(2007) 73 NSWLR 451
Warner v Hung, in the matter of Bellpac Pty Ltd (Receivers and Managers appointed) (In liquidation) (No 2) [2011] FCA 1123
Source
Original judgment source is linked above.
Catchwords
(1938) 60 CLR 336
Calverley v Green [1984] HCA 81(2007) 73 NSWLR 451
Warner v Hung, in the matter of Bellpac Pty Ltd (Receivers and Managers appointed) (In liquidation) (No 2) [2011] FCA 1123
Judgment (55 paragraphs)
[1]
Summary
These proceedings concern what has become a bitter dispute between three people who had been close friends and business colleagues for more than 35 years: the first and second plaintiffs, Brian and Jill Chetwynd, and the defendant, Glynis Rose. Without any disrespect, I shall refer to the parties by their given names and to the first and second plaintiffs jointly as the "Chetwynds".
The lack of documentation of their relationship was a sign of their deep trust in each other. Regrettably, that same lack of documentation has led to this complex and lengthy litigation. A particularly unfortunate aspect of this case is that it has marred several years of what should otherwise have been well-earned retirement years for each of the parties.
The nub of the dispute is about the ownership of a property in Armidale which has been the Chetwynds' family home (the "Armidale Property"). The Armidale Property was purchased in 1993 and, pursuant to an arrangement between the parties, Glynis was recorded as the registered proprietor. The Chetwynds contend that Glynis holds the Armidale Property on trust for them and that it cannot be sold without their consent. Glynis' case is that, in accordance with a longstanding "three way split" agreement, she holds the Armidale Property for the three of them, and that she is entitled to orders for its statutory sale over the objection of the Chetwynds, and to one-third of the proceeds. This issue was primarily ventilated during 2017 across a nine day hearing with additional hearings to resolve interlocutory disputes (the "2017 hearing").
While judgment on the 2017 hearing was reserved, the Chetwynds caused fresh proceedings to be commenced in January 2018 by Wincot Pty Ltd ("Wincot") against Glynis based on the same facts. Those proceedings alleged that the Armidale Property was held on trust for Wincot, which had been the corporate vehicle for the relationship between the parties. With Glynis' consent, these proceedings were re-opened on terms in 2018 for a further three day hearing with Wincot added as the third plaintiff (the "2018 hearing") and the Court's consideration of the 2017 hearing was suspended pending the conclusion of the 2018 hearing.
In addition to the question of the beneficial ownership of the Armidale Property, the case also expanded into a vociferous attack on Glynis' integrity and the accuracy of the accounts for Wincot which Glynis had maintained as bookkeeper. That attack extended to Wincot's longstanding external accountant, Mr William ("Bill") Herd, who provided accounting services to Wincot from the 1990s until December 2013. Brian presented a substantially reworked set of accounts that he had prepared, which he invited the Court to accept as being an accurate statement of what he said was the "true position".
In both the 2017 hearing and the 2018 hearing, Brian represented himself, his wife Jill and the third plaintiff Wincot. Mr H Stowe of Counsel appeared for Glynis.
These proceedings bear a considerable similarity to the type of case described by the former Chief Judge in Equity, Young J (as his Honour then was), in Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 at 694-695:
"Unfortunately, it very often happens in cases in this court that a person has arranged his affairs for commercial or fiscal reasons employing a particular structure, which with respect to creditors and the Government he expects to be recognized as no sham, but when it comes to a dispute with his former wife or former business associates it is not in his interests to maintain the structure and he pleads before this Court that one must not look at the structure at all but rather at the "realistic" or "practical" effect of what has happened. I do not find this sort of submission attractive. So long as the law permits people to erect structures which have meaningful legal consequences then if a person elects to erect such a structure he must take the consequences of such erection for better, for worse, for richer or poorer, in commercial sickness or commercial health."
Primarily based on Brian's own documents produced before there was any dispute between the parties, the Court is well satisfied that the arrangement between the parties was that Glynis was to hold the Armidale Property for herself, Brian and Jill and that there was no agreement that sale required unanimous consent. My note during the 2017 hearing when Brian sought to explain away those documents was that his explanations were unconvincing. A close review of those documents and of the transcript of the hearing has fortified me in that conclusion. During some of Brian's attempted explanations during the 2017 hearing I was left with the strong impression that I was not sure whether even Brian really believed them himself.
Similarly, during the 2018 hearing and after many days of seeing him present his case in Court over two years, I noted him to be a strong character, articulate and intelligent. Those very qualities made his efforts to explain accounting and other evidence that was unhelpful to his case as something he did not know about or did not understand as completely unpersuasive.
Brian's allegations against Glynis became increasingly strident. He sought to paint her as a scheming and deceptive individual who, in concert with Mr Herd and completely unbeknownst to the Chetwynds, constructed the accounts of Wincot to her own advantage and thereby breached the complete and unquestioning trust which they had placed in her. For the reasons developed in this judgment, the Court rejects that characterisation as completely unfair and inaccurate in relation to both Glynis and Mr Herd.
At the 2018 hearing, the Chetwynds relied on the evidence of an expert accountant, Mr Andrew Kirk. Mr Kirk had been retained "to look over some of the [Wincot] transactions and provide my expert opinion as to the accounting process and/or the effect of a particular book entry". Mr Kirk's evidence was of no real probative value or assistance to the Court. It made no reference to any applicable accounting standards and essayed no views on whether the accounts appeared to comply with those standards. He had not been provided with a copy of Mr Herd's evidence as to the basis of the preparation of Wincot's accounts and why Mr Herd had treated particular matters in the way he had in those accounts. Mr Herd's evidence therefore stood unchallenged by any contrary expert evidence.
With no disrespect intended, Mr Kirk's evidence was little more than informed speculation based on his interpretation of certain accounting entries. In fairness to him, his conclusions, such as they were, were understandably (and properly) qualified to the effect that something "could" be the case, or that "it did not seem unreasonable to suggest" something. Mr Kirk was not cross-examined, on the basis of an agreement between the parties that Glynis' election not to cross-examine Mr Kirk would not preclude her from submitting that Mr Kirk's evidence should not be accepted by the Court.
The Court's conclusions may be summarised as follows:
1. Glynis holds the Armidale Property on trust for each of herself, Brian and Jill in equal shares.
2. There is no agreement between the parties that the Armidale Property cannot be sold without their unanimous agreement and Glynis is therefore entitled to an order for the statutory sale of the Armidale Property unless the parties are able to agree upon some other solution before the Court makes those orders.
3. On any sale of the Armidale Property, Glynis is entitled to an adjustment in her favour of $100,679.04 for disproportionate contributions made by Glynis for the vendor finance repayments for the Armidale Property.
4. Glynis owes the Chetwynds $15,953 for dividend payments that they should have received but did not.
5. There should be a declaration that the Chetwynds are entitled to have their loan account in the books of Wincot adjusted by $53,740 being deducted from Glynis' loan account and a corresponding credit being made to the Chetwynds' loan account.
6. There is an outstanding claim by the Chetwynds for interest at Supreme Court rates on an amount of approximately $70,000 that was held for them by Glynis which she paid during the course of these proceedings. If that claim is still pressed, the Court will give directions for short written submissions to be exchanged as the point has not been the subject of argument. Those submissions will also extend to any claim made for interest in relation to any of the other amounts referred to in these sub-paragraphs.
7. Save as set out in this summary paragraph, all of the other claims brought by the Chetwynds against Glynis fail.
[2]
Procedural history
It is necessary to set out the long and complex procedural history of this litigation.
These proceedings were first commenced by summons on 30 July 2015. The proceedings were largely focussed on the beneficial ownership of the Armidale Property which was purchased through an arrangement between the parties. The Armidale Property was legally owned by Glynis, however occupied by Brian and Jill as their home. Under this summons, the Chetwynds claimed the following relief:
"1. A declaration that the Defendant holds the property commonly known as XX Balgownie Drive, Ben Venue NSW located in Lot XXX in Deposited Plan XXXXXX (Property) on trust for the First and Second Plaintiffs.
2. An order that the Defendant is to transfer the Property to the First and Second Plaintiffs for a value to be determined by the Court.
3. A declaration that the Defendant breached her agreement with the Plaintiffs.
4. Damages.
5. Costs.
6. Interest on costs.
7. Such other orders as the Court thinks necessary."
Based on this original summons, it was clear the main issue to be determined was the beneficial ownership of the Armidale Property. Despite all the subsequent vicissitudes of these proceedings, that did not change.
On 21 August 2015, the proceedings were first listed for directions before Darke J. Orders were made for evidence to be filed by the Chetwynds by 21 September 2015. At this stage, both parties had legal representation.
On 15 September 2015, the Court was informed that due to the ill health of Brian and his hospitalisation, evidence for the Chetwynds would not be filed on time.
The Court subsequently made orders on 16 September 2015 extending the time for the Chetwynds to serve any evidence, including expert evidence and also granted leave to Glynis to file a cross-claim by 18 September 2015.
On 24 September 2015, Glynis filled a cross-summons. The relief sought in the cross-summons related directly to the Armidale Property. Glynis sought an order pursuant to s 66G of the Conveyancing Act 1919 (NSW) (the "CA") that the Armidale Property be sold, trustees be appointed as trustees of the land on statutory trust for sale, and the proceeds of that sale be divided between the three beneficiaries of the Armidale Property, being the Chetwynds and Glynis.
On 28 October 2015, a further directions hearing was held before Darke J in which the timetable to prepare and file evidence was extended.
On 4 December 2015, orders were again made by Darke J setting out a timetable for the Chetwynds to serve evidence in reply.
On 5 February 2016, Darke J made orders which extended the time for the Chetwynds to serve evidence.
On 4 March 2016, Darke J made orders which extended the time for the Chetwynds to serve evidence.
On 4 May 2016, the proceedings were listed for mediation by the Equity Registrar which was to be held on 22 June 2016.
On 14 June 2016, Stevenson J made orders extending the time by which the mediation was to take place to 5 August 2016. Further orders were also made extending the time for the Chetwynds to serve their evidence, and for the matter to proceed by way of statement of claim.
On 2 August 2016, a court-annexed mediation was held before the Equity Registrar. The mediation was unsuccessful.
On 10 August 2016, the matter was stood over to allow the parties to continue settlement discussions which continued from the court-annexed mediation.
On 31 August 2016, the proceedings were again stood over at the request of the parties.
On 21 September 2016, orders were made which listed the matter before me for hearing in March 2017.
On 2 February 2017, Mills Oakley filed a notice of ceasing to act for the Chetwynds.
While the initial dispute was limited to the Armidale Property, it soon became evident that the Chetwynds sought to ventilate additional grievances.
On 16 March 2017, the legal representatives for Glynis wrote to the Chetwynds:
"To facilitate the resolution of all matters presently in dispute between the parties, we have received instructions to draft and present for your consideration an amended summons which provides for the ventilation of all claims by you against Wincot, and by Wincot against Glynis, and by you against Glynis in relation to broader partnership claims, which we understand you raised at the mediation (and expressed an intention of pressing) … If you still wish to proceed with the ventilation of all of the claims, our client is willing to consent to leave being granted to you to file and serve that amended summons."
Despite it becoming clear that there were additional issues which the Chetwynds wished to press, and the offer presented by Glynis' legal representatives to draft an amended summons, the Chetwynds did not amend their summons or provide further pleadings in relation to these additional grievances.
On 16 March 2017, four days before the hearing was set to begin, the Chetwynds served an affidavit of Brian which annexed what purported to be adjusted accounts of Wincot for the period from 1989 to 2012. These accounts did not appear to be linked to the relief sought in the summons which had initially been filed to commence the proceedings.
Following the Chetwynds serving Brian's latest affidavit which annexed the adjusted accounts for Wincot, Glynis withdrew her offer to draft the amended summons.
On 20 March 2017, what was meant to be the first day of the 2017 hearing, I invited the Chetwynds to articulate the claims which they wished the Court to decide. I was shown the disjuncture between the original summons filed by the Chetwynds and the evidence they were intending to present to the Court.
Additionally, at the time the matter was heard on 20 March 2017, I asked the Chetwynds whether Wincot should be joined as a party to the case:
"If there are Wincot questions that need to be resolved and that can be fairly resolved in the time we have available, then I will do it if the parties choose to present those issues to me."
The Chetwynds declined to add Wincot as a party.
At the conclusion of the hearing on 20 March 2017, I made the following order:
"Directs that by 9am on Tuesday, 21 March 2017, the Plaintiffs inform the Defendant in writing those particular money claims or adjustments which the Plaintiffs wish the Court to determine in this Hearing including specifying who - in the view of the Plaintiffs - the proper Claimant for each such claim is."
On 21 March 2017, the Chetwynds sent the following email to Glynis' legal representatives clarifying the claims they were bringing against Glynis (emphasis added):
"We hereby notify you in writing of the following claims and adjustments:
(a) Claim for $74,082.75 plus interest, held in the Commonwealth Bank in Coffs Harbour by the Defendant.
(b) The amount is held in trust by the Trustee - Glynis Rose.
(c) The Claimants are the First Plaintiff - Brian Chetwynd and the Second Plaintiff - Jill Chetwynd, as the sole beneficiaries.
(d) The source of the funds was the sale of the property at 10/11 Harriette St Neutral Bay in October 2010 for $430,000.00
(e) Please refer to the affidavit of Glynis Rose dated 3rd December 2015, paragraphs 79 to 91 inclusive.
Please be advised that Wincot Pty Ltd was in essence a conduit for the transactions relating to the purchase of the property in Armidale and to this extent, those transactions referenced in these proceedings, thereto should still remain part of these proceedings."
On 21 March 2017, Glynis replied to the Chetwynds' email:
"We confess to being somewhat confused by your response below, and uncertain as to what claims you seek to ventilate in the proceedings (both in your individual capacity, and on behalf of Wincot in your capacity as directors of Wincot).
However, we assume that:
1. The Plaintiffs press their claim that the Defendant holds the Armidale Property on trust for the Plaintiffs exclusively;
2. The Plaintiffs intend to press a claim for "adjustment" under section 66G in relation to the "purchase of the property in Armidale", in respect of which you state: "Please be advised that Wincot Pty Ltd was in essence a conduit for the transactions relating to the purchase of the property in Armidale and to this extent, those transactions referenced in these proceedings, thereto should still remain part of these proceedings". We remain very uncertain about what claims you contend comprise "those transactions referenced in the proceedings." There are a large number of transactions referenced in the proceedings, and we do not know which of those transactions you contend should be the subject of adjustment. However, we note that in paragraph 30 of Mr Chetwynd's affidavit dated 16 March 2017 you set out the "source of funds from which my wife and I paid for the Property". We assume that the "transactions relating to the purchase of the property" to which you refer are the transactions set out in that paragraph 30, and that there are no other "transactions" in respect of which you seek to press a claim in these proceedings;
3. The plaintiffs do not propose to press general partnership claims, unrelated to the purchase and ownership of the Armidale Property;
4. In their capacity as directors of Wincot Pty Ltd, the Plaintiffs do not intend to press claims on behalf of Wincot against the Defendant, or against Wincot.
Please let us know if our assumptions are correct. If they are not correct, please set out with specificity:
1. The party which makes the claim;
2. The party against whom the claim is made;
3. The nature of the claim;
4. Whether the claim is pressed as a:
a. Claim by the Plaintiffs against Ms Rose, in relation to the purchase and ownership of the Armidale Property, giving rise to an "adjustment" under section 66G;
b. Claim by the Plaintiffs against Ms Rose, in relation to their general partnership dealings;
c. Claim by Wincot against Ms Rose;
d. Claim by the plaintiffs against Wincot."
On 22 March 2017, leave was granted to Glynis to file an amended cross-summons. In addition to the s 66G order, she sought the following payments:
"4(c) Thirdly, payment of the following sums to the Cross-Claimant: the balance to the Trust Parties in the Trust Shares
i. $100,679, in respect of disproportionate contributions made by the Cross-Claimant (relative to the First and Second Plaintiff) in relation to repayment to Wincot Pty Ltd of amounts advanced by Wincot Pty Ltd to facilitate the purchase of the Land;
ii. $96,482, in respect of disproportionate contributions made by the Cross-Claimant (relative to the First and Second Plaintiff) in relation to repayment of vendor finance of the purchase of the Land.
d) Fourthly, the payment of the balance of the Trust Parties in the Trust Shares."
On 22 March 2017, I vacated the hearing set down between 22 and 25 March 2017, and relisted it before me for hearing in April 2017. The Chetwynds were to serve any draft amended summons by 29 March 2017.
On 4 April 2017, the Chetwynds sought leave to file and serve an amended summons which added eight additional claims. These claims were:
"3. A declaration that the Defendant has breached the trust and her agreement with the First and Second Plaintiffs in relation to the Armidale Property and that the Defendant account to the First and Second Plaintiffs for any financial benefit that she may have received as trustee of the Armidale Property, of which the particulars are:
a) A breach of trust and her fiduciary duty.
b) Using the trust property for her own financial benefit.
c) Failure to account to the Plaintiffs for the income and expenses of the trust.
4. A declaration that the Defendant held the property commonly known as 10/XX Harriette Street, Neutral Bay New South Wales being Lot X SP XXXX ("Neutral Bay Property") on trust for the First and Second Plaintiffs and the Defendant in equal shares.
5. A declaration that the Defendant has breached the trust and her agreement with the First and Second Plaintiffs in relation to the Neutral Bay Property, of which the particulars are:
a) A breach of trust and a breach of her fiduciary duty.
b) Using the trust property for her own financial benefit.
c) Failure to account to the Plaintiffs for the income and expenses of the trust.
d) Failure to act impartially and treat all beneficiaries equally.
e) An Order that the Defendant pay to the First and Second Plaintiffs, the sum of $43,872.67 being two thirds of the net amounts of the rental received for the period 1991 to 2001, plus interest at the Supreme Court rates of $222,517.40.
6. A declaration that the Defendant is holding the sum of $74,082.75 in trust for the First and Second Plaintiffs in the Commonwealth Bank Coffs Harbour NSW and the particulars are:
a) A breach of trust and a breach of her fiduciary duty.
b) Failure to pay to the Plaintiffs on demand, the monies held in trust.
c) An Order that the Defendant pay to the First and Second Plaintiffs the sum of $74,082.75 plus interest at the Supreme Court rates to the First and Second Plaintiffs.
7. An Order that the Defendant pay to the First and Second Plaintiffs the sum of $30,193.10, being monies owed by the Defendant to the First and Second Plaintiffs, of which the particulars are:
a)The sum of $3,738.66 being one third of the renovation costs paid by the Plaintiffs for the Neutral Bay Property, plus interest at the Supreme Court rates.
b) The sum of $5,437.00, being monies advanced by the Plaintiffs to the Defendant, plus interest at the Supreme Court rates.
c) The sum of $8,039.00, being one third of the rental costs paid by the Plaintiffs for the storage shed in Armidale and guaranteed to be paid by the Defendant, plus interest at Supreme Court rates.
d) The sum of $12,942.34, being one third of the rental and hire purchase costs paid by the Plaintiffs for a Xerox machine and guaranteed to be paid by the Defendant, plus interest at the Supreme Court rates.
8. That in the event that the Court determines that the Defendant holds the Armidale Property for three beneficiaries (which is not admitted) then pursuant to paragraph 3 herein, the Defendant pay to the First and Second Plaintiffs two thirds of the alleged rental received by the Defendant, the particulars of which are:
a) The amount of $47,093.33, being two thirds of such alleged rental.
b) The amount of $205,168.89, being interest at the Supreme Court rates.
9. That in the event that the Court determines that the Defendant holds the Armidale Property for three beneficiaries (which is not admitted), then the Defendant pays to the First and Second Plaintiffs the amount of $55,000.00, plus interest at Supreme Court rates, being monies paid by the First and Second Plaintiffs that should have been repaid by the Defendant, or applied to the payment of the Armidale Property.
10. That in the event that the Court determines that the Defendant holds the Armidale Property for three beneficiaries (which is not admitted), then the Defendant pay to the First and Second Plaintiffs the amount of $16,906.67, plus interest at Supreme Court rates, being divided monies owed to the First and Second Plaintiffs, that should have been repaid by the Defendant, or applied to the payment of the Armidale Property."
As can be seen, the case had evolved into much more than seeking a declaration that the Armidale Property was held on trust for the Chetwynds. However, notwithstanding that increase in the number of issues, the Chetwynds did not seek an order relating to the general accounting of Wincot or an order for the accounting of the relationship between them generally.
Glynis consented to leave being granted to the Chetwynds to file the amended summons.
I subsequently heard the matter on 4, 5, 6, 7, 26 and 27 April 2017. At the conclusion of hearing all of the evidence, I set out a timetable for the filing of written submissions and a final day to hear oral submissions.
On 5 June 2017, the Court was notified that Brian had been unwell and that he sought to extend the time for the filing of written submissions. I made an order to that effect. The written submissions provided by both parties were very extensive and detailed. The total submissions received amounted to over 320 pages and included detailed argument in relation to individual entries in Wincot's accounts.
On 24 August 2017, I heard the final oral submissions for the 2017 hearing. At the conclusion of the hearing, I reserved the Court's judgment.
On 19 January 2018, my chambers received an email stating that Wincot had commenced separate proceedings against Glynis on 18 January 2018. Those proceedings arose out of the same facts as has been the subject of the 2017 hearing. Each of the individual claims pressed in the new proceedings related to transactions which were the subject of the adjusted accounts that had been served with Brian's affidavit on 16 March 2017.
On 15 February 2018 Glynis filed a motion to stay permanently the new proceedings as an abuse of process. She argued that a new set of proceedings should not be allowed to be commenced because the issues should have been pressed during the 2017 hearing, and the Chetwynds should have added Wincot as the third plaintiff as they had been invited to do.
On 19 February 2018, the matter was bought before me for directions, where the hearing of Glynis' motion was adjourned to 5 March 2018.
On 5 March 2018, orders were made by consent reflecting a regime proposed by Glynis. The orders granted the Chetwynds leave to amend the summons to join Wincot to these proceedings and pursue the additional relief sought on behalf of Wincot. This was done on the following conditions:
1. That Wincot claim the same relief as it had pressed in the new set of proceedings;
2. A mutual release had to be signed between Wincot, Brian, Jill and Glynis releasing each other from any other claims. That release was expressed in the following terms:
"In consideration of Ms Rose's consent to the amendment referred to in paragraph 1(b) above, we hereby unconditionally agree to terms of agreement that each of:
(a) Wincot Pty Ltd, Brian Chetwynd and Jill Chetwynd (on the one hand), in any capacity, and
(b) Glynis Rose (on the other hand), in any capacity, release each other from any claims, however arising, whether or not the claims are now known by the parties, arising from any dealings between the parties, except to the extent that those claims comprise claims pressed by any party in the summons in force as at 30 April 2018 in each of Supreme Court Proceedings 2015/223303 or 2018/20283"
1. That Wincot utilise the existing evidentiary record from the 2017 hearing.
The mutual releases were to be signed by 19 March 2018. The parties were agreed that I should hear the amended claim and that in order to do so without suggestion of prejudgment, I would defer further consideration of the matters raised in the 2017 hearing until after the hearing of the claim that was to be amended to include Wincot.
A timetable was also set for the Chetwynds to put on any further evidence in relation to the new claims by Wincot:
"PLAINTIFF (BRIAN): I would like to do that, your Honour, and the reason I would like to do that, and the reason I said the end of June - I mean I did propose that I could have a substantial part of the evidence, I believe, presented to the defendant before mid-April, which is when my wife and I are going to Western Australia for some weeks.
And the issue of the expert evidence, I have had a meeting with the proposed person, who is an accounting principal of a large firm and he has taken a cursory look over some of the evidence and given me a timeframe he believes that, I think, would occupy possibly four to five weeks of backwards and forwards. It was a very brief meeting and the person is now currently overseas and won't be back until, I think, later this month. So that is when I will sit down and go through it in detail.
What I would be seeking to do, and seeking leave to do this, is to be able to present my evidence without it being guillotined once and for all.
HIS HONOUR: I think that is what everyone wants, but you have to commit to a time by which you do it.
PLAINTIFF: I have said the end of June. The reason is that that way it would be impossible for me to come back and stand before this court and ask for any extension.
HIS HONOUR: Can we just write that in big letters?
PLAINTIFF: Yes, you can.
HIS HONOUR: I am deadly serious.
PLAINTIFF: Yes, I am.
HIS HONOUR: If you are going to say 30 June and not ask for an extension, you are raising your petard and risk being hoisted on it.
PLAINTIFF: I will nail it to the mast and say the end of June is appropriate for me. I have given it a good deal of thought. We went to Coffs Harbour and had a good discussion with the solicitor, which is summed up in the affidavit."
It was ultimately agreed that the Chetwynds would have until 20 April 2018 to serve any lay evidence, and until 29 June 2018 to serve any expert evidence.
On 19 March 2018, the Chetwynds emailed Glynis:
"I refer the [sic] Short Minutes of Order dated 5th March 2018 and His Honour's Order of same.
Please be advised that in accordance with paragraph 3 therein and after much consideration we have decided not to consent to the Deed of Release as proposed in paragraph 2 a) and b).
Please note that the above statement applies to both Brian and Jill Chetwynd, as well as Wincot Pty Ltd."
On 4 April 2018 the matter was before me again for directions. Consent orders were made vacating the orders made on 5 March 2018 and provided leave to amend the summons and include Wincot as a plaintiff. Again, this was conditional upon the parties signing the mutual releases. The date for the Chetwynds to sign the release was 29 June 2018. The purpose of extending the date to 29 June 2018 was to allow the Chetwynds ample time to consider whether they wished to agree to the mutual releases and to allow Glynis liberty to oppose leave to amend if the release was not signed.
The Chetwynds also sought an extension to put on further lay evidence until 29 June 2018. This was despite the exchange which had taken place as reproduced in paragraph [56] above. Glynis consented to that extension being granted.
The Chetwynds subsequently filed a further amended summons on 4 June 2018, which added Wincot as the third plaintiff to the proceedings and incorporated the claims pressed on behalf of Wincot.
Under the further amended summons, the plaintiffs (being the Chetwynds and Wincot) also made the following additional claims:
"2. In the alternative, a declaration that the Defendant holds the property commonly known as "Kalina" XX Balgownie Drive, Ben Venue (Armidale) New South Wales 2350 being Lot XXX in Deposited Plan 755808 ("Armidale Property") on trust for the Third Plaintiff.
…
4. In the alternative, an order that the Defendant is to transfer the Armidale Property to the Third Plaintiff.
5. A declaration that the Defendant has breached the trust and her agreement with the First, Second and Third Plaintiffs in relation to the Armidale Property and that the Defendant account to the First, Second and Third Plaintiffs for any financial benefit that she may have received as trustee of the Armidale Property, of which the particulars are:
a) A breach of trust and her fiduciary duty.
b) Using the trust property for her own financial benefit.
c) Failure to account to the Plaintiffs for the income and expenses of the trust.
6. A declaration that the defendant account to the Third Plaintiff (or the Plaintiffs generally) for any financial benefits she may have received in her capacity as trustee of the Armidale Property.
…
8. A declaration that the Defendant has breached the trust and her agreement with the First, Second and Third Plaintiffs in relation to the Neutral Bay Property, of which the particulars are:
a) A breach of trust and a breach of her fiduciary duty.
b) Using the trust property for her own financial benefit.
c) Failure to account to the Plaintiffs for the income and expenses of the trust.
a) Failure to act impartially and treat all beneficiaries equally.
d) [sic] An Order that the Defendant pay to the First and Second Plaintiffs, the sum of $43,872.67 being two thirds of the net amount of the rental received for the period 1991 to 2001, plus interest at Supreme Court rates of $222,517.40.
e) In the alternative that the Defendant pay to the Third Plaintiff the sum of $65,908.00 plus interest at the Supreme Court rates.
…
11. A declaration of contravention of Section 180 (1) and (2) of the Corporations Act 2001, by the Defendant, in that the Defendant did not:
a) Act in good faith for a proper purpose and with care and diligence in respect of the books of account of the Third Plaintiff, for which the Defendant had the responsibility so to do.
b) Avoid improper use of the Third Plaintiff's information, or avoid improper use of the Defendant's' position, in that the Defendant cause or made improper and misleading entries in the Third Plaintiff's books of account and did not disclose certain interests in regards thereto.
c). Make business judgments in good faith and for proper purpose and did have or may have had a personal interest in the subject matter therein.
12. A declaration of contravention of Section 181 (1) and (2) of the Corporations Act 2001 by the Defendant, in that the Defendant did not:
a) Discharge the duties of the Defendant as a Director and act in good faith for the benefit of the Third Plaintiff and in the best interests of the Third Plaintiff (and / or the Plaintiffs generally), in respect of the Third Plaintiff's books of account and the Armidale property.
b) Act in a manner or may not have acted in a manner, so as, to not improperly use the Defendant's position as Director to gain advantage for the Defendant, to the detriment of the Third Plaintiff (and / or the Plaintiffs generally), particularly in respect of the books of account of the Third Plaintiff, taxation matters and the Armidale property.
13. A declaration of contravention of Section 182 (1) and (2) of the Corporations Act 2001, by the Defendant, in that the Defendant did have or may have:
a) Improperly used the Defendant's position as a Director and / or employee and / or Principal Accounting Officer of the Third Plaintiff in such a manner so as to gain advantage for the Defendant and / or other persons, particularly in respect of entries carried out by the Defendant in the books of account of the Third Plaintiff.
b) Improperly used the Defendant's position as a Director and / or employee and / or Principal Accounting Officer of the Third Plaintiff, in such a manner so as to gain a financial and / or taxation advantage for the Defendant, particularly in respect of the Armidale property.
