Callaughan v Icognition Pty Ltd [2013] ACTCA 2 | Case summary | Zoe

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Callaughan v Icognition Pty Ltd [2013] ACTCA 2 | Case summary | Zoe

The appellant registered the respondent on 19 March 2003. The appellant and his wife were the initial directors. At the time the appellant was working at a company known as Alphawest Pty Limited (earlier CVSI Pty Limited). At that time Joe Mammoliti and Nigel Carruthers-Taylor were also working at Alphawest. They, like the appellant, had begun to work at CVSI in or around 1997.
Subsequently, on 15 November 2003, Mr Mammoliti became a director of the respondent, having left Alphawest in June 2003. Mr Carruthers-Taylor left Alphawest in May 2004 and on 6 July 2004 he also became a director of the respondent. On that date the appellant’s wife ceased to be a director. The appellant left the respondent in or around May 2007 and ceased to be a director of the respondent in or around August 2007.
In the period from 2003 until May 2007, while he was a director of the respondent, the appellant drew sums of money from the respondent, which the trial judge found to have exceeded any remuneration to which he was entitled as a director. The amounts were shown in the books of the respondent as loans to the appellant.
Schedule 8 of the Constitution of the respondent provided that loans to shareholders and directors who may be associates of shareholders were subject to repayment on terms there set out. The trial judge found that loans taken before 27 April 2006 by the appellant were subject to Schedule 8 of the Constitution.
In a letter dated 2 December 2005 to the directors of the respondent (by this time the appellant, Mr Mammoliti and Mr Carruthers-Taylor), the chartered accountant who provided services to the respondent advised that loan agreements should be executed by the directors to avoid loan draw-downs being deemed to be an unfranked dividend and subject to tax. At this point the amount shown in the appellant’s loan account, as owed to the respondent, was $194,648.30.
It might be noted, at this point, that no income tax had been declared or paid by the appellant on this amount, or on its constituent drawings, he having been content to have the drawings made by him treated as loans in the books of the respondent.
On 27 April 2006 the appellant executed a written loan agreement with the respondent covering all loans from that date. Subsequently further drawings were made by the appellant. Those drawings, together with the ones referred to earlier, when interest was added, represented the amount for which judgment was ordered. The proceedings
On 27 February 2008 the respondent commenced proceedings to recover the loans which appeared in its books. In the proceedings at first instance the appellant denied his liability on various grounds. The appellant’s position in respect of which judgment was given against him was finally stated in a second further amended defence.
One contention, stated in his second further amended defence, was that “any funds received by him were by way of income and were not subject to any written agreement”. This contention was rejected by the trial judge.
Another contention was that it was agreed by the respondent, at the time the respondent was established, that the appellant would be entitled to salary and dividends in an amount no less than the income he had been receiving from Alphawest, namely $120,000 per annum. The records of the respondent did not support this contention, and it was rejected by the trial judge. Those records showed that there was an initial decision that directors would be paid a salary of $100,000, but by 20 October 2004, the directors’ remuneration had been decreased to $45,000 per year owing to the incapacity of the respondent’s financial position to support a greater level of remuneration than that.
A further contention was that, prior to the establishment of the respondent, the appellant had agreed with Mr Mammoliti and Mr Carruthers-Taylor that the appellant should be compensated in the sum of $120,000 per annum. This contention also was rejected by the trial judge. In any event, no conversations occurring prior to the establishment of the respondent could, in the circumstances of the present case as disclosed by the evidence, have denied the respondent its own right to demand payment of loans taken by the appellant from the respondent’s funds. Grounds of appeal
The grounds of the present appeal do not challenge the findings of the trial judge: · that the amounts identified by the trial judge which were taken prior to 27 April 2006 were governed by Schedule 8 of the Constitution of the respondent; · that the amounts identified by the trial judge which were taken on or after 27 April 2006 were governed by a written loan agreement; and · that all of the relevant amounts were properly recorded in the accounts of the respondent as loans to the appellant; that the loans were repayable; and that the outstanding amounts repayable (including interest properly calculated) totalled, at the time of judgment, $557,990.20.
Rather, the appeal was concentrated upon the proposition that the appellant had been denied natural justice because the trial judge had refused an adjournment to permit the appellant to call a particular witness, Mr Harwood. Mr Harwood had also worked at Alphawest (and earlier at CVSI). In an affidavit sworn on 8 June 2012, the witness recorded that he recalled a conversation during 2003 in which Mr Mammoliti forecast that the appellant would leave Alphawest to set up a new business and Mr Mammoliti and Mr Carruthers-Taylor would “follow him in due course”.
This forecast was said, on the appeal, to represent evidence of a commitment by Mr Mammoliti to join the respondent. That was said to be important because it “directly contradicted [evidence] of Mr Mammoliti on the crucial question of whether or not Mr Mammoliti had expressed an intention to join [the respondent] prior to its incorporation”. From this alleged circumstance, several things were said to follow.
First, Mr Mammoliti’s credit would be in doubt. This was important because Mr Mammoliti had been found to be a truthful witness by the trial judge, but he had denied the suggested commitment. Secondly, it was suggested that a different view would have been taken of the appellant’s credit and the question of whether the appellant had been given some guarantee about his income by Mr Mammoliti and Mr Carruthers-Taylor. The appellant’s case was “that he, Mr Mammoliti and Mr Carruthers-Taylor had jointly resolved to establish [the respondent] and that the appellant would blaze the trail for the others but not be financially any worse off as a result”.
None of these contentions can have any significance in light of the unchallenged findings by the trial judge that vindicated the respondent’s claim to repayment of loans based on the Constitution of the respondent and the written loan agreement.
Nevertheless, it was argued that a new trial was necessary to permit the evidence to be given by Mr Harwood and to overcome the denial of natural justice said to be constituted by preventing the appellant from calling Mr Harwood. The trial
The trial commenced on 5 September 2011. The first witness for the respondent (then the plaintiff) was Mr Carruthers-Taylor. During his evidence in chief Mr Carruthers-Taylor gave the following evidence: Right. And in his defence, the defendant states that a representation was made to him that he would be paid a salary of $120,000 per year. Did you make that representation to him?---No, I did not.

