One difficulty was that for a period Sunly acted for himself. The task of discharging his discovery obligations without professional legal assistance was beyond him.
121 I am persuaded that probably Sunly does not have the Commonwealth Saving Bank passbook (or bank book) in respect of account 12625. Nor am I persuaded that the evidence of Sunly as to the three copy pages of the bank passbook becoming separated and missing is untrue. A sufficiently diligent search was not made for the missing copy pages nor was any explanation provided. It was required. Notwithstanding these deficiencies, the Court should act on the three copy pages of the bank passbook and what they reveal by way of withdrawals in August, September and December 1975. These copy pages tend to indicate that funds of some size were available to KST and FC Chow, and importantly, the former.
Visit by Margaret to Solomon Islands
122 At KST's request, Margaret visited the Solomon Islands in May 1975. She completed the sale of KST's island trader boat "Halamon" for $12,000.00 and returned to Sydney on 21 May 1975 with a cheque for that sum "and other assets as my father had instructed me … ." The other assets were not specified nor any sum said to be received for any of them. I find that, probably, Margaret effected the sale of the boat and returned to Sydney with a cheque for $12,000.00.
123 About 18 August 1975 she travelled to Honiara. She believed that she completed the sale of one of the branch stores. She does not say whether she had a cheque or received the payment of any proceeds of sale or money. She returned to Sydney about 14 September 1975. Perhaps such a branch store was amongst the assets seized by the Solomon Islands Revenue Authorities.
KST's ability to speak and understand English
124 There was a sharp division of evidence on these topics.
125 Geoffrey said that KST, his wives and children all spoke a particular dialect of Chinese known as Szeyap, but that KST also spoke English quite well. Geoffrey said he has never spoken any Chinese language, so he and KST always spoke in English. Geoffrey said KST was able to speak in English quite well and that he and KST rarely had difficulty communicating in English together.
126 Geoffrey disagreed with Sunly's statement that KST had a very limited knowledge of English and could not have a conversation in English. Geoffrey stated that KST had a good grasp of the English language and was able to communicate in English. He instanced:
a) KST and he were able to communicate between about 1975 and his death. He had a number of discussions in English with KST when no one else was present.
b) KST dealt with many documents written in English, for example, tax returns, accounts, the partnership agreement and property transfers. Geoffrey regarded KST as a clever businessman with a good understanding of commercial matters and sound ability to conduct business in English.
c) The agreements relating to the purchase of WYT and YS businesses were written in English and understood by KST.
d) Between 1975 and 1981 the only members of KST's family regularly working at the WYT or YS businesses were KST, Mary and, from 1976, FC Chow.
e) The oral instructions in English provided by KST to John, the driver, as to his duties generally and as to what fish he should buy at the fish markets and at what prices. KST was able to communicate with John easily.
f) From about August 1975 to about 1979 KST managed the YS business. KST regularly spoke to the butcher in charge in English. Such butcher visited WYT at the end of each day with the daily takings of YS.
g) On occasions when matters arose which had to be dealt with in English, for example, applying for a new licence for the manufacture of sausages or to deal with Government Health Inspectors, KST called on Geoffrey to assist him and Geoffrey said he conducted those dealings. Geoffrey said KST had discussions about those matters with him in English at the time.
127 In his affidavit of 21 August 2007 Geoffrey said that the meeting of 30 July 1975 was conducted partly in English and partly in Cantonese. This related to the sale and purchase of WYT and YS. Geoffrey said he had some understanding of Cantonese although he did not speak Cantonese (paragraph 8 of his affidavit of 18 March 2009).
128 Mr WJ Lee witnessed the signatures of all parties to agreements for the sale and purchase of WYT and YS. These agreements were simple and Mr Lee could have explained anything which was not fully understood to all parties. Mr WJ Lee was probably present with KST when he and Geoffrey went through the draft of the agreement dated 1 October 1975.
129 Geoffrey appears to have conducted the negotiations with the CBA but KST was present at one of the interviews.
Meeting at Clayton Utz and their advice
130 This bears upon KST's ability to understand English. It also has a wider significance. Different accounts are given of the meeting held on 24 September 1975 at the offices of Clayton Utz at 136 Liverpool Street Sydney. Those attending included Geoffrey, KST, Margaret, Mr KV Bennett of Clayton Utz (and possibly Mr Lawler of that firm), and a representative of GT Hartigan & Co. This meeting covered a number of areas but Geoffrey relied on it in support of his assertion that KST had a good understanding of the English language.