14. A declaration of contravention of Section 183 (1) and (2) of the Corporations Act 2001, by the Defendant, in that the Defendant did have or may have:
a) Improperly used information obtained as a result of the Defendant's position as a Director and / or employee and / or Principal Accounting Officer of the Third Plaintiff in such a manner so as to gain advantage for the Defendant and / or other persons, to the detriment of the Third Plaintiff (and / or the Plaintiffs generally), particularly in respect of the books of account of the Third Plaintiff and the Armidale property.
b) Improperly used information obtained as a result of the Defendant's position as a Director and / or employee and / or Principal Accounting Officer of the Third Plaintiff, by providing third parties with information, in such a manner so as to gain advantage for the Defendant and / to the detriment of the Third Plaintiff (and / or the Plaintiffs generally).
15. A declaration of contravention of Section 184 of the Corporations Act 2001, by the Defendant, in that the Defendant did or may have acted with recklessness and / or intentional dishonesty by:
a) Failing to exercise the Defendant's powers as a Director, in the discharge of such duties in good faith and in the best interests of the Third Plaintiff (and / or for the Plaintiffs generally) and for a proper purpose.
b) Gaining either directly or indirectly a financial advantage and / or other advantage for the Defendant and / or a third party, which was or may have been to the detriment of the Third Plaintiff (and / or the Plaintiffs generally), particularly, but not limited to taxation gains, general financial gains, loan account gains and property gains.
c) Gaining either directly or indirectly a financial or other advantage for the Defendant and / or a third party, as a result of having and / or obtaining information and using, or may have used such information to gain an advantage for the Defendant, to the detriment of the Third Plaintiff and / or the Plaintiffs generally.
d) Causing to make and / or making improper, misleading and / or false entries in the books of account and other records of the Third Plaintiff, particularly, but not limited to cheque books, cheque butts, bank deposits and other accounting documents.
e) Causing to make, omitting to make or making false and / or incorrect statements in the financial records and annual accounts of the Third Plaintiff, particularly, but not limited to annual financial accounts, declarations of dividends. Director's annual Reports and Directors annual Notes attached to the financial records of the Third Plaintiff.
16. A declaration of contravention of Section 191 of the Corporations Act 2001, by the Defendant, in that the Defendant did not or may have not declared a conflict of interest to the Third Plaintiff and / or other Directors of the Third Plaintiff, particularly, but not limited to taxation matters, Armidale property matters, financial records and loan account matters.
17. A declaration of contravention of Section 295, 296, 297, 319, 344 and any other directly related Sections of the Corporations Act 2001, by the Defendant, in that the Defendant did not or may have not:
a) Caused and / or made and / or prepared the financial accounts of the Third
Plaintiff to be presented so as to represent a true and fair view of the Third Plaintiffs financial position and performance
b) Caused and / or made and / or prepared the financial accounts of the Third Plaintiff to be presented with all necessary Reports and Notes, as required by the various regulatory requirements.
c) Caused and / or made and / or prepared the financial accounts of the Third
Plaintiff to be presented with all necessary Reports and Notes, in accordance with and complying with the published accounting standards.
...
21. In the alternative and / or in the event that the Court determines that the Defendant holds the Armidale property on trust for the Third Plaintiff, as the sole beneficiary, then pursuant to paragraph 5. 6 and 8 herein, an order that the Defendant pay to the Third Plaintiff the sum of $695,302.82 being monies owed by the Defendant to the Third Plaintiff, particulars of which are:
a.) The sum of $90,343.26, being plant, equipment and assets owned by the
Third Plaintiff and entered into the Third Plaintiffs books of account by the Defendant, as assets owned by the Defendant.
b) The sum of $253,018.56, being the amount that the Third Plaintiff paid to the Vendor of the Armidale property, for the purchase of the Armidale property and which the Defendant entered into the Third Plaintiffs books of account as being paid for by the Defendant and then applied by the Defendant for the Defendant's benefit.
c) The sum of $82,037, being a Citibank bank account in the name of the Third Plaintiff and owned by the Third Plaintiff, the ownership of which was transferred by the Defendant to the Defendant's name, without authority and for the benefit of the Defendant.
d) The sum of $67,760.00, being amounts paid to the Third Plaintiff by the First Plaintiff and the Second Plaintiff, but diverted by the Defendant and applied to the credit of the Defendant's account, for the benefit of the Defendant.
e) The sum of $25,360, being Dividends declared and paid by the Third Plaintiff and credited by the Defendant to her account, for the sole benefit of the Defendant.
f) The sum of $52,730.00, being funds paid by First Plaintiff and the Second Plaintiff to the Third Plaintiff, but diverted by the Defendant and credited by the Defendant without authority, for the sole benefit of the Defendant.
g) The sum of $124,054, being amounts paid to the Third Plaintiff, or owing to the Third Plaintiff, but not entered into the accounts of the Third Plaintiff by the Defendant, but applied by the Defendant for the sole benefit of the Defendant.
h) In respect of paragraph 21 a.) to g.) herein and in the alternative, any amount(s) that the Court may determine is owing by the Defendant to the Third Plaintiff.
i) Interest at Supreme Court rates on all amounts stated in paragraph 21 a.) to paragraph h.) inclusive herein.
22. In the alternative and / or in the event that the Court determines that the Defendant holds the Armidale Property on trust for three beneficiaries (which is not admitted), then pursuant to paragraph 5 and / or paragraph 6 and / or paragraph 8 herein, the Defendant pay to the Third Plaintiff those amounts stated in paragraph 8 e.) herein ($65,809.00, plus interest at Supreme Court rates): paragraph 10 a.), b.), c.) and d,) herein ($30,193.10): paragraph 18 a.) and b.) herein ($47,093.33 plus interest at Supreme Court rates of $205,168.89): paragraph 19 herein ($55,000.00, plus interest at Supreme Court rates) and paragraph 20 herein ($16,906.67, plus interest at Supreme Court rates
23. In the alternative and in respect of paragraph 21 and 22 herein, any amount(s) that the Court may determine is owing by the Defendant to either the First Plaintiff, Second Plaintiff or Third Plaintiff, individually and / or collectively.
…
26. Interest on Costs."
The plaintiffs did not elect to sign the mutual release by 29 June 2018.
On 6 July 2018, further consent orders were made, again providing for leave, subject to the plaintiffs' consent to the mutual release by 18 July 2018.
On 18 July 2018, the plaintiffs signed the mutual release.
As part of the mutual release agreement, Glynis has assigned her shares in Wincot to the Chetwynds.
On 10 September 2018, I ordered:
"1. Pursuant to Section 192A of the Evidence Act, that if the plaintiffs elect to read the following affidavits in the hearing listed for 15 October 2018 ("Adjourned Hearing"):
(a) affidavit of Brian Chetwynd, sworn 2 July 2018;
(b) affidavit of Brian Chetwynd, sworn 19 July 2018;
(c) affidavit of Andrew Kirk, dated 2 July 2018 but sworn 18 July 2018;
(d) affidavit of Brian Chetwynd, sworn 16 August 2018;
the affidavits (and any annexures or exhibits thereto) and any oral testimony at the Adjourned Hearing will be admitted as relevant to any of the new claims included in the Amended Summons dated 4 June 2018 (being those claims underlined in the Amended Summons, referred to in paragraph 2, 4, 5, 6, 8, 11, 12, 13, 14, 15, 16, 17, 21, 22 and 23 of the Amended Summons) ("New Claims") but not as relevant to any other claims (including the claims pressed by the first and second plaintiffs in the earlier hearing in these proceedings conducted on 20 and 22 March 2017, 4, 5, 6, 7, 26 and 27 April 2017 and 24 August 2017 ("Earlier Hearing")).
2. Evidence led in the Earlier Hearing in these proceedings is admitted as evidence in respect of the New Claims."
The purpose of these orders was to allow the new claims to be heard, without reagitating any claims from the 2017 hearing.
On 17 September 2018, the Court made various case management directions for the final preparation of the matter, and noted the following matter by consent:
"1. The Defendant has notified the Plaintiffs that the Defendant has elected not to:
a) serve any fresh affidavits, in relation to the hearing set down for 15 October 2018 ("Adjourned Hearing");
b) press any objections to the evidence served by the Plaintiff;
c) cross-examine Mr Chetwynd or Mr Kirk, subject to 2 below.
2. The Plaintiffs have indicated that the Plaintiffs will not contend that the Defendant is prevented from submitting that the Court should not accept the evidence of Mr Chetwynd and Mr Kirk, merely because the Defendant elects not to cross-examine Mr Chetwynd and Mr Kirk.
3. In light of the election referred to in paragraph 1 above, proceedings at the Adjourned Hearing will move immediately into closing oral submissions."
I then heard the continuation of the case on 15, 16 and 17 October 2018. As the order just referred to foreshadowed, those three days were taken up with submissions only. At the conclusion of the hearing, I reserved my judgment subject to a timetable for final written submissions.
Final written submissions were received from the Chetwynds and Wincot on 6 December 2018. On 21 January 2019, Glynis' solicitors informed the Court that she did not intend to take up the opportunity for which directions had been made that she could file submissions in reply to the plaintiffs' submissions. The parties' written submissions for the 2018 hearing totalled 160 pages, again including detailed arguments about a number of specific entries in the accounts of Wincot.
[3]
Facts
The background facts were not in dispute. The Chetwynds owned photographic stores. Glynis has known the Chetwynds for many years, having been first employed by them during the 1970s.
During the course of her employment, Glynis formed a close personal and business relationship with the Chetwynds of more than 35 years' duration. Brian described the relationship between the Chetwynds and Glynis as being "practically family".
In addition to being employed by the Chetwynds, Glynis also became good friends with them. Between 1970 and 2005, Glynis regularly saw Jill and Brian in social situations, averaging approximately twice a month. Her relationship with the Chetwynds extended to being close with their children, and they referred to her as "aunty".
The early business relationship with the parties was developed through a company called Rogote Pty Ltd ("Rogote"). Their business relationship was not documented in formal contracts, instead consisting of and relying upon a great deal of trust between the parties.
In April 1979, Glynis purchased a unit in Neutral Bay (the "Neutral Bay Property"). This property was purchased in her name and she was the sole contributor of funds to purchasing the property.
Rogote began experiencing financial difficulties in 1989 and consequently the Chetwynds sold their home in Forestville to discharge the outstanding debts for Rogote and stave off creditors. The Chetwynds had personally guaranteed the company's debts.
Following the Chetwynds sale of the Forestville property, there was an agreement between Chetwynds on one hand, and Glynis on the other. This agreement was known as the "three way split" agreement. Under this agreement, the Chetwynds sold the Forestville property, discharged the debts of Rogote and subsequently each gained a one third interest in Glynis' Neutral Bay Property. In terms of what was to happen in relation to the Armidale Property, it is important at this point to recall that Glynis gave up two-thirds of her interest in the Neutral Bay Property which up until that time had undoubtedly been her property absolutely.
It was agreed, as Brian put it in his affidavit sworn 2 November 2015, that "everything we do will be equally shared one third between the three of us and that includes assets and liabilities." While this agreement initially related to discharging the debt of Rogote and the Chetwynds gaining an interest in the Neutral Bay Property, there was no dispute that this agreement extended into other aspects of the parties' relationship.
As with other important arrangements between the parties, the three way split agreement was not reduced to writing. Despite this, all parties accept that the agreement existed.
At this time, the Neutral Bay Property was being rented out. The rent was paid into Glynis' personal Commonwealth Bank account, and not into any business account. Glynis paid tax on the rental income she received from the Neutral Bay Property. This arrangement was in place until the Neutral Bay Property was sold.
The Neutral Bay Property was tenanted from 1991 until 2010 when it was sold.
In 1990 the parties acquired a shelf company: Wincot. At the time of purchasing Wincot, it was agreed that Glynis would hold a 90% shareholding in the company, whilst Brian would hold the remaining 10% share. Glynis' evidence was that there was a conversation between her and Brian, namely that she would actually own 100% of Wincot, and the 10% shareholding which Brian held was actually to be held on trust for her.
Despite this arrangement where Glynis was effectively the sole owner of Wincot, it was agreed between the parties that Wincot too was subject to the three way split agreement. As with previous agreements between the parties, the arrangement was not recorded in writing.
The purpose of Wincot was to purchase photography stores. The company purchased a store in Armidale and also in Coffs Harbour.
The Chetwynds moved to Armidale to run the store which Wincot had bought. Similarly, following Wincot purchasing a store in Coffs Harbour, Glynis moved to Coffs Harbour to oversee the running of that store.
The Coffs Harbour store closed in approximately 1993, which consequently saw Glynis also move to Armidale to work in the shop there.
In the early 1990s, Wincot secured an interest only line of credit from Citibank. This loan was secured against the Neutral Bay Property. There was an original limit of $225,000, with each of the parties being guarantors for the loan.
In 1992 after moving to Armidale, Brian and Jill moved into the Armidale Property. The Armidale Property was formerly owned by John and Barbara Phillips, who were friends of the Chetwynds. At this time, Brian and Jill were housesitting for the Phillips.
After housesitting for approximately twelve months, the Phillips told the Chetwynds that they were going to sell the Armidale Property and offered to sell it to them.
The Chetwynds were interested in purchasing the Armidale Property and Brian and Jill carried out the negotiations with the Phillips. These negotiations concerned price and terms of the sale of the Armidale Property. Glynis was not involved in the negotiations.
The terms of the purchase were that $110,000 would be paid up front to the Phillips and $110,000 would be borrowed off the Phillips by way of vendor finance. This loan of $110,000 would be repayable over seven years at a rate of 9.5% interest.
At this time, Brian was particularly concerned that he could still be liable to creditors from his previous business ventures. In order to protect his assets and the purchase of the Armidale Property, it was suggested by the Chetwynds that Glynis would be the legal owner of the Armidale Property, however she would hold the property on trust for the Chetwynds. Additionally, the Chetwynds would reside in the Armidale Property. Glynis agreed to purchase the Armidale Property for the Chetwynds as the legal owner.
In accordance with the agreement, the Armidale Property was purchased in Glynis' name, but it was understood that the Chetwynds would reside in the Armidale Property. The crux of this dispute is whether Glynis holds the Armidale Property on trust exclusively for the Chetwynds, or whether she is also a beneficiary under the trust. I shall return to the resolution of that question later in these reasons (see paragraphs [267] to [344] below), but for present purposes will continue the narrative.
Brian gave evidence that while the Armidale Property was legally held in the name of Glynis, it was held exclusively on trust for Jill and himself. His affidavit evidence was that the following conversation happened with Glynis:
"Me: Would you consider holding the property on trust for Jill and I? We will make all the repayments and pay the interest and outgoings etc. but given the risk of litigation against me and Jill, it may be better if the property and the mortgage were both in your name.
Ms Rose: If it's in my name, will I be responsible for anything at all, including repayments, maintenance and rates?
Me: As I said, you won't have to make any mortgage repayments or payments towards the upkeep or pay any of the expenses. We want this to be our family home and I'm sure that we won't want to sell it either, is that OK?
Ms Rose: Yes, I understand and that's fine by me. I am prepared to have the property and mortgage in my name and I will only ever act in your best interest and of course I will never sell the property without the three of us agreeing to do so."
Glynis acknowledged a conversation with Brian had occurred and that she was asked to hold the Armidale Property in her name, however disputed that the word "trust" was ever used. Glynis further disputed that the Armidale Property was held exclusively on trust for Brian and Jill, and not also for her.
Brian said there was a conversation between Glynis and himself which was an express oral agreement. This oral agreement allegedly set out the terms of the arrangement concerning the Armidale Property. Brian submitted that the following conversation occurred:
"Me: Now that we have agreed, we need to get the terms right, so that all of us agree and understand them. I would suggest the following:
a. The Property will be transferred into your name as the sole registered proprietor;
b. You, as the sole registered proprietor, will be liable to the Phillips under a vendor finance mortgage over the Property (which Jill and I would indemnify you in respect of);
c. As it is Jill's and my family home, we will pay off the mortgage;
d. As it is Jill and my family home and we are paying for all outgoings, no fee is payable to you for us occupying the Property;
e. Jill and I will be solely responsible for all outgoings of the property; including water rates, council rates, land tax, home and contents insurance, general maintenance, and improving repairs. You will not be required to contribute to these costs; and
f. The Property is not intended to be used to realise income or profit by way of lease to a third party.
Ms Rose: Yes I understand and am happy to agree with all that.
Me: Of course, in the event that Jill and I cannot pay off the entire mortgage, a contingency mechanism will be that we each share a one third split and you will have a one third split in the purchase price of the property, which is $220,000.
Ms Rose: Yes, of course and I do agree and fully understand that this is your family home and my one third is only applicable as you state and also to protect my interests as the property is in my name.
Me: It's all agreed, then let's go ahead."
I note in passing that this version contains no express reference to the Armidale Property only being sold if all three parties agreed.
Glynis did not recall a specific conversation where the terms outlining the arrangement were expressed, however noted such a conversation outlining the terms could have occurred. While Glynis does not recall the conversation generally, she specifically does not recall the suggestion that she would be indemnified, that the Chetwynds would make the mortgage repayments, and that there would be no fee payable for occupying the Armidale Property.
Glynis stated that she remembered a term of the arrangement would be that "this transaction will be treated the same as all our other dealings. We will split the asset in one third shares, just like the Neutral Bay Property."
The Chetwynds submitted that the agreement with Glynis was that they would make all the repayments for the vendor finance, pay the interest and pay the outgoings related to the Armidale Property. As such, Glynis would not be a beneficiary of the trust. Whether or not this was agreed to, this is not what happened.
Of the $110,000 which was to be paid up front, at least $102,000 was paid by Wincot through the Citibank line of credit, which was secured by mortgage over the Neutral Bay Property. This fact is not disputed.
Glynis executed a mortgage in respect of the vendor finance, which was guaranteed by the Chetwynds.
On 13 August 1993, Wincot paid a 10% deposit on the land of $22,000. This money was paid from the Citibank line of credit.
On 17 August 1993, contracts for the sale of the Armidale Property were exchanged.
On 17 September 1993, the sale was completed.
From 1993, the Chetwynds resided at the Armidale Property.
Between 1993 and 2000, all three parties worked in the Armidale store.
When working in the store, Glynis became responsible for bookkeeping and managing the accounts; Jill was responsible for stock ordering and Brian was involved in sales and oversaw the general operations of the business.
Despite having no formal qualifications as an accountant, Glynis performed the financial tasks associated with Wincot. This made her responsible for all accounts, including banking, payments, invoicing, journal entries, bank reconciliations, and preparation of draft accounts. Journal entries were made by Glynis just before the end of the financial year.
Draft accounts, while prepared by Glynis, were later reviewed by Mr Herd, the accountant for Wincot. When Mr Herd reviewed the accounts for Wincot each year, Glynis would be present, and Brian would occasionally attend these meetings. After reviewing the draft accounts, Mr Herd would settle the accounts and send them to the Armidale shop. After the accounts were sent to the Armidale shop, they were reviewed by both Brian and Glynis. The financial practices of Wincot were complex and are outlined below in further detail in paragraphs [194] to [218].
As the parties were all working equivalent hours, it was agreed by all parties that they would each receive an equal salary from Wincot. As the bookkeeper for Wincot, Glynis was responsible for distributing wages. Glynis' evidence was she made weekly remuneration distributions to Brian, Jill and herself.
In 2000, Brian became mayor of Armidale. He acted as mayor until 2005. During this time, he did not draw a salary from Wincot, however Jill continued to receive remuneration for her work with the business during Brian's term as mayor. Brian suggested he voluntarily did not receive remuneration during this period as he did not require the salary, given he was receiving his mayoral salary. He alleged there was an agreement between the parties that he would still work for Wincot at this time, not receive payment for his work with the company, and instead defer receiving his salary to a later date. The Court does not accept this and finds that Brian's hours were reduced during his time as mayor.
Throughout the time the Armidale store was running, Wincot acquired various assets and debts, including a storage shed, a Xerox machine and various other pieces of equipment.
In 2000 the Neutral Bay Property was renovated. The Chetwynds contributed substantially to the costs of those renovations.
On 24 January 2001 the mortgage over the Armidale Property was discharged and the Land Titles Office removed the mortgage and issued a new certificate of title in the name of Glynis.
The Court finds that the repayments made in respect of the vendor finance were made by Wincot from the Citibank line of credit. They were paid in 84 instalments of $1,797.84, which included interest owing. The Chetwynds asserted that while repayments were made by Wincot, they subsequently paid Wincot back. This was supposedly done through funds advanced when Brian was mayor of Armidale, through rental payments made by the Chetwynds and through a series of debits to the Chetwynds' loan account. For the reasons provided in paragraphs [228] to [261] below, the Court does not accept this.
During 2001 to 2005, Brian transferred $55,000 to Wincot in order to reduce the Citibank line of credit interest costs.
In 2005, the Armidale store was closed. Following the closure of the store, Glynis ceased to have any direct involvement in the running of Wincot.
In November 2006, Brian created the Financial Position Report, which detailed the financial assets of Brian, Jill and Glynis (set out in paragraph [285] below).
In about 2010, the parties agreed to sell the Neutral Bay Property. It was common ground that throughout the time Glynis had owned the Neutral Bay Property, the Chetwynds had spent money on the upkeep of the Neutral Bay Property, however how much money was spent was unclear.
The Neutral Bay Property was sold in October 2010 for $430,000.
The proceeds of the sale were to be distributed in accordance with the three way split agreement. Throughout the duration of owning the Neutral Bay Property, both the Chetwynds and Glynis contributed funds to pay for various aspects of the Neutral Bay Property. As such, following the sale of the property it was necessary to make adjustments to reflect the individual contributions.
As with the previous agreements between the Chetwynds and Glynis, there was no formal documentation to reflect or document the adjustments agreed to between the parties.
As the Neutral Bay Property was legally owned solely by Glynis, she alone received the $430,000 into her account upon the sale of the property. It was agreed between the parties that Glynis would hold onto the entirety of the money from the sale, however noting it was being held on trust for both Brian and Jill.
Subsequently, Glynis opened two Commonwealth Bank Netbank Saver accounts, one for Brian and one for Jill. $82,450 was deposited into one account, being the money from the sale of the Neutral Bay Property as adjusted for Jill, and $105,450 was deposited into the other account, being the money as adjusted for Brian. This was agreed to between the parties.
On 10 February 2011, in accordance with instructions from Brian, Glynis transferred the money set aside for Jill into the account for Brian, and subsequently closed Jill's account.
On 4 April 2011, in accordance with instructions from Brian, Glynis deposited an amount of $150,000 into a term deposit account with the Commonwealth Bank. This left approximately $27,000 in the Netbank Saver Account.
Glynis continued to hold the money for both Jill and Brian and only dealt with the funds in accordance with instructions from the Chetwynds. Glynis acknowledged that, at various times, Brian would request that she make a withdrawal on his behalf and send him the money in cash. Upon these requests, Glynis would transfer the money from the Netbank Saver account into her cheque account, withdraw the money, wrap the cash in foil and express post it to the Chetwynds.
As Glynis held the money legally in her name, she was taxed on it accordingly. As such, she made deductions to account for the amount of tax she paid on the money. The Chetwynds were aware Glynis made deductions to account for the tax that she paid, and consented to her doing this.
At the commencement of the hearing, Glynis still held approximately $70,000 for both Brian and Jill. This has since been paid to them and they make a claim for interest on that sum at Supreme Court rates.
In 2012, Glynis resigned as a director of Wincot.
In 2012, Mr Herd resigned as the accountant to Wincot.
On 3 January 2015, Glynis sent an email to the Chetwynds and said:
"Hi Jill and Brian,
I hope you had a great Christmas and New Year with your family.
Now to something more serious. As I am turning 65 in June 2016 I am thinking of retiring. Because of this I believe that things must be resolved well before this time.
(1) Armidale property must be sold and finances sorted.
(2) Term Deposit and Netbank Saver Accounts must be transferred to your names.
I want to work together with you both to resolve these issues before the end of 2015 and in the next 3 months I will be seeking advice from Bill and/or an independent Tax Accountant to discuss all the ramifications. Perhaps in this regard we could have a telephone link to discuss the situation once I have established the initial contact.
These matters should be taken care of sooner than later. I would appreciate both your thoughts on the above.
Regards
Glynis"
It is this correspondence from Glynis which set off the chain of events that led to these proceedings.
On 9 January 2015, Brian replied to Glynis' correspondence by saying:
"Hi Glyn,
We hope you also had a great Christmas and New Year.
We have considered your email and comment as follows:
1) As you know, we are all one third beneficial owners of the property and all three of us must agree for the property to be sold. This is in accord with our long standing agreement.
2) The Term Deposit and Netbank Saver can be transferred to us shortly, as we have discussed with you before Christmas. No problem if you have rolled the Term over and we will get back soon with the transfer details.
We understand your situation about retiring and are quite happy to work together with you to resolve the matter in an equitable manner and in accord with the agreement.
We would be prepared to come to Coffs very soon to commence the discussion with you. We will wait to hear back from you.
Regards
Jill and Brian"
Glynis responded on 14 January 2015 with the following email:
"Hi Brian and Jill,
Thanks your email.
(1) As to point 1.) if this was our agreement (and I must admit I don't recall it), this would disadvantage my position.
(2) As to point 2.) the TD has rolled over and should remain in my name until a solution re the property is resolved.
As far as I can see there are only two options.
(1) You buy my one third of the property at market value and the TD can be used as part of the proceeds, or
(2) The property be sold to market with vacant possession and we each receive one third of the proceeds. You would retain the TD at that point.
I do need this matter to be sorted in the short term so as not to prejudice my Centrelink position. I think it is reasonable that we agree to a plan by the end of this month.
I await your reply.
Regards
Glynis"
The Chetwynds responded to Glynis on 16 January 2015. They said the following:
"Hi Glyn,
Thanks for your reply, which we have read with a high level of concern and whilst we won't go into all the details here, suffice it say the following:
Our concerns are because for some 25 years we have had a one third arrangement in all activities and assets, where every decision was discussed and agreed by the 3 of us, in a proper and equitable manner, with good will and trust. This includes all business activities, Forestville, Neutral Bay, Armidale property, super, cash, shares and etc. - never a problem. This agreement still stands the same today, as always, but suddenly, you appear to want to ignore or avoid our agreement, which has been confirmed by all of us and has been operative over all these years.
We say the above, as out of the blue, you send us an email stating the property "must" be sold, and now you are stating that the Term Deposit "should remain in your name". However, these are not decisions for you as one person to make and we reject them. Any decision on the property or any sale thereof, is a decision to be made by the 3 of us equal beneficial owners, whereupon we discuss the issue and all agree in accord with our long standing arrangement. Regarding the Term Deposit, the decision on those funds has already been agreed upon by the 3 of us and it is a result of each of us receiving an equal share of sale proceeds. The Term Deposit is ours (Jill's component in fact) and it cannot be retained by you under any circumstances.
We are at a complete loss in understanding why you have suddenly sent these insensitive and rather offensive emails, when you well know exactly what the agreement is. If you desire to change something, then the appropriate and proper way would have been to have phoned one of us (as has always been the case) and discuss your ideas and preferred outcomes, so that we are part of the decision process as agreed. We don't think your emails and the holding of a gun at our heads, is either a sensible or fair way to go and in any event is totally against our agreement.
Having said the above, we would suggest that you reconsider your approach, so that we may then meet to discuss the matter (as we suggested in our last email). We repeat that we are quite prepared to work with you in the same manner as we always have and to look at the aspects, as well as how best they can be resolved, in an equitable way (in accord with our agreement), where no one person is put at a disadvantage or treated with disrespect. We trust that you will agree that this is a more positive and sensible approach."
On 11 February 2015, the Chetwynds registered a caveat over the Armidale Property, noting the caveatable interest being that Brian and Jill had an "Equitable Interest as beneficiary under a Trust."
This was by virtue of the fact that:
"The Registered Proprietor purchased the property as trustee for the benefit of the caveators as to 1/3 interest to Brian Chetwynd and 1/3 interest to Jill Chetwynd and in her personal capacity to 1/3 interest."
On 17 February 2015, MVS New England & North West Pty Ltd, a valuation and property consulting business, attended the Armidale Property and undertook a market assessment. Glynis had arranged for this property valuation without the consent of the Chetwynds. The Armidale Property was subsequently valued at $675,000.
In around mid-May 2015, Brian attempted to resolve the dispute with Glynis. He called her and spoke to her for approximately 45 minutes. Various options were canvassed, however no agreement was reached between the parties.
A further phone conversation occurred between Brian and Glynis on 26 May 2015, again trying to resolve the dispute. Brian offered to buy Glynis' one third share of the Armidale Property for $130,000. As the Armidale Property had been valued at $675,000, Glynis believed she was entitled to $225,000. Consequently, Glynis did not agree to the offer, however said she would consider it.
On 3 June 2015, Brian called Glynis and a conversation was had to the effect that Brian and Jill would pay Glynis $130,000 for her share of the Armidale Property. Additionally, it was discussed that if the Armidale Property was later sold for more than $500,000, Glynis would receive an additional payment from the Chetwynds, between 10-20% of the amount over $500,000.
Brian's evidence was that the following were agreed terms between the Chetwynds and Glynis at this time:
1. Glynis would transfer the certificate of title into the names of Brian and Jill, and Glynis would also remain on the title.
2. A Contract for the Sale for Land would be created by the Chetwynds' solicitors for $130,000, with a delayed settlement.
3. Glynis would transfer her interest in the Armidale Property so the title was completely held by Jill and Brian.
4. This transfer would be done to minimise stamp duty and capital gains.
5. Brian and Jill would then get a loan from the bank.
6. Glynis would continue to hold the term deposit and Netbank saver account, and additional money owed to Glynis would be sourced from the money loaned from the bank.
Glynis refuted that there was an express agreement with the terms outlined above. Ultimately the Chetwynds did not press that there had been agreement to settle the case in those or any other terms.
On 4 June 2015, Glynis suffered a heart attack and was placed in intensive care at Coffs Harbour Hospital.
