Rose v Tunstall

Rose v Tunstall - [2018] NSWSC 172 - NSWