Peter Hillig in his capacity as liquidator of ACN 092 745 330 Pty Ltd (in Liquidation) & Anor v Battaglia & Ors - [2018] NSWCA 67 - NSWCA 2018 case summary — Zoe

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Peter Hillig in his capacity as liquidator of ACN 092 745 330 Pty Ltd (in Liquidation) & Anor v Battaglia & Ors

[2018] NSWCA 67

Court of Appeal (NSW)|2018-02-08|Before: Gleeson JA, Leeming JA

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At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2018-02-08

Before

Gleeson JA, Leeming JA

Catchwords

APPEAL - new trial - whether substantial miscarriage - whether remittal of whole or part of proceedings

Source

Original judgment source is linked above.

Catchwords

APPEAL - new trial - whether substantial miscarriage - whether remittal of whole or part of proceedings

Judgment (29 paragraphs)

[1]

Background

The "Southern Cross group" carried on business of property development and construction projects through various companies with similar names. Some companies adopted the same name (such as SX Projects Pty Ltd) albeit at different times. A table of the various names of those companies and their directors that are presently relevant is attached as Schedule 1.
Upon registration on 8 May 2000, 330Co (then known as SX Interiors Pty Ltd) was a wholly owned subsidiary of Southern Cross Constructions (NSW) Pty Ltd (ACN 083 223 107) (107Co). It seems that 330Co was originally established to carry out hail damage repair work and at some time ceased to trade and was dormant. At the time of most of the relevant payments, the directors of 330Co were Mr Lewis Yazbek (up until 28 February 2013) and Mr Andrew Box (up until 28 November 2012), except for the period between 24 August 2012 and 26 September 2012, when Mr Rick Yazbek was the sole director of 330Co.
Mr Battaglia deposed in his first affidavit that he commenced work with the Southern Cross Group in about 2001. Mr Battaglia's Linkedin profile in 2015 described him as "Senior Construction Manager" of SX Projects Pty Ltd from "1999 to 2009" and as "Director, SX Projects Pty Ltd", from "2009 to Present".
In September 2004, there was a restructure of the Southern Cross group which involved the establishment of what Mr Battaglia described in his affidavit as "the SX Projects Trust" and included the formation of SX Projects Pty Ltd (ACN 111 121 450) (450Co). Mr Battaglia was a director of 450Co from 24 September 2004 until 21 June 2012.
In June 2008, the business of 450Co as the "Trust" was transferred to a limited partnership known as SX Projects LP (ABN 85 276 61 162) (Limited Partnership). Mr Battaglia deposed that 450Co "continued as the Trustee of the Limited Partnership". From that time, building and construction contracts were entered into in the name of the partnership. It seems that the partnership ceased trading in June 2011.

[2]

Relevant legislative provisions

The definition of "director" in Corporations Act, s 9 includes a person who is not validly appointed as a director if "they act in the position of a director" (par (b)(i)).
Corporations Act, ss 181 and 182 relevantly provide: 181 Good faith - civil obligations Good faith - directors and other officers (1) A director or other officer of a corporation must exercise their powers and discharge their duties: (a) in good faith in the best interests of the corporation; and (b) for a proper purpose. … 182 Use of position - civil obligations Use of position - directors, other officers and employees (1) A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation. …
Sections 181(1) and 182(1) are corporation civil penalty provisions: Corporations Act, ss 1317DA and 1317E(1), Item 1. Where a relevant person has contravened a corporation civil penalty provision, a court may order the person to compensate a corporation for damage suffered by the corporation if the damage resulted from the contravention: Corporations Act, s 1317H(1).
The expression "unreasonable director-related transactions" is defined in Corporations Act, s 588FDA which provides: 588FDA Unreasonable director‑related transactions (1) A transaction of a company is an unreasonable director‑related transaction of the company if, and only if: (a) the transaction is: (i) a payment made by the company; or …; and (b) the payment, disposition or issue is, or is to be, made to: (i) a director of the company; or (ii) a close associate of a director of the company; or (iii) a person on behalf of, or for the benefit of, a person mentioned in subparagraph (i) or (ii); and (c) it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to: (i) the benefits (if any) to the company of entering into the transaction; and (ii) the detriment to the company of entering into the transaction; and (iii) the respective benefits to other parties to the transaction of entering into it; and (iv) any other relevant matter. The obligation referred to in subparagraph (a)(iv) may be a contingent obligation. ... (2) To avoid doubt, if: (a) the transaction is a payment, disposition or issue; and (b) the transaction is entered into for the purpose of meeting an obligation the company has incurred; the test in paragraph (1)(c) applies to the transaction taking into account the circumstances as they exist at the time when the transaction is entered into (rather than as they existed at the time when the obligation was incurred). (3) A transaction may be an unreasonable director‑related transaction because of subsection (1): (a) whether or not a creditor of the company is a party to the transaction; and (b) even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.
Corporations Act, s 588FE(6A) relevantly provides that a transaction is voidable if (a) it is an unreasonable director‑related transaction of the company; and (b) it was entered into, or an act was done for the purposes of giving effect to it, relevantly, during the 4 years ending on the relation‑back day.
It is common ground that the relation-back day in respect of 330Co is 30 September 2015: Corporations Act, s 513C.
Corporations Act, s 588FF(1) provides that the Court may, on the application of a company's liquidator, make certain orders if satisfied that a transaction is voidable because of s 588FE. Such order includes an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction.

