Solicitors:
H T Piper Lawyer (plaintiff)
APJ Law (defendant)
File Number(s): 2014/357331
[2]
Judgment (ex tempore)
HIS HONOUR: On 14 November 2014, the defendant Victor Edward Wright issued and caused to be served on the plaintiff company Bevic Holdings Pty Ltd a creditor's statutory demand claiming a sum of $811,049.47, described in the schedule to the demand as "Loan Account Payable by the Company to the Creditor as Recorded in the Special Purpose Accounts of the company for the financial year ended 30 June 2014". The demand was accompanied by an affidavit which annexed the special purpose accounts of the company for each of the financial years ending 30 June 2007, 2008, 2009, 2010, 2011, 2012, 2013 and 2014, and deposed in the prescribed form that the debt was due and payable and that the deponent believed that there was no genuine dispute about the existence or amount of the debt. By originating process filed on 4 December 2014, the company applies pursuant to (Cth) Corporations Act 2001, s 459G, for an order setting aside the demand, pursuant to s 459H(1), on the footing that there is a genuine dispute about the existence or amount of the debt claimed in the demand, and alternatively, pursuant to s 459J(1)(b), on the footing that the demand was issued in circumstances which constituted a breach of an agreement or were unconscionable.
It is necessary to describe briefly and, somewhat imprecisely, the relevant corporate structure. The company Bevic Holdings owns and operates a farming property called Cherry Hill near Uralla on the northern tablelands of New South Wales. As with many rural companies, the shareholdings are structured in such a way as to separate control from beneficial entitlement on a winding-up. Bevic has two shareholders, so far as its controlling shares are concerned: Vitom Pty Ltd and Beval Pty Ltd. In each of them, the controlling shares are held by a fourth company, Bevic Nominees Pty Ltd. The controlling shares in Bevic Nominees were held by Victor Thomas Wright and Betty Velda Wright. The equity shares in all the companies are held by their five children, equally.
Upon the death of Victor Thomas Wright, his control share passed to Betty, his widow. Upon her death, the effect of her will appears to be that her control shares should have passed to the five children equally; but after she died in 2011 it seems that the defendant, who was her executor, caused those shares to be transferred to himself alone, and thus he exercised and, indeed, asserted an entitlement to exercise control of the companies to the practical exclusion of his siblings, until those matters were rectified in the course of 2014 or early 2015.
However, at least since late 2014, all five siblings have participated in shareholders' and directors' meetings, until the defendant ceased to be a director in early 2015. According to the evidence of the defendant, which was not the subject of challenge by cross-examination or contradiction by other evidence on the present application, in about 1998 or 1999 he had a number of conversations with his mother, Mrs Betty Wright. The first such conversation was to the following effect:
VEW: "Mum I do not think we are going to be able to keep the place; we are not making enough money; the Bank [Commonwealth Development Bank] are making noises that they do not want to roll our bank bills, I do not think that we can pay the Bank; we have other people to pay".
BVW: "Vic I really want to keep Cherry Hill, it is my home; I want to keep it for you kids. Can you help".
VEW: "Look, I have seen Hugh Ross [Principal of Australian Rural and Agricultural Finance Pty Limited]; he's referred us to Ian O'Callaghan at National Australia Bank Armidale; I am going to have a chat to him".
The second conversation was to the following effect:
VEW: "Look mum, I have spoken to Ian O'Callaghan; Ian tells me that NAB will refinance us with Commonwealth Development Bank. We are still going to need additional money; I am thinking about lending money to the company".
BVW: "Vic, let's get Commonwealth Development Bank off our back; I want to go with Ian".
Mr Wright said that in April 1999 the National Australia Bank refinanced Bevic Holdings by paying out the Commonwealth Development Bank debt and that he and his wife, as well as Mrs Betty Wright, were required to provide personal guarantees to the National Australia Bank, supported by a mortgage over his home. According to him, the third conversation with his mother was to the following effect:
VEW: "Mum, we are not out of the woods, we are going to need to make sure now NAB has taken over, that our accounts are kept in good order; it is not simply re-financing with NAB; I can see that we are not going to have enough cash flow to operate and grow to a profit. Look, I have already had to transfer to NAB money out of Edie and my account to top up interest; I think I am going to have to top up money for the next few years to get us going until we can make a profit; Mum, this has to be loans; I am not asking for interest; can I get Colin [a reference to Colin Chave, the Bevic Group Accountant] to raise what I put in as a loan to the company. I also want it paid back from time to time as the company can afford it".
