MCG Group Pty Ltd v Ftrus Pty Ltd

1. Judgment is given for the applicant against the respondents in an amount of $673,210.38.
2. The parties file within 7 days short submissions in relation to the question of the disposition of the costs of and incidental to the proceeding including reserved costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

GREENWOOD J: 1 Although these proceedings formerly also incorporated a claim for relief based upon contended contraventions of provisions of The Australian Consumer Law, the proceedings at trial were confined to a claim for moneys due and owing under an oral agreement said to have been made between the applicant ("MCG Group") and the first respondent ("Ftrus"), formerly known as Fortrus Pty Ltd, in or about June 2013. 2 The agreement is denied by Ftrus. 3 The questions in issue in these proceedings regrettably engage a controversy between Mr Bill McDonald, the sole director and controlling mind of MCG Group and his brother, Mr Paul McDonald, the sole director and controlling mind of Ftrus. For ease of reference, I will refer to these men as Bill McDonald and Paul McDonald. 4 Both Bill McDonald and Paul McDonald at all material times were and remain directors of a company called Fortrus Resources Pty Ltd ("Fortrus Resources"). A company controlled by Bill McDonald, B. McDonald (No 2) Pty Ltd, owns 125 issued shares in Fortrus Resources. Ftrus, Paul McDonald's company, owns 75 issued shares. Thus, their respective interests in Fortrus Resources were and are 62.5% and 37.5%. The parties accept that Bill and Paul's entities held those respective interests in those proportions notwithstanding that either the accountants or the solicitors for Fortrus Resources recorded, incorrectly, with the Australian Securities and Investments Commission ("ASIC") an apportionment of the issued shares in the ratio 50%/50% rather than 62.5%/37.5%. 5 In or about June 2013, Fortrus Resources was indebted to the Commissioner of Taxation (the "Commissioner") in an amount of $6,053,081.43 although Ftrus says that the amount was $6,053,081.49 inclusive of interest (the "tax debt"). 6 It is common ground that the tax debt arose out of a transaction about 12 months earlier by which Fortrus Resources sold either a coal lease or the shares in a controlled entity holding that lease, for $20 million generating a substantial gain of approximately $15 million to $16 million. $15 million of that gain was distributed to each shareholder entity equally ($7.5 million each rather than in the ration 62.5%/37.5%) not as a dividend but as a term unsecured loan for seven years in conformity with the Income Tax Assessment Act 1936 (Cth), the Income Tax Assessment Act 1997 (Cth) and the Taxation Administration Act 1953 (Cth). The "Division 7A Loan Facility Agreement" between Fortrus Resources and B. McDonald (No 2) Pty Ltd and Fortrus Resources and Ftrus as Trustee for Paul McDonald Family Trust are both in evidence: Exhibit 1, pp 1-12. 7 The distribution of the cash balance remaining on sale of the asset (by means of the two term loans), meant that Fortrus Resources did not have sufficient assets or any ability to pay the tax debt when it fell due for payment. 8 On 24 June 2013 Fortrus Resources entered into a payment arrangement with the Commissioner which involved the payment of 12 instalments in satisfaction of the tax debt. The payment schedule extending from 5 July 2013 to 5 June 2014, contained in the Commissioner's letter of 24 June 2013, provided for three monthly payments of $100,000.00 commencing on 5 July 2013; eight monthly payments of $639,231.27; and one final monthly payment on 5 June 2014 of $639,231.33 representing an amount, in all, of $6,053,081.49. 9 The matter critical to the litigation arises out of para 11 of the second further amended statement of claim. MCG Group says that on a specific date which it cannot particularise but which occurred in or about June 2013, Bill McDonald on behalf of MCG Group and Paul McDonald on his own behalf and on behalf of Ftrus, entered into an oral agreement containing these elements: MCG Group would pay 62.5% of the tax debt of Fortrus Resources; Ftrus and/or Paul McDonald would pay 37.5% of that debt; in order to facilitate payment to the Australian Taxation Office ("ATO"), MCG Group would make all payments to the ATO, in full, following which Paul McDonald and Ftrus would pay to MCG Group 37.5% of the amount paid to the ATO in reduction of the tax debt, resulting in contributions representing their respective beneficial shareholding in Fortrus Resources. 10 The matters at para 11 are denied by Paul McDonald and Ftrus. 11 MCG Group contends that a course of conduct then occurred in part performance of the agreement commencing on 8 July 2013. 12 On 5 July 2013 an instalment of $100,000.00 was due for payment to the ATO. On that day MCG Plant Pty Ltd ("Plant") paid the ATO the instalment. On 8 July 2013 MCG Group reimbursed Plant for the payment. On 22 July 2013 Ftrus paid MCG Group $37,500.00 representing 37.5% of the payment to the ATO. 13 On 5 August 2013, MCG Group paid the next instalment of $100,000.00 and on 5 August 2013 Ftrus paid MCG Group $37,500.00. 14 On 6 September 2013, MCG Group paid the next instalment of $100,000.00 and on 6 September 2013 Ftrus paid MCG Group $37,500.00. 15 Although I will return to the evidence of each brother later in these reasons, Bill McDonald in response to the proposition put to him a number of times in cross-examination that there was no oral reimbursement agreement as alleged, observed that if no such arrangement had been made, why were payments equivalent to 37.5% of the paid instalment being made to MCG Group each month in apparent conformity with such an arrangement, by Ftrus? The alternative explanation put to Bill McDonald was that each brother was simply making contributions to the payment of the tax debt (in the period 5 July 2013 to 6 September 2013) through entities under their respective control consistent with their respective interests in Fortrus Resources. 16 The three payments of $37,500.00 were not made to Fortrus Resources for payment to the ATO. Nor were they paid directly to the ATO. They were proportionate contributions paid to MCG Group which had paid the entire monthly instalment to the ATO. 17 On 7 October 2013 an instalment of $639,231.27 fell due for payment. An extension had been obtained until 14 October 2013. On 14 October 2013, MCG Group paid that instalment to the ATO. On 25 October 2013, Fortrus Pty Ltd ACN 150 945 350 ("Fortrus 350"; formerly Mac Anchor Pty Ltd), on behalf of Ftrus paid MCG Group $239,711.00. MCG Group says that in conformity with the agreement, $239,711.72 represents a reimbursement of 37.5% of the payment made by MCG Group to the ATO. Ftrus and Paul McDonald admit the payment and plead the role played by Fortrus 350 but deny that the payment was made pursuant to any oral agreement. 18 Mac Anchor Pty Ltd assumed the title Fortrus Pty Ltd on 16 August 2013. Paul McDonald is the sole director of that company. The shares are held equally by him and his wife Kaye McDonald. On the same day, Fortrus Pty Ltd (the first respondent) changed its name to Ftrus Pty Ltd (leaving the name Fortrus available for Mac Anchor Pty Ltd). 19 The fundamental assertion by Ftrus and, more particularly, Paul McDonald, is that he made no such agreement with his brother; there simply was no reimbursement agreement as pleaded; and the point of the payments was to reduce the Division 7A unsecured term loan each shareholder had with Fortrus Resources and enable that company to pay the tax instalments. If the payments were, or were intended to be, reductions by or on behalf of the shareholders of each of their Division 7A term loans of $7.5 million each, presumably the repayments would have been equal as between each shareholder (brother) since the loans were "distributed" equally. The payments, however, were in the ratio 62.5% and 37.5% after taking account of the Ftrus reimbursement payments to MCG Group. 20 MCG Group says that since 14 October 2013 it has made two payments of $135,000.00 to the ATO. The first was on 13 November 2013 and the second on 6 December 2013. On 13 November 2013 Ftrus paid MCG Group $50,625.00. On 9 December 2013 MCG Group was paid $50,625.00 although as to that payment, Ftrus and Paul McDonald say that the payment was made by Fortrus 350 for and on the direction of Ftrus. 21 The November and December payments of $50,625.00 to MCG Group by Ftrus and Fortrus 350 (for Ftrus) are amounts that represent 37.5% of $135,000.00. 22 Apart from the two payments of $135,000.00, MCG Group asserts that it paid 9 instalments of $164,189.00 between 4 March 2014 and 28 November 2014 amounting to $1,477,701.00. It made a further payment on 9 March 2015 of $656,756.00 amounting in all (including the two instalments of $135,000.00) to $2,404,457.00. 23 MCG Group has paid the ATO $3,343,688.00 in all made up of three payments of $100,000.00, one payment of $639,231.00, two payments of $135,000.00, nine payments of $164,189.00 and one payment of $656,756.00. Ftrus either by itself or by Fortrus 350 has paid MCG Group three payments of $37,500.00, one payment of $239,711.00 and two payments of $50,625.00.00 constituting, in all $453,461.00. Assuming Ftrus has an obligation to pay MCG Group 37.5% of the payments it made to the ATO, the amount owing to MCG Group would be $1,253,883.00 less $453,461.00 amounting to $800,422.00. If the calculation takes account of only the pleaded para 20 additional payments, the amount paid by MCG Group to the ATO is $2,404,457.00, 37.5% of which is $901,671.37. The payments to the MCG Group by Ftrus (apart from the earlier three payments of $37,500.00 and the amount of $239,711.00) amount to $101,250.00. The unpaid reimbursement would be $800,421.37. However, the claim made by MCG Group by paras 37 and 38 of the second further amended statement of claim is an amount of $673,210.38 either as a sum said to be due and owing or alternatively as the measure of the damage MCG Group says it has suffered by reason of the contended breach. 24 In summary, the respondents say that no oral agreement was made in or about June 2013 as pleaded or at all. Moreover, the changes to the statement of claim (the first filed 23 March 2015; the second filed on 22 May 2015; the third filed on 9 November 2015; and the fourth filed on 1 December 2015) demonstrate the changes to the contended agreement. Further, the letter from the solicitors for Bill McDonald and MCG Group to the solicitors for Paul McDonald and Ftrus dated 16 March 2015 asserts an agreement made on 14 October 2013 not June 2013. The respondents say that Bill McDonald is confused about when meetings occurred and who was present at them. Finally, they say that the payments made by or on behalf of the respondents were simply reductions in the loan balances to enable the tax instalments to be paid according to shareholder interests and, far from striking an agreement by which MCG Group would pay tax instalments with reimbursement by Ftrus of 37.5% of those payments, Bill McDonald and Paul McDonald were both investigating the possibility of winding-up Fortrus Resources and possibly entering into a Deed of Company Arrangement with the ATO. 25 It is now necessary to examine the evidence of the witnesses and particularly the evidence of Bill and Paul McDonald on these various matters. Before doing so, the principal actors in the events should be noted. 26 Mr William (Bill) Yates is an accountant. At all relevant times he was employed as the Chief Financial Officer of the MCG group of companies. Exhibit 4, pp 28-58 comprises the financial statements for the year ended 30 June 2012 for MCG Corporation Pty Ltd ("MCG Corp") and its controlled entities. MCG Group is a controlled entity of MCG Corp. So too is Plant. Mr Dale Cliff is Bill McDonald's solicitor. 27 Ms Elisha Williams is Paul McDonald's personal secretary. Ms Michelle Civitarese is an accountant who practises under the name Smart Steps Accounting. At all relevant times she was the accountant for Fortrus Resources. Paul McDonald gave evidence that Ms Civitarese was also the accountant for entities controlled by him: T p 100, ln 20. Paul McDonald also gave evidence that he did not deal with Ms Civitarese "one on one". Ms Williams "dealt with Michelle": T p 100, lns 22-23. Mr Martin (Marty) Bristow was an advisor to Paul McDonald. He also had a small partnership interest in Paul McDonald's American business. Mr Richard Ellem was Paul McDonald's solicitor. 28 On 16 May 2013, Ms Civitarese advised Mr Yates, Ms Williams and Mr Bristow that the tax return for Fortrus Resources had been lodged with the ATO the day before and once the debt was posted to the ATO portal (just a matter of days), it would be necessary to "enter into a payment arrangement with the ATO asap": Exhibit 4, p 1. Ms Civitarese also advised them that generally the ATO accepts payment over 12 months and she would try for smaller payments over the first three months starting late June and then renegotiate the payments after three months. 