[3]

Primary judge's reasons

After referring to Mr Battaglia's evidence concerning the structure of the Southern Cross group, the primary judge made two findings: first, that 330Co took the place of 450Co as the operating entity in the Southern Cross group in about August 2011; and, second, that 111Co replaced 330Co as the operating entity in mid-2013: at [15]. Those findings are not challenged by the respondents.
His Honour then identified the four groups of payments sought to be impugned by the liquidator (at [18]-[23]) and it is convenient to set out those paragraphs in full: [18] The payments to which the plaintiffs' claims relate are, of course, payments by 330Co. They fall into four groups. Three of the groups are delineated in schedules to points of claim: • Schedule A: payments totalling $408,541.70 allegedly made by 330Co between 19 August 2011 and 13 February 2013 out of accounts maintained by 330Co with National Australia Bank and St George Bank to a bank account held by Mrs Battaglia with Westpac (referred to for convenience as the "8040 Account" since 8040 are the last four digits of the account number). • Schedule B: payments totalling $143,500 allegedly made by 330Co between 14 November 2012 and 15 May 2013 out of accounts maintained by 330Co with NAB and Westpac to a bank account held by Mrs Battaglia with NAB and designated "Karen Battaglia ATF Stefano & Adriano Battaglia". • Schedule C: payments totalling $307,500 allegedly made by 330Co between 12 August 2011 and 12 October 2012 out of accounts maintained by 330Co with NAB and St George to a bank account held by Fellmane with NAB (designated "Fellmane Pty Ltd ATF the Vince Battaglia No 2 Family Trust"). [19] There are twenty Schedule A payments, of which eight are said to have been made out of 330Co's NAB account and twelve are said to have been made out of its St George account. Mr Battaglia did not hold a formal appointment as a director of 330Co at the time any Schedule A payment was made. [20] There are seven Schedule B payments - four allegedly from 330Co's NAB account and three from its Westpac account. Mr Battaglia held a formal appointment as a director of 330Co when the last three of the Schedule B payments were made. [21] There are fifteen Schedule C payments, all but one of which are said to have been made out of 330Co's St George account. The remaining payment was allegedly made by 330Co's NAB account. Mr Battaglia did not hold a formal appointment as a director of 330Co at the time any Schedule C payment was made. [22] The fourth group of payments involves sums paid out of one of 330Co's bank accounts into the trust account of a firm of solicitors, Monardo Legal, for the benefit of Mrs Battaglia and later paid by the solicitors to her. There were three such sums: (a) $50,000 paid into the trust account on 5 September 2012 and paid out to Mrs Battaglia on 20 September 2012; (b) $50,000 paid into the trust account on 24 September 2012 and paid out to Mrs Battaglia on 4 October 2012; (c) $148,735.84 paid into the trust account on 15 October 2012 and paid out to Mrs Battaglia on 1 November 2012. [23] It will be convenient to refer to these three payments by 330Co as "the Monardo payments". Mr Battaglia did not hold a formal appointment as a director of 330Co when the Monardo payments were made.
His Honour noted (at [25]) that the respondents' initial contention was that 330Co had done no more than pay sums regularly and properly payable under remuneration arrangements with Mr Battaglia, however, at a relatively late stage of the proceedings, the respondents added a contention that the Schedule A and the Monardo payments were referrable to a financing arrangement under which Mr Battaglia or Mrs Battaglia (or both) had obtained finance from a bank (Westpac) and used the proceeds to provide financial assistance to the Southern Cross group to meet a need for capital.
After identifying the issues raised for determination, his Honour observed (at [38]-[39]) that the case turned on two basic questions. The first concerned Mr Battaglia's status in relation to 330Co during the relevant period as either a director, officer or employee. The second concerned the relevant payments and their nature, that is, how they came to be made and whether some interest or corporate purpose of 330Co was served.

[5]

Was Mr Battaglia a de facto director?

His Honour found that Mr Battaglia did not act in the position of a director of 330Co at any time before his formal appointment on 28 February 2013: at [114].
While his Honour accepted that Mr Battaglia occupied a "responsible position" and was a "key operative" for 330Co, he found that Mr Battaglia's activities and responsibilities did not extend beyond those of a senior manager: at [114]. In arriving at that finding, his Honour gave the following reasons at [114]-[115]: [114] I am not persuaded that the evidence, taken as a whole, supports a finding that Mr Battaglia acted in the position of a director of 330Co at any time before his formal appointment on 28 February 2013. He obviously occupied a responsible position and was a key operative for 330Co. But, to the extent that they appear from the evidence, his activities and responsibilities did not extend beyond those of a senior manager. On the few occasions on which he purported to sign as a director or managing director of 330Co, he may well have done so through carelessness or under a misapprehension as to which company was involved (he was a director of other companies). His own evidence and that of Lewis Yazbek creates a clear impression that Mr Battaglia operated under the superior authority of the two appointed directors (Lewis Yazbek and Mr Box) and that his access to and any involvement in finances was through the intermediation of Lakshman Karunanayake. [115] On the whole of the evidence, I do not think that it can be said that there was any holding out of Mr Battaglia as a director either by himself or by 330Co. It cannot be said that his activities extended beyond those of an active and senior manager. There is some suggestion in the evidence that outsiders thought he was a "director" but what any such outsiders may have had in mind when they made any such assumption is not disclosed. In particular, there is nothing to suggest that anyone believed him to occupy the position that corporations legislation classifies as "director". The term "director", used in general parlance and divorced from a company law context, connotes no more than a senior position. Thus, a chief executive officer of a gallery, museum or government department may be spoken of as the "director".
His Honour found that Mr Battaglia was subject to the ss 181 and 182 duties under the Corporations Act, but the "director" status attached to Mr Battaglia only from the time of formal appointment as director on 28 February 2013: at [120].
His Honour accepted that Mr Battaglia was a fiduciary of his employer, 330Co, but the content and scope of the fiduciary duty to which Mr Battaglia was subject did not exceed the statutory duties imposed by ss 181 and 182: at [124].

[7]

Employment of Mr Battaglia - commercial explanation?

