[1999] HCA 24
Parker & Cooper Ltd v Reading [1926] Ch 975
Pavey & Mathews Pty Ltd v Paul (1987) 162 CLR 221
[2004] NSWSC 818
Ryan v Dries [2002] NSWCA 3
(2002) 10 BPR 19,497
Spencer v The Commonwealth (1907) 5 CLR 418
(1907) 14 ALR 253
Sutherland (in his capacity as liquidator of Sydney Appliances Pty Ltd (in liq)) v Robert Bosch (Australia) Pty Ltd (2000) 33 ACSR 680
[2000] NSWSC 32
Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332
[1988] HCA 7
Watson v Foxman (1995) 49 NSWLR 315
Westpac Banking Corp v Totterdell (1998) 20 WAR 150
Judgment (50 paragraphs)
[1]
0 CLR 89; [2007] HCA 22
Federal Commissioner of Taxation v Cassaniti (2018) 266 FCR 385; [2018] FCAFC 212
Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215; [1997] HCA 17
Gregg v The Queen (2020) 355 FLR 348; [2020] NSWCCA 245
Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641; [1937] HCA 58
Herdegen v Commissioner of Taxation (Cth) (1988) 84 ALR 271; [1988] FCA 699
Hill v Esplanade Wollongong Pty Limited (subject to a deed of company arrangement) [2018] NSWSC 478
Hutchinson v Sydney (1854) 10 Ex 438
In re Bailey, Hay & Co Ltd [1971] 1 WLR 1357
In re Express Engineering Works Ltd [1920] 1 Ch 466
In re Oxted Motor Co Ltd [1921] 3 KB 32
In the matter of Azmac Pty Ltd (In Liq) (2020) 146 ACSR 113; [2020] NSWSC 204
In the matter of Hillsea Pty Limited [2019] NSWSC 1152
Johnston v McGrath (2008) 67 ACSR 169; [2008] NSWSC 639
Jorden v Money (1854) 5 HL 185
Legione v Hateley (1983) 152 CLR 406; [1983] HCA 11
Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635; [2008] HCA 27
MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636; [1999] HCA 24
Parker & Cooper Ltd v Reading [1926] Ch 975
Pavey & Mathews Pty Ltd v Paul (1987) 162 CLR 221; [1987] HCA 5
Re ACN 096 281 542 Ltd (in liq) [2018] VSC 425
Re Duomatic Ltd [1969] 2 Ch 365
Re St Gregory's Armenian School Inc (2015) 109 ACSR 27; [2015] NSWSC 1465
Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2004] NSWSC 984
Rosseau Pty Ltd (in liq) v Jay-O-Bees Pty Ltd (in liq) (2004) 50 ACSR 565; [2004] NSWSC 818
Ryan v Dries [2002] NSWCA 3; (2002) 10 BPR 19,497
Spencer v The Commonwealth (1907) 5 CLR 418; (1907) 14 ALR 253
Sutherland (in his capacity as liquidator of Sydney Appliances Pty Ltd (in liq)) v Robert Bosch (Australia) Pty Ltd (2000) 33 ACSR 680; [2000] NSWSC 32
Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332; [1990] HCA 8
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; [1988] HCA 7
Watson v Foxman (1995) 49 NSWLR 315
Westpac Banking Corp v Totterdell (1998) 20 WAR 150; (1998) 29 ACSR 448
Winterton Constructions Pty Ltd v Hambros Australia Ltd (1991) 101 ALR 363
Texts Cited: P L Davies, Gower and Davies' Principles of Modern Company Law (7th ed, Sweet & Maxwell, 2003)
Category: Principal judgment
Parties: Timothy Hall (Plaintiff)
Bonny Glen Fruits Pty Ltd (First Defendant)
Bernard Hall (Second Defendant)
Bonny Glen Trading Pty Ltd (Third Defendant)
Caernarvon Canobolas Pty Ltd (Fourth Defendant)
Melrose Park Nashdale Pty Ltd (Fifth Defendant)
Frederick Charles Hall (Sixth Defendant)
Pamela Therese Hall (Seventh Defendant)
Representation: Counsel:
D Smallbone with A Smyth (Applicant)
A Spencer (2nd and 3rd Respondents)
[2]
Solicitors:
MC Lawyers & Advisers (Applicant)
Matthews Folbigg Pty Ltd (2nd and 3rd Respondents)
File Number(s): 2018/340546
Publication restriction: Nil
[3]
Judgment
HER HONOUR: By amended interlocutory process filed on 5 November 2020, the applicant (Timothy Hall) appeals from the decision of the liquidators of the first respondent (Caernarvon Canobolas Pty Ltd ACN 089 276 808 (In Liquidation), to which I will refer as the Company) to admit a proof of debt dated 15 November 2019 that was lodged by the second and third respondents (Bernard and Fiona Hall) on 26 November 2019. In that proof of debt, Bernard and Fiona claim the sum of $800,000 as due under an oral loan agreement alleged with the Company. Timothy seeks to set aside the determination of the liquidators (who have been joined together as the fourth respondent in the proceeding). The moneys claimed in the proof of debt relate to expenditure made by Bernard and Fiona on the Homestead occupied by them (rent free) on land then owned by the Company in Canobolas, New South Wales (the Canobolas Property). Fiona and a company associated with Bernard and Fiona have since acquired the Canobolas Property.
The appeal is a hearing de novo, brought pursuant to s 90-15 of Schedule 2 to the Corporations Act 2001 (Cth) (Corporations Act), the Insolvency Practice Schedule (Corporations), (see Hill v Esplanade Wollongong Pty Limited (subject to a deed of company arrangement) [2018] NSWSC 478 at [21] per Gleeson JA). There is no dispute between the parties as to the principles that apply to such an appeal (see Re ACN 096 281 542 Ltd (in liq) [2018] VSC 425 at [6] per Randall AsJ; El-Saafin v Franek (No 3) (2019) 143 ACSR 452; [2019] VSC 155 at [63] per Lyons J; In the matter of Azmac Pty Ltd (In Liq) (2020) 146 ACSR 11; [2020] NSWSC 204 at [41] per Rees J); although there was some dispute in submissions as to the question of onus.
Bernard and Fiona point to authorities to the effect that the party appealing against the liquidator's decision (here, Timothy) bears the onus of showing that the decision was wrong; and that, if the onus is not discharged, the liquidator's decision stands (see Westpac Banking Corp v Totterdell (1998) 20 WAR 150; (1998) 29 ACSR 448 at 451; Brodyn Pty Ltd v Dasein Constructions Pty Ltd [2004] NSWSC 1230 at [32]-[33] per Young CJ in Eq; Capocchiano v Young [2013] NSWSC 879 at [46] per Kunc J; Re St Gregory's Armenian School Inc (2015) 109 ACSR 27; [2015] NSWSC 1465 (Re St Gregory's Armenian School)). Timothy, on the other hand, says that the liquidators did not turn their minds to the question of contract, and did not accept that there was a restitutionary claim (T 367.24-48). Moreover, Timothy says that there is a lack of contemporaneous record or other satisfactory corroboration of the existence of a contract, which he argues places the case "squarely in Watson v Foxman territory" (referring to the oft-cited decision of Watson v Foxman (1995) 49 NSWLR 315). Timothy submits that the effect of this is that Bernard and Fiona bear the onus of establishing the proposition for which they contend in their points of claim (T 25.43).
[4]
The family business
For convenience, I will generally refer to the Hall family members by their first names. The applicant (Timothy) and the second respondent (Bernard) are brothers. Their parents (Fred and Pamela) established a fruit growing business near Orange (operating through a number of companies and from a number of properties located in two adjoining districts, Canobolas and Nashdale, on either side of the Towac Valley). The first such property was known as the Bonny Glen Property. The fruits that were grown, packed and sold were principally apples and cherries (see [5] of Timothy's first affidavit sworn 16 April 2021).
Timothy started working in the family orchardist business full time in 1978. Bernard, who is around eleven years younger, commenced work in the family business either in 1989 (on Timothy's version of events - see Timothy's 16 April 2021 affidavit at [6]) or a few years earlier when aged 16 (on Bernard's version of events). Nothing turns on the difference in the respective versions of events in this regard.
In about 2004, Bernard and his wife, Fiona, incorporated their own company (Caernarvon Cherry Pty Ltd) through which they traded separately from the family business. (It appears that the operation of this business was a cause of some disagreement between the brothers - see, for example, Timothy's first affidavit at [30]).
Prior to 2007, the main trading company for the family business was Bonny Glen Pty Ltd; after 2007 (when Fred and Pamela retired from the business) a different company, Bonny Glen Fruits Pty Ltd, was the main trading company (see Timothy's first affidavit at [12]). The Company owned the land and improvements at the Canobolas Property but did not trade.
From 2007 (until 27 November 2018), the family business (known as Bonny Glen Fruits) was largely operated by Timothy and Bernard, who also controlled the various companies associated with the business, although their parents are said to have maintained some ongoing (informal) involvement in the business. From 2011, Timothy and Bernard each owned 50% of the shares in the Company.
[5]
The Nashdale (or Melrose) Property
In 1992, the Nashdale Property (referred to in some of the evidence as Melrose) was acquired jointly by Fred, Pamela, Bernard and Timothy. This property was adjacent to a property known as Brooklyn (that property itself being adjacent to the originally acquired Bonny Glen Property).
In around 1997, the Nashdale Property was subdivided to create a parcel of six acres which was transferred (at no cost) to Timothy and his then wife, Jennifer, who then built a house on the land. (It is noted by Bernard and Fiona that Bernard received nothing for his interest in that portion of land.) The parcel of land transferred to Timothy and Jennifer (known as Melrose Park) was subsequently sold by Timothy and Jennifer in 2001, following the breakdown of their marriage. Following his separation from Jennifer (apart from a short time at the Bonny Glen Property), Timothy resided (and from 2004 did so with his wife, Robyn) in Melrose Cottage, which was located on the main Nashdale Property, until about 2019.
In around 2007, Timothy and Bernard bought Brooklyn from their parents and in 2013 they jointly acquired another property in Nashdale (see Bernard's first affidavit sworn 19 April 2021 at [44]-[45]).
Timothy has, as I understand it, largely controlled or managed the Nashdale side of the family business operations; Bernard and Fiona, the Canobolas side of the operations.
[6]
Canobolas Property
The Canobolas Property was acquired by the Company in September 1999 for $630,000. The Company was formed for the purpose of making that acquisition. On its incorporation, each of Fred, Pamela, Bernard and Timothy was a director of the Company and each held one of the four issued shares. In 2010, Fred and Pamela retired as directors and in 2011 Bernard and Timothy each acquired one of their parents' shares. Accordingly, by the time of the events in question, each of Bernard and Timothy was a 50% shareholder of the Company. As adverted to above, at all relevant times the operations of the family business that were conducted on the Canobolas Property were managed by Bernard and Fiona.
From late 1999, Bernard and Fiona have resided in a house known as "the Homestead" located on the larger of the two lots (Lots 10 and 11) comprising the Canobolas Property. On the other (smaller) of the two lots is a packing shed housing the relevant equipment and other infrastructure for the processing and packing of the fruit grown in the family business (and also, as I understand it, in Bernard and Fiona's separate cherry growing business); as well as an office.
[7]
Corporate compliance
For the most part, compliance with the corporate and regulatory requirements of the companies through which the family business was conducted was carried out with the assistance of an accountant (Mr Desmond Lee), who travelled to Orange from Sydney once a year with relevant company documents to be executed following the holding of formal meetings with the directors and shareholders (such meetings being held, first, at Fred and Pamela's house (on the Bonny Glen Property) and then at the Canobolas Property).
Bernard and Fiona describe these company documents as "vanilla" corporate governance documents (T 8.4). They point out that the minutes of company meetings were prepared in advance by Mr Lee, who brought them with him to the annual meetings; and they contend that therefore that the minutes could not (unless, I would add, later amended) reflect any matters discussed at the relevant meetings. They also point out (correctly) that the company documents are replete with errors - from time to time identifying the directors wrongly; being signed by people who were not directors; and recording persons who owned no shares as attending in the capacity of shareholders (see T 8). Thus, it is said that the brothers cannot carefully have reviewed them. It is submitted (and there is some force in this submission) that the holding of meetings and recording of minutes for the various companies associated with the business were matters treated by family members as a formality.
Bernard and Fiona describe Mr Lee as more than just an accountant. They say that he was a trusted adviser, who advised the family members as to the structures to be put in place for or in relation to the business and as to their personal and corporate tax affairs. That may well be the case but, as I explain in due course, that does not to my mind cloak Mr Lee with authority to bind any of the family members or the Company in their dealings with each other.
Timothy (see from [35] of his 16 April 2021 affidavit) describes the typical yearly meetings with Mr Lee, including that there would be separate meetings with the shareholders and directors of the relevant companies from those in relation to personal tax matters or meetings relating to "Caernarvon Cherry related matters". Mr Lee's evidence as to those matters is consistent with that of Timothy on this issue.
[8]
Deterioration in the relationship between the brothers
At some point there was evidently a deterioration in the relationship between the two brothers (although there is some contention as to when this commenced). Timothy places this as occurring from about the late 2000s, from which time he says that he and Bernard were estranged and only saw each other a few times a year (see at [33] of his affidavit dated 16 April 2021). As adverted to above, it appears that this (if not wholly attributable to, then at least) may have been exacerbated by the establishment by Bernard and Fiona in about 2004 of their own separate cherry growing business from the Canobolas Property. Fiona herself says that the relationship between Timothy and Bernard became "toxic" but places this as occurring in 2016 after a heated argument between the brothers in that year (see Fiona's first affidavit sworn 19 April 2021 at [30]; and see notes dated 8 February 2017, apparently made by Timothy having regard to their content, in which there is reference to an issue as to the poor delivery of the spray programme). Consistent with this note, Bernard places the deterioration in the relationship as occurring by 2017.
[9]
Desire of Bernard and Fiona to renovate the Homestead
The Homestead was originally built in about 1910. By 2012, Bernard and Fiona, who then had three young children, wished to renovate the house (which they say was in need of significant repair). As noted, by that time Bernard and Timothy were the only directors and shareholders of the Company, which owned the Canobolas Property.
[10]
14 September 2012 meeting
Featuring prominently in the evidence and submissions were two meetings, the first of which is said to have taken place on 14 September 2012 at Fred and Pamela's house during a lunch (or perhaps morning tea) attended by Timothy, Bernard and Fiona, Fred and Pamela (see Bernard's first affidavit at [144]; Fiona's first affidavit at [79]). It is not suggested that Mr Lee was in attendance at that meeting. Indeed, Mr Lee's evidence is that he was not present in Orange on 14 September 2012 (being in attendance at an all day meeting with another client in Sydney) and he did not know if there had been a meeting on that day (see at [32] of Mr Lee's first affidavit sworn 19 April 2021).
Bernard has deposed (at [144]) that, at this lunch, there was a discussion about the family business, during which there was the following conversation:
[Bernard] said: Fiona and I want to renovate the Homestead to fix some issues and make the house bigger for our kids. We have the money, and can use our own, but we are worried about what will happen if the Company ever sells or transfers the house. We want to make sure that we can get that money back if the Homestead is ever sold or transferred.
Tim said: Before you think about renovating, why don't you look at subdividing the lot like I did at Melrose. If that doesn't work then you can do the renovations.
[Bernard] said: Okay, Fiona and I will look into that and let you know how it goes.
Bernard has deposed that, following that conversation, Fiona and he attended a consultation with Mr Peter Basha, the town planner, about a possible subdivision; and that Mr Basha subsequently advised them that the Council would not permit the subdivision because the packing shed (on the smaller of the two lots) was on an industrial lot and that they could not combine that back with the main lot (see Bernard's affidavit at [146]-[147]).
Fiona's account of this discussion (see from [79] of her first affidavit) is that the conversation occurred at a morning tea with Bernard, Timothy, Robyn, Fred and Pamela at the Bonny Glen Property. Fiona deposes that she took notes of the discussion because Mr Lee had earlier said to Timothy and Bernard that they needed to begin having meetings and recording the discussions; and that, as Mr Lee did not attend this meeting she took a record for Mr Lee (see at [81]). Fiona also deposes that at the beginning of the discussion she asked everyone's permission to take notes and that Pamela approved this (see at [84]).