131 It appears that these issues were raised:
a) the availability of KST's Australian assets to the British Solomon Islands Inland Revenue, including whether KST could be sued in Australia by that State or a judgment of the High Court of the Solomon Islands enforced in Australia;
b) whether KST was liable to be extradited to the British Solomon Islands if he divested himself of his Australian assets;
c) should he proceed with a reorganisation of his Australian affairs with a view to either pegging or reducing his estate for death duty purposes.
132 Clayton Utz sought the opinion on issues (a) and (b) of Senior Counsel with expertise in taxation related matters. On 22 October 1975 Senior Counsel answered in writing some 12 questions posed by Clayton Utz. He advised that no judgment of a superior court of the Solomon Islands based on the tax liability of a person in the British Solomon Islands Protectorate can be registered and enforced in New South Wales. Senior Counsel advised that, subject to checking the legislation, there was no applicable legislation anywhere else in Australia and that the British Solomon Islands Protectorate could not sue KST in Australia. The common law rule is that the courts of one country will not collect the taxes of other countries for the benefit of those other countries and that such actions will not be entertained. The NSW legislation did not alter this rule.
133 Senior Counsel also advised that if KST resolved to divest himself of his Australian assets he would not be defrauding or conspiring to defraud the British Solomon Islands Inland Revenue, providing none of the actions take place in the British Solomon Islands or involve the doing of any acts in the British Solomon Islands. The assumptions on which Senior Counsel proceeded appeared to be correct.
134 The letter of 22 October 1975 of Clayton Utz to KST enclosed a copy of the advice of Senior Counsel. It also dealt over 12 ½ closely typed pages with possible ways in which KST might re-organise his Australian affairs. It included references to possible changes in Commonwealth and State legislation and various possibilities. While the letter would be followed by a solicitor, an accountant or a financial planner, I doubt if a layman would follow it unless he were exceptional. I would accept that the author of the letter gave considerable thought to the re-organisation he was discussing but KST would not have understood what was written. He probably did not understand the discussion which took place in the offices of Clayton Utz.
135 Geoffrey said that KST appeared to understand most of the conversation at the meeting and only asked Margaret to translate a word or two on a couple of occasions during the meeting. Margaret was present at the meeting and these were the only occasions Margaret spoke.
136 Margaret said that the solicitor asked her father some brief questions which she interpreted. She said that Geoffrey asked a lot of questions to which the solicitor replied. She said that at one stage her father asked her in Szeyap what the solicitor was saying. Margaret said she told him she was not sure and could not follow all that was being said. Margaret said that during the discussion between Geoffrey and his solicitor they used words such as "extradite, criminal offence, civil case, imprisonment, tax commissioner, tax agent, arrested, gaol, gaol term, penalty, extradition, jurisdiction, legal representation".
137 Margaret said that about half an hour into the meeting KST became uneasy and stood up to leave and that she followed him. Margaret said that KST later said that he did not understand what they were saying - he understood the word "gaol". Margaret said, probably correctly, that she did not understand what was being said at the meeting and could not explain it to KST. Her estimate of "about half an hour" is probably an underestimate. Such a meeting probably lasted considerably longer.
138 Geoffrey had arranged for Clayton Utz to be retained. They had expertise in the areas in question. That was prudent. I accept the evidence of Margaret that Geoffrey asked a lot of questions at this meeting.
139 Geoffrey said that KST stayed for the whole meeting and that at the end of the meeting KST appeared to be very happy and shook the hand of the Clayton Utz partner.
140 The threshold issues had to be resolved before any re-organisation of assets could be considered. In their letter of 22 October 1975 Clayton Utz stated, "… it is now upon us to set out in a letter to you the various alternatives most of which were discussed when you conferred with GT Hartigan & Co and ourselves".
