[2016] NSWCA 347
- Australian Securities and Investments Commission v Edwards (No 3) (2006) 57 ACSR 209
[2006] NSWSC 376
- Australian Securities and Investments Commission v Healey (No 2) (2011) 85 ACSR 654
[2011] FCA 1003
- Australian Securities and Investments Commission v MacDonald (No 12) (2009) 73 ACSR 638
Source
Original judgment source is linked above.
Catchwords
(2016) 116 ACSR 566[2016] NSWCA 347
- Australian Securities and Investments Commission v Edwards (No 3) (2006) 57 ACSR 209[2006] NSWSC 376
- Australian Securities and Investments Commission v Healey (No 2) (2011) 85 ACSR 654[2011] FCA 1003
- Australian Securities and Investments Commission v MacDonald (No 12) (2009) 73 ACSR 638Earth Civil Australia Pty Ltd (in liq) v AKA (Civil) Pty LtdDiamondwish Pty Ltd (in liq) v Ivana CassanitiRackforce Pty Ltd (in liq) v Ivana Cassaniti[2018] FCA 2069
- Coope v LCM Litigation Fund Pty Ltd (2016) 333 ALR 524[2016] NSWCA 37
- Crawley v Short [2009] NSWCA 410
- Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438118 FLR 248[2021] NSWCA 24
- Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89[2015] NSWSC 397
- Great Southern Finance Pty Ltd (in liq) v Rhodes [2014] WASC 431
- Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296(2012) 87 ACSR 260[2013] NSWCA 479
- Jones v Dunkel (1959) 101 CLR 298
- Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557[2007] NSWCA 191
- Lewis Securities (in liq) v Carter (2018) 355 ALR 703
334 FLR 9
128 ACSR 120
[2018] NSWCA 118
- Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221
- Links Golf Tasmania Pty Ltd v Sattler (2012) 213 FCR 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.
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).
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."
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."
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."
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).
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]).
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.
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]).
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).
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).
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.
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.
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.
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.
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.
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]).
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).
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).
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).
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."
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.
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]).
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."
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!"
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.
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).
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."
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.
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]).
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).
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.
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.
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.
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."
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.
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.
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.
[2]
Affidavit evidence
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.
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."
[3]
Claim for trust over proceeds of sale of the Sunnyholt Property and rescission of loans
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]."
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.
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."
[4]
The limitations defence
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.
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."
[5]
Quantification of Sunnyholt Property claim
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.
[6]
Claim as to Sunnyholt Surplus Rent
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.
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.
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.
[7]
Sunnyholt Property non-trust claims
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.
[8]
KAL's alternative claim as to Sunnyholt Acquisition and Maintenance Costs
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.
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.
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.
[9]
Claim as to Sunnyholt Excess Rent
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.
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.
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.
[10]
Claim as to the Tattersall Property
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.
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.
[11]
Claim as to PL Superannuation Payment
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."
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.
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.
[12]
Claim as to the theft of steel from the Sunnyholt Property
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.
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.
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]).
[13]
Claim for certain liabilities incurred while KAL was trading at a loss
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.
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.
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.
[14]
Affirmative Defences
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.
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."
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]".
[15]
Claim for relief under s 1318 of the Corporations Act
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.
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.
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."
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".
[16]
The Defendants' set-off claims
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.
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.
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.
[17]
Aidzan's Cross-Claim
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.
[18]
Summary and orders
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.
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.
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.
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.
[19]
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
er (2018) 132 ACSR 468; [2018] FCA 2069
- Coope v LCM Litigation Fund Pty Ltd (2016) 333 ALR 524; [2016] NSWCA 37
- Crawley v Short [2009] NSWCA 410
- Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438; 118 FLR 248; 16 ACSR 607
- Electrical Enterprises Retail Pty Ltd v Rodgers (1988) 15 NSWLR 473
- ET-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24
- Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22
- Farrow Finance Co Ltd (in liq) v Farrow Properties Pty Ltd (in liq) (1997) 26 ACSR 544
- Finance & Guarantee Company Pty Ltd v Auswild [2019] VSC 664
- Gerace v Auzhair Supplies Pty Ltd [2014] NSWCA 181
- Gordon in His Capacity as Liquidator of Lyon Form Pty Ltd (in liq) v Leon Plant Hire Pty Ltd (in liq) (2015) 16 ASTLR 185; [2015] NSWSC 397
- Great Southern Finance Pty Ltd (in liq) v Rhodes [2014] WASC 431
- Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; (2012) 87 ACSR 260; [2012] FCAFC 6
- Guinness PLC v Saunders [1990] 2 AC 663
- Hall v Poolman (2007) 215 FLR 243
- Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (No 2) [2008] FCA 810
- HP Mercantile Pty Ltd v Dierickx (2013) 306 ALR 53; [2013] NSWCA 479
- Jones v Dunkel (1959) 101 CLR 298
- Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557; [2007] NSWCA 191
- Lewis Securities (in liq) v Carter (2018) 355 ALR 703; 334 FLR 9; 128 ACSR 120; [2018] NSWCA 118
- Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221
- Links Golf Tasmania Pty Ltd v Sattler (2012) 213 FCR 1; 292 ALR 382; 90 ACSR 288; [2012] FCA 634
- Maelor Jones Investments (Noarlunga) Pty Ltd v Heywood-Smith (1989) 54 SASR 285
- Morley v Australian Securities and Investments Commission (No 2) (2011) 83 ACSR 620; [2011] NSWCA 110
- Mudgee Dolomite & Lime Pty Ltd v Murdoch; Re Mudgee Dolomite & Lime Pty Ltd [2020] NSWSC 1510
- Murdoch v Mudgee Dolomite & Lime Pty Ltd (in liq) (2022) 398 ALR 658; [2022] NSWCA 12
- Natural Extracts Pty Ltd v Stotter (1997) 24 ACSR 110
- Ngurli Ltd v McCann (1953) 90 CLR 425
- No 1 Victoria Dragons Pty Ltd v AEN Developments Pty Ltd [2022] NSWSC 1345
- Re Atlas Advisors Australia Pty Ltd [2022] NSWSC 705
- Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789
- Re DCA Enterprises Pty Ltd [2023] NSWSC 11
- Re Duomatic Ltd [1969] 2 Ch 365
- Re Earth Civil Australia Pty Ltd, RCG CBD Pty Ltd, Bluemine Pty Ltd, Diamondwish Pty Ltd and Rackforce Pty Ltd (All In Liq) [2021] NSWSC 966
- Re SRD Property Pty Ltd [2023] NSWSC 441
- Re Swan Services Pty Ltd (in liq) [2016] NSWSC 1724
- Robins v Incentive Dynamics Pty Ltd (in liq) (2003) 175 FLR 286; 45 ACSR 244; [2003] NSWCA 71
- Saba v Plumb (2018) 97 NSWLR 278; 19 BPR 38,401; [2018] NSWCA 60
- SEA Food International Pty Ltd v Lam (1998) 16 ACLC 552
- Seymour v Seymour (1996) 40 NSWLR 358
- Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462
- The Hancock Family Memorial Foundation Ltd v Porteous (2000) 22 WAR 198
- Twigg v Twigg (No 4); Lambert v Twigg Investments Pty Ltd (No 3) (2020) 147 ACSR 389; [2020] NSWSC 1159
- - Twigg v Twigg (2022) 402 ALR 119; [2022] NSWCA 68
- Varma v Varma [2010] NSWSC 786
- Ventouris Enterprises Pty Ltd v Dib Group Pty Ltd [2010] NSWSC 963
- VL Finance Pty Ltd v Legudi (2003) 54 ATR 221
- Watson v Foxman (1995) 49 NSWLR 315
- Williams v Central Bank of Nigeria [2014] AC 1189; 2 All ER 489; UKSC 10
Texts Cited: - Ford's Principles of Corporations Law (17th ed, 2023),
- Jacobs' Law of Trusts in Australia (8th ed, 2016)
- Law of Limitation (1st ed, 2016)
Category: Principal judgment
Parties: K. & A. LAIRD (N.S.W.) Pty Ltd (In Liquidation) (Plaintiff/First Cross-Defendant)
AIDZAN Pty Ltd (In Liquidation) in its own capacity and in its capacity as trustee of the Peter Laird Trust, the Peter Alan Laird Property Trust (known as the PAL Property Trust) and the Aidzan Superannuation Fund (First Defendant/First Cross-Claimant)
Nazdia Pty Ltd ACN 631 617 331 in its capacity as trustee of the Aidzan Superannuation Fund (Second Defendant)
Peter Alan Laird (Third Defendant/Second Cross-Claimant)
Michael Laird (Second Cross-Defendant)
David Laird (Third Cross-Defendant)
Debra Roberts (Fourth Cross-Defendant)
Christine Cook (Fifth Cross-Defendant)
Representation: Counsel:
A Leopold SC/J Tobin (Plaintiff/Cross-Defendants)
D Studdy SC/J Nixon (Defendants/Cross-Claimants)
I also bear in mind the observations of Bell P (as the Chief Justice then was, with whom Bathurst CJ agreed) in ET-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24 at [27]-[28]:
"Whilst the quality and accuracy of oral recollection of actual conversations should be treated with care and caution given the fallibility of human memory (of which there has been a growing appreciation within the judiciary in recent decades), oral testimony may still be of value and importance, as was recognised in the nuanced observations of Leggatt J (as his Lordship then was) in Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC (Comm) 3560 at [22] (Gestmin):
"the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose - though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth." [emphasis added]
Documents and events have to be understood in their context, and evidence of context will often be furnished by witnesses in their oral evidence. Documents, moreover, will not always present a complete picture of events. Indeed it would be rare that they do. Nor do contemporaneous documents necessarily or invariably convey or record the background or context in which events took place. That background or context will be familiar to the actors at the time of those events but may not always emerge from documents."
I have here drawn on my summary of the applicable principles in Re Atlas Advisors Australia Pty Ltd [2022] NSWSC 705 at [5], No 1 Victoria Dragons Pty Ltd v AEN Developments Pty Ltd [2022] NSWSC 1345 at [53]ff, Re DCA Enterprises Pty Ltd [2023] NSWSC 11 at [5]ff and Re SRD Property Pty Ltd [2023] NSWSC 441 at [8]ff.
KAL read the affidavit dated 14 July 2022 of Mr Hayes, the liquidator of KAL. Mr Hayes refers to the corporate structure of the Laird family companies, ALH, WE and KAL, and to the shareholders in those companies. His evidence (Hayes 14.7.22 [17]) is that KAL was the trading entity within the Laird family companies, and traded as a wholesale merchant of steel from premises in Blacktown from around the 1950s, and his investigations indicate that ALH and WE did not trade in their own right. His evidence is that KAL had probably ceased to trade by 30 June 2013. He refer to the share reorganisation of the companies which I addressed in outlining the chronology of events above. Mr Hayes also refers to the incomplete state of books and records of the Laird family companies and to information provided by PL to him on 12 September 2019 that the books and records of the companies were stored in a large safe in the companies' office and that safe, together with a crane and 300-400 tonnes of steel were stolen from the property, and he reported the theft of the steel to the police in 2018, and that steel was of poor quality and probably worth about $50,000. Mr Hayes also refers to several income tax returns of KAL and balance sheets and profit and loss statements for KAL and to the conduct of private examinations of several persons in August 2020.
Mr Hayes also addresses the circumstances of the acquisition of the Tattersall Property and the Sunnyholt Property, to which I have referred in outlining the chronology of events above. Mr Hayes also refers to his receipt of a copy of the New South Wales Police event report relating to the theft of the steel from the Sunnyholt Property, to which I have also referred in the chronology above, and to matters relating to the impugned superannuation payment to Aidzan for the Peter Laird Superannuation Fund and the liabilities incurred by KAL, including paying rent to Aidzan, in the period it was trading at a loss from the 2007 financial year onwards.
By a second affidavit dated 10 March 2023, Mr Hayes refers to PL's evidence of advice which Mr Burges, the solicitor advising in respect of the reconstruction, gave to him and indicates that KAL does not hold any documents containing or referring to instruction given to Mr Burges in respect of the purchase of the Sunnyholt Property. Mr Hayes also refers to the extent of available evidence concerning other matters raised in the proceedings.
Mr Hayes was cross examined at some length, partly to establish a proposition that was not pressed by the Defendants in closing submissions, that Mr Hayes had acted improperly by non-disclosure of discussions with the Laird siblings prior to his appointment as liquidator of KAL, or by non-disclosure to PL of the likelihood that PL's actions would be investigated on a voluntary liquidation. I address that evidence briefly to the extent that it may be relied on by PL to establish any other prejudice in respect of the proceedings. Mr Hayes' evidence was that the voluntary liquidation of KAL was, at least in part, adopted as a means of realising pre-capital gains tax assets of KAL and the other Laird companies in a tax effective manner (T6). His evidence, which I accept, was that he did not address any potential claims against PL prior to his appointment as voluntary liquidator, although he fairly accepted such claims were a possibility (T7). He accepted that, prior to his appointment as liquidator of KAL and the other Laird companies, he did not inform PL that he would be looking into the purchase of the Sunnyholt Property by Aidzan or investigating the lease of that property by Aidzan to KAL, where he lacked information as to the existence of such a lease. His evidence, which I also accept, was that he had told PL (and the other Laird siblings) that he would be investigating the company's affairs (T7), but it seems to me that that was a disclosure of the obvious, where that is a necessary incident of a liquidator's appointment. Mr Hayes was cross-examined as to correspondence before and after his appointment as voluntary liquidator of KAL, which I have addressed in outlining the chronology of events above.
Mr Hayes was also cross-examined as to the existence of a former solicitor-client relationship between PL and the firm that was then acting for the Laird siblings; a successor firm now acts for KAL in the proceedings. The Defendants did not seek to restrain that firm from acting for KAL in these proceedings, and its retainer does not advance the matters raised by the Defendants in the defence of the proceedings, including allegations of delay which I address below. Mr Hayes was also cross-examined as to the circumstances of a payment by PL to KAL made on 29 June 2012 which is relevant to one of the claims against PL that I address below (T23). He obviously had no personal knowledge as to the circumstances of that payment where it was made before his appointment as voluntary liquidator of KAL. Mr Hayes was also cross-examined as to whether he had given notice of potential claims against PL to PL, before PL was interviewed by Mr Hayes in September 2019 (T27). I have addressed the correspondence that resolves that question in the chronology of events above. Mr Hayes was also cross-examined about the Police event report as to the theft of steel from the Sunnyholt Property (T33), although he again had no personal knowledge of how that report was lodged where that also occurred before he was appointed as voluntary liquidator. Mr Hayes was a measured and careful witness and I accept his evidence. No matters emerging from that evidence provided any proper basis for criticism of his conduct of the liquidation of KAL.
KAL also read ML's affidavit dated 14 July 2022. As I noted above, ML is one of the Laird siblings and currently a director of KAL and a shareholder in ALH. ML refers to his knowledge of the steel business conducted by the family companies and to his lack of involvement in the companies before AL's death. ML's evidence, admitted with a limiting order under s 136 of the Evidence Act 1995 (Cth) ("Evidence Act") as his understanding, was that neither DL nor his siblings (other than PL) had any involvement in managing the family companies up to AL's death. He outlines DL's background and her role in caring for six children in the family. He also addresses the reorganisation of shareholdings in the family companies in 1987, prior to AL's death, and PL's role in managing the family companies after AL's death. ML's evidence is that he first received financial information as to the family companies from their accountants in 2018 and that he had offered PL assistance in the family business in about 1988 or 1989 and again in 2009 following his retirement, which PL had not taken up. ML also addresses the position in respect of the Sunnyholt Property and the theft of steel from that property. ML also refers to the lack of use of the Tattersall Property and to a conversation with PL in 2010, after he had retired, in which ML had indicated that the Tattersall Property was lying dormant and made suggestions as to how it could be used, which PL had rejected. This evidence makes clear that at least ML was aware of issues relating to the lack of use of the Tattersall Property since at least 2010. By a second affidavit dated 15 March 2023, ML responds to aspects of PL's evidence.
ML was cross-examined, inter alia, as to the relationship between AL and Mr Burges and he acknowledged that he knew that MSJ was advising the Laird family companies with respect to their reorganisation in 1989 and as to his executing documents in relation to that reorganisation (T43ff). He was cross-examined as to what he would have done, had DL told him certain matters in 1990 (T49) although there is no suggestion that she did so. He did not accept he had no reason to question DL's ability to understand KAL's operations at that time (T49) and was cross-examined as to his knowledge of matters relating to the Tattersall Property (T52). I deal with the issue relating to that property below.
