mixed. The court rejected the timing and quorum/notice challenges to the earlier distributions, found the 2015 distribution to John invalid, and accepted an adjusted loan-account calculation subject to...
Key principles
Section 1305 of the Corporations Act 2001 (Cth) makes company books admissible and prima facie evidence of what they record, but does not make them conclusive or automatically...
Section 1322(2) applies to procedural irregularities including absence of a quorum and defective notice, even where the irregularity may have resulted from a deliberate choice. A...
On the construction of this trust deed, the trustee could decide after the relevant financial year how to distribute that year's net income, once it could be calculated. The...
The purported distribution to John of $80,536 from the 2015 financial year's income was invalid because John had died before the distribution decision and cl 4(i) confined...
Issues before the court
What evidentiary effect did the company and trust financial records have on the alleged loan debt?
Were distributions invalid because directors' resolutions were made without a quorum or reasonable notice?
Plain English Summary
The court treated the financial records as useful evidence, but not proof that every recorded amount arose from a valid transaction. It found that the older yearly distribution decisions were not defeated by the directors' meeting defects because the defendants did not prove substantial injustice caused by those defects. It also found the trust deed permitted distributions after year-end, once income could be calculated. But John had died before the 2015 distribution decision, so the amount purportedly distributed to him could not stand and had to be dealt with under the deed's default provision. The court accepted a revised loan-account calculation subject to further adjustments and deferred final orders.
AI-generated legal information, not legal advice. Zoe can make mistakes. Check the cited source, and for advice about your situation consult a qualified Australian lawyer.
Deep Dive
2,420 words · generated 02/10/2026
What happened
The dispute arose from the McCarthy family's farming business, which was operated through Saltwood Pty Ltd as trustee of the J D McCarthy Family Trust. The plaintiff, Eunice Beverley McCarthy, was John's wife. John had managed the farming operation and its financial affairs for many years. The trust deed gave the trustee discretion to distribute trust income among a broad group of beneficiaries, including John, the plaintiff and their children. The financial records recorded distributions, drawings and private expenses through a joint loan account in John and the plaintiff's names.
Did cl 4(i) require distributions to be decided before the end of the relevant financial year?
Was the 2015 distribution to John valid, and what amount was due after accounting for the records and payments?
Cited legislation
No linked legislation citations have been extracted yet.
After John died on 27 March 2015, a dispute developed about the trust's control and the amount, if any, owing to the plaintiff. At trial, the trustee-control issue was resolved by agreement: the plaintiff accepted Andrew's appointment as appointer and the resulting appointment of Andrew and Karen as trustees. The remaining major question was the amount properly due under the loan account. The plaintiff relied on Saltwood's records and the company's 2014 and 2015 financial statements. The defendants accepted the loan-account balance of $684,438 at 30 June 2003, but disputed later amounts.
The court considered three connected groups of issues. First, whether company records established the debt and its amount. Second, whether the yearly income distributions were valid despite meetings that lacked a quorum and proper notice, and despite occurring after the financial year. Third, whether particular entries, payments and sums held by the plaintiff altered what the trust owed.
The court accepted that the accounting method generally recorded real payments and year-end distributions. It did not, however, accept every loan-account entry as evidence of an underlying debt. Some unexplained increases were substantially greater than the trust's annual net income, and balances apparently owed to other children later disappeared into the joint account. The court accepted a forensic accountant's adjusted calculation of $433,183 as at 30 June 2018, subject to adjustment for the invalid 2015 distribution and the plaintiff's share of the resulting default distribution.
The plaintiff also held $455,000 withdrawn from a trust bank account after John's death. It was common ground that this was trust money. The court indicated that the amount to be refunded should be the difference between the tax-adjusted sum and the amount ultimately found due to the plaintiff. It considered equitable interest appropriate on the refundable amount. It did not make final orders, instead reserving further calculation and disposition issues for submissions.
Why the court decided this way
The court's treatment of the books was important to the result. Section 1305 of the Corporations Act 2001 (Cth) made company books admissible and prima facie evidence of recorded matters. It did not make the books conclusive, or prove automatically that every entry represented a legally effective transaction. Brett J adopted the explanation in Shot One Pty Ltd (in liq) v Day [2017] VSC 74: the fact-finder still assesses the weight of the entries against the other evidence and the records' own qualities. Section 68 of the Evidence Act 2001 (Tas) made the trust's and other business records relevant but did not elevate their evidentiary effect.
The court found that the records had a substantial factual foundation. Karyn described bookkeeping practices, including the use of ledgers and MYOB records, and the forensic accountant used those records in preparing his calculation. The accounts of drawings and private expenses corresponded with payments made to or for John and the plaintiff. The court therefore accepted the basic method: drawings and expenses were debited, while distributions credited at year-end increased the loan account.
That finding did not cure unexplained entries. The defendants' forensic accountant identified years in which the loan account increased by much more than the trust's net income. He could not explain those differences as distributions or payments to the plaintiff and John. The court accepted the most probable explanation that some entries functioned as accounting adjustments or a reconciliation account rather than recording a valid underlying debt. The court also noted that earlier loan accounts for children appeared to have been absorbed into the joint account without an apparent legal basis. Accordingly, the company's books carried prima facie weight but had to be tested entry by entry.
The quorum and notice issue turned on s 1322. The directors' meetings did not comply with the company's quorum rules or the statutory requirement for reasonable notice to each director. The court followed the approach in Whitehouse v Capital Radio Network Pty Ltd [2004] TASSC 12, rather than the narrower approach associated with Re P W Saddington & Sons Pty Ltd. On that approach, the statutory definition of procedural irregularity applied even if the defect resulted from a deliberate decision. The court did not need to determine whether John deliberately excluded the other directors.
The defendants still had to establish substantial injustice caused by the procedural defects. The court distinguished injustice caused by the way a meeting was conducted from dissatisfaction with the substance or consequences of the resolution. Andrew and Karen knew that John made the yearly financial decisions with the accountant and had left those matters to him. Neither sought access to the financial reports or attempted to participate. The evidence did not establish that the lack of notice or quorum itself caused substantial injustice. The court therefore did not invalidate the earlier decisions on those grounds.
The timing argument depended on the language of cl 4(i), which authorised the trustee to distribute the trust's net income “in each accounting period”. Net income could only be calculated after the relevant year ended, because it depended on aggregating income and deductible expenses across the year. The deed also used different language for accumulation: cl 4(iii) expressly required an accumulation decision before the end of the accounting period. Reading the provisions together, the court construed cl 4(i) as requiring a distribution “in respect of each accounting period”, rather than a decision made before that period ended. The court implied a reasonable-time limit, ordinarily met when the annual accounts were settled.
A distinct rule applied to John in the 2015 year. The deed authorised distributions for the benefit of beneficiaries living at the time of distribution. John died before the decision was made. The court treated his pre-distribution interest as an expectancy, not an interest in the trust income that survived death. The purported $80,536 distribution to him was therefore invalid. That part of the income fell to be dealt with under cl 4(ii), the default provision.
Before and after state of the law
This judgment applied statutory and trust principles to a particular deed and a particular evidentiary record. It did not purport to create a general rule that company accounts are unreliable, or that directors' meeting defects are inconsequential. Its explanation of s 1305 was that company books are admissible and prima facie evidence, while their weight remains for the fact-finder. The practical consequence is that accounting records may establish a starting point, but contested entries can be tested against source documents, witnesses, accounting method and the existence of an underlying transaction.
For procedural defects, the judgment applied s 1322(2) in the way Brett J understood Whitehouse to require. It held that absence of a quorum and defective notice are procedural irregularities within the statutory definition, even if deliberate. The statutory saving effect was not unlimited: a party seeking invalidation could still establish substantial injustice caused by the irregularity itself. The reasons make clear that an objection to the decision's outcome is not, without more, proof of that form of injustice.
For the trust deed, the court's construction depended on the contrast between cl 4(i) and cl 4(iii), and on the meaning of net income in the deed. The judgment does not establish that all trust deeds permit post-year-end resolutions. It construes this deed's terms and scheme. In this deed, a decision about net income could sensibly be made after the year's income and expenses were known. The court nevertheless implied a reasonable-time constraint and treated settlement of the annual accounts as the usual point at which that constraint would be met.
The judgment also applied the distinction between an expectancy under a discretionary trust and an entitlement created by a completed distribution. It found that John did not acquire a surviving interest in the 2015 year's income merely because he was a beneficiary during his lifetime. The wording of this deed limited the relevant power to living beneficiaries at the time of the distribution decision.
Key passages with plain-English translation
The following passages are quoted from the reasons supplied. Paragraph numbers are not reproduced for these passages in the supplied text, so pinpoint paragraph references cannot reliably be given.
“The provision does no such thing. All that s 1305(1) provides is that a company's books ... are admissible and are ‘prima facie evidence of any matter stated or recorded’ in them.”
Plain English: the accounts are evidence, but they do not prove automatically that the recorded transaction actually happened or that it was legally effective. The court must assess their weight.
“The substantial injustice in question must arise from the procedural irregularity itself, and not from the result or outcome of the relevant proceeding.”
Plain English: a party cannot establish the statutory exception merely by arguing that the distribution decision was unfair or produced an unwelcome result. The claimed injustice must be linked to the missing quorum or notice defect.
“Accordingly, the term ‘in each accounting period’ in cl 4(i) should be construed as ‘in respect of each accounting period’.”
Plain English: under this deed, the trustee could decide how to distribute the net income after the year ended, once the amount could be calculated, rather than having to make the decision before 30 June.