141 I would infer that at the meeting on 24 September 1975 Clayton Utz probably expressed a preliminary view whether the British Solomon Islands Inland Revenue could have recourse to KST's Australian assets to satisfy any tax debt owed to it by KST and whether he could be extradited for a criminal offence if he re-organised his Australian assets. This is borne out by the letter of 26 September 1975 from Clayton Utz to KST. In view of the importance of these threshold questions it was prudent that the advice of a leading cautious Senior Counsel was sought. The decision in Government of India v Taylor 1955 AC 491 was well known, but much was at stake and this area of the law requires much care. The various re-organisations of his assets canvassed were not simple to a layman. No action appears to have been taken to implement any of the proposals as to re-organisation of assets in the letter of Clayton Utz.
142 Margaret said that some months after October 1975 KST and she, without Geoffrey, spoke with Mr WJ Lee, a Chinese barrister who was also a close friend of KST. They spoke in Cantonese. Mr WJ Lee stated that it was unlikely that the British Solomon Islands Inland Revenue could confiscate KST's assets in Australia and that KST should put his time into the two businesses in Chinatown.
KST's ability to speak and understand English (continued)
143 I did not find some of the examples on which Geoffrey relied as to KST speaking English compelling. I did not think it required any real command or understanding of the English language for KST to tell John what fish to buy and the prices he should pay. As to YS and the butchery, it would not have required a good command and understanding of English for KST to give instructions as to the stock to be ordered, prices to be paid, prices to be charged to the customers and the conduct of the butchery or for the managers to make recommendations and to seek instructions. Nor would the collecting and counting of the daily takings. Mary gave evidence of a manager of YS Butchery in 1975 communicating with KST in simple English.
144 Mary said that KST spoke reasonably good English and that she observed many conversations in English between KST and Geoffrey. She said that from time to time one of them would ask her to translate a word but overall they were able to communicate with one another very well (paragraph 23 of the affidavit of 7 December 2006). In paragraph 8 of her affidavit of 21 August 2007 she said that her father spoke Pidgin English very well while he was in the Solomon Islands. She said that her father was able to have conversations in English (mostly Pidgin English) and he often did so. She said that, when KST conversed in English, he generally used simple English words but was able to communicate quite well that way. She said that it was only if a discussion involved very complicated or technical words that KST would need some words translated, that if there was ever an occasion when her father did not understand what Geoffrey was saying, Geoffrey repeated what he was saying using simpler words. She recalled an instance of Geoffrey trying to explain some legal documents from Heidtman & Company.
145 Jason Richard Lowe was 16 when KST, his grandfather, died. Jason estimated that during his lifetime he met with KST about once every two months. They spoke in English about his schooling, his learning Chinese, his progress at school and general topics such as the food being served. When Jason visited his grandfather in hospital in 1997 Jason noticed that KST complied with the nurse's instructions and told the nurse how he was feeling. From time to time he observed KST speaking with his other grandchildren in English. Jason did not have much to do with KST outside family gatherings.
146 On the other hand, Margaret, Helen, Janet, Gordon and Sunly gave evidence of KST having a lesser command and understanding of English. Within the family the Szeyap dialect was always spoken. Margaret said that KST could not have a conversation in English. She said he could manage simple things like the food shopping. He could not read a newspaper written in English. He always read newspapers written in a Chinese language to keep himself informed about happenings in Sydney, Australia and the world. She said that on occasions when they were watching television together she usually interpreted items of interest to KST.
147 Margaret gave evidence of regularly accompanying KST, at his request, to doctors and of accompanying him to the Bank. Margaret denied that Geoffrey was communicating well with KST. Margaret pointed out that from 1975 -1989 KST engaged a Chinese-speaking accountant.
148 Helen said that her father could not have a conversation in English and that his English was limited to short greetings and to asking simple questions. Helen said that KST asked Margaret, and after the latter's marriage in 1989 KST asked her (Helen), to accompany him to see the dentist, optometrist and doctors and to do all necessary translations. Helen said she did so. Helen said she also renewed several Bank term deposits when they matured and passed on KST's instructions to the Bank.
149 Helen said that KST's ability to speak and understand English was very limited. He spoke and understood very little English. Helen asserted that all alleged conversations in English between KST and Geoffrey referred to in the affidavits of Mary and Geoffrey could not have taken place without a full translation (on both sides).
