In the matter of Hillsea Pty Limited [2019] NSWSC 1152

Supreme Court of NSW|2019-06-14|Before: Black J

FCA 969; (2003) 47 ACSR 418 - Sheahan v Londish [2010] NSWCA 270; (2010) 80 ACSR 337 - Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104 - Watson v Foxman (1995) 49 NSWLR 315 - Weinstock v Beck [2013] HCA 14; (2013) 93 ACSR 231 Category: Principal judgment Parties: Elizabeth Mary McIvor (First Plaintiff/First Cross-Defendant to First Cross-Claim/Second Cross-Defendant to Second Cross-Claim) Maureen Ann Joseph (Second Plaintiff/Second Cross-Defendant to First Cross-Claim/Third Cross-Defendant to Second Cross-Claim) Peter Anthony Joseph (First Defendant/Cross-Claimant to First Cross-Claim/First Cross-Defendant to Second Cross-Claim) Hillsea Pty Limited (Second Defendant/Third Cross-Defendant to First Cross-Claim/Cross-Claimant to Second Cross-Claim) Representation: Counsel: A J Grant (Plaintiffs) D A Smallbone/D Edney (First Defendant) M R Tyson (Second Defendant)

Solicitors: W K Cahill & Associates (Plaintiffs) Terence Stern (First Defendant) Barnes Law Group (Second Defendant) File Number(s): 2017/285473

The affidavit evidence, cross-examination and credit

Before turning to the affidavits on which the parties rely, I should address the principles to which the Court should have regard in assessing the affidavit and oral evidence. I should have regard to the fallibility of human memory, particularly when disputes intervene, in determining these proceedings. In an often quoted observation in Watson v Foxman (1995) 49 NSWLR 315 at 319, McLelland CJ in Eq observed that: "… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions of self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience."
In Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599 at [15], the High Court similarly approved an observation at first instance in that case that: "[Given the lapse of time] between the events and conversations raised in evidence and the hearing of the evidence before me, the only safe course is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities, together with the documentation tendered in evidence. In circumstances where the events took place so long ago, it must be an exceptional witness whose undocumented testimony can be unreservedly relied on. The witnesses in this case unfortunately did not come within that exceptional class. The discussions referred to in evidence were capable of bearing quite opposed meanings depending on subtle differences of nuance and emphasis, and a proper appreciation of the significance of those matters must necessarily be considerably diminished over such a long period of time."
In Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 at 129, Gleeson CJ, Gummow and Kirby JJ observed that: "Considerations such as these have encouraged judges, both at trial and on appeal, to limit their reliance on the appearances of witnesses and to reason to their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events. This does not eliminate the established principles about witness credibility; but it tends to reduce the occasions where those principles are seen as critical."
In Pennimpede v Pennimpede [2009] NSWSC 85 at [29], Bryson AJ noted similar issues in observing that: "Considerations of these kinds pose serious difficulties of proof for a party relying upon spoken words as a foundation of a cause of action in the absence of some reliable contemporaneous record or other satisfactory corroboration. … A great deal of what I was told related to conversations which were alleged to have occurred well over 10 years before I heard the evidence. Most of what I was told about the conversations seemed to me to be little more than impressions, accompanied by plausible details which were very unlikely to be based and were not based on actual memory. These impressions came to me through a filter (perhaps an osmotic barrier) of years of conflict, argument and strong feeling."
I summarised the applicable principles in Re Kit Digital Australia Pty Ltd (in liq) [2014] NSWSC 1547 at [7], as follows: "It is important in this context to have regard to the fallibility of human memory which increases with the passage of time, particularly where disputes or litigation intervene: Watson v Foxman (1995) 49 NSWLR 315 at 318-319 per McLelland CJ in Eq; Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810 at [41] per Rares J; Varma v Varma [2010] NSWSC 786 at [424]-[425] per Ward J. To the extent that credit issues need to be determined in respect of particular conversations, I have also had regard to the fact that objective evidence is likely to be the most reliable basis for determining them. I summarised the relevant principles in Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789 at [10], where I noted that the credibility of a witness and his or her veracity may be tested by reference to the objective facts proved independently of the testimony given, in particular by reference to the documents in the case, by paying particular regard to the witness's motives and the overall probabilities: Armagas Ltd v Mundogas SA [1985] 1 Ll R 1 at 57; Camden v McKenzie [2007] QCA 136; [2008] 1 Qd R 39 at [34]; Craig v Silverbrook [2013] NSWSC 1687 at [141]; State of New South Wales v Hunt [2014] NSWCA 47 at [56]."
In John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 at [94]-[96], Hammerschlag J observed that: "Where a party seeks to rely upon spoken words as a foundation for a cause of action, including a cause of action based on a contract, the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its occurrence or its existence. Moreover, in the case of contract, the court must be persuaded that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences … The sensation of feeling an actual persuasion, after a contest, that an event has happened or that something exists is one which is well known and recognised by experienced trial judges for what it is. [The plaintiff] has the onus of establishing the agreement for which it contends. This entails proving to the reasonable satisfaction of the court that the words said to give rise to the agreement were actually said, and that the alleged consensus was capable of forming a binding agreement and was intended by the parties to be legally binding." [citations omitted]
Mr Smallbone also submits, and I accept, that a claim based upon hearsay evidence from a deceased person also requires "careful scrutiny" and should be treated with "considerable caution" and ordinarily would not be accepted without corroboration, because of the impossibility of obtaining the deceased's version of what was said: Blendell v Byrne [2019] NSWSC 583 at [187]-[191].
The Plaintiffs rely on an affidavit dated 20 September 2017 of Ms Maureen Joseph, which referred to the circumstances in which she and Mrs McIvor became executors of Marie's estate. Ms Joseph there set out part of the factual background to which I have referred above and also set out the Plaintiffs' "concerns" and the circumstances surrounding their request to be registered as members of the Company, which was addressed in the earlier application before Brereton J, to which I referred above. Ms Joseph also refers to the family history, to which I have also referred above. An exhibit to that affidavit was tendered (Ex P1). The Plaintiffs also relied on a second affidavit dated 25 October 2017 of Ms Maureen Joseph, which referred, inter alia, to the production of books and records of the Company on subpoena in the proceedings and to minutes of several meetings of the Company.
The Plaintiffs also relied on a third affidavit dated 3 April 2018 of Ms Maureen Joseph which again dealt with, inter alia, issues in respect of dividends paid by the Company, its profitability, its investments, events after June 2016 and the Plaintiffs' "concerns". That affidavit also referred to the Plaintiffs' request that they be registered as members of the Company, which was addressed in the application heard by Brereton J, and to events after 20 September 2017, including the steps by which a register of members of the Company was brought into existence and to the Company's board meetings after that time. Ms Joseph also responded to matters addressed in Peter's affidavit dated 6 December 2017. An exhibit to that affidavit was also tendered (Ex P2). The Plaintiffs also relied on Ms Maureen Joseph's further affidavit dated 3 June 2019 which dealt with the sale of the Dudley Street property and loans from the Company and responded to aspects of Peter's Defence in the proceedings.
Mr Grant, who appears for the Plaintiffs, submits that Ms Maureen Joseph was an impressive witness who gave her evidence in cross-examination honestly, openly and frankly. It is not necessary to reach a credit finding in respect of Ms Joseph, since she did not claim to have had any conversations with Marie which supported the existence of the loan agreements for which the Plaintiffs contend and her affidavit evidence largely otherwise provided background to the Plaintiffs' case, and events that were often undisputed or reflected by contemporaneous correspondence.
The Company also relied on the affidavit dated 6 May 2019 of Mrs McIvor who referred to her role as executor of Marie's estate and as "managing director" of the Company from 30 November 2017 and tendered an exhibit to that affidavit (Ex H1). Mrs McIvor also referred in that affidavit to the family history and the circumstances in which the Company was incorporated, to various properties which it held, and to the death of several family members. Mrs McIvor also referred in that and later affidavits to several conversations between her and Marie which underpinned the Company's claim against Peter for interest on loans made to him and his companies. I will address those conversations in dealing with that claim below.
The Company also relied on Mrs McIvor's further affidavit dated 31 May 2019, parts of which were not admissible and were rejected for that reason. Mrs McIvor there referred to Marie's interest in current affairs and suggested that Marie prepared the "Companies Business Activity Statements" and gave them to Mr Gilbert each quarter, and also referred to other aspects of Peter's affidavit dated 13 May 2019. Mrs McIvor's affidavit also contained a statement purporting to set out the interest payments made by Peter and his companies in the financial year 2000 (in which no interest was paid) and 2001-2006. Mrs McIvor there sought to substitute a calculation by reference to the Reserve Bank of Australia cash rate plus one per cent which reflects the Company's present case (for some but not all of the years in issue, on the basis that she did not have complete information for other years) for an earlier calculation of the interest payable by the Company made at the Australian Taxation Office benchmark rate, reflecting the case which it had previously advanced on that basis in the initial form of the Second Cross-Claim.
The Company also relied on the affidavit of its solicitor, Mr Christopher Barnes, dated 4 June 2019 in relation to an amendment to the Second Cross-Claim.
Peter relied on his affidavit dated 6 December 2017 and on his further affidavit dated 13 May 2019, which referred to Marie's background, including that she had left school to do a secretarial course, and then went to work as a sewing machinist in the family's clothing business, and had never discussed matters of finance or interest rates. Peter also referred to matters set out in Mrs McIvor's affidavit dated 6 May 2019 and denied aspects of the arrangements with Marie to which reference had been made in that affidavit and addressed to other aspects of the arrangements in issue in the proceedings. Peter's evidence in that affidavit was, inter alia, that he was in financial difficulties and paid interest on loans from the Company from time to time, although he did not accept that there was any agreement that he do so (Peter 13.5.19 [52]-[59]). Peter's evidence in cross-examination was that he had no knowledge of any interest rates applicable to the money lent by the Company to his companies; how those interest rates were set or whether they were appropriate; and also did not know what interest rate applied to loans recorded in the accounts as made by his sisters to the Company (T187). That evidence seemed to me to be plausible, given the somewhat informal way in which the Company appears to have approached both the loans made by family members to it, and the financial assistance and accommodation assistance which it provided to family members. I do not accept the submission of Mr Tyson, who appears for the Company, that that evidence is not credible, either generally or having regard to the fact that Peter had been a director of his companies.
Mr Grant submits that Peter was an unsatisfactory witness. Conversely, Mr Smallbone submits that Peter sought to give honest evidence in cross-examination, and the extent to which he departed from his affidavit evidence is consistent with that view. Mr Smallbone recognises that Peter's memory was likely affected by his age and the time elapsed since some of the events that are in issue in these proceedings occurred, but submits that that is not a matter that is adverse to Peter's credit. I recognise that there were areas in which Peter had given affidavit evidence of matters which he could not recall in cross-examination. For example, he had given affidavit evidence of an arrangement with Marie that he be paid director's fees of $2,000 per year (Peter 6.12.17 [37]ff) but then did not recall that arrangement in cross-examination (T144-145, 147-150). Mr Grant also attacked Peter's evidence that he had provided copies of the Company's bank statements to the executors each month and referred to repeated text messages from Mrs McIvor following up on the provision of such documents. I am not persuaded that criticism was justified, where the texts involved repeated complaints about lateness in provision of such documents, rather than demonstrating that they were generally not supplied. I recognise that, after the dispute between the parties had escalated, Peter ceased to provide bank statements of the Company to the Plaintiffs.
Mr Grant also criticised Peter's evidence that he did not know that it was "impermissible" to use the Company's money for personal expenses (T142-144). That evidence plainly established Peter's lack of understanding of the principles of corporate law, but I am not satisfied that it was false, in the context of a family company, the assets of which appear to have been applied throughout much of its history to advance the interests of family members rather than for corporate purposes in any strict sense. Mr Grant submits that, where there is a conflict between the evidence of Ms Maureen Joseph and Peter, Ms Joseph's evidence should be preferred. It is not necessary to determine that matter, because there is no issue as to which such a conflict is material to the determination of these proceedings.
It is apparent that Peter's recollection in cross-examination of some of the matters that he had addressed in affidavits was less precise than those affidavits indicated. I bear that in mind in assessing Peter's evidence, although also bear in mind his age and the difficulties involved in an extended cross-examination at that age. In any event, it seems to me that Peter's credit is ultimately of limited significance, because the Company bears the onus of establishing the claims for which it contends; I do not accept Mrs McIvor's evidence of critical conversations that are essential to the Company's primary claim for interest on loans to Peter and his companies below; and, as Mr Tyson substantially conceded, that claim cannot succeed where that evidence is not accepted. I address other issues of lesser financial significance below.
Peter also relied on an affidavit dated 20 October 2017 of his solicitor, Mr Stern, and an exhibit to that affidavit (Ex D3); an affidavit dated 10 May 2019 of Mr Stern which annexed searches in relation to the Dudley Street property; an affidavit dated 20 November 2017 of Mr Stern which referred to correspondence between Peter and the Plaintiffs' solicitors and other documents relating to the process by which the Plaintiffs could be recorded on the Company's share register; a further affidavit of Mr Stern dated 16 May 2019 which related to company searches in respect of Peter's companies; and an affidavit dated 21 May 2019 of Mr Stern relating to the Amended Second Cross-Claim.
Perhaps unusually, both the Plaintiffs and Peter relied on separate affidavits dated 4 December 2017 and 31 March 2019 of Mr Gilbert, an accountant who, as I noted above, provided services both to Peter and to the Company. Mr Tyson criticises, in closing submissions, the scope of Mr Gilbert's affidavit dated 4 December 2017 filed in Peter's case, and refers to the fact that it did not annex a range of financial documents that existed in respect of the Company, or address aspects of Mr Gilbert's relationship with Peter. Criticism also appears to have been made of Mr Gilbert's unwillingness to be further involved in the Company's affairs from that date. The question why Mr Gilbert ceased to have a continuing involvement with the Company after the disputes evidenced by these proceedings emerged was not fully explored, although it would hardly have been surprising or unreasonable for him not to have wished to continue his role as the disputes between the parties widened.
Mr Gilbert resiled, in cross-examination, from significant aspects of his affidavit dated 31 March 2019 filed in the Plaintiffs' case, accepting that he was not told and did not know of any agreement between the Company and Peter for the payment of interest at specific rates, or of interest that was not recorded in the Company's books (T59) and that the reference in his affidavit to having been told of an agreement to pay that interest was wrong (T61). It is not possible or necessary to determine whether that reflected the fact that, as is all too common in this Court, that affidavit had overstated Mr Gilbert's position or reformulated it in terms that were thought to advance the Plaintiffs' case, or reflected Mr Gilbert's longstanding client relationship with Peter. In any event, the weight of the evidence given by Mr Gilbert in that affidavit is undermined by the fact that he now resiles from it and there is no reason to think that his earlier position is more reliable than his present position.