[11]
Prospect of Subdivision
As noted above, Bernard and Fiona depose that, following the 14 September 2012 meeting, they explored the prospect of a subdivision of the Canobolas Property (by speaking with Mr Basha, the town planner) and that they were advised that it would not be possible. They say that Timothy was aware of that (a reference seemingly to the account given by Bernard of the conversation on 16 May 2013 - see below).
[12]
16 May 2013 meeting
The second of the two meetings on which Bernard and Fiona here place emphasis (and at which they say a binding agreement was reached) was a meeting that took place on or about 16 May 2013 during one of Mr Lee's annual visits to Orange.
Mr Lee deposes that the meeting took place at Fred and Pamela's residence; and he describes in his affidavit a series of meetings on this day (see from [35]).
First, a meeting of the Bonny Glen Fruits Pty Limited Group (attended by Timothy, Bernard and Fiona) to review the financial accounts and taxation for the financial year 2012 and interim accounts for 2013 and for the signing of the 2012 accounts and financial returns, at which meeting he deposes that Fiona said words to the effect that they currently needed better heating at that Homestead and Timothy said he had no problem with them improving the heating. Mr Lee did not recall anyone taking notes on that occasion.
Second, a meeting with Timothy alone in which Mr Lee presented to him the company's financial statements and taxation returns and personal returns for the financial year ending 30 June 2012, following which meeting he says Timothy immediately left the house, saying that he was taking the documents home to Robyn so that they could sign them (and Timothy returning later in the afternoon with signed documents).
Third, while Timothy was out of the house, a meeting only with Bernard and Fiona to review their entities' financial statements taxation and personal returns for 30 June 2012.
Fourth, a meeting with Pamela and Fred for them to review and sign their own company's financial accounts and their personal tax returns.
Mr Lee did not see any minutes book or hard-bound blue book (Exhibit 12) on that day (see at [44] of his affidavit of 19 April 2021). He deposes that he did not add any further resolutions to the formal draft minutes that he had prepared in advance for the Company meeting and that he was not asked to prepare any such notes or minutes. Mr Lee did, however, earlier depose that at some meetings he saw Fiona take notes (see at [20]).
Relevantly, at [64] of his affidavit of 19 April 2021, Mr Lee deposed that at none of the yearly meetings had he heard that Fiona or Bernard wanted to claim reimbursement from the Company for the costs of the renovations for the Homestead. (That is consistent with their account being that they wanted some unspecified recognition in the future of their expenditure.)
[13]
Credit issues specific to the two meetings
As to the two relevant meetings (the 14 September 2012 meeting and the 16 May 2013 meeting), on the question of credit Bernard and Fiona point to the following matters.
First, that in their affidavit evidence both Mr Lee and Timothy sought to convey the impression that the yearly meetings were conducted with a formality that elevated the significance of the absence of entries in the minutes and financial records recording what took place at the meeting of May 2013; yet Mr Lee conceded that there was no separate meeting of the shareholders of the Company and that neither Timothy nor Bernard had ever raised for attention the fact that some of the documents which they had executed indicated the wrong directors and the wrong shareholders nor had they ever asked him to add further resolutions to the Company's draft minutes.
Second, that Timothy was quite frank about his lack of specific recollection in relation to the meetings; nevertheless, it is said that he sought to minimise the length of the meetings and that he denied some very obvious propositions about them (including that the bulk of the time spent in the meetings concerned the operations of Bonny Glen Fruits and that Fiona attended that meeting). It is noted that Timothy insisted that he reviewed the minutes that he signed to ensure the details were correct, when it is said that they were replete with errors that would have been obvious on any such review (see, for example, minutes of the meeting of directors of the Company on 10 December 2012, which record the four family member as directors when Pamela and Fred had ceased by then to be directors; and of the shareholders meeting of 31 December 2012 which display a similar problem).
Third, that Mr Lee gave generalised evidence about how the meetings were conducted (which Bernard and Fiona say no doubt reflected the many similar meetings that he had conducted with the family). It is submitted that it should be inferred that the meeting of 16 May 2013 followed the pattern which Mr Lee described in general terms in cross examination. However, Bernard and Fiona say that when it came to specific matters Mr Lee's recollection was less impressive, noting that Mr Lee recalled only one short conversation about renovations at the meeting of 16 May 2013 with the aid of his affidavit. It is submitted that that recollection is to be considered in the light of Mr Lee's complete lack of recollection when cross examined in relation to the conversations regarding the renovations that he had detailed at [51] of his first affidavit and the recollections set out at [6], [7], [8] and [12] of his second affidavit sworn 17 May 2021. Indeed, it is noted that Mr Lee could not remember what he had said of those matters in his affidavit sworn only three months before the hearing.
[14]
Arrangements for renovation works
Bernard and Fiona say that, after the 16 May 2013 meeting, preparatory work for the renovations to the Homestead commenced (later in 2013). Bernard and Fiona arranged to have sketches made prior to drawing up plans (which they place as occurring about six months before they began the renovations - see [107] of Fiona's first affidavit); paid to have plans drawn up (by McKinnon Designs - the plans being drawn from sketches taken on about 28 February 2014 - see [108] of Fiona's first affidavit); sought out John Nunn Building Contractors Pty Ltd (John Nunn Building Contractors) and obtained a quote for the major part of the building works (which they place at approximately 26 March 2014 - see Fiona's first affidavit at [114]); and they signed a contract for the major building works (on 22 May 2014), the contract noting drawings from McKinnon dated October 2013 (see contract provision regarding the drawings; and Fiona's first affidavit at [115]).
Bernard and Fiona also make reference to contemporaneous documents (see below) which it is said show that, shortly before signing the building contract, Fiona had communicated with Mr Michael Thornhill (a financial consultant who undertook some financial consulting work for Caernarvon Cherry at the time) as to clarification being sought that "personal funds you [Fiona] and Bernard/Caernarvon Cherry Pty Ltd [Bernard and Fiona's company] have available will be used to pay for the house renovations, and there will be an adjustment done to square things up with Tim". (To my mind it is significant that this leaves open how the adjustment was to be effected.)
[15]
Meeting on 26 March 2014
Mr Lee has deposed (see from [47] of his first affidavit) to a meeting at the Bonny Glen Fruits Pty Ltd administration office in Orange on 26 March 2014 to discuss the financial statements for the Group and the signing of the Group financial statements and taxation returns for 30 June 2013. Mr Lee deposes to a conversation on that occasion in which he says Fiona raised the question as to "how would [they] be reimbursed" if they did some renovations to the house at Canobolas; that Timothy suggested looking at houses for sale nearby and subdivision as an alternative; and that:
Tim said: Perhaps one way if you were going to do any renovations to the house at Canobolas was to get a valuation of the house before and after the renovations. This way would work out what increase in the value was gained by such renovations rather than what you had spent.
[Des] said: Another way to record down what items you spent and from those items be approved by Tim and Bernard and recorded in the company financial records as a loan to you both (being the company financial records as a loan to you both (being Bernard and Fiona). Those costs could be adjusted by CPI and an adjustment made for each year of the increase in value as you could over capitalise the property and such costs not recovered in valuation method [sic]
Pausing here, it seems to me more likely (having regard to the chronology of events) that this conversation occurred in the course of the May 2013 meeting rather than the March 2014 meeting because steps had already been taken by March 2014 at least for the obtaining of plans for the proposed renovation.
Again, there are handwritten notes made by Fiona contained in the blue book of this meeting, recording the meeting with Mr Lee at Caernarvon Cottage and the presence of Timothy, Fiona and Bernard. Those notes do not record any of the above discussion to which Mr Lee deposed. There is then a lengthy gap in time before any further minutes or notes in the book - those recommencing with a typed set of minutes of a meeting on 1 December 2015 attended by Timothy, Bernard, Fiona and "LP" (which I infer to be Leanne Pearce).
[16]
Valuation by Andrew Saunders - April 2014
Mr Saunders inspected and valued the Homestead (i.e., not the Caernarvon Property as a whole) on 29 April 2014 (the "before" valuation) at $770,000 (being land valued at $385,000 - for a site area of 2ha; and improvements at $385,000). Mr Saunders assessed the rental value unfurnished at $475 per week.
[17]
Communications with Mr Lee - April/May 2014
I have referred above to the communications with Mr Thornhill.
On 30 April 2014 (in response to a request made on 30 April 2014 by Mr Lee for Fiona to send an MYOB accounting file for Bernard and Fiona's business entities), Fiona sent an email to Mr Lee stating "will do, we will have done by end of next week" but went on to ask Mr Lee to read a message received from Mr Thornhill and to confirm her explanation to Mr Thornhill (as to the funding of the house renovations) as well as to address the last paragraph of the message. The message from Mr Thornhill read:
Hi Fi
As discussed, I understand that personal funds you and Bern/Caernarvon Cherry Pty Ltd have available will be used to pay for the house renovations, and there will be an adjustment done to square things up with Tim based on the pre- and post- valuer of the house as it is owned by one of the Company's that is 50% owned by Tim.
…
The other point that may be worth checking with Des is that the way you will be paying for the house renovations will be the most tax effective for the Company and yourselves individually. I suggest checking with Des to confirm that there are no other strategies he would suggest to assist with tax minimisation now and in the future.
On 5 May 2014 (before the contract with John Nunn Building Contractors was signed), Mr Lee responded to Fiona's 30 April 2014 email, saying:
It is my understanding at our meeting in Orange that Tim suggested pre and post valuation.
I suggested what ever [sic] you spent plus CPI would be adjusted and to resolve the issue I suggested the higher of the two.
The reason I explained you could over capitalise the property and such costs not recovered in the valuation.
With the current update to end of April figures you are sending I can work out the overall tax planning.
To assist please also provide estimate of renovations costs and timetable and what type of renovations.
Bernard and Fiona say that it is common ground that the subject of the payment for the renovations was raised by Bernard and Fiona, and that Mr Lee had recorded resolution of the issue; and they point to these as matters going to the unlikelihood that they proceeded with the funding of the renovations without any agreement having been reached on that issue. The difficulty I have with that proposition is that there is not clear evidence of an agreement emerging from the above affidavit evidence, even on Bernard and Fiona's account of the conversations. Rather, what is clearly apparent is that Bernard and Fiona wanted there to be recognition in some fashion of their expenditure (and most likely that this would be by some sort of adjustment or squaring up between the brothers in the future).
[18]
Arrangements for building works
The development application dated 15 April 2014 described the development as extensions and alterations to the cottage at an estimated cost of $350,000. The development application recorded the owner's consent (of Bonny Glen Fruits) bearing the signatures of both Fiona and Bernard - Fiona signed as director (the title "director" being in her own handwriting). It appears that Fiona also signed the building contract as owner.
The renovation works began in 2014 (a construction certificate being approved on 5 June 2014) and concluded in 2015. A final occupation certificate was issued on 13 March 2015. The cost of the renovation works was funded by Bernard and Fiona (in an amount, they contend, of over $1 million). The renovation costs were not at any time recorded in the accounts of the Company.
The quote for the building works, dated 26 March 2014 was for $378,750 inclusive of GST. The signed contract was for a contract price of $353,500 inclusive of GST, "subject to adjustment as per contract conditions". (As I understand it, the reduction in the price is related to the removal of joinery items and the allowance made for heating and a new floor from the contract - see T 374.39-50.) The contract provided for a deposit of $17,675 and a series of payments to be made when specified stages of the works were 95% completed. The contract provided for a number of "Prime Cost Items" (see cl 15 and item 11 of Schedule 2) which were specified as allowances and not guaranteed or lump sum amounts and where the contract contemplated that the amount expended might exceed the amount specified or conversely that part of such amounts might not be expended (containing provision as to how such amounts were to be treated). So, for example, item 11 of Schedule 2 specified the amount of $22,500 for "heating & new floor" (which items it is said were ultimately removed from the contract price).
The largest claimed renovation expense comprises payments made to Mr Nunn's company. At [44] of Fiona and Bernard's written submissions, Fiona and Bernard claim that payments totalling $487,675.65 were made to Mr Nunn's company, comprising the deposit, progress payments and other various payments pursuant to the contract of 26 March 2014. In that regard, at [122] of Fiona's first affidavit, Fiona deposes that John Nunn issued seven variations and instructions sheets, totalling $37,029.96. (Timothy calculated that these variations, when added to the purchase price of the contract, totalled $390,029.96 - see [66] of Timothy's submissions.) These variations were described as follows:
(a) Variation and Instruction sheet number 5 dated 5 August 2014 for $18,441.72 for additional quotation for remove entire roof/blanket.
(b) Variation and Instruction sheet number 7 dated 5 August 2014 for $1,496.00 for building/waterproofing and tiling 2 wall niches for each bathroom.
(c) Variation and Instruction sheet number 8 dated 5 August 2014 for $352.00 for installation of in wall cistern to ensuite.
(d) Variation and Instruction sheet number 10 dated 5 December 2014 for $8,129.44 for extra cost on tile to wet areas.
(e) Variation and Instruction sheet number 11 dated 5 December 2014 for $1,067.00 for strip drain to wet areas as Reece prime cost amount has been taken off contract.
(f) Variation and Instruction sheet number 12 dated 5 December 2014 for $94.60.
(g) Variation and Instruction sheet number 15 for $7,449.20 for carpet cost not quoted in building works originally.
[19]
Valuation as at 11 June 2015
Mr Saunders valued the Homestead again on 11 June 2015 at $1,300,000 (the land value at $455,000 and improvements at $845 per metre), with an unfurnished rental value assessed at $600 per week.
[20]
October 2015
By email sent on 8 October 2015, Fiona forwarded to Mr Lee copies of two valuations, saying that "both valuations have been done, please find attached. can we make sure we discuss and minute at the meeting".
[21]
Minutes of meeting Bonny Glen Fruits - 22 October 2015
There is in evidence a typed note that appears to be the minutes of a meeting on 22 October 2014 of Bonny Glen Fruits, recording the attendance of Mr Lee, Fiona and Timothy (though Bernard is also recorded as having contributed to the discussion at the meeting). It is not clear who prepared the minutes but they appear to have Fiona's handwriting on at least some of the items.
The minutes include the following item (against which it appears that Fiona recorded the word "Des"):
Caernarvon House
- Valuations of the house have been done before renovation and after. Des to contact the valuers to get true valuations. The difference between the valuations to be recorded as the expense was incurred by B&F hall personally
Fiona's evidence was that in 2015 Timothy was shown or sent the set of before and after valuations provided by Mr Saunders (T 103) and Fiona accepted that Timothy had said words to the effect that the valuations looked a bit overstated (although Fiona thought this was a reference to some extra outhouses that were in the post renovation valuation). Fiona seemed to accept that she had told Timothy she would have a more detailed look at the valuation but then left it to Mr Lee to get back to them about further information from the valuers (see T 104). Fiona gave evidence that she and Bernard would follow up with Mr Lee as far as wanting to put this on the company books (see T 104-105) but there appears to be nothing in writing as to this. I note that, as to the blue book, Fiona's evidence is that words "Follow Des up 400,00" are definitely in Bernard's writing (which Fiona assumed to be a reference to the need to follow up a facility for hail netting (T 112)).
[22]
Minutes of meeting 1 December 2015
The typed minutes of meeting bearing this date, to which I have referred above, include the item "Des needs to supply valuations for CCC house, Tax returns and minutes. Letter stating what is required for books to be consolidated".
A subsequent email exchange between Fiona and Leanne Pearce indicates that both had a role in preparing minutes of meetings at least by June 2016 and that this involved communication with Mr Lee. The minutes headed Committee Meeting 3 June 2016 record the following item:
4.1 Caernarvon house improvements - Des was getting clarification from the valuers - Des forgot to do this - Des will follow this up to have a resolution by next meeting.
[23]
Discussions in relation to separation of assets
By 2017, the brothers were involved in discussions as to the unwinding of the joint family enterprise. Timothy says that, by then, the relationship between the brothers had deteriorated (this does not appear to be disputed by Bernard and Fiona, albeit that, as noted already, they cavil with the proposition that the relationship had deteriorated as early as 2013). Bernard himself says that in 2017 his relationship was deteriorating (see at [171] of his first affidavit).
In 2017, Bernard, Fiona and Timothy jointly engaged Mr Thornhill to "assist with their goal of separating each family from the respective jointly owned assets" (see Mr Thornhill's email of 7 April 2017 to Mr Lee, copied to the brothers; and see Bernard's first affidavit at [172]-[173]). Bernard deposes that there were a number of meetings at the Caernarvon cottage attended by Mr Thornhill, Timothy and Bernard, at which there was discussion as to the properties and assets.