His Honour observed that the Schedule B and Schedule C payments comprised 22 monthly payments of $20,500 each over the period August 2011 to May 2013 (each made around the same time of the month), reflecting payment at a rate of $246,000 per annum: at [140]. Those payments were made to either Fellmane or Mrs Battaglia, in a trustee capacity, referable to the Battaglia family: at [142].
After referring to evidence that an annual sum of $246,000 payable monthly apparently formed part of Mr Battaglia's remuneration arrangements at various times, his Honour inferred that for several periods, including a period in or around August 2012, Mr Battaglia was entitled, as against the Southern Cross group, to have monthly payments of $20,500 each paid to a family trust as part of his remuneration package: at [142]. In arriving at that finding, his Honour took into account correspondence, in particular, an email of 16 August 2012 from Lakshman Karunanayake which described Mr Battaglia's remuneration as including a component of $246,000 to be paid monthly to the "Family Trust No 2": at [142]-[144].
His Honour found that the clear correlation between the annual and monthly amounts contemplated by several of Mr Battaglia's salary package descriptions and the Schedule B and Schedule C payments provided a cogent commercial explanation of the monthly payments of $20,500 to Mr Battaglia, giving the following reasons at [142]-[144]: [142] It is thus clear that, in each of the 22 months to which Schedules B and C relate, a monthly payment of $20,500 (representing an annual rate of $246,000) was made to either Fellmane or Mrs Battaglia in a trustee capacity referable to the Battaglia family. As has been seen at [56] and [62] - [64] above, an annual sum of $246,000 payable monthly apparently formed part of Mr Battaglia's remuneration arrangements at various times. Such an item was referred to in the email of 23 October 2008 giving package details for the period 1 July 2008 to 31 December 2008, in the table carrying the handwritten date "14/1/2009" and, significantly, in the email of 16 August 2012. It may therefore be inferred that, for several periods (including a period in or around August 2012), Mr Battaglia was entitled, as against the Southern Cross group, to have monthly payments of $20,500 each paid to a family trust as part of his remuneration package. Some of the package descriptions refer to the payment as a "loan" to the family trust. [8] (Footnote: "There is also reference in 330Co's ledger to amounts of $20,500 as loans.") If that was in truth its character, receipt of each payment was accompanied by some form of repayment obligation. Whether such an obligation arose is, however, unimportant for present purposes. 330Co does not sue to recover a debt arising from loans. The question material to the present dispute is whether there was a cogent commercial explanation for the movement of each monthly sum of $20,500 from the Southern Cross group to a Battaglia family trust. The clear correlation between the annual and monthly amounts contemplated by several of Mr Battaglia's salary package descriptions and the Schedule B and C payments provides such an explanation. [143] Much of the evidence about remuneration arrangements concerns periods before 330Co became the operating entity in about August 2011. It is clear, however, that Mr Battaglia became an employee of 330Co, rather than 450Co, when the change of operating entity occurred. Evidence about his package after the transition is consistent with continuity, including as to an element of $246,000 per annum. [144] For this reason, remuneration package arrangements with 330Co may be accepted as a cogent commercial explanation of the monthly payments of $20,500 to Mr Battaglia.

[8]

Breach of duty?

His Honour then turned to the breach of statutory duty case, relevantly the s 181 and s 182 duties and the corresponding fiduciary duties. He found that Mr Battaglia had not directed, authorised or otherwise caused any of the impugned payments to be made, giving the following reasons at [146]-[148]: 1. Mr Battaglia was not the sole signatory of the bank accounts used by 330Co and accordingly, the amounts the subject of the payments, could not have been paid out on Mr Battaglia's instructions alone: at [146]; 2. the relevant payments were the responsibility of Mr Karunanayake, the financial controller of 330Co, under the supervision of Mr Lewis Yazbek, a director of 330Co: at [147]; 3. Mr Battaglia did not "unilaterally impose" a requirement upon 330Co to make the payments, but instead the amounts were agreed to by the directors, Mr Box and Mr Yazbek: at [148].
As to the second reason given by his Honour, it is appropriate to set out his Honour's reasons in full at [147]: [147] The evidence does not show precisely how any of the impugned payments was initiated by or within 330Co. Any cheques by which they were made are not in evidence. Bank statement notations, to the extent that they are available, tend to suggest that internet banking facilities were used. There is nothing in the evidence to suggest that Mr Battaglia played a part in the authorising of any of the payments or the processes by which the payments were effected. Importantly, the evidence as a whole (and particularly that of Lewis Yazbek) suggests that banking operations were the responsibility of Lakshman Karunanayake and that he attended to such matters under the general superintendence of Mr Yazbek himself. Mr Battaglia's sphere of operation, confined as it was to project management and supervision of building operations, did not, of its nature, extend to proactive initiation of banking transactions or the operation of bank accounts. There were no doubt aspects of his work that necessitated the making of payments - payments to subcontractors for work done being the obvious example. But the evidence suggests that Mr Battaglia would have left it to Lakshman Karunanayake and office staff to deal with the actual making of payments.

[10]