ML accepted that, by mid-2018, he and others were considering the appointment of a voluntary liquidator to KAL and he was concerned by PL's conduct in respect of KAL at that time (T53). He accepted that he wanted a liquidator to be appointed to KAL and PL's conduct to be investigated and he would have given consideration to the possibility that an investigation could lead to claims against PL (T54). He frankly acknowledged that he had not told PL, before KAL was placed in voluntary liquidation, that he wanted the liquidator to investigate relevant transactions. He accepted that, by June 2018, he was angry with PL's conduct as a director of KAL and he again accepted that he did not tell PL that he wanted an investigation as to KAL's affairs (T55). It is not apparent to me that this matter supports the defences I address below. ML was also cross-examined as to the possibility that, in 2009, the Laird siblings could have convened a meeting of shareholders to address any issues in respect of the family companies (T69). I note that the Laird siblings could only have directly convened such a meeting in respect of ALH, the holding company, and there is no evidence as to how that would have resolved the position in respect of KAL. In any event, it does not seem to me that that possibility provides any answer to the claims now brought by KAL that I address below. ML was also cross-examined, at one point, to raise the possibility that he had made a report of the theft of steel from the Sunnyholt Property to the police (T73); that cross-examination had the difficulty that PL had admitted, in paragraph 104 of his Defence, that he had made that report; and there seems to me to be no real prospect that both ML and PL had separately made that report but the Police had recorded only one such report. It seems to me that ML was doing his best to give honest answers to the questions asked and I prefer his evidence to PL's evidence to the extent there was any conflict in their evidence.
KAL read the affidavit dated 14 July 2022 of Ms Debra Roberts, who is also one of the Laird siblings and a director and shareholder in ALH and now a director of KAL. She refers to the fact that she was given a cheque by AL in the mid-1980s and told her it was for being a director but that she had no involvement in running the family companies. Her evidence is that she became aware of the movement of the business from the Tattersall Property to the Sunnyholt Property when PL was living at her apartment in 1990 but he did not then tell her that the Sunnyholt Property was being purchased by an entity other than KAL and rented by that entity to KAL and she had assumed that KAL had purchased and owned that property. I accept that evidence and also accept her evidence that she did not learn that the Sunnyholt Property had been purchased by Aidzan until ML had told her of that matter in 2018. Ms Roberts also gives evidence of photographs that she took when she went to the Sunnyholt Property on 28 June 2018. By her second affidavit dated 28 February 2023, Ms Roberts responds to aspects of PL's evidence and addresses the steps she would have taken had she been informed of matters relating to the purchase of the Sunnyholt Property by Aidzan. It seems to me that little turns on that matter where Ms Roberts was not in fact informed of those matters.
Ms Roberts was also cross-examined and appeared to me to be doing her best to give honest answers. Ms Roberts acknowledged in cross-examination that she was aware that Mr Burges and AL had worked on the reorganisation of the family companies in 1987 (T108). She accepted that PL had told her, in 1990, he was moving the steel business from the Tattersall Property to the Sunnyholt Property (T111). She was also cross-examined as to her having visited the Sunnyholt Property and taken photographs of the property in June 2018, at a time that there were discussions about putting KAL into voluntary liquidation (T111-112). She accepted that she also did not tell PL that his conduct in relation to the companies might be investigated but denied she wanted to withhold that information from him (T113). She accepted that she could have asked DL about the circumstances of the purchase of the Sunnyholt Property between 1990 and 2009 (T116); although it is not apparent that that advances the Defendants' position, where there is no suggestion that she did so, or that any relevant information came to her attention. I also accept her evidence and prefer it to PL's evidence in matters where there was a conflict of evidence.
KAL also read the affidavit dated 14 July 2022 of Ms Christine Cook, who is another Laird sibling and is now a director of KAL and shareholder in ALH. She also became aware that PL had moved the steel business from the Tattersall property to the Sunnyholt Property in about 1990 but had assumed that KAL had purchased the Sunnyholt Property and did not become aware that Aidzan rather than KAL owned that property until 2018. By her second affidavit dated 3 March 2023, Ms Cook responds to aspects of Mr Barden's and PL's evidence in the proceedings.
Ms Cook was cross-examined as to her knowledge that she held shares in a family company, which was in fact ALH, although her evidence was that she thought she was a shareholder in KAL (T78). She accepted that AL and Mr Burges were friends, but she did not know of meetings between AL and Mr Burges relating to the reorganisation of the company in 1987 (T79). She also accepted that she knew of the move of the steel business from the Tattersall Property to the Sunnyholt Property in around 1990 (T79). She accepted that AL appointed her as a director of ALH in the 1980s, although it is not apparent that she had any real understanding of the responsibilities attached to that role. She did not recall a meeting with Mr Barden in 1993, at which it was suggested that he told her that PL's self-managed superannuation fund owned the Sunnyholt Property (T86). In the event, Mr Barden abandoned his evidence that he had told her of that matter in cross-examination. Ms Cook acknowledged that she understood that ML wanted a liquidator of KAL to investigate PL's conduct in relation to the purchase of the Sunnyholt Property (T86) and that she had not told PL prior to the appointment of a voluntary liquidator that it was proposed (implicitly, by the Laird siblings) that a liquidator would investigate his conduct (T87). It is not apparent that ML's wishes in that respect were a material matter, where it was plainly a matter for Mr Hayes, in the proper performance of his professional obligations, and not ML or the Laird siblings to determine the extent of investigations which should be conducted and the extent to which they were directed to PL's conduct. It seems to me that Ms Cook was also doing her best to give honest answers to the questions asked.
KAL also read the affidavit dated 14 July 2022 of Mr David Laird who had had no involvement in the running of the steel business or the family companies and did not understand the Laird siblings other than PL to have had such an involvement. His evidence is that he was not involved in the reorganisation and received no legal advice from Mr Burges or anyone else as to the effect of the reorganisation. He witnessed a document executed by PL and DL on one occasion, and I accept his evidence that he did not read the document at the time, a course that was entirely appropriate where he was simply witnessing execution of the document by the parties to it. He also gives evidence of his surprise and disappointment when he became aware that the Sunnyholt Property was not owned by KAL but had been purchased by Aidzan. By his second affidavit dated 21 March 2023, he responds to PL's evidence in the proceedings.
Mr David Laird was cross-examined and also acknowledged that AL and Mr Burges were good friends and he knew that Mr Burges was advising AL in relation to the reorganisation of the companies in 1987 and that AL trusted Mr Burges (T93-94). It does not appear that there is any dispute as to any aspect of the 1987 reorganisation in these proceedings, although it is relevant to how the Laird siblings became to be shareholders in ALH. His evidence was that he did not recall a suggestion that PL's conduct in particular be investigated in the liquidation and that any investigation would be "more about what was happening with the business" (T101); he did not recall an investigation of the acquisition of the Sunnyholt Property in 1990 being mentioned, but added, sensibly enough, that:
"I would presume, obviously, the liquidator has got to know everything that goes on so he would investigate that." (T101).
He accepted that he did not personally inform PL that there might be an investigation into his conduct as director before a voluntary liquidator was appointed, but added that he did not know what the liquidator would focus on because he did not know enough about the business and he did not think the focus of any investigation would be on PL's conduct as a director of the companies (T101). I also consider that Mr David Laird was a witness of credit.
The Defendants read several affidavits of PL. By his first affidavit dated 13 October 2022, PL referred to the family history and his initial involvement with the steel business and to the use of the Tattersall Property to store steel in the early years of the business. He referred to a safe which was initially installed at the Tattersall Property in which KAL's books and records were held. PL referred to AL's use of Mr Burges, a partner at MSJ, to do legal work for KAH, WE and KAL and to PL's appointment as a director of KAL and WE in March 1980. PL gave evidence of a conversation with AL in about 1985, about the need to find a warehouse so that KAL could source other steel products and store them under cover, AL's agreement that at some point KAL would need undercover storage and AL's view that it was not prudent to buy or build a warehouse in the current market. (PL 13.10.22 [95]) PL was insistent in cross-examination that he had a clear recollection of that conversation, notwithstanding that it took place nearly 40 years ago. PL also refers to the steps which were taken by AL to restructure the companies after he experienced health issues in 1986 and 1987 and refers to the note prepared by Mr Burges in respect of the restructuring, which I addressed in outlining the chronology of events above. PL also referred to the steps taken to complete the restructuring in about 1989. PL also referred to his attempt to buy his siblings' shares in ALH after AL died and to his siblings not accepting that approach (PL 13.10.22 [137]-[138]).
PL refers to steps taken to identify an alternative warehouse or factory for KAL from 1989 and to his identification of the Sunnyholt Property (PL 13.10.22 [139]ff). PL's evidence is that he originally intended that KAL would purchase the Sunnyholt Property but that Mr Burges advised (PL 13.10.22 [146]:
"Son, I know that your Dad previously bought properties in [KAL's] name but it's not the way business is done now. [KAL's] properties are already exposed to creditors if it has any financial difficulties. You need to buy this property through another structure so that if [KAL] went bust this property would be outside the reach of creditors and you would still have somewhere to do your business. We will help you with this."
Assuming, without deciding, that Mr Burges gave that advice, that does not provide support for the approach taken by PL in acquiring that property for a trust in which he had the sole economic interest, since that advice did not prevent the Sunnyholt Property being purchased by a company other than KAL or the trustee of a trust which replicated the existing economic interests in KAL. PL did not suggest, in his evidence on cross examination, that Mr Burges had given any advice that required the exclusion of his mother or his siblings from any economic interest in the entity holding the Sunnyholt Property and there is nothing in the surrounding circumstances that would have provided any basis for any such advice. PL's evidence (PL 13.10.22 [148]-[149]) is that he relied upon the guidance and advice provided by Mr Burges in respect of the creation of Aidzan and the Peter Laird Trust. I do not accept that evidence if it is intended to imply that Mr Burges, rather than PL (possibly to DL's knowledge) decided who were to hold the shares in Aidzan (namely PL) and who were to be the beneficiaries of the Peter Laird Trust (also PL).
PL also refers to the steps taken in respect of Aidzan's purchase of the Sunnyholt Property, the Sunnyholt Lease and the finance obtained from Michell (PL13.10.2 [152]) and to the entry into a financing arrangement with Michell in respect of the transaction (PL 13.10.22 [161]ff). PL's evidence is that, while KAL was named as a co-borrower under the Michell facility, he never regarded KAL as a borrower (PL 13.10.22 [164]) and I recognise that KAL's financial accounts, to the extent they are available, did not record a liability under that facility. PL's evidence of that understanding does not affect the objective content of the arrangement.
PL's affidavit evidence (PL 13.10.22 [180]-[182]) also addressed his "practice" in explaining documents to DL, while she was a director of KAL, as follows:
"When I presented [DL] with documents to sign, my practice was to first explain to her what the purpose of the document was and why she was being asked to sign the document. For example, with the 'Declaration of Trust over Share' document dated 16 January 1990 I recall saying to [DL]:
"This is a Deed under which you agree to hold your share in Aidzan on trust for me. I have read the Deed and it looks ok to me. You will remember that Aidzan was the company we set up to own the new factory"…
If [DL] asked any questions before signing a document, my practice was to try to answer them or show her parts of the document at hand that would satisfy her questions. I never presented [DL] with documents to sign without first making sure that the documents were explained to her.
If [DL] was asked to sign a document by solicitor or adviser in my presence, such as [Mr Burges] or Mr Vumbaca, I usually only provided an additional explanation to that given by them. I provided an additional explanation to assist [DL] in understanding the purpose and effect of a document."
That evidence was implausible so far as PL claimed to recall the explanation of a document that he gave over thirty years ago. In any event, it is notable that that explanation did not contain a disclosure that the trust structure adopted for holding the Sunnyholt Property would exclude PL's siblings from any economic interest in that property. DL also seeks, in a somewhat conclusory fashion, to attribute a reasonably significant role in KAL's management to DL after AL's death in his affidavit evidence (PL 13.10.22 [500]) as follows:
"Whilst [DL] was not involved in the day to day running of [KAL], [DL] was involved in the decision making of [KAL] in her capacity as a director of [KAL] and the majority shareholder, including in respect of causing [KAL] to be party to the Michell Loan, the Corporate Guarantee, the Mortgage of Lease, the Assignment of Rentals, and the Sunnyholt Lease (together, the 1990 Transactions), as well as facilitating the transfer of the ownership of the Sunnyholt Property from Aidzan as trustee of the Peter Laird Trust to Aidzan as trustee of the PAL Property Trust ..."
I give limited weight to that evidence, to the extent that it extends beyond DL's execution of transaction documents that I address below, given the view that I have formed as to the reliability of PL's evidence as to matters that he perceived would assist his defence of the proceedings.
PL also gives evidence as to the basis on which he set the rent payable by KAL to Aidzan, and expresses his view that a yield of around 12% was less than the yields generally available in the marketplace and represented an attractive rate for KAL, equating to an annual rent of $420,000 for the Sunnyholt Lease (PL 13.10.22 [189]). It is not necessary to address whether that rental was an arm's length rental, although the joint expert report concluded that it was well above the then market rate, where I find below that Aidzan's acquisition of the Sunnyholt Property was in breach of PL's duty to KAL and that the sale proceeds from that property are held subject to a constructive trust for KAL. PL also refers to the subsequent use of the Tattersall Property by KAL from 1990 to 2005 to store surplus steel such as steel pipe, scrap and second hand steel (PL.13.10.22 [196]ff).
PL also addresses the circumstances in which, in 1992, the Aidzan Superannuation Fund and the PAL Property Trust were established (PL 13.10.22 [210]ff). PL's evidence is that Aidzan was appointed as trustee of the Aidzan Superannuation Fund and he was and still is its sole beneficiary (PL 13.10.22 [224]) and he also refers to the establishment of the PAL Property Trust on or about 26 May 1993 (PL 13.10.22 [233]). PL also addresses a series of health difficulties which affected him from at least October 1994 onwards (PL 13.10.22 [273]ff). He addresses the circumstances in which he caused KAL to make a superannuation contribution of $1 million into the Aidzan Superannuation Fund in 2007 (PL 13.10.22 [357]ff). His evidence discloses his focus upon the tax advantages of that transaction, although he appears to have misunderstood the financial advice that he was provided in that respect, and does not indicate that he gave any consideration to KAL's interests in determining whether it should make that contribution.
PL also addresses issues in respect of the management of the companies, and his health difficulties in that affidavit. His evidence (PL 13.10.22 [436]) is that:
"In 2013, I could not face going to the Sunnyholt Property. I also did not feel well enough to work. For months at a time I stayed away from the Sunnyholt property. I let the staff go, and shut the doors to most trading. After that I paid a storeman out of my own pocket to attend the Sunnyholt property. Eventually I let him go as well."
PL acknowledges (PL 13.10.22 [453]) receipt of an email from ML in February 2017 relating to the state of the Sunnyholt Property and his response to that email and refers to his visiting the Sunnyholt Property in 2017 and seeing that the safe and filing cabinets in the office were missing; there was a hole in the roof; it appeared to him that one of the mobile cranes at the Sunnyholt Property had been used to lift the safe out through the roof; and that the office was open to the elements and had been ransacked and was in "shambles" and that other items had been removed from the office (PL 13.10.22 [454]). These matters are consistent with photographs attached to ML's email of February 2017. PL does not address the further theft of the steel from the Sunnyholt Property in June 2017 in that affidavit.
PL also refers to advice given by his accountant, in early 2018, that the winding up of KAL would be a "simple liquidation" where the companies had no creditors, no tax due and "there were no shareholder issues" and that the accountant could organise a "friendly liquidator" to assist in winding up the affairs of the company (PL 13.10.22 [457]). The advice did not recognise the extent to which PL's past conduct in respect of the companies warranted investigation and plainly also misunderstood the statutory obligations of a liquidator. There is no reason, however, to treat either Mr Hayes or the Laird siblings as responsible for those errors. PL's evidence is also that neither Mr Hayes nor his staff provided him a declaration of relevant relationships or disclosed conversations with the solicitors acting for the other siblings leading up to his appointment (PL 13.10.22 [460]). It is not necessary to reach any finding as to that matter, where it provides no answer to the claim brought by KAL against PL in respect of his conduct from previous years, which is a matter to be determined on its merits in these proceedings. PL also refers to aspects of Mr Hayes' first affidavit and the affidavits of the other Laird siblings in that affidavit.
By a second affidavit dated 20 December 2022, PL provided further information as to the purchase of the Sunnyholt Property and its suitability for KAL's business. By a third affidavit dated 2 February 2023, PL gave evidence that the main work on which he engaged Mr Burges and MSJ after AL's death was in connection with Aidzan's acquisition of the Sunnyholt Property and associated transactions and the entry into the lease of that property and financing facility and that, after those transactions were implemented, neither KAL nor Aidzan needed to engage the legal services of Mr Burges or MSJ. He also referred to the advice provided by Mr Barden to him, as a financial advisor. His evidence was that he last spoke to Mr Burges at his mother's funeral in late 2009.