There was an initial meeting with Mr Thornhill on 23 March 2017 at which Bernard says that there was discussion as to the renovations and as to the valuations obtained, following which Mr Thornhill sent an email on 24 March 2017, attaching a summary of the jointly held assets and relevant details from the meeting for the brothers' review. The list attached summarised the proposal for various assets; including that 100% of the "business" of Bonny Glen Fruits Pty Ltd would be "to Tim" but that the company might be wound up and Timothy to operate out of one of the existing companies or in a new entity; and for the assets of Caernarvon Pty Ltd (by their description this must be a reference to the Company) to be transferred to Bernard and Fiona.
Mr Thornhill forwarded this schedule to Mr Lee by email on 7 April 2017, noting that the preferred date for the separation to be in place was 1 July 2017. Mr Lee responded by email on 13 April 2017 advising as to the steps to be followed to ascertain how a separation could be structured. Those steps included calculation of "[t]he amount owed by one party to the other on adjustment of such separation" and capital gains tax cost. There was no express reference in those emails to any reimbursement for expenses incurred in renovations of the Homestead, or any other properties. However, in evidence were undated handwritten notes apparently produced on subpoena by Mr Thornhill of a meeting with Bernard, Fiona and Timothy noting a timeframe of 1 July 2017, in which there is reference to "market value before & after reno of Caernarvon hose [sic] done. Can't subdivide"; and that "Melrose' includes Tim house" and the note "tim has put money into house". The note recorded that "all agree that will value properties based on land & income producing value".
[24]
Appointment of voluntary liquidators
In late 2018, Bernard and Timothy agreed to appoint Mr Cameron Gray and Mr Anthony Elkerton (together, the fourth respondent) as trustees for sale to realise the various properties and as provisional liquidators to realise the assets that were held by the corporate entities they controlled. Orders were made by consent to that effect on 27 November 2018 (the winding up of the companies being put on the just and equitable ground).
Prior to the appointment of the provisional liquidators, by letter dated on 21 November 2018, solicitors acting for Bernard and Fiona (Matthews Folbigg) wrote to Timothy's then lawyers advising that their clients' agreement to the proposed short minutes as to the distribution of proceeds from the sale of the Caernarvon Property pending further order of the court was "not intended to dispose of" their clients' claim that they are "entitled to an equitable claim and an adjustment against the proceeds of sale of the Caernarvon Property, in accordance with the improvements they have made to the property". The letter stated the understanding that Bernard and Fiona had paid in excess of $600,000 from their personal funds to make improvements to the Homestead and that:
We are instructed that Tim was aware that our client's [sic] would be undertaking this work and that any amounts spent by Fiona and Bernard on the renovations, would be recorded as an amount owed to them in the books and records of the company, however, this did not occur.
On 12 December 2018, a report was completed by Bernard on the company activities; Bernard identified his claim and provided a copy of the (said to be contemporaneous) notes taken by Fiona of this relevant meeting, and the "before" and "after" valuations by Mr Saunders (who gave evidence in the proceeding).
[25]
Sale of properties
The Canobolas and Nashdale Properties were sold at public auction held by the liquidators on 24 July 2019. Fiona, and an entity associated with Bernard and Fiona, together acquired the Canobolas Property. Completion of the sale was, however, delayed on at least two occasions due apparently to funding difficulties (see below).
On 21 November 2019, Bernard's solicitor wrote to the liquidators proposing that they grant partial vendor finance to the purchasers of the Company's land, and other land held by the liquidators under an appointment as trustees for sale, in each case under existing contracts of sale dated 24 July 2019 to Fiona and a company associated with Bernard and Fiona. The letter proposed that Bernard's dividend in the winding up of the Company be charged as security for the purchasers' obligations.
The letter of 21 November 2019 referred to discussions between the purchasers' solicitors and the liquidators "last week" and to the need to have the "figure" of an amount to be set off under earlier orders of the Court under s 81 of the Trustee Act 1925 (NSW) (Trustee Act) in respect of the land held under the appointment as trustees for sale. Those orders had been directed to facilitating a completion of the contracts on 14 November 2019. Timothy notes that, despite the set-off permitted by those Orders in respect of the land held by the vendors under the appointment for sale as trustees, the purchasers had failed to complete; and that the letter of 21 November 2019 was there making a similar proposal in respect of Bernard's expectation of a dividend in the winding up of the Company.
The 21 November 2019 letter advised that it was at least desirable, if not necessary, for Bernard and Fiona to know how much they would need to raise from other lenders to pay the portion of the price not financed by the vendors (hence the need to ascertain an expected dividend).
Timothy notes that the letter of 21 November 2019 made no reference to the proof of debt (see below) which was subsequently lodged a few days later.
[26]
Proof of debt
On 26 November 2019, as adverted to above, Bernard and Fiona lodged a proof of debt in the liquidation of the Company, claiming as a debt the sum of $800,000 in respect of funds they claimed were expended to enlarge and renovate the Homestead between 2013 and 2015.
The proof of debt claimed that the debt was owed by the Company pursuant to a Loan Agreement between Bernard and Fiona and the Company "for amounts advanced in relation to Caernarvon homestead improvements". The proof of debt attached "minutes of meeting dated 16.05.2013" (being Fiona's handwritten note - as set out earlier) and a "schedule of invoices and evidence regarding payments". The covering letter from Bernard and Fiona's accountant stated that the amount actually paid was $1,050,797.58 but that Bernard and Fiona were prepared to agree only to lodge a proof of debt for $800,000 in order to allow the liquidator "to have certainty regarding the amount which … Bernard may be entitled to receive as a shareholder of the company".
[27]
Vendor Finance
On 29 November 2019, Timothy's solicitor received an email from the liquidators' solicitor informing him that there was a proposal for vendor finance that one of the liquidators wished to discuss with him.
A meeting was then held on 4 December 2019, at which Timothy's solicitor, Mr Cakic, was informed that the proposal would require approval from the Court pursuant to s 477(2B) of the Corporations Act. On the same day, Mr Cakic made a written request for additional information. Complaint is made that this was not provided.
On 9 December 2019, the liquidators filed an Interlocutory Process seeking approval of the vendor finance proposal pursuant to s 477(2B) of the Corporations Act. Timothy notes that the supporting affidavit of one of the liquidators, Mr Gray (affirmed on 9 December 2019) referred to the $800,000 joint proof of debt by Bernard and Fiona but did not annexe or exhibit it, nor explain its claims.
On 10 December 2019, Timothy (whose position was that he did not have enough information to make a decision with respect to the application) sought a guarantee from the liquidators that he would receive an equivalent amount of money from the liquidation as his brother (Bernard) would receive. Timothy neither consented to nor opposed the s 477(2B) application, which was heard and determined by Rees J on 11 December 2019.
[28]
Completion of sale
The sales of the properties were completed on or about 13 December 2019. The vendor finance was for $1.1 million. Timothy notes that the liquidator's affidavit on the s 477(2B) application stated that he expected that all creditors would be paid and the shareholders receive distributions each exceeding $1.1 million, and that there would be no undue delay. Thus, Timothy says that the position that was being presented to Rees J was that only the shareholder dividend was treated as a material factor relied on to support the viability of the then proposed agreement. It is noted that this was mentioned as a factor in Rees J's judgment (see p 3), her Honour's reasons not referring to the proof of debt claim.
Timothy points to the fact that, a year after the first s 477(2B) Order, when the time permitted was about to expire (and by which time the proof of debt claim had not been determined by the liquidators), a further s 477(2B) application was made. Timothy notes that no detailed statement of the financial position of the borrowers and guarantors was presented but that Mr Gray deposed (in his affidavit of 2 December 2020, in the second paragraph numbered [18]) that "they [the purchasers] will not have sufficient funds without the payment of the POD amount and a shareholder dividend". (Timothy relies on this to show that Bernard and Fiona thus have a strong financial motivation to pursue the proof of debt claim; and he says that their evidence of oral dealings many years ago must be assessed with appropriate caution in the light of that self-interest.)
[29]
Acceptance of proof of debt
At the request of the liquidators, further supporting documents were supplied on 5 February 2020 and 12 June 2020. A statutory declaration was provided; and Timothy made submissions through his solicitors in relation to the proof of debt.
The liquidators obtained written advice from a barrister as to whether the liquidators should approve the proof of debt (see Mr Gray's affidavit affirmed 17 November 2020 at [61]). Counsel's opinion was that the liquidators would be entitled to admit the proof of debt claim. Mr Gray deposed that, in light of this opinion and the fact that he was satisfied from his own investigations that Bernard and Fiona had spent the amounts claimed on renovations, he and Mr Elkerton decided that the proof of debt should be admitted (see [63] of Mr Gray's 17 November 2020 affidavit).
On 17 September 2020 the liquidators admitted the proof of debt.
[30]
Proceeding
As adverted to above, by Interlocutory Process filed on 30 April 2020, Timothy appealed against the admission of the proof of debt lodged by Bernard and Fiona. Prior to the filing of the application, Timothy's solicitors had written to the liquidators, contending that correspondence received on 7 April 2020 constituted a decision to admit the proof of debt. Subsequently, the liquidators disputed that they had made a final decision on the proof as at 7 April 2020 and the matter was stood over whilst the liquidators gave further consideration to the proof.
On 2 November 2020, the Court noted that it was now common ground that the liquidators had determined the proof and ordered that the Interlocutory Process filed on 30 April 2020 should stand as Timothy's appeal against that determination. At the liquidators' request, leave was also granted to Timothy to amend his Interlocutory Process to add the liquidators together as fourth respondent.
The amended interlocutory process was filed on 5 November 2020. The liquidators have not taken an active role in the hearing of the application; the relevant contradictors being Bernard and Fiona.
On 30 November 2020, the Court directed Points of Claim and Defence to be filed by the active protagonists in the case (Timothy, on the one hand, and Bernard and Fiona, on the other). Pursuant to those directions, Points of Claim were filed by the respective parties on 16 December 2020 and Points of Defence, responding to the respective Points of Claim, were filed on 15 January 2021.
Affidavit evidence has been filed pursuant to r 14.1(5) of the Supreme Court (Corporations) Rules 1999 (NSW) by the fourth respondent, being an affidavit affirmed on 17 November 2020 by Mr Gray, on which Bernard and Fiona rely. Timothy has also filed affidavit evidence: affidavits sworn by himself and Mr Lee (and valuation evidence from Mr David Bird and Mr Mark Ellis); as well as an affidavit from his solicitor (Mr Cakic). Bernard and Fiona have filed the following affidavits: affidavits sworn 19 April 2021 and 24 May 2021 by each of Bernard and Fiona and an affidavit sworn 19 April 2021 of Mr Andrew Saunders (the property valuer who carried out the "before" and "after" valuations of the Canobolas Property).
[31]
Deferred evidentiary ruling
Before turning to the evidence of the lay and expert witnesses, I deal first with a deferred evidentiary ruling as to the admissibility of documents sought to be tendered by Bernard and Fiona during the course of the hearing, namely documents that had been produced on subpoena by John Nunn Building Contractors (the builder contracted for the renovation works on the Caernarvon Property which were the subject of the impugned proof of debt).
Relevantly, Bernard and Fiona sought to tender (as business records) those parts of documents headed "Account Transactions John Nunn Building Contractors Pty Ltd for the period 1 July 2013 to 1 June 2014" (the 2014 Extracts), and "Account Transactions John Nunn Building Contractors Pty Ltd for the period 1 July 2014 to 30 June 2015" (the 2015 Extracts) and 1 July 2015 to 30 June 2016 (the 2016 Extracts) containing the representations marked in each of the extracts (the Representations) appearing within a folder entitled "Relevant Extracts from John Nunn Building Contractors Pty Ltd's Ledgers for the Period 1 July 2013 to 30 June 2016" (the Extracts Folder). In that regard, Bernard and Fiona relied on an affidavit affirmed 22 July 2021 by their solicitor, Ms Ellen Wendy Ferris, and the documents annexed thereto.
On the voir dire as to the admissibility of those documents, Bernard and Fiona also tendered various documents including the financial year 2015 and 2016 ledgers of account transactions of John Nunn Building Contractors and the building contract dated 22 May 2014 which they entered into with John Nunn Building Contractors (the Contract).
The circumstances in which those documents were produced by John Nunn Building Contractors were addressed in the affidavit evidence of Ms Ferris but it is not necessary here to outline those circumstances as Timothy does not cavil with the proposition that the documents in question were produced in answer to a subpoena (issued at the request of Timothy on 25 May 2021) (see T 318.1); and, in the case of the documents for the 2014/2015 and 2015/2016 financial years, were not produced initially when the subpoena was answered but, after enquiry was made of the company's solicitors, were produced only on the first day of the hearing. Nor does Timothy cavil with the legal principles summarised in submissions for Bernard and Fiona as to the test applicable when assessing the relevance of the documents to a matter in issue in the proceeding (see Australian Competition and Consumer Commission v Air New Zealand Ltd (No 1) (2012) 207 FCR 448; [2012] FCA 1355 at per Perram J (ACCC v Air New Zealand), approved in Federal Commissioner of Taxation v Cassaniti (2018) 266 FCR 385; [2018] FCAFC 212 at [64] per Steward J (his Honour then sitting in the Federal Court), and in Gregg v The Queen (2020) 355 FLR 348; [2020] NSWCCA 245 per Bathurst CJ at [362]).
[32]
Lay evidence
As to the lay evidence, each of the principal protagonists gave evidence and was cross-examined; as was Mr Lee. The substance of their evidence as to particular factual disputes is dealt with either in the chronology above or in the determination below of the issues in the proceeding.
Bernard and Fiona accept that, insofar as they rely on what was said in the meetings of 14 September 2012 and 16 May 2013, the summary of the relevant principles and authorities given by Black J at [16]-[21] in In the matter of Hillsea Pty Limited [2019] NSWSC 1152 reflects the approach to be taken to the assessment of the affidavit and oral evidence (at least where they have traversed the particular evidence concerned). Insofar as there are significant aspects of the evidence given by Bernard and Fiona which Timothy and Mr Lee do not address, Bernard and Fiona submit that in relation to those matters inferences should not be drawn in favour of Timothy (citing Handley JA in Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418).
Bernard and Fiona thus submit that primary emphasis should be placed on the objective factual surrounding material and the inherent commercial probabilities, together with the documentation tendered in evidence (referring to Effem Foods Pty Ltd v Lake Cumberline Pty Ltd (1999) 161 ALR 599; [1999] HCA 15 at [15] per Gleeson CJ, Gaudron, Kirby and Hayne JJ). (Further, it was accepted that Fiona's evidence in relation to the invoices and payments was confused and confusing - see below.)
At this stage, having dealt with the specific credit issues raised in relation to the two relevant meetings, what I propose briefly to address are the submissions made for Bernard and Fiona as to credit generally.
[33]
Timothy
Bernard and Fiona submit that Timothy's evidence reveals that he harbours a great deal of animosity towards his younger brother. In particular, reference is made to the following evidence in the course of Timothy's cross-examination. First, that, when asked whether he had asked Bernard for permission to remove a wall at the house which Bernard jointly owned, Timothy first said he had asked Bonny Glen Pty Ltd, then said he could not remember and then said that he did not need to because he was not asking Bernard to pay for it. Second, that when it was put to Timothy that he did not have to pay for the two hectare block that was carved out of the land at Melrose, he gratuitously added "I didn't have to. I'd already worked 10 years longer than my brother and he was getting free interest for his loan plus he didn't pay for it till five years later". Third, that when it was put to Timothy that Bernard was not paying any rent while living in Melrose Cottage, Timothy said that "most of the time he spent he was off sick" (which Bernard and Fiona say was a preposterous suggestion when Timothy agreed that Bernard had lived there for seven years).
As to Timothy's affidavit evidence, it is noted that Timothy denied that Bernard had either undertaken or paid for renovations to Melrose Cottage and produced photos in support of his contention; and, when confronted in cross examination with photographs showing prior renovations done by Bernard, he retreated from that position to insist that either Bonny Glen Pty Ltd or he had paid for those renovations.
