BARRETT AJA: Mr Hillig is the liquidator of ACN 092 745 330 Pty Ltd which, for convenience, I shall call "330Co", having regard to the last three digits of both its Australian Company Number (or ACN) and its Australian Business Number (or ABN). These are respectively 092 745 330 and 39 092 745 330. [1]
Mr Hillig and 330Co sue three defendants: Mr Vince Battaglia, his wife Mrs Karen Battaglia and their family company Fellmane Pty Ltd.
The case sought to be made by 330Co as a plaintiff is, in essence, that:
1. Mr Battaglia was, at material times, a "director" of 330Co as defined by s 9 of the Corporations Act 2001 (Cth) even though he did not hold a formal appointment as a director;
2. Mr Battaglia was, at all material times, an "officer" of 330Co;
3. Mr Battaglia directed and managed the business of 330Co at material times;
4. Mr Battaglia breached statutory and fiduciary duties owed by him to 330Co by directing, authorising or otherwise causing payments totalling $1,108,277.54 to be made by 330Co to Mrs Battaglia and Fellmane in the period August 2011 to September 2013, thus causing 330Co to be deprived of those moneys;
5. Mr Battaglia is liable to compensate 330Co accordingly;
6. Mrs Battaglia was involved in breaches of duty by Mr Battaglia and
7. as to a sum $307,500, Fellmane, as a recipient of part of the $1,108,277.54, is liable to compensate 330Co.
Mr Hillig, as liquidator of 330Co, brings a separate claim by reference to s 588FF of the Corporations Act. His contention is that the payments made by 330Co to Mrs Battaglia and Fellmane were "unreasonable director related transactions" for the purposes of s 588FDA and voidable transactions for the purposes of s 588FE(6A), with the result that the court should make orders against both Mrs Battaglia and Fellmane requiring payment of money to 330Co.
[3]
Companies and their names
"SX" is an abbreviation of "Southern Cross". 330Co and the other companies about to be mentioned were associated together as members of a "group" (in a loose sense) that carried on business in the construction industry.
The period in respect of which Mr Hillig and 330Co pursue their claim is, as I have said, the period August 2011 to September 2013. The name of 330Co during that period was "SX Projects Pty Ltd". 330Co acquired that name on 1 July 2011. Before that date (and from 4 May 2010), the name of 330Co was "Southern Cross Constructions (ACT) Pty Ltd". From the time of its registration on 8 May 2000 until 3 May 2010, 330Co's name was "SX Interiors Pty Ltd".
On 20 September 2012, a new company was registered under the name "SX Projects Pty Ltd" with the Australian Company Number 160 440 111. I shall refer to that company as "111Co". The name "SX Projects Pty Ltd" was available at the time of the registration of 111Co because, on 18 September 2012, 330Co had changed its name to "SX Projects (NSW) Pty Ltd".
It is necessary to refer also to a third company (now deregistered) the Australian Company Number of which was 111 121 450. That company (which I shall call "450Co") was registered on 24 September 2004 under the name "SX Projects Pty Ltd". It ceased to have that name on 30 June 2011 when it changed its name to "Southern Cross Constructions (ACT) Pty Ltd". The company went into liquidation in 2013.
It will be clear from the foregoing that any reference to "SX Projects Pty Ltd" may be a reference to any one of three companies, depending on the time to which the reference relates. Thus, "SX Projects Pty Ltd" was:
1. from 24 September 2004 to 30 June 2011 - 450Co;
2. from 1 July 2011 to 13 September 2012 - 330Co; and
3. after 20 September 2012 - 111Co.
Conduct directly relevant to the plaintiffs' claims in this litigation is, of course, confined to conduct involving the second of these companies, 330Co. Conduct by and in relation to other companies is of indirect relevance. In addition to the companies already mentioned, it will be necessary to refer to a company called "Southern Cross Constructions Pty Ltd" which has the ACN 083 223 107. I shall call it "107Co".
[4]
The "Southern Cross group"
There are references throughout the evidence to the "Southern Cross group". Mr Battaglia gave evidence that he commenced work with the "Southern Cross group" in about 2001. He does not identify his employer with any precision.
Mr Battaglia also gave evidence that there was a restructure of the Southern Cross group on 24 September 2004 devised by Mr Lewis Yazbek, Mr Rick Yazbek and Mr Andrew Box, who were the directors of group companies. The restructure involved the creation of "the SX Projects Trust" and included the formation of 450Co of which Mr Battaglia was a director from 24 September 2004 until 21 June 2012.
Mr Battaglia further deposes that on 26 June 2008, the business of 450Co "as the Trust" was "transferred to a limited partnership known as the SX Projects LP" and 450Co "continued as the Trustee of the Limited Partnership" and "building and construction contracts were entered into in the name of the partnership". The precise import of this evidence is obscure beyond the fact that 450Co was the operating company of the "Southern Cross group".
According to Mr Battaglia's evidence, the "partnership" did not trade after June 2011. Mr Battaglia's affidavit continues:
"11 On or about 4 October 2012 I took ownership of the shares in the second plaintiff [ie, 330Co]. In or about late 2012 the Southern Cross group went into external administration. At or about that time its businesses ceased trading.
12 From about mid October 2012 until about June 2013 I traded and undertook construction work with existing and new contracts through the second plaintiff [ie, 330Co].
13 On and from about mid June 2013 I conducted businesses through a further company known as SX Projects Pty Limited (ACN 160 440 111)."
There were suggestions from the bar table that concerns to avoid the impact of "grouping" provisions of taxation legislation prompted moves to replace from time to time the operating entity that derived income and employed staff. It is not necessary to make any finding about the reason or motive within the Southern Cross group. It is sufficient to record two relevant findings: first, that 330Co took the place of 450Co as the operating entity in the Southern Cross group in about August 2011; and, second, that 111Co replaced 330Co as the operating entity in mid-2013.
The first replacement is referred to in evidence given by Lewis Yazbek. He confirmed that a transfer took place in August 2011 between the company which had relinquished the name "SX Projects Pty Ltd" shortly beforehand (that is, 450Co: see [9] above) and 330Co; that projects were transferred to 330Co; that, generally, "the company that was actually called at the time 'SX Projects Pty Ltd' was the one carrying on a building business"; that "the bulk of the banking transactions would be in the new company, not the old company"; and that receipts from owners or other people obtaining services would go into the bank account used by the transferee company from the time of the transfer.
[5]
Allegations about the payments
The payments to which the plaintiffs' claims relate are, of course, payments by 330Co. They fall into four groups. Three of the groups are delineated in schedules to points of claim:
Schedule A: payments totalling $408,541.70 allegedly made by 330Co between 19 August 2011 and 13 February 2013 out of accounts maintained by 330Co with National Australia Bank and St George Bank to a bank account held by Mrs Battaglia with Westpac (referred to for convenience as the "8040 Account" since 8040 are the last four digits of the account number).
Schedule B: payments totalling $143,500 allegedly made by 330Co between 14 November 2012 and 15 May 2013 out of accounts maintained by 330Co with NAB and Westpac to a bank account held by Mrs Battaglia with NAB and designated "Karen Battaglia ATF Stefano & Adriano Battaglia".
Schedule C: payments totalling $307,500 allegedly made by 330Co between 12 August 2011 and 12 October 2012 out of accounts maintained by 330Co with NAB and St George to a bank account held by Fellmane with NAB (designated "Fellmane Pty Ltd ATF the Vince Battaglia No 2 Family Trust").
There are twenty Schedule A payments, of which eight are said to have been made out of 330Co's NAB account and twelve are said to have been made out of its St George account. Mr Battaglia did not hold a formal appointment as a director of 330Co at the time any Schedule A payment was made.
There are seven Schedule B payments - four allegedly from 330Co's NAB account and three from its Westpac account. Mr Battaglia held a formal appointment as a director of 330Co when the last three of the Schedule B payments were made.
There are fifteen Schedule C payments, all but one of which are said to have been made out of 330Co's St George account. The remaining payment was allegedly made by 330Co's NAB account. Mr Battaglia did not hold a formal appointment as a director of 330Co at the time any Schedule C payment was made.
The fourth group of payments involves sums paid out of one of 330Co's bank accounts into the trust account of a firm of solicitors, Monardo Legal, for the benefit of Mrs Battaglia and later paid by the solicitors to her. There were three such sums:
1. $50,000 paid into the trust account on 5 September 2012 and paid out to Mrs Battaglia on 20 September 2012;
2. $50,000 paid into the trust account on 24 September 2012 and paid out to Mrs Battaglia on 4 October 2012;
3. $148,735.84 paid into the trust account on 15 October 2012 and paid out to Mrs Battaglia on 1 November 2012.
