Q: And that did not improve?
A: Yes."
46 Acounting records for the financial year to 30 June 2007, which might have supported the assertion that the debt of $439,400 remained unpaid after 30 June 2006, were not put into evidence.
47 Counsel for Doughty submitted that the figure of $439,000 referred to at paragraph [42] above was inaccurate. Abboud and Mrs Abboud were taken through a number of financial records including the MYOB sales register detailing GTH invoices to TCG up to the end of August 2006; the bank statements of TCG from 1 April 2006 to 1 May 2007; the bank statements of GTH from 1 April 2006 to 30 March 2007 and a bundle of documents which contained an assortment of payment receipts and invoices in regard to payments made by TCG to GTH.
48 The receipts and invoices evidencing payments by TCG to GTH referred to specific invoice numbers and the corresponding amounts attributable to those invoice numbers as recorded in the MYOB sales register.
49 The receipts indicate that payments were made to GTH on 14 July 2006 ($49,112.72), 18 July 2006 ($20,000), 27 July 2006 ($70,000), 6 September 2006 ($100,000), 11 September 2006 ($31,535.73) and 15 September 2006 ($80,000), an aggregate of $350,648.45. Each receipt refers to a number of different invoices, which appear in the MYOB sales register relied upon by Abboud as amounts currently owing. In relation to the second, third, fourth and sixth payments just mentioned, there is supporting evidence in that the bank statements of the companies show corresponding debit and credit entries on the relevant dates.
50 It is the contention of Doughty that these receipts show that the MYOB records relied upon by Abboud to prove the state of the account are inaccurate. It was eventually accepted by both Abboud and Mrs Abboud in cross-examination that, to the extent the MYOB sales record indicates that invoiced amounts for March, April, May and June 2006 totalling $439,400 are still owing to GTH by TCG, the MYOB sales record is inaccurate.
51 In addition to the payments outlined at paragraph [49] above referring to specific invoiced amounts designated as currently due in the sales register, the bank statements show that further payments were made by TCG on 10 April 2006 ($57,949.16), 9 May 2006 ($20,000), 24 May 2006 ($20,000), 2 June 2006 ($40,119.50), 10 October 2006 ($50,000), 7 November 2006 ($55,000), 7 December 2006 ($80,000) and 1 February 2007 ($1532), an aggregate of $324,600.66. In relation to each of these payments there is a debit entry in TCG's bank statement on the relevant date and a corresponding credit entry in GTH's bank statement.
52 There is no evidence of the purpose of the eight payments just mentioned. Abboud says that the court should infer ongoing invoicing for the periods of time not covered by the MYOB report (January, February, July, August and October 2006) and that the payments are referrable to that invoicing. This is speculation. No evidence was put forward by Abboud in relation to specific invoicing during these periods.
53 The documentary evidence shows that payments totalling $675,249.11, were made to GTH by TCG during the period 1 April 2006 to 30 March 2007 ($350,648.45 at paragraph [49] above and $324,600.66 at paragraph [51] above). A number of these payments related directly to invoices detailed in the MYOB sales register as at end of June 2006 for which it is said by Abboud that the debts remained unpaid. It is apparent therefore that the MYOB accounts cannot be relied upon as an accurate depiction of the current state of affairs as between the respective companies.
54 The accounts can, however, be relied upon in relation to the position as at June 2006. The payments made as outlined at paragraph [49], which are specifically referable to the outstanding invoices of March, April, May and June commence in July 2006. The position therefore is that at 30 June 2006 an amount of $439,000 was owing to GTH.
55 There is additional evidence from which to assess the state of inter-company indebtedness at June 2006 and thereafter. Doughty accepted in cross-examination that his business owed money to GTH throughout the financial year 2006; indeed he accepted that it was possible that the indebtedness would have amounted to hundreds of thousand of dollars. Doughty did however say that the debts were continually being paid throughout that period:
"I understand the question, but the excavation business always looked after the haulage business, like, a big brother, so it was always taken care of."
56 It was conceded by Doughty that his companies were having trouble paying trade creditors on time and that the excavation business was trading under considerable pressure.
57 In April 2006, administrators were appointed to Trent's Excavations as a result of a severe and sustained cash deficiency. The company was subsequently put into liquidation because of inadequate working capital and lack of accurate financial information. GTH lodged a proof of debt in the administration for the amount of $350,000.
