If one excludes Kyancutta (see [144], [145] below) the figure is over $750,000.
74 This does not support the first defendant's assertion. Furthermore, the plaintiff said and I accept that decisions about the improvements to be carried out to the house were joint decisions whereas decisions about improvements to the office and shed were made by the first defendant. The first defendant was supervising or 'project managing' the carrying out of the improvements.
75 The first defendant called Mr Wegener with a view to supporting his case that a number of improvements resulted from the plaintiff's insistence and in some cases extravagance.
76 Mr Wegener gave evidence of the scope of works carried out by Buildesign in the second half of 2006 and the early months of 2007. He gave evidence of conduct by the plaintiff which, on his account, led to an increase in the scope of works. In particular, he gave evidence of three events. First, he said that the plaintiff directed Buildesign to carry out work at her parents' property at Wudinna which work resulted in an additional cost to the second defendant of over $20,000. Secondly, he gave evidence of the plaintiff requiring the kitchen benches in the house to be redone at an additional cost of $10,000. In that context, he gave evidence of an argument between the plaintiff and the first defendant about the kitchen benches during which the plaintiff allegedly said:
It's my fucking money! I'll spend it the way I want to. I deserve it.
He gave evidence that the plaintiff then burst into tears and left the room. Thirdly, he gave evidence of the plaintiff insisting on changes to the bathroom in the house so as to install new windows "so that there would be a continuous view from and to the spa inside the bathroom from and to the unfenced rural backyard".
77 Mr Wegener was an unsatisfactory witness. His estimate of the cost of the original scope of works was in the vicinity of $100,000. The plaintiff's estimate was $150,000 to $200,000 excluding the cost of the bathrooms in the house. I think the plaintiff's estimate is more likely to be accurate bearing in mind that improvements by Buildesign were to be carried out to the house, office and shed. Mr Wegener's estimate of Buildesign's total account for work on the marina property was $350,000 to $370,000. The documentary evidence established that Mr Wegener's estimate was an overestimate by a considerable margin and he could not explain in a satisfactory way the reason for his overestimate. The documentary evidence establishes that Buildesign's charges for work done on the marina property was about $235,000 and that for the most part it was the first defendant who completed the cheque stubs and noted payments on Buildesign's invoices. Mr Wegener's inaccurate estimate caused me to doubt his reliability.
78 Buildesign did carry out work on the property of the plaintiff's parents although it was at Kyancutta not Wudinna as asserted by Mr Wegener. That was done by reason of an arrangement between the plaintiff and the first defendant and was linked to a payment of $38,000 made to the second defendant by the plaintiff on 21 August 2006. I discuss the details of the payment of $38,000 and the arrangement between the plaintiff and the first defendant below (at [144], [145]). It was the first defendant who first approached Mr Wegener about the prospect of Buildesign carrying out work on a property at Kyancutta. It was the first defendant who completed the cheque stubs for the cheques which were used to pay Buildesign for the work done at Kyancutta.
79 With respect to the kitchen benches, they were made by cabinetmakers Ebert and Jonas, and not by Buildesign. The plaintiff said, and I accept, that the measurements for the kitchen top were never varied from the plans. The plaintiff said, and I accept, that she did not use the words attributed to her by Mr Wegener in the course of a conversation with the first defendant.
80 With respect to the bathroom, the plaintiff said, and I accept, that at an early stage of the building work she was asked by the first defendant to view changes that had been made. The plaintiff was not happy with the changes and it was agreed that the framework between the two bathrooms would be shifted. Mr Wegener said that no significant further work would be involved. The windows in the bathroom were changed at the plaintiff's suggestion and with the first defendant's agreement. Mr Wegener said that little (if any) additional cost would be involved because he could use the windows which were to be replaced on an existing job.
81 I accept the plaintiff's evidence that increases in the scope of works to be carried out by Buildesign were agreed between the plaintiff and the first defendant save for a few decisions made 'on the spot', to use the plaintiff's words, by the first defendant. Even if the plaintiff had some firm ideas about improvements to the marina property the evidence establishes that they were really quite minor in terms of costs.
82 I turn now from the topic of improvements to another area of the evidence which the first defendant contends supports his evidence with respect to the first and final statements.
83 The first defendant points to the fact that the plaintiff failed to raise the allegation about equal contributions on occasions where one would have expected her to do so if they had been true.
84 In August 2008 there was a dispute between the plaintiff and the first defendant and each party instructed solicitors. Correspondence passed between the solicitors for the respective parties and various allegations of misconduct were made. In the correspondence from the plaintiff's solicitors there was no reference to any statement or undertaking by the first defendant to make contributions to the second defendant equal to those of the plaintiff. That was a strong reason, submitted the first defendant, to disbelieve the plaintiff's evidence that any such statement was made or undertaking given. I have carefully considered that submission, but in the end I have decided that it should be rejected.
85 The context of the letter from the plaintiff's solicitors was a response to a letter from the first defendant's solicitors alleging that the plaintiff had unlawfully removed from the marina, company property, being pot plants, company records and other items. In that context the absence of a reference to the statement or undertaking is not a reason to disbelieve the plaintiff's evidence. Furthermore, the plaintiff was recovering from a serious illness at that time. In May 2008 the plaintiff became very ill with a collapsed left lung and a partial collapse of the right lung, pleurisy and pneumonia. She was hospitalised for about two weeks and was unable to work for about two months. She was limited in what she could do for a period thereafter.
86 The first defendant also submitted that it was significant that the plaintiff did not mention the statement or undertaking in her email to him dated 14 December 2009. That email reveals that the plaintiff's immediate concern was the ongoing operations of the second defendant and again I do not think that the absence of any reference to the statement or undertaking is a reason to disbelieve the plaintiff's evidence.
87 I find that the first defendant made the six statements to the plaintiff to which she deposed ([42]-[47] above). I reject all of the first defendant's challenges to the plaintiff's credibility and reliability, both those I have already discussed and those discussed hereafter in these reasons.
88 There were other matters discussed between the parties at or around the time the plaintiff was deciding whether to enter into the venture. They are relevant to the plaintiff's case and I now turn to consider them.
89 In the course of the conversations between the parties the first defendant showed the plaintiff rough projections which he had prepared. These projections showed that the business would be profitable.
90 The plaintiff was aware that in order to provide funds to the marina business she would have to draw on her line of credit facility and that she was required to pay interest on that facility. She told the first defendant that the proposed operator of the business would have to pay interest on her borrowings with Bank SA. She told him that she wanted her accountant to calculate on a monthly basis the amount of interest which she paid to Bank SA and that she expected to be reimbursed on a monthly basis 'once the company was up and running'. The first defendant agreed to that.
91 The first defendant gave evidence that he did not agree that the venture company would pay interest on the plaintiff's contributions calculated by reference to the interest the plaintiff would be paying on her line of credit. Furthermore, he said that the parties did not address the question of whether the contributions each party made to the venture would be loans or some other form of contribution. He asked me to reject the plaintiff's evidence on these matters. In addition to his evidence he pointed to a number of other matters which he submitted should lead to the rejection of the plaintiff's evidence.
92 First, he submitted that it was inherently unlikely that the parties would have reached an agreement that the proposed operator of the business would pay interest in view of the fact that it was unlikely the proposed business would generate sufficient income to be able to pay interest. He referred to the fact that the second defendant would be paying interest on the loan from the ANZ Bank. He also referred to the profit and loss figures of the existing business which he had shown to the plaintiff (see [39] above). I do not place any weight on this consideration. The first defendant had experience in conducting a marina business, owned a houseboat and was planning to buy another. The business was going to make substantial improvements to the marina. The first defendant was very enthusiastic about the venture and he conveyed that enthusiasm to the plaintiff. I think he considered that he could conduct a profitable business and I do not think that he would not have been deterred by an arrangement whereby the business paid the plaintiff's interest charges.
