Jetobee Pty Ltd (in liquidation) v Smith & Young Pty Ltd

Background

1. In October 2011 the Smith & Young facility was renewed for the period until the end of August 2012. It was again secured by, inter alia, a mortgage over the Smith & Young properties, an unlimited guarantee and indemnity from Jetobee, and a mortgage over its Wiley Park property. At least by this stage Jetobee and other companies in the group had their own facilities with St George which were cross-collateralised.
2. By June 2012 Jetobee had entered into an instalment payment arrangement with the Deputy Commissioner of Taxation for the payment of over $111,000.00 in outstanding tax. In October 2012 it entered into a further agreement to pay over $72,000.00 in instalments.
3. By August 2012, Smith & Young, Jetobee and the other associated companies were all in default of their respective facilities with St George. On 22 August 2012 they entered into a "Standstill and Facilities Amendment Agreement" with St George. Under that agreement, each of the debtor parties acknowledged that they were in default under their respective facilities and St George agreed to extend the term of the facilities to 15 November 2012 pending attempts to pursue sales to reduce the group's indebtedness to a specified level. In his evidence Mr Young accepted that this agreement did not alter or affect Jetobee's status as a guarantor of Smith & Young's obligations under the Smith & Young facility.
4. On or about 14 January 2013 the sale of one of the assets, namely the Guildford Hotel, was completed. The proceeds were used to retire a substantial portion of the group's debts, although the Smith & Young facility remained outstanding.
5. As noted, it was Mr Young's evidence that in January 2013 he committed both Jetobee and Smith & Young to the agreement referred to in [4]. I outline the evidence concerning this below at [23ff].
6. In July 2013, Jetobee, Smith & Young and Mr Young entered into another Standstill and Facilities Amendment Agreement with St George (the "July 2013 Standstill Agreement"). This extended the remaining facilities which appear to have been Jetobee's facility and the Smith & Young facility to 30 September 2013 and amended their terms. The amended facility agreements included a term to the effect that a default in one facility was an event of default under the other. Again, in his evidence Mr Young accepted that this agreement did not alter or affect Jetobee's status as a guarantor of Smith & Young's obligations under the Smith & Young facility.
7. In August 2013 the Deputy Commissioner of Taxation served a creditor's statutory demand on Jetobee in respect of a debt of $974,497.14.
8. On 19 August 2013 St George wrote to Smith & Young referring to its default under the Smith & Young facility, but stating its willingness to defer enforcement if a proposal to remedy the default was forthcoming. The letter also stated that "the Bank requires you to pay $1,320 weekly into the Bills Matured Account referred to in the bill facility default letter of today's date from the Hotel Operating Account or from such other source as is necessary …". In his evidence Mr Young stated that the "Hotel Operating Account" was one of Jetobee's accounts. As stated, at that time Jetobee had an interest in the Wiley Park Hotel.
9. On 27 May 2014 a liquidator, Mark Roufeil, was appointed to Jetobee.
10. On 1 August 2014 Jetobee entered into a Deed of Assignment with St George pursuant to which it agreed to pay to St George the "Debt" in full, being the sum owing by Smith & Young, and on such payment St George assigned to Jetobee "all of its legal and equitable property, right, title and interest in and to … the Debt" and the "Assigned Securities" which included the mortgage over the Smith & Young properties.
11. On the same date the sale of Jetobee's Wiley Park property settled. According to Mr Roufeil part of the proceeds of that sale, being $795,936.99, was used to discharge the Smith & Young facility. By this means Jetobee appears to have complied with its obligations under the Deed of Assignment.
12. On 5 August 2014 Smith & Young were given notice of the assignment of the "Debt", being "all moneys owing" by Smith & Young to St George. The transfer of the mortgage to Jetobee has been registered under the provisions of the Real Property Act 1900 (NSW).
