Jobema Pty Ltd v Zacaropoulos

1. The respondent's case is that although she received monies from Jobema in each financial year, the monies paid to her were less than the amount of dividends declared in her favour but that she was unaware that this was so.
2. Edward was described by Jobema's bookkeeper, Mr Messih as "the head of the Jobema group of companies" in the sense that "he alone made all the decisions and did not consult with other family members in making those decisions". Those decisions included distributing monies to the grandchildren which were then accounted for as distributions to their respective parents' account. Likewise, the decision for Jobema to pay the tax on the dividends as declared was made by Edward.
3. John and James Foran confirmed that this was the way that the affairs of Jobema were conducted. They said that the custom within the family was that when anyone wanted money they would ask for it and Edward would decide whether to provide funds, how much and from which company.
4. John said that Edward did not consult with any of the children or grandchildren in making these decisions and that he, John, never discussed with any family member the nature of the distributions made by Edward to various family members. James said that he never questioned his grandfather about the decisions he made in respect of the distribution of funds or their treatment in Jobema's accounts, nor was he aware of any family member ever doing so.
5. If the respondent, John or Madeleine were provided with funds it would be debited against a loan account with Jobema. The loan account was ultimately repaid in each income year by their respective dividend entitlements. James Foran, who worked in the business from 2004, said that his grandfather Edward treated children and grandchildren alike, his aim being to see that all children had a home free of debt. In this regard, the practice adopted was that if monies were provided to any of the grandchildren that too would be debited to the loan account of the parent of that grandchild and ultimately repaid by the parent's dividend entitlement. Other amounts, at Edward's discretion, were also debited to the loan accounts of the respondent, John or Madeleine. Those amounts were repaid by dividends declared in their favour.
6. It appears that in each relevant year the total amount of dividends declared in favour of the respondent was used in whole to repay the respondent's loan account with Jobema. No balance, either way, of that loan account was outstanding at the commencement of the next income year.
7. Mr Messih said that he was not aware of any occasion on which the children were involved in the process of determining the amounts distributed to various family members through the Jobema group of companies. Mr Messih also said that he would have a telephone conversation with the respondent every year to "seek details of any other income which she wished to disclose" or other matters that needed to be set out in her income tax return. He would then send the details to Jobema's external accountants KS Black & Co (KS Black). He said that he believed the income tax returns were submitted electronically and were not signed by anyone.
8. Jobema's ledger showed that for the 2011-2015 financial years, adjustments were made to the respondent's loan account to reflect transfers to family members. In addition, payments made on the respondent's behalf to the Tax Office were deducted from her dividend payments. The respondent said that she had never authorised these transfers or payments, nor did she have any knowledge that this had been done. In this regard, it was not in dispute that the tax paid by Jobema was on the full amount of the dividend as declared.
9. The respondent agreed that she had spoken to Mr Messih about her tax returns, but said that she had never signed them and was not aware of what they provided. The only exception to this was for the financial year ended 30 June 2003, although the respondent said that she could not recall what her income was for that year. The respondent also said that no one from KS Black had ever sought information from her, except on two occasions when she was requested to provide her private health insurance end of year statement.
10. In 2013, the respondent obtained copies of her tax returns for 2010 and 2011 from KS Black so that she could apply for car finance. It also appears that she received a copy of her 2014 income tax return at some stage for the purposes of refinancing her car. The respondent did not obtain copies of her tax returns for most other years until early 2017 when they were provided to her solicitors by KS Black.
11. The respondent also said that she did not receive the sum of $349,659.26 debited to her as a loan in Jobema's accounts as at 30 June 2013 and which had then been deducted from the dividend balance. The respondent said that it appeared that those monies had been transferred to other family members without her knowledge or authorisation.
12. Edward's approach to the payment of dividends was confirmed by Ian Edenborough, a principal of KS Black.
13. After Edward's death, there were email communications between the respondent and John in which the respondent sought "final figures". John responded in an email dated 10 April 2016, relevantly as follows: "Betty you're asking me for final figures way too soon we haven't sold a single thing so far and until we have a deal I can't give you amounts or timetables. The kids and what they are getting paid is the same as normal minus all the extra that they used to get as I just don't have the money to pay it. All I can tell you is they don't get anywhere near the amount us three kids used to get and still get in the case of yourself and myself as I've stopped the money Madeleine used to get. … You are asking me for information that is not available asking me for payout figures and how much everyone will get and who owes what etc. You're just going to have to wait like me …"