“The terms of the trust deed have the effect that the expectancy that John had with respect to a distribution of income during his lifetime, did not survive his death.”
Plain English: John's status as a possible beneficiary did not give him a vested share in that year's income before the trustee made a valid distribution. Since he died first, the trustee could not distribute that income to him under the clause.
What fact patterns trigger this precedent
The decision is relevant to disputes where a party relies on company books or financial statements to establish a debt, asset or accounting balance, and the opposing party challenges whether entries correspond to real transactions. It illustrates the distinction between proving that a balance was recorded and proving that the balance reflects a legally effective underlying transaction.
It is also relevant where directors' resolutions are challenged for want of a quorum or inadequate notice. The judgment's application of s 1322 depends on the statutory language and the evidence about whether the procedural defect caused substantial injustice. In this case, the other directors knew John handled the annual financial decisions, deferred to him, and did not seek involvement. Different evidence about exclusion, objections, lost opportunities to participate, or consequences directly caused by the defect could materially alter that inquiry.
Trustees and advisers may find the deed-construction reasoning relevant where a deed uses “net income” and distinguishes distribution from accumulation. The decision shows why the whole deed matters: the court compared cl 4(i)'s wording with cl 4(iii)'s express before-year-end requirement and considered when net income could actually be calculated. It should not be treated as resolving the timing rule for deeds with different language or tax provisions.
Finally, the 2015 issue is relevant where a discretionary deed limits distributions to beneficiaries alive when a decision is made. The result turned on the clause's wording and the fact that John died before the relevant decision. The judgment also illustrates that a beneficiary's status before the exercise of discretion may amount only to an expectancy, rather than an entitlement to a particular part of the fund.
How later courts have treated it
The supplied judgment contains no account of later cases applying, distinguishing or criticising McCarthy v Saltwood Pty Ltd. It therefore does not support a conclusion about how later courts have treated this decision. The authorities discussed in the reasons, including Shot One, Whitehouse and Re P W Saddington, are authorities considered by Brett J, not later treatment of McCarthy.
The judgment itself describes its use of earlier authority. Brett J adopted the summary in Shot One concerning the evidentiary effect of company books. The court followed the approach in Whitehouse on the operation of s 1322 and declined to follow the narrower approach in Re P W Saddington. It referred to Re Gulbenkian in discussing the breadth of discretionary trust powers, and to authorities concerning the nature of a discretionary beneficiary's expectancy. Those relationships explain the reasoning in this judgment but do not establish subsequent judicial treatment.
Still-open questions
The reasons deliberately left matters unresolved. The court said counsel would be heard before the calculation was finalised. The accepted $433,183 figure was subject to deducting the invalid distribution to John and adding the plaintiff's share under cl 4(ii). The amount of that share was left to be determined. The judgment then expressed the refund as the difference between the tax-adjusted $455,000 held by the plaintiff and the balance ultimately established as owing to her.
The court also left open any further accounting adjustments and the ultimate orders. Although it considered equitable interest justified on the amount refundable, the relevant sum depended on the outstanding calculation. The parties had agreed to defer the tracing question concerning the transfer of farming properties until the debt question was resolved.
The “Karoola safe money” claim was not established in the amount pleaded. The court accepted that there was evidence supporting an inference that Mark had paid some amount for the vehicle, but found the evidence insufficient to establish the amount or a payment for the buildings. Mark was not called by either party. The court considered that an account might be available, but was reluctant to make an order without hearing further submissions.
The decision also leaves fact-sensitive questions for future cases: what evidence is sufficient to displace the prima facie effect of a company's books; what amounts to substantial injustice caused by a meeting irregularity; and how a particular deed's timing language should be construed. The judgment answers those questions for the records, directors and deed before Brett J, not for every company or discretionary trust.
This is general legal information, not legal advice. Zoe can make mistakes. Before acting on this, relying on it, or using any draft, have it checked by a qualified Australian lawyer.
Judgment (64 paragraphs)
[1]
McCarthy v Saltwood Pty Ltd [2020] TASSC 19 (27 May 2020)
Corporations - Management and administration - Inspection of or access to financial records, registers, documents and other information of company - Admissibility in proceedings - Records of trust and company - Reliability of financial statements - Whether records correctly reflect actual financial transactions, and if so the validity and lawfulness of those transactions.
[5]
Corporations - Management and administration - Directors and other officers - Meetings - Meetings of Directors - Validity of proceedings - Absence of quorum - Procedural irregularity - Whether substantial injustice - Meetings conducted for the purpose of distributing trust income - Validity of distributions - Whether the trustee lawfully made the relevant decision - Relevant meetings did not comply with the legal requirement in respect of quorum and notice - Proceeding in each year of the relevant years, is not invalidated because of the absence of a quorum nor deficiency in notice of the meeting.
[6]
Equity - Trusts and trustees - Discretionary trusts - Powers, duties, rights and liabilities of trustees - Delegation of trust or confidence - Discretionary family trust - Issue as to decisions made in consultation with accountant - Unsigned minutes - minutes intended to indicate adoption of resolution on behalf of the company - Minutes correlate to the quantum of the trust income assessed at the time.
[7]
Equity - Trusts and trustees - Discretionary trusts - Creation and effect generally - Purported timing of distributions - Reasonable time for exercise of discretion - Invalidity on the basis of timing of the resolutions rejected.
Re Gulbenkian [1970] AC 508; Whitehouse v Capital Radio Network Pty Ltd[2004] TASSC 12, 13 Tas R 27; Shot One Pty Ltd (in liq) v Day[2017] VSC 74, referred to.
as former trustee of The J D McCARTHY FAMILY TRUST
[13]
SALTWOOD PTY LTD as former trustee of The J D McCARTHY FAMILY TRUST
[14]
A K SALTWOOD PTY LTD ATF The AK and JL McCarthy Family Trust No 3
[15]
This is a dispute between members of a family in relation to the distribution of profits from the family's farming enterprise over many years. The plaintiff is the mother of the third (Andrew) and fifth (Karen) defendants. The fourth defendant (Karyn) is married to Andrew. The family unit consisted of the plaintiff, her husband, John McCarthy (John), and their six children, including Andrew and Karen. John passed away on 27 March 2015.
Prior to his death, John had, from a practical point of view, been primarily responsible for and in charge of the family's farming operations. However, since 1 October 1977, the legal position was that those operations were conducted by the first defendant as trustee for a family trust, known as the J D McCarthy Family Trust. This trust was, in essence, a discretionary trust. The deed by which it was established conferred various discretionary powers on the trustee, which included the power to distribute the net income earned by the trust from the farming operations in each financial year to and among the beneficiaries, who included John, the plaintiff and the children. As is common with trusts of this nature, whether and to whom income was distributed, and in what amounts, were matters solely within the discretion of the trustee. According to the financial records of the trust, most of the income in each year was distributed to John and the plaintiff. They received some of this money by way of direct payments and payment of expenses on their behalf, throughout the year. Any difference between the amount distributed, and the sums actually paid to them or on their behalf throughout the year would be treated as a debt by the first defendant on the behalf of the trust to them. This debt was recorded on an ongoing basis in the financial statements of the trust and the first defendant, in an account nominated as a joint loan from John and the plaintiff to the first defendant. (This account will hereinafter be referred to as the loan account.) The plaintiff asserts that upon John's death, she acquired the sole beneficial ownership of the loan account by virtue of the principles of survivorship or, alternatively, pursuant to John's will.
Subsequent to John's death, a dispute arose between the plaintiff and the three natural defendants in respect of the control of the trust and the extent to which the trust is indebted to her pursuant to the loan account. Although on the basis of the pleadings, the former question remained a live issue in this case, it was resolved by agreement at the commencement of the trial. That issue largely concerned whether Andrew or the plaintiff was properly appointed as the appointer of the trust after John's death. Andrew claimed that he was so appointed pursuant to John's will and, on 23 June 2016, he purported to exercise the authority of that office by removing the first defendant as the trustee and appointing himself and Karen to that position. At the commencement of the trial, the plaintiff conceded this issue and by agreement I made declarations which gave effect to these claims. Accordingly, the current trustees of the trust are Andrew and Karen.
[16]
As already stated, the first defendant operated the farm as trustee of the family trust continuously from at least the date on which the trust came into existence, 1 October 1977, until replaced as trustee in 2016. It is common ground that the physical and practical operation of the farm and the business was conducted by John until illness prevented him from doing so shortly before his death. It is clear that throughout that period, he was the controlling mind of the farm operation and the corporate-trust structure. The plaintiff did not give oral evidence, but it can be concluded from other evidence, including the testimony of Andrew, Karen and Karyn that, although the plaintiff did not assist with the day to day operation of the farm, she was, at least until about 2000, involved in bookkeeping and other financial aspects of the operation.
In 1987, Andrew commenced farming on the family farm, in conjunction with his father. He has continued that occupation to the present time. His evidence was that, apart from a very brief period between 1998 and 1999, when one brother, Peter, worked on the farm, none of his siblings did so. His remuneration was a modest monthly payment which he described as "a drawing". He also came to an agreement with his father about taking over and farming part of the property. His evidence of the detail of this arrangement was somewhat unclear, but it seems that in about 2005, he and his father came to an agreement whereby he would take "a bare minimum wage" and would start building "equity in the farmland". I accept that he had an expectation that, upon his father's death, he would receive part of the property. That expectation was realised after John passed away in 2015.