58 The aged payable accounts of TCG as at 31 May 2006 contained an amount owing to GTH of $289,451.29. TCG, like Trent's Excavations before it, was trading under severe financial difficulty. Advice was sought from the firm de Vries Tayeh which, on 25 July 2006, advised that TCG was "clearly facing a cash crisis", was unable to pay its debts as and when they fell due and was insolvent. The firm further advised that, for the business to continue to trade, it required an immediate cash injection of funds approximating $1.1 million. An extract of the advice is as follows:
"The company is clearly in need of immediate injection of funds and we do not believe that it is able to generate sufficient funds from trading with the time required, at least without the support of creditors and/or the company's lenders."
59 It is clear that TCG was facing severe financial difficulties as a result of poor cash flow. It is therefore inherently unlikely that the position as at May 2006 (a debt of $289,451.29 owing by TCG to GTH) materially improved thereafter. Indeed, it is probable that the situation became worse. True it is that payments were made as outlined at paragraph [51] above. But it is also apparent that the excavation business would have continued to incur further debts over this period.
60 On 5 September 2006, a deed was entered into under which Roger Hill lent $940,000 to TCG, at the request of Doughty and Mrs Doughty. The guarantors of the loan were TCG, Douabb, Rosecell and GTH and their directors and shareholders. For this reason, Doughty required the consent and co-operation of Abboud. It was accepted by Doughty that it was intended that, in consideration of Abboud's committing his interest in Glendenning as part security for the loan, some of the benefit of the loan derived from the loan would go to Abboud's companies by way of part payment of TCG's debt owing at that time.
61 Part of the borrowing from Hill, to the extent of $300,000, was used by Doughty to pay a debt owed by TCG to the Australian Taxation Office. There is no evidence to suggest that any of the remainder of monies lent by Hill was used in making payments to GTH. Abboud expressly denies that he or his companies received any benefit from the loan.
62 The monies borrowed from Hill provided only temporary relief from the financial problems suffered by the excavation business. GTH did not materially benefit from the loan and the debt to it remained.
63 It was accepted by Doughty on a number of occasions that there was a significant debt owed by his entities to GTH at June 2006. The proof of debt lodged by GTH in the winding up of Trent's Excavations, the MYOB accounts of GTH as at June 2006, which evidence an amount owing at the time of $439,400 and the accounts of TCG all support the conclusion that a significant debt was owed to GTH.
64 The statements by Abboud and Mrs Abboud that only insubstantial payments were made thereafter and that the debt continued to increase are inconsistent with the documentary evidence that shows payments totalling $675,249.11 were made during the period 1 April 2006 to 30 March 2007.
65 In addition, it was acknowledged by Abboud in his affidavit evidence that on occasions Doughty made payments directly to suppliers of GTH, in lieu of direct repayments to GTH.
66 Any attempt to quantify the debt owed after 30 June 2006 would however involve speculation as there is a lack of accurate and comprehensive financial documentation. It is enough to record that there was a significant debt owed to GTH as at 30 June 2006, which is likely to have continued thereafter.
Ownership of GTH
67 It is important to note at this stage that there is a disagreement as to ownership of GTH. This disagreement is relevant in assessing the likelihood of Doughty having signed the contentious documents referred to at paragraphs [7] to [9] above. Despite the structure of the company as outlined at paragraph [27], both parties acknowledge that it was originally intended to be a joint venture on the basis of equal interests.
68 Doughty gave evidence in cross-examination that, despite the fact he was for most of the time the sole director and sole shareholder of GTH, he never regarded the company as solely his. He considered Abboud his partner in that business. Indeed, the initials GTH stand for "George and Trent Haulage".
69 Doughty gave evidence of a conversation between himself and Abboud before the incorporation of GTH in September 2003 in which Abbout said:
"Trent I've got a bad credit rating. I'd prefer it if my name was left out of GTH and you were named as its only shareholder and director. As long as it's understood that we each own half of GTH."
70 Abboud maintains that the original intention of equal shareholdings in GTH was overtaken by subsequent events, although he is not able to point to an express agreement. The assertion is based mainly on the fact, uncontested by Doughty, that Abboud made a contribution of $170,000 at the start of the business, while Doughty did not make any initial cash contribution.