13. On 7 August 2014 Mr Roufeil made demand upon Smith & Young stating, inter alia, as follows: "I demand payment of $795,936.99 due immediately by Smith & Young Pty Ltd. This debt arose as a result of Jetobee fully discharging your debts due to St George Bank on 1 August 2014."
14. At this point I note that the wording of this demand appears to involve an exercise of Jetobee's rights of subrogation as a guarantor. However, this case as pleaded seeks recovery of the "Debt" that was assigned. There is a potential conundrum with Jetobee's claim namely that, if the "Debt" owing by Smith & Young to St George was discharged, how could Jetobee take an assignment of that debt and how could the mortgage secure its repayment? If that potential conundrum had been raised as an issue in these proceedings and resolved adversely to Jetobee then presumably Jetobee might have also simply sued in exercise of such rights of subrogation that it possessed, although there may scope for argument as to whether that extends to enforce the mortgage. However it is unnecessary to consider this further because, as I have stated, the sole basis raised by Smith & Young for avoiding liability is the agreement that was said to have been entered into around January 2013.
15. On 20 August 2014 Smith & Young's solicitors responded to the demand. They stated that they could not obtain instructions as Mr Young had been "ill and undergone surgery". They sought details of the demand. The liquidator responded on 28 August 2014 and issued a further demand on 3 November 2014. A notice under s 57(2)(b) of the Real Property Act 1900 was served on 18 December 2014.

The Alleged Agreement and its Commercial Context

1. In his affidavit sworn 16 January 2013 (his "first affidavit") Mr Young stated: "On or after 16 January 2013, in my capacity as the director of both Jetobee and Smith & Young, I decided that an agreement between … Jetobee and Smith & Young should be formed, whereby … Jetobee assumed the liability of Smith & Young, or agreed to indemnify Smith & Young for its liability to the Bank under the [facility] ..."
2. In his first affidavit Mr Young stated that "on or after 16 January 2013" he sent a handwritten letter by facsimile to the accountants for Smith & Young and Jetobee in Lismore, namely Wappetts. I will outline the evidence said to support his evidence that the letter was sent. Mr Young annexed a copy of the letter to his first affidavit. The letter was on a form of letterhead for the Wiley Park Hotel, and was addressed to "Alison", being Alison Jones at Wappetts. It stated: "Dear Alison As a consequence of the Guildford Hotel being sold on the 14 January 2013 the St George Bank has foreshadowed that a new facility offer, standstill and forbearance agreements will be created to reflect Jetobee's stand-alone position. It was indicated that Jetobee and Smith & Young P/L would in future be termed 'The Jetobee Group'. One of the foreshadowed effects of this arrangement will be Jetobee P/L itself would become liable for the interest owed by Smith & Young P/L in respect of a mortgaged property located at … Lakemba Street, Wiley Park. To safeguard Jetobee's position under the ATO I have decided that Jetobee should assume Smith & Young P/L's debt of $780,000. Since I have in excess of $7 million in credit in my shareholder account with Jetobee P/L I request you debit my account by $780,000 and transfer the debt accordingly."
3. In his oral evidence in chief Mr Young was asked what step or steps he took to either give effect to the agreement or have it documented. He agreed that the sending of this letter was the only step he took.
4. In his affidavit sworn 24 July 2015 (his "second affidavit") Mr Young stated that he sent a handwritten letter by facsimile on 1 May 2015 to Ms Jones that was also on the letterhead of the Wiley Park Hotel. He annexes a copy of the letter. It stated: "Dear Alison As mentioned in my fax of 16/1/2013 I can confirm St George are preparing or have prepared a new facility offer, standstill and foreclosure agreements for the Jetobee P/L Group. It [has been] decided by St George [that interest accruing] by Smith & Young P/L will be debited to Jetobee's No. 2 Account [details omitted]. Please ensure my shareholders account has been correctly deducted to reflect the position I requested in my fax of 16/1/2013." (The emphasised portions of this letter differ from the typed version of the letter provided by Counsel for Smith & Young, Mr Macauley, as an aide memoir. The above appears to accord with the handwritten version in evidence and the oral evidence of Mr Young.)
