Pearce v Mulhern

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA

BETWEEN: MARK WILLIAM PEARCE AND ANDREW JOHN HEERS AS TRUSTEES OF THE PROPERTY OF MICHAEL RICHARD MULHERN (A BANKRUPT)

CELTIC PACIFIC PROPERTIES PTY LTD (ACN 071 232 230)

introduction 1 These proceedings relate to the shareholdings in five companies: the second to sixth respondents. Between them, these five companies own a shopping centre at Gladstone (in the case of the second, fifth, and sixth respondents), a hotel business in Gladstone (in the case of the fourth respondent) and a commercial building in Toowong, Brisbane (in the case of the third respondent). 2 Mr Mulhern was declared bankrupt on 3 February 2010. Mr Mark William Pearce and Mr Andrew John Heers have been jointly appointed as the trustee of his estate. They are the applicants in these proceedings. In that capacity, Mr Pearce and Mr Heers have sought various declarations relating to Mr Mulhern's shareholdings in the five respondent companies, orders vesting those shares in them as the trustee of his estate and other consequential orders. 3 In essence, the issue in dispute - although, as will become apparent, these proceedings are essentially undefended - is whether Mr Mulhern held shares in certain of the respondent companies as at the date of his bankruptcy. 4 Mrs Mulhern, the first respondent, is the wife of Mr Mulhern. She also claims to be the sole director of each of the five respondent companies. Both Mr and Mrs Mulhern are ordinarily resident in New York in the United States of America. 5 Before going to the issues in dispute, it is appropriate to record some of the procedural history to these proceedings because it becomes relevant to the resolution of the issue in dispute.

procedural history 6 These proceedings were commenced by an application filed in this Court on 19 March 2010. That application was supported by a lengthy affidavit by Mr Pearce who, as I have already said, is one of the applicants. That affidavit set out in some detail the materials that the applicants relied upon to seek the declarations I have mentioned. I will refer to the contents of that affidavit in more detail later in these reasons. 7 These proceedings first came before me on 23 March 2010. On that date, Robertson O'Gorman Solicitors filed a notice of appearance for the six respondents and Mr Springer of that firm appeared and sought an adjournment for one week to allow the firm to obtain instructions on the matters raised in the application. During the course of that hearing, Mr Springer told me that Mrs Mulhern was presently visiting Brisbane and was staying at a friend's house in this city. I granted the adjournment to 30 March 2010. Mr Springer had no instructions to offer any undertakings in place of the interim interlocutory orders sought by the applicants, so I made orders restraining Mrs Mulhern from taking various steps in relation of the five respondent companies, including selling any shares in them, resigning as a director of any of them, and dealing with any of their assets, without giving seven days notice to the applicants' solicitors. 8 When the matter came before me on 30 March 2010, I ordered that the substantive relief sought by the applicants in paras A1 to A4 of the application be determined as separate questions under O 29 r 2 of the Federal Court Rules. I also directed that the respondents file and serve any affidavit material upon which they intended to rely by 21 April 2010. I then referred the material to the registrar to fix a date of hearing for the trial of the separate questions. I should add that, on 30 March 2010, I was informed that Mrs Mulhern had since left Australia and returned to New York. 9 The respondents failed to file any affidavit material by 21 April 2010. 10 On 27 April, Robertson O'Gorman Solicitors filed a notice of withdrawal as solicitors for the respondents. 11 On the same day, 27 April 2010, my associate received a letter from Lynch Morgan, the lawyers acting for the applicants, advising, among other things, that Mrs Mulhern had left Australia and returned to the United States of America, and that they had discovered that the third respondent's commercial building in Toowong, Brisbane had been advertised for sale by public auction on 11 May 2010 - such auction to be conducted in Sydney. I have since been provided with an affidavit annexing a copy of that advertisement. The applicants sought to have the matter urgently listed before me so that they could apply for the final relief they had sought on the separate questions. I listed the matter at 11 am on 29 April 2010 and directed that Lynch Morgan give notice of that listing to Robertson O'Gorman Solicitors. 12 When the matter was called on at that time, Mr Coulsen appeared for the applicants, but there was no appearance for any of the respondents. However, earlier that day, my associate received, by email, a letter from Mrs Mulhern under the letterhead of the fourth respondent. Among other things, Mrs Mulhern stated in that letter that Robertson O'Gorman had provided her with a copy of the letter Lynch Morgan had sent to them and that she understood that I had listed the matter for hearing at 11 am on 29 April 2010. Mrs Mulhern explained that she was unrepresented and she enclosed a document entitled Conditional Notice of Intention to Defend, which she said had been filed in the Federal Magistrates Court on 21 April 2010. 13 She also enclosed a copy of a recent offer to settle which she said she had authorised to be sent to Mr Lynch. Otherwise, Mrs Mulhern did not specifically seek any adjournment of the hearing, but she concluded the letter by stating:

In order for the court to reasonably determine the background and facts, have his Honour Judge Reeves consider the material I have urgently sent from New York. I am respectively seeking an Order that the Application be dismissed with no Order as to costs.

14 In the circumstances I have just outlined, I decided to proceed to hear the applicants' application for substantive relief on the separate questions.

the declarations and other relief sought 15 In summary, paras A1 to A4 of the application seek the following declarations that, as at 3 February 2010, Mr Mulhern: (1) was the holder of one half of the shares in the second respondent and that the second respondent, in turn, held all of the shares in the fifth respondent; (2) was also the holder of all of the shares in the third respondent and that the third respondent, in turn, held all of the shares in the sixth respondent; and (3) was the holder of all of the shares in the fourth respondent. 16 Further, declarations were sought that the shares Mr Mulhern held in the second, third and fourth respondents vested in the applicants as at the date of Mr Mulhern's bankruptcy and that the applicants were entitled to be registered as the holders of those shares. Finally, the applicants sought an order that the second to fourth respondents, inclusive, register the applicants as the holders of those shares.

the doubt about mr mulhern's shareholdings 17 It may be noted that the applicants have essentially sought these declarations to remove any doubt about Mr Mulhern's shareholding in the second to fourth respondents and, indirectly, the fifth and sixth respondents, as at the date of his bankruptcy. The doubt, if there be any doubt about Mr Mulhern's shareholdings as at the day he was declared bankrupt, has been raised by a number of Change of Company Detail forms lodged under the provisions of the Corporations Act 2001 (Cth) ("the Act"), commonly referred to as Form 484s, in relation to each of the second to sixth respondents. Those Form 484s were electronically lodged with Australian Securities and Investments Commission ("ASIC") by Lock & Associates on behalf of the respondents during March 2009. The requirement to lodge those forms is contained in s 178A of the Act. In summary, that section requires a company to notify ASIC in the prescribed form - here, relevantly, a Form 484 - if it is required to add or alter a particular in the register it maintains under s 169 of the Act. 18 Section 168 of the Act relevantly requires a company to set up and maintain a register of members under s 169. That section sets out the information that must be recorded in the company's register. That information includes the name and address of each member, the date upon which and the number of shares allocated in each allotment of shares that takes place, the number and class of shares held by each member and the amount paid or unpaid on those shares. 19 In this instance, the information in each Form 484 was stated in the form to be certified as true and correct by Mrs Mulhern in her capacity as a director of each of the second to sixth respondents. The forms variously gave notice of the following changes to the register of members for the second to sixth respondents. 20 In relation to the second respondent, that from 23 February 2009 Mr Mulhern's one share in that company was cancelled under s 258D of the Act. This purported to leave Mrs Mulhern holding the sole remaining share in the second respondent. 21 In relation to the third respondent, that from 23 February 2009 Mr Mulhern's 5,250 shares in that company were cancelled under s 258D of the Act. This purported to leave Mrs Mulhern holding all of the 4,750 shares issued in the third respondent. 22 It is convenient to note two things at this point. First, s 258D of the Act provides for the cancellation of a member's share where that shareholder has failed to pay for certain shares. Secondly, according to the evidence before me in the form of a search of the records of ASIC held in relation to the second and third respondents, Mr Mulhern's shares in those companies were all fully paid. As I have already mentioned, the effect of s 178A of the Act is to require a company to notify ASIC of the current status of its register of members, including the amount paid or unpaid for any shares held in it. It necessarily follows from these records of ASIC that s 258D of the Act could not have been validly relied upon by Mrs Mulhern, as the director of the second and third respondents, to cancel Mr Mulhern's shares in those companies for non-payment. I will deal with the other evidence that fails to support the contents of these Form 484s a little later in these reasons. 23 Turning to the fourth respondent, the Form 484 gave notice that from 1 March 2009, Mr Mulhern's one share in that company was transferred to Mrs Mulhern and 98 shares were issued to Mrs Mulhern. This purported to leave Mrs Mulhern holding all the 99 shares in the fourth respondent. 24 In relation to the fifth respondent, the Form 484 gave notice that from 13 March 2009, the second respondent's one share in that company was transferred to Mrs Mulhern and 98 shares were issued to Mrs Mulhern. This purported to leave Mrs Mulhern holding all the 99 shares in the fifth respondent. 25 Finally, in relation to the sixth respondent, the Form 484 gave notice that from 1 March 2009, the third respondent's one share in that company was transferred to Mrs Mulhern and 98 shares were issued to Mrs Mulhern. This purported to leave Mrs Mulhern holding all the 99 shares in the sixth respondent.