The Plaintiffs' claims

By their Amended Originating Process filed on 13 November 2017, the Plaintiffs sought a range of relief against Peter and the Company, which was then under Peter's control. The Plaintiffs originally sought orders relating to the creation of a register of members of the Company and their entry into that register of members as executors of Marie's estate. As I noted above, those orders were addressed by Brereton J's judgment delivered on 14 November 2017 (Re Hillsea Pty Limited above). Prayers 4 and 5 of the Amended Originating Process originally sought declarations that acts of Peter from 24 September 2015 to 30 November 2017, when he was the only director of the Company, without the Plaintiffs' consent were undertaken without the necessary quorum for the Company's board and were null and void and of no legal effect. The Plaintiffs indicated, in the course of the hearing, that those orders were "effectively now being superseded" and, in closing submissions, indicated that they were not pressed.
The Plaintiffs pressed a claim for relief, sought by paragraph 6 of their Amended Originating Process, by way of a declaration that the board of directors of the Company "must" comprise at least five directors. The Plaintiffs submit that the requirement that the Company's board of directors comprise at least five directors arises from article 63, particularly its second sentence, in the Company's constitution. That article relevantly provides that: "Upon the death of [Anthony Leo Joseph] and upon his failure to appoint a governing director or joint governing directors (in accordance with the provisions of clause 27 hereof) or until otherwise determined by the Company in general meeting the number of directors shall be not less than five (5) nor more than thirteen (13)." (Ex P1, Tab 31; CB1, 258)
The Plaintiffs submit, and I accept, that there is no evidence that Anthony Leo Joseph had appointed a governing director or joint governing directors pursuant to article 27 or that the Company had determined a different minimum number of directors in general meeting. Ms Joseph's evidence (Maureen Joseph 25.10.17 [17]-[18]) is that she has read the Company's entire minute book and that it contains no minute, nor does any other document records, the appointment of a governing director or governing directors or any general meeting determining any change in the number of directors.
I accept that the Company's articles specify that its board of directors must, in the relevant circumstances, comprise at least five directors, and that requirement has effect as a contract between the Company and its members in accordance with s 140 of the Corporations Act. It seems to me that a declaration is not required to establish those matters. The declaration sought otherwise oversimplifies the position, since it would not be a contravention of the Corporations Act for the Company to have less than five directors, but more than the statutory minimum number of one director set out in s 201A of the Act; the required number of directors could be reduced, at least for practical purposes, by the unanimous consent of shareholders; and, by s 1322 of the Corporations Act, an act of a board constituting less than five directors could be validated in an appropriate case. As I noted in the course of submissions, it seems to me that the declaration sought, in one sense, reflects a straightforward position that emerges from the face of the Company's constitution and uncontroversial facts, but disregards those aspects of corporate law which qualify that position. I do not consider that such a declaration is properly made.
By prayer 8 of their Amended Originating Process, the Plaintiffs seek costs on an indemnity basis. The parties made lengthy submissions as to the question of the costs of the application before Brereton J, although the Plaintiffs submitted that a determination of that question should be deferred until after the delivery of this judgment. It seems to me that I should address that question in this judgment, where it comprises a large part of the substantive relief now pressed by the Plaintiffs, and is not consequential upon the determination of the matters heard before me.
As I noted above, the application brought by the Plaintiffs before Brereton J sought orders to bring about their registration as shareholders in the Company. They were successful in that application, although Brereton J directed his orders to the Company rather than to Peter. There is a dispute between the Plaintiffs and Peter as to whether it was reasonable for the Plaintiffs to bring that application, where the registration of the Plaintiffs as shareholders in the Company had been notified to ASIC (although, as I noted above, that notification did not reflect any underlying change to a register of members); and Peter had communicated his agreement to the Plaintiffs and their nominee being appointed as directors of the Company; and his solicitor had put a proposal for a meeting to resolve any procedural difficulties with the steps that had been taken. Mr Smallbone submits that the application was not necessary, and it was within the Plaintiffs' power to complete the relevant steps out of Court, once Peter had provided them with the signed circular resolution under s 249A of the Act to which I referred above. It is not necessary to resolve that question given the findings that I reach below on other grounds.
Mr Smallbone also points to the fact that, when the Plaintiffs' application was heard before Brereton J in November 2017, Peter had sought the opportunity to lead evidence, where directions had not previously been made setting a timetable for him to do so. The matter proceeded before Brereton J without him being given the opportunity to do so, where the Plaintiffs' Counsel had advised his Honour that the Plaintiffs had put all relevant correspondence before the Court (Ex D6, 34; T27, 13.11.17). There is no dispute that the Plaintiffs had in fact not included relevant correspondence from Peter's solicitors in the documents they tendered before Brereton J, although there is a dispute as to the significance of that matter. A transcript of a further hearing before Brereton J on 11 December 2017 makes clear that his Honour considered that the statement made by the Plaintiffs' Counsel at the earlier hearing that all relevant correspondence had been put before him had been of significance to his decision at that hearing and that he had proceeded on the basis that what he had been told was correct (Ex P6, 40-41; T5-6, 11.12.17). That emphasises the significance of the fact that that statement was not correct.
Mr Smallbone submits that the position put by the Plaintiffs to Brereton J, that all relevant correspondence had been put before the Court, was seriously misleading and that his Honour's orders were made on the basis of the incorrect statement that the correspondence before him was complete. Mr Smallbone also submits that the incorrect information provided to Brereton J would have justified the setting aside of the orders made, with indemnity costs, although Peter does not press for the orders to be set aside. Mr Smallbone submits that the Court should now make an indemnity costs order in favour of Peter on the basis that it had been misled by the Plaintiffs.
Mr Grant responds that the Court was not misled, and refers to the steps taken prior to the hearing before Brereton J and the basis on which orders were made by his Honour. It seems to me that that submission does not assist the Plaintiffs, where Brereton J had been told that all relevant correspondence was before him; that was not the case; and his Honour later observed that he had acted on the basis that what he had been told was correct. I also do not accept Mr Grant's submission that the Court should act only on affidavit evidence of what occurred at the hearing before Brereton J, or that it is relevant that Ms Maureen Joseph was not cross-examined as to that matter, where the transcript of the proceedings before Brereton J was tendered by Peter. Mr Grant also seeks to justify the fact that Brereton J was not provided with all of the relevant correspondence, and was misinformed as to the completeness of the correspondence that was provided, by pointing out that the application was not brought ex parte and, implicitly, Counsel then briefed for Peter (who does not now appear for him) could have corrected the incorrect representation made by the Plaintiffs to Brereton J. I am not persuaded by that submission, which seems to me to give much too little weight to the Plaintiffs' and their legal representatives' responsibilities to the Court in that regard.
Had the Plaintiffs taken a different approach at the hearing before Brereton J, and not informed his Honour that all relevant correspondence was in evidence, but instead informed him that it was a matter for Peter to tender the correspondence on which he relied, I readily infer that his Honour would have adjourned the matter to allow Peter an opportunity to lead that evidence rather than determine the application on incomplete evidence. Conversely, it is apparent that Brereton J in fact determined the application before him on the basis that all relevant correspondence was before him, where that was what he was told by the Plaintiff's Counsel, and that regrettably was not the case.
My preliminary view is that these matters have the result that an order for costs of and incidental to the application before Brereton J should not be made in the Plaintiffs' favour and there should be no order as to the costs of and incidental to that application. I am not satisfied that the Court should go further to make an order for indemnity costs of that application against the Plaintiffs, where they had succeeded in that application and that result was not set aside, and where it is not established that they had deliberately misinformed Brereton J as to the completeness of the evidence before him. I will allow the parties a brief opportunity to make further written submissions before making a final order in that respect, limited to any matter that was not addressed in their earlier submissions as to this issue.

