K. & A. LAIRD (N.S.W.) Pty Ltd (In Liquidation) v AIDZAN Pty Ltd

Background facts

1. I now set out several background facts, which are partly common ground, emerging from KAL's chronology, the parties' pleadings and the affidavit and documentary evidence. KAL was incorporated in April 1955 and has two shareholders, Winbourne Engineering Pty Ltd ("WE") and Alan Laird (Holdings) Pty Ltd ("ALH") (FASOC [1]-[2]; Defence [1]). ALH was owned by members of the Laird family (FASOC [7]; reformulated in Defence [7]). The late Mr Henry Alan Laird (known as Alan) ("AL") was a director of KAL, ALH and WE until his death on 27 August 1987 and other family members were also directors of those companies (FASOC [8]; reformulated in Defence [8]). Each of KAL and its two corporate shareholders, WE and ALH are in members voluntary liquidation and Mr Alan Hayes was appointed as their liquidator on 24 August 2018.
2. From around the 1950s, KAL operated a steel wholesaling business in Australia, and there is a dispute as to whether WE traded which it is not necessary to decide (FASOC [11]-[12], Defence [11]-[12]). KAL purchased a property in Tattersall Road, Blacktown ("Tattersall Property") in the late 1960s or 1970 (FASOC [18]; Defence [18]; Hayes 14.7.22 [35]; PL 13.10.22 [26]; Ex J1, 4523) and operated its steel wholesale business from the Tattersall Property from around the date of its acquisition of that property until it moved that business to the Sunnyholt Property in 1992 (FASOC [19]; Defence [19]; T184).
3. On 4 March 1980, the late Dorothy Laird ("DL") and PL were appointed as directors of KAL (Ex J1, 4527). In around 1987, with the assistance of a firm of solicitors ("MSJ"), and particularly Mr Burges of that firm, AL took steps toward reclassifying the shareholdings in ALH to achieve, among other things, a reorganisation of rights to shares in ALH to give rights to his children (FASOC [13]-[14]; Defence [13]-[14]; PL 13.10.22 [104]ff; Ex J1, 348). A document dated 30 July 1987 prepared by Mr Burges titled "Rough Notes on procedure and objectives on Reorganisation of Shares" (Ex P1, 171) identifies the objectives of the share reorganisation, namely that: "The objectives are to achieve the desired reorganisation of rights by reclassifying shares into the desired categories to give the required rights rather than achieving this through wills or transfer of shares. Furthermore all the proposals relating to change of directors and the rights to be held during [AL's] and [DL's] lifetimes can be incorporated by changes in the Articles of Association, as can all the required flexibility in relation to distribution of dividends throughout the family in an appropriate pattern."
4. Those notes refer to dividend rights in relation to the relevant shares and record that: "It is provided that after the death of both [DL] and [AL] dividends have to be equal between the families, that is after allowing for the increased interest which [PL] will acquire if he continues to manage the company over the next 10 years and the company continues in the steel business or some substitute business acceptable to all the family."
5. Those notes also record, under the heading "Ownership Rights" : "Another objective which is now to be achieved through the class rights is the movement of an extra 15% of the shares to [PL] year by year so that if he continues to manage the company and the company stays in the steel business or an appropriate substitute business for 10 years he will finish up with 32% of the company and each of the other children will finish up with 17% of the company. [DL] during her lifetime has a half share and on her death her shares become valueless so that the children then acquire the full interest. In other words during [DL's] lifetime a 17% interest would only be actually an 8 ½% interest acquiring the full interest on [DL's] death."
6. AL died on 27 August 1987 (PL 13.10.22 [9]). After AL's death, PL took the role of managing director of KAL, ALH and WE, or at least managed the relevant business; DL continued as a director of the companies; and the share restructure of ALH ultimately took place in August 1989 and ALH adopted new Articles of Association (FASOC [15]; qualified Defence [15]; Hayes 14.7.22 [10]; Ex J1, 463; T139-140). The Laird siblings had a limited involvement in the implementation of the restructure, which involved steps to transfer shares in ALH that were previously held beneficially on their behalf to them, and they signed documents stating that they had no objection to the modifications to the rights attaching to those shares (Ex J1, 376ff).
7. From about 1989, PL investigated a possible relocation of KAL's steel business from the Tattersall Property to new premises, ultimately the Sunnyholt Property (FASOC [20]; the Defendants reformulate this proposition in Defence [20] and contend that KAL continued to store steel at the Tattersall property, which was plainly not the case in later years: PL 13.10.22 [139], T184-185, 235-236). Aidzan was incorporated on 26 October 1989; PL and DL were appointed as its directors on 16 January 1990; and PL was issued two shares in Aidzan and DL was issued one share in Aidzan, which she held on trust for PL, by a declaration of trust dated 16 January 1990 (FASOC [21]-[22]; Defence [21]-[22]; Ex J1, 875, 4539. A trust known as the Peter Laird Trust was also settled on 16 January 1990 (PL 13.10.22 [149]).
8. On 18 January 1990, Aidzan, as trustee for the Peter Laird Superannuation Fund, entered into a contract to acquire the Sunnyholt Property (FASOC [23]; Defence [23]; Hayes 14.7.22 [47]; Ex J1, 878, 881) and settlement of that contract occurred on 23 March 1990. Aidzan and KAL entered a credit facility with a third party lender, Michell NBD Pty Ltd ("Michell") with a limit of $1.8 million (Ex J1, 928) ("Facility Agreement"). The Facility Agreement provided for a facility of $1.8 million in favour of Aidzan and identified Aidzan, KAL, ALH, WE and PL as guarantors and referred to the lease to be entered into by Aidzan as lessor and KAL as lessee of the Sunnyholt Property and to the trust deed establishing the Peter Laird Trust dated 16 January 1990. Clause 2 provided that Aidzan and KAL must use the proceeds of the facility exclusively to partially finance the acquisition by Aidzan of the Sunnyholt Property and for working capital. By cl 9.1, each of Aidzan and KAL were required to repay the advance made to it and cl 26 identified certain obligations, including the repayment obligation under cl 9.2, that were joint and several liabilities of KAL and Aidzan. PL and DL attested the application of the common seals of Aidzan and KAL to the facility agreement.
9. KAL also then entered a Deed of Assignment of Rentals dated 23 March 1990 (Ex J1, 994), by which Aidzan assigned all its rights to Rentals (as defined) in respect of the Sunnyholt Property to Michell, extending to all monies which may be payable to it for the lease of the Sunnyholt Property. PL and DL again attested the application of the common seal of Aidzan and KAL to that document. PL was cross examined at some length as to his understanding of that document, but it seems to me plain that it transferred the rental payable by KAL to Michell, so that rental directly repaid the amount due by Aidzan to Michell. PL, Aidzan, KAL, ALH and WE also executed a Deed of Guarantee and Indemnity dated 23 March 1990 in favour of Michell (Ex J1, 1007), and Aidzan also granted a mortgage over the property to Michell (Ex J1, 1039). KAL then made a payment of about $1,283,000 to Aidzan which was used to fund the deposit and payment of the balance due to purchase the property (FASOC [26]; Defence [26]; PL 13.10.22 [175). At that time, Aidzan had not traded and operated no business and had no assets (FASOC [25]).
10. On 24 March 1990, Aidzan leased the Sunnyholt Property to DF Industries Pty Ltd ("DFI") (which had a common director with the vendor of the property) until 24 December 1990, for a rent of $1 per year (PL 13.10.22 [184], Ex J1, 1139), apparently in consideration of a purported discount to the purchase price offered by the vendor, although it is now clear that property was purchased by Aidzan for much more than its then market value. DFI occupied about two thirds of the property until late 1990 (T238).
11. Nearly three months later and six months after Aidzan had contracted to acquire the Sunnyholt Property, on 19 June 1990, KAL entered a lease over the Sunnyholt Property from Aidzan ("Sunnyholt Lease") for a term of 4 years commencing on 24 March 1990 and terminating on 23 March 1994, with an option for renewal, at a rent for $420,000 per annum (FASOC [27]-[28]; Hayes 14.7.22 [53]; Ex J1, 1146). It is now clear that rent was well above the then market rents for the property, reflecting the overvalue at which Aidzan had purchased the property. On 25 June 1990, PL and DL caused KAL to grant a mortgage of the Sunnyholt Lease to the lender (Hayes 14.7.22 [51], Ex J1, 1183).
12. In 1992, after DFI vacated the Sunnyholt Property (PL 13.10.22 [194]), KAL moved its business operations into that property (PL 13.10.22 [232]). KAL pleads (FASOC [34]) that, subsequent to the acquisition of the Sunnyholt Property by Aidzan on 23 March 1990, KAL's steel wholesaling business was moved to the Sunnyholt Property; KAL paid rent to Aidzan pursuant to the Sunnyholt Lease; KAL paid rent to Aidzan beyond the term of the Sunnyholt Lease pursuant to undocumented arrangements that PL implemented; and the amount of rent that KAL paid to Aidzan in relation to these arrangements exceeded $8,000,000.