the matters applicants rely upon to remove that doubt 26 If the information stated in these Form 484s was true and correct, the applicants would obviously not be entitled to any of the declarations they have sought. 27 It is worth mentioning at this juncture that in their application, the applicants have sought, in the alternative, declarations that the various share transactions described in these Form 484s are void under s 121 of the Bankruptcy Act 1966 (Cth). The applicants would need to pursue these alternative declarations if it emerged that the information stated in the Form 484s was true and correct. 28 To establish that Mr Mulhern in fact held the shares the applicants say he held as at the date of his bankruptcy, and that the information stated in the Form 484s lodged with ASIC was not true and correct, the applicants essentially rely upon three matters. 29 First, they rely upon the contents of the register of each of the respondent companies and the provisions of s 176 of the Act. Section 176 provides that:

In the absence of evidence to the contrary, a register kept under this Chapter is proof of the matters shown in the register under this Chapter.

30 As I have already noted, ss 168 and 169 of the Act - which occur in the chapter referred to in s 176 - prescribe the register that must be maintained by a company and the information that must be contained in that register. 31 In his affidavit (I referred to earlier), Mr Pearce deposed that on 5 March 2010, along with his fellow trustee, Mr Heers, and officers of the Official Receiver for the State of Queensland, he conducted a search of the registered office of the second to sixth respondents at suite 1, 145-147 Queen Street, Cleveland in the State of Queensland. During that search he inspected the company registers of the second to sixth respondents which included, for each company, the minutes of directors' meetings, the minutes of members' meetings, the share allotment journal, the share transfer journal and the register of members. 32 As a result of that inspection, he ascertained that, contrary to information stated in the Form 484s (I have detailed already in these reasons), in relation to the second respondent, the company register did not record the cancellation of Mr Mulhern's one ordinary share in that company and, to the contrary, the register of members recorded Mr Mulhern as holding one ordinary fully-paid share in that company. As well, the company register did not contain any minutes of a meeting of members of that company called to consider a resolution to cancel Mr Mulhern's one ordinary share in that company, or at which such a resolution was passed. Furthermore, the company register did not contain any minutes of a meeting of the directors of that company resolving either to give notice to Mr Mulhern making a call for payment of the unpaid share capital, or resolving to cancel Mr Mulhern's one ordinary share in that company. Finally, the company register did not contain a copy of any such notice to Mr Mulhern calling for payment. 33 In relation to the third respondent, Mr Pearce's inspection indicated that the company register did not record the cancellation of Mr Mulhern's 5,250 ordinary shares in that company. To the contrary, the register of members recorded Mr Mulhern as holding 5,250 ordinary fully-paid shares in that company. The company register also did not contain any minutes of a meeting of members of that company called to consider a resolution to cancel Mr Mulhern's ordinary shares in that company, or at which such a resolution was passed. It also did not contain any minutes of a meeting of the directors of that company resolving, either to give notice to Mr Mulhern making a call for payment of the unpaid share capital, or to cancel Mr Mulhern's ordinary shares in that company, nor did the company register contain a copy of any such notice to Mr Mulhern calling for payment. Finally, the company register did not contain any minutes of a meeting of the directors of that company resolving to allot 4,750 ordinary shares to Mrs Mulhern, and nor did it contain any record in the members' register of such an allotment of shares to her. 34 In relation to each of the fourth, fifth and sixth respondents, Mr Pearce's inspection revealed that the company register of each company did not contain any minutes of a meeting of the directors of each company resolving to allot 98 ordinary shares to Mrs Mulhern, nor did it contain any record in the members' register of such an allotment of shares to her. Further, it revealed that the company register of each company also did not contain any record of the transfer of one share in each company from Mr Mulhern to Mrs Mulhern, and nor did the company register of each company contain a record of any instrument of transfer executed by Mr Mulhern transferring his share in the company to Mrs Mulhern. 35 The second matter the applicants rely upon in support of their application for the declarations is a chain of emails passing, variously, between a Ms Lock, Mr Mulhern and a Ms Louise Dunker, on various dates between 15 January 2009 and 7 May 2009. Copies of these emails are annexed to a further affidavit of Mr Pearce sworn on 23 March 2010. They were seized by officers of the Official Receiver during the visit to the registered office of the second to sixth respondents on 5 March 2010, referred to in the first affidavit of Mr Pearce. Ms Lock was a principal of Lock Accountants, the firm of accountants that lodged the Form 484s with ASIC on behalf of the respondents. Ms Dunker has described herself in these emails as the Executive Manager of the fourth respondent. 36 Among other things, these emails canvassed the changes to be made to the shareholdings in the second to sixth respondents. They include two email exchanges of particular import. First, on 17 February 2009, Mr Mulhern sent an email to Ms Lock giving her instructions to alter all of the shareholdings in the second to sixth respondents, in essentially the same manner as appears in the Form 484s. For example, in relation to the third respondent, the email stated:

Member details, Richard Mulhern, 5250 ord shares held.

My instructions previously were intended to cancel these shares. The effect being Jacqueline's been the only member, therefore 100% owner.

37 This email went on to contain similar requests and queries in relation to the shareholding of each of the other four respondents. I will not set all of those out. 38 The second aspect of these emails that is of particular import, is an exchange of emails that occurred on 23 February 2009 between Ms Dunker and Ms Lock, as follows: At 9.45 am, an email from Ms Dunker to Ms Lock: Dear Maree Richard is not happy that this wasn't done last year and say's that he wants it back dated to the time when it was supposed to be done and that you must write a letter to ASIC stating that if (sic) was your error and to please send him a copy of your letter. Regards

At 10.27 am, Ms Lock sent an email to Ms Dunker: Louise We went through all our emails last Friday and yesterday, to see if this company was mentioned anywhere to be changed. We couldn't find one. If Richard or yourself has a copy of an email requesting this change, can you forward it on. If we haven't lodged already, we can back date. Can you check with Richard what date he wants it backdated too (sic)? Thanks. Regards Maree Lock

At 11.00 am, an email from Ms Dunker to Ms Lock: He wants it done on 23/2/09 same as the share forfeit. Louise Dunker

39 The applicants say two things about these emails. First, there is no evidence in these emails to support the information contained in the Form 484s, that is, that there was any effective transfer, or cancellation, of Mr Mulhern's shares in the respondent companies. Secondly, and perhaps more importantly, there is no evidence in these emails that any of these transactions ever occurred. At their highest, they say they are evidence that Mr Mulhern had a plan to undertake the transactions concerned, and was seeking advice upon whether they could be effected. 40 The third matter the applicants rely upon in support of their applications for the declarations is the silence of the respondents. They put this silence in two ways. First, they point to the respondents' silence in the face of the allegations contained in the application and in Mr Pearce's first affidavit. I have already set out the procedural history of this matter and the contents of Mr Pearce's first affidavit, which was filed and served with the application. That affidavit contains his evidence about the contents of the respondents' company registers, and the inconsistencies between them and the information contained in the Form 484s. The applicants say, in these circumstances, that the respondents' failure to produce evidence to the contrary of the information contained in the respondents' company registers or, in other words, to support the information contained in the Form 484s, allows the Court to infer that that information in the Form 484s is not true and correct. 41 Secondly, the applicants point to Mr Mulhern's silence, in the face of a specific request that he received requiring him to provide information to Mr Pearce about his shareholdings in the respondent companies. The first affidavit of Mr Pearce deposed to the fact that, on 15 February 2010, he sent an email to Mr Mulhern in which he requested him, among other things, to provide a full list of his assets and liabilities, including "shares in private and/or public companies"; and "a full list of all companies" he had been associated, or involved, with in the past five years, or with which he was currently associated. Mr Pearce said in his affidavit that he did not receive any response to this email, despite the fact that he sent Mr Mulhern a further request for a response by email on 22 February 2010. 42 The applicants say, in these circumstances, that Mr Mulhern's failure to respond to this request and claim, for example, that he had previously held shares in the respondent companies, but prior to his bankruptcy, those shares were cancelled or transferred as asserted in the Form 484s, provides further support for the Court drawing an inference that the information in the Form 484s is not true and correct.