29 On 24 May 2013 Ms Civitarese sent to Mr Bristow, Ms Williams and Mr Yates, a draft of an email to the ATO (High Value Tax Debt Department ("HVD group")) saying that Fortrus Resources currently had insufficient assets to pay the tax debt. The draft outlined a proposal to pay $100,000.00 for the first three months to enable the directors to raise funds with a view to reviewing the tax debt after three months. Ms Civitarese sought the comments of the three addressees on the draft. Mr Yates suggested a minor change to the draft. The proposal was put to the ATO. 30 On 28 May 2013 Ms Civitarese advised Mr Yates, Mr Bristow and Ms Williams that the ATO wanted to know the entities that would be making the repayments. The ATO also wanted financial statements for those entities for the last two financial years; a statement of loan facilities; cash flow statements for them; current aged debtors; and current aged creditors. Mr Yates responded that day advising that MCG Group would be "paying the Bill McDonald liability" and the relevant information would be available within three days: Exhibit 4, p 7. That information was provided to Ms Civitarese on 30 May 2013. 31 On 5 June 2013 Ms Civitarese sent an email to the ATO HVD group advising that MCG Group (although she mistakenly referred to "MCG Resources") would be paying $3,524,908.00 of the tax debt and "Fortrus Charters" would be paying $2,114,945.00 of the tax debt. Fortrus Charters was nominated as a Paul McDonald entity. Paul McDonald gave evidence that he did not know until the day before he gave evidence that Fortrus Charters had been nominated as his relevant paying entity. MCG Group's proportion of the tax debt ($5,639,853.00) was 62.49% and the Fortrus Charters' proportion was 37.51% (on those figures). 32 Ms Civitarese nominated Fortrus Charters on instructions from Mr Bristow for Paul McDonald: T p 128, lns 24-25. Paul McDonald gave evidence that Fortrus Charters owned a large catamaran (purchased for between $8M and $9M) and sought, unsuccessfully, to charter it out. Only two charters had ever occurred. It was sold in 2013 for a "similar amount": T p 102, lns 24-32. In support of Ms Civitarese's email to the ATO HVD group nominating Fortrus Charters, a document described as "Fortrus Charters Actuals v Budget 2013-2014" was submitted to the ATO: Exhibit 4, 104. Ms Civitarese understood and believed that the numbers on the spreadsheet were entirely budgeted figures. The document suggests budget revenue of $110,000.00 each month for July, August and September 2013 and other revenue in October 2013 of $2,500,000.00 from the sale of the catamaran. Gross proceeds were budgeted at $2,473,000.00 (after expenses). The budget revenue for January 2014 ($110,000.00) and Mach and May 2014 ($55,000.00 each month) assumed that the boat had not been sold. In fact, it was sold for USD 8,400,000.00 (with a deposit of $840,000.00) by Fortrus Charters Ltd of the Cayman Islands with a closing date of 9 July 2013. 33 In relation to the payment arrangement with the ATO, Ms Civitarese gave evidence that the first three payments were sought at $100,000.00 each due to "cash flow restrictions" within "[b]oth Bill and Paul trusts": T p 126, lns 25-30. Mr Yates, Ms Williams and Mr Bristow instructed Ms Civitarese to negotiate a payment plan because the tax debt could not be repaid in full: T p 126, lns 39-40. Ms Civitarese gave evidence that after the first three months, negotiations would continue during which investigations would be undertaken into the question of whether liquidation of Fortrus Resources ought to occur and whether a Deed of Company Arrangement "was an option": T p 127, lns 1-3; lns 36-37. Examination of that issue arose in late May or early June as a result of a request made by Mr Bristow to seek advice from an insolvency firm, "Worrells": T p 127, lns 42-43. 34 On 24 June 2013 the ATO, by letter, agreed to a payment arrangement in the terms described at [8] of these reasons. 35 The purchase and sale agreement for the sale of the boat by Fortrus Charters Ltd was signed by the Swiss buyer, Melih Keyman on 25 June 2013. The purchase and sale agreement was sent by email by the Newport (USA) yacht broker, Mr LeBuhn to Mr Bristow and Ms Williams on 26 June 2013. Ms Williams sent it by email to Mr Bristow (again) and to Paul McDonald at 9.09am that day. That evening at 10.20pm Paul McDonald sent an email to Bill McDonald attaching the purchase and sale agreement and other material. In his email, Paul McDonald simply said: "Please call xo". Plainly enough, Paul McDonald wanted Bill McDonald to call him to discuss something. It may have concerned the attachments per se although Bill McDonald had no interest in Fortrus Charters Ltd. It may have been about the tax debt the subject of the 24 June 2013 ATO HVD group letter in the light of the impending closing of the sale of the boat on 9 July 2013. In any event, whatever the subject matter of the proposed conversation, it was sufficiently important to Paul McDonald that he sent Bill McDonald an email asking him to call. Paul McDonald at the time was in the United States. 36 The evidence-in-chief given by Bill McDonald is very brief. Bill McDonald was taken to the ATO letter of 24 June 2013 setting out the payment schedule and gave evidence that he had a conversation with Paul McDonald "at about that time" as to how the amount of the tax debt would be paid. It was a telephone conversation. He then gave this evidence at T p 20, lns 5-10; lns 14-18: … [to the] best of my recollection, I rang Paul. Paul was working in America at the time so he was in and out of Australia. I rang Paul. Smart Steps had done the tax returns up and we had to start paying the tax from the windfall we had had with the business deal we did and I rang Paul and we discussed and agreed to split the tax in the proportion of the shareholdings and start paying the tax. ... To the best of my recollection, we agreed that we had to start paying the tax. Michelle [Civitarese] had, through Smart Steps, had done the tax returns. That was the agreement - arrangement we had put in place with the ATO and then when I discussed with Paul we had to start paying and I would, to make it easily [easy], I would pay and Paul would reimburse me at the time. 37 Bill McDonald could not remember the date of the conversation although it was said to be "around that time" which I assume is a reference, like the earlier reference, to the 24 June 2013 ATO letter. That assumption is made clearer by his further observation in these terms at T p 20, lns 23-25: Once the ATO payment had been put in place and we knew - all the documents had come back, that the tax was due, and we had to start paying it. 38 Bill McDonald says that he made the call from MCG Corp's office in Brisbane and his best recollection is that Paul McDonald was "overseas at that time". He added that Paul McDonald "had a business overseas". 39 In cross-examination Bill McDonald was taken to the statement of claim filed on 23 March 2015 at para 11 which recites that the applicant "cannot currently particularise" the date of contended oral agreement. The statement of claim filed on 22 May 2015 added "but in or about June 2013". In response to the proposition that he could not originally say when he entered into the oral agreement, Bill McDonald said that "it was around this time [the time of the 24 June 2013 payment arrangement]": T p 41, lns 28-29; lns 34-35. He added, at T p 41, lns 37-44: It would be around that time. That's where we started paying it and that's where the split started happening, and we started - whether - before the first payment would have went through. Otherwise, why would the payment have gone through and those - if we didn't have the agreement or the conversation, why would they have gone through with those figures? … - the figures that went through that were exactly those percentages. If the conversation never took place, why would the numbers be that … 40 Bill McDonald was also taken to the additional matter introduced into the amended statement of claim filed 22 May 2015 that an element of the oral agreement was a facilitation arrangement whereby MCG Group would pay the instalments agreed to be paid and Paul, by Ftrus, would reimburse MCG Group for 37.5% of any amount paid to the ATO. It was put to Bill McDonald that the first time such a contention had been made was in the amended statement of claim. Bill McDonald reasserted his evidence that he and Paul had "had a conversation" and otherwise "why would his people pay the money": T p 42, lns 31-34. 41 Bill McDonald accepts that the ATO was owed about $5.5M after adjustments and if the tax debt was not paid, Fortrus Resources would likely be wound up and the trustee entities for each of Paul and Bill McDonald would be pursued for recovery of the Division 7A loans. Thus the payment of the instalments by MCG Group and a contribution by Ftrus to MCG Group of 37.5% of each payment was said to be simply a co-operative way of paying down the loan accounts to enable the tax to be paid according to a contribution arrangement reflecting a 62.5% and 37.5% split. Bill McDonald maintained his position that the tax had to be paid because neither Bill nor Paul McDonald could expect to derive a windfall gain of between $15M and $16M on a sale at $20M and not pay the tax debt. Although Bill McDonald made this remark a number of times, one example is at T p 47, ln 8. The reality of the tax debt, the inevitability of the ATO pursuing recovery of it and the instalment arrangement of 24 June 2013 with the ATO, made it essential, in Bill McDonald's view, for an arrangement to be made with his brother for paying each monthly instalment as it fell due. 42 Bill McDonald also accepted that when he and Paul McDonald spoke about the need "we had" to pay the tax debt in proportion to "our respective shareholdings", references by the brothers to "our companies" or "my companies" or "us" or "we" were not intended to be references to any particular entity but rather a reflection of an "interest" held by one or other of "them" through whatever selected vehicle happened to hold the relevant interest: T p 44, lns 4-24. 43 Bill McDonald also accepted that given their split in the interests in Fortrus Resources at 62.5% and 37.5% "it was not remotely surprising that [Bill] and Paul talked or understood that you would have to pay the tax or fund the tax in proportion to your shareholdings": T p 44, lns 45-57. The respondents say that the need to make contributions to the tax debt instalments according to the differential shareholding interests is the explanation for the sequence of payments made by MCG Group and Ftrus in the respective amounts rather than a separate contended agreement in the terms asserted by Bill McDonald or at all. 44 Plainly enough, Bill McDonald took the view that if Fortrus Resources did not have the assets or the capacity to pay the tax debt, it was up to Bill and Paul to see it paid and they would do that by or through whatever vehicle they respectively controlled (reflecting their respective asset position in the overall broad sense) and in the proportion of their respective shareholding in Fortrus Resources of 62.5% and 37.5%: T p 45, lns 41-47; T p 46, lns 1-13. Equally plainly, Bill McDonald considered that he had made an agreement with his brother directly: T p 45, lns 41-43; T p 46, lns 3-9. 45 Bill McDonald agreed that in the June 2013 discussion with Paul McDonald he would have talked about "my share" and "your share" of the Fortrus Resources tax debt and although he thought that there would have been discussion of the specific percentages he ultimately put it this way at T p 47, lns 41-44: I don't recall whether we would [have] discuss[ed] percentages. We would have discussed whose share, what share, and when - so that's what we would have discussed. Now, whether its percentage or share, it's the same thing. 46 In the context of a discussion about what may have occurred at a meeting in September 2013 (to which I will return) Bill McDonald made further reference to the June 2013 agreement and the anomaly of the 50/50 apportionment of the issued shares in Fortrus Resources in the records of ASIC. He said this at T p 54, lns 30-41: .. When we first - got the first ATO agreement in place Paul and I had a discussion and we split it, because you will see in September the ASIC, by the looks of that, was still fifty-fifty. That's why that joke on the second-last page is there [this is a reference to a remark, described by Bill McDonald as a joking or facetious remark in the transcript of a meeting in which Bill McDonald makes a reference to Paul McDonald paying 50% of the tax debt], so back in when we first got the payment plan and we started paying it, we were paying at the correct split [62.5/37.5] and then you will see part of this I'm positive. Before this meeting actually took place [the September meeting], Michelle [Civitarese] - and don't quote me on this - was already negotiating to redo the payment plan with the ATO before this meeting, so that was going on as well before that. So there would have been no discussion at this meeting about the split of the tax because we had already decided that and we were already paying that. Now if I was going to be silly I would have said to Paul back in June/July you've got to pay fifty per cent because that's what ASIC says. Well, it's not. ASIC was wrong. 