13. By a letter dated 29 April 1993 (Ex J1, 1288), Mr Barden, a financial adviser to PL, recommended that PL establish a new superannuation fund called the "Aidzan Superannuation Fund" of which Aidzan would be the trustee and PL would be the member; establish the "Laird Property Trust" (which later became the Peter Alan Laird Property Trust ("PAL Property Trust")) of which Aidzan would be the trustee; transfer certain assets standing in his credit to another superannuation fund to the new superannuation fund and invest those assets in the PAL Property Trust; and use those assets, vendor financing and maintain the Michell facility to allow Aidzan as trustee of the new trusts to "purchase" the property that it already owned as trustee for the Peter Laird Superannuation Fund.
14. In late April or May 1993, Aidzan, which (as I noted above) had acquired the Sunnyholt Property as Trustee for the Peter Laird Superannuation Fund, was appointed as trustee of the newly established Aidzan Superannuation Fund on the terms of a trust deed (which was backdated to 1 January 1993), which contemplated that the Aidzan Superannuation Fund would provide retirement and other benefits for its members (PL 13.10.22 [222]; Ex J1, 1248). Unsigned minutes of a meeting of directors of Aidzan dated 1 January 1993 record a resolution that Aidzan act as trustee of the fund until further notice. It is plain that no meeting of directors of Aidzan passed that resolution on that date, since Mr Barden, as noted above, did not provide draft trust deeds for the Aidzan Superannuation Fund and the PAL Property Trust until late April 2023.
15. The Facility Agreement with Michell was amended on 7 May 1993 in connection with these arrangements (PL 13.10.22 [229]); Ex J1, 1313). On 26 May 1993, Aidzan was also appointed as the trustee of the PAL Property Trust (PL 13.10.22 [233]) and Aidzan as trustee of the PAL Property Trust acquired the Sunnyholt Property, subject to the mortgage, from Aidzan as trustee of the Peter Laird Trust (PL 13.10.22 [234]; Ex J1, 1290). Some attention was paid to these transactions in affidavit evidence and cross-examination but it is now common ground that they have no substantive impact on the claims in these proceedings, other than possibly as to the party to which orders should be directed. There is no suggestion that that transaction can have affected claims available by KAL against Aidzan in respect of the purchase of the Sunnyholt Property, where Aidzan as trustee of the new trusts knew everything that Aidzan already knew of the circumstances in which the property had been acquired.
16. A balance sheet dated 30 June 1993 (Ex J1, 1447) recorded that the PAL Property Trust (or, more precisely, Aidzan as its trustee) held non-current assets of $3,454,785.17 made up of the land and building, plant, machinery and fittings of the Sunnyholt Property and recorded the amount then owed to Michell on that property was $1,281,000; the amount owed to Aidzan was $1,663,730 and there was an outstanding interest liability of $17,600 to Aidzan. This valuation likely reflected the overvaluation at which the property was purchased to which I referred above.
17. The Sunnyholt Lease expired on 23 March 1994 (Hayes 14.7.22 [53]; Ex J1, 1162) and KAL continued to occupy the premises and pay rent at the rate provided in the lease until, in FY 1999, that rent was reduced to $300,000 per annum (PL 13.10.22 [308]).
18. In 2003, KAL investigated the sale of another property ("Valediction Road Property") and it appears to have been contemplated that the sale proceeds would be distributed to the Laird siblings (Ex J1, 1905). While that property was sold, that distribution did not occur. KAL retained the sale proceeds, largely as a bank deposit, and earned interest on them as its business and its earnings went into a long and ultimately terminal decline. It is common ground that the Tattersall Property was no longer used for storage of surplus steel by KAL from 2005 and did not generate income for KAL from that date (T149-151, T162).
19. PL had a series of significant health problems from 2004 (Ex J1, 2297) and did limited or no work in KAL's business during periods in which he was ill or, likely, depressed in later years, although he caused KAL to continue to pay his full salary and later increased that salary and, with some interruptions, caused KAL to continue to pay rent on the Sunnyholt Property to Aidzan. As at 30 June 2005, KAL's balance sheet (Ex J1, 1925) recorded that it had total assets of $6,709,909, which included the sales proceeds of the Valediction Road Property, and had incurred operating losses of $334,769 in the year ending 30 June 2004 and $378,855 in the year ended 30 June 2005, and net losses in those years of $234,245 and $75,907 after interest received on the sale proceeds of the Valediction Road Property. In the year ended 30 June 2006, KAL incurred a larger operating loss of $609,480 (Ex J1,1939), and a net loss of $326,975 after interest on the sale proceeds of the Valediction Road Property. In 2007, PL directed $1,000,000 to be paid from KAL's funds into the Aidzan Superannuation Fund (FASOC [93]; Defence [93]; PL 13.10.22 [357]) ("PL Superannuation Payment"). In the year ended 30 June 2007, KAL incurred an operating loss of $1,379,934 (including that payment) and its net loss was $992,025, again reduced by interest on the sale proceeds of the Valediction Road Property (Ex J1, 1975). Unsurprisingly, given the PL Superannuation Payment and the operating losses that it was incurring, KAL's total assets had by then been reduced to $4,655,332 (Ex J1, 1977). In the year ended 30 June 2008, KAL incurred another operating loss of $452,206, and its net loss was $134,063, again reduced by interest on the sale proceeds of the Valediction Road Property, although its total assets had increased somewhat to $5,222,320 (Ex J1, 2009).
20. DL died in 2009 and, from the time of her death until 2017 when Michael Laird ("ML") became a director of KAL, PL was the sole director of KAL (Ex J1, 4226 at 4229; T139).
21. As at January 2012, KAL and PL had failed to lodge income tax returns for several years and their accountant was advised by an officer of the Australian Taxation Office that she was required to escalate the matter to prosecution, but would request of deferral of action if PL provided a letter from his doctor (Ex J1, 2296). By a letter dated 12 January 2012 (Ex J1, 2297), PL explained his "lack of attention to issues such as not completing tasks like tax returns for some number of years" by reference to health issues over several years leading to "ultimately the decline of a once successful family business". He there observed that: "A number of these issues required significant time to recover from and to this day require ongoing attention. This of course meant that I was not working for significant periods of time subsequent [to] 2004. During that period my senior employee (financial controller) was managing the business during my protracted absences. He was then found to be stealing from the business and employment was terminated... This has all lead [sic] to my unsatisfactory state of mind and general lack of interest. I have endeavoured to keep up with GST payments and the like, as well as paying some number of fines over the period, however, got to the point of not knowing where to start with all other matters, particularly given no tax would be due and we were continuing to accumulate losses. The business has effectively ceased to trade although I do go in for a few hours a couple of days a week. I have since with the help of [the accountant] filed two years returns and intend to file subsequent years within a short period of time."
22. There is no suggestion in this letter that there would soon be any improvement in KAL's position and that letter holds out no prospect of reversal of the decline in the business that PL there acknowledges. There is also no evidence of any plan that PL then or ever developed to rehabilitate KAL's business or recommence its operations or of anything more than a hope that his health might improve and, by steps that were neither planned nor identified, the business could then be restored.
23. PL contends that, on 29 June 2012, he paid $680,000 to KAL as a part repayment of the PL Superannuation Payment (PL 13.10.22 [426]). I will address that issue below. KAL ceased trading in 2013 (Hayes 14.7.22 [18]; PL 13.10.22 [499]).
24. On 10 February 2017, ML sent an email to PL (FASOC [102]-[103]; Defence [102]-[103]; Ex J1, 2782) attaching photographs of the Sunnyholt Property which showed a substantial part of the office building attached to the warehouse had collapsed and observed that: "Whilst out Blacktown I also dropped in on Sunnyholt Rd. Don't [sic] when you were last out there - but the property is in a mess. The front gates have been trashed open, concrete blocks moved. *there are two dumped and gutted cars in the driveway. *the office room has collapsed or been smashed in, but it is destroyed *the shed is wide open had obviously seen better days. *interestingly it looks like someone is currently storing tyres on site - they are too neat and tidy - looks recent and ongoing. *a lot of steel still there - pipe mostly."
