Plaintiff v Defendant [2018] VSC 425 | Case summary

1 An application was made by the plaintiff for orders under s 90-15 of sch 2 to the Corporations Act 2001 (Cth) ('Corporations Act')('the Schedule') to appeal the decision made by Ivan Glavas and Paul Andrew Burness in their capacities as joint and several liquidators of ACN 096 281 542 Limited (In Liquidation) ('the Company') to reject the plaintiff's formal proof of debt.

Plaintiff v Defendant [2018] VSC 425 | Case summary | Zoe

[101]

The plaintiffs contend that the financial statements and general ledger files of Shot One listed above are clearly 'books' within the meaning of s 1305(1) and thus provide (and would have provided at the time the Deed of Settlement was entered into) prima facie evidence of the loans made by Shot One to Rising Rocket.

The defendants, on the other hand, accept that a company's general ledger and financial accounts are books for the purposes of s 1305(1), but they do not accept that the loan account entries recorded in the books of Shot One can be relied upon as prima facie evidence of their contents. Relying upon observations made by their Honours in Whitton v Regis Towers Real Estate Pty Ltd and Livingspring Pty Ltd v Kliger Partners, the defendants submit that the mere existence of entries in a company's general ledger and financial accounts does not establish a presumption that the matters stated therein are prima facie true and correct and accurate. Rather, they submit, the true or correct position is, as Austin J explained in ASIC v Rich, that while the books are treated as prima facie evidence of the matters stated in them, the weight to be attached to that evidence is a matter which is to be measured in accordance with the common sense of the tribunal.

In Whitton v Regis Towers Real Estate Pty Ltd, Buchanan J, with whom Marshall and Tracey JJ agreed, said:

Section 1305 of the Corporations Act does not elevate the entry to prima facie evidence that any such transaction (or series of transactions) exists. It can be no more than prima facie evidence that an unknown person formed an opinion on an undisclosed basis that, in the absence of any directly recordable transaction nevertheless, as a balancing entry, such a figure should appear in the accounts. Mr Harris took the matter no further and, indeed, eroded any weight the entry may have had.

Similarly, in Livingspring Pty Ltd v Kliger Partners, Maxwell P and Buchanan JA stated:

LS [the applicant] called in aid on the appeal s 1305(1) of the Corporations Act, which, it was said, established "a presumption that company accounts are prima facie true and correct and accurate". The provision does no such thing. All that s 1305(1) provides is that a company's books (relevantly, its financial reports and records) are admissible and are "prima facie evidence of any matter stated or recorded" in them. As the Full Federal Court said in Whitton v Regis Towers Real Estate Pty Ltd, s 1305 does not elevate an entry in a book of account to the status of prima facie evidence of the transaction(s) which the entry purports to record. The same must be true of an entry purporting to record the existence, and value, of an asset.

More recently, in ASIC v Rich, Austin J said:

Section 1305(1) does not make the company's books conclusive evidence of the matters they contain, in the sense of requiring the tribunal of fact to make a finding in terms of the content of the books in the absence of proof to the contrary by the opposing party. The books are prima facie evidence of the matters stated in them, but the weight of that evidence is to be measured in accordance with the common sense of the tribunal of fact...

In my view it would be open to the tribunal of fact to find that the prima facie evidence constituted by the company's books is outweighed by other evidence (including evidence adduced by the proponent of the books, even if the opponent does not give evidence about them); or by some quality or characteristic of the books themselves, even if there is no other evidence. In particular, if a book has the appearance of a draft or (being electronic) has a file title indicating that it is a draft, that alone may be sufficient (all other things being equal) for the tribunal of fact to reject the book as evidence of the matter stated in it, notwithstanding that the book is prima facie evidence of that matter; a fortiori if, in addition to having the appearance of a draft, the book contains inconsistencies or ambiguities or the matter otherwise demands explanation.

Austin J then referred to the purpose of s 1305(1) as outlined in the explanatory memorandum to the Companies Bill 1981, which introduced the provision, and said:

Therefore s 1305(1) allows a company's books to be introduced in evidence as they are, without any 'authenticating' evidence by any witness, and allows the books to be relied upon to prove transactions recorded in them. But it does not elevate the matters contained in the books to a plane of probative value that requires the court to disregard the context in which the matters relied on appear in the tendered document. If, for example, there is some doubt as to whether a particular transaction is 'recorded' in a book because of some uncertainty about the status of the document or ambiguity about what it contains, s 1305(1) does not overcome the problem.[42]

[167]

[37] There was no controversy on this appeal concerning the principles of unconscionable conduct in equity. Those principles were recently restated by this Court in Kakavas v Crown Melbourne Ltd.