93 Secondly, the first defendant pointed to the fact that for a time after settlement the records of the second defendant showed the plaintiff's contribution to the second defendant as capital introduced and did not record a liability of the second defendant to pay interest to the plaintiff. It does seem to be the case that for a time the plaintiff's contributions appear in the general ledger of the second defendant as 'Capital Introduced' and that there was no regular recording of an interest charge. Furthermore, the plaintiff did not send accounts to the second defendant for the interest charge. It also seems to be the case that Mr Saris, who prepared the second defendant's balance sheet, recorded the plaintiff's contributions as a shareholder's loan under 'Issued Capital' for the 2007/2008 financial year, although he did record her contributions under 'Current Liabilities' for the 2008/2009 financial year. The plaintiff opened on Mr Saris as a witness she would call, but she did not call him as a witness. I was told by the plaintiff's counsel, without objection from the first defendant, that Mr Saris had prepared a statement which had been filed and served. The first defendant referred to the way in which the arrangements were initially recorded in the second defendant's records and submitted that the only reason for the changes was an attempt by the plaintiff to improve her position. He submitted that the plaintiff's failure to call Mr Saris means that I can more confidently reach that conclusion. It is convenient for me to deal with this submission and the next submission together.
94 Thirdly, the first defendant pointed to draft agreements the plaintiff had her solicitors prepare in 2008 which recognised the contributions as loans and contained an obligation on the second defendant to pay interest to the plaintiff. She was asking the first defendant to execute those agreements but he did not do so. The first defendant submitted that there would have been no need for the draft agreements to record the contributions as loans carrying interest if there had been a pre-existing agreement to that effect. He submitted that this was yet another example of the plaintiff trying to improve her position.
95 I have considered these matters carefully but they do not lead me to reject the plaintiff's evidence.
96 The context in which the conversations took place is one in which the plaintiff would be borrowing money to make her contributions and the agreement she alleges is that interest would be paid when the company was up and running. In that context such an arrangement is not unusual or such as to throw doubt on the plaintiff's evidence.
97 With respect to the way in which the contributions were recorded in the second defendant's records, I accept the plaintiff's evidence that the second defendant's books and records were a 'mess' at the beginning of the venture and that there had to be a recharting of the accounts in about March 2007. It seems that the plaintiff did not know how the contributions should be recorded and that she had some notion that they should be referred to as capital because the moneys were used to develop the property. Ms Sitters came in and 'cleaned up' the accounts and then later Mr Saris 'went through it and brought it up to date'. She said that it was Mr Saris who made the changes to the second defendant's balance sheet and that he did not discuss those changes with her. The first defendant submitted that I should infer from the plaintiff's failure to call Mr Saris that the plaintiff knew that the contributions were capital contributions to the trust and not loans attracting interest. I decline to draw that conclusion because I accept the plaintiff's evidence. In the circumstances I do not need to consider whether the other requirements of what is sometimes said to be the rule in Jones v Dunkel (1959) 101 CLR 298 are satisfied.
98 I should add in the context of discussing the fact that Mr Saris did not give evidence that the first defendant identified a couple of other areas where Mr Saris may have been able to give relevant evidence. Those areas are the reasons the parties went to see him in September 2007 ([160]-[161] below) and the reasons income from the Lyn Crossman Trust was included in taxation returns of the White Marina Trust. However, the only matter where the first defendant identified the inference I should draw related to the changes to the balance sheet and, as I have said, I decline to draw the inference for which the first defendant contends.
99 With respect to the draft agreements prepared by the plaintiff's solicitors, there are two draft Domestic Partnership Agreements prepared by Peter Marker and Associates in the period of March to June 2008. The recitals (which are said to be true and correct) contain an acknowledgment of the second defendant's indebtedness to the parties. The draft agreements also contain quite detailed provisions dealing with what is to occur on the separation of the parties or the death of one of the parties. There is also a draft deed between the parties which bears the year 2008 and draft loan agreements. The draft loan agreements provide for the repayment of principal and interest on the sale of the leasehold and business. I do not think that these draft agreements amount to an acknowledgement or admission by the plaintiff that there was no agreement or understanding that the plaintiff's contributions were loans carrying interest. If anything they confirm her understanding that they were loans carrying interest. I think the proposed new arrangement as to the payment of interest may be explained by reference to the open-ended nature of the original statement (that is, when the company was up and running) and the changed circumstances of the business. From the plaintiff's point of view the business was obviously failing and had to be sold. Furthermore, I accept the plaintiff's evidence that the first defendant's concern at the time of the draft agreements was the plaintiff's failure to make him a beneficiary of her life insurance policy, not the characterisation of the contributions or the fact that the draft agreements provide for the payment of interest to the plaintiff.
100 The contributions made by the parties were not subscriptions for share capital. After two shares were issued at the outset no additional shares were issued. The contributions were either loans or contributions to the property of the trust. In the latter case they would only be recoverable on the winding up of the trust and if there were sufficient funds available.
101 The conduct of the parties at about the time of settlement and thereafter was consistent with the contributions being loans to the second defendant. Various payments were made to the plaintiff by the second defendant which support the conclusion that the contributions were loans. Those payments are discussed below. They are the repayment by the second defendant of part of the sum of $38,000 paid by the plaintiff on 21 August 2006 (see [144]-[145] below), the payments to the plaintiff of $30,000 and $35,000 respectively in 2008 (see [166]-[167] below) and the interest payments to the plaintiff by the second defendant in the second half of 2009 (see [174] below).
102 I find that at about the time the plaintiff decided to enter into the venture the first defendant agreed to the proposed operator of the business paying interest on the plaintiff's contributions on the terms deposed to by her. I find that the contributions were loans and were understood to be loans.
103 At the time of the conversations leading to the plaintiff's decision to take an interest in the venture she understood that the ANZ Bank would take security over the assets of the marina business and because she wanted as much protection as possible she told the first defendant that he needed to provide the ANZ Bank with a mortgage over his property at Moana. The first defendant's evidence was to the contrary, but I accept the plaintiff's evidence.
104 The plaintiff's understanding as to the ownership of the property at Moana was that it was owned by the first defendant but that he owed his mother $150,000 in connection with the purchase of either that property or of Flat White. I reject the first defendant's evidence that he told the plaintiff that his mother had a half interest in the property at Moana.
105 The plaintiff told the first defendant that she wanted her accountant, Mr Con Saris, to be the accountant for the venture. She wanted to make sure that the books for the business were kept in order. The first defendant agreed that Mr Saris would be the accountant for the venture.
106 In the conversations at or about the time of the plaintiff's decision to enter into the venture there was a discussion between her and the first defendant about the terms upon which the first defendant would moor his houseboats at the marina. As I understand it, the practice at the time was that houseboat owners who moored their boats at the marina would pay mooring and management charges and would pay other charges for goods and services supplied such as replacing items on the boats, laundry and cleaning. If a booking for the hiring of a houseboat by a third party was made through the marina then the owner would pay a commission on the hiring fees to the marina. If a booking was arranged by the owner then no commission was paid to the marina on that booking. As I understand it, if a booking was arranged through a third party such as the Houseboat Hirers' Association then the owner would pay a commission to that party.
107 The plaintiff and the first defendant agreed that the first defendant would pay mooring and management charges and fees for goods and services with respect to his houseboats. The parties discussed whether the first defendant would pay commission in the same way as other houseboat owners.
108 The plaintiff's evidence was that initially the first defendant was reluctant to agree to the payment of commission with respect to his houseboats. In resisting the idea he referred to the fact that he would be working at the marina. Eventually he agreed to pay commission in relation to his houseboats.
109 As I understand the first defendant's evidence on this topic he agrees that the question of commissions was discussed but he denies that it was agreed that he would pay commissions on the hire of his houseboats in the same way as other houseboat owners.
110 Both parties referred to subsequent events which they contended supported their version of the conversation.
111 The second defendant had a website advertising its facilities and services. The first defendant also had a website in relation to his houseboats. The second defendant kept booking forms and those forms contained provision for recording the party who had arranged the booking. Except for a period in late 2009 when the first defendant was in the United States of America he took the majority of bookings. He had a mobile telephone and bookings could and often were taken outside business hours. When the first defendant took bookings for his own boats he recorded the fact that the booking had been arranged through the owner, namely, himself.
112 Leaving aside a short period in late 2009 the second defendant never sent an invoice to the first defendant for commissions and the first defendant never paid commissions with respect to his houseboats. On his case there was no agreement that he do so and, in any event, in the case of his houseboats all of the bookings were arranged by the owner, namely himself.