[6]
Issues
The statutory duties said by 330Co to have been breached by Mr Battaglia are the duties imposed by s 181 and s 182 of the Corporations Act, being duties to exercise his powers and discharge his duties in good faith and in the best interests of the corporation and for a proper purpose (s 181) and not to make improper use of his position to gain an advantage for himself or someone else or to cause detriment to the corporation (s 182). Mr Battaglia was subject to the s 181 duty, as against 330Co at a particular time, if he was "a director or other officer" of 330Co at that time. He was subject to the s 182 duty if he was, at a relevant time, a "director, secretary, other officer or employee" of 330Co. Because the duties are imposed by the Corporations Act, the expressions "director" and "officer, as used in the provisions creating the duties, must be construed according to the definitions of those terms in the Act itself. Because the Act contains no definition of "employee" or "secretary", those expressions are to be given their natural meanings although, in the case of "secretary", the fact that the Act makes provision in relation to the secretary of a company will no doubt be relevant to assessment of the meaning of the term. There is no allegation that Mr Battaglia was a secretary of 330Co. The duties owed by a secretary may therefore be left to one side.
To the extent that 330Co alleges breach of fiduciary duties by Mr Battaglia, it does not rely on any statutory provision. But it must, of course, show that he owed such duties. While it may readily be accepted that a company director is, because of that status, a fiduciary as against his or her company, failure to establish the status of director does not lead inevitably to the conclusion that no fiduciary duty is owed. Depending on the position in fact occupied and other aspects of the factual context, there may be scope for a finding of "fact-based" fiduciary duty. It will be necessary to consider that possibility.
The claims brought under s 588FF by Mr Hillig in his capacity as liquidator are framed by reference to provisions in s 588FDA of the Corporations Act concerning so-called "unreasonable director-related transactions". An issue raised by those provisions is whether each of Mrs Battaglia and Fellmane was, at relevant times, a "close associate" of a "director" of 330Co. The question whether Mr Battaglia was a "director" in terms of the statutory definition therefore again arises.
[7]
Mr Battaglia's evidence - role and activities
Mr Battaglia gave evidence that his role within the Southern Cross group was to act as project manager for construction projects undertaken by various companies in the group. He said that he had infrequent and intermittent conversations with Lewis Yazbek, Rick Yazbek and Mr Box about the affairs of the group generally and, because his task was to manage projects, he was generally unaware of the financial position at any given time. He did not have direct access to the accounts and had to ask the financial controller, Lakshman Karunanayake, for information when he needed to know anything about the group's finances.
Mr Battaglia also gave evidence that he generally reported to Lewis Yazbek and that he negotiated with Lewis Yazbek concerning his remuneration when there was a need for the subject to be discussed.
In his principal affidavit, Mr Battaglia deposed as follows:
"I did not cause any payments to be effected to me or any person associated to [sic] me. Those payments were effected by Lakshman as financial controller or Paul Schindler as the CFO after Lakshman ceased working for the group."
Mr Battaglia's understanding and belief, as recorded in the affidavit, are that the impugned payments were made "at the direction of the directors of the company from time to time, and in particular Lewis Yazbek". He referred to conversations from time to time about his remuneration in which Lewis Yazbek said words to the effect, "I'll make sure Lakshman puts into place the new deal we've done and you're paid on the new terms".
Lewis Yazbek gave evidence that he periodically agreed remuneration packages with Mr Battaglia and then left it to Lakshman Karunanayake to arrange not only payment but also the form of payment within the agreed limit. Mr Yazbek's position was "just make sure, however he wants it paid, it's just - it's just correct". He wanted to be sure that implementation was, as he put it, "legal" and "tax compliant". Mr Yazbek had no specific recollection of Mr Battaglia's remuneration levels for particular periods, beyond "about $500,000" for the 2011 year.
By means of his affidavit of 7 February 2016, Mr Battaglia put into evidence a number of documents concerning his employment. He did so in connection with his contention that remuneration arrangements provided a legitimate basis for the making of payments by 330Co to him and his associated entities. Because the documents are also of relevance to an understanding of Mr Battaglia's role and responsibilities, it is desirable to refer to them at this point.
[8]
Returning to the several documents exhibited to the affidavit of 7 February 2017 (and leaving to one side the curiosity that two of them - the first and last - seem to be letters written by a person to himself and that, in the former case, the signatory refers in the first paragraph to a discussion he apparently thinks he had with himself), several observations may be made about the content of the documents. The first is that most of them concern 107Co and that, to the extent, if any, that those documents may have been the source of contractual rights of Mr Battaglia, they were not rights as against 330Co. At no time did 330Co have the name "Southern Cross Constructions (NSW) Pty Ltd" (being the name of 107Co at the time of the several documents).
Secondly, in the single case in which "SX Projects Pty Ltd" appears to be a party (the letter of 1 October 2013), the circumstances that the ABN of that company is stated to be 24 180 440 111 and that, from 20 September 2012, it was 111Co that had the name "SX Projects Pty Ltd" lead to the conclusion that the offer of employment or retainer made by means of the letter was an offer by 111Co, not 330Co. Thus, if a contract resulted from acceptance of the offer, it was a contract under which the rights of the person or entity employed or retained were rights against a company other than 330Co.
Thirdly, the only document that appears to involve 330Co is the unsigned letter of 20 October 2004 expressed to be from "SX Interiors Pty Ltd". The name of 330Co on 20 October 2004 was "SX Interiors Pty Ltd" and, in the absence of any feature such as an ACN or ABN suggesting otherwise, it should be accepted that, if a letter in terms of the unsigned form of letter was ever signed by a company officer and sent, it was 330Co that communicated to Mr Battaglia the expectation that he would receive a bonus for the 2004 financial year. If 330Co did communicate that expectation, that fact says nothing about the identity of the company that was obliged to pay (or did pay) or with which any relationship of employment or retainer subsisted in October 2004 or at any other time.
Fourthly, the bundle of email correspondence says nothing explicit about the identity of the person or entity with which any relationship of employment or retainer involving Mr Battaglia subsisted. There is, however, reference to a loan "from SX Projects LP" (presumably the "limited partnership" of which 450Co was the so-called "trustee": see [13] above) as part of the overall package. No such component is included in the package communicated by Lakshman Karunanayake to Mr Donkin through the 16 August 2012 email.
[9]
Other evidence - Mr Battaglia's status and activities
As I have said, the plaintiffs' argument is that Mr Battaglia performed for and within 330Co tasks that would typically be performed by a director. They support that argument by reference to documents signed by him and actions they consider suggestive of conduct of a director. I turn, at this point, to the documents on which the plaintiffs rely.
First, there is a printout of Mr Battaglia's LinkedIn profile as at 24 July 2015. He is there described as "the founder and Director of SX Projects". The profile contains a description of his responsibilities as "Director". It is stated that under his "leadership" SX Projects has become a leading construction company in New South Wales and Queensland. Mr Battaglia is said to be responsible for "strategic management".
Second, the plaintiffs tendered email correspondence of December 2011 between Mr Battaglia and a subcontractor headed "SX Projects" in which Mr Battaglia, transmitting from the address vince@southerncrossgroup.net, placed the words "Managing Director" after his name in the sign-off.
Third, the plaintiff tendered a form of contract dated 2 March 2012 between Optima Property Developments Pty Ltd and 330Co (under its then name "SX Projects Pty Ltd") signed by Mr Battaglia above a line for "Director Signature".
Fourth, there is a letter of 9 March 2012 on the letterhead of "SX Projects Pty Ltd" carrying the ABN 39 092 745 330 signed by Mr Battaglia as "Managing Director".
Fifth, the plaintiffs rely on an affidavit in Local Court proceedings affirmed by Mr Battaglia on 2 April 2012 in which he deposed that he was "a director of the defendant ('SX Interiors')". The defendant is named as "SX Interiors Pty Ltd 092 745 330". The affidavit refers to steps taken by Mr Battaglia in proceedings to which 330Co was a party. His description of those steps suggests that he had carriage of those proceedings on behalf of 330Co.
Sixth, there is another exchange of emails with a subcontractor. The emails carry dates in May and June 2012. Two of the emails are expressed to be from Mr Battaglia as "Managing Director" of "SX Projects".
Seventh, the plaintiffs rely on a deed dated 18 June 2012 among four parties one of which is "SX Projects Pty Ltd ACN 092 745 330". Execution by that company is by the signatures of Mr Battaglia as "Director" and Andrew Box as "Director/Secretary".
[10]
The loan agreement
By means of his affidavit of 13 February 2017, Mr Battaglia put into evidence a document which he said was a loan agreement dated 1 June 2008. He deposed that he had not retained a copy of the agreement and that he was provided with a copy by Mr Yazbek on 12 February 2017.
The document annexed to Mr Battaglia's affidavit is entitled "Loan Facility Agreement". The parties of the first part are described as:
"Vince and Karen Battaglia and Ors
Contact Constructions Pty Ltd
Fellmane Pty Ltd
[address]"
The parties of the other part are described as:
"Southern Cross Project Group and Ors -
[address]
Southern Cross Constructions (NSW) Pty Ltd
SX Projects Pty Ltd & SX Interiors Pty Ltd"
The agreement provides for and regulates a "draw down facility" made available by "the Lender" to "the Borrower". It does not, however, indicate which parties are "the Lender" and which are "the Borrower". Mr Battaglia's evidence is that the parties of the one part (himself and others) were "the Lender" and the parties of the other part (including "SX Projects Pty Ltd" and "SX Interiors Pty Ltd") were "the Borrower". It may be noted that, as at 1 June 2008, 330Co had the name "SX Interiors Pty Ltd" and 450Co had the name "SX Projects" so that, according to Mr Battaglia, 330Co was one of several entities that made up "the Borrower" when the agreement was made on 1 June 2008.