150 Janet stated that KST could not have a conversation in English, that he understood some English and could engage in brief simple conversations in English and that his English sentences consisted of a handful of words. Janet said that KST was always accompanied by one of his children to translate when he went to the doctor, real estate agent, bankers or lawyers. Janet instanced occasions when she accompanied him. Janet said she never heard a discussion or conversation between Geoffrey and KST in English. She said she heard a few simple words in English exchanged between them from time to time, general greetings, short questions and answers, but not detailed discussions. Janet denied that KST spoke English "quite well".
151 Janet said that KST required translation generally when conversation extended beyond a handful of words and that KST used and understood simple English words. He understood the names of all the products that he carried in the shop and words relevant to the sale of the products. KST could not read a newspaper in English and had great difficulties in understanding news on television.
152 Gordon said that KST's English skills were extremely limited and that he relied upon Mary, Margaret and Helen to translate for him anything which was in or required to be in English in respect of the businesses. Gordon said that KST was not fluent in English and experienced difficulty understanding any English other than very basic English words or phrases. He was not able to have an adequate conversation in English without somebody else present to translate and was unable to read English very well. Gordon said that at home KST would often ask Stella, Sunly or him to translate the television news for him.
153 Sunly denied that KST spoke reasonably good English. Sunly said that on many occasions he was required to act as a translator when KST and Geoffrey wished to converse.
154 Mr Alan McMurran, a solicitor and partner in the firm of Heidtman & Co, recalled a conference in his office on 18 January 1995 attended by himself, Margaret, Sunly, KST and Maria Lin, a solicitor employed by his firm who spoke the Cantonese language, concerning the estate of the late Fung Chun Sze Tu (also known as FC Chow). Mr McMurran was assisted by a detailed diary note. Ms Maria Lin also made a detailed diary note. The meeting lasted approximately 1 ½ hours. In that meeting KST did not speak to Mr McMurran in the English language.
155 Mr McMurran said that he communicated with KST through the translator, Maria Lin, and vice versa, that KST did not speak in English during the conference, and that KST did not show any other indication of understanding anything that he (Mr McMurran) said in English with non verbal gestures.
156 Mr McMurran recalled that KST, via the translator, did not wish to make a will as it was a bad omen and that the meeting concluded on the basis that he did not have any instructions either to provide further advice to KST concerning setting up a trust for him during his lifetime or to prepare a will for him.
157 Mr McMurran made a note of the instructions he received in relation to the estate of the late Fung Chun Sze Tu (FC Chow).
158 In her file note, Maria Lin has recorded that the majority of matters were discussed in Cantonese in order that KST might understand the general nature of the discussions.
159 In cross-examination Mr McMurran said that for most of the meeting people spoke in Cantonese, but for a smaller part of the conference there was discussion in the English language. Mr McMurran said that during the conference there may have been the odd English word exchanged between Margaret and KST, but not with him (Mr McMurran). Neither his independent recollection nor the notes of Maria Lin helped him to recall whether Margaret and KST used English words in their exchanges.
160 Mr McMurran said that KST might as well not have been at the meeting. There was no communication between him and KST. Mr McMurran did not have at this time an independent recollection that there were no non-verbal gestures consistent with him understanding English. Mr McMurran agreed that KST was elderly and frail.
161 Mr Johnson K Wong practised as an accountant in the Haymarket area from 1971 onwards. He had a substantial number of Chinese clients. He did not know KST before he came to him to do the accounts for the two businesses. He did not have many dealings with KST personally while KST was a client. He said that in the first couple of years he always dealt with KST and Mary himself. In 1981 he underwent "a big operation". He did not come to the office a lot, "so my partners, I think Mr Kwok, would look after KST". Mr Wong said that he always spoke to KST in Cantonese. He did not recall if he ever had occasion to explain to KST any documents that were written in English.
162 Mr Wong could not recall whether the information needed to prepare the tax returns of the businesses and those described as partners was supplied personally by KST or by others on his behalf. It appears that Mr Wong was supplied with details of the bank accounts of the businesses, cheque butts, bank statements and other information such as the cash takings and any cash purchases. Mr Wong did not require anything to do with customers' and suppliers' accounts. The same procedure was adopted as to WYT and YS. While Mr Wong and his partners appear to have prepared the annual accounts and tax returns, he was not intimately involved throughout the years with the financial records and accounts of the businesses. No audit was conducted.
