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[2015] VSC 196
Supreme Court of Victoria
2015-05-08
Randall AsJ
Original judgment source is linked above.
CORPORATIONS - Oppression - Corporations Act 2001 (Cth) ss 232, 233 - Misappropriation of company's funds - Breach of fiduciary duties - Breach of statutory duties.
CORPORATIONS - Leave to bring proceeding - Corporations Act 2001 (Cth) s 237 - Whether in the best interests of the company that leave be granted.
For the Plaintiffs in S CI 2012 03527 and Defendants in S CI 2012 5820
For the Defendants in S CI 2012 03527 and Plaintiff in S CI 2012 5820
1 The first plaintiff (Wayne Cowling) as a member of Southern Phoenix Pty Ltd ('the company') has filed a proceeding pursuant to ss 232 and 233 of the Corporations Act 2001 (Cth) ('the Act') claiming relief with respect to oppression as a member of the company. The conduct complained of has arisen during what purported to be the orderly winding up of the company's affairs. Mr Cowling has alleged that: (1) the first defendant, John Mekken (the company's other director), and the second defendant, Mrs Mekken (a shareholder in the company), appropriated sale proceeds with respect to two sales of equipment which should have been paid to the company; and (2) that Mr and Mrs Mekken appropriated a substantial part of a tax refund payable to the company. Mr Cowling has sought leave pursuant to s 237 of the Act to prosecute the company's claim for return of the funds. Mr Mekken contends that that he was owed wages and that he was entitled to appropriate such sums in reduction of the amount owed to him by the company. Mr Mekken has filed a claim in respect of the balance of unpaid wages.
2 An originating process has been filed on behalf of the company and Mr Cowling on 19 June 2012. The originating process relies upon ss 232 and/or 233 of the Act, namely the oppression provisions and, pursuant to s 237 of the Act, seeks leave to bring an action on behalf of the company against the defendants. The orders sought are as follows:
3. An order for compensation.
4. An order for interest.
3 The originating process is supported by an affidavit of Mr Cowling, sworn 19 June 2012 and resisted by two affidavits both sworn on 20 August 2012 by John Mekken and Elizabeth Mekken respectively.
4 Pursuant to the orders made by Robson J on 12 October 2012, Mr Mekken has filed and served a writ dated 16 October 2012 against the company and Mr Cowling. The claim seeks payment of wages and fire service wages.
5 The Statement of Claim set out that pursuant to the agreement referred to, Mr Mekken provided services to the company from July 2007 to about June 2011. The particulars subjoined to paragraph 7 set out:
The services included operation of earthmoving equipment, overseeing crews of workers operating earthmoving equipment, management duties, preparation of tender documents, and other miscellaneous activities necessary for the proper operation of the earthmoving business. Further particulars may be provided following discovery.
6 Mr Mekken contends that the amount of deferred wages over the period was $175,771.38. Following the company ceasing to trade, Mr Mekken caused the company to pay him $104,210.50 of the deferred wages:
The payments were by way of:
(a) on or about 18 November 2011 Mectec Pty Ltd, a company controlled by the plaintiff, took ownership and possession of a Cat D7G bulldozer in exchange for reducing [the company's] wages liability to the plaintiff by $57,200;
(b) in or about late January the plaintiff caused [the company] to pay to him by way of cheque the sum of $47,010.50.[1]
Mr Mekken contends that he is entitled to a payment of $71,560.88.
7 In addition, Mr Mekken referred to contracts entered into by the company to provide fire services to the Department of Sustainability and Environment ('DSE'). In paragraph 20 of the Statement of Claim he contends that with respect to the provision of fire services, he and Mr Cowling would complete timesheets and be paid $30 per hour worked. Mr Mekken contends that he has been underpaid by the sum of $9,310.95. The prayer for relief sets out that Mr Mekken is owed $80,871.83, being the total of wages and fire service payments.
8 The defences filed by each of the company and Mr Cowling are in virtually identical form. The agreement pleaded by Mr Mekken is denied and at paragraph 5 of his defence it is set out:
Save that it admits that in about June 2007 [the company] agreed to:
(a) employ [Cowling] full-time and pay him the sum of $1,000 per week (net of tax);
(b) employ [Mekken] part-time and pay him $30 per hour for work provided to [the company] at its request; and
(c) pay Elizabeth Mekken and Dianne Young at the rate of $15 per hour for any services provided by them to [the company] at its request;
... , it otherwise denies the allegations in paragraph 5. Further, it specifically denies that [the company] agreed to pay Mekken the sum of $1,000 per week and nor was it envisaged that Mekken would work full time for Southern Phoenix.
(a) whether Mr Mekken's conduct in the sale process constitutes oppressive conduct;
(b) whether Mr Mekken's partial appropriation of the tax refund due to the company constitutes oppressive conduct;
(c) whether Mr Mekken is owed wages and if so, how much;
(d) if Mr Mekken is owed wages, whether he was entitled to deduct the same from the sale proceeds and the tax refund so as to ameliorate any oppressive conduct on his part; and
(e) whether Mr Mekken is owed any further sums.
10 The company was first registered on 13 January 2005. Mr Cowling has been a director of the company since incorporation. Mr Mekken became a director on 6 July 2007. The issued capital in the company is taken to be $2 divided into 200 ordinary shares. Mrs Mekken holds 102 of the issued shares and Mr Cowling now holds the balance of 98. Previously, Mr Cowling's partner, Ms Young, held the shares which are now held by Mr Cowling. Those details are set out in an ASIC Current Organisation Extract ordered on 23 December 2011.
11 In or about July of 2007, there were conversations between Mr Mekken and Mr Cowling as to what wages each would be respectively paid by the company. I will deal with that issue separately.
12 It is fair to say that the company has traded relatively successfully. It is common ground that the company ceased trading towards the end of July 2011 and that, save for the issues arising in this proceeding, it has met all third party liabilities, including tax liabilities. Currently, there is about $14,000 in the company bank account and some $6,000 is earmarked for payment to its accountants.
13 It is common ground that in early 2011, Mr Mekken and Mr Cowling decided that the company should cease to trade. Each resolved to obtain valuations of the company's equipment to be used as the basis of sale either to third parties or to Mr Mekken, Mr Cowling or companies representing their interests. No particular sale process was agreed. It is fair to say that Mr Mekken either took it upon himself to conduct an orderly sale or was delegated to conduct the sale either by Mr Cowling's express agreement or the latter's inaction.
14 On 5 April 2011, William Adams Pty Ltd ('William Adams') provided a valuation for eight items of heavy equipment owned by the company.[2] The valuated items included two which are the subject of this proceeding:
(a) Caterpillar CS563E smooth drum roller ('the roller')
(b) Caterpillar D7G track type tractor ('bulldozer')
15 There was no particular process put in place for the sale of the equipment. In June 2011, Timco Pty Ltd (a company in which Mr Cowling was the shareholder) purchased a number of vehicles, an excavator and a dozer. Mr Mekken at that time said he was not interested in purchasing any of the heavy equipment. There was no limitation placed on Mr Mekken's authority and Mr Cowling accepted that Mr Mekken was authorised to meet third party expenses relating to the disposal of plant and equipment and to meet the company's expenses in general.
16 Andrew Hall of Anbon Equipment Pty Ltd had been engaged to assist in the sale. Each of the roller and the bulldozer had been advertised for sale in the Earthmovers & Excavators book. He was given a copy of the William Adams valuations. There was no formal retainer. Mr Hall understood that the amount which had to be returned to the company was that set out in the William Adams valuation. He understood that he could keep the balance, but it as it transpired, he did not keep any balance save for commissions.
17 In his affidavit in support of the originating process, Mr Cowling deposed that he met Mr Mekken on 7 November 2011 at a Vic Forest meeting at the Orbost Football Sheds. He had asked Mekken '[w]hether the equipment, including the roller and the ... bulldozer, had been sold'. Mekken informed Cowling 'they had been sold for the price stipulated in the Earthmovers & Excavators book' but 'Mekken did not tell [Cowling] that the equipment had been sold to a company of which he is the sole director and shareholder, Mectec Pty Ltd ('Mectec'). About two weeks after that meeting there was a telephone conversation between Mr Mekken and Mr Cowling. Mr Cowling asked Mr Mekken why there was no money in the company account. Mr Mekken told him that the company's accountant, Tim Wilson, had told him not to leave money in the company account. Mr Cowling also asked about the taxation return and when it would be processed. Mr Mekken said to him that any refund would be held by him in accordance with the advice given to him by Tim Wilson.
18 In his affidavit sworn 20 August 2012, Mr Mekken deposed that he did not seek Mr Cowling's consent to a payment of $47,010.50 to himself from the tax refund as he thought he did not need to seek such consent. He made a general statement: 'I had told Wayne on several occasions that I would take my deferred wages out of the company when [the company] could pay'.[3]
19 He also deposed in paragraph 68 in his affidavit sworn 20 August 2012 that sometime after he had received the payment he told Mr Cowling about it. Mr Mekken refuted what Mr Cowling said about acting upon Mr Wilson's advice and said, also at paragraph 68 of his affidavit of 20 August 2012, that he told Mr Cowling: 'once all assets had been sold and liabilities/expenses paid, any surplus should be divided between the shareholders'.