The purpose of the loan is stated in the agreement to be "Capital of the Southern Cross Group". This is consistent with the Southern Cross and SX entities being the borrowers. Also, a schedule to be referred to in greater detail presently refers to Mr Battaglia and Mrs Battaglia as "Lender".
On its execution pages, the agreement appears to bear signatures of Mr Battaglia, Mrs Battaglia and Mr Yazbek, each of whom has apparently written "1.6.08" or "1/6/2008" under his or her signature. There are also signatures of Sonya Collier in two places, first as witness to the signatures of Mr Battaglia and Mrs Battaglia and then as witness to the signature of Mr Yazbek. Mr Battaglia and Mrs Battaglia are represented as having signed "on behalf of in the presence of" Ms Collier, while Mr Yazbek is represented as having signed "on behalf of in the present of" Ms Collier. No name appears after the words "on behalf of" in either place although, in the case of Mr Battaglia and Mrs Battaglia, their names and address appear above their signatures and in the case of Mr Yazbek, the names of "Southern Cross Project Group and Ors", "SX Projects Pty Ltd" and "SX Interiors" appear above his signature.
[11]
The fact that Schedule 2 thus apparently sets out the amounts of advances to be made in specified years is curious, in the light of the provision enabling the Borrower to request draw-downs and the clause requiring execution of a "summary of loans" in the form of Schedule 2 upon each advance being made in response to a draw down request.
Also curious is the fact that signatures of both Mr Battaglia and Mrs Battaglia appear in the space marked "Signed by Lender" on each of the six lines of Schedule 2. Why they should have done so is obscure, given that Clause 2.2 contemplates the creation and signing of a "summary of loans" in the Schedule 2 form upon "each advance" being made. Implementation of that procedure would involve the creation and signing, on each occasion of advance, of a document referring to each advance made up to that point. And the amounts and times of advances would depend on draw down requests made by the Borrower. The form of Schedule 2 as it appears in this document cannot be explained by reference to this process.
Reference should next be made to clause 12.18 of the agreement:
"12.18 Consumer Credit Legislation Not Applicable
Notwithstanding any provision to the contrary, this Agreement shall be construed so as not to secure payment of any moneys or the performance of any obligations by the Borrower or any Guarantor under or in respect of any contract or mortgage to which the Consumer Credit Legislation applies."
This clause must be read in conjunction with the following definition in clause 1.1:
"Consumer Credit Legislation means the National Consumer Credit Protection Act."
The National Consumer Credit Protection Act 2009 (Cth) received the Royal Assent on 15 December 2009. The Bill that became that Act was introduced into Parliament on 25 June 2009. As at 1 June 2008 (the day on which Mr Battaglia, Mrs Battaglia and Mr Yazbek purportedly signed the loan agreement), therefore, there was no Act of Parliament entitled "National Consumer Credit Protection Act"; nor had any Bill been published foreshadowing an Act of that name.
[12]
Other evidence about a loan
There is other evidence about a financial arrangement entered into in mid-2008 involving a sum of $1.3 million.
On 11 February 2009 Mr Battaglia emailed Lakshman Karunanayake as follows:
"is there anywhere in the books that 1.3m from my wife's account (Westpac loan) went into the neutral bay development,
If there is I want to transfer the loan to SX Projects and hopefully return the cash to her account in the next few weeks,
let me know what you think."
The reply emailed later on the same day was:
"On 31 July 2008 $1,300,000 was transferred from your wife's account to SXP LP & subsequently, SXP LP topped this up with another $200k & transferred $1.5 to Neutral Bay. Accordingly, SXP LP Ledger now shows a debt of $1.8m ($1.5m+$0.3m - Karim cash) as due from Neutral Bay.
On the other hand, according to SXP LP documentation prepared by Bruce on 30 June 2008 you owed SXP LP $1.5m, being the payment due from your [sic] as your capital contribution. Therefore we have treated the transfer of $1.3m from your wife's account to SXP LP account as a part settlement of the debt.
Other partners made their capital contribution on 30 June 2008 when they drew a bill in their name & transferred $4.5m to SXP LP account of which SXP LP used $3.7m to settle SXP (NSW) NAB loan.
Please let me know if this is not clear enough."
On 28 August 2008 Lakshman Karunanayake emailed Lewis Yazbek, Rick Yazbek and Mr Box as follows:
"Subject: FW: SX Project loan from Vince and Karen
Vince wants $46k in the account to cover interest $35k & charges previously debited- $21k."
Mr Box's reply of the same day was:
"Obviously we have to cover the interest payments.
As discussed no more money is to be released from this account to the borrowers, transfer whatever money is required to cover the interest."
Mr Battaglia emailed Lakshman Karunanayake at 5.40pm on 28 August 2008 in these terms:
"Further to my meeting today with the Westpac Manager could you please arrange the following monthly transaction, as per the agreement with the boys, Boxy and Lewis know about these repayments.
Interest payments as of the 1st of July
Monthly Payments on the 28th each Month- to date there are two payments to be made.
The interest to be paid should be for $1.3m to concur with the other directors loans.
The amount to cover the Westpac Loan on the 1.3m should be at 10.89% which is $13,613/ month (please check)
The account number is 732067 728040 Karen Battaglia
The fees should also be paid, as per the NAB Loan (can you tell me what this amount was)
Thanks."
[13]
The Monardo payments
The relevant page of the Monardo Legal trust account ledger is in evidence. From that it is clear that Monardo's client was Mrs Battaglia. The page is headed: "Matter #12/1121, Loan Repayment, Karen Battaglia", followed by Mrs Battaglia's address. From this, I infer that, upon receipt into the Monardo trust account, each relevant sum ceased to be within the disposition of 330Co and Monardo became bound to deal with the moneys as instructed by Mrs Battaglia. It was, in that way, her money and not 330Co's money as from the point at which the solicitors received it.
In respect of each of the three receipts into the trust account, the solicitors recorded: "Reason: Repay Loan". In respect of each corresponding payment out to Mrs Battaglia there is an entry ""Reason: Transfer funds as instructed by client".
[14]
De facto director - legal principles
Authoritative guidance on the "de facto director" concept embodied in para (b)(i) of the definition of "director" in s 9 of the Corporations Act is provided by the judgment of the Full Federal Court (Finn, Stone and Perram JJ) in Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6. The court noted (at [70]) that It has commonly been said in both Australian and English cases that to be a "de facto director" a person must be shown to have assumed or performed functions which only a de jure director or board can properly perform or which are the "sole responsibility" of a director or board. The joint judgment continued:
"This shorthand description of what is required to be established may be understandable, but it has the capacity to mislead in that it suggests that the duties or functions that can only properly be performed by de jure directors - or which are their sole responsibility - are capable of a priori enumeration. This may be possible in relation to those functions required by the Act or by the corporation's constitution to be performed by directors or by the board (assuming the directors' power of delegation has not been exercised: see s 198D of the Corporations Act and Ford's Principles of Corporations Law, vol 1, [7.264]). But when one comes to that most fundamental of functions - managing the business of the company - which in a typical "Table A" type company is entrusted to the directors (see Art 73), a priori classification has no general utility."
The point was then made that what is actually done in the field of management of business and affairs by an individual director as director will vary from company to company and according to a particular company's circumstances. Any comparison of what an alleged de facto director does with the things done by a duly appointed director must take account of such circumstances. The court added two important observations at [74] and [75]: first, that the existence of an active director or directors apart from the alleged de facto director or the fact that a properly constituted board is apparently functioning does not preclude a finding that the person in question was a director; and, second, whether the company itself has held the person out as a director will itself be a relevant but not decisive consideration which the person acts.
The court noted that the position occupied by de facto directors under English legislation differs somewhat from that in Australia and that there was a noticeable difference of opinion on the topic within the United Kingdom Supreme Court in Holland v Commissioners for Her Majesty's Revenue and Customs [2010] 1 WLR 2793; [2010] UKSC 51. Guidance, for present purposes, may however, be gained from what was said subsequently by Arden LJ in Smithton Ltd v Naggar [2015] 1 WLR 1893; [2014] EWCA Civ 939 at [33] ff under a heading "Practical points: what makes a person a de facto director?". In summary, attention may usefully be directed to:
1. whether the person has assumed responsibility to act as a director;
2. the nature of the corporate governance structure and the position the person occupies within it;
3. what the person actually did, as distinct from any job title;
4. the cumulative effect of the activities relied on, with the whole of the circumstances being looked at "in the round";
5. whether the company regarded the person as a director and held him or her out as such;
6. whether third parties considered that the person was a director; and
7. whether the person was consulted about or participated in directorial decisions.