113 Although the plaintiff contends that there was such an agreement she accepts that it is not possible to calculate the commissions the first defendant ought to have paid. That is because of the recording practices he adopted. The plaintiff attempted to provide an estimate of commissions which should have been paid by the first defendant but it seemed to me to be no more than a rough estimate.
114 After settlement, and from time to time, the second defendant sent letters to houseboat owners concerning the terms and conditions of mooring their boats at the marina. The first defendant appears to have received similar letters to those sent to other houseboat owners.
115 In November or December 2006 the plaintiff prepared cash flow projections for the second defendant's business. The book which contains the projections which she prepared was received in evidence and became exhibit P4. The plaintiff discussed the projections with the first defendant. The projections contained estimates as to hiring fees and the likely frequency at which various houseboats at the marina would be hired. The first defendant tended to downplay his role in the formulation of the assumptions which lay behind the estimates, but I have no doubt, having regard to his experience and expertise and the plaintiff's relative lack of experience and expertise, that he was the principal source of the estimates with respect to these matters. It is true that commissions are not included in the expenses of Flat White or White Water, where the income and expenses of individual boats appear, but as far as I can see they are not included in the expenses of the other houseboats. The significant point is that commissions with respect to the first defendant's houseboats are included in the projections for the second defendant's business. I reject the first defendant's submission to the contrary.
116 The cashflow projections were also discussed with a representative of the ANZ Bank in the period leading up to an extension of the loan facility from that bank from $500,000 to $750,000. Both the plaintiff and first defendant were present during that discussion. The plaintiff subsequently sent a copy of the cashflow projections to the ANZ Bank.
117 In July 2007 the second defendant was looking to increase its loan facility with the ANZ Bank. In fact later in 2007 the ANZ Bank extended the facility by $175,000 (see [164] below). In a letter from the plaintiff to the ANZ Bank dated 27 July 2007 financial details of the marina business and of the plaintiff and the first defendant were provided to the bank. The expenses of Flat White and White Water did not include commissions. I think that this was because the first defendant was not in fact paying commissions rather than because there was no agreement or understanding that he do so.
118 In 2008, the plaintiff prepared a document entitled 'White Marina Business Overview'. This document was prepared at a time when the second defendant was attempting to sell the business. I accept the plaintiff's evidence that the reference 'n/a' appearing next to the commissions for Flat White and White Water was there because the first defendant was not paying commissions, not because there was no agreement or understanding that he do so.
119 Mr Daly gave evidence which was relevant to the question of whether there was an agreement or understanding that the first defendant pay commissions with respect to the hiring of his houseboats. He also gave evidence relevant to other matters and it is convenient for me to deal with all of his evidence at this point.
120 Mr Daly was employed by the second defendant in about November 2007 and his duties at that stage were cleaning boats and small maintenance tasks. In about August 2008 he started performing some managerial functions after other employees resigned. In late 2009 he was involved in taking bookings for houseboats at the marina. He left the employ of the second defendant in January or February 2010.
121 Mr Daly said that at about the time he was first employed at the marina (that is, November 2007) the plaintiff said to him:
Brendan does not pay commission on bookings for his boats because he handles his own bookings and does his own dog-work. That arrangement is fine with me.
122 I do not accept that evidence. I found Mr Daly to be an unsatisfactory witness. I have reached the conclusion that he was an unsatisfactory witness having regard to his evidence as a whole. Some matters are more important than others and in what follows I proceed chronologically rather than in order of importance. Overall I formed the view that his evidence was tailored to portray the plaintiff in an unfavourable light.
123 Mr Daly gave evidence that in August 2008 he was 'summoned' by the plaintiff to her house at Hyde Park. He said the plaintiff offered him money to secure a mooring away from White Marina. Mr Daly accepted in cross-examination that the plaintiff had made a polite request that he attend her house and that she had been polite and civil when he arrived. His use of the word 'summoned', although not in itself particularly significant, was part of an overall feature of his evidence, namely, an attempt to portray the plaintiff in an unfavourable light. The circumstances surrounding the plaintiff's offer were never made clear and the plaintiff denied making such an offer. I accept the plaintiff's evidence.
124 Mr Daly referred to an occasion when the plaintiff instructed him to refuel her son's motor vehicle, an instruction which he did not carry out. Later he discovered that the plaintiff's son had refuelled his motor vehicle himself. On occasions Mr Daly was instructed by the plaintiff to refuel his motor vehicle where he had been doing some 'running around' on behalf of the business. He said that records were kept of any vehicle refuelling and those records were provided to the plaintiff on a regular basis. The point being made about this incident is not entirely clear, but if it is that there was something improper about the plaintiff's conduct, it would also have been appropriate for Mr Daly to mention that the plaintiff's son performed work at the marina. He did not mention that.
125 Mr Daly said that he was not aware of houseboat owners being directed by the first defendant to pay money of the second defendant to the first defendant. He said that all the invoicing was dealt with by the plaintiff's staff. However, he said that such an activity could not have occurred without him being aware of it, as he was a port of call for all accounts and billing inquiries and any such activity would have shown as an unpaid houseboat owner account and come to his attention. He said the plaintiff never raised any issue of that nature with him during his tenure at the marina. I do not accept that Mr Daly played such a role in the accounting aspects of the marina business that I should prefer his evidence to that of the plaintiff and Ms Sitters.
126 Mr Daly was cross-examined about his alleged conversation with the plaintiff in November 2007 concerning the first defendant paying commissions. His evidence was unconvincing. He could not recall when he had a conversation with the plaintiff and he said that it could have been in the middle of 2009. When asked to relate the conversation he said that the plaintiff had said something to the effect that the arrangement was an unsatisfactory arrangement.
127 Mr Daly said that the first defendant went to New South Wales for a period in 2009. He was quite uncertain as to whether that was in July or October 2009.
128 Mr Daly said that when the first defendant went to the United States he handled bookings at the marina. He ensured the first defendant paid commission and that bookings were dealt with on a 'first cab off the rank' basis. Mr Daly said that he had conversations with the plaintiff when the plaintiff said that she disagreed with the first defendant's practice of giving preference to his houseboats. He could not remember how many conversations he had or when they took place.
129 Mr Daly referred to an email from a Mr Phillips to the first defendant dated 11 February 2010 complaining about various matters. Mr Daly said that he did not discuss the matters with the first defendant and that he had been sworn to secrecy by the plaintiff as to his involvement in the matters.
130 Mr Daly said that in November 2009 Ms Sitters spent a day making travel and accommodation bookings for the plaintiff to take a holiday in Queensland and that the second defendant was billed for that work. That allegation was not put to Ms Sitters during her cross-examination and having heard Mr Daly cross-examined on the matter I am satisfied that he has exaggerated the incident.
131 Mr Daly said that the plaintiff told him not to tell the first defendant about various aspects of what went on at White Marina. He gave the following examples:
1. The proposed sale of a jet ski by the second defendant.
2. The planting of ornamental trees at the marina using the second defendant's money. This occurred in the latter part of 2009. Mr Daly said that this occurred at a time when staff superannuation was not being paid to employees of the second defendant and bond returns were not being made to customers.
3. The removal of company records from the marina by the plaintiff and an associate.
132 These matters have a context which removes any unfavourable impression about the plaintiff's conduct which might otherwise arise. The negotiations for the sale of the jet ski took place at a time when the second defendant was in desperate need of funds and the plaintiff was making contributions, and the first defendant was not. The ornamental trees cost a small amount of money and were being planted on the second defendant's property and at a time when sale of the marina property was likely. Furthermore, it seems that Mr Daly only became aware later that staff superannuation was owing.
133 Mr Daly said he never had to chase the first defendant for the payment of his accounts, nor did he recall the first defendant 'being any more in arrears than any other boat owner'. I prefer the evidence of the plaintiff and Ms Sitters on this point; they were in a much better position to know about this matter than Mr Daly and, in any event, Mr Daly's evidence is contradicted by the second defendant's records. I do not think his evidence on this point should be given any weight.
134 With respect to a booking for a party from Switzerland which went led to difficulties, Mr Daly made a statement - 'they expressed surprise to me that the boat was not available' - which he was not in a position to make. He admitted that in cross-examination.