The Company's Second Cross-Claim The Company's claims in respect of interest on loans to Peter and his companies

It is convenient now to address the Company's Second Cross-Claim, Further Amended Statement of Cross-Claim, filed on 8 July 2019, before turning to Peter's First Cross-Claim. The Company's Second Cross-Claim was brought after the Plaintiffs obtained control of the Company and Peter raised, in his Defence, the Plaintiffs' lack of standing to bring the corresponding claims.
The Company claims additional interest in respect of loans to Peter and associated companies in the amount of $403,930.38 (Second Cross-Claim, prayers 1 and 2). The Company pleads (Second Cross-Claim [7]) that it paid to Peter, by way of loan, $1,000 in the financial year ended 30 June 1990 and $160,000 in the financial year ended 30 June 1994. The Company also pleads (Second Cross-Claim [7A]) that it paid to companies associated with Peter, amounts of $25,000 to Dynar Pty Ltd ("Dynar") by way of loan on or before 30 June 1990 and $12,500 by way of loan to PAJ Cutting and Design Pty Ltd ("PAJ") on or before 30 June 1990.
The Company pleads (Second Cross-Claim [7B]) that it was a term of the Loans that Peter would pay interest on the amounts of the Loans: "at the Reserve Bank of Australia official cash rate plus 1%, as applicable from time to time, averaged over each financial year as well as interest on any unpaid interest at the Reserve Bank of Australia official cash rate plus 1%, as applicable from time to time, averaged over each financial year." That term is particularised by reference to an oral agreement between Marie and Peter on behalf of the Company, and Peter at about the time the Company paid those amounts to Peter (that is, presumably in 1990 and again in 1994) and as evidenced by some of the books and records of the Company. I will address Mrs McIvor's evidence of Marie's description of that arrangement to her below.
The Company also pleads (Second Cross-Claim [7C]) that it was a term of the loans to Peter's companies that they pay interest on the amounts lent to them (totalling $37,500): "at the Reserve Bank of Australia official cash rate plus 1%, as applicable from time to time, averaged over each financial year as well as interest on any unpaid interest at the Reserve Bank of Australia official cash rate plus 1%, as applicable from time to time, averaged over each financial year". The terms of the loans to Dynar and PAJ are therefore alleged to be the same as the terms of the loans to Peter. That agreement is also particularised by reference to an oral agreement between Marie and Peter on behalf of the Company, and Peter on behalf of Dynar and PAJ on or about the time the relevant amounts were paid, that is, about 30 June 1990 and said to be "evidenced by some of the books and records of the [Company]." Again, I address Mrs McIvor's evidence of Marie's description of that arrangement to her below.
The Company pleads (Second Cross-Claim [7D]) that, in late 1997 or early 1998, the Loans were varied and it became a term of the Loans that the amounts loaned by the Company to Peter would be repaid by him to the Company from his share of the proceeds of sale from the sale of the Dudley Street property. The Company also pleads (Second Cross-Claim [7E]) that, in late 1997 or early 1998, the loans to peter's companies were varied in that it became a term of those loans that the amounts loaned by the Company to them would be repaid by those companies at the time of sale of the Dudley Street property. The Company pleads (Second Cross-Claim [7F]) that, in late 1997 or early 1998, Peter made a (further) agreement with the Company by which he agreed that the balance of any amounts loaned by the Company to the Dynar and PAJ and not repaid by them would be repaid by him, and would only have to be repaid by him when the property at Dudley Street, Coogee was sold and from his share of the proceeds of sale. That agreement is also particularised by reference to oral agreements between Marie and Peter.
The Company pleads (Second Cross-Claim [8]) that advice was given by Mr Gilbert, in the financial year ending 30 June 2007, that interest needed to be paid on the loans to Peter, Dynar and PAJ at the benchmark rates under ITAA Div 7A and that the Company, Peter, Dynar and PAJ agreed that interest should be paid at those rates. It appears that the loans were subsequently treated as subject to interest on that basis, whether or not there was an agreement underpinning that treatment, and there is no contest as to the fact that interest on that basis was accrued and later paid on the sale of the Dudley Street property.
The Company pleads (Second Cross-Claim [10]) that, at the time of the settlement of the Dudley Street property, Peter owed the Company $671,238.94 (including interest) in respect of the Loans and $121,434.83 in respect of the loans to his companies and repaid $388,743.39 in total, being $368,543.39 in respect of the Loans and $20,200 in respect of the loans to his companies. On that basis, the Company claims (Second Cross-Claim [12]) that Peter owes it $302,695.55 in respect of the Loans and $101,234.83 in respect of the loans to his companies.
The Company's claim against Peter for interest on loans made to him and his companies is underpinned by Mrs McIvor's affidavit evidence of several conversations between her and Marie. Her evidence in her first affidavit was that, when deposing to a conversation in that affidavit, she used the actual words that she recalled were used, or words to the effect of the words used in order to convey, to the best of her recollection, the meaning of that conversation. I set out in full below the several conversations to which Mrs McIvor refers to establish the alleged terms of the loans made to Peter and his companies, since that is necessary to explain why I do not accept Mrs McIvor's evidence of those conversations as reliable evidence.
First, in paragraph 35 of Mrs McIvor's affidavit dated 6 May 2019, she sets out a conversation that took place "[s]ometime in late 2003 or early 2004", between 15 and 16 years ago, about the time the title of the Dudley Street property was changed from joint tenancy to tenancy in common in equal shares, as follows: [Mrs McIvor]: "What happened with the house when you all got it from the company? How come you were all joint tenants, rather than getting shares in the same ratio as you had in [the Company]?" [Marie]: "That was because of Peter's financial situation at the time. He wasn't going well. Peter hadn't been paying the interest on his loans from the company and we wanted Peter to get one quarter of the house as a way of ensuring he could eventually pay back all his loans and the interest, so we agreed that the 4 of us would each get one quarter of the house. The company agreed with Peter that his loans, together with interest, would be repayable when the house was sold, and in the meantime, he would just pay what interest he could, when he could. John Saroff [a solicitor] organised it and the girls and I just signed. Somehow, Peter ended up a joint tenant instead of a tenant in common with 25%, so when we change it to tenants in common now, he will own half. That wasn't what was supposed to happen. I don't know how that happened, but at least it will be simpler in relation to Peter's loans. When the house is sold, he will have plenty of money to pay back all his personal and business loans." [Mrs McIvor]: "What's the deal with those company loans? How do they work?" [Marie]: "When we transferred the house, Peter and his businesses already owed [the Company] a lot of money. A few hundred thousand once you add interest. The agreement between Peter and the company was always that Peter and his businesses would be charged interest on all those borrowings. Not at a commercial rate of course, but at a bit above the bank rate. Peter and his businesses paid interest for a while, but when he borrowed the large amount in around the mid 90's, even though he agreed to pay interest in the same way as he had agreed before, by the time of the transfer of the house, he hadn't paid any interest for a few years as he wasn't able to pay it. So as I said, we thought, if we gave him a quarter of the house, then when it comes time to paying back his loans, he could do that out of his share of the house without crippling him financially. Peter agreed with the company that if he got an equal share of the house, in return, he would pay the back the loans with interest when he could, but the main thing was that Peter agreed with the company that the whole balance of his personal and business loans would become repayable whenever the house was sold, from his share. It wasn't in writing or anything, but I spoke to the girls, and we all agreed and then I agreed with Peter on behalf of the company. Peter agreed with the company to pay back his borrowings and his companies' borrowings together with all of the interest missed compounded over the years, from his share of the proceeds of sale, and the company agreed not to require him to pay anything before then." [Ms McIvor]: "Is he paying interest now?" [Marie]: "Yes. He's been paying interest again for the last few years at just above the bank rate as agreed." [Mrs McIvor]: "What do you mean by the bank rate?" [Marie]: "You know. The wholesale rate. The Reserve Bank cash rate." [Mrs McIvor]: "Ok. Have you got a will? Once you're joint tenants, you will need to make sure you have a will, if you haven't got one so your share of the property can be dealt with as you want. Do you want me to help you do a will?" [Marie]: "OK. When the time comes. I'll make you an executor."
In paragraph 42 of Mrs McIvor's affidavit she refers to a further conversation, in late September 2005, some 14 years ago, which I will again set out in full. Her evidence is that, after she assisted Marie to type out a list of possessions, including who she wished to give property to, which she emailed to Marie's solicitor (Ex P1, Tab 3), she had a conversation with Marie as follows: [Mrs McIvor]: "What does that leave?" [Marie]: "My share of the house and the company." [Mrs McIvor]: "What do you want to do with those?" [Marie]: "I want it all liquidated and the money given to all my great nieces and nephews equally, except for Peter's children. None of Peter's children should get any money because he's getting half of the house already." [Mrs McIvor]: "Really. All the great nieces and nephews? That's bound to end up in some sort of fight. Why don't you leave what you have to charity to save the rubbish that might go on?" [Marie]: "No. I want to leave it equally to all the children - except for Peter's children." [Mrs McIvor]: "What about the company? What's happening with that? What do I need to know to liquidate it when the time comes?" [Marie]: "Nothing's changed from what I told you last year. You just need to make sure that Peter keeps his agreement with the company and repays his loans with interest from his share when the house is eventually sold." [Mrs McIvor]: "Are the loans up to date?" [Marie]: "No. Like I told you, Peter's been paying interest for the last few years, but there were some earlier years when he wasn't able to pay, and I don't think the interest charges were all recorded in the accounts in those years [emphasis added]. The agreement between Peter and the Company was that all his personal and business loans would attract compound interest all the way through. The company accountant, Mr Gilbert, will need to do the calculations to include the years he didn't pay interest when the time comes. He knows about it. Remember, the agreement I made with Peter on behalf of the company when he got an equal share of the house with me and the girls, was that Peter would pay back whatever was owed on his loan and whatever was owed on his companies' loan, including all the interest, out of his share of the sale proceeds when the house was sold. Mr Gilbert will help you work it out when the time comes. There wasn't a written agreement or anything like that, but Mr Gilbert knows that Peter agreed to pay interest and when he did and didn't. Mr Gilbert will have to go back through the financials and do the calculations from the beginning. He also knows that Peter agreed to pay his companies' loans back too. You can trust Mr Gilbert. You can't rely on Peter. I love Peter as my brother but I don't trust him when it comes to money, but you can trust Mr Gilbert to work it out for you." [Mrs McIvor]: "Does Peter know what he owes? Can he pay it back?" [Marie]: "He's paying interest, and he knows he must pay all his loans back with all outstanding interest out of his part of the house when its sold. Mr Gilbert is the one that will tell you. Just make sure you sell the house when I die and Peter pays everything back that he and his businesses owe to the company. Have Mr Gilbert work it out for you."