25. ML also asked whether there was anything he could do, plainly by way of an offer of assistance. ML resent that email on 14 February 2017, without the photographs, apparently because PL's email box was full, and PL responded by email dated 15 February 2017 (Ex J1, 2783): "Yes I am aware of these issues and it is soul destroying to see what has been done. We have tried to stop them but to no avail. The tyres etc are from my neighbour who has been trying to help. The worst of all that they have done is crash through the roof of the office and steal the safe and all the records of the business etc. I was always comforted over the years knowing no matter what the thief and vandals got up to Dads safe would always make sure our records would be alright. I didn't think it was possible to take it as it was impossible to move, ha!"
26. PL's evidence in cross-examination was that he only became aware of the theft of the safe from the Sunnyholt Property by reason of ML's email dated 10 February 2017. I do not accept that evidence, where ML's email made no reference to the theft of the safe, which was first disclosed as a matter already known to PL in his response to ML's email.
27. On 1 June 2017, ML was appointed a director of KAL and WE (Ex J1, 4527, 4575). The Tattersall Property was then sold by a contract dated 2 June 2017 (Ex J1, 2830) and a transfer was registered on 6 November 2017 (Ex J1, 4523). ML was later appointed as a director of ALH in 2018 (Ex J1, 4557).
28. Between 5 and 26 June 2018, unknown persons stole between 300 and 400 tonnes of steel from the Sunnyholt Property and (as the Defence admits) PL notified the NSW police of a break-in at the Sunnyholt Property on 30 June 2018 (Ex J1, 3065). The police event report in respect of the theft (Ex J1, 3065) recorded that the police were advised that the theft had occurred between 5 June 2018 and 26 June 2018; that the theft was reported at 9:05am on 30 June 2018; that between 300 and 400 tonnes of steel had been stolen; and that: "Person reporting advised that the factory has no roller doors and anybody could walk in and take anything. Person reporting is the [redacted] of the victim organisation."
29. The police redacted the identity of the person reporting that theft on the copy of the report that was made available to KAL's liquidator and tendered in these proceedings. I find that PL made that report, given the admission in his Defence and the fact that it is highly improbable that, if two members of the Laird family separately made such a report, the police only recorded one such report.
30. The Laird siblings, including PL, developed a proposal for KAL and the other Laird family companies to be placed in voluntary liquidation, as has now occurred. On 7 August 2018, two other Laird siblings, Ms Debra Roberts and Ms Christine Cook were appointed directors of KAL (Ex J1, 4527). On 24 August 2018, Mr Hayes was appointed liquidator of KAL, WE and ALH in a members voluntary winding up (FASOC [10]; Defence [10]; Ex J1, 4527, 4554, 4575). The Tattersall Property was sold by KAL at or around 31 August 2017 for $6,834,940.20 including GST (Hayes 14.7.22, [39]-[40]).
31. On 4 December 2018, Sydney Water Corporation filed a winding-up application in respect of Aidzan and Messrs Topp and Gleeson were appointed as liquidators of Aidzan on 4 February 2019 (Ex J1, 4539). Another company, Nazdia Pty Ltd ("Nazdia") was incorporated on 13 February 2019 (Ex J1, 4549) and, on 18 February 2019, Nazdia replaced Aidzan as trustee of the Aidzan Superannuation Fund. On 6 March 2019, Messrs Topp and Gleeson were appointed as receivers and managers of the assets of the PAL Property Trust (Ex J1, 2981).
32. By an email dated 18 March 2019 to Ms Roberts (Ex J1, 2986), as to which ML was cross examined, ML raised the possibility of a distribution from the voluntary liquidation to the Laird siblings excluding PL, observing that ML did not "want [PL] to get a cent whilst all this gets sorted" and noting the position of two other siblings who appeared to be in financial need. It seems to me that it is understandable that this thought would have occurred to ML in the circumstances, and it also seems to me to provide no proper basis for PL's attack on the Laird siblings or a now abandoned attack on Mr Hayes' conduct of the liquidation. By an email dated 2 May 2019 from ML to Mr Hayes (Ex J1, 3035), ML raised questions as to the police event report in relation to the theft from the Sunnyholt Property, expressed a degree of scepticism as to the circumstances of that theft and again addressed the possibility of a cash distribution to shareholders and the other Laird siblings' wish for distribution to occur to all except PL "on the basis that he owes the business in excess of $2mil (and likely a great deal more) and that he should not therefore get a distribution at this point". It seems to me that that position, at least so far as the Laird siblings were concerned, was again an understandable one.
33. By letter dated 27 June 2019 (Ex J1, 4975), Mr Hayes wrote to Mr Topp in Mr Topp's capacity as joint liquidator of Aidzan as trustee of the PAL Property Trust, and as one of the Joint Receivers and Managers of the PAL Property Trust as follows: "I advise that the Companies have a significant claim against Aidzan Pty Ltd and the Property, I'm currently quantifying the specific sum. Accordingly, I request that other than the statutory sums attaching to the Property, you do not distribute any funds from the sale of the Property or from the liquidation of Aidzan Pty Ltd until this matter has been resolved. It is my intention to contact [PL] shortly to arrange a meeting to address the Company's claim and hopefully resolve same. I expect any resolution will involve the Company's other shareholders, being [PL's] family." It seems to me that Mr Hayes' letter was sufficient to give notice to Mr Topp of the prospect that a claim could be brought against the Sunnyholt Property, including potentially by bringing a claim for breach of director's duties against PL, asserting the existence of a proprietary claim over the Sunnyholt Property.
34. By an email dated 1 July 2019 (Ex J1, 4976) Mr Topp responded that: "I acknowledge receipt of your letter indicating that the 3 companies you are the liquidator of may have a claim against Aidzan. Further, I note that last week you were trying to call [PL] to advise him of the claim. Please confirm if you have spoken to [PL]. In this regard I note he may be going away on holidays today or tomorrow." Mr Topp also sought confirmation that Mr Hayes had no objection to the exchange of contracts for the sale of the Sunnyholt Property.
35. By an email dated 1 July 2019 to PL (Ex J1, 4978), Mr Hayes also confirmed advice which had been provided to PL in the previous week. The email identified its subject matter as the companies including KAL and the Sunnyholt Property and continued: "Thanks for calling me back on Friday, I herein confirm my advice during that call, that as liquidator of the companies I believe I have claim against Aidzan Pty Ltd and the Property. I'm currently quantifying the specific sum. Accordingly I have requested that other than the statutory sums attaching to the Property, Alan Topp as its joint Receiver & Manager/Joint Liquidator does not distribute any funds from the sale of the Property or from the liquidation of Aidzan Pty Ltd until this matter has been resolved. I have not sought in any way to prevent a sale, knowing that Mr Topp is an experienced and competent insolvency practitioner. I note that you'll be overseas for the next few weeks and we'll meet upon your return to discuss the claim, and perhaps meet with other members of your family as necessary. Further, during the time you're overseas, I'll work on quantifying the claim."
36. It seems to me that this letter provided sufficient notice to PL that Mr Hayes then considered that he had a claim against Aidzan as well as a claim against the Sunnyholt Property. That proposition implied that PL's conduct would be under investigation, since Aidzan could only operate through its directors and any claim against it must relate to the conduct of PL and DL prior to DL's death and PL's conduct for the period after DL's death. Even if PL did not subjectively appreciate that matter, that email provided sufficient notice of it that he had a fair opportunity to take legal advice as to his position, if he wished to do so.
37. By an email dated 2 July 2019 (Ex J1, 4980) to Mr Hayes, copied to Mr Topp, PL acknowledged Mr Hayes' email and advised that no sale had yet been finalised and that a 90 day settlement would be set. He offered to meet Mr Hayes and Mr Topp at their convenience. It seems to me plain that, rightly or wrongly, PL then considered that the best response to a potential claim against Aidzan and the Sunnyholt Property was for him to offer further information to Mr Hayes, presumably in justification of his and Aidzan's conduct.
38. On 12 September 2019, PL met with Mr Hayes in the offices of Mr Hayes' firm [Hayes 14.7.22 [28]). On 23 October 2019, Aidzan completed a contract for sale of the Sunnyholt Property to a third party (Topp 9.2.22 [45]). KAL commenced these proceedings on 11 December 2020 and, on 28 April 2022, Williams J made freezing orders in respect of the remaining amount of the sale proceeds of the Sunnyholt Property.