[15]
Mr Battaglia's status - findings
I am not persuaded that the evidence, taken as a whole, supports a finding that Mr Battaglia acted in the position of a director of 330Co at any time before his formal appointment on 28 February 2013. He obviously occupied a responsible position and was a key operative for 330Co. But, to the extent that they appear from the evidence, his activities and responsibilities did not extend beyond those of a senior manager. On the few occasions on which he purported to sign as a director or managing director of 330Co, he may well have done so through carelessness or under a misapprehension as to which company was involved (he was a director of other companies). His own evidence and that of Lewis Yazbek creates a clear impression that Mr Battaglia operated under the superior authority of the two appointed directors (Lewis Yazbek and Mr Box) and that his access to and any involvement in finances was through the intermediation of Lakshman Karunanayake.
On the whole of the evidence, I do not think that it can be said that there was any holding out of Mr Battaglia as a director either by himself or by 330Co. It cannot be said that his activities extended beyond those of an active and senior manager. [3] There is some suggestion in the evidence that outsiders thought he was a "director" but what any such outsiders may have had in mind when they made any such assumption is not disclosed. [4] In particular, there is nothing to suggest that anyone believed him to occupy the position that corporations legislation classifies as "director". The term "director", used in general parlance and divorced from a company law context, connotes no more than a senior position. Thus, a chief executive officer of a gallery, museum or government department may be spoken of as the "director". [5]
On this basis (and for reasons corresponding with those of Black J in In the matter of Swan Services Pty Ltd [2016] NSWSC 1724), I find that Mr Battaglia was not, in relation to 330Co, a person within para (b)(i) of the definition of "director" in s 9 of the Corporations Act.
The next question is whether Mr Battaglia was, at material times, an "officer" of 330Co within the s 9 definition of that term set out at [36] above. As to that, the evidence shows that Mr Battaglia was, at all material times, someone who, at the least, participated in making decisions affecting a substantial part of the business of 330CO. The business involved contracting for construction projects and retaining sub-contractors to provide the necessary services. Lewis Yazbek's evidence was that Mr Battaglia made these arrangements. And Mr Battaglia, in the email of 31 October 2012, said that he had "always managed the affairs of SX Projects, developing it from strength to strength" and that he would "continue to do so".
[16]
The fiduciary question
Little has been said to this point about the claim that Mr Battaglia owed fiduciary duties to 330Co. From 28 February 2013 when he became a director, he was clearly subject to such duties. In earlier periods he was an employee, albeit a senior employee whose level of responsibility was such as to bring him within the "officer" category under the Corporations Act.
It cannot be said, as a general proposition, that an employee is a fiduciary of his or her employer. Most are not. But the position may be otherwise if the employee's seniority and duties are such as to make the employer vulnerable to adverse consequences if it becomes the victim of lack of fidelity or unfair dealing by the employee: see generally Concut Pty Ltd v Worrell (2000) 75 ALJR 312; [2000] HCA 64 at [25]-[26]; Commonwealth Bank of Australia v Barker (2014) 253 CLR 169; [2014] HCA 32. Thus, in Bayley & Associates Pty Ltd v DBR Australia Pty Ltd [2013] FCA 1341 an employee occupying a position very similar to that of Mr Battaglia was held to be a fiduciary of his employer. Foster J said (at [238]-[239])
"In the present case, Mr Huckstep occupied the position of General Manager of B&A. The only person within B&A who was senior to him was Ms Bayley herself. She, of course, was the Managing Director and one of only two directors. She was a co-owner of the company and thus the business. Mr Huckstep was, therefore, the most senior employee of B&A apart from Ms Bayley. His job description (which I have extracted in full at [79] above) makes clear that he had significant responsibility for managing both the staff and the business of B&A and, as part of being rewarded with that responsibility, had significant access to B&A's confidential information, business plans and facilities. He was virtually in the position of being a third director. Ms Bayley trusted him and had great confidence in his ability. B&A was very vulnerable to any breach by Mr Huckstep of his AWA and of his common law duty of fidelity. He was in a very significant managerial position.
In my judgment, these factors inevitably lead to the conclusion that Mr Huckstep's relationship with B&A was fiduciary in nature. In my judgment, he owed to B&A the fiduciary duties pleaded and relied upon by B&A in par 7 of the ASC."
This, in my assessment, sums up the position occupied by Mr Battaglia in relation to 330Co.
[17]
The pleaded case - s 181, s 182 and fiduciary duty
The pleaded case of 330Co under these headings is that Mr Battaglia "directed, authorised or otherwise caused" the Schedule A, B and C payments and the Monardo payments "to be made by" 330Co and that in so doing, he
1. "preferred the interests of himself, Mrs Battaglia or Fellmane over the interests of" 330Co, "was not acting in the best interests of" 330Co, breached a fiduciary duty owed by him to 330Co and caused 330Co to be deprived of the amounts of the payments; or
2. improperly used his position to gain an advantage for himself, Mrs Battaglia or Fellmane "to the detriment of" 330cCo, did not act "in good faith or in the best interests of" 330Co and caused loss to 330Co.
The defendants say that 330Co must, in the usual way, prove the several elements of the causes of action on the balance of probabilities. The plaintiffs do not disagree but point to special considerations relevant to cases of the present kind where liquidators with no first hand knowledge of relevant events seek recovery for the benefit of a company's estate. Counsel for the plaintiffs referred to the following passage (at [54]) in the judgment of Campbell J in Hawksford v Hawksford [2005] NSWSC 463; (2005) 191 FLR 173, a case concerning challenge to a solicitor's retainer:
"The distinction between an onus of proof and an onus of adducing evidence is of particular relevance in the present situation. Where party A has the legal onus of proving a negative proposition, and relevant facts are peculiarly in the knowledge of party B or where party B has the greater means to produce evidence relating to those facts, then provided party A establishes sufficient evidence from which the negative proposition may be inferred, party B then comes under an evidential burden, or an onus of adducing evidence." (citations omitted)"
In Crowe-Maxwell v Frost (2016) 91 NSWLR 414; [2016] NSWCA 46, this statement by Campbell J was seen as relevant to cases of the present kind. Beazley P said at [89] - [90] with the concurrence of Macfarlan and Gleeson JJA:
"A common thread in the uncommercial transaction cases is that, where there is limited evidence of the nature or purpose of a transaction, but the surrounding circumstances show it to be a departure from normal commercial practice and to raise inferences as to a lack of benefit to the company, detriment caused to the company, or benefit accruing to other parties, absent some commercial explanation, courts may infer the transaction was uncommercial, without requiring the liquidator to prove its precise uncommercial nature. The same may be said with respect to the identification of unreasonable director-related transactions.
In those limited circumstances, for practical purposes, a defendant may be said to bear an 'onus', sometimes referred to as an evidentiary onus, of raising some commercial explanation for the transaction."
[18]
Loan by Mrs Battaglia - commercial explanation?
I do not accept that a loan was made by Mr Battaglia or Mrs Battaglia under and governed by the supposed loan agreement of 1 June 2008. The likelihood that that document was created in 2009 or later is virtually irresistible. From the evidence referred to at [102] - [107] above, however, it may be inferred that Mrs Battaglia alone obtained loan funds from Westpac in or around July 2008 and made those funds available to the Southern Cross group. The funds were apparently needed by "SXP LP" - presumably a reference to the "limited partnership" centred on 450Co. It may further be inferred that the moneys Mrs Battaglia obtained from Westpac and somehow paid into the group were applied in satisfying some obligation of Mr Battaglia as a "partner" in relation to a project at Neutral Bay in circumstances where "other partners" had made their "capital contribution" on 30 June 2008. According to that characterisation, there may or may not have been a loan by Mrs Battaglia to some Southern Cross entity, since a capital contribution does not necessarily (but may) partake of the character of loan. On the other hand, Mr Battaglia's second email of 28 August 2008 referring to concurrence with "the other directors [sic] loans" tends to suggest that all capital contributions were in loan form. Likewise, Mr Box's email of 28 August 2008 giving instructions about covering interest payments and that "no more money is to be released from this account to the borrowers" is headed "SX Project loan from Vince and Karen".
It may also be inferred, however, that, whatever may have been the nature of the payment by Mrs Battaglia to the Southern Cross group, there was a supplementary arrangement that she should not be out of pocket for the interest and fees on the Westpac loan she had obtained in order to make the sum of $1.3 million available to the group. The supplementary arrangement is made clear by the three emails of 28 August 2008 (see [103] - [107] above).
The defendants put into evidence certain bank statements relating to Mrs Battaglia's Westpac account (referred to above as the "8040 Account"). The first is a statement for the period of three months 26 June 2008 to 25 September 2008. There is an initial credit entry of $1,377,147.58 labelled "Discount Security Transaction Commercial Bill Drawdown". On the same day, there is a record of withdrawal of $1,362,489.82 against which there is a handwritten notation "TO SXP". Among the debit entries are entries labelled "Discount Security Transaction Commercial Bill Rollover" on 28 July 2008 ($12,794.17) and 28 August 2008 ($12,808.08). A deposit of $48,633.27 on 2 September 2008 is labelled "Deposit SX Projects Pty trf to vb".