Mrs McIvor also refers, in paragraph 50 of her first affidavit, to a further conversation with Marie that is said to have occurred in late 2014 or early 2015, in which she says that Marie told her that Peter did not have to pay back his loans to the Company until they sold the Dudley Street property and he received his share of the proceeds of sale; that Mrs McIvor and Ms Maureen Joseph would have to "liquidate" the Company after Marie's death and "make sure Mr Gilbert makes Peter pay back everything that he and his business owe the company like he agreed"; and that Marie also stated that: "Peter managed to end up with half the house so he can afford to pay back all his loans with interest when the house is sold like he agreed. I told you before that the interest rate was bank rate plus 1%, but Mr Gilbert will have to tell you what the interest rate is now and work it all out for you. Peter and I agreed to change the rate ages ago to comply with some ATO requirements as advised by Mr Gilbert, so contact him when the time comes to work it out."
I have referred above to the case law which emphasises the approach which a Court should adopt in dealing with oral evidence of conversations. Mr Smallbone submits that Mrs McIvor's evidence does not reflect a specific recollection of words used in any conversation with Marie or is, at best, so affected by the probability of significant reconstruction as to be unreliable. Mr Smallbone also points to the implausibility of Mrs McIvor's evidence in cross-examination that the conversations to which she referred reflected a specific recollection of what was said and to the fact that Mrs McIvor was unable or unwilling to give oral evidence of these conversations when asked to do so in cross-examination without access to her affidavit (T74). These matters support a finding that Mrs McIvor had no reliable or independent recollection of that conversation by the time of the hearing, many years after it had occurred but less than two months after it was set out in her affidavit, and no better recollection of that conversation when her affidavit was prepared.
It seems to me at least highly improbable, and more likely inconceivable, that Mrs McIvor has a genuine recollection of the lengthy conversations set out in paragraphs 35 and 42 of her affidavit, in such precise terms and at such length, where they occurred some 15 or 16 years ago. It seems to me that, at best, those conversations are a reconstruction, setting out the arrangement that Mrs McIvor now believes existed or should have existed between the Company and Peter, rather than a genuine recollection of what Marie had told her many years ago. The language of the statements attributed to Marie above seems to me to be inconsistent with Marie's education and background and experience as it emerges from the evidence and inconsistent with ordinary conversational speech. Mr Gilbert's evidence, which seems to me to have been credible and consistent with Marie's background and life experience, was that she was unsophisticated; that he had not heard her use terms such as "bank rate", "wholesale rate" or "Reserve Bank" (which are attributed to her in that conversation); and that she had little idea of accounting (T59, 62). Peter led similar evidence (Peter 13.5.19 [9]-[15], [21]-[22]).
It also seems to be implausible that, in the second conversation set out above, as recorded in paragraph 42 of Mrs McIvor's affidavit, Marie was sufficiently prescient to anticipate the difficulty that would arise 14 years later in these proceedings (which would, of course, have been apparent to Mrs McIvor when she led affidavit evidence) from the fact that the interest liabilities for which the Company contends were not recorded in its accounts, but then chose to take no step to address the difficulty she anticipated, even by the simple step of recording her understanding that Peter and his companies were obliged to pay interest at specified rates in a letter or other document signed by her. The unlikelihood of that position is emphasised by the care that she took in respect of the detailed list of possessions to be given to individuals on her death.
It was also striking that the Company's original case, in its Second Cross-Claim filed on 25 May 2018, that Peter's obligation to pay interest on his loan account arose from ITAA Div 7A and its predecessor provisions, did not rely on the conversations between Marie and Mrs McIvor, which first emerged nearly a year later in Mrs McIvor's affidavit of 6 May 2019. It is not surprising that earlier case was abandoned, for the period prior to the introduction of ITAA Div 7A, where there were no predecessor provisions to that Division, but there is still a real inconsistency between the claim previously put on that basis and the proposition now put that Marie had informed Ms McIvor, at length, that interest was payable by Peter on a different basis (at least prior to 2007) at RBA rates plus one per cent under an express agreement rather than one implied from ITAA Div 7A. I recognise that Mrs McIvor's evidence in cross-examination was that she had previously understood that the "bank rate plus one per cent" arrangement had been superseded by ITAA Div 7A (T80); however, as Mr Smallbone points out, that evidence was itself inconsistent with her affidavit evidence that Marie had emphasised the continuance of that arrangement to her in late 2014 or early 2015 (McIvor 6.5.19 [50]). These matters significantly undermine Mrs McIvor's evidence of these conversations.
Mr Tyson submits that the Court should find that Mrs McIvor's evidence, including as to her conversations with Marie in 2003 and 2004, is "accurate and credible" and "strongly probative when her evidence is viewed against all the surrounding circumstances". I am unable to reach that view for the reasons noted above. Mr Tyson also submits that Mrs McIvor's evidence of the conversations in 2003-2004 is "consistent" with the circumstances then prevailing, including, inter alia, the deaths of the Company's other directors; the fact that Marie held most of the Company's shares; the change in the ownership arrangements relating to the Dudley Street property; Marie's age, and the fact that Mrs McIvor was giving assistance to Marie in respect of her affairs at that time and Marie intended to make Mrs McIvor one of her executors. While a number of those surrounding circumstances are established, they are no more consistent with the detail of the conversations that took place in 2003 or early 2004 than with those conversations not having addressed the particular matters to which Mrs McIvor leads evidence.
Mr Tyson also submits that Mrs McIvor's account of the relevant conversations is consistent with "commercial realities and likelihoods". He submits, and I will assume, that the amounts the Company lent to Peter were "significant sums" in the late 1980s and early 1990s and that Peter invested some of those funds in property from which he could generate income or profit, or in companies from which he provided his personal services. Mr Tyson also points to the benefit to Peter in avoiding the need to borrow from lenders at commercial rates. While I accept that Peter benefited from the loans in that manner, it does not seem to me that that supports any "commercial reality" that the loan was subject to a legally binding obligation to pay interest at the RBA rate plus one per cent, where the Company had conferred other benefits on other family members on an informal basis and other than on an arm's length basis. The informality of the Company's dealing with family members, and the fact that such dealings were not undertaken on an arm's length basis, is illustrated by the fact that debts owing by two of Marie's and Peter's sisters, Philomena and Nancy, were written off on their deaths rather than repaid (Ex H1, 395-396; CB3, 1163-1164), and the Company rented property to members of the family at rates less than commercial rates (Maureen Joseph 3.4.18 [23]-[25]).
Mr Tyson also submits that: "It is not consistent with commercial reality that such significant sums would be provided to [Peter] and his two companies, without an obligation on his part to repay those amounts with interest and in such a way that could also benefit [the Company] and its shareholders." I also do not accept that submission, since it seems to me plainly consistent with commercial reality that family companies will, from time to time, assist their shareholders other than on an arm's length basis, and it is apparent that the Company did so on a regular basis, including in respect of Marie and Peter's sisters. Mr Tyson's further submission that the amount lent to Peter exceeded the amounts lent to other family members is, of course, a matter of degree only, and emphasises the existence of a practice of making loans to and conferring benefits on other family members, apparently not on an arm's length basis. Mr Tyson's further submission that loans to Peter, other than on an arm's length basis, would not have been in the Company's interests and that Marie would not have been party to them seems to me to disregard the fact that the Company's interests reflected its constitutional arrangements, its nature as a family company and the fact that Marie was in fact party to other arrangements that conferred benefits on her and other family members other than on arm's length terms.
I do not accept Mrs McIvor's evidence of these critical conversations with Marie, and the documentation on which the Plaintiffs rely as consistent with them was not sufficient, in my view, to outweigh the inherent implausibility of Mrs McIvor's account. Adopting the observations of Hammerschlag J in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd above, I am left without any sense of actual persuasion that an agreement was formed between Marie and Peter in the terms described in Mrs McIvor's evidence or that the alleged consensus was intended by Marie and Peter to be legally binding.
The consequences of this finding were addressed by Mr Tyson in closing submissions as follows: [Black J]: "… It is plain enough that if Mrs McIvor's evidence is accepted, and so there is an overall framework of an agreement, as set out in Mrs McIvor's lengthy conversations describing the content of that evidence, then you can point to subsequent conduct as providing support for the agreement for which you have found a framework in that conversation. The harder question is, if that evidence is not accepted and all you have is payments in different amounts, sometimes consistent, sometimes not, sometimes of the order of the interest rate which you would like to establish, sometimes not quite but nearly of that interest rate, how you can draw from that, and no more than that, a contract. At some point I think you will have to come to grips with the difficulty, is there anything here, if Mrs McIvor's evidence is not accepted, that would in itself assist you?" Mr Tyson: "I don't make a submission that having regard to entries in the financial statements, entries in the ledger reports, that those matters alone would be enough to support the contract that's pleaded. Mrs McIvor's [evidence] is very important for the case, and it's important because this is not a case where there is a written agreement, so one necessarily has to depend upon her evidence of what the agreement was as reported to her by Marie Joseph, but certainly I don't make the submission that just simply in terms of what we know in the financial statements and in the ledger reports that the Court would be in a confident position to find evidence of the contract that's pleaded. It very clearly does depend upon Mrs McIvor's oral evidence."