20 In evidence-in-chief, Mr Mekken denied that there was any discussion about the winding up of the company at the meeting on 7 November 2011, but did concede that financial documents had been signed. He said that the meeting occurred later at the Newmerella Service Station in about December 2011. However, Mr Mekken did not expand upon what was discussed at that meeting. More telling is that during the course of cross-examination it was put to Mr Mekken:
You were not intending to tell [Mr Cowling] at any time during 2011 that you were intending to take wages out from the sale proceeds of the plant, were you?---Oh yes I was.
Well why didn't you tell him?---Because he wouldn't answer his phone.
21 Mr Mekken was then cross-examined about when he first disclosed to Mr Cowling the details of the sale of the roller and the bulldozer and the appropriation of the tax refund cheque. Mr Mekken's explanations were unconvincing and inconsistent with what transpired.
22 It is common ground that the tax refund was posted to the Mekkens by the company's accountants on 19 December 2011 and the same was not banked until 24 January 2012. It is also common ground that the sum of $47,010 from the tax refund amount was appropriated to Mr Mekken's account.
23 As no funds had made their way into the company's account by the end of December 2011, Mr Cowling instructed his solicitors to act. By letter dated 23 December 2011, Mr Cowling's solicitors (Herbert & Hodges) wrote to Mr Mekken including:
This sale has occurred without our client's knowledge or consent. Furthermore the proceeds of sale have not been banked to the company's bank account.
24 By letter dated 19 January 2012 addressed to Mr Wilson of Smith, McCarthy Wilson (the company's accountants), Herbert & Hodges relevantly set out:
We seek your advice as to whether Mr Mekken has informed you, in your capacity as Accountant for the Company, as to the disposal of assets of the Company by way of plant and equipment sales and the disbursement of the proceeds of sale.
In addition we are instructed that a taxation refund was provided to the Company, via your office, during December 2011 in an approximate amount of $52,000 ... At least advice as to how your office disposed of the cheque would be required.
25 By letter dated 31 January 2012, Mr Wilson advised Herbert & Hodges that the tax refund had been mailed to Mrs Mekken on 19 December 2011. Mr Wilson then set out:
Mr Mekken has verbally advised me of a disposal of two assets remaining after the close of Southern Phoenix Pty Ltd to Mectec Pty Ltd in the 2011/12 financial year. Although at this stage I have not been party to the exact details including dates and amounts transferred. I have been advised by Mr Mekken that one of the assets disposed (D7) was at a market value agreed upon by both Mr Wayne Cowling and Mr Mekken when closing the business operations. The other remaining asset (Roller), Mectec Pty Ltd effectively paid for the value of this asset via payout of the finance remaining as Southern Phoenix Pty Ltd did not have funds to continue to pay its remaining debts.
26 The explanation given in January 2012 is significant. That explanation is not consistent with what actually happened, nor is it consistent with what was later relied upon by the Mekkens.
27 By email transmission dated 3 February 2012, Mr Cowling sought explanations from Mr Mekken as to who purchased the dozer and the roller and 'why have the moneys paid, not been deposited into the Southern Phoenix Pty Ltd bank account?' Mr Cowling also sought explanation as to why the tax refund had been posted to Mr Mekken on 9 December 2011 but was not deposited into the Southern Phoenix Pty Ltd bank account until 24 January 2012. He then asked for an explanation for why on the same date $47,010.50 was debited from the company's account.
28 By letter of 9 February 2012, Herbert & Hodges again wrote to Mr Mekken. The letter set out after referring to the sale of the company's assets 'without authority of your co-director' that:
Further, you have paid to yourself an amount of $47,010.50 without the authority of the Company or your Co-Director ...
...
29 By email transmission from Mectec Pty Ltd (Mr Mekken) dated 16 February 2012, Mr Mekken advised both Glen Hodges (of Herbert & Hodges) and the company relevantly as follows:
Mr Wayne Cowling has been kept abreast with company happenings.
I had a conversation with Mr Wayne Cowling in December 2011 [r]e the status of the company and the last 2 items of equipment on a list[.] This list of agreed pricing was supplied to the company by Wayne[.]
I reaffirmed to him that we should have more meetings[.]
I have since left messages on his phone to reaffirm this point[.]
Wayne was updated with the sale of the last two items in Dec[ember] 2011[:]
(a) The roller has been paid out by my company Mectec Pty Ltd and why;
(i) Southern Phoenix does not have an overdraft[;]
(ii) The[re] [was] insufficient funds in [the] account for further payments[.]
(b) The D7G bulldozer was taken as part of debt owed to Mectec Pty Ltd and myself personally.
The D7G Bulldozer, was at Mr Wayne Cowling's agreed 15 April 2011 William Adams Valuations that he supplied.
30 Mr Mekken was cross-examined about the contents of that transmission which also included his version of the last meeting he had with Mr Cowling during which Mr Mekken contended that he informed Mr Cowling that he was owed wages. Mr Mekken claimed to be confused and that he did not really know what to say. He could not identify any debt owed to Mectec and agreed that there was no debt owed to him personally apart from his contention that he was owed $170,000 in wages. The explanation was not satisfactory.
31 By letter dated 5 March 2012, Herbert & Hodges wrote further to Mr Mekken setting out, inter alia:
We refer to your email of 16 February 2012.
We are instructed that at no time was our client aware or consulted as to the equipment being sold to your Company. Additionally there are further discrepancies:
32 Mr Mekken did not respond to that correspondence or to further enquiries by Herbert & Hodges. Hence, Mr Cowling issued proceedings.
33 Andrew Hall of Anbon Equipment Pty Ltd received contact from Allan Quirk in relation to the roller. His diary noted that the contact was on Wednesday, 2 November 2011. As a result of that contact and further contact, he telephoned Mr Mekken and told him, 'this guy might call him about inspecting the roller.' Mr Hall did not take any further steps after that.
34 In his affidavit sworn on 20 August 2012, Mr Mekken said the following in relation to the sale of the roller:
[58] I then made the decision that Mectec, assisted by my own personal monies, would buy the roller for the loan account balance. Mectec by my own funds paid $50,525.70 plus $5,052.57 GST (total $55,578.27).
[59] Mectec paid the $50,525.70 direct into Southern Phoenix's loan account which paid out the loan and $5,052.57 into its business cheque account.
35 Mr Mekken produced an exhibit, JMM-14, which was said to be a true copy of Southern Phoenix's cash tax receipt dated 8 November 2011 for Mectec's purchase of the roller.
36 Mr Mekken produced various exhibits to demonstrate that the sum of $50,525.70 had been debited from Mectec's account and paid into the National Australia Bank account for Southern Phoenix.
37 At paragraph 60 of his affidavit, Mr Mekken deposed as follows:
The William Adams Pty Ltd value estimate for the roller was $80,000 plus GST (the difference between the amount I paid Mectec $55,578.27) and the $88,000 was $32,421.73. This amount was not paid to Southern Phoenix and was to be set off against my claim for unpaid wages of $174,934.
38 Apart from demonstrating that the company's loan was paid out on 8 November 2011, the affidavit was not particularly elucidating as to what actually transpired.
39 Further, the defendants produced their own court book to produce various documents. One of those documents was a tax invoice/statement addressed to Armstrong's Plant Hire regarding the cash sale of the roller. The detailed description set out in Mr Mekken's practitioners' index is as follows:
Shows sale of roller from JM & EC Mekken to Armstrongs Plant Hire located in Griffith NSW for $90,000 including GST.
Profit made by John Mekken on sale of roller -
Purchase price from [Southern Phoenix] $55,578.27
Sold to Armstrongs $90,000
Subtotal $34,421.73
Less GST paid to ATO $8,181.82
Less haulage cost to Griffith NSW $6,000
Total $20,239.91
**Re commission on sale - **
Anbon owed commission on the sale because it had put John Mekken onto the potential purchaser. Anbon wrote the tax invoice out in the wrong name which was later corrected. Mectec paid the commission.
Anbon tax invoice No. 4661 shows the commission charged was $2,200.
See page 266 of plaintiff's court book.
Mectec Pty Ltd's bank statement No. 22 at page 11 shows internet transfer of $2,200 from Mectec's account to "ambon" and the invoice number "4661" debited on 21.11.2011.
See page 267 of plaintiffs' court book.
40 During Mr Mekken's evidence-in-chief, although he referred to himself as selling the roller and Mr Anderson (from Armstrong's Plant Hire) writing out a cheque to him. The sequence of events was not consistent with what Mr Mekken had previously deposed to as the sale to Armstrong Plant Hire occurred on 30 October 2011, prior to what had previously been set out as a sale to Mectec on 8 November 2011. Further, Mr Hall had been asked to submit his tax invoice in relation to the sale. Initially, he submitted a tax invoice dated 11 November 2011 addressed to the company being the commission for the sale of the roller in the sum of $2,000 plus GST of $200. In September of 2012, Mr Hall received a telephone call from Luke Mekken to say that the tax invoice had been raised in the wrong company's name. Mr Hall issued a further invoice on 11 September 2012 addressed to Mekken Pty Ltd with respect to the sale of the roller. However, Luke Mekken again telephoned Mr Hall in March of 2013 to ask that he amend the tax invoice so that it be addressed to Mectec Pty Ltd. Also of note was that the full sum of $90,000 received from Armstrong Plant Hire was paid into the account of JC & EC Mekken and not the company's account.