BVW: "Vic, yes do that, I am happy; I do not want this discussed with the kids [Christopher, Bronwyn, Neen and Leonie]; I don't want them worried about it".
From the financial year ending 2001, the financial statements of Bevic Holdings, which were prepared by a firm of accountants, commenced to show as a liability a loan account in the name of the defendant. In 2001, the amount of the liability was $36,650, whereas in the previous year he had owed the company $23,350. His loan account with the company fluctuated over the ensuing years. The financial statements for each of the years until and including the year ending 30 June 2007 were signed by the accountant, by Mr Wright as a director, and by Mrs Betty Wright, as being true and correct. After 2007, there is no evidence that the accounts were signed by anyone, but they continued to record a loan account in the name of Mr Wright, increasing ultimately in 2014 to the amount the subject of the demand.
Mr Wright says that in about July 2003, he had a further conversation with his mother, to the following effect:
VEW: "Mum, I am going to retire from the University at the end of this year; I am not going to have the income from the salary to contribute to the company; I am going to do some consultancies after I retire; I think the company is going to need further income support".
BVW: "Yes Vic, what are we going to do; really Vic you put in so much; how are you going to get the money back"
VEW: "Mum, there is enough value in Cherry Hill; we are just not making enough money to do without money from me right now; I am happy if we just keep recording what I have provided as a loan; Mum, I am not going to let it get to a situation where it can't be paid back; Mum, I have in mind that instead of setting up a company for Edie and I to receive consultancy income, that I use Bevic [Bevic Holdings]; I can then take a salary but I don't have to draw it all out; What I don't draw out the company can keep as a loan."
BVW: "Okay, so long as you are watching that you can get it back".
He says that as a result of that conversation, the company received consultancy fees during the years ending 1 July 2006 to 30 June 2013, amounting in all to about $293,000, as set out in paragraph 49 of his affidavit.
In his affidavit, he explains and attaches records which vouch the various transactions and the movements on the loan account year by year for the financial year ended 30 June 2001 through to 30 June 2014. In addition, a summary of the documentary material was served pursuant to (NSW) Evidence Act 1995, s 50, and admitted, which identifies and explains each individual transaction reflected in the movements on the loan account.
At some stage during 2014, Mr Wright's siblings, or some of them, became concerned at the manner in which he was controlling the affairs of the group of companies, and in due course a meeting of the siblings, described as a meeting of the group of companies, was convened on 27 September 2014. Quite detailed minutes of that meeting were kept. Item 8 on the agenda, which was entitled "Loan agreement", apparently referred to the loan asserted by Mr Wright. In the course of the meeting, he was asked what debts Bevic had, and he pointed to the loan balance in agenda item 8.
When it came to that item, he gave some explanation as to how the loan account had developed. Three of his siblings said that they were not privy to the loan and consultancy agreement and did not understand them. Mr Wright asserted that the amount owing, which it may be inferred was shown on the agenda as "Unknown," was $811,049, which corresponds with the amount of the demand. He said that, subject to interest, it was $846,000.
Ms Brown said that she needed to understand how the debt was accumulated before she was willing to accept it. The minutes record:
It was agreed that a detailed account of the loans and consultancy is needed - ins and outs, year by year. It was also agreed that the resolution at item 8 be deferred until details are available.
It is then recorded:
It was agreed that possible interest rates for Vic's loan be researched - perhaps from RBA published data for the period June 2009 to present, using simple interest (not compound).
The explanation that I have adverted to above, provided by Mr Wright at the meeting of the loan account, included reference to the other siblings' loans being merged into it, and that moneys for his consultancies were paid through the company. It is true that he said that there was no loan agreement, but it seems to me, in the light of what the minutes record overall, that that was intended to convey only that there was no formal or written loan agreement.
Also in the course of the 27 September meeting there was discussion about the sale of the Cherry Hill farm. Mr Wright said that the limit of credit with the bank had been reached, that the bank was poised to foreclose, but that if Cherry Hill was sold the bank would not interfere, provided it was done expeditiously. The minutes record that after a great deal of discussion about possible actions, it was agreed to seek advice from the real estate agent as to what was needed to ready the property for sale and get an estimate of value, consult with the Agribusiness bank manager, advise of the plan, move immediately to sell Cherry Hill, and ascertain from Fair Work Australia the conditions under which the farm manager could fairly be terminated.
