Consideration
34 In substance, the case advanced on appeal was that his Honour should have found that there was a further possibility, namely a distribution in specie of the shares by Mrs Kapp as trustee to Mr Kapp as a beneficiary (or as a beneficiary introduced by amendment) in accordance with the requirements of the trust instrument. We will refer to this further possibility as scenario (d). It was contended by the appellants that his Honour erred in failing to infer from the available evidence that scenario (d) was correct and that the transfer to Mr Kapp occurred in conformity with the terms of the trust. On that basis, it was submitted that the relief sought should have been granted. In the alternative, it was claimed that his Honour should have found that scenario (b) was a lawful possibility and should have been preferred by drawing an inference of lawful behaviour over a conclusion of impropriety.
35 The appellants' contentions place considerable reliance on various principles of fact finding that prefer an inference of lawful conduct over an inference of wrong doing. However, each of those principles apply where there is no evidence tipping the balance one way or another.
36 This was not a case where the evidence was equally in favour of a finding that the transfer of the shares to Mr Kapp was being effected as a distribution in accordance with the requirements of the trust (scenario (d)) or as a renunciation of the trust's interest (scenario (b)) as it was in favour of possibilities (a) or (c). Therefore, it was not an occasion for choosing between equally open inferences one of which would lead to the conclusion that the conduct was lawful and the other that the conduct was unlawful. Nor, as explained at [50]-[54] below, was it a case in which the evidentiary conclusion that the share transfer to Mr Kapp occurred in accordance with the trust instrument might be drawn on the basis of regularity in the absence of any evidence to the contrary.
37 Rather, the primary judge was correct to find that the evidence led to the conclusion that it was more likely than not that scenario (a) or (c) was correct and that in either case the relief sought should be refused. That was because, although the evidence was sparse, for the reasons which follow, it supported the reasoning of the primary judge in concluding that what had occurred was not a lawful transfer of a beneficial interest in the shares to Mr Kapp in accordance with the requirements of the trust. For the same reasons, his Honour was correct not to include scenario (d) in the list of possibilities.
38 First, faced with the difficulties in opening the bank account for Embedded, Mrs Kapp's immediate response was to send an email to Mr Kapp saying:
Wouldn't the quickest and easiest option be to simply amend the [Embedded] shareholding to be just in my name?
39 This is not the response of a trustee acting properly and with due deliberation as to whether the shares, as trust property, could be transferred to Mr Kapp beneficially. It is a response that is focussing upon what is quick and easy rather than on what the trust instrument may permit. It is not suggesting any type of distribution in specie of the shares being transactions of a kind that would require resort to the trust instrument to determine the circumstances in which they may occur (especially in one of the cases posited by the appellants to the effect that there could be some amendment to the trust instrument or some advancement of interest to allow a distribution to Mr Kapp in conformity with the trust obligations).
40 Secondly, the unchallenged finding of the primary judge was that there was evidence that Mrs Kapp had previously used the corporate records of Embedded "to effect changes which did not reflect any actual transactions": at J [23]. That he did so by reference to the decision in Embedded Claims SC, which was in evidence before him, does not impugn his Honour's approach. His Honour acknowledged the limitation of the findings in that decision for his own purposes.
41 Thirdly, even though Mr Kapp provided a bound copy of the trust deed to the Bank, after problems with opening the bank account were raised by the Bank by reference to the trust, there was no indication in the email exchanges thereafter of any concern on the part of Mrs Kapp (or Mr Kapp) to give effect to the trust or that the alternatives being considered were informed by the terms of the trust.
42 Fourthly, although Mrs Kapp held the shares in Embedded as trustee and it was the shareholders who were dealing with the Bank in order to open the bank account, the evidence shows that it was only Mr Kapp who dealt with the Bank.
43 Fifthly, after Mr Dale sent his email to Mr Kapp (copied to Mrs Kapp) about what the Bank required if Mrs Kapp was not to hold the shares in Embedded beneficially, Mr Dale had a conversation with Mr Kapp in which he said he did not mind whether the shares were transferred to "[Mrs Kapp] or to you provided it gets that bank account opened as soon as possible". Mr Dale did not suggest that these communications occurred by reference to the trust obligations.
44 Sixthly, well after the relevant documents were lodged with ASIC, Mr Bhandary of the Bank sent an email to Mr Dale (apparently in response to an inquiry from Mr Dale) in the following terms:
Please find attached the Equifax Report (company search) for Embedded Claims Pty Ltd as requested.
The document is password protected.