[38] A conclusion of unconscionable conduct requires the innocent party to be subject to a special disadvantage "which seriously affects the ability of the innocent party to make a judgment as to [the innocent party's] own best interests". The other party must also unconscientiously take advantage of that special disadvantage. This has been variously described as requiring "victimisation", "unconscientious conduct", or "exploitation". Before there can be a finding of unconscientious taking of advantage, it is also generally necessary that the other party knew or ought to have known of the existence and effect of the special disadvantage.

[39] In Amadio, Deane J said that the equitable principles concerning relief against unconscionable conduct are closely related to those concerned with undue influence. The same circumstances can result in the conclusion that the person seeking relief (i) has been subject to undue influence, and (ii) is in a position of special disadvantage for the purposes of the doctrine concerned with unconscionable conduct. For instance, in Diprose v Louth (No 1), the trial judge, King CJ, observed that both doctrines were satisfied where the defendant "was in a position of emotional dominance which gave her an influence over the [plaintiff] which she exercised unconscientiously to procure the gift of the house". Before the High Court in that case, Mr Diprose relied only upon the ground of unconscionable conduct.

[40] Although undue influence and unconscionable conduct will overlap, they have distinct spheres of operation. One difference is that although one way in which the element of special disadvantage for a finding of unconscionable conduct can be established is by a finding of undue influence, there are many other circumstances that can amount to a special disadvantage which would not establish undue influence. A further difference between the doctrines is that although undue influence cases will often arise from the assertion of pressure by the other party which might amount to victimisation or exploitation, this is not always required. In Amadio, Mason J emphasised the difference between unconscionable conduct and undue influence as follows:

"In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position."

[citations omitted]

[172]

Dr Jacobson is well educated both generally and, in particular, with respect to corporate governance being the CEO of the Company. He was fully aware of the difficulties in raising funds.
Prior to his incarceration he had been aware of the proposal or the proposals for further funds to be injected into the Company. He was aware that the $3,000,000 investment involved the release of related party debt, he just disagreed with that concept.
Prior to incarceration, Dr Jacobson was aware of the contentions that the Company was insolvent and that the auditors would qualify the audit certificate (going concern) unless something was done. Again, he did not concede that the Company's position was as dire as others contended, but he was fully appraised of the consequences of the failure to raise funds including the winding up. Although, it was submitted that there might have been some value attached to the patents which had already been registered, it is inescapable that if the Company had been wound up in December 2014 any dividend payable to creditors would have been minimal. No distribution would have been made to shareholders. There was benefit to Dr Jacobson by virtue of his shareholding or interest in shareholding in the Company in entering into the funding arrangements.
Dr Jacobson was aware that the investment proposal was conditional upon the release of related party debts and the reasoning of the new investors as to why that was required prior to being presented with the Debt Release Document. The Debt Release Document is, in its terms, entirely consistent with the position taken by the proposed investors and known to Dr Jacobson prior to incarceration.
Although I accept that the trial, conviction and subsequent incarceration would have been harrowing, of itself it does not enable me to conclude that Dr Jacobson was suffering from any special disadvantage of the type categorised by the authorities.
By signing the document he is taken to have read and understood it.[71]
Albeit that Dr Jacobson now contends that he was denied legal representation, he does not set forward any material to conclude that he required legal representation contrary to what is set out in clause 2(c) of the Debt Release Document.
Dr Jacobson did not adduce any evidence that he required legal representation on the day and that requirement was not met. I accept that it was unlikely that he would have been able to obtain legal advice on the first day of his incarceration in the circumstances but there is no reason why he could not have delayed signing the document for at least a few days. Dr Tobisch was not the only person to visit him on that day. It appears that she did so purely because she was leaving Australia the same day.
Dr Tobisch was a confidant of Dr Jacobson during the trial process. However, that of itself does not lead to a position of undue influence.
The mere fact that Dr Jacobson signed the Debt Release Document when he had previously resisted the concept of releasing the debt, might be inexplicable but does not of itself give rise to any presumption of acting under duress or undue influence.
It is almost inescapable that Dr Jacobson's change of position was as a result of his assessment of the Company's financial position. Dr Jacobson knew he was no longer able to source other funds for the company. That position is consistent with the statement that the Company would be wound up. Signing the Debt Release Document at that time and the subsequent investor financing provided the only real prospect of preserving his investment in the Company.

Plaintiff v Defendant

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