By an affidavit dated 2 May 2023, PL referred to the information which he had provided to the Australian Taxation Office in January 2012 as to his health position, and addressed further health difficulties which he had suffered in 2013. By his further affidavit dated 11 May 2023, PL, by leave, gave evidence as to aspects of his earlier affidavits which had been rejected in form. Much of that affidavit was admitted, by agreement of Counsel, with limiting orders under s 136 of the Evidence Act as directed to his state of mind, rather than as proof of the fact.
PL was cross-examined at length, on 10, 11, 12 and 17 May 2023, in a sometimes disorganised and somewhat repetitive manner. PL was cross-examined as to the Tattersall Property (T142) and as to the approaches which he later received to rent the Tattersall Property (T146ff) and the extent of any need to use that property for overflow storage of steel and the fact that the property was not used for overflow storage of steel from 2005 (T150). He was also cross-examined as to the very limited inquiries he had made before setting the rent to be payable by KAL to Aidzan in respect of the Sunnyholt Property (T160). He was cross-examined as to the circumstances of the police event report made in respect of the theft of steel from the Sunnyholt Property (T164, 170ff) and as to the risk that thieves could enter that property and the steps which might have been taken to secure it (T166ff). He was cross-examined as to the prospect of building a warehouse on the Tattersall Property, presumably to advance the claim that it was not necessary for KAL to move to the Sunnyholt Property (T182ff). He was also cross-examined as to his evidence of a discussion with AL as to the possibility of acquiring alternative premises, which he claimed took place in the mid-1980s, and claimed to recall some 40 years later (T186).
PL was further cross-examined as to the steps which could have been taken to earn income from the Tattersall Property (T206ff) and as to the circumstances in which KAL was not wound up from 2010, although it had been incurring substantial losses in previous years and was not engaging in business activities from 2010 (T210). He was also cross-examined as to the purchase of the Sunnyholt Property by Aidzan and attributed the steps taken to acquire that property in that company to Mr Burges (T215). He was also cross-examined as to the liabilities which KAL incurred in respect of that purchase (T217ff) and the other structures that might have been adopted to acquire the Sunnyholt Property, including by a trust of which KAL was trustee or a structure which his siblings shared in the benefit of owing that property, but did not accept that that was possible, consistent with the advice given by Mr Burges (T252). I address that issue further below.
PL was also cross-examined, at some length, as to the rent payable by KAL to Aidzan in respect of that property, and accepted that he did not recall telling his siblings, other than Ms Roberts in 2018, about the acquisition of the Sunnyholt Property (T264). Little turns upon that, where the question of KAL's knowledge of the circumstances of the acquisition did not depend upon the Laird siblings' knowledge of those circumstances. PL was also cross-examined, again at length, as to other aspects of his dealings with KAL, including payment of his salary and an increase in that salary of $120,000 to $180,000 per annum in about 2008 (T276). He was also cross-examined as to the circumstances in which the PL Superannuation Payment later came to be recharacterised as a loan from KAL to PL in about 2012 (T291ff, 299ff) and to his claim to have made repayments against that loan, which I address below (T302ff).
PL was then further cross-examined as to the circumstances in which he had not caused KAL to be wound up in about 2007 (T327ff), and he accepted that, "knowing what I know now", consideration should have been given to liquidation from that time, although he did not accept that that matter was then apparent without the benefit of hindsight. PL was then further cross-examined as to KAL's payment of salary to PL and rent to Aidzan for the period from 2007 (T334ff) and to the application of monies sourced from the sale of the Valediction Road Property to the PL Superannuation Payment (T338ff). PL was also cross-examined as to the steps which he was able to take to address aspects of his personal affairs including the payment of his salary, the payment of rent to Aidzan and the distribution of his mother's estate in the period in which he had suffered physical health issues, and on his account, depression (T339ff, T351ff).
PL was plainly aware of the matters that were in controversy in the proceedings, and he generally gave credible evidence and made concessions as to the limits of his recollection as to matters that were not adverse to his interests, but gave self-serving evidence and on occasion evidence that seems to me to have been false as to the matters that were in controversy, where he plainly recognised that a different answer would be adverse to his interests. I broadly accept his evidence as to matters that he did not perceive as controversial and approach his evidence with caution as to the issues that are in controversy between the parties.
The Defendants also read two affidavits dated 13 October 2022 and 13 February 2023 of Mr Alan Topp, who is one of the joint and several liquidators of Aidzan. In his affidavit dated 13 October 2022, Mr Topp gave evidence as to the books and records of the Laird family companies and Aidzan, which was plainly reliant on information provided to him by PL. Significant parts of the balance of that affidavit were not admissible and were not read and the remainder of that affidavit was of little assistance to resolution of the issues to be determined in the proceedings. In his second affidavit dated 13 February 2023, Mr Topp referred to the proceeds realised on the sale of the Sunnyholt Property and to deductions made from those proceeds. The balance of those proceeds, subject to those deductions, were the subject of a freezing order by Williams J in this Court.
Mr Topp was cross examined, including as to the notice that had been given to PL and to Mr Topp of KAL's claims against the Sunnyholt Property, which was plainly relevant to allegations of misconduct that were then made by PL and Mr Topp, in his capacity as liquidator of Aidzan, against Mr Hayes, involving a contention that Mr Hayes had not given notice of possible claims against Mr Laird before interviewing him in September 2019. I have referred to correspondence sent by Mr Hayes in July 2019 in the chronology which appears above. These allegations were rightly abandoned by the Defendants in Counsel's closing submissions at the hearing.
The Defendants also read an affidavit dated 29 September 2022 of Mr Ian Barden who, prior to his retirement on 13 September 2020, was a financial adviser specialising in self-managed superannuation funds. Mr Barden had been PL's financial adviser since 1992 and was also the tax agent and accountant for the Aidzan Superannuation Fund and the PAL Property Trust. Mr Barden referred to an initial conversation with PL, in 1992, which led to a restructuring of the trust arrangement by which Aidzan held the Sunnyholt Property in order to seek or reduce the tax payable on rent paid by KAL to Aidzan.
Mr Barden gave evidence of a conversation with PL, DL and solicitors during December 1992 in which he recalled PL having referred to a "director's loan from KAL" for the finance of the Sunnyholt Property and to Mr Barden confirming to DL that the new unit trust would be "owned by a superannuation fund, of which [PL was] the beneficiary". The conversation would have been significant, had it occurred, as it would have established that DL had been informed that PL was the beneficiary of the new trust and, implicitly, that the other Laird siblings had been excluded from any economic benefit from ownership of the Sunnyholt Property. Mr Barden, in his affidavit, claimed to recall the substance of that conversation, notwithstanding that it occurred about 30 years ago, but abandoned his claim to remember it in cross-examination. That conversation is now of no assistance to the Defendants. Mr Barden also referred to the establishment of the Aidzan Superannuation Fund on 1 January 1993, although, in fact, that trust was not established on that date, and documents were backdated to that date after Mr Barden prepared them in April 1993, as noted above.
Mr Barden also gave evidence of a conversation with Ms Cook and her husband in his affidavit, in which he claimed to have informed her that PL's unit trust and self-managed superannuation fund owned the Sunnyholt Property. That conversation would also have been significant had it occurred, because it would have contradicted Ms Cook's evidence that she had no knowledge of that matter until 2018. However, Mr Barden accepted in cross-examination that he had no recollection of disclosing that matter to Ms Cook in that conversation and that it was unlikely that he would have done so, where it would not have been his practice to disclose PL's confidential information to his sister without PL's consent. It is also unlikely Mr Barden had any real recollection of that conversation, since he was unable to recall much more recent conversations in the course of his cross-examination. Mr Barden also referred to a number of financial records relating to the PAL Property Trust, although it appears he had no involvement with it for a significant period in which those records were prepared. Mr Barden was cross-examined, and significantly retreated from his affidavit evidence in that cross-examination.
Mr Leopold, with whom Mr Tobin for the Plaintiff and the Cross-Defendants, at points raised a submission that a Jones v Dunkel inference should be drawn from the Defendants not calling evidence from Mr Burges. If that submission is pressed, I do not accept it, where it is not apparent that there was any more reason for the Defendants than KAL to call Mr Burges, or that he could properly be described as in the Defendants' "camp", and his absence was sufficiently explained. By an email dated 16 March 2021 (Ex D8), Mr Barr, who was acting for the Defendants, followed up with a former partner of Mr Burges, Mr King, as to Mr Burges' availability and observed that:
"We would be interested in speaking to [Mr Burges] regarding the Reclassification Document, including understanding whether [relevant corporation authorities] would have been signed. I note you indicate that [Mr Burges] has mild dementia or senility. If [Mr Burges] is unwell and not able to speak, I would be reluctant to push the matter any further".
Mr Barr requested information as to whether Mr Burges was prepared to have a telephone conversation or a meeting to discuss the email or contact details for him.
By email dated 17 March 2021, Mr King responded, based on visits and telephone conversations with Mr Burges and his wife in the recent past, that Mr Burges was not sufficiently well to be able to talk about a matter that occurred a substantial time ago and explained why he held that opinion. He declined to provide Mr Burges' contact details for privacy reasons. It seems to me that Mr Barr had done all that could reasonably have been done to pursue Mr Burges' availability in those circumstances. In any event, it is not apparent why it should be expected that the Defendants, rather than KAL, should have called Mr Burges to give evidence in respect of these matters, where he was likely representing KAL as well as the Defendants in the transactions.
The parties also relied on expert evidence. KAL relied on a report dated 12 July 2022 of a quantity surveyor, Mr Greg Smith (Ex P4). Mr Smith gave his opinion of the cost to construct two buildings around March 1990 on the Tattersall Property of the same or substantially the same size as the property located on the Sunnyholt Property and of how long construction would have taken to the point where steel inventory could be served under cover. He expressed the view that the total cost to construct the building including all site preparation and gantry cranes and supporting structures would be approximately $1.837 million and that it would take approximately 6 months to construct two buildings, and that staging of the two buildings would have been a possibility, and would have increased the cost by approximately 5% and take about 12 months depending on the staging process. He was cross-examined and accepted that he had no particular information as to whether constructing two buildings on the Tattersall property would have been suitable for KAL to conduct its steel business (T153) and as to the uncertainty in his cost estimate for constructing a building on that site in 1990 (T154).
KAL also relied on the expert report dated 14 July 2022 of Mr Alford (Ex P7), a property valuer, which expressed an opinion relating to the leasehold value of the Sunnyholt Property for the period 24 March 1990 to 31 December 2013 and the Tattersall Property for the period 4 March 1990 to 31 August 2017. The Defendants in turn relied on the report dated 20 December 2022 of Mr Ellis, which dealt with the property value and rental value of the Sunnyholt Property and the Tattersall Property. By his supplementary expert report dated 10 March 2023 (Ex P8), Mr Alford responded to Mr Ellis' report dated 20 December 2022. In the joint report dated 6 April 2023 of Messrs Alford and Ellis (Ex J2), they agreed the land value of the Sunnyholt Property was $1.29 million as at 23 March 1990 and its market value as at that date was $1.5 million. This was substantially less than the amount that Aidzan paid to acquire the property at that date. They agreed that the market value of the Tattersall Property as at 23 March 1990 was $1.1 million; its market value as at 2 June 2017 was $6.2 million and its market value as at 19 July 2019 was $6.6 million. They also agreed as to the market rent that KAL could have received for the Tattersall Property between 1990 and 2017 and the market rent for the Sunnyholt Property between 1990 and 2013, which was substantially less than the rent that KAL was paying Aidzan for much of that period. There remained a disagreement between them as to whether the market rent for the Sunnyholt Property included or excluded gantry cranes, although it is not apparent that that matter was of any significance for the determination of the proceedings.
Mr Alford was cross examined and plainly had substantial experience in the relevant market and presented as a qualified and careful expert witness, who did his best to assist the Court. Mr Ellis also presented well in cross examination. Nothing in their respective cross examinations undermined the agreed view they reached in the joint conference of experts and summarised in their joint report. For completeness, I do not accept the Defendants' submission that the price at which Aidzan acquired the Sunnyholt Property is the best evidence of its market value at the time. That proposition is inconsistent with the fact that the vendor of the property had acquired it at a much lower price than it sold it to Aidzan, not long before that sale; was rejected by Mr Alford in cross-examination; the agreed value for that property in the experts' joint report makes clear that Mr Ellis also does not accept it; and it ignores the real possibility that a particular purchaser might overpay for a property particularly if, like PL and Aidzan, it did not obtain a third party valuation of the property before acquiring it.
The Defendants relied on a report dated 3 November 2017 of Mr Tim Watson-Munro which provided a retrospective psychological assessment of PL. To the extent PL's present psychological state is of relevance, Mr Watson-Munro assessed him as "psychologically troubled", although that perhaps was not surprising when PL was assessed in late 2022, when these proceedings were well advanced. Mr Watson-Munro set out a lengthy medical history of PL, presumably based upon documents and information provided to him by PL, since he had not treated PL at any time during the relevant period. Mr Watson-Munro fairly accepted that his assessment of PL's mental state during the period was clearly retrospective, since he had not treated PL during that period. Mr Watson-Munro expressed the view that PL had struggled with a depressive disorder for many years, arising from a multitude of environmental stressors. It is plain that PL has had difficulties with his physical health for many years and I accept it is likely that that has manifested itself in at least a degree of depression.
Mr Watson-Munro fairly accepted in cross-examination that there were several difficulties with his diagnosis of PL, including the fact that it was based on information which was provided to him by PL in the course of litigation, which was potentially biased by the stress of litigation and by PL's interests in the litigation, and that PL had not informed Mr Watson-Munro of a number of matters which demonstrated that he was able to engage in complex financial and other tasks during the period of his depression. These included obviously enough, the steps which he had taken throughout the period to adopt sophisticated financial arrangements with a view to minimising his taxation liabilities; the steps he had taken to ensure that KAL paid his salary, including increasing that salary in that period, and to ensure that KAL paid rent to Aidzan throughout much of that period. It does not seem to me that Mr Watson-Munro's report significantly advanced the Defendants' position, including in respect of the relief sought by s 1318 of the Corporations Act 2001 (Cth) ("Corporations Act") which I address below, although I recognise the evidence of PL's physical health difficulties during the relevant period.
In Coope v LCM Litigation Fund Pty Ltd (2016) 333 ALR 524; [2016] NSWCA 37, Payne JA (with whom Gleeson and Leeming JJA agreed) summarised the no conflict and no profit rules (at [105]) as follows:
"A fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is a conflict, or a real or substantial possibility of a conflict, between the personal interest of the fiduciary and those to whom the duty is owed … A conflict arises if there is a real and sensible possibility that the personal interests of the fiduciary divide the loyalty of the fiduciary with the result that he or she could not properly discharge their duties to the beneficiary." [citations omitted]
The case law has also recognised the application of these principles in relation to corporate opportunities. In Natural Extracts Pty Ltd v Stotter (1997) 24 ACSR 110 at 138, Hill J summarised the state of the law relating to the diversion of corporate opportunity as being that:
"a fiduciary must account for a profit or benefit if that profit or benefit was obtained either where there was a conflict or possible conflict between his fiduciary duty and his personal interest, or, where that profit or benefit was obtained, by reason of his fiduciary position or by reason of his taking advantage of an opportunity or knowledge derived from that fiduciary position."
In SEA Food International Pty Ltd v Lam (1998) 16 ACLC 552 at 557, Cooper J observed that:
"What is to be drawn from the authorities is that a director will act in breach of his fiduciary obligations to a company (the scope of which will vary in the circumstances of each particular case) if he or she takes up an opportunity for profit where there is a sufficient temporal and causal connection between the obligation and the opportunity. What is a sufficient connection will depend, in any particular case, upon a number of factors, including the circumstances in which the opportunity arises and the nature of it and the nature and extent of the company's operations and anticipated future operations."
The relevant principles were also considered in Links Golf Tasmania Pty Ltd v Sattler (2012) 213 FCR 1; 292 ALR 382; 90 ACSR 288; [2012] FCA 634; by the Court of Appeal in Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd (2016) 340 ALR 580; 116 ACSR 566; [2016] NSWCA 347 at [171]ff ("Australian Careers Institute"); by Beach J in CellOS Software Ltd v Huber (2018) 132 ACSR 468; [2018] FCA 2069 and in my decision in Mudgee Dolomite & Lime Pty Ltd v Murdoch; Re Mudgee Dolomite & Lime Pty Ltd [2020] NSWSC 1510 and on appeal in Murdoch v Mudgee Dolomite & Lime Pty Ltd (in liq) (2022) 398 ALR 658; [2022] NSWCA 12.