Application to adduce further evidence on appeal

The six items of evidence which the liquidator sought to be adduced on appeal comprised: 1. an email from Mr Ben Evio of Strategic Accounting Advisers Pty Ltd to Mr Battaglia dated 13 September 2016 attaching notification from the Australian Taxation Office (ATO) in relation to administrative penalties for undeclared income (2012-2016) for, among others, Mr Battaglia; 2. email from Mr Jaques Bussier of the ATO to Mr Battaglia (copied to others) dated 16 November 2016 seeking to arrange a meeting with Mr Battaglia to discuss progress on a tax audit on Vince Battaglia and Associated Entities and identifying 11 issues that required further clarification or substantiation; 3. email dated 3 April 2017 from Mr Bussier of the ATO to Mr Battaglia (copied to others) enclosing a second update on the audit of Vince Battaglia & Associated Entities; 4. email dated 31 March 2017 from Mr Bussier of the ATO to the liquidator (Mr Hillig) and an email response from the liquidator to Mr Bussier dated 12 April 2017; 5. email dated 8 May 2017 from Mr Bussier of the ATO to Mr Battaglia (copied to others), attaching a third update on the audit of Vince Battaglia & Associated Entities; 6. email dated 15 May 2017 from Mr Peter Donkin of Strategic Accounting Advisers Pty Ltd to Mr Bussier of the ATO and Mr Battaglia, attaching a reply "from Vince" to issues raised in the ATO's third audit update.
These documents were first produced by Mr Battaglia in the proceedings below in response to a notice to produce dated 31 May 2017. That notice to produce had been issued by the liquidator in connection with a costs dispute following delivery of the primary judge's reasons on 17 March 2017. The schedule to the notice to produce called for production of copies of any written communication, including any letters, emails and notes, between Mr Battaglia, or on his behalf, and the Commissioner of Taxation or the ATO relating to any of the payments identified in the email from Mr Bussier on behalf of the Commissioner to the liquidator dated 31 March 2017. That document is the email referred to in item (4) above.
To anticipate what follows, the liquidator contended that the documents sought to be adduced as further evidence on appeal contain previous representations or admissions made by Mr Battaglia to the ATO, that 14 payments made by 330Co to Fellmane of $20,500 each (comprising most of the Schedule C payments) were repayments of a $1.3 million loan to Southern Cross Constructions Pty Ltd that Mr Battaglia had requested be made to the Battaglia Family Trust. Those representations or admissions are contrary to the evidence of Mr Battaglia at trial, which his Honour accepted, that these payments comprised part of Mr Battaglia's remuneration for services rendered to 330Co.
After hearing argument, the Court indicated that it would reserve its decision on the application to adduce further evidence on appeal, and give its reasons in this judgment. Argument on appeal proceeded on the alternative assumptions that the further evidence was or was not admitted on appeal.
The material in item (1) is explanatory of the circumstances in which the ATO sought answers from Mr Battaglia to certain questions concerning the nature of payments made to Fellmane as trustee for the Vince Battaglia No 2 Family Trust. The material in item (2) is explanatory of the context in which the second and third ATO updates of the audit of Vince Battaglia and Associated Entities (items (3) and (5)) record an admission said to have been made by Mr Battaglia during a meeting with officers of the ATO on 15 December 2016. The material in item (4) may be put aside, being communications between the ATO and the liquidator referring, among others, to the admission made by Mr Battaglia recorded in item (6).
The critical material that the liquidator seeks to adduce on appeal is the previous representations or admissions contained in items (5) and (6). The parties sensibly focused their attention in submissions on these two items.
Item (5) comprises the ATO's third audit update in respect of Vince Battaglia & Associated Entities. The following appears under the heading "Issue 9" (emphasis in original): Issue 9: Funds from Southern Cross Constructions Pty Ltd paid into the Battaglia Family Trust Account [XX-XXX-XXXX], detailed below: Date Amount $ 14/07/2011 20,500 12/08/2011 20,500 14/09/2011 20,500 14/10/2011 20,500 14/11/2011 20,500 14/12/2011 20,500 13/01/2012 20,500 14/02/2012 20,500 13/04/2012 20,500 14/05/2012 20,500 14/06/2012 20,500 13/07/2012 20,500 14/08/2012 20,500 12/10/2012 20,500 287,000

[13]

Relevant legislative provisions

In order to become admissible, it is necessary that evidence satisfy the relevance test in s 55 of the Evidence Act and also that it avoids exclusion under the hearsay rule.
Section 55 defines relevant evidence as evidence that, if it were accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding: s 55(1). Importantly, s 55(2) provides that evidence is not taken to be irrelevant only because it relates only to, among others, the admissibility of other evidence.
Section 59 deals with the exclusion of hearsay evidence and s 60 qualifies the hearsay rule in respect of evidence relevant for a non-hearsay purpose. Section 59(1) provides that evidence of a previous representation made by a person is not admissible to prove the existence of a fact that it can reasonably be supposed that the person intended to assert by the representation. Such a fact is referred to as an "asserted fact": s 59(2). Section 60(1) provides that the hearsay rule does not apply to evidence of a previous representation that is admitted because it is relevant for the purpose other than proof of an asserted fact.
The business records exception to the hearsay rule is contained in s 69 of the Evidence Act which, relevantly provides: 69 Exception: business records (1) This section applies to a document that: (a) either: (i) is or forms part of the records belonging to or kept by a person, body or organisation in the course of, or for the purposes of, a business, or (ii) at any time was or formed part of such a record, and (b) contains a previous representation made or recorded in the document in the course of, or for the purposes of, the business. (2) The hearsay rule does not apply to the document (so far as it contains the representation) if the representation was made: (a) by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact, or (b) on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact. (3) Subsection (2) does not apply if the representation: (a) was prepared or obtained for the purpose of conducting, or for or in contemplation of or in connection with, an Australian or overseas proceeding, or (b) was made in connection with an investigation relating or leading to a criminal proceeding. … (5) For the purposes of this section, a person is taken to have had personal knowledge of a fact if the person's knowledge of the fact was or might reasonably be supposed to have been based on what the person saw, heard or otherwise perceived (other than a previous representation made by a person about the fact).
Evidence Act, ss 81 and 82 provide: 81 Hearsay and opinion rules: exception for admissions and related representations (1) The hearsay rule and the opinion rule do not apply to evidence of an admission. (2) The hearsay rule and the opinion rule do not apply to evidence of a previous representation: (a) that was made in relation to an admission at the time the admission was made, or shortly before or after that time, and (b) to which it is reasonably necessary to refer in order to understand the admission. Note. Specific exclusionary rules relating to admissions are as follows: • evidence of admissions that is not first-hand (section 82) ….. 82 Exclusion of evidence of admissions that is not first-hand Section 81 does not prevent the application of the hearsay rule to evidence of an admission unless: (a) it is given by a person who saw, heard or otherwise perceived the admission being made, or (b) it is a document in which the admission is made.