41 Given the inconsistency between what had been previously referred to and Mr Mekken's evidence-in-chief, the plaintiff's counsel sought clarification of the position. The Mekken's counsel quite properly set out the sequence of events including that the cheque for $90,000 had been paid into an account other than the company's account. However, the matter was not stood down until after the following exchange. I put it to Mr Matthews that the invoice (addressed to Mectec for the lower amount) was a 'bit of a furphy'. Mr Matthews responded:
Yes, the invoice for the lower amount is a furphy. Well, no. The Mekkens had already paid a significant amount of the $90,000 by way of repayment of the loan and payment of the incidentals, if I can put it that way. So there is no accounting for the full $90,000. No.
42 I then asked, 'But you are, aren't you? You're accounting the full $90,000 less attendant expenses. That's what Mr Stirling wants to know. He doesn't want to beat around the bush anymore.' Mr Matthews responded, 'As you can see, I am reflecting on that ... Perhaps we need a moment without clients to understand this and to articulate our position.'
43 The proceeding was stood down and on resumption Mr Matthews announced to the Court that the Mekkens would account for the sale proceeds with respect to the sale of the roller. His instructions at that stage were that there was nothing to account for anything in relation to the dozer as it had been sold on 23 June 2011 to Mectec.
44 In his affidavit sworn 20 August 2012, Mr Mekken set out as follows:
[63] Metec purchased the cabined D7G on 18 November 2011 for $52,000 plus $5,200 GST (total: $57,200).
[64] The cabined D7G needed its engine repaired before being sold. I repaired it and advertised it. It was an older machine and not much sought after. There were no buyers.
[65] Again, I tried to contact Wayne by phone to discuss what should be done. I could not get through to him.
[66] I then made the decision to buy the cabined D7G myself via Mectec. The amount of $57,200 was not paid to Southern Phoenix but was set off against my claim for unpaid wages of $174,934.
Now produced and shown to me and marked JMN-19 is a true copy of Southern Phoenix's tax invoice dated 18 November 2011 to Mectec for the purchase of the cabined D7G for $57,200 inc. GST.
45 Between about August and October 2011, the dozer was advertised in the Earth-Movers and Excavators book at a price of $75,000. On 7 November 2011, Mr Mekken stated to Mr Cowling that the dozer had been sold for the price set out in the Earth-Movers and Excavators book but that he could not recall the purchaser's details.[4] On 10 November 2011, Mectec Pty Ltd purported to sell the dozer to John Burns Equipment Pty Ltd for the total sum of $75,000 inclusive of GST. Thereafter, on 18 November 2011, the Mekkens purported to record a sale from Southern Phoenix to Mectec Pty Ltd. The sale price recorded in the tax invoice for the dozer was $57,200 inclusive of GST.
46 Although the tax invoice was raised after the sale to John Burns Equipment Pty Ltd, it includes a reference in an area under the description of job book number: the date 23 June 2011. Presumably Mr Matthews relied on that date as part of his instructions.
47 Unlike the ultimate concession with respect to the sale of the roller, Mr Mekken did not concede that he was liable to account for the full sale price with respect to the dozer.
48 During the course of examination-in-chief, Mr Mekken said that the engine had 'blown up' which Mr Mekken repaired, the cost of which was paid by Southern Phoenix. Mr Mekken said:
John Burns eventually rang me up and enquired about the dozer. I told him all about it. It also had a leaking final drive. And I ended up fixing that leak in the final drive. He paid for it and it was delivered down here to Melbourne.
49 Mr Mekken gave evidence that Mectec had purchased the dozer from Southern Phoenix earlier on in that year. He did not know when exactly but thought it was a considerable time beforehand. 'I think I might have done it ... towards the end of the financial year to try and tidy things up on - that's what I think, I'm not absolutely sure'.
50 Mr Mekken said that he was unsure how Southern Phoenix paid for the dozer but he thought it was for wages. The amount that Southern Phoenix paid for the dozer was the agreed value of $52,500 plus GST.
51 I reject that explanation as incredible. The issue of wages had not been raised at that time, had not been referred to in the 2011 accounts to which I will later refer, and did not arise until after the explanation set out by Mr Mekken in his affidavit of 20 August 2012.
52 Mr Wilson agreed that he had spoken to Mr Mekken in order to reply to enquiries made by Mr Cowling's solicitors. What he had set out in his letter of 30 January 2012 reflected his instructions from Mr Mekken. It is clear that Mr Mekken advised that each of the roller and dozer had been sold to Mectec in the 2011/2012 financial year. That is inconsistent with what Mr Mekken is now putting that the dozer had been sold in the 2011 financial year. It is also clear that there was no mention to Mr Wilson of any sales to third parties or any entitlement to deduct the sale proceeds and apply the same for wages.
53 Further, Mr Mekken agreed that he had told Mr Cowling in mid-2011 that he was not interested in buying any of the plant.
54 When asked how Mectec purported to sell the dozer to John Burns for $75,000, Mr Mekken responded that he just sold the dozer through Mectec and paid the sale proceeds into the joint account (Mr and Mrs Mekken). He thought he could keep the balance of $18,000 because he obtained more than the $57,200 William Adams valuation.
55 Mr Mekken did not concede that he was in a position of conflict of interest and in the end maintained that he was entitled to deduct the amount he contended was due for wages unilaterally without consultation with Mr Cowling. His explanation was that Mr Cowling would not answer his telephone. Mr Stirling put it to him that he did not seek to discuss the matter with Mr Cowling as he knew Mr Cowling would not approve. The explanation that Mr Cowling would not answer his telephone does not sit with having met Mr Cowling personally in November of 2011 and, on Mr Mekken's version, in December 2011. Further, it is inconsistent with the failure to give any explanations in response to the letter and email enquiries in early 2012. Moreover, it does not sit with the constructed version set out in the affidavits in support of his position.
56 I reject Mr Mekken's version of events and his explanations as to entitlement.
57 I have already outlined that it is common ground that the sum of $47,000 from the tax refund was appropriated by Mr Mekken without consultation with Mr Cowling. Mr Mekken sought to justify the appropriation for wages. I need say nothing more at this stage.
58 Paragraph 5 of Mr Mekken's Statement of Claim refers to the wages agreement. The particulars subjoined to paragraph 5 include as follows:
The agreement was oral and was made during a conversation between [Mr Mekken] and [Mr Cowling] at Lot 9, Princes Highway, Newmerella in or about June or July 2007. The conversation was to the effect that [Mr Cowling] needed $1,000 per week to live on, and that that amount would therefore be the weekly remuneration paid to each of [Mr Mekken] and [Mr Cowling].
59 The Statement of Claim set out that it was a term of the wages agreement that if from time to time, the revenue of the company was insufficient to pay both of them, payment of Mr Mekken's wages would be deferred until such time as revenue was sufficient to pay them. The term was said to be express and oral and was contained in a conversation between Messrs Mekken and Cowling at Lot 9, Princes Highway, Newmerella in or about June or July 2007. The amount claimed totalled $175,771.38 for the period 11 July 2007 to June 2011.
60 At paragraph 15, the Statement of Claim sets out the following:
Following the [company's] cessation of trading [Mekken] caused [the company] to pay him $104,210.50 of the deferred wages.
PARTICULARS
The payments were by way of:
(a) On or about 18 November 2011 Mectec Pty Ltd, a company controlled by the plaintiff, took ownership and possession of a Cat D7G bulldozer in exchange for reducing the first defendant's wages liability to the plaintiff by $57,200 ... ;
(b) In or about late January the plaintiff caused the first defendant to pay to him by way of cheque the sum of $47,010.50.
61 Mr Mekken maintained that he was entitled to payment of $71,560.88. In addition to that sum, Mr Mekken also claimed that he was owed $9,310.95 with respect to wages for fire services.
62 It is of note that Mr Mekken did not account for all the funds he had misappropriated from the company's assets when calculating the wages said to be owed to him. In the prayer for relief and the Statement of Claim he did not account for the $18,039.91 with respect to the sale of the roller (including commission of $2,200 paid to Ambon) and the sum of $18,000 with respect to the sale of the dozer.
63 A number of witnesses were called with respect to what the wages agreement was and with respect to what work was undertaken by each of Mr Cowling and Mr Mekken. Before dealing with that evidence I will refer to what the corporate documentation sets out.
64 The financial reports for the company for the year ended 30 June 2008 were produced. The financial year ending 30 June 2008 covers the first year of operations of the company with Mr Mekken's involvement. The profit and loss statement relevantly sets out as follows:
(a) depreciation of plant and equipment $46,847; and
(b) hire of plant and equipment which, I conclude was in the main was provided by Mectec, amounted to $101,542.
65 The balance sheet sets out under current liabilities:
66 The financial report for the year end 30 June 2009 was produced. The income statement and the profit and loss statement relevantly sets out:
69 The financial report for the year ended 30 June 2010 was produced. That report showed that revenue was up from 2009 to $1,745,152. The expenses included hire of plant and equipment at $367,332, and repairs and maintenance at $239,532. The balance sheet sets out liabilities including the Mectec Pty Ltd loan in the sum of $5,847 and the loan from E. Mekken in the sum of $56,942. The non-current loan to Mectec in relation to plant and equipment was reduced to $78,729. Again, a healthy profit was made.