Bernard and Fiona place no little emphasis on the fact that Timothy denied knowledge of the renovations until well after they were done. It is submitted that the following evidence in that regard does not withstand scrutiny. First, that, at [51] of his first affidavit, Timothy said that he had not been told by either Bernard or Fiona about the work done and their claim to be paid (a statement that Bernard and Fiona say even when qualified by what appeared in the following paragraph, was untrue). It is noted that Timothy's own affidavit annexed copies of minutes of the meeting with Mr Thornhill on 4 December 2017 (see above) which Timothy attended with Bernard but that Timothy nevertheless swore that "the topic of renovations of the Caernarvon Homestead was not brought up at the meeting". Bernard and Fiona point out that the minutes themselves plainly record that the topic of renovations to the residential properties was raised and that costs incurred needed to be taken into account. Moreover, it is noted that in cross examination, Timothy agreed that both he and his brother had contended to that effect at the meeting.
[34]
Andrew Saunders
Mr Saunders was the valuer who prepared the so-called "before" and "after" valuations to which I have referred above. In his report, Mr Saunders notes that the subject property comprises a single storey detached dwelling (constructed in circa 1910 and extended in 2015) situated on a two hectare rural allotment being Part Lot 11 in Deposited Plan 1002409. The report states that Mr Saunders adopted "the direct comparison and summation approach" to form an opinion of value. In respect of the Homestead dwelling, Mr Saunders commented that the "dwelling was in good condition with good quality floor coverings, joinery, kitchen and bathroom PC items. Hardwood windows and doors are also a positive feature". Mr Saunders noted that "there is a lack of directly comparable sales evidence and … due to the nature and location of the subject property more recent comparable sales could not be sourced, despite our best efforts". Regarding market conditions, Mr Saunders noted that the rural market "has increased in value ($/ha) dramatically in the last 12 - 18 months due to a combination of low interest rates and strong livestock prices" and commented that his assessment "together with current sales evidence reflects the market conditions being experienced in the area at present", cautioning that "if the market conditions weaken, a lesser amount may be achieved". Mr Saunders concluded that the current market value of the fee simple with vacant possession interest of property as at 24 July 2019 was $1,550,000 (exclusive of GST).
[35]
David Bird
Mr David Bird, a certified practising valuer, provided an expert report (Exhibit O) in the applicant's case. Mr Bird retrospectively valued the improvements "as is" as at 24 July 2019 at $2.4 million; and on a hypothetical basis (as if none of the renovations after 29 April 2014 as described by Fiona had been undertaken but allowing for reasonable wear and tear of the existing improvements up to 24 July 2019 at $2 million).
Addressing the particular questions asked of him, Mr Bird's opinion was as follows.
First, Mr Bird confirmed that (assuming no extenuating circumstances - of any of which he confirmed he was unaware) the sale of the Caernarvon Property on 24 July 2019 for $2.4 million was the best evidence of value (noting that the sale was for the 37 hectares inclusive of the Homestead and outbuildings, excluding the Lot 10 area of 3.24 hectares on which the cold storage and packing complex (and other office buildings) was situated). It is noted that Lot 10 sold for $2.2 million as at 24 July 2019 (Question 1).
Second, as to the retrospective value of the land and improvements on the hypothetical basis as if none of the renovations after 29 April 2014 as described by Fiona had been undertaken but allowing for reasonable wear and tear of the existing improvements up to 24 July 2019, as noted above, Mr Bird valued this at $2 million but said that had the tennis court work not been undertaken he would advise a value of $1,980,000 (Question 2).
Third, asked to comment on any relevant matters in response to Mr Saunders' valuation of 19 April 2021 (Question 3), Mr Bird disagreed with the title description (noting that this related to the whole original lot not the notional two hectare curtilage); and pointed out that the description of land was very limited and provided no detail of what was encompassed nor reference to it being a notional or hypothetical portion of a large acreage holding. A main point of contention he had was that there was no sales evidence of a dwelling on two hectares (considering land size to be a base starting point for analysis evidence) and he disagreed with the "lack of directly comparable sales evidence" observation on the basis that he considered there were numerous sales that would fall within that description. Mr Bird also considered that in mid-2019 there was a still declining market yet to see improvement (with the effects of the continuing drought, tough rural economic conditions and "no boost or optimism from the Sydney of [sic; or] major capital city markets" (this last being read subject to relevance)).
[36]
Mark Ellis
Mark Ellis is a real estate valuer and Managing Director of the firm Independent Property Valuations who gave evidence (relevant only insofar as it goes to the defence to the restitutionary claim) as to the market rent or occupation fee for the Caernarvon Property in the relevant period. He was not cross-examined.
[37]
Overall conclusions as to the expert evidence
Overall, I was not greatly impressed by the evidence of either of the valuers - in that I considered that Mr Saunders' evidence suffered from the difficulty that he had effectively valued the Homestead divorced from its location (an approach that Mr Bird accepted was conceptually valid but which produces an hypothetical result). As to Mr Bird, his approach (which I accept is the more conventional approach for the valuation of a property overall), namely to apply a Spencer v The Commonwealth (1907) 5 CLR 418; (1907) 14 ALR 253 analysis, leads me to conclude that the market value of the Caernarvon Property at around the time of its ultimate sale was $2.4 million, but it is difficult to assess how the conclusion is reached as to what the market value would have been but for the improvements to the property. As to Mr Ellis, I have no criticism of his approach but the issue of market rent or an occupation fee ultimately does not arise.
[38]
Issues for determination
Turning then to the parties' submissions as to the issues for determination, I note as follows.
[39]
Timothy's submissions
At the outset, Timothy contrasts the claim made in the proof of debt and the claim made in the Points of Claim in this proceeding, as follows.
The proof of debt expresses a claim to recover advances under a loan agreement in relation to improvements to the Company's land; i.e., the claim is framed as a debt arising from a contract (which Timothy complains is seeking to recover the entirety of the amount allegedly spent, regardless of its impact in actually improving the value of the Company's land). Timothy says that such a case would involve finding a loan by Bernard and Fiona, whereas no advance to the Company directly is alleged (all amounts being said to have been paid to third parties).
Timothy accepts that if a payment discharged a debt owed to a third party, such a payment might be accurately described as a loan if it was money paid by Bernard and Fiona at the request or direction of the Company to discharge a liability that it owed. However, it is said that no request by the Company to make any of those payments has been identified. Further, Timothy says that no liability of the Company to those third parties has been identified. Rather, Timothy says that the evidence of Bernard and Fiona suggests that all of the third-party liabilities were contracted between one or both of them or an entity associated with them; and that when they made payments they were merely discharging liabilities that they or their controlled entity personally owed.
It is noted that the claim as now pleaded in the Points of Claim filed by Bernard and Fiona is framed more broadly, it being alleged that at the 16 May 2013 meeting of members it was resolved that:
… if Bernard and Fiona agreed to fund the repair and renovation of the Homestead and arrange for the said work to be carried out and 474 Canobolas was ever sold, the Company would repay the amounts so funded together with interest at a rate equivalent to the change in the Consumer Price Index over the period of the advance.
Timothy says that this "Renovation Resolution" was not mentioned when Bernard and Fiona contracted to purchase the land in July 2019 nor when the application under the Trustee Act application was made; but, rather, was first raised on 15 November 2019 (the day after the second default in completion of the purchasers' obligations in relation to the purchase of the property). In particular, it is said that this was not raised in 2018 when the brothers were discussing a financial separation through a formal process (with Mr Thornhill).
[40]
Bernard and Fiona's submissions
Bernard and Fiona's claim to the moneys the subject of the proof of debt is now put on three bases (although as Timothy notes this involves some expansion of the claim as articulated in the Proof for Debt), those being: in contract; by reference to principles of estoppel; and in unjust enrichment.
At the outset, Bernard and Fiona emphasise the following matters as being of contextual import when assessing the likelihood that the parties (and particularly Bernard and Timothy) entered into the arrangement for which Bernard and Fiona here contend.
First, that the critical events occurred in the conduct of a family business in which it is said that few (if any) significant decisions were formally recorded. Reference is made to the recognition that some imprecision of thought and expression in private family dealings might be expected (referring to Gummow J's observations in Winterton Constructions Pty Ltd v Hambros Australia Ltd (1991) 101 ALR 363 at 370; and to Herdegen v Commissioner of Taxation (Cth) (1988) 84 ALR 271; [1988] FCA 699 at 277 per Gummow J (his Honour then sitting on the Federal Court of Australia)).
Second, that the protagonists are two brothers and (although Timothy has asserted that at the relevant time the relationship between the brothers had deteriorated) Bernard and Fiona point to the fact that in December 2013 the brothers had decided to purchase a further property (in Nancarrow Lane) in their joint names.
Third, that prior to July of 2019 the five properties from which the Bonny Glen Fruits business operated had various owners but that the differences in ownership were not observed in managing and dealing with those properties. Bernard and Fiona say that the main operating company was Bonny Glen Fruits and that where any capital expenditure on those properties was made for business purposes, the outlay was made by that company (Bonny Glen Fruits). It is noted that Bonny Glen Fruits owned the trees on the Company's (i.e., Caernarvon Canobolas') land.
It is noted that the family members living in the properties did not pay rent to the other co-owners; and that those others who rented properties on the land paid rent to Bonny Glen Fruits (not to the owners of the relevant property). It is said that both Bernard and Timothy did repairs and renovations on properties jointly owned by others (and Bernard and Fiona refer in this context to work caried out by Timothy to one of the properties - Melrose Cottage - without asking Bernard's permission, despite the fact that Bernard was a co-owner). Reference is also made to the subdivision of a two hectare portion of "Melrose" (the Nashdale Property) and its transfer to Timothy without payment (as referred to above).
[41]
Contract
As to the contractual basis for the claimed debt, Bernard and Fiona say that a contract was made in May 2013 whereby they agreed to pay for improvements to the Company's property (the Homestead) in return for which the Company agreed to pay back the amounts expended, with interest, if the Company or the property were ever sold. It is said that no question of lack of consideration arises, since the Company would own the improvements as part of the renovated property.
Bernard and Fiona invoke the principle that, if all the shareholders of a company are present together in a meeting, and signify their assent to a transaction which is within the powers of the company, their decision will be effective, as if a resolution to that effect had been passed at a properly constituted meeting (notwithstanding that those present at the meeting may have thought they were conducting a directors' meeting and the necessary formalities required for the calling of a general meeting had not been observed as was the case in In re Express Engineering Works Ltd [1920] 1 Ch 466 or that those present may have thought they were conducting a meeting and passed a resolution, but where, in fact, the requirements of the articles or the Companies Act as to notice had not been observed as was the case in In re Oxted Motor Co Ltd [1921] 3 KB 32; In re Bailey, Hay & Co Ltd [1971] 1 WLR 1357).
Bernard and Fiona say that, where the transaction is intra vires and honest, it is valid if all corporators assent, and it does not matter whether assent is given at a meeting of some kind, or without a meeting, and whether it is given simultaneously or at different times and places (reference being made to Parker & Cooper Ltd v Reading [1926] Ch 975; Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1992) 6 ACSR 464; [1992] 2 VR 279 at 314 per Ormiston J; MYT Engineering Pty Ltd v Mulcon Pty Ltd (1999) 195 CLR 636; [1999] HCA 24; Sutherland (in his capacity as liquidator of Sydney Appliances Pty Ltd (in liq)) v Robert Bosch (Australia) Pty Ltd (2000) 33 ACSR 680; [2000] NSWSC 32 per Santow J).
Pausing here, each of the Australian authorities invoked by Bernard and Fiona applies the Duomatic principle in Re Duomatic Ltd [1969] 2 Ch 365 (Re Duomatic) espoused by Buckley J at 373 that "where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be". As I have noted previously (at [3795] in Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd [2020] NSWSC 1778), where accounts of key conversations are inconsistent or contradictory, such that the Court cannot be satisfied as to what was said or agreed, this difficulty may intrude in relation to the application of Re Duomatic.
[42]
Estoppel
As to the invocation of principles of estoppel, Bernard and Fiona contend that the words and conduct of Timothy and Mr Lee conveyed a representation at the meeting on 16 May 2013 that a binding agreement had been reached between Bernard and Fiona and the Company that the Company would repay the amounts funded together with interest and that the amounts would be reflected in the accounts of the Company as a debt.
It is noted that estoppel by representation precludes a party who, by his or her representation, has induced another party to adopt or accept a state of affairs and consequently to act to that other party's detriment, from asserting a right inconsistent with the state of affairs on which the other party acted (reference being made to the well-known decisions in Commonwealth v Verwayen (1990) 170 CLR 394; [1990] HCA 39 and Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641; [1937] HCA 58).
It is submitted that the representation of an existing agreement was a representation of an existing state of affairs (citing Legione v Hateley (1983) 152 CLR 406; [1983] HCA 11 at 432 per Mason and Deane JJ; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; [1988] HCA 7 at 398 per Mason CJ and Wilson J, at 415 per Brennan J, and at 459 per Gaudron J; Jorden v Money (1854) 5 HL 185).
Bernard and Fiona say that the circumstances were such that it was obvious that they would (and did) rely on the representation to expend large sums of money on the property in which they lived but did not own. They maintain that both the Company and Timothy knew that they would act on the basis that such an agreement was in place.
It is submitted that, given that Timothy and Bernard are the only two shareholders in the Company and that there will be a surplus (on the winding up of the Company), if the Company and Timothy were allowed to depart from the representation then not only would Bernard and Fiona lose half the money that they put into the renovations but also that expenditure would not form part of the cost base for the Company's benefit on the sale of the Homestead and accordingly the Company will pay significantly more by way of CGT on the sale (which in turn will reduce the net dividend to the two shareholders).
[43]
Unjust enrichment
Finally, as to the claim in unjust enrichment, it is said that Bernard and Fiona funded the renovations to the Homestead in the belief that, if the property was ever sold, the Company was contractually bound to repay the funds so advanced. It is submitted that this belief was encouraged by the conduct of Timothy (the other director and shareholder) and accepted by him in the knowledge that the works were a benefit to the Company; and that, if the Company was not so bound (because there was a failure to satisfy the requirements which determine the existence of a contract), then Bernard and Fiona's decision to fund the renovations was as a result of their mistaken belief that the Company was so bound. It is said that, to allow the Company to benefit from that mistake (with the further result that the ultimate dividend to Bernard (and Timothy) will be reduced by the increased Capital Gains Tax payable) is unjust.
Bernard and Fiona say that, in the circumstances, the claim is analogous to either a claim for money paid (referring by way of example to Hutchinson v Sydney (1854) 10 Ex 438), being the payment of the various contractors by Bernard or Fiona, or alternatively a claim in quantum meruit, being the non-monetary benefit of the work done in improving the Homestead. Bernard and Fiona say that (even assuming that there was no settled arrangement for accounting for amounts spent by Bernard and Fiona), Timothy expressed consent to the work being carried out in the knowledge that Bernard and Fiona would be seeking recompense. It is said that, as the only other director and member of the Company, Timothy accepted the work renovating the property being carried out at Bernard and Fiona's expense. In the circumstances, it is submitted that, at the very least, Bernard and Fiona are entitled to recover the fair value of the benefit that they provided to the Company (reference here being made to Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; [1987] HCA 5 (Pavey v Paul)). Further, as to the first of those bases, it is said that the fact that the bills were made out to Bernard and Fiona is a matter of form and not substance; emphasising that the work was done on the Company's property.
[44]
Response to the complaint as to breach of fiduciary duty
As to Timothy's complaint about breach of fiduciary duty in relation to the approval of the alleged loan agreement, Bernard and Fiona say that no such breach is made out. It is said that at the time of the 16 May 2013 meeting, the basic elements of what was proposed were obvious to Timothy (the other director and shareholder), i.e., he knew that what was proposed was a renovation of the house owned by the Company, which would be paid for by Bernard and Fiona, who would reside in the house when renovated. It is said that the advantage that Bernard would gain as a director from the transaction was obvious; and that there was no detriment to the Company which secured a corresponding advantage. Bernard and Fiona say that, at the time of the 16 May 2013 meeting, all of the known relevant facts were disclosed to Timothy and the Company. (Pausing here, what was relevantly not known at that stage was the scope of the intended renovations and the quantum of the costs that would ultimately be incurred.)
Bernard and Fiona point out that those to whom fiduciary duties are owed may release those who owe the duties from their legal obligations and may do so either prospectively or retrospectively, provided that full disclosure of the relevant facts is made to them in advance of the decision (reference here being made to the decision of Gleeson CJ and Heydon J in Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507; [2005] HCA 23 at [32], their Honours there quoting from P L Davies, Gower and Davies' Principles of Modern Company Law (7th ed, Sweet & Maxwell, 2003) at 437).