Following Glynis' heart attack, a letter dated 24 June 2015 was sent to Brian and Jill. The letter was sent from Fishburn Watson O'Brien, a law firm in Coffs Harbour. The letter was sent on behalf of Ms Lani Metzmacher and Ms Rachel Twigg, who were the enduring powers of attorney for Glynis. The letter is reproduced below:
"For the period that you have both lived at the Property you have not paid Glynis rent, or any form of compensation, to recognise her one third share in the Property. We put you on notice that my clients reserve Glynis' rights in this regard.
…
In February 2015, Glynis commissioned, at her own cost, a valuation of the Property to be completed by MVS National Valuations and Property Consulting (MVS), a respected and reputable valuer, to determine what the market value of her 1/3 share would be. MVS completed the valuation on 17 February 2015, valuing the Property at $675,000.00 (copy enclosed).
Based on this valuation, Glynis offered sale of her one third share to you for a third of the valuation price of the Property ($225,000.00). I am instructed that you have refused this offer and maintain the position that Glynis may not take any steps to sell the Property.
…
Lani and Rachel are now instructing me exclusively in relation to the Property and the disposal of Glynis' one third share in the Property.
My clients offer Glynis' one third share in the Property to both of you, at a price of $225,000.00 being the market value of the one third share as confirmed in the 17 February 2015 valuation of the Property, completed by MVS, based on the following terms:
a) The respective parties enter into a contract for sale, no later than 28 days from the date of this letter, confirming the sale of Glynis' one third share in the Property to Brian and Jill (or whomever, between you, is the purchasing party);
b) The $73,964.87 Glynis currently holds on your behalf, will be treated as the deposit for the one third share sale;
c) Lani completes transfer of Glynis' one third share, to be handed to you on settlement;
d) You transfer to our trust account $151,035.13 (being $225,000.00 less the $73,964.87), which on settlement (to be no later than 48 days from the date of this letter) we will distribute to our client; and
e) The parties confirm in writing that each of the parties (Brian and Jill) have no further claim against the other (Glynis or her attorneys).
My clients' offer is non-negotiable and is open for acceptance until 5pm on Friday 10 July 2015.
If we do not hear from you by this date, my clients will immediately make an application to the Court under s66G of the Conveyancing Act 1919 (NSW) for the appointment of a trustee to sell the whole of the Property. In this application, my client will be seeking an order for costs in their favour, including all legal costs."
On 3 July 2015, Brian contacted his legal representative and instructed them to reject the offer from Glynis.
These proceedings were commenced on 30 July 2015.
[4]
Findings as to credit
This case has involved two conflicting narratives as to who were the intended beneficiaries of the trust relating to the Armidale Property and as to its terms. Given the lack of any formal documentation surrounding the three way split agreement or the scope of it, the Court has had to consider the credit of both Brian and Glynis. While Jill is the second plaintiff, she has not played a significant role in the case. Mr Stowe did not cross-examine Jill. This was in accordance with an agreement with the Chetwynds that they would not submit that any inference should be drawn against Glynis solely by reason of that election.
The Court was also invited to consider the credit of Mr Herd, Wincot's accountant. While Mr Herd was not a party to the proceedings, his evidence primarily supported Glynis' version of events. Therefore, the Chetwynds made submissions which questioned his credit. Consequently, I have made various findings in relation to the evidence Mr Herd put before the Court.
I considered the principles applicable to findings of credit in Maria Saravinovksa v Krste (Chris) Saravinovski; Chris Saravinovski v George Saravinovski (No 6) [2016] NSWSC 964. Those principles are as follows.
First, at the forefront of the Court's approach has been the oft cited statement of McLelland CJ in Equity in Watson v Foxman (1995) 49 NSWLR 315 at 318-319:
"Where, in civil proceedings, a party alleges that the conduct of another was misleading or deceptive, or likely to mislead or deceive (which I will compendiously described as "misleading") within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading. Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction (1995) 49 NSWLR 315 at 319 rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.
Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court "must feel an actual persuasion of its occurrence or existence". Such satisfaction is "not … attained or established independently of the nature and consequence of the fact or facts to be proved" including the "seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding": Helton v Allen (1940) 63 CLR 691 at 712."
Second, the concept of actual persuasion was elucidated by Emmett J (as his Honour then was) in Warner v Hung, in the matter of Bellpac Pty Ltd (Receivers and Managers appointed) (In liquidation) (No 2) [2011] FCA 1123; (2011) 297 ALR 56:
"48. Under s 140(2) of the Evidence Act 1995 (Cth) (the Evidence Act), the Court must, in deciding whether it is satisfied that a case has been proved to the requisite standard, take into account:
● the nature of the cause of action or defence;
● the nature of the subject matter of the proceeding; and
● the gravity of the matters alleged.
When proof of any fact is required, the Court must feel an actual persuasion of the occurrence or existence of that fact before it can be found. Mere mechanical comparison of probabilities, independent of any belief in reality, cannot justify the finding of a fact. Actual persuasion is achieved where the affirmative of an allegation is made out to the reasonable satisfaction of the Court. However, reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequences of the fact to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, and the gravity of the consequences flowing from a particular finding are considerations that must affect whether the fact has been proved to the reasonable satisfaction of the Court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony or indirect inferences (see Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 at 361-2)."
Third, there is the statutory successor of the rule in Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 in s 140 of the Evidence Act 1995 (NSW):
"140 Civil proceedings: standard of proof
(1) In a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities.
(2) Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account:
(a) the nature of the cause of action or defence, and
(b) the nature of the subject-matter of the proceeding, and
(c) the gravity of the matters alleged."
Fourth, evidence is to be preferred which is inherently probable in the circumstances or is given by a witness against their interest.
Fifth, evidence of independent witnesses, i.e. persons who have no reason to be partisan, may be decisive in resolving the conflicting evidence of interested parties.
Sixth, where a witness has been found to be lying about one thing, that does not automatically mean that they are to be disbelieved about everything else. The Court is not bound to accept or reject a witness' evidence in its entirety. This approach was expressed by O'Loughlin J in Cubillo v Commonwealth of Australia (No 2) [2000] FCA 1084; (2000) 103 FCR 1:
"118 Before commencing a detailed analysis of the evidence in this case, I desire, in the first instance, to make clear the approach that I have taken to the evidence of a witness where I have found some, but not all, aspects of the evidence of that witness to be unreliable. Simply because I find against a party or a witness on one issue and reject some part of the evidence of that person, it does not mean that what remains is tainted, or otherwise lacks probative force, with the consequence that I should dismiss all the evidence of that person. The principles enunciated in the cases indicate that the trial judge is entitled to believe part of the evidence given by a witness and to reject the rest. After making an assessment of the evidence, after utilising the advantage of having seen and heard all the witnesses, and after forming an impression of each, the confidence that the judge reposes in a particular witness is assessed accordingly. Where evidence has a logical probative value, a judge will rely on it; where it contains discrepancies, displays inadequacies, is tainted or otherwise lacks probative force, the judge will, in all probability reject it or, at least, not rely on it. I mention some authorities that support those propositions.
…
121 A trial judge is not restricted in his or her assessment of a witness. By this I mean that if, on peripheral issues, the trial judge reaches conclusions adverse to the credibility of a party, it does not necessarily follow, consistently with such conclusions, that these must be findings adverse to that party on the issues that are central to the determination of the matter. There is no rule of law or practice that states that an adverse finding on any aspect in the evidence of a witness means that the whole of that witness' evidence must be rejected."
Seventh, and closely related to the preceding point, in Sangha v Baxter [2009] NSWCA 78 Basten JA (with whom Handley AJA agreed) cautioned against global credibility findings:
"155 There are risks in making global findings about credibility of any particular witness. Because a witness has not told the truth with respect to a particular matter does not mean that other parts of his or her evidence are untruthful. Where possible, an assessment should be made of the reasons for the untruthfulness in order to see if other aspects of the evidence are likely to be infected by the same concern. Further, evidence may be rejected because it is apparently unreliable, possibly mistaken or deliberately untruthful or capable of being categorised in a variety of ways which are unlikely to be capable of clear delineation in some cases.
156 Further, findings of credibility are not usually findings with respect to factual issues in the case, but are rather subsidiary findings on the way to determination of issues. Like many aspects of the evidence in a trial, the evidence of a witness who is believed to have lied in a particular respect, will nevertheless be able to bear some weight and should be placed into a balance, with other material evidence, before a conclusion is reached in relation to a critical fact. The rejection of a witness in total, absent corroboration is likely to mean that, even where corroborated, little attention will be paid to the evidence of the witness and less to the possible consequences which might flow from the fact that particular evidence is shown to be truthful: see generally, King v Collins [2007] NSWCA 122 at [44]."
Eighth, disbelieving a witness that "X" was the case does not mean that "not X" has been proven. The Court respectfully adopts what fell from Gibbs J (as his Honour then was) in Steinberg v Federal Commissioner of Taxation [1975] HCA 63; (1975) 134 CLR 640 at 694 (citations omitted):
"The fact that a witness is disbelieved does not prove the opposite of what he asserted: Scott Fell v. Lloyd [1911] HCA 34, (1911) 13 CLR 230, at p 241 ; Hobbs v. Tinling (C.T.) & Co. Ltd. (1929) 2 KB 1, at p 21 . It has sometimes been said that where the story of a witness is disbelieved, the result is simply that there is no evidence on the subject (Jack v. Smail [1905] HCA 25, (1906) 2 CLR 684, at p 698 ; Malzy v. Eichholz (1916) 2 KB 308, at p 321 ; Ex parte Bear; Re Jones [1945] NSWStRp 50, (1945) 46 SR (NSW) 126, at p 128 ), but although this is no doubt true in many cases it is not correct as a universal proposition. There may be circumstances in which an inference can be drawn from the fact that the witness has told a false story, for example, that the truth would be harmful to him; and it is no doubt for this reason that false statements by an accused person may sometimes be regarded as corroboration of other evidence given in a criminal case: Eade v. The King [1924] HCA 9, (1924) 34 CLR 153, at p 158; Tripodi v. The Queen [1961] CHA 22, (1961) 104 CLR 1. Moreover, if the truth must lie between two alternative states of fact, disbelief in evidence that one of the state of facts exists may support the existence of the alternative state of facts: Lee v. Russell (1961) WAR 103, at p 109."
Ninth, the way evidence should be treated where that evidence is not the subject of cross-examination when cross-examination was required, was considered by Hallen J in Fulton v Fulton [2014] NSWSC 619:
"111. However, affidavit evidence, however good, which, for whatever reason, is not subject to cross-examination when cross-examination is required, will always be discounted, as appropriate, if the affidavit is used with leave without cross-examination. The degree to which it will be discounted may depend on various factors, including the circumstances that lead to cross-examination being dispensed with, the nature of the evidence and its centrality and degree of significance to the case. The degree of discount appropriate will be judged according to all the circumstances of the case: Re O'Neil, Deceased [1972] VicRp 35, [1972] VR 327, per Anderson J, at 333 - 334; Citibank Ltd v Liu; ABN Amro Bank Ltd v Liu [2002] NSWSC 86, per Hamilton J, at [5]."
Tenth, the Court can only do the best it can on the evidence which it has. Some issues may need not be resolved or should not be resolved. It may be that they cannot be resolved given the nature of the evidence which the parties have adduced. This case has many similarities to the family dispute considered by Robb J in Aytul Ak-Tankiz v Ferat Ak & Ramazan Ak [2014] NSWSC 1044. Of the evidence in that case, his Honour said:
"187. The principal evidence relating to these issues consisted of the uncorroborated evidence of the witnesses, or alternatively the only corroboration available was the testimony of other witnesses. The evidence distilled into the word of one witness against the word of one or more other witnesses. Most of the events relevant to the issues occurred many years ago. The evidence relevant to the issues generally consisted of a series of assertions, and counter-assertions by various witnesses. Evidence of the objective context was generally not available, so it has not been feasible to test the versions of events that were in contest by reference to the objective probabilities, based upon uncontroversial contemporary circumstances. Though the issues are not entirely irrelevant, their significance is limited, and their resolution has not been necessary for the purpose of determining the real issues in the case. Any attempt to resolve the issues by making judgments about the relative credibility of the individual witnesses on an issue-by-issue basis was likely to be based on illusory foundations."
[5]
Brian
Glynis submitted that the credit of Brian was a factor that the Court must consider. Glynis submitted that there were inconsistencies in Brian's evidence, that he failed to make concessions where appropriate, that he was evasive in oral evidence, and that his memory (such as it was) was incorrect when measured against the objective, contemporaneous documentary record.
For the reasons which follow, the Court accepts Glynis' submissions that Brian's evidence was inconsistent and should be given no weight unless independently corroborated.
Brian's evidence was at times inconsistent with previous evidence he had given. This was particularly evident in the evidence he gave when being cross-examined and in comparing his oral evidence to that in his affidavit. By way of example, Brian's evidence in relation to the caveat (see paragraphs [139]-[140] above) was entirely inconsistent with other submissions he had previously made. During cross-examination, Brian initially stated that he had not reviewed the caveat before the trial and did not know the details of the interests it listed when it was lodged. Despite this, Brian later conceded he had attached a copy of the caveat to his affidavit, suggesting he had not only seen the caveat, but also had read and understood its contents.
Similarly, Brian remained resolute that he had never read the description of the interest in the Armidale Property which was lodged with the caveat. This was despite the fact that he had extracted that description in his affidavit. When confronted with this inconsistency, Brian continued to assert that "I never saw or reviewed … the caveat until yesterday when I read it" (T230:48).
Additionally, Brian's affidavit evidence went on to describe how the description in the caveat was meant to mean Glynis had a one third interest in the purchase price of the Armidale Property. However, during cross-examination Brian asserted that it was "definitely not" the case that Glynis had a one third interest in the purchase price of the Armidale Property. Brian was unable to satisfactorily explain the inconsistency in his oral and affidavit evidence.
Similar discrepancies were apparent in Brian's evidence concerning the nature of Glynis' interest in the Armidale Property generally. Brian gave evidence that there was an express agreement between Glynis and the Chetwynds that she would hold the Armidale Property on trust for them. Brian gave evidence that Glynis "has no interest in the purchase price of the Armidale property" (T124:38-40) and that he has always been "rock solid sure that she has no interest in the purchase price of the Armidale Property" (T125:4-6). However, as noted in paragraphs [271] and following below, when referring to documents which referred to Glynis' interest in the Armidale Property, Brian sought to explain that Glynis had a one third interest in the purchase price of the Armidale Property.
This changing evidence from Brian, which was clearly inconsistent with his belief that Glynis held no interest in the Armidale Property, did not give the Court any confidence in the reliability of his recollection of events. This changing account between the kind of interest, if any, Glynis had in the Armidale Property was not a one off, and was constant throughout the hearing. I accept the submission made for Glynis that Brian was strategic in his answers to questions, crafting a narrative which was most convenient to him, despite the glaring inconsistencies within his own evidence and against the objective documentary record.
Similarly, it appeared Brian was being tactical in the way he presented other aspects of his evidence. For example, the $55,000 payment which Brian made to Wincot between 2001 and 2005 has been characterised in two different forms by the Chetwynds. Brian submitted on one hand that the payment was to reduce the Citibank line of credit interest costs, and as such used to repay the vendor finance. This submission ultimately went to the fact that the Chetwynds repaid to Wincot the funds which Wincot had paid for the Armidale Property, and that therefore Brian and Jill were the owners of the property. Alternatively, one type of relief the Chetwynds seek in the amended summons relates to $55,000 which "should have been repaid by Glynis". If the funds were to be repaid as is suggested, they therefore cannot be characterised as being a payment to repay the vendor finance.
In addition to presenting inconsistent evidence to the Court, Brian failed to make concessions where it was clearly appropriate. For example, Brian did not acknowledge that according to the caveat, Glynis had a one third interest in the Armidale Property. Similarly, when I put to Brian that it would be fair to assume that the description provided on the caveat was likely to be in accordance with instructions the solicitors received, he would not accept that proposition.
Another example was Brian's attempts to characterise the correspondence between Mr Herd and himself detailed in paragraphs [271] to [284] below as being just negotiations. Despite Brian's clear acceptance in his letter that Glynis had a one third interest in the Armidale Property, he would not accept this. The written submissions of the Chetwynds reiterate that "GR did not ever have a 1/3 equity interest" in the Armidale Property, despite his clear concession to that effect in the documents which are considered below. Instead of making these appropriate concessions, Brian remained argumentative on some points, while on others would be evasive and vague in some of his answers.
Similarly, precisely what Brian remembered about various events struck me as inherently improbable. Brian would sometimes be unable to recall various facts, whilst at other times he would have very specific recollections of events. For example, Brian was very confident about a conversation during the early 1990s which created an express trust with Glynis, and all the terms of such an agreement. The terms he recalled of that oral agreement were detailed, precise and extensive, despite that conversation happening over 20 years ago. No few than 11 terms were agreed and are set out in paragraph [267] below. Alternatively, as already outlined above, Brian was unable to recall ever seeing the caveat before it was shown to him in Court, despite it appearing in his affidavit evidence. This caveat was lodged on his instructions in 2015, only a few years before the evidence for these proceedings was prepared and the case was heard.
The cumulative effect of matters such as those in the preceding paragraphs have led me to the conclusion that I will not accept Brian's evidence unless it accords with the probabilities, is against interest or is supported by contemporaneous documents.
[6]
Glynis
Numerous submissions were made by the Chetwynds regarding Glynis' credit. It was submitted that she was unreliable, should not be believed, and that her past behaviour involved making false and misleading entries in the Wincot accounts. In his submissions Brian sought to portray Glynis as someone who had acted out of self-interest and was manipulative in her behaviour. It was suggested that the various journal entries she made for the Wincot accounts were made by a highly competent and calculating individual who had intended to deceive the Chetwynds, rather than a woman who was inexperienced and may have made mistakes. Consequently, it was asserted by the Chetwynds that any evidence she gave should not be given any substantial weight, and if her evidence contradicted that of the Chetwynds, she was not to be believed. I do not accept this characterisation of Glynis' conduct.
The impression I formed of Glynis was that she was generally a reliable witness who was doing her best to tell the truth to the best of her recollection. Glynis swore numerous affidavits in these proceedings and throughout those affidavits she acknowledged the limitations of her memory. On multiple occasions, Glynis informed the Court that she did not remember a conversation having occurred, however she noted that did not necessarily mean that such a conversation did not happen.
The oral evidence Glynis gave was consistent with her affidavit evidence and she answered all questions carefully. She did not seek to embellish evidence during cross-examination, nor did she seek to adjust her evidence to suit her own objective. She made concessions where appropriate and acknowledged her lack of formal training in relation to her role as bookkeeper for the Wincot accounts.
At numerous times throughout these proceedings, the accounts of Wincot were in issue, including specific entries made by Glynis. As bookkeeper for the company, Glynis was responsible for the day-to-day management of the accounts and record keeping. Glynis has no formal qualifications in accounting, nor does she have any formal training in record keeping. When Glynis was cross-examined about a particular payment and whether a mistake had been made in recording the payment, Glynis freely admitted (T497:2) "I don't know. I'm not an accountant. I don't know."
The Chetwynds submitted that any issues arising from the Wincot accounts were a result of Glynis intentionally making false and misleading entries for her own benefit. The Court does not accept this submission. The serious nature of those allegations would require the Court to be satisfied to the Briginshaw standard, and the Court is not satisfied to that standard or at all. At the time these various journal entries were made for the accounts of Wincot, it was a common and uncontested fact that Glynis, Brian and Jill were all good friends. They had a trusting relationship and were more than business partners. They were, in Brian's words, "practically family". Consequently, the Court does not accept that Glynis was acting out of malice and self-interest when these journal entries were made.
Additionally, given Glynis' lack of formal training and qualifications in bookkeeping, any entries in the Wincot accounts which have been criticised are most likely explained by Glynis' inexperience rather than her intentionally making false entries so she could benefit. There is no suggestion of actual benefit to Glynis in any event, in the sense of her gaining access to actual funds to which she was not entitled.
Glynis consistently acknowledged that where she did not know how to record a transaction, she would ask either Mr Herd or Brian how to record the transaction accurately. It was Brian who had set up Wincot's computerised bookkeeping system. She did not question their advice and always deferred to their experience. During her cross-examination, Glynis was shown numerous journal entries which she was unable to explain. Rather than attempting to justify them with the benefit of hindsight, she acknowledged that she could not explain them and that she would have made those entries in accordance with instructions from either Brian or Mr Herd. Glynis conceded that at times, she did not understand why Brian or Mr Herd had instructed her to make specific entries, however she did so anyway in accordance with what she regarded as being their expertise.
The Court finds that when Glynis was fulfilling her role as bookkeeper, she was doing so to the best of her ability. The Chetwynds have failed to provide any basis sufficient to persuade the Court that Glynis was acting with any malice or being guided by self-interest.
Most of the entries in question were unremarkable and made over 20 years ago. Given the nature of the entries, the context in which they would have been made, her lack of training in the area and the subsequent time which has lapsed since the entries were made, it is unsurprising that Glynis was unable to recall the exact details of the journal entries, and why she made them. As such, the Court makes no adverse credit findings against Glynis for her failure to explain the journal entries. While Glynis was not able to provide justifications for these entries, the Court is not satisfied that provides sufficient grounds to made an adverse credit finding against Glynis. The Court is satisfied that Glynis was a reliable witness whose evidence was to be preferred over that of Brian where that evidence was in conflict.
[7]
Mr Herd
Mr Herd was an important witness during this case and his evidence has proved to be highly probative. Mr Herd was the accountant for Wincot, and also did accounting work for the Chetwynds. Mr Herd is a Fellow of the Institute of Chartered Accountants, and has been a Partner at HQB Chartered Accountants since 1986.
Mr Herd's credit was put in issue by the Chetwynds. The Chetwynds asserted in their submissions that at times, he "submitted an outright lie" and he was motivated to "mislead and cover up" certain facts. Despite these submissions, it was not clear to me how, or more importantly why, Mr Herd, as an independent witness in this litigation, was motivated to mislead the Court.
The crux of the Chetwynds' submission on making an adverse finding about Mr Herd's credit was grounded in small factual misgivings, or the interpretation of specific words used by Mr Herd. For example, much was made of Mr Herd's characterisation of rental payments made by the Chetwynds to Glynis. Mr Herd characterised those rental payments as being "notional" rent, as Glynis did not actually receive the money as she paid it back to Wincot. Brian submitted that Mr Herd's characterisation was "an outright lie" and the rental payments should have been referred to as "real" not "imaginary", as he conceived the word "notional" supposedly to connote.
Similarly, it was submitted that Mr Herd's evidence was contradictory to evidence given by Glynis, and even at times contradictory to his own earlier evidence. During cross-examination, the following exchange occurred between Brian and Mr Herd,
"Q. Who was the landlord, Mr Herd?
A. Ms Rose.
Q. As the owner of the property?
A. Yes.
Q. What about her capacity as the trustee?
A. I don't see any reference to trustee in the title of the property."
The Chetwynds submitted that the above evidence appeared to suggest that Mr Herd did not accept there was a trust, and that Glynis was not the trustee, which is uncontested. Brian argued that "this extraordinary evidence by BH (Bill Herd) seems to even contradict his own evidence, but in any event is a complete contradiction to the evidence of GR (Glynis Rose). BJC (Brian and Jill Chetwynd) submits that this evidence by BH even seems to indicate that GR was the sole beneficial [sic] and … if BH is telling the truth, is GR untruthful or is it vice versa?"
Like the example in the preceding paragraphs, much seems to be made of what appears to be a fairly innocuous remark made my Mr Herd. The attack on Mr Herd's credit was not based on any substantial piece of evidence or contradiction, but a series of largely irrelevant and minor facts.
The Court accepts the submission made for Glynis that these kinds of relatively trivial examples are not sufficient to found an adverse credit finding against Mr Herd. When the evidence of Mr Herd is examined holistically, it is consistent and supported by objective pieces of evidence, and is congruent with the evidence provided by Glynis.
Furthermore, when considering Mr Herd's evidence, the Court accepts his evidence in accordance with the approach outlined in paragraph [158] above. Mr Herd acted as the accountant for Wincot. He has no beneficial interest in determining who has an interest in the Armidale Property and has no reason to be partisan towards either party. Additionally, given his professional role as accountant of Wincot, Mr Herd is intimately familiar with the accounting practices of the parties. Mr Herd oversaw the complex financial arrangements of Wincot, dealing with the not always straightforward task of trying to make what might be termed "accounting sense" in accordance with applicable standards of arrangements that Brian had initiated primarily to protect the Chetwynds' assets from creditors. As such, in resolving the conflicting evidence of the interested parties, I have given Mr Herd's evidence substantial weight given his familiarity with the practices of the parties and his lack of beneficial interest in the result of this litigation.
Moreover, Mr Herd's evidence is not exclusively favourable to Glynis. For example, in paragraph [447] below, his evidence is accepted in determining that Glynis owes the Chetwynds $15,953 in relation to dividend payments. I am fortified in my finding that Mr Herd is a reliable witness given he clearly is not partisan and his evidence does not exclusively favour one party. This is particularly important in circumstances where the Chetwynds submitted that Mr Herd would have been inclined to favour Glynis because she subsequently worked for him, a submission I reject. Mr Herd's presentation in the witness box was considered and professional. As such, I have found Mr Herd to be a reliable and trustworthy witness.
[8]
The accounts of Wincot and accounting procedures
The accounts of Wincot were a key piece of evidence in these proceedings, particularly in relation to who made repayments for the mortgage over the Armidale Property, and who paid for various business expenses. The Court's reasons for the findings in relation to who made repayments for the mortgage are detailed in paragraphs [219] and following below.
Additionally, following the case being reopened in 2018, new claims were made by the Chetwynds in relation to Glynis breaching the corporations law by reason of entries she had made in the Wincot accounts. As such, it is necessary to set out the accounting practices of the business.
As I have already recorded, Glynis did the bookkeeping for Wincot. She had no qualifications in accountancy and no formal training in the photographic industry. The accounting software used by Wincot was created by Brian, who subsequently taught Glynis how to use it. It was uncontested that Glynis was essentially self-taught, and that she had recourse to guidance from either or both of Brian and Mr Herd when she was unsure how to record a transaction.
While Glynis was responsible for the bookkeeping, at the end of each financial year Mr Herd finalised the accounts for the year and showed them to Brian, which Brian would then review.
In his evidence, Mr Herd described the complexities of the accounting procedures required for the Wincot accounts. While Wincot was a business, it acted as more than a business for the Chetwynds. The Wincot accounts were closely intertwined with the personal affairs of the Chetwynds.
Mr Herd described how Wincot acted essentially as a "cash cow" for the directors, a description which Brian accepted. Mr Herd detailed how if the Wincot accounts were "normal", then the directors would have been paid a salary out of the accounts. This salary would have been paid into their personal account, and subsequently been used for personal expenses. This was not the case.
There was no dispute that Wincot's funds were used to pay for substantial personal expenses for the directors. These payments were not part of the salary of the directors.
Glynis detailed how the payment of personal expenses was facilitated by Wincot and subsequently recorded as debits in each of their respective loan accounts. There were no limits on the amount or nature of the expenses which Wincot would pay. The only condition was Wincot had to have sufficient funds available to make the payment.
During the hearing, I noted that it was not unusual in small and family businesses for a company to pay personal expenses and for them to be recorded as a director loan. It appears this was the case with Wincot.
The accounting of Wincot was complicated further due to the various legal structures in which payments were made. The commercial relationship of the parties involved the following:
1. A partnership, arising through the three way split agreement;
2. A trust, arising from the agreement that Glynis would hold the legal title to assets on behalf of the Chetwynds; and
3. A company, namely Wincot, which was the corporate vehicle through which business affairs were conducted and personal payments were made.
The agreement in relation to both the partnership and the trust were never documented or formalised in any other way. Nor was the extent to which, and how, Wincot could make personal payments on behalf of the directors ever formalised.
The interaction of these various legal structures complicated the accounts. For example, Glynis was the legal owner of the Armidale Property, which was held on trust for the Chetwynds and, the Court finds, for herself in equal shares. Wincot paid for the Armidale Property using the Citibank line of credit secured against the Neutral Bay Property, which was owned by Glynis and held on trust by her for the Chetwynds and herself in equal shares. Rent was received by Glynis for the Neutral Bay Property in her personal account and she subsequently used that rent to pay the interest on the Citibank line of credit for the Armidale Property. This practice is described in further detail in paragraphs [233] and following below.
Originally, the Citibank line of credit was in the name of Wincot, however was later transferred to Glynis by Mr Herd. The Citibank line of credit, while making payments for the Armidale Property, was also used to make payments for Wincot's corporate purposes. This complex arrangement therefore made accounting for various payments quite difficult, and especially so for someone like Glynis, who had no formal accounting training.
Additionally, the purpose behind these structures was to obfuscate the beneficial interests in the assets and ventures. The Chetwynds were concerned that they could be pursued by creditors from a previous failed business venture. Consequently, the Chetwynds proposed an arrangement whereby Glynis would hold the exclusive legal title to various assets, and the Chetwynds would have a beneficial interest in those assets.
As I have already noted, there was no documentation which evidenced the nature of this beneficial interest, or who the beneficiaries were. For example, the ownership of the Armidale Property, the ownership of shares in Wincot and the handling of the proceeds following the sale of the Neutral Bay Property, were all subject to a trust arrangement in some respect.
During cross-examination, Mr Herd was questioned as to why the beneficial interest of the Chetwynds in the Armidale Property was not recorded. This interest was not recorded for numerous reasons, however most prominently for the reason outlined above, namely that the Chetwynds wanted to shield their assets from any possible claim from creditors from their previous business ventures. The three way split agreement was the idea of the Chetwynds, and Brian personally oversaw the trust arrangements for the ownership of various assets. Consequently, the accounting relating to the purchase of the Armidale Property reflected that Glynis was the trustee and legal owner of the Armidale Property.