Mr Leopold submits that Aidzan was a newly incorporated shelf company at the time of the acquisition of the Sunnyholt Property and held no assets that could have been used to fund the acquisition of the property and did not have the capacity to repay a borrowing on that property, other than through the rent it obtained from KAL. He also submits that KAL occupied and used the Sunnyholt Property for the purposes of its steel business and had the financial capacity to acquire the property and submits that it was obvious that it was in KAL's best interests to acquire that property for itself rather than to be left with no interest in it and pay rent to a company and trust in which PL had the entire beneficial interest. He also refers to the financing arrangements by which KAL assumed joint and several liability with Aidzan for the debt to Michell, although it obtained no financial benefit from the acquisition of the property, where it would pay substantial rent to Aidzan in order to occupy that property. Mr Leopold points out that, in addition to the amount borrowed from Michell of $1,800,000 for which KAL was jointly liable with Aidzan, KAL paid $1,283,000 to Aidzan which Aidzan used to pay the purchase price for the Sunnyholt Property, and KAL's trading cashflow funded the payment of rent which was paid direct to Michell and used to pay down the borrowing on the Sunnyholt Property.
In closing submissions, Mr Leopold submits that:
"KAL, as the operating company of the Laird family for many years, had a clear interest in gaining the Sunnyholt Property for itself on the basis that its managing director, [PL], was of the view that it was a suitable site for the conduct of KAL's steel wholesaling business…
Instead, [PL] subjected KAL to a lease of the Sunnyholt Property from [Aidzan] at a rental of $420,000 per annum ... That was in essence a way of [Aidzan] achieving partial repayment … to Michell of its $1.8 million loan facility… thereby increasing the equity in the Sunnyholt Property of [Aidzan] in its capacity as trustee of the Peter Laird Trust, of which [PL] with the sole beneficiary. … That was achieved by the mechanism of [Aidzan] assigning to Michell the lease payments payable by KAL to [Aidzan] of $420,000 per annum. …
KAL also had a clear interest in avoiding the vastly excessive $420,000 per annum rental impost which Peter (the director, managing director and sole beneficial owner of [Aidzan]) caused [Aidzan] to extract from KAL.
KAL lost the opportunity to make capital payments (as opposed to rent) which would, over time, gain KAL an equity interest (and ultimately 100% beneficial ownership) in the Sunnyholt Property, which [Aidzan] itself instead ultimately gained (for the benefit of the sole beneficiary of the Aidzan Superannuation Fund, namely, [PL]). …
[PL] (the sole beneficiary of the Peter Laird Trust of which [Aidzan] was the trustee …) personally benefited from those rental payments, which had the effect of creating, over time, equity in the Sunnyholt Property.
[Aidzan] (in its capacity as trustee of the Peter Laird Trust of which [PL] was the sole beneficiary) not only gained immediate sole beneficial ownership in the Sunnyholt Property, but, in addition, over time, gained 100% equity in the property by causing KAL to make very large rental payments which had the effect of earning [Aidzan] increasing equity in the property.
Indeed, [Aidzan] (and therefore, through it, [PL] as the sole beneficiary of the Peter Laird Trust) had gained a mortgage-free interest in the Sunnyholt Property by the "mid-2000s" (T253…).
I accept that KAL plainly had the capacity to acquire the Sunnyholt Property and that, in substance, it funded the purchase of the property by Aidzan. As at 1990, KAL was the sole legal and beneficial owner of both the Tattersall Property and the Valediction Road Property and there were no mortgages or other securities over those properties (T250-T251); each property was then worth "well" in excess of $1 million (T251); and KAL then had at least $1,283,000 in free cash which it contributed to Aidzan's acquisition of the Sunnyholt Property (T216). PL rightly accepted in cross-examination that "in early January 1990, KAL clearly had the financial capacity to buy the property for itself" (T216), although I have not neglected his evidence that Mr Burges had advised the property should be purchased in an entity other than KAL.
Mr Leopold also points to the evidence that the Laird siblings, which I accept, were not told that an entity other than KAL had acquired the Sunnyholt Property. However, I recognise that PL and DL were then the directors of KAL, and ALH and WE were its shareholders, and the Laird siblings' then interest was only as shareholders of ALH. I also recognise that DL, who was the director of several of the companies, may have known the basic elements of the acquisition, so far as she attested the execution of KAL's and Aidzan's common seal to the transaction documents with PL. However, PL leads no evidence and there is no other evidence that he or anyone else sufficiently informed DL of the legal and commercial effect of the transaction or the extent to which it diverted economic value from KAL to Aidzan.
Mr Studdy, who appears with Mr Nixon for the Defendants and the Cross-Claimants, submits, uncontroversially, that the existence and scope of fiduciary duties that a director owes to a company are defined and limited by the company's constitution and the other circumstances which give rise to the fiduciary relationship. He refers to the steps by which the Sunnyholt Property was acquired, but those steps provide no answer to the claim that the structure by which it was acquired was adopted in breach of the no conflict duty. Mr Studdy also submits that:
".. the form of the acquisition structure and associated transactions were adopted by [DL] and [PL] based on the advice of a family friend and professional advisor [Mr Burges]. [PL] was reliant on the advice he received in relation to the appropriate structure with which to acquire the Sunnyholt Property as at the time he was not familiar with settling or administering trusts or the purchase of shelf companies ... [PL] also followed whatever advice [Mr] Burges provided from time to time …. [Mr] Burges was a close friend to [AL] and was also close to [DL]."
That submission does not seem to me to assist PL. The evidence does not establish the extent of DL's involvement in this transaction, beyond attesting the application of the companies' common seals to the transaction documents; there is no evidence that Mr Burges' advice extended to structuring the transaction so as to exclude KAL's shareholders other than PL from any economic interest in the ownership of the Sunnyholt Property, and no apparent reason why he would have given such advice; and, in any event, a transaction undertaken in conflict of interest continues to have that character even if it was undertaken with third party advice.
Mr Studdy fairly accepted in his oral closing submissions that, to the extent Mr Burges gave advice in respect of the acquisition of the Sunnyholt Property, that could only be relevant to relief under s 1318 of the Corporations Act and could not displace any liability for conflict of interest, absent such relief (T492). That advice does not support that relief, because there is no suggestion that Mr Burges' advice required the transaction be structured so that PL obtain the sole economic interest in the Sunnyholt Property. Mr Studdy also, fairly and frankly, accepted in closing submissions that the Court might find a breach of PL's fiduciary duties in respect of Aidzan's acquisition of the Sunnyholt Property (T493) and primarily focused on limitations defences in his oral submissions concerning that transaction.
In their current Defence, Aidzan and PL claim that the payment of $1,283,000 made by KAL to Aidzan was a loan by KAL to PL and that PL then lent those monies to Aidzan (Defence [26(e)], [64], [73], PL 13.10.22 [175]). That proposition is amended from the position original put in their Defence filed on 19 February 2021, and then verified by PL, that that loan was made directly by KAL to Aidzan rather than by KAL to PL, and the difference tells of the lack of clarity in the arrangement. Adopting PL's later version of that arrangement, Mr Studdy submits that:
"[PL] has given evidence that clearly explains the financing arrangements for the acquisition of the Sunnyholt Property (PL 13.10.2022 … [175]-[176]). The KAL-PAL Loan was recorded in the financial records of KAL (PL 13.10.22, [177], [285] PL 11.5.23 [6]). Peter repaid the KAL-PAL [loan] with interest (PL 13.10.2022 [262], [266], [283]; [Ex J1, 1572-1574)."
PL gave no evidence of a conversation or correspondence or loan document by which the terms of any loan by KAL to him were agreed. Part of his affidavit evidence on which the Defendants relied to characterise the payment as a loan was not read; other parts were admitted as a submission and not as proof of the fact and the balance was rejected, so that evidence did not advance the characterisation of the transaction as a loan by KAL to PL; and PL's latest affidavit went no further than his claimed recollection of the content of financial records that were not in evidence. PL's evidence as to the nature of the transaction in cross-examination was plainly self-serving, and I give little weight to it. The Defendants did not draw attention to any balance sheet that was in evidence that recorded such a loan. The submission that interest was paid on that loan refers to two payments, in December 1993 and June 1994, in amounts that are not shown to correspond to any amount of interest due, and a list of payments that PL sent to Mr Barden on 27 September 1994 (Ex J1, 1572) that refers to payments of interest by "Aidzan for the Peter Laird Trust" on those dates, one of which is crossed through. Mr Leopold adopted a somewhat inconsistent position in that regard in closing submissions, at one point submitting that there was insufficient evidence to establish the fact of a loan, and squarely contesting the existence of any arrangement by way of loan in its reply submissions, and at another point appearing to accept PL's characterisation of the payment as a "director's loan" (T222). I am not persuaded that this limited evidence establishes the existence of such a loan, or that it had legal effect, absent evidence of how it was formed and its essential terms, including the interest rate that was payable, when interest was payable and the duration of the loan.
The Defence and PL's evidence also refer to subsequent transactions by which, although Aidzan remained the owner of the Sunnyholt Property, the beneficial interest in that property was transferred from the Peter Laird Trust to the PAL Property Trust. Nothing turns on these transactions, where Aidzan in its capacity as trustee for each of the trusts knew the matters known to PL which give rise to KAL's claim for relief against it. Nazdia, which replaced Aidzan as trustee of the trust when Aidzan was wound up, equally knows the matters known to PL.
It seems to me that Aidzan's acquisition of the Sunnyholt Property, initially as trustee for the Peter Laird Trust, amounted to a breach of the no conflict rule, where PL had a material conflict between his duty owed to KAL to determine whether to acquire the Sunnyholt Property on its behalf on the one hand and, on the other, his duty as a director of Aidzan and his interests as a shareholder of Aidzan and the sole beneficiary of the Peter Laird Trust in acquiring that property for the trust. It is no answer to a claim for conflict of interest, by diversion of corporate opportunity, that KAL could not or would not have acquired the property, by reason of Mr Burges' advice, had Aidzan not done so. In any event, an entity other than KAL could have acquired the property in a manner that provided a corresponding economic interest to ALH, WE and the ultimate shareholders in ALH, the other members of the Laird family, in the Sunnyholt Property where KAL had, as a matter of reality, funded the acquisition of that property.
KAL also pleads (FASOC [45]) a breach of a "Best Interests Duty" in respect of the acquisition of the Sunnyholt Property, defined in FASOC [17(a)] as a 'fiduciary duty to act in good faith in the best interests of the company as a whole." This claim relies on a challenge (FASOC [46]) to the basis of PL's decision to move KAL's operations from the Tattersall Property to the Sunnyholt Property. The parties addressed the case law concerning the broadly corresponding statutory provision, s 181 of the Corporations Act, at some length, but it is not necessary to address that case law where KAL does not press its claim for a breach of that provision and that claim would not support the relief sought by way of a constructive trust.
KAL's case in this respect depended partly on Mr Leopold putting to PL in cross-examination that the transaction was not commercially justified and PL, not surprisingly, rejecting that proposition. While I have little confidence in PL's evidence, his denials do not fill the gap created by the lack of affirmative evidence led by KAL to support the breach. As I noted above, Mr Smith's evidence as to the potential to erect two smaller warehouses on the Tattersall Property, instead or relocating to the Sunnyholt Property, was significantly undermined in cross-examination and he fairly accepted that he had no basis to suggest whether that would have been suitable for KAL's steel operations. Mr Studdy responded to this claim by identifying the suggested benefits of the acquisition of the Sunnyholt Property which I address below in dealing with a limitations issue. For the reasons set out below, I find that, to the extent that those benefits existed, they arose from KAL's entry into the Sunnyholt Lease some three months after Aidzan acquired the Sunnyholt Property and its entry into occupation of that property some two years after its acquisition, although I also recognise that PL (and to the extent she was involved, DL) plainly caused Aidzan to acquire that property with a view to KAL renting that property from Aidzan so as to fund repayments of the Michell facility which Aidzan had no capacity to fund from its own resources.
It is not strictly necessary to decide this claim where KAL has succeeded on its conflict of interest claim, subject to the limitations issue that I address below. Had it been necessary to decide this claim, I am inclined to think that a breach of the Best Interests Duty was established, but only by reason that the rent paid by KAL to occupy the Sunnyholt Property substantially exceeded a fair market rental, because it was calculated by reference to Aidzan's purchase price for that property which was also well above market value. It is not necessary to determine the vexed question whether a positive duty of this kind has a fiduciary character, or could found relief by way of a constructive trust, where KAL has established its entitlement to that relief on another basis. KAL does not press apparently superfluous additional claims (FASOC [54]ff) for breach of the statutory proper purposes duty under s 229(4) of the Companies Act 1981 (Cth) and general law and statutory duties of care in respect of the same matters.
KAL also pleads a trust claim (FASOC [63]ff) in respect of the Sunnyholt Property, which relies partly on the evidence of the transactions by which the property was acquired and partly on evidence led in other proceedings in the Federal Court of Australia. The Defendants deny the claim and 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 1969 (NSW) ("Limitation Act"), which it is common ground is the relevant limitations legislation. It is common ground that the other limitations legislation identified in the pleadings and addressed in submissions will not take matters further. I will address that limitations defence below. The Defendants also plead (Defence [120]-[123]) a defence of actual authority, relying on provisions of KAL's memorandum of association and its articles of association, and I will also address that defence below.
KAL pleads (FASOC [67A]) that, if the Sunnyholt Proceeds (as defined) (or so much of these monies as remain in Aidzan's possession, custody and control) are held (as will be the case) by the Court to be subject to a trust in favour of KAL, and these monies constitute less than the full amount of the Sunnyholt Proceeds, then, the Peter Laird Entities, or any one or more of them, are liable to pay KAL the balance as a consequence of PL's breach of the pleaded duties. The term "Peter Laird Entities" is defined in the FASOC as Aidzan in its own capacity and in its capacity as trustee of the Peter Laird Trust, the PAL Property Trust and the Aidzan Superannuation Fund, Nazdia in its capacity as trustee of the Aidzan Superannuation Fund and PL. KAL is entitled to relief on that basis, by reasons of PL's breach of the no conflict rule and the fact that Aidzan and Nazdia were knowing recipients of the Sunnyholt Property, or were and are his alter egos. KAL also pleads (FASOC [68]) that, to the extent that the Court finds that the Peter Laird Entities or one or more of them borrowed monies from KAL to permit one or more of them to acquire any interest in the Sunnyholt Property, an order rescinding any such loan or loans. That order is not necessary where such loan agreements have not been established; had they been, I would have made it where any such agreements would have formed part of the breach that I have found above.
As I noted above, by prayer 1 of the relief sought in the FASOC, KAL seeks a declaration that the Peter Laird Entities, or one or more of them, held and/or hold the proceeds of sale of the Sunnyholt Property on resulting trust for KAL. Mr Leopold submits that the money required to acquire the Sunnyholt Property came from KAL by the $1,283,000 paid directly by KAL to Aidzan and, as to the balance of $1,800,000, came indirectly from KAL in that KAL was jointly and severally liable to Michell in respect of the $1,800,000 Michell advance. Mr Leopold again points out that Aidzan was a newly established company and had no assets and no cashflow when it acquired the Sunnyholt Property, other than from rent payable under the Sunnyholt Lease. He submits that, where the Sunnyholt Property was acquired with funds provided by KAL, the property was prima facie held by Aidzan on a resulting trust for KAL, in conformity with the presumption to that effect, and that that presumption is difficult to rebut: Jacobs' Law of Trusts in Australia (8th ed., 2016) at [12-16].
Mr Studdy accepts that the law presumes that, subject to rebuttal by proof of a contrary intention, a person who purchases property in the name of another does not intend the latter to hold the property beneficially, but rather intends the property to be held on resulting trust for him, her or it, but points out that that presumption will not apply where the purchase money is provided by way of loan: Calverley v Green (1984) 155 CLR 242 at 246, 266. Mr Studdy refers to PL's evidence as to the financing arrangements for the acquisition of the Sunnyholt Property, but the evidence to which he refers was partly admitted with a limiting order under s 136 of the Evidence Act as to PL's understanding and partly rejected and does not establish that the payment of $1,283,000 had the character of a loan. He submits that PL repaid the KAL-PAL loan with interest (PL 13.10.2022 [262], [266], [283]). That evidence relates to three payments made in 1993, 1994 and 1996, long after the original transaction, and appears to amount to no more than PL's then characterisation of the transaction. It does not establish that interest was paid on any loan on any agreed or regular basis or that a loan arrangement existed. Mr Leopold responds and I accept that the claim for the alleged loan or loans by KAL to Aidzan are founded on vague and unsatisfactory evidence. I do not accept Mr Studdy's submission that KAL was a lender of that amount to KAL. On balance, I am satisfied that, subject to the limitation issue that I address below, a resulting trust is established as to the monies advanced by KAL to acquire the Sunnyholt Property, on terms that PL be allowed a credit from the three identified interest payments. However, it is not necessary to make a declaration to that effect, where it would be merely anterior to the substantive relief sought by KAL.