5. As at January 2013 Smith & Young was the principal debtor for the Smith & Young facility and Jetobee was the guarantor. The legal effect of the above agreement appears to be that, as between Jetobee and Smith & Young, the debt was to be "assumed" by Jetobee so that it would be treated as the principal debtor instead of Smith & Young. If such an agreement was made then Jetobee could not sue Smith & Young for recovery of the debt as it had already contractually bound itself to repay it on Smith & Young's behalf. Accordingly, assuming that an agreement of the kind referred to in the letter dated 16 January 2013 was made, then it is capable of defeating Jetobee's claim.
6. Otherwise I note that ultimately no issue was taken with Mr Young's authority to bind both companies. Further, one matter that was not pleaded or raised was the apparent inconsistency between the July 2013 standstill agreement and the agreement alleged by Smith & Young. Both Smith & Young and Jetobee were parties to the July 2013 standstill agreement (along with St George) and its entire structure proceeds on the basis that Smith & Young continues to be the principal debtor and Jetobee continues to be the guarantor. Arguably that written agreement overtook whatever agreement Mr Young bound those companies to in January 2013 which, on any view, was not reduced to writing (Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; 218 CLR 471 at [31] to [36]). Nevertheless the only reliance placed on that agreement by Jetobee was an act of abandonment (see [5]), a contention that it is not necessary to address in light of the finding in [64].
7. At this point it is appropriate to note three matters that the parties raised that bear upon their respective cases as to whether or not the agreement relied on by Smith & Young was concocted.
8. The first concerns the context in which the agreement was said to have been made. Mr Macauley submitted that the content of the letters was consistent with the sequence of events. As noted in [11], the sale of the Guildford Hotel had occurred just prior to the alleged date of this letter. Mr Young explained that another company in the group with an interest in the Guildford Hotel paid the interest on the Smith & Young facility until it was sold. From that point, out of Jetobee and Smith & Young, only Jetobee was receiving income direct from an operating business, namely the Wiley Park Hotel. Hence, of the two companies, only Jetobee was likely to have the means to meet the interest payments. Further it was not disputed that for a number of years the financial statements of Jetobee recorded that it owed a large amount to Mr Young. The statements for the financial year ended 30 June 2008 record the balance of the debt as $11,614,855.00 and the statements for the financial year ended 30 June 2012 record the amount of the debt as $6,709,570.00. Hence there was an amount from which the debt assumed by Jetobee could be deducted.
9. Mr Macauley submitted that it can be inferred that, as at January 2013, St George had indicated that it would treat Jetobee and Smith & Young Pty Ltd as the "Jetobee group" given that it used that terminology in the July 2013 Standstill agreement. He also submitted that the statement in the letter of 16 January 2013 that Jetobee would become liable for the interest owed by Smith & Young was consistent with so much of the July 2013 standstill agreement that rendered a breach of the Smith & Young facility a breach of the Jetobee facility and the content of the letter of 19 August 2013 from St George noted above (see [13] and [15]). Counsel for Jetobee, Mr White, contended that the letter did not have that effect as it allowed interest to be paid from some other source. While that may be accepted, the position known to all including St George as at January 2013 was that as a matter of necessity Jetobee would be making interest payments as it was associated with an ongoing business, whereas Smith & Young was not.
10. Overall, and subject to the matters addressed at [45] to [63], I accept Mr Macauley's contention that the contents of the letter dated 16 January 2013 are consistent with the sequence of events, at least so far as the period 2012 to 2013 is concerned. However, while that conclusion does not assist Jetobee's contention that the agreement was concocted, it does not advance Smith & Young's position much either. Mr Young was the principal behind all these events. It would not have been a difficult task for him to draft letters after the event that were consistent with the sequence of events that was unfolding at the time the letters were dated.
