms the cause of action, the time during which the limitation period runs before the date of the confirmation does not count in the reckoning of the limitation period for an action on the cause of action by a person having the benefit of the confirmation against a person bound by the confirmation.
(2) For the purposes of this section:
(a) a person confirms a cause of action if, but only if, the person:
(i) acknowledges, to a person having (either solely or with other persons) the cause of action, the right or title of the person to whom the acknowledgment is made, …
…
(4) An acknowledgment for the purposes of this section must be in writing and signed by the maker.
(5) For the purposes of this section a person has the benefit of a confirmation if, but only if, the confirmation is made to the person or to a person through whom the person claims.
(6) For the purposes of this section a person is bound by a confirmation if, but only if:
(a) the person is a maker of the confirmation
…"
The primary judge noted that the confirmations relied upon were AMLG's financial report for the year ended 30 June 2009 and an email dated 2 December 2010 from Ms Holland to Mr Hashman which attached the shareholder loan account ledger of AMLG. So far as Claireleigh Holdings' claim was concerned, the relevant alleged confirmation was a statement in AMLG's financial report for the year ending 30 June 2009. The directors of AMLG, being Ms Holland and Mr Hashman, signed the financial statements as directors of AMLG. The balance sheet as at 30 June 2009 listed under the heading "Non-Current Liabilities" the following:
"Loans to Shareholders 374,151.35"
The expression "Loans to Shareholders" was clearly a mistake because what were described were liabilities, not assets.
It was established that the sum of $374,151.35 included the advances that were the subject of Claireleigh Holdings' claim.
The financial statements were signed by the directors on 24 July 2009. There is no dispute that the financial statements were capable of being a sufficient confirmation of AMLG's debt, notwithstanding that the balance sheet spoke of the position as at 30 June 2009 and not as at the date of the directors' signing the declaration, and notwithstanding that in signing the financial statements the directors were complying with their statutory obligations as directors (Stage Club Ltd v Millers Hotels Pty Ltd (1981) 150 CLR 535; [1981] HCA 71) ("Stage Club"). If the entry in the balance sheet were a confirmation of a debt owed to Claireleigh Holdings, that the confirmation was made to Claireleigh Holdings. Mr Hashman, who was the sole director of Claireleigh Holdings, received the financial statements signed by both himself and Ms Holland. They were the sole shareholders of AMLG so no issue arose about Mr Hashman's acting as both a director of AMLG and receiving the confirmation as director of Claireleigh Holdings (In re Gee & Co (Woolwich) Ltd [1975] Ch 52 at 71).
AMLG contended that the balance sheet did not include a confirmation that the debt sued for was owed to Claireleigh Holdings. It was only a confirmation that the debt was in respect of a loan "from" a shareholder and Claireleigh Holdings was not a shareholder.
The proceeding in the District Court (the loan proceeding) was removed to the Supreme Court and was heard in conjunction with proceedings between Mr Hashman and Ms Holland for relief under s 233 of the Corporations Act 2001 (Cth) in respect of the affairs of AMLG. This latter proceeding has been called the oppression proceeding.
On 31 October 2016 an amended statement of claim was filed in the loan proceeding. Claireleigh Holdings was removed as plaintiff and Claireleigh Mosman Pty Ltd (Claireleigh Mosman) was substituted as plaintiff. The amended statement of claim says that it was filed pursuant to leave given by Brereton J on 10 October 2016, although the order granting leave was confined to adding a claim for interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW). In the oppression proceedings an order had been made by consent on 27 November 2015 that in the loan proceeding Claireleigh Mosman be substituted for Claireleigh Holdings. I infer that the reason for Claireleigh Mosman's being joined as a plaintiff in place of Claireleigh Holdings was that in about July 2012 Mr Hashman, as appointor, changed the trustee of the Claireleigh Trust to Claireleigh Mosman. No issue has been taken in respect of that change. In his affidavit of November 2015 Mr Hashman deposed that no deed of change of trustee had been executed or registered. But there was no dispute that Claireleigh Mosman could recover any debt that was recoverable by Claireleigh Holdings. I assume that a deed of appointment of Claireleigh Mosman as new trustee was ultimately registered so that the assets held by Claireleigh Holdings on the trusts of the Claireleigh Trust became vested in Claireleigh Mosman (Trustee Act 1925 (NSW) s 9).
Where it is unnecessary to distinguish between Claireleigh Holdings and Clareleigh Mosman I will refer to the relevant party as Claireleigh.