The proceedings

1. On 15 June 2017, in accordance with the Supreme Court (Corporations) Rules 1999 (NSW), the respondent filed an originating process in the Equity Division Corporations List seeking an account of monies, declarations, orders for the acquisition of shares and/or the winding up of Jobema. Stated briefly, the relief sought was based on the respondent's claim for unpaid dividends to which she claimed to be entitled. There were also claims of breach of trust, unconscionable conduct and oppression.
2. In accordance with the practice in the Corporations List, the respondent was not immediately required to plead her claim and, it followed, Jobema was not required to file a defence. Again, in accordance with the practice in that List, directions were made at an early stage for the filing of affidavits.
3. On 5 October 2017, the respondent filed an application for summary judgment in the sum of $3,223,305. At that time, the only evidence filed by Jobema was the affidavit of Mr Edenborough. The respondent's application for summary judgement appears to have been based upon the position that in the affidavit evidence filed to that date, Jobema had not denied the existence of the debt claimed by the respondent in the form of the balance of dividends declared in her favour but not paid to her.
4. Following the filing of the application for summary judgment, the parties were directed to file further affidavits. Although there was significant affidavit and documentary evidence before the primary judge both parties elected not to cross examine any of the witnesses.
5. There was no direction for the filing of pleadings such that the application for summary judgment proceeded to a hearing without the issues being formally joined. However, in its opening written submissions, Jobema submitted that it had an arguable defence of conventional estoppel to the claim.
6. The basis of the estoppel asserted by Jobema was that the parties proceeded on a common assumption as to the manner in which Edward distributed dividends over a period of at least 15 years, a practice in which the respondent had acquiesced without question. Jobema identified the relevant assumption as being "the practice of Edward's use of [Jobema] to facilitate payments to his family members and account for those payments as he saw fit".
7. Jobema asserted that the practice included the payment of income taxation liabilities for the respondent's benefit, ascribing to the respondent's ledger the distributions made to her children and preparing accounting entries to make any adjustments necessary for these purposes.

Primary judge's reasons

1. There was no dispute as to his Honour's statement of the principles governing the determination of an application for summary judgment, with which we deal below. Likewise, there was no dispute as to his Honour's statement of what is needed to be established to found a conventional estoppel. As his Honour observed, at [25]: "Where parties have conducted their affairs on the basis of a common assumption, knowing or intending the other to act on that basis, one may be precluded by estoppel from departing from that assumption, if to do so would cause detriment." (footnote omitted)
2. His Honour then identified the matters required to be established to found the estoppel, namely: "… (1) that the party asserting an estoppel has adopted an assumption as to the terms of its legal relationship with the other party; (2) that the other party has adopted the same assumption; (3) that both parties have conducted their relationship on the basis of that mutual assumption; (4) that each party knew or intended that the other act on that basis; and (5) that departure from the assumption will occasion detriment to the first party." (footnote omitted)
3. His Honour accepted, at [28], that if there were in fact a common assumption sufficient to found an estoppel, Jobema had established a sufficient detrimental reliance on it in paying monies to the respondent's children and other grandchildren. However, his Honour rejected that Jobema had established that there was a common assumption upon which the parties had acted. Indeed, at [29], his Honour did not accept that there was a tenable argument that the other requisite elements of a conventional estoppel could be established.
4. His Honour's reasons for doing so were essentially based on his characterisation of the estoppel in circumstances where the declaration of dividends created legal rights. As his Honour stated, at [29]: "… To found an estoppel it would be necessary to show, not merely that [the respondent] was content to receive whatever distributions her father might cause Jobema to make to her, but that she assumed that he would at his whim cause Jobema to divert dividends declared in her favour, and to which she was legally entitled, to others without her knowledge or consent."
5. His Honour pointed out, at [29], that there was: "… nothing in the evidence so far adduced to suggest that [the respondent] knew of, let alone acquiesced in, the diversion of her dividend debts to her children, or the other 'adjustments' to her loan account."
6. In this regard, his Honour, at [23], had observed that the respondent's evidence that she did not know or authorise the use of money to which she was entitled was "inherently credible" and was also "uncontradicted and unchallenged". His Honour repeated, at [30] and [31], the absence of evidence as to the respondent's knowledge of the diversion of the money owed as debt to her arising from the declarations of dividends.
7. In his Honour's view, at [29], the fact that the respondent may have been content to leave her father to conduct the affairs of the company as he wished and to accept whatever she was paid by the company without question, did not "amount to an assumption on her part that Edward and Jobema would divert her legal entitlements, once they were created". According to his Honour: "Unquestioning acceptance of what she in fact received, does not begin to show that she knew or intended that Edward and Jobema would act on the basis that her legal entitlements could be diverted to others. If Edward and Jobema assumed that they would and were entitled to act on that basis, there is nothing to show that [the respondent] entertained, or acted on, any such assumption."