135 Mr Daly made a statement in his affidavit which I ruled inadmissible but which counsel for the plaintiff introduced in cross-examination. It was quite misleading. He said that one of the houseboat owners at White Marina, a Mr Guy Phillips, who owned a houseboat called Liquid Gold, had no objection to the first defendant preferring Flat White over Liquid Gold in terms of bookings. He did not mention, until it emerged in cross-examination, that on a number of occasions Mr Phillips had complained to him about the first defendant preferring his own boat, the first of which was possibly in May 2009. The picture which he was prepared to present in his affidavit was quite misleading.
136 Mr Daly said that the first defendant preferred his own houseboats and I accept that evidence. Otherwise, I do not accept Mr Daly's evidence where it is in conflict with the evidence of the plaintiff or her witnesses.
137 The first defendant sought to make something of the fact that the letter from the plaintiff's solicitors in August 2008 indicated that the plaintiff was aware that the first defendant was not paying commission with respect to his two houseboats. I do not consider that to be a reason to reject the plaintiff's evidence about the conversation with the first defendant concerning commissions. In the letter the plaintiff through her solicitors was in fact asserting that the non payment of commissions was an example of the 'misuse of Trust property'.
138 I find that during a conversation between the parties the first defendant agreed to pay commissions on the hiring of his houseboats.
139 During the conversations at or about the time the plaintiff decided to take an interest in the venture the plaintiff took notes of what was discussed at one such conversation. Subject to one qualification, she was able to remember the conversations without referring to those notes. The one qualification was that in relation to the conversation with the first defendant concerning the payment by the first defendant of commissions in relation to the hiring of his houseboats she said that she had a 'substantial independent memory'.
140 The plaintiff said that the notes were made by her during a conversation with the first defendant at her house at Hyde Park. She said that she kept a file concerning the marina property and that she put the notes in the file. The file contained documents relating to the acquisition of the marina property and the operation of the business. I received the notes as admissions (Evidence Act 1995 (Cth) s 81 ('Evidence Act')). I think the notes were also admissible under s 69 of the Evidence Act and probably s 64. The notes confirm some aspects of the plaintiff's evidence although I make it clear that I would make the same findings irrespective of the notes.
141 After the plaintiff had agreed to take an interest in the venture she and the first defendant had a meeting with Mr Saris. Mr Saris gave them advice to the effect that a discretionary trust was the most suitable vehicle for them to use to own and operate the proposed business. As I have said, the second defendant was incorporated on 4 April 2006 and the White Marina Trust was established by trust deed executed on 5 April 2006. In relation to the trust deed there is one indication that to a point the plaintiff was careful to protect her interests. When she came to execute the trust deed the plaintiff noticed that only the first defendant was named as an appointor and she amended the clause in the deed to add her name as an appointor.
142 The plaintiff and the first defendant were engaged to be married in May 2006. Although she set out a history of her relationship with the first defendant in her first written statement the plaintiff does not mention the fact of her engagement. The first defendant submitted that this non-disclosure was of great significance because it showed that the extent to which the plaintiff was prepared to go in not disclosing facts which were damaging to her case. The fact of the engagement was said to indicate that all the events occurred in the context of the 'rise and fall' of a personal relationship. When the plaintiff was asked in cross-examination why she had not disclosed her engagement she said that she thought she had disclosed it in earlier affidavits she had sworn in the proceeding. It transpired that she had not. I accept the plaintiff's explanation. Other than her engagement to the first defendant the plaintiff disclosed the course of her relationship with the first defendant in some detail.
143 The contracts for the purchase of the lease and the business were signed in early June 2006. The purchase price of the lease, including GST, was $610,000 and the purchase price of the business was $50,000. Before settlement on 23 August 2006 the plaintiff made the following lump sum contributions to the second defendant: $10,000 on 18 July 2006; $15,000 on 11 August 2006; $7,000, $38,000 and $3,000 on 21 August 2006. The first defendant did not dispute the fact that the plaintiff made these contributions. The first defendant made the following lump sum contributions to the second defendant before settlement: $25,000 on 1 July 2006; $30,000 on 3 July 2006; $200,000 on 21 August 2006.
144 The lump sum contribution by the plaintiff of $38,000 on 21 August 2006 came about after the first defendant had come to her clinic in a panic saying that they were due to settle that day and were $38,000 short. The plaintiff obtained $38,000 from her bank and gave it to the first defendant. It transpired that they were not short of funds and the sum of $38,000 was not required at settlement. At that point, the plaintiff and the first defendant agreed that the plaintiff would leave the funds with the second defendant until she needed the funds to make improvements to her parents' house at Kyancutta and in that event she would withdraw the funds from the second defendant.
145 The first defendant gave evidence-in-chief and was cross-examined about these events. His evidence was unsatisfactory. In his affidavit the first defendant denied the plaintiff's account that when it became clear that the sum of $38,000 would not be needed on settlement the plaintiff said that she would leave the money in the account of the second defendant until she needed the money for improvements to her parents' property. In the plaintiff's second written statement filed and served after the first defendant had filed and served his affidavit the plaintiff produced cheque butts which had been completed by the first defendant and which showed payments to Buildesign in relation to her parents' property at Kyancutta. In cross-examination the first defendant accepted that the plaintiff had said what she alleged but he said that she had done so some considerable time after she had paid the sum of $38,000 to the second defendant. I do not accept that evidence. I think that it would have been in the first defendant's affidavit if it had been true.
146 Settlement on the purchase of the marina lease and marina business took place on 23 August 2006 and the name of the marina was changed from Temptation Houseboat Holidays to White Marina. The assets purchased by the second defendant were as follows:
1. A lease from the owner for an original term of 84 years (together with a right of renewal for 99 years) and an annual rental of $8,000 plus GST subject to review;
2. Improvements on the leasehold property consisting of the marina development itself, the house, a shed and a toilet block;
3. A lease granted by the owner over their land providing access to the property;
4. Items of plant and equipment;
5. Goodwill of the business.
147 The plaintiff said that each and every one of the first defendant's statements as set out below were influential in her decision to take an interest in the venture.
1. His statement that each of them would contribute 50/50 to the funding of the business at all times.
2. His statement that he was in a position to provide his share of the funds required.
3. His statement that all of the major decisions affecting the conduct of the business would be taken by them jointly.
4. His statement that the venture would produce a capital gain for them.
148 I have found that statements to this effect were made by the first defendant to the plaintiff.
149 I am mindful that evidence of reliance on representations given after loss and damage has been suffered should be scrutinised with care. I have done that and I accept the plaintiff's evidence that she relied on the statements and, in particular, (for the purposes of the Fair Trading Act cause of action), the statements about the contributions to be made by the parties and the ability of the first defendant to make his contributions.
150 After settlement, the plaintiff and first defendant set about carrying out improvements to the marina property. As I have said, most of the improvements were carried out between August 2006 and about March 2007. The improvements consisted of the following:
1. Refurbishment of the house;
2. Creation of an office in the toilet block and a workstation;
3. Landscaping;
4. Construction of bituminised roads on the site;
5. Improvements to the existing shed including the provision of a mezzanine floor for storage purposes;
6. The construction of the road;
7. The excavation of the marina to a greater depth and slightly greater width;
8. Improvements to boat ramp;
9. Creation of a utilities area for general storage and refuse;
10. Upgrading of the electricity systems of the marina including installation of outside lighting and provision of power to the mooring sites;
11. Improvements to signage.
151 During the period from settlement to 31 March 2007 the plaintiff made the following lump sum contributions to the second defendant: $130,000 on 6 September 2006; $150,000 on 3 October 2006; $100,000 on 9 November 2006; $100,000 on 5 December 2006. The first defendant did not make any lump sum contributions to the second defendant during this period. The plaintiff's lump sum contributions at 31 December 2006 and at 31 March 2007 stood at $553,000 and the first defendant's contributions stood at $255,000.
152 The first defendant was on site during the carrying out of the improvements and he was, as he said to the plaintiff, 'project managing' the improvements. At that time each party was a sole signatory on the second defendant's cheque account and the first defendant wrote a number of cheques to contractors to pay for the improvements carried out over this period. From time to time the first defendant would telephone the plaintiff and tell her that the second defendant did not have funds available to pay contractors and ask her to transfer funds to the second defendant's cheque account so that this could be done.
