The first debt
10 The evidence indicates that the first debt represents a premium paid by Thomas and Emily Cassegrain for shares subscribed for by them in the defendant. The defendant says that the subscription moneys were lent to the plaintiff and that the plaintiff on-lent those moneys. The plaintiff says that the money was not received by it, but it was, in fact, received by G C & Co Pty Limited.
11 It appears that the subscription for shares in the defendant by Thomas and Emily Cassegrain arose through their father Jean-Francois Cassegrain, who resides in France, deciding to invest in the family's enterprises in Australia. There is quite a bit of detailed evidence before me, especially on behalf of the defendant, dealing with this investment, but most of it need not be referred to in order to determine the issue which is before me.
12 Once the investment was made, no later than June 1985, it came to be accounted for in the financial statements of the plaintiff and the defendant. The evidence before me includes the plaintiff's financial statements for the years ended 30 June 1985, 1988, 1996 and 1999, at least one of those documents being signed by Patrick Cassegrain as a director, and the financial statements of the defendant for the years ending 30 June 1985 and 1997. In the plaintiff's financial statements an amount equating to or greater than the first debt is recorded as a non-current liability under the description 'inter company loans'. In the defendant's financial statements for those two years there is an amount recorded as a current asset described as a 'receivable' which appears to refer to the first debt.
13 In addition to the financial statements, there is evidence that the plaintiff's general ledger reflected the first debt and that the ledger was available to the external accountants of the plaintiff when they prepared the financial statements.
14 The external accountant of the plaintiff and defendant, as least from 1990, was Mr Sallaway. Unfortunately, Mr Sallaway has given inconsistent affidavit evidence, since he purported to resile from his initial affidavit and subsequently swore another affidavit which contradicted the first in some ways. The main point of inconsistency is that in the first affidavit he said that certain financial statements were not audited, but later said that they were. Significantly, however, he said in his first affidavit that he relied upon internally produced management accounts and other accounting information to prepare the financial statements and that he was never shown any primary records with respect to the first debt. As I read his evidence that assertion survives his later qualifications.
15 We therefore, have some financial statements purporting to reflect a debt and a dispute as to whether the debt ever existed. The defendant says the evidence in the financial statements is so strong that there can be no genuine dispute that the debt existed. I disagree. While the financial statements and ledgers provide some evidence of the existence of the debt, I do not regard that evidence as conclusive. The status of financial statements and journal entries as evidence proving the existence of the matters they record was explained in Temples Wholesale Flower Suppliers v Commissioner of Taxation (Cth) (1991) 99 ALR 479 and Manzi v Smith (1975) 132 CLR 671, 674.
16 In the present case there is some evidence to indicate that Claude Cassegrain had control of the preparation of internal accounting records and information because he was a director of both companies at the time when the financial statements, which are in evidence, were prepared and the ledger entries were made. Given Mr Sallaway's evidence that he relied upon internal accounting information in preparing the financial statements, it can be said that the representation in the financial statements of the existence of the first debt depends upon financial information created by Claude Cassegrain.
17 When one turns to the evidence given by Claude and Patrick Cassegrain as to the circumstances of the creation of the debt, there is at least an ambiguity as to whether the financial records correctly treat the plaintiff rather than G C & Co Pty Limited as the debtor.
18 On 11 March 1996 Claude Cassegrain wrote a letter to the family's accountants explaining that 'the cash from Jean-Francois was injected into G C & Co...' and saying that shares were transferred/created and issued to Jean-Francois (family) to reflect their interest in the company [CTK]. The plaintiff says these statements are an accurate explanation of the situation, namely, that G C & Co received the proceeds of Jean-Francois Cassegrain's investment. Claude Cassegrain seeks to explain that letter as 'a broad statement' referring to the fact that at about that time G C & Co owed money to the plaintiff, and he says that his letter was consistent with the proposition that the defendant on-lent the investment moneys from Jean-Francois to the plaintiff which, in turn, forwarded that money to G C & Co.
19 I should add that there is evidence suggesting that loan funds were moved around amongst the Cassegrain companies in order to take advantage of whatever fiscal and other opportunities may have been presented from time to time rather than to reflect true transactions. Patrick Cassegrain gives evidence to that effect, and also refers to a judgment by Davies J in the Federal Court of Australia which is consistent with that view.
20 I note as well that Mr Sallaway wrote a letter to McCabe lawyers on 5 May 2000, before swearing either of his affidavits, in which he said it was unusual that a debt had been owing since June 1985 and that the company has now been requested to repay it. He said:
'It appears to the writer that like all related Cassegrain companies and entities, that finances were moved between the group to obtain the best commercial advantage at the time.'
21 There is also some evidence that there was no intention on the part of the defendant to demand payment of the amount recorded as a debt owing by the plaintiff in the financial statements - for example, this is said by Mr Sallaway in his letter of 5 May 2000.
22 This account of the evidence is sufficient, in my view, to demonstrate there is a genuine dispute as to the existence of the first debt in terms of that enunciated by McLelland CJ in Eq in the Eyota case.