By prayers 2 and 3 of the relief sought in the FASOC, KAL seeks a declaration that the Peter Laird Entities, or one or more of them, held and/or hold the proceeds of sale of the Sunnyholt Property under an institutional constructive trust or by way of a remedial constructive trust in favour of KAL. I accept that, as Mr Studdy submits, an institutional constructive trust could not be established on the basis of any common intention that Aidzan hold the Sunnyholt Property for KAL, where Aidzan (through PL) plainly intended the necessary consequence of the transaction, that Aidzan hold the property for the economic benefit of PL to the exclusion of KAL's shareholders, including ALH. Mr Studdy fairly recognises that an institutional constructive trust may arise where property is stolen or misappropriated: Black v S Freedman & Co (1910) 12 CLR 105; Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 at [141]-[162] ("Sze Tu"). He submits that this does not arise here, because KAL advanced part of the money required for the transaction to KAL as a loan and KAL recognised a receivable in the form of an asset. It is not necessary to decide whether an institutional constructive trust could be established given the findings that I reach on other grounds.
In closing submissions, KAL put the claim that it has a beneficial interest in the Sunnyholt Property arising from a remedial constructive trust against Aidzan (and Nazdia as its successor trustee) under the first limb (knowing receipt) of Barnes v Addy (1874) LR 9 Ch App 244 as its primary claim, and resulting trust and institutional constructive trust claims as ancillary claims. It recognised that the practical outcome of the claimed trusts was likely to be the same in any case. In Kalls Enterprises Pty Ltd (in liq) v Baloglow (2007) 63 ACSR 557; [2007] NSWCA 191 at [152]-[159], the Court of Appeal examined the case law in which the first limb of Barnes v Addy had been applied to breach of fiduciary duty by a company director and held that line of authority was to be followed until the High Court said otherwise. In order to succeed in a claim for knowing receipt against Aidzan and extend that claim to Nazdia as its successor trustee, KAL must establish the relevant breach of fiduciary duty by PL and that Aidzan (and Nazdia as its successor trustee) received the Sunnyholt Property by reason of that breach of duty and, at the time of receiving that property, had the requisite notice of the "trust" (or duty) and of the misapplication of the Sunnyholt Property: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22; Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; 87 ACSR 260; [2012] FCAFC 6 ("Grimaldi"); Gordon in His Capacity as Liquidator of Lyon Form Pty Ltd (in liq) v Leon Plant Hire Pty Ltd (in liq) (2015) 16 ASTLR 185; [2015] NSWSC 397 at [61]ff, on which I have drawn for this summary.
Mr Leopold submits and I accept that the form of the relevant transaction and the existence of any loan arrangement (if, contrary to my finding above, one had been established) would not prevent the imposition of a remedial constructive trust in a proper case: Robins v Incentive Dynamics Pty Ltd (in liq) (2003) 175 FLR 286; 45 ACSR 244; [2003] NSWCA 71 ("Robins"). In that case, the directors of Incentive Dynamics, in breach of their duties, caused Incentive Dynamics to pay money to another entity ("Coldwick") in the form of loans which were used by Coldwick to acquire two properties. Incentive Dynamics contended that Coldwick held the properties on a constructive trust for it and Mason P (with whom Stein JA agreed) accepted that contention. Mason P there referred to Farrow Finance Co Ltd (in liq) v Farrow Properties Pty Ltd (in liq) (1997) 26 ACSR 544 which he treated (at [67]) as authority that "[t]he fact that the breach of fiduciary duty resulted in a loan from [the plaintiff] to [a related company] did not preclude [the plaintiff] from ignoring the form and terms of the loan transaction once it established [the related company's] recipient liability." Mason P also there accepted (at [73]) that "rescission is essential for cases … where the loan transaction is at best voidable for breach of fiduciary duty or an analogous statutory duty" before a proprietary remedy was available. The Court held (at [78]) that Coldwick held the properties on a constructive trust for Incentive Dynamics where Incentive Dynamics had "at all times acted on the basis that it was seeking to repudiate the formal transactions (whatever they truly were) that both effectuated and disguised the fiduciary and statutory breaches". These cases were in turn carefully reviewed by Ball J in Twigg v Twigg (No 4); Lambert v Twigg Investments Pty Ltd (No 3) (2020) 147 ACSR 389; [2020] NSWSC 1159 ("Twigg v Twigg (No 4)") at [201]ff, on which I have drawn for the summary that appears above.
Mr Studdy accepts that equity will impose a constructive trust as a remedy in circumstances where a third party (relevantly, Aidzan) participates in another's breach of trust or fiduciary duty. He seeks to distinguish Robins on the basis that a remedial constructive trust over property acquired with loan funds is not available in circumstances where the loan has not been rescinded or has already been discharged, and relies on The Hancock Family Memorial Foundation Ltd v Porteous (2000) 22 WAR 198 in that regard. That proposition does not assist the Defendants where I have not accepted that a loan by KAL to Aidzan is established.
I am satisfied that the elements of a claim for knowing receipt are established as against Aidzan and Nazdia. I have held above that the relevant breach of fiduciary duty by PL has been established, and Aidzan and then Nazdia received the Sunnyholt Property by reason of and knowing (through PL) the facts of that breach. It seems to me that KAL would also be entitled to relief against Aidzan and Nazdia on the somewhat simpler basis that each of them and the relevant trusts are PL's alter ego which has secured the profit of a breach of duty within the principles in Grimaldi at [242]-[243], as approved by the Court of Appeal in Australian Careers Institute at [178] and by Ball J in Twigg v Twigg (No 4) at [138].
I also recognise that, in Grimaldi at [567], the Full Court of the Federal Court observed that, although a Court would ordinarily award proprietary relief against a knowing recipient where the property received was still extant:
"[W]e consider that, both as a matter of binding authority and of proper principle, the Court is not obliged to do so. The circumstances may be such as to make it appropriate to leave the company to its personal remedies of an account of profits or compensation in equity. As a practical matter, these are the remedies most commonly given in misuse of corporate property cases for the reason that the recipient no longer holds traceable proceeds of the property received."
I am satisfied that, subject to the limitation issue and the several defences that I address below, KAL's claim for a remedial constructive trust is established, and that form of relief is an appropriate remedy where the proceeds of sale of the Sunnyholt Property are the traceable proceeds of that property.
Mr Studdy submits that, if the Court considers (as I do) that one or more of the trusts claimed by KAL over the Sunnyholt Proceeds were otherwise available in the circumstances, KAL's trust claims are nonetheless time barred. He identifies questions whether the trusts claimed by KAL would come within the extended definition of trust in s 11 of the Limitation Act and whether or not a person who is the knowing recipient of property within the first limb of Barnes v Addy would hold that property as trustee on trust within the meaning of s 11 of the Limitation Act.
I am satisfied that, as is now common ground between the parties, those claims are subject to ss 11 and 47 of the Limitation Act. In Sze Tu, Gleeson JA observed (at [389]) that, where an equitable claim was properly characterised as an action to recover trust property, then applying s 47(1)(c) of the Limitation Act, at least by analogy, the limitation period of 12 years applied. As Mr Studdy points out, in Lewis Securities (in liq) v Carter (2018) 355 ALR 703; 334 FLR 9; 128 ACSR 120; [2018] NSWCA 118, Leeming JA and Emmett AJA (at [66] and [217] respectively) observed that a claim for a constructive trust against a third party sued for knowing assistance would be subject to s 47 of the Limitation Act. Leeming JA there referred to a passage in passage in G Dal Pont, Law of Limitation (LexisNexis Butterworths, 2016) at [10.36], which cited Sze Tu at [335]-[338] for the observation that:
"The position has been modified in the Territories and New South Wales by adding to the 'trust' definition [in s 11 of the Limitation Act] the words 'and whether or not the trust arises only by reason of the transaction impeached'. These words, which do not appear in the other Australian jurisdictions or parallel English precursors, are designed to comprehend 'constructive trusts' arising out of fiduciary breaches, stolen property and recipient and accessory liability. The modification was driven by a belief that persons declared constructive trustees in these scenario[s] should not be better position as regards limitation than other trustees, to whom a 12 year time bar may apply in the face of fraud or conversion of trust property."
Leeming JA also observed (at [66]) that:
"I see no reason to doubt that the passage from Professor Dal Pont reproduced above correctly states the law. There is ample support for his conclusion in the legislative text and extrinsic materials. And I would strain to avoid a result whereby claims against a third party accountable as a constructive trustee for knowing receipt (the case in Taylor v Davies) or a constructive trustee based on a Black v Freedman claim (the case in Sze Tu v Lowe) were subject to s 47, but a claim against a third party for knowing assistance in a dishonest and fraudulent design were not."
Emmett JA in turn observed at [217] that claims against a third party in that case "for liability under both limbs of Barnes v Addy are claims in respect of fraud or fraudulent breaches of trust against a person who falls within the extended definition of trustee for the purpose of s 47(1) of the Limitation Act" and that "[i]t may be arguable that the limitation period did not commence until the time when the person through whom the plaintiff claims first discovered or may with reasonable diligence have discovered the facts giving rise to the cause of action."
Mr Studdy also submits and I accept that the decisions in Williams v Central Bank of Nigeria [2014] AC 1189; 2 All ER 489; UKSC 10 at [9], at first instance in Twigg v Twigg (No 4) at [164]-[167] and on appeal in Twigg v Twigg (2022) 402 ALR 119; [2022] NSWCA 68 ("Twigg v Twigg (NSWCA)") do not lead to a contrary result, since s 11 of the Limitation Act is wider than the corresponding English and Victorian limitations legislation considered in those decisions, and extends to remedial (as distinct from institutional) constructive trusts.
KAL in turn relies on s 55 of the Limitation Act and the equitable principle of fraudulent concealment in respect of several of the transactions in issue. In closing submissions, Mr Studdy responds that:
"For conduct to amount to "fraudulent concealment" within the meaning of s 55 of the Limitation[s] Act two elements must be satisfied. First, there must be conduct which results in an actual concealment of the cause of action from the potential plaintiff. That conduct must be wilful. Second, the concealment must be dishonest in the sense that the person concealing the cause of action is conscious of their wrongdoing (e.g. the person received property with knowledge that they are not entitled to it, or are aware that they had a duty to bring the relevant state of affairs to the attention of the potential plaintiff …
In the current case, KAL is the relevant "potential plaintiff" (and is the actual plaintiff bringing the current proceedings). As the conduct of [PL] and [DL] was not in total fraud of KAL … their knowledge is attributed to KAL. KAL has therefore "discovered" that it had the cause of action as at the time it entered into the transactions … The Defendants submit that there is no scope for the application of s 55 of the Limitation Act in these circumstances.
In any event, the Defendant's further submit that the evidence does not establish that Peter has (i) acted dishonestly in respect of the Sunnyholt Property acquisition by Aidzan and [the] Sunnyholt Lease, or (ii) wilfully concealed the cause of action from KAL or his siblings. ..."
The scope of s 55 of the Limitation Act was in turn considered in Seymour v Seymour (1996) 40 NSWLR 358 ("Seymour") at 372 where Mahoney ACJ, with whom Meagher JA and Abadee AJA agreed, observed that:
"In my opinion, the section is not confined to simple common law fraud. It extends to conduct beyond that. On the other hand, it is not, I think, sufficient merely that for the defendant to take advantage of the statute of limitations would be unconscionable or inequitable in the wide sense of these terms. Terms such as unconscionable and inequitable now are used to describe conduct which, in previous times, would not have fallen within them: see Baumgartner v Baumgartner (1987) 164 CLR 137 at 147…and Hibberson v George (1989) 12 Fam LR 725 at 731 .
Nor, in my opinion, is 'fraudulently' wide enough to include everything which would fall within the description of 'equitable fraud'. Equitable fraud is a doctrine which depends, for this purpose, too much upon nice distinctions which have been drawn in other times: see Snell's Equity, 29th ed (1990) at 550 et seq; Meagher, Gummow & Lehane, Equity: Doctrines and Remedies, 3rd ed (1992) at par 1208; and see the discussion in Logue v Shoalhaven Shire Council [1979] 1 NSWLR 537 at 553. The history of the English legislation was recently reviewed in Sheldon v RHM Outhwaite Ltd [1996] 1 AC 102: see, eg, at 144, 153.
In my opinion, there must be in what is involved a consciousness that what is being done is wrong or that to take advantage of the relevant situation involves wrongdoing. At least, this is so in the generality of cases. (There is in this as in many things, the problem of dealing with the person who 'closes his eyes to wrong' or is so lacking in conscience that he is not conscious of his own lack of proper standards)".
In Anthony v Morton [2018] NSWSC 1884 at [671]ff, Ward CJ in Eq (as the President then was) undertook a detailed review of the authorities and observed that:
"Despite s 55 not being confined to common law fraud, it is not sufficient merely to show that taking advantage of the statutory limitation would be unconscionable or inequitable in the broad sense of those terms. Generally, there must be consciousness that what is being done is wrong or that to take advantage of the relevant situation would involve wrongdoing (Seymour v Seymour at 372 (Mahoney ACJ); Gerace v Auzhair Supplies Pty Ltd (in liq) (2014) 87 NSWLR 435; [2014] NSWCA 181 at [75]-[76] (Meagher JA)).
The suspension of the limitation period under s 55 will expire upon the first to happen of two things (Ballard v Multiplex [2012] NSWSC 426 at [94] (McDougall J)). One is the claimant discovering the fraudulent concealment itself. The other is the time when the claimant, acting with reasonable diligence, might have discovered the fraudulent concealment. In respect of the latter, the burden is on the claimant to establish that the fraudulent concealment could not have been discovered without having to take unreasonable steps (Ballard v Multiplex at [106]). The applicable standard is how a person carrying on a business of the relevant kind would have acted if they had adequate but not unlimited resources and were motivated by a reasonable sense of urgency (Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400 at 418 (Millett LJ)) ...
There is some heterogeneity in the cases in which the fraudulent concealment exception to the running of limitation periods has been applied or (more often) rejected by the courts.
One category of case, of which State of New South Wales v Mulcahy [2006] NSWCA 303 and Faraday v Rappaport [2007] NSWSC 34 are examples, is one where there is simply no concealment ...
A second category, which includes Seymour v Seymour, Hamilton v Kaljo (1989) 17 NSWLR 381 and others, could be said to include cases where there was concealment for which the defendant was responsible, but no fraudulent conduct on the part of the defendant in that regard has been established. Cases in this category often speak in terms of the Court lacking satisfaction that there was "dishonesty", "moral turpitude"; actual consciousness of wrongdoing; or "wilful" concealment.
Of course, in assessing the cases, it should be noted that the fraudulent concealment exception is just that - an exception - and is not co-terminous with cases where the plaintiff actually knows of the illegal conduct. There may be many cases where the cause of action never becomes obvious to or reasonably discoverable by the plaintiff, yet the defendant has done nothing fraudulent to conceal it. It is also necessary to understand the exception in the context of the whole scheme of limitation by statute. I have therefore endeavoured to resist the temptation to distil neat propositions from the cases."
In Finance & Guarantee Company Pty Ltd v Auswild [2019] VSC 664 at [295]-[312], Riordan J again reviewed the authorities and concluded that, in order to establish that exception, a defendant's conduct must involve a consciousness that what was being done was wrong or the taking of advantage of the relevant situation involving wrongdoing. The approach in Seymour was approved by the Court of Appeal in Twigg v Twigg (NSWCA) at [67]ff.
As I noted above, Mr Studdy submits that s 55 of the Limitation Act and the principle of fraudulent concealment is not available because PL's and DL's knowledge of the relevant transactions should be attributed to KAL. Mr Studdy submits that KAL was "objectively on notice" of the relevant facts constituting its title to relief from as early as 23 March 1990, where Aidzan acquired the Sunnyholt Property on that day and on the same day DL and PL, as directors of KAL, signed the Michell facility and associated documents; and, on or around 19 June 1990, Aidzan (as lessor) and KAL (as lessee) entered into the Sunnyholt Lease, which DL and PL signed as KAL's directors and also signed for the lessor, Aidzan. In their closing "Schedule of Limitations Defences", the Defendants contended that, as at 19 June 1990, PL and DL as directors of KAL knew that KAL was not the owner of the Sunnyholt Property; KAL was the co-borrower under the Michell facility which had been entered to allow Aidzan to acquire the Sunnyholt Property and was secured by a mortgage over that property (although PL denied that was the case in cross-examination); KAL had provided a corporate guarantee to Michel; KAL had paid $1,283,000 towards the purchase of the Sunnyholt Property; KAL was leasing the Sunnyholt Property from Aidzan; KAL had entered into the Deed of Assignment of Rental; and the rent paid to Aidzan was not the subject of valuation by an independent third party.