[19]
Employment of Mr Battaglia - commercial explanation?
I turn now to the Schedule B and Schedule C payments and the thesis that they are explicable by reference to Mr Battaglia's remuneration arrangements.
Each of the Schedule B and Schedule C payments is in the sum of $20,500. Each payment was made on the 12th, 13th, 14th or 15th day of a month. The fifteen Schedule C payments were made in consecutive months from August 2011 to October 2012. The seven Schedule B payments were made in consecutive months from November 2012 to May 2013. Taken together, therefore, the schedules cover 22 monthly payments of $20,500 each over the period August 2011 to May 2013. This represents payment at a rate of $246,000 per year.
Each of the fifteen Schedule C payments was made into a bank account designated "Fellmane Pty Ltd ATF the Vince Battaglia No 2 Family Trust". Each of the seven Schedule B payments was made into an account designated "Karen Battaglia ATF Stefano & Adriano Battaglia". The letters "ATF" no doubt stand for "as trustee for".
It is thus clear that, in each of the 22 months to which Schedules B and C relate, a monthly payment of $20,500 (representing an annual rate of $246,000) was made to either Fellmane or Mrs Battaglia in a trustee capacity referable to the Battaglia family. As has been seen at [56] and [62] - [64] above, an annual sum of $246,000 payable monthly apparently formed part of Mr Battaglia's remuneration arrangements at various times. Such an item was referred to in the email of 23 October 2008 giving package details for the period 1 July 2008 to 31 December 2008, in the table carrying the handwritten date "14/1/2009" and, significantly, in the email of 16 August 2012. It may therefore be inferred that, for several periods (including a period in or around August 2012), Mr Battaglia was entitled, as against the Southern Cross group, to have monthly payments of $20,500 each paid to a family trust as part of his remuneration package. Some of the package descriptions refer to the payment as a "loan" to the family trust. [8] If that was in truth its character, receipt of each payment was accompanied by some form of repayment obligation. Whether such an obligation arose is, however, unimportant for present purposes. 330Co does not sue to recover a debt arising from loans. The question material to the present dispute is whether there was a cogent commercial explanation for the movement of each monthly sum of $20,500 from the Southern Cross group to a Battaglia family trust. The clear correlation between the annual and monthly amounts contemplated by several of Mr Battaglia's salary package descriptions and the Schedule B and C payments provides such an explanation.
[20]
Decision on the pleaded case - s 181, s 182 and fiduciary duty
As is noted at [125] above, the pleaded case of 330Co under these headings centres on the allegation that Mr Battaglia "directed, authorised or otherwise caused" the Schedule A, B and C payments and the Monardo payments "to be made by" 330Co. It is then alleged that, by acting in that way, Mr Battaglia breached various duties. Having regard to my findings as to Mr Battaglia's status, the relevant duties are the s 181 and s 182 duties and corresponding fiduciary duties.
Essential to the pleaded case is an initial finding that Mr Battaglia "directed, authorised or otherwise caused" the several payments "to be made by" 330Co. Such evidence as there is about the bank accounts from which the payments were made indicates at least doubt as to the identity of the account holder, given various changes of company name. On the whole, however, it seems to me safe to work on the basis that the money in the accounts belonged to 330Co at relevant times. Evidence about authority to operate accounts is incomplete. There are documents in evidence about the NAB account and the Westpac account but none for the St George account. The Westpac document is not an account opening or account authority form as such. It is a short and cryptic document which seems to show persons authorised to operate the account as from 22 October 2013, that is, after the end of the period relevant to these proceedings. For the NAB account, there are two authority forms listing authorised signatories. One form is dated 11 July 2011, the other 30 October 2012. On the first form, Mr Battaglia is shown as one of four signatories. On the other, he is one of three signatories. In each case, however, the instruction is that two signatures are required to operate the account. Consistently with that mandate, the bank could not have paid out on Mr Battaglia's instruction alone.
The evidence does not show precisely how any of the impugned payments was initiated by or within 330Co. Any cheques by which they were made are not in evidence. Bank statement notations, to the extent that they are available, tend to suggest that internet banking facilities were used. There is nothing in the evidence to suggest that Mr Battaglia played a part in the authorising of any of the payments or the processes by which the payments were effected. Importantly, the evidence as a whole (and particularly that of Lewis Yazbek) suggests that banking operations were the responsibility of Lakshman Karunanayake and that he attended to such matters under the general superintendence of Mr Yazbek himself. Mr Battaglia's sphere of operation, confined as it was to project management and supervision of building operations, did not, of its nature, extend to proactive initiation of banking transactions or the operation of bank accounts. There were no doubt aspects of his work that necessitated the making of payments - payments to subcontractors for work done being the obvious example. But the evidence suggests that Mr Battaglia would have left it to Lakshman Karunanayake and office staff to deal with the actual making of payments.
[21]
The case under s588FF and s 588FDA
For the reason stated at [120] above, Mr Hillig's claim based on s 588FF and s 588FDA falls to be considered only in relation to the last three of the Schedule B payments (payments of $20,500 each on 14 March 2013, 12 April 2013 and 15 May 2013). These are the only payments that were made when Mr Battaglia was a director of 330Co and, for that reason, the only payments that were "close associate of a director of" 330Co (s 588FDA(1)(b)(ii)) or a person within s 588FDA(1)(b)(iii). I am satisfied that both Mrs Battaglia and Fellmane are within these descriptions.
The question posed by s 588FDA(1)(c) in relation to each of those payments of $20,500 is whether
"it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to:
(i) the benefits (if any) to the company of entering into the transaction; and
(ii) the detriment to the company of entering into the transaction; and
(iii) the respective benefits to other parties to the transaction of entering into it; and
(iv) any other relevant matter."
Section 588FDA(2) provides:
"To avoid doubt, if:
(a) the transaction is a payment, disposition or issue; and
(b) the transaction is entered into for the purpose of meeting an obligation the company has incurred;
the test in paragraph (1)(c) applies to the transaction taking into account the circumstances as they exist at the time when the transaction is entered into (rather than as they existed at the time when the obligation was incurred)."
Assessment under s 588FDA must be made separately in relation to each of the three payments of $20,500. Each is, for the purposes of the section, a "transaction of the company". The question in relation to each payment is accordingly whether, in the circumstances existing when the payment was made, it may be expected that a reasonable person in 330Co's circumstances would not have made the payment. The answer, for the reasons already given concerning Mr Battaglia's remuneration arrangements, is that it may be expected that a reasonable person in 330Co's circumstances would have made the payment.
The case under s 588FF and s 588FDA therefore fails.
I should add that if, contrary to the conclusion I have reached as to Mr Battaglia's status, he was in truth a director of 330Co at relevant times, the relief sought by reference to s 588FDA would appropriately be granted in respect of the Schedule A payments and the Monardo payments but not the Schedule B and Schedule C payments. The findings I have recorded in relation to 330Co's claims would produce characterisations for s 588FDA(1)(c) purposes leading to that result.
[22]
Disposition
The orders are as follows:
Order that the plaintiffs' claims be dismissed.
Order that the plaintiffs pay the defendants' costs of the proceedings.
[23]
Endnotes
As Brereton J recently explained in In the matter of Onesteel Manufacturing Pty Ltd [2017] NSWSC 21 at [5], every company created by registration under the Corporations Act 2001 (Cth) is, at the time of registration, allocated a distinctive nine digit number that is its "Australian Company Number". If such a company is later entered in the Australian Business Register kept under the A New Tax System (Australian Business Number) Act 1999 (Cth), it is given a distinctive "Australian Business Number" consisting of eleven digits. The last nine digits of such a company's ABN may, but need not, correspond with its ACN. Where there is such correspondence, the ABN may be used in every place in which a law of the Commonwealth administered by ASIC requires the ACN to be used: Corporations Act, s 1344.
The s 9 definition makes it clear that the "shadow director" aspect does not apply to persons such as professional advisers.
Lewis Yazbek referred to him as "general manager".
No such outsider gave evidence.
The full title of the Principal Registrar of this court is "Executive Director and Principal Registrar".
See Mark Leeming, "Equity and Statute" in P Turner (ed), Equity and Administration (Cambridge University Press, 2016), 248-257.
And whatever may be the significance of overlap with statutory duties: see Matthew Conaglen, "Interaction between statutory and general law duties concerning company director conflicts" (2013) C&SLJ 403.
There is also reference in 330Co's ledger to amounts of $20,500 as loans.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 17 March 2017
The subsequent replacement (replacement of 330Co by 111Co) is established by a number of documents. Produced to the court were several formal novation and similar documents concerning construction projects and sub-contracts in relation to which 111Co took the place of 330Co in mid-2013.
It will be convenient to refer to these three payments by 330Co as "the Monardo payments". Mr Battaglia did not hold a formal appointment as a director of 330Co when the Monardo payments were made.
The evidence by which the plaintiffs seek to make good the allegations in the points of claim is very largely documentary. The only witness in the plaintiffs' case was Mr Hillig himself. He swore two affidavits and was cross examined. He had no first-hand knowledge of events in the period August 2011 to September 2013 and had formulated his case by reference to documents and information that had come into his possession in his capacity as liquidator of 330Co.