Affidavit evidence

1. I now turn to the affidavit evidence and cross-examination. In addressing that evidence, I 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; Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810 at [41]; Varma v Varma [2010] NSWSC 786 at [424]-[425]. I also have regard to the fact that objective evidence, where available, is likely to be the most reliable basis for determining matters of credit that arise as to the affidavit evidence: Armagas Ltd v Mundogas SA [1985] 1 Ll R 1 at 57; Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789 ("Colorado") at [10]. In considering the documentary evidence that is available in this case, I have recognised that, rightly or wrongly, proprietary companies, their directors and shareholders often conduct their affairs with a degree of informality: Electrical Enterprises Retail Pty Ltd v Rodgers (1988) 15 NSWLR 473 at 489; VL Finance Pty Ltd v Legudi (2003) 54 ATR 221 at 226-227.
2. The principles applicable to assessing evidence of conversations, in the context of claims for misleading and deceptive conduct, were helpfully summarised by Slattery J in Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd [2010] NSWSC 963 at [87] as follows: "The principal conduct of the defendants that [the plaintiff] alleges was misleading or deceptive was the speaking of words in the course of a series of conversations. Special considerations apply when assessing alleged misleading and deceptive conduct in such a context. It is necessary that the words spoken be proved with a degree of precision sufficient to enable the Court to be reasonably satisfied that they were in fact misleading in proved circumstances: Watson v Foxman (1995) 49 NSWLR 315 at 318 per McLelland CJ in Eq. In assessing whether spoken words were misleading the Court may have to examine relatively subtle nuances flowing from the use of one word, a phrase or a grammatical construction rather than another or the presence or absence of some qualifying word, phrase or condition: Watson v Foxman (1995) 49 NSWLR 315 at 31. The fallibility of human memory and the overlaying of memory with perceptions of self-interest leading to sub conscious reconstruction are all hazards of ordinary human experience to which a Court must be alert in assessing whether particular spoken words are misleading or deceptive: Watson v Foxman (1995) 49 NSWLR 315 at 319. Ultimately each element of the cause of action must be proved to the reasonable satisfaction of the Court which means that the Court "must feel an actual persuasion of its occurrence or existence". Such satisfaction is "not obtained or established independently of the nature and consequences of the fact or facts to be proved", including the "seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding": Helton v Allen (1940) 63 CLR 691 at 712."

Claim for trust over proceeds of sale of the Sunnyholt Property and rescission of loans

1. KAL brings a trust claim arising from PL's alleged breach of directors' duties in relation to Aidzan's acquisition of the Sunnyholt Property, initially as trustee of the Peter Laird Trust. The amount claimed is the net proceeds of the later sale of that property, $6,992,444.64. I have referred to the facts relating to Aidzan's acquisition of the Sunnyholt Property above and KAL pleads the matters on which it relies to attack that transaction in FASOC [29]ff; the Defendants contend (Defence [29]) that KAL benefitted from entering the Sunnyholt Lease as the Sunnyholt Property had undercover storage for steel. KAL in turn pleads (FASOC [32], denied Defence [32]) that: a. "[PL] and [DL] diverted an opportunity that KAL had to acquire all of the legal and equitable interest in the Sunnyholt Property, being the acquisition of the property from which KAL would subsequently trade, to a company that they wholly owned and controlled, being [Aidzan] ("Diversion of Opportunity"); and b. The Diversion of Opportunity constituted a misappropriation of property to which KAL was entitled in favour of a company that [PL] and [DL] wholly owned and controlled, being [Aidzan]."
2. KAL also pleads (FASOC [33], partly admitted Defence [33]) the absence of shareholder approval or the provision of information to the other Laird siblings concerning the transaction.
3. It is convenient to deal first with KAL's claim (FASOC [49]ff) for a breach of the well-established no conflict and no profit duties as against PL and DL. A director of a company is a recognised category of fiduciary and the "no conflict" and "no profit" rules apply to a director as a status-based fiduciary. The "no conflict" rule has a strict application when it applies in the sense that, if a transaction has occurred in conflict of interest, a company director cannot avoid a breach of that rule by asserting the fairness of the transaction or that it was in the company's best interests or that the director was not acting with subjective dishonesty. I observed (by reference to authority) in Colorado at [351] that: "Broadly, the no conflict rule prohibits conduct where a fiduciary has a personal interest or duty owed to a third party which gives rise to a real and sensible possibility of a conflict. That rule and the no profit rule, which provides that a fiduciary cannot obtain a profit from its fiduciary position without the principal's consent, may overlap."