Another complexity in the accounts of Wincot was Mr Herd's practice to characterise certain transactions to minimise the tax exposure for the parties and Wincot. In and of itself, there is nothing to criticise in that. At times, this resulted in transactions being retrospectively re-characterised for accounting purposes. For example, Mr Herd accounted for the Wincot Citibank line of credit as being in substance a facility of Glynis, rather than Wincot. This was done because of possible tax implications if the drawdowns to acquire the Armidale Property were characterised as an advance to Glynis.
Another example of the re-characterisation practice was the re-characterising of loans made by Wincot to the directors as being "salary" or "dividend" payments. Again, this was done to avoid tax liability for payment of the directors' personal expenses. As I observed during the hearing, "The parties arranged their affairs, no doubt, with the advice of an accountant in a way that they accepted … was the most advantageous to them. … A consequence in law of that is that if the parties have made their bed in a particular way for the purpose of tax or other consequences, then they must lie in that bed."
In terms of the daily accounting procedures, Glynis, as bookkeeper of Wincot, made general accounting entries from day to day, and prepared the trial balances at the end of each financial year. These end of financial year reports were then shown to Mr Herd and Brian for approval. As I have already found, due to the complexities of the accounts for Wincot, Glynis at times deferred to Mr Herd or Brian in order to be advised how to record specific transactions.
Glynis' affidavit evidence sworn 31 March 2017, and which the Court accepts, was:
"Because of my lack of accounting confidence, and my commitment to achieving accuracy, it was general practice to frequently ask questions of both Bill Herd and Mr Chetwynd, about accounting and bookkeeping practice in relation to any vaguely unusual transaction. It was my invariable practice to follow precisely any instructions I received from them. I deferred completely to their experience and authority, and would never have dreamed of challenging the correctness of the instruction they provided to me. Sometimes when they gave instructions, they explained and I understood the reason for them. On other occasions I followed the instructions without really understanding the rationale for them, but simply trusting in the competence of Bill Herd and Mr Chetwynd … I never made an end of year journal entry, without either being very confident that I knew there was a proper basis for it, or because I was instructed to do so by Bill Herd."
Similarly, Mr Herd's evidence from his affidavit sworn 31 March 2017 supports the evidence of Glynis. He said:
"There were typically numerous journal entries which were required which were based upon more complex accounting concepts and procedures, which were beyond the expertise and competence of GR (Glynis Rose). In relation to these:
i) it was in my practice to prepare journal entries which I considered were necessary for the settling of the financial statements, and enter those entries into the electronic accounts system which I maintained in our offices in relation to Wincot;
ii) inform GR about the journal entries which I had made, and instruct her to attend to the entry of those journal entries into the accounts she maintained. To the best of my recollection, sometimes GR recorded those journal entries during our meeting, and sometimes I communicated the journal entries to her sometime after the meeting. I certainly recall observing her attending to these end of year journal entries from time to time."
While the evidence suggested that Glynis was not experienced at bookkeeping, the Chetwynds submitted otherwise:
"BH makes out very eloquent case [sic] that GR was a nice everyday bookkeeper who just did a modest and studious job, but nothing could be further from the truth. BCJ submits that GR was a very clever, determined and astute person, with a high skill level and excellent business knowledge."
The underlying assertion from that submission was that Glynis was highly competent and therefore her actions were manipulative and self-serving. For the reasons outlined in paragraph [84] above the Court does not accept this submission.
Additionally, the Chetwynds continuously submitted that the accounting for Wincot should have been simple and should have been recorded in the "very simple way" of just splitting the ownership of the Armidale Property in one third shares. For the reasons outlined in paragraphs [198] and following above, I do not accept that the accounting was simple, and this is reflected in the accounting evidence which was tendered.
The Court also accepts Mr Herd's opinion that given the complex nature of the accounts, and the fact that business and personal finances had become intertwined, there was going to be a need for a "reckoning", whereby the finances were formally resolved between the parties by taking into consideration various personal and business expenditures. This "reckoning" never occurred.
[9]
Who made the repayments for the Armidale Property?
It was common ground that the deposit for the Armidale Property was paid by Wincot. It was not, however, agreed as to who made the repayments in relation to the vendor finance.
Glynis submitted that a direct debit authorisation was established in 1995, which she authorised, which paid for the monthly instalments from the Wincot accounts when they fell due. She does not recall the Chetwynds ever personally paying for any of the monthly repayments.
While it was initially submitted that the Chetwynds were "wholly responsible for the mortgage repayments", this was not the case. Instead, the Court finds that it was Wincot who made the repayments.
The Chetwynds then submitted that they would repay Wincot for the funds which Wincot used to pay the vendor finance. Again, the Court finds that this was not the case in accordance with the reasons set out in paragraphs [233] and following below.
In determining how the repayments were made, the Court has taken into account the significant discrepancies between the affidavit and oral evidence given by Brian in terms of Wincot being responsible for the payments.
In relation to the arrangement that the Chetwynds would repay Wincot, Brian acknowledged that there was no time limit on the repayment obligation, and he had not considered what a reasonable time would be to repay the money. When questioned as to the details of making repayments to Wincot, Brian noted "we would progressively, over a period of time, pay for the house. There was no time limit set to pay for the house and that would certainly be out of our own resources, whatever resources came away we would be paying towards the house" (T105:17-20).
In support of the Chetwynds' contention that they repaid Wincot, the Chetwynds relied upon the Wincot ledger reconstructed by Brian. This ledger was described by Brian as being "an account recording the purchase of the Armidale Property as an asset." The ledger lists numerous payments, with the closing balance being nil, suggesting the Chetwynds have repaid all the monies paid by Wincot for the Armidale Property. According to the ledger, the total amount paid by the Chetwynds to Wincot was $212,000.
Glynis submitted that the ledger was fictitious and devoid of any probative value. In making this assertion, Glynis relied upon the expert evidence of Mr Herd. In his evidence, he stated:
"Thirdly, although the "House" ledger purports to record Purchase Indemnity Contributions from the Chetwynds (reflecting their contribution to the purchase of the Armidale Property), in my opinion there is manifestly no basis for characterising the underlying transactions in that manner. To the extent that there is no basis for that characterisation, the accounts will not constitute a "true and fair" view of the financial position and performance of Wincot. As to this:
a) The "House" ledger purports to record payments totalling $212,000 from the Chetwynds to Wincot, in relation to the repayment of the principal borrowed to purchase the Armidale Property;
b) Those payments can be divided into 3 broad categories:
(i) Payments from mayoral income: Payments that appear to correspond to the payments made by Mr Chetwynd to Wincot, from his mayoral income into the Wincot Citibank account, in the period of July 2002 to March 2004;
(ii) Rent: Payments that appear to correspond to the amounts recorded in the Actual Wincot Accounts, as rent paid by the Chetwynds to Ms Rose for the occupation of the Armidale Property;
(iii) Debits to the Chetwynd loan account: Payments that appear to comprise debit journal entries in the Chetwynds' loan account created for the first time when Mr Chetwynd created the Reconstructed Ledgers.
c) I am not aware of there being a reasonable basis for any such transactions being characterised as Purchase Indemnity Contributions in the House ledger."
The Court will consider each of the categories stated by Mr Herd.
[10]
Payments from mayoral income
In 2000 Brian became mayor of Armidale. It was uncontested that Brian transferred $55,000 from his personal account to the Wincot account. These payments took place between 2001 and 2005. The purpose of the payment was to reduce the Citibank line of credit interest costs. Brian said that he made these payments using funds from his mayoral income.
Whilst it was accepted that these funds were paid to Wincot, Brian's affidavit evidence was that these funds were to be repaid back to him. It was ultimately agreed between the parties that instead of making an adjustment against the Neutral Bay Property, an adjustment would be made against the Armidale Property when it sold. As Mr Herd concluded in his evidence:
"on the assumption that the $55,000 was transferred to Wincot against the backdrop of an agreement between the parties … on terms that the sum be repaid, there is no proper basis to record the payments as constituting a Purchase Indemnity Contribution. Recording the payments in "House" in that manner, is fundamentally inconsistent with an agreement that the sum is to be advanced for the purpose of "reducing interest", and on the basis that it be repaid. In those circumstances, recording the $55,000 payment in that manner in the "House" ledger of the Reconstructed Ledgers is inconsistent with preparing financial statements to present a "true and fair" of the financial performance and condition of Wincot."
The evidence given by Mr Herd in relation to the nature of the $55,000 payments was not criticised or tested in cross-examination, nor was there any contrary evidence put to the Court.
The Court also has taken into account the characterisation of the $55,000 by the Chetwynds themselves in their Amended Summons. One of the grounds for relief initially pressed by the Chetwynds was that "the Defendant pays to the First and Second Plaintiffs the amount of $55,000 … being the monies paid by the First and Second Plaintiffs, that should have been repaid by the Defendant, or applied to the payment of the Armidale Property." Seeking that relief is entirely inconsistent with the notion that the payments made by Brian were repayments to Wincot for the purchase of the Armidale Property.
This payment is considered further at paragraph [422] below.
[11]
Rent
The Chetwynds further submitted that they made rental payments as a means of repaying Wincot for the vendor finance. The reconstructed ledger suggests that of the funds used to repay Wincot, $45,140 was attributed to being paid by the Chetwynds as rent for living in the Armidale Property. This rent was supposedly paid between 1994 and 2000.
Mr Herd gave evidence that he proposed a system of round robin cheques to the parties whereby the Chetwynds would pay $780 per month as rent for the Armidale Property. The system proposed by Mr Herd would have seen these payments being made by the Chetwynds through drawing a cheque from Wincot for $9,360, that being the cumulative annual amount of rent. This cheque would then be paid to Glynis as the legal owner of the Armidale Property, who would then repay the money back into the Wincot account.
Under this arrangement, the Chetwynds would not pay any of their private funds for the rent, and Glynis would not receive any money for the rent. In her evidence, Glynis acknowledged that she did not recall this arrangement in detail, however noted that Mr Herd had made suggestions as to how to pay rent and minimise tax liability.
This arrangement saw $780 per month being debited against the Chetwynd loan account and subsequently being credited to Glynis' loan account. At this time, Glynis was the legal owner of the Neutral Bay Property which was being rented out. The Neutral Bay Property was positively geared. As such, she was paying tax on the income she received from that property.
Alternatively, under the arrangement set up by Mr Herd where the Chetwynds paid $780 per month, the Armidale Property was to be negatively geared. This would subsequently decrease the amount of Glynis' taxable income. This arrangement was terminated after 2000 upon the advice of Mr Herd when the Armidale Property became positively geared, and there was no tax advantage in continuing the rental arrangement.
While paragraph [234] above outlines the proposed system, it did not always eventuate this way. On some occasions, cheques were drawn from Wincot on a monthly basis, rather than an annual basis; at some times the cheque was drawn by Glynis, rather than the Chetwynds; and at other times the cheque was drawn by Wincot itself, and subsequently paid back into the Wincot account.
Brian submitted that the debit entries in the loan accounts of Jill and himself were the personal resources of the Chetwynds, and as such they personally made the rental repayments to Wincot. Additionally, it was also submitted that cheques drawn from Wincot, to the Chetwynds, to Glynis, and back to Wincot were properly recorded as personal funds in the hands of the Chetwynds.
The Court does not accept these submissions.
The Court accepts Glynis' submission that it was incorrect for the Chetwynds to characterise the rental payments as personal finances. Brian argued that the debit entries generated "personal financial resources" by being part of his salary on which he paid tax. While Mr Herd acknowledged the debits could have been part of his salary, and that the Chetwynds likely paid tax on that amount so far is it appeared in their personal tax returns as part of a salary, that does not necessarily mean the salary amounted to "personal financial resources" which the Chetwynds could utilise.
As noted in paragraph [201] above, Wincot had a practice of paying the individual directors' personal expenses and subsequently debiting the directors' respective loan accounts for those expenses. This was done to minimise tax liabilities which could otherwise arise.
As such, the salaries of each of the directors would be adjusted to reflect these payments. Mr Herd explained the way this was done was that at the end of the year, all the debit entries were collected and subsequently charged against the debit loan account. This would result in adjusting the salary of each of the directors.
As Wincot was making direct payments for the directors' various personal expenses, any characterisation of the funds as a salary is a retrospective recognition that the director had previously had the benefit of the entitlement to that payment. It does not mean that the director received the money as cash, which would enable them to dispose of it as they wished. As such, it is not open to characterise the money as "personal financial resources" belonging to the Chetwynds, as it was Wincot making the payment. This is consistent with Wincot having acted as a cash cow for the directors, which meant that the Chetwynds had already received the benefit of the salary by the company making the payment. To allow the Chetwynds to have the benefit of the salary payments twice, once in the hands of Wincot, and once in the hands of them personally, would be wrong.
Additionally, any suggestion that the money which paid for the rent was from their "personal financial resources" is also incorrect. While Brian attempted to adduce evidence that the cheques were "physically handed to the Chetwynds" (T417:45), little evidence other than submissions were provided to the Court to reach that conclusion. The only real evidence Brian relied upon was the fact that the payee on a cheque butt was listed as being "Mr Chetwynd/JC". While there is a possibility that the cheque itself, and not just the butt, may have been made out to Brian, the Court is not satisfied this means that the cheque was drawn in favour of the Chetwynds.
Mr Herd gave evidence, which the Court accepts, that it was not unusual for the recipient of a cheque to be different to who was listed on the butt. Moreover, Glynis also said that she may have written the cheques to individuals other than who was listed on the cheque butt. The Chetwynds could have been listed on the cheque butt if the cheque was directed to Glynis for payment of the Chetwynds' rent for the Armidale Property. This would reflect that the payment by Wincot was for the benefit of the Chetwynds, and result in a debit entry in the Chetwynds loan account. There was also no evidence of cheques being personally banked by the Chetwynds, which again reinforces the likelihood that the cheques were not always drawn to the Chetwynds.
Brian cross-examined Glynis extensively about the nature of the cheques drawn from the Wincot account. She did not recall the monthly cheques of $780 being drawn from the Wincot account, being provided to the Chetwynds, the Chetwynds personally banking that cheque, and then subsequently issuing another cheque to her. Despite numerous questions, Glynis remained confident that she had no recollection of the cheques ever being drawn in the name of the Chetwynds. The Court accepts her evidence.
Furthermore, Brian's own affidavit, dated 16 March 2017, noted that "in account number 539 styled Drawings Manager, there are a number of debit entries for $780.00. These are noted as being BC/JC Management Fees. Neither my wife nor I actually received these funds. These were re-banked by Glynis Rose to Wincot and then paid to Citibank." This evidence contradicts any suggestion that the money was held by the Chetwynds in their personal capacity, and then used to repay Wincot rental payments for the Armidale Property.
As such, the Court accepts Mr Herd's evidence in relation to the cheques not being personal funds of the Chetwynds. Mr Herd devised and implemented the system of round robin cheques concerning the payment of rent for the Armidale Property, and did so for tax purposes. Consequently, his evidence as to the nature of those payments is highly probative and the Court gives it determinative weight in determining the nature of the cheques. These payments were not repayments from the Chetwynds to Wincot and should not be characterised as such.
Therefore, there is no proper basis for recording any such payments in the reconstructed ledger as payments of rent by the Chetwynds to Wincot.
[12]
Debits to the Chetwynd loan account
The Chetwynds also submitted they repaid Wincot for the vendor finance through a series of debits to their loan account. There were numerous credit entries in the Wincot House Account which were recorded as "payment from BJC" (being both Brian and Jill Chetwynd). The total of these credit entries amounted to $111,860.
Brian submitted that these credit payments amounted to money being paid by the Chetwynds to Wincot as repayments for the money Wincot paid for the Armidale Property.
There was no evidence to support this assertion. There was no evidence to suggest they related to any transaction for which Brian made an actual payment of cash to Wincot.
Instead of being connected to any repayment to Wincot, Mr Herd characterised these payments as:
"merely correspond[ing] to "debit" entries in the Chetwynds loan account (purporting to record an advance from Wincot to the Chetwynds), in relation to which:
(a) I am unaware of any underlying transaction to which the debit loan entries relate;
(b) The debit entry was not made in the Chetwynd loan accounts, in the Actual Wincot Account;
(c) The debit entries in the Chetwynd loan account were created by "journal entries" made by Mr Chetwynd in the course of preparing the Reconstructed Ledgers;
(d) Mr Chetwynd does not provide any explanation for the debit entries which I consider provide a reasonable justification for either the "debit" entries in the Chetwynd loan account, or the "credit" entries in the "House" Account."
Mr Herd's evidence also included the following:
"On the assumptions that:
(e) There is no underlying transaction to which the entries referred to in paragraph 75 relate;
(f) Mr Chetwynd retrospectively prepared journal entries to create those entries, for the purpose simply of creating the impressions referred to in 76 above,
Then in my opinion the entries:
(g) Are properly characterised as fictitious, and contrary to the presentation of a "true and fair" position in relation to the financial performance and condition of Wincot, for the reasons set out in paragraph 70 above;
(h) Do not support an inference that the Chetwynds [sic] are properly characterised as having contributed $111,860 to the acquisition of the Armidale Property."
No evidence has been produced as to what the credit entries in the House Account relate. As such, the Court does not accept the argument made by the Chetwynds.
Furthermore, there has been no evidence in response to Mr Herd's highly critical analysis of the ledgers, and Mr Herd was not cross-examined in relation to his evidence on this subject.
As such, Glynis submitted the entries in the reconstructed ledger were a "sham." Without necessarily accepting that description, it is clear that the reconstructed ledger is exactly that: a reconstruction by Brian to reflect what he would like the Court to find happened, without providing any persuasive evidence by reference to which the Court could be satisfied that the reconstructed ledger gives a true and fair view of what actually occurred at the time. The Court gives no weight to the reconstructed ledger in determining whether repayments were made by the Chetwynds to Wincot.
[13]
Who made the repayments for the Armidale Property? - Resolution
The Court finds that, on the balance of probabilities, Wincot paid for the Armidale Property in its entirety, including both the initial down payment and the subsequent vendor finance repayments. The funds advanced by Wincot were not subsequently repaid by the Chetwynds.
In making this finding, the Court has rejected the submission that Brian's mayoral income, rent paid by the Chetwynds and debits to the Chetwynd loan accounts were forms of repayment to Wincot for the purchase of the Armidale Property. This is in accordance with the reasons provided in paragraphs [228] to [258] above.
Additionally, upon the case being reopened in 2018, the main argument pressed by the Chetwynds was that they made repayments to Wincot through the rental payments. Following the case being reopened, it appears no argument was made in relation to payments being made from Brian's mayoral salary, or debits in the Chetwynd loan accounts, and that argument was abandoned.
[14]
Issues to be determined
Many issues have been raised by the Chetwynds and upon the reopening of the case in 2018, further issues were raised in the alternative for Wincot. The relief the plaintiffs seek can be summarised as follows:
1. A declaration that Glynis holds the Armidale Property on trust for Brian and Jill, or in the alternative for Wincot;
2. Various monetary claims against Glynis personally and that she account to Brian and Jill or, in the alternative, to Wincot;
3. Glynis account to the Chetwynds and Wincot for any financial benefits she may have received in her capacity as trustee of the Armidale Property; and
4. Declarations in relation to contraventions of the Corporations Act 2001 (Cth) (the "Act") in relation to Glynis' behaviour.
While the main issue before the Court has been in relation to the ownership of the Armidale Property and who the beneficiaries are, no less than 22 individual monetary claims of relief were also pressed by the Chetwynds and Wincot against Glynis. Additionally, 11 breaches of the Act have been pleaded in relation to Glynis' behaviour as bookkeeper of Wincot.
[15]
Ownership of the Armidale Property
The 2017 hearing primarily focussed on whether Glynis held the Armidale Property on trust exclusively for Brian and Jill, or whether the Armidale Property was subject to the three way split agreement. Closely connected to this was the question of whether, if the Armidale Property was held for all three, there was an agreement that it could not be sold unless all three parties consented.
The 2018 hearing concerned the claim that, in the alternative, Glynis held the Armidale Property on trust for Wincot, with Wincot being the sole beneficiary.
The Court's findings are that Glynis does not hold the Armidale Property on trust for Wincot exclusively, and that she is a one third beneficiary in the property, along with Brian and Jill. This one third interest is not limited to the purchase price of the Armidale Property, but to the current value of the property. The Court also finds that there is no agreement requiring unanimous consent of the beneficial owners for any sale of the Armidale Property.
[16]
Does Glynis hold the Armidale Property on trust exclusively for the Chetwynds?
The Chetwynds submitted that an oral agreement was entered into with Glynis which would mean the Armidale Property was not subject to the three way split agreement. Brian argued he had an express oral agreement with Glynis and the following were the terms of that agreement:
1. Upon purchasing the Armidale Property, it be transferred to Glynis as the sole registered proprietor;
2. Glynis would subsequently be liable to the vendor (with the Chetwynds indemnifying Glynis) for the vendor finance repayments;
3. The Chetwynds would make all repayments for the mortgage;
4. The Chetwynds would not pay any occupation fee to Glynis;
5. The Chetwynds would solely pay for all outgoings;
6. The Armidale Property was not to be used for the purposes of making a profit from leasing to a third party;
7. If the Chetwynds could not pay off the purchase price or the mortgage, and Wincot subsequently made those repayments, then Glynis would have a one third interest in the purchase price, or in the ratio to what Wincot paid;
8. The Armidale Property would only be sold if it was agreed to by all three parties, and if there was any objection to the sale, then the Armidale Property would not be sold;
9. Glynis' one third interest could be purchased by the Chetwynds;
10. If Glynis died, the Armidale Property would be transferred to the Chetwynds after they paid for the one third interest to Glynis' family;
11. If the Chetwynds died, Glynis would transfer the Armidale Property to the Chetwynd family, subject to the Chetwynd family purchasing Glynis' one third interest.
These terms were not recorded anywhere in writing. There was no other evidence to substantiate the claims of the Chetwynds in relation to the agreement for the Armidale Property. In the face of conflicting evidence, the Chetwynds submitted that the Court should believe them in accordance with their submissions that the Court should make adverse credit findings against both Glynis and Mr Herd.
Glynis rejected that there was any such agreement in relation to the Armidale Property and submitted that Brian's evidence should be rejected as uncorroborated oral evidence. Rather than holding the Armidale Property on trust for the Chetwynds, Glynis submitted that the Armidale Property, like the other business dealings between the parties, was subject to the three way split agreement. In support of this submission, Glynis relied upon various contemporaneous documents and other evidence including, importantly, some produced before the parties were in dispute. The evidence Glynis relied upon included:
1. Correspondence between Mr Herd and Brian discussing the financial interests of the parties;
2. A Financial Position Report created by Brian in 2006, which recorded Glynis' interest in the Armidale Property;
3. Email correspondence between the parties at the outset of the litigation which suggested Glynis was a beneficiary of the Armidale Property;
4. A caveat lodged by the Chetwynds which recorded Glynis' interest in the Armidale Property;
5. A Centrelink letter dated 22 March 2010 which acknowledged the Chetwynds did not pay for the purchase of the Armidale Property; and
6. Evidence from Mr Herd as to his understanding of the financial position of all of the parties in relation to the Armidale Property.
I will consider this evidence in turn. As might be expected, I place especial weight on correspondence which predates the dispute which has led to these proceedings.
[17]
Correspondence from Mr Herd 26 August 2005 and Brian's reply 10 November 2005
On 26 August 2005, Mr Herd sent a letter addressed to "The Directors" of Wincot. That letter included (emphasis added):
"Dear Brian and Jill,
Re: Solvency
Now that Wincot Pty Limited has ceased trading it is appropriate that the ability to meet remaining creditors be addressed.
Annexed is a summary of estimated amounts outstanding. As there are no funds in the company to meet these debts, sources of funds need to be addressed.
For varying reasons, personal assets of each of the directors have been intertwined and although specific assets may be held in one particular name, I am informed, that each of the three directors have an interest in such assets.
The difficulty in the present situation is that both Neutral Bay and Balgownie Drive are registered as owned by Glynis. In order to equitably distribute the company debt, the proposal is as follows:
1. Transfer Balgownie Drive to you at say $300,000 (related Stamp Duty & Legals are estimated at $9,990).
2. The above transaction creates a capital gain of $120,000 of which $60,000 is taxable in Glynis's hands.
The ensuring tax is estimated at $28,000.
3. Physical cost of 1 & 2 are $38,190, which will need to be paid.
4. The debts of the company need to be picked up as a housing loan for each party. ….
As is evident from the above, the preferred position would be to transfer the property to you first, and then you decide what to do.
The above needs to be carefully considered, and perhaps market appraisals of the properties need to be done before any final decisions are made.
In any event, it is not appropriate to do nothing and let Citibank eat whatever equity is currently held. For the sake of everyone, this need to be resolved and I am happy to assist."
Brian provided a detailed reply to the letter from Mr Herd on 10 November 2005. His reply is set out below (emphases added):
"Dear Bill,
CONFIDENTIAL
Re: Wincot Pty Ltd
Thank you for your letter 26th August 2005 regarding the above. I have now obtained some more accurate figures of the assets and liabilities and I am setting these out below together with some calculations relating to the split up. I have used the initials of individuals where necessary.
1) I believe that all parties acknowledge that the whole of the assets and liabilities are apportioned one third to each person. For ease of calculations, Jill and myself are combined in some figures below.
2) Property at Neutral Bay has been verbally valued at $360K. One third is $120K. Property at Armidale has been verbally valued at $549K. One third is $183K.
3) Liability at Citibank is $164K (which includes estimate of final rent and BAS payments). BC banked $55K into this account over the past several years and it is agreed that these are his funds. If BC were to draw this out, the true liability of Citibank would be $219K. One third is 73K.
4) On the figures above each person has one third asset in the two properties which amounts to $303K, less the Citibank liability of $73K, giving a net asset of $230K per person.
5) In order to separate the properties it would be necessary for GR to sell her one third share in Armidale to BC/JC and to purchase the two thirds of Neutral Bay (one third BC and one third JC) held by BC/JC. The calculation is as follows:
GR pays for two thirds in Neutral Bay $240K
GR receives one third for Armidale $183K
GR owes BC/JC $57K
…
10) In respect of the transfer of the property in Armidale to BC/JC, BC is exploring the possibility that GR may only be legally obligated to pay stamp duty on the sale of her one third, viz., $183K. Further, GR may only be legally liable to pay capital gains on her one third as below…
11) The above is on the basis that BC/JC could prove their two thirds interest in the property and this may be possible for three main reasons as below:
a) The deposit of $110K was paid by mortgaging Neutral Bay, a property, in which they had a beneficial interest. This arose due to their selling of a property in Forestville to dissolve debts (in preference to selling Neutral Bay) incurred equally by the parties.
b) The vendor finance loan of $110K was in the names of BC/JC.
c) Th [sic] repayments were made from Wincot, which could be constituted as being made in lieu of certain wages.
Whilst the above is by no means a certainty, it is worth exploring as an option and my advice is that there are precedents that could be applied. In the event that the above is not possible, then BC will need to explore some alternative strategies. I think it is acknowledged that to pay the stamp duty and capital gains on $549K is out of reach financially.
…
Please have a look over the above figures and I would appreciate your comments. Please provide a copy of this to Glyn for her consideration. Nothing is fixed in concrete, but I think the above could be a basis for discussion."
The Court notes the failure of Brian in his letter of reply to correct the observations made by Mr Herd in his original letter of 26 August 2005. Had the observation made by Mr Herd, being that Glynis had a one third interest in the Armidale Property, been incorrect it would be expected that Brian would respond and correct Mr Herd's statement. He did not. Instead, Brian in fact went further to confirm the observation made by Mr Herd.
In his evidence and submissions Brian attempted to characterise the letter from Mr Herd as being merely "negotiations". Brian sought to minimise Mr Herd's letter, stating "I really didn't approach that with the great importance at the time" (T132:7). It was submitted that the Chetwynds did not want to enter into an argument with Mr Herd or Glynis at this point, and therefore decided not to correct Mr Herd's letter for strategic purposes. The Court does not accept Brian's attempts to dismiss the letter from Mr Herd.
Both the personal and financial history of the Chetwynds and Glynis was complex and their finances were intimately intertwined. A third party having an interest in the family home would naturally be an important factor to consider and cannot be dismissed in the way Brian was inviting the Court to do. Additionally, Brian gave evidence that had an assertion been made to him that Glynis had a one third interest in the Armidale Property, he would have certainly corrected that (T138:10).
Mr Herd's letter to Brian was exactly that, an assertion that Glynis had a one third interest in the Armidale Property and Brian failed to correct this. Had this letter been the opening of "negotiations", as submitted by the Chetwynds, then the first step of any negotiation would be to ascertain what interests each party had in each of the properties. Therefore, even if the Court accepted that Mr Herd's letter was the starting point of a negotiation (which on its face it plainly was not), Brian's letter of reply accepts that Glynis had an interest in the Armidale Property and more. The starting premise from which everything else proceeded in Brian's reply was "I believe that all parties acknowledge that the whole of the assets and liabilities are apportioned one third to each person."
This conclusion is fortified when considering Brian conceded that he was interested in exploring the notion of separating the parties' financial interests at that time (T125:28). If separating the financials between the parties was important to Brian, as he concedes it was, he would have been particularly aware of what interests Glynis had in the Armidale property, and what interests the Chetwynds had in Neutral Bay Property, and would have ensured this was documented correctly by the accountant. He did not.
Furthermore, the letter of 10 November 2005 from Brian is detailed and is three pages in length. Rather than refuting the suggestion that Glynis has an interest in the Armidale Property, Brian confirms this fact, particularly at point (5) of his letter. Brian explicitly states "In order to separate the properties it would be necessary for GR [Ms Rose] to sell her one third share in Armidale." Brian's letter was sent more than two months after receiving the initial letter from Mr Herd. This would have allowed for sufficient time for the Chetwynds to consider Mr Herd's letter thoroughly, digest the observations he made in the letter and then make an informed and detailed reply, which is what occurred. This accords with the opening of the letter where Brian records "I have now obtained some more accurate figures of the assets and liabilities".
