In the matter of Caernarvon Canobolas Pty Ltd (In Liq) [2022] NSWSC 382

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)

Solicitors: MC Lawyers & Advisers (Applicant) Matthews Folbigg Pty Ltd (2nd and 3rd Respondents) File Number(s): 2018/340546 Publication restriction: Nil

Judgment

1. 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.
2. 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.
3. 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).

The family business

1. 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).
2. 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.
3. 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]).
4. 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.
5. 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.

The Nashdale (or Melrose) Property

1. 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).
2. 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.
3. 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]).
4. 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.

Canobolas Property

1. 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.
2. 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.

Corporate compliance

1. 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).
2. 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.
3. 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.
4. 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.

Deterioration in the relationship between the brothers

1. 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.

Desire of Bernard and Fiona to renovate the Homestead

1. 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.

14 September 2012 meeting

1. 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).
2. 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.
3. 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]).
4. 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]).

Prospect of Subdivision

1. 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).

16 May 2013 meeting

1. 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.
2. 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]).
3. 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.
4. 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).
5. 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.
6. Fourth, a meeting with Pamela and Fred for them to review and sign their own company's financial accounts and their personal tax returns.
7. 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]).
8. 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.)

Credit issues specific to the two meetings

1. 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.
2. 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.
3. 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).
4. 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.

Arrangements for renovation works

1. 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]).
2. 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.)

Meeting on 26 March 2014

1. 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]
2. 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.
3. 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).

Valuation by Andrew Saunders - April 2014

1. 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.

Communications with Mr Lee - April/May 2014

1. I have referred above to the communications with Mr Thornhill.
2. 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.
3. 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.
4. 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).

Arrangements for building works

1. 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.
2. 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.
3. 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).
4. 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.

Valuation as at 11 June 2015

1. 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.

October 2015

1. 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".

Minutes of meeting Bonny Glen Fruits - 22 October 2015

1. 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.
2. 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
3. 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)).

Minutes of meeting 1 December 2015

1. 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".
2. 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.

Discussions in relation to separation of assets

1. 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).
2. 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.
3. 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.
4. 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".

Appointment of voluntary liquidators

1. 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).
2. 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.
3. 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).

Sale of properties

1. 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).
2. 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.
3. 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.
4. 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).
5. 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.

Proof of debt

1. 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.
2. 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".

Vendor Finance

1. 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.
2. 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.
3. 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.
4. 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.

Completion of sale

1. 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.
2. 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.)

Acceptance of proof of debt

1. 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.
2. 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).
3. On 17 September 2020 the liquidators admitted the proof of debt.

Proceeding

1. 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.
2. 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.
3. 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.
4. 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.
5. 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).

Deferred evidentiary ruling

1. 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).
2. 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.
3. 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).
4. 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]).

Lay evidence

1. 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.
2. 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).
3. 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.)
4. 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.

Timothy

1. 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).
2. 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.
3. 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.

Andrew Saunders

1. 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).

David Bird

1. 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).
2. Addressing the particular questions asked of him, Mr Bird's opinion was as follows.
3. 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).
4. 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).
5. 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)).

Mark Ellis

1. 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.

Overall conclusions as to the expert evidence

1. 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.

Issues for determination

1. Turning then to the parties' submissions as to the issues for determination, I note as follows.

Timothy's submissions

1. 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.
2. 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).
3. 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.
4. 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.
5. 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).

Bernard and Fiona's submissions

1. 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.
2. 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.
3. 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)).
4. 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.
5. 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.
6. 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).

Contract

1. 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.
2. 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).
3. 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).
4. 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.

Estoppel

1. 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.
2. 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).
3. 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).
4. 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.
5. 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).

Unjust enrichment

1. 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.
2. 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.

Response to the complaint as to breach of fiduciary duty

1. 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.)
2. 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).

Quantum

1. 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.

Contract claim

1. 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).
2. 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
3. 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).

Estoppel

1. 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.

Unjust enrichment claim

1. 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".
2. 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.
3. 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.

Conclusion

1. 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.

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