It is also apparent from the evidence that John's dominance of the farming operations included their financial aspects. He was nominated as the appointor under the deed of settlement which created the trust and given the right to appoint his successor by will or deed. It is clear, particularly from the evidence of Andrew and Karen, that John made the financial decisions relating to the farm, including what remuneration Andrew would receive for his work on the farm. It was John who took responsibility for dealing with the accountant in respect of the preparation of the taxation and other financial statements of the trust and company in respect of each financial year. There are some particular aspects of this practice which have significance in this case and to which I will return.
[17]
Proof that the company is indebted to the plaintiff
[18]
In order to establish her claim, the plaintiff must prove on the balance of probabilities that the company is indebted to her. The only evidence relied upon by her to prove the existence and quantum of this debt is the disclosure of the joint loan account in the financial statements of the company, in particular the balance sheets for the 2014 and 2015 financial years. Of course, other aspects of the financial statements inform the relevant entries in the balance sheets, and hence are also relied upon by the plaintiff. Insofar as the joint loan account is concerned, although the matter was not conceded on the pleadings, by the end of the trial it was clear that there was no dispute that upon John's death, the plaintiff acquired the full ownership of that account.
The admissibility and evidentiary value of the records of the company is dealt with by s 1305 of the Act. That section provides:
[19]
(1) A book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book.
[20]
(2) A document purporting to be a book kept by a body corporate is, unless the contrary is proved, taken to be a book kept as mentioned in subsection (1)."
[21]
The plaintiff relies on this provision to establish, at least on a prima facie basis, the existence of the relevant debt. However, judicial consideration of this provision has demonstrated its limitations. I had cause to refer to this question during a procedural decision handed down during the course of the trial. In that decision, I referred to a passage from the judgment of Sloss J in Shot One Pty Ltd (in liq) v Day[2017] VSC 74, which encapsulates the effect of s 1305:
[22]
"239 In Whitton v Regis Towers Real Estate Pty Ltd, Buchanan J, with whom Marshall and Tracey JJ agreed, said:
[23]
Section 1305 of the Corporations Act does not elevate the entry to prima facie evidence that any such transaction (or series of transactions) exists. It can be no more than prima facie evidence that an unknown person formed an opinion on an undisclosed basis that, in the absence of any directly recordable transaction nevertheless, as a balancing entry, such a figure should appear in the accounts. Mr Harris took the matter no further and, indeed, eroded any weight the entry may have had.
[24]
240 Similarly, in Livingspring Pty Ltd v Kliger Partners, Maxwell P and Buchanan JA stated:
[25]
LS [the applicant] called in aid on the appeal s 1305(1) of the Corporations Act, which, it was said, established 'a presumption that company accounts are prima facie true and correct and accurate'. The provision does no such thing. All that s 1305(1) provides is that a company's books (relevantly, its financial reports and records) are admissible and are 'prima facie evidence of any matter stated or recorded' in them. As the Full Federal Court said in Whitton v Regis Towers Real Estate Pty Ltd, s 1305 does not elevate an entry in a book of account to the status of prima facie evidence of the transaction(s) which the entry purports to record. The same must be true of an entry purporting to record the existence, and value, of an asset.
[26]
241 More recently, in ASIC v Rich, Austin J said:
[27]
[397] Section 1305(1) does not make the company's books conclusive evidence of the matters they contain, in the sense of requiring the tribunal of fact to make a finding in terms of the content of the books in the absence of proof to the contrary by the opposing party. The books are prima facie evidence of the matters stated in them, but the weight of that evidence is to be measured in accordance with the common sense of the tribunal of fact.
[28]
[398] In my view it would be open to the tribunal of fact to find that the prima facie evidence constituted by the company's books is outweighed by other evidence (including evidence adduced by the proponent of the books, even if the opponent does not give evidence about them); or by some quality or characteristic of the books themselves, even if there is no other evidence. In particular, if a book has the appearance of a draft or (being electronic) has a file title indicating that it is a draft, that alone may be sufficient (all other things being equal) for the tribunal of fact to reject the book as evidence of the matter stated in it, notwithstanding that the book is prima facie evidence of that matter; a fortiori if, in addition to having the appearance of a draft, the book contains inconsistencies or ambiguities or the matter otherwise demands explanation." [Footnotes omitted.]
[29]
I adopt that summary as guiding the application of that provision in the circumstances of this case.
As already noted, the defendants attack the reliability of the financial statements. The attack is not on the authenticity of those documents. It is clear enough that the financial statements were those prepared, primarily for submission to the Taxation Office, but also to comply with relevant provisions of the Act, by the accountant engaged for that purpose by John. It is also apparent that the documents were signed by the family members whose signatures appear on the document. The issue is whether the records correctly reflect actual financial transactions, and, if so, the validity and lawfulness of those transactions, as already explained. As the said authorities discussed above make clear, the prima facie evidence provided by the records is subject to my assessment of the evidence concerning the actual existence of the asserted debt.
Mr Bigmore QC, who appeared as senior counsel for the plaintiff, also relied upon the provisions of s 68 of the Evidence Act2001. This provision does not advance the evidentiary value of the records beyond that established by s 1305, except that it does make relevant not only the company records, but also those of the trust, and any other documents properly admitted as business records. I acknowledge the operation of that section for those purposes, but it will not otherwise affect the determination of the matters in dispute in this case.
[30]
The evidence of Karyn describes, to some extent, the manner in which the financial records of the trust and company were kept during the relevant years. Karyn's evidence is that she is a trained bookkeeper with considerable experience in that field. She left outside employment and commenced work on the farm in 1993. Between that time and 2000, she performed bookkeeping duties but with "very limited involvement". Payments from the trust bank account were made by the plaintiff, who wrote cheques and completed a handwritten journal which recorded the payments. Karyn's involvement was to reconcile the journal with the bank statements at the end of the financial year and provide the reconciliation to the accountant.
In 2000, the farm commenced to keep financial records electronically by way of an MYOB program. It seems that Karyn became more involved in recording individual transactions electronically because the plaintiff lacked the necessary computer skills. However, the information entered was provided by the plaintiff from the handwritten ledgers and chequebooks. It was still Karyn's role to prepare reconciliations and summaries for the accountant at the end of the financial year, but these were done with the assistance of the MYOB program.
In the MYOB program, expenses were allocated a code which represented a particular account against which the expense would be debited in the financial records. In relation to private expenses paid on behalf of John and the plaintiff, or sums of money paid to them, the payments would be allocated to their joint drawings account. Karyn relied on the information on the cheque butt in order to determine that the payment was a private expense. On the instruction of the accountant, in relation to some expenses, only a percentage would be allocated as a private expense.
Karyn was not directly involved in dealing with the accountant at the end of the financial year. She would provide the records to John, who would meet with the accountant, usually some months after the end of the financial year. It appears that the usual practice was that the financial statements were prepared in the early part of the following calendar year. Her evidence was that until 2005, the company accountant was Ricky Easterbrook. He was followed in 2006 by James Reade who remained as the accountant until 2015. Since 2016, the financial statements have been prepared by an accountant named Lucinda Mills. None of these accountants was called by either party to give evidence.
[31]
As already noted, the loan account was an accounting device used to capture, on an ongoing basis, the amount due by the company to John and the plaintiff for amounts of income purportedly distributed pursuant to the trust deed, but not actually paid in the relevant financial year. Payments made to or on behalf of John and the plaintiff during the financial year were recorded in separate accounts as drawings or expenses paid on their behalf. An examination of the financial records over the relevant years reveals two such accounts, entitled "J D and E B Drawings" and "J D and E B Private Expenses". The usual practice appears to be that at the end of each financial year, the balance of these accounts was debited to the loan account. The loan account was credited with income distributed in accordance with the purported resolutions. There is no reason to doubt that to the extent that these transactions are so recorded, they reflect actual transactions. It is clear that John and the plaintiff took regular sums as drawings and the trust paid some of their expenses. It can be inferred that these financial benefits were taken in anticipation of receiving a distribution of income from the trust at the end of the financial year. The difference between the sum actually taken by them and the share of the income to which they became entitled pursuant to the purported distributions represented the debt due to them by the trust. This theoretically was recorded in the loan account.
None of this is inconsistent with the evidence of Karyn. As already noted, her evidence supports the conclusion that the ledgers, journals and derivative financial statements, including the balance sheets, have derived from actual financial transactions recorded, at least in the latter years, in the MYOB records. Further, the general methodology seems to be confirmed by the examination of the financial records by a forensic accountant called by the defendants, Mr Rands. Mr Rands made a number of calculations, some of which will be discussed shortly. His calculations utilise the source records referred to above. To this extent, there cannot be any real doubt that the loan account establishes the existence of an actual debt. This was not really in dispute in these proceedings. The primary issue is the reliability of the quantum of the loan account, having regard firstly to the validity of the trust distributions and, secondly, to other accounting entries which have significantly increased the loan account, but which, the defendants assert, do not reflect actual underlying financial transactions.
[32]
The trust in this case can be generically described as a discretionary family trust. Such trusts are usually created for estate planning and taxation purposes. From a pragmatic point of view, the crucial feature of the operation of such a trust is the discretionary periodic distribution of income among the beneficiaries, usually in a tax efficient manner.