11. The second matter concerns the commerciality of the transaction. Mr White submitted that the agreement lacks commercial sense and Mr Young's explanation for the agreement was illogical. Mr Macauley submitted that, to the contrary, there was a sound business reason for his having formed the agreement.
12. One obvious difficulty with the transaction is that whatever arrangements were reached between Jetobee and Smith & Young they were not binding on St George. So far as it was concerned Smith & Young was the principal debtor and Jetobee was the guarantor. However Mr Young explained that, as Jetobee would be paying the interest on the Smith & Young facility, then, according to his understanding, it could enhance Jetobee's chances of being able to claim a tax deduction for those payments by assuming the obligation to pay the principal of the debt. Thus in his supplementary statement which he adopted in the witness box Mr Young stated: "It was my understanding that the entire debt of the defendant had to be assigned or assumed by [Jetobee] to enable [Jetobee] thereafter to claim a tax deduction in respect of interest payments."
13. Mr White attacked this assertion. He contended that a motivation for Jetobee to claim deductions was nonsensical given its parlous financial state especially its significant tax debt. However those matters do not remove the incentive to obtain tax deductions if they can be obtained without any further damage to cash flow as in this case.
14. Mr White also contended that it was not necessary to "transfer" the debt because payments of interest under a guarantee are deductable if the "giving of the guarantee, the guarantor's payment under the guarantee and the incurring of the loss or outgoings are acts done in gaining or producing assessable income or in carrying on business for that purpose" (Taxation Ruling 96/23 at [124]). Mr White contended that the giving of the guarantee was a condition of the provision of finance for the group and thus the interest payments would be deductible irrespective of the transfer of the debt and that Mr Young knew that. One complicating factor is the origin of the Smith & Young facility in that it was used to purchase residential property which appears to be unrelated to any business of conducting hotels. This may affect any attempt to characterise interest payments under the guarantee in the manner contended for by Mr White.
15. It is not necessary to resolve the finer points of this issue. It suffices to state that the belief testified to by Mr Young as to the actual or potential taxation advantages of transferring the debt in the manner he asserts he did is one that was reasonably open to a person in his position with his level of business acumen in January 2013. In the end result, however, I do not accept that he in fact had that belief because I do not accept that he committed the companies to the agreement or even adverted to this issue. However I reach that conclusion based on matters other than the supposed lack of any commercial justification for the agreement. Otherwise I note that the contention put forward by Jetobee, namely that the agreement is a concoction, has an obvious commercial justification, namely avoiding Smith & Young's liability. While clearly that is not sufficient to justify a finding that the agreement is a concoction, the existence of a motive to concoct the agreement is relevant to my assessment of that issue.

Was the Agreement Concocted?

1. Mr White pointed to six matters as supporting the contention that there was no agreement of the kind alleged and that the letters said to support its existence were created after a liquidator was appointed to Jetobee. The first was that the agreement lacked commerciality. The second was that the agreement was never properly documented or accounted for. The third was that the written material supporting the existence of this agreement is unreliable. The fourth was there was a discrepancy in Mr Young's evidence as to the timing of the entry into the agreement. The fifth was that Mr Young's explanation for committing Jetobee to the agreement lacks logic. The sixth was that Mr Young's conduct subsequent to the agreement was inconsistent with it having been entered into, whereas the alternative explanation put forward, namely that it was concocted, is consistent with those events.
2. Mr Macauley's submissions reduce to six points. First he contended that Mr Young was a witness of truth. Second he submitted that the existence of the agreement was supported by the letters, and their contents suggest that they were not concocted. Third he submitted that the sending of the letters was supported by certain facsimile transmission reports attached to Mr Young's second affidavit to which I will refer. Fourth he submitted that the contents of the letters were consistent with the objective facts and the sequence of events. Fifth he contended that the agreement made commercial sense. Sixth he rejected the contention that the existence of the agreement was negatived by the absence of any reference to it in the financial records of Jetobee, by Mr Young's subsequent conduct or the evidence of Ms Jones.
