Judgment - EX TEMPORE
Revised from transcript; issued 21July 2020
This is my third judgment in these proceedings. My first judgment was delivered on 26 September 2019: Baba v Sheehan [2019] NSWSC 1281. My second judgment was delivered on 30 April 2020: Baba v Sheehan (No 2) [2020] NSWSC 468. I will refer to those judgments as "J1" and "J2" respectively. Abbreviations used in those judgments are also used in this judgment.
My first judgment dealt with the principal claim and also set out my conclusions on the cross-claim. My second judgment dealt with the accounting which I have found was required for the purpose of the cross-claim: see J2 [2]-[4]. I set out my conclusions on the accounting issues and stood the proceedings over for seven days to allow the plaintiff to bring in a minute of order giving effect to the judgment and dealing with costs. I had, in my principal judgment, dealt with the costs down to 26 September 2019. The costs referred to were, it is agreed between the parties, the costs of the cross-claim since that date.
The process of drawing up a minute of order was protracted. There was a change in Silktote's accountancy firm. On 2 June Silktote's minute of order was provided. There was then a further delay while the Babas considered their response. On 3 July the Babas' solicitor filed a notice of motion for leave to reopen so as to rely on further affidavits of Mr and Mrs Baba sworn 1 July. The matter was then fixed for hearing before me today.
In accordance with my conclusions in the second judgment, the accounts for the trust for the relevant years have been restated. The restated accounts were provided in summary form to the Court. There was no submission from the Babas that they did not reflect the conclusions reached in my second judgment as it currently stands.
As noted in J2 [73], there is a loan account between Mrs Baba and the trust. The effect of the restatement is to reduce the amount owing by the trust but Mrs Baba remains in credit. No judgment is therefore sought against her and she has not sought any judgment in her favour. Accordingly, there is no need for any order on the cross-claim against her in these proceedings.
As against Mr Baba, judgment is sought for the amount of the "salary sacrifice" payments made by the trust on his account in the 2017 financial year. There were two components to those payments: the proposed cash-out of long service leave in October 2016 (see J2 [43]), and the "normal" salary sacrifice (see J2 [42]).
In J2 [32], I recorded the salary sacrifice payments made to Mr Baba in the 2017 financial year as $28,032. The amount now claimed is less than that. It is made up of $6,400 for the purported long service leave cash-out and $18,128 for "normal" salary sacrifice. The latter figure is made up of seven payments made between 7 December 2016 and 20 June 2017. Silktote also claims interest from the respective dates of payments of these amounts which, calculated to 31 May 2020, totalled $4,303.42.
In my second judgment I was prepared to accept that salary sacrifice payments made to Mr Baba prior to October 2016 were authorised by Mr Sheehan and thus by all of the directors of the then trustee, SSO. But I was not satisfied that payments after that date were so authorised: see J2 [65] (concerning the long service leave) and J2 [70]-[71] (concerning the "normal" salary sacrifice).
Mr Pesman SC, who now appears for the Babas, contests both components of the claim against Mr Baba. Mr Pesman contends that the evidence which the subject of the reopening application establishes that the "normal" salary sacrifice was indeed authorised by Mr Sheehan. He does not make any such contention for the purported long service leave cash-out but says that, in fact, Mr Baba had a legal entitlement to an equivalent long service leave payment and that the net effect, by way of set off, is that nothing should be paid.
The critical piece of evidence which is the subject of the reopening application is an email from Mr Sheehan to Mr Carney and Mr Baba sent on 27 June 2017. The email stated:
Steve and Mustafa,
Should you wish to do a proportionate 'part-pay' of your salaries up to June 30 in order to achieve a salary sacrifice opportunity in this financial year I am happy for you to do so.
Under superannuation legislation the sacrificed funds need to be in your superannuation bank account by June 30. So I am happy to facilitate this requirement but you paying yourselves any time between now and COB Friday.
Mr Pesman submitted that this email made it quite clear that Mr Sheehan was content for "normal" salary sacrifice to take place in the 2017 financial year. He acknowledged that the email should have been brought before the Court at an earlier stage but submitted that, in the circumstances of the case, the dictates of justice demanded that it should now be received, especially because I have not yet delivered final judgment on the cross-claim.
Mr Pesman also submitted that Mr Sheehan should have disclosed the email himself and that the existence of the email showed that Mr Sheehan's evidence at the earlier hearing, in which he denied having authorised the payments in question, was wrong.