70 The financial reports for the year ended 30 June 2011 were produced. The revenue was down on 2010 at $1,439,607. The expenses included:
71 The balance sheet shows that the current liability with respect to the Mectec Pty Ltd loan had been paid in full and was no longer an issue. The loan in favour of E. Mekken had been reduced to $11,475. The non-current liability with respect to Mectec Pty Ltd plant and equipment had been cleared in full. The retained earnings were $129,939.
72 The draft set of accounts for the period ended 31 March 2012 were forwarded to the plaintiff's solicitors by Mr Wilson on 7 June 2012.
73 Those accounts show a small loss which is understandable given that Mr Cowling and Mr Mekken wound up the operations of the company prior to 30 June 2011. Likewise, the expenses are minimal. However, the expenses include 'Directors' Fees - John Mekken $120,329'. The balance sheet includes a current liability to trade creditors in the sum of $42,030. There is a further explanatory note appended to those accounts in the following terms:
Explanatory Note - Re: Directors['] Fees - John Mekken.
In these accounts an amount of $120,329 is incurred representing [directors'] fees owing to Mr John Mekken relating to the period of 2007 through to November, 2011. $43,105 of this amount remains unpaid and represented by a Trade Creditor liability in the accounts.
74 It is of note that until the draft accounts for the period ending March 2012 were produced there is no reference to any outstanding liability for wages. Given Mr Mekken's evidence that Mectec purchased the dozer in June of 2011 prior to the end of the 2011 financial year, I would have expected some entry in the 2011 accounts. That did not occur. Further, Mr Mekken has not produced tax returns to show how he treated the appropriations in his own hands. I also note that it is axiomatic from what Mr Wilson has set out that even as at June 2012 he had not received instructions from Mr Mekken about the true state of affairs in relation to the sale of the roller and the dozer. Otherwise, the amount considered paid would have been much higher, leaving a relatively small balance.
75 In addition to production of accounts for Southern Phoenix, there were some accounts produced for Mectec. In the financial year ending 30 June 2007, Mectec had been operating a haulage business and a sawmill timber business. The total income was recorded at $3,212,611.44.
76 In the year ending 30 June 2008, cartage was up from $421,000 to $753,205.48, and total income was $3,302,037.79.
77 In his affidavit sworn 20 August 2012, Mr Mekken set out as follows:
Conduct of Southern Phoenix business
[12] At around the time the Southern Phoenix business was commenced Wayne and I discussed what roles we would perform. We agreed he would operate machinery and oversee crews on jobs. He would sign off on employee timesheets and supervise. My role was to also oversee and supervise crews on jobs, operate machinery but also be involved in management and other operational tasks. I was responsible for getting new work, preparing tenders/quotes, repairing/maintaining machinery, liaising with the DSE, VicForests and private clients, placement and recovery of machinery from jobs, setting the jobs for the crews and telephoning them.
[13] Tendering was an important part of my role. I would tender for lots of jobs to ensure we got enough work as not every tender was successful. Southern Phoenix had up to five crews working on jobs. Usually Wayne would oversee three crews and myself two. I operated machinery frequently when on jobs with my crews and filled in for blokes who were away or had days off. I would spend at least 40 hours per week working for Southern Phoenix. [emphasis added]
...
[15] Wayne and I also discussed around the time the Southern Phoenix business commenced the wages/moneys we should be paid.
[16] We agreed we would each receive the same amount each week. Wayne told me he needed $1,000 net per week to live on which is what we agreed we would each be paid.
[17] Cash flow was an issue. Southern Phoenix did not have an overdraft facility and aside from employee wages and other substantial outgoings/business running costs, hire purchaser payments on machinery and equipment needed to be made.
[18] Wayne told me his financial commitments meant he needed his $1,000 net per week no matter what. I told him that if and when the business could not afford to pay both of us I was prepared to defer payment of my wages until the company could pay it. We agreed to this arrangement. I told Betty about the arrangement. [emphasis added]
[19] For the financial year ending 30 June 2008, Wayne and I (when I was paid) both received $1,000 net per week with his split at his direction about half as wages on which he paid tax and half as a dividend. Both of us also did separate fire work for VicForests and the DSE. Monies Southern Phoenix received for our hours doing this work were initially paid to the business to help with cash flow. For the financial year ending 30 June 2009, monies the business received for our respective fire work was paid separately to each of us in addition to the $1,000 weekly payment. I wanted to leave the fire work monies in the business to help with cash flow but Wayne insisted it be paid.
[20] Until about November 2007, I was paid no monies from the business. I then commenced receiving wages ongoing whenever Southern Phoenix had enough funds to pay me. When I was paid, what I received was the same monies as Wayne ($1,000 net weekly) plus extra for fire work where applicable.
[21] I have obtained copies of Southern Phoenix accounting program QuickBooks report for both Wayne and myself for all net wages (they exclude that part of our wages paid as dividends) and extra fire work monies paid to each of us for the entire period we were paid wages.
[22] Wayne was paid net $165,757.51. I was paid net $28,889.81.
...
[23] I have obtained copies of both Wayne and my PAYG payment summaries for the period 1 July 2007 to 30 June 2011. The payment summary over the period indicates Wayne was paid gross $210,659 and myself $35,725 calculated:
78 Mr Cowling had not been required to file a responsive affidavit.
79 The issue of outstanding wages due to Mr Mekken was raised for the first time in December of 2011 at the Newmerella Service Station. It was not put to Mr Cowling that there was a conversation about any particular amount. The reference to wages at the December meeting was after Mr Mekken had been asked to account for the sales of the roller and the dozer. I accept that that occurred in November of 2011.
80 Although Mr Cowling accepts there was mention of wages at the November or December meeting, that had not been set out in either of Mr Mekken's transmission of 16 February 2012 or Mr Wilson's letter of 31 January 2012. In each there was reference to Southern Phoenix paying its debts. Mr Mekken set out in his email transmission that the D7G bulldozer was taken as part of the debt owed to Mectec Pty Ltd and himself.
81 It was not until the draft accounts for the year ended 30 June 2012 were produced that any attempt at quantification occurred.
82 It is of note that Mr Mekken does not contend that he raised the issue of outstanding wages at any time prior to December 2011. It was not raised in any of the financial years ending 30 June 2008, 2009, 2010 or 2011. It was not raised when Mr Mekken and Mr Cowling each signed off on the annual financial statements for the company for each of those financial years. The declaration made by each of Mr Mekken and Mr Cowling declared that:
The financial statements and notes, as set out on the following pages, present fairly the company's financial position as at 30 June ... and its performance for the period ended on that date in accordance with the accounting policies described in Note 1 to the financial statements ...
83 Unlike the records maintained to set out what the company owed to Mr and Mrs Mekken or Mectec Pty Ltd with respect to equipment sold into the company and advances to the company which were appropriately documented and referred to in the annual accounts, no record or journal was maintained setting out what is said to be due and owing to Mr Mekken with respect to wages. That had been reconstructed for the purposes of this proceeding by referring to, with respect to general wages, the accounting package, QuickBooks, to determine what had already been paid. The logic was that if there was an entry missing for a particular pay week then ergo, the amount had not been paid and was now due and payable. The process in relation to fire wages involved a broader investigative process by reference back to DSE fire sheets. I will deal with that separately.
84 When Mr Mekken was paid by the company from time to time it was at the rate of $1,000 net per week. That was paid as a 'net base wage paid as wages' to Mr Mekken in the sum of $462 and 'balance of base wage paid as a dividend' to Mrs Mekken in the sum of $538. The total amount was $1,000. Mr Mekken confirmed that his wife 'got all her dividends out of the company, by the time it was - ah stopped trading, yes'. Notwithstanding that statement during the course of closing, Mr Mekken's counsel put it to me that he was instructed that all the loans to the company were paid out by the end of the 2011 financial year with the exception of the dividends. I do not know what to make of the evidence and the submission but as it transpires, nothing turns on whether Mrs Mekken has been paid the dividends or not.
85 Mr Cowling had been approached while conducting his own business in Bateman's Bay, New South Wales in or around mid-2006. From the beginning of 2007, Mr Cowling was employed as a machinery operator by Mectec Pty Ltd. There had been a number of discussions about Mr Cowling joining the operation. I can disregard the earlier discussions and jump straight to mid-2007.
86 Mr Mekken said that there was a discussion in the office at which Mrs Mekken, Diane Young, Wayne Cowling and Luke were in the room. He said that the company will be set up, that it is equal directors, 'Tiny and I will be directors. Diane and Betty will be shareholders, Betty having slightly more shares. And we'll be paid equally'. When asked about the rate of pay Mr Mekken said, 'Wayne Cowling had told me previously that he needed $1,000 per week net to service his debts, and I agreed to that. And I said, "Well, I'll get the same".' Mr Mekken said he had said words to that effect at Bateman's Bay and at the meeting at the office.
87 Mr Mekken said there was a further meeting in the office 'on the first pay week.' During that meeting he said that Betty had told him that:
We hadn't thought about the funds a hell of a lot. There were no funds for the company and she had put personal money into the account, and that there wasn't enough. There was - there were, that we were paying that we were putting money - our money in to get the business going. And I said, "Oh well, we - we know Tiny has to be paid every week, so pay him." And once the company starts making money, I will get paid then.