The distribution of trust income under this trust deed is provided for in cl 4 as follows:
[33]
"4 (i) The Trustees shall in each accounting period until the Distribution Date pay apply or set aside the whole or such part or parts (if any) as they shall think fit of the NET INCOME of the Trust Fund of that accounting period for such charitable purposes and/or to or for the benefit of or for all or such one or more exclusive of the others or other of the General Beneficiaries living from time to time in such proportions and in such manner as the Trustee shall (after consulting with the Guardian or Guardians and after taking into account his her or their wishes but not being bound thereby) in their sole and absolute discretion determine and the Trustees shall not be bound to assign any reason therefore and any amounts set aside for any General Beneficiary as aforesaid shall not form part of the capital of the Trust Fund as defined in Clause 1(6) hereof but shall upon such setting aside be thenceforth held by the Trustees as a separate trust fund on trust for such General Beneficiary absolutely with power to the Trustees pending payment over thereof to such General Beneficiary to invest or, apply or deal with such fund or any resulting income therefrom or any part thereof in the manner provided for in Clause ? (d) hereof.
[34]
(ii) The Trustees shall hold so much of the income of the Trust Fund as the Trustees shall not pay apply or set aside pursuant to the powers contained in paragraph (i) of this Clause in trust for the persons successively described in paragraphs (a) (b) (c) and (d) of Clause 5 hereof as though each date on which such income becomes subject to the trusts hereof were the Distribution Date.
[35]
(iii) Notwithstanding anything contained in paragraphs (i) and (ii) of this Clause the Trustees may in their absolute and uncontrolled discretion before the expiration of any accounting period determine to accumulate all or any part of the income arisen or arising during such period and such accumulation shall be dealt with as an accretion to the Trust Fund."
[36]
The primary beneficiaries of the trust are John, the plaintiff and each of their children. The definition of "general beneficiaries" includes "the brothers and sisters spouses and children" of the primary beneficiaries and their "spouses and children".
I will return to the operation of cl 4 shortly. For present purposes, I note cl 4(ii), which the parties have referred to as the default provision. It seems uncontroversial that the effect of that provision is that any income not paid, applied, or set aside by the trustees in favour of beneficiaries under cl 4(i) or accumulated into the trust fund under cl 4(iii) is to be held by the trustee upon trust in equal shares for each of the primary beneficiaries.
It is worth pointing out that there does not seem to be any express restriction upon the exercise by the trustee of the discretion provided by cl 4. This is customary in a discretionary family trust. There is a significant body of case law which establishes the wide and unfettered nature of such a discretion, provided it is exercised in good faith: see for example, Re Gulbenkian [1970] AC 508.
I am satisfied that the evidence establishes that the usual practice was that a decision about the distribution of trust income by the first defendant as trustee was made by John in consultation with the accountant, at the time of preparation of the end of year financial statements and taxation returns relevant to the company and the trust, for the financial year in question. As would be expected, this generally took place some months after the end of the financial year, when according to the testimony of Karyn, John would take the financial accounts and visit the accountant. This pattern of decision-making can be inferred from Karyn's evidence and a review of the financial records of the company and the trust, as well as the files of the accountant, Mr Reade, for the relevant years. The accountant's files contain, for each year, various declarations and minutes, obviously associated with the financial statements and tax returns. In most years, the documents contain what purports to be a minute of a meeting of the "Board of Directors of Saltwood Pty Ltd As Trustee of the JD McCarthy Family Trust". The date of the purported meeting shown on such documents is at a time which, it can be inferred, was relevant to the preparation of the statements and tax returns. The minute invariably purports to record the following:
[37]
"The directors noted the following distribution to the beneficiaries for the year:"
[38]
and then sets out the name of the beneficiary and an amount. The minutes for each relevant year until 2013 record John as the only person present at the meeting. Those minutes also record that he was appointed chairman of each meeting. There is provision for the chairman to sign the minute. Only one of the minutes is actually signed by John, that dated 27 February 2013. For the year ended 30 June 2014, the minute in question depicts the only person present as the plaintiff, with the plaintiff appointed chairman of the meeting. It appears that the plaintiff has signed the minute. That meeting is dated 11 May 2015. As already noted, the distribution for the 2015 financial year was pursuant to a decision taken at a meeting on 19 September 2015, attended by Andrew, Karen and the plaintiff.
[39]
In each financial year between 2003 and 2014, the records contain a further minute of a "resolution under s 255 of the Corporations Law". This resolution refers in part to the financial statements and directors' report being received and adopted by shareholders. For each of the said financial years to 2013, the only shareholder to sign the relevant minute is John, and for the 2014 financial year, the plaintiff.
An issue arises as to the nature of the decisions made by John in consultation with the accountant in each year as recorded in the said minutes. In particular, the question arises as to whether John was making those decisions, as a director of the company, in order to resolve that the company would distribute trust income in the manner indicated for the relevant year. Mr McTaggart SC argues that I should not make such a finding. He argues that the minutes disclose only a notation by John that amounts were actually distributed during the year, and are not intended to record a resolution of the company that such distribution is to be made pursuant to cl 4 of the trust deed. His reference to actual distribution seems to relate to the amounts actually paid to or on behalf of John and the plaintiff during the year, which were recorded in the two accounts already discussed. He also argues that I should not accord any evidential value to the unsigned minutes, and that I should infer from the absence of signed copies in Mr Reade's files, that the original minute was never signed. I assume that the point of this submission is that I should not be satisfied that the recorded meeting took place. He relies on the fact that the plaintiff "failed to call" Mr Reade to confirm that the meetings in question took place.
I reject those submissions. It is clear that the intention of the minute was to record a decision by directors of the first defendant as to how the income of the trust for the financial year in question was to be distributed. There would have been no point in a mere notation. The wording of the minute is clearly intended to communicate the adoption of a resolution on behalf of the company. Further, the amounts recorded in each minute are not limited to the aggregate of the various distributions and payments made to and on behalf of John and the plaintiff during the relevant financial year. On the contrary, they correlate directly, in most cases, to the quantum of the trust income assessed at the time of preparation of the relevant documents by the accountant. They are also consistent with the movement of money within the various accounts, including the loan account, apparently in response to such resolutions. In my view, they clearly evidence a purported decision by John as a director of the company to resolve how the trust income is to be distributed, so that those sums can be included in the financial statements and tax returns. This would accord with what one would expect would take place in the circumstances. I infer this as a fact notwithstanding the absence of complete records and signed minutes for each relevant year. I am satisfied, on the basis of the material in the accountant's files, as well as Karyn's evidence about John's practice of visiting the accountant each year to finalise the accounts, and the overall pattern of operation of the trust in the financial statements, that John conducted such meetings and did so for the purpose of distributing the trust income. As I have already noted, the drawings and other payments actually made during the year were undoubtedly in anticipation of this distribution, but are not treated in the accounts as a distribution. They are shown as debits in the loan account, and are balanced against the trust distributions credited to that account. This is consistent with the decision about distribution being taken at the end of the year, at the time of preparation of the final statements and taxation returns.
[40]
The validity of the purported distributions - financial years 2004 to 2014
[41]
The focus of the argument at trial concerning the purported distributions in each year did not relate to whether the purported distribution was within the ambit of the trustee's discretion, but rather whether the trustee lawfully made the relevant decision. The defendants' argument is that these resolutions, if made, are invalid because of the lack of the requisite quorum (at least two directors), and the lack of notice of the meeting to Andrew and Karen. It is also argued that the exercise of discretion to affect a distribution under cl 4 must be made before the end of the relevant financial year, and that this did not occur in any of the relevant years. The defendants argue that the invalidity of these decisions results in the application of the default provision with respect to the trust income in each year.
It would seem beyond argument that the circumstances in which the purported resolutions which gave effect to the distributions during the said years were made, did not comply with the relevant provisions of the Articles of Association for the conduct of business by directors. Clause 68 of the Articles provides that the business of the company shall be managed by the directors. Clause 82 provides that the directors may meet for the purpose of despatching business, and any question arising from the meeting shall be decided by the majority of votes. Clause 83 provides that the quorum necessary for the transaction of the business of directors shall, unless fixed otherwise, be two. There is no specific provision in the Articles for notice of the meeting, but s 248C of the Act requires reasonable notice of a directors' meeting to be given "individually to every other director". Clause 92 provides that a memorandum in writing signed by all directors shall be effective for all purposes as a resolution of directors passed at a duly convened meeting.
It is obvious on the face of the records that the relevant meetings did not comply with the legal requirements in respect of quorum and notice. It was faintly suggested that John may have discussed the distributions with the plaintiff from time to time and, accordingly, conducted a meeting with a quorum of two on that basis. Even if that had taken place, it would not satisfy the requirements of the Articles. Andrew and Karen were entitled to be given notice of the meetings and to attend and vote if they wished. In any event, the resolutions do not record the plaintiff as being present at the meeting. Further, the plaintiff did not give any evidence that she had discussed these resolutions with John, nor any other evidence which would support her involvement in the relevant resolutions. She could easily have given this evidence if she was able to do so. I infer that nothing that she could have said in sworn evidence would have assisted her case in this regard (see ;
[42]
"I fully trusted dad. My knowledge of accounting is very limited. I did the farm work. I left the accounting to the professionals."
[43]
He reiterated these sentiments on a number of occasions. It would seem that his reference to "professionals" included his wife Karyn, because he acknowledged that she was involved in bookkeeping for the trust.
The assertion of invalidity on the basis of a lack of quorum and a deficiency of notice of meetings, makes relevant the provisions in s 1322 of the Corporations Act. That section, insofar as it is relevant, provides as follows:
[44]
"(1) In this section, unless the contrary intention appears:
[45]
(a) a reference to a proceeding under this Act is a reference to any proceeding whether a legal proceeding or not; and
[46]
(b) a reference to a procedural irregularity includes a reference to:
[47]
(i) the absence of a quorum at a meeting of a corporation, at a meeting of directors or creditors of a corporation, at a joint meeting of creditors and members of a corporation or at a meeting of members of a registered scheme; and
[48]
(ii) a defect, irregularity or deficiency of notice or time.