It seems to me that Mr Tyson there accepted, or at least came close to accepting, that the Company's case as to interest on loans made to Peter and his companies could not succeed unless Mrs McIvor's evidence of her conversations with Marie was accepted. It also seems to me that assessment was plainly correct and is consistent with the Company's submission in closing that the loan agreements on which it relied were made orally, between Marie on the Company's behalf and Peter, for himself, PAJ and Dynar. As Mr Tyson fairly recognised, the other matters on which the Company relied may or may not be consistent, to some extent, with the existence of the asserted oral agreement, but they would not substitute for that oral agreement if it were not established. I have not accepted Mrs McIvor's evidence for the reasons noted above.
The Company also relies on Mr Gilbert's evidence, in his first affidavit, that Peter had made payments of both principal and interest on his director's loans in the financial years ending 30 June 2004 and 2005, and to his reference to the fact that the loan had to be paid out from the sale of the Dudley Street property (Gilbert 4.12.17 [6]-[7], [19]). Mr Tyson submits, in closing submissions, that evidence of Mr Gilbert as to the payment of interest: "is consistent with the [Company's] case that the two directors of [the Company, Marie and Peter] had an oral agreement between themselves, sister and brother, that [Peter] had promised to pay interest on his personal loans from [the Company] and his two companies' loans from [the Company]."
Mr Smallbone responds that the fact that Peter paid some amounts to the Company which were recorded as "interest", on an irregular basis and in differing amounts, does not establish a binding arrangement for the payment of interest by reference to RBA rates. I have referred above to Mr Gilbert's evidence in cross-examination, and his evidence is in any event consistent with the fact that Peter, from time to time, paid interest on the loans from the Company, as to which there is no dispute, but that does not advance the Plaintiffs' claim that there was an agreement to that effect, or that interest was payable on a particular basis, or that that agreement had legally binding effect. Mr Gilbert, in cross-examination, recognised the probability that there was "some verbal arrangement between brother and sister" (T60) and I accept that it was probable that the question of payment of interest would have been discussed between Peter and Marie at some point, because there is evidence that it was sometimes paid. It does not follow that that arrangement was of a legally binding character, or had the terms for which the Plaintiffs contend.
It is also necessary to address the treatment of interest payable by Peter and his companies in the Company's financial records and accounts. Mr Tyson points out that the Company's earliest financial statements that are in evidence, for the 1991 financial year show the borrowings of PAJ and Dynar from the Company (Ex H1, 27; CB3, 794). I recognise that those accounts also record the payment of interest by Dynar and PAJ in that year, and Mrs McIvor's evidence is that the interest rate paid was just above the average of the RBA's official cash rate applicable in that year. It does not seem to me to follow from the fact that interest was paid in particular years, on a basis that may be retrospectively characterised as consistent with RBA rates, indicates that there was any anterior agreement to pay interest on that basis, still less that that agreement was of a legally binding character. The fact that Peter, in cross-examination, was unable to explain, or recall, the amount or basis of interest paid by Dynar and PAJ to the Company (T187) does not reinforce the Company's claim for such an agreement, where it leaves the basis on which the particular amount of interest was paid unexplained.
Mr Tyson in turn advances elaborate submissions, in closing, as to the amount of interest paid to the Company in particular years, while recognising that the accounts do not distinguish what interest was paid by Dynar or PAJ in some years. This submission drew on Mrs McIvor's calculation in her further affidavit dated 31 May 2019, to which I have referred above. It seems to me that little weight can be given to that reconstruction of the basis on which interest was payable, for the reasons noted above. Mr Smallbone also points out, and I accept, that the Company's attempt to demonstrate that the interest paid approximated the amounts that would be payable on the basis for which it contends (McIvor 31.5.19 [36]) is undermined by the fact that Mrs McIvor included figures for some years, and omitted figures for others where she considered the information was incomplete, although I do not necessarily accept that Mr Smallbone's calculation of interest in other years to show other rates is persuasive. Both approaches have the difficulty that they involve reasoning from an irregular set of payments, in records that are not shown to be complete, to seek to deduce an arrangement which is not recorded elsewhere. While it is plain enough that Peter paid interest, whether on his own loan or loans relating to Dynar and PAJ from time to time, in different amounts and on a somewhat irregular basis, that is at least equally consistent with an informal family arrangement as with the binding loan agreement for which the Plaintiffs contend.
As Mr Tyson fairly recognised in opening submissions, the Company's ledger report for the year ended 30 June 2016 in respect of the loan to Peter reflected the repayment of principal and, subject to a miscalculation referred to in Mr Gilbert's second affidavit, the interest charged under ITAA Div 7A, but not any right to interest for a prior period. As Mr Tyson also fairly recognised in closing submissions, the Company's ledgers and financial statements do not record payments of interest made in respect of loans from the Company to Peter, Dynar or PAJ; importantly, those accounts also do not record current assets reflecting any liabilities for interest due from Peter or Dynar or PAJ, and that is wholly inconsistent with the Company's case. As Mr Smallbone points out, the absence of evidence in the Company's accounts of any amount for interest owed by Peter or his companies prior to the introduction of ITAA Div 7A is more significant where Mrs McIvor's evidence (if it were accepted) is that Marie had told her that Mr Gilbert knew of Peter's obligation to pay interest on the loans; Mr Gilbert's evidence was that he would have recorded unpaid interest on the Company's balance sheet, had he known of it (T61); and no such interest is recorded until interest under ITAA Div 7A was accrued from 2007. Mr Gilbert's evidence that such interest would have been recorded, had he known of its existence, is also supported by the fact that it was in fact recorded after ITAA Div 7A took effect.
It is not an answer to this difficulty that the Company's accounts were, on Mr Gilbert's evidence (T59) prepared on a cash basis. First, Mr Smallbone points out that other non-cash items including depreciation were recorded on the Company's balance sheet (for example, Ex H1, 96; CB3, 863). Second, a failure to record substantial amounts due to the Company, on the balance sheet or by a note to the accounts, would have had the result that they did not provide a true and fair view of its financial position. As Mr Smallbone points out, the Court could only accept that the arrangement for which the Plaintiffs contend existed, if it also accepted that the Company's balance sheet did not provide a fair or accurate view of its asset position, to a substantial extent and over a substantial period. Neither ordinary experience, nor the apparent regularity of the Company's financial accounts in other respects, suggests that is likely. It also seems implausible that, if the arrangement for which the Plaintiffs contend had existed prior to 2007, Marie would not have told Mr Sarroff, who was a solicitor and the Company's other director and company secretary for part of that period of that arrangement and that, if she had done so, he would not then have caused Peter's and his companies' liabilities arising from that arrangement to be reflected in the Company's accounts. That matter also tends against the existence of the agreement for which the Plaintiffs contend.
Mr Smallbone also submits that a handwritten ledger maintained by Marie for the Company, which apportioned payments by Peter towards principal and interest (Ex H5) appears to be inconsistent with the Company's case, so far as payments should not have been applied to reduce the principal if substantial amounts of interest were outstanding. I give little weight to that matter, where there is no reason to think that Marie had a sophisticated understanding of such matters.
Mr Tyson also made lengthy closing submissions as to the legal basis of the loan agreements between the Company and Peter. I address those submissions for completeness, although it is not strictly necessary to do so where (as I noted above) Mr Tyson had substantially accepted that the Company's case could not succeed unless Mrs McIvor's evidence was accepted and I have not accepted that evidence. Mr Tyson submits, and I accept, that it is not always necessary to establish an offer and acceptance in order to establish a contract formed by a course of dealing: Ormwave Pty Ltd v Smith [2007] NSWCA 210 at [68]-[75]. Mr Tyson also submits that the Court can, in a proper case, infer from the relevant facts, circumstances and conduct, that parties have agreed to incur reciprocal promissory obligations. I accept that proposition, but it does not assist the Plaintiffs here, where the evidence does not establish any consistent course of conduct reflecting the arrangements for which they contend.
Mr Tyson submits that the Court should infer that a loan agreement of the kind for which the Plaintiffs contend existed because Marie was a "highly experienced" director of the Company and had been actively involved in its operation since 1989. I accept that there is evidence that Marie undertook a number of formal steps on behalf of the Company and it appears that she kept a book recording payments in respect of the Company, potentially including payments made by Peter on behalf of his companies (T60). Mr Tyson also submits, in closing submissions that: "All of the evidence about how [Marie] performed her role whether as director, chair or principal executive officer of [the Company], suggests that she took her responsibilities seriously, that she was diligent, conscientious in the performance of her duties, acted in the best interests of the company and its shareholders, and left the Company in sound financial health, many years after [Anthony] Leo Joseph's death and even though she was at an advanced age at the time of her death."
By contrast, Mr Smallbone submits that, if Marie was relatively unsophisticated as Mr Gilbert's evidence and Peter suggests, then she would not have described the arrangements with Peter in the language which Mrs McIvor attributes to her and, if she was as sophisticated as the Plaintiffs contend, then she would not have left those arrangements undocumented and the liabilities arising from them unrecorded in the Company's accounts.