153 As the plaintiff's contributions to the second defendant came to exceed those made by the first defendant in the second half of 2006 she raised with the first defendant the question of when he was going to collect his outstanding real estate commissions and sell his King Street apartment. I find that she did this on a number of occasions in the latter part of 2006. Some time after the plaintiff first raised the matter with him the first defendant told her that he had already collected his real estate commissions and that he had used them to pay personal expenses.
154 The first defendant's evidence about what he told the plaintiff concerning the collection of outstanding real estate commissions was unsatisfactory. The plaintiff said in her first statement that he told her that he had collected the commissions during one of the conversations (not the first) which she had with him in the second half of 2006. In his affidavit the first defendant denied that allegation but he did not say that he had told the plaintiff in February 2006 that he had collected the commissions. Under cross-examination he said that he had in fact collected the commissions in late January or early February 2006 and that he had told the plaintiff that he had done so at that time. It seems to me that if he had told the plaintiff in February 2006 that he had collected the commissions that would have been in his affidavit in response to the plaintiff's first statement. Another unsatisfactory feature of his evidence is that he seemed to waver between saying that he told the plaintiff and that the plaintiff would have been aware of the fact from overhearing his telephone conversations with agents.
155 As far as the sale of the King Street apartment is concerned, in response to the plaintiff's inquiries the first defendant assured the plaintiff that he was going to sell the King Street apartment and that he would provide the proceeds to the second defendant and that in that way the plaintiff would be able to draw out money so as to equalise the contributions made by them. The first defendant told the plaintiff that he should get about $1.3 million for the apartment. She understood that the liability with respect to the apartment was 'eight hundred and something' and that the first defendant would pay the net proceeds to the second defendant. Over the years that followed, the plaintiff continued from time to time to raise with the first defendant the need for him to sell the King Street apartment and provide the net proceeds of sale to the second defendant. The first defendant was in the habit of responding that he would do that but that the time was not right because the property market was depressed.
156 The first defendant submitted that I should not accept the plaintiff's evidence that she raised with the first defendant on a number of occasions over the years the need for him to sell the King Street apartment. He referred to the information provided to the ANZ Bank in July 2007 which showed future income from the King Street apartment. I reject this submission. The fact is she had pressed him to sell the apartment and he had not done so. In those circumstances it was not unreasonable to include future income from the apartment in the projection as well as expenses including mortgage repayments which, as I read the projections, led to a negative cash position.
157 In January 2007 the first defendant told the plaintiff that the second defendant required further funds in order to complete the improvements on the property. This is another fact which illustrates why the first defendant's claim that the plaintiff was responsible for the enormous increase in the scope of works must be rejected. At all events, the plaintiff told the first defendant that she was not in a position at that time to put any further funds into the second defendant. The ANZ Bank was approached to extend the facility and the bank agreed to advance a further sum of $250,000 under the original loan facility.
158 In March or April 2007 the plaintiff and the first defendant left the house at Hyde Park and took up residence in the house at the marina. That did involve spending part of the week in Adelaide or the plaintiff commuting between the marina and Adelaide.
159 During the first half of 2007 the plaintiff pressed the first defendant to return to the real estate business so that he could earn money and contribute to the second defendant. Between July and September 2007 the first defendant returned to real estate work with Toop and Toop.
160 In September 2007 the first defendant raised with the plaintiff the question of whether she would change her will so that in the event of her death her share of the marina business would pass to him. He also asked her to make arrangements so that he would benefit from her $2 million insurance policy. The plaintiff spoke to her lawyer and subsequently told the first defendant that the benefit of her life insurance policy would remain with her children. The first defendant became upset and angry. At about this time the plaintiff and the first defendant agreed that they would have a meeting with Mr Saris with a view to Mr Saris providing advice to the first defendant as to the best way he could realise his assets and make up his share of funding of the company. At this point the marina business was running at a loss and none of the interest payments incurred by the plaintiff on her line of credit facility were being paid by the second defendant.
161 The parties met with Mr Saris on a date in September 2007. Mr Saris advised them that they should sell the marina business. The first defendant was optimistic about the future prospects of the business and he said that internet marketing had only recently been established. Various proposals were discussed. During the meeting Mr Saris pointed out to the plaintiff and first defendant that the former had contributed significantly more to the marina business than the latter. He asked the first defendant how he was going to make up his contribution. The first defendant said that it was the wrong time to sell the King Street apartment. Mr Saris then asked the first defendant about other assets. The first defendant said that he was not keen to sell anything. Mr Saris said that the directors were at risk of the second defendant trading while it was insolvent and that they ran the risk of it going into liquidation. At that point the first defendant said that if that happened he would 'buy the business back cheap'. There was then an argument between Mr Saris and the first defendant. Eventually it was agreed that the first defendant would undertake marketing for the business and draw $1,154 per week. It was agreed that the first defendant should be given six months to improve the business such that it became profitable. The plaintiff considered that she had no alternative but to give the first defendant a further six months to see if the marina business could be made profitable.
162 The first defendant said that part of the plaintiff's evidence about this meeting was obviously incorrect and was a reason I should reject her as a witness of credit. He pointed to the plaintiff's evidence that Mr Saris had with him the taxation return for the business for 2006/2007 whereas other evidence in the case established that that taxation return was dated May 2008. I do not think that this is a reason to disbelieve the plaintiff's evidence. It is likely Mr Saris would have had drafts of the financial statements for the second defendant for the financial year which had just passed and that the plaintiff was simply mistaken as to the precise document to which he had referred.
163 Shortly after this meeting, the first defendant began drawing the sum of $1,154 per week from the company. The first defendant said that it was agreed that these payments were to be treated as wages. A payment authorisation for one such payment shows the payment as a drawing. The first defendant had written on the document. The first defendant instructed his counsel to put to the plaintiff in cross-examination that the typed words 'Annual Drawings' had been put on the document after he had written on it. That was not a proposition he supported when he was asked about the topic in cross-examination.
164 At the end of September 2007 the plaintiff had an altercation with the first defendant and she moved back permanently to her house at Hyde Park. The plaintiff said that the personal relationship between them effectively ended late in 2007 or early in 2008.
165 On 12 November 2007 the ANZ Bank agreed to extend the facility it accorded to the second defendant by another $175,000. That was the result of discussions between the plaintiff and first defendant which had started in July 2007. The funds were needed to make further improvements to the marina and to meet outstanding expenses. At about this time, the plaintiff was again encouraging the first defendant to return to the real estate business so that he could contribute to the second defendant's funds. She was also pressing him to sell the King Street apartment. However, his response to the latter suggestion was to tell the plaintiff that the market was depressed and that it was not the right time to sell.
166 The addition to the facility provided by the ANZ Bank to the second defendant of $175,000 was applied in the following way. First, the sum of $80,000 was drawn down by the second defendant and used for general working purposes and a portion was spent on completing improvements. Secondly, in March 2008 the sum of $30,000 was paid to the plaintiff to enable her to have some relief in terms of the interest charges under the line of credit facility and difficulties with her cash flow. The first defendant agreed to this payment to the plaintiff. Thirdly, the sum of $30,000 was used to remedy the fact that the company's account was overdrawn. Finally, in September 2006, the sum of $35,000 was paid to the plaintiff, again to provide her with some relief in terms of her cash flow difficulties. Again, the first defendant agreed to this payment to the plaintiff.
167 I do not accept the first defendant's evidence that he did not agree to the two payments to the plaintiff of $30,000 and $35,000 respectively. His evidence concerning the payment of $35,000 was particularly unsatisfactory. He in fact signed the authorisation for payment. He said he did not recall signing the document and then proffered the observation that the authorisation had been altered. The alterations were entirely innocent as the evidence showed. Despite the fact that the evidence showing that there was no other explanation but that he authorised the transaction the first defendant maintained that the plaintiff had taken the sum of $35,000 without his knowledge and consent.