[45]
Quantum
As to quantum, Bernard and Fiona concede that Fiona's evidence as to what was paid when and why was confused and confusing. It is submitted that in some part that can be attributed to the fact that Fiona first embarked on collating all the material when preparing the proof of debt in November 2019. In closing submissions Bernard and Fiona provided a spreadsheet that collated the documentary evidence in the Court Books and said that (without admission that the amounts previously claimed had not been spent), to the extent that an aspect of the claim was not supported by documentary evidence, that claim has been abandoned. The amount as now claimed in accordance with the spreadsheet is to the value of $768,918.86.
[46]
Contract claim
I am not satisfied on the balance of probabilities that a binding contract was concluded at the meeting of 16 May 2013 as contended for by Bernard and Fiona. I accept that it is not uncommon in dealings between family members for there to be a level of informality in their arrangements. However, it is clear from the evidence of the family members in this case that what was being put forward at the September 2012 meeting was the desire of Bernard and Fiona to renovate the Caernarvon Property and that Timothy (far from agreeing to any reimbursement arrangement) was putting forward other options for their consideration such as buying another property or subdividing the Caernarvon Property so that a smaller block could be transferred to them (as had occurred in relation to the Nashdale Property in his case).
In evidence that Timothy relies on as fatal to the case put forward by Bernard and Fiona (at T 175) there was the following exchange in relation to what was said at the meeting to which Bernard deposed at [150] of his affidavit:
Q. Can you remember anything else that Des said at this meeting?
A. The only thing I can remember was that he did give us a few options, one was to get a valuation before and after. And the other one was to keep the receipts and he'd basically he'd put it into financials to, like, and then we'd be ‑ if down the track anything gets, you know, sold or whatever that ‑ or split, that we would be reimbursed at some point, or if not reimbursed like, you know, what's the word, like they'd be an equalisation, I suppose, something like the words to that affect [sic], and we could be repaid the equivalent of CPI, to the CPI. Words to that affect [sic], and I'm not 100%, you know, but I know there was a couple of things bandied around and one was definitely to get a valuation done before and after. And then to make sure we keep the receipts and we could be ‑ we would be reimbursed on the event that we ever sold or whatever, and we could be - he'd take, he'd take the CPI into account. That's about all I can really tell you about that.
Q. These were options for you to consider and talk about amongst yourselves and decide on, is that it, if you wanted to?
A. Correct.
Q. You didn't ever come to a definite decision about any of them, did you?
A. Well, we were waiting for ‑ no, you're right, no
Bernard, quite candidly, accepted that he did not have an independent recollection of the meetings set out in his affidavit (see for example at T 172). For Timothy, it is said that in the passage set out above, Bernard accepted that there was no consensus at the meeting at which it is alleged there was (and Timothy says that this is an unequivocal concession fatal to the case put forward by Bernard and Fiona).
[47]
Estoppel
The principles of estoppel (both promissory and proprietary) are well-known and I do not propose here to repeat them (see the well-endorsed judgment of Brennan J, as his Honour then was, in Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387; [1988] HCA 7 at 428-429, those elements being said to be a useful check, though not to be applied in every case in a mechanical fashion (see Doueihi v Construction Technologies Australia Pty Ltd (2016) 92 NSWLR 247; [2016] NSWCA 105 (Doueihi) at [166] per Gleeson JA, Beazley P (as Her Excellency then was) and Leeming JA agreeing; and see DHJPM Pty Ltd v Blackthorn Resources Ltd (2011) 83 NSWLR 728; [2011] NSWCA 348 at [47] per Meagher JA, Macfarlan JA agreeing (DHJPM)). Again, I do not accept that there was any representation to the effect that Bernard and Fiona were to be given a blank cheque. Timothy clearly wanted acceptable valuations to be obtained and did not agree to those that had been put forward. I am therefore of the opinion that the estoppel claim is not made good.
[48]
Unjust enrichment claim
As to the unjust enrichment claim, I accept that this is not a cause of action per se. Rather, restitution, on the basis of unjust enrichment, will be available only where a recognised 'unjust' factor has been established (see Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [150]-[151] per the Court; Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662; [1988] HCA 17 at 673 per Mason CJ, Wilson, Deane, Toohey and Gaudron JJ; David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; [1992] HCA 48 at 379 per Mason CJ, Deane, Toohey, Gaudron and McHugh JJ). In Lumbers v W Cook Builders Pty Ltd (in liq) [2008] HCA 27; (2008) 232 CLR 635 (Lumbers), Gummow, Hayne, Crennan and Kiefel JJ stated (at [80]) that "where one party … seeks recompense from another … for some service done or benefit conferred by the first party for or on the other, the bare fact of conferral of the benefit or provision of the service does not suffice to establish an entitlement to recovery".
There was no request made by the Company to bring this within a quantum meruit type claim. Nor does this fall within the notion of free acceptance (which is in any event not a notion adopted with enthusiasm in English and Australian law - see Lumbers at [75], [80] per Gummow, Hayne, Crennan and Kiefel JJ; Damberg v Damberg (2001) 52 NSWLR 492; [2001] NSWCA 87 at [192]-[193] per Heydon JA). In Lumbers, the plurality observed at [75] that:
None of the terms, "benefit", "acceptance" or "expense", can usefully be defined or applied without deciding whether attention is to be confined to the party who is identified as conferring the benefit and the recipient of that benefit, or account must be taken of the legal relationships that exist between one or other of those two parties and some third party or parties in relation to the events and transactions said to constitute conferring a "benefit", its "acceptance", or the incurrence of expense.
The plurality went on to cite the remarks of Bowen LJ in Falcke v Scottish Imperial Insurance Co (1886) 34 Ch D 234 at 248:
… The general principle is, beyond all question, that work and labour done or money expended by one man to preserve or benefit the property of another do not according to English law create any lien upon the property saved or benefited, nor, even if standing alone, create any obligation to repay the expenditure. Liabilities are not to be forced upon people behind their backs any more than you can confer a benefit upon a man against his will.
[49]
Conclusion
For the above reasons I am persuaded that Timothy's claim should succeed and that the proof of debt should be rejected. (Had it been admitted it would in any event have been for a much reduced amount - in the order ultimately of around $400,000 - see T 371.1-4.) I therefore make the following orders:
1. The appeal be allowed.
2. The liquidator's determination to admit the proof of debt dated 15 November 2019 submitted by the second and third respondent be set aside and the said proof of debt be rejected.
3. The second and third respondents pay the costs of:
1. the applicant and the first respondent of and incidental to the amended interlocutory process; and
2. the applicant and the first respondent (including liquidation costs, expenses and liquidators' remuneration) of and incidental to the submission, consideration and determination by the liquidators of the proof of debt dated 15 November 2019 submitted by the second and third respondents.
[50]
Amendments
07 April 2022 - Amendment to representation on coversheet
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 07 April 2022
The relevant issue to be determined on an appeal such as this is as to whether the liability claimed or referred to in the proof of debt is a true liability of the company enforceable against it (see Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332; [1990] HCA 8 at 339-340 per Brennan and Dawson JJ). On such an appeal, the party claiming to be a creditor of the company (here, Bernard and Fiona) is not strictly confined to the allegation(s) by which it originally sought to advance the proof of debt; it being said that "[a]s long as the claim remains the original claim, some change in the explanation of the way in which it is said to be a true liability of the company enforceable against it is permitted" (Johnston v McGrath (2008) 67 ACSR 169; [2008] NSWSC 639 at [26] per Barrett J; and see Rosseau Pty Ltd (in liq) v Jay-O-Bees Pty Ltd (in liq) (2004) 50 ACSR 565; [2004] NSWSC 818; Re St Gregory's Armenian School).
Fiona has deposed that Bernard raised that they wanted to undertake renovations of the Homestead in words to the following effect:
Bernard said: We need to do some work to the Homestead because the old electricity is dangerous and we now have 2 young children and a Toddler. We want to renovate but it's going to cost a lot because it's an old house and like opening a can of worms, so our money needs to be recognised. We need bathrooms, a new laundry, electricity, new bedrooms, proper heating and such.
Tim said: Why don't you go and look at other ways first like look at buying Armstrong's [next door neighbour's at Melrose] place or buying another house somewhere.
Pam said: Or why don't you see if you can move the title and get 6 acres like Tim did? You've got these little kids and need something sorted as we just had a cold winter and the place is freezing. Something needs to be sorted.
Bernard said: Okay, we'll look at other options.
Fiona also deposes to a consultation with Mr Basha about the proposed subdivision and to Bernard's account of the Council's position shortly after that consultation (see [88]-[90] of Fiona's first affidavit), which is consistent with Bernard's recollection.
Bernard and Fiona refer to the above evidence and say that they told those present at the meeting that they were prepared to use their own funds to pay for the renovations at the Homestead but wanted to be able to recover those funds if the Company or the property was ever sold. They also say that Timothy said that, if the Canobolas Property could be subdivided and a small block transferred to Bernard and Fiona, he would consent to the subdivision and Bernard and Fiona could build a new home on the subdivided block. (The above summary by Bernard and Fiona of the conversation does not wholly accord with their affidavit evidence; in which they attribute to Timothy suggestions about other options such as buying another property or subdivision but not consent in terms to the subdivision option.)
Fiona's handwritten notes of the meeting of 14 September 2012 (which she says, but Timothy and Mr Lee seem to dispute, she took at the meeting) record the presence of Timothy and Robyn, Bernard and Fiona and Pamela and Fred; that the meeting went from 9am to 10.30am; and, among other things, that:
- House @ Caernarvon
B&F expressed wanting to renovate house but for $ sunk into place to be recognised.
Tim suggest to look @ other options.
At the conclusion of the notes there appears an entry in a different coloured pen. This page of the notebook was followed by a printed document headed "A snapshot as of 13th September 2012", which appears to correspond to the entry in the handwritten notes "Fiona gave snapshot of season to date (enclosed)". This suggests that at least part of the notes (such as the pasting of the printed note into the book) was compiled after the meeting. Immediately following the second page of the pasted typed sheet are handwritten notes headed "Monday 1st October 2012" starting in a blue pen and then changing to a black pen. There was a suggestion that one of the entries "follow Des up 400k" was in Bernard's handwriting (T 110.40). The following page (whimsically headed Maggie's minutes) was obviously a child's scribblings.
Timothy (see at [56] of his first affidavit) deposes that he does not recall the entirety of the conversations concerning improvements to the Homestead and cannot be sure when each conversation took place, or in which years, or the order of the conversations or exact words used. Timothy did recall one of those conversations (at [59] of his first affidavit) (which he says was in the dining room at his parents' house during an annual visit of Mr Lee) in which he says that Bernard said that the house was very cold in winter and they needed to update the heating (which he says he queried but then, after Bernard said they needed heating, to which he said "OK"); and that during one of the annual meetings Bernard said words to the effect that the house needed to have new heaters put in and that they wanted to do a new bathroom (see at [63]).
Bernard and Fiona submit (at [33] of their written submissions) that the parties' accounts of what happened at this meeting (and the subsequent 16 May 2013 meeting) should be read in light of the fact that what occurred at the meeting was specifically pleaded in their Points of Claim and put in issue by Timothy's Points of Defence. Essentially, Bernard and Fiona submit that Timothy's denial that the two meetings occurred as they described is not supported by his own evidence of what occurred at those meetings. This submission appears to be directed towards the argument that Timothy has failed to discharge the onus of proof to support a finding that the liquidator's decision was wrong.
To this end, Bernard and Fiona emphasise that, in his first affidavit, Timothy gave no specific evidence about the meeting of 14 September 2012 and conceded that he did not "recall the entirety of conversations that took place concerning improvements to the house at [the Canobolas Property]". (As noted, there is no suggestion that Mr Lee was at the meeting of 14 September 2012.)
In his second affidavit sworn 17 May 2021, Timothy responded to various aspects of the affidavit evidence of Bernard and Fiona with which he disagreed. It is noted that Timothy did not traverse [144] of Bernard's first affidavit (set out above) but that he did reject those parts of the conversation recorded in Fiona's account (see above) that referred to "electricity, Melrose or Armstrong's property" and instead deposed to having suggested a different property. Bernard and Fiona emphasise that Timothy did not specifically contradict that part of the conversation in which Bernard expressed the aim that their expenditure of funds be recognised. (Pausing here, what is not here made clear is precisely how it was contemplated by Bernard that their funds would be recognised; nor is it suggested that Timothy agreed to any such arrangement at this meeting. I also interpose to note that Bernard and Fiona do not suggest that any agreement was reached at this meeting; rather, they rely on this as context or background.)
Bernard's evidence of the meeting was that it was at a lunch at the Caernarvon Cottage with Fiona, his parents, Mr Lee and Timothy. Bernard deposes that the conversation was to the following effect:
[Bernard] said: We spoke to a town planner and they won't let us subdivide the lot. We still want to update the Homestead and extend it, so we want to go ahead with the renovations. How do we go about that?
They said: Where will you get the money from?
[Bernard] said: We can pay for the renovations ourselves or through Caernarvon Cherry, but we want all the money we put into the Homestead to be recognised if the place is ever sold or transferred to someone else.
Des said: You should also get a valuation before you do the renovations, and then another valuation after so you can see how much the Homestead is improved. It could be important if you need to pay some tax on it in the future.
[Bernard] said: Okay, we can do that. But more importantly we want to get our money back that we put in, so we want the money we spend on the renovations to be accounted for by the Company somehow.
Des said: Okay. Keep your receipts so that we can see how much you spend on the renovations and we can put that in the records of the Company as a debt owed to you and Fiona. Then the Company can easily pay you back if the Homestead ever sells. We can also make sure that you get paid interest, for example at an interest rate equivalent to the change in the Consumer Price Index until you are repaid.
[Bernard] said: That sounds like it does everything we want, let's do that.
Des said: Does everyone agree to doing it that way?
Tim said: Yeah, I'm okay with that.
Bernard has deposed that he saw Fiona writing in the minute book during that meeting and identifies in his affidavit the notes of that meeting.
Fiona's evidence is that this meeting was at "another lunch" with Bernard, Timothy, Fred and Pamela, at Pamela and Fred's house at Bonny Glen, for the purpose of going over the accounts and financials with Mr Lee who had travelled from Sydney. Fiona says that the meeting was while sitting around the kitchen table and that there was a discussion in words to the following effect:
Bernard said: We've been told we can't do a subdivision so we're back to the drawing board and want to renovate 474 Canobolas.
Armstrong's place want too much money and we want to stay on the property and don't want to be living at Melrose and working at Caernarvon. Either way, it isn't an option to build another house on Caernarvon because we'd have the same issues with wanting the money to be recognised because it would be Company land. So, we think we may as well renovate the Homestead.
Tim said: Okay.
Bernard said: We aren't asking for money, just asking if we can spend own money on the place because we would be doing large scale renovations. How can we have our money recognised?
Des said: Keep all your receipts so that we can see how much you spend on the renovations and I'll put that on the books of the Company. Each year we can add the CPI to the amount you've spent and it'll be on the books as a loan. But if you do overcapitalise [sic]
Bernard said: Okay let's do that. That's fine, we will be responsible if we overcapitalise.
Fiona goes on to depose that she is unable to recall whether the subject of valuation was raised at the 16 May 2013 meeting or whether it was raised in a later discussion but that, at some point after the 16 May 2013 meeting, she was present at a conversation between Timothy and Bernard in words to the following effect:
Des said: Get a valuation before you do the renovations, and then another valuation after that so that you don't overcapitalise.
We said: Okay, if we do then that's our money and we will be responsible for that.
Fiona says that Timothy agreed with that proposition (at [94] of her first affidavit sworn 19 April 2021).
Bernard and Fiona say that an agreement was reached at this meeting that they (Bernard and Fiona) would fund the renovations to the Homestead and that, if the property was ever sold, the Company would repay those amounts together with interest at a rate equivalent to the CPI. They say that it was also agreed that the amounts so expended would be recorded in the accounts of the Company as a debt owed to Bernard and Fiona. (Both Timothy and Mr Lee dispute this. For Timothy, it is said that this amounts in effect to arguing that the Company would give Bernard and Fiona a "blank cheque" to spend whatever they liked on the property and that this is implausible - see T 360.31. It would certainly be inconsistent with the attitude that Timothy appears to have displayed throughout the proceeding to the issue of expenditure by his brother.)