3. Mr White's first, fifth and aspects of his sixth points and Mr Macauley's fourth and fifth points concern whether the existence of the agreement was consistent with the sequence of events and made commercial sense. They have already been addressed (at [30] to [37]). So much of Mr Macauley's second point as concerns the terms of the letters is addressed by the observation in [32] above. Mr Macauley contended that on their face the letters do not appear to be contrived, that they included some "innocuous and irrelevant details" and are otherwise addressed in a style appropriate for a communication to accountants. While those points can be accepted, they do not advance the matter further. Mr Young was astute enough to draft a letter that did not appear to be a contrivance.
4. Clearly the parties were in sharp disagreement as to whether Mr Young was a witness of truth. Generally I base my finding on a consideration of the objective materials and the sequence of events. However at this point it is appropriate to record my misgivings about his credit. In the course of his evidence Mr Young agreed that in different proceedings in this Court before Sackar J he had conceded that he had been dishonest in his dealings with a bank and that he had not told the truth in a document submitted to the Family Court in proceedings in 2011. Mr Macauley submitted that he was candid in making these concessions in these proceedings. I do not agree. They were only made after he was taken to the transcript in those proceedings and confronted with the concessions that he had previously made. This was a characteristic of his evidence.
5. As noted, Mr White's fourth point was that there was a discrepancy in Mr Young's evidence as to the timing of the entry into the agreement. As noted in his affidavit Mr Young stated that it was "on or after 16 January 2013" that an agreement was formed. In his oral evidence he asserted that the consent of the directors of Smith & Young was "made well before" that date. I do not regard this as a matter of great significance, although it reinforces my doubts about Mr Young's evidence
6. Generally I do not accept the evidence of Mr Young on any contested issue unless it is confirmed by material that clearly does not emanate from him.
7. The balance of the parties' points reflect the three matters that lead me to being positively satisfied that the agreement was concocted by or at the behest of Mr Young. I will address each in turn.
8. The first concerns a significant discrepancy in the documentation purportedly recording the sending of the letter of 1 May 2013 to Wappetts by facsimile.
9. In his first affidavit Mr Young stated that it was his normal practice to send documents to Wappetts by facsimile. He attached a copy of the 16 January 2013 letter to the affidavit and stated that he placed that letter "into the HP Officejet 7410 fax machine located in the upstairs office at the Guildford Hotel at Guildford Road, Guildford NSW" and dialled Wappets' number and pressed the "send" button. He added that: "23. After a fax is sent on the HP Officejet 7410, the fax machine will prompt [the] user as to whether a fax transmission confirmation should also be printed. 24. I do not recall whether a fax transmission confirmation was requested in respect of my letter sent by fax dated 16 January 2013 and I cannot find a copy of the fax transmission confirmation for that letter sent by fax."
10. Also attached to the first affidavit is what Mr Young described as a "facsimile transmission log dated 27 May 2013". The document indicated that it was generated on 27 May 2013 at 3.36pm. The log covers the period 20 February 2013 to 27 May 2013. It identifies an originating telephone number and is entitled "Last 30 transactions". It lists the date, time, type, duration, number of pages and "result" of the transmissions as well as the destination telephone number. Mr Young identified four facsimiles on that log that were sent to Wappetts during that period, being facsimiles sent on 16 April 2013, 15 May 2013, 17 May 2013 and 27 May 2013 respectively.
11. The letter of 1 May 2013 was not referred to in Mr Young's first affidavit and nor was it attached to that affidavit. However it was attached to Mr Young's second affidavit along with another copy of the letter of 16 January 2013. By this time Mr Young had apparently found "a facsimile transmission report" for each of the letters that purported to confirm the sending of a one page facsimile on 16 January 2013 and 1 May 2013 respectively. Each of those reports was headed "HP Officejet 7410 Personal Printer/Fax/Copier/Scanner" and listed the same originating number as the telephone number on the facsimile transmission log. Each of these reports identified Wappetts' number as the destination number. Although the form of the transmission report appears authentic they do not appear to be difficult to prepare manually.