71 It is also clear that Abboud was responsible for the day to day operation of GTH from December 2003 to June 2008. Jillian Abboud was the bookkeeper for the company and was responsible for the office administration. Abboud says that it should be inferred from these circumstances and the fact of the initial financial contribution that Doughty has no beneficial interest in the company. Doughty on the other hand says that Abboud's initial cash contribution was repaid over the course of the business and that consequently Doughty retained his half interest.
72 It is unnecessary to decide the true state of affairs regarding the ownership of GTH in these proceedings, as it is Doughty's state of mind which is important. Doughty believed, rightly or wrongly, that he retained a half interest in the GTH business. For this reason, he must have believed in June 2006 when the alleged agreement was made that any debt owed by his excavation business to GTH was at least to the extent of 50% a debt owed effectively to himself.
73 It is necessary to keep this in mind when assessing the probability that Doughty entered into the alleged agreement of mid-2006 as a way of extricating himself from his debts. The situation at that time was that a debt, which cannot be precisely quantified, was owed by Doughty's interests to GTH. Doughty assumed, however, that only half of that debt was owed to Abboud. This makes it less probable that Doughty would have entered into the agreement.
74 In addition, it is difficult to understand why Doughty, who was operating under severe financial pressure, would have given up his interest in one of his few realisable assets to satisfy the debt to GTH in circumstances where he had many other obligations and liabilities. Counsel for the defendants submitted that Doughty preferred to appease Abboud because of their close personal friendship. The more significant likelihood, in my view, is that the personal friendship between them would have caused Doughty to seek to delay payments to Abboud in the expectation that Abboud would be willing to carry him.
The contentious documents - physical features and whereabouts
75 Doughty maintains that the signatures on the contentious documents appearing to be his are forgeries. In his affidavits and in cross-examination, he repeatedly denied signing the documents.
76 A report dated 4 September 2009 by a handwriting expert, Ms Novotny, was tendered by the plaintiffs. The relevant conclusions of the expert are outlined as follows:
"[4] The examination of the signatures is limited by the reproduction nature of the questioned documents. Documents Q1 to Q3 [the relevant documents] are at least second generation facsimile reproductions. The poor quality reproduction nature of these documents precludes any proper consideration of the dynamic qualities associated with the execution of the questioned signatures …
[17] The combination of observed similarities and differences in conjunction with the limitations discussed previously, preclude me from expressing a conclusion in probability terms …
[18] On the basis of the available material, my observations are more supportive of a proposition that the questioned signatures were each written by a person other than the writer of the Doughty specimens rather than a proposition that they were each written by the writer of the Doughty specimens."
77 This evidence is of limited value in deciding the question of forgery. The report of itself is insufficient to ground a finding that the purported signatures are forgeries. It is, however, supportive of an inference of forgery.
78 The reliability of the report is limited by the fact that the original documents were not produced to the expert. Nor have they been produced to the court. In opening it was noted by Mr Einstein, counsel for the plaintiffs, and agreed by Mr Parsons, counsel for the defendants, that the parties did not know where the originals were.
79 In cross-examination of Fred Khalil and Gino Cassaniti, however, the possible whereabouts of the documents were revealed. When asked what happened to the documents after signing, Fred Khalil said that Gino Cassaniti had taken them back at the end of the meeting. Gino Cassaniti said unequivocally in cross-examination that the originals were at CAP Accounting.
80 Sam Cassaniti gave evidence that he conducted a search for the originals of the documents at the office of CAP Accounting but had been unable to locate them.
The contentious documents - an unrecorded element?
81 I turn now to a significant feature of the documents, that is, that they do not record part of the alleged agreement under which Doughty relinquished his interest in Douabb in favour of Abboud. It is the contention of Abboud that the transferred interest was to be re-assigned to Doughty upon payment of the outstanding debt. This aspect is not stated.
82 Why would Doughty have signed documents that omitted this very significant element? Re-assignment upon payment of the alleged debt would have been of fundamental importance to Doughty at the time.
83 Gino Cassaniti prepared the documents. He was cross-examined about the reason why the second part of the alleged agreement, the re-assignment, was not included. The cross-examination of Gino Cassaniti on this issue was as follows:
"Q. The document though doesn't contain an ingredient B in the arrangement; ingredient B being: Trent, if you repay the money within 6 and 12 months I will sign [sic; scil "assign"]things back again?
A. No, it doesn't.