As adverted to above, there were in evidence some handwritten notes made by Fiona (contained in the blue book - Exhibit 12) headed "Meeting Thurs 16th May 2013", recording as present Timothy, Bernard, Fred, Pamela and Fiona but also referring to a presentation by Mr Lee. The notes (on which there is some scribble in a different colour pen) include that:
Bernard spoke of Renovations required at Caernarvon house. Des advised to keep records of amounts spent so that amounts will be recorded & owed to B & F & increased in CPI's.
Bernard and Fiona emphasise that both their affidavit evidence and the notes record a conversation in which there was a discussion about the renovations, the money to be spent, and the amounts being recorded and owed to Bernard and Fiona. Bernard and Fiona note that, in response to that affidavit evidence, Timothy did not traverse the relevant paragraphs of Bernard's affidavit (at [149]-[151] of his second affidavit sworn 17 May 2021) and, while specifically dealing with two other aspects of what was said, did not contradict Fiona's account of what was said in relation to the recognition of their expenditure. Similarly, it is said that, while Timothy dealt specifically with inaccuracies in Fiona's notes, he did not suggest they were inaccurate insofar as they recorded conversations at this or the earlier meeting.
It is noted by Bernard and Fiona that, in his first affidavit, Mr Lee gave a lengthy account of what took place when he visited Orange on 16 May 2013 and the order in which he conducted the meetings on that day (as summarised above) but deposed to only one conversation that occurred on that day; whereas he gave a detailed account of a conversation on 26 March 2014 concerning proposed renovations to the house at Canobolas and the way in which Bernard and Fiona might be reimbursed for moneys expended (see below) (at [51] of Mr Lee's first affidavit sworn 19 April 2021).
In Mr Lee's second affidavit sworn 17 May 2021, his response to [150] of Bernard's affidavit is that he did not say the words attributed to him by Bernard nor did he hear Timothy say that "Yeah, I'm okay with that" (and Mr Lee affirms that his memory of that conversation is as set out at [51]-[53] of his 19 April 2021 affidavit). As to [92] of Fiona's first affidavit, Mr Lee deposes that he does not recall this conversation occurring during the lunch at Fred and Pamela's house on 16 May 2013 "or at any other occasion". Bernard and Fiona say that there is an obvious similarity between that conversation and the one recounted at [51] of Mr Lee's first affidavit - both accounts refer to Mr Lee's suggestion that the renovation costs be recorded as a loan in the company records and that CPI adjustments be made; however, it is noted that only Mr Lee deposes that he said items were to be approved by Timothy and Bernard.
Further, Mr Lee cavils with the statement by Fiona at [93] of her first affidavit that an agreement had been reached. Mr Lee asserts that he did not hear words of agreement or that there was an agreement; rather, he deposes that there were options discussed (but his recollection is that this was at the 2014 meeting rather than at the 2013 meeting).
In oral submissions, it is said for Bernard and Fiona that, at the 16 May 2013 meeting, the Company (by representations and statements by Timothy and Mr Lee) "bound itself to treat amounts which Bernard and Fiona were to spend on renovations for the Company's house as loans in the books of the company to carry interest" (see T 6). Insofar as Bernard and Fiona rely on statements by Mr Lee, there is nothing on the evidence to support a conclusion that Mr Lee had any authority to bind the Company; at most, his statements would be relevant to the extent (which is debatable) that it could be said that Timothy (by silence or otherwise) had adopted them.
Fourth, that in cross examination Bernard confirmed the existence of a verbal agreement whereby the company would repay the amounts expended for renovations or improvements on the property; readily made concessions; and confirmed that his wife took notes. Bernard and Fiona say that the accounts of the two meetings given by Bernard and Fiona are supported by contemporaneous notes made by Fiona. Insofar as it was put to Fiona that the relevant note was made after the event in an attempt to reconstruct, it is noted that Fiona rejected that suggestion. Bernard and Fiona say that the facts do not support that serious contention, referring to the objective evidence which showed that Fiona attempted over a number of years to ensure that notes were taken at meetings when the business of Bonny Glen Fruits was discussed (pointing to her blue book which contains notes of meetings on 14 September 2012; 1 October 2012; 16 May 2013; 26 March 2014; and 1 December 2015) and that there is contemporaneous evidence that Fiona asked Ms Leanne Pearce (who worked for Bonny Glen Fruits) to assist in keeping the minutes of the meetings (pointing to the copies of Leanne Pearce's notes of meetings on 22 October 2015 and 5 June 2016).
Pausing here, I do not accept that a conclusion that the notes were not all made during the actual meeting would necessarily connote some dishonest reconstruction of events. It is more plausible to my mind that the notes are an amalgam of jottings made at around the time of the meeting (potentially, some made before, some during and some after the meeting) rather than being wholly a verbatim note or summary of what was said that was taken during the meeting itself.
Finally, in this context it is said (and I would accept) that the "patchwork" nature of these records speaks to their authenticity. It is said that the probabilities are that, if Fiona had intended to concoct a record reflecting consistent contemporaneous note taking and relevant notes, she would have collected all that material in the one place and using the one style (and most likely would have also protected this most valuable record from her young daughter's scribblings).
Therefore, I accept that the notes are genuine though not necessarily completely contemporaneous, and, moreover, they may record Fiona's understanding as opposed to what was in fact said.
For Timothy, it is said that for there to be acceptance of the position in relation to reimbursement of or recognition for the cost of the renovations, there has to have been knowledge of the costs of the renovations and the types of renovation (and it is noted that Mr Lee wanted an estimate of these to be provided).
The above chronology of events shows that there were discussions about the proposed valuation of the property before and after the proposed works; and that it is made quite clear that no agreement was reached between the parties; rather, Mr Lee writes in the abovementioned email that his understanding was that Timothy and he both provided suggestions as to how the renovations could be reimbursed, and requested further details of the costs of the renovations and the type of renovations.
On 13 May 2014, Fiona responded to Mr Lee, attaching the updated MYOB accounting file he had requested, in which email she said:
hi des
I have just emailed you the backup of MYOB for April 30. We have done as suggested and had the house (and house only) valued before any renovations commence. I will pass this on once received.
The renovations will commence next week however I don't envisage a lot of money being spent before the end of the financial year. There have been costs to council, draftsman, engineering, design etc so far, however my prediction that another 70k would be spent before end of fy at the most.
The total renovation is going to be an estimated [sic] at $400-450k, will give you some more details when the fixed quote comes in from the builder tomorrow.
Mr Lee has deposed (at [61] of his first affidavit) that he did not receive any further information regarding the renovations beyond the above communication; and that he did not think about forwarding a copy of this to Timothy because the email chain was part of the records between Caernarvon Cherry Pty Ltd and his firm; and Timothy had never been a director or shareholder of that company. There is no evidence that Timothy was made aware of this estimated cost.
Fiona further deposes (at [123] of her first affidavit) that a number of variations were not recorded in written form and were paid in cash during the course of the renovations. At [126]-[128] of Fiona's first affidavit, Fiona deposes to payments made to John Nunn totalling $226,758.16, being for less than 50% of the amount claimed for this particular contractor. In particular, Fiona deposes that the following payments were made: on 29 May 2014 - $17,675 (Invoice No. 1207); 14 July 2014 - $44,000 (Invoice No. 1220); 3 September 2014 - $33,000 (Invoice No. 1245); 17 September 2014 - $66,000 (Invoice No. 1242); 17 November 2014 - $44,000 (Invoice No. 1265); 1 February 2016 - $11,083.16 (Invoice No. 1331); 30 October 2016 - $2,000 (Invoice No. 1331); 9 September 2016 - $5,000 (Invoice No. 1331); and 26 November 2016 - $4,000 (Invoice No. 1331).
Pausing here, I note that some payments seem to have been made before the invoice was issued by Mr Nunn's company. For example, payment for invoice no. 1245 is purported to have been made on 3 September 2014; however, the invoice was issued by Mr Nunn's company after that date, on 15 October 2014. I also note that Fiona deposed (at [128] of her affidavit) that Invoice No. 1265 was paid and provided proof of payment. However, Fiona deposed (at [129] of her affidavit) that there was no record to support payment of Invoice No. 1265. These issues were the subject of cross-examination and are discussed below.
At [124]-[129] of Fiona's first affidavit, Fiona deposes that there are no records for $268,276.20 worth of claimed payments to John Nunn. Nonetheless, Fiona deposes that she believes she has paid these claims (see at [125], [130]-[131]). These payments are as follows: 1 October 2014 - $13,788 (Invoice No. B13217); 5 October 2014 - $22,000 (Invoice No. 1244); 7 October 2014 - $970 (Invoice No. C17410); 4 November 2014 - $26,513.02 (Invoice No. 1254); 4 November 2014 - $46,963 (Invoice No. 1254); 11 November 2014 - $316.80 (Invoice No. C17548); 5 December 2014 - $44,000 (Invoice No. 1265); 11 December 2014 - $22,000 (Invoice No. 1270); 5 February 2015 - $16,825 (Invoice No. 1284); 12 March 2015 - $8,998.04 (Invoice No. 1296); 5 May 2015 - $35,576.58 (Invoice No. 1331); and 8 October 2015 - $30,325.76 (Invoice No. 1378).
By 18 May 2017, the proposal in relation to jointly held assets had changed such that the business of Bonny Glen Fruits Pty Ltd was now to be to Bernard and Fiona (but with the same comments as to the possibility that the company might be wound up and that Bernard and Fiona might operate out of one of the existing companies or in a new entity).
By 22 May 2017, it appears that there was dissension between the respective family members (see Fiona's email to Mr Thornhill on that date referring to a meeting the previous Friday (18 May 2017) which Fiona described as "brutal and complete change around to where Tim wanted to be at the first meeting we had"). Fiona's email to Mr Thornhill included the statement that "[s]o we are been [sic] forced to sell our much loved property. If it doesnt [sic] sell we are forced to buy out Tim which Bernard does not want to do!" (this presumably referring to a sale of the Canobolas Property including the Homestead). Mr Thornhill's response was that he agreed that the meeting on Friday was "a total change in direction".
By August 2017, Mr Thornhill was conveying to the brothers his understanding that any plans to move forward with the separation of jointly owned assets had stalled and that one of the main "sticking points" was the actual and intended ownership of "Caernarvon Pty Ltd" (the owner of the Caernarvon Property) and Melrose Park (there having been communications via Fred and Pamela to the effect that their intention had been that Timothy have only 25% of Canobolas and Bernard only 25% of Melrose Park, contrary to the ASIC documents).
A meeting took place on 4 December 2017 attended by Timothy, Bernard and Mr Thornhill, the minutes of which were prepared by Mr Thornhill. The meeting minutes included the following:
5. Residential properties on 'Melrose' and 'Caernarvon'
- TH & BH agreed that there have been improvements to the residential properties on these 2 properties over time and that there may have been costs incurred by TH & BH on each of these respective properties from their own funds, and that such contribution needs to be taken into account when calculating the net asset ownership by TH & BH as part of the asset separation.
- The residential property on 'Melrose' is the residence of TH, and on 'Caernarvon' is the residence of BH
- Agreed that MT will obtain financial reports for the entities owning these properties from DL (and associated entities) to review the amounts reported in these financial reports/ balance sheet, and provide a summary to TH & BH of this financial information for further discussion as to the next steps to take to agree on the contribution made respectively by TH & BH to these properties.
There is no reference in these meeting minutes to any existing loan agreement in relation to expenditure on renovations on the Homestead property (rather what seemed there to be recorded was that the brothers agreed at the meeting that there "may have been" costs incurred by each of them on the properties out of their own funds and that such contribution needed (in some fashion) to be taken into account when calculating the net asset ownership of the brothers as part of the asset separation).
Fiona's response to the minutes included (see email of 5 December 2017) that she and Bernard had done the right thing and had their house valued both before and after the renovations (and to assert that "[t]his was all agreed to by Tim and Des").
Bernard says that, what occurred in 2017 was that he and Timothy came to an in principle agreement that each would own his respective orchard (i.e., Canobolas and Nashdale) and that they went through a summary of assets and agreed how they would be split but that two weeks later Mr Lee advised him that Timothy did not want to split the business because he was "too sick" to take it on anymore ([183] of Bernard's first affidavit). Bernard relies on this evidence to dispel any suggestion of recent invention.
On 4 December 2017, Mr Thornhill recorded a meeting where the two brothers agreed that costs incurred by the others on their respective properties had to be taken into account as part of the separation (i.e., to value the assets and that there be a cash payment to "even up" the division) (see T 10). However, it seems that there was then a disagreement as to this.
Bernard has deposed to a conversation with Timothy in around 2018 where he says that Timothy recounted their father's opinion that the Company should be put into voluntary liquidation and the liquidators should sort out the whole thing so that "everyone gets repaid what they're owed"; and says he agreed with this (see at [185] of Bernard's first affidavit).
Rather, Timothy cavils with the proposition that the documents satisfy the requirements of s 69 of the Evidence Act for business records (and argues that, although documents of this kind would commonly satisfy the test of relevance, in circumstances where there is doubt as to when the relevant representations were inserted in the database the documents do not here meet the test of relevance).
Bernard and Fiona seek to rely on certain of the previous representations recorded in the general ledger of John Nunn Building Contractors, invoking in this regard ss 69, 48, 57(1) and 58(1) of the Evidence Act, as evidence capable of rationally affecting the assessment of the probability that invoices were raised by John Nunn Building Contractors and that payments claimed by Bernard and Fiona were paid.
In circumstances where the documents were produced in answer to a subpoena addressed to John Nunn Building Contractors by a solicitor acting for the company, it is said that it may readily be inferred that the documents were provided by John Nunn Building Contractors and that compliance with the subpoena was supervised by a solicitor. As to the documents themselves, Bernard and Fiona contend that, on their face, they are part of the business records of the company (pointing to the headings on those documents; that they are in the form of a general ledger printout from a computer based accounting system; and to their contents, which are said to be consistent with the entries on bank statements contained in the evidence of Fiona which record payments having been made to John Nunn Building Contractors). Thus it is submitted that the compelling inference is that the relevant ledgers are documents which have been produced by a device that has retrieved and collated data from the electronic database in which the general ledgers of the company are stored and form part of the records belonging to or kept by the company in the course of, or for the purposes of, that business.
As noted, Timothy does not dispute that inferences could be drawn from the nature and form of the documents and the fact that they were produced in answer to a subpoena out of the custody of the company. However, it is submitted that the conditions specified in ss 69(1) and (3) of the Evidence Act are not here met on the balance of probabilities (i.e., that the ledgers in the form in which they are now sought to be tendered form part of the records kept by the organisation in the course of, or for the purposes of, a business or at any time formed part of that record; and that they contain the previous representation made or recorded in the document in the course of, or for the purposes of, the business).
The force of Timothy's submission in this regard arises out of the fact that there were in the evidence numerous editions of various of the invoices that were issued by John Nunn Building Contractors (so, for example, the invoices issued in respect of progress claim no. 7 dated 4 November 2014, of which there were three editions - at least one having no narrative description of the work performed). Insofar as there are various iterations of some of the tax invoices, it is submitted for Timothy that it cannot be concluded that each was contemporaneous or kept in the ordinary course of business (as opposed to being prepared at the request of Fiona for the purpose of the making of a claim under the proof of debt or in the period in which this proceeding was on foot).
In that regard, without reference to metadata it was submitted that one could not infer from the fact that an entry appeared chronologically in the database that an invoice was rendered at the time recorded in the database since the entry might have been retrospectively recorded in the electronic database (see the argument at T 324-325).
By way of further example, reference was made to the cross-examination of Fiona as to the invoice dated 15 October 2014 for progress claim no. 6 for which it was said that payment had been made some six weeks before the date of that invoice (on 3 September 2014). It was noted that there appeared to be different dates identified as dates on which the payment was made (20 October 2014 as opposed to 3 September 2014) (and see the cross-examination of Fiona at T 68-69ff in relation to the ninth email of the emails in Exhibit D as to the raising of invoices from Mr Nunn at the time that the proof of debt was lodged).
Therefore, it is submitted for Timothy that there cannot be an affirmative state of satisfaction (on the balance of probabilities) that the ledgers in the form now sought to be tendered formed part of the contemporaneous records of Mr Nunn's business and that they contained the Representations that were entered in the course of, or for the purposes of, that business (rather than the alternative hypothesis that they were prepared or revisited in the course of vouching the proof of debt or for the purpose of the present application).