12. In his supplementary statement, Mr Young stated: "4. As to the fax machine referred to me in paragraph 23 of my [first affidavit] the fax machine later moved by me from the Guildford Hotel to the Wiley Park Hotel at … King Georges Road, Wiley Park. The fax was last seen by me when we sold the hotel in May 2014. The fax machine was left as part of the sale of the business conducted at the hotel."
13. The difficulty for My Young is that the facsimile transmission log attached to his first affidavit does not list any facsimile sent to Wappetts on 1 May 2013 even though that date fell within the period covered by the transactions listed in the log. However, as noted, a facsimile confirmation sent on that date was attached to his second affidavit. The originating telephone number of the transmission reports is the same as that shown on the facsimile transmission log. If the transmission report for the 1 May 2013 facsimile was legitimate, one would expect it to be listed in the facsimile transmission log attached to his first affidavit. Mr Young was confronted with this discrepancy in cross-examination. His response was that "Well, I don't know whether the [transmission log] has reported every transaction. It could have been deleted. I don't know" and that "I can only put it down to a technical error of the machine or a deletion".
14. At one point in his cross-examination Mr Young was asked: "Q. There's no question that that log report was produced by … you only had one fax machine at the time, didn't you? A. No, we had three or four actually."
15. This aspect of his answer was seized upon by Mr Macauley as an explanation for the absence of any record that a facsimile was sent on 1 May 2013 in the facsimile transmission log, namely that the 1 May 2013 letter was sent from a different facsimile machine. Mr Macauley submitted that "[g]iven the Briginshaw standard of proof, it could not be concluded, by reason of the absence of an entry for 1 May 2013 in the longer facsimile transaction log, that the individual transmission log for the 1 May 2013 letter had been concocted".
16. I accept that a finding that either or both of the facsimile transmission reports for the 1 May 2013 and 16 January 2013 letters was concocted should not be based on this matter alone. Such conclusions should only be arrived at by considering all of the evidence and, in this case, that includes Ms Jones' evidence, a matter I address next. At this point it suffices to note that each of the transmission reports and the confirmation reports list the same telephone line as the originating number. It seems unlikely that three or four different machines would use the same telephone line but that might be possible. Even so, I consider that the evidence on this topic points strongly in favour of a conclusion that Mr Young has fabricated the transmission reports and in turn the agreement and the documents said to support its existence. I observed Mr Young hesitate in his evidence before he stated that there were three or four facsimile machines. The impression I obtained was that he saw that as a possible explanation for an apparent inconsistency in the documents attached to his affidavit which he was prepared to seize upon. At no point prior to then had Mr Young suggested that there was more than one facsimile machine. In the above extract from his first affidavit he referred to "the HP Officejet 7410" (see [46]). In his supplementary statement he only referred to one facsimile machine (see [49]). In the end result I do not accept Mr Young's evidence that there was more than one facsimile machine. Thus there remains no acceptable explanation for the absence of any listing of a facsimile sent on 1 May 2013 in the facsimile transmission log.
17. The second matter concerns Ms Jones' evidence. On 6 August 2015 Ms Jones swore an affidavit the substantive part of which stated: "I have no recollection and no record of receiving a fax from Mr Young on 16 January 2013. I have no recollection and no record of receiving a fax from Mr Young on 1 May 2013. I received an email on 7 August 2014 from Ms Josephine Smith that attached a copy of two letters from Mr Young to me, which were dated 16 January 2013 and 1 May 2013. On 7 August 2014 I could not act on the instructions from Mr Young that were contained in letters to me as a liquidator had been appointed to [Jetobee] on 27 May 2014."