The defendants, while putting the plaintiffs to proof regarding the making of the several payments totalling $1,108,277.54, contended that payments were made legitimately on two bases. The initial contention was that 330Co had done no more than pay sums regularly and properly payable under remuneration arrangements with Mr Battaglia - which arrangements, it was said, extended beyond the payment of salary as such. At a relatively late stage of the proceedings, the defendants added a contention that some of the payments - indeed, all of the Schedule A and the Monardo payments - were referable to a financing arrangement under which Mr Battaglia or Mrs Battaglia (or both) had obtained finance from a bank and used the proceeds to provide financial assistance to the Southern Cross group to meet a need for capital.
In his affidavit of 5 July 2016, Mr Battaglia deposed:
"The payments made respectively as set out in the Points of Claim to me, my wife Karen and Fellmane being a family company, were for salary, wages and bonuses. I directed those payments to my wife Karen and Fellmane."
Importantly, Mr Battaglia thus accepted that all the payments detailed in Schedules A, B and C to the points of claim and the Mondaro payments had been made by 330Co to him, Mrs Battaglia or Fellmane. He asserted, however, that the making of the payments was justified because they were payments of remuneration in respect of services provided by him. He also said in the affidavit of 5 July 2016 that, at all times during the period of the payments referred to in the points of claim (August 2011 to September 2013), he provided services to and worked for companies within the Southern Cross group, principally 330Co.
On 7 February 2017 (one week before the appointed final hearing), Mr Battaglia swore an affidavit to which he exhibited a number of documents relevant to his employment and the provision of his services to the Southern Cross group. He said that he had only discovered some of those documents in the previous week when going through folders containing documents related to his home loan. Others had been provided to him on 6 February 2017 by Mr Donkin, the Southern Cross group's external accountant.
In an affidavit sworn on 13 February 2017 and filed by leave on the second day of the trial, however, Mr Battaglia said that he wished to correct what he had said in the 5 July 2016 affidavit. According to his corrected version of the facts, the "majority" of the payments detailed in the points of claim were for his salary, wages and bonuses as originally deposed but, to the extent of $248,735.84, the payments were "part repayments" of moneys advanced by him and Mrs Battaglia to 330Co on 27 June 2008 under a loan agreement of 1 June 2008.
The definition of "director" in s 9 of the Corporations Act extends, by virtue of para (b)(i), to a person who is not validly appointed as a director if "they act in the position of a director". Such a person is often referred to a a "de facto director". Under para (b)(ii), the "director" definition extends to a person if "the directors of the company … are accustomed to act in accordance with the person's instructions or wishes". A person within para (b)(ii) is generally referred to as a "shadow director". [2]
It is common ground that Mr Battaglia did not hold a formal appointment as a director of 330Co before 28 February 2013. The appointed directors both before and after that date were, at varying times, Mr Lewis Yazbek, Mr Rick Yazbek and Mr Andrew Box. The position, as it emerges from ASIC records, is that the following persons held office as directors of 330Co for the respective periods shown:
Lewis Yazbek - 8 May 2000 to 24 June 2012 and 26 September 2012 to 28 February 2013.
Mr Box - 8 May 2000 to 24 August 2012 and 26 September 2012 to 28 November 2012.
Rick Yazbek - 24 August 2012 to 26 September 2012.
Mr Battaglia - 28 February 2013 to 6 September 2013.
The plaintiffs' case is that Mr Battaglia was, even before his formal appointment on 28 February 2013, a "director" of 330Co within the de facto director category recognised by para (b)(i) of the s 9 definition. They say that Mr Battaglia performed tasks that would typically be performed by a director. Reliance is placed on certain documents signed by Mr Battaglia. The plaintiffs also point to certain actions suggestive of conduct as a director. Reference is made to evidence given by Lewis Yazbek, one of the appointed directors, concerning Mr Battaglia's involvement in the business.
An alternative basis of s 181 duty is status of an "officer", that is, having regard to para (b) of the definition of "officer" in s 9:
"a person:
(i) who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or
(ii) who has the capacity to affect significantly the corporation's financial standing; or
(iii) in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or the corporation)"
In relation to the s 182 duty, a finding that Mr Battaglia was an employee of 330Co will be sufficient to ground 330Co's claim that statutory duties were owed. It is not disputed that Mr Battaglia was an employee. Regular monthly payments of salary in the sum of $8,333 were made by 330Co. The plaintiffs do not challenge those payments.
The case thus turns upon two basic questions. The first concerns Mr Battaglia's status in relation to 330Co during the relevant period. Because it is accepted that he was an employee at all material times, he was subject to the s 182 duties. Any conclusion that he was also subject to the s 181 duties at a particular time will depend on a finding that he was a "director" or an "officer". Likewise, Mr Hillig's claim based on s 588FF and s 588FDA will not succeed unless there is a finding of "director" status on the part of Mr Battaglia at the relevant time. Because there is no suggestion of formal appointment before 28 February 2013, there will be no finding that Mr Battaglia was a "director" at any earlier time unless it is found that, in terms of para (b)(i) of the s 9 definition, he acted, in relation to 330Co, "in the position of a director". There will be no finding that he was an "officer" at a time when he was not formally a director unless one of the tests in para (b) of the s 9 definition is satisfied.
The second basic question concerns the relevant payments and their nature: how they came to be made and whether some interest or corporate purpose of 330Co was served.
In approaching the several issues, it is desirable that the whole of the evidence be reviewed and that attention then be given to the questions posed by the pleaded case.
The first of the documents exhibited to Mr Battaglia's affidavit of 7 February 2017 is a letter dated 25 November 2001 on printed letterhead of "Southern Cross Constructions". The printed letterhead carries the ACN 083 223 107. The addressee of the letter is "Southern Cross Constructions (NSW) P/L" at an address in Edgecliff. The letter is marked: "Attention: Lewis Yazbek". After a heading appear the words "Dear Lewis". At the end appears:
"Yours sincerely
Southern Cross Constructions (NSW) Pty Limited
[Signature]
Lewis Yazbek
Managing Director"
The first paragraph of the letter reads:
"The following is as per our discussion and final agreement between Southern Cross and Contact Constructions."
The second document exhibited to the affidavit of 7 February 2017 is an unexecuted form of contract between Southern Cross Constructions (NSW) Pty Ltd ABN 78 083 223 107 and Contact Constructions Pty Ltd apparently attached to a covering letter of 30 August 2003 from Mr Yazbek, as managing director of Southern Cross Constructions (NSW) Pty Limited, to Mr Battaglia. The letter is on letterhead recording the ABN of Southern Cross Constructions (NSW) Pty Ltd as 78 083 223 107.
The third document is in essentially the same form as the second (a letter on letterhead of Southern Cross Constructions bearing the printed ABN 78 083 223 107 from Mr Yazbek, as managing director of Southern Cross Constructions (NSW) Pty Limited ABN 78 083 223 107, to Mr Battaglia with a form of contract attached) save that the date of the letter is 1 July 2005.
The fourth document is an unsigned letter from "SX Interiors Pty Ltd" (over the signature of "Rick Yazbek, Director") to Contact Construction Pty Ltd (marked for Mr Battaglia's attention) dated 20 October 2004 and headed "Bonus Payments". It foreshadows a bonus payment to Mr Battaglia for the 2004 financial year. The form of letter does not carry any ACN, ABN or other distinguishing feature of SX Interiors Pty Ltd beyond the corporate name (at the date in question, it was 330Co that carried the name "SX Interiors Pty Ltd").
The fifth document is in essentially the same form as the second and third save that the letter is dated 1 July 2007, the signatory to the letter is "Andrew Box, Managing Director", the printed letterhead carries only a logo and not the name, ABN or ACN of any company and the attached form of contract (to which Southern Cross Constructions (NSW) Pty Limited ABN 78 083 223 107 is expressed to be a party) bears signatures.
There follows in the exhibit to the affidavit a bundle of email correspondence in 2008 and 2009 involving Mr Donkin, the group's external accountant, Lakshman Karunanayake, the internal accountant or financial controller, and Mr Battaglia concerning remuneration. The correspondence refers to components consisting of salary to Mr Battaglia himself, a "contract fee" to Contact Constructions Pty Ltd, contributions to Battaglia Superannuation Fund, a year-end bonus and a sum "as a loan from SX Projects LP to Vince Battaglia Family Trust No 2". There is also reference to a sum which was "to remain in SX Projects LP to cover tax on loan funds at 30%".
Next in the exhibit to the affidavit comes a letter dated "31 November 2008" in the same form as the fifth document. Another like document is dated 1 July 2010. In each of these cases, the employing or retaining company is identified as Southern Cross Constructions Pty Limited ABN 78 083 223 107.