In response to this this submission, it was conceded by Counsel for Bernard and Fiona that the latter's account of what had been spent and what the records showed was both confused and confusing but it was said that no claim was now made for items for which there is no explanation (see T 327-328). Rather, reliance was placed on a schedule that had been prepared (MFI 3), listing in relation to each of the progress claims, the invoice, the record in the ledger, and the bank statement which demonstrates a payment consistent with the entries in the ledger.
So, for example, the answer to the recording in the ledger of a payment on 20 October 2014 in relation to an invoice of 15 October 2014 and a reference in the bank statement to a payment made on around 3 September 2014 was said to be that there were at least three payments of $44,000 (shown respectively as being invoice progress payment no. 2) (see T 327.42): a payment made on 14 July (for an invoice dated 10 July); a payment made on 17 November 2014 (for an invoice on 4 November 2014); and a payment made in respect of an invoice on 5 December 2014 (none of which, I might add, corresponds to the payment made on 20 October 2014, which prompted this exercise of matching payments to invoices).
That said, Counsel for Bernard and Fiona maintained that the objective evidence was clear that invoices were rendered for the first nine progress payments which showed a consistent pattern of invoices being rendered and payments made for the same amount and in the order in which they were provided for in the contract; such that it was submitted that these were business records of Mr Nunn's business (and admissible as such).
It was submitted that the submissions for Timothy were tantamount to a suggestion that Mr Nunn was engaged in some sort of fraud with Fiona (i.e., that Mr Nunn was simply generating documents at Fiona's request rather than attempting to supply her with material to assist in her proof of debt claim) and that there was no basis for such a conclusion.
It was said that the invoices appearing without narratives were quite plainly machine generated invoices only recently created (consistently with Fiona's evidence as to the changing of Mr Nunn's computer system) and that this does not affect what was in the general ledger. It is submitted that it could not be concluded that Mr Nunn was engaged in falsifying his general ledger to coordinate with bank statements that were in Fiona's evidence (reference being made in this context to the Briginshaw standard of proof of such serious allegations (Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34)).
Pausing here, I do not accept that rejection of the tender of the documents in question (on the basis that they do not meet the test for admission as business records) would of necessity involve the conclusion that Mr Nunn was engaged in a process of falsification of records (or some kind of fraud with Fiona) (which I accept is a serious allegation and would require a far greater level of satisfaction than that which I could form at this stage - and in any event would not be a conclusion I would draw without giving Mr Nunn an opportunity to be heard). Rather, consistently with the fact that one cannot accept or be comfortably persuaded of the evidence of a witness without concluding that the witness is lying or being deliberately dishonest, I consider that the doubts as to when the entries in the database were made (arising out of the proliferation of iterations of the invoices and the evidence referred to above of Fiona) simply means that I cannot be affirmatively satisfied on the balance of probabilities that the documents sought to be tendered were contemporaneous and prepared in the ordinary course of the business of the company (as opposed to documents - accepting for present purposes that there was a genuine basis for issuing them - that were or may have been issued retrospectively to record the basis on which invoices had earlier been rendered or payments made but which documentation for whatever reason was not readily available to the company issuing the invoice).
I accept that the documents in question are of a kind that would ordinarily satisfy the test of admissibility being documents the receipt of which could rationally affect the assessment of the probability of a fact in issue (see ACCC v Air New Zealand at [92]). Further, I accept that the documents are of a kind that would ordinarily satisfy the requirements of s 69(1)(a) of the Evidence Act having regard to the form and context of the documents and the circumstances in which the documents were produced (see Capital Securities XV Pty Ltd (formerly known as Prime Capital Securities Pty Ltd) v Calleja [2018] NSWCA 26 at [89]-[90] per Leeming JA; and see Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2004] NSWSC 984 at [19] per McDougall J).
However, in circumstances where I am left in doubt as to when the entries in the database were made (having regard to the different iterations of the invoices themselves), I do not consider that ss 69(1) and (3) of the Evidence Act are satisfied - and I therefore reject the tender of the documents in question. That said, ultimately nothing turns on this because the position taken by Counsel for Bernard and Fiona was that no claim was made for payments other than those objectively provable having regard to the documents referred to in the schedule which was marked as MFI 3 in the hearing and it was accepted that Fiona's evidence in this regard was unreliable. Further, as I explain in due course, I am satisfied that the proof of debt should be rejected.
Reference is also made to the letter dated 21 November 2018 from the solicitors for Bernard and Fiona that was sent by email to two people at the firm then acting for Timothy (which set out the substance of the claim that is made in the proof of debt and made plain that the consent to the orders made by the Court six days later was not intended to dispose of that claim). It is noted that the letter was part of the exhibit to Fiona's second affidavit sworn on 24 May 2021. Bernard and Fiona point to Timothy's evidence in cross examination that he had not been able to find the letter and that he added that it was not marked "without prejudice" (which they maintain was a "self serving deflection"). It is submitted that the likelihood that a letter emailed to two different people within Timothy's legal team was not received by either of them is remote; and that the proposition that the claim it foreshadowed was not brought to his attention is equally unlikely. It is said that, in cross-examination, Timothy immediately realised that the statement was not true and sought to qualify it.
Reference is made to Timothy's evidence in cross-examination: that the first time he became aware that Bernard and Fiona had carried out work at the Canobolas Property was when he was shown the valuations at a meeting on 22 October 2015; that, when shown the valuations, Timothy's only response was to comment that it looked overstated and that there were "extra" buildings that were already there. In cross-examination, Timothy said that he thought that what was being valued was the heating of the house and the bathroom. It is said that even a cursory review of the second Saunders valuation demonstrates that this answer could not possibly have been true. It is noted that (other than a small mention) neither the heating nor the bathroom was mentioned and neither appeared in the photographs. Bernard and Fiona say that Timothy's suggestion that he had not received all of the photos in the valuation (and that this was a matter he had only noticed when he received the Court Books) smacked of recent invention. It is noted that the copy Timothy was shown was at pages 290-298 of the exhibit to Fiona's affidavit of 19 April 2021 to which Timothy had responded to in his second affidavit of 17 May 2021.
Bernard and Fiona also note that in Timothy's first affidavit he referred to attending a birthday party for his niece (or nephew) at which he observed the renovations (inferentially, they say, for the first time). It is noted that this was said to be about a month after being shown the valuations. In cross-examination Timothy adhered to the fact that the party was in late 2015 but later he said that it was dark and it was in winter time. Bernard and Fiona say that, if the party was in fact in winter (as both Bernard and Fiona suggest), then Timothy must have observed the renovations well before he says that he received the valuations (in October 2015) and that his evidence about first learning of the renovations when he saw the valuations was untruthful. Insofar as Timothy said, in cross examination, that when he saw the renovations at the party he did not feel it was time to start arguing with his brother about not being notified, Bernard and Fiona say that (given his professed state of ignorance about Bernard and Fiona's desire to have the costs recognised) it is difficult to understand what might have angered him (and point out that Timothy did not raise this subject at any later time either).
As to Timothy's general contention that he had no cause in the ordinary course of the apple picking season (that is from early February to May) to go to the Canobolas Property, and that he did not do so, Bernard and Fiona say that this contention should be doubted for the following reasons. First, that in his first affidavit Timothy recounted a conversation that he had "in about 2012" when he "visited the Caernarvon Orchard" and saw an employee (Ms Charlene Thurston) packing cherries at a time when he said she was on the Bonny Glen Fruits payroll. Thus, Bernard and Fiona say that at least in 2012 Timothy still had cause to visit the Canobolas Property. Second, that the office of the Bonny Glen Fruits business which Timothy co-owned was at the Canobolas Property. It is said that the bookkeeping staff employed by the Business and who processed the payroll for all of the staff, whether they worked on the Canobolas or Nashdale Properties were located in the packing shed at the Canobolas Property. Third, that staff wages were transported from the Canobolas Property to Nashdale. Fourth, that the apples grown on the properties that he oversaw were transported for grading, packing, and despatch to the Canobolas Property. Fifth, that at [30] of her first affidavit Fiona deposed to an argument between Bernard and Timothy outside Caernarvon Cottage in 2016 after which she said the relationship between Bernard and Timothy became "toxic" (to which Timothy did not respond in his affidavit).
Further, it is noted that, in his second affidavit, Bernard gave detailed evidence of the frequency of, and reasons for, Timothy's visits to the "packhouse"; and said that on average Timothy came about once a week to bring over timesheets or with fruit from Nashdale; and that Fiona also deposed in her second affidavit to Timothy's visits to the "packhouse" during harvest time and otherwise and to deliver picking tallies to the office. It is submitted that it is inherently unlikely that the co-owner of a substantial business (in which the entire bookkeeping and payroll processing as well as the grading, packing, and dispatch of product are occurring just down the road) would have no occasion to visit for periods of years (even more so if he really had formed the opinion that those in charge of the operations at the Canobolas Property, i.e., Bernard and Fiona, "were taking advantage of the Bonny Glen Fruits business to benefit their own Caernarvon Cherry business").
Bernard and Fiona submit that Timothy displayed a disingenuous insistence on his total ignorance of the renovations in an effort to advance his case.
Broadly speaking, Timothy's submissions as to credit of witnesses went largely to the unreliability of Fiona's evidence (both as to the invoices received and payments made and as to the notes said to have been taken at the relevant meeting).
As to the principal lay witnesses I make the following comments.
First, as to Fiona, there is no doubt that her evidence was confusing in parts and it was conceded to be unreliable in relation to the invoicing and payment regime. However, I considered Fiona to be a genuine witness who did not suggest that she recalled precisely everything that occurred. Clearly, Fiona has a firm belief as to the arrangement being one in which there would be recognition of the expenditure she and Bernard had made; but it seems to me that this is just as likely based on her assumption as to what was said or agreed as opposed to something actually said by Timothy by way of agreement to the proposition that there be a recognition of the expenditure. No doubt, Fiona's perception (as with all the family members) is coloured by her feeling as to the unfairness of the position that has been adopted by the other side (as emerged in her contemporaneous emails with, for example, Mr Thornhill during the course of the negotiations as to asset separation). As to Fiona's evidence in relation to the blue book, I accept that these were relatively contemporaneous notes but I cannot be satisfied on the balance of probabilities that all of them were actually taken during the course of the meetings (as opposed to notes jotted down sometime shortly thereafter). This is because of matters such as the change in pen colour (and the reference to the printed pages in the season summary referred to as "enclosed"). Most relevantly, is the fact that no-one else appears to have seen the "blue book" (although there were witnesses who on occasion saw Fiona taking notes).
As to Bernard, I accept that he did his best truthfully to recall events that had occurred but it is clear that he had little independent recollection of relevant conversations. There is little doubt that Bernard and Timothy are now estranged - no doubt due to family history and differences that it is not useful here to explore; and this seems to have been the case from at least 2016. This is likely to have influenced both brothers' perspectives and recollections of events.
As to Timothy, I accept that there was a level of emotion apparent in some of his evidence (such as the assertions made seemingly downplaying Bernard's involvement in the family business); and, on one view of things, his attitude to the claim by Bernard and Fiona to reimbursement of moneys spent by them on the Homestead might be seen to be an opportunistic reliance on lack of a formal written agreement. Nevertheless, it is also understandable that someone in Timothy's position would not readily agree to giving his brother a blank cheque in relation to renovations on company property. I considered that Timothy was candid in his acknowledgement in his affidavit as to the difficulty in his recollection of events and I did not consider that his evidence was disingenuous (as Bernard and Fiona contend).
On balance therefore, I accept that the family members did their best to give honest evidence of their recollection of events and that we are here squarely in Watson v Foxman territory where caution must be exercised in accepting any of the oral accounts and primary weight should be placed on the contemporaneous documents (though bearing in mind the caution that those too might be influenced by the perspective from which they were written or created).
As to Mr Lee, his recollection of events seems largely to have been based on the documentary record (see for example at T 301.49). It was clear that documents such as the company records were prepared from standard pro forma documents and dated accordingly (and there were obvious errors in those documents). Mr Lee's recollection of the meeting at which reference to valuations was made must be mistaken and that this was a discussion that in fact occurred at the 16 May 2013 meeting. However, I attribute this simply to failure of recollection on his part. Overall, I accept his evidence as being the most independent of the evidence of the lay witnesses. Relevantly, it seems to me implausible that a professional accountant, if instructed at a meeting to document amounts as loans in the company accounts, would not have attempted diligently to do so (which reinforces my conclusion that there was not a loan agreement concluded at the 16 May 2013 meeting - rather, the discussion was as to options going forward); and Mr Lee's advice as to the keeping of receipts and the obtaining of valuations was being given as prudent advice for the parties to be in a position to evidence what had occurred (rather than as part of an agreement for the treatment of moneys expended on the renovations as a notional loan in the books of the company).
Fourth, Mr Bird considered it valid valuation practice (though of a strictly hypothetical nature) to select an unsubdivided part of a lot and compare it with sales of entire lots (on the direct comparable sales method), saying that the resultant value does not assume the subdivision is practical or possible or likely to be approved (simply making the assumption that it exists already in the form described) (Question 4).
Finally, Mr Bird considered that there was a considerable value premium included for the working commercial orchard and its associated infrastructure on the land but said that this had no bearing or influence on the valuation task of determining a value on the issue of the Homestead being fully renovated and extended or in its original state (that being a constant in both valuation scenarios (Question 5)).
In cross-examination, Mr Bird became somewhat defensive of his position, asserting that the cross-examiner had not read his report properly (at T 344.42-45) and resorting to evidence as to his habitual practice (when challenged by reference to his statement as to a lack of directly comparable sales) (see at T 335.42-50, 336.1-50, and 337.1-10).
Insofar as this resolution is alleged to be "binding on the Company" (see at [35]) Timothy says that it is not explained why this is binding if not constituting a contract bargained for with agreed consideration. It is noted that, at [36], it is alleged that there was an agreement whereby Bernard and Fiona agreed to fund the repair and renovations in consideration for which the Company agreed that, if the land "was ever sold, the Company would repay" the moneys.
Timothy says that this both adds to and subtracts from the Renovation Resolution, which was prefaced by "if" (whereas there is no "if" in the alleged agreement; rather, Bernard and Fiona simply promise to fund the repair and renovation). It is said that, properly understood, the Renovation Resolution does not supply a cause of action but is merely part of the history said to have brought into being the "Renovation Agreement" alleged at [36] of the Points of Claim.
It is submitted that the alleged Renovation Agreement is thus inconsistent with the alleged fact of the Renovation Resolution (which left it to the election of Bernard and Fiona whether they would procure any work at all).
Further, it is said that there is a major problem as to the identification of what work Bernard and Fiona were promising to procure and how it was agreed with the Company as to what it would be. It is argued that if, on the other hand, it was a unilateral contract (whereby the Company offered that, if they did the work, it would pay in case of a later sale) it is not clear for what work the Company was offering to pay.
Timothy argues that Bernard and Fiona's case suffers from the difficulty that, in effect, it means the Company was offering them a blank cheque to pay for whatever they felt like doing to secure their private comfort regardless of the Company's own interest. Timothy says that there is nothing in the Renovation Resolution which confers on Bernard and Fiona the right or power to decide for themselves what the repairs and renovations would be. It is noted that they "may", but need not, fund the work, and arrange for the said work to be carried out; but that this is not the right to decide what work shall be done.
It is submitted that no such implication would be drawn where they were personally interested in the matter (and Bernard was a director). Moreover, it is said that, if the work required development consent, the Company as owner of the land would need to consent to the development application under planning legislation (it being noted that otherwise, development consent could not be obtained and the work would be illegal and that it is a normal implication in contract terms that work is required to be performed lawfully if it can be, see Fitzgerald v F J Leonhardt Pty Ltd (1997) 189 CLR 215; [1997] HCA 17). Timothy submits that this confirms that there was no "blank cheque".
Timothy also points to the items for payments to the local Council in the claimed expenses, which he says carry the implication that there was a development application; but he says that there was no corporate consent for the Company's assent to the work to be communicated to Council; and argues that Bernard and Fiona chose to act unilaterally.
It is said that it does not accord with common sense to think that the Company was agreeing to commit itself to whatever Bernard and Fiona thought fit to do for themselves or by themselves; and that it is not reasonable to put such a construction upon the alleged events; and that, if there was any agreement, it remained one that required the work first to be identified and approved by the Company.
Timothy maintains that the better view is that (these being all members of one family) there was no intention by these informal and unrecorded dealings to enter into legal relations.