[49]
(2) A proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid."
[50]
The adoption of a resolution at a meeting of directors is a proceeding for the purposes of this section. See City Pacific Limited v Bacon (No 2)[2009] FCA 772, 178 FCR 81. Further, the absence of a quorum at a meeting of directors, and the failure to give notice of the meeting, each appear to fall under the definition of a procedural irregularity, contained in s 1322(1)(b). The apparent effect of s 1322(2) is that the adoption of the resolutions concerning the distribution of income are not invalidated by the lack of notice of the meeting nor the failure to achieve a quorum, unless I am of the opinion that the irregularity has caused, or may cause, substantial injustice. However, in this case, the defendants argue that I should not regard the absence of a quorum and the failure to give notice of the meetings to Andrew and Karen in the relevant years as procedural irregularities for the purpose of this provision, because they arose from a deliberate choice by John to exclude the other directors from decision-making in respect of the distribution of trust income. Reliance is placed on a line of authority, which includes Re P W Saddington & Sons Pty Ltd(1990) 19 NSWLR 674. In that case, Young J said, in relation to s 539 of the Companies Code (NSW), a precursor to s 1322, that:
[51]
"... I am quite sure that is 539 does not cover the situation where parties actually know that the meeting that they are convening is invalid and attend to purport to pass resolutions which they know can only have any validity at all if the court acts under S539. A deliberate choice to convene an invalid meeting is not a procedural irregularity within s 539."
[52]
However, in Whitehouse v Capital Radio Network Pty Ltd[2004] TASSC 12, 13 Tas R 27, Cox CJ, one of a bench of two constituting the Full Court, did not disagree with the view of the primary judge that:
[53]
"... there is no warrant for writing words into s1322(1) and (2) that are not there and with his conclusion that the absence of a quorum at the meeting of directors of 11 April 2002 was a procedural irregularity within the meaning of s1322(2) even if:
[54]
the meeting was called in the knowledge that it was extremely unlikely that there would be a quorum;
the purpose of calling the meeting was to attempt to circumvent the effect of the orders made in the Family Court; and
the meeting proceeded in the full knowledge of those present that there was no quorum ([2002] TASSC 78, par34)."
[55]
His Honour refused to follow the line of cases upon which the defendants rely and preferred instead the "liberal approach to s 1322" taken in cases such as Re Clearwater Pty Ltd (1981) 6 ACLR 210; Re Broadway Motors Holdings Pty Ltd (in liq)(1986) 6 NSWLR 45; Sydar Pty Ltd v K Simmonds Finance Pty Ltd(1995) 16 ACSR 384; Mamouney v Soliman (1992) 9 ACSR 63 and Re Pembury Pty Ltd [1993] 1 Qd R 125. Slicer J found it unnecessary to resolve the conflict in the authorities, but indicated that, if required to do so, he would "prefer the more liberal approach". I take a similar view, and will follow the approach of Cox CJ. It seems to me that the plain meaning of the words of the section is clear. I proceed on the basis that an irregularity of the nature defined by s 1322(1)(b), is a procedural irregularity for the purposes of the section, irrespective of the fact that it results from deliberate choice, rather than as a result of inadvertence or accidental non-compliance. Of course, it is not clear that the relevant irregularities in this case did arise as a result of deliberate choice, rather than a mistaken view of the relevant requirements based on the advice of the accountant, but that matter does not need to be resolved. The definition will apply in either event.
A further argument advanced by Mr McTaggart is that I should not have regard to s 1322(2) in the determination of this case, because it was not put in issue at trial, and in particular was not pleaded by the plaintiff in response to the defendants' plea that the resolutions distributing the trust profit were invalid. Hence, it is argued, irrespective of the apparent application of the provision to the circumstances of this case, it is unfair to permit the plaintiff to rely on the provision because the defendants were deprived of the opportunity to deal with the issue by evidence or submissions.
It is true that the plaintiff did not refer to this provision in her pleading in response to the defendants' plea of invalidity. This is conceded by Mr Bigmore. He acknowledges that the plaintiff "has not hitherto averted to s 1322". He makes the point, however, that the plaintiff is not making an application or seeking relief under the provisions of s 1322(4), but rather is entitled to rely upon the "automatic validation effect of s 1322(2)". I agree with this submission. The formulation of s 1322(2) is in mandatory and absolute terms. If applicable, the provision renders a proceeding valid, notwithstanding the said procedural irregularities unless the exception is engaged. , ; , The onus of establishing substantial injustice is on the person alleging it; in this case the defendants: see In these circumstances, it was not necessary for the plaintiff to plead or expressly advert to or rely upon that provision. The plaintiff based its case on reliance on the contents of the financial statements taken at face value, having regard to the provisions of s 1305. The defendants met this with a claim of invalidity. In the circumstances of this case, s 1322(2) automatically negates invalidity on the bases relied upon by the defendants, unless the exception is established. The onus of establishing the exception was squarely on the defendants. If the defendants intended to rely upon this exception, it was for the defendants to plead and adduce the evidence necessary to support that outcome. Accordingly, I reject Mr McTaggart's submission. It follows that the question for me is whether the defendants have, on the evidence adduced at trial, established that the procedural irregularities have caused or may cause substantial injustice.
[56]
The defendants also rely upon the timing of the purported distributions in support of their claim that those distributions are invalid. This argument relates to each financial year between 2004 and 2015. It is based on the wording of cl 4(i) of the trust deed which provides for the trustee in each accounting period, topay apply or set aside the whole or such part or parts (if any) as they shall see fit of the net income of the trust fund of that accounting period for the benefit of one or more of the beneficiaries. "Accounting period" is defined in cl 1 to mean "each period of twelve months ending on thirtieth of June in each year". It is submitted that the words "in each accounting period" impose a strict time requirement and that compliance is only achieved if the resolution is made within the financial year relevant to the distribution.
Whether the words "in each accounting period" impose a strict time limitation will depend upon an assessment of the settlor's intention, determined by reference to the terms of the trust deed. The discretion conferred on the trustee to distribute income pursuant to cl 4 can be appropriately described as a mere power. It is so described because it affords not only discretion as to how, but also as to whether to distribute the trust income in any particular financial year. It is well-established that such a power can be limited by temporal restrictions contained in the trust deed and, in the absence of such restrictions, a requirement to exercise a power within a reasonable time may be implied from the terms of the trust instrument. Such a power can be distinguished from a trust power, under which the trustee is obliged to distribute income, but with a discretion as to how that distribution shall take place. The duty arising under such a power remains effective irrespective of a time limitation. See Re Lockyer's Settlement[1977] 1 WLR 1323.
The discretion afforded to the trustee under cl 4(i) is to "pay apply or set aside the whole or any part ... of the net income of the trust fund ...". "Net income" is not defined, but cl 1 defines "Income" to include "anything which is treated as assessable income under" applicable taxation legislation. Having regard to this definition and the overall context, the term "net income" can only mean the result of a calculation whereby the aggregate gross assessable income of the trust over the whole financial period is reduced by the expenses of the trust incurred in deriving that income, which are properly deductible under the applicable taxation legislation. Income, as defined, will presumably be received by the trust incrementally throughout the financial year, but net income can only be determined at the conclusion of the year. The nature of the calculation required to determine that result necessarily requires consideration of the aggregate of income and expenses over the whole financial year.
[57]
As I have already observed, the net profit of the trust for the 2015 financial year was $161,072.58. This sum was purportedly distributed equally between John and the plaintiff, pursuant to a decision taken at a directors' meeting on 11 September 2015. Mr Rands' calculation in Appendix 7B assumes and takes into account the valid distribution to the plaintiff of the entire profit of that year. I note also that this sum was actually paid to the plaintiff, and the calculation also takes this payment into account.
A discrete issue arises with respect to the validity of this distribution. Clause 4(i) only permits distribution "... to or for the benefit of ... General Beneficiaries living from time to time ...". However, John had passed away on 27 March 2015, well before the purported distribution in his favour.
There is merit in this argument. It is clear from the terms of the provision that the trustee's power to distribute income is confined to doing so for the benefit of those beneficiaries who are alive at the time of distribution. Prior to distribution, a beneficiary does not acquire a legal interest in the property, including the income of the trust fund, beyond a right to have the trust administered in good faith. This does not amount to an interest in possession, but rather is a right described as a mere expectancy. See Gartside v Inland Revenue Commissioners (UK)[1967] UKHL 6; [1968] AC 533, [1968] 2 WLR 277, Lord Reid at 607 (AC); Pearson v Inland Revenue Commissioners (UK)[1981] AC 753, [1980] 2 WLR 872; Queensland Trustees Ltd v Commissioner of Stamp Duties[1952] HCA 52; (1952) 88 CLR 54; The terms of the trust deed have the effect that the expectancy that John had with respect to a distribution of income during his lifetime, did not survive his death.
[58]
The defence argues that irrespective of the validity of the purported distributions of income, and notwithstanding the prima facie evidence afforded by the books of the company, I should not be satisfied generally as to the accuracy of the financial records. This argument amounts to an assertion that the loan account balance does not properly reflect the balance due after calculation of income which has been paid, applied or set aside for John and the plaintiff in accordance with the trust deed, less money already paid to them or on their behalf. In support of this argument, Mr McTaggart points to examples in the calculation of the loan account for some of the relevant financial years which would seem inconsistent with the methodology required by the trust deed.