168 The taxation return for the White Marina Trust for the 2006/2007 financial year was signed by the plaintiff on 1 May 2008 and it included the minutes of a Trustee General Meeting allegedly held on 30 August 2007. The minutes were signed by the plaintiff. The first defendant made a number of submissions about these documents. He submitted that the fact that the plaintiff had signed the document as trustee when the second defendant was the trustee reflected adversely on her credit. I reject that submission. It seems to me understandable that the plaintiff who had responsibility for the financial records of the second defendant would sign the document. He also contends that he did not attend a meeting on 30 August 2007 and the plaintiff's willingness to sign a minute recording the fact that he did reflected adversely on her credit. It may be that a degree of informality was adopted and I have taken the first defendant's submission into account. It does not cause me to doubt the honesty or reliability of the plaintiff with respect to the issues in the case. The first defendant also referred to the fact that the taxation return refers to income from the Lyn Crossman Family Trust and he submitted that Mr Saris could have thrown light on why it was included. I do not think this submission leads anywhere because I do not think the income from the Lyn Crossman Family Trust is relevant to any issue in the case.
169 The six-month period discussed at the meeting with Mr Saris in September 2007 expired in March 2008. At that point the business had not improved and was still making a loss and the parties had ceased cohabiting. In early May 2008 the parties discussed the possible sale of the marina business. The first defendant told the plaintiff he had a proposal for separating their interests and paying the plaintiff back the money she had put into the marina business. The first defendant discussed other potential investors who he said might be prepared to buy the plaintiff out for about $800,000.
170 As I have said, the plaintiff became very ill in May 2008.
171 In about July 2008, the plaintiff and the first defendant agreed that the marina business should be sold. Knight Frank Australia Pty Ltd ('Knight Frank'), which is a firm of commercial real estate agents, was appointed sales agent under a commercial sales agency agreement which was executed by the plaintiff and the first defendant on 5 July 2008. The agreement was due to expire on 31 October 2008. No price was specified in the agency agreement but the plaintiff and the first defendant had discussed a price in the range of $2.5-3 million. Knight Frank needed certain information about the property and business in order to market it. They had difficulty obtaining the required information from the first defendant and in the end it was never provided. By August 2008 the first defendant had told the plaintiff that he was not going to let the Knight Frank representative on the marina property and was not going to co-operate with Knight Frank. He accused the plaintiff of tricking him into signing the agency agreement.
172 In October 2008, the plaintiff and the first defendant engaged Toop and Toop in conjunction with First National to sell the marina business. They executed a rural sales agency agreement in early October 2008. It was initially for a period to 8 January 2009 but it was extended to May 2009 by a subsequent agreement executed in January and February 2009. When the time came to consider an extension of that agreement the first defendant had decided that he no longer wished to sell the marina business. He would not sign a further sales agency agreement.
173 By 30 June 2009 the plaintiff had provided financial accommodation to the second defendant in amounts totalling $826,773.80. She did that by borrowing from lending institutions, selling an investment property, selling a vehicle and borrowing funds from family members. At the same date the first defendant's contributions to the second defendant were an amount totalling $180,272.67.
174 In the middle of 2009 the plaintiff decided that she could no longer afford to pay the interest charge on her line of credit facility. The plaintiff and the first defendant agreed that she would receive a monthly payment from the second defendant of $5,500 and that her loan account would be reduced accordingly. I reject the first defendant's evidence that he did not agree with the plaintiff that the second defendant would pay the plaintiff $5,500 per month or any amount. Furthermore, I find on the balance of probabilities that monthly financial documents of the second defendant showing transfers of interest to the plaintiff were sent to the first defendant. The first four transfers to the plaintiff involved $5,000 because the plaintiff considered that she could bear the balance of $500. After discussing the matter with Mr Saris the agreed amount of $5,500 was paid between October 2009 and December 2009.
175 In about the middle of 2009 the plaintiff and the first defendant had a discussion about resolving the second defendant's financial problems,. The first defendant said that he was going to go to Sydney to make arrangements for the sale of the King Street apartment and thereby avoid paying commission on the sale of the apartment. He would put funds into the company and that would enable the plaintiff to draw out some funds from the second defendant. The first defendant mentioned an amount of $150,000. Although the first defendant had intended to be in Sydney for a period of only four to six weeks, when in Sydney he decided to stay there longer.
176 In August 2009 there were discussions about the possible sale of the second defendant's jet ski to a Mr Guy Phillips who, as I have previously said, moored his houseboat, Liquid Gold, at the marina.
177 The plaintiff visited the first defendant in Sydney between 26 and 31 August 2009. One topic of discussion between them was the sale of the King Street apartment. The first defendant said that he had not had any buyers put pen to paper and that he was having difficulty with the tenants in his marketing of the property. Another topic of discussion was state of the second defendant's finances. The first defendant said that Mr Saris was not a 'creative' accountant and that they should go and see his accountant, Mr Anson.
178 On 7 September 2009 the plaintiff wrote an email to the first defendant referring to the cash flow difficulties of the second defendant.
179 The plaintiff met with Mr Anson on 16 September 2009 and she explained the difficulties the second defendant was experiencing. She said that the first defendant was in Sydney trying to sell his apartment.
180 In October 2009 the first defendant returned to Adelaide for a period of three to four days. The plaintiff and the first defendant drove to the marina and they discussed the financial position of the second defendant. The plaintiff told the first defendant that she was in dire financial straits because of the money she had advanced to the second defendant. She said they needed to do something urgently otherwise she would lose her Coffin Bay property. Again, the first defendant said that he was trying to sell his King Street apartment but that he had encountered difficulties because the tenants were making it difficult for prospective purchasers to inspect the property. He told the plaintiff that he had a couple of people interested but that they had not made any offer.
181 At this time, the first defendant said that he would personally contribute $10,000 in funds to the business on the fifteenth day of each month for six months to ensure that at least the company's mortgage obligations could be met. He said he would sell the King Street apartment, Flat White and his Porsche to generate funds for the business. He said he would put the proceeds realised from those sales into the business so that the plaintiff could be repaid part of her loan funds so as to equalise the contributions and that he would pay to the second defendant the sum of $8,000 which he claimed was due to him for the sale of a houseboat which had been kept in the marina and sold by a local agent.
182 The first defendant made a payment of $10,000 to the second defendant on 15 November 2009. Thereafter he did not make any further payments. Shortly prior to 17 November 2009 the first defendant came back to Adelaide and visited the marina. On 17 November 2009 he left for a holiday in the United States. Before he left the first defendant gave the plaintiff the name of a person he said would be trying to find a buyer for the King Street apartment in his absence.
183 The first defendant admits that he misled the plaintiff and, by omission, Mr Anson, about the sale of the King Street apartment. In the latter half of 2009 the plaintiff and Mr Anson believed that the first defendant was still trying to sell the apartment so that he could raise funds to put into the second defendant, whereas the true position was that he had signed a contract of sale and purchase on 6 August 2009 and he had settled on the sale on 10 September 2009. In the period from August to November 2009 he made statements to the plaintiff leading her to believe that he was trying to sell the apartment and he did not inform Mr Anson that he had sold the apartment. His explanation for lying to the plaintiff, namely, that he thought she would then prevail on him to put the net proceeds into the second defendant, does not in any way explain or mitigate the misleading nature of his conduct. Clearly, he was prepared to mislead others in order to advance or protect his own interests. For the most part the net proceeds from the sale of the King Street apartment were used by the first defendant to discharge personal liabilities. This conduct reflects poorly on the first defendant.
184 The plaintiff continued to use her personal funds to make payments to creditors of the second defendant. In addition, the wages of Ms Bullock who was performing services for the second defendant were being met by the plaintiff. The plaintiff felt that she had no alternative but to keep the second defendant afloat in the hope that the first defendant could be persuaded to sell the business or to make his contribution. She said and I accept:
The further promises he made to me from time to time to sell down assets and pay the proceeds to the company so that I could recover some of my funds played a part in encouraging me to support the company.
185 The second defendant did not make any interest payments to the plaintiff after December 2009 because it could not afford to do so.
186 In February 2010 the plaintiff decided that she could no longer continue to support the company. By reason of the fact that there were a significant number of creditors' accounts to be paid she decided that she had no alternative but to cause the company to cease to trade. Effectively, the company ceased to trade in February 2010.
187 Some of the employees in the plaintiff's clinic did administrative work for the first defendant from time to time and the plaintiff and the first defendant agreed that a charge for those services would be made to the company. From July 2009 the plaintiff was being paid by the second defendant for Ms Jade Bullock's wages, rather than the amounts being accumulated in the plaintiff's account with the second defendant.