163 The plaintiffs emphasised the many years in which KST had been in business and that he had spoken "pidgin English" for many years. KST preferred to remain in businesses which involved the Chinese community and with which he was familiar. To run the WYT and YS businesses he did not need to be fluent in English. He knew enough simple English words to be able to give instructions to his staff and his business associates. When KST spoke to his grandchildren in English he made standard enquiries and comments. This did not require him to be fluent in English or to have other than a superficial appreciation of what was being said. KST was assisted by Mr WJ Lee when buying WYT and YS and signing the agreements to purchase and probably in relation to the partnership agreement. Mary, Janet, Margaret and Helen had attended school in Australia and were able to assist KST in understanding requirements expressed in the English language.
164 In my opinion the plaintiffs, especially Geoffrey, have markedly overstated the capacity of KST to speak and understand the English language. Geoffrey recognised that KST was a capable businessman. With his dominating manner and personality, Geoffrey did not realise that KST was letting him speak but not understanding or agreeing with much of what he (Geoffrey) was saying. KST probably preferred to avoid any direct argument or confrontation. I agreed with the description of counsel for the plaintiffs that Geoffrey was loquacious when he gave his evidence. That was a gentle description. Geoffrey speaks forcefully and endeavours to control. He likes his words and opinions to prevail. Mary follows him. On the other hand, Margaret, Helen, Sunly and Gordon understated KST's ability to use simple English words to convey what he meant. How much KST understood when spoken to in English depended upon the simplicity of the words used by the speaker and probably the simplicity of the speech within which the words were spoken. KST ultimately bought businesses with which he was familiar. The decision to buy the Chinese style WYT and YS businesses was that of KST alone. KST was comfortable dealing with those of Chinese origin and negotiating in Cantonese. KST felt able to assess, control and manage Chinese style businesses in which there were appreciable cash transactions. Geoffrey realised the potential and dangers of such businesses.
Evidence of Geoffrey, Mary and evidential challenges
165 From the manner in which he gave his evidence, Geoffrey was loquacious, dominating and self-aggrandising. He was not sensitive to the indications, expressions and opinions of others. He liked to hold forth and forcefully so. He held a high view of his own importance and his skills and he evinced a strong desire to succeed and establish that his views were correct. His personal qualities led him to overstate his contributions to the businesses. It would not have been useful or efficient, in view of Geoffrey's loquaciousness, his preference not to focus on the question but to give the evidence he regarded as important and his other qualities, for further matters to have been put to Geoffrey which were adverse or tended to limit or qualify what he had said.
166 When Mary was being cross-examined there were long delays in her answering some of the questions. She left me with the impression that her answers were very calculated in that she was searching for the answer most favourable to her case. In making this observation, I have not overlooked that some of the questions she was asked were lengthy and some were convoluted. I was left in doubt as to how much of her evidence should be accepted. I did not accept that she did not notice entries in her tax returns, nor notice that they did not include any income (profit distribution) from YS after 1986. It would not have been useful or efficient, in view of Mary's long delays in answering questions and calculated answers to questions, for matters to have been put to Mary formally when the correctness of her evidence was so obviously being challenged. At the point of cross-examination Margaret and Helen were unrepresented. They were not skilled in the art of cross-examination.
167 At T 1270 I remarked during the cross-examination of Sunly that every witness had been substantially challenged and that it had been contended by the various parties that none of them should be believed. The reasons differed. Counsel did not dissent from my observation. I was speaking of each of the plaintiffs and each of Margaret, Helen, Sunly and Gordon. Each was cross-examined at length.
Family of KST in business
168 Mary worked at WYT from August 1975 to mid-January 1981. After Mary left she continued to do some work at home for a period by preparing and typing the monthly statements. FC Chow worked in the businesses from shortly after her arrival in Australia in mid 1976 until YS was sold and until WYT was closed down as from about 30 June 1989.
169 Margaret worked 2 ½ days per week in the businesses from August 1975 to about May 1980 and full time from late May 1980. In January 1981 Margaret took over from Mary and did what Mary had previously done. Margaret worked in both WYT and YS businesses. Margaret helped out at YS early in the morning and when YS became busy, often between noon and 2.00 pm. She continued working for WYT full-time until it closed about 30 June 1989.