The limitations defence

1. As I noted above, the Defendants plead (Defence [67]) that a claim for a resulting trust or constructive trust is time barred under ss 47, 51 and 63 of the Limitation Act and other corresponding limitations legislation, although it is common ground that I now need only address the position under the Limitation Act. In closing submissions, KAL acknowledged the parties' agreement, in the Defendant's submissions filed on 27 April 2023 and KAL's reply submissions filed on 5 May 2023, that s 47 of the Limitation Act was the relevant provision in respect of KAL's trust claims, although its application was in dispute. KAL also accepted the Defendants could advance a claim that PL's and DL's knowledge of the Sunnyholt Property transactions was to be imputed to KAL at the time of the acquisition of the Sunnyholt Property, although that contention was not raised by the Defence or any other pleading.
2. The relevant provisions of the Limitation Act are as follows: "11 Definitions (1) In this Act, unless the context or subject matter otherwise indicates or requires: … Trust includes express implied and constructive trusts, whether or not the trustee has a beneficial interest in the trust property, and whether or not the trust arises only by reason of a transaction impeached, and includes the duties incident to the office of personal representative but does not include the duties incident to the estate or interests of a mortgagee in mortgaged property. Trustee has a meaning corresponding to the meaning of 'trust'." 47 Fraud and conversion; trust property (1) An action on a cause of action: (a) in respect of fraud or a fraudulent breach of trust, against a person who is, while a trustee, a party or privy to the fraud or the breach of trust or against the person's successor, (b) for a remedy of the conversion to a person's own use of trust property received by the person while a trustee, against that person or against the person's successor, (c) to recover trust property, or property into which trust property can be traced, against a trustee or against any other person, or (d) to recover money on account of a wrongful distribution of trust property, against the person to whom the property is distributed or against the person's successor, is not maintainable by a trustee of the trust or by a beneficiary under the trust or by a person claiming through a beneficiary under the trust if brought after the expiration of the only or later to expire of such of the following limitation periods as are applicable: (e) a limitation period of twelve years running from the date on which the plaintiff or a person through whom the plaintiff claims first discovers or may with reasonable diligence discover the facts giving rise to the cause of action and that the cause of action has accrued, and (f) the limitation period for the cause of action fixed by or under any provision of this Act other than this section ... 51 Ultimate bar (1) Notwithstanding the provisions of this Part, an action on a cause of action for which a limitation period is fixed by or under Part 2 is not maintainable if brought after the expiration of a limitation period of thirty years running from the date from which the limitation period for that cause of action fixed by or under Part 2 runs. (2) This section does not apply to a cause of action in relation to which an order has been made under Subdivision 3 of Division 3 (Discretionary extension for latent injury etc). 55 Fraud and deceit (1) Subject to subsection (3) where: (a) there is a cause of action based on fraud or deceit, or (b) a cause of action or the identity of a person against whom a cause of action lies is fraudulently concealed, the time which elapses after a limitation period fixed by or under this Act for the cause of action commences to run and before the date on which a person having (either solely or with other persons) the cause of action first discovers, or may with reasonable diligence discover, the fraud deceit or concealment, as the case may be, does not count in the reckoning of the limitation period for an action on the cause of action by the person or by a person claiming through the person against a person answerable for the fraud deceit or concealment. (2) Subsection (1) has effect whether the limitation period for the cause of action would, but for this section, expire before or after the date mentioned in that subsection. (3) For the purposes of subsection (1), a person is answerable for fraud deceit or concealment if, but only if: (a) the person is a party to the fraud deceit or concealment, or (b) the person is, in relation to the cause of action, a successor of a party to the fraud deceit or concealment under a devolution from the party occurring after the date on which the fraud deceit or concealment first occurs. 63 Debt, damages etc (1) Subject to subsection (2), on the expiration of a limitation period fixed by or under this Act for a cause of action to recover any debt damages or other money, the right and title of the person formerly having the cause of action to the debt damages or other money is, as against the person against whom the cause of action formerly lay and as against the person's successors, extinguished. (2) Where, before the expiration of a limitation period fixed by or under this Act for a cause of action to recover any debt damages or other money, an action is brought on the cause of action, the expiration of the limitation period does not affect the right or title of the plaintiff to the debt damages or other money - (a) for the purposes of the action, or (b) so far as the right or title is established in the action. (3) This section does not apply to a cause of action to which section 64 or section 65 applies."

Quantification of Sunnyholt Property claim

1. There appears to be a difference between KAL on the one hand and Mr Topp, as liquidator of Aidzan and receiver of the relevant trusts, on the other, as to the extent of costs which should be deducted on the proceeds of sale of the Sunnyholt Property, where KAL is successful in its trust claim. KAL contends that the net proceeds of sale should be $6,992,444.64 through the definition of "Sunnyholt Proceeds" in the FASOC and Mr Topp contends that they should be $6,721,044.76 (Topp 13.2.23 [11]). The sum presently held by Aidzan's liquidators, following the sale of the Sunnyholt Property, appears to be $5,185,442.61, as at 28 April 2022, which is less than either amount. This matter was not sufficiently addressed in submissions and needs to be addressed in formulating orders, to the extent that those orders require the specification of that amount.

Claim as to Sunnyholt Surplus Rent

1. By prayer 5 of the relief claimed in the FASOC, KAL also seeks an order that the Peter Laird Entities, or one or more of them, pay the Sunnyholt Surplus Rent (as defined) to KAL within 7 days. The term "Sunnyholt Surplus Rent" is defined in the FASOC as the amount of monies that KAL paid to Aidzan or on Aidzan's behalf that exceeded the monies required by Aidzan to discharge the mortgage that Aidzan granted over the Sunnyholt Property in order for Aidzan purportedly to obtain all the legal and equitable title to the Sunnyholt Property.
2. KAL pleads (FASOC [70]) that: "To the extent that KAL paid rent to [Aidzan], or on [Aidzan's] behalf, in relation to the Sunnyholt Property that exceeded the monies required by [Aidzan] to discharge the [Aidzan] Mortgage (Sunnyholt Surplus Rent): a. Such monies were surplus to the requirement for [Aidzan] to acquire all of the legal and equitable interest in the Sunnyholt Property; b. Such monies represented a windfall profit payment to the Peter Laird Entities or any one or more of them in breach of fiduciary duties owed by [PL] to KAL as pleaded above; c. The Peter Laird Entities, or any one or more of them, have been enriched at KAL's expense by KAL paying the Sunnyholt Surplus Rent to [Aidzan] in circumstances (pleaded above) where it would be unjust to permit those parties to retain that benefit; and d. The Peter Laird Entities, or any one or more of them, are liable to pay equitable compensation to KAL in the amount of the Sunnyholt Surplus Rent.
3. In closing submissions, KAL put the Sunnyholt Surplus Rent claim on the basis that it was a corollary of its claim that it was always the beneficial owner of the Sunnyholt Property, and that this claim would supersede and subsume its other rent-related claims if successful. Mr Leopold points out that, once the mortgage debt was paid out prior to November 2009 (PL 13.10.22 [388]), the rent paid by KAL to Aidzan was no longer used to service that debt. He submits that, where Aidzan held the property on trust for KAL, it received that rent on trust for KAL, to the extent that it was no longer the repayment of the mortgage. Mr Studdy fairly accepted in closing submissions that, subject to a limitations issue, this claim would succeed, consequential upon KAL's success in establishing a trust over the Sunnyholt Property. Aidzan had no claim to retain rent for the property, where KAL was its beneficial owner, but KAL would have had to pay the repayments of the loan on the property that were funded by rent payments to Aidzan. The difference between those figures is reflected in this claim.

Sunnyholt Property non-trust claims

1. In closing submissions, KAL notes that the claims at FASOC [70A]-[86B] are directed to the position if the Court does not find that a trust is established over the Sunnyholt Property. It identifies the first of those claims as a claim for equitable compensation against PL for the value of the Sunnyholt Property, relying on a claim for breach of fiduciary duty in PL causing Aidzan to acquire the Sunnyholt Property instead of KAL (FASOC prayer 4, [70A]). It is not necessary to determine this claim where KAL's trust claim has succeeded.

KAL's alternative claim as to Sunnyholt Acquisition and Maintenance Costs

1. KAL also brings, in the alternative, a restitutionary claim (FASOC [72]-[78]) in respect of the Sunnyholt Acquisition and Maintenance Costs, defined as the costs of, and incidental to, the acquisition of the Sunnyholt Property and all outgoings and maintenance costs in relation to the Sunnyholt Property. By prayer 6 of the FASOC, KAL seeks an order that the Peter Laird Entities, or one or more of them, pay the Sunnyholt Acquisition and Maintenance Costs KAL within 7 days.
2. In closing submissions, KAL characterises this claim as a claim based on "unjust enrichment principles" against Aidzan and the relevant trusts, so far as they took the benefit of KAL paying the purchase price of the Sunnyholt Property and paying down the debt on that property, while Aidzan acquired the legal and beneficial interest to that property. KAL limited that claim in closing submissions to the recovery of identified land tax and council rates paid by KAL, as recorded in the profit and loss statements in evidence, quantified as $392,436.05 and quantified the rent of Aidzan to Michell under the rental assignment agreement, which paid down the interest and principal owed to Michell, as $6,743,000. The Defendants deny the claim (Defence [77]-[78]) and contend that it is time barred and extinguished by operation of ss 14, 47, 51 and 63 of the Limitation Act, or s 15 of the Limitation Act.
3. This claim is an alternative to the trust claims and cannot succeed where KAL's trust claim has succeeded. To the extent that those costs arose under the Sunnyholt Lease or in the period that KAL occupied the property after the lease expired, PL's and DL's knowledge of the terms of the lease and its occupancy of the premises would be attributed to KAL, and this claim would also be barred by analogy with the applicable limitation period under s 15 of the Limitation Act, for rent paid before 11 December 2014.

Claim as to Sunnyholt Excess Rent

1. Further, or in the alternative, KAL brings a claim (FASOC [79]-[86B]) directed to the payment of rent by KAL to Aidzan at an amount that was well above the market rent as indicated by the joint expert's report. By prayer 7 of the relief claimed in the FASOC, KAL seeks an order that PL and/or Aidzan pay the Sunnyholt Excess Rent (as defined) to KAL within 7 days. The term "Sunnyholt Excess Rent" is defined in the FASOC as the rent paid by KAL to Aidzan in relation to the Sunnyholt Property that was above the market rate of rent for the Sunnyholt Property "from time to time". In closing submissions, KAL quantified the amount claimed, being the excess of the rent paid over the market rent as assessed by the joint expert report, as $1,262,000.
2. KAL pleads (FASOC [79]) that KAL paid annual rent to Aidzan in relation to the Sunnyholt Property of at least $420,000 from 1990 to 1996 and $300,000 from 1997. It pleads PL's role as a director of both companies and that those rental amounts were above the market rent for other properties similar to the Sunnyholt Property for most, if not all, years over that period, and exceeded it for all years if the outgoings KAL paid are included as "rent". KAL pleads the breach of some four duties in this regard (FASOC [80(c), [85]), namely the Best Interests Duty (as defined); the No Conflict Duty (as defined); the No Profit Duty (as defined); and the General Law Duties of Care (as defined), although Mr Leopold's closing submissions somewhat departed from that pleading. It claims (FASOC [86]-[86B]) that PL and Aidzan are liable for KAL's loss quantified as the difference between the actual rent that KAL paid in relation to the Sunnyholt Property and the market rent for that property.
3. The Defendants deny this claim and contend (Defence [86]) that it is statute barred and extinguished by operation of ss 14, 15, 47, 51 and 63 of the Limitation Act or in equity by analogy to s 15 of the Limitation Act. Mr Studdy submits (in closing submissions) that the claim for equitable compensation in respect of the Excess Rent is analogous to the common law duty of agents to account for wrongful profits (Twigg v Twigg (NSWCA) at [183]-[184]) and that s 15 of the Limitation Act applies by analogy and a limitation period of 6 years runs from the date on which the matter arises; the Defendants' "Schedule of Limitations Defences" did not fully reflect that approach. KAL responds that this claim is not barred by a limitation period, relying on s 55 of the Limitation Act and contending that it involved concealed fraud, with the consequence that the cause of action only accrued in 2018 when KAL could reasonably have discovered the fraud.

Claim as to the Tattersall Property

1. By prayer 11 of the relief claimed in the FASOC, KAL seeks an order that PL pay compensation to KAL to compensate KAL for his failure, as a director of KAL, to take, or to cause to be taken, steps to recover any rent from the Tattersall Property or any other monies in relation to the commercialisation of that property for the period from around 1990 to the date of the sale of the Tattersall Property on around 6 November 2017. KAL pleads (FASOC [88]) that the Tattersall Property was left vacant and generated no revenue from its acquisition on 23 March 1990 until its sale in 2017; the Defendants (Defence [88]) deny this and say the Tattersall Property continued to hold stock for KAL and therefore assisted KAL in its revenue generation. KAL then pleads (FASOC [89]) General Law Duties of Care (as defined); pleads (FASOC [90]-[91]) the steps which a "reasonable director" of KAL would have taken in respect of the property; and pleads (FASOC [92]) a failure to take these steps gave rise to a breach of the General Law Duties of Care. In closing submissions, KAL limited this claim to a common law negligence claim against PL. It is well-established that directors are required under the general law to exercise care and diligence in exercising their powers, and a director's duty of care in negligence was recognised in Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438 ("Daniels") at 504-505.
2. It is common ground that the Tattersall Property was a large, and at least by the time of its sale, a valuable industrial property. Mr Leopold submits that, following the move of KAL's business operations from the Tattersall Property to the Sunnyholt Property in around 1990, the Tattersall Property was left to "lie dormant" for around 30 years. He recognises PL's evidence (PL 13.10.22 [196]) that surplus steel was stored on the property from around 1990 until 2005, and points to PL's acknowledgement that the property was left vacant from 2005 (PL 13.10.22 [198], [339]) and to his explanation that surplus steel might need to be stored, from time to time, over the 12 year period from 2005 until the property was sold in August 2017 (PL 13.10.22 [340], [455]). Mr Leopold submits that PL made no attempt to raise any rental income from the Tattersall Property and points to PL's evidence that trucking operators and scaffolding companies who approached him (through real estate agents) about the possibility of renting the property would be "unsatisfactory tenants" (PL 13.10.22 [340]). Mr Leopold points out that PL did not cause KAL to engage a real estate agent to seek out other prospective tenants who might have been satisfactory, or seek to negotiate rental guarantees which would have addressed any credit issue as to potential tenants of the Tattersall Property. He submits that it was not in KAL's best interests, and a breach of Peter's duty of care to KAL, for PL to fail to take reasonable steps to rent out part, or all, of the Tattersall Property over the lengthy period in which it could have been rented. He points out that the joint expert report concludes that the market rental available for the Tattersall Property over the period commencing when KAL's business moved to the Sunnyholt Property was around $4,446,000.