After initially denying his letter conceded a one third interest in the Armidale Property to Glynis, Brian explained his reply as being what he was prepared to offer Glynis in a form of settlement, rather than being what she was legally entitled to. The Court does not accept that submission. As was put to Brian at the time, it was illogical to be "prepared to settle the matter on a basis that bore no reference to your understanding of the reality of the position" (T144:11).
Given the letter was sent before the dispute began with Glynis, the Court places very substantial weight on it when considering what was the arrangement between the parties. When read in an ordinary context, the letter does not suggest it is being written for the purposes of resolving a negotiation, rather the letter is being written to outline the complex financial relationship between Glynis and the Chetwynds, and raises possible steps to unwind that relationship. The interests of the parties are a given in the letter. What was not "fixed in concrete" and "could be a basis for discussion" was the various proposals as to how those interests could be separated.
I also regard it as significant that Brian's letter makes no reference to there being an agreement in place that the Armidale Property (or anything else) could not be sold unless all three parties agreed. That may have been the practical reality (absent proceedings such as the present), but if there had been such an arrangement I would have expected Brian to refer to it as one of the fundamental matters informing any future discussions.
When I asked Brian specifically about point (5) in his letter, and how I interpreted that "looking at that today, that looks to me like an acknowledgment that [Glynis] in fact had a one third share to sell", Brian replied "I draw exactly the same conclusion" (T155:35-37). Brian stated again that the concession did not reflect his "understanding … at the time", however when I inquired as to why, Brian responded "to be honest I don't really know" (T155.43). That position did not change after he had an opportunity to read the whole letter in the witness box. This was one occasion of several where I had doubt whether even Brian believed the explanation he was now proffering.
Brian also attempted to justify his letter by suggesting it was Wincot which had paid for the Armidale Property and as such, the observations in his letter were to reflect this. Again, the Court does not accept this submission. The language used by Brian in his letter is particularly relevant in answering Brian's assertion. The letter refers to the assets being "apportioned one third to each person." The specific reference to "person" as opposed to Wincot or company is important, and highlights the intent was that Wincot was not the beneficiary of the trust arrangement. This is consistent with point (11) of the letter, where Brian seeks to show how Jill and himself (and not Wincot) would demonstrate their 2/3 interest in the Armidale Property because the vendor finance loan "repayments were made from Wincot [I interpolate, not by Wincot], which could be constituted as being made in lieu of certain wages". Additionally, Brian acknowledged in cross-examination that the letter does not talk about Glynis' "one third interest in the money paid by Wincot rather than the Armidale Property itself" (T157.49).
In the end, Brian was not able to offer any satisfactory explanation for why the Court should not read his letter of 10 November 2005 as a clear acknowledgement - before there was any dispute - that Glynis had a one third interest in the Armidale Property itself. His attempts to persuade the Court otherwise also reflect decisively against Brian in its assessment of his credit.
[18]
Financial Position Report
In November 2006, Brian personally prepared a document entitled "Financial Position Report" (the "Report"). That document included (emphases added):
"Financial Position Report - November 2006
Brian and Jill Chetwynd (incl. Glynis Rose)
Confidential - For Discussion
1.) Background:
Brian (BC) and Jill Chetwynd (JC), together with Glynis Rose (GR) have been in business together (company structure) for some 30 years. Activities included wholesale and retail. During the mid nineteen eighties, whilst in wholesale, a major debtor went broke, owing the business some $1/2 million. In order to survive and regroup, BC/JC sold their property to pay debts. GR retained property in Neutral Bay, that all assets, including business and property, would be owned equally (one third) by each person, irrespective of the legal owner. No dispute exists, or has ever existed between the parties. Eventually the wholesale business was closed and activities became retail. The business of Crystal Colour commenced in Armidale in 1981 and closed in 2005.
2.) Current:
GR lives and works in Coffs Harbour with an Accounting practice. She rents a villa. BC and JC live in Armidale, on a property owned as above. BC is on a Centrelink aged pension. JC is under pension age and gets Newstart allowance. Whilst the parties have small investments, it is not possible to live on the current income. The property in Neutral Bay is still owned by the parties and rented. BC is carrying on some commercial activity. Whilst any property or business income is equally split, income generated from outside jobs or work is retained solely by the individual.
3.) The issue:
How to arrange our affairs and generate income, whilst maximising and pensions income [sic]. The last year in business was not profitable and incurred debts.
4.) Property details:
XX Balgownie Drive Armidale. 4 bedroom/2 storey house on 40 acres, 6km from PO. Zone rural 1b. Valuation approximately $550K, but could realise up to $700K in current market. The property is unencumbered. Legal owner GR.
10/XX Harriette St Neutral Bay. 1 bedroom unit in small block. Harbour views, LU garage. Latest valuation $395K Encumbered to Citibank by flexible mortgage for $140K. Legal owner GR.
(limit $230K) at 7.9% (excl. current rise). Rented at $295 per week.
…
5.) Investments:
Superannuation fund (Wincot Pty Ltd - self managed)
Commonwealth Bank $51,000
AMP $25,000
Shares
Commonwealth Bank $52,000
Telstra $20,000
IAG $5,500
Tabcorp $2,500
Total $156,000
Annual Income:
Superannuation $5,200
Dividends $5,600
Total $10,800
Superannuation Income is reinvested in Super account.
Dividend income paid into Citibank mortgage.
All of above is equally owned by BC, JC & GR. Super is in all three names. Shares are generally in all three names, but may not be equal.
…
7.) Business activities
Crystal Colour retains some plant and equipment. The main income generating items are an HP 2500 Wide format poster printer, a Xerox 1250 Digital Colour printer and various computer items. The Xerox is encumbered to the Commonwealth Bank for $750 p.c.m., finishing in August 2007. The company rents a storage shed for $381 p.c.m. …
8.) Centrelink situation:
BC/JC have declared all to Centrelink, i.e. shares, super, income, business activity etc. Regarding property, we have told them that we own Balgownie Dr., because it was too complicated to explain all herein.
9.) Conclusion:
We have examined the prospect of transferring the ownership of Balgownie Dr. to BC/JC, however Stamp Duty and Capital Gains Tax for GR (split 3 ways) is not affordable. (Purchase price in 1991 was $200K). Neutral Bay is exempt from Capital Gains Tax (purchased 1975). It is generally our intention to retain Neutral Bay until 2011 and sell - dividing the proceeds. Balgownie Dr. would remain home of BC/JC. Some thoughts about buying another property for GR to live in. BC/JC have been assisting GR with rent in Coffs Harbour.
As soon as some plan has been developed, it is our intention to formalise arrangement legally. Other matters to be covered by will of GR, BC and JC."
On its face, this document again appears to record a clear interest for Glynis in the Armidale Property. Paragraphs 2, 4, 5 and 9, when read together, provide an unequivocal assertion that the Armidale Property was subject to the three way split agreement.
When asked in cross-examination, Brian agreed that "this is another careful, detailed description of the status of the parties' financial interests" (T158:43). Similarly, Brian accepted that "this document again contains a clear and unequivocal representation that Ms Rose has a one third interest in the Armidale property" (T159:6).
After making these concessions that it appeared Glynis had a one third interest in the Armidale Property, Brian later stated "it's not the case and I'm happy to explain" (T159:49).
Brian's explanation can be summarised as follows:
1. At the time, the parties were looking at purchasing a property for Glynis in Armidale and the Report was a preparatory document to be put forward to a third party to facilitate that process;
2. The recognition of Glynis' interest in the Armidale Property was to facilitate a settlement. Brian told the Court "I think there was a good deal of pressure on the three of us and I felt it incumbent upon myself to try and do whatever I could to settle this and if it meant making a concession about a monetary interest then I probably would have done it" (T161:24-27); and
3. The recognition of Glynis' interest only related to her monetary interest in the purchase price, not the equitable interest in the Armidale Property.
The Court does not accept the explanation provided by Brian for the following reasons.
First, Brian's attempt to characterise the situation as one where there was "pressure" and the parties were in a situation of negotiation that was leading to a "settlement" is falsified by the terms of the document itself. The background statement in the Report could not be clearer: "No dispute exists, or has ever existed between the parties". The issue was not one of negotiation or requiring any settlement. It was a consensual one of "How to arrange our affairs and generate income, whilst maximising and pensions income [sic]", which I take to have been intended to say "whilst maximising pensions income".
Second, listing Glynis' interest in the Armidale Property is inconsistent with Brian's explanation that the Report was produced to assist Glynis to purchase a property in her own name. This is particularly telling, given Brian stated numerous times in his evidence that it was his belief that Glynis did not have an interest in the Armidale Property. It does not make sense that such a report would be produced setting out a position contrary to the belief of Brian, for the purposes of purchasing an additional property. This is particularly relevant given Brian was the author of the Report.
Third, the language used by Brian in the Report cannot be characterised as being an offer of settlement to Glynis. The Report presents as a clear representation of the status quo. When I suggested that the Report was "not an offer" (T160:33), Brian initially agreed and further accepted that it said nothing about making a concession or a negotiation to settle anything. In its terms the Report is clearly an accurate statement of the state of affairs between the parties at the time it was created, as Brian understood them to be.
Fourth, it is not possible to construe the language used by Brian in the Report to mean Glynis' interest was confined to one third in the purchase price of the Armidale Property. The reference in paragraph 9 to the purchase price of the Armidale Property is obviously in the context of Capital Gains Tax which would only be "(split three ways)" because each had a one third interest in the underlying asset itself. Furthermore, even if the Report did acknowledge Glynis' interest as being one third in the purchase price of the Armidale Property, this would still be at odds with the assertions Brian has subsequently made, namely that Glynis has no interest in the Armidale Property of any kind at all.
Similarly to the 2005 correspondence referred to in paragraphs [271] to [284] above, the Financial Position Report was created prior to the commencement of the litigation or any hint of a dispute between the parties. It positively asserts the absence of any dispute. Therefore, it is far more likely to present an unbiased and reliable record of Brian's understanding at the time. Furthermore, it was not a document that appears to have been created in response to any letter or demand by Glynis or anyone else. The Court finds that the Report relevantly says what it means and means what it says: that Brian's understanding was that Glynis had a one third interest in the Armidale Property.
Two other observations should be made. First, there is no reference to an agreement of any kind that unanimous agreement for sale of the Armidale Property was required. Second, Brian's convoluted attempts to explain away the Report again count decisively against him in terms of the Court's assessment of his overall credit
[19]
Email correspondence between the parties
The present dispute had its genesis in an email sent from Glynis to Jill and Brian on 3 January 2015. This sparked a series of correspondence between the parties.
For convenience, I set out that email chain again, beginning with Glynis' email of 3 January 2015.
"Hi Jill and Brian,
I hope you had a great Christmas and New Year with your family.
Now to something more serious. As I am turning 65 in June 2016 I am thinking of retiring. Because of this I believe that things must be resolved well before this time.
(1) Armidale property must be sold and finances sorted.
(2) Term Deposit and Netbank Saver Accounts must be transferred to your names.
I want to work together with you both to resolve these issues before the end of 2015 and in the next 3 months I will be seeking advice from Bill and/or an independent Tax Accountant to discuss all the ramifications. Perhaps in this regard we could have a telephone link to discuss the situation once I have established the initial contact.
These matters should be taken care of sooner than later. I would appreciate both your thoughts on the above.
Regards
Glynis"
On 9 January 2015, Brian replied to Glynis' email (emphasis added):
"Hi Glyn,
We hope you also had a great Christmas and New Year.
We have considered your email and comment as follows:
1) As you know, we are all one third beneficial owners of the property and all three of us must agree for the property to be sold. This is in accord with our long standing agreement.
2) The Term Deposit and Netbank Saver can be transferred to us shortly, as we have discussed with you before Christmas. No problem if you have rolled the Term over and we will get back soon with the transfer details.
We understand you situation about retiring and are quite happy to work together with you to resolve the matter in an equitable manner and in accord with the agreement.
We would be prepared to come to Coffs very soon to commence the discussion with you. We will wait to hear back from you.
Regards
Jill and Brian"
Glynis responded on 14 January 2015 (emphasis added):
"Hi Brian and Jill,
Thanks your email.
(1) As to point 1.) if this was our agreement (and I must admit I don't recall it), this would disadvantage my position.
(2) As to point 2.) the TD has rolled over and should remain in my name until a solution re the property is resolved.
As far as I can see there are only two options.
(1) You buy my one third of the property at market value and the TD can be used as part of the proceeds, or
(2) The property be sold to market with vacant possession and we each receive one third of the proceeds. You would retain the TD at that point.
I do need this matter to be sorted in the short term so as not to prejudice my Centrelink position. I think it is reasonable that we agree to a plan by the end of this month.
I await you reply.
Regards
Glynis"
The Chetwynds responded to Glynis on 16 January 2015 (emphases added):
"Hi Glyn,
Thanks for your reply, which we have read with a high level of concern and whilst we won't go into all the details here, suffice it say the following:
Our concerns are because for some 25 years we have had a 1/3 arrangement in all activities and assets, where every decision was discussed and agreed by the 3 of us, in a proper and equitable manner, with good will and trust. This includes all business activities, Forestville, Neutral Bay, Armidale property, super, cash, shares and etc. - never a problem. This agreement still stands the same today, as always, but suddenly, you appear to want to ignore or avoid our agreement, which has been confirmed by all of us and has been operative over all these years.
We say the above, as out of the blue, you send us an email stating the property "must" be sold, and now you are stating that the Term Deposit "should remain in your name". However, these are not decisions for you as one person to make and we reject them. Any decision on the property or any sale thereof, is a decision to be made by the 3 of us equal beneficial owners, whereupon we discuss the issue and all agree in accord with our long standing arrangement. Regarding the Term Deposit, the decision on those funds has already been agreed upon by the 3 of us and it is a result of each of us receiving an equal share of sale proceeds. The Term Deposit is ours (Jill's component in fact) and it cannot be retained by you under any circumstances.
We are at a complete loss in understanding why you have suddenly sent these insensitive and rather offensive emails, when you well know exactly what the agreement is. If you desire to change something, then the appropriate and proper way would have been to have phones one of us (as has always been the case) and discuss your ideas and preferred outcomes, so that we are part of the decision process as agreed. We don't think your emails and the holding of a gun at our heads, is either a sensible or fair way to go and in any event is totally against our agreement.
Having said the above, we would suggest that you reconsider your approach, so that we may then meet to discuss the matter (as we suggested in our last email). We repeat that we are quite prepared to work with you in the same manner as we always have and to look at the aspects, as well as how best they can be resolved, in an equitable way (in accord with our agreement), where no one person is put at a disadvantage or treated with disrespect. We trust that you will agree that this is a more positive and sensible approach."
As will be apparent from the passages which I have emphasised, on at least two occasions in this correspondence the Chetwynds explicitly state that Glynis has a one third beneficial interest in the Armidale Property:
1. The email on 9 January 2015 states "as you know, we are all one third beneficial owners of the property … this is in accord with our long-standing agreement."
2. The email of 16 January 2016 states "for some 25 years we have had a one third arrangement in all activities and assets … this includes … [the] Armidale property … This agreement still stands the same today…"
The Chetwynds' initial reply to Glynis came six days after her email, allowing ample time to provide a thoughtful and considered response, and states in terms "we have considered your email". Similarly, their reply on 16 January was two days after Glynis' reply, suggesting the reply was not caught up on the "heat of the moment." Therefore, the acknowledgments contained in their emails of Glynis' interest in the Armidale Property would not have been innocent mistakes, but are clearly deliberate remarks which reflected the Chetwynds' understanding of the interest Glynis held in the Armidale Property.
Brian tried to explain why he represented Glynis to be a one third beneficial owner in the Armidale Property, despite his oft stated position in his evidence that she had no interest in the Armidale Property at all. The Chetwynds' submissions can be summarised as follows:
1. The Chetwynds were attempting to appease Glynis out of fear she would sell the Armidale Property immediately, therefore leaving the Chetwynds without a home; and
2. The phrase "one third beneficial owners of the Property" was incorrect, and was meant to mean "one third beneficial owners of the original purchase price of $220,000."
The Court does not accept either of these explanations put forward by Brian.
At the time of the 2017 hearing, Brian had sworn four affidavits. In those affidavits, he expressly addressed the email chain above and attempted to explain what he meant. At no point did Brian express any sense of urgency or a need to appease Glynis. When cross-examined on this point, Brian conceded that in his affidavits, there was "absolutely no reference there to any strategy of appeasing Ms Rose" (T185:3).
Moreover, given the lengthy personal history between the parties, it is highly unlikely that Glynis would sell the Armidale Property without giving the Chetwynds ample time to organise their affairs, and would ensure that they were not left "out in the cold" (T166:19). The initial email was sent in January 2015, and Glynis clearly states she was hoping "to resolve these issues before the end of 2015", giving the parties twelve months to resolve their financial affairs.
The initial email sent by Glynis is not demanding or unreasonable; rather it is friendly and cooperative. Glynis states how she "want[s] to work together with you both to resolve these issues" and suggests "a telephone link to discuss the situation once I have established the initial contact." This email, against the backdrop of over thirty years of friendship, in which they were "practically family", does not suggest Glynis would immediately sell the Armidale Property as the legal owner.
The Chetwynds sought to suggest an aggressive tone was present in Glynis' initial email due to her requesting "the property must be sold and finances sorted" and this must be done "sooner [rather] than later". They submitted it were these quotes which suggested Glynis needed to be appeased. The Court does not accept this.
Glynis justified her need to resolve the matter over a time frame of a year, namely she was hoping to retire. This implies an intention to receive the pension which would be adversely impacted if the Armidale Property (which was not her home) was in her name. Consequently, it does not appear that Glynis needed to be appeased because she wanted to work with the Chetwynds to resolve any issues. The likelihood of this is increased when considering again that this correspondence is occurring against the background of over thirty years of friendship. In making these observations, I have not overlooked that in her second email Glynis brought forward the timetable for resolution, but that does not seem to me unreasonable in the light of Brian's response. Further, even in her second letter there is no hint that she might seek to sell the Armidale Property peremptorily.
Brian's second explanation was that his words "one third beneficial owners of the Property" should be construed to mean a one third interest in the purchase price of the Armidale Property. This was the evidence he gave in his affidavits.
The above is inconsistent with other evidence given by Brian that it was his firm belief that Glynis had no interest of any kind in the Armidale Property. Given Brian's adamant belief that Glynis did not have any interest at all in the Armidale Property, it is highly improbable, if not inconceivable, that he would have sent an email expressing a belief he did not have.
The much more plausible explanation, and what the Court finds, is that the words he used in the two emails that I have set out in paragraph [302] above demonstrate that the Chetwynds knew and understood that the Armidale Property was subject to the three way split agreement.
I shall return below to the fact that Brian is at pains in his emails to repeat several times that there was an "agreement" that the Armidale Property could only be sold by unanimous consent.
[20]
The caveat
Following the email correspondence outlined above, the Chetwynds instructed their solicitors, Mills Oakley, to lodge a caveat over the Armidale Property. Pursuant to Schedule 1 particularising the 'Estate or Interest Claimed', the caveat recorded the Chetwynds interest in the property as "equitable interest as beneficiary under a trust" by virtue of these facts:
"The Registered Proprietor purchased the property as trustee for the benefit of the caveators as to 1/3 interest to Brian Chetwynd and 1/3 interest to Jill Chetwynd and her personal capacity as to 1/3 interest."
The interest claimed in the caveat was verified by a statutory declaration signed by the Chetwynd's solicitor, Ms Ng, which included a statement that to the best of her "knowledge, information and belief the caveator [the Chetwynds] has a good and valid claim to the estate or interest as set out in Schedule 1".
Brian's evidence was that that he had instructed his solicitors that the Armidale Property was held exclusively on trust for both himself and Jill, and that Glynis had no equitable interest in the Armidale Property. However, as will be apparent, this was not reflected in the description of the interest asserted in the caveat.
When pressed as to why there was a discrepancy and what instructions he said he provided to his solicitors, again Brian could not provide a satisfactory explanation. Brian attempted to rationalise this inconsistency by suggesting that his solicitors misunderstood his instructions. Brian described his meetings with his solicitors having "a tremendous amount of discussion about one third interests in Neutral Bay, one third interests in companies … I think it was a very convoluted conversation" (T199.15-21).
Furthermore, the Chetwynds sought to explain the discrepancy by reference to the fact that Brian had just come out of hospital for a heart related illness, and they were under a great deal of stress. Consequently, there may have been a misunderstanding with how they expressed their interest in Armidale Property.
While I accept that this would have been a stressful time for the Chetwynds, least of all because of Brian's health issues, the position which the Chetwynds have strenuously and consistently put to this Court is that they are the sole beneficial owners of the Armidale Property. Given this has been the central issue in this case, I readily infer based on my own knowledge and experience of the practice of lawyers advising in relation to caveatable interests that this issue would have been thoroughly explored by the Chetwynds' lawyers. The Court is also entitled to assume that a solicitor would understand the consequences of an inadequately described interest and the possibility of compensation being sought for an improperly lodged caveat. The fact that Ms Ng had to give the statutory declaration as to the validity of the interest claimed fortifies me in the conclusion that she would have taken care to ensure that the caveat reflected her instructions. For these reasons the Court rejects Brian's explanations and finds that the interest described in the caveat is in accordance with the instructions Brian provided to Mills Oakley and reflected Brian's understanding of how the Armidale Property was held.
Alternatively, Brian's affidavit evidence sought to explain the inconsistency by asserting Glynis' "one third interest" was a one third interest in the purchase price of the Armidale Property. During cross-examination, however, Brian did not engage with this explanation at all and in fact contradicted his own affidavit evidence.
Brian suggested that it was not the case that "at the time the caveat was lodged, [he] intended the caveat to record Ms Rose had a one third interest in the original purchase price of the Property" (T234:11-14). Brian was unable to explain the inconsistency between his affidavit evidence and the evidence he gave in cross-examination.
This alternate explanation is at odds with other evidence the Chetwynds submitted, namely that Glynis did not have any interest in the Armidale Property of any kind at all. Furthermore, just as Brian was able to draw the distinction in his evidence between an interest in the property and in the purchase price, I am well satisfied that if it was the case that Brian's belief was Glynis' interest was confined to the purchase price, he would have given those instructions to Ms Ng. For the same reasons as are set out in paragraph [320] above, the Court rejects Brian's alternative explanation.
[21]
Centrelink Letter
A letter was tendered relating to Brian applying to Centrelink for the age pension. The letter was sent on 22 March 2010 and explicitly acknowledges that the Chetwynds made no payments for the purchase of the Armidale Property. This letter included:
"I refer to my letter dated 29th December 2009 regarding my statement of assets and income. I also refer to you [sic] phone call to me on the 22nd February 2010 and our discussion on the matter.
As requested I advise the following:
1) Ms Rose purchased the property in 1991 with her own funds and no payments were made by either my wife or myself in respect of the purchase of the property.
2) My wife and I were renting and living in the property in the immediate preceding 12 month period and continued to live there after Ms Rose purchased the property.
3) Both my wife and myself have had a long standing business relationship with Ms Rose.
4) A copy of the Certificate of Title is enclosed for your information"
While Brian did not recall preparing the letter, the pension number listed on the letter was his pension number. Brian also could not recall any other individual who would have drafted the letter on his behalf.
[22]
Evidence of Mr Herd
The evidence of Mr Herd, the accountant to the parties, has also been a matter on which the Court has relied in determining for whom the Armidale Property is held in trust. Mr Herd consistently gave evidence that he "had always understood that [the parties] each had a third equal interest" in the Armidale Property.
Being the accountant to the parties, the Court accepts that Mr Herd was highly familiar with their financial situation and that of Wincot. Mr Herd devised and oversaw the implementation of the round robin cheque system for the Chetwynds to pay rent on the Armidale Property. This system was in accordance with his belief that all three had a beneficial interest in the Armidale Property.
Furthermore, Mr Herd provided evidence which directly contradicted the evidence of Brian. He did not recall any conversation in which Brian informed him that Glynis held the Armidale Property on trust exclusively for the Chetwynds. Given Mr Herd's understanding that the Armidale Property was subject to the three way split agreement, it is likely he would recall a conversation which was entirely inconsistent with that understanding. As such, the Court accepts his evidence that there was no conversation where Brian informed Mr Herd that he (Brian) and Jill were the sole beneficial owners of the Armidale Property.
Additionally, Mr Herd has no interest in the Armidale Property, or in the outcome of the dispute between Glynis and the Chetwynds. As such, in accordance with the credit findings relating to Mr Herd in paragraphs [185] to [193] above and Brian in paragraphs [164] to [175] above, the Court places considerable weight on the evidence he provided. The evidence of Mr Herd is consistent with all of the documentary evidence to which I have referred in the preceding sections of these reasons, and has fortified me in the conclusion that Glynis was a beneficiary under the trust for the Armidale Property in accordance with the three way split agreement.
[23]
Does Glynis hold the Armidale Property on trust exclusively for the Chetwynds? - Resolution
For the following reasons the Court rejects the case brought on this point by the Chetwynds. The Court is well satisfied on the balance of probabilities, and finds that Glynis holds the Armidale Property on trust for Brian, Jill and herself in equal shares.
The relationship between the Chetwynds and Glynis was one of great trust in relation to both their business and personal affairs. Those affairs had become completely intertwined over the course of many years. The high level of trust is the most plausible explanation for their failure to record any of their arrangements in writing, at least at the beginning. Insofar as those arrangements later were directed to offering the Chetwynds protection against creditors, it may be (but it is not necessary for the Court to make any finding) that Brian saw an advantage in having no formal record.
While all parties acknowledge the existence of the three way split agreement, it is the scope of the agreement which is contested and whether it extended to include the Armidale Property. As a result, the Court has been left with two very different stories in relation to the nature of the ownership of the Armidale Property and the respective interests that the parties hold.
Consequently, in determining the scope of the three way agreement, the Court has heavily relied upon the documents considered in paragraphs [271] to [325] above, especially those that pre-date any dispute between the parties. The accumulation of evidence, and particularly the express acknowledgments made by the Chetwynds of Glynis' interest in the Armidale Property in those documents, clearly point to Glynis having an equal beneficial interest in the Armidale Property with the Chetwynds. As such, the Court finds that Glynis did not hold the Armidale Property on trust exclusively for the Chetwynds.
While each document individually is compelling in the acknowledgments they make of Glynis' interest in the Armidale Property, when viewed collectively this fact becomes very difficult, if not impossible, to deny.
This conclusion is fortified when considering that Mr Herd, the architect for the financial arrangements between the parties, also agreed the framework he set up was established in the belief that all three parties had a beneficial interest in the Armidale Property. While Mr Herd's evidence in isolation could potentially be challenged by another expert (which it was not), when seen together with the evidence outlined in paragraphs [271] to [325] above it is clear that everyone understood Glynis to be a beneficiary of the Armidale Property.
Additionally, Glynis' interest in the Armidale Property is more than just that of the purchase price. Instead, Glynis' interest extends to a one third interest in the Armidale Property and, subject to the usual deductions and any applicable set-offs, any proceeds of sale of that property. While Brian conceded to numerous express references to Glynis' interest in the Armidale Property, he sought to characterise this interest as being merely in the purchase price. For reasons already given, the Court does not accept this argument.
Brian consistently asserted that he did not believe Glynis had any interest in the Armidale Property and that the Armidale Property was held exclusively on trust for the Chetwynds. His affidavit evidence relied upon an express oral trust whereby Brian and Jill were the sole beneficiaries to the Armidale Property. As such, any attempt to suggest there was any interest in the Armidale Property, whether that is in the purchase price or otherwise, would be inconsistent with Brian's earlier evidence.
Consequently, the Court does not accept the Chetwynds' argument that should the Court find Glynis does have an interest in the Armidale Property, that interest was only in the purchase price of the Armidale Property.
Four additional matters support the Court's finding in this regard.
First, the position contended for by the Chetwynds seems implausible when compared to the rest of their undisputed dealings with Glynis. The three way split agreement, which all parties acknowledge existed and was agreed to by all parties, was a simple agreement: irrespective of legal ownership, the parties shared equally in the assets and were equally responsible for the liabilities. The simplicity of such a longstanding arrangement makes it highly unlikely that in relation to one asset, the Armidale Property, the parties departed from that to enter into such a detailed and complex agreement, as was contended for by Brian in paragraph [267] above. Brian's uncorroborated recollection is the only evidence for the existence of such an agreement. Given the view I have taken of Brian's credit (see paragraphs [164] to [175] above), that evidence of his is rejected.
Second, and allied to the first point, given the informal nature of the three way split agreement, it is implausible that if the parties had decided to enter into a separate agreement with numerous and intricate terms in relation to the Armidale Property, they would not have sought to record it in writing.
Third, while not in and of itself dispositive, the Court accepts Glynis' submission that it is unlikely she would have agreed to what Brian said she had agreed to because it would have been seriously unfair to her:
1. Glynis, through Wincot, would have been burdened with one third of the costs to purchase the Armidale Property;
2. Glynis would have had the entire personal liability for the vendor finance, had there been a default in the repayment;
3. Brian acknowledged there was no time limit to make the repayments to Wincot, and as such, Glynis would have been liable for an indeterminate period;
4. Glynis would have had no right of occupation of the Armidale Property despite holding the legal title to the property;
5. Glynis would have had no right to receive any occupation fee for the Chetwynds residing in the Armidale Property, despite being the registered proprietor;
6. Glynis would have had no equitable interest in the Armidale Property and would not have received any benefit when the Armidale Property appreciated in value;
7. Glynis would only have been entitled to an interest in the Armidale Property if the Chetwynds were unable to make any repayments. This interest would have ceased once the repayments were made, despite Glynis continuing to hold the Armidale Property legally in her name; and
8. The Chetwynds would have received a family home, an exclusive right of occupation, no obligation to pay the up-front payments, no obligation to pay rent, no obligation to repay Wincot within a designated time, a right of veto in relation to the sale, and no obligation to share any increase in the market value of the Armidale Property with Glynis.
