Claims against HCL
42 The appellant has asserted that he has and had claims against HCL for repayment of moneys. His Honour dealt with this at [21] to [31] of his reasons.
43 As first put, such claims did not satisfy the mutuality requirement. They were claims against HCL.
44 As the argument developed, they were put as claims by Mr Garrett against the respondent as one of HCL's principals. As put to his Honour below, this did not rise higher than assertion. Further, the basis continued to shift. His Honour explained at [24] to [30]:
24. On any view of the matter, Mr Garrett paid a not insubstantial amount of money to HCL in the sum of at least $310,000. A further $90,000 was paid to HCL, but HCL say that this was paid to them mistakenly by the applicant, and indeed against their advice, and was immediately applied to settle a totally unrelated set of legal proceedings in which Mr Garrett, who has clearly been a significant litigator over the years, was involved.
25. As recorded in the decision of Murphy J in HC Legal Pty Ltd v Deputy Commissioner of Taxation [2013] FCA 45 (exhibited as AMG-13 to Mr Garrett's affidavit sworn 11 August 2014), HCL executed a management rights legal services purchase deed with an entity which I will refer to as Holy Grail (one of the large number of companies controlled by Mr Garrett, and which at that time, according to him, was trustee of his relevant family trust) for the exclusive rights to provide legal services to Mr Garrett's associated entities. The figure proposed to be paid, inclusive of GST of four and a half million dollars, was $49.5 million. That money was to be paid pursuant to a vendor finance agreement between Holy Grail and HCL which his Honour records at [9] of his judgment, but I note that repayment was limited to 60 per cent of the distributable EBIT in any payment period.
26. It seems reasonably clear, at least for present purposes, that no money passed hands in terms of being loaned to HCL nor is there any suggestion in any of the materials that any monies were actually repaid. What did, of course, happen, was that a GST credit of some four and a half million dollars was created in HCL's favour, and as Murphy J records, in excess of $4,491,000 was paid by the Commissioner in February 2012 to HCL's operating account.
27. According to counsel for HCL, those funds were utilised inter alia to make two loans to the two directors, Mr Hambros and Mr Cahill, of $2 million each, although his Honour recorded that it was asserted that each director had paid back $350,000 of those loans.
28. The Commissioner's concern regarding the transaction and the claim for credits was, as his Honour said, "immediately apparent" and the proceeding before Murphy J involved a statutory demand for the $4.9 million, plus penalties, to be repaid.
29. Mr Garrett has formulated his claims and demands in a variety of different ways from time to time. At times, it has been a claim for the repayment of the $400,000 to which I have already referred (in paragraph 24). At times, it is that amount less the $90,000 allegedly disbursed to settle another matter. At times, it has been a sum of $20,000 advanced by various entities (part of the $310,000) and at times, it appears to be a $5,000 payment made by Holy Grail, which was the subject of particular consideration by the Legal Services Commissioner. At further times, Mr Garrett has sought repayment of the entire GST credit originally paid by the Australian Taxation Office, or all the loans of some $2 million advanced to each of the two directors, Mr Hambros and Mr Cahill. At other times again, he has sought repayment of the full $49,500,000.
30. In November 2012, Mr Garrett made a complaint to the Legal Services Commissioner about Mr Cahill, Mr Hambros and HCL in respect of the $400,000 paid by the Garrett entities to HCL. On 31 March 2014, the Commissioner dismissed the complaint (see FMC-2 to the affidavit of Mr Cahill sworn 24 October 2014), although subsequently, the investigation was reopened in respect of the $5,000 payment made by Holy Grail. That aspect of the controversy between the parties, as best I construe matter, is not concluded. I note that Mr Cahill has deposed that that amount of money would have been applied to the general commercial matters in which his former partner, Mr Hambros, had care and conduct of the matter. Mr Cahill's affidavit deposes that he has no direct appreciation of these matters, save that this would have been for work already performed before the money was paid.
45 None of these assertions justified any claim against the respondent, let alone satisfied mutuality; see also the extracts from the evidence that I have set out at [16] above.
46 The appellant asserted before me that recently the Legal Services Commissioner had found that his claim against the respondent and/or HCL, at least for $5000, had been established. The LSC's letter of 16 February 2015 said that the LSC had made no final decision, but that "my preliminary recommendation is that the $5000 paid by you to HC Legal Pty Ltd was trust money as it was paid in advance of a bill being issued" [my emphasis]. In my view, this does not substantiate real prospects of success of a claim by the appellant against the respondent personally. Further, this did not establish a claim for repayment of the $5,000 as such; to so characterise this amount as "trust money" did not then entail that it could not be applied to legal fees when the services were provided. Moreover, of course, it was not evidence before his Honour. Further, the LSC's position rose no higher than a "preliminary recommendation". It does not show any substantive claim at the relevant time.
47 The appellant also asserted before me that in relation to his asserted claims against the respondent in his capacity as trustee of one of his family trusts (Family Trust No 4) that he had orally announced and passed before his Honour (in the appellant's capacity as trustee) a resolution which assigned those choses in action to himself in his capacity as a beneficiary so that at the time of the hearing before his Honour they were his personal claims and that, accordingly, mutuality was satisfied. Putting to one side whether such a course could be effective, my review of the transcript is that the appellant did no such thing (see also the affidavit of Mengkuang Cheong, the then solicitor of the respondent, sworn 30 March 2015, who deposes that no such oral resolution or declaration was made before his Honour). At most, the appellant said before his Honour (see T 55) that "as trustee I can make a distribution" and "I could also distribute the claim." Apparently, the appellant subsequently purported to so assign (see minutes of meeting of an "extraordinary meeting" of the Andrew Garrett Family Trust No 4 purportedly dated 7 November 2014). But putting to one side whether this now gets around the mutuality problem, it is still not established (and in my view, was not established before his Honour) that this claim whether for $400,000, $310,000 or even $5,000 had such sufficient prospects of success as were required to be shown for the purposes of s 40(1)(g).
48 Generally, his Honour rejected the appellant's arguments on the grounds that the relevant claims lacked mutuality (see his reasons at [51] to [54]). On the claimant side, the relevant claim, if it existed, was held at most by the appellant in his capacity as a trustee or a related entity acting as trustee. Further, on the other side, HCL rather than the respondent was the counterparty. Moreover, on the evidence there was no substance to the claim for $400,000 or $310,000 against HCL (see the description in his Honour's reasons at [24] and [29]). Further, no error is established in his Honour's finding at [52] that there was no $49.5 million advanced to HCL. And finally as to the claim for $5,000, its substantiality was not justified to the requisite level for the purposes of s 40(1)(g) (see [46] above) in any event.
49 Finally on this aspect, the appellant had brought separate proceedings against the respondent in VCAT which had been struck out on 3 October 2014. His Honour discussed the VCAT proceedings at [39] and [40]. There is no error in that description. The proceedings sought an order against the respondent for repayment of the $310,000 earlier referred to. First, these were just allegations. Second, query the jurisdiction of VCAT to so order such a repayment. But more generally, they did not establish the threshold required under s 40(1)(g) nor overcome the mutuality problem.