88 Mr Cowling, as to the contention that Mr Mekken would be paid $1,000 a week responded that the first time he had heard of that claim was when he received the court document in or about October 2012. Mr Cowling said that the agreement discussed was that Mr Mekken would get paid $30 an hour if he was involved in working for Southern Phoenix. He had an understanding that Mr Mekken would put his hours into the office and be paid his $30 an hour. However, it became apparent that Mr Cowling had no idea what was in the accounts and had not concerned himself with reviewing the same at any time until the issue about the sales of equipment arose. Mr Cowling was cross-examined about where the conversation took place as he had said that it occurred at Tennyson Street, Orbost. He conceded that he was wrong and had been living at Flat 6, 78 Boundary Road, Orbost at that time and only moved to Tennyson Street later. However, nothing turns on that. The figure of $30 per hour arose at various times during the course of evidence. It roughly equates (but not exactly) to the $1,000 net per week for a 40 hour week. $30 per hour roughly equates to double of what was entered into in the QuickBooks system to obtain the base wage paid directly to Mr Mekken, excluding the dividend paid to Mrs Mekken. It roughly equates to what the DSE was paying operators from time to time with fire services. Although the figure of $30 per hour might have been impressed upon Mr Cowling's mind, there is just nothing to support payment of an hourly wage in the reconstruction of the QuickBooks produced to me. Mr Mekken (together with Mrs Mekken) was either paid $1,000 per week (excluding fire wages) or not. Further, neither Ms Young or Ms Carmody-Burton ever wrote up Mr Mekken's wages referrable to an hourly rate for any particular week. Accordingly, I cannot accept that there was any agreement to pay Mr Mekken $30 per hour when he worked.
89 Mr Mekken devoted a number of paragraphs in his affidavit to making allegations about Mr Cowling's attention to duty and conduct in relation to the use of Southern Phoenix fuel. Telephone records were obtained and referred to in his affidavit. He was cross-examined about the same.
90 That evidence set out in the affidavit and the cross-examination did not touch upon any of the issues in the proceeding. Further, if it was a matter that was set out purely in relation to a matter of credit of Mr Cowling, I would have expected that to be dealt with in closing submissions on behalf of the Mekkens. It was not. Mr Matthews informed me that he had made a forensic decision not to pursue that aspect.
91 Ms Young was Mr Cowling's partner. Ms Young was also the bookkeeper for the company up to the time of separation from Mr Cowling in April 2009. She said that Mrs Mekken had initially taught her the system and then Ms Young did most of the bookkeeping through to late 2008/early 2009. At that time, Mrs Mekken started to attend to more of the bookkeeping work.
92 Ms Young did not recall being present when there was a discussion in relation to wages. She understood that Mr Mekken was to be paid an hourly rate for any work he did for Southern Phoenix. She understood that that had been told to her by John (Mr Mekken), Betty (Mrs Mekken) and Wayne (Mr Cowling) and that she was told that in the months leading up to the commencement of the business on or about 1 July 2007. I note that her recollection of when there were any instructions or discussions about wages does not accord with any other witness.
93 Although Mr Cowling submitted timesheets she did not need to refer to the same as he was being paid a flat rate of $1,000 net per week. She did not recall how Mr Mekken's wage claims were made and how they were paid. Mr Mekken did not submit time sheets. Ms Young wrote out cheques on instructions from Mr Mekken or Mrs Mekken. A summary of wages paid and the comparison between wages paid to Mr Mekken and Mr Cowling were put to Ms Young.
94 During the course of cross-examination Ms Young was again asked what she remembered as to the arrangements. Her response was that 'John Mekken was to be paid, if he worked for Southern Phoenix, on an hourly rate, or if he did a full week, he got the same, that was the truth.' Ms Young conceded that Mrs Mekken was concerned about cash flows for the business and that one or other of the Mekkens had put money into the business in the earliest week so that wages could be paid. However, Ms Young conceded, after considering the wages summary, that there were no entries which reflected payment of Mr Mekken at an hourly rate. He was either paid the $1,000 or nothing. Of course that excluded observations about payments in relation to fire services. In the absence of wage claims or time sheets for Mr Mekken, she wrote a cheque out for wages for Mr Mekken on instructions from either Mr Mekken or Mrs Mekken.
95 Ms Young was also taken to a summary of the bank balances for the company. She did not concede that she was ever given instructions not to pay any cheque because the company's funds would not be sufficient to meet the same.
96 Although Ms Young said that Mectec invoiced the company for Mr Mekken's wages in relation to work carried out by Mectec for the company, she could not recall if that happened always. Given that it was only the invoice at page 904 of the case book which was to the contrary (Mr Mekken's wages were not claimed) I am prepared to accept, and it is logical, that Mectec in the main charged the company all associated costs. That proposition is also reflected in the annual accounts of both companies.
97 Mrs Mekken gave evidence that there were several meetings at which arrangements were discussed. The first meeting was in New South Wales at Wayne's premises. That accords with Ms Young's recollection. Mrs Mekken then gave evidence that there was a further meeting at the workshop upstairs in the main office: 'That was where Dianne, myself, John, Tiny and there were several other people moving around but I can't remember who they were.' She thought one of them was one of her sons. 'And it was discussed about the thousand dollars each, equal directorship again.' Mrs Mekken said both of them (Mr Mekken and Mr Cowling) said:
Tiny needed a thousand and - so that was the thing that set it for both of them, automatically, that - so it was agreed that they both took a thousand and that was what Di was to start paying, um, when we could afford it. Because the company didn't have any set-up funds, it was coming from J.M. & E.C. Mekken or it could have been even Mectec, I don't really know. I can't remember that far back. ... So that was sort of the benchmark, the thousand dollars. They decided on the dividend (a split between wages and dividends) so the dividend was set up. I showed her how to do it in the system and she went about setting it up. And I showed her an indicative rate - no - yeah, I must have done because she didn't know how to do it. So I looked at the wage sheet and give her an indicative rate to put in the system to generate the wage component or the 451 and it would have went from there.
98 She could not recall what the rate was but thought it was about $14 for the wage component ($451 per week).
99 Mrs Mekken said that both John (Mr Mekken) and herself said 'it was silly to pay ourselves our own money, to defer it until we had funds there to do it. If the funds weren't there, then defer it.' However, it is unclear whether that was a conversation between themselves or with Mr Cowling. Her evidence suffers from the same vice as all other witnesses in that I cannot ascertain what was actually said. The evidence is in the form of conclusions or as to the effect that people ascertained was agreed.
100 Mrs Mekken's evidence had to be managed because of her condition, allowing breaks whenever necessary. She also conceded that her memory was affected by her medical condition.
101 Mrs Mekken said that when Mectec worked on Southern Phoenix's machines, John Mekken's labour on those jobs was invoiced but at a minimal rate as 'he didn't really have to because he was going to get a $1000 a week anyway, the same as Tiny'. However, that was the extent of her evidence and was not supported by any invoices other than the one produced.
102 Mrs Mekken documented sales of Mectec machinery to Southern Phoenix. Such documentation included interest payable at 9.3 per cent and GST of $15,000 payable at the end. Mrs Mekken said that interest was never to be paid but the payments over five years at $3,423 per month totalling $205,380 over five years, which was over and above agreed total of the loan of $165,000. The figure of $205,380 has also been written on the document.[5]
103 Mrs Mekken maintained that she was present during several meetings but agreed that she was 'always typing and they were always talking and having meetings around me'. Mrs Mekken sought to explain Mr Mekken's statement that she was told of the arrangement afterwards as being told at the time by overhearing the discussions. Notwithstanding that in paragraphs 8, 9 and 10 of her affidavit sworn 20 August 2012 she deposed that she did not hear what weekly amount had been agreed on. She sought to explain the discrepancy by reference to her operation in August of 2012 and the affidavit being brought to her in hospital. Mrs Mekken did not have an independent memory of what was set out in her affidavit. She also said that she was of similar condition in August of 2012, which casts doubt on whether what was then set out in her affidavit was derived from her memory alone.
[8] Before Southern Phoenix commenced its business John and Wayne had a meeting at the office. I was present but was mostly a nonparticipant in going about my work. They discussed how Southern Phoenix was to run, who was to do what, what machines and equipment [are] needed, staffing and what wages should be paid. Every so often they would include me in their discussions and ask me questions. They both agreed that they would be paid the same wage each week. I did not hear what the weekly amount that they had agreed on but John later told me it was $1000 net because this was the amount Wayne needed week to week to live on.
[9] In commencing to trade Southern Phoenix did not have enough money to pay employee wages, incoming bills and the $1000 net weekly payments to Wayne and John. I discussed the issue with John. Some time shortly thereafter he told me his wage would be deferred and paid when Southern Phoenix could afford to. At the time Diane was doing the wages and I told her not to pay John to start with and he would be paid the same wage as Wayne once the business had sufficient cash flow.
[10] Wayne received his first net $1000 weekly payment on about 11 July 2007. From the time of his second pay his wage was split between wages and dividends making up the weekly $1000 net and that arrangement lasted until about 30 June 2009.