For his part, Mr Ireland QC, who appeared for Silktote, did not accept that the position was as clear as this. He pointed out (and Mr Pesman accepted) that the email spoke prospectively. It is clear that at the time the email was written Mr Sheehan had no idea that Mr Baba had already paid himself $18,000 or so out of the assets of the trust. Mr Ireland said that if I were to permit the reopening and the reading of the Babas' affidavits, he would require them for cross-examination and would also wish to lead further evidence from Mr Sheehan explaining the email.
The email is apparently strong evidence but it is not decisive. It does not directly authorise the payments which were, in fact, made. There may also be something in the context of the email which might negate the inference which Mr Pesman seeks to draw from it. If I were to allow the email into evidence, I could not shut Mr Ireland out from cross-examining Mr and Mrs Baba and leading further evidence from Mr Sheehan.
Mr Baba's affidavit stated that he only recently found the email on his home computer. He stated that he would have received the email on his work computer but he no longer has access to that. So much may be accepted but the evidence does not explain exactly when Mr Baba found the email nor, more importantly, does it explain how it came to his attention. Presumably he found it as a result of a search but his affidavit did not explain how and why he came to make the search. The fact is that, on any view, it has been available to him throughout the litigation.
Mr Baba did not give evidence at the hearing which resulted in my principal judgment. There may well have been tactical reasons for that; there were other claims in issue at that stage on which he might have been cross-examined. Even so, at that hearing, there was a full opportunity to tender the email and ask Mr Sheehan about it.
Nor did Mr Baba give evidence or produce the email as part of the accounting exercise which took place before my second judgment and nor did he ask for Mr Sheehan to be recalled to give further evidence. In the end I was left to deal with the accounting exercise on the papers.
In my second judgment I referred expressly to the lack of evidence about the payments in question: see J2 [52]. Yet it was not until more than two months after I delivered the judgment, and at the last moment, that the email was produced and the application came forward.
These are strong discretionary grounds against acceding to the application. They are of particular weight, given the relatively small amount involved. The case has already taken a long time to determine (and the Babas bear at least part of the burden of responsibility for that). A further belated contested hearing would be totally disproportionate to the amount at stake.
In the circumstances, I think that I must refuse the application to reopen. The result may appear hard on Mr Baba but it flows directly from the way in which his case has been conducted in these proceedings. I cannot conclude, on the material before me, that Mr Sheehan is responsible.
Similar considerations apply to the belated argument concerning long service leave. Mr Baba had ample opportunity to present his case on this point and there is no explanation whatever in his affidavit for why he did not do so. The amount of money involved is even smaller than it is for the "normal" salary sacrifice.
In these circumstances, I am not prepared to reopen the accounting exercise. Mr Baba may or may not be barred from res judicata from pursuing any claim for long service leave entitlements. But if he is not, he can do so in the Local Court.
Mr Pesman argued that even if I rejected the reopening application I should not award costs in view of the small amount for which Silktote has ultimately succeeded in the cross-claim. Mr Pesman observed that initially the amount sought in the cross-claim was over $300,000, although this did include amounts sought against Mr Carney or his company, Sedarni Pty Limited, which were subsequently abandoned as a result of a settlement. On any view, however, the amount of the judgment is very small, having regard to the time and cost involved in completing the cross-claim.
Had the cross-claim been pursued as a standalone claim in this Court, there would clearly have been adverse cost consequences for Silktote: see Uniform Civil Procedure Rules 2005 (NSW), r 42.34. But it was not pursued as a standalone claim; it was pursued by way of cross-claim as a result of proceedings initiated by Mrs Baba which were Corporations List proceedings and had to be dealt with in this Court.
There is no evidence that any offer was made by Mr Baba to resolve the remainder of the cross-claim proceedings and avoid the accounting exercise. In these circumstances, I consider that costs should follow the event. I will order Mr Baba to pay the costs of the cross-claim since September 2019. But as no order has been made against Mrs Baba, I will not make any costs order against her.
The orders I propose to make are:
Direct judgment for the cross-claimant against the second cross‑defendant for the sum of $24,528 together with interest of $4,453.18.
The second cross-defendant pay the cross-claimants' costs of the cross‑claim since 26 September 2019.
[2]
Amendments
01 December 2020 - Amend minor grammatical error.
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Decision last updated: 01 December 2020