[14]

Business records exception to hearsay rule

Neither party addressed the Court on the issue of which party has the onus of proof of demonstrating that the carve out under s 69(3) does or does not apply. In Averkin v Insurance Australia Ltd (2016) 92 NSWLR 68; [2016] NSWCA 122 (Averkin v Insurance Australia), the party asserting that the material was not admissible because it fell within s 69(3) had assumed the onus of demonstrating that subs (3) applied. Both Leeming JA at [117] (McColl JA agreeing) and Basten JA at [8] refrained from expressing an opinion on this issue.
In this case, as in Averkin v Insurance Australia, the parties were content to approach the application of s 69(3) by inference from the material before the Court. It was not suggested that the burden of proof affected the outcome in this case. Accordingly, the question of who bears that burden need not be addressed.
In Capital Securities XV Pty Ltd (formerly known as Prime Capital Securities Pty Ltd) v Calleja [2018] NSWCA 26 (Capital Securities v Calleja), the Court (Leeming JA, Basten and Gleeson JJA agreeing) stated (at [85]-[91]) a number of propositions applicable to the business records exception to the hearsay rule in s 69 of the Evidence Act which have present relevance: [85] First, the onus lay on the party seeking to tender the documents (Prime) to establish that the exception in s 69 applied: Lithgow City Council v Jackson (2011) 244 CLR 352; [2011] HCA 36 at [17]. … [86] Secondly, it is important to recognise the distinction drawn in s 69 between a "document" and a "representation". The first limb of the exception turns on the nature of the document. That in turn picks up ss 47 and 48. Neither party addressed submissions to these provisions. Putting them to one side, the Court needed to be satisfied that the file notes are or form part of the records belonging to or kept by Baycorp "in the course of, or for the purposes of, a business", or "at any time was or formed part of such a record". [87] The second limb of the exception turns on the particular representation contained in the document the admission of which would otherwise contravene the hearsay rule. It is necessary for the court to be satisfied that each relevant representation was made "by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact or on the basis of information directly or indirectly supplied" by such a person. [88] To the extent that s 69(2) is satisfied in respect of that representation, then to that extent the hearsay rule does not apply to the document: Lithgow City Council v Jackson at [17]. The distinction between document and representation was not always observed during the submissions made to the primary judge or in this Court. [89] Thirdly, s 69(2)(a) and (b) and (5) all contain references to "or might reasonably be supposed to have had personal knowledge". It is well settled, as McDougall J observed in Rickard Constructions v Rickard Hails Moretti [2004] NSWSC 984 at [19], that those words indicate that the Court is allowed to draw inferences not just from the form of the document, but from the nature of the information contained in it: see (for example) Lin v Tasmania [2012] TASCCA 9 at [87] (Tennant and Porter JJ) and Byrne v Javelin Asset Management Pty Ltd [2016] VSCA 214 at [48] (Hansen, Ferguson and McLeish JJA). [90] Fourthly, the same reasoning as to the availability of inferences applies to the first limb of s 69, when read with ss 48(1)(b). That paragraph refers to "purports to be a copy" and "purports to have been produced", statutory language which authorises inferential reasoning from the form and context of the document. [91] Fifthly, and consistently with the last two points, s 183 of the Evidence Act authorises a court to draw reasonable inferences from the document itself as well as from other matters from which inferences may properly be drawn. That provision provides that where a question arises about the application of the Act to, inter alia, the operation of s 69 to a document, then the court may "draw any reasonable inferences" from the document as well as from other matters from which inferences may properly be drawn. (Emphasis in original)
It is well-established that the underlying purpose of the carve-out in subs (3) is a concern that the relaxation of the hearsay rule for business records might lead to the admission of self-serving documents: Averkin v Insurance Australia at [114] (Leeming JA).
In Averkin v Insurance Australia, Leeming JA drew attention at [112] that, when read together, pars (a) and (b) of s 69(3) both look forward to future litigation, but they do so in quite different ways. With respect to par (b), his Honour said at [113]: [113] In contrast, paragraph (b) turns on the circumstances in which the representation was made. No question of purpose arises; there must instead simply be a sufficient connection between the making of a representation and an investigation. True it is that the investigation must be one which relates to or leads to a criminal proceeding, and in that way paragraph (b) also looks to the future. It is in this way that there is a link between the representation and litigation.
Leeming JA accepted that the criminal proceedings referred to in par (b) need not be in existence at the time the representation is made, and indeed, may never in fact commence: at [115]. His Honour added at [118] that although the criminal proceedings may be in the future and may never eventuate, the investigation in connection with which the representation was made must be extant at the time it was made in order to fall within s 69(3)(b). Basten JA stated to similar effect that the connection in s 69(3)(b) is between the making of the representation and the investigation: at [11].

[15]