Claim as to PL Superannuation Payment

1. KAL also seeks relief in respect of the PL Superannuation Payment, being a payment of $1,000,000 that PL caused KAL to make to the Aidzan Superannuation Fund on his account. KAL pleads (FASOC [93]) the fact that PL, as the managing director of KAL, caused KAL to make that payment and pleads (FASOC [95]) that this payment: "a. Amounted to: (i) Almost twice the gross sales of $556,154.52 received by KAL as identified in the profit and loss account of KAL in the 2008 financial year; and (ii) Over twice the operating loss of ($452,206.18) experienced by KAL as identified in the profit and loss account of KAL in the 2008 financial year; b. Was undocumented; c. Was unsecured; d. Had no specified term of repayment; e. Attracted no interest or alternatively unspecified interest; f. Provided no material benefit to KAL; g. Was not a payment made by KAL in the ordinary course of its steel wholesaling business or in the course of any business which it conducted; h. Was made to solely benefit Peter, as the beneficiary of the [Aidzan Superannuation Fund]; and i. Was identified in KAL's balance sheet in the 2008 financial year (which was prepared around four years later, in around 2012) as a loan from KAL to Peter in the amount of $900,000, with accrued interest of $58,510.55, with $100,000 having apparently been paid down at some unspecified date, such part payment not being receipted or otherwise documented."
2. KAL relies (FASOC [94], [98]) on several causes of action, namely claims for breach of the Best Interests Duty (as defined) and the no conflict and no profit duties. It extends those claims to Aidzan and later Nazdia as trustees of the Aidzan Superannuation Fund. Apparently superfluous claims for breach of statutory duties and the general law duty of care were not pressed.
3. PL accepts that this transaction initially took place as a superannuation contribution and was recorded as such in KAL's profit and loss statement for 2007 (Ex J1, 1976; PL 13.10.22 [364]). His affidavit evidence is that it was his intention that the monies that he had caused KAL to pay into his superannuation fund would be later paid out for the benefit of his siblings on the basis of their respective holdings in ALH (PL 13.10.22 [358]). The other Laird siblings give evidence that PL never told them of that intention or of the relevant transactions and I do not accept PL's evidence in this respect. PL's evidence is that the transaction was later treated as a loan, after he received advice from his accountant, Mr Vumbaca, that it should not have been treated as a superannuation contribution (PL 13.10.22 [373]-[375]). It appears this did not occur until 2012 and the transaction is then treated as a loan "at call" in KAL's balance sheets from 2008, which were not prepared until early 2012 (Ex J1, 2023). The subsequent recharacterisation of the transaction as a loan seems to me to have had no effect, where nothing had occurred to effect the legal character of the transaction that took place in 2007, and was no more than an exercise in a false labelling of the nature of the transaction.

Claim as to the theft of steel from the Sunnyholt Property

1. By prayer 18 of the relief claimed in the FASOC, KAL seeks an order that PL pay compensation to KAL for $50,000 as the value of steel products owned by KAL which were situated at, and unlawfully removed from, the Sunnyholt Property in around 2018. No limitation issues arises in respect of this claim.
2. KAL here relies (FASOC [102]-[103]) on ML's email dated 10 February 2017 to PL advising him of the then state of the Sunnyholt Property. It relies on the fact, admitted by PL in paragraph 104 of the Defence that, PL notified the NSW Police of a break-in to the property in June 2018, and the police event report had recorded that the person reporting the break in had advised that "the factory has no roller doors and anybody could walk in and take anything". KAL also relies on information provided by PL to Mr Hayes in September 2019, although it is not apparent that PL then provided anything more than apparently objective information concerning what was stolen. KAL pleads ([FASOC [108]) breaches of a duty of care and skill at law and in equity and under s 180 of the Corporations Act, and claims that those duties required PL to secure the Sunnyholt Property to prevent or inhibit break-ins to the property; insure the plant and equipment at the Sunnyholt Property against damage or theft; and secure and duplicate, electronically or otherwise, the Laird Companies Records (as defined). KAL pleads (FASOC [111]) breach of those duties and loss quantified by reference to the value of the Stolen Steel (as defined) and the Stolen Crane (as defined). The claim for the value of the crane allegedly stolen from the premises was ultimately not pressed.
3. The Defendants deny the claim. They rely on PL's evidence as to the existence of physical security at the Sunnyholt Property, namely that the property was secured by a high chain wire fence that extended all the way to the front gate; the front gate consisted of steel gates that were around 8 feet high and were secured with a heavy chain and padlock; the factory and office doors were also padlocked (PL 13.10.22 [433]-[435]); and they contend that, at the time of the theft, the records of KAL were kept in a large key operated double door security safe as they had been since the late 1970s or early 1980s (PL 13.10.22 [52]). I give little weight to this evidence, given the objective evidence of the poor state of the premises in February 2017 and the likelihood that PL made the report to the police which identified the ease of access to the property that allowed the theft of the steel. The submission that records were then held in the safe is inconsistent with PL's response to ML's February 2017 email, which, as I noted in the chronology set out above, referred to the earlier theft of the safe. The Defendants also refer to PL's evidence that the office at the Sunnyholt Property had previously had a back to base alarm system but PL had decided that the back to base alarm was ineffective and that PL had decided it was not worth the expense of having "24 hour on the spot security guards in place" (PL 13.10.22 [435]).

Claim for certain liabilities incurred while KAL was trading at a loss

1. By prayers 19 to 20 of the relief claimed in the FASOC, KAL seeks orders that PL pay compensation to KAL to compensate KAL for the salary payments he received from KAL from 30 June 2007 and for the rental payments KAL paid or incurred to Aidzan from 30 June 2007. In closing submissions, KAL limited this claim to salary and rent paid in the years 2008 to 2010, on the basis that it could not quantify those amounts from 2011 to 2013 by reference to the documentary material in its possession. The claim for salary was quantified, by reference to KAL's financial statements and PL's personal tax returns showing salary paid to him by KAL, in the amount of $540,000 and the claim for rent as $320,000, totalling $860,000.
2. KAL pleads (FASOC [112]; denied Defence [112]) that, as at 30 June 2007, KAL had in excess of $2,000,000 in carried-forward net tax losses; was trading in negligible volumes of steel products; and was trading at a loss, in that its current expenses significantly exceeded its current income. It pleads (FASOC [116]; denied Defence [116]) that a reasonable director of KAL would have caused KAL to cease to trade on around 30 June 2007; not have caused KAL to pay him a salary after 30 June 2007 and not have caused KAL to pay or incur rent to Aidzan after 30 June 2007. KAL pleads (FASOC [118]; denied Defence [118]) that PL and DL breached several general law and statutory duties. In closing submissions, KAL pressed a claim for breach of the Best Interests Duty (as defined), the no conflict and no profit rules in respect of this matter, abandoned its claims under ss 180-182 of the Corporations Act, and pressed a common law negligence claim.
3. Mr Leopold submits that, as I have noted in the chronology above, KAL had suffered significant trading losses in the years from FY2005 on. He points out that DL was a director of KAL from 2005 until the date of her death on 27 November 2009 and, from 2009 until 2013, Peter was the sole director of KAL. He points out that KAL was paying PL a salary of $180,000 per annum from 2008 (PL 13.10.22 [371]) although no written employment contract was in place and that KAL also paid rent of $300,000 per annum to Aidzan from 2005 although no written lease agreement was in place. He also points out that PL's salary and the rent that KAL paid to Aidzan for the benefit of his trusts constituted its two largest expenses for the 2005 to 2010 financial years according to the financial statements for those years and submits that the same is likely the case for later years where no financial statements have been located or tendered.