It seems to me that, contrary to Mr Tyson's submission, the fact that Marie was a director of a family company for a significant period does not establish that she had any substantial understanding of corporate law or of accounting; second, the Company's affairs were conducted in that period in a manner that advanced the interests of family members on a non-commercial basis; and, as Mr Smallbone pointed out and I noted above, it is highly unlikely that Marie would not have taken steps to ensure that any liability for interest on loans to Peter and his companies was recorded in the Company's accounts or at least documented in some fashion if she had the experience and approach for which the Plaintiffs contend. I also do not accept Mr Tyson's submission that interest rates must have been a "vital concern" for the Company's directors, where it was a family company and in a strong financial position by reason of its property holdings throughout the whole of the period.
Mr Smallbone in turn points to the fact that the Company does not challenge the arrangements with other family members, but pursues Peter in respect of apparently similar arrangements. It does not seem to me that any perceived unfairness in that approach would be an answer to a proper contractual claim for interest payable on the loans to Peter and his companies. However, the informality and nature of the Company's dealings with other family members makes it less likely that an elaborate arrangement, of the kind referred to in Mrs McIvor's evidence, was reached with Peter alone. It also undermines the Company's claim that it was "implausible" that Peter could be lent substantial amounts from the Company's assets without a legally binding agreement to pay interest at the RBA rate plus one per cent, where the Company had conferred substantial benefits on other family members, albeit in different forms. There is, in principle, no greater difficulty with the proposition that Peter was lent substantial sums on the basis of an informal expectation that he would pay interest when he could, rather than under a legally binding arrangement having reference to the RBA rate plus one per cent, than with the fact Marie and her sisters were allowed to live in the Dudley Street property, and Peter was later also allowed to live in that property, without paying rent for it.
In closing submissions, Mr Tyson submits that the loan agreements on which the Company relies were varied by agreement between Peter and Marie, in 1997 or 1998, to the effect that Peter's personal loans and his two companies loans would be repaid from his share of the proceeds of sale of the Dudley Street property. As I noted above, that agreement is particularised by reference to oral agreements between Marie and Peter, and I have not accepted Mrs McIvor's evidence of Marie's description of those arrangements to her. I also do not accept the Company's submission that the fact that Peter paid some amounts to discharge liabilities of his companies to the Company supports an inference that he had reached any agreement with Marie in that regard that was intended to have legal effect, where that conduct is equally consistent with an informal arrangement. I also accept Mr Smallbone's submission that no consideration for the alleged agreement was pleaded or established in any event. Whatever the parties' intent as to the repayment of the loans to Peter's companies upon the sale of the Dudley Street property, there is no basis on which to find that those arrangements had contractual effect.
I also note, for completeness, that Mr Smallbone also contends that the claim in respect of interest on the loans was an obligation to pay money and was subject to a six year limitation period. The Company appears to rely on a further promise to pay out the loans, on the sale of the Dudley Street property, to avoid that limitations issue. It is not necessary to determine that question, given the findings that I have reached on other grounds. It is also not necessary to determine any question as to a suggested miscalculation in interest by Mr Gilbert, given the findings that I have reached on other grounds.
For these reasons, the Company's claim in respect of interest on loans to Peter and his companies must fail. The Company's claims in respect of director's fees paid to Peter
The Company claims reimbursement of director's fees allegedly overpaid by the Company to Peter in the amount of $14,512 (Second Cross-Claim, prayer 4). This claim reflects payment of director's fees of $2,000 a month to Peter. This claim is pleaded, in an oddly phrased pleading (Second Cross-Claim [13]) by reference to the Plaintiffs' allegation that Peter had withdrawn funds from the Company without authorisation, which was not pressed by them at this hearing. The Company pleads that it is the proper plaintiff for that claim and that several transactions involve Peter applying the Company's property for his benefit or the benefit of other persons were not authorised by the Company's memorandum (Ex P1, Tab 30; CB1, 226) and articles of association (Ex P1, Tab 31; CB1, 239) or by law.
It is common ground that there at least existed an informal agreement between Marie and Peter that he should be paid director's fees of $1,022 per four week month and $1,258 per five week month and he was paid that amount from 2007 until Marie's death. Mr Grant fairly indicated that the Plaintiffs are content to honour that informal arrangement for the period prior to September 2017, and that the Plaintiffs and the Company do not seek recovery of director's fees paid to Peter prior to that date pursuant to that arrangement. The Company did not seek to take a different approach. Amounts were also paid to Marie by way of director's fees or salary, that varied from year to year, and included substantial payments in some months (for example, October and November 2003, recorded in Ex H1, 387-388; CB3, 1155-1156) and her director's fees or remuneration was again increased in 2005 and then included amounts to fund her care (Ex H1, 528; CB3, 1296). These directors' fees or remuneration, including the larger amounts paid to Marie, were paid by the Company to both Marie and Peter over a considerable period without any authorisation by shareholders as required by article 64 of the Company's articles or by formal resolution of Marie and Peter as the Company's directors.
In his affidavit, Peter gave evidence of an informal arrangement that he should be paid director's fees up to the higher amount of $2,000 per month. He referred to a conversation with Marie at about the time the Dudley Street property was transferred from joint tenancy to a tenancy in common, in which an agreement or arrangement was reached that he would be paid remuneration allowing him an income of $2,000 per month, apparently having regard to what he also received under his pension (Peter 6.12.17 [37]-[39]). I recognise his evidence in cross-examination was not consistent with that evidence, and he is plainly also confused as to when such a conversation took place. His affidavit evidence finds some support in the fact that he was paid such amounts by the Company from late 2003, from shortly before the ownership arrangements for the Dudley Street property were altered in early 2004 (Ex H1, 388' CB3, 1156), until about 2007 (Ex H1, 402-403; CB3, 1170-1171), and additional payments were also made to him, while Marie was still a director of the Company.
It appears that Peter's salary payments were reduced, from 2007, and he was then paid $1,022 per four week month and $1,258 per five week month (Maureen Joseph 20.9.17 [48]). Peter's evidence is that payment at that rate was reduced to take account of the pension that he received prior to the sale of the Dudley Street property (Peter 6.12.17 [39]). After Marie's death and the sale of the Dudley Street property, he no longer received that pension (Peter 6.12.17 [41]) and caused the Company again to pay him the amount of $2,000 per month. He consulted with Mr Gilbert in that regard (Peter 6.12.17 Annexure H; CB2, 616-617), although that would not cure a lack of authority to make such payments.
The Company's case as to overpayment of Peter's director's remuneration has the difficulty that the Company does not challenge the original arrangements reached between Marie and Peter that were implemented by substantial payments to Marie and the earlier payments of $2,000 per month to Peter, although no resolution in general meeting was made to authorise those arrangements; the reduction in Peter's remuneration in 2007 was itself not the subject of any decision by shareholders in general meeting or resolution of the Company's directors; and Peter's causing the Company to make payments of the higher amount on the sale of the Dudley Street property was consistent with the earlier arrangements. While all of these arrangements lack the authority of the Company in general meeting, it is not apparent why the later payments of the higher amount would be wrongful unless the initial arrangement was wrongful, and the Company does not challenge that initial arrangement, in a manner that would potentially be adverse to Marie's estate, represented by the Plaintiffs, and not only to Peter. While these matters do not establish authority for the relevant payments, they are significant for Peter's claims for relief in respect of these payments, which I address below.
For completeness, Peter sought to rely on a set-off of the amount of payments not made to him under the earlier arrangement, from the point at which the Company ceased to pay those amounts, or at least seeks to set that amount against the monies claimed against him. As I noted above, the Company's board resolved, on 30 November 2017, that no remuneration should be paid to any director from that date (Ex P2, Tab 31; CB2, 476). I am not persuaded that the earlier arrangement had contractual effect such that the Company could not terminate it without Peter's consent. It is not necessary to express a final view as to that matter given the findings I reach below on other grounds. The Company's claims in respect of third party payments
The Company also claims reimbursement of three payments made by the Company to third parties totalling $5,586.35. The first payment in issue, of $4,174.50, was made by the Company to a solicitor, Mr Ganz, in respect of tax advice relating to a second opinion as to the tax implications of the Company's winding up. The advice sought from Mr Ganz seems to have reflected a recommendation by Mr Gilbert that a second opinion as to tax issues be sought, after tax advice was originally sought as suggested by Mr Reidy (Maureen Joseph 3.4.18 [41]; Peter 6.12.17 [56]) and the advice seems to have been relevant, in substantial part, to the position of both shareholders, although it specifically referred to Peter's position (Ex P1, Tab 11; CB1, 129).
The second payment in issue, of $1,114.85, was made by the Company to Mr Stern in respect of legal work. Peter's evidence was that he undertook a reconciliation of the invoice issued by Mr Stern and caused the Company to pay only that part of it that related to work for the Company (Peter 6.12.17 [51]-[52]). The third payment in issue, of $297, was made to Mr Gilbert's firm in respect of his costs conferring with the two solicitors. The amount involved in these claims, and particularly the third of them, is minimal having regard to the other claims brought in the proceedings, and it is difficult to see that these claims warrant the time spent and costs that have been incurred in respect of them.
Mr Smallbone submits, with some force, that the basis of the Company's challenge to the third party payments which Peter caused to be made was somewhat opaque. It seemed to me to involve primarily the proposition that Peter lacked authority to authorise those payments, as a single director of the Company, although it also included an allegation that the payments were improper to the extent they were for Peter's personal benefit, although it was not clear whether that was a separate basis for the claim. I accept that these payments were not properly authorised, where Peter was then the only director of the Company, and it is likely they also conferred a personal benefit on Peter, at least in discharging liabilities that he would otherwise have been liable to pay personally. It is not necessary to determine whether those matters would have supported a claim to recover those funds, where I find below that these transactions should be validated under s 1322 of the Act.