This report is dated 30/11/202 and was used to complete KYC verifications on the company.
The beneficial owners as per this report were:
Patrick Arthur Dale &
Philip Kapp
This was confirmed by the both of you.
45 There is no suggestion in this response that the Bank was told that there was some distribution of the shares to Mr Kapp or that there was some other communication explaining how the transfer occurred in accordance with the trust instrument. This is a significant absence given the evidence to the effect that the Bank was informed that Mrs Kapp held the shares as trustee. The email indicates that the account was opened solely on the basis of an ASIC search together with a report from Mr Dale and Mr Kapp that Mr Kapp was the beneficial owner of the shares. Mr Dale did not deal with the attribution in the email of the source of the confirmation of the report to "both of you" (that is, both Mr Dale and Mr Kapp).
46 Seventhly, none of the particular ways in which there may have been a distribution in specie of the shares that were advanced on appeal (see [32(1)] above) were put to the primary judge as a particular version of events that was possible. Submissions of that kind would have invited consideration of the terms of the trust instrument and an explanation as to whether steps had been taken to obtain a copy. A distribution to Mr Kapp could only occur if that was in conformity with the terms of the trust instrument and in circumstances where Mr Kapp was a beneficiary (or there was some permitted alteration to the trust instrument to allow that to occur). There could be no error by the primary judge in failing to advert to the various scenarios posited on appeal in circumstances where there was no evidence to suggest that any of them had occurred and no means of determining whether they were permitted by the trust instrument.
47 Finally, we do not understand his Honour, when identifying the three factual scenarios, to have been saying that there was no legal possibility that there could be a form of dealing by which Mrs Kapp as trustee might transfer the shares to Mr Kapp beneficially. Rather, his Honour did not include that outcome in the available factual possibilities. His Honour described scenario (c) by using the words "without limitation". Those words were used to indicate a dealing in the shares in a manner that was not encumbered by the trust interest. For reasons that have been explained, the evidence, properly considered, indicated that there had not been regard to what the trust instrument required in arranging the transfer of the shares to Mr Kapp. On the evidence, a dealing of that kind was not a factual possibility and the primary judge was right to exclude it from the list of possibilities. Even if, contrary to that view, his Honour should have considered scenario (d), for reasons that have been given, on the evidence, it was not a possibility that had been made out to the requisite standard such that it might be concluded to be what in fact happened or amongst the likely possibilities as to what happened.
48 The primary judge was also correct to reject the possibility that Mrs Kapp renounced the interest of the trust in the shares (that is, scenario (b)). The primary judge considered this scenario to be unlikely, although possible, but thought it more likely than not that scenario (a) or (c) occurred. The appellants suggested that scenario (b) should not have been rejected. However, in our view, his Honour's findings which led to his discounting of this scenario were open to him.
49 While the relevant intention may have been that of Mrs Kapp in terms of effecting a renunciation of the trust's interest in the shares, the evidence before the primary judge was that Mr Kapp was the person in control of meeting the Bank's requirements and was driving that transaction. For example, Mrs Kapp's suggestion that the shares be transferred to her was not taken up. As for the correspondence it suggests that all individuals involved, including Mr Kapp, who liaised directly with the Bank, were focussed on meeting the Bank's requirements as quickly and simply as possible. While Mr Kapp referred to the Bank having a copy of the trust deed for the James Trust and the amendments to it, he goes no further to disclose or display any more detailed knowledge of what the deed permitted in terms of achieving the transfer of the beneficial interest in the shares to him. The primary judge's observations about the tenor of the correspondence were open to him.
50 For completeness, we address two further matters: the appellants' argument as to the application of the presumption of regularity in light of the statutory context; and the effect of s 1274B of the Corporations Act.
51 The Corporations Act sets out the requirements for the establishment and maintenance of a register of members. Relevantly:
(1) section 168 requires a company to set up and maintain a register of its members;
(2) section 169 provides for the information which must be recorded in the register;
(3) section 178A(1) provides that a proprietary company must notify ASIC within the time determined under s 178D, 28 days, and in the prescribed form if it is required to make a change to the particulars in the register it maintains under s 169. The particulars which must be notified are, among other things, the name and address of a member, the number of shares allotted to a member and whether any of the member's shares are held beneficially; and
(4) section 178A(2) provides that a failure to comply with s 178A(1) is an offence of strict liability.