Mr Studdy submits that the acts of DL and PL in committing KAL to the course they did in March 1990 was an act the knowledge of which is imputed to KAL. Mr Studdy accepts that any knowledge of DL and PL as directors of KAL is not imputed to KAL where that knowledge was obtained in the course of a fraud on the company. However, he submits that the fraud exception to imputed knowledge does not apply if the company obtains a benefit from the transaction, even if the director is also, in that transaction obtaining a personal benefit in breach of duty, and that the director's conduct must be in "total fraud" of the company for the fraud exception to imputed knowledge to apply: Grimaldi at [284]; Gerace v Auzhair Supplies Pty Ltd [2014] NSWCA 181 at [78].
It is necessary now to turn to the case law which considers whether a director's knowledge of conduct, that was or was arguably in fraud on a company, should be attributed to the company. Many of the cases refer to Beach Petroleum NL v Johnson (1993) 43 FCR 1 at 30-32, where von Doussa J observed that:
"In my opinion, this statement of the law in Canada provides compelling guidance to the law which should be applied in this case. If, for the purposes of criminal responsibility, a company is imputed with the knowledge and intention of a person who is the directing mind of the company, acting in the field of operation assigned to him, when his actions are not totally in fraud of the company and by design or result are partly for the benefit of the company, the imputation of the knowledge and intention of that person to the company for the purposes of civil responsibility should be no less extensive: see Dixon v Deacon Morgan McEwen Easson et al (1990) 70 DLR (4th) 609. Under the test propounded by Canadian Dredge and Dock Co Ltd, to determine whether the fraud of directors is totally in fraud of the company, it is necessary to consider whether all the activities of those people are directed against the interests of the company with a view to damaging it. In determining this question, the question of benefit, if any, to be received by the company will be of particular importance. …
These authorities indicate that if a company is to be imputed with the conduct and knowledge of a director, the director must be acting within the scope of his or her authority, that is, within the scope of his or her actual or apparent authority. The scope of the authority of a director may vary widely from company to company and according to the circumstances of the case. In many instances a director might not be formally appointed by resolution of the board to act on the company's behalf for a particular purpose, but may assume that role without dissent from those who customarily run the company, perhaps even assume the role of managing director: Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480. Provided that the director is acting within the scope of his or her authority, in civil proceedings the state of mind of a director ordinarily will be attributed to the company where there is a duty on that director to communicate his or her knowledge to the company. The exception to this rule is where the director is acting totally in fraud of the company, that is, where all the director's activities are directed against the interests of the company, and not partly for the benefit of the company. If the director is guilty of fraudulent conduct which is not totally in fraud of the corporation, and by design or result the fraud partly benefits the company, the knowledge of the director in the transaction will be attributed to the company."
In Grimaldi at [282]-[284], the Full Court of the Federal Court observed that:
"The exception relied upon was that knowledge of a director's own fraud committed upon his or her company was not to be imputed to that company: Re Hampshire Land Company [1896] 2 Ch 743. It was not the knowledge of that company.
This "fraud exception", as it has been called, has been controversial in a number of common law countries ... see Re Parmalat Securities Litigation (2009) 659 F Supp 2d 504 at 519 for the view taken in some number of US States jurisdictions:
"… the principal suffers imputation as long as the agent in some respect served the principal or, stated another way, unless the agent totally abandoned the principal's interests. The rule of imputation absent total abandonment, moreover, is not simply a matter of mechanics or rhetoric. It embodies a determination that it would be undesirable to permit principals to avoid responsibility for an agent's actions or knowledge whenever an agent could be said to have acted even in part for the agent's own interest notwithstanding that the agent simultaneously served the interests of the principal."
The fraud exception to imputation has not only been accepted in first instance decisions in this country… it also has been extended beyond knowledge of fraud to that of breach of fiduciary duty "at least where the fiduciary's conduct is morally reprehensible" … None the less, the exception itself has been qualified in a fashion which resonates with that suggested in the Parmalat quotation above. As von Doussa J observed in Beach Petroleum (at 22.34), while a director's knowledge will not be imputed to a company where the director's activities are directed against the interests of the company, it will be otherwise if his or her conduct is not totally in fraud of the company if, "by design or result the fraud partly benefits the company": see also Canadian Dredge & Dock Company Ltd v The Queen (1985) 19 DLR (4th) 314 at 351 which von Doussa J considered provided "compelling guidance".
This approach was followed by Besanko J in Adelaide Brighton Cement Ltd, Re Concrete Supply Pty Ltd v Concrete Supply Pty Ltd (Subject to Deed of Company Arrangement) (No 4) [2019] FCA 1846 at [632]ff, and his Honour there observed (at [634]) that:
"In my opinion, the proposition which emerges from these authorities is that an agent's knowledge or conduct will be attributed to a company even where the agent was fraudulent unless the fraud was total fraud, being fraud where there is no benefit to the company, whether by design or result. In other words, if the company partially benefits in the result, then the fraud exception to the rules of attribution is not engaged."
At first instance in Re Earth Civil Australia Pty Ltd, RCG CBD Pty Ltd, Bluemine Pty Ltd, Diamondwish Pty Ltd and Rackforce Pty Ltd (All In Liq) [2021] NSWSC 966 at [989], Ward CJ in Eq observed that:
"… where a corporation is the victim of fraud or other wrongdoing such as breach of fiduciary duty, the ordinary rule of attribution does not apply (Beach Petroleum at [ALR] 571-572; Bilta at [7] per Lord Neuberger P; Permanent Trustee Co Ltd v O'Donnell (2009) 15 BR 28,1010; [2009] NSWSC 902 at [369] -[371] per Price J). The authors of Halsbury' Laws of Australia distil the relevant principles as follows:
In a claim by a corporation against a person, such as a director, in respect to a transaction, the knowledge of the person will not be attributed to the corporation, if the person was acting totally in fraud of it in respect to the transaction; that is, where all the person's activities were directed against the interests of the corporation, and not partly for its benefit. 'Fraud' may take a variety of forms and is incapable of precise definition. However, it ordinarily implies some base conduct and moral turpitude and, in this context, might include equitable fraud arising out of a breach of a fiduciary duty, at least where the fiduciary's conduct is morally reprehensible. If the person is guilty of fraudulent conduct which is not totally in fraud of the corporation, and by design or result the fraud partly benefits the corporation, the knowledge of the person in the relevant transaction may be attributed to the corporation."
[emphasis added]
On appeal in Bluemine Pty Ltd (in liq) v AKA (Civil) Pty Ltd; Earth Civil Australia Pty Ltd (in liq) v AKA (Civil) Pty Ltd; Diamondwish Pty Ltd (in liq) v Ivana Cassaniti; Rackforce Pty Ltd (in liq) v Ivana Cassaniti; RCG CBD Pty Limited (in liq) v Borg Family Pty Ltd [2022] NSWCA 160 ("Bluemine") at [241]ff, the Court of Appeal held that sufficient benefit was established to permit attribution of a director's knowledge to a company where that company had received "not insignificant" tax benefits from a transaction. Mr Studdy here similarly relies on tax deductions that KAL claimed for rent paid to Aidzan (PL 13.10.22 [279], [410]; Ex J1, 1631, 2286, 2291, 2144). Mr Leopold did not contend, in response, that the treatment of a "not insignificant" tax deduction as a benefit to a company should be limited to the facts of Bluemine, although I recognise that a loss which is partly offset by a tax deduction would not be described as a benefit in ordinary usage. The Defendants also rely on a suggested improvement in KAL's financial position by the use of that property, but there is no evidence to support a finding that that improvement resulted from that matter rather than any other changes in the economic environment or KAL's business.
Mr Studdy also identifies other suggested benefits of Aidzan's acquisition of the Sunnyholt Property to submit that PL's knowledge of relevant matters (and, to the extent that she was aware of them, DL's knowledge) should be attributed to KAL. The first was that KAL had exclusive access to the Sunnyholt Property for approximately twenty two years. It is not entirely clear that the opportunity to acquire a property, paying a rent that was substantially above market value at least in the early years of KAL's occupation of that property, can be characterised as a benefit. The second was that KAL significantly increased its storage capacity to store steel, although none of the evidence identified for that proposition supported it. The third was that, through Aidzan acquiring the Sunnyholt Property and entering into the Sunnyholt Lease, KAL could retain ownership of the Valediction Road Property and the Tattersall Property, thereby accruing value on these properties, and that these properties were acquired by KAL prior to the introduction of the capital gains tax regime. That did not require the acquisition of the Sunnyholt Property, still less its acquisition by Aidzan, but only the retention of those properties until they were sold. The fourth was that PL using his superannuation towards the costs of acquiring the Sunnyholt Property thereby reduced Aidzan's total borrowings, with such contributions also used, in part, to make principal and interest payments to KAL on the KAL-PAL Loan (being the amount of $1,283,000) as well as towards the repayment of the principal and interest on the Michell facility. PL did not initially use his superannuation toward the cost of acquiring the property, which was acquired by monies advanced by Michell and paid by KAL at a time that Aidzan had no assets; the fact of a "KAL-PAL" loan is not established, where there is no satisfactory evidence that the monies applied by KAL to the purchase took the form of a loan; and KAL's payment of rent funded the loan repayments to Michell. The fifth alleged benefit was that KAL had the benefit of a re-draw facility as a result of the arrangements set up with Michell. This was a term of the facility to which KAL was party and there is no suggestion that it was available by reason of the fact that Aidzan acquired the property.
With a degree of hesitation, I consider that I should treat KAL's occupancy of the Sunnyholt Property and the tax deductions that it received from payment of rent to Aidzan as a benefit to KAL, although that benefit was achieved at the cost of the payment of an above-market rental to Aidzan for a considerable period. However, that does not seem to me to establish that Aidzan's acquisition of that property (as distinct from entry into the Sunnyholt Lease and occupation of that property) delivered a benefit or part benefit to KAL to allow PL's or DL's knowledge of the relevant facts of that acquisition to be attributed to KAL in 1990 or thereafter. KAL obtained no real or apparent benefit from the arrangements formed in January 1990, by which Aidzan acquired the Sunnyholt Property and KAL assumed liabilities in respect of that acquisition, although I recognise that PL (and likely DL) then planned that KAL would in future occupy that property and pay rent on it so as to fund Aidzan's acquisition of that property. It seems to me that KAL only obtained any potential benefit from its lease of that property under the Sunnyholt Lease executed some six months after Aidzan contracted to acquire the property, and any actual benefit only from its occupation of that property two years later, in early 1992. I accept that PL's and DL's knowledge of the terms of the Sunnyholt Lease and the fact that Aidzan had leased the property to KAL as trustee for the Peter Laird Trust should be attributed to KAL, but that is not sufficient to disclose that the transaction had been structured so that KAL's shareholders and the other Laird siblings had been excluded from any economic interest in the property. That would only be apparent from knowledge of the shareholdings in Aidzan, the terms and identity of the beneficiaries or potential beneficiaries of the Peter Laird Trust and the fact that Aidzan exercised any discretion to distribute earnings from the trust to PL rather than any other potential beneficiary of the trust, and none of those matters were apparent from the terms of the Sunnyholt Lease.
Mr Studdy submits that the limitation period fixed by s 47(1)(e) of the Limitation Act for the trust claims in respect of the Sunnyholt Property commences, at the latest, on 19 June 1990. I do not accept that submission for the reasons noted above. Mr Studdy also submits that Aidzan acquired title to the Sunnyholt Property on 23 March 1990; KAL signed the Sunnyholt Lease on 19 June 1990; KAL commenced the current proceedings on 11 December 2020, which is more than 30 years after Aidzan acquired the Sunnyholt Property; and that the ultimate time bar in s 51 of the Limitation Act applies such that the cause of action is not maintainable on or after 19 June 2020, being 30 years from the time fixed under Part 2 of the Limitation Act. He submitted that this time period cannot be extended under s 55 of the Limitation Act as there is no fraudulent concealment where PL's and DL's knowledge can be imputed to KAL. Mr Studdy rightly accepted in closing submissions that the limitations submission must fail if his submissions as to s 47(1)(e) of the Limitation Act and the attribution of PL's and DL's knowledge to KAL under s 55 of the Limitation Act failed.
With the greatest of respect for the subtlety of Mr Studdy's submission as to this issue, I do not accept it. First, while DL must have known that she signed the relevant documents, there is no evidence that, and no reason to infer that she knew that their effect was to confer the economic interest in the Sunnyholt Property in PL or his associated trusts to the exclusion of the shareholders in KAL including ALH and the other Laird siblings. Second, for the reasons noted above, PL's (and, to the extent of it, DL's) knowledge of the terms of Aidzan's acquisition of the Sunnyholt Property was not attributed to KAL in 1990 or thereafter. Mr Studdy rightly accepted in closing submissions that, if I reached that view, KAL did not have the knowledge necessary for the limitations period to commence until before the Laird siblings or Mr Hayes acquired actual knowledge of these matters in 2018, and this claim was brought within the limitations period. For these reasons, I am satisfied that KAL is entitled to a remedial constructive trust in favour of KAL over the proceeds of sale of the Sunnyholt Property and to the relief to which I have referred above.
The Defendants also rely on superannuation contributions and amounts paid in respect of land tax and outgoings for a set off in respect of this claim (Defence [147]ff). I address that question below.
The Defendants deny the claim and plead (Defence [70]) that it is statute barred and extinguished by, relevantly, ss 47 and 63 of the Limitation Act or in equity by analogy to s 15 of the Limitation Act. In their "Schedule of Limitations Defences" in closing submissions, the Defendants relied on the matters I have addressed above in respect of the claim for a trust over the proceeds of the sale of the Sunnyholt Property to identify PL's and DL's knowledge of relevant matters, and particularly emphasise the terms of the Sunnyholt Lease, the Deed of Assignment of Rentals and evidence that suggested a valuation of rentals was to be obtained, although there is no satisfactory evidence that that was done. They rely on the same matters, including KAL's tax deductions for rent, to contend that then payment of rent to Aidzan was not in total fraud of KAL and that PL's and DL's knowledge of that rent should be attributed to KAL, and the limitation period runs from the date that rent was paid. Mr Studdy in turn submits that:
"Conceptually, the claim for the Sunnyholt Property Surplus Rent may be understood as being brought in respect of amounts that form part of the trust property of the trusts alleged in [FASOC [67]]. As such, this is an action on a cause of action within s 47(1)(c) of the Limitation Act to recover that property. The claim for surplus rent is subject to the 12 year time bar imposed by s 47 of the Limitation Act.
Alternatively, a claim for equitable compensation against a person who has knowingly received property as an accessory in the breach of another's duty is analogous to the common law duty of agents to account for ill-gotten profits: Twigg v Twigg [2022] NSWCA 68… (at [183]-[187]). The claim will be time barred by equity with analogy to s 15 of the Limitation Act, and would be subject to a six year limitation period."
Mr Studdy fairly accepted, in oral submissions, that the position as to PL's liability in respect of KAL's claim for surplus rent would stand or fall with its claim in respect of the Sunnyholt Property (T506) although it emerged in his further submissions that a different result may follow in respect of the limitations defence to this claim (T506-507).
On the findings that I have reached above, KAL benefited or partly benefited from its occupancy of the Sunnyholt Property under the Sunnyholt Lease and the substantial tax deductions it received for payment of rent under that lease and PL's and DL's knowledge of the terms of that lease and the circumstances surroundings its entry and of the payment of rent to Aidzan should be attributed to KAL as it occurred. Neither party suggested that the position was different for the long period in which KAL continued to occupy the property after the term of the Sunnyholt Lease had expired. I accept that this claim is properly characterised as a trust claim and it is therefore barred by s 47(1)(e) of the Limitation Act, but only for rent paid before 11 December 2008. The parties will need to calculate the amount recoverable under this claim since that date in preparing orders.
KAL put the claim for the Sunnyholt Excess Rent as an alternative for the trust claim in respect of that property and it is not necessary to determine the question of liability under this claim. Where these costs arose under the Sunnyholt Lease, or in the period that KAL occupied the property after that 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, or by analogy with, the applicable limitation periods for rent paid before 11 December 2014, for the reasons noted above.
Mr Studdy responds by pointing to PL's rationale for not seeking to rent the Tattersall Property to a third party, including its use to store surplus steel (until its use for that purpose ceased in 2005 and then KAL's business effectively ceased in 2013), and to PL's view that the trucking operators and scaffolding companies that sought to rent the premises were "unsatisfactory tenants". Mr Studdy puts the surprising submission that "KAL was in no need to rent or sell the Tattersall Property" and also submits that PL wanted KAL to have overflow storage capacity. The former proposition disregards any need for KAL as a commercial entity to earn any return on its assets for its shareholders. Mr Studdy also submits that the Tattersall Property was held as "an appreciating capital asset of KAL that was ultimately sold on 2 June 2017 for $6,834,940.20" and the capital appreciation of the property was not subject to capital gains tax due to the property's pre-CGT status. There is no suggestion that that advantage could not have been obtained had the property also been rented for a commercial rent during that period. Mr Studdy submits that "the decisions regarding the use of the Tattersall Property are consistent with what might be expected of an ordinary person with the experience of [PL]". Mr Studdy also submits, oddly, that:
"The period of dormancy ended when KAL ceased operating in 2013 as from that time onwards KAL would not have been seeking tenants. In these circumstances there is no damage suffered by KAL in relation to the Tattersall Property prior to 2005 or after the time it ceased its operations in 2013."