18. Ms Jones' affidavit was prepared and filed on behalf of Smith & Young, yet Jetobee read the affidavit at the hearing. Ms Jones did not attend for cross-examination and neither party suggested that any part of her affidavit should not be accepted. The email of 7 August 2014 referred to by Ms Jones was not attached to her affidavit or produced at the hearing. Nevertheless, both parties suggested the Court should infer that the letters referred to were the handwritten letters extracted above and I so infer.
19. Mr White submitted that Ms Jones' evidence was strongly supportive of his client's case that Mr Young concocted or at least created the letters some time after Jetobee's liquidation, and then procured Ms Smith to have Ms Jones amend the accounts to reflect their contents. Mr Macauley accepted that Ms Jones' evidence does not corroborate Mr Young's evidence but added that it does not advance Jetobee's case because Ms Jones "does not positively deny ... receiving those facsimiles" (on or around the dates they bear). It is true that Ms Jones does not positively deny receiving them but her evidence and her inaction point strongly to the facsimiles not having been sent. The reference in her affidavit to there being no record of the receipt of the facsimile suggests that such records are kept. Ordinarily it would be expected that a firm of accountants would have such records including files relevant to a client and a means of checking the receipt of electronic communications.
20. Further it was accepted that the financial statements for Jetobee prepared for the financial year ended 30 June 2013 did not reflect the transaction referred to in the letters of 16 January 2013 and 1 May 2013. For example, the loan account in favour of Mr Young decreased by around $33,000.00 between the statements for the financial year ended 30 June 2012 and the statements for the financial year ended 30 June 2013. The decrease would have had to be far larger to give effect to the agreement. Although the date the financial statements for the year ended 30 June 2013 were prepared or finalised is not the subject of evidence, it was obviously after 30 June 2013 and, based on Ms Jones' affidavit, I infer that it was prepared prior to a liquidator being appointed to Jetobee on 27 May 2014.
21. In his written submissions Mr Macauley pointed to evidence of Mr Young to the effect that it was "usual" for changes to his shareholder loan account balance not to be effected until the following financial year. As the accounts for the financial year ended 30 June 2014 were not prepared prior to the appointment of a liquidator (and have not been prepared since) he submitted that it followed that, the absence of any entries in the 2013 financial statements reflecting this transaction, was not evidence that Ms Jones was not advised of the existence of the agreement.
22. I do not accept that submission. In his first affidavit Mr Young recorded his understanding that it was "not unusual for deductions from my shareholder loan account to be recorded in detail in subsequent financial years, rather than in [the] year the payments by Jetobee were made" and in his second affidavit he asserted that he had assumed that the "directions" recorded in his letter of 16 January 2013 would be recorded in the following financial year's statements. While his subjective belief to this effect was not challenged, the only examples of transactions in which that was said to have occurred were the purchase of a property and mooring in Pyrmont by Jetobee on his behalf for $4,769,500 and $650,000.00 respectively. The contracts for the sale of the property and mooring each bore the date 30 May 2007 but a deduction from his loan account to reflect them first appears in the financial statements for the year ended 30 June 2009. However the registered transfer, bank correspondence and transaction ledgers all confirm that settlement did not take place until August 2008 so that the corresponding reduction in his loan account was correctly reflected in the financial statements for the financial year ended 30 June 2009. Mr Macauley pointed to the fact that stamp duty on the contracts for sale was paid in May 2008 as indicating that the transactions completed around that time. However, the time for payment of stamp duty on a conveyance of land pursuant to a contract of sale is not fixed by reference to the date of settlement but when the contract is executed (Duties Act 1997, s 12(2) and s 17). The evidence overwhelmingly demonstrates that settlement occurred in August 2008.
23. Further in relation to the transaction referred to in his letter of 16 January 2013 in his first affidavit Mr Young stated: "26. On or after 16 January 2013 I had a telephone conversation with Alison Jones of Wappetts. Words to the following effect were spoken: Alison Jones said: 'I am having difficulty with processing a double entry. I have no problem with debiting your loan account, but I am not sure where to apply the credit.' 27. In or about August 2013 I had conversations with Josephine. Words to the following effect were spoken: I said: 'Jetobee has to take responsibility for making interest repayments. The bank has sent through a Deed of Forebearance [sic].'"