A further meeting was held on 27 October 2014, by teleconference. There was further discussion about the sale of Cherry Hill. The majority of the directors agreed that the farm be put up for sale "quietly" while it operated under new management arrangements, and that if it appeared at any point that the company was becoming insolvent they would then proceed immediately to sale.
There was some discussion about the accounts. Mr Wright said that the accounts had been set up using his personal systems, and had many personal idiosyncrasies, which worked for him but would need converting if someone else took over. He said that there would be significant effort and some costs to set up the accounts on a new system, and it was suggested that the handover of the accounts could begin from the end of November.
In another part of the meeting, Mr Wright expressed some concern about the request for records of his loans. Ms Brown said that, in essence, she wanted a record of the amounts that had been put into the company, and when they had been put in. Mr Wright was concerned about the amount of detail involved, and suggested that it was, in effect, an audit of the books, which would be expensive. There was then some discussion about another of the siblings' relatives helping with an audit.
As I have said, the statutory demand was then issued on 14 November 2014. Although there is no precise evidence as to the date on which it was served, there is no issue in these proceedings about the timing of the application to set aside, nor as to the form of the demand.
I turn first to the contention that there is a genuine dispute as to the existence or amount of the debt claimed.
The evidence adduced by the plaintiff on this application contains no affirmative denial that the moneys that Mr Wright says were paid to the company or for its benefit were so paid, nor any affirmative denial that they were paid by way of loan to the company. However, those payments were made in circumstances of which at least Mrs Brown, and probably the other directors, were unaware, at a time when Mr Wright was in practical control of the company - as it seems he had a close relationship with his mother during that period while she was alive, and thereafter exclusively controlled the company himself - and in circumstances where they had little prior knowledge of any financial dealings between him and the company. In those circumstances, the company says that it is not aware of the circumstances of the transactions, and in essence wishes to investigate them further and put Mr Wright to strict proof of his claim.
Where it is alleged that a debt the subject of a demand is the subject of a genuine dispute, the company bears the onus of establishing that such a dispute exists on the balance of probabilities. It has, of course, often been said that that onus is not a heavy one, or by no means a difficult or demanding one. The task that a company faces in that context has been said to be analogous to that faced by a defendant seeking to resist the creditor's application for summary judgment [Rohalo Pharmaceutical Pty Ltd v RP Scherer SpA (1994) 15 ACSR 347, 354 (Lindgren J)]. In the type of contest of present concern, it has been said that where the plaintiff's claim is, for example, against a deceased estate, and the only evidence available is the uncorroborated evidence of the plaintiff, summary judgment might be declined as a matter of discretion in order to permit the claim to be tested even though no affirmative defence was apparent. However, ordinarily it is necessary that a defendant resisting an application for summary judgment at least be able to point to some evidence or material upon which the existence of a defence might be suggested. Thus, in Harrison v Bottenheim (1878) 26 WR 362, Brett LJ said:
I quite agree that hearsay evidence is not to be shut out, and that it is not necessary the defendant should show a good defence on the merits. If he does, then I think the judge is bound to let him in to defend. But I cannot help thinking that some facts must be shown by him. If he discloses certain facts, whether by hearsay or otherwise, and if he can make such reasonable suggestion as to show he may be able to substantiate a defence - if he suggests a defence and shows some probability of getting it from the plaintiff, or proving it himself, he ought to be allowed to defend.
Similarly, in Crump v Cavendish (1880) 5 Ex D 211, Brownwell LJ said (at 214) of what a defendant must establish, "He is bound to show that he has some reasonable ground of defence to the action." Thesiger LJ said:
He [the judge hearing the application for summary judgment] has to form an opinion as to the facts before him, and he is to stay his hand [in giving summary judgment] only if he is satisfied that the defendant has a good defence on the merits, or thinks the facts disclosed by the defendant sufficient to entitle him to be permitted to defend the action.