The particulars of this argument are as follows:
Mr Rands expressed the opinion that according to the balance sheets of the company and the trust in each of the 2011, 2013 and 2014 financial years, the loan account had increased by a sum which exceeded, to a considerable extent, the net profit of the trust for the year in question. In the 2011 financial year, the balance of the loan account increased by $175,259 notwithstanding that the net income of the trust was $35,037. In the 2013 financial year, the increase was approximately $102,000 despite a net income of $18,156, and in 2014, the increase was approximately $229,000 compared to a net income of $60,409. Mr Rands, after reviewing the financial records, was unable to explain these discrepancies. He noted relevant journal entries, which, in his opinion, provided a "mechanical description" of the increase in the loan account. He concluded that the increases were related to certain asset movements and the loan account had been used as a "reconciling account" because "the credit had to go somewhere", and this use of the loan account provided a preferable solution for taxation purposes. The ultimate point of this evidence was that the said increases in the loan account could not be explained on the basis of money set aside for John or the plaintiff as a discretionary distribution under the trust deed.
There is also an issue about the balance sheet in an earlier year which shows loan accounts in favour of each of the children. In subsequent years, these loan accounts disappear and seem to have been absorbed into the joint loan account of the plaintiff and John. There is no apparent explanation or legal basis for such transactions.
[59]
By way of counterclaim or set off, the defendants allege that the plaintiff has in her possession a sum of money which is, in fact, money which belongs to the trust. The defendants assert that between 2010 and 2011, the trust purchased a motor vehicle and some buildings in kit form on behalf of Mark McCarthy. According to Andrew's evidence, Mark was at the relevant time in receipt of a disability pension, having previously suffered a workplace accident. The buildings were erected on his property and he had and still has the use of the motor vehicle.
The FADAC asserts specific payments by the trust to acquire this property. In particular, it is claimed that the trust purchased the Mazda vehicle on 15 October 2010 for the sum of $35,000, and paid an aggregate of $54,913.13 for the buildings, by way of four separate payments between 15 October 2010 and 31 August 2011. It is claimed that Mark has repaid both sums in full, a total of $81,739.21, by payments of cash directly to the plaintiff, which she has not paid or accounted for to the trust. The defendants assert that the plaintiff therefore remains indebted to the trust in that sum.
The plaintiff by her pleadings, does not admit the alleged payments by the trust and denies the remaining allegations.
The only evidence adduced by the defendants to prove the assertion that the plaintiff is holding money paid to her and/or John by Mark comes from the testimony of Karyn, supported in some respects by that of Andrew. This evidence confirms the purchases by the trust, Mark's possession of the vehicle and the erection of the buildings on his property. Karyn also confirmed that the trust had not been reimbursed for these payments. She said that during a discussion in Mr Reade's office on 19 September 2019, presumably during the directors' meeting on that day, the plaintiff requested that the vehicle be removed as an asset in the trust's books because Mark had paid for it. She "referred to the cash in the safe that Mark had paid for the vehicle ...". A note that Karyn had made at the time of the conversation was placed in evidence. The notations contained in the note are "cash at EB's, Mark's vehicle" and "$10503 - WDV. Mark's ute". The notations also refer to the credit of "Asset sales" and the debit of the loan account. Karyn also said that on one occasion in January 2015, she saw "lots of documents and wads of cash" in a safe at the plaintiff's house.
[60]
By her pleadings, the plaintiff admits that she withdrew the sum of $455,000 from the trust bank account on 18 February 2016. She concedes that she holds this amount on behalf of the trust and that it forms part of the corpus of the trust, although it is submitted by Mr Bigmore that the sum should be reduced by a portion taken by the Commissioner of Taxation for tax for which the trust was liable. It would seem on its face that such an adjustment is appropriate. I conclude that the plaintiff is liable to refund to the trust the difference between the adjusted sum and the balance of the loan account, calculated and adjusted as described above. This calculation can be expressed as follows:
[61]
Balance Loan Account as at 30 June 2015 (as per Appendix 7B, Mr Rands) $433,183
[62]
Less Invalid Distribution to John in respect of 2015 fy $80,536
[63]
Plus plaintiff's share of invalid distribution per cl 4(ii) To be determined.
[64]
The defendants have claimed interest by way of equitable damages in respect of monies found to be due by the plaintiff to the trust. In my view, this claim is justified, but only in respect of the sum which the plaintiff is liable to refund in accordance with the said calculation.
There may well be other appropriate adjustments. For this reason, I was asked by the parties to pause at the point of making determinations about the questions discussed above, before making any final orders consequent thereon. I think this course is appropriate in the circumstances. I will accordingly hear from counsel as to these further issues and the ultimate disposition of the case, before proceeding further.
Parties
Applicant/Plaintiff:
McCarthy
Respondent/Defendant:
Saltwood Pty Ltd [2020] TASSC 19
Cases Cited (4)
(1959) 101 CLR 298
(1990) 19 NSWLR 674
(1986) 6 NSWLR 45
(1952) 88 CLR 54
AI Analysis
Outcomemixed
Disposition:
The court rejected the timing and quorum/notice challenges to the earlier distributions, found the 2015 distribution to John invalid, and accepted an adjusted loan-account calculation subject to further adjustment. It indicated that the plaintiff must refund to the trust the difference between the tax-adjusted $455,000 and the amount ultimately established as due to her, with equitable interest on the amount refundable. It did not make final orders and reserved further calculation and disposition issues.
The plaintiff claims the payment to her of the current balance due under the loan account. In effect, this is the balance disclosed in the financial statements of the first defendant as at 30 June 2015. It is common ground that there has not been a distribution of trust income to the plaintiff since then, although there have been some subsequent payments to the plaintiff on account of the debt due to her. The plaintiff relies solely on the contents of the books of the first defendant to support the existence and quantum of the debt. She asserts that these are prima facie evidence of the matters stated or recorded therein, by virtue of the provisions of s 1305 of the Corporations Act2001 (Cth) (the Act). The plaintiff did not give or adduce oral evidence at the trial. She also seeks declarations and orders, in the nature of equitable tracing, which will give effect to the recovery of that money from the corpus of the trust, having regard to her claim that the corpus has been significantly depleted by the transfer of the farming properties from the trust to Andrew after John's death, without consideration. Although some evidence was presented at the trial concerning the tracing issue, the parties took a common position that that issue could not be resolved until I had determined what, if any, money was owed by the trust to the plaintiff, pursuant to the loan account. The parties agreed to defer the tracing question accordingly.
The defendants raise a number of issues with respect to the trust's asserted liability to the plaintiff pursuant to the loan account. Those issues are:
The defendants do not dispute as a matter of principle the existence of a longstanding joint loan to John and the plaintiff, which accumulated or decreased according to the methodology already described, and which was recorded and evidenced in the financial records by the joint loan account. The defendants accept the accuracy of the balance of the loan account as recorded in the financial records of the company on 30 June 2003. The balance at that time was $684,438. There was no attempt by the defendants to displace the prima facie position established by the records as at this date. However, thereafter, the reliability and accuracy of the records, in particular as they relate to the loan account, is in issue.
The primary issue raised by the defendants with respect to the calculation of the loan account concerns the validity of the purported distributions of trust income to John and the plaintiff by the first defendant between 2004 and 2015. It does not seem to be disputed on the pleadings that purported distributions were made in respect of each year during this period and that these, at least in part, explain the creation of the loan account. However, the defendants claim that each of these purported distributions was invalid and ineffective because:
The trust deed requires that the distribution be made within the financial year to which it relates, and each distribution was made well after the end of the said year.
The distributions were not made as a lawful act of the company. In particular, although in some years, there were purported resolutions of the directors of the company, which appeared on their face to make the distributions, these were not made at lawfully constituted meetings of directors. During the relevant period, there were four directors of the first defendant, John, the plaintiff, Andrew and Karen. However, each resolution appears to have been made at a meeting constituted only by John, and in one case by the plaintiff, and without notice to Andrew or Karen. In relation to the meetings prior to John's death, there is no evidence about the involvement of the plaintiff, one way or the other. Accordingly, the defendants assert that the meetings, and resolutions made at them, were unlawful because of the lack of a quorum and the deficiency of notice. Further, the defendants assert that, at no time, was any attempt made by John or the plaintiff to discuss these distributions with Andrew or Karen, even to obtain their informal agreement.
The defendants assert that, in any event, the financial records of the first defendant relied upon by the plaintiff are not reliable and do not permit a finding on the balance of probabilities that a debt is due to the plaintiff pursuant to the loan account in the stated amount. The defendants point to a number of examples of increases in the loan account well in excess of the aggregate income earned by the trust in the relevant financial period, and which do not have any other legitimate explanation. It is also alleged that loan accounts due to other members of the family have unilaterally, and without apparent justification or excuse, been incorporated into the joint loan account relating to John and the plaintiff. It is suggested that the loan account benefited from accounting entries, instigated by John in consultation with the company accountant, and which did not properly reflect lawful financial transactions.
There are, in any event, sums of money which need to be taken into account as money already received by the plaintiff on account of the trust's indebtedness to her. These include monies received by way of drawings and expenses not properly reflected in the financial statements.