188 Under the lease for the marina property the rent payable was due for review in early 2009. During 2009 and the first part of 2010 the landlord of the marina property and the second defendant were engaged in discussions about the review of the rent paid under the lease. It is not necessary for me to go into the details of the reasons the discussions were so prolonged. It is sufficient for me to say that one reason was that the parties were negotiating an amendment to the rent review clause in the lease. The plaintiff's case is that the first defendant frustrated the rent review process and that this was an aspect of the oppressive conduct of the second defendant's affairs.
189 Mr Nicola Minicozzi is a legal practitioner of many years standing. He acted for the second defendant in the rent review process. He was an honest and straightforward witness and I accept his evidence. In any event the plaintiff's case on this issue turns on the inferences which can be drawn from the correspondence.
190 In my earlier decision of Crossman v Taylor (No 2) at [29]-[34] I set out in chronological order details of various events which occurred in relation to the rent review process. The plaintiff does not contend that the first defendant did anything to frustrate the rent review process between April and December 2009.
191 In light of that it is necessary for me to make findings only with respect to events in 2010. On 21 January 2010 the first defendant told Mr Minicozzi that he, Mr Minicozzi, could take instructions with respect to the rent review process solely and directly from the plaintiff and that he would confirm that instruction in writing. He confirmed the instruction in writing on the same day. Thereafter Mr Minicozzi continued to negotiate with the landlord's solicitor including a proposal to amend the rent review clause. On 21 March 2010 the first defendant contacted Mr Minicozzi by email and advised him that he agreed with the proposed variation to the lease and with the appointment of Mr Michael Harrington from McGees as valuer. On 22 March 2010 Mr Minicozzi advised the landlord's solicitors that the proposed Memorandum of Extension of Lease was acceptable to the tenant. On 30 March 2010 the first defendant wrote to Mr Minicozzi and advised him that he did not want to proceed further without further information. This proceeding had been commenced by the plaintiff on 26 March 2010. Mr Minicozzi subsequently received a document entitled 'Memorandum' which had been prepared by the first defendant's solicitors. He provided comments on that document to the plaintiff.
192 It remains for me at this point to address two topics which involve events which occurred over the course of the venture. First, I will address various acts and omissions alleged by the plaintiff to constitute oppressive conduct in the second defendant's affairs. Secondly, I will address the bookkeeping and accounting evidence the plaintiff called to establish the general accuracy of the second defendant's records and the quantum of her claim.
193 With respect to the non-payment of commissions, I have found that it was agreed between the plaintiff and the first defendant that the latter would pay commissions with respect to his houseboats where the booking came through a company channel. I have found the first defendant did not pay commissions on the hiring of his houseboats. I am satisfied from the plaintiff's evidence that some of the bookings for the first defendant's houseboats came through the second defendant's business. I accept her evidence about the booking by Mr and Mrs Cooke and her evidence that on more than one occasion she overheard the first defendant direct inquiries from the second defendant's website to the one or other of the websites for his boats. In addition, the first defendant admitted to the plaintiff that most of the bookings for his houseboats came through the marina business. Furthermore, the first defendant admitted in an email to his finance company dated 9 April 2008 that inquiries and bookings for his houseboats were coming through the second defendant's website. Even though there was an agreement it was very difficult for the plaintiff to force the issue because of the fact that the first defendant did not keep the records in a way which would enable her to do so and because he collected all deposits and hiring fees paid by hirers of his houseboats.
194 As I have said, the plaintiff prepared an estimate of 'lost' commissions. Her estimate of what the second defendant would have received had the first defendant honoured his agreement to pay commissions was $75,000. That figure is based on 90 per cent of the bookings coming through the marina business.
195 With respect to whether the first defendant preferred his houseboats, I am satisfied that the first defendant did prefer his own houseboats. The first defendant admitted to the plaintiff that he did so. Mr Daly said that the first defendant preferred his own boats. I am also satisfied from the plaintiff's evidence that from time to time over the years houseboat owners complained to the plaintiff about the first defendant's practice of preferring his own boats.
196 The first defendant's evidence about this topic was most unsatisfactory. He was cross-examined at length about whether he preferred his own houseboats when arranging bookings of houseboats at the marina. His evidence during his attempt to explain the statement in his affidavit that he preferred his own houseboats 'all else being equal' was marked by evasiveness. His eventual explanation of that statement namely, that he meant that he preferred it if his houseboats were hired is an explanation I simply do not accept. Furthermore, during his cross-examination on whether he preferred his own houseboats the first defendant at one point said that the plaintiff had suggested to him that the second defendant operate only the first defendant's houseboats from the marina. That had not been previously raised by the first defendant. I do not believe that evidence and I think he invented it in order to avoid giving what he considered unfavourable evidence with respect to the topic of whether he preferred his own houseboats. In cross-examination the first defendant said that he did not have an arrangement with the plaintiff under which his houseboats would be prioritised. Counsel for the plaintiff put to the first defendant the following statement which he had made in an affidavit filed earlier in the proceeding:
The arrangement with Ms Crossman was always that we would prioritise the booking of my boats.
197 He was asked how he could reconcile these two statements. His explanation that the arrangement was that the first defendant's houseboats would be prioritised but 'in actual fact' that did not happen was most unconvincing.
198 With respect to the allegation that the first defendant failed to pay his accounts to the second defendant in a timely fashion, I am satisfied from the plaintiff's evidence and the records produced that the first defendant is indebted to the second defendant for goods and services provided to him in relation to his houseboats. I am also satisfied that from time to time over the years he has been slow to pay his accounts and has been pressed by the second defendant to do so.
199 With respect to the allegation that the first defendant used the second defendant's funds and property, I am satisfied on the basis of the plaintiff's evidence and the documents that the following transactions took place:
1. On 10 June 2008 the first defendant deposited a sum of $2,000 cash belonging to the second defendant into his personal ANZ credit card account.
2. On 4 July 2008 the first defendant transferred a sum of $10,000 from the second defendant's account to his credit card account without the plaintiff's knowledge. On 9 July 2008 the payment was reversed after the plaintiff had complained to the ANZ Bank.
3. On 5 July 2008 the first defendant deposited a sum of $5,000 cash belonging to the second defendant into his personal ANZ credit card account.
4. From time to time the first defendant kept cash belonging to the second defendant for recycling funds and canoe hire.
200 In addition to these matters it seems that the first defendant has used the second defendant's recorded telephone service and website for his own business purposes.
201 With respect to the allegation that the first defendant has used the second defendant's assets after it stopped trading, I am satisfied that since the marina business ceased operating in February 2010 the first defendant transferred registration of the Mercedes van owned by the second defendant into his own name and that he has continued to operate a marina business from the marina property. The first defendant's explanation for transferring the registration of the Mercedes Benz van from the second defendant's name into his name is difficult to accept. He said that he was concerned that the plaintiff would sell the van at an undervalue and provide the proceeds to the second defendant. Even if true it suggests that his concerns were not the needs of the second defendant.
202 With respect to the allegation that the first defendant sought to obtain exclusive control of the business, I am satisfied that between the period from August 2006 to February 2010 the first defendant took control of the mobile telephone number used in the second defendant's advertising and diverted the landline telephone numbers to the mobile telephone number. In July or early August 2008 the first defendant arranged for all emails sent to the public email address of the business to be directed only to his own personal email account. On 18 February 2010 the first defendant removed certain records of the second defendant from the marina property.
203 With respect to the allegation of underperformance by the first defendant, the acts or omissions identified by the plaintiff were very general in nature. I do not propose to make findings as to these matters as I do not need to do so in view of my conclusions in relation to the oppressive conduct cause of action.
204 I turn now to the bookkeeping and accounting evidence the plaintiff called to establish the general accuracy of the second defendant's records and the quantum of her claim.
205 Ms Sitters is a bookkeeper who conducts her own business under the name 'AdminEzy'. At the time of the relevant events she conducted her business from an office in Strathalbyn in South Australia. She performed bookkeeping services for the second defendant. As I have said, I accept her evidence.
206 Ms Sitters performed bookkeeping services for the second defendant from January 2007. She was engaged by the second defendant at that time and she visited the marina about once a fortnight from January 2007 to June 2008. After about June 2008 she had 'remote access' to the second defendant's computer records and she would only visit the marina occasionally.