I do not accept this submission. It seems to me that, absent income from any other aspect of its business, KAL had no less and likely more reason to seek to generate a commercial return on the Tattersall Property from 2013.
I am inclined to think that this claim would have succeeded for the earlier period, but for the limitations issue that I address below, and I am satisfied that it should succeed for the period that is not subject to a limitations period. Although KAL challenges a business judgment made by PL, the evidence discloses no rational basis for KAL to retain the Tattersall Property in order only to store "surplus steel" for some time, and then leave it wholly unused for many years, rather than permitting third parties to use the property under lease or licence so as to generate an economic return for KAL from the property.
The Defendants (Defence [91]-[92]) plead, relevantly, that this claim is time barred and extinguished by operation of ss 14, 51 and 63 of the Limitation Act and additional statutory limitation periods were referred to in the Defendants' "Schedule of Limitations Defences" and Mr Studdy's submissions. Mr Studdy submits that:
"The Defendants further submit that any cause of action in respect of the alleged underutilisation of the Tattersall Property arises as from the time that KAL signed the lease and decided to relocate its business to the Sunnyholt Property in or around 19 June 1990. As such, the ultimate time bar in s 51 of the Limitation Act will apply, such that no claim in respect of the failure to "commercialise" the Tattersall Property can be brought after 19 June 2020."
In closing submissions, KAL accepts that s 51 of the Limitation Act applies and that KAL has no claim to lost rent beyond 30 years before the date of filing of the Statement of Claim on 11 December 2020. It contended that the negligence claim was not out of time for the 6 year period before the Statement of Claim was filed, that is, from 11 December 2014 and identified the amount of that claim as $628,000 plus interest. In closing submissions, KAL accepted that its claim for lost rental prior to December 2014 was prima facie out of time under s 14 of the Limitation Act, and again relied on the concealed fraud exception under s 55 of the Limitation Act. KAL indicated that it did not assert common law fraud or actual dishonesty on PL's part, but contended that PL had wilfully shut his eyes to the incurring of the loss over three decades and the fact that he did not report that loss to the shareholders of ALH over that period, or to anyone else who could have done anything about it on behalf of KAL, established concealed fraud. KAL quantified that claim, if it was able to surmount the limitation defence, as $3,725,500 plus interest. The Defendants respond by reference to PL's evidence of his intention to use the Tattersall Property for storage of surplus steel and his view as to the value of that use, and submit that PL's conduct does not amount to fraud and is not "morally reprehensible"; his decision to use this property as overflow storage, at least in earlier years, was a genuine business decision and is imputed to KAL in these circumstances; and (if it were relevant) ML knew that the Tattersall Property was vacant from about 2010 (ML 14.7.22, [41]; T52.9-14).
It seems to me that KAL has established that PL's conduct in respect of the Tattersall Property was negligent, and likely negligent in a high degree. However, PL and his associated companies took no benefit from this breach and he shared in the economic loss that KAL, its shareholders and the other Laird siblings suffered from not putting the Tattersall Property to better, and later any, commercial use. I am not persuaded that he was conscious that this conduct was wrong or that he took advantage of a situation involving wrongdoing. This claim succeeds only for the amount of this loss within the limitation period, where the exception under s 55 of the Limitation Act is not established.
Mr Studdy makes submissions regarding the scope of KAL's constitutional provisions, which I address in paragraphs 198ff below. I here note only that those provisions are not sufficiently wide to provide authority for PL to transfer all or any part of KAL's assets to his superannuation fund at will. Mr Studdy submits that, if that duty was breached:
"[PL] remedied any such breach by entering into the interest-bearing loan with KAL. The Defendants note that [PL] was permitted to benefit from dealings with KAL, such as obtaining the use of moneys by way of loan, and that Peter paid interest on the loan to compensate KAL for the time value of money it had lent him. In causing KAL to enter into the loan, [PL] did not act in bad faith. In addition, Peter has made repayments of $780,000 … In these circumstances there can be no breach of any relevant fiduciary duty."
I do not accept that submission, where PL did not in fact enter a loan with KAL but wrongly recharacterised the earlier transaction as being a loan, and I address the question of repayment below. I am satisfied that PL caused the payment by KAL to the superannuation fund in a conflict of interest and that he paid no attention to KAL's interests in making such a large payment to his advantage at a time that KAL was incurring substantial operating losses. The transaction would have been no less a breach of PL's duty to KAL, even if (contrary to my finding) PL held his claimed intention to later distribute monies sourced from that payment to his siblings, where he would still then have acted in conflict between his duty to KAL and his and his siblings' interests. There is no evidence that the corporate shareholders of KAL were fully informed or consented to the transaction and, to the extent that it matters, the other Laird siblings were not informed of it.
The Defendants contend (Defence [97]) that PL made repayments against the purported "loan" of $100,000 on an unidentified date and $680,000 on or about 29 June 2012. PL's evidence is that he paid $100,000 shortly after Mr Vumbaca advised him that the $1,000,000 had to be treated as a loan (PL 13.10.22 [496]). An amount of $900,000 described as a "loan at call" to PL appears in KAL's 2010 KAL balance sheet (Ex J1, 2107), reflecting the recharacterisation of the transaction, but also suggesting that a $100,000 "repayment" in respect of the $1,000,000 "loan" had by then occurred. I recognise that, as Mr Leopold points out, those accounts are unsigned, but they give some support for PL's account of the first "repayment". On balance, I accept that amount was paid and should be treated, not as a repayment of a loan, but as a reduction in the loss that KAL suffered by reason of the PL Superannuation Payment.
The position as to the second "repayment" of $680,000 is more difficult. PL's evidence is that he "repaid" $680,000 of the balance of $900,000 on 29 June 2012 (PL 13.10.22 [498]). He did not take that position in the solvency declaration dated 23 August 2018 (Ex J1, 2957-2959) in support of the members voluntary winding up, which acknowledged (at 2958) that he then owed KAL $900,000 in respect of "trade debtors & interest unknown". In a subsequent examination by the liquidator on 3 August 2020, he referred only to the initial repayment of $100,000 made against the purported loan in respect of the superannuation, and accepted that he owed $900,000 to KAL in respect of that "loan" and interest on that amount since 30 June 2007 (Ex J1, 3852). While I recognise that PL has suffered significant health issues from time to time, and in this period, I find it difficult to see that he could have forgotten a payment of that size, while apparently able to advance his own interests in respect of the distribution of DL's estate and issues arising in the winding up.
By letter dated 9 October 2020 (Ex J1, 3925), Mr Hayes then sought information from PL as to a deposit of $680,000 into KAL's ANZ account on 29 June 2012. PL did not respond until 16 February 2021 (Ex J1, 4092), and he then observed that:
"I have since established that the deposit of $680,000.00 was a payment by me against my outstanding loan. I have recently obtained a copy of my bank statement verifying this payment. Should you require a copy of this statement please let me know."
It seems to me that, at best, this information was so incomplete as to be misleading, where PL referred to his payment to KAL without referring to substantial payments made by KAL to his associated entities at about the same time that had funded that payment, and his review of the bank statement to which he referred would have raised an obvious question as to the connection between those transactions.
Mr Leopold then draws attention to the relevant transactions, although the position is respect of them is complicated by a lack of clarity in the timing of the transactions. On 29 June 2012 PL drew a cheque in favour of KAL on his personal account with ANZ in the sum of $680,000 (Ex J1, 2301). That $680,000 was deposited to KAL's account with ANZ on the same date (Ex J1, 2304). PL also caused KAL to draw three cheques on the same day in the sums of $120,000 (Ex J1, 2301) in favour of PL, $18,000 (Ex J1, 2303) in favour of the Aidzan Superannuation Fund and $330,000 (Ex J1, 2302) in favour of the PAL Property Trust. These payments totalling $468,000 were then debited to KAL's account.
On balance, I find that the amount of $100,000 was repaid by PL to KAL, where that payment was recorded in KAL's balance sheet, and that reduced KAL's loss. I accept that PL paid $680,000 to KAL on 29 June, although he caused the large part of it to be repaid to him and his associated entities on the same date. I accept that it is possible that that was a part repayment of the PL Superannuation Payment, on the erroneous basis that it could be recharacterised as a debt, but the evidence is not sufficiently transparent as to the dealings between PL and KAL to allow me to reach that finding on the balance of probabilities. I therefore do not treat that amount as reducing the amount of KAL's loss by reason of the PL Superannuation Payment.
For completeness, to the extent that $120,000 was then paid by KAL to PL as salary, it will be recoverable by KAL only to the extent that it falls within KAL's claim for salary paid out by reason of PL's failure to close the business at an earlier date. There is no challenge to PL's entitlement to retain the amount of $18,000 paid to him, purportedly as a superannuation contribution, on his evidence in cross-examination. The third purported "repayment" of $330,000, funded by a purported rent payment by KAL to Aidzan as trustee for the PAL Property Trust, falls within its claim as to the Sunnyholt Surplus Rent, which In have addressed above.
The Defendants also plead (Defence [98]-[101]) that this claim is time barred and extinguished directly or in equity by analogy with ss 14, 15 and 47 of the Limitation Act and Mr Studdy submits that:
"[KAL's] claim is analogous to a claim for the common law duty of agents to account for property they have received, and therefore that s 15 of the Limitation Act applies by analogy to impose a 6 year limitation period."
In closing submissions, KAL submitted that it was seeking to recover trust property in relation to the PL Superannuation Payment and that s 47 of the Limitation Act applied, and relied on s 47(1)(e) of the Limitation Act on the basis that it first became aware of the payment of that amount in 2018 and contended the claim had been brought within time. Alternatively, if a trust was not established, KAL relied on s 55 of the Limitation Act on the basis the payment was not disclosed to KAL or anyone who could have done anything about it until 2018 and that the claim was brought within time. PL here benefited from the payments to the Aidzan Superannuation Fund in conflict of interest and I am satisfied that he at least took advantage of the relevant situation involving wrongdoing, and that s 55 of the Limitation Act applies. It seems to me that there is no basis to suggest that this payment was wholly or partly for KAL's benefit, where the payments on which PL relies would, at best, reduce KAL's loss rather than giving rise to any benefit to it.
By prayer 12 of the relief claimed in the FASOC, KAL seeks a declaration that the Peter Laird Entities or one or more of them held and/or hold the amount of the PL Superannuation Payment (less any established part payments) that PL directed to be paid from KAL's funds to the Aidzan Superannuation Fund in around 2007, on institutional constructive trust for KAL, or alternatively, by way of remedial constructive trust in favour of KAL, together with interest. I am not persuaded that that order can be made where Mr Leopold did not seek to establish that it is consistent with the statutory regime applicable to the regulation of a superannuation fund, where monies held in such a fund would not ordinarily, for example, be available to creditors in PL's bankruptcy; compare Bankruptcy Act 1966 (Cth), ss 116(1)-(2), 128B-128C, 139ZU; Saba v Plumb (2018) 97 NSWLR 278; 19 BPR 38,401; [2018] NSWCA 60.
By prayer 13 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 PL Superannuation Payment (less any established part payments), together with interest. I cannot and should not make that order, where it seeks to convert an entitlement to compensation to a mandatory order for payment enforceable by contempt, and would likely also prefer KAL to PL's other creditors. Alternatively, by prayers 14 and 15 of the relief claimed in the FASOC, KAL seeks a declaration that KAL is entitled to an equitable charge or, alternatively, an equitable lien over the assets of the Aidzan Superannuation Fund to the extent of the PL Superannuation Payment (less any established part payments), together with interest and an order to the same effect. I also should not make that declaration or order, where KAL makes no attempt to establish that it is consistent with the statutory regime applicable to the regulation of superannuation funds. By prayer 16 of the relief claimed in the FASOC, KAL also seeks an order, to the extent that the Court finds that the Peter Laird Entities, or one or more of them, borrowed monies from KAL to make the PL Superannuation Payment to the Aidzan Superannuation Fund, rescinding any such loan or loans. I have not found that such loans exist and this order is not necessary. Further and alternatively, by prayer 17 of the relief claimed in the FASOC, KAL seeks an order that the Peter Laird Entities, or any one or more of them, are liable to pay KAL the PL Superannuation Payment (less any established part payments), as a loan debt, together with interest. This order also cannot be made where such loans were not established. KAL is, however, entitled to an order for compensation in the amount of $900,000 that it has lost against each of PL, Aidzan and Nazdia, consistent with the findings that I have reached above.
Mr Leopold submits that PL breached the duty of care that he owed to KAL as a director of the company (and otherwise) in failing adequately to secure the Sunnyholt Property, including failing to secure KAL's property and equipment situated on the premises, specifically the steel and the crane. He submits that, prior to the June 2018 theft occurring, PL was already on notice of the likelihood of thefts at the Sunnyholt Property, where his evidence is that thieves entered the Sunnyholt Property "in or around 2016" (Defence [107]), although it seems that PL only discovered this in "about 2017" (PL 13.10.22 [454]) and, PL believed, used one of KAL's mobile cranes to smash through the roof of the office and remove the large safe through the roof, and also took filing cabinets and other property (PL 13.10.22 [454]). Mr Leopold also refers to ML's email to PL about the poor state of the property to which I referred above (ML 14.7.22 [36]) and submits that PL was on notice of the risk, not only of thefts, but also of potential damage to the buildings at the Sunnyholt Property by trespassers. Mr Leopold recognises PL's claim, that there were adequate security measures in place at the property (PL 13.10.22 [433]-[435]) but submits that those measures were not effective in preventing thefts from taking place regularly (PL 13.10.22 [443]).
Mr Studdy responds that:
"Having regard to [PL's] knowledge and experience working at the property (having worked at the Sunnyholt Property since the early 1990s) and the security features actually in place at the property … an ordinary person in the circumstances would not have taken steps to further secure the property or the business records. In these circumstances there has been no breach of duty."
In closing submissions, Mr Studdy also submitted, with some force, that, if PL had caused KAL to incur substantial expenses on securing the Sunnyholt Property from about 2013, he would potentially have been exposed to criticism for the waste of those expenses, rather than to criticism for the loss suffered as a result of the theft of steel from those premises (T517).
On balance, I am not satisfied this claim is established. I am satisfied that the Sunnyholt Property was not properly secured by the time of the theft and PL knew or should have known of that matter from the physical state of that property and the fact of previous thefts from the property. However, the evidence led by KAL provides no basis to determine the feasibility or cost of securing that property, in its then deteriorated state, including by means such as back-to-base alarms or CCTV systems, as to which Mr Leopold cross-examined PL at some length, or whether a reasonable director would have considered the value of the steel then held on the property and the risk of its theft (which plainly would require both time and some planning and resources) warranted the costs of upgraded physical or other security measures. I cannot assume, without better evidence, that those costs would be minimal or assess whether they would have been proportionate to the risk. This claim fails.
As I noted above, no limitation issues arises in respect of this claim. PL seeks to be excused from liability under s 1318 of the Corporations Act in respect of this claim (Defence [111]). It is not necessary for me to determine this application and I should not do so, where it would only arise and could only properly be determined in the light of the evidence that I have addressed above, which was not led by KAL to support the claim.
Mr Leopold submits that, in the context of KAL's poor operating results, PL had a duty as a director of KAL to consider whether it was commercially prudent to continue to incur those liabilities and submits that he should have negotiated a lower salary and a lower rent paid to Aidzan (which he controlled) or, if he could not do so, cause KAL to be wound up. Mr Leopold also submits that PL was "obviously conflicted" in this decision where
"that consideration would, if it had been undertaken at arm's length by a reasonable director in [PL's] circumstances, have resulted in a much reduced salary being sought (or no salary being paid) and a much reduced rent being sought (or no rent being paid)."
The Defendants deny this claim and contend (Defence [118]) that:
"… the benefit of hindsight is not an appropriate basis to make this claim as [PL] at the time was ill but thought he could eventually return to work when his health improved".