170 Helen said that from about mid 1976 she helped occasionally in both WYT and YS. Helen worked full-time in the YS butchery from early 1980 to 1986. She seems to have been at WYT when it closed down about June 1989.
171 Janet helped out at WYT on a few occasions. In 1975 - 1980 she was preoccupied with her university studies.
172 Gordon said that during most of the period from 1976 to 1980 he was attending school. He worked at the WYT shop on Saturdays and during school holidays. In 1976 he was aged eleven. As he completed his studies and began his full-time career the amount of time he worked at the WYT shop gradually declined. Gordon stated that in 1987 and 1988 he was both working full-time and studying. He did not attend WYT so frequently. Gordon agreed that he did not describe in his affidavit working with Margaret after 1981; he was infrequently working in the grocery business from 1983 to 1987.
173 Neither Gordon nor Sunly was interested in running the businesses of WYT and YS. This would have been apparent by 1986, if not earlier. Both were studying for other careers.
174 Mary, Margaret and Helen were each paid wages in cash. So was FC Chow. Gordon was not paid any wages in his early years, but as he grew older KST made small cash payments to him for the work he had done.
Preparation of tax returns
175 Mr Johnson Wong said that, at some stage after the WYT and YS businesses were acquired by KST, the latter told him (Mr Wong) that a partnership had been established for the ownership of the businesses and that KST gave him a copy of the partnership agreement. Mr Wong, or his firm or company, prepared tax returns for the WYT and YS businesses for 1976, 1977, 1978, 1979, 1980, 1981, 1982, 1983, 1984, 1985 and possibly 1986. He, or his firm or company, also prepared the personal tax returns of KST, FC Chow, Margaret and Mary up to the year ended 30 June 1989 and possibly in some instances up to the year ended 30 June 1990. Mr Wong, or his firm or company, prepared the annual accounts and tax returns of WYT up to the year ended 30 June 1989. It seems that Mr Wong may also have prepared the personal tax returns of Janet and Helen, but no copies of these are available. Copies of all tax returns prepared by Mr Wong or his firm or company are not available. KST paid the tax assessed as payable by FC Chow and each of his four daughters.
176 Mr Wong stated that he never prepared taxation returns for Geoffrey who had another firm of accountants prepare his taxation returns. Geoffrey had a number of business interests. When asked how he worked out the profits of the partnership to include in his tax return, Geoffrey said that: "up until 1981 I was sort of involved because my wife was there". When asked whether he received copies of the partnership accounts prepared by Mr Wong, Geoffrey replied, "For the first couple of years, yes, then after that we tended not to get it". Geoffrey believed that his accountants telephoned Mr Wong and obtained the figures over the telephone. Geoffrey said he did not ask the accountant (unspecified) to do a full audit of this business as it was very small from his point of view. Geoffrey said that between 1975 and 1990 his share of income (distribution) from the partnership was included in his taxable income in his return and that he paid tax upon it. Geoffrey explained that he paid tax because he did not object to profits being reinvested, that in the early years it was in his interest to force the payment by the businesses of all the overdraft facilities provided by the bank and to release funds for his own purposes and that as the overdraft was liquidated he bought further property.
1975 - 1976 and Geoffrey's alleged actions
177 In his affidavit of 8 December 2006 Geoffrey said that, immediately after 1 August 1975, he set up accounting systems for the WYT and YS businesses to manage sales tax exemptions and a payroll system. He summarised various tasks to which he attended. He said that, other than dealing with the CBA as to obtaining finance, he had little involvement in the banking and accounting side of the business.
178 Geoffrey said that when the WYT and YS businesses were acquired he tried to ensure that they were properly managed because of any potential liability that might arise and affect him. To have a proper audit control system one person alone should not be responsible for too many activities relating to the handling of money. The money was controlled by the family. Initially, it was KST and Mary and from about mid 1976 by FC Chow too.