Peter's claims for relief under ss 1318 and 1322 of the Corporations Act

By paragraph 4 of his First Cross-Claim, Peter sought orders, under s 1322(4)(a) of the Corporations Act, declaring that the transactions complained of in the Plaintiffs' Statement of Claim were not invalid by reason of any want of authority of Peter as director of the Company to enter into them, and also sought an order under s 1322(4)(c) of the Corporations Act that he be relieved of civil liability in respect of the contraventions or failures alleged by the Statement of Claim.
Section 1322 of the Corporations Act reflects a broad legislative policy that the law should not inflict unnecessary liability or inconvenience or invalidate transactions because of non-compliance with its requirements, where such non-compliance is the product of honesty or inadvertence and where the Court can avoid its effects without prejudice to third parties or the public interest in compliance with the law, and the Court will have regard to the purposes of the Act; the interests of all affected persons; and the public interest in exercising its powers under the section: Re Wave Capital Ltd [2003] FCA 969; (2003) 47 ACSR 418. The width of the power under that provision has been confirmed by the High Court of Australia in Weinstock v Beck [2013] HCA 14; (2013) 93 ACSR 231, where French CJ observed (at [39]) that the section is to be "construed broadly and applied pragmatically, principally by reference to considerations of substance rather than those of form." Hayne, Crennan and Kiefel JJ also there observed (at [55]) that that power is not to be hedged by any implied limitation, and Gageler J referred (at [60]), with apparent approval, to an observation in the Court of Appeal in that case that the section was to be construed with all the liberality that its language permits.
Section 1322(4)(a) of the Act in turn allows the Court to declare that an act, matter or thing purported to have been done, or any proceedings purporting to have been instituted or taken, under the Corporations Act are not invalid by reason of a contravention of a provision of the Act. The reference to a "contravention" in that paragraph is given a wide meaning, given the remedial nature of the section, and extends to a situation which falls short of an infringement of the Act, and a validating order can also be made in that situation: Sheahan v Londish [2010] NSWCA 270; (2010) 80 ACSR 337. As Mr Smallbone points out, the Court can validate transactions where there has been non-compliance with a requirement that a company have a minimum number of directors under this section: Re Continental Pacific Insurance Co (Australia) Ltd [2002] NSWSC 789. Section 1322(4)(c) in turn allows the Court to make an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in s 1322(4)(a). The Court's powers under ss 1322(4)(a) and (c) may be exercised where, relevantly, the contravention is essentially procedural, or the persons concerned had acted honestly, or it is just and equitable that the order be made, and provided that no substantial injustice has been or is likely to be caused to any person: s 1322(6). The conditions imposed in s 1322(6) are true alternatives, so that only one of them needs to be satisfied in order to allow relief under these provisions.
Mr Tyson submits, and I accept, that the matters raised in challenging these transactions were not of a procedural nature for the purposes of s 1322(6) of the Corporations Act. In closing submissions, Mr Smallbone fairly acknowledged that there was authority that a breach of a constitutional requirement for a specified number of directors would ordinarily be treated as a substantive rather than a procedural irregularity, although he submitted that principle was not absolute: Ngarluma Aboriginal Corporation RNTBC v Ramirez [2018] FCA 1900 at [104]-[106]. There is no reason not to apply that approach here.
Mr Tyson also submits that the payment of increased remuneration and of the three amounts to third parties was not made honestly, where Mr Gilbert had suggested the appointment of a second director to the Company's board and Peter's solicitor had raised the possibility of the appointment of a new director to the Company with the Plaintiffs (Peter 6.12.17 [7]; Maureen Joseph 20.9.17 [21]). I do not accept that submission. The Company had operated with less than the number of directors required by its constitution for a considerable period, including under Marie's management; Peter, by his solicitor, had suggested a director nominated by the Plaintiffs be appointed, although the Plaintiffs did not promptly take up that offer and it would in any event not have satisfied the constitutional requirement as to a minimum number of directors; and the Plaintiffs do not suggest that other transactions, including property sales, authorised by Peter as the Company's sole director were dishonest. It also does not seem to me that the payment of the higher level of remuneration to Peter or the third party payments can be characterised as dishonest in their objective character, or by reference to Peter's purpose in authorising them, where, as I noted above, higher director fees and other amounts were previously paid to Peter on a similar basis and larger amounts were paid to Marie in a somewhat informal manner, and the accounting and legal services charged to the Company were connected with the winding up proposal then under discussion between the parties. I am satisfied that the relevant transactions, while unauthorised and imprudent, were honestly undertaken and that the Court has jurisdiction to make an order validating them or excusing Peter from liability under s 1322(4) of the Act on that basis.
Mr Tyson also submits that it would not be just and equitable for the orders for relief to be made, where that would allow Peter to retain funds paid out of the Company for his personal benefit in circumstances that authority to make those payments had not been properly given. Mr Tyson also submits that a validation of those payments would cause substantial injustice to other contributories of the Company, although the amounts involved are relatively small, where they would leave Peter with the benefit of payments made without authority when he was on notice of that position. I do not accept that submission, for the reasons noted below. Mr Grant submits that, where Peter incurred significant expenses obtaining professional assistance in respect of issues arising as a director of the Company, then he personally should pay those expenses. It is sufficient to note, for present purposes, that the Company's affairs were not conducted on the basis that it should not make payments for the benefit of its shareholders or directors, including under Marie's management, and including in respect of remuneration and expenses that had less connection with the Company's affairs than those which Peter paid to professional advisers in respect of the winding up.
It seems to me that it is just and equitable to validate the higher level of director's remuneration paid to Peter and the three third party payments challenged on the basis of a failure to satisfy the requirement for the minimum number of directors or their personal element, and no substantial injustice has been or is likely to be caused to any person by those transactions taking place where the Company had less than the required number of directors, where all of the transactions that the Company had conducted for a long period, including other transactions not challenged by the Plaintiffs, have the same defect. There can be no injustice in treating those transactions consistently, rather than inconsistently setting aside several of these transactions while leaving others with similar defects in effect.
Peter alternatively sought an order under s 1318 of the Corporations Act relieving him from liability in respect of the contraventions or failures alleged by the Statement of Claim. That section allows a Court to relieve, relevantly, an officer of a corporation from liability in civil proceedings for negligence, default, breach of duty or breach of trust, if he or she establishes that he or she acted honestly, and that he or she ought fairly to be excused for the negligence, default, breach of duty or breach of trust having regard to all of the circumstances of the case including those connected with his or her appointment: Morley v Australian Securities and Investments Commission (No 2) [2011] NSWCA 110; (2011) 83 ACSR 620 at [44], [49]-[50]; Great Southern Finance Pty Ltd (in liq) v Rhodes [2014] WASC 431 at [60]. It is not necessary to determine that application where I have found that the transactions should be validated under s 1322 of the Act.

Peter's defences of accord and satisfaction and estoppel

In his Defence to the Company's claim, Peter also relies on principles of accord and satisfaction and estoppel (Defence to Second Cross-Claim [5]-[7]). That accord and satisfaction and an equitable estoppel is said to arise from the circumstances surrounding the sale of the Dudley Street property and the repayment of loans at that time, on a basis which included interest under ITAA Div 7A, but did not extend to other claims for interest by the Company. It is not necessary to address these matters given the findings I have reached on other grounds.