The defendants also claim that the plaintiff has in her possession money which belongs to the trust. It is common ground that one such sum includes money drawn by the plaintiff from the trust bank account after John's death in the sum of $455,000. This money is still held by the plaintiff in a bank account in her name. The defendants claim that the plaintiff should account to the trust, by way of equitable damages, for interest which the trust would otherwise have earned in respect of that money. The defendants also claim that the plaintiff holds a sum of $81,739.21, which is located in a safe in the plaintiff's home and is money received by her from another child, Mark McCarthy, as payment for the purchase by him of property owned by the trust, including a motor vehicle and buildings. This money is termed in the pleadings "the Karoola safe money".
Karyn's evidence is consistent with the contents of the financial records insofar as they have been made available to me. For example, entries in the general ledger for each relevant year show various payments made to or for the benefit of John and the plaintiff. Having regard to the evidence of Karyn, it is a reasonable inference that those entries record actual transactions, which ultimately were properly debited against the loan account. There is also no reason to doubt that the end of year financial statements accurately reflect the entries made in these records.
The prima facie position in respect of the loan account at the conclusion of the relevant period is as follows. According to the balance sheet of the company, the balance of the loan account as at 30 June 2014 was $1,412,231. It is common ground that payments of cash made to the plaintiff in the 2015 financial year reduced this balance. However, on 19 September 2015, at a directors' meeting attended by Andrew, Karen and the plaintiff, it was resolved to make the following distributions from the net income of the trust in the 2015 financial year, $80,536 to John and $80,535 to the plaintiff. Of course, John had passed away by this time. In the end of year financial statements of the trust, these distributions are reflected in a loan account in the name of the plaintiff only in the combined sum of $161,072.58. This sum was actually paid to the plaintiff by cheque on 25 September 2015. The balance of the joint loan account is disclosed in the balance sheet of the trust as $1,087,313.07. The combined total of the loan accounts as at 30 June 2015 was therefore $1,248,385. This aggregate sum is shown as the balance of the joint loan account in the company balance sheet for the 2015 financial year.
On 8 February 2016, some further payments were made to the plaintiff by the company. The circumstances in which these payments were made were that on that day, Andrew and Karyn met with the plaintiff and provided her with two cheques, one in the sum of $252,035.83 and the other $30,451. According to the evidence of each, the sums had been calculated by Mr Reade, as the correct final balance of monies due and payable by the company to the plaintiff under the loan account. Although the evidence of both Andrew and Karyn is that they were not aware how this amount had been calculated, but simply relied on Mr Reade in that regard, an extract from the general ledger of the company for the 2016 financial year (Exhibit P9) provides some explanation of Mr Reade's calculation. The ledger entries include a number of adjustments to the loan account throughout the financial year. For the most part, there is nothing controversial or unusual about the entries, and they accord with the methodology already described. However, one is of particular significance. A debit of $791,698 is shown as the written-down value of land assets said to have been transferred from the company. There is no doubt that as part of the administration of John's estate, various parcels of land which constitute the farm were transferred to individual members of the family, including Andrew. The said sum seems to represent the value of the transferred land shown at cost, and not adjusted for increases in value over many years. There is no direct evidence as to why Mr Reade entered this sum in the ledger as a debit against the joint loan account. Karyn, in her evidence, accepted that Mr Reade had explained to her that the transfer of the land to Andrew meant that it needed to be purchased back into the deceased's estate from the trust. Presumably, it was considered by the accountant that the debit entry in the loan account represented payment of the purchase price. When it was suggested to Karyn in cross-examination that this must have seemed preposterous to her at the time, she replied that she did not understand Mr Reade's explanation. In any event, it is clear that Karyn reversed this entry by showing the said sum as a credit in the relevant ledger. That reversal is dated 30 June 2016. Karyn said she did this because she had received legal advice that Mr Reade's treatment of the debit was incorrect. After taking this reversal into account, the records show the balance of the joint loan account was reduced by actual payments to or on behalf of the plaintiff during the 2016 financial year, from $1,087,313.07 at the start of the year to $791,698 at its end.
It is common ground that after these payments, no further payment has been made to the plaintiff by the company or trust. However, in February 2016, the plaintiff withdrew $455,000 from the trust bank account. It is common ground that this sum, although it is in the plaintiff's possession, is money that is owned by the trust.
Towards the end of the trial, the plaintiff amended her pleadings to accord with the said ledger entries and, in particular, Exhibit P9. Although the plaintiff did not abandon her claim to a higher sum, the realistic position adopted in closing submissions by Mr Bigmore was that the amount due was the balance of the joint loan account demonstrated by the general ledger, $791,698. I accept that the prima facie balance of this account is demonstrated by Exhibit P9. The undisputed evidence is that a balance sheet has not been prepared for the company or the trust for the 2016 financial year or later. The defendants say this is because the proper balance of the loan account is in dispute. Of course, the real question is whether the debt exists and if so its quantum, having regard to all of the evidence, including the financial records.
Of course, the absence of other directors at such meetings is a matter which potentially affects the validity of resolutions adopted at the meetings. However, that fact is also consistent with the history of the family, and in particular, the nature of John's role as the family patriarch and determining mind of the entire farming operation, including the company and the trust. The absence of other directors does not detract from the inference that John was purporting to make these decisions on behalf of the company. The fact that he did so alone when he went to see the accountant about the family finances, is entirely consistent with the overall history of the operation of the family, and supports rather than detracts from a conclusion that these were distributions of trust income purportedly made under cl 4 of the trust deed. Whether they were validly so, however, is a different question.
The conclusion that decisions relating to the purported distribution of income under the trust deed were made by John alone is consistent with the oral testimony of Karen and Andrew. Karen's evidence was that she did not attend directors' meetings during the relevant period, did not have any involvement in resolutions to distribute trust profit, and was not consulted in respect of those questions by John. The first time that she saw the trust deed or the constitution of the company was at the end of 2015. She was not given notice of any directors' meetings, and was not involved in the preparation of financial reports for the company or the trust. In relation to the 2014 financial year, she was not present at, nor given notice of the meeting of 11 May 2015. However, she was present at and participated in the meeting on 19 September 2015. In cross-examination, she said that over the years she had participated in discussions with her father about the running of the farm, but not her mother because it was her father who ran the business. She knew that he would go to the accountant every year to arrange for the preparation and creation of the financial reports. She did not receive a copy of those reports, but did receive the signing pages, which she duly signed. The pages came from her mother. When asked whether she could say who made decisions relating to the allocation of profits, she replied, "It would have been dad". She did not believe he would have discussed that question with her mother.
Andrew's testimony was that although he was directly involved in the operation of the farm from 1987 onwards, he left the financial aspects of the operation to his father. He was not given notice of, nor did he attend directors' meetings, and did not have any involvement in the preparation of the financial reports, nor decisions about the distribution of the profits of the trust. When asked whether he left everything of a financial nature to his father, he said:
SGIC Insurance Limited v Insurance Australia Limited
The substantial injustice in question must arise from the procedural irregularity itself, and not from the result or outcome of the relevant proceeding. Whitehouse v Capital Radio Network Pty Ltd[2002] TASSC 78, 21 ACLC 17; Re Pembury Pty Ltd (above), Chalet Nominees (1999) Pty Ltd v Murray (above). Accordingly, in the circumstances of this case, it would be necessary for the defendants to show that substantial injustice arises from the fact that John made these decisions alone at a meeting of which the other directors were not given reasonable notice. This injustice must arise irrespective of the nature or effect of the decision made by John in respect of the distribution of trust income.
Having regard to the circumstances in which John made the relevant decisions on behalf of the company, I am not satisfied that the irregularities relied upon by the defendants caused or may cause substantial injustice within the meaning of the said provision. The critical factor in this determination is that it is apparent from the evidence of Karen and Andrew that they were, throughout the relevant period, well aware that the decisions in question were made by John, in consultation with the accountant, on a yearly basis and were, I conclude, content with that arrangement. There is no suggestion by either Andrew or Karen that he or she requested access to the financial reports, or made any effort or request to attend the accountant with their father, review any of the relevant material prior to preparation of the documents, or indeed play any role at all in respect of the financial affairs of the company and the trust, including for preparation of the end of year financial accounts. Each was content to simply sign off on the signing pages given to them. It may well be that this attitude arose because John was their father and the directing mind of the farming operation. It is clear that the family relationships resulted in trust and deference on the part of each towards John. However, throughout the relevant period, Karen and Andrew were adults and directors of the company. Each of them had individual responsibility as a director. It is not useful nor relevant to speculate on their reasons for adopting a passive approach to their role as a director of the company. There was no evidence adduced from either of them to explain this. The fact of the matter is that each was aware that these decisions were being made by John when he consulted the accountant at the time of preparation of the relevant documents for each year, and each was content for these decisions to be made by him. It is probable that each would have had a reasonable understanding of when the meeting with the accountant was to take place and the relevant decision was to be taken, or at the very least, could have made enquiry about those events. There is no suggestion that either ever made such an enquiry. In these circumstances, there is no basis for a finding that the said irregularities have caused substantial injustice.
The defendants argue that injustice arises from the fact that John's decisions did not take into account the interests of all beneficiaries, including the other children of John and the plaintiff and others included in the class of general beneficiaries. However, there is no evidence to support this contention. Further, it seems to me that that argument, in fact, asserts unfairness as to the nature and consequences of the decisions taken by John, rather than injustice arising from the procedural irregularities themselves. As I have already noted, there is a critical distinction to be made between these concepts. I reiterate my satisfaction that the procedural irregularities did not cause substantial injustice.
It follows that the proceeding in each of the relevant years, in particular the adoption of the relevant resolution at the meeting, is not invalidated because of the absence of a quorum nor deficiency in notice of the meeting.