179 Geoffrey said that he did not maintain records in relation to the takings or revenue for the WYT and YS businesses, that KST recorded the takings and kept other books of account, that he (Geoffrey) saw some of those records from time to time. Geoffrey said that they were largely written in Chinese which he could not read. Moneys coming in to WYT were recorded in a logbook. Either a debtors' ledger or some record of outstanding debtors of WYT was kept in the front office with Mary and later with Margaret. Geoffrey looked at it or them very rarely. It was a manual system. Geoffrey remained a signatory on the cheque account probably until 1985. When he signed or countersigned a cheque he was not satisfied in each instance that the account was properly payable. Geoffrey said that he "basically checked the WYT account until Mary left". Thereafter he signed wads of blank cheques in advance. He took no steps as to YS business to make sure that the cheques he signed were as to accounts which were properly payable. Geoffrey said that he relied on KST who also signed the cheques. Geoffrey said that he was aware that some business accounts were paid in cash. He said that he saw some instances in which the statement was endorsed with the amount and "cash". Such statements were kept by that business.
180 Geoffrey said he asked Johnson Wong to try and "look at ways of controlling the payment and recording systems". Geoffrey said he was told it was impossible. Geoffrey said that he virtually played no part in the preparation of the annual accounts of the businesses. Geoffrey said that in about May 1976 the documents for a loan from the CBA to the "Partnership" were completed.
181 Geoffrey relied on a mortgage dated 1 June 1976 given and signed by KST, Mary and FC Chow ("the mortgagor") over the Wiley Park property in consideration of certain advances and accommodation granted or to be granted at the request of the mortgagor to KST, Mary, FC Chow and Margaret, Helen, Geoffrey and Janet (described as the Debtor). There were covenants by the Debtor in the mortgage and each of the Debtors signed the mortgage. Despite its letters of 3 July 1975 and 12 August 1975 the Bank did not take security over the Fairfield property. There is no satisfactory evidence of the value of the Wiley Park property about June 1976. The limited security taken tends to suggest that the amount borrowed and owed was not large. In his affidavit of 21 August 2007 Geoffrey said that by about 1 June 1976 the funds advanced by CBA had been partly repaid and that only about $70,000.00 remained owing to the Bank.
182 The Court is dependent upon the recollection of Geoffrey as to the amounts stated. That is not sufficient. The duty stamp upon the Wiley Park mortgage is not clear. The Wiley Park property was unencumbered in 1975 and probably until the CBA mortgage. Geoffrey was referred to the accounts of WYT and YS for the year ending 30 June 1976, being the first accounts. He said that he looked at them. At the time he saw these accounts he thought that, with a couple of qualifications, they appeared essentially accurate. He thought that the Bank overdraft (shown as $10,678.61) was probably accurate. He disputed the entry of a loan from KST of $83,500.00. Geoffrey asserted that KST did not have that amount of money. Secondly, there was nothing showing his (Geoffrey's) contribution or interest. Thirdly, he disputed the statements of capital advanced. They showed a capital advance of $2,000.00 by KST, $1,000.00 by each of Geoffrey, Mary, Margaret, Helen and Janet and $3,000.00 by FC Chow, a total of $10,000.00. Geoffrey thought that these figures were set up by KST and did not reflect what was actually contributed, that the accounts were incorrect in that they showed his contributions as $1,000.00 whereas it should be about $35,000.00 to $40,000.00. There were proportionate distributions of net profit. The statement of distribution of net income showed salaries paid to all the partners except FC Chow. The notes to the Operating Statement of WYT record that the partnership commenced on 1 August 1975, that the partnership bank account was opened at Commonwealth Trading Bank on 6 August 1975 in the name of WYT and that on 1 August 1975 the taxpayers purchased the above-named business from ST Leung for $57,5000 and "This fund was financed by Kut Sze Tu's private funds and his own personal loan from the bank". Geoffrey said that the Bank Branch given was his branch and the entry suggested that he could monitor the figures. He said he wanted the depreciation on the furniture included (T 392 ll 45 - 48).
183 Geoffrey said that to establish the businesses on a secure foundation (including the purchase of stock) and operating soundly at least $150,000.00 was needed. It is surprising that Geoffrey did not demand that the accounts be redone to reflect the correct position. Apparently, Geoffrey showed the income (net profit) attributed to him in the partnership tax returns and possibly the salary attributed to him as income in his personal income tax returns.
184 Geoffrey said that the actual payment of stock paid in cash to the previous owner was not recorded in the accounts.
185 Geoffrey stated: "we [Geoffrey and Mary] also backed the loan account. [KST] could not borrow money so we had to give him the bank overdraft" and that it went higher than $10,000.00 at one stage.