Given how unfair this agreement would have been for Glynis, the close personal relationship between the parties at the time the Armidale Property was purchased, and Glynis' presentation in the witness box as an intelligent and rational person, I am satisfied that it is highly unlikely Glynis would have agreed to such an arrangement whereby she had no interest and received no benefit from the Armidale Property, but potentially had all the liability.
Fourth, the Chetwynds candidly acknowledged that an important purpose of their arrangements with Glynis in relation to the Armidale Property was to protect them from potential claims by old creditors. That purpose would not have been achieved if Glynis simply held the property on trust for the Chetwynds alone. To the extent it is any protection at all, the point of such arrangements is to have a third party holding a significant beneficial interest in a property which would otherwise be available to creditors or a trustee in bankruptcy.
[24]
Does Glynis hold the Armidale Property on trust for Wincot?
The Chetwynd's primary contention in the 2018 hearing was that Glynis held the Armidale Property on trust for Wincot exclusively. The crux of this assertion was that Wincot provided both the initial funds for the purchase price of the Armidale Property and also all of the repayments of the vendor finance. These facts were not disputed by Glynis. As such, it was asserted that Wincot was the sole beneficiary of the Armidale Property due to a resulting trust.
However, merely paying for the funds in relation to the purchase price does not automatically mean that Glynis held the Armidale Property on trust for Wincot. While a resulting trust may lead to Wincot having a beneficial interest in the Armidale Property, this interest can be rebutted. The Court accepts Glynis' submission that, for the following reasons, any such presumption has been clearly rebutted in this case.
In Napier v Public Trustee (1980) 32 ALR 153 at 158 it was noted that,
"The law with respect to resulting trusts is not in doubt … where a purchaser pays the vendor and directs him to transfer the property into the name of another person without consideration passing from that person, there is a presumption that the transferee holds the property upon trust for the transferor or the purchaser as the case may be [subject to the presumption of advancement] … Each of the presumptions may be rebutted by evidence."
Additionally, in Vendervell v Inland Revenue Commissioners [1967] 2 AC 291 at 313, the Court described the presumption of a resulting trust as,
"No more than a long stop to provide the answer when the relevant facts and circumstances fail to yield a solution."
Therefore the onus was on Glynis to satisfy the Court as to why a resulting trust did not arise.
Glynis submitted that there were three distinct reasons that a resulting trust did not arise:
1. There is no evidence to suggest Wincot was the purchaser of the Armidale Property. While Wincot provided the funds for the purchase, Wincot was not part of the transaction for the acquisition of the Armidale Property. Additionally:
1. Wincot did not negotiate any of the terms for the sale of the property and none of Brian's evidence suggests that he was negotiating on behalf of Wincot. At the time of purchasing the Armidale Property, the Chetwynds had been living in the property for twelve months and had informed the vendor that they were interested in purchasing the property for themselves. As such, it can be inferred that any negotiations that occurred were on behalf of the Chetwynds in their personal capacity;
2. The initial part of the purchase price of $89,368 was paid to the vendor by Glynis. There was a conscious attempt to interpose Glynis between Wincot as the source of the funds, and the vendor. This was consciously done by Brian to shield any assets linked to the Chetwynds, for fear of creditors pursuing their assets following a previous failed business venture. This practice of placing Glynis as the trustee had been done before, with Glynis owning the Neutral Bay Property and the shares in Wincot. While the initial part of the purchase price was ultimately sourced from Wincot's Citibank account, the vendors were unaware of this;
3. Wincot was not party to the agreement with the vendors. The loan and mortgage was entered into with Glynis, with the Chetwynds acting as guarantor. Wincot had no role in the transaction; and
4. Wincot's subsequent repayment of the vendor finance mortgage is irrelevant. As has been well-established since Calverley v Green [1984] HCA 81; (1984) 155 CLR 242, the moment the trust was created was with the payment of the purchase price, not the repayment of the mortgage. As such, Wincot's repayments are not relevant.
1. Wincot acted as a lender for the purchase of the Armidale Property. As such, Wincot received consideration for providing the funds to Glynis, with that consideration being her repaying the funds.
2. Any presumption of a resulting trust in favour of Wincot is rebutted by the evidence of contrary intent by both Glynis and the Chetwynds. As to this:
1. The Chetwynds submitted that there was an agreement between the parties that Glynis was to hold the Armidale Property on trust exclusively for Brian and Jill;
2. Glynis submitted that the Armidale Property was held on trust for Brian, Jill and herself, with each of them having a one third interest in the property, in accordance with the three way split agreement.
While there were differing views as to who the beneficiaries of the Armidale Property were - a point which the Court has now resolved above - it is clear that the intent of all relevant parties was that Wincot would not be a beneficiary of the Armidale Property under the trust. No evidence was put before the Court to suggest anything to the contrary.
Furthermore, the evidence outlined in paragraphs [271] to [284] above, makes it clear that there was no intention that Wincot would have a beneficial interest, let alone the sole beneficial interest, in the Armidale Property.
Additionally, any argument in relation to the Armidale Property being held exclusively for Wincot is entirely contradictory to the main argument advanced by the Chetwynds in the 2017 hearing. In the 2017 hearing, it was acknowledged by Brian, Jill and Glynis that the Armidale Property had been subject to an agreement, however the nature of that agreement was in contention. At no point was there any suggestion that Wincot was a beneficiary pursuant to the agreement.
For these reasons, the Court finds that any presumption of a resulting trust that may arise in favour of Wincot is clearly rebutted. Therefore, the Court does not accept that Glynis holds the Armidale Property exclusively on trust for Wincot.
[25]
Glynis' application under section 66G of the CA
It is convenient at this point to consider Glynis' amended cross-claim.
Should the Court find that Glynis does have a beneficial interest in the Armidale Property, Glynis seeks the appointment of trustees for sale of the Armidale Property pursuant to section 66G of the CA, pursuant to her cross-claim. The parties did not dispute that while an order under s 66G of the CA is discretionary, as noted by White J (as his Honour then was) in Tory v Tory [2007] NSWSC 1078 at [42], it is granted "almost as of right" unless on settled principles it would be inequitable to allow the application.
One of the settled principles is if the parties have made some contrary agreement. It is therefore necessary at this point to deal with the Chetwynds' contention that part of their arrangement with Glynis was that the Armidale Property could only be sold if all agreed. As I observed in paragraph [268] above, the only evidence for such a term was in the uncorroborated evidence of Brian, which I have rejected for the reasons set out in paragraphs [164] to [175] above.
However, in support of that conclusion, the Court has also taken into account Glynis' response to Brian's assertion of such an agreement in his email of 9 January 2015 (see paragraph [299] above). Her reply on 14 January 2015 (see paragraph [300] above) included "if this was our agreement (and I must admit I don't recall it), this would disadvantage my position". I accept that as an honest reflection of her state of recollection at the time. That remained her consistent position during the hearing. Her lack of recollection of something which she rightly identified as being disadvantageous to her is, in the circumstances of this case and given the view I have formed of her reliability as a witness, a matter which I have taken into account in inferring there was in fact no such agreement.
In my view, it is clear that the Chetwynds have sought to elevate what had been the historical practice between the parties into an express agreement. Their longstanding arrangement had obviously operated on deep trust which enabled them to agree, or acquiesce in, how things were to be done from time to time. However, that is not the same thing as an express agreement of the kind Brian sought to persuade the Court existed. His repeated assertions of such an agreement in the January 2015 email exchanges is, in my view, a case of protesting too much. The Chetwynds have failed to satisfy the Court that there was any agreement in relation to the Armidale Property to the effect that unanimous consent was required, with the result that it could not be sold without their consent.
In reaching this conclusion I have not overlooked Brian's argument that this was the Chetwynds' family home and they would not have agreed to a situation where it could be "sold out from under them". If the holding of the Armidale Property was the only point of relationship between the parties, that argument might have some force. However, it is not persuasive when the arrangements in relation to the Armidale Property are understood, as the Court has found them to be, as part of the longstanding three way split agreement that governed the entirety of the parties' personal and professional relationship.
In the absence of any contrary agreement, there are no factors which would suggest the usual remedy of ordering the sale of the Armidale Property should not be applied. Unless the parties are able to agree otherwise within a short period after delivery of these reasons, the Court will make orders for the sale of the Armidale Property. The issue in this case is then to determine the appropriate scope of adjustments that might be made to the parties' interests upon the distribution of the proceeds of sale.
Glynis originally made a claim for two separate adjustments in any distribution of the proceeds of sale of the Armidale Property.
The first was an adjustment for $80,232 in respect of disproportionate contributions said to have been made by Glynis to facilitate the purchase of the Armidale Property.
The second was a claim in relation to disproportionate contributions said to have been made by Glynis for the vendor finance repayments for the Armidale Property. This was noted in Glynis' cross-claim as being for $96,482 but the calculation ultimately pressed in the submissions, and which the Court accepts, was for $100,679.04.
In her final written submissions of 11 August 2017 for the 2017 hearing, Glynis expressly acknowledged that she no longer pressed her claim for the disproportionate funds used to purchase the Armidale Property.
The claim for the adjustment in respect of the vendor finance payments is still pressed. The vendor finance, of $110,000, was repayable over 7 years at 9.5%, with 84 repayments of $1,797.84.
The practice for repaying the vendor finance was set out in Mr Herd's affidavit of 4 December 2015. He set out the arrangement as follows:
"I am aware that these transactions [vendor finance repayments] were accounted for in the Wincot accounts in the following manner:
a) "Credit" entry in relation to Wincot's "bank account", reflecting that money was paid from that account to the vendors;
b) "Debit entry in relation to "Glynis Rose loan account", reflecting that payment of the mortgage debt by Wincot was effectively a loan by Wincot to the Property owner: ie, a loan to Glynis. I considered it appropriate all the payments be booked against Glynis, because she was the legal holder of the property (regardless of any beneficial interest which Brian or Jill held.)"
This effectively meant the payment was made by Wincot and was subsequently debited against Glynis' loan account.
This practice was not contested by the Chetwynds. While Wincot made the repayment, the payment was entirely debited against Glynis' loan account. This meant Glynis incurred the liability to Wincot for the payment.
Glynis submitted she was entitled to recover two thirds of the amount paid from the Chetwynds on two alternative bases:
1. A claim analogous to a claim for contribution for disproportionate contributions to the discharge of a joint mortgage; and
2. A claim for indemnity as trustee. Glynis incurred liability to Wincot in her capacity as trustee of the Armidale Property, giving rise to a right of indemnity against the beneficiaries of the trust.
The claim for $100,679.04 is calculated as follows:
1. The quantum of the vendor finance was $151,018.56 (the vendor finance was $110,000 at 9.5%, over 84 months).
2. Two thirds of $151,018.56 is $100,679.04.
The key authority on which Glynis relied for the making of adjustments is Re Fettell (1952) 52 SR (NSW) 221 ("Re Fettell"). McLelland J (as his Honour then was) at 225-228 held (emphases added),
"The court did not confine its relief merely to partition, but in appropriate cases made provision for rights and equities arising from the circumstances, and enquiries were in appropriate cases directed in relation to rents and profits received by, or repairs and improvements carried out by, one of the co-owners, and where an occupying owner claimed an allowance for expenditure, he could be charged with an occupation rent (see Walker on the Partition Acts, p. 12 ; Boulter v. Boulter (18) ; Brickwood v. Young (19) ; Luke v. Luke (20)). But in all cases where relief was granted in addition to partition, it was directly concerned with the position of the parties as co-owners.
…
I shall now deal with the second argument submitted on her behalf. So far as s. 66F (2) (a) is concerned, I think it is clear that the words "for giving effect to the rights of the co-owners" mean "for giving effect to the rights of the co-owners as co-owners." Section 66G (6) is in the following terms: "In relation to the sale or partition of property held in co-ownership, the court may alter such statutory trusts, and the trust so altered shall be deemed to be the statutory trust in relation to that property." I do not think that this provision gives any authority for importing terms into the order of the court which have no relation to the situation of the parties as co-owners. When the respective definitions of "statutory trust for sale" and "statutory trust for partition" are read, it is clear that in their general terms they are not appropriate to meet every set of facts which would arise. In order to deal with the facts of particular cases, it will at times be necessary to make special provisions, to work out the respective rights of the parties as co-owners, or to give the trustees particular powers or duties not covered by the general words of the definition, or to deal with other like circumstances. It is such matters with which s. 66G (6) is concerned, and the court cannot, in my opinion, import into the statutory trusts conditions to give effect to rights arising quite outside the position of the parties as co-owners."
There have subsequently been two interpretations of the requirement that adjustable claims must be "directly concerned with the position of the parties as co-owners".
The first approach is broader and is to the effect that the Court can make adjustments to statutory trusts in respect of personal or proprietary claims pressed in a party's capacity as co-owner of the land (see Chamberlain (t/as capacity as liquidator of Gerard Cassegrain and Co Pty Ltd (in liq)) v Cassegrain [2015] NSWSC 1838 [62-64]; Whitehead v Whitehead [2002] NSWSC 486 [221] ("Whitehead") and Forgeard v Shanahan (1994) 35 NSWLR 206).
The second interpretation is narrower and is restricted to claims which are purely proprietary in nature (see Arrow Custodians Pty Ltd v Pine Forests of Australia Pty Ltd [2008] NSWSC 839; (2008) 14 BPR 149 ("Arrow Custodians")).
Glynis contends for the broader interpretation to be adopted for four reasons:
1. Neither Re Fettell nor Whitehead support the principle that the only rights properly subject of adjustment are "legal or equitable interests in land";
2. The broader approach is more consistent with Re Fettell;
3. There is authority that adjustments are appropriate in relation to the disproportionate discharge of a joint mortgage debt; and
4. Arrow Custodians has not been affirmed. Glynis' lawyers were unable to find an authority which affirms that no adjustment out of property be made in relation to claims in the capacity of co-owner which are personal and do not give rise to an interest in land.
The Chetwynds made no submissions on this point and, in those circumstances, I am reluctant to come to any definitive view in the absence of contrary legal argument. While I strongly incline to the view that the broader construction is to be preferred, it is in any event not necessary for me to decide the question. This is because I have no doubt that, without purporting to alter the statutory trust for sale, the Court can direct the trustees for sale to make adjustments as part of the general working out of the Court's orders and pursuant to the Court's power under s 63 of the Supreme Court Act, 1970 (NSW) to "grant all such remedies" so that "all matters in controversy between the parties may be completely and finally determined, and all multiplicity of legal proceedings concerning any of those matters avoided".
The Court is satisfied that on either of the bases she has identified, Glynis is entitled to an adjustment in her favour in the amount of $100,679.04.
[26]
Monetary claims made against Glynis
Brian and Jill have made numerous monetary claims against Glynis. These claims were made in the 2017 hearing. They are:
1. $43,872.67, being two thirds of the rent received from the Neutral Bay Property between 1991 and 2001;
2. $74,082.75 as money Glynis currently holds on trust for Brian and Jill in her Commonwealth Bank account;
3. $30,193.10 in relation to money being owed to the Chetwynds more generally, particularised as follows:
1. $3,738.66, being one third of the costs of renovation for the Neutral Bay Property;
2. $5,473, being monies advanced from the Chetwynds to Glynis for living expenses;
3. $8,039, being one third of the rent paid by the Chetwynds for a storage shed in Armidale; and
4. $12,942.34, being one third of the purchase price paid by the Chetwynds for a Xerox machine.
Furthermore, should the Court find that the Armidale Property is held for three beneficiaries, then the following monetary claims were also pressed by the Chetwynds against Glynis:
1. $47,093.33, being two thirds of the alleged rent in relation to the Armidale Property;
2. $55,000, being money paid by the Chetwynds on the Armidale Property; and
3. $16,906.67, being dividend monies owed to the Chetwynds.
Similarly, following the reopening of the case in 2018, Wincot has made numerous monetary claims against Glynis. In most instances, these claims were identical to the claims outlined in the preceding paragraphs, and are made in the alternative that the Chetwynds are unsuccessful in making the claim personally. They are as follows:
1. $65,809 in relation to the Neutral Bay Property;
2. $30,193.10 which is particularised in paragraph [377(3)] above, however with the money being owed to Wincot;
3. $47,093.33 in relation to rent received from the Armidale Property;
4. $55,000 in relation to money spent on the Armidale Property;
5. $16,906.67 in relation to dividend monies owed to Wincot;
6. $695,302.82 being particularised as follows:
1. $90,343.26 in relation to equipment and assets owned by Wincot;
2. $253,018.56 in relation to repayment for the Armidale Property by Wincot;
3. $82,037 in relation to the Citibank loan which was taken out in the name of Wincot;
4. $67,760 in relation to amounts paid to Wincot, but diverted to Glynis' account;
5. $25,360 in relation to dividends declared by Wincot;
6. $53,740 in relation to funds paid by the Chetwynds to Wincot, but diverted to Glynis; and
7. $124,054 being "amounts paid to the Third Plaintiff, or owing to the Third Plaintiff, but not entered into the accounts of the Third Plaintiff by Glynis, but applied by Glynis for the whole benefit of Glynis."
[27]
Monetary claims made by Brian and Jill against Glynis
[28]
Rent for the Neutral Bay Property
The Chetwynds claim $43,872.67 against Glynis in relation to rent that she received from the Neutral Bay Property. This is calculated as being two thirds of the rent Glynis received for the Neutral Bay Property during the time it was tenanted. It was submitted that as the Neutral Bay Property was subject to the three way split agreement, both Brian and Jill were entitled to the rent which Glynis received from the Neutral Bay Property.
The Chetwynds submitted that Glynis had a Metway bank account which all rental proceeds were paid into. Moreover, it was submitted that Glynis had "concealed" this account from the Chetwynds to ensure none of this rental money was paid to Wincot or to the Chetwynds, and she would be the sole beneficiary of the rental money. This submission was made in accordance with their other submissions (which the Court has rejected) which suggested Glynis was manipulative and deceptive.
The Court does not accept that all rental payments were paid in the Metway account or that Wincot did not receive any payments for the reasons outlined at paragraph [391] below.
In making the assertion that Glynis had a secret Metway bank account, Brian relied upon a bank statement which recorded a deposit of $805 on 23 October 1997 from "Linway." Linway was the agent of the Neutral Bay Property.
The bank statement which Brian relied upon also listed other deposits into the Metway account which did not relate to rental payments from the Neutral Bay Property. It was submitted that the Neutral Bay Property rental payments were all paid into the Metway account, and none of those funds were paid to Wincot.
The Court does not accept Brian's characterisation of the Metway account as being a secret account set up by Glynis purely for the purposes of concealing funds from Wincot and the Chetwynds.
While Glynis accepted that she had a Metway bank account, and noted the $17,193 closing balance in the account, she does not have any recollection of what happened to the closing balance of the account.
Given these payments were made over 20 years ago, Glynis' failure to recall the precise details of the money within the Metway bank account is unsurprising. Her inability to recall those details does not reflect poorly on her, and the Court makes no adverse finding against for the reasons outlined in paragraphs [176] to [184] above.
Glynis rejected the argument that she did not pay any money to Wincot in relation to rent for the Neutral Bay Property. While she acknowledged that she did receive rent and was liable to split any income she received three ways with the Chetwynds, she submitted that once the Court took into consideration the payment of expenses for the Armidale Property and the interest charges which had accrued as a result of the Citibank line of credit, there is no liability to account to the Chetwynds.
Glynis presented evidence to the Court that the "surplus" of rent from 1991 until October 2019 was approximately $164,623. Surplus was used to mean any money left over after the payment of expenses for the Neutral Bay Property. The bank statements which were in evidence clearly showed Glynis receiving the rental payments on a monthly basis, and then making a payment of roughly the same amount as the rental payment for the Citibank mortgage. In some instances, the payment made to Citibank exceeded the amount received for the rent of the Neutral Bay Property.
In the same period, evidence was presented to assert that $183,412.82 was paid to Citibank as the total monthly repayments for interest. This exceeds the surplus of $164,623. As such, it was put that there was no surplus once the Citibank interest was taken into account. The Court accepts this submission.
This finding is supported by the little evidence that was before the Court. That evidence is:
1. When Glynis was cross-examined about the rental payments, she noted that she was of the belief that she did not owe the Chetwynds anything. The Neutral Bay Property was sold in 2010. Following the sale of the Neutral Bay Property, adjustments were made in favour of both Brian and Jill to reflect contributions they had made to the property and other funds they were owed which related to the Neutral Bay Property. Given the Neutral Bay Property was sold in 2010, and adjustments were made at that time to reflect the various contributions of the parties, the Court accepts it is likely that any monies being owed to the Chetwynds would have been taken into account at the time the adjustments were made;
2. There is little contemporary evidence about the nature of the rental payments received by Glynis for the Neutral Bay Property. Glynis had discarded most of the hardcopy records which related to the rent as they were "more than six years old". This was her usual practice. She was also was unable to obtain any copies from the Commonwealth Bank, as the records required were more than seven years old. The only bank records she was able to produce related to her Commonwealth Bank account and were for the period between 14 May 2008 and 5 December 2008. However, what contemporary evidence is available appears to support the practice as described by Glynis. This evidence included payments on:
1. 27 June 2008 for $1,279.95;
2. 29 July 2008 for $1,228.74;
3. 28 August 2008 for $1,234.79;
4. 29 September 2008 for $436.57;
5. 28 October 2008 for $1,093.03; and
6. 28 November 2008 for $1,576.44.
1. All of the above payments occurred on a monthly basis, on or about the exact same date within the month. Additionally, all of the payments were described as transfers to "Citibank", and with the exception of the September payment, were approximately of the same value. While there were no Citibank statements in evidence which covered the time period that the surviving Commonwealth Bank statements covered, the Citibank statements provided to the Court do record deposits of approximately the same amounts as was transferred from the Commonwealth Bank account at the end of each month. As such, the Court has inferred that the payments made were from the Commonwealth Bank account to the Citibank account.
Moreover, Glynis had no recollection of an agreement between the parties in relation to the rental payments received from the Neutral Bay Property and the evidence she did provide only covered the period of 2005 to 2010. The evidence Glynis gave for this period was that she would arrange to have all the council, water and strata rates and levies to be paid from her Commonwealth Bank account, and then the amount of the Citibank balance per month was transferred into Wincot's account.
While the evidence provided by Glynis only covered between 2005 and 2010, the Court accepts the practices that she described could be dated back to 1991 when the Neutral Bay Property was first rented out. The Court has reached this conclusion for four reasons:
1. There is no evidence to suggest the way Glynis handled the rental payments changed following 2005. While there was evidence of Glynis having a different bank account (the Metway account) prior to 2005, there is no evidence to suggest that her practice was different. As such, the Court will infer her practices were in place prior to 2005;
2. This arrangement is consistent with Brian's affidavit evidence. Brian's affidavit of 10 June 2016 stated that the rental income from the Neutral Bay Property "was received into Glynis' personal account, from which she paid the outgoings. The surplus proceeds were banked into the Citibank account … in order to pay the interest accrued on the loan account for the month and the minimum payment required";
3. There was corroborating evidence in Mr Herd's affidavit of 4 December 2015 that "all interest payments on the total outstanding balance of the Citibank line of credit, were made from Glynis' personal banking account"; and
4. The Chetwynds provided no evidence to suggest that they were solely responsible for the interest payments made to Citibank. There was some evidence that the Chetwynds provided funds for any deficiencies from the rental proceeds towards the interest repayments, however these payments were only to "top up" funds in the Citibank account. Alternatively, Brian's affidavit of 11 March 2016 stated "all the surplus rental proceeds from the Neutral Bay Property be banked into the Wincot Citibank account." Brian's affidavit of 10 June 2016 also recalled how "the surplus proceeds were to be banked into the Citibank bank account … of Wincot Pty Ltd in order to pay the interest accrued on the loan account for the month."
Therefore, the Court finds that Glynis is not liable to the Chetwynds for any rent she received for the Neutral Bay Property, as the rent was used to pay the Citibank line of credit, which paid for the Armidale Property of which the Chetwynds were also beneficiaries.
[29]
Money held on trust for the Chetwynds
The Chetwynds seek a declaration that Glynis holds $74,082.75 on trust for them. This has been overtaken by events. Glynis never contested that this money belonged to the Chetwynds. It has been paid to them by Glynis.
The Chetwynds made a claim for interest in their final written submissions. If that claim is still pressed after they have had a chance to consider these reasons, the Court will give the parties an opportunity to make submissions on interest in relation to this claim and others.
[30]
Renovations to the Neutral Bay Property
A claim for $3,738.66 against Glynis is pressed by the Chetwynds (or, in the alternative, Wincot) in relation to the costs paid for the renovation of the Neutral Bay Property. Glynis accepted that the renovations for the property did occur, and the Chetwynds did pay for them, however does not accept the amount being claimed by the Chetwynds. It was acknowledged by both parties that the Chetwynds had been reimbursed for expenses relating to the renovation, however to what extent was unclear.
Brian's affidavit evidence was:
"In 2000, the Neutral Bay Property was renovated exclusively by my wife and I. I have documents supporting expenditure of $12,411 on the renovations, paid by my wife and I personally. I recall that $1,195 was reimbursed to us … leaving an outstanding balance of $11,216."
The Court was presented with very little evidence of the quantum of funds spent on the renovations of the Neutral Bay Property. The only evidence the Court had was a document prepared by Brian, which was created approximately one year before the trial.
The renovations occurred in 2000, meaning the document prepared by Brian was created well over ten years after the renovations had occurred. Consequently, the Court is not in a position to give this evidence dispositive weight.
Given this lack of evidence, the Court is not in a position to determine the quantum of costs in relation to the renovations. As such, the Court is not satisfied that Glynis owes the Chetwynds (or Wincot) $3,738.66 for those costs.
I am fortified in reaching this conclusion for three other reasons:
1. Brian conceded that reimbursement payments had previously been made by Glynis. If the reimbursement had taken place as was agreed, it is unclear why the Chetwynds would have only been repaid in part and not in full;
2. Brian's claim that he cannot find that he has been repaid is not a sufficient basis for the Court to act. Any repayment would have occurred over 15 years ago, and the absence of any recollection is unsurprising and of no probative value; and
3. At the time of the sale of the Neutral Bay Property in 2010, various adjustments were made to reflect the different expenses and outgoings paid by the parties. This fact was agreed to by the parties. These adjustments included adjustments being made in Brian's favour. When these adjustments were made, no adjustment was made in respect of costs incurred for the renovations of the Neutral Bay Property. The fact that no adjustment was made at this point would suggest that no adjustment was necessary because Glynis had previously reimbursed the Chetwynds for the relevant funds.
[31]
Reimbursement for living expenses
The Chetwynds have made a claim for $5,473 against Glynis for monies being owed by Glynis for the Chetwynds assisting her with her living expenses.
No evidence was presented to the Court to substantiate this claim. The claim is therefore not made out either as advanced by the Chetwynds or by Wincot.
[32]
Storage shed
A claim is made by the Chetwynds (or, in the alternative, Wincot) of $8,039, being one third of the rental costs paid by the Chetwynds (or Wincot) for a storage shed in Armidale.
In 2005 the Armidale shop ceased trading. When the shop stopped trading, the parties again agreed to share any liabilities in one third proportions. One of these liabilities included the storage shed.
In making this claim, Brian relied upon a conversation with Glynis in which he asserted that she agreed to pay one third of the rent for the storage shed personally. Glynis did not recall this conversation.
There was no independent evidence to corroborate this conversation. In accordance with the credit findings relating to Brian made above in paragraphs [164] to [175], the Court does not accept his evidence and recollection of events, as it is not supported by any other evidence.
Glynis submitted that the agreement between the parties as to the liabilities of the Armidale store should be construed to mean that each of the directors would only pay for the liabilities of the store should Wincot not be able to pay for those fees. Alternatively, the directors would also be personally liable if one party personally paid for the liabilities of the store and Wincot could not reimburse them.
The Court notes that in the Chetwynds' own written submissions, it is conceded that "the disbursement of the rent for the storage shed was made each month by Wincot and this is not disputed." This concession is contradictory to oral evidence given by Brian where he suggested he personally paid for the storage shed. As such, the Court finds that it was Wincot who paid for the storage shed, not the Chetwynds personally. That is also the position recorded in section 7 of the Report (see paragraph [285] above) that "the company rents a storage shed for $381 p.c.m.".
As it was Wincot who paid for the rent of the storage shed, the Court accepts Glynis' submissions above as to how the liability should be treated. As there is no suggestion that Wincot was not in a position to pay for the storage shed, there is no liability to be split three ways, meaning Glynis is not liable to the Chetwynds for the storage shed. Nor have the Chetwynds demonstrated any basis on which she would be liable to Wincot for that amount.
[33]
Xerox machine
A claim for $12,942.34 has been made against Glynis and is pleaded as being one third of the rental and hire purchase costs paid by the Chetwynds for the Xerox machine.
This claim falls within the agreement outlined in paragraph [409] above, regarding splitting any liabilities three ways between the directors.
Brian contended that a conversation was had with Glynis, whereby he would pay off the Xerox machine, however he would need to be paid for such work. Glynis did not recall this conversation. The Court rejects Brian's evidence as uncorroborated from any other source.
Evidence was put to the Court which showed that it was Wincot who directly paid for the Xerox machine. That is also consistent with the position recorded in section 7 of the Report (see paragraph [285] above) to the effect that the company retained the Xerox machine. There was no evidence put to the contrary to suggest that Brian personally paid for the Xerox machine.
