The total of the first two figures is $646,168.00.
79. For reasons I have already given, I think that Ms Linton's argument that that total of $646,168.00 should be set off against the balance of the loan account has every chance of being successful (and, if it is, the balance after the set-off should be $469,572.00), but it was not misleading or deceptive conduct not to show the set-off in the financial reports.
80. I observe at this point that there was evidence that on an unidentified date which must have been after 1 January 2002 Mr Moran prepared, and sent to the Commonwealth Bank, a document of three pages, the face page of which bore a title "Corporate Interior Constructions Pty Ltd ATF the van Oosterom Family Trust Financial Statements for the Years Ended 30th June 1999, 2000, 2001 + 6 Months to 31/12/02." The second page was a profit and loss statement for each of those three complete financial years and the final half-year. The third page was a balance sheet for each of those periods. The balance sheet showed figures for "Loans - Unsecured, T.J. and A.M. van Oosterom" which appeared to represent the balance of the loan account after setting off the balance of the beneficiary current accounts (to which there was no reference in the document). Again Mr Moran did not give me any clear explanation of why he prepared the balance sheets in that way. The document is further evidence that Mr Moran thought it to be acceptable accounting practice to prepare balance sheets in that way, and strengthens the argument that there should be a set-off. It has no other significance, in my opinion. I have already given reasons for concluding that it was not misleading or deceptive for Creighton-Brown to have prepared other financial reports that did not express the set-off.
The Separation, the Property Settlement and the Name of the Loan Account
81. Once Ms Linton and Mr van Oosterom separated, on 1 February 2001, they discussed how property might be divided between them, and Mr Moran was involved in some of those discussions. For the most part Ms Linton's evidence on this topic was not contested. It was clear from her evidence, from Mr van Oosterom's evidence and from the documents to which reference was made in evidence on this topic, that she and he had reached an agreement in principle as to which property each of them should own, the values which should be attributed to each item of property, and the amount which Mr van Oosterom should pay to Ms Linton to equalize the division of property.
82. One of the elements of the proposed property settlement was that Ms Linton would transfer to Mr van Oosterom any interest she had in CIC. In the process of their agreeing upon a value to be ascribed to the interest which she was transferring, they agreed that he would assume responsibility for any money owing to CIC as a consequence of them having made drawings from the business for personal expenditure.
83. I have already described, in paragraph 12 of these reasons, documents which they signed, some of which were dated 1 July 2001, and which were designed to give effect to the property settlement. Before that date, Ms Linton, who was still assisting with bookkeeping for CIC, had taken some steps to document the element of the agreement that Mr van Oosterom should take over responsibility for the joint loan account. On a print-out from the general ledger of CIC she ruled a line after the last entry for 31 January 2001 and before the first entry for 1 February 2001. She also changed the name of the loan account in the general ledger so that it was entitled the T.J. van Oosterom loan account instead of the T.J. and A.M. van Oosterom loan account.
84. Although the parties had reached agreement in principle upon the terms of a property settlement, each of them engaged a lawyer. The lawyers submitted a proposed property settlement to the Family Court for approval. For present purposes I do not think that it matters why the Family Court never gave its approval. What matters is that it did not give approval. To what extent the non-approval stemmed from a change of heart by Mr van Oosterom is not clear to me and, as I have said, I do not think that it matters. There ensued lengthy, and no doubt expensive, litigation in the Family Court.
85. Despite the absence of approval from the Family Court, some parts of the property settlement were put into effect, including the substitution of Ms Linton for CIC as the trustee of the Property Trust and the (eventual) transfer into her name of the two properties which were assets of the Property Trust. There was also Ms Linton's action in changing the name of the loan account so that her own name disappeared from it.
86. Ms Linton contends that the agreement for the property settlement was more than an agreement in principle: it was a legally binding agreement, the effect of which was that she was no longer a debtor to CIC. This contention is of great significance in the Supreme Court proceeding. She and the liquidator will have to argue it in that proceeding. I have not had occasion to hear any argument from the liquidator. It is not necessary for me to attempt to determine the issue, and it would not be proper for me to attempt to do so. Nevertheless, I shall take the liberty of making some comments about it below.
87. It is important to consider at what date the agreement, be it an agreement in principle or a legally binding agreement, was intended to take effect and did take effect. I shall refer to that date as "the critical date". There are two possibilities. The first is that the critical date was 1 February 2001, the date of the separation. Ms Linton's ruling of the line in the general ledger is consistent with that. The second is that the critical date was 1 July 2001, the date which was inserted as the date of several documents designed to put elements of the property settlement into effect, as I have described in paragraph 12 of these reasons. I express no view about which of the two possibilities should be selected.