The final component of the exhibit is a letter dated 1 October 2013 headed "Amended Offer of Employment as of 1st October 2013: Directors [sic] Salary for SX Projects Pty Ltd". The letter sets out terms of employment. It is on printed letterhead of both "SX Projects Pty Ltd" (the ABN of which is shown as 24 180 440 111) and "SX Projects (Qld) Pty Ltd" (for which an ABN of 12 160 142 414 is shown). The letter is addressed to Mr Battaglia at his home address. It begins: "Dear Vince Battaglia". At the end appears:
"Yours sincerely
[Signature]
Vince Battaglia
Managing Director"
Mr Battaglia put into evidence through his first affidavit (5 July 2016) email correspondence of 16 August 2012 between Lakshman Karunanayake and Mr Donkin in which Lakshman Karunanayake set out details of Mr Battaglia's remuneration package. The particulars given are as follows:
Vince Battaglia Salary Numerations [sic] Annual Fee Instalments Amount Account Number
Contract Constructions $ 164,000.00 Monthly $ 13,666.67 082-401 - 69 520 0614
Battaglia Family Super Fund $ 25,000.00 Quarterly $ 6,250.00 082-401 - 56 301 9602
Vince Battaglia Salary $ 100,000.00 Monthly $ 8,333.33 082-401 - 82 537 2791
Family Trust No.2 - Paid from LP. $ 246,000.00 Monthly $ 20,500.00 082-057 - 82 235 1969
Total $ 535,000.00
While the documents exhibited to Mr Battaglia's affidavit do not identify any contractual relationship between him and 330Co, they do give insights into his remuneration arrangements with the Southern Cross group in the wider sense. For several of the years 2001 to 2007, there was a retainer agreement under which Contact Constructions was paid a substantial annual fee, sometimes with a bonus added. The base fee for 2001 and 2003 was $300,000. The figure for 2005 was $400,000. This rose to $500,000 in 2007. The bundle of email correspondence suggests that the basis of remuneration changed in 2008. Aggregate figures for that and each of several succeeding years were between $500,000 and $650,000 per annum. The components were, for each year, of the descriptions referred to at [56] above, with the addition a component related to the "SX Projects LP" loan.
As noted at [56] above, one of the components of the package as at 16 August 2012 was a sum of $246,000 per annum payable by monthly instalments and designated "Family trust No 2 - Paid from LP". In an email of 25 September 2008, setting out details of Mr Battaglia's package for the periods 1 July 2008 to 31 December 2008 and 1 January 2009 to 30 June 2009, Mr Donkin referred to a particular per annum sum for each period "as a loan from SX Projects LP to Vince Battaglia Family Trust No 2 - paid monthly". The sum thus described for the first of the two periods was "$74,2000" [sic]. For the second of the periods, it was $214,200.
In an email of 23 October 2008, giving package details for the period 1 July 2008 to 31 December 2008, Mr Donkin referred to:
"$246,000 per annum as a loan from SX Projects LP to Vince Battaglia Family Trust No 2 - paid monthly".
Also put into evidence through Mr Battaglia's affidavit of 7 February 2017 were two sheets each of which is generally in the form of a table as set out at [56] above. One carries a handwritten date "14/1/2009". The other appears to be an attachment to an email of 29 September 2008. In each case, there is an item labelled "Family trust No 2 - Paid from LP". In the first case, the sum is $246,000. In the second case it is $165.200. An email sent by Lakshman Karunanayake on 30 September 2008 contains a like reference to $165,200.
The eighth item is a payroll outsourcing contract the date of which is blank except for "September 2012" on its cover page but which is expressed to have a "Commencement Date" of 1 September 2012 and a "Completion Date" of 1 July 2013 - from which it may be inferred that execution took place on or about 1 September 2012. The document bears Mr Battaglia's signature as "Director" of the party described as "SX Projects Pty Ltd (ABN 39 092 745 330)"
The ninth item consists of two unsigned "position papers" dated 22 October 2012 concerning a potential merger of the Southern Cross group with a group referred to as "Icon". The several Southern Cross parties are named. One is "SX Projects Pty Ltd". The heading refers to several companies, including "SX Projects Pty Limited ACN 160 440 111 ('SXP')" and "SX Projects (NSW) Pty Limited ACN 092 745 330 ('SXNSW')". A statement as follows appears in each document:
"SXNSW and SXP are essentially controlled by Vince Battaglia. Rick Yazbek remains with both SXNSW and SXP as an employed Partner".
The tenth item is an email dated 31 October 2012 addressed "To Whom It May Concern" described in oral evidence as a press release. It refers to the then recently imposed voluntary administration of "Southern Cross Constructions (NSW)" and states that the financial affairs of "SX Projects" are separate from those of the company subject to administration. The email reads in part as follows:
"As you would also know, I have always managed the affairs of SX Projects, developing it from strength to strength - and I will continue to do so.
Whilst Lewis Yazbek and Andrew Box have long been the two directors of entities associated with the Southern Cross Group (within which SX Projects had some prior involvement) I can advise that SX Projects earlier this year became independent of the Southern Cross Group, with myself being the sole shareholder/owner of the company."
The email purports to be sent by "Vince Battaglia, SX Projects Pty Ltd".
Finally, the plaintiffs refer to the following oral evidence of Lewis Yazbek, one of the two appointed directors of 330Co at material times:
"Q. He made decisions about things like who the subcontractors were to be. Do you agree to that?
A. Yeah.
Q. And he signed them up?
A. Yes.
Q. He gave instructions to solicitors whenever there were troubles with disputes with these subbies?
A. Yeah.
Q. And he approved all their payments. Would you agree with that?
OBJECTION (PAINTER). FORM
Q. The work actually done on the building projects was generally carried out by subcontractors. Would you agree with that?
A. Standard building subcontractors?
Q. Yes, nothing unusual about it?
A. Sure.
Q. And there had to be someone in control of that process of supervising the subcontractors and making sure they were only paid what they were due to be paid. Do you agree with that?
A. Yes."
The defendants refer to aspects of the evidence which, they say, change the apparent complexion of a number of the matters upon which the plaintiffs rely.
In relation to the LinkedIn profile, the defendants point out that it was printed on 24 July 2015 and that, at that time, Mr Battaglia was the duly appointed sole director of 111Co which carried the name "SX Projects Pty Ltd". It is therefore submitted that the document does not warrant any inference that Mr Battaglia was represented to be a director of 330Co at any time relevant to these proceedings. Furthermore, Mr Battaglia gave evidence in re-examination that he did not prepare the LinkedIn entry, that it was prepared by "marketing people" and that he did not approve a copy before publication.
Regarding several of the documents appearing to be signed by him as a director or managing director, Mr Battaglia gave evidence that he was mistaken or confused, particularly about the several group entities within the overall corporate restructure. He also referred on several occasions in his evidence to "the limited partnership" (or "the LP") and to his belief that he was the "managing director" of the "limited partnership" or "LP". The evidence discloses very little about the "LP" but makes it reasonably clear that it was 450Co, not 330Co, that operated the "LP".
As to the unsigned "position papers", Lewis Yazbek gave evidence that the documents were prepared by Icon. The submission of the defendants, therefore, is that no one within 330Co controlled its content.
Mr Hillig was taken in cross-examination to a number of written contracts to which 330Co had become party during the period relevant to these proceedings. Each involved some aspect of an apparently substantial building project. The sums involved, to the extent disclosed or suggested by the evidence, ranged from about $2.5 million to about $25 million. There were nine such documents. They were dated 24 October 2011, 14 June 2012, 26 June 2012, 24 October 2012 (two documents) and, as to three, unspecified dates apparently in 2012. Execution by 330Co was, in each case, by the signatures of Lewis Yazbek and Mr Box, its duly appointed directors.
In the first of the nine documents (dated 24 October 2011), the name and description of the contracting party, as typed, was "SX Projects Pty Ltd ACN 111 121 450" and provision was made for execution under that company's common seal. In the final version, as signed, "111 121 450" is crossed out and "39 092 745 330" is substituted in handwriting, provision for the common seal is crossed out and replaced by a form of words referring to s 127 of the Corporations Act, an apparent signature of Mr Battaglia is crossed out and the signatures of Lewis Yazbek and Mr Box are appended.
Lewis Yazbek said in his affidavit that Mr Battaglia was "employed within the Southern Cross Group of companies" from about 2001 and "assisted in the performance of construction contracts for a number of entities in the Southern Cross group". In the course of cross-examination, Mr Yazbek confirmed that he himself worked full-time within the group. Asked about his day to day role, he replied:
"We had several organisations and it was the management of funds, management of staff, management of projects, tendering, reporting, quality control. Just about everything."
It was put to Mr Yazbek that if there was a dispute with a subcontractor over a payment that SX Projects Pty Ltd did not want to make, it was Mr Battaglia who was in charge of the process and he was not himself involved. Mr Yazbek replied:
"I was only involved if there was something that was a serious matter."
In the course of a series of questions about bank accounts of "companies in the group", Mr Yazbek was asked:
"Did you leave the banking affairs for the companies up to Mr Battaglia?"
The answer was:
"It was done by my financial controller ultimately."
Lewis Yazbek's evidence about the "group" was, in my assessment, evidence about each company within the "group", including 330Co.