186 Geoffrey agreed that the inaccuracies mentioned were connected with the balance sheet. He regarded the revenue statement (at the time he was examining the accounts) as probably essentially accurate. The operating statement showed sales of $581,150.28 opening stock as having no value or as nil, purchases of $513,879.97 and closing stock as $34,169.00. That left a gross profit of $101,439.31. Expenses were shown as totalling $52,756.54. Net profit was shown as $48,682.77, less partners' salaries of $15,981.00. The net distributable income was shown as $32,700.92. Geoffrey said that he periodically received copies of the financial statements for the years after 1976 while the businesses were operating. Geoffrey said that his wife talked to him about how the business was doing. This appears to refer to the period up to January 1981. Geoffrey said he was more interested in his own business than WYT, which was more an investment. He had a full time job at TAFE, a full time job at the University at the same time, a computer business, property investments and a property development company. Geoffrey said that he was a consultant as well and that he started an accounting degree. Up to January 1981 he regarded the moneys from the business as effectively under family control and he was content to leave things as they were.
187 Geoffrey said that in the initial stages he went in to the businesses quite regularly and frequently verbally reported progress to the bank. He said that the bank wanted a partnership agreement and his guarantees. After the businesses had been operating for some months he formed a provisional view as to the likely monthly income and the likely monthly outgoings. That enabled him to see whether the business was operating at a profit. These were the figures which he reported to the bank. Geoffrey said there was a lot of cash coming through the walk-in trade. The butcher's shop sold in a retail format. WYT did not want a cash register - they did not have the room for a full cash register system. Geoffrey described the premises as extremely small. Further, those at WYT were extremely reluctant to pay the $10,000.00 to $12,000.00 necessary to buy control equipment. YS, however, had a cash register.
188 Mary said that the WYT business was not very profitable in the first couple of years (T 239). Geoffrey had to monitor the bank balance on a daily basis and check to ensure that there were sufficient funds in the account to pay the invoices of the suppliers. If there were insufficient funds in the account, she would withhold payment. Mary said that Geoffrey monitored the bank account for roughly the first 18 months to two years. In her latter three years at WYT Geoffrey did not monitor the bank account.
Revenue sources
189 Geoffrey estimated that the debtors consisted of about 40% or less of the total revenue. With risky clients, especially in a butcher shop where the stock was perishable, extended credit was inadvisable. The fish and the dry goods came from WYT and the meat from YS.
190 Geoffrey estimated that about 60% of the goods were delivered to "cash customers" and about 40% to account customers. There was no combination of the account systems of the two businesses. I did not think that I could or should rely on Geoffrey's broad estimates.
191 Whenever, sporadically, he received copies of the financial statements of the partnership in succeeding years, the revenue statements seemed likely to be basically right to Geoffrey, subject to the qualification that as the years progressed the accounts were never sent to him directly but to his accountants. Geoffrey added that when Mary was working at WYT there was a certain degree of accuracy except for the balance sheet. The revenue statements did not sufficiently allow for the cash received by the businesses but not fully disclosed by KST.
192 Geoffrey contended that any profits that arose from WYT and YS needed to be retained specifically to pay off the overdraft and to release his loan guarantees. He said he kept an eye on the overdraft from year to year.
1977 request for distribution of profits
193 Geoffrey said that in 1977 he spoke to Mr Wong about receiving some share of profit from these businesses because by that time the businesses were trading quite well and no longer needed seed money (which he provided to start the businesses). By letter of 25 March 1977 on the letterhead of his company, Contract Computer Services Pty Ltd, using the address of 84 Harbour Street, being that of YS, to Mr Wong, the letter apparently typed by Mary, Geoffrey pointed out that he and she held a 20% share in the business of WYT and YS, that "the business has operated on the basis of the original partnership since October 1975 and that the bankers are the bankers to ourselves and we hold deposits against loans to these business (sic) and any other business we engage in" and that the "adjustments for the contribution towards the said purchase price was to be out of the profit of [WYT and YS]".
194 The letter also stated that the bank has committed its overdraft facility to the partnership. The letter concludes:
"It would be appreciated if these facts are pointed out without reference to this letter in order to smooth the way for a successful reconciliation of the above dispute.