105 Mrs Mekken was asked whether she remembered back to mid-2007. Her response was that she found it hard to remember the end of 2007:
I tend to remember more clearly when there's been an emotional upset that - and they said that's attributed to the Graves' Disease, and that I have a better memory of incidents around that.
106 I took it that she meant that she could more clearly remember the events of 2007. However, she conceded that she had spoken to her husband about the issue. She remembered some of the earlier meeting at New South Wales but not a great deal of it.
107 When the company started up its operations, Luke Mekken was engaged in haulage, dirt work and fire suppression. It appeared that he was employed by Mectec as he was mainly engaged in haulage work. After the company ceased its operations he became a sole trader.
108 He gave evidence as to a conversation at the workshop at the office upstairs. He said that he was present, his father, his mother, Diane and Tiny (Mr Cowling). He said, 'Well, they both spoke about the directorships of the company and it was to be 50/50 directorship and the shareholdings was not to be, would have [been] greater'. When he was pressed further about the conversation he said, 'Tiny, or Wayne, needed $1,000 a week to meet his commitments. ... He said his commitments required that he needed that amount of money to sustain himself ... He (Mr Mekken) agreed'. When pressed as to whether anything further was said in the course of that meeting, Mr Luke Mekken responded, 'He might have said a lot, of other things in that meeting but I'd be lying if I said, I can't recall anything else bar than what I've just stated'.
109 At that stage I had formed the view that Mr Luke Mekken was 'a straight up and down witness and frank'. The Mekkens' counsel was not satisfied with the answer that Mr Luke Mekken had given as to the contents of the conversation and sought to press the issue. The matter was stood down and on resumption Mr Mekken was asked whether he had exhausted his memory of what was discussed to which he replied 'Yes' and then went on, 'The only thing I knew of was the equal directorship, equal pay and the shareholdings. These are the only things that stuck in my mind, they're the only things that were important'.
110 When asked what his father said, Mr Mekken responded:
That it was equal pay, that, and Tiny said he needed $1000 a week to sustain his commitments. So from my recollection, if it was $1000, it's equal pay, my father was to get $1000. That's what I took from it. And I believe later on that changed and the fire money became extra on top, but that was some time later on, I don't know the exact date that that happened ...
111 On this issue during the course of cross-examination, Mr Mekken became evasive about his knowledge of what the issues were about but conceded that his father had told him that it was a dispute about pay. He thought that his mother originally told him what it was about and then he spoke to his father. It appeared that he was present with the solicitors for Mr Mekken while his father said what was said in the wages discussion with Mr Cowling.
112 I reject Mr Luke Mekken's evidence, putting aside other reasons as to the inherent unlikelihood of the conversation ever having occurred by reason of the sequence of events on two bases. The first he did not and was unable to say what the conversation was. When he was initially frank in saying that he could not recall anything else bar what he had stated, he should have left it there. The second basis is that his evidence was not evidence of the conversation at all. It was merely the conclusions wished to be propounded on behalf of his parents. It is inescapable that Mr Luke Mekken, as with his brothers, were schooled in what to say either consciously or subconsciously by reason of the discussions with his father and mother or overhearing discussions with Mr John Mekken's solicitors.
113 Mr Luke also said his father worked for the company. That work was 'tender work to mechanical to machine operating'. Of course the mechanical is work on behalf of Mectec for which Mectec charged the company. Except in relation to fire suppression, Mr Luke Mekken said his father did about ten per cent civil work in comparison to Mr Cowling.
114 Ms Carmody-Burton worked for the company during its duration of operation. Initially, she had prepared the accounts payable, the Business Activity Statements and the PAYG, and attended to reconciliation of bank statements. In August of 2009 she took over from Mrs Mekken in attending to preparing the wages. Notwithstanding that statement, it appears that she only dealt with the fire services wages and not the Southern Phoenix wages. Although she was aware of some cash flow difficulties she did not recall ever being told that wages were not to be paid because of insufficient funds.
115 The figure of $9,300-odd which was said to be owed to Mr Mekken in relation to underpaid fire wages had been arrived at by her. She provided the summary for use in court. It would be fair to say that there was nothing contemporaneous from week to week. Ms Carmody-Burton said:
I went through the firebooks, photocopied anything that had John Mekken's name on it. Then I determined what they were worth, like the hours on there, looked back at old fire rates, looked back at calendars, determined what day they were on, and then I would look in the QuickBooks and if there was no wage, nothing applied to that firesheet, there was no wage generated, well, then that's how I discovered that basically he was not paid that money.
116 However, the missing links are the invoices generated by the company to DSE and DSE payments. What is not before the Court is whether or not any claim was made upon the DSE, DSE paid it and that payment had not then been disbursed to Mr Mekken.
117 Ms Carmody-Burton was taken to two fire sheets for the period November 2009. $1,770 had been claimed for unpaid wages for the week ending 18 November 2009. Yet the only two time sheets produced set out that Mr Mekken worked 13½ hours on Thursday, 12 November 2009 which equates to $540, and seven hours on Friday, 13 November 2009 which equates to $210. I was not taken to any other time sheets that were relevant for that period. The summary entitled 'John Mekken's Fire Sheets - Unpaid Hours' also only included the two time sheets. I determined that the calculation of the amount is unreliable. Further, Ms Carmody-Burton said that she did not check to see if any amount was paid by DSE. So I cannot be satisfied if any amount was due to the company with respect to any wages that Mr Mekken claims in relation to fire services.
118 During the course of evidence I was not taken to any of the other fire sheets to demonstrate how they married up with the claim.
119 During the course of submissions the Mekkens' counsel sought to tender further documents in relation to this facet. It was put to me that they ought to be admitted into evidence as the bundle of further timesheets would fill in the 'blanks' to marry up the claim with what is recorded in the fire sheets. Mr Cowling's counsel objected on the basis that the case was closed and he did not have the opportunity to explore that with any of the witnesses. I have not admitted the same into evidence. However, even if I accepted what Mr Matthews told me from the Bar table (and I have no reason not to accept it) that the further bundle of timesheets would explain the deficiencies in the material put forward during the hearing, that is not the sole basis for rejecting the claim with respect to unpaid fire services. I do so on two bases. The first being that the Mekkens have not satisfied the onus of proving that any payment was received from DSE to the company with respect to the claims by Mr Mekken. The second basis is that the fire sheets include other employees making claims for labour time and also claims for usage of vehicles.
120 Ms Carmody-Burton opined that the fire sheets just got missed at the time so no timesheets were written up and it was not written into QuickBooks. However, that does not explain why other employees were paid on the relevant timesheets. When I made that observation to Mr Mekken's counsel, Mr Matthews submitted that all I could make of it was that none of the other employees had made a claim for unpaid wages. However, that is not the case as it is common ground that all third party liabilities had been paid in the process of winding up the affairs of the company save for an outstanding accountant's fee. Further, it does not explain the lack of comment about claims for the machinery in fire sheets.
121 Ms Carmody-Burton had been delegated to compile the fire service wages. Again, the company did not generate contemporaneous records keeping a tally of what had been paid or unpaid. The reconstruction undertaken by Ms CarmodyBurton was purely in support of Mr Mekken's position that he was entitled to withhold funds from the sale of the equipment and not account to Mr Cowling.
122 Mr Mekken sought to portray a scenario where he dedicated himself the company's activities on an equal footing with Mr Cowling. He said that he worked a 40 hour week each week, together with weekend work as appropriate. He sought to minimise his involvement with Mectec in its divisions relating to sawmilling and the mechanical workshop. Counsel also put it to him that he was involved in an electrical business. Although Mr Mekken had been involved in an electrical business with his father and brothers, I accept that it was not at all consuming.
123 Mr Mekken said that when he commenced in the early months with the company he did:
A hell of a lot of truck driving, moving gear from one place to the other, which started at daylight of a morning usually ... liaising with VicForests, DSE and Parks about up and coming jobs ... Making sure everything was running right within the ... business. Office work, doing tenders and quotes and ... the like.
124 Mr Mekken was at pains to portray that he engaged in the company's activities on an equal footing with Mr Cowling. He said that he worked a 40 hour week plus weekends when appropriate. He sought to discount his attention to non-company activities. He said he 'worked for Southern Phoenix pretty much full time, and some'. That was just not the case.
125 Mr Rogers was a heavy machinery plant operator who was called to give evidence on behalf of Mr Cowling. He had known Mr Cowling for about 20 years and Mr Mekken for roughly 25 years. Mr Rogers had been employed by Southern Phoenix from about mid-2008 to about mid2011.
126 Mr Rogers said that over the three year period he had been employed, Southern Phoenix carried out about 100 jobs or less for Vic Forests. Mr Cowling (referred to by Mr Rodgers as 'Tiny') attended most if not all of the jobs. He gave instructions. Mr Rogers did not recall Mr Mekken attending any pre-site meetings or pre-operation meetings. There were times when Mr Mekken floated equipment to a site or that was done by Wayne Cameron. Floating or, at times referred to as 'plating', was to Mectec's account.
127 Clinton Mekken was a saw miller. Mr Mekken agreed that a fair summation of his evidence was that the main thing he remembered that changed once his father started working for the company was that wages had to be paid to a further employee on weekends because his father was off doing plate driving. This evidence really did not lead anywhere but to confirm that his father was engaged in undertakings on behalf of Mectec, namely, the plate driving.