Peter's claim that the Company should be wound up

By his First Cross-Claim, Peter seeks orders winding up the Company on several alternative grounds. Peter pleaded (First Cross-Claim [13]) that the Company had ceased or substantially ceased, since about 22 June 2016, to carry on its main objects and (First Cross-Claim [16]-[17]), since that time, the Company had been placing money in term deposits and had not conducted any other commercial or investment activity, and it had not been proposed by any shareholder that it would undertake any further business. Peter also pointed to the positions taken by the parties, after 22 June 2016 as to a winding up, when at various times each of the parties supported a winding up. Peter also pleaded (First Cross-Claim [21]) that, at least since 31 July 2017, the Plaintiffs had failed and refused to cooperate or participate further in any arrangements to pass resolutions or other steps necessary to commence a voluntary winding up. Peter in turn pleaded (First Cross-Claim [24]) that: "It is unfairly prejudicial to [Peter] for the company's cash to be controlled by [the Plaintiffs] and withheld from distribution to members without any view to carrying on any active business which could enure to the practical benefit of [Peter] in common with all members."
Peter also referred to the several allegations made in these proceedings and pleaded (First Cross-Claim [27]-[28]) that: "… [The Plaintiffs] have vexed [Peter] with objections in respect of matters that were variously able to be attended to by [the Plaintiffs] themselves, or by directors whom they were able to appoint, objections in respect of transactions of trifling amount, objections in respect of money that was borrowed and repaid with interest, and objections in respect of reasonable remuneration commensurate with the historic practice of the company, and which it was properly a matter for the Company to pursue, if at all, in any event. The prosecution of those claims by [the Plaintiffs] has been unduly and unfairly burdensome, such as to deprive [Peter] of any practical benefit from being a member of the Company."
Peter also pleaded several steps that took place, in respect of the appointment of additional directors of the Company, prior to the institution of the application before Brereton J to which I have referred above and pleaded that, having regard to those matters, the Company's affairs are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, Peter and, further and in the alternative, are being conducted in a manner that is contrary to the interests of its members as a whole (First Cross-Claim [39]). Peter also pleaded (First Cross-Claim [40]) that the omission to take the required steps to commence a members' voluntary winding up, notwithstanding the earlier consensus that that should occur and the Company's lack of any ongoing business, was oppressive or unfairly discriminatory against Peter or contrary to the interests of the members as a whole and, further in the alternative, it was just and equitable that the Company be wound up (First Cross-Claim [41]).
By their Defence to the First Cross-Claim, Mrs McIvor and Ms Maureen Joseph in turn plead a detailed factual response to the circumstances raised by Peter in respect of their entry on the register and the voluntary winding up of the Company. The Plaintiffs accepted, in closing submissions, that they had initially sought a prompt members' voluntary liquidation, with Mr Reidy as liquidator, but contend that they considered they could investigate the position more inexpensively (and perhaps more thoroughly) than Mr Reidy after the discovery of Peter's allegedly unauthorised withdrawal of Company funds (Maureen Joseph 3.4.18 [53]-[58]). Ms Maureen Joseph's evidence in cross-examination was that the Plaintiffs intended to bring about the liquidation of the Company, but wished to pursue these proceedings before doing so (T52). The Plaintiffs also submit that the Company has had a properly constituted board of five directors since 30 November 2017 and arrangements for an orderly winding up of the Company ought to be left to that board.
First, Peter contends the Company had suspended its business for more than a whole year since 22 June 2016 and seeks an order under s 461(1)(c) of the Corporations Act that the Company be wound up by the Court and that Mr Geoffrey Reidy or some other appropriate person be appointed as its liquidator. Peter points to the Company's objects and historical activities and relies on the fact that, on or about 22 June 2016, the Company sold the last parcel of land owned by it, being unit 6 in the block of units at Dudley Street Coogee, the proceeds of sale were placed on term deposit and, since that time, the Company has had no further business, other than for the reinvestment of term deposits and has not paid dividends.
Mr Smallbone submits that the Company has had no business activities for the purposes of s 461(1)(c) of the Corporations Act, where it is doing no more than holding cash on deposit with banks and conducting these proceedings, and where any attempt to commence new business activities would be inconsistent with the Plaintiffs' obligation under Marie's will to liquidate her assets and distribute them to beneficiaries. The Plaintiffs respond that investment has always been an object of the Company, and refer to several provisions of its articles of association (Ex P1, Tab 31; CB1, 239) and to the Company's historical practice of investing funds that it held and point out that it had a substantial amount of funds deposited with a bank when Marie died (Maureen Joseph 3.4.18 [35]-[36]). The Plaintiffs also point out that Peter had similarly deposited the Company's funds in term deposits held with banks after Marie's death. The Plaintiffs submit that the Company has not in fact suspended its business for more than a whole year since about 22 June 2016.
I am not persuaded that an order winding up the Company should be made under s 461(1)(c) of the Act. It seems to me that the Company has altered, but not suspended, its business, and now has as its primary activity the pursuit of the claims that the Plaintiffs wished to have brought against Peter. That finding has implications for the alternative relief sought by Peter.
Alternatively, Peter sought orders winding up the Company under ss 461(1)(f)-(g) on the ground of, broadly, oppression or unfair discrimination. Mr Smallbone submits that oppression is established where Peter is elderly and will not see any benefit from the Company's capital, unless he receives it soon, and that the failure to wind up the Company and distribute its capital, and the Plaintiffs' change of position as to whether the Company should be wound up, is oppressive. It is not necessary to determine that claim given the findings that I reach below on other grounds. I also do not consider it necessary to determine several other matters raised by Peter in support of a winding up, in respect of the establishment of a register of members, the entry of the Plaintiffs on that register, and the proceedings before Brereton J, or the Plaintiffs' response to it given the findings that I reach below on other grounds. It is also not necessary to address the debate between the parties as to the scope of the oppression case, or the relevance of Peter's age to it, or the urgency or otherwise with which Peter addressed relevant matters, or the extent of his or the Plaintiffs' respective cooperation with each other in respect of the winding up and other matters, or the merits of each dispute between them that impeded the progress of the winding up.
Mr Smallbone alternatively submits that a minority may obtain a winding up of a company on the just and equitable basis under s 461(1)(k) of the Corporations Act where it was its members' common intention that it should be conducted for a particular purpose and the majority deploy the company's assets to some other purpose: Re Tivoli Freeholds Ltd [1972] VR 445 at 468-469; Bernhardt v Beau Rivage Pty Ltd (1989) 15 ACLR 160 at 161. Mr Smallbone also submits that, at least where a company was established on the basis of relationships of mutual confidence, a winding up order may be made on the just and equitable basis under s 461(1)(k) of the Corporations Act where irreconcilable differences emerge between its members: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672 at [89]; Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343 at [97]-[98]. The Court may make a winding up order on that basis in circumstances that do not amount to oppression, although a person who is themselves responsible for the breakdown of the relationship is less likely to be afforded relief: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd above; Nassar v Innovative Precasters Group Pty Ltd above at [90], [96], [117].
Mr Smallbone submits, and I accept, that the evidence establishes that the Company was established to undertake a clothing manufacture business and property development, and was subsequently used to confer benefits upon Marie, Peter and their siblings. Mr Smallbone points out, and I also accept, that the clothing business and property developments have ceased. It seems to me that the current use of the Company for the sole or primary purposes of conducting proceedings against one older family member is outside the purposes for which the Company was established. I am satisfied, notwithstanding the Plaintiffs' response to these submissions which I address below, that the Company should be wound up on the basis that its original purposes have ceased and the purposes for which it is now being used are outside the purposes for which it was established. It also seems to me that, at least since the Company's restructure in 1972, it was set up on a basis that contemplated continuing personal relations between the then siblings who held shares in the Company, and it was continued on that basis in the period in which Marie and Peter held its shares. It is plain that the personal relationship between the Plaintiffs on the one hand and Peter on the other has now collapsed, and the differences between them are now irreconcilable. I am also satisfied, despite the Plaintiffs' response to these submissions which I also address below, that the Company should be wound up on that basis.
Turning now to the Plaintiffs' response to these submissions, Mr Grant submits that Peter relies on the same pleaded facts for winding up on the just and equitable ground as he does for winding up on the basis of oppression, and that his submissions depart from that pleaded case, and are now based on failure of substratum and/or a relationship of mutual trust and confidence and should not be permitted. Mr Grant also submits that the Plaintiffs prepared for the proceedings on the basis of the case pleaded against them and it is likely that they could and would have adduced additional or alternative evidence if they had known of the submissions now made by Peter. That submission is not supported by evidence, or by any identification of the additional or alternative evidence that could or would have been led by the Plaintiffs. I am comfortably satisfied that the basis on which Peter's submissions are put raises no factual issues of substance that are not already addressed by the evidence, given the extent to which the parties have explored the relationship between them in evidence; that there is no procedural prejudice to the Plaintiffs in addressing those submissions; and the just quick and cheap resolution of the real issues in dispute in these proceedings, and the Court's ability to determine them on their merits, will be promoted by my doing so.
Mr Grant responds, plainly correctly, that Peter and the Plaintiffs did not establish the Company to undertake a particular venture or undertaking or for a particular purpose, since it was established by Anthony Leo Joseph in 1960; Peter only became a shareholder in 1972 and a director in 1989; and the Plaintiffs only became shareholders following Marie's death or, possibly, following the application before Brereton J. While I accept those propositions, it does not follow that the Company was not established for particular purposes, because Peter and the Plaintiffs did not personally establish it for those purposes, or that there is no room for a claim for a failure of substratum where a younger generation, not involved in establishing a company, conducts its affairs in a radically different manner from the purposes for which it was established.
Mr Grant also submits that Peter only appears to have paid the capital value of his "F" class share in 1972, Marie inherited most of her shares, and the Plaintiffs have subscribed or paid nothing for their shares. It seems to me that that is not to the point, since shareholders' expectations as to the nature of a company's activities may be frustrated, notwithstanding they have inherited or been gifted their shares. Mr Grant also seeks to distinguish the decision in Bernhardt v Beau Rivage Pty Ltd above on the basis that Peter and the Plaintiffs did not personally subscribe or acquire their shares on the basis that a particular venture or undertaking would occur. I do not accept that distinction is of significance where, as I have noted above, it seems to me that a failure of substratum case is potentially available where a second or subsequent generation has acquired shares in a company conducted for a particular purpose, and the majority then alters the substance of the company's activities.
Mr Grant also submitted that: "… [I]t is, of course, in the interests of the members as a whole (including [Peter] qua member) for the Company to seek to recover funds due to it. This, of course, benefits the members (as a whole). It also cannot legitimately be said there is a lack of any ongoing utility to secure any practical benefit for the Company in common with all members."
It seems to me that that submission depends on the premises that there existed an agreement for the payment of the interest claimed by the Company, since the other amounts claimed could not conceivably have warranted the costs of these proceedings; that Mrs McIvor's evidence as to the Marie's account of those arrangements should be accepted; that those arrangements were intended to create legal relations between the parties; and that the amounts recovered would justify the costs that would be incurred in seeking to recover them. Each of those premises has not been established. Mr Grant also submits that the Company's claims for recovery against Peter need to be determined before there can be a distribution of the Company's assets to its contributories. That has now occurred. Any justification for deferring a winding up, for the pursuit of these proceedings, has failed with the failure of the Company's claims in these proceedings, and both parties previously accepted, at various times, that a winding up was appropriate, until the Plaintiffs' wish to bring these proceedings ultimately intervened. Mr Grant also submits that there is no suggestion that the Company's board of directors has not functioned normally since 30 November 2017, and points out that Peter and his nominee, Mr Donnellan, are two of the five directors on the board. This submission does not displace the basis for winding up of the Company by reason of the failure of its purposes and of the relationship between its members.
Mr Grant also submitted that an order that the Company be wound up would not be an appropriate remedy, and submitted that the Courts are generally reluctant to order that a solvent company be wound up on the grounds of oppressive conduct. I recognise that an order to wind up an otherwise solvent company is a remedy of "last resort" although there is no principle that a winding up order cannot be made against such a company: Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104 at [289]; Hillam v Ample Source International Ltd (No 2) [2012] FCAFC 73(2012) 202 FCR 336 at [68]-[70]. I accept that the Company is solvent and indeed appears to have substantial assets. However, given the present state of relations between the Plaintiffs and Peter, and the findings that I have reached above, I am not persuaded that the Company's solvency is sufficient to displace the desirability of a winding up order, to bring about a separation between the Plaintiffs and Peter and a distribution of the Company's assets to those entitled to them, including the beneficiaries of Marie's estate.
For these reasons, I will make a winding up order in respect of the Company. I will, however, stay that winding up order for no more than 21 days, to allow the parties an opportunity to reach any resolution between them that may avoid the need for a winding up of the Company. As Mr Smallbone pointed out, leave would be required for the appointment of Mr Reidy as liquidator of the Company. I am satisfied that such leave should be granted if the parties do not reach a resolution within the period of the stay of the winding up order and that order takes effect.

Peter's claim for indemnity as to costs

Peter also sought, in the First Cross-Claim, an indemnity for costs under article 114 of the Company's articles of association (First Cross-Claim [46]-[47]). The Plaintiffs submit that Peter's claim for costs on an indemnity basis against the Company should be rejected. Mr Tyson submits, and I accept, that there was no judgment given in Peter's favour in the proceedings before Brereton J. There will be judgment in Peter's favour in this hearing, so far as he has successfully resisted the claims for interest on loans to him and his companies; so far as the claims for unauthorised payments to him are concerned, and so far as the Plaintiffs' sought a declaration as to the minimum number of directors under the Company's constitution. However, as Mr Tyson points out, these matters involve a dispute between the majority and minority shareholders of the Company and not a claim against Peter in his capacity as a director of the Company.
Mr Tyson submits, and I accept, that, where the substantive claims brought by the Company against Peter in these proceedings are not brought in his capacity as a director, but as shareholder or in his personal capacity, the liability for costs which he has incurred in respect of the proceedings is not incurred by him as a director for the purposes of article 114 of the Company's articles. It does not seem to me that a constitutional provision of this kind has the consequence that a shareholder who is party to an oppression claim, or a claim on contractual grounds brought by a company, is entitled to indemnity costs merely because he or she is also a director of the Company. It is therefore not necessary to deal with the Company's alternative submission that the indemnity does not comply with s 199A(3) of the Corporations Act or that s 361 of the Companies Act is no longer in force and no application has been brought under it.

Peter's Notice of Motion

I note, for completeness, that, by a Notice of Motion filed on 14 May 2019, Peter sought to dismiss the claim for additional interest on the loans to him and his companies as an abuse of process. Mr Smallbone submits that a proceeding may be stayed by a Court as an abuse of process if it is seriously unfairly burdensome, prejudicial or damaging, including where a fair trial of the action is impossible by reason of the passage of time: Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256. It is not necessary to address the claim for abuse of process in respect of the Plaintiffs' claims under the loan agreements, which have failed on their merits. I am not persuaded that the passage of time has given rise to any difficulty in respect of Peter's defence of the Plaintiffs' claims relating to unauthorised payments to him, which I will address below. That Notice of Motion should be dismissed.

Costs of these proceedings

I have referred above to my preliminary view in respect of the costs of the proceedings before Brereton J. At least since 4 December 2017, it should have been apparent to the Plaintiffs that they had no standing to pursue the bulk of the claims they brought against Peter on behalf of the Company, where they had not sought leave to do so by way of derivative proceedings, since Peter had expressly raised that matter in his Defence. The Plaintiffs have now abandoned the bulk of the relief they sought, and failed in obtaining the declaration that they sought, in proceedings that have occupied four hearing days. My preliminary view is that they should pay the Defendants' costs of the claims that they did not press at the hearing, and should also pay the Defendants' costs of the claims that they pressed and on which they failed at the hearing. It may also be appropriate that a costs order should also be made against the Plaintiffs, rather than against the Company, in respect of the unsuccessful claims pursued by the Company at the hearing, where those claims were initiated by the Plaintiffs although they lacked standing to bring them, and then taken up by the Company. I will, however, afford the parties an opportunity for brief further submissions in that respect.

Orders

I direct the parties to bring in agreed short minutes of order to give effect to this judgment, and as to costs, within 7 days or, if there is no agreement between them, their respective short minutes of order and submissions not exceeding ten pages, in one and a half spacing, as to the differences between them. The parties should not assume that time period will be extended, where the orders to be made include a winding up order, unless the parties can now resolve their differences within the period that order will be stayed.

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: 04 September 2019

Companies Act 1936(NSW)s 361

Corporations Act 2001(Cth)ss 140, 199A(3), 201A, 249A, 461(1)(c), 461(1)(f), 461(1)(g), 461(1)(k), 1318, 1322, 1322(4), 1322(4)(a), 1322(4)(c), 1322(6)

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