47 This topic of the June 2013 discussion was revisited in the context of the statement made in the letter of 16 March 2015 written by Mr Cliff (Bill McDonald's solicitor) to Mr Richard Ellen (Paul McDonald's solicitor) that an agreement had been reached between the brothers on 14 October 2013 that Paul McDonald would "meet his share (37.5%) of the outstanding [tax debt]" with Bill agreeing to meet the full instalment each month and Paul agreeing to pay Bill the 37.5% share within seven days. The proposition was put to Bill McDonald that no agreement was reached on 14 October as asserted by Mr Cliff on behalf of Bill McDonald (and, as later put, that an agreement of 14 October 2013 was inconsistent with an assertion that an agreement was made in June 2013). Bill McDonald responded in this way at T p 55, lns 22-27: No. It was actually back in -. there was - there were numerous discussions. The first discussion we held was back in June and that's why those payments were paid in that split, and that would line up with the second line of ATO payment plans too, the exact same split and then the payments were made. So if there wasn't an agreement the payments wouldn't have been made that way, would they. It's a very big coincidence if the payments were made exactly that way when there was no agreement. 48 Bill McDonald was asked the following question and gave the following answer at T p 55, lns 29 - 42: Q. Now, when you say you reached an agreement in June, was that before or after the payment agreement was reached with the ATO and you knew what was required to be paid each month? A. I don't recall the specific dates when Michelle would have finalised with the ATO, when that actual - it will be in the documentation when she had that final thing. As you said earlier, we would have known since February/March there was a tax bill coming and it would have had to have been sorted out, and Michelle would come back from the ATO with a date. … We would have known since the money came in [the windfall profit]. You can't get 20 million and not pay tax and not have a tax bill, can you. 49 At T p 56, lns 4-11, Bill McDonald added this: When Michelle started finalising the tax returns of last year [which is a reference to the tax returns for the financial year ending 30 June 2012 which were lodged by Ms Civitarese on 15 May 2013], that's when I had the conversation with Paul. Because the ASIC registry was fifty-fifty, which was incorrect, it was actually more of a liability to me [62.5%] than it was to Paul [37.5%], that's when we had the conversation. Michelle cut the deal with the ATO and did a good job, and that's when we started paying and that's when Paul - we would pay - we paid it and Paul paid us. Now, if we hadn't had the deal why we would have paid that sum of money to that specific percentage if there was no deal. 50 In answer to Bill McDonald's question at the end of the last quote, counsel for the respondents observed that the respective percentages simply represented the proportion of the shareholdings and "as businessmen, you would have assumed you were going to meet the liability of the company in proportion to your ownership of it". Counsel asked "wasn't that the case"? Bill McDonald agreed: T p 56 lns 13 - 16. 51 These topics were further addressed in response to a proposition put to Bill McDonald by counsel for the respondents that there were five business occasions at which representatives of Paul McDonald were present and during which the question of an agreement having been made in June 2013 as alleged could have been asserted by or on behalf of Bill McDonald. The first was a meeting of 5 July 2013. The second was a meeting at Noosa in August 2013. The third was a meeting on 13 September 2013. The fourth was a meeting on 14 October 2013 and the fifth was a meeting on 3 December 2013. Bill McDonald responded in this way at T p 60, lns 40-47; T p 61, lns 1-4: Those meetings, if you look at all the correspondence, were to do with Fortrus [Resources]. Predominantly those meetings to do with Fortrus Resources [were addressing the question] was [it] in a position legally to avoid the tax. While we discussed the split 67/32, whatever it is [62.5/37.5], when it was already agreed to back in June, it was already being paid. If it wasn't agreed to, it wouldn't have been paid up to that point and it wouldn't have been kept being paid at that split after that point. So those meetings were in place to work out whether Fortrus could legally avoid paying tax, like we all do, as taxpayers. So there's - you can say that and if there was never an agreement or never a discussion, it's a two billion chance to one that Fortrus would all of a sudden pay the tax on that split if we didn't have the conversation. Why would it when ASIC says fifty-fifty. So if the conversation never existed, why do those figures stack up from the first payment? 52 Bill McDonald was asked why he considered the share ownership was in the ratio 62.5/37.5 when ASIC had recorded the holding of the issued shares in the ratio 50/50. Bill McDonald explained that an error had been made by the accountants on the assumption that when the company was set up, the two shareholders would be required to agree about relevant matters and thus the shareholding would be held 50/50. However the correct ratio was 62.5/37.5. Even though the records with ASIC had not been changed, the payment of the tax debt of the company would be met in the correct ratio. Bill McDonald put it this way at T p 61, lns 16-19: Even though ASIC hadn't been changed we were paying the tax at 60/32 whatever the - give or take a percentage point, otherwise [but for] the conversation we would have had, why would that have been paid, why would Paul's people have paid that money according to that percentage if it hadn't been instructed by Paul. 53 As to the contended failure to mention the matter of the June 2013 agreement at the Noosa meeting in August 2013, Bill McDonald said this at T p 61, lns 39-42: There was no need to say it, because the meeting was in regard to investigating legally whether Fortrus [Resources] could be wound up, and that was on Paul's suggestion. We had already - I had already had tax advice myself that it wasn't right. 54 As to the 3 December meeting at which Bill McDonald and Mr Cliff were present together with Mr Yates, Mr Bristow, Ms Civitarese and Mr Ellen, with Paul McDonald on the telephone relaying responses through Mr Bristow, Paul McDonald made it plain through Mr Bristow that he could not find more than $50,000.00 a month to contribute. Bill McDonald refused to accept that position and put his refusal to do so in writing. Bill McDonald accepted that neither he nor Mr Cliff asserted in the meeting that Paul McDonald was breaking an agreement made in June 2013 by now offering only $50,000.00 each month. Bill McDonald accepted that the written material exchanged between the parties over time does not express any reference to an agreement made in June 2013. Bill McDonald then added this observation at T p 62, lns 35-37: All I can see is a bank statement [as] to when it actually took place. And Paul, in December, said he could only paid 50,000, [if] there was no agreement, why would he even offer to pay 50,000 if there's no agreement in place. 55 Bill McDonald added this at T p 62, lns 42-46; T p 63, lns 1-2: If there's no agreement in place, why would he say I can't pay the 62 which was the split [the amount Paul McDonald by his relevant entity is said to have agreed to pay]. When you look through the documentation you will see on the new tax payment - payment plan, Paul actually - with the split, as you say, didn't exist, but if it did the split was 62,000 and you will see in his cash flows he had that there and then he said I can only afford 50,000. Well, if there was no agreement [by] those conversations .. why would he pay those sums if there's no agreement. If there's no agreement, don't pay anything. 56 Bill McDonald accepted that the figures "line up with the shareholdings": T p 63, ln 7. 57 Counsel for the respondents returned to the topic of the June 2013 agreement again and Bill McDonald reasserted this position at T p 66, lns 16-19: There was an agreement to pay the ATO debt when Michelle lodged it. Paul and I had an agreement to pay our portions. It was a verbal agreement and that's why those portions were paid that way, and it continued to be that way until the payments stopped. 58 The payment arrangement of 24 June 2013 with the ATO provided for a payment of $639,231.27 on 7 October 2013. An extension was arranged until 14 October 2013. On 14 October 2013 at 1.08pm Bill McDonald sent an email to Ms Williams and Mr Bristow in which he said: "Elisha/Marty, do you want us to pay the $639,231.27 today in full? then you pay us the Fortrus [Ftrus] share? Or how do you want to handle it?": Exhibit 1, p 100. At this time the question of a renegotiation of the payment schedule had been raised with the ATO. On 14 October 2013 at 3.51pm Mr Bristow sent an email to Bill McDonald, Ms Williams, Paul McDonald and Ms Civitarese in which he said this (Exhibit 1, p 103): I just spoke to Narelle at the ATO for the last 30 minutes. I advised them the payment was being processed today and they were happy with that [$639,231.27]. There were notes on file saying we would call today, which we did. They did advise that the payment plan still show as current and had not defaulted due to late payment. With regards potential renegotiation, I advised the ATO that in my professional opinion, the shareholders would struggle to meet the existing payment arrangement. I advised that I would be suggesting a three year strategy that would be viable for the shareholders. The matter needs to be escalated to a person in the Townsville office. We tried several times to connect with them but the lines have been busy. Narelle from the ATO did make several file notes to explain my thoughts and that we have tried unsuccessfully to reach the right person by phone today. I will call back again this afternoon and in the morning to get this moving. Any questions, give me a shout. 59 The proposition was put to Bill McDonald that his email of 14 October 2013 asking Ms Williams and Mr Bristow (for Paul McDonald) whether they wanted Bill McDonald's interests to pay the instalment that day in full with Fortrus (now Ftrus) paying MCG Group Ftrus's "share" of the instalment, coupled with the question of "how do you want to handle it", suggested that there seemed to be no agreement about the payment according to the method suggested by Bill McDonald. Bill McDonald gave evidence that when that instalment was due Ms Williams and Mr Bristow were trying to strike a new "deal" with the ATO. Mr Bristow described it as a renegotiation of the existing arrangement over a three year period. Bill McDonald gave evidence that he asked Mr Bristow, by his email, whether "he had done it yet": T p 67, ln 3. Bill McDonald put it this way at T p 67, lns 5-10: They, at that time, were dealing with a second round [renegotiation] with the ATO … "Have you sorted it? And if so, I will pay it. Do you want me to pay it in full? And you pay Paul'[s] share. Now, Paul's share was at that percentage." 60 Finally on this topic of the June 2013 Agreement the proposition was put to Bill McDonald at the end of his cross-examination that no such agreement had been reached with Paul McDonald. He gave the following answer at T p 76, lns 26-38: Paul and I had a conversation with Michelle. I will repeat it again for the third time today. Michelle put the BAS Statements and all those things in. When the ATO came back, the tax debt was there. Paul and I had a conversation and we would then start when the first payment was due that Michelle organised, we would pay that according to our shareholding, and we did. And we did so for the first six months. That's what happened. So [if] if there was no agreement .. [it] was very ironic that we actually paid the 37-62 split or whatever it was. I've said for the third time today, if there was none of that in place, why would anyone have ever done anything in the first place to line it up? It actually happened with bank statements and the ATO. And Paul's accountant, Michelle, actually did the work. So I don't know why we're around to this point again. Because if there was none of that in place, none of that would have happened. 61 As to background matters, Paul McDonald gave evidence that he invested the funds received from Fortus Resources in the 2012 financial year in a business in America that failed entirely to live up to expectations. As he said, it could not be made to perform. As to the tax position, Paul McDonald understood that in approximately 12 months' time "we had to pay the tax" (T p 99, ln 24) according to "our shareholding" and "my obligation" was 37.5%: T p 99, ln 26-27. Paul McDonald "was aware" when he received the funds that by about June 2013, "we had to pay tax on the money we [had] received": T p 99, lns 35-41. Paul McDonald gave evidence that at that time, however, the financial position of his entities was "very, very poor": T p 99, ln 43. In January Paul McDonald began discussing the position with his advisors, Mr Bristow, Ms Williams and Ms Civitarese. As to discussions with Bill McDonald, Paul McDonald said: "I can't recall any personal discussions with Bill. I'm sorry" (T p 100, ln 15). Paul McDonald added that "[Bill] would have been aware" which seems to be a reference to Paul McDonald's contended financial position: T p 100, lns 10-11. 62 Paul McDonald gave evidence that during the second half of June 2013 he was in America. He left Australia on 17 June 2013 and returned on 1 July 2013. 