128 Jason Mekken was a service supervisor and mechanic employed by Mectec. His father worked with him on the company's maintenance work. Although Mr Mekken's hours varied, 'a lot of the time he was assisting me with the maintenance'. He was engaged for about half a week working on Southern Phoenix (the company's) maintenance and repairs. The other half of the week he was engaged working for other customers. Mr Jason Mekken also said that his father assisted with that work as well.
129 Again, there was a dispute about the questioning of this witness-in-chief. Having received the answer that Mr Mekken was generally engaged at the workshop, Mekken's counsel sought to elicit different evidence by comparing Mr Mekken's attendance at the workshop at the commencement of the company's operations as opposed to about six months later. Although such questioning ignored the fire season when it was generally accepted that Mr Mekken was out in the field, the impression sought to be conveyed was that Mr Mekken's hours at the workshop were drastically reduced. However, Mr Jason Mekken conceded that he treated Mr Mekken as working for the company when Mectec attended to repair or maintenance work for the company he treated that as his father working for the company and not Mectec.
130 Mr Mekken's counsel also sought to rely upon an invoice given by Mectec to the company which set out labour charged by Mr Jason Mekken but not his father. No other invoices were sought to be relied upon as they did not show a breakdown of labour. Given the vast amount of work that Mectec undertook for the company (from the financial statements of Mectec and Mr Jason Mekken's evidence that Mectec was engaged about half its time in dealing with the company's maintenance and repairs) the sole invoice sought to be relied upon is unhelpful.
131 Mr Leatham had been employed by the company throughout its life. He had been assisting with 'offsite' work which is helping the machine operator. He also drove the roller later on. He said that Mr Mekken drove the dozer, drove the truck and he was in the workshop. When he was in the workshop he was attending to mechanical work. He took the truck to fires or jobs with the dozer on the float. He recalls Mr Mekken pushing gravel for a couple of weeks and being down at the fires on Black Saturday. He had also been involved in rough heaping work. Mr Leatham was asked by Mr Mekken's counsel in examination-in-chief if he could add up all the times that Mr Mekken was working with him and what would he get as a total. Mr Leatham's response was 'for six months, yes.' When he was asked if he could recall other jobs other than the Black Sunday, Mr Leatham responded that Wayne was always there abut John was 'here, there, everywhere and John was fixing the machines in the shed.' When asked what he meant by that he said, 'If he wasn't taking a dozer around, he was yeah, fixing machines in the shed.' Mr Leatham was also aware that John Mekken was running or operating his sawmill business.
132 Two matters of note arise from his evidence. Firstly, in the period July 2007 through to the beginning of 2011, Mr Mekken's attendance in the field was estimated to be relatively minor, namely six months. Secondly, the transporting of heavy equipment on the float was for the account of Mectec in any event.
133 I accept Mr Leatham's evidence to the effect that Mr Mekken's role was estimated to be relatively minor, namely, six months. That accords with the evidence of Luke Mekken, Clinton Mekken and Jason Mekken.
134 Mr Matthews urged me not to accept that plate driving was invariably at the account of Mectec. However, there is no evidence to the contrary, Mr Mekken did not seek to contradict that proposition and the accounts of the company include substantial amounts for the hire of plant and equipment. I have not been taken to any material which would suggest that that is not other than the hire of Mectec's 'plate' or otherwise described as float.
135 Mr Matthews also took me to the Quadralink job where Mr Luke Mekken said that his father had been working on that job at least for three to four weeks. During that period Mr John Mekken was only paid for one week on 9 July 2008. However, given the description of Mr Mekken's activities, I cannot be satisfied that work on the Quadralink job was attributable solely to the company.
136 Mr Matthews submitted that I was entitled to look to the surrounding circumstances to determine what the wages agreement was, provided that the particular circumstances under consideration meets the criterion of relevance set out in s 55 of the Evidence Act 2008. He also submitted that I should prefer the evidence of Mr and Mrs Mekken and Luke Mekken that the wages agreement was that John Mekken be paid $1,000 per week, mirroring Mr Cowling's wages.
137 The wages agreement is said to be oral and constituted by the conversations in mid2007. My task is to determine a factual dispute about the actual terms of the agreement if any was arrived at. It is not a matter of looking at extrinsic evidence to determine any ambiguity or what any particular term might have meant. Nor is it a matter of analysing whether an agreement exists, for example, by implying its existence from the conduct of the parties. My task is simply expressed; that is, to determine if the parties reached an oral agreement as contended for by Mr Mekken based upon the credibility of the germane witnesses. Certainly, my task is not to impose my view of what a reasonable agreement might or might not have been.
138 I have already rejected Mr Cowling's version of the agreement. Although there is sufficient foundation for reference to $30 per hour derived from the indicative rate used to pay $1,000 net per week and derived from DSE payments, there is simply nothing to support that such a methodology was ever used.
139 I need to assess the credibility of the evidence provided by Mr Mekken and on his behalf. I agree with Mr Matthews that I am entitled to look at the surrounding circumstances but not in the way submitted by Mr Matthews. Those circumstances bear upon my assessment of the credit of Mr Mekken. However, if I am wrong and I am able to consider the circumstances more broadly as submitted by Mr Matthews, I will deal with that in any event.
140 During the course of the hearing and, in particular, during the course of final submissions, I made it clear that it was my determination that Mr Cowling's conduct in relation to the sale of the dozer, the roller and the appropriation of the tax refund was abhorrent. However, I put that to one side when considering whether an oral agreement was reached.
141 I find that Mr Mekken's version of the agreement (if any) has no credibility.
142 Mr Mekken steadfastly contended that he worked a 40 hour week and 'then some more' on behalf of the company in the face of overwhelming evidence to the contrary, even adduced by his own witnesses. Mr Mekken continued to operate on behalf of Mectec. He plated for Mectec. He attended (even on his version which he maintained was minimal) to briefings of Clinton Mekken with respect to the operations of the sawmill. He attended to mechanical repairs on Southern Phoenix equipment each week when at the workshop for about half such a week. Jason Mekken sought to dismiss that as working on behalf of the company. However, only one invoice was produced to the Court which excluded Mr Mekken's wages in relation to a particular undertaking. He may have continued with some minor electrical operations but that was not explored. He did not adduce evidence as to particular tenders which had been submitted so I could not assess what may or may not have been involved in tendering.
143 An analysis of the Mectec Pty Ltd profit and loss statements for the year ending June 2007 and for the year ending June 2008 undermine his evidence that he devoted himself to the company's enterprise. In 2008, total cartage increased from $421,751.38 to $753,205.48. The sawmill sales increased from $1,309,262.88 to $1,510,750.77. Even contracts in relation to harvesting, private/government, VicForests, DSE, parks, DSE fire continued, albeit that amount had been reduced from $967,212.51 to $539,462.96. Electrical sales continued at a relatively modest amount in the mid2000s. Under the heading of 'Sales - Other' the figure increased from $256,791.71 to $344,387.44. I have taken that reference to be a reference to servicing and mechanical repairs undertaken by Mectec for the company and other private clients.
144 Mr Mekken did not make a claim for outstanding wages whether they be base wages or fire service wages in the financial years ending 30 June 2008, 2009, 2010 and 2011. Although I accept that he claimed wages at the Newmerella petrol station meeting in 2011, it is clear that the formulation of the claim did not occur until the provision of the Statement of Claim in this proceeding.
145 He signed off on the accounts of the company for the financial years ending June 2008, 2009, 2010 and 2011. He declared that those accounts represented a true and fair position of company. That is not the actions of a man who claimed to be owed wages.
146 Even when he instructed Mr Wilson with respect to the 30 June 2012 accounts, he omitted to be frank with respect to the amount he had appropriated. That bears upon his honesty.
147 Again, in his statement of claim in this proceeding he omitted to declare the full amount he had appropriated on account of his claim for wages.
148 His viva voce evidence was inconsistent with what he had set out in his affidavit sworn 20 August 2007. The same observation can be made of Mrs Mekken.
149 Once the inconsistencies were pointed out to him, rather than conceding error or a misunderstanding, he sought to explain those inconsistencies, mainly as to who was present at the July meeting which only identifies himself and Mr Cowling in the particulars to the claim and in his 20 August affidavit and what was actually said. Initially in his affidavit he said he told Betty about the arrangements, but in his viva voce evidence sought to explain that there was nothing inconsistent with that statement and her being there and being told about the arrangements at that time.
150 Mrs Mekken's affidavit of 20 August 2012 is also inconsistent. In particular, she confirmed that she did not hear any weekly amount at the first meeting. She also deposed that she had spoken to John (Mr Mekken) about the ability to pay at some time after commencement of trading. Mrs Mekken made it quite clear that she was not a participant in the July meeting and that she was 'multitasking'. However, Mr Mekken sought to involve her in the discussions in his viva voce evidence and, in particular, attribute the cash flow issue as to being raised by her. I viewed Mrs Mekken as an unreliable witness. She had memory problems and I do not accept that she would have a clear recollection of anything said in mid-2007 when she could not remember what was set out in her affidavit.