Affirmative Defences

1. The Defendants also relied on a defence of actual authority relying on provisions of KAL's constitution (Defence [120]-[123]) in addressing the challenged transactions. Mr Studdy refers to the scope of the directors' powers under KAL's memorandum of association and its articles. This does not assist PL where the fact that directors have broad powers does not advance a determination where they are exercised in breach of duty in a particular case.
2. Mr Studdy also relies on article 78 of KAL's articles of association (Ex J1, 96) which provides that a director of KAL will be entitled to contract with KAL, without being disqualified from office, or enter into contract or arrangements on behalf of KAL with a company in which the director is a member, or otherwise interested, without that contract being avoided, and is not required to account to KAL for any profit realised on such contract. Article 78 also permits a director to vote in respect any such contract or arrangement, provided that the nature of his or her interest is disclosed at the meeting of directors at which the question of entering into the contract or arrangement is first taken into consideration. On that basis, Mr Studdy submits that: "[DL] and [PL] were authorised to enter into the various contracts and arrangements by which the Sunnyholt Property was acquired and subsequently leased to KAL. In these circumstances there can be no breach of duty to avoid conflicts of interest and not to make a financial gain."
3. Mr Leopold responds that article 78 of KAL's articles of association is drafted in the usual format for the general attenuation of directors' duties for proprietary companies, that is, as to a director being permitted to take a profit and act although in conflict with the interests of the company, subject to due disclosure of their interest to the other directors. He submits that an article of this kind must be read strictly (Guinness PLC v Saunders [1990] 2 AC 663 at 692); that article 78 only applies to contracts that KAL makes with an interested director or an entity associated with an interested director; and that KAL's articles do not expressly permit a director to divert a corporate opportunity of KAL's to a director or an entity associated with that director. He also submits that a company's constitution cannot diminish a director's primary fiduciary duty to act bona fide in the best interests of the company as a whole (Ngurli Ltd v McCann (1953) 90 CLR 425 at 438-439) and draws attention to the observation of the authors of Ford's Principles of Corporations Law (17th ed., 2023) at [9.120], with which I agree, that: "A contract by which a business opportunity belonging to the company is diverted to some other firm controlled by a director would not be authorised by a constitutional provision [that generally permits directors to act in conflict with their company or take a profit against their company]".

Claim for relief under s 1318 of the Corporations Act

1. The Defendants seek (Defence [142]) relief under s 1318 of the Corporations Act and KAL joins issue with that defence in reply. Section 1318 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 that person establishes that they acted honestly, and that they 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 their appointment.
2. Mr Studdy refers to Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith (1989) 54 SASR 285 at 295, where Olsson J considered the approach that the Court should take to the application of the exoneration power in s 365(1) of the then Companies Act 1962 (SA) and observed that: "… the jurisdiction is, from its very width, one which must be exercised with great caution, but the court, in balancing the competing interests which, necessarily, are ventilated before it, ought not to shrink from giving effect to its sense of fairness and justice. It should not hesitate, in a proper case, to relieve a person from what, having regard to particular facts and circumstances - particularly where the person concerned has acted honourably, fairly, in good faith and in a commonsense manner as judged by the standards of others of a similar professional background - from what might otherwise be seen to be a harsh and oppressive consequence of the strict application of the law, if applied in absence of the considerations identified by the section." Those observations were cited with apparent approval by Austin J in Australian Securities & Investments Commission v Vines (2005) 65 NSWLR 281.
3. In Daniels at 525, Clarke and Sheller JJA observed that a corresponding section allows the Court: "to excuse company officers from liability in situations where it would be unjust and oppressive not to do so, recognising that such officers are businessmen and women who act in an environment involving risk in commercial decision-making."
4. In Hall v Poolman (2007) 215 FLR 243, Palmer J observed (at 318) that: "In my view, when considering whether a person has acted honestly for the purposes of a defence under the [Corporations Act], s 1317S(2)(b)(i) or s 1318, the Court should be concerned only with the question whether the person has acted honestly in the ordinary meaning of that term, ie whether the person has acted without deceit or conscious impropriety, without intent to gain improper benefit or advantage for himself, herself or for another, and without carelessness or imprudence to such a degree as to demonstrate that no genuine attempt at all has been to carry out the duties and obligations of his or her office imposed by the [Corporations Act] or the general law." His Honour also there noted (at 318) that the concept of "honesty" in this context means "without moral turpitude".

The Defendants' set-off claims

1. The Defendants also claim (Defence [143]ff) in respect of alleged outstanding loans and set-offs. KAL also joins issue with that defence in reply.
2. First, the Defendants plead (Defence [143]) that, if PL is ordered to pay any amount to KAL in respect of the PL Superannuation Payment, he is entitled to a set-off for unpaid long service leave and other entitlements, which is also the subject of a Cross-Claim. Mr Studdy submits that, by reason of s 286 and s 1305 of the Corporations Act, the reference to those amounts in the Declaration of Solvency is prima facie evidence of the matters stated in it. Plainly, that proposition would also apply to the $900,000 debt recorded in that document as owing by him to KAL. He submits, and I accept, that an equitable set-off of this claim would not be prevented by application of a limitation period if it would be unconscionable in the circumstances to deprive Peter of entitlements he had not sought to recover due to his close relationship with KAL as its sole director: Twigg v Twigg (NSWCA) at [172]. However, this claim is not established, because this calculation depends on the continuance of PL's employment beyond the period of KAL's operating and net losses which I have addressed above. While I have held that KAL cannot recover the salary and rent that KAL paid out in that period by reason of a limitations bar, it does not follow that PL can rely on the continuance of that business in that period to establish a claim against KAL. PL made no attempt to establish this claim on any alternative and lesser basis and it must fail. The set-off claimed by Aidzan for unpaid rent (Defence [144]-[146]) must fail on the same basis.
3. The Defendants also plead (Defence [147]-[169]) that, from 1994, superannuation contributions paid by KAL to Aidzan as trustee of the PAL Property Trust were used to pay down the amount of $1,283,000 which PL procured from KAL for the benefit of Aidzan and the debt of $1,800,000 to Michell. In cross examination, PL referred to a suggested contribution of the superannuation fund to funding the purchase of the Sunnyholt Property. His evidence was obscure and unsupported by contemporaneous documents and I do not accept it. Mr Studdy (or possibly Mr Nixon or their instructing solicitors) also undertook a very complex calculation of those amounts in submissions, unsupported by contemporaneous or expert evidence. I am not persuaded to accept that calculation, without such evidence.

Aidzan's Cross-Claim

1. By a Cross-Claim filed on 11 April 2023, Aidzan claimed damages for unpaid rent against KAL in the amount of $720,000 and interest up to judgment. KAL denies liability for these claims in a relatively complex Defence. The claim for rent is not established where I have found that the Sunnyholt Property is held on constructive trust for KAL. In closing submissions, Mr Studdy indicated that PL did not press a claim for $288,347 against KAL on account of outstanding employee entitlements or a claim, which was inconsistent with his position in the primary proceedings, for judgment for two payments alleged to have been made by mistake to KAL in the amounts of $100,000 and $680,000.

Summary and orders

1. In summary, KAL has succeeded in its claim for a remedial constructive trust in respect of the proceeds of sale of the Sunnyholt Property, although a remaining issue as to the quantification of that claim will need to be addressed in formulating orders. KAL has succeeded, in part, in respect of its claim as to the Sunnyholt Surplus Rent, but only as to rent paid after 11 December 2008. The parties will need to calculate the amount recoverable under this claim since that date in preparing orders. Several other claims cannot succeed or were not pressed where KAL has succeeded or partly succeeded in these claims.
2. KAL has succeeded in its claim in respect of PL's failure, as a director of KAL, to take, or to cause to be taken, steps to recover any rent from the Tattersall Property or any other monies in relation to the commercialisation of that property, but only for the for the 6 year period before the Statement of Claim was filed, that is, from 11 December 2014, in the amount of $628,000 plus interest. KAL has also succeeded in respect of its claim to the PL Superannuation Payment, in the amount of $900,000 and any applicable interest. KAL's claims as to the theft of steel from the Sunnyholt Property and for certain liabilities incurred while KAL was trading at a loss have failed.
3. The Defendants have failed to establish the affirmative defences on which they relied and their claim for set off, PL has failed to establish his claim for relief under s 1318 of the Corporations Act and Aidzan has failed to establish that part of its Cross-Claim that it pressed in closing submissions.
4. I direct the parties to bring in agreed short minutes to give effect to this judgment and as to interest and costs within 14 days or, if there is no agreement between them, their respective short minutes of order and short submissions as to any differences between them.

Amendments 06 July 2023 - Typographical error corrected on cover page. 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: 06 July 2023