88. By the time when Mr Moran approached the task of preparing financial reports for the year ending 30 June 2001, he was aware that Ms Linton had changed the name of the loan account in CIC's records. There is a conflict in the evidence of how he became aware of it. Ms Linton's evidence was that he had advised it, and that she handed to him a copy of the general ledger, with the change of name, and asked him to prepare financial reports accordingly. Mr Moran's evidence was he had never advised it, and that Mr van Oosterom had told him of the change of name and had said that he had not authorized it. I need not, and shall not, decide which version is correct. I accept, however, Mr Moran's evidence that Mr van Oosterom on behalf of CIC instructed him that the loan account should remain in joint names in the financial reports. The upshot was that the financial reports prepared by Creighton-Brown for the year ending 30 June 2001 showed the loan account as being a joint loan account, as had financial reports for all the previous years.
89. I now offer some comments about the effect of the agreement, on the assumption that it did have legal effect. I repeat that I am not deciding anything about it. It seems to me that it would have three effects.
90. First, at the very least, it would have amounted to an indemnity by Mr van Oosterom against any liability of Ms Linton to CIC; that is to say, he was promising her that if the loans ever had to be repaid then he would pay them, and if she was ever called upon to repay them then he would reimburse her. That indemnity is now worthless, because he is bankrupt.
91. Secondly, I do not see how the agreement could have altered the legal position that had existed before the critical date, which was that there had been a joint debt. As at the critical date, CIC would be entitled to say, and the liquidator is now entitled to say, that there was a joint debt for the amount as it was on the critical date. Apart from the creation of the indemnity, the agreement did not change the past, it operated only for the future.
92. Thirdly, it seems to me that there simply could not be a joint loan account operating after the critical date, irrespective of whether the agreement had any legally binding effect. The parties had separated. Ms Linton's interest in the business was disappearing, and Mr van Oosterom was running it on his own. Whatever drawings were made after that date could not have been intended to be joint drawings, and I do not think that they should be characterized as joint drawings. The joint loan account crystallized on the critical date. Thereafter there should have been individual loan accounts for whichever person made individual drawings. If the critical date was 1 July 2001, Mr Moran was correct in recording in the financial reports for the year ending 30 June 2001 a joint loan account; but if the critical date was 1 February 2001, the financial reports ought to have recorded a joint loan account, the balance of which crystallized on that date, and either one or two individual loan accounts for drawings on and after 1 February 2001.
93. This is another instance in which I feel I have to express a criticism of Mr Moran. Although the separation of Ms Linton and Mr van Oosterom had been amicable at first, and although their discussions about the property settlement (in some of which Mr Moran participated) showed that they were largely of one mind in that regard, once they expressed to Mr Moran different views about the name by which the loan account should be described I think that it should have become apparent to Mr Moran that the interests of the two of them were beginning to conflict. In implementing Mr van Oosterom's instructions and identifying in the financial reports the loan account as a joint account, and in effect reversing what Ms Linton had done, Mr Moran furthered the interests of Mr van Oosterom to the detriment of the interests of Ms Linton. In saying, as he did in his evidence, that because Mr van Oosterom was a director of CIC and Ms Linton was not he could not accept instructions from her purporting to be given on behalf of CIC and was legally obliged to accept instructions from CIC only through Mr van Oosterom, he was legally correct. But I think that those instructions should not have been accepted uncritically. The idea of terminating the joint loan account and commencing new individual loan accounts ought to have been canvassed. If it had been and Mr van Oosterom had refused to agree to it, the conflict of interests would have been even more apparent than I think it should have been already.
94. The failure, as I consider it was, on Mr Moran's part to recognize a growing conflict of interests has been, I am sure, a factor contributing to this litigation. It is not significant in the outcome of it, however. It does not make any of Mr Moran's conduct, or any of the financial reports of Creighton-Brown, misleading or deceptive. There was a loan account, and Creighton-Brown had described it in the way that its client CIC had instructed that it should be described, namely, as a joint loan account. Whether or not the true amount owed under the joint loan account was correctly stated, the fact was that Ms Linton owed a substantial amount to CIC as at 30 June 2001 by reason of a loan account. So I reject the allegation numbered (v).
Allegedly Untrue Statements to the Liquidator about the Property Settlement
95. Ms Linton has made the allegation that Mr Moran told the liquidator that the property settlement was not final and binding, and that that information led the liquidator into pursuing her for money said to be owing under the loan account; had he not been given that information, the liquidator should and would have concluded from the CIC documents, from notes recording discussions about the property settlement, and from Mr van Oosterom's briefing of him, that there had been a final and binding property settlement under which Ms Linton's liability had been expunged.
96. Mr Moran gave evidence that he did indeed, when asked by the liquidator about any agreements that Ms Linton and Mr van Oosterom had made, say to the liquidator that to the best of his knowledge they had not made any binding agreement. For the rest of the allegation, however, there was simply no foundation in the evidence. There was no evidence that Mr Moran's answer to the liquidator's question shaped the liquidator's attitude. One the contrary, Mr Tuckwell stated during cross-examination that he made enquiries not only of Mr Moran but also of Mr van Oosterom and of the lawyers for the respective parties; Mr van Oosterom had told him that in the Family Court he was disputing that there had been an agreement (a different stance to the one that Mr van Oosterom took in his evidence during the hearing before me) and that the lawyers confirmed what Mr van Oosterom had said.