151 The claim has all the hallmarks of a reconstruction after being confronted about the sales of the dozer, the roller and the tax appropriation. No contemporaneous documents were maintained recording what was owed to Mr Mekken. Although I accept Mr Wilson's evidence about the accounting treatment, I am surprised that there was no provision for payment, how else would the directors know that the accounts represented a true and fair position. Mr Wilson was willing to record the amount that he was then instructed as outstanding for wages due to Mr Mekken ($430,105) as a liability under the heading of 'Trade Creditors' in the draft 2012 accounts. I am not sure why such a liability or obligation could not have been recorded in earlier accounts if it were due. Further, I am even more surprised that a running balance was not kept, if there was any voracity to the claim, so that each of Mr Cowling and Mr Mekken could understand the position. No records were maintained with respect to what was owed on the fire services. It was not demonstrated why he was the only employee to miss out on payment, nor was it demonstrated that DSE actually paid with respect to his claims.
152 I further took Mr Mekken's position to be a reconstruction rather than evidence of what was said. He did not give evidence of what was said as he contended at any of the meetings. His evidence and, in particular the evidence of Luke Mekken, was not evidence of what was said but evidence of conclusions being the four points which Mr Mekken wished to convey in support of his claim. It is an inescapable inference that Mr Mekken and his family got together and reconstructed what Mr Mekken wished to rely upon either expressly or merely by setting out his justification for not accounting to Mr Cowling with respect to the sale of the dozer, the roller and the appropriation of the tax refund.
153 Further, although I accept that each of Mr Cowling and Mr Mekken were working men with attendant language skills, I do not accept that Mr Mekken was frank in the witness box. He was not a responsive witness.
154 If I were to follow what was urged upon me by Mr Matthews and also look at the surrounding circumstances to determine whether a wages agreement had been concluded in the form contended for by Mr Mekken, then I find further comfort in determining against Mr Mekken. Those surrounding circumstances include:
(a) Mrs Mekken was ill. Although Mr Mekken refuted wanting to change operations to allow him to have more time with Mrs Mekken, that is an inescapable inference of one of the circumstances prevailing in mid-2007;
(b) Mr Mekken was financially comfortable through his interests in Mectec. After employing Mr Cowling for six months, he was able to hive off a substantial part of Mectec's undertaking. Mr Cowling's attention to the day to day running of the company allowed Mectec to increase its income stream from servicing and maintenance. That would have been a cost absorbed by Mectec prior to the company commencing operations. Mr Cowling's evidence that $75 per hour had been negotiated for Mectec to undertake the servicing and repairs was not addressed or refuted by Mr Mekken;
(c) the income of Mectec actually increased in the first year of the company's operations as I have previously referred to;
(d) Mrs Mekken was a 51 per cent shareholder in the company. The mere equality between Mr Mekken and Mr Cowling was represented by being able to participate in the yearly dividends;
(e) I cannot accept that Mr Cowling or any businessman in his position would countenance an arrangement where he would devote himself entirely to the activities of the company and where it was accepted that Mectec would attend to servicing and repairs and charge the company for those activities and also for floating work when Mr Mekken had responsibilities with Mectec to attend to. It was not as though Mr Mekken was making a contribution or other injection into the company which would be recognised in his favour. The equipment sold into the company by Mectec was treated as hire purchase and accounted for. Loans to the company were accounted for. It cannot be said that any of the existing contracts were assigned from Mectec to the company. It is clear that there was a continuing tender process. Further, the Mectec accounts show that in 2008 Mectec continued to attend to contracts. I assume that that was because they could not be assigned;
(f) the only basis for asserting the agreement as propounded by Mr Mekken is equality (when clearly it did not exist) and by reference to Mr Mekken being paid $1,000 per week from time to time, together with fire services wages;
(g) although it is strictly not contemporaneous circumstances, I note the net difference over the four year period between Mr Cowling's wages and Mr Mekken's wages is not that far removed from the estimate of Mr Mekken attending to the company's affairs for about six months during that period.
155 In conclusion, I reject Mr Mekken's version of what was agreed. I do not intend to and cannot speculate on what might have been agreed. Mr Mekken fails with his claim.
156 In Vigliaroni v CPS Investments Holdings Pty Ltd[6] and four other proceedings falling within the same ambit, Davies J considered oppression. Relied upon, inter alia, misappropriation as the platform for oppression. Davies J found that funds had been misappropriated in a company in which one director had an interest through a trust of which the company was trustee, sought to complete a purchase of a property. The other director, who was oppressed, did not have an interest in that trust. The offending director had what was termed as 'the treasury function' as financial controller of the V&G Group and the CPS Group. Those functions had been delegated to him. Her Honour accepted that the director had the other director's authority to complete the purchase.
However, such general authority as there was carried with it fiduciary and statutory duties[7] to V&G (Vic) and CPSIH. Those duties arose from the nature of the authority conferred in Gargaro.[8] The duties carried the obligation to pay proper regard to the interests of V&G (Vic) and CPSIH. That obligation was breached. I am satisfied that Gargaro did not turn his mind to whether the transfer of funds was in the interests of V&G (Vic) or CPSIH. Further, Gargaro entirely disregarded the separate corporate personalities and ownership interests of the companies and trusts of which he was financial controller.[9] The duties also carried the obligation to avoid a conflict of interest. This he did not do. He misused his position as financial controller of V&G (Vic) and CPSIH in the pursuit of his personal interests.
158 There is no clearer breach of fiduciary duty or statutory duty than in this case. There is no clearer conflict of interest than Mr Mekken preferring his own financial interests over that of the company. Not only did Mr Mekken misappropriate the funds properly the property of the company thus preferring his own interests and acting in breach of fiduciary and statutory duties, but he sought to disguise the transactions as debts owed by the company and to fabricate underlying transactions in relation to the sale of the dozer and the roller.
159 I do not need to make a finding that Mr Mekken's conduct was deliberate or, as I had expressed it during the course of closing submissions 'underhand until he got caught out'. However, I mention his disguising conduct to reject Mr Matthews' submissions that as there was a delegation, there is no breach. The delegation focuses attention on fiduciary and statutory duties, the delegation did not detract from the same. Mr Matthews also put it that Mr Mekken acted in accordance with the belief that he was owed a debt, a significant debt. I reject that submission for the reason set out in paragraph 158. Mr Mekken sought to disguise the transactions..
160 Mr Mekken's counsel also put it to me that, in effect, it was necessary for the plaintiff to demonstrate that Mr Mekken was not a creditor of the company to make out oppression. I reject that argument. There is prima facie oppression and I have found that I cannot be satisfied that there was any outstanding amount due to Mr Mekken which he could offset to ameliorate the consequence of the breach of duties.
162 Section 236 of the Act allows relevantly a member of a company, acting with the leave of the Court granted under s 237, to bring proceedings on behalf of the company in the name of the company. Section 237(2) provides:
(2) The Court must grant the application if it is satisfied that:
(a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and
(b) the applicant is acting in good faith; and
(c) it is in the best interests of the company that the applicant be granted leave; and
(d) if the applicant is applying for leave to bring proceedings - there is a serious question to be tried; and
(e) either:
(i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or
(ii) it is appropriate to grant leave even though subparagraph (i) is not satisfied.
163 It follows from what I have set out in these reasons that each of the criteria in s 237(2) are fulfilled. Insofar as notice of intention to make the application was not given, I determine that it is appropriate to give leave in any event.
164 The derivative action, for which leave is given, is also made out. In so far as necessary, I will make orders on that claim in favour of the plaintiff.
165 Pursuant to s 233 the Court can make any order under that section that it considers appropriate in relation to the company, including an order:
(a) That the company be wound up;
...
(d) for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;
...
(j) requiring a person to do a specified act.
166 That leaves me to deal with the orders that the parties submit should flow from my findings. Winding up is a last resort, and as the company has met all its external liabilities save for the amount payable to the accountants, I could make alternative orders. The first would be in the form of requiring payment pursuant to the company's claim for which I have given leave pursuant to s 237. After that amount is reimbursed to the company and the accountants fees met, the balance, including the amount in the bank account, would then be distributed to Mr Cowling in the percentage representing his shareholding. The directors could then apply to ASIC for an administrative deregistration as the company would be an empty shell and no longer trading. The second way I can give effect to my reasons is to require Mrs Mekken to purchase Mr Cowlings shareholding for the amount which represents the distribution to Mr Cowling.
167 I also propose to order costs in favour of Mr Cowling on a standard basis. If the parties cannot agree to the form of orders I will require short submissions to be made.
[2] The parties accepted that the letter dated 23 February 2012 should have read 5 April 2011.
[3] Paragraph 68 of Mr Mekken's affidavit sworn 20 August 2012.
[4] Paragraph 13 of Mr Cowling's affidavit sworn 19 June 2012.
[7] Section 181 of the Act.
[8] Mills v Mills [1938] HCA 4; (1938) 60 CLR 150, 185 (Dixon J citing Lord Northington in Aleyn v Belchier [1758] EngR 208; (1758) 28 ER 634, 637).
[9] Cf Maronis Holdings Ltd v Nippon Credit Australia Ltd [2001] NSWSC 448; (2001) 38 ACSR 404, 454, [190], [191], [192] (Bryson J).
Cowling
Mekken [2015] VSC 196
(1938) 60 CLR 150