As it was Wincot who paid for the Xerox machine, the Court finds that Glynis is not liable for any charges associated with the machine.
[34]
Rent from the Armidale Property
The Chetwynds have asserted that Glynis owes them $47,093, being two thirds of the alleged rent which Glynis received in relation to the Armidale Property.
It is uncontested that the Chetwynds paid rent on the Armidale Property through a series of cheques usually drawn from Wincot. This practice of the parties in relation to making rental payments for the Armidale Property and the round robin of cheques is detailed above in paragraph [234] above. This arrangement ultimately resulted in the cheques being paid back into the accounts of Wincot. The quantum of $47,093.33 is also accepted to be two thirds of the rent which Glynis received between 1991 and 2001.
While this rental claim is poorly particularised, it appears to suggest that Glynis received rent from the Chetwynds in her capacity as trustee, rather than as landlord and as such, Glynis is accountable to the beneficiaries of the trust for the rent she received.
The Court does not accept this submission. The Court accepts Glynis' submission that the rent the Chetwynds paid to Glynis was paid to her in her capacity as landlord of the Armidale Property, rather than as trustee. The rent enabled the Chetwynds to reside at the Armidale Property to the exclusion of all others. As such, they have no claim to the rent they paid Glynis.
The Chetwynds have presented no evidence to the Court to enable a finding to the contrary, and in the absence of that evidence, the Court cannot make a finding that Glynis held the rent she received on trust for the Chetwynds.
[35]
The $55,000 matter
Between 2001 until 2005, Brian transferred $55,000 from the personal accounts of the Chetwynds to Wincot. This was done for the purposes of reducing the Citibank line of credit interest costs. This fact is agreed and is also discussed above in paragraphs [228] and following above.
The Chetwynds submitted that the "$55,000 should have been recorded as a credit in the BCJ [joint Chetwynd account] loan account with Wincot, thus making it a resource that BCJ had available." This would result in the $55,000 being a payment from the Chetwynds to Wincot. The Court finds this was not the case.
There are no records of this payment being made in the Wincot accounts, and similarly, there was no credit made in the Chetwynds' loan account for the payment. It is unclear why the payment is not recorded in the Wincot accounts, and without being critical of anyone, Glynis was unable to articulate why it was not recorded there.
Despite this payment not being recorded, it is accepted that Brian paid $55,000 to Wincot.
Brian has submitted that he is yet to be reimbursed for the money he paid to Wincot. Glynis refutes this submission and has instead asserted that at least $50,000 had been repaid to Brian.
Glynis kept a file relating to the Neutral Bay Property. In this file, she had a handwritten working note which was used for the purposes of making adjustments following the sale of the Neutral Bay Property. This note read:
"C'Bank Balance $154,000
JC re Super $18,000 July-Sept 2008
BC re Super $24,000 2006
BC re Mayor money $20,000 ($50,000 les redraw $30,000) 2004/2005
GR purchase NB $42,000"
Glynis submitted that this note suggested that a credit was made in Brian's favour of $44,000, being $24,000 for superannuation and $20,000 for his mayoral income. The additional notation in parenthesis suggests a $50,000 payment was made from Brian, and in 2004/2005 a $30,000 repayment was made. The outstanding amount owing was paid when the Neutral Bay Property was sold.
While Glynis does not expressly recall any withdrawal in 2004/2005, the Court accepts that such a withdrawal occurred in accordance with the note she prepared. According to the note, the withdrawal occurred over ten years ago, and as such it is unsurprising that Glynis does not recall the details of the transaction.
Glynis also relied upon an email she sent to the Chetwynds on 22 October 2010. It reads as follows:
"Hi,
Hope all is OK. This is what I worked out from NB sale.
Sale amount $430,000 then less Citibank $158,119, Agents Commission $8,600, Solicitor $1,741, JC $1,451, GR $2,900, RC $320, JC $18,000 super, BC $44,000 super and other, HQB $1,518 leaving a balance of $193,351. Divide this by 3 equals $64,450. Therefore JC gets $82,450, BC gets $108,450 and GR gets $64,450. Off BC there is $3,000 which was the extra I put into Wincot.
Re cheque you received from Citibank for $2,379.54, this related to $98 reversal, $510 for CBA shares BC, $510 for CBA shares JC and $714.70 CBA shares GR and $545.84 interest 1/10.
Hope this all makes sense.
Don't forget the BAS figures.
Bye for now.
Glyn"
The "off BC there is $3000" refers to Glynis making a payment of $3,000 to Wincot. This was done to off-set her own personal contributions to Wincot. Consequently, rather than Brian receiving $44,000, he received $41,000, to reflect Glynis' payment to Wincot. This resulted in $41,000 being adjusted in Brian's favour.
The final distributions made following the sale of the Neutral Bay Property were:
1. Brian received $105,450;
2. Jill received $82,450; and
3. Glynis received $64,450.
Glynis' distribution is exactly $41,000 less than Brian's.
In contrast, Brian also tendered a handwritten working document of adjustments following the sale of the Neutral Bay Property into evidence. Brian's working sheet that notes the adjustments made in his favour following the sale of the Neutral Bay Property recorded $44,000 being adjusted in his favour, however he recorded the $44,000 as being only for "BC Super", and not constituting any repayment for sums advanced to Wincot.
The Court does not accept Brian's evidence that the $44,000 that was paid to him consisted only of superannuation. There is no evidence to suggest that Brian made a $44,000 payment in superannuation to Wincot.
Additionally, as set out in the next paragraph, the Report prepared by Brian listed the amount of superannuation being owed to him as $25,000. This supports Glynis' submission, that the amount of superannuation owing to Brian was $24,000. Consequently, the Court does not accept Brian's evidence that the $44,000 adjustment from the Neutral Bay proceeds was in relation to superannuation.
The Report (see paragraph [285] above) lists the liabilities as at the date it was created. One of the liabilities listed in the Report is,
"Owing to BC $25K (Super) $50K (Income) $75,000"
This Report is important for two reasons. First, it provides evidence as to how much superannuation was owing to Brian. Second, it supports the notion that the money owing to Brian has been reimbursed.
The Report does not mention the $55,000 owing to Brian for contributions made via his mayoral salary. Consequently, the inference which the Court draws is that the outstanding money as listed in the Report is the payment made by Brian out of his mayoral income.
Brian attempted to rectify the apparent omission in the Report of the $55,000 as an error, namely that he forgot to include this in the Report, however the Court does not accept this. As Brian accepted, this report was a "careful, detailed description of the status of the parties' financial interests" (T158:49).
The Report detailed a series of complex financial arrangements between the parties, and it is unlikely that a $55,000 payment was merely "forgotten" from being included. Consequently, the Court is satisfied on the balance of probabilities that the $50,000 listed in the Report is referring to Brian's mayoral income and the payment he made in favour of Wincot.
There is not enough evidence before the Court to determine how much Brian paid into Wincot to reduce the Citibank line of credit. However it appears both parties accept $55,000 was paid. As such, the Court finds that $50,000 of the $55,000 has been reimbursed to Brian, in accordance with the financial documents which Glynis had prepared following the settling of the proceeds of sale of the Neutral Bay Property.
The Court has made this conclusion for six reasons:
1. The Court's acceptance of Glynis' handwritten working document of adjustments following the Neutral Bay Property sale, as opposed to Brian's working document;
2. The "redraw" as noted by Glynis of $30,000 which was made in 2004-2005;
3. The adjustment made by Glynis for $3,000 to off-set her own personal contributions to Wincot;
4. The adjustment made following the sale of the Neutral Bay Property in favour of Brian;
5. The lack of any assertion from Brian that he was owed more money following the adjustments made to him from the sale of the Neutral Bay Property in 2010; and
6. The lack of evidence to suggest that Brian had not been reimbursed.
While only $50,000 of the $55,000 has been repaid to Brian, it is incorrect to suggest that Glynis is personally responsible for any outstanding amounts. Brian consistently made the submission that the $55,000 "should have been recorded as a credit in the BCJ loan account with Wincot". As such, any outstanding amount owing to Brian is payable by Wincot, and not Glynis. Consequently, the Court finds that Glynis is not liable for the outstanding amount. This conclusion applies insofar as the claim was also pressed in the alternative by Wincot.
[36]
Dividend amounts
A claim has been brought against Glynis for $16,906.67 being "dividend monies owed to the First and Second Plaintiffs, that should have been repaid by Glynis, or applied to the payment of the Armidale Property." Wincot pressed this claim in the alternative.
It is worth noting that while the amount claimed pursuant to paragraph [20] in the Amended Summons filed 4 April 2017 is $16.906.67, the calculations conducted by the Chetwynds in their written submissions claim relief amounting to $22,895.
Glynis owing a dividend payment to the Chetwynds is uncontested. As Mr Herd noted in his affidavit sworn 28 April 2016:
"In view of the "3 way split" arrangement in relation to the shares in Wincot, it is appropriate that there be some "reckoning" between Brian, Glynis and Jill, in relation to the amount now recorded as a payment of a dividend to Glynis (even though the dividend was only a journal entry, and there was no cash payment to Glynis). That is because the effect of the dividend journal entries is that a loan debt in Glynis' loan account has been cleared, and therefore the company has lost an asset comprising a loan due from Glynis, and Brian and Jill are therefore worse off (in their capacity as shareholders of Wincot). A fair reckoning would require Glynis to pay each of Brian and Jill 1/3 of the amount of the "dividend"."
The Chetwynds calculated the amount owed to them, being $22,895, as follows:
1. The amount of dividends recorded in the Wincot accounts is $31,487, while the amount recorded in Glynis' tax return is $37,200. As there are two competing figures, "the fair and appropriate" way the Court should determine the amount owing, as submitted by the Chetwynds, is to "split the difference" and find the amount owing is $34,343;
2. Two thirds of $34,343 is $22,895.
Glynis accepts that she owed funds to the Chetwynds in relation to dividends, however quantifies the amount owing as being $15,953.
Glynis has quantified the amount owing in the following manner:
1. The amount of dividends recorded in the Wincot accounts is $31,487;
2. It is necessary to reduce the figure of $31,487 to $23,930 to take into consideration the amount of tax Glynis paid on the amount. This is in accordance with the evidence Mr Herd provided, and evidence which was not challenged by the Chetwynds. It was estimated that the tax scale from that time would have been the $0.18 to $0.30 bracket, with $0.24 being the compromised position. As such, 76% of $31,487 is $23,930; and
3. Two thirds of $23,930 is $15,953.
The Chetwynds rejected the proposed calculation by Glynis. They submitted that making any deduction to take into account any tax Glynis would have paid is "a farce." This is because the dividends were franked, and as such tax has already been paid.
The Court accepts the evidence of Mr Herd when calculating the dividend owing to the Chetwynds. It is important to take into consideration the tax liabilities Glynis paid on the dividend and as such, the amount should be reduced to reflect this. I note the Chetwynds' objection to a deduction being made in accordance with the dividend being franked, however I do not accept this submission.
No evidence was put to the Court to prefer the figure in the Wincot accounts over the amount declared in Glynis' tax records, or vice versa. The Chetwynds presented no argument to the Court to accept the higher figure, except that Mr Herd and Glynis were responsible for the bookkeeping and therefore Glynis should have the burden of justifying which figure should be accepted as being the dividend payment. Therefore when determining which figure to adopt as being the value of the dividend, the Court sees no basis to "split the difference" between the two.
The Court accepts the figure outlined in the Wincot accounts to be the correct amount declared in the dividend. The dividend was made by Wincot, and therefore the Court accepts that the figure provided in the Wincot accounts is most likely more accurate.
As such, the Court adopts the calculation conducted by Mr Herd, and finds that Glynis owes the Chetwynds $15,953 for dividend payments which were never made to them.
[37]
Rent for the Neutral Bay Property
A claim is made that Glynis owes Wincot $65,908 in accordance with rent paid to the Neutral Bay Property. This claim is almost identical to the claim in paragraph [380] above, however with money being owed to Wincot, as opposed to the Chetwynds.
Additionally, the claim made by the Chetwynds was for $43,872.67, being two thirds of the rent Glynis received for the Armidale Property. The claim made by Wincot is for $65,908, which is all of the rent received by Glynis for the Neutral Bay Property.
At the 2017 hearing, it was an uncontested fact that the Neutral Bay Property was subject to the three way split agreement, where any proceeds or liabilities would be split in equal shares between Glynis, Brian and Jill. This practice was observed by all the parties, with Glynis using the rent to pay for the Citibank line of credit as outlined in paragraph [389] above, and the Chetwynds using their funds to help pay for renovations and other expenses associated with the Neutral Bay Property.
There was no assertion that Wincot was ever party to the agreement, or a separate agreement was entered into with Wincot which would have seen the company provided with an interest in the Neutral Bay Property.
The three way split agreement was recognised with the sale of the Neutral Bay Property, and any outstanding amounts owing to any party were made via adjustments (see paragraphs [123]-[126] above).
No evidence was presented to the Court to suggest money was owed to Wincot separately, as opposed to being owed to the Chetwynds. The three way split agreement, and therefore the trust over the Neutral Bay Property, was entered into before Wincot as a company was purchased by the Chetwynds.
There was no evidence of a contract or a trust entered into between Glynis and Wincot following the three way split agreement in relation to the Neutral Bay Property which would suggest she owed the company money for any rent she received.
What the documentation that does exist suggests is that Wincot never had an interest in the Neutral Bay Property. So much is evident through what occurred on the payment and adjustment of the proceeds of sale for the Neutral Bay Property. Both the Chetwynds and Glynis agreed that the beneficiaries of the proceeds of sale were the three individuals. Wincot did not have an interest in the Neutral Bay Property, or the rent which was received for it.
Therefore, the Court does not accept that Glynis is liable to Wincot for any rent she received relating to the Neutral Bay Property.
[38]
Rent from the Armidale Property
A claim is made by Wincot for $47,093, being two thirds of the rent received by Glynis in relation to the Armidale Property. This is in accordance with the round robin of cheques as outlined above in paragraph [234]. The additional evidence relied upon by the Chetwynds was the affidavit of Mr Kirk. I set out my overall view of the utility of Mr Kirk's evidence in paragraphs [11] to [12] above.
Mr Kirk's evidence was:
"It would appear that BC/JC were receiving, as part of their salary from Wincot, a management fee/salary at the rate of $780.00 per month, from at least early 1994, through to 2000, a period of some six years.
…
a) I note that on each [of Glynis'] Tax Returns, under the heading "Income," there is an amount declared as "rent received - Kalina, Balgownie Drive Armidale." These amounts vary between $7,020.00 and $9,260.00, however, the majority are for the latter amount.
b) I note that each and every amount declared over this seven year period, is exactly divisible by $780.00. This would seem to indicate that the "rent" (as declared on the Tax Return) was $780.00 per month.
…
BC/JC may have paid Wincot funds over a period of time that amounted to the purchase price of the property."
Mr Kirk made these observations and inferred that the Chetwynds were making rental payments for the Armidale Property back to Wincot. The Chetwynds therefore submitted that Wincot was owed the money which was paid to Glynis.
Mr Kirk reviewed numerous documents in relation to the purchase of the Armidale Property. These included the settlement information, the mortgage and guarantee documents, the contract for the sale of land, the mortgage calculation, Citibank cheque butts and statements, and Wincot statements. He concluded:
"By way of summary regarding the property purchase … I am of the opinion that:
a) Wincot paid the deposit of $22,000 for the property to the Vendor, from Citibank.
b) On the evidence I have seen, I conclude Wincot paid $80,000.00 from Citibank to the Wincot account and I assume that it was then paid to GR who paid the Vendor.
c) On all the evidence I have seen, I conclude that Wincot did agree and did pay to the Vendor, the monthly payments for the Vendor finance.
e) [sic] The amounts from a) and b) above total $102,000.00 plus $8,000.00 sourced from elsewhere, would make up the $110,000.00 paid as the upfront amount. The amount from c) above would total $110,000.00, plus interest and charges. In total this is $220,000.00, the purchase price of the property."
Mr Kirk's opinion in relation to whether the Chetwynds repaid Wincot was:
"20) I am informed that BC/JC paid the amount of $780.00 per month for a period of seven years, which totals $65,520.00, which they claim to be payments towards the purchase of the property. They claim that these funds were their own and derived from their remuneration received from Wincot.
…
c) … I believe [the] Wincot Cheque butts made out to BC/JC and styled "management fees" … would be classed as salary payments and would be taxable income for BC/JC
i) I note that two cheque butts in 1997 are $780 each.
ii) I note that one cheque butt in 1999 is for $8,580 which when divided by $780, results in 11.
iii) I note that one cheque butt in 2000 is for $9,360, which when divided by $780, results in 12.
iv) As the butts are made out to BC/JC, I would expect the cheque also to be made out to the same person. To do otherwise, would be highly irregular in my opinion.
v) From the above, it would be reasonable to conclude that BC/JC were receiving $780 per month as a management fee/salary for at least the period covered by the above cheque butts.
…
22) I refer to … the annual Tax Return of GR for the years 1994 to 2000. I have viewed these Tax Returns.
a) I note that on each Tax Return under the heading "Income", there is an amount declared as "rent received - Kalina, Balgownie Drive Armidale." These amounts vary between $7,020.00 and $9,360.00, however, the majority are for the latter amount.
b) I note that each and every amount declared over this seven year period, is exactly divisible by $780.00. This would seem to indicate that the "rent" (as declared on the Tax Return) was $780.00 per month.
…
c) Referring to paragraph 22)b) above and also paragraph 21 above, I note the following:
i) When the cheque for $9,360.00 was paid to BC/JC by Wincot in June 2000 the funds as stated, then became funds owned by BC/JC to use as they saw fit
ii) I note that BC/JC appeared to choose to re-bank the cheque (funds) back into the Wincot account. They would be at liberty to do this and state the purpose for the payment, which I am informed was to make a payment in regard to the purchase of the property.
iii) I note that on all seven years Tax Returns, that the "interest on the Citibank loan" is claimed as a tax deduction. However, I note also that the Citibank loan is continuously in the name of Wincot and not in the name of GR.
iv) I note that the interest expenses on the property borrowing from Citibank as claimed as a Tax Deduction, do not reduce each year as would normally be expected. I note that it nearly doubles from 1994 to 1995 and then reduces back in 1996 and 1997. In 1998 it increases three fold and further increased in 1999, with a slight reduction in 2000.
v) I note that each Tax Return over the seven year period claims a loss on the property in Armidale, which is then offset against other income.
23) Regarding paragraphs 19) to 23) above, I make the following observations:
a) If GR was purchasing the property, by borrowing the funds from Wincot, she would be required to declare any income generated from the property and also be entitled to claim any expenses and interest charges incurred.
b) If the above were not the case and Wincot owned the property, then GR would not be entitled to claim any expenses as tax deductions. Any income derived from the property and expenses incurred would be to the account of Wincot.
c) I refer to the management fees/salary received by BC/JC and the repayments of these funds back to Wincot. Given all of the above it would seem reasonable to assume that BC/JC believed these repayments were being applied to the purchase of the property I note however, that GR has applied these payments as rental."
Glynis submitted that Mr Kirk's evidence as to whether the Chetwynds had repaid Wincot for the vendor finance payments was irrelevant for six reasons:
1. Mr Kirk does not express any definitive view in relation to the accuracy of the accounting entries in dispute in the case. There is no suggestion that Glynis' accounting entries are inconsistent with any actual dealings between the parties;
2. Mr Kirk does not provide any evidence of accounting standards by reference to which the Court can form its own view in relation to whether certain accounting entries are valid or not;
3. Mr Kirk was not asked about, and has not commented upon, the evidence provided by Mr Herd concerning the nature of any contentious accounting records. This effectively leaves Mr Herd's evidence unchallenged;
4. Mr Kirk's evidence is essentially a review of a few accounting entries and he has subsequently expressed an opinion that the entries are consistent with a range of possibilities. There is no opinion as to whether the entries are consistent with the facts of this case;
5. Much of Mr Kirk's evidence addresses issues which are unrelated to claims pressed in the 2018 proceedings. One condition of reopening the case was no new evidence could be served on the claims already heard in the 2017 hearing. Much of Mr Kirk's evidence is primarily concerned with the 2017 hearing and claims pressed by the Chetwynds at the earlier hearing, and specifically that the Chetwynds had repaid Wincot; and
6. Mr Kirk at times gave evidence which was beyond the field of his expertise or really just speculation. For example, Mr Kirk provided this evidence in relation to whether he thought the Chetwynds had made repayments to Wincot for the purchase of the Armidale Property:
"I refer to the management fees/salary received by BC/JC and the repayments of these funds back to Wincot. Given all of the above it would seem reasonable to assume that BC/JC believed these repayments were being applied to the purchase of the property I note however, that GR has applied these payments as rental."
The Court accepts Glynis' critique of Mr Kirk's evidence. While Mr Kirk's evidence was not objected to, it is clear that Mr Kirk's opinion in relation to these payments is no more than speculation. Mr Kirk was not in any position to determine how the Chetwynds believed their money was being recorded. It was this remark which especially detracted from the utility of Mr Kirk's evidence in relation to the repayments from the Chetwynds. Nor is the Court assisted in circumstances where Mr Kirk did not comment on Mr Herd's evidence or his accounting practices in relation to Wincot. As no further evidence was put on by Glynis following the reopening of the case, Mr Herd did not respond to Mr Kirk.
Furthermore, an order was made prior to the 2018 hearing confining any new evidence to the new claims which arose out of the further amended summons filed on 4 June 2018. As such, Mr Kirk's evidence was only to relate to Wincot having an interest in the Armidale Property, and not the Chetwynds making repayments to Wincot. Therefore, despite what was submitted by the Chetwynds as to the value of Mr Kirk's evidence in determining whether the Chetwynds repaid Wincot, it is not relevant.
The Court accepts Mr Herd's evidence on this matter. Mr Herd's involvement in creating the rental payment system with the round robin of cheques and overseeing it is a highly relevant factor in the Court adopting his evidence. Additionally, his evidence was also within the scope of his expertise, was consistent with Glynis' evidence and was supported by the objective documentary record. As such, the Court does not accept that the Chetwynds made repayments to Wincot in relation to the purchase of the Armidale Property.
Additionally, upon the reopening of the case in 2018, further affidavits were filed by Brian. Brian's affidavit of 19 July 2018 stated:
"With the agreement of Wincot, BJC elected to pay $780.00 per month to Wincot as a repayment for the property. Between 1993 and 1995 approximately, BJC generally banked the said $780.00 in their personal bank account and then issued a cheque to Wincot for the repayment. In or about 1995, GR was authorised by BJC to cash and bank the cheque from Wincot to BJC and then re-bank the proceeds back in to Wincot."
Brian's assertion that "with the agreement of Wincot, BJC elected to pay $780.00 per month to Wincot as a repayment for the property" is uncorroborated evidence by Brian which the Court rejects in accordance with its overall view of the reliability of his evidence (see paragraph [175] above). The Court does not accept that the Chetwynds made such repayments to Wincot. The Court finds that the accounting of the payments by Glynis was correct, and that the payments made were for rent, not repayments to Wincot for the purchase price of the Armidale Property. I have set out in paragraph [219] and following above why I do not accept that the Chetwynds repaid Wincot.
In reaching this conclusion the Court also relies on this additional reason. The argument put by the Chetwynds and Wincot is implausible. If the Court accepted their argument, it would have meant the Chetwynds repaid Wincot approximately $67,000. This is a significant amount of money and is very probative for the Chetwynds. However, no evidence of the Chetwynds making any repayments was put in an affidavit until March 2017. This meant five affidavits had already been sworn before this fact was put into evidence. When considering the procedural history of this case and the number of extensions the Chetwynds had to prepare their evidence, and given the importance of this evidence, had the Chetwynds repaid $67,000 to Wincot, it is inexplicable that this evidence was not adduced until the eve of the first trial.
Therefore, the Court does not accept that Wincot is owed $47,093 from Glynis.
For completeness, even if the Court did accept the argument put by the Chetwynds that repayments were made by them to Wincot, that would not mean Glynis was required to pay the rent back to Wincot. If the payments were repayments to Wincot, that would mean the credit entries made by Glynis were incorrect and without foundation. As such, this would not give rise to a monetary claim by Wincot against Glynis.
An additional claim is also made by Wincot for $67,760 for "amounts paid by the Third Plaintiff by the First Plaintiff and the Second Plaintiff, but diverted by the Defendant and applied to the credit of Glynis' account, for the benefit of the Defendant." This claim is separate to Wincot's claim for rent to the Armidale Property.
Despite the separate pleading, this claim is essentially a restatement of the claim for rent from the Armidale Property and it is unclear how this claim differs from the claim for $47,093. No further evidence was advanced to substantiate or particularise how the $67,760 was calculated, or how it should be considered a separate claim than just rent received for the Armidale Property.
The only written submissions made by the Chetwynds in relation to this matter were as follows:
"The Plaintiffs submit that Wincot does have a claim for $67,760.00 relating to payments made by BJC to Wincot and diverted by GR to the credit of her account. This claim may also be in the alternative to other claims."
This submission was never expanded upon.
As no further evidence has been put before the Court, the Chetwynds have failed to discharge their burden of proof, and the Court does not find that Glynis owes Wincot $67,760.
[39]
Plant and Equipment
A claim is made by Wincot against Glynis for $90,343.26. This claim relates to plant equipment and assets owned by Wincot. This claim was not pressed in the 2017 hearing. While not particularised, this sum appears to rest on a journal entry for $60,343 for "unappropriated profit" and a journal entry for $30,000 for "safari" equipment.
The journal entry relating to the "unappropriated profit" reads as follows,
"Unappropriated profits - J1499 $113,666.46
[Untranscribable] 221 $13,698.98
Accounts 221 $10,981.51
Loans to Coffs 340 $19,494.56
Loans - GR 227 $60,343.26
Citibank 234 $9,148.15"
It is the "Loans - GR" which is the subject of the claim.
Glynis addressed this payment in her affidavit sworn 31 March 2017. She stated that she did not recall making the entry, and she would only have made that entry on the instructions of either Brian or Mr Herd.
Glynis was cross-examined on this payment during the 2017 hearing, and she explicitly stated on numerous occasions she could not explain the payment, however it appeared the funds related to unappropriated profits from the Coffs Harbour business.
The Chetwynds submitted that the payment concerned Wincot buying the assets of Photax (the company previously owned by the Chetwynds prior to Wincot), which owned the store at Coffs Harbour. The assets of Photax supposedly included plant, equipment and stock, however there was no evidence before the Court to suggest this was the case.
The Chetwynds relied upon this evidence of Mr Kirk:
"I have viewed this entry and my opinion is:
a) that the entry appears to refer to the consolidation of the Coffs Harbour accounts with Armidale. I have assumed that the account styled "Unappropriated Profits" has been used as a clearing account to facilitate the entry.
b) that the Defendant has transferred and credited to her loan account an amount of $60,343.26, from Coffs Harbour, which in isolation, would result in Wincot owing that amount of money.
c) that in referring to b) above and assuming the transaction in isolation, the Defendant is deemed to have made some contribution (an asset or cash etc.) at some point to Wincot. If such a contribution was not made by the Defendant, then the entry is incorrect.
d) that if the Defendant knew that she did not own or make any contribution, but still made the entry, then it would be, in my opinion either false, misleading or misrepresentation [sic]."
Additionally, the Chetwynds relied upon the reconstructed ledgers created by Brian. The reconstructed ledger included corresponding credits in the Chetwynds' loan account.
The only reference to the ledger is Brian's affidavit of 16 March 2017. In this affidavit, he states "I have now prepared a correcting set of ledgers for the Wincot accounts. These have been prepared from a series of journal entries which I have prepared, to reflect the true nature of the Wincot entries as they should have been at the time of the transactions." Given the reconstructed ledgers are exactly that - reconstructions - they are of no evidentiary value in and of themselves. As there is no foundation to explain the process behind the creation of the ledger or primary evidence of the underlying transactions said to be recorded in the reconstructed ledger, the Court gives the ledger no weight.
Furthermore, in the absence of Mr Kirk's affidavit, no other evidence was put before the Court to suggest the entry was incorrect, or that Glynis knowingly made a false entry in the journal.
Given this lack of evidence, the Court is not in a position to determine the nature of the $60,343 payment, nor determine whether that money is owed to Wincot.
The second part of this claim made by Wincot is for $30,000 in respect of "safari" equipment. This relates to a journal entry dated 30 June 1993. The entry reads as follows,
"J693: Plant + equipment loans - G Rose - Being Safari $30,000
Processor purchased from GR"
Glynis' affidavit sworn 31 March 2017 described the payment:
"c) The Safari processor was a photographic machine, which was used in the Coffs Harbour office;
d) I do not recall the journal entry being made;
e) This is a type of transaction in respect of which I would never make a journal entry, without advice or instruction from Bill or Brian. I gather that the accounts were seeking to deal with the disposal of plant and equipment from the Coffs Harbour store. However, I would not have any idea about how properly to account for that."
When Glynis was cross-examined about this journal entry, she confirmed that she did not understand it and would only have made the entry upon the instructions of either Mr Herd or Brian. She denied that the entry was made by her knowing it to be false. I accept Glynis' evidence in relation to her bookkeeping for this transaction. It occurred more than 20 years ago and it is unsurprising that Glynis cannot recall it.
Furthermore, Glynis' evidence that she would have sought instruction from either Brian or Mr Herd is consistent with her evidence as to her general accounting practice, namely that she would defer to their expertise when she was unsure how to record a transaction.
Mr Kirk gave almost identical evidence in relation to this journal entry, as he did above in paragraph [490]. His evidence was
"a) That this entry refers to the sale of a Safai [sic] processor from the Defendant to Wincot and credits her loan account. Therefore, this transaction, in isolation, would result in the Defendant being owed $30,000.
b) that in a) above, the Defendant is deemed to have owned the item, however, if the item was not owned by the Defendant, then the entry is incorrect.
c) that if the Defendant knew that she did not own the item, but sill made the entry, then it would be, in my opinion either false, misleading or misrepresentation [sic]."