97. Mr Tuckwell is an experienced accountant. As liquidator of CIC he has engaged lawyers to give advice. He told me, and I accept, that on the question of whether there had been a property settlement and on many other matters he had had regard to information supplied by Mr Moran but had made his own enquiries, had made his own examination of CIC records and had drawn his own conclusions from all that information, with the assistance of his own lawyers.
98. Ms Linton has also made the allegation, which Mr Vink repeated at the commencement of his final address, that Mr Moran had told the liquidator that Ms Linton was party to an agreement that was detrimental to the creditors of CIC. I am afraid that I simply do not understand the basis for this allegation. Both Mr Moran and Mr Tuckwell denied that Mr Moran had said any such thing and there was no evidence that he did say, or imply, any such thing. Moreover the allegation seems inconsistent with the other allegation that Mr Moran had told the liquidator that there was no binding agreement at all.
99. For those reasons I reject the allegation numbered (vi).
Drawings After the Separation
100. It seems that after the separation a large amount of money was drawn out of the CIC business: more than CIC could sustain. Mr Moran in his evidence put the figure at $600,000.00. The drawings continued to be debited to the joint loan account, and the liquidator is claiming in the Supreme Court proceeding that Ms Linton was jointly liable to repay the balance of the loan account as it was at the date of the commencement of the liquidation.
101. The allegation numbered (vii) is that Mr Moran told the liquidator that the drawings made after the separation were joint drawings and that that is why the liquidator has made that particular claim. I can dispose of this aspect of the case by saying that there was no evidence that Mr Moran told the liquidator any such thing, directly or indirectly. The only document by way of a financial report for a period after 30 June 2001 that Mr Moran prepared, so far as the evidence went, was the document that was prepared for the Commonwealth Bank. That document included a profit and loss statement for CIC for a period ending 31 December 2001 but not any balance sheet for that period. So there was nothing in that document that made any reference to a loan account, joint or otherwise, for any period beyond 30 June 2001. Mr Tuckwell gave evidence that he had asked Mr van Oosterom to go through the general ledger records after 31 January 2001 (just before the date of separation) and highlight which drawings were for his own purposes and which were for Ms Linton's purposes. That this was an unreliable source of information seems to have been demonstrated by the fact that at first the liquidator included amongst the joint drawings a sum of $36,000.00 paid for the benefit of Kim Lewis, Mr van Oosterom's girlfriend, then conceded later that it was not a drawing made for Ms Linton's benefit. The point, however, is that this evidence, which I accept, establishes that the source of the liquidator's claim that drawings after the separation were joint drawings was not any document that Creighton-Brown prepared or anything that Mr Moran said or did. So I reject the allegation numbered (viii).
102. I have already expressed my doubt that there could be any increase in the joint account at all after the critical date, and my view that the parties probably intended that there should be individual loan accounts that corresponded to their individual drawings after the critical date. This is another issue, however, that is properly to be decided by the Supreme Court, after having heard evidence and argument from both the liquidator and Ms Linton, not for me to decide.
103. I do make one further observation, however. Amongst the sums claimed by the liquidator to have been joint drawings is the total of regular payments made to Ms Linton on account of the bookkeeping assistance she was continuing to give CIC after the date of separation. Ms Linton is maintaining that those payments were by way of salary to her, not loans to her. In all the circumstances, including the matrimonial separation, her relinquishment of any interest in the business and the negotiations for a property settlement, I think that a disinterested outsider knowing of these circumstances would have been very surprised at the proposition that Ms Linton was not being paid for her services to CIC after the separation but was simply being lent money by CIC. I acknowledge that the usual paraphernalia of an employer-employee relationship (such as deduction of income tax) seem to have been missing, but I must say that Ms Linton's contention that the payments were not loan moneys seems to me to have considerable merit.
Whether Profits Extinguished the Loans
104. An allegation in the "Clarification of Statement of Claim" filed by Ms Linton, which I have numbered (viii) in paragraph 21 of these reasons, was that at the time of her separation from her husband Mr Moran informed her that CIC's profits had offset and extinguished all the drawings and she owed nothing. There was no evidence at all in support of the allegation, and I suspect that the allegation was made in error, because it was inconsistent with Ms Linton's case that she and Mr van Oosterom had reached an agreement whereby he agreed to assume responsibility for repayment of all drawings described as loans.
105. A good deal of time was spent during the hearing on a related proposition, which was that by 30 June 2001 the business of CIC had generated enough profit, and there had been enough equity for Ms Linton and Mr van Oosterom in the business, for whatever debt was shown in the loan account to have been paid off, and so it should be regarded as having been paid off.
106. Mr Fettes' evidence bore upon this point. His expert report, which he adopted as his witness statement and verified, included the following passage (underlining added):