63 As to whether Paul McDonald had any discussions with Bill McDonald in June 2013 about the tax, Paul McDonald told his counsel that "[i]t would have been highly unlikely that I did" and the reason for that, he said, was "[b]ecause for half … that month I was in America" and when there, Paul McDonald "used … different cell phones, so I don't know whether [Bill] had that number": T p 100, lns 28-32. Moreover: "Bill and I spoke fairly rarely - very rarely on the phone together": T p 100, ln 33. 64 As to personal meetings, Paul McDonald recalled meeting with Bill McDonald in August 2013 (at Noosa), September and October 2013 but not otherwise. 65 Thus, as to a telephone conversation with Bill McDonald in June 2013 (in or about 24 June 2013), Paul McDonald's evidence-in-chief is that he could not "recall" such a conversation; it "would have been highly unlikely"; and he and Bill "very rarely" spoke on the phone together anyway. 66 In cross-examination, Paul McDonald said that he could not recall when he first saw the ATO's letter of 24 June 2013 sent to Ms Civitarese setting out the payment arrangement. Paul McDonald said that he saw the ATO letter "after it was completed and after it was agreed to". However, he accepted that his staff had been working towards entering into a payment arrangement with the ATO for some time: T p 110, lns 16-21. Paul McDonald denied that at about the time the ATO letter "arrived" [with Ms Civitarese] he had a conversation with Bill McDonald about how the agreed monthly payments would be made: T p 109, lns 40-45. Paul McDonald said that Ms Williams was "discussing it with [Ms Civitarese]": T p 110, lns 2-3. As to whether he had any "input into it", Paul McDonald said: "it would be highly - highly unlikely" because "Elisha [Williams] would have handled the payments through Michelle [Civitarese]". Paul McDonald accepted that the money required to make the payments would need to come from Bill or Paul or their entities: T p 110, lns 11-14. Paul McDonald said that he "knew" that "some arrangement" had to be reached to pay the tax debt "over time" because it could not be paid "in one lump sum": T p 110, lns 26-27. 67 In that context, the proposition was put to Paul McDonald in cross-examination that he spoke with Bill McDonald over the telephone in about June 2013 and discussed how the payments would be made. He responded: "No. I can't categorically say that I did … and I would say it was highly unlikely that I would have". 68 The next proposition put to Paul McDonald was that he discussed with Bill McDonald paying the ATO debt over a period of time. He agreed and added: "We wanted to try and stretch the payments out and pay it over a period of time because we short - I was short on cash": T p 110, lns 39-41. Paul McDonald corrected the impression that that matter was discussed with Bill McDonald and said: "no, I didn't. What - as - my group, my - my advisors were advised to say - and they knew right back as early as probably January that we're short on cash and we had to extend it as far as we could". 69 Paul McDonald denied that any conversation with Bill McDonald took place in about June 2013 in which an agreement was reached for payment of the tax debt by Bill McDonald (either by him or his entities) and payment by Paul McDonald (either by him or his entities) of his 37.5% share of the tax debt. 70 Paul McDonald accepted that between July and December 2013 six reimbursement payments were in fact made to MCG Group by Ftrus. Paul McDonald's understanding was that "yes, that's what the girls did": T p 111, ln 40. No payments were made by Ftrus to Fortrus Resources and no payments were made by Ftrus to the ATO. 71 Paul McDonald gave evidence that he was present at the 14 October 2013 meeting, the due date for the payment of the $639,231.27 instalment. Shortly later on 25 October 2013, Ftrus paid a reimbursement contribution to MCG Group of $239,711.00. 72 Against the background of the six payments, Paul McDonald was again pressed with the correctness of his evidence that no agreement was made with Bill McDonald for "you or your family trust to pay its share [of the ATO payments], calculated by reference to the percentage shareholding, of the Fortrus Resources tax debt". Paul McDonald gave this answer at T p 113, lns1-7: I was fully aware that we had an obligation to pay the tax through the division 7A loan of around thirty-seven and a half per cent. I never gave anybody a guarantee that no matter what the amount of money it was we would pay thirty-seven and a half per cent because, for example, if it was a million dollars that was $375,000. I didn't have the money. I was aware of our obligation to pay it and I was trying to minimise that as much as possible to try to turn America around and get it going again. [Emphasis added] 73 However, on 5 June 2013 Ms Civitarese, acting for Paul McDonald (T p 113, lns 16-20), told the ATO that Fortrus Charters "will be paying" $2,114,945.00 of the tax debt (ie, 37.5% of $5,639,853.00). Paul McDonald gave evidence that the "whole purpose of this was to try to minimise the tax and stretch it out to turn the - and hopefully turn the business around in America, and so they were negotiating": T p 113, lns 41-45. 74 The concession at T p 113, lns 6-20 that Paul McDonald had agreed that either he or some entities that he controlled were going to pay about $2M of the tax debt, and that, through Ms Civitarese, "we had told them [the ATO] that" was, in effect, withdrawn when Paul McDonald said that Ms Civitarese was not acting on his behalf or on his instructions in writing the 5 June 2013 email to the ATO. That followed because Paul McDonald first became aware of it, he said, the day before giving evidence and "accountants, that they don't ring you on every second email": T p 114, ln 12. 75 Paul McDonald accepted that the request from the ATO (about which entities would be paying the tax debt and whether the nominated companies had the ability to do so), was an important matter. Paul McDonald says he has no knowledge of the matter of the response because his engagement with Ms Civitarese was, it seems, like his engagement with his brother Bill McDonald, one in which he "actually hardly ever spoke or corresponded with Michelle": T p 114, ln 35. 76 Although Paul McDonald may not have appreciated that Mr Bristow had nominated the Cayman Island entity, Fortrus Charters, as the paying entity, I have no doubt that Paul McDonald through Mr Bristow, Ms Williams and Ms Civitarese knew and understood that a proposition was to be put to the ATO in June 2013 that he or an entity controlled by him would be paying about $2M of the tax debt based on a 37.5% share of it. 77 Although Paul McDonald says that he and Bill McDonald "very rarely" spoke on the phone together, and a conversation in the second half of June 2013 would have been "highly unlikely" as Paul McDonald was in America and "used different cell phones", something of some substance plainly arose on 26 June 2013 which caused Paul McDonald to send an email to Bill McDonald at 10.20pm that night asking Bill McDonald to "please call". The inference on the face of the email is that it was not necessary for Paul McDonald to recite any particular differentiated United States cell phone number. It was enough to simply say "please call xo". The email attached material concerning the sale by Fortrus Charters (the nominated paying entity) of the boat for USD8,840,000. 78 From 14 October 2013 negotiations were conducted to try and establish a new payment plan. On 11 November 2013 Ms Civitarese sent an email to Mr Yates (copied to Ms Williams) advising that she had applied to the ATO for a three year loan at $135,000.00 per month "starting now". The old payment plan had been cancelled "to avoid default". The ATO would take 28 days to consider the plan. Ms Civitarese said that if "we could pay the $135,000.00 now it may help with the request": Exhibit 1, p 117. Bill McDonald responded that day agreeing with the suggestion and asked "how do you want to do it": Exhibit 1, p 117. Ms Williams responded on 12 November 2013 to Mr Yates and Bill and Paul McDonald saying that Mr Bristow had been conducting the discussions with the ATO and that he had submitted a new agreement. Ms Williams said that a payment would need to be made but the ATO had not responded by indicating "how much and when": Exhibit 1, p119. Mr Yates responded by saying that the $135,000.00 should be paid as it had been raised in the discussions between the ATO and Ms Civitarese. Mr Yates believed that it would "add strength to our argument for a revised plan if we can show we have continued to make monthly payments albeit this month is less than as per the original plan - at least something is paid": Exhibit 1, p 123. On 13 November 2013 Ms Williams sent an email to Mr Yates and Paul and Bill McDonald confirming that "we do agree that the $135,000.00 should be paid by the end of the week": Exhibit 1, p 123. 79 MCG Group paid $135,000.00 on 13 November 2013 and Fortrus paid MCG Group $50,625.00. 80 On 26 November 2013 Ms Civitarese advised Mr Yates, Ms Williams, Mr Bristow, Paul and Bill McDonald and Mr Cliff by email that the ATO had refused the proposed new payment plan of $135,000.00 per month. By letter dated 27 November 2013 the ATO advised Fortrus Resources that the tax debt of $4,674,028.47 was required to be paid within seven days: Exhibit 1, p 133. 81 The proposition was put to Bill McDonald that the exchange of emails earlier mentioned in relation to the payment of $135,000.00 is inconsistent with the notion of an agreement in June 2013 of the kind alleged. The proposition put was that if such an agreement had been made, the position simply would have been that a payment of $135,000.000 would have been made by MCG Group and Fortrus (Ftrus) would have paid its share of that sum amounting to $50,625.00. The amount of $135,000.00 was, plainly enough, an integral part of the renegotiation proposal. The relevant participants agreed that it would be helpful to make a payment of $135,000.00 in support of the new plan put to the ATO. It is correct to say, as the applicant says, that the conduct in relation to the $135,000.00 is not inconsistent with an agreement as alleged especially so far as it relates to the 24 June 2013 payment plan. Equally plainly, Mr Bristow and Ms Williams, presumably acting upon instructions from Paul McDonald, caused payments to be made to MCG Group on two occasions in respect of two payments of $135,000.00 in amounts of $50,625.00 each. Those amounts represent 37.5% of each payment of $135,000.00. In response to the notion of inconsistency, Bill McDonald said this at T p 73, lns 7-21: … you're referring to the initial - when you started all this was that there was no - you have my agreement with Paul that we discussed in June. Once Michelle was ready to go, we started paying it and it was a split of the tax bill. And we agreed that we would start paying it as per portion which we did. And Michelle - Paul's accountant Michelle .. put the books into the ATO. So if there's no agreement whatsoever, why were we paying it at that split. And why were we paying at all. … That's why I don't understand why we're going round and round. And when the second ATO one went in through Michelle and Marty, who both worked for Paul, the same split then occurred when we had payments per month. Now, if there was no agreement, it seems very ironic that the same split occurred again, even though the ASIC Register at the time said fifty-fifty. I can't imagine Bill Yates and Michelle coming up with 67-32 or whatever the split was [62.5/37.5] themselves, without talking to both Paul and I or vice versa if you want to infer that. 82 The next thing of relevance that happened after the ATO letter of 24 June 2013 and the contended agreement at or about the time of that letter was a meeting on 5 July 2013 at the offices of MCG Group at 10.00am. Ms Civitarese gave evidence that she commenced making arrangements for that meeting a week or so beforehand. On 3 July 2013 Ms Williams sent an email to Bill McDonald proposing a meeting and setting out a list of persons who might attend including Bill McDonald, Mr Yates and Ms Civitarese. On 4 July 2013 Ms Williams sent an email to Bill McDonald, Mr Yates and others attaching an agenda for the meeting the next day. 83 Ms Civitarese gave evidence that she attended the meeting. Others who attended were Mr Morgan Lane from the firm Worrells, Mr Yates, Bill McDonald, Ms Williams, Mr Bristow by phone, Mr Matthew Burgess from McCullough Robertson solicitors and Mr Cliff. Ms Civitarese noted the names of the attendees on her copy of the agenda (Exhibit 16). 84 The proposition was put to Bill McDonald that three payments of $100,000.00 were to be paid to the ATO followed by a series of monthly payments of a much greater amount, $639,231.27, so as to enable the directors to "buy time with the ATO" because cash flows were "very tight" for both Bill and Paul McDonald and their respective entities and also to enable them to take advice about whether Fortrus Resources could be wound up without personal risk to either directors. Bill McDonald accepted that those two matters were "looked at". The first forum at which those matters seem to have been considered was the meeting of 5 July 2013. 