24. At the hearing I made an order under s 136 of the Evidence Act restricting the use to which the quote in [26] of this extract could be put to the fact that they were said and not the content of what was stated. Even allowing for that restriction, those words are consistent with Ms Jones apparently having received the facsimile and having told Mr Young that they would be acted upon. Further the letter of 1 May 2013 was apparently expressed in terms that appeared to request immediate action ("Please ensure my shareholders account has been correctly deducted …"). Nevertheless on Mr Young's case Ms Jones did not do that notwithstanding that, as an accountant, she can be taken to be aware that the accounts should reflect the accounting effect of transactions entered into during the financial year in question. In my view the far better explanation is that she did not reflect the agreement referred to in the accounts for the financial year ended 30 June 2013 because she was never notified of it. It is for that reason that she has no recollection or record of having received that facsimile.
25. Third, aspects of Mr Young's conduct subsequent to the time the agreement was supposedly made were inconsistent with its existence. On 2 June 2014 Mr Young submitted a report as to the affairs of Jetobee. He identified himself as one of its unsecured creditors and stated that the amount owing was $6,675,541.00. The listing of the unsecured creditors attached a note explaining that he had borrowed funds from Jetobee to pay his tax in the weeks prior to the winding up order. Mr Young accepted that the figure of $6,675,541.00 was derived from the 2013 financial statements and did not include any deduction for $780,000.00 which was contemplated by the agreement referred to in the letter of 16 January 2013. Further on or about 28 August 2014 Mr Young lodged a proof of debt. He again claimed to be a creditor of Jetobee pursuant to his loan account in the sum of $6,675,541.00. Mr Young accepted that he did not make any mention in this material of the agreement referred to in the letter of 16 January 2013 even though it involves a deduction of $780,000.00 to his loan account. Mr Young stated that he completed these forms based on the "existing financials available" and that the fact that it was not referred to in the accounts somehow inhibited him from informing the liquidator of the transaction: "A. Well, to start with, I don't believe that I was able to inform him of that transaction because it hadn't been done and it hadn't appeared in any financials. If the liquidator had have completed the financials to 2014 at 30 June or the date of liquidation then not only is that amount missing but there are also a number of other transactions which would have gone to the loan account which hadn't been recorded."
26. I do not accept this explanation represented Mr Young's state of mind. He had no difficulty adding a note to the Report on Jetobee's affairs advising the liquidator that he had borrowed funds from Jetobee in the weeks prior to the appointment of a liquidator. He could have easily explained or sought to explain the effect of the alleged agreement. I consider this material particularly telling. In my view this material strongly points to Mr Young having concocted the letters said to evidence the agreement some time after the appointment of a liquidator.
27. I am satisfied that Mr Young or someone acting on his direction created the letters dated 16 January 2013 and 1 May 2013 some time after a liquidator was appointed to Jetobee in May 2014 and prior to their being sent to Ms Jones on 7 August 2014. I am satisfied that some time after a liquidator was appointed Mr Young or someone acting on his direction created the facsimile transmission reports dated 16 January 2013 and 1 May 2013. I am satisfied that no agreement of the kind alleged by Smith & Young was made prior to the appointment of a liquidator.

Future disposition

1. It follows that Jetobee is entitled to the relief it seeks. I was not provided with an up to date interest figure so as to allow a monetary judgment to be entered. I will stand over the matter for seven days to allow Jetobee to bring in short minutes to reflect the relief it claims to be entitled to. Any debate about the form of those orders should be brief and can be attended to on 26 October 2015.
2. Accordingly the Court orders that : 1. The proceedings stand over to 26 October 2015 at 9.30am; 2. On or before 5:00pm on 22 October 2015 the plaintiff file and serve the orders it contends give effect to this judgment.

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