Jobema's submissions

1. Jobema submitted that there was evidence to support its case of a conventional estoppel as was apparent from the following matters: that the respondent never questioned Jobema or her father about the distributions; that she never sought copies of her income tax returns although she was asked each year whether there was any additional information that needed to be included in her returns; that she had signed her 2003 income return; that in 2013 she was provided with copies of her 2010 and 2011 income tax returns and raised no questions about the income declared in them compared to the monies she had received in those years: and that she did not query John's email of 10 April 2016 which adverted to distributions that used to be made to family members including the grandchildren.
2. Jobema submitted that the knowledge she had from these matters and her failure to raise any queries in relation to them was consistent with the modus operandi of how Edward ran Jobema and consistent with the modus operandi of how other family members interacted with Edward. Jobema also submitted that as the respondent's knowledge was a critical aspect of its estoppel defence, the need to have access to all relevant documents through the usual document production processes including discovery, as well as having the ability to fully cross-examine the respondent, were essential and that summary judgment ought not to have been entered when those processes remained outstanding. Jobema further submitted that its inability to utilise the usual document production processes deprived it of the opportunity to obtain potentially relevant evidence. It referred in particular to the likelihood that there was email correspondence between the respondent and her father.
3. Jobema also submitted that his Honour's characterisation of the estoppel "went too far" and that it was sufficient if the respondent acquiesced in receiving such payments as Jobema made to her without her questioning it. Jobema submitted that it was not necessary to show that the respondent was content for money to go to her children, but that she accepted her father's "unbridled exercise of discretion".
4. The respondent submitted that his Honour was correct in finding that the basis for a conventional estoppel had not been made out. She further submitted that although she had received the 2010-2011 income tax returns in 2013, she did not at that time have access to Jobema's ledger accounts and was thus unaware that a portion of her dividend income had been distributed to her children.

Determination

1. In order to be entitled to summary judgment, there must be "a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way": Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41 at [57]; Batistatos v Roads and Traffic Authority of New South Wales (2006) 226 CLR 256; [2006] HCA 27 at [46]. This test is based on the principle that: "… Ordinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes": Agar v Hyde at [57].
2. The respondent was not cross-examined on her affidavit evidence that she did not know of or authorise the manner in which her father dealt with and accounted for the dividends to which she was legally entitled. However, she had information, at least from 2013, and perhaps earlier, that there were substantial differences in the income declared in her income tax returns and the monies she actually received from Jobema. We are not satisfied, therefore, that it can be said with "a high degree of certainty" that when the evidence is fully tested, the defence of conventional estoppel must fail.
3. The assumed system or convention underlying Jobema's defence was said to have operated from 2000, although the claim was only made from 2011, any earlier claim being statute barred. The evidence disclosed that the respondent had received her 2010-2011 income tax returns in 2013. She accordingly knew at least by then, or ought to have known, in the sense that she had material available to her, that her income tax returns disclosed earnings greater than she knew she had received. The respondent also signed her 2003 income tax return, which may provide a basis upon which it might be inferred that she had knowledge at least from then of the manner in which Edward conducted Jobema's affairs.
4. We do not agree with his Honour's observation, at [23], that the respondent's evidence that she did not know of or authorise the use of money to which she was entitled was uncontradicted. It was untested by cross-examination, as we have said, but her receipt of the 2010-2011 tax returns, and her failure at that time to query the discrepancy between her declared income in those returns and what she had received, raises a question as to the extent of her knowledge of the manner in which dividends were allocated by Jobema upon her father's direction.
5. As was candidly conceded by Mr Johnson, the primary judge's reasoning as to the respondent's absence of knowledge failed to attend to the evidence on her own case as to her tax returns. As we have already noted, in 2013 the respondent had sought and received her tax returns for the years ending 2010 and 2011. The latter tax return showed that she had been assessed on the basis that income by way of dividends in the sum of $282,318 had been received by her from Jobema.
6. The respondent must have known, or at least ought to have known as the relevant information was in her possession, that she had only received approximately $174,000 of cash payments in 2011, and accordingly must be taken to have known that there was unpaid money owed by the company to her. The same is true for subsequent years. True it is that that falls short of establishing that she knew that the debts owed by the company to her were being dealt with without her knowledge, but it means that there was a sufficient basis to require the matter to go to trial in the ordinary way.
7. Finally, there was a matter raised in the course of argument, as to whether Mr Messih was her agent in the preparation of her tax returns. If so, his knowledge would be imputed to the respondent. The same applies to KS Black, who formally prepared and lodged her income tax returns. However, Jobema acknowledged that this question had not been raised before the primary judge, and it is not necessary to express a concluded view on the point. The issue was perhaps obscured by the absence of pleadings and it will be matter for Jobema whether the matter is pleaded and pursued at the trial.
8. Accordingly, in our opinion, his Honour erred in entering summary judgment for the respondent.

Orders

1. The Court makes the following orders: 1. Grant leave to appeal. 2. Direct Jobema Pty Ltd to file a notice of appeal in accordance with the draft notice within seven days of today's date, and otherwise dispense with the requirements as to service. 3. Appeal allowed with costs. 4. Set aside orders 1 and 2 made on 7 June 2018 and in lieu thereof, order that the interlocutory process filed on 5 October 2017 by the respondent be dismissed, with costs.

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: 19 October 2018