The evidence extracted above was directed to whether there had been any agreement amongst the appellant, Mr Mammoliti and Mr Carruthers-Taylor, before the establishment of the respondent, that the appellant would, by agreement amongst them, be entitled to draw a salary of $120,000 per annum. That was not the issue to which the evidence of Mr Harwood was directed. The proposed evidence of Mr Harwood said nothing about the question of a contemplated salary for the appellant of $120,000. Instead, Mr Harwood’s evidence was said to be relevant to a different proposition, namely that Mr Mammoliti had committed himself to leaving Alphawest and joining the respondent.
In his evidence, both in chief and in cross-examination, Mr Mammoliti repeatedly rejected this assertion, saying that he did not regard himself as having made any commitment until he actually joined the respondent in November 2003. The trial judge accepted Mr Mammoliti’s evidence that, in fact, his employment with Alphawest ceased because he was unexpectedly made redundant in June 2003, and he thereafter spent some months considering his future before then deciding to join the respondent in November 2003.
However, Mr Mammoliti showed no resistance in his evidence to agreeing that he, the appellant and Mr Carruthers-Taylor had frequently discussed the idea of setting up a separate business. Mr Mammoliti referred to it as “the dream”. The trial judge found: It was common ground between Mammoliti, Curruthers-Taylor [sic] and the defendant that in the years leading up to the defendant leaving Alphawest in 2003 they discussed the possibility of setting up an information management company through which they would operate on their own account.
The day after Mr Mammoliti concluded his evidence, the case for the respondent (the plaintiff) closed after a further two witnesses had been called and Mr Carruthers-Taylor had been briefly recalled. A short adjournment was then taken. The following exchange then occurred: HIS HONOUR: Now, Mr Callaughan, are you proposing to give evidence?

At the date of the Statement of Claim in these proceedings and at all subsequent material times, the sole directors of the plaintiff were Mr Joseppi Mammoliti and Mr Nigel Carruthers-Taylor.
By reason of the Establishment Representations the Plaintiff is now estopped from asserting any right title or interest in, or repayment of, the moneys drawn by the defendant in the period to 27 June 2006.
The content and nature of the so-called “Establishment Representations” must be borne in mind. The claim against the appellant was made by the respondent, in respect of debts owed by the appellant to the respondent. No question of estoppel against the respondent would arise (on the facts of the present case) from any conversation with Mr Mammoliti or Mr Carruthers-Taylor before the respondent was established. Before the appeal hearing, the appellant had his attention drawn to Part 2B.3 of the Corporations Act 2001 (Cth) which deals with pre-registration contracts, but at the hearing he did not assert that the facts of this case permitted reliance on those provisions such that the respondent was bound by any such contract. Suggestions of Mr Mammoliti’s commitment to joining the respondent were also therefore irrelevant to the assertion pleaded in [28] of the second further amended defence.
Furthermore, in a formal reply, the respondent expressly denied that the matters pleaded were capable of representing an estoppel. Pursuit of the matter, from an evidentiary point of view, was in the hands of the appellant from that time.
Notwithstanding the duty of a trial judge to an unrepresented litigant, the complaint by the appellant about the remarks of the trial judge in relation to the appellant’s wish to call Mr Harwood to give evidence are misconceived and without any substance. In any event, none of them touches upon the soundness of the judgment against the appellant. Conclusion
In summary: · the matters raised on appeal by the appellant do not challenge the correctness of the trial judge’s conclusion that the repayments sought by the respondents were payable under loan agreements properly executed by the appellant in 2006; and · the appellant’s claim on appeal that a new trial should be ordered because he was denied natural justice in relation to his wish to call Mr Harwood at the first trial has no substance, and must be rejected.
The appeal must be dismissed with costs. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.