It is noted that at [37] of the Points of Claim a "Renovation Representation" is alleged (reinstating the "if"). At [45] and [47], it is alleged that Bernard and Fiona relied on the Renovation Representation in funding and arranging for the work, and in the expectation of repayment if the land was ever sold. Timothy says that the Renovation Representation suffers many of the same difficulties as the Renovation Agreement and that reliance thereon could not be reasonable.
As to the evidence, Timothy says that it is improbable that things happened or were said as they are alleged (citing Watson v Foxman).
As to the alleged Accounts Resolution and Accounts Representation, Timothy says that these suffer from the following difficulties. First, that the works are not works at large but the "renovations required" of which "Bernard spoke" at the meeting and that these are not identified. Second, that the statement that "Des advised to keep records of amounts spent" must (if this arrangement is contractual or a binding representation) be a condition of the Company's liability (since otherwise it is submitted that the Company could not comply with its obligations under s 286 of the Corporations Act). It is submitted that if this is the only formal thing in this resolution, agreement or representation, then there can be no warrant for leaving it out of the terms binding on Bernard and Fiona. Third, that the statement that "the amounts will be recorded and owed to B & F" stipulates a requirement that the outlays be presented to the Company for approval and recorded in its accounts.
Timothy says that this was not a minute at all, and that it was not a record of the Company (noting that it was not kept with the Company's records and was not shown to anybody else - least of all to the Company's accountant, who prepared the Company minutes). It is noted that there was no request made to incorporate it into the formal minutes and records of the Company. Timothy argues that if the deal were as alleged there could be no reason to suppress this record (which, I interpose to note, presupposes that it was 'suppressed' as such).
It is said that the Company's annual financial statements (some of which were signed by Bernard) not only did not record these alleged liabilities but also asserted a state of affairs that necessarily excludes their existence (and declared that this was the true and fair statement of its financial position).
In summary, Timothy contends that there was no contract, resolution or representation in the terms alleged; that, if there was any agreement, its conditions were not adhered to by Bernard and Fiona; and that, having failed to comply with the conditions that they themselves propound, Bernard and Fiona cannot now be heard to allege that the Company owes a contractual liability or that they relied on representations made on conditions that they chose to ignore. Further, it is said that, if there was an agreement to pay for renovation expenses, it was performed in a manner that constituted breaches by Bernard of either or both of the profit and the conflicts rules (in failing to keep any proper records in the Company's accounts so that its true liability could be ascertained and over capitalisation avoided).
It is further said that there was not such a clear and unequivocal representation as could found a promissory estoppel.
As to the allegation at [56] of the Points of Claim as to unjust enrichment, it is noted that unjust enrichment is not a cause of action per se and that there is no allegation in this part of the pleading of a request. Timothy says that the allegation in [56] is unclear and that, if what is here asserted is some equitable claim by analogy with a claim for contribution between co-owners, then Bernard and Fiona would need to submit to an occupation fee and could not claim more than the lower of cost and the increase in value brought about by the improvements, nor could they claim ordinary repairs.
Reference is made to Ryan v Dries [2002] NSWCA 3; (2002) 10 BPR 19,497 at [2] where Sheller JA explained the rules as to contribution between co-owners as an application of the equitable maxim that he who seeks equity must do equity. It is submitted that, given that a winding up by the Court is an administration by the Court, such a claim as Bernard and Fiona here seek to make for contribution to conservation and improvement of the Company's property (under what in their own case was a deal between shareholders) can be seen to be an equitable claim (and subject to equitable restraint). It is said that this is especially so, where Bernard and Fiona have themselves claimed to set-off Bernard's equity in the Company under the vendor finance arrangement and applications under s 477(2B) of the Corporations Act.
Timothy says that, over the 20 years of occupation, the benefit of rent-free occupation was close to $450,000 (relying on Mr Ellis' evidence of an occupation fee). It is noted that the difference in value of the land before and after the improvements, as at the date of sale (24 July 2019) is $400,000; and that the value of works disclosed to Council in connection with the Occupation Certificate was $350,000.
As to the evidence of the renovations, Timothy submits that it falls short of cogent and reliable evidence that all of the claimed work was done and paid for at the prices alleged. It is noted that the cost is principally deposed to by Fiona and that her evidence does not prove the figure of $1,050,797.58 alleged in the accountant's letter of 26 November 2019.
Timothy points to items of renovation expenses claimed in Fiona's affidavit where there are renovations for which quotes, invoices and payments do not match or where there is some other deficiency such as lack of records. Assuming the higher figure where there is an inconsistency between quotes, invoices, payment or other evidence, Timothy says that, of the $754,840.45 for which Fiona has claimed in her evidence, deficiencies in the record keeping exist for $655,844.61 of that amount, being approximately 87% of the total sought to be reimbursed under the purported loan agreement.
Timothy says that Mr Nunn's one-line progress claims do not follow any obvious scheme to identify the portion of work performed in each progress claim, nor supporting vouchers. It is noted that the expenses claimed by Bernard and Fiona include substantial amounts for payments direct to the kitchen and joinery tradesperson, the electrician and others whose trades are not clearly indicated. It is said that, if Mr Nunn was the head contractor, these should be included in his contract price; on the other hand, if these other works were outside his scope of works then the project would seem to be overcapitalised and well outside the scope of anything discussed in an "informal chat on 16 May 2013 or whenever it was". Timothy's complaint is that the relationship of all these items in the evidence of Bernard and Fiona is obscure and haphazard.
As to [123] of Fiona's first affidavit, it is said by Timothy that it is highly irregular to be paying cash for renovations purportedly completed by John Nunn for which no invoices were issued; and it is submitted that there is obvious reason for caution in assessing the honesty of Bernard and Fiona given that evidence.
As to [184] of Fiona's first affidavit, it is said that the costs of landscaping gardens were not a renovation of the Homestead and should not be allowed in any assessment of costs incurred pursuant to any purported agreement to renovate the Homestead.
Further, it is noted that a number of payments seem to have been paid through an entity controlled by Bernard and Fiona (Caernarvon Cherry Company) as expenses on revenue account.
Timothy says that another unmeritorious claim is for the costs of work to the tennis court (which it is said predated the alleged agreement by about ten years). Timothy says that the inclusion of such an obviously anachronistic item shows that Bernard and Fiona are unwilling to confine their case to any genuine claim; and that this must reflect adversely on their personal credit as well as the credibility of their overall claim.
It is submitted that nothing like the sum alleged in the evidence was spent, let alone what was alleged by correspondence; and that it is likely that Bernard and Fiona wished to remain where they were living free of rent and were prepared to spend on improvements for their personal comfort. It is noted that relations between the brothers were strained and it is submitted that it was convenient for Bernard to exercise the independence of doing what he wished on his own terms at his own cost without needing to consult a brother with whom he was not on good terms.
Thus, Timothy submits that the decision of the liquidators to admit the proof of debt should be set aside and that the proof of debt should be rejected. Timothy contends that Bernard and Fiona should pay the costs of all other parties of the Interlocutory Process and the costs and expenses occasioned by the proof of debt and of the consideration given to it by each other party.
Fourth, Bernard and Fiona point to the practice of Mr Lee, the principal of the accounting firm that prepared the taxation returns, company or partnership accounts and corporate compliance documents for the entities within the family group, once a year to visit the family to deal with the explanation and execution of the said documents. It is said that Mr Lee operated as a trusted adviser in matters connected with taxation and corporate compliance; and it is submitted that (in light of the many errors and misstatements in those documents) it is artificial to suggest that either brother gave any consideration to the content of the corporate compliance documents "or how simple family dealings might intersect with their obligations as directors of the company".
Reliance is placed by Bernard and Fiona on Fiona's notes of the meeting on 14 September 2012 (see above). Bernard and Fiona argue that the prospect of having the Company commit to recognising the expenditure on the renovations was within the contemplation of both Timothy and Bernard at the time of the meeting on 16 May 2013. It is said that both Timothy's and Mr Lee's evidence record discussion amongst the four (Timothy, Mr Lee, Bernard and Fiona) as to renovations and recording the expenditure in the Company's books; and that, other than to mention valuations, there is no suggestion that Timothy expressed any curiosity about the planned improvements. It is submitted that, given that prior to this time, each of the brothers had done renovations to houses for which they had not sought reimbursement, Timothy could not have expected that what was contemplated was minor (and that the suggestion of the valuations supports that contention).
As to the 16 May 2013 meeting, Bernard and Fiona say that, given what had occurred at the previous meeting, Fiona's note records a simple contract to recognise amounts spent by them to improve the Company's property as a debt due to them by the Company. It is said to be the kind of contract routinely made by shareholders and directors who make loans to small closely held companies; and that further terms should not be imposed on the contract with the benefit of hindsight.
Bernard and Fiona say that the informality of the particular meeting in May 2013 on which they rely is unremarkable and was entirely consistent with the way such meetings had been conducted by the family for many years. It is said that neither Timothy nor Mr Lee gave any indication that any further formality or other action was required to make the Company's promise binding upon it.
It is said that as the property has now been sold, the precondition to repayment has now been satisfied; and the Company is bound to repay to Bernard and Fiona the amounts that were paid by them to fund the renovations to the Homestead together with interest.
Fiona's evidence (see from T 99ff) of the conversations at the relevant meetings is also said to involve a fatal concession (at T 102). Timothy says that the cross‑examination at T 99-100 established that the discussion (as to the renovation work) was not at the first meeting (because that was the meeting where Timothy suggested that they look at the option of buying a property somewhere nearby). At the second meeting, attended by Mr Lee, Fiona's oral evidence was that "[she and Bernard] brought the subject up again about the renovation, and Des said to keep a copy of all our expenses". Fiona did not recall a response to that from Timothy "[e]xcept he didn't object to it, and yes, so he didn't object". Fiona accepted that, while the discussion was going on Timothy was looking through papers and signing papers (saying that there were always lots of papers to sign) but she was firm that Timothy had stopped and heard the conversation.
Asked about what Bernard had said at the meeting about the work, Fiona said (T 101.20) "That we need to renovate the house. We did some minor renovations prior, and we need to do some major renovations now; the house is dangerous and cold and we've got three little kinds. And we were not looking for reimbursement, we just want it acknowledged". Asked whether it was the same meeting at which Mr Lee said that money spent for renovations would have to be put in the books of the Company, Fiona said (at T 102) "No, that - Desmond said that at a prior meeting, prior"; and that was the first advice from Mr Lee.
At T 102, there was the following exchange:
Q. The first advice from Des Lee wasn't the end of the matter because, at a later meeting, Bernard said, "We'll be responsible if we over capitalise", is that the sequence?
A. Des and Tim requested that we got some valuations done before the renovations and after the renovations.
Q. That told you, didn't it, that you did not have agreement to recoup whatever you'd spent, is that right?
A. Well, it was our money going into the renovation, yes.
Q. You had no understanding that you would be entitled to recoup every dollar that you spent, is that right?
A. We were asking for just what we put into the place to be recognised, we weren't asking for reimbursement.
Q. You accept, don't you, that there was no promise by the company to pay you whatever you spent on these renovations?
A. And we weren't expecting it at the time, we didn't expect that we'd be going through this process. We were happy to put our own money in to a very old house, with three little kids, to make it comfortable for us.
Q. It's true, isn't it, that this was all so long ago that you can't remember the precise order of the events of these discussions about the renovations and how the expenses might be recognised?
A. Well, we'd worked the time - I'd worked the timeline out plus the discussions that were had, I was very ‑ making sure that before we moved a brick that we were going to be recognised for our personal money, a lot of my parents' money went into it as well.
Timothy argues that the above evidence is fatal to the concept that there was a loan (it being Fiona's evidence that they were not looking for reimbursement but rather for recognition of the moneys that they were going to be putting into the property). To my mind, this is the real nub of the problem - that Bernard and Fiona were (quite understandably) wanting to be sure that their monetary contribution to the renovations would be recognised in some fashion (i.e., that they were not altruistically looking to benefit the Company for its own sake). However, what is not clear is as to how that would be achieved. In other words, Bernard and Fiona were not seeking (or expecting) reimbursement as such (and recognised that they would have the benefit of occupation of the property with the improvements) but expected that ultimately if the property were to be sold there would be some sort of adjustment between Timothy and Bernard to reflect the contribution they had made or the value they had added to the property. What is not, however, apparent is that this was made clear to Timothy in such a way that would now bind his conscience, let alone that he agreed to it.
I accept that at the 16 May 2013 meeting there was a concern expressed by Bernard and Fiona that their expenditure of funds by way of renovation of the Homestead (assuming that were to occur) should be "recognised" in some way (so that the benefit of the input of those funds would not be lost to them). However, it was not clear that any agreement was reached as to how that recognition was to be achieved; and to my mind the concept of "recognition" of their expenditure is quite inconsistent with a loan agreement having been concluded. So, too, do I consider that the idea of before and after valuations (so that there be no over capitalisation of the property) is inconsistent with a loan agreement having been concluded.
I accept that from a CGT perspective the keeping of receipts would have relevance (as may the valuations of the property before and after renovation) but in essence this was advice from an accountant as to how to document or prove one's expenditure. I am not persuaded that statements by Mr Lee were representations binding on the Company. Rather, it was Timothy's consent that was necessary in order to commit the Company to an arrangement whereby funds expended on renovations would be treated as loans repayable to Bernard and Fiona if the Caernarvon Property (or Company) were to be sold.
I consider that the concept of recognition of the moneys expended by Bernard and Fiona was thus more consistent with an arrangement whereby (on a sale of the property) they would have the benefit of the value added to the property by those renovations, not that the expenditure would be reimbursed cent-by-cent from the Company. The notion that Bernard and Fiona were being given a blank cheque to spend what they liked on the Caernarvon Property is implausible.
As to the issue of acquiescence (which has troubled me since it is clear that Bernard and Fiona considered that they would be recompensed in some way for the moneys they expended or at least that this expenditure would be "recognised") the difficulty I have is that Timothy has not been shown to have had knowledge in advance of precisely what was proposed (and by the time it is suggested that he saw the renovations or the extent of the renovations it was effectively too late - the works had been undertaken). The relevant development application and building contract documents were signed on behalf of the Company by Fiona (who was not a director) and Bernard - and there is no suggestion that they were brought to Timothy's attention.
Moreover, I cannot see that there was any acquiescence in ongoing works from time to time (nor would it extend to earlier works such as those on the tennis court). This is to my mind a case where the parties seem to have been at cross purposes but that does not mean it is unconscionable for Timothy now to deny that the Company is bound. Rather, I see force in the submission that the expenditure that Bernard and Fiona chose (without consultation as to amount) to incur in relation to the renovations should not now be foisted upon Timothy.
Even had the claim in unjust enrichment been made good, there are real issues in my opinion in relation to the evidence of expenditure. I do not suggest any fraudulent concoction of invoices (as I have already made clear) but there are real difficulties in establishing precisely what was spent on what items of renovation. If unjust enrichment had been made good then this would warrant relief to require Bernard and Fiona to be compensated for the value which they added to the Company's property (as realised in the sale price) not recompensed for each cent they spent on the property. The unifying concept of unjust enrichment is the obligation to make fair and just restitution for a benefit derived at the expense of another; accordingly, the relief must be commensurate with the benefit obtained and must be "fair and just compensation" (see Pavey v Paul, 256 (Deane J)). Moreover, not everything which was expended on the property seems likely to have increased or added to its value - light fittings for example I query whether they would be seen to be improvements as such. Furthermore, I am not persuaded that the value attributed by Mr Saunders on the improved value of the property is reliable.
Had I considered that the unjust enrichment claim was made good I would not have considered that a set-off for breach of directors' duties was made out (since on this hypothesis Timothy would have acquiesced in the conduct or otherwise acted so as to make it unconscionable for him complain about a breach of fiduciary duty on Bernard's part). Nor would I have considered that an offset for occupation fee was warranted (since it seems to have been contemplated that family members would have the benefit of occupation rent free - as did Timothy - irrespective of amounts paid on improvements or renovations). However, what the evidence as to the occupation fee does indicate to me is that ultimately Bernard and Fiona have had the benefit of occupation of their home with the benefit of the improvements such that the detriment to them of having had to pay an additional amount referable to the value of those improvements in order to acquire the Caernarvon Property on the separation of the jointly owned assets is not as severe as might otherwise have been thought.
Moreover, to the extent that the outcome is perceived within the family to be inequitable to Bernard and Fiona, there is presumably scope for their parents to address this in some way (though I accept that this involves an element of speculation).