In Rosser v Austral Wine and Spirit Company Pty Ltd [1980] VR 313, Young CJ and O'Bryan J, in a joint judgment, said (at 319):
Mr Heaton submitted that the appellant might want to cross-examine the respondent's witnesses in order to test the assertion. But the appellant filed no affidavit, and did not seek to cross-examine the deponent on the hearing of the summons. A defendant must not be allowed to make an unjust use of the law's delays...and in our opinion a defendant cannot raise an arguable case entitling him to leave to defend upon a mere assertion by his counsel that he may wish to test the plaintiff's case by cross-examination.
Turning to what the evidence before me discloses: first, there is now - though there may not have been when the demand was served - detailed and comprehensive documentary proof of each advance made and each transaction on the loan account relied on to found the claim. That detailed and comprehensive evidence has not been the subject of contradiction or cross-examination.
Secondly, there are financial statements of the company which record the loan account, and which appear to be regular financial statements produced year-by-year over a period of some 14 years. Significantly, for the first seven years, those accounts, containing a reference to a loan account with money owing to Mr Wright, were signed not only by him but by Mrs Betty Wright, the other party to the conversations to which Mr Wright deposed.
Thirdly, Mrs Brown, in her affidavit, says (at paragraph 34):
At various times since about 2010 I became aware that the defendant, as a director of the Bevic group of companies, had loaned money to the company. I became aware of this fact at family gatherings such as at Christmas times, when the defendant made reference to his dealings with the company.
In the light of that evidence, has the plaintiff done enough in these proceedings to show a case that should be permitted to go to trial or to defeat an application for summary judgment? On the one hand, the plaintiff is no doubt in a somewhat difficult position. The defendant was in control of the company at relevant times. There is nothing to suggest that the other directors had knowledge of what the financial statements showed in terms of the loan account from year to year. The conversations on which the defendant relies are with a person now deceased.
On the other hand, some knowledge of the existence of such loans is revealed by paragraph 34 of Mrs Brown's affidavit. The defendant's case is consistent with, and corroborated by, the annual financial statements of the companies, prepared by a firm of accountants, and until 2007, signed by the deceased, Mrs Betty Wright. There is now comprehensive evidence of the transactions which comprised those loan accounts, without cross-examination. No individual or particular transaction has been identified which is the subject of challenge or criticism.
An endeavour was made to suggest that the increase of the loan account, during a year in which the company received substantial funds from the sale of a part of its property, was unexplained and required further investigation, but a quick look at the bank statement in question shows that the proceeds of that sale were applied to pay off the bank overdraft, not to reduction of the defendant's loan accounts.
Although it was said that the company needed to undertake further enquiry and investigation and obtain the companies' accounts in order to test Mr Wright's claims, there was no evidence of what further steps have been taken in that respect since October 2014, nor of what further enquiries might be made (save the suggestion that an audit of some sort might be conducted) nor what further information was outstanding.
Essentially, if this debt is to be the subject of dispute, it must be on one or both of two grounds. The first would be that the moneys said to have been advanced to or for the benefit of the company were not so advanced. The second would be that, if they were advanced, they were not advanced by way of a loan but on some other basis. Arguably, a third would be that if they were advanced, and by way of loan, that they have been repaid. The real question is whether, given the difficulties under which the company has been in understanding the claim because of the way in which it has arisen over the years, it can be said that there is a plausible contention, requiring further investigation, that the moneys were not advanced as alleged, or that they were not advanced by way of loan, or that they have been repaid.
As it seems to me, the comprehensive documentary evidence probative of each of the relevant transactions makes the prospect that it could be shown that the advances were not made a very remote one indeed. As things stand, I do not see why that contention requires further investigation.
As to whether any such advance was by way of loan, it is necessary to posit the alternatives. The alternatives are gift, transfer on trust, mistake, or - as counsel for the plaintiff sought to develop - that it was some unauthorised use of the company's accounts for the defendant's purposes.
The most telling piece of evidence against any of those alternatives is the way in which the transactions were recorded in the companies' accounts year after year, including the seven years whilst Mrs Betty Wright was a signatory to them. In addition, it might be thought to be inherently incredible that such moneys would have been advanced by a director to a company by way of gift. Neither is subscription for equity a plausible explanation, as there was no corresponding share issue.