85 Ms Civitarese said that the discussion followed the agenda items. The first item on the topic of the tax debt was a consideration of options in relation to it and particularly the question "can we aggressively and within reason make it disappear": Exhibit 16. The second item on the topic of the tax debt was, if yes to that question, what ramifications might arise for the directors concerning insolvent trading? Also, were there any other risks for the directors? As to Division 7A issues, how would the ATO or a liquidator of Fortrus Resources chase the debt and what risks would there be to related trading entities? As mentioned earlier, the first topic concerning the tax debt was raised in late May or early June by Mr Bristow who requested Ms Civitarese to seek advice about that matter from Worrells: T p 127, lns 42-43. 86 Bill McDonald could not recall whether he was at the 5 July 2013 meeting although he accepted that he may have been. Bill McDonald accepted that there was a discussion about the matters relating to the tax debt recited in the agenda items but was unclear about whether the discussion was at that meeting or other meetings. 87 On 26 August 2013 at 9.24am Bill McDonald sent an email to Ms Williams and Paul McDonald, copied to Mr Yates and Mr Cliff, on the topic "Fortrus Resources tax liability": Exhibit 1, p 58. In that email Bill McDonald asked Ms Williams "when does it suit to discuss this [topic] again". Bill McDonald also said: "we are available to come up to the Coast this evening or tomorrow afternoon?" 88 Ms Williams in response by email that morning said that she would check whether Ms Civitarese was available to attend a meeting to be held, possibly, the next day. Bill McDonald responded that morning suggesting a meeting the following day at 1.30pm and Ms Williams responded confirming a meeting to be held at Ftrus's Noosaville offices. Bill McDonald then sent an email to Ms Williams, Paul McDonald, Mr Cliff and Mr Yates confirming the meeting for 1.30pm the next day and advised that his party would leave Brisbane at 12 o'clock. 89 Ms Williams then asked Bill McDonald by email to send any information on the issue (again under the reference "Fortrus Resources tax liability") to her for preparation. Ms Williams confirmed that Paul McDonald would be at the meeting. 90 Bill McDonald rather thought in his initial material that the Noosa meeting took place on 8 September 2013 in response to a telephone call from Paul McDonald although in later material Bill McDonald thought the telephone call took place in August 2013. In any event, the above emails demonstrate the sequence of arrangements which led to the meeting at Noosa. 91 Bill McDonald accepted that at the meeting the option of liquidating Fortrus Resources was canvassed and that he and Paul McDonald were anxious to explore avenues "properly open" to avoid the "taxation consequences" of "what had occurred in [Fortrus] Resources in 2012 [the windfall gain]": T p 57, lns 43-45. Although Ms Williams had asked for information relevant to the meeting, Bill McDonald gave evidence that the participants knew the purpose of the meeting especially because Ms Civitarese would be attending the meeting. The proposition was put to Bill McDonald that as the payment arrangement with the ATO from three months earlier had already resulted in a consequential "firm binding agreement with Paul" as to how the tax would be paid, the question became why was it necessary to meet with Paul McDonald about the Fortrus Resources tax arrangements. Bill McDonald gave evidence that he and Paul McDonald had agreed (as already described) and that those arrangements had been implemented (T p 61, lns 36-37) and there was no need to reassert the arrangement because the purpose of the meeting was to investigate whether, "legally", Fortrus Resources could be wound up. The question was alive on Paul McDonald's suggestion. Bill McDonald already held tax advice that "it wasn't right": T p 61, lns 39-43. 92 The next meeting took place on 13 September 2013. 93 Those present were Mr Lane from Worrells, Ms Williams, Mr Bristow, Paul McDonald, Bill McDonald, Mr Yates, Mr Cliff and Ms Civitarese. On 10 September 2013 Mr Yates sent an email to Mr Bristow asking him to call to discuss where things "are at with the review you are doing re [Fortrus] resources": Exhibit 1, p 76. Mr Yates sent a further email later that day and Mr Bristow responded on 11 September 2013 enquiring whether Mr Yates was available to speak. On 11 September 2013 Mr Yates sent an email to Mr Bristow, Ms Williams, Ms Civitarese, Bill McDonald and Mr Cliff on the topic of "fortrus" saying: "We need to meet with the people providing advice on this matter specifically re the matter of winding up the trusts - can we do 9.00am Friday [13 September 2013] in our offices.": Exhibit 1, p 75. 94 The proposition was put to Bill McDonald that this meeting was the "only occasion - in September - when you and Paul had any discussions about the position of Fortrus [Resources], the ATO debt, and negotiating things about that; is that correct?" Bill McDonald said that he could not recall or remember. Bill McDonald gave evidence that there was an agreement reached "at some point [apart from the June 2013 contention] because we changed the payment plan and Paul paid according to that payment plan [the new plan]": T p 46, lns 44-46 [emphasis added]. 95 Bill McDonald gave evidence that the meeting on 13 September 2013 was called at the offices of MCG Group to examine whether Fortrus Resources could be wound up and while Bill McDonald was willing to listen to Mr Bristow's ideas, his fundamental intention was to see the tax debt paid and for Paul McDonald to contribute 37.5% of that amount: T p 49, lns 14-28. Bill McDonald did not accept that if his fundamental intention was to see the tax debt paid, and Paul McDonald contribute 37.5% to the payments made by MCG Group, that position must have been a substantial change in position because the previous position had been one of exploring options "to make the Resources tax liability go away". Bill McDonald accepted that at this meeting he said nothing: "to the effect that you wanted to pay the tax" T p 52, lns 43-45). He accepted that he was not opposed to liquidating Fortrus Resources provided that, doing so, did not "expose" him or Paul McDonald "personally" in any way and, in particular, to a risk of an allegation of insolvent trading: T p 53, lns 1-3. Bill McDonald agreed with the proposition that he was "supportive" of a proposal which might lead to a Deed of Company Arrangement ("DOCA") with the ATO which might see "the debt to the ATO paid off", without interest, over four years (T p 53, lns5-7) provided that doing so did not "expose" Bill or Paul McDonald "personally" and would not lead to a liquidator being appointed to Fortrus Resources: T p 53, lns 9-10. Bill McDonald added that the accountant and the solicitors had been looking into those matters. 96 Bill McDonald accepted that at the 13 September meeting the two options "on the table" were either liquidating Fortrus Resources or entering into a DOCA "if that could be done without risk": T p 53, lns 13-15. Bill McDonald added that a third option was to "simply pay the tax that's due" although he accepted that at the meeting he was not advocating adopting that option. The proposition was put to Bill McDonald that the purpose of the 13 September meeting was to discuss how to avoid Fortrus Resources paying the tax debt either by liquidating it or entering into a DOCA. Bill McDonald said that he would describe the meeting as "investigating whether it could" take either of those steps, one of which would see the tax debt paid over time and without interest: T p 57, lns 29-34; T p 53, lns 5-7. The split of the tax liability discussed at the meeting, in respect of a $4.8M tax debt, was one of attributing $1.8M of the debt to Paul McDonald and the remainder of the debt to Bill McDonald notwithstanding the ASIC Register of a 50-50 apportionment of the issued share capital in Fortrus Resources. 97 Bill McDonald accepted that "after the meeting on 13 September 2013" a decision was taken to do a number of things. One was investigate further or trace where the money lent by Fortrus Resources to the two shareholding entities "had actually gone". Another was to investigate (and take legal advice from counsel about) the risk to the directors of insolvent trading: T p 63, lns 20-46; T p 64, lns 1-5. Another was to file an amended return for Fortrus Resources to take account of omitted expenses. Another was to consider the possibility of Fortrus Resources entering into a DOCA once the other matters just mentioned had been addressed: T p 64, lns 7-18. Bill McDonald told the meeting on 13 September that there was no need to panic about getting these things done as the next instalment was not due for three weeks: T p 64, lns 20-27. 98 On 4 October 2013 Ms Civitarese sent an email to Ms Williams, Mr Yates, Mr Bristow, Mr Cliff and Bill and Paul McDonald seeking to organise a meeting at the offices of MCG Group for 10.00am on 14 October 2013: Exhibit 1, p 97. Ms Civitarese had spoken to the ATO and had tried to vary the payment plan by deferring payment of the 7 October 2013 instalment of $639,231.27 for two weeks. Ms Civitarese told the addressees that the ATO would not accept such an extension without entering into a "new payment arrangement" and receiving cash flow statements. Ms Civitarese told the addressees that "we have seven days from the due date to pay" and the ATO would be "waiting" on a call from her in the afternoon of 14 October for advice about when the payment would be made. Ms Civitarese made some comments in the email about adjustments to the tax debt. Ms Williams confirmed on 8 October 2013 that she and Paul McDonald would be at the meeting. 99 Bill McDonald, in his first synopsis of the evidence he would give, seems to have thought Paul McDonald was present at the meeting and later changed that recollection to one of Paul McDonald having been present on the phone from overseas. Bill McDonald gave evidence that he should have been clearer in his summary but he regarded participating in a meeting by teleconference as being present at a meeting. Bill McDonald also thought in his summary of evidence that Mr Bristow was present by "Skype". Also in a later summary of evidence, Bill McDonald said that the meeting that he was there describing occurred on 13 September 2013 and a later meeting occurred on 14 October 2013, but Paul McDonald was overseas. 100 Bill McDonald accepted that he might have joined the two meetings together in his recollections. Bill McDonald did not accept, in cross-examination, that his recollection was "far from perfect". Nor did he accept that his case was that because payments were made in proportion to the shareholding interests (62.5/37.5) "there must have been an agreement". Bill McDonald reasserted the making of an oral agreement in or about the time of the 24 June 2013 ATO letter as earlier described and responded in the way quoted at [57] of these reasons. 101 The exchanges which occurred on 14 October 2013 after the meeting concerning payment of the instalment and the propositions put to Bill McDonald arising out of them are described at [58] and [59] of these reasons. 102 The next instalment of $639,231.27 was due on 5 November 2013. It was not paid. On 11 November 2013 Ms Civitarese sent the email to Mr Yates and Ms Williams described at [78] of these reasons saying that she had applied to the ATO for "a three year loan" at $135,000.00 starting now and the "old payment plan" with the ATO "has been cancelled to avoid default". The ATO required 28 days to consider the new plan. Ms Civitarese's negotiation of a new payment plan involved adjustments to the tax debt to take account of legal and other expenses paid by MCG Group on behalf of Fortrus Resources. 103 Mr Yates agreed that it would help the proposal to the ATO to immediately pay $135,000.00. The exchanges leading to the payment and the contribution by Ftrus are described at [78] of these reasons. Although Ms Civitarese had on or about 11 November 2013 raised her proposal with the ATO for a new three year plan, Mr Bristow had also had a thirty minute conversation with the ATO on 14 October 2013 foreshadowing a new three year payment proposal. 104 On 12 November 2013 Ms Williams told Mr Yates that Mr Bristow was conducting the negotiations with the ATO. Ms Civitarese told Mr Yates that she had spoken to Mr Bristow about the proposed $135,000.00 payment and he agreed that a payment had to be made although the ATO had not said "how much and when". The payment of $135,000.00 was paid by MCG Group and $50,625.00 reimbursed by Ftrus. 105 By 26 November 2013 Bill McDonald was anxious to complete documentation for "payment of our percentage of the tax now". He added: "I am not interested in getting a statutory demand or being put into liquidation by the tax office". Bill McDonald said in his email that he would contact Paul directly "if there is an issue": Exhibit 1, p 129. 