207 The second defendant owned a computer and maintained its bookkeeping data by using the MYOB ('Mind Your Own Business') computer software. The computer was kept at the marina until February 2010. After that, it was kept at the plaintiff's clinic.
208 Ms Sitters described the MYOB system and the improvements she introduced to the second defendant's accounting system. It is not necessary for me to set out the details. She said that access to the MYOB data file could only be obtained by entering a password and that the only persons who had password access were herself, Ms Galloway, an administrative staff member of the second defendant, Ms Jade Bullock and a female person called Chelsea. The plaintiff and the first defendant did not have password access and neither ever asked Ms Sitters to provide them with password access. Ms Bullock ceased carrying out services for the second defendant in February 2010.
209 Ms Sitters described how she made regular entries in the general ledger. There is nothing to suggest that her practices were not appropriate.
210 Ms Sitters created the loan accounts for the shareholders, initially describing them as equity accounts, but after seeing a balance sheet prepared by Mr Saris she re-labelled them as loan accounts. Ms Sitters said that until some time in the 2008 financial year the account in the general ledger for shareholders' contributions referred to capital introduced. She made the change from 'Brendan Capital Introduced' to 'Brendan Loan'. She said that 'it was to do with the end of year accounts for 2007 but that wasn't done until 2008, around that time'. She said that was probably done in July 2008 or thereabouts and at the same time as a record was made of the second defendant's liability to the plaintiff in respect of interest. The plaintiff never sent any invoice to the second defendant for the payment of interest by it to her.
211 The balance sheet apparently prepared by Mr Saris shows the contributions in the 2007/2008 financial year under the heading 'Issued Capital' as 'Shareholders Loan A/c' and in the 2008/2009 financial year as 'Current Liabilities'. Ms Sitters thought that she had seen it in July 2008 because that is when she made the changes to her general ledger descriptions and it was the balance sheet which prompted the changes.
212 Ms Sitters described how she would record a transaction where one of the shareholders met an expense of the second defendant. She said that sometimes the first defendant, who from time to time would use his Visa card to make such payments, would be late in providing receipts or would not provide them at all.
213 Ms Sitters recorded appropriately payments by the second defendant to the plaintiff in relation to interest on her line of credit facility and payments by the second defendant to the plaintiff by way of payment of expenses incurred in connection with improvements to the property of the plaintiff's parents.
214 Ms Sitters said that Mr Saris made adjustments to the profit and loss reports produced by Ms Sitters using MYOB, prepared balance sheets, prepared the taxation returns for the business and lodged all quarterly BAS reports. He performed some interest calculations in respect of the plaintiff's line of credit with Bank SA.
215 When Ms Sitters went to the marina between January 2007 and June 2008 the first defendant was almost always there, whereas the plaintiff was rarely present. It seems that the first defendant took limited interest in the day to day financial operations of the marina business. He never raised any concerns with Ms Sitters about the bookkeeping practices of the business.
216 The first defendant and his company (Maritime Ten Pty Ltd) owe money to the second defendant in relation to Flat White and White Water. Ms Sitters said she was not aware of the first defendant ever paying commissions in respect of his houseboats.
217 Ms Cheryl Galloway is an administrative assistant who worked for the plaintiff at her clinic. She commenced working for the plaintiff at her clinic in August 2006 and from that date she carried out work for the second defendant from time to time. As I have said, I accept her evidence.
218 Ms Galloway carried out some bookkeeping functions for the second defendant for a period of one week in January 2007. Prior to February 2010 she also carried out some non-bookkeeping functions for the second defendant such as typing correspondence and filing.
219 From February 2010 Ms Galloway has assisted the plaintiff in handling the second defendant's accounts payable. She received the bills from the plaintiff and entered them in the second defendant's MYOB electronic data file. In addition, she has from time to time attended to the payment of accounts. To the best of her recollection all of the accounts were paid by the plaintiff using her personal funds. On occasions she did the banking for the second defendant. In addition she was involved in the return of bonds and she has typed letters for the second defendant on instructions from the plaintiff.
220 Since 2010 Ms Galloway has produced on a monthly basis a financial position spreadsheet for the second defendant. Those spreadsheets show the current balance of the second defendant's bank account, cheques not yet cashed, anticipated income receipts and accounts payable. An example of such a spreadsheet was tendered in evidence. In the course of her oral evidence, Ms Galloway produced an updated version of the spreadsheet which showed the position at the time she gave evidence. In addition to the updated version, Ms Galloway produced supporting documentation (where it was available) for the various items.
221 Ms Galloway performed two other exercises of an accounting nature.
222 First, she undertook a review of the plaintiff's loan account from 1 July 2009 to the date she gave evidence. She identified and produced the documentation which she could locate which supported the entries in the general ledger.
223 Secondly, in relation to a subject in the plaintiff's loan account, being 'Items Purchased' she searched for and located the documents she could which supported the entries. With respect to some items she could not find any supporting documentation. She also located the documents identifying expenditure on capital items and by reference to the invoices identified what the items related to. She was involved in the exercise which resulted in the production of exhibit P7, that is, by reference to the invoices and accounts, the identification in exhibit P7 of capital expenditure relating to the house and the business and, as to the latter, the expenditure which related to the office, the shed, the external part of the marina and plant and equipment.
224 Mr Hugh McPharlin is a chartered accountant. He was well-qualified to express opinions on the matters he addressed and I accept his evidence. At the request of the plaintiff he prepared a report dealing with various accounting questions and that report was tendered in evidence. In view of the issues in this case it is not necessary for me to discuss his opinions on all of the questions he was asked to address.
225 There are two particular topics dealt with by Mr McPharlin in his evidence which are important.
226 First, Mr McPharlin described the accounting software programme used by the second defendant (MYOB). He explained the extent to which he was able to verify the entries in the second defendant's accounting records which are relevant in terms of the issues in this case. He acknowledged that he had not carried out an audit or a review in accordance with Australian Accounting Standards. He acknowledged that some of his 'corroborative evidence' in Appendix 10 to his report was not an original document and in some cases was simply another document from the same record-keeping system. These limitations on Mr McPharlin's examination of the second defendant's records are clear. Nevertheless, the exercise he carried out provides support from the conclusion that the second defendant's accounting records are generally accurate.
227 Secondly, Mr McPharlin performed a calculation which related to the amount owed to the plaintiff by the second defendant as shown in the latter's records. He deducted the interest charged as recorded in the second defendant's account and then did his own calculation of interest by reference to interest rates charged by Bank SA from time to time on the line of credit facility. The Bank compounded interest monthly. Mr McPharlin performed his calculations on that basis.
228 The bookkeeping and accounting evidence called by the plaintiff establishes that the records kept by the second defendant were and are, generally speaking, accurate. I think that the plaintiff has established the quantum of her claim and I accept Mr McPharlin's calculation of interest.
229 I accept that the items the plaintiff claims were transferred to the second defendant by her were transferred with the first defendant's agreement. The first defendant denied that he agreed to any of the plaintiff's property being transferred to the second defendant. However, his explanation of why, in those circumstances, he had executed the Rural Sales Agency Agreement with Toop and Toop which shows the items as part of the property of the second defendant was evasive and unconvincing. The first defendant admitted that the items were kept on the marina site and some use, albeit limited, made of them by the second defendant.
230 The bookkeeping and accounting evidence called by the plaintiff also establishes that the second defendant has by way of assets the marina business which is the subject of a contract of sale and purchase, debtors, a land tax refund and a small amount in an ANZ trading account. Some of the accounts for debtors are quite old and they include amounts owing by the first defendant. There is reason to doubt the extent to which outstanding accounts will be recovered. In terms of liabilities there is a debt to the ANZ Bank which almost equals the purchase price of the marina business under the contract of sale and purchase. There are outstanding creditors other than the plaintiff and first defendant. Leaving the plaintiff and first defendant aside, the second defendant has an excess of liabilities over assets of $46,002.38. If the plaintiff and first defendant are accorded equal status with other creditors then on the best view of the second defendant's financial position the plaintiff might receive a very small dividend. However, I think that having regard to the age of the debtors' accounts and the possibility of fees and other expenses, there is no realistic prospect of the plaintiff recovering her loan and interest from the second defendant and I so find.