The agreement provides for the Lender to make advances (within a Facility Limit of $1.3 million) upon requests made from time to time by the Borrower. Clause 2.2 provides:
"The Lender and the Borrower shall, upon each advance made by the Lender to the Borrower pursuant to the Facility, execute a summary of loans in the form contained in Schedule 2 to this Agreement."
The typing in Schedule 2 is in tabular form as follows:
"Summary of Advances made pursuant to Facility
Advances made by Lender to Borrower
Date of Advance Amount of Advance Signed by Lender Signed by Borrower
2009 $250,000
2010 $250,000
2011 $250,000
2012 $250,000
2013 $250,000
2014 $50,000
The focus is thus upon the way the person operates within the particular corporate governance context, the degree of autonomy exercised and the appearance (and reality) of authoritative operation as a primary level decision-maker for the company.
I find that Mr Battaglia was, in the period August 2011 to September 2013, a person who participated in making decisions that affected a substantial part of the business of 330Co and therefore an "officer" of 330Co.
In addition, I find that Mr Battaglia was, in the period August 2011 to September 2013, an "employee" of 330Co. As I have noted, there is no dispute on that issue and the plaintiffs do not challenge certain payments of salary as such.
In summary, therefore, I am of the opinion that 330Co has established a basis for pursuing claims against Mr Battaglia based on s 181 and s 182 of the Corporations Act in relation to all of the impugned payments. But because "director" status attached to Mr Battaglia only from the time of formal appointment on 28 February 2013, the claim of Mr Hillig based on s 588FDA falls to be considered only in relation to such of the payments as were made after that date, being the last three of the Schedule B payments (14 March 2013, 12 April 2013 and 15 May 2013).
There remains, however, a question about the content and scope of the fiduciary duty to which Mr Battaglia was subject. This is because the fact that he was an "officer" brings statutory duties into play and the situation thus may not be one in which "sparse statutory language" is in need of equitable supplementation. [6] It may readily be accepted, however, that whatever may be the precise delineation of the fiduciary duty, [7] it included the constraints pleaded by 330Co. It is to the pleading that I now turn.
A threshold question, therefore, is whether the circumstances surrounding the payments here in question show a departure from normal commercial practice such as to raise an inference of lack of commercial benefit to the company and whether there is some commercial explanation for what occurred.
According to the case advanced by the defendants, such explanation existed in relation to all of the Schedule A, Schedule B and Schedule C payments and the Monardo payments because of Mr Battaglia's remuneration arrangements and the loan that Mrs Battaglia had made to the Southern Cross group. The loan is put forward as the justification for the entirety of the Schedule A payments and the Monardo payments. Remuneration entitlements are advanced as the justification for the Schedule B and Schedule C payments. I consider first the matter of the loan.
Also in evidence are bank statements for Mrs Battaglia's 8040 Account with Westpac for the period 30 June 2011 to 31 December 2012. These show a clear pattern of debit entries on or about the 29th day of each month labelled "Discount Security Transaction Commercial Bill Rollover" (the amount, in each case, being roughly $11,000) and a deposit within a day or so of each debit of almost exactly the same amount with a label such as "Deposit SX Projects Pty K Battaglia", "Deposit Southern Cro to Vince Westpac", "Deposit SX Projects PL Vince Westpac" or "Deposit Southern Cro K Battaglia".
Thus, for example, a debit entry of $10,864.12 on 30 June 2011 is matched, in a general sense, by a credit entry of $10,865.34 on 5 July 2011 and a debit of $11,936.85 on 30 September 2011 is matched by a credit of $11,500 on the same day. The credit entries are often in round figures, suggesting an attempt to approximate a projected debit.
All but two of the amounts in Schedule A to the points of claim correspond precisely with amounts shown as credits in Mrs Battaglia's bank statements for the 8040 Account. The exceptions are $150,000 on 15 January 2013 and $50,000 on 13 February 2013. In addition, there are two Schedule A sums that correspond with credits in Mrs Battaglia's bank statements but are not matched by debit entries related to the bill facility. Each of these two items is for $24,000 - one dated 22 November 2012 and the other dated 21 December 2012. The dates of these latter items are inconsistent with the pattern of credits on or around the 29th day of the month.
On the basis of this evidence (and leaving aside the Schedule A items of 22 November 2012, 21 December 2012, 15 January 2013 and 13 February 2013), I am satisfied that payments were received into Mrs Battaglia's 8040 Account from 330Co on a regular monthly basis to cover her liability to Westpac for monthly charges referable to a bill facility she obtained from Westpac in June 2008. The proceeds of the bill facility were made available by Mrs Battaglia to the Southern Cross group to satisfy some form of obligation of Mr Battaglia to provide capital. That obligation arose in 2008 and was an obligation owed to "SXP LP". It related in some undefined way to a particular project referred to as the Neutral Bay development.
As to the Monardo payments which the evidence clearly identifies as loan repayments, the only rationale the evidence provides is that they were intended to be repayments of loan principal in respect of a load made by Mrs Battaglia in 2008. That rationale seems also to be applicable to the Schedule A items of 22 November 2012, 21 December 2012, 15 January 2013 and 13 February 2013.
Given that any loan made by Mrs Battaglia by means of the funds she borrowed from Westpac was in respect of Mr Battaglia's capital commitment to "SXP LP" concerning a development project at Neutral Bay as at 2008, that financing had nothing to do with 330Co (which became the operating company in about August 2011). There is no apparent commercial reason why 330Co should have made payments related to that financing. Even accepting that 330Co succeeded 450Co as the operating entity in about August 2011, there is no reason why 330Co should be taken to have assumed whatever liability 450Co then had in respect of 2008 capital funding of a project no longer in progress at August 2011. There is no cogent commercial explanation why 330Co, as distinct from 450Co or some other emanation of "SXP LP" should have provided money to Mrs Battaglia to cover monthly or other charges on her Westpac facility or to help her pay down her Westpac debt.
Much of the evidence about remuneration arrangements concerns periods before 330Co became the operating entity in about August 2011. It is clear, however, that Mr Battaglia became an employee of 330Co, rather than 450Co, when the change of operating entity occurred. Evidence about his package after the transition is consistent with continuity, including as to an element of $246,000 per annum.
For this reason, remuneration package arrangements with 330Co may be accepted as a cogent commercial explanation of the monthly payments of $20,500 to Mr Battaglia.
Mr Battaglia did not unilaterally impose either his own remuneration arrangements or the arrangement under which Mrs Battaglia was to be reimbursed in respect of her finance facility obligations to Westpac. In the latter case as regards "interest", there is clear evidence in Mr Box's email of 28 August 2008 that Mr Box was the ultimate decision-maker, while Mr Battaglia's email of the same date to Lakshman Karunanayake stated that the reimbursement arrangement was an "agreement with the boys, Boxy and Lewis know all about these repayments". It was Mr Box who decreed that Mrs Battaglia should be protected and should not be out of pocket for interest payments. In relation to Mr Battaglia's remuneration, it was Lewis Yazbek who had periodic discussions and negotiations with Mr Battaglia as to an overall figure within which components were arranged by Lakshman Karunanayake in consultation with Mr Donkin consistently with Lewis Yazbek's instruction that the package structure was to be "legal" and "tax compliant".
As to the initial question whether Mr Battaglia "directed, authorised or otherwise caused" relevant payments "to be made by" 330Co, I find (even allowing for the inference regarding the payments to Mrs Battaglia or for her benefit based on Crowe-Maxwell v Frost (above)) that Mr Battaglia did not so act in relation to any of the Schedule A, B and C payments or the Monardo payments. This is consistent with Mr Battaglia's own evidence quoted at [43] above.
Let it be assumed that, contrary to this finding, Mr Battaglia did play, in the matter of payment, the active role pleaded against him. There is then the question whether, in so doing, he preferred the interests of himself, Mrs Battaglia or Fellmane over the interests of 330Co, was not acting in the best interests of 330Co, improperly used his position to gain an advantage for himself, Mrs Battaglia or Fellmane to the detriment of 330Co or did not act in good faith or in the best interests of 330Co.
On the assumption just stated, I am of the opinion that there would be a conclusion adverse to Mr Battaglia regarding the Schedule A payments and the Monardo payments but a conclusion favourable to him in relation to the Schedule B and Schedule C payments. The reasons are those already stated in the discussion of commercial explanation. In summary, the making of the Schedule B and Schedule C payments by 330Co to Mr Battaglia was explicable by reference to a component of his remuneration package as, in effect, carried over into 330Co upon transmission of business to it by 450Co and his continuing in the service of 330Co as the successor employer. But no such explanation is available in relation to the Schedule A payments or the Monardo payments. There was no justification for the making of those payments by 330Co. That company is not shown to have had any obligation to make the payments, nor is it shown that any interest or corporate purpose of 330Co was served by the payments.
It follows that, had I been satisfied that Mr Battaglia "directed, authorised or otherwise caused" the several payments "to be made by" 330Co, I would have found that 330Co was entitled to the relief it sought in respect of the Schedule A payments and the Monardo payments, but not the Schedule B and Schedule C payments.