52 At the time of lodgement of the 27 November Form 484, s 1308(1) of the Corporations Act provided that a person committed an offence if a document was lodged with ASIC and the person made or authorised the making of a statement or omission that the person knew made the document materially false or misleading. Section 1308(2) provided that a person committed an offence if the person authorised the making of a statement or omission that made the document materially false or misleading and the person did not take all reasonable steps to ensure that the document was not materially false or misleading.
53 The evidentiary presumption relied on by the appellants is explained in McLean Bros & Rigg Ltd. v Grice (1906) 4 CLR 835. At 844 Griffiths CJ identified the fact to be proved for the purposes of that case to be whether ten or more members of the company, in person or by proxy holding in the aggregate not less than 10,000 shares, were present at a shareholders' meeting at which a resolution for the voluntary winding up of the company was passed. The plaintiffs set about proving that to be the case by direct evidence from people present at the meeting and by presumptive evidence arising from subsequent transactions. As to the latter, among other things, the plaintiffs relied on the presumptive evidence arising from records of transactions required to be kept by law. At 848 his Honour referred to s 54 of the Companies Act 1890 (Vic) which required that, when a special resolution was passed by a company, a copy of it was to be printed and forwarded to the Registrar-General and recorded by him and s 118 which required that notice of any special resolution or extraordinary resolution for the winding up of a company voluntarily was to be advertised in the Government Gazette. His Honour continued:
It was proved that the resolution was recorded in writing, and signed by the chairman, and that a copy was sent to the Registrar-General and recorded by him, and that a copy was published in the Government Gazette. This, in my opinion, is prima facie evidence that all that took place at that meeting was done lawfully.
The presumption against fraud may also be called in aid. Here was a duty to be performed, on failure to do which the company was liable to a penalty. If the chairman sent a document purporting to be a copy of such a resolution, and it was untrue that such a resolution had been passed, it was a fraud upon the law, whether it could be punished by criminal proceedings or not. It has been held by the Court of King's Bench in England that the registered copy of the resolution is sufficient evidence of the due passing of the resolution. I should be prepared so to hold without hesitation in the absence of any authority. …
See too Dawson v Westpac Banking Corporation Limited (1991) 66 ALJR 94; [1991] HCA 52 at 99 (per Mason CJ).
54 There is nothing to suggest that the primary judge did not proceed having regard to such an evidentiary presumption. Indeed the contrary emerges from his Honour's reasons. At J [2], after referring to the 27 November Form 484, his Honour stated that "[o]rdinarily, it might be inferred that Mrs Kapp had simply transferred her shares to her husband" but continued noting that the matter was complicated "because the same document also records that Mrs Kapp did not own the shares beneficially". His Honour then set out the available evidence and made findings in relation to it before identifying and expressing views about the three scenarios.
55 His Honour was, it seems, not prepared to rely on the presumption of regularity given other known facts, including that Mrs Kapp did not hold the shares beneficially, to conclude that the transaction recorded in the 27 November Form 484 occurred.
56 Although they did not do so before the primary judge, on the appeal the appellants relied on the statutory presumption in s 1274B(2) of the Corporations Act which provides:
In a proceeding in a court, a writing that purports to have been prepared by ASIC is admissible as prima facie evidence of the matters stated in so much of the writing as sets out what purports to be information obtained by ASIC, by using a data processor, from the national database. In other words, the writing is proof of such a matter in the absence of evidence to the contrary.
57 The appellants relied on an ASIC search which they had tendered and which recorded that Mr Kapp formerly held 50 shares in Embedded beneficially. They submitted that the statement that Mr Kapp was formerly beneficially entitled to 50 shares in Embedded purported to be "information obtained by ASIC". That information was the 27 November Form 484.
58 The effect of s 1247B(2) of the Corporations Act is that the writing prepared by ASIC, in this case the search of Embedded, is prima facie evidence of Mr Kapp having held 50 shares in Embedded beneficially and is evidence on which the Court is entitled to act as proof in the absence of evidence to the contrary: see Barboutis v The Kart Centre Pty Ltd [No 2] [2020] WASCA 41 at [42]-[45]. However, here there was evidence to the contrary. That was the information in the 27 November Form 484 itself that Mrs Kapp did not hold the 50 shares beneficially and on their transfer Mr Kapp held those shares beneficially, coupled with the evidence referred to by the primary judge at J [11]-[17] which led to the primary judge's finding (at J [18]) that Mr and Mrs Kapp intended that whoever ultimately held the 50 shares would need to do so beneficially. That is sufficient evidence to the contrary which displaces the 27 November Form 484 as prima facie evidence of Mr Kapp holding the shares in Embedded beneficially.