106 On 27 November 2013 the ATO, by letter, rejected the application for a new payment plan. The reasons are set out in the ATO's letter. At 11.00am on 3 December 2013 another meeting occurred at the offices of MCG Group. Mr Yates, Mr Ellem, Mr Bristow, Ms Williams, Mr Cliff and Bill McDonald were present. Paul McDonald was on the phone to Mr Bristow. In the course of the meeting Mr Bristow sent an email to Paul McDonald saying: "I told them clearly that you are not willing to make an up-front payment. Bill seems to have accepted this. We are in the conference room now on the phone with the ATO. I'll keep you posted": Exhibit 1, p 141. Plainly, Paul McDonald was not prepared to contribute to any immediate up-front reduction of the debt. On 4 December, Bill McDonald sent an email to Mr Yates, Mr Bristow, Ms Civitarese, Paul McDonald and Mr Cliff saying that if the ATO rejects the revised returns "you need to think of how you want to pay the roughly 1.4 million in your share of the Tax, I will not be funding that if it is required to be paid by the ATO shortly": Exhibit 1, p 143. 107 Emails were exchanged on 3 and 4 December between Mr Yates and Ms Civitarese concerning adjustments to the accounts and the Fortrus Resources tax return. On 3 December, after the meeting, Mr Yates sent an email to Ms Civitarese and Mr Bristow attaching a draft of a letter to be sent to the ATO under Bill McDonald's signature in response to the ATO's 27 November 2013 letter. Mr Yates advised that Bill McDonald and Mr Cliff were content with the proposed letter. Mr Yates also addressed Mr Bristow in the email asking him to note the $135,000.00 payment due on Friday 6 December "of $135k this Friday- split will be 50,625 [37.5% - Paul's entities' share]/84,375 [62.5% - MCG Group]": Exhibit 1, p 148. 108 The discussions with the ATO on 3 December are noted in the proposed draft letter. The proposed payment plan contemplated an immediate up-front payment of $1M towards the tax debt and 18 equal monthly instalments thereafter including interest. The letter notes a revision to the tax return to be resubmitted giving rise to an amended tax liability. The letter notes payments to date by the directors of $1.074M and confirms a payment of $135,000.00 to be made on 6 December 2013. The letter dated 4 December 2013 was sent to the ATO signed by Bill McDonald. On 6 December 2013 Mr Yates sent an email to Mr Bristow, copied to Ms Williams, Paul and Bill McDonald and an MCG Group person, Mark Tucker, requesting Mr Bristow to "organise to have Paul's share of today's tax payment of $135k/$50,625 eft'd to the MCG Group NAB account as per previous payments": Exhibit 1, p 159. Ftrus paid MCG Group on 9 December 2013. 109 On 13 January 2014, Mr Yates sent an email to Ms Williams and Paul McDonald, copied to Bill McDonald and Mr Tucker, saying that the ATO had not yet responded to the December proposal (in the 4 December letter) and although further inquiries would be made of the ATO within a few days, Mr Yates recommended making a further monthly payment of $135,000.00 as a demonstration of a commitment to pay the tax debt. Mr Yates proposed a payment of "$135k tomorrow - the split as before i.e. MCG $135k and Fortrus [Ftrus] pays MCG $50,625". 110 On 15 January 2014 the ATO responded saying that in order to consider an arrangement for payment of the tax debt, a range of further identified extensive information would need to be provided concerning the entities making the payments including all of the usual financial statements, cash flows, etcetera. 111 On 20 January 2014 Mr Yates sent an email to Ms Williams and Mr Bristow, copied to Paul McDonald, Bill McDonald, Ms Civitarese and Mr Cliff in which he said that the draft response to the ATO (responding to the extensive letter of 15 January 2014) will show the two Fortrus Resources shareholders repaying their respective loan balances (to Fortrus Resources) to fund the repayment of the tax liability: Exhibit 1, p 169. The proposal would involve an up-front payment of $1M then 18 monthly repayments of the balance. The proposed response recites a tax debt of $3,940,524.00 apportioned $2,462,827.00 to "Bill/MCG" (62.5%) and $1,477,697.00 to "Paul/Fortrus" (37.5%). The up-front payment of $1M would be split $625,000.00 to Bill/MCG and $375,000.00 to Paul (Ftrus). The 18 equal monthly payments would be split $1,837,836.00 to Bill/MCG (at $102,102.00 each month) and $1,102,698.00 to Paul/Ftrus (at $61,261.00 each month). 112 Mr Yates asked for a monthly cash flow forecast to support Ftrus's monthly payment of $61,261.00. Paul McDonald continued to resist any up-front payment from Ftrus (or otherwise) and on 28 January 2014, Ms Civitarese certified, as the accountant for Fortrus Resources and Paul McDonald and his associated entities, that due to investments in the United States "Paul and his group are unable to commit to an up-front payment to the ATO at this time": Exhibit 1, p 177. Ms Civitarese also certified that: "The group can however continue to make monthly payments in order to bring the debt to the [ATO] for Fortrus Resources Pty Ltd to nil": Exhibit 1, p 177. 113 Fortrus Resources responded to the ATO by letter dated 29 January 2014 signed by Bill McDonald; Exhibit 1, p 181. Bill McDonald gave evidence that a letter was not written by him. That seems clear enough from its terms and style. The proposal (at point 2) was that the tax debt of $3,940,524.10 would be repaid commencing February 2014 by 24 equal payments of $164,188.50. If those payments were split 62.5% to Bill/MCG Group the monthly payment would be $102,617.81 and in the case of Paul/Fortrus [Ftrus], $61,570.69. The proposition recited at point 3 (in part) of the letter is this: The Directors have secured the undertaking of MCG Group/Bill McDonald and Fortrus Pty Ltd/Paul McDonald to make monthly repayments of their respective intercompany/shareholder loans to fund the payment plan as per point 2. I note that the ATO has in their letter dated 27 November commented that the significant intercompany loans should be called in order to repay the ATO. 114 Bill McDonald says that he has never had a conversation with Paul McDonald about repayment of the Division7A loans. Bill McDonald gave evidence that the accountants (including Mr Yates) may have chosen to characterise the payment arrangement in that way but it was not something that he discussed with Paul McDonald. 115 On 12 February 2014 the ATO accepted the repayment proposal: Exhibit 1, p 201. The repayment schedule recites 23 instalments commencing on 3 March 2014 of $164,189.00 and the final payment on 3 February 2016 of $650,633.17. MCG Group paid the first instalment on 4 March 2014. On 4 March 2014 Mr Yates sent an email to Mr Tucker (MCG), Bill McDonald, Ms Williams, Mr Bristow and Ms Civitarese saying that the tax instalment due yesterday is being paid now and added (Exhibit 1, p 224): Marty/Elisha can you remit your share to mcg today? [Account Numbers recited] Split is Bill 62.5% $102,618.13 Paul 37.5% $61,570.88. 116 On 5 March 2014 Mr Yates sent an email to Ms Williams, Bill McDonald and Paul McDonald asking for confirmation that the "$61k be paid to MCG today please": Exhibit 1, p 223. 117 On 1 April 2014 Mr Yates sent an email to Paul McDonald, Mr Bristow, Ms Williams, copied to Bill McDonald saying (Exhibit 1, p 229): People The next tax instalment for Fortrus is due this Thursday for $164k. Can you please advise when the Fortrus share of $61.5k for April and March i.e. $123k in total will be paid. 118 On 3 April 2014 MCG Group paid the ATO the next instalment of $164,189.00. On the same day Mr Tim Novell and Mr Yates sent an email to Mr Bristow, Paul McDonald and Ms Williams, copied to Bill McDonald and Mr Tucker pressing for confirmation of the date when MCG would be paid $123,000.00. 119 On 8 April, over four months after the proposal to the ATO 4 December 2013 and the sequence of exchanges leading to the 29 January 2014 letter to the ATO and the two interim payments of $135,000.00 split as described, Ms Williams sent an email to Bill McDonald attaching a letter from Paul McDonald to Bill McDonald" Exhibit 1, p 235-236. In that letter Paul McDonald returned to things said at the meeting on 3 December 2013 prior to all of the various steps taken after that meeting, between the various actors, leading ultimately to the ATO's letter of 12 February 2014. Paul McDonald put his position in these terms: Dear Bill, I am writing to you today to confirm my position with Fortrus Resources Pty Ltd. On or about 3rd December 2013 Martin Bristow and Richard Ellem met with you at your offices in Brisbane to discuss the position of Fortrus Resources Pty Ltd. Through these discussions, Martin had informed you that I would only be able to pay $50,000 a month for the taxation bill that Fortrus Resources Pty Ltd owes to the Australian Taxation Office (ATO). I also confirmed this with you on a telephone conversation that we had that same day. Since then my position has changed. On or about the 7 March 2014 I telephoned and verbally indicated to you my new position and told you that I would not be paying and could not pay any amount for the Fortrus Resources Pty Ltd taxation bill to the ATO. As well as this discussion, Martin Bristow has also informed you on many telephone calls as well as face to face of this new position. On the 4th April 2014 I again inform[ed] you of my position and made it very clear that I am unable to make any payments to the ATO since the new payment schedule came into effect as at March 2014 for the taxation bill that Fortrus Resources Pty Ltd has with ATO. I have no other choice but to request that we wind up the company and close down Fortrus Resources Pty Ltd. If you wish to have the company remain open you will have to take the responsibility of the taxation that Fortrus Resources Pty Ltd owes to the ATO. I hope I have been clear on my commitment and wait on a response of your position. [Emphasis added] 120 Bill McDonald responded on 22 April 2014 in these terms (Exhibit 1, p 237): Paul, I refer to your letter of 8 April. Put simply I do not accept your position or that you are unable to contribute to the payment of the ATO debt commensurate with your shareholding in the company. In September 2013 we reached an agreement that you would meet your share of the ATO Debt. In December I spoke with Marty and Richard and the only resolution was to improve upon the payment plan with the ATO. Marty put your position but I did not accept it then and I do not accept it now. You have not proffered any explanation for your inability to meet the ATO Debt. The only agreement we have is the one we reached in September. Fortrus Resources has more than sufficient assets to meet the tax liability and therefore it cannot be wound up. Further as a corporate entity it is not the case that you can request or require me to take responsibility for the ATO Debt of the company. In the circumstances I require you to make your contribution to the ATO Debt as we agreed. You can either reimburse me the amounts already paid on your behalf and pay the ATO direct moving forward or you can pay your monthly contribution to the ATO Debt to me and I will then facilitate the payment on behalf of the company. [Emphasis added] 121 On 22 April 2014 Bill McDonald also sent an email to Ms Williams responding to her email. Bill McDonald reasserted the position in these terms (Exhibit 1, p 239): … To be clear this is a Fortrus Resources debt being a company of which Paul remains a director and shareholder. Paul will meet the terms of the agreement we reached in September last year by paying his share of the ATO debt commensurate with his shareholding. This is not a debt for which I am personally responsible or liable. [Emphasis added] 122 On 30 April 2014 Paul McDonald sent an email to Bill McDonald in these terms (Exhibit 1, p 249): After speaking to you on Monday again I thought I had made it clear on my position which I have made absolutely clear on several other occasions. I do not have the funds to contribute to the Fortrus Resource's ATO payment. There has been no agreement reached (to which you keep referencing) and I have not authorised you to pay any contribution on my behalf since I have informed you of my financial position. To make it clear again I do not have the funds and believe that Fortrus Resources must be wound up or liquidated. As Directors I believe we must make this call in the interests of the creditors. We are seeking legal advice on the tax issues and will inform you in due course. [Emphasis added] 123 Of course, the only creditor was the ATO. 124 On 29 April 2014 Paul McDonald sent an email to Ms Williams and others describing his attempts to telephone Bill McDonald on 26 April and 27 April to catch up with him: Exhibit 1, p 245. In that email Paul McDonald says that he spoke with Bill McDonald on 28 April 2014 and told him "what we have been saying to him since September 2013". Paul McDonald sets out seven points and says that because the United States business was a "complete failure" the "[b]ottom line" is that Paul McDonald does not have "the money to contribute to Fortrus Resource['s] tax bill." That exchange no doubt led to Paul McDonald's email of 30 April 2014 at [122] of these reasons. 125 On 26 May 2014 Bill McDonald sent an email to Paul McDonald, Ms Williams, Mr Bristow and Mr Cliff: Exhibit 1, p 289. In that email he said this: Marty, you requested that I wait till you get more advice, I have done so. I have been trying to call for a week and a half now and you won't answer phone. Paul, the tax is not my problem, it's yours. I am not going to fund your share while you are sitting on assets, you don't even have the respect to try and cut a deal with me on it. If I don't hear back from you by 4 today you leave me no choice but to instruct Dale to file. I have done nothing wrong. 