As with the previous journal entry, no evidence has been put before the Court to ascertain the nature of the transaction, or the proper accounting of it. Furthermore, there is no evidence to suggest the entries made by Glynis were made knowing they were false and misleading. Consequently, the Court cannot find that Wincot is owed $30,000 from Glynis and, in the absence of any other evidence, will not speculate as to the nature of the payments.
Therefore, the Court finds that the Chetwynds have failed to prove that Glynis owes Wincot $90,343.26 for plant and equipment funds.
[40]
Repayments for the Armidale Property
A claim is made by Wincot for $253,018. This claim is based on the fact that Wincot was the source of the repayments for the vendor finance. The only submission made by the Chetwynds was in their written submissions where they stated:
"This is a claim by Wincot.
This claim is in the alternative as detailed on the Summons in paragraph 21 B). The claim related to the payment of the property by Wincot."
No other evidence was referred to or submission put to the Court.
The Chetwynds have failed to demonstrate any legal basis for which Glynis should be liable to Wincot for the repayments the company made. No argument was put by the Chetwynds to suggest a finding could be made that Glynis was liable for these payments to Wincot. No evidence was submitted which would suggest Glynis owed funds to Wincot. Consequently, the Court finds that the Chetwynds have not made out this claim.
[41]
Citibank Account
A claim is made by Wincot that Glynis owes the company $82,037. The claim relates to a journal entry about a Citibank account which Wincot owned, and was subsequently transferred to Glynis. The entry reads,
"Loans - Citibank; Loans - G Rose $82,037
Being transfer of C'Bank A/C"
When cross-examined about the entry, Glynis did not recall whether she took on the liability of the account, why she made the entry and gave evidence that she did not understand it to be assigning liability to her personally, rather than with the company.
Mr Herd gave the following evidence in relation to the transfer in his affidavit sworn 31 March 2017:
"22. The Citibank Line of Credit was first taken out in the name of Wincot, and used for general business purposes before the account was drawn down for the purpose of making a part payment on the Armidale Property. There was a ledger created in Wincot's chart of accounts titled "Citibank Loan", to record the liabilities associated with that facility (ie, record the balance of the drawdowns on the line of credit, which Wincot was liable to repay).
…
23. In August 1993, drawdowns in the total amount of $102,000 were made on the Citibank Line of Credit, for part payment of the Armidale Property.
24. At the time of those drawdowns, it appears that there were "debit" entries made in GR's Wincot loan account … Although I don't recall those entries being made, I consider it entirely appropriate because:
a) Wincot did not have an interest in the Armidale Property;
b) Consequently, the drawdown on the line of credit to part pay for the Armidale Property is effectively an advance to the purchaser of the property, which is recorded by a "debit" in the purchaser's loan account;
c) GR was the legal purchaser of the Armidale Property. Even though GR purchased the Armidale Property as trustee (and therefore did not enjoy the full beneficial ownership of the property), it is appropriate that the full amount of the drawdown be debited exclusively to her account (and not the account of the trust beneficiaries). That is because when a company transacts with a trust, the trustee is the legal entity which transacts on behalf of the trust, and all transactions are characterised in the company accounts as being with the trustee.
…
26. To seek to eliminate the substantial tax exposure to which GR would otherwise have been exposed, I conceived and implemented a new accounting policy for the manner in which the Citibank Line of Credit was accounted for. It involved the re-characterisation of the Citibank Line of Credit from being in substance a liability of Wincot, to being in substance a liability of GR.
27. If the Citibank Line of Credit was treated as being in substance GR's facility rather than Wincot's, the drawdown on the Line of Credit of $102,000 for part payment of the Armidale Property would be properly characterised as being in substance a drawdown by GR (and not a drawdown by Wincot and a corresponding advance by Wincot to GR). By avoiding characterising the Citibank drawdown as involving an "advance" by Wincot to GR, the adverse Division 7A tax exposure was eliminated.
28. The motivating purpose for this re-characterisation of the Citibank Line of Credit was minimising the tax exposure of GR. On reflection, it may be contestable as to whether the re-characterisation was entirely consistent with accounting standards. However, at the time I considered that the re-characterisation was justifiable and appropriate, for the following reasons:
a) following the drawdown of $102,000 for the part payment for the Armidale Property, the facility was being used primarily for the purpose of financing the acquisition by GR of the Armidale Property (which had nothing to do with Wincot's general business). As a matter of commercial substance, the line of credit was for GR's benefit;
b) the re-characterisation significantly reduced GR's tax liability. To the extent that GR incurred that liability in her capacity as trustee, she would presumably have a right on indemnity against the beneficiaries (including the Chetwynds) in respect of any tax liability. The minimisation of GR's tax liability was therefore of benefit to beneficiaries of the trust: ie, the Chetwynds, and GR;
c) it was balance sheet neutral for Wincot. As elaborated below, the consequences of re-characterising the facility as being in substance GR's facility, was that Wincot's balance sheet liability to Citibank in respect of the line of credit was transformed into a balance sheet liability to GR;
d) it has no adverse taxation implications for Wincot;
e) it did not affect the operations of Wincot;
f) it did not otherwise prejudice Wincot or any shareholder of Wincot;
g) for all those reasons, the re-characterisation was not a matter of particular commercial significance for Wincot.
29. The conceptual re-characterisation of the Wincot line of credit as being in substance GR's facility (rather than Wincot's) necessitated adjustments to the Wincot accounts. By way of summary:
a) Wincot's liability to Citibank had to be removed from the balance sheet;
b) If the line of credit was in substance GR's facility, then it followed that any drawdown on the line of credit for the benefit of Wincot, was properly characterised as being in commercial substance an advance from GR to Wincot, which needed to be recognised as a credit in GR's Wincot loan;
c) Those adjustments were effected by Journal Entry 1593 … which provided:
i) Debit: Loans, Citibank: $82,037;
ii) Credit: Loans, G Rose: $82,037.
d) $82,037 was the closing balance of the Citibank line of Credit on 30 June 1994;
e) The effect of that journal entry was effectively to transform Wincot's liability for the outstanding balance of the Line of Credit, from a liability owed to Citibank to a liability owed to GR, reflecting that GR was now (in substance) the party to the Citibank facility, and advancing to Wincot sums drawn down from that facility."
Glynis submitted that Wincot suffered no prejudice from this transaction because the transaction was balance sheet neutral for Wincot, the transaction was authorised by Wincot's accountant, and there was no additional liability or exposure generated for Wincot. Consequently, Wincot had no additional claim against Glynis.
The Chetwynds submitted that Mr Herd's evidence was a "blatant untruth", that "BH sounds very much like he is involved in tax fraud" and that his evidence amounted to "nothing more than a series of convoluted excuses coupled with conjecture and guesswork."
Despite these assertions being put forward by the Chetwynds, Mr Herd was not cross-examined at any point about his accounting of this transaction, any relevant accounting standards against which his approach should be measured or any other applicable ethical guidelines.
The Court does not accept the Chetwynds' characterisation of Mr Herd's evidence. The evidence quoted in paragraph [507] above was from Mr Herd's affidavit sworn 31 March 2017. This means the evidence was given well before any claim was made in relation to this payment to Glynis, and well before Wincot was a party to the proceedings.
Therefore, the Court does not accept the Chetwynds' submission that "BH is just setting this up for a property claim by GR" or that there was an "ulterior motive" because when the evidence was given, Wincot was not a party to the proceedings.
Furthermore, given Mr Herd's evidence was adduced in the 2017 hearing, the Chetwynds had ample opportunity to consider it and to challenge it if they wanted to. They made no such attempt to challenge it.
The Chetwynds relied upon the evidence of Mr Kirk, which was:
"a) that the entry refers to the transfer of the Citibank loan to the Defendant's loan account, in the sum of $82,037.00. The journal entry page is dated 1994 and the entry immediately above is dated the 30th June 1994. Therefore, in my opinion it would be reasonable to assume that the transfer entry for $82,037.00 below it, would be the same date.
b) that the transaction in isolation, referred to in a) above, would suggest that the Defendant paid the amount of $82,037.00 from her personal funds, against the loan, or took over the liability of the loan from Wincot.
c) that [the] … Citibank statement No 72 dated 15th July 1994, in the name of Wincot, which shows the closing balance on the 30th June 1994 to be $82,037.82. Therefore, in my opinion it would be reasonable to assume that the amount of $82.037.00 is the rounded up figure of the amount in a) above.
d) that if the Defendant paid out or took over the loan as in c) above, it is my opinion that it would be reasonable to assume that one or more of the below stated would be the case:
i) Wincot would immediately cease to make any further repayments of the principal and/or interest for that loan and/or to the Citibank account.
ii) Wincot's loan account with Citibank would cease, if the amount paid against the loan, was the total owing at that time. In all probability this would be nil, if the transaction took place on the date stated.
iii) Alternatively, Wincot's loan account with Citibank would reflect the payments made by the Defendant for the principal and/or interest on the loan, in the event that she took the loan over.
iv) Alternatively, Wincot's loan account with Citibank could remain as it is shown on the statement, if there was some other arrangement that has not been declared in the Wincot records, or that I have not seen."
Mr Kirk's evidence did not engage with the evidence of Mr Herd, and it appears Mr Kirk was not aware of the arrangement outlined in paragraph [206] above.
The Chetwynds put on no further evidence to substantiate their assertion that Glynis had knowingly acted improperly, as was consistently submitted.
Additionally, no further evidence was put before the Court to suggest the accounting by Glynis was incorrect.
In the absence of any evidence which contradicts or challenges the approach taken by Mr Herd, the Court is not satisfied that there is a basis on which Glynis owes Wincot $82,036.82.
[42]
Dividend amounts
A claim is made by Wincot for $25,360 in relation to dividend payments. This claim arises from the same circumstances as outlined in paragraphs [445] to [455] above.
This claim has not been particularised and it is unclear how this amount has been calculated. As noted above, the claim made personally by the Chetwynds against Glynis is $16.906.67 as expressed in the amended summons, while their submissions calculate the amount to be $22,895. Therefore it is unclear how the sum of $25,360 has been quantified.
No further evidence was put to the Court, and submissions in relation to this claim were very limited. As such, the Chetwynds have failed to discharge their burden of proof. The Court does not find Glynis is liable to Wincot for the dividend payments in addition to the liability she has to the Chetwynds, which I have dealt with in paragraphs [445] to [455] above.
[43]
Proceeds from the sale of Neutral Bay Property
A claim is made by Wincot for $53,740. This claim arises from the sale of the Neutral Bay Property.
It was common ground that following the sale of the Neutral Bay Property, Glynis held funds on trust for the Chetwynds.
Upon the instructions of the Chetwynds, Glynis would occasionally draw down funds from that account, and deposit the money where requested.
The funds that were drawn down in accordance with the Chetwynds' instructions were for the sole benefit of Brian and Jill. As a result of these funds being drawn down for the Chetwynds, a credit entry should have been made in their loan account with Wincot. Glynis, however, incorrectly credited her own loan account with the funds. Glynis has accepted that she made a mistake with recording these payments. Funds were drawn down in 2011 and 2012. The total sum of these funds was $53,740.
In written submissions from the 2017 hearing, Glynis conceded "by way of summary, Glynis does not contest that this adjustment [$53,740] be made to the Chetwynds' loan account."
Glynis submitted further that rather than she personally being liable to Wincot for $53,740, a declaration be made that there be adjustments to the Wincot loan accounts to reflect that a credit should have been made in respect of both Brian and Jill, rather than Glynis. The Court finds that this is the appropriate course of action to remedy the situation because Glynis did not personally receive cash in that amount and the Chetwynds have not demonstrated that she has received any other actual benefit to the value of that amount that would give rise to an obligation to repay that amount.
The final set of Wincot accounts which were presented to the Court listed Glynis having a balance of $157,007. This would suggest there are sufficient funds to make the declaration. Therefore an adjustment should be made deducting $53,740, and a credit being made in favour of the Chetwynds.
[44]
Claim for $124,054
A claim is made by Wincot against Glynis for $124,054 "being amounts paid to the Third Plaintiff, or owing to the Third Plaintiff, but not entered into the accounts of the Third Plaintiff by Glynis, but applied by Glynis for the sole benefit of the Defendant." This claim has not been particularised and no evidence was led as to what the claim was made in relation to.
The written submissions of the Chetwynds merely rearticulated the claim, without providing any further details as to what it related to, or how the amount had been calculated.
Consequently, given this claim has not been particularised and no evidence has been put to explain it, yet alone substantiate it, the claim fails.
[45]
Other monetary claims made by Wincot against Glynis
Although I have already dealt with these claims incidentally insofar as they were also made by the Chetwynds, for ease of reference I will deal with them expressly in this section of my reasons.
Claims amounting to $30,193.10 are made by Wincot against Glynis and are particularised as above in paragraph [377(3)]. These claims are virtually identical to those claims already pressed by the Chetwynds and are phrased as "in the alternative" to the Court making any finding that the $30,193.10 is owed to Brian or Jill personally.
The written submissions of the Chetwynds do not provide any further argument to suggest any substance to the claims insofar as they are made "in the alternative" by Wincot.
Additionally, following the reopening of the case, no evidence was put before the Court to differentiate these new claims as opposed to those made by the Chetwynds in the 2017 hearing. In relation to the renovations, living expenses, storage shed and Xerox machine, their written submissions state "this claim is primarily claimed by BJC (Brian and Jill Chetwynd), claimed by Wincot in the alternative." No further submission is made.
As no evidence was presented to the Court to suggest Wincot was owed any money as particularised in paragraph [377(3)] above, the Court declines to make any such finding.
In the absence of this evidence, the Court cannot be satisfied Glynis owes any funds to Wincot as alleged.
Furthermore, a claim was made by Wincot for $55,000, being money the Chetwynds advanced to Wincot. This is detailed above in paragraphs [422] to [444], namely being the $55,000 Brian transferred to reduce the interest on the Citibank line of credit.
It is not in dispute that this payment was made. Despite the Court's findings in paragraphs [442] to [444] above that most of these funds had already been repaid to Brian, no evidence was presented to the Court to suggest Glynis was liable to Wincot for this money. No further submission was made to justify or articulate how Glynis was liable to Wincot. As no evidence was put before the Court, there are no grounds to suggest Glynis owes $55,000 to Wincot.
[46]
Wincot's claim for account over the Armidale Property
Wincot seeks "a declaration that the Defendant account to the Third Plaintiff (or the Chetwynds generally) for any financial benefits she may have received in her capacity as trustee of the Armidale Property." While this claim goes beyond the scope of the leave granted to the Chetwynds to amend the summons, Glynis has consented to this claim being pressed.
This claim is separate to Wincot's claim in relation to any rent received by Glynis for the Armidale Property. In seeking Glynis be held to account, the Court must consider the benefit and the costs which Glynis incurred in relation to the Armidale Property.
The financial benefit Glynis received through the Armidale Property amounted to $67,760. This is calculated by considering the monthly payments of $780 from 1994 until 2000. However, as has already been observed more than once in this judgment, Glynis never personally enjoyed those funds as a result of the round robin of cheques, which saw the money deposited back into Wincot.
If Glynis were to be liable to Wincot, she would be liable for $45,173, being two thirds of the amount she received.
As stated above in paragraph [420], there is nothing to suggest Glynis received rental payments in her capacity as trustee, as opposed to being the landlord of the Armidale Property. Glynis received $780 in rent to ensure the Armidale Property was negatively geared, and that arrangement ceased in 2000 upon the advice of Mr Herd, when the property became positively geared. Consequently there is nothing to suggest Glynis is liable to anyone for the rent she received for the property.
Even if Glynis were found to be liable to the Chetwynds for the income she received for the Armidale Property, which is not the case, offsetting expenses would need to be considered.
Glynis is not seeking any offsetting exercise to take place, however asks the Court to note that there were three categories of expenses related to the rent received for the Armidale Property:
1. Interest on the vendor finance repayments: The rental payments for the Armidale Property were paid to Wincot to pay for the vendor finance repayments. Glynis is already seeking an adjustment pursuant to her s 66G cross-claim, as outlined in paragraphs [353] to [376] above, and as such, does not press for any offsetting in relation to a claim for account;
2. Interest on the Citibank facility: The Citibank interest payments were originally also the subject of an adjustment pursuant to the cross-claim, however this is no longer pressed; and
3. Miscellaneous expenses: these expenses included rates, repairs and insurance. There is little evidence in relation to these supposed payments, and as such Glynis does not press for account to be taken of these offsetting expenses.
However, as the Court has determined Glynis is not liable to Wincot for the rental payments she received, no offsetting exercise is required.
[47]
Declarations that Glynis has contravened the Corporations Act (the "Act")
Wincot seeks a declaration that Glynis contravened sections 180, 181, 182, 183, 184, 191, 295, 296, 297, 319, and 344 of the Act. These provisions relate to directors and officers of companies discharging their duties with care and diligence, acting with good faith, not taking personal advantage from a company, having a material personal interest in a company, the financial report of a company, complying with accounting standards and lodging a financial report with ASIC.
Glynis' accounting practices and the bookkeeping of Wincot is detailed above in paragraphs [194] and following.
The written submissions of the Chetwynds appear to particularise those breaches of the Act to be as a result of accounting entries about Wincot made by Glynis for which it is alleged she knew they were improper and untrue. Those entries have been discussed at various points throughout this judgment. How those entries relate to the various sections of the Act is not entirely clear and was not clarified in the submissions of the Chetwynds.
The Chetwynds rely upon the evidence of Mr Kirk in establishing those contraventions of the Act. However, Mr Kirk's evidence does not relate to certain sections of the Act which the Chetwynds allege Glynis has violated. For example, Mr Kirk's evidence does not address s 319 of the Act which relates to the contents of the annual financial report. Similarly, his evidence does not relate to s 191 of the Act concerning a director's material personal interest and a possible conflict. This limits the usefulness of Mr Kirk's evidence in so far as it is relied upon for the making of various declarations sought by Wincot.
In response to the claims that she contravened the Act, Glynis submitted the following:
1. There is no basis for finding that the accounting as Glynis recorded it is incorrect;
2. There is no basis for finding that if the accounting as Glynis recorded it was incorrect, that she knowingly or negligently made those entries;
3. There is no basis to suggest subterfuge in the method of accounting adopted by Glynis; and
4. The accounting practices in place for Wincot were not solely for the benefit of Glynis.
The Court accepts each of these submissions by Glynis for the reasons below. It is also convenient to record at this point that to succeed in any of these claims, given their seriousness, the Chetwynds would have had to have satisfied the Court to the Briginshaw standard of the elements necessary to make them out. In no respect have the Chetwynds succeeded in doing so.
[48]
No basis to suggest the accounting was incorrect
The complexities of the Wincot accounts are outlined above in paragraphs [194] and following. These included Wincot paying personal expenses of the directors, various legal structures in place, and tax minimisation strategies.
Brian's involvement in the accounting should also not be overlooked. At the end of each financial year Mr Herd finalised the accounts for the year and showed them to Brian, which he would then review. At no time did Brian ever suggest the accounting as shown to him was incorrect.
While there were some errors in the accounts which Glynis kept (and Glynis accepts these errors), for example crediting her own loan account instead of the Chetwynds' account following the distribution of funds from the Neutral Bay Property, to suggest her accounting practices in general were incorrect is wrong.
While a claim has been made by the Chetwynds, there is no expert evidence before the Court to suggest the accounting was either inaccurate or contrary to normal accounting standards.
The evidence of Mr Kirk fails to provide any definitive opinion in relation to the expected accuracy of any accounting entries, and therefore the Court has no basis on which to determine Glynis' entries were incorrect.
Mr Herd was not challenged in cross-examination as to the correctness of his overall approach to the accounting for Wincot and as such, the claims put forward by the Chetwynds are unsubstantiated.
Given the lack of evidence, the Court is not in a position to make a declaration that the accounting practices of Glynis were incorrect.
[49]
No basis to suggest Glynis knowingly made incorrect accounting entries
Even if the Court found that Glynis' entries were incorrect, there is nothing to suggest she made those accounting errors knowingly. I have outlined Glynis' accounting experience and lack of formal qualification above in paragraph [179].
In support of the assertion that Glynis knowingly made incorrect accounting entries, the Chetwynds relied on numerous journal entries which have previously been discussed, and Glynis' inability to explain those entries.
Merely pointing to those entries and Glynis' inability to explain them is not sufficient to suggest Glynis knowingly made incorrect accounting entries. Those entries do not prove that Glynis understood the matters, let alone conceived or instigated them.
Instead, I accept Glynis' submission that her failure to explain the entries supports her submission that she followed the advice of Brian and Mr Herd on complex accounting matters and did not question their advice.
In cross-examination, Glynis consistently denied the fact that she knowingly made incorrect journal entries. There has been no objective evidence to suggest those denials were false. The credit findings which I made above in paragraphs [183] to [184] above fortify the decision I have reached in relation to the weight I give Glynis' consistent denials.
The Court has also considered the broader context of the allegations made against Glynis. This broader context includes:
1. The transactions in question occurred more than twenty years ago.
2. Glynis had no formal qualifications as a bookkeeper.
3. Many of the transactions in question were not straightforward.
4. Glynis is now in her late sixties.
When these broader circumstances are taken into account, it is unsurprising that Glynis was unable to explain the accounting entries in question. As such, the Chetwynds have to adduce any evidence that could satisfy the Court to the requisite standard that Glynis knowingly made any incorrect accounting entries.
[50]
No basis to suggest Glynis' accounting was deceptive
The Chetwynds have submitted that Glynis' behaviour in recording certain entries was not only incorrect, but that it was also deceptive and dishonest. There has been no evidence put before the Court to suggest this is true.
All of the relevant documentation for this case has been in the possession of the Chetwynds and they have had ample time to examine it, or have an expert examine it. The Chetwynds submitted to the Court that certain documents were deliberately kept from them which related to the case. That is incorrect.
Additionally, it is clear that despite his denials and obfuscations when it suited his case, Brian has reasonable accounting proficiency and provided advice to Glynis for complicated accounting transactions. Brian also accepted that at the end of each financial year, he would have reviewed the final accounts as produced by Mr Herd.
I also adhere to the observation I made on the final day of the hearing that "if [Brian] has, as it were, suffered the accounts to be prepared in the way they were and did nothing about them, but took whatever benefits and burdens came with those characterisations", then whether or not he knew about the accounting treatment is irrelevant (T129:43-46). Brian was prepared to follow the accounting procedures he sought to have put in place and as such, he is bound by that decision.
Given Brian's accounting experience, and his role in reviewing the accounts of Wincot on a frequent basis, including advising Glynis on how to record certain transactions, the Court does not accept the submission that Glynis was a deceitful mastermind of deceptive accounting transactions.
[51]
No basis to suggest Glynis' accounting was purely for her benefit
The submissions made by the Chetwynds suggested that in addition to Glynis knowingly making dishonest and incorrect entries into the accounts to Wincot, the entries were purely for her benefit.
No evidence was put before the Court to support that assertion. The evidence suggests much to the contrary.
Glynis held the legal title to assets at the instigation of the Chetwynds. This was done by Brian to protect the Chetwynds from being pursued by any creditors following a previous failed business venture, therefore expressly benefiting Jill and himself.
Furthermore, the accounting practices were overseen and approved by both Mr Herd and Brian. The strategies implemented by Mr Herd to minimise tax exposure was for the collective benefit of all the parties, and not just Glynis.
Therefore, any suggestion that Glynis' accounting practices were purely to her benefit has not been made out and is falsified by the evidence.
[52]
Declarations that Glynis has contravened the Corporations Act - Resolution
It follows that for the reasons set out in paragraphs [553] to [577] above, I accept the submissions made for Glynis that, other than where she acknowledges she made errors, the accounting entries put in issue by the Chetwynds were not incorrect. In relation to all of those entries the Court finds that they were not made knowing that they were incorrect, were not deceptive and were not for the sole benefit of Glynis for the reasons provided above.
The Court therefore does not find any of the following:
1. That Glynis failed to discharge her duties with care and diligence;
2. That Glynis failed to act in good faith;
3. That Glynis improperly used her position as bookkeeper to gain a personal advantage;
4. That Glynis improperly used information obtained in her role as bookkeeper;
5. That Glynis has committed a criminal offence for not acting in good faith;
6. That Glynis failed to disclose a material personal interest;
7. That Glynis' accounting practices failed to comply with accounting practices; and
8. That Glynis' financial statements did not provide a true and fair view of the company's financial position.
Therefore, the Court will not make any of the declarations under the Act sought by Wincot.
For the sake of completeness, I will also set out below why it is that even if the challenged entries were incorrect as alleged, the Court still would not have made the declarations sought by Wincot.
[53]
Glynis' defence
In the alternative, Glynis also pleads a defence to Wincot's application for declarations in relation to the breach of the various statutory duties under the Act.
If it were found that Glynis had made incorrect accounting entries, Glynis seeks an order under s 1318 of the Act that she be relieved wholly from any liability.
Section 1318 of the Act states:
"(1) If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person's appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit."
Section 1318 involves the Court undertaking a three stage inquiry (Australian Securities and Investments Commission v Healey (No 2) [2011] FCA 1003 at [84]):
1. Whether the applicant has acted honestly;
2. Whether having regard to all the circumstances the applicant ought fairly to be excused; and
3. Whether the applicant should be relieved from liability wholly or in party and if partly, to what extent.
Australian Securities and Investments Commission v Vines [2005] NSWSC 1349 at [52] ("Vines") is authority for the proposition a person has acted honestly if the person acts "without moral turpitude."
Austin J's conclusion on this point was not disturbed in the subsequent appeal: Vines v Australian Securities and Investments Commission [2007] NSWCA 75; (2007) 73 NSWLR 451.
The second and third elements for the Court to consider are much more subjective. The Court has a wide discretion and as noted in Vines at [46], "it is extremely difficult to attempt to lay down general principles because, of necessity, each case will very much depend on its own circumstances."
Glynis submitted that she acted honestly in relation to her bookkeeping. Glynis took pride in her work and as was recorded above in paragraph [213], Glynis had a "commitment to achieving accuracy." Glynis acknowledged the limitations of her knowledge and where she felt entries were beyond her skillset, she defaulted to the opinion of those who she deemed more qualified, namely Brian and Mr Herd. This was in order to not compromise the quality of her work.
Furthermore, it was acknowledged by all parties that Glynis sought advice from either Brian or Mr Herd in relation to transactions which were beyond typical everyday transactions. This practice of Glynis seeking advice was not only in relation to difficult transactions, but also extended to making the end of financial year journal entries.
Although repeatedly pressed during cross-examination, Glynis never conceded any entry was knowingly false. I give this considerable weight when also considering the credit findings I have made regarding Glynis, as noted in paragraphs [183] to [184] above.
In considering Glynis' liability it is also necessary to take into account the size of Wincot. Wincot was a small company, which consisted of just Brian, Jill and Glynis. The company lacked the resources to employ an accountant on a fulltime basis, so Glynis dutifully took on those responsibilities. When considering the nature of Wincot as a company, Glynis' behaviour was entirely reasonable.
It was completely sensible for Glynis to act as she did, and to follow the advice of Mr Herd when she was uncertain how to record specific transactions. The reasonableness of Glynis' actions in deferring to Brian or Mr Herd is underscored by Glynis' lack of formal training or qualifications.
Glynis did make some mistakes in her bookkeeping. However, the nature and effect of those mistakes must be considered. The consequences of Glynis' actions were not great, in that neither Wincot nor the Chetwynds suffered any actual damage by reason of Glynis' accounting. Similarly, Glynis did not derive any significant personal gain from the accounting entries. While a credit entry was made in Glynis' loan account, she never sought to call upon the outstanding balance with Wincot.
As such, even if I had been satisfied that Glynis has acted improperly and contravened the Act (which I am not), I would not have made the declarations sought by Wincot. In accordance with s 1318 of the Act, the Court would have excused Glynis for her actions and relieved her of any liability.
[54]
Conclusion
Unfortunately, the nature of these proceedings means that it is not as simple as now giving the parties time to bring in short minutes to give effect to these reasons. Rather, I will give the parties time to consider these reasons and determine what they say the next steps should be.
There is an outstanding claim by the Chetwynds for interest at Supreme Court rates on the amount of approximately $70,000 that was held for them by Glynis which she paid during the course of these proceedings (see paragraph [395] above). If that claim is still pressed, the Court will give directions for short written submissions to be exchanged as the point has not been the subject of argument.
Leave to file those submissions will also extend to any claim made for interest in relation to any of the other amounts for which any party has been held liable to the other or in respect of which an adjustment should be made (see the summary in paragraph [13] above).
It will also be necessary for the Court to determine the question of costs. Subject of course to hearing any applications (including for special costs orders), it is my preliminary view that costs should follow the event so that the Chetwynds and Wincot will be liable to pay Glynis' costs of the proceedings. Wincot's liability should only relate to the 2018 hearing being the only hearing to which it was a party. In real terms the Chetwynds have enjoyed very small success and Wincot none. So there appears to me no basis to vary what would otherwise be the usual costs order. I emphasise that these are merely preliminary observations for the assistance of the parties, and I will hear the Chetwynds if they wish to contend otherwise.
The practical reality is that these reasons, and the orders that will be made to give them effect, will not bring matters to a close between the parties. That is a particularly unfortunate outcome given the age and circumstances in life of each of Brian, Jill and Glynis. For that reason I conclude this judgment by urging the parties in the strongest possible terms to give serious consideration to whether it is possible for them, by a formal mediation or otherwise, to attempt to reach a solution that involves a complete settlement between them in the light of these reasons. If that is an opportunity of which the parties wish to avail themselves, then the Court is prepared to allow a reasonable hiatus for that to occur before resolving any outstanding matters and making final orders.
[55]
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Decision last updated: 21 February 2020