The present case

The critical representation in item (5) is that Mr Battaglia told officers of the ATO at a meeting on 15 December 2016 that Mrs Battaglia had borrowed $1.3 million which she on-lent to Mr Battaglia and invested in Southern Cross Constructions Pty Ltd and that Mr Battaglia subsequently requested that loan repayments be made to Fellmane as trustee of the Battaglia Family Trust (No 2), being the 14 monthly payments of $20,500 each totalling $287,000 listed in Issue 9 of the third audit update.
As to the first limb of s 69, item (5) forms part of the records of the ATO, being an ATO audit update in respect of a taxpayer and related entities (s 69(1)(a)) and the representations which are recorded as having been made by Mr Battaglia on 15 December 2016 are recorded in a document that was made in the course of, and for the purposes of, the business (s 69(1)(b)). "Business" is defined in cl 1 of Pt 2 of the Dictionary to the Evidence Act to include a reference to an activity engaged in or carried on by the Crown in any of its capacities. That would include the activities of the ATO. The respondents did not submit to the contrary.
As to the second limb of s 69, the identity of the ATO officer who recorded the representation in item (5) is unknown. However, it is not necessary that the identity of the person be known: Lee v Minister for Immigration and Multicultural Affairs [2002] FCA 303 at [22] (Hely J); Capital Securities v Calleja at [108]. Further, as Leeming JA stated in Capital Securities v Calleja at [109], in order to apply s 69(2) it is necessary to look at the particular representations which are said to be outside the operation of the hearsay rule: Panayi v Deputy Commissioner of Taxation [2017] NSWCA 93 at [17].
Here, the liquidator relied upon the statement by Mr Battaglia at the 15 December 2016 meeting concerning the nature of the Schedule C payments. The inference to be drawn is that the ATO audit update (item (5)) records a representation reflecting the conversation with Mr Battaglia at that meeting made by the person who participated in that conversation, or by another ATO officer who was supplied with that information by the person who had attended that meeting.
As to the carve out in subs (3)(b), on the materials before the Court there is no support for the respondents' submission that the Court should infer that the representation recorded in item (5) as to what Mr Battaglia told the ATO on 15 December 2016 was made in connection with an investigation relating to or leading to a criminal proceeding. First, there is no evidence that any such investigation in connection with which the representation was made was extant in December 2016. Second, there is no evidence from which an inference could be drawn that there may be in the future criminal proceedings to which an investigation of Mr Battaglia or associated entities in December 2016 related or concerned. On the contrary, the ATO audit of Mr Battaglia and associated entities was directed to the identification and payment of any unpaid tax, interest and penalties. The carve-out in subs (3)(b) does not apply.
For completeness, although the carve out in s 69(3)(a) was not in issue between the parties, nothing in the materials before the Court suggested that the representations recorded in items (3) and (5) were prepared or obtained for the purpose of conducting, or for or in contemplation of or in connection with an Australian or overseas proceeding.
Item (3), being the second ATO audit update, contains the same previous representation as to what Mr Battaglia told the ATO on 15 December 2016. It is admissible for the same reasons as item (5). As indicated, there was no objection to the admissibility of item (6). Items (1) and (2) are relevant and admissible in explaining the context of the latter communications between the ATO and Mr Battaglia. Those documents are business records of the ATO, with the exception of the covering email in item (1) to Mr Battaglia, from his accountant.
Two further matters should be mentioned. The respondents submitted that it is not possible to refer to item (5) to understand the admissions made by Mr Battaglia recorded in item (6), which the respondents conceded were admissible. That submission should be rejected. The questions asked by the ATO with respect to Issue 9 are directly relevant to the response given by Mr Battaglia in item (6), are not caught by the hearsay rule in ss 59 and 60 and would be admissible under s 55, subject to discretionary exclusion under ss 135 or 136.
Nor is there any merit in the respondents' submission that the previous representation recorded in the third audit updates by the ATO (item (5)) as to statements made by Mr Battaglia at the 15 December 2016 meeting, are inadmissible because those documents are not in the form of direct speech as to what Mr Battaglia said at that meeting. The admissibility of a previous representation in a business record does not depend on the form of the representation being recorded in direct speech.
In light of the conclusions above, it is not necessary to address the argument concerning the admissibility of items (3) and (5) as recording admissions made by Mr Battaglia on 15 December 2016: ss 81 and 82 of the Evidence Act.

[17]

Further evidence on appeal: relevant principles

The applicable principles are well-established. Under the Supreme Court Act, s 75A(7), the Court may receive further evidence on appeal. However, after a hearing on the merits the court is to do so only on special grounds: s 75A(8), other than where it is evidence concerning matters occurring after the trial: s 75A(9).
Although it is not possible to formulate a universal test, in general, special grounds calls for three conditions to be satisfied: (1) that the evidence could not have been obtained by reasonable diligence for use at the trial; (2) that the evidence is credible; and (3) that the evidence is such that there is a high degree of probability that there would be a different result: Akins v National Australia Bank (1994) 34 NSWLR 155 at 160 (Clarke JA); Harrison v Schipp (2002) 54 NSWLR 612 at 642; [2002] NSWCA 78 at [195] (Giles JA).
Item (6) concerns matters occurring after the trial and it is not necessary for the liquidator to demonstrate special circumstances to adduce this document. Item (6) should be admitted as further evidence on appeal.
The items identified in (1), (2), (3) and (5) above satisfy the criteria for the admission of further evidence on appeal.
First, the liquidator's solicitor, Mr France, gave unchallenged affidavit evidence of the following matters, which may be accepted: 1. that the material was first obtained by the liquidator following a notice to produce issued to Mr Battaglia on 31 May 2017 during a costs dispute in the proceedings below; 2. that the liquidator was not aware prior to 31 March 2017 that Mr Battaglia had represented to the ATO in December 2016 that the monthly payments of $20,500 to Fellmane were for the repayment of a $1.3 million loan. Nor was the liquidator aware prior to 31 March 2017 that such payments were being investigated by the ATO or that Mr Battaglia had any meeting with a representative of the ATO in December 2016 concerning that matter; 3. that none of the evidence relied upon by Mr Battaglia in the proceedings below suggested that Mr Battaglia had attended a meeting with the ATO in December 2016 or had made representations to the ATO at that meeting as described above.
It is also relevant that the liquidator had taken forensic steps to obtain information about the tax affairs of the respondents, by issuing a subpoena to their accountants (Strategic Accounting Advisers Pty Ltd) on 4 November 2016. That step was taken before the meeting between Mr Battaglia and the ATO on 15 December 2016, of which the liquidator was unaware. It was not suggested by the respondents that the liquidator should have anticipated prior to the trial, that Mr Battaglia and associated entities were the subject of an ATO audit which involved, among others, the character of the payments made by 330Co to Fellmane.
Second, the further evidence is credible and highly probative. If the statements made by Mr Battaglia to the ATO are accepted, the primary judge's conclusion that there was a cogent commercial reason for the Schedule B and Schedule C payments (that they were referable to remuneration) would be undermined.
In my view, items (1), (2), (3), (5) and (6) should be received as further evidence on appeal.
Turning to the grounds of appeal, it is convenient first to deal with grounds 5 and 6 concerning the Schedule B and Schedule C payments.