126 On 18 June 2014 the solicitors for Paul McDonald wrote to the solicitors for Bill McDonald reciting Paul McDonald's instructions that at no time did he on behalf of Fortrus Pty Ltd or any other entity enter into an agreement with the MCG Group, whether on the terms described or otherwise, any other similar agreement. That letter resulted in response from Mr Cliff of 18 June 2014 by which the parties seek to join issues on various contentions and cross-contentions. Other exchanges occurred. Ultimately, on 14 October 2014 Bill McDonald sent an email to Paul McDonald, Ms Williams and others in which he said this (Exhibit 1, p 317): Paul, we have been very patient with this, however that has now finished as I have not heard from you for quite some time. Would have thought that if you owed someone a considerable amount of money that you would be in regular contact. Can you give me a plan by three o'clock tomorrow on how you are going to pay me. Other wise you leave me with no choice. We did a deal, you need to hold your end of it up now. I will move to collect. 127 On 18 October 2014 Paul McDonald responded in these terms (Exhibit 1, p317): Sorry for the late reply I have been dealing with some personal issues. I agree that the funds are owed as per the documented loan agreement from the McDonald Family Trust to Fortrus Resources Pty Ltd. I am not aware of any other loans between any entity of mine or any entity of yours. I believe there may be a way to resolve this matter, I reiterate my offer for Martin Bristow to sit down with your accountant to work towards a resolution. If you could arrange a time and place for this meeting it would be appreciated. If you have any questions please give me a call. 128 On 16 December 2014 the ATO entered into a further repayment plan with Fortrus Resources. That plan contemplated 18 payments of $164,189.00 between 3 February 2015 and 4 July 2016 with the final payment on 3 August 2016 of $30,853.84. 129 On 16 March 2015 Mr Cliff wrote a letter to the solicitors for Paul McDonald: Exhibit 1, p 355. In that letter he said this: We refer to previous correspondence regarding the outstanding tax liability of Fortrus Resources Pty Ltd. On 14 October 2013 your client Mr Paul McDonald agreed with Mr Bill McDonald to meet his share (being 37.5%) of the outstanding tax liability of Fortrus Resources. He agreed that he would pay 37.5% of the monthly instalments that were to be negotiated with the ATO. Bill agreed to pay the full instalment each month. Paul agreed to pay to Bill the 37.5% share within 7 days. We use the names Bill and Paul generally to apply to each of them and their related entities. …. Please understand that our client will not be involved in a scheme to avoid the payment of income tax. Attached is a schedule prepared by our client setting out the outstanding amount payable pursuant to the agreement reached on 14 October 2013. The amount outstanding is currently $800,421.38. That amount increases by the sum of $61,570.88 every month. [A demand for payment was then made]. [Emphasis added] 130 In Paul McDonald's foundation letter of 8 April 2014 quoted at [119] of these reasons setting out his position, Paul McDonald asserted two propositions. First, at the meeting of 3 December 2013 he made his position plain that he could only afford to contribute $50,000.00 a month to the tax debt. Second, as from 7 March 2014 the position had changed such that he could no longer contribute anything to the tax debt payments. 131 In cross-examination the proposition was put to Bill McDonald that notwithstanding Paul McDonald had, through Mr Bristow, made plain that he could only contribute $50,000.00 per month to the instalments, Bill McDonald nevertheless later on asserted that Paul McDonald's share of the instalments was "$60,000 - odd". Bill McDonald observed that that was in relation to the "new payment plan". Bill McDonald accepted that the meeting of 3 December 2013 broke up without any "new agreement" T p 73, ln 35-44; T p 74, lns 1-2. Bill McDonald was insistent, at the meeting, that he wanted more than $50,000.00 and observed that "they [Paul McDonald, Mr Bristow, Ms Williams and probably Ms Civitarese] were going to come back to us … under the new payment plan .. of around 62,000.00": T p 73, lns 46-47. Nevertheless at the meeting Mr Bristow said that all Paul McDonald would pay was $50,000.00. After the meeting Paul McDonald spoke with Bill McDonald on the telephone. Bill McDonald agreed that he may "possibly" have left Paul McDonald with the impression in that call that he accepted $50,000.00 was "as much as [Paul McDonald] could muster": T p 74, lns 13-16. After that "a couple of phone calls" between Paul and Bill McDonald occurred. Paul McDonald stopped contributing any amount to MCG Group in payment of the instalments. Bill McDonald said that MCG Group kept paying the instalments because "we had entered into a payment plan with the ATO": T p 74, lns 45-46. Although the proposition was put to Bill McDonald that he caused the payments to be made because he did not want to see Fortrus Resources wound up by the ATO, he responded that as directors and shareholders Bill McDonald and Paul McDonald had entered into a "payment plan" with the ATO "second time round that we would pay the - pay it - pay the tax": T p 75, lns 3-5. 132 Bill McDonald accepted that when the question of winding up was being investigated as a result of the earlier meetings, Paul McDonald's position was that he wanted to see Fortrus Resources wound up and that later he also took the position that he wanted to see Fortrus Resources wound up due to the contended "severe cash flow problems" due to the failure of his American investments. Bill McDonald contended that, notwithstanding those claims, "there's plenty of cash there": T p 75, lns 13-17. 133 Having considered all of these matters, it seems to me that the position is this: (1) I am satisfied that it is much more likely than not that in or about 26 or 27 June 2013 as a result of the instalment plan having been agreed with the ATO as reflected in the ATO's 24 June 2013 letter, Bill McDonald made a telephone call to Paul McDonald in the United States probably in response to Paul McDonald's request as reflected in the email of 26 June 2013. (2) I am satisfied that it is much more likely than not that in the course of the telephone discussion between the two brothers arrangements were made between them for the payment of the instalments. Both Bill and Paul McDonald knew and understood from the moment of the making of the windfall gain that they would have to pay the tax payable by Fortrus Resources in about June 2013. The obvious happened. The tax became payable. It could not be paid by Fortrus Resources because each brother had received $7.5M from the company. Because the brothers accepted that the tax debt had to be paid, an arrangement had to be struck between them for the monthly incremental payment of it. I am satisfied that it is much more likely than not that in the course of the telephone conversation Bill McDonald suggested to his brother that he (Bill McDonald) would cause the tax to be paid and that Paul McDonald would then cause Bill McDonald to be reimbursed the amount of Paul McDonald's proportion of the tax debt that they had agreed to cause to be paid (which, in Paul McDonald's case, was a 37.5% interest rather than a 50% interest in accordance with the issued share capital in the company as recorded with ASIC). That was so notwithstanding that neither of them personally nor their individual controlled entities owed the tax debt. They had agreed to pay the tax debt of Fortrus Resources and they needed to make arrangements about how that would be done. That is precisely what they did. Paul agreed with Bill McDonald as to the method. (3) I am thus satisfied that it is much more likely than not that an agreement was reached to the effect that Bill McDonald would cause the whole of the instalment to be paid to the ATO and Paul McDonald would pay Bill McDonald 37.5% of the instalment so paid, each brother recognising that because Fortrus Resources did not have the immediate cash to pay the tax liability they fully expected to fall in, in June 2013, each brother would need to find the cash to make the monthly payments either by themselves or by entities they controlled. No doubt the accountants would make consequential changes to loan accounts. (4) Thus, I am also satisfied that it is much more likely than not that Paul McDonald's recollection on the question of a telephone exchange in or about 26 June 2013 is, at least, incorrect. (5) I am also satisfied that it is much more likely than not that the arrangement reached between the two brothers in the telephone conversation in or about 26 June 2013 was one in which Bill and Paul McDonald bound each other to an agreement which would be given effect by each of them nominating an entity within their control which would, in the case of Bill McDonald, cause the instalment to be paid to the ATO and in the case of Paul McDonald cause the reimbursement to be made to Bill McDonald with, no doubt, the funds so paid being paid into the account of Bill McDonald's entity which had effected the payment of the instalment to the ATO. (6) The agreement so made in or about 26 June 2013 contemplated a series of monthly payments reflected in the ATO letter of 24 June 2013. I accept that as the agreement became implemented by actual performance of its terms by the payment by MCG Group of the first three instalments of $100,000.00 and the first three reimbursement payments of $37,500.00 by Fortrus (later called Ftrus), the parties embarked upon an examination of whether Fortrus Resources ought to be wound up; whether the company ought to propose to the ATO a DOCA; and whether there was any risk of the directors being liable for acts of insolvent trading on the part of the company. I accept that those topics were discussed at a meeting on 5 July 2013 and further examined in the meeting of 13 September 2013. On 14 October 2013 a further meeting occurred at which these questions were discussed again. Notwithstanding the debate about those possible options, Paul and Bill McDonald were required to confront the reality, pressed by the ATO, of the 14 October 2013 payment. It was made by MCG Group and was the subject of a reimbursement by Ftrus on 25 October. That payment was consistent with an enduring course of conduct by which Bill and Paul McDonald through their various actors, acting with their instructions, continued to give effect to the payment/reimbursement agreement/protocol earlier put in place. (7) The original instalment plan reflected in the letter of 24 June 2013 was set aside by the ATO so as to avoid default under the plan arising. That step is to be seen in the light of a new proposal to be put to the ATO to try and establish a new payment agreement. Paul McDonald was keen to see the repayment arrangements stretched out as much as possible due to his contended cash flow difficulties. Nevertheless the representatives of Bill McDonald and Paul McDonald engaged quite vigorously in seeking to advance with the ATO the merits of a new payment plan and with a view to instilling confidence in the ATO that under a new payment proposal the tax debt would actually be paid, the parties elected to make not one but two payments of $135,000.00. They did that in an entirely unsurprising way. MCG Group paid both instalments of $135,000.00 and Ftrus (or another controlled entity of Paul McDonald acting for Ftrus) paid MCG Group two amounts of $50,625.00 representing 37.5% of those instalments. (8) I am also satisfied that it is much more likely than not that Paul McDonald knew and instructed his people, Mr Bristow, Ms Williams and Ms Civitarese to agree to the payments of $135,000.00 and more particularly to agree to a continuation of the reimbursement arrangement earlier reached between Bill and Paul McDonald. (9) The ATO rejected the proposal for a new repayment plan. That resulted in a series of engaged exchanges between Mr Yates for Bill McDonald and Paul McDonald's representatives. As the examination of the exchanges described in these reasons reveals all of the various actors were included in the exchange of emails now taking place on the topic of yet another payment proposal to the ATO. That proposal was initially framed by Mr Yates and circulated to Paul McDonald and his advisors for consideration. They considered it. They responded to it. It contemplated an up-front payment. Paul McDonald refused to contribute to an up-front payment. Mr Bristow made that plain. The proposal then put to the ATO with the knowledge and approval of Paul McDonald's advisors involved a series of monthly payments to be made to the ATO. The exchanges between Bill and Paul McDonald and their advisors make it plain that Bill McDonald was going to assume 62.5% of the obligation to the ATO and Paul McDonald would assume 37.5% of that obligation, over time, as each instalment was paid. It would be effected in the usual way. (10) It is perfectly true that at the meeting on 3 December 2013 Mr Bristow said that Paul McDonald could and would only contribute $50,000.00 to the repayments. That position seems to have been overtaken in the course of the negotiations between the advisors to each of Bill and Paul McDonald as it seems plain that the exchanges in relation to the new payment plan put to the ATO involving monthly payments of $61,250.00 was not