consideration 43 In my view, the applicants are entitled to the declarations and orders they have sought. The evidence of Mr Pearce supports the applicants' claims that Mr Mulhern is recorded in the company register of each of the second to fourth respondents as a shareholder as to one half of the shares in the second respondent, and as to all of the shares in the third and fourth respondents. His evidence also supports the applicants' claims that the second respondent holds all the shares in the fifth respondent, and the third respondent holds all the shares in the sixth respondent. 44 Section 176 of the Act provides that, in the absence of evidence to the contrary, these records in the company registers for each of the respondent companies provides proof of the matters so stated. In my view, it can be inferred from at least two matters that there is no evidence to the contrary of the matters stated in those registers. They are: the contents of the emails passing between Mr Mulhern, Ms Lock and Ms Dunker in early 2009; and the silence of the respondents in the face of the applicants' claims and evidence, combined with Mr Mulhern's failure to respond to the request for information Mr Pearce made of him in February 2010. 45 On the former, I agree with the applicants' submissions that there is no evidence in the exchange of emails to support the information contained in the Form 484s, or that any of the transactions described in the Form 484s ever occurred. At their highest, these emails are evidence that Mr Mulhern had a plan to undertake the transactions concerned, and was seeking advice from Ms Lock upon whether they could be effected. 46 Given that these emails involved the main players involved in the asserted transactions and that the emails involved internal communications between these people in circumstances where they would not have expected scrutiny and they could, therefore, be expected to be frank in their views about the transactions, I consider the absence of any evidence in them of the transactions supports the inference that the information stated in the Form 484s is not true and correct. Moreover, it supports the inference that there is no evidence to the contrary of the matters recorded in the company registers for the respondent companies. 47 In relation to the latter, first, it is worth noting that s 176 only provides that the matters stated in the company register provide prima facie evidence of those matters. It was always open to the respondents in this case to adduce evidence to counter that prima facie evidence: see Wood v Inglis [2008] NSWSC 1147 at [34] to [35] per Barrett J. 48 For example, here, the respondents could have produced minutes of directors' or members' meetings which had not yet been included in the company registers Mr Pearce inspected and they could have explained why those minutes had not yet been recorded in those registers. Similarly, they could have produced evidence that, contrary to what was shown in the company registers, Mr Mulhern's shares in the second and third respondents were, in fact, not fully paid, thus justifying their cancellation under s 258D of the Act. I consider that in the circumstances the absence of any evidence from the respondents to counter the material filed and served by the applicants, further supports the inference that there is no evidence to the contrary of the matters recorded in the company registers for the respondent companies. 49 I should add that I have considered the Conditional Notice of Intention to Defend that Mrs Mulhern included in the email she sent to my associate on 29 April 2010, and the attached documents. The conditional notice of intention to defend document alleges this: TAKE NOTICE that the Respondent [the respondent is described as only Jacqueline Patricia Mulhern] disputes the jurisdiction of this court to entertain the Plaintiff's claim against the Respondent without the Respondent (sic) consent [or: that the [First] defendant says that the proceeding is irregular] for the following reasons: (R150) (a) Breach of trust. (f) Fraud. (i) Malice. (g) Illegality. (j) Misrepresentation. (l) Contributory negligence. (q) Undue influence.

50 I do not consider this document constitutes any evidence to the contrary of the records of the company registers of the second to sixth respondents, as detailed by Mr Pearce in his evidence.

conclusion 51 I consider the failure of the respondents to produce any evidence of the transactions recorded in the Form 484s provides support for the inference that those transactions did not, in fact, occur, or more relevantly, that the transactions asserted in those forms should be not treated as evidence to the contrary of the matters recorded in the company registers for the respondent companies. I consider these inferences are further supported by Mr Mulhern's failure to respond to the request for information Mr Pearce made of him in February 2010. 52 For these reasons, based upon the evidence of Mr Pearce about the contents of the company registers for the respondent companies, and relying upon s 176 of the Act, I find that, as at 3 February 2010, Mr Mulhern held one half of the issued shares in the second respondent and all of the issued shares in the third and fourth respondents. I also find that, as at the same date, the second respondent held all of the issued shares in the fifth respondent and the third respondent held all of the issued shares in the sixth respondent. I therefore propose to make each of the declarations and orders sought by the applicants. I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Reeves.