In these exceptional circumstances, it seems to me that PL breached his duty of care and diligence to KAL, no later than 30 June 2007, in failing to wind up KAL's business where it was accumulating significant losses, largely incurred in the payment of PL's salary and superannuation and the payment of rent to Aidzan, where there was no apparent prospect of and no plan for recovery of its business to reverse that position or at least to cause KAL to terminate his employment and cease to pay his salary and to terminate its occupancy of the Sunnyholt Property and cease to pay rent on it to Aidzan. There was no reason to think that KAL's continuing to make those payments would do anything other than bring about further operating losses and depletion of its assets, where PL was suffering continuing health problems, was irregularly working in the business and had employed no-one else who could perform his role, and where there was no reason to think the position was short term in nature where PL had continuing health issues and had not formulated any plan for the recovery of KAL's business. PL's conduct in this regard also seems to me to breach the no conflict and no profit rules in these exceptional circumstances, although the payment of salary and rent ordinarily would not do so, where the continuance of KAL's business at a substantial loss over a lengthy period and the continuing payment of salary to him and rent to Aidzan was in his personal interests but obviously destructive of the interests of KAL and its shareholders.
The Defendants contend (Defence [118]) that this claim is time barred under s 14 of the Limitation Act or in equity by analogy to ss 14-15 of the Limitation Act. In closing submissions, KAL accepted that this claim was prima facie out of time, either under s 14 of the Limitation Act or possibly by analogy under s 23 of the Limitation Act, and relied on s 55 of the Limitation Act and the concept of equitable concealed fraud to extend the limitation period, on the basis that the payments were only known to PL and not to anyone who could have done anything about them on behalf of KAL until 2018. The Defendants respond that the limitation period cannot be extended under s 55 of the Limitation Act or in equity under the doctrine of equitable concealment where the relevant knowledge can be imputed to KAL. In their "Schedule of Limitations Defences" in closing submissions, they contend that PL and DL knew that KAL was paying a salary to PL as its managing director, and knew that KAL was leasing the Sunnyholt Property from Aidzan; KAL obtained a benefit from paying salary by obtaining the use of PL's services and tax deductions for salary; and KAL obtained a benefit from the impugned rental payments by a right to occupy the Sunnyholt Property and tax deductions for rental. As I noted above, Mr Leopold did not contend that the treatment of material tax deductions as a benefit to a company should be limited to the facts of Bluemine, although I recognise that a loss which is partly offset by a tax deduction would not be described as a benefit in ordinary usage.
I accept the Defendants' submission that knowledge of the payment of PL's salary and rent to Aidzan was known to PL and can be attributed to KAL. I recognise that PL and KAL did not have access, in 2008 to 2010, to financial reports recording the detail of KAL's operating losses, net losses and asset position as later recorded in its accounts for those years, where PL did not cause those accounts to be prepared until 2012. However, PL must then have also known that KAL was incurring material losses and a material erosion of its assets, where he knew that that he was spending little time in the business so as to generate sales or income and must have known the other matters later recorded in his letter dated 12 January 2012 to the Australian Taxation Office; he knew of KAL's outgoings by payment of his salary and rent to Aidzan since he caused them to be paid; and the erosion of KAL's financial position was the necessary and obvious consequence of those matters.
With hesitation, and where I am bound by appellate authority, including the Court of Appeal's decision in Bluemine, I must treat at least the tax deductions received by KAL for rent and salary as a benefit to KAL, and that requires that PL's knowledge of the payment of rent and salary, the limited business activities that generated those tax deductions and the losses that necessarily resulted from them be attributed to KAL. PL's limitations defence to this claim succeeds and this claim therefore fails in respect of the period for which the claim was pressed.
On this basis, he submits that article 78 did not permit PL (or DL) to divert the opportunity for the acquisition of the Sunnyholt Property to entities which they controlled and that, although PL later caused KAL to enter into contracts with Aidzan, in particular the Sunnyholt Lease, the entry into those contracts was not in the best interests of KAL. It seems to me that these standard form constitutional provisions are not sufficient to abrogate the rule against conflict of interest, or its application to diversion of corporate opportunities, to the extent that would be necessary to permit Aidzan's acquisition of the Sunnyholt Property in a manner that excluded the shareholders in KAL including ALH, and through them the other Laird siblings, from any economic interest in the property. It seems to me that this article does not protect the payment of the PL Superannuation Payment to Aidzan for the same reasons. It has no potential application to the claims against PL in respect of the Tattersall Property, the theft of steel or liabilities arising from KAL's trading at a loss, which do not attack a contract or arrangement between PL or any associated entity and KAL which could be supported by the relevant constitutional provisions.
The Defendants initially pleaded a defence relying on the Duomatic principle (Defence [124]ff) and KAL joined issue with that defence in reply. The Defendants abandoned that defence in closing submissions and I need not address it further.
The Defendants also plead (Defence [129]ff) a defence of delay. KAL joins issue with that defence in their Reply. In their Rejoinder to the Reply, the Defendants raise allegations of conflict of interest affecting KAL's solicitors and allegations of impropriety against Mr Hayes as liquidator of KAL. The allegations against Mr Hayes were rightly abandoned by Mr Studdy in closing submissions and, although the other allegations were not abandoned, Mr Studdy did not seek to elaborate upon them.
In closing submissions, Mr Studdy referred to the opinion of Lord Selbourne LC in Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221 and to Young JA's identification of the elements of a defence of laches in Crawley v Short [2009] NSWCA 410 at [163] as "(i) knowledge of the wrong; (ii) delay; and (iii) unconscionable prejudice caused to the opponent by the delay" and his observation (at [164]) that:
"The key element is whether, in all the circumstances, "it would be practically unjust to give a remedy" (per Lord Selborne LC in The Lindsay Petroleum Company v Hurd (1874) LR 5 PC 221 at 239-240). Normally, that means that the defendant must show both delay and detriment suffered by the delay, Fisher v Brooker [2009] 1 WLR 1764 at 1781 [64] per Lord Neuberger with whom Lord Hope, Lord Walker, Baroness Hale and Lord Mance agreed."
That observation was cited with approval by Gleeson JA (with Meagher and Barrett JJA agreeing) in Sze Tu at [415].
Mr Studdy then repeats the Defendants' submission that DL's and PL's knowledge will be imputed to KAL as the relevant actions were not undertaken in "total fraud" of KAL and that KAL therefore had knowledge of each of the relevant alleged wrongs at the time they occurred. I have not accepted this submission, for the reasons set out above, in respect of KAL's claim as to Aidzan's acquisition of the Sunnyholt Property for PL's benefit and the PL Superannuation Payment. It is not necessary to address this submission in respect of other claims which have failed for the reasons set out above, or only succeeded within applicable limitation periods.
The Defendants point to prejudice in respect of the loss of evidence, including evidence of Mr Burges and DL, and the loss of documents stolen from the Sunnyholt Premises when the safe was stolen. While I accept the possibility of that prejudice, it is not unconscionable nor such as to make it practically unjust to give a remedy, where it resulted from PL's failure to disclose the transactions at the time they occurred to KAL's shareholders and the Laird siblings, as shareholders in KAL's holding company who had a substantial indirect economic interest in KAL.
The Defendants also point to the possibility of a lost claim for indemnity or contribution from DL's estate, and to prejudice suffered by the Defendants being unable to make that claim. Mr Studdy submits that:
"Finally, and most importantly, in support of its claims [KAL] pleads that [DL] also breached her duties as a director. If [DL] were alive she would presumably be a joint-defendant in these proceedings. If [PL] is liable for breaching his duties as a director (which, is denied) then it follows that [DL] would also be jointly liable. [DL's] estate has in all material respects been fully administered, with Peter and each of his siblings receiving a 20% share in her estate."
However, the Defendants make no real attempt to establish that a claim for indemnity or contribution from DL's estate had any substantial prospect of success, on its merits, and that is plainly not self-evident where PL was operating the business on a day to day business to DL's exclusion; PL rather than DL benefited from Aidzan's purchase of the Sunnyholt Property and the PL Superannuation Payment, and several of the claims against PL relate to events after DL's death. It does not seem to me that the loss of an opportunity to bring a claim for indemnity or contribution, that has not been shown to have any real prospect of success, amounts to material prejudice.
The defence of delay is otherwise not established where it parallels the limitations defences which have not been established on the basis that KAL, acting with reasonable diligence, could only have discovered the relevant breaches in 2018 and brought proceedings promptly after it did so.
Matters relevant to relief under these sections include whether the defendant acted honestly; a value judgment whether, having regard to all the circumstances of the case, the defendant ought fairly to be excused for the contravention; and whether, as a matter of discretion, the court should exercise its power to relieve the defendant from any liability: Australian Securities and Investments Commission v Edwards (No 3) (2006) 57 ACSR 209; [2006] NSWSC 376 at [10]; Australian Securities and Investments Commission v Healey (No 2) (2011) 85 ACSR 654; [2011] FCA 1003 at [83]-[84]; Great Southern Finance Pty Ltd (in liq) v Rhodes [2014] WASC 431 at [60]; Re Swan Services Pty Ltd (in liq) [2016] NSWSC 1724 at [236]-[237]. There are three stages in an inquiry under s 1318 of the Corporations Act, namely whether the applicant for relief has demonstrated that he or she acted honestly; whether, having regard to all the circumstances of the case, that person ought fairly be excused; and whether relief from liability should be ordered wholly or partly and, if partly, to what extent: Australian Securities and Investments Commission v Healey (No 2) (2011) 85 ACSR 654; [2011] FCA 1003 at [84].
I accept that whether a person is acting honestly will depend on whether he or she acted without moral turpitude, deceit or conscious impropriety, or without an intent to gain an improper benefit or advantage: Australian Securities and Investments Commission v MacDonald (No 12) (2009) 73 ACSR 638; [2009] NSWSC 714 at [22]. The case law establishes that person may fail to act honestly within the meaning of this section although they did not have a subjective intention to deceive: Australian Securities and Investments Commission v MacDonald (No 12) above at [18]-[19]; Australian Securities and Investments Commission v Healey (No 2) above at [88]. Whether relief from liability should be granted under these sections depends not only on subjective honesty but also on the degree to which the relevant conduct fell short of the required standard, the seriousness of the contravention and its actual or potential consequences, any element of impropriety such as deception and personal gain and any contrition of the applicant and the need for general deterrence is also relevant: Morley v Australian Securities and Investments Commission (No 2) above; Ashrafinia v Ashrafinia [2013] NSWSC 1442 at [252].
Mr Studdy submits, in closing submissions, that:
"[PL] acted honestly, openly, and not with deceit or conscious impropriety. It cannot be said that [PL] has acted with the intention to obtain improper benefit or advantage for himself, as in pursuing the course of conduct complained of in these proceedings, Peter was not conscious that any personal advantage he obtained was relevantly improper. In causing KAL to participate in the transactions complained of in the current proceedings, [PL] acted in reliance on the advice he was given from time to time … and in the exercise of his practical business judgment obtained from working in the relevant business since high school ... In all the circumstances, Peter has acted in fairly and in good faith as judged by the standards of other persons with his background. He is without "moral turpitude"".
In support of the claim for relief under this section, the Defendants rely, first, on PL's ill health. I accept that PL suffered recurrent physical health difficulties in the period, and may have been depressed in consequence. That does not support relief against the claims that I have held are established against him, where there is no suggestion that he was inhibited by health at the time of Aidzan's acquisition of the Sunnyholt Property, and he was sufficiently well to implement that transaction for Aidzan's benefit at that time. It also does not support relief in respect of his payment of salary and rent in the period from 2007, where he could readily have resigned as a director of KAL if he was unable to perform that role for health reasons and invited his siblings to place KAL in members' voluntary liquidation, as ultimately occurred, and avoided the losses that KAL suffered in that way.
Second, the Defendants rely on the alleged absence of any assistance with the affairs of KAL from PL's siblings, despite each being a shareholder of the ultimate holding company, ALH. That also does not support the relief sought, where that is irrelevant to his conflict of interest involved in Aidzan's acquisition of the Sunnyholt Property; PL did not fairly and fully disclose his health difficulties or KAL's financial position to them or seek such assistance; and, when ML offered such assistance, PL declined it in respect of KAL's operations, at a time that it had largely or entirely ceased operations in any event.
Third, PL relies, until DL's death in 2009, on the old age of DL and her health issues, who was consequently unable to attend to physical tasks associated with the conduct and carriage of KAL's business operations. This also does not assist, where that is again irrelevant to his conflict of interest involved in Aidzan's acquisition of the Sunnyholt Property, and DL had died at the time he allowed KAL to continue to pay his salary and rent while KAL was suffering continuous operating losses and he had no plan to address its difficulties. PL also relies on an alleged lack of reliable and truthful staff to assist in maintaining KAL's business, but that does not assist the Defendants where that is again irrelevant to his conflict of interest involved in Aidzan's acquisition of the Sunnyholt Property, and would provide reason to have ceased operation of KAL's business at an earlier time rather than an explanation for not doing so.
In oral submissions, Mr Studdy referred to a number of matters which might support relief under s 1318 of the Corporations Act in respect of PL, including his commencing work with KAL in his early or mid-20s and devoting his working life to that company, and to the significant health issues which he suffered and the possibility that he was over-optimistic as to his capacity to recover from those health issues and to return to running the business (T520).
So far as the matters I am required to decide under s 1318 of the Corporations Act are concerned, I do not accept that PL acted honestly in the relevant sense in either causing Aidzan to acquire the Sunnyholt Property for his benefit or paying the Surplus Rent to Aidzan or making the PL Superannuation Payment, where each decision was made in a position of material conflict of interest. I am not persuaded he acted without an intent to gain an improper benefit or advantage in that regard and that is sufficient to exclude relief under this section. I am also not persuaded that, having regard to all the circumstances of the case, PL ought fairly be excused; and the question whether any relief from liability should be ordered wholly or partly and, if partly, to what extent does not arise. PL has demonstrated no element of contrition and no attempt has been made to compensate KAL for its loss; to the contrary, PL responded to the claims against him, inter alia, by the now abandoned attack on Mr Hayes' professional conduct and a continuing attack on his siblings, for a suggested failure to inform him that his conduct might (I interpolate, rightly) come under scrutiny. It does not seem to me that the basis for relief of PL from liability has been established.
Mr Studdy then submits that:
"it would be unconscionable for KAL to take the entire interest in the Sunnyholt Property (and hence the sale proceeds of that property) on the basis that its funds have indirectly been used to pay the acquisition cost of that property, where in the circumstances the funds of Aidzan have similarly indirectly been used to pay the acquisition cost of that property. KAL would take the benefit of the contribution of Aidzan and be unjustly enriched to that extent. The Defendants further submit that in the current case there is sufficient mutuality between the claim of KAL and the off-setting interest claimed by Aidzan. The claims arise in respect of interests in the same property ... There is sufficient closeness of the connection between the two claims."
Mr Studdy develops this submission in closing submission as follows:
"[Aidzan's] interest arises by reason of superannuation contributions made to the A[idzan] S[uperannuation] F[und] on behalf of P[L] being used to acquire units in the PAL Property Trust. In this way, P[L]'s superannuation contributions represented funds available to the PAL Property Trust to pay down the debt associated with the acquisition of the Sunnyholt Property (i.e. the Michell Loan and KAL-PAL Loan)" [emphasis added].
I cannot accept this submission. First, its evidentiary basis is not established. Second, it is not apparent to me why a change in the beneficiary of the trust, or how PL acquired interests in the PAL Property Trust, could give rise to a set-off affecting the imposition of a constructive trust upon the legal interest in the property held by Aidzan, which had been acquired by it well before the PAL Property Trust was established. Third, the careful phrasing of the submission makes clear that it is no more than speculation, since the fact that funds were "available" to the PAL Property Trust and might have been used to pay down debt does not establish that they were used to pay down debt. Fourth, my attention was not drawn to any evidence that any of PL's superannuation funds were applied to repay the principal amount made available by KAL to Aidzan to acquire the Sunnyholt Property (which it has not been established was a loan), and there is little evidence (to which I referred above) even of payment of interest on that loan and none that it was sourced from PL's superannuation contributions. Fifth, if (which is also not established) PL in fact made contributions to the funding of Aidzan's acquisition of the Sunnyholt Property in this way, well after it was acquired by Aidzan, he did so knowing of the circumstances giving rise to KAL's claim for a constructive trust against that property and it is not apparent why his claim should not be postponed to KAL's claim to that property, or why any mixing of funds to which KAL is entitled with PL's funds should operate to KAL's disadvantage.
I also see real force in, although it is not necessary to determine, Mr Leopold's submission that a set-off is not established because this claim does not, in the language used by Emmett JA (with whom Beazley P and Meagher JA agreed) in HP Mercantile Pty Ltd v Dierickx (2013) 306 ALR 53; [2013] NSWCA 479 at [136], "impeach the title" of KAL, and that Aidzan's cross-claim for such contributions, even if its quantum was established, does not provide "some ground for equitable intervention beyond the mere existence of a cross-claim, such that it can be said that the equity of the defendant impeaches the claimant's title to the legal demand being enforced". The Defendants' claim for set-off on this basis therefore fails.