the subject of any objection taken by Ms Williams, Mr Bristow, Ms Civitarese or Paul McDonald until 8 April 2014. (11) The prima facie difficulty with Paul McDonald's letter of 8 April 2014 is this. Paul McDonald had been content as expressed through Ms Williams and Mr Bristow (and, of course, plainly enough, on his own part) to contribute to MCG Group reimbursement payments of 37.5% of the actual payment made by MCG Group to the ATO. That happened only because of the June 2013 agreement. Through those acting for him, Paul McDonald participated in a very engaged way in negotiations with the ATO for the new payment plan. The payments, initially suggested as 18 monthly payments (after an up-front payment - although any up-front contribution was rejected by Paul McDonald) were predicated, as Mr Bristow and Ms Williams knew, on a split or contribution ratio of 62.5% and 37.5% with MCG Group actually making each monthly payment as had occurred before. Paul McDonald had indeed said, through Mr Bristow, at the 3 December 2013 meeting that his contribution would be limited to $50,000.00. As mentioned above, that matter, however, seems to have been overtaken by the very engaged negotiations for the new payment plan with the ATO. That was certainly the evidence of Bill McDonald. In the 8 April 2014 letter, Paul McDonald goes to an anterior position as an answer to his unsurprisingly expected reimbursement contribution. Having engaged, through his advisors (which must certainly have occurred with his instructions) in the negotiation of the monthly repayment proposal with the ATO and having seen it reach fruition, Paul McDonald then resiled entirely from any further reimbursement contribution to the new monthly arrangements at all. In other words, the view seems to have been: now that the new repayment agreement is in place with the ATO, you Bill McDonald can make all the payments to the ATO. If Paul McDonald and/or Ftrus was no longer able to contribute to the new agreement reached with the ATO, on the historical or course of conduct reimbursement basis, perhaps the question Paul McDonald needed to ask his advisors in light of his contended desperate cash flow circumstances, as an explanation for his inability to pay any part at all of the reimbursement contribution as it fell due, was whether Ftrus ought to be wound up and/or whether Paul McDonald ought to consider the appointment of a trustee of his estate under the Bankruptcy Act 1966 (Cth). Paul McDonald seems to have been conscious at least by 7 April 2014 that he and Ftrus were unable to pay any contribution (even one dollar) as each monthly contribution to MCG Group fell in. Paul McDonald and Ftrus and/or Ftrus Charters defaulted at the very outset from 4 March 2014. (12) At the conclusion of the trial in the course of oral submissions I expressed observations to counsel for Paul McDonald that I held serious reservations about the evidence Paul McDonald had given of particular topics. For example, Paul McDonald was plainly obfuscating the extent of his assets and knowledge about his assets. He was asked about the property he lived in at 22 The Anchorage, Noosaville. He was asked for his estimate of what the house might be worth. He said that he had "no idea". No doubt, because he said that he had no idea of the worth of a property at that address he was then asked how much land was involved. He said 820 metres approximately. He said it was land and a house (residential premises). Later in his cross-examination a proposition was put to him that the position seemed to be that the house property was "currently on the market". Paul McDonald agreed that it was on the market for sale. He was then asked the asking price for the property and he said that he understood it to be $7.5M. Paul McDonald must have known that the asking price for the residential property occupied by him and his wife (which he later agreed was owned 99/100th by his wife and 1/100th by him) approximated the worth of the property and thus his initial answer could not have been frank. He was then asked whether the property was mortgaged and like his earlier answer about value he said: "I have no idea". When challenged about whether he was seriously contending that he had no idea of whether there was a mortgage over the property or not he said: "I think it may have but I am not 100 per cent sure". He said that "probably our accountant or Elisha Williams" "makes the mortgage payments". He was asked where the money comes from to make the mortgage payments if there is a mortgage and he said: "I don't know". When asked whether he knew what bank might hold the mortgage he said: "No idea". When presented with a property search of the property at 22 The Anchorage, Noosaville showing the 99/100-1/100 ownership split, Paul McDonald accepted that the only mortgage on the property was a mortgage in favour of Fortrus Australia Pty Ltd. He was asked whether that was a company controlled by him. He said: "I don't know who controls that company". He accepted that he "probably" had "heard" of that company although he probably has "50 companies". He was asked whether he was a director of that company. He said: "I've got no idea". He said that: "Marty Bristow, the accountants and my advisors look after all that". He was asked how much Fortrus Australia Pty Ltd was owed under the mortgage. He said: "I have no idea". The following proposition was then put to Paul McDonald to which he gave the following response (T p 117, lns 9-15): Q. So you live in a house with your wife, in which you have a very small interest, worth seven and a half million dollars, which is mortgaged to a company which you may be a director of, which you currently have listed for sale at seven and a half million dollars, and you tell us that you have no assets available to meet this tax debt to Fortrus Resources; is that right? A. I have no cash to meet this tax debt. (13) Counsel for Bill McDonald came back to the issue of Fortrus Australia Pty Ltd and suggested to Paul McDonald that a company search of that entity shows that Paul McDonald is the sole director and shareholder of the company. Paul McDonald said: "I have got no idea whether I am or not, but if the company search says that I - if it says that, yes, I am". Paul McDonald was asked: "But you don't understand why the house that you and your wife own is mortgaged to a company of which you're the sole director and shareholder"? Paul McDonald answered: "No". Paul McDonald accepted that since he was the sole director of the company he had an obligation to know its business and what it was doing. The search of the property revealing the mortgage suggests that Fortrus Australia Pty Ltd is the trustee of the trust. Paul McDonald was asked this: "And it [Fortrus Australia Pty Ltd] has taken a mortgage from you and your wife and you say that you have no idea that that even occurred? Is that right?" Paul McDonald answered: "Yes. You get a lot of documents put in front of you and one hasn't got enough time to read them all, so you trust the people who do it for you and you sign it.": T p 120, lns 2-4 (14) In re-examination, Paul McDonald was asked by his counsel a question about Paul McDonald's dealing with his accountant, Ms Civitarese. He was asked whether he dealt directly with her often and he answered: "Very, very rarely. Very, very rarely.": T p 120, lns 41-42. (15) Paul McDonald in evidence had a disposition to emphatically state a position. An example is the above answer to the question about Ms Civitarese. Another example is the emphatic way he sought to demonstrate that there could not have been a conversation with Bill McDonald in June 2013 because they very rarely spoke on the phone. These matters of emphasis might simply be matters of judgment reflecting excess to make the point. That, however, is not true of the answers Paul McDonald gave to the questions about his assets. His contention is that he simply had nothing to contribute by way of reimbursement of 37.5% or at all of the instalments paid by MCG Group to the ATO. Not surprisingly he was challenged about that by reference to his asset position, including the sale of the boat by the Cayman Island entity, Fortrus Charters, for USD8,840,000.00 closing in early July 2013. (16) I remain of the view that Paul McDonald was not answering these questions frankly. He knew a great deal more about the financial position concerning the property and Fortrus Australia Pty Ltd than that reflected in his answers. When it became apparent, for example, that counsel for Bill McDonald had knowledge of the listing of the residential property for sale, Paul McDonald then became forthcoming about some factual matters such as the listing price. I do not accept that Paul McDonald did not know of Fortrus Australia Pty Ltd, his position in it, its trustee capacity and the mortgage. He was engaging in obfuscation in answering these questions. I am satisfied that he was engaging in the same process when answering questions about the agreement he reached in June 2013 with his brother on the telephone concerning the relatively simple and straight forward arrangement by which he promised to pay or cause to be paid to Bill McDonald (through whatever entity Bill McDonald selected) a reimbursement share of the monthly tax instalment each of them had agreed they would need to pay notwithstanding that, first, the tax debt was actually that of Fortrus Resources and second, the relevant payment would be effected through or by a controlled entity of each of them. (17) As to the matters described at (12) to (16) see T p 102, lns 1-40; T p 103, lns 11-40; T p 115, lns 18-47; T p 116; T p 117, lns 1-15. (18) The agreement was made in June 2013. The agreement was not made on 13 September 2013 or 14 October 2013. The meeting of 13 September 2013 was concerned with an examination of other options to see what might be lawfully and properly possible while trying in parallel to sustain a continuing repayment plan with the ATO to stretch out the repayments over a manageable time. The options being examined and to be further considered involved the possibility of liquidation of Fortrus Resources, the possibility of a DOCA with the ATO and an assessment of the risks to which the directors might be exposed. Nevertheless, the participants were seeking to sustain a repayment arrangement with the ATO during the course of the examination of the options. As Bruce McDonald said of the 13 September meeting, the only resolution of that meeting was to "improve upon the payment plan". Whatever payment plan might come to pass, it was to operate on the "split" basis upon which all the discussions proceeded. The meeting of 14 October 2013 was not the source of the agreement. Mr Cliff was simply wrong about that matter. That meeting was concerned with a continuing examination of the basis for a possible new payment plan, stretched over time, as the exchange of emails discussed earlier shows. It also dealt with the payment of the next instalment of $639,231.27. That payment was dealt with according to the then orthodox continuing payment arrangement reached between the brothers and given effect to by Paul McDonald's advisors or as he put it, leaving aside Mr Bristow, "the girls". Paul McDonald agreed to the new ATO plan ultimately the subject of the ATO letter of 12 February 2014. That new plan had been negotiated with the extensive engagement of Paul McDonald's advisors on the plain footing that "the split" was to continue. On 7 April 2014 Paul McDonald repudiated the subsisting agreement. Bill McDonald refused to accept that position and affirmed the contract as varied so as to accommodate the new plan of 12 February 2014. (19) The claim of the applicant is made good. (20) Paul McDonald and Bill McDonald in their discussions used, not surprisingly, informal terms such as "we", "us" "our companies" and other personal possessive terms. The agreement was not made directly with a particular entity, in terms. It was made between the two brothers directly on the footing that each of them would give effect to the agreement through entities they controlled. As it happened, Bill McDonald used, administratively, the vehicle of MCG Group, a controlled entity of MCG Corp which was ultimately controlled by Bill McDonald. MCG Group thus became the relevant entity and, properly viewed, a party to the agreement together with Bill McDonald. As it happened, Paul McDonald nominated Fortrus Pty Ltd which then became Ftrus Pty Ltd, which became the relevant entity for Paul McDonald and a party to the agreement together with Paul McDonald. (21) I am satisfied that the applicant has made good the agreement by which Paul McDonald and Ftrus became obliged to pay reimbursement amounts monthly at 37.5% of the instalment paid by Bill McDonald and MCG Group. The applicant has made good the payment of the instalments. Notwithstanding the calculations set out earlier in these reasons the applicant claims an amount only of $673,210.38. Judgment will be entered against Ftrus Pty Ltd and Paul Gerard McDonald for that sum. I am minded to make an order that the respondents pay the applicant's costs of and incidental to the proceeding and all reserved costs on an indemnity basis. However, directions will be made for the filing of submissions on the question of costs. I certify that the preceding one hundred and thirty-three (133) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.