It can, I think, be entirely excluded that they were advanced by way of mistake. If they were advanced to the company to be held as a trustee for the director, then that, if anything, would improve the position of the director over a loan, so I think that too can be excluded. And while that leaves the prospect of some unauthorised misuse of the company's accounts, the nature of the payments tends to show that many were made directly for the benefit of the company, for example, by way of making salary payments on behalf of the company. The probability that this could be shown to be an unauthorised abuse of the company's accounts seems to me also a very remote one.
There is no suggestion that the loan has been repaid.
In short, there is nothing in the evidence at the moment to which the plaintiff can point from which it can be said that there might be a defence. There is, on their part, suspicion and uncertainty, but as the cases to which I have referred show, something more than that is needed. While it is not necessary to prove that there is a defence on the merits, it is necessary to point to material from which the court can see that there may be a defence.
It was submitted for the plaintiff that the court could find that there was a reasonable dispute if there was a lack of certainty on the part of the company as to the existence of the debt and that lack of certainty was reasonably based. If, by "reasonably based", that means that there are some matters of an evidentiary character to which one can point as indicative of the possibility of a defence, that may well be so; but something more than mere lack of certainty and lack of knowledge is required.
I do not think in this case a contention that the moneys referred to in Mr Wright's affidavit were not paid, or that if paid they were not paid by way of loan to the company is, on the evidence presently before the court, a plausible contention requiring further investigation. The position is analogous to that referred to by the Full Court of the Federal Court in Spencer Constructions Pty Ltd v G&M Aldridge Pty Ltd (1997) 24 ACSR 353 (at 366):
In reality the appellant's case is that, if further evidence is able to be adduced, it expects to be able to establish that there is a genuine dispute. Put another way, in our view the appellant is really contending that there might be a genuine dispute but it cannot establish that there is a genuine dispute at this stage. But a genuine dispute is required to exist at this, and not some later, stage. If the material before the court does not provide a basis for establishing that a genuine dispute exists, it is no answer to say, in effect, that the court has yet to be told the whole story.
Accordingly, I am not satisfied that there is a genuine dispute as to the existence or amount of the indebtedness claimed.
I turn then to the claim under s 459J(1)(b), that there is some other reason for setting aside the demand. I accept that if it could be established that the defendant had agreed not to issue a demand, or not to enforce his debt, or short of agreement had made such representations as would found an estoppel in equity against him doing so, that would constitute "some other reason" for setting aside the demand. However, I do not think that the transactions at the meeting of 27 September 2014, which are chiefly relied on for this purpose, constitute a sufficient agreement or estoppel for that purpose.
I have summarised the relevant parts of the meeting above. However, the context is that Mrs Brown said that she needed to understand how the debt was accumulated before she was willing to accept it. It was then agreed that a detailed account of the loans and consultancy was needed year-by-year. The evidence does not establish any undertaking, representation or agreement by Mr Wright that, in the meantime, he would do nothing to demand or enforce his loan. For the purposes of an estoppel, there is no sufficiently distinct representation to found an equitable estoppel, and I do not think that there is any evidence of detrimental reliance on any such representation.
I would be inclined to accept that, if there were such an agreement, it stood independently of the proposed sale of the Cherry Hill property, since such agreement, if there were one, was made at the meeting before the discussion about and agreement to progress the sale of Cherry Hill occurred. But the argument fails on the lack of any sufficient undertaking or representation by Mr Wright not to proceed in any way to enforce his loan.
Accordingly, I am not satisfied that there is any other reason within s 459J(1)(b) why the demand should be set aside. It follows that the application must fail and the originating process will be dismissed.
The question of costs is not quite so straight forward, and I will hear the parties on that, because as it seems to me, there probably was a genuine dispute up to and about 15 February, when Mr Wright's affidavit was served, though not thereafter.
It seems to me the plaintiff was justified in instituting these proceedings and prosecuting them up to and until it had received and had an opportunity to consider the affidavit of Victor Edward Wright of 27 February 2015 and its annexures. Thereafter, it was entitled to do so, but at its own risks as to costs, particularly if it was not going to challenge or contradict his evidence.
That position is slightly complicated by the circumstance that the defendant made an unsuccessful application for leave to adduce expert evidence.
When all of those matters are weighed on each side, I think the proper outcome is that there be no order as to costs, to the intent that each party bear its own costs.
[3]
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Decision last updated: 11 June 2015