[19]

Liquidator's submissions

The liquidator commenced by pointing to the primary judge's observation (at [142] and fn [8]) that the general ledger of 330Co recorded the amounts of $20,500 as a "loan", yet the primary judge considered that "unimportant" because 330Co did not sue for recovery of a loan. The liquidator submitted that his Honour missed the point, namely, that the making of advances by 330Co under a loan would be inconsistent with Mr Battaglia's claim that the payments were for remuneration for which he was entitled. Implicit in this submission is an assumption that the reference to a "loan" in the general ledger of 330Co is to be understood as a loan made by 330Co. That assumption may not be correct.
The relevant general ledger entries of 330Co which record the amounts of $20,500 as a "loan", appear under the heading "Sundry Creditors - LP". This seems to be a reference to the Limited Partnership. It should be noted that the respondents did not argue, and the Court was not taken to any evidence which supported the view, that 330Co had assumed the liabilities of the Limited Partnership upon becoming the operating entity in the Southern Cross group in August 2011.
On one view the general ledger entries are consistent with the amounts of $20,500 being the repayment of a "loan" owing by 330Co, rather than the making of an advance by 330Co. That would follow from an application of the principles of double entry book-keeping that a debit entry in respect of a liability account (sundry creditors), involves a reduction in the liability owed to the sundry creditors. However, it is not possible to express a concluded view on this issue given the absence of the relevant entries in the general journal, and the specific ledger accounts of 330Co relating to "Sundry Creditors - LP".
Next, the liquidator submitted that Mr Battaglia was unable to give any cogent commercial explanation as to why neither his tax return, nor the tax return of the Family Trust, recorded the payments as income. According to the submission, this matter ought to have affected Mr Battaglia's credit and caused the primary judge some hesitation in accepting his evidence concerning his income.
The liquidator further submitted that the primary judge's acceptance of Mr Battaglia's account did not grapple with the credit issues raised by the implication of the finding of the primary judge that the loan agreement dated 1 June 2008 relied upon in respect of the Schedule A and Monardo payments was either backdated or, it was submitted, more likely a complete fabrication. The liquidator complained that the primary judge gave no apparent consideration to whether this finding undermined the weight that might be given to Mr Battaglia's other evidence which was relied on to give commercial justification for the Schedule B and Schedule C payments.
With respect to the further evidence adduced on appeal, the liquidator submitted that Mr Battaglia's statements to the ATO directly contradict his evidence at trial that the Schedule C payments (and by inference, the Schedule B payments) were remuneration paid for his services. It was submitted that if what Mr Battaglia told the ATO is true, then the Schedule C payments and the Schedule B payments lack a cogent commercial explanation, as his Honour found with respect to the purpose of the Schedule A and Monardo payments because, on any view, the funds from Mrs Battaglia were invested in 450Co, not 330Co.

[21]

Decision

Plainly, the liquidator's challenge to the primary judge's acceptance of Mr Battaglia's explanation that the Schedule B and Schedule C payments related to his remuneration, involves issues affecting the assessment of Mr Battaglia's credit. Two of the matters relied upon by the liquidator relate to evidence before the primary judge. The third matter relates to the further evidence adduced on appeal.
As to the evidence before the primary judge, the liquidator pointed to the omission of the Schedule B and Schedule C payments as income recorded in Mr Battaglia's tax return and the tax return of his family trust, and the backdating of the 1 June 2008 loan agreement. As the liquidator submitted, it is not apparent from his Honour's reasons how these matters were taken into account, as they should have been, in weighing Mr Battaglia's evidence that these payments related to his remuneration.
Nevertheless, even without this suggested error by the primary judge in the fact finding process, there is a more fundamental problem for the respondents. That is, the further evidence adduced on appeal directly contradicts Mr Battaglia's evidence that the Schedule C payments (and by inference the Schedule B payments) related to his remuneration package. In this respect the further evidence is also consistent with the Schedule B and Schedule C payments not being recorded as income in the tax returns of, at least, Mr Battaglia.
Of course, this Court does not have the benefit of any explanation which Mr Battaglia might seek to give to explain the apparent contradiction between his evidence at trial and his statements to the ATO. Nevertheless, given the nature of the further evidence adduced on appeal, grounds 5 and 6 should be upheld and the primary judge's finding accepting Mr Battaglia's explanation in relation to the Schedule B and Schedule C payments should be set aside.
It is not possible for this Court to re-assess the character of the Schedule B and Schedule C payments, nor determine whether those payments have a legitimate commercial explanation. That would involve credit issues which this Court is simply not in a position to address. In addition, Mr Battaglia must be afforded an opportunity to respond to the further evidence.
The question which arises is whether there should be a re-trial on all issues or only in relation to the character of the Schedule B and Schedule C payments.
While senior counsel for the liquidator accepted that the admission of the further evidence on appeal has significant ramifications for the credit of Mr Battaglia, counsel sought to limit the scope of any new trial to the question of the characterisation of the Schedule B and Schedule C payments. In opposing any wider remittal, counsel submitted that the liquidator could comfortably succeed on the other grounds in relation to the Schedule A and Monardo payments without need for reference to the fresh evidence.
Senior counsel for the respondents submitted that any re-trial must be on all issues. Counsel submitted that if the further evidence is admitted, the credit issue with respect to Mr Battaglia's evidence affects all of the primary judge's credit-based findings, not simply his findings on remuneration (the Schedule B and Schedule C payments).

[27]

Conclusion and orders

The appeal must be allowed and a new trial ordered. As to costs, there is no reason why costs of the appeal should not follow the event: UCPR, r 42.1. The costs of the proceedings below should be determined as part of the costs of the new trial.
Accordingly, I propose the following orders: 1. Appeal allowed. 2. Set aside the judgment and orders below made on 17 March 2017. 3. Respondents to pay the appellants' costs of the appeal. 4. Remit the proceedings to the Supreme Court for a new trial on all issues. 5. Costs of the first trial be determined by the Court below as part of the costs of the new trial.
LEEMING JA: I agree with Gleeson JA.
EMMETT AJA: The question in this appeal is whether the respondents, Mr Vince Battaglia, Mrs Karen Battaglia and Fellmane Pty Ltd (Fellmane), are liable to reimburse the second appellant (the Company) in respect of four separate categories of payments made by the Company to Mrs Battaglia and Fellmane between 19 August 2011 and 15 May 2013. Mrs Battaglia is the wife of Mr Battaglia. Fellmane is the trustee of the Vince Battaglia No 2 Family Trust.
From the beginning of August 2011 to 13 February 2013, the Company made payments totalling $408,541.70 (the Schedule A payments) to an account in the name of Mrs Battaglia. On 5 September 2012, 24 September 2012 and 15 October 2012 the Company paid sums of $50,000, $50,000 and $148,735.84 (the Monardo payments) to Monardo Legal, who subsequently paid each of those amounts to an account in the name of Mrs Battaglia.
From 14 November 2012 to 15 May 2013, the Company made payments totalling $143,500 (the Schedule B payments) to an account in the name of Mrs Battaglia. From 12 August 2011 to 12 October 2012, the Company made payments totalling $307,500 (the Schedule C payments) to an account in the name of Fellmane. The Schedule B payments and the Schedule C payments together consist of 22 monthly payments of the sum of $20,500.
By the operation of s 9 of the Corporations Act 2001 (Cth) (the Act), a person who is not validly appointed as a director of a company is nevertheless, for the purposes of the Act, a director, relevantly, if the person acts in the position of a director (de facto director) or the directors of the company are accustomed to act in accordance with that person's instructions or wishes (shadow director). The Company and its liquidator, Mr Peter Hillig (the Liquidator), claimed in the Equity Division that Mr Battaglia caused the four categories of payments to be made in breach of duties owed by him to the Company under s 181 and s 182 of the Act and of fiduciary duties owed by him to the Company. They asserted that Mr Battaglia owed those duties in his capacity as:

a de facto director or shadow director of the Company in the period prior to his formal appointment as a director of the Company on 28 February 2013;
a formally appointed director of the Company from that day onwards; and
an officer of the Company throughout the period.

The Company and the Liquidator claimed separately against Mrs Battaglia and Fellmane on the basis that the payments made to them respectively were "unreasonable director related transactions" within the meaning of s 588FDA of the Act or voidable transactions for the purpose of s 588FE(6A) of the Act. Under s 588FE of the Act, a transaction is voidable if it is an unreasonable director-related transaction of the company and it was entered into during the four years ending on the relation-back day or after that day but before the winding up of the Company. Under s 588FDA, a transaction of a company is an "unreasonable director-related transaction" if, and only if, relevantly, the transaction is a payment by the company to a close associate of a director of the company, and it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to:

the benefits (if any) to the company of entering into the transaction;
the detriment to the company of entering into the transaction;
the respective benefits to other parties to the transaction of entering into it; and
any other relevant matter.

The primary judge found that the Schedule B payments and the Schedule C payments were in the nature of remuneration payable by the Company to Mr Battaglia and, accordingly, that there was a cogent commercial explanation for the payments. His Honour found that the Schedule A payments and the Monardo payments were repayments of principal and interest in respect of a loan of $1,300,000 made by Mrs Battaglia to another company in the "Southern Cross" group of companies, of which the Company was a member.
The primary judge was not satisfied that Mr Battaglia was a director of the Company before 28 February 2013 or that Mr Battaglia had directed, authorised or otherwise caused any of the payments. Rather, his Honour concluded, the directors of the Company had made a decision that all members of the "Southern Cross" group would be responsible for making the payments to Mrs Battaglia. Further, his Honour concluded that Mr Battaglia had not played an active role in or directed, authorised or otherwise caused the Schedule A and Monardo payments.
However, the primary judge was of the view that, had Mr Battaglia been a director of the Company, the claim under s 588FDA in respect of the Schedule A and Monardo payments would have succeeded. Further, his Honour was of the view that, had Mr Battaglia played an active role in or directed, authorised or otherwise caused the Schedule A and Monardo payments, they would have been made in breach of the duties owed by him as an officer of the Company.
By their amended notice of appeal filed on 8 February 2018, the Company and the Liquidator complain that the primary judge erred:

in failing to find that Mr Battaglia directed, authorised or otherwise caused the Schedule A and the Monardo payments;
in finding that Mr Battaglia was not a director of the Company prior to 28 February 2013; and
in finding that the Schedule B payments and the Schedule C payments were payments that the Company could justify as being part of Mr Battaglia's remuneration package despite evidence proving, at best, that the payments were no more than unsecured loans by the Company to or for the benefit of Mr Battaglia and despite his Honour not determining that the payments were not loans.

By notice of motion filed on 14 September 2017, the Company and the Liquidator seek leave to rely on additional evidence. The evidence consists of email communications between officers of the Australian Taxation Office (the ATO) and Mr Battaglia or persons acting on his behalf. The communications relate, relevantly, to the Schedule B payments and the Schedule C payments, which would have been assessable income of Mr Battaglia had they in fact been part of a remuneration package for his employment by the Company. Mr Battaglia did not disclose the payments to the ATO as assessable income. Indeed, in the communications, they were characterised as payments in respect of loans made.
I have had the opportunity of reading in draft form the proposed reasons of Gleeson JA. I agree, for the reasons proposed by his Honour, that the communications should be admitted on the hearing of the appeal.
I also agree with the observation by Gleeson JA that the challenge to the primary judge's acceptance of Mr Battaglia's explanation that the Schedule B payments and the Schedule C payments related to his remuneration involves issues affecting the assessment of Mr Battaglia's credit. The further evidence directly contradicts Mr Battaglia's evidence that the Schedule C payments (and by inference the Schedule B payments) related to his remuneration package.
As Gleeson JA observes, while this Court does not have the benefit of any explanation that Mr Battaglia might seek to give to explain the apparent contradiction between his evidence at trial and the statements made to the ATO, Mr Battaglia's explanation in relation to the Schedule B payments and the Schedule C payments should be set aside, given the further evidence adduced on appeal. However, this Court is not in a position to re-assess the character of the Schedule B payments and the Schedule C payments, nor determine whether those payments have a legitimate commercial explanation, since that would involve credit issues that this Court is simply not in a position to address. Further, as Gleeson JA says, Mr Battaglia must be afforded an opportunity to respond to the further evidence.
The question then arises as to whether there should be a re-trial on all issues or only in relation to the character of the Schedule B payments and the Schedule C payments. I agree with Gleeson JA, for the reasons proposed by his Honour, that it is necessary to remit the whole matter for a re-trial. I agree with the orders proposed by his Honour.

Peter Hillig in his capacity as liquidator of ACN 092 745 330 Pty Ltd (in Liquidation) & Anor v Battaglia & Ors

At a glance

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Judgment (29 paragraphs)

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Cases Cited (22)