It would seem impossible, therefore, to make a decision about paying, applying or setting aside the net income for the financial year until the year is complete and the calculation of net income is possible. It was suggested in argument that distributions by resolution within the financial year could be achieved prior to the calculation of the net income for that year, by using percentages of the anticipated net income to determine its distribution. This is apparently a common requirement of modern discretionary trust deeds, and is utilised to comply with expectations of the Commissioner of Taxation arising from requirements of taxation legislation. I do not think that taxation requirements or expectations, now or even in the relevant past, are of any significant assistance in construing the terms of this trust deed. The Commissioner's expectations relate to and reflect statutory provisions affecting the derivation of income in the year of assessment for tax purposes. It may well be that modern trust deeds are drafted to reflect those expectations, but I was not referred to contemporary taxation expectations nor given any other basis that would make relevant such considerations in respect of the words used in this trust deed.
In any event, such methodology does not accord with the mechanisms implied by the definitions in the trust deed. The definition of "set aside" requires the placement of "sums" to the credit of a beneficiary in the books of the fund. By that definition, this is not an amount actually paid, but rather "a sum" noted as a credit in the books in favour of the recipient beneficiary. It is possible of course to make such notations on an incremental basis within a financial period in respect of "income" as defined, but if the "sum" is to derive from the whole or part of the net income of the trust, then this can only occur when the net income is capable of calculation on a numeric basis. It follows that the setting aside of the whole or part of the net income can only occur after the end of the relevant financial year.
Accordingly, the term "in each accounting period" in cl 4(i) should be construed as "in respect of each accounting period". This construction provides the temporal limitation with appropriate meaning and efficacy, and accords with the clear intention of the settlor. It is also consistent with the overall scheme and wording of cl 4. Clause 4(iii) permits the trustee to determine to accumulate rather than distribute all or any part of the income which has arisen or arises during the relevant financial period. That provision requires an express determination by the trustee to be made "before the expiration of" the relevant accounting period. This is also consistent with the use of the term "arising" in the present tense. There can be no doubt about the intention to place a clear and strict temporal limitation upon the exercise of the discretion to accumulate income into the trust fund. The scheme of cl 4 is that income which is not accumulated under cl 4(iii), will be available for distribution in accordance with the provisions of cl 4(i) and if not so distributed, will be held on trust in accordance with the default provisions contained in cl 4(ii). If it had been intended by the settlor to place a strict temporal limitation on the exercise of the discretion under cl 4(i), then the same or similar wording as that used in cl 4(iii), could have been used in that provision.
Finally, the use of the word "income" in cl 4(iii) can be contrasted with the use of the term "net income" in cl 4(i). Clause 4(iii) requires a decision within the financial year, and hence, can only relate to income still accruing incrementally. This usage is consistent with the construction of cl 4(i) already explained.
Accordingly, I conclude that cl 4(i) contemplates an exercise of discretion after the conclusion of the financial year, at or before the time of preparation and completion of the books of the trust fund for that year. At that time, the net income of the trust fund is capable of calculation, and a decision can be made as to whether to pay, apply or set aside some or all of that net income for one or more of the beneficiaries. The setting aside of income is achieved by placing the relevant sums to the credit of the beneficiary concerned "in the books of the trust fund".
I pause to observe that the stated construction of cl 4(i) does not mean that there is no temporal limitation on the exercise of the discretion. A requirement that the discretion be exercised within a reasonable time can be implied from the terms of the trust deed: In Re Gulbenkian's Settlements(No 2)[1970] Ch 408. In particular, the need for such a limitation is apparent from the operation of cl 4(ii). It can be concluded that in most circumstances, a reasonable time for the exercise of the discretion afforded by cl 4(i) will coincide with the time at which the final yearly accounts of the trust are settled. This must necessarily follow from the fact that the determination will be in respect of the net profit of the trust, and if money is to be set aside, then that will be achieved by an appropriate entry in the books of the trust fund. Any part of the net income of the fund which is not paid, applied or set aside in accordance with cl 4(i) at the time of settlement of the final accounts of the fund for the financial year, is to be held on trust in accordance with the default provisions set out in cl 4(ii).
The methodology actually employed in respect of the trust fund over the relevant years by the company is therefore consistent with the intended operation of cl 4. In particular, the exercise of discretion under cl 4(i) at the time of preparation of the end of year accounts, and the setting aside of the whole or part of the net profit of the trust for beneficiaries, in particular, John and the plaintiff, after accounting for monies actually paid to or on their behalf during the financial year, accords with the intended operation of the relevant provisions. The defendants' claim of invalidity on the basis of the timing of the resolutions is rejected.
It follows that the purported distribution to John of the sum of $80,536 in respect of the net income of the 2015 financial year is invalid. That part of the net income, therefore, falls to be dealt with in accordance with the default provisions set out in cl 4(ii) of the trust deed.
There was no attempt by the plaintiff to adduce evidence that would explain or provide a legal basis for these increases in the loan account. For example, there was no suggestion that the loan account had been increased by other legitimate means, such as a loan to the trust or an injection of capital. The most probable explanation is that provided by Mr Rands. On that basis, despite the prima facie position, I could not accept that the loan account balance, to the extent that it reflects such accounting entries, properly evidences the amount of the debt due to the plaintiff under the said account.
Notwithstanding these specific issues, I am satisfied that the loan account has, in the main, derived from and accurately reflects the transactions relevant to the distribution of trust income in accordance with the discretion of the trustee under the trust deed. In particular, I am satisfied the loan account increased from time to time because of the methodology already described, that is it was increased by distributions set aside for John and the plaintiff when the financial records were prepared at the end of the financial year, but reduced by amounts already drawn by them or paid on their behalf. I note that Mr Rands prepared a calculation of the appropriate movement of the loan account over the years in question based on this methodology. (Appendix 7B of his report.) The calculation is based on transactions recorded in the MYOB records. As I have already concluded, these records reliably reflect the actual transactions contained in them. As to the quantum of annual distributions to John and the plaintiff, the calculation adopts the purported distributions particularised in cl 7.2 of the FADAC, which I am satisfied accurately summarises the distributions made as recorded in the minutes of directors' meetings contained in the files of Mr Reade. Mr Rands made one adjustment to the amounts asserted in cl 7.2, for the purpose of the said calculation. The sum asserted for the 2008 financial year, is reduced from $42,294.02 to $18,251. The asserted rationale of this adjustment is to take account of losses which have been carried forward from the previous year. I accept that this adjustment is appropriate. For the reasons which I have already set out, the purported distributions made as a result of decisions taken by John in consultation with the accountant at the time of preparation of the relevant financial statements represent money properly set aside for the plaintiff and John in accordance with the trust deed. Accordingly, with one further reservation, I accept that the calculation in Appendix 7B of Mr Rands' report is an accurate calculation of the amount due by the first defendant to the plaintiff from time to time. The result of the calculation is that the balance due to the plaintiff as at 30 June 2018 is $433,183.
The reservation alluded to arises from the fact that the calculation in Appendix 7B assumes the validity of the distribution to John of the sum of $80,536 in respect of the 2015 financial year. As I have determined that this distribution was invalid, Mr Rands' calculation must therefore be adjusted by deduction of this sum, but with the addition of the share of the invalid distribution to which the plaintiff is entitled under the default provision. I will hear further from counsel before finalising that calculation.
Mr McTaggart's submission is that this evidence supports an inference that the "wads of money" which Karyn saw in the safe include money which Mark has repaid to John and/or the plaintiff for the vehicle and the buildings. I accept that an inference arises that Mark has paid some amount to either John or the plaintiff for the purchase of the vehicle from the trust, but the evidence falls short of establishing the amount of such payment or that he has paid anything at all for the buildings. Karyn did not explain the notations on the note, and, in particular, the relevance of the reference to a written down value for the vehicle of $10,503. There was also no evidence as to how the payment and the vehicle may have been dealt with in the books of the trust in 2016 or subsequently. It would seem from the notes that some form of accounting entry was being contemplated at the said meeting.
The most prominent aspect of the dearth of evidence about this issue is the failure of either party to call Mark as a witness. This failure was not explained. It is highly probable that Mark would be able to provide evidence as to whether he paid anything for either parcel of property, and if so, how much and to whom. There is no reason to suppose that he would have been in the camp of either party or reluctant to give evidence about this question. It would seem, on its face, to be in his interest to establish that he is the legal owner of the property, and has paid a consideration for it. The onus of establishing this claim was squarely on the defendants. The absence of evidence from Mark about this question does not assist the defendants' argument that I should draw a the asserted inference.
In the circumstances, I am not satisfied that the evidence permits a positive finding that the plaintiff is presently indebted to the defendants in respect of money paid by Mark for either piece of property. However, in her pleaded defence to this claim, the plaintiff suggested that if I concluded that John had received some money in respect of the purchase of these assets, I should order that an account be taken of all transactions of the trust relating to this question. It follows from what I have said already that there is a basis for relief of this nature. At the very least, on Karyn's uncontradicted evidence, the plaintiff has admitted to her that Mark has paid some money on account of the purchase of the motor vehicle. I am reluctant, however, to order such relief without hearing further from the parties. It is apparent to me that the participant members of this family have incurred what is likely to be considerable cost in conducting this litigation, and I am reluctant to make any order which will add to that cost, if the matter can be otherwise resolved. If I were able to make positive findings concerning this issue, I would, but as I have explained, the parties, for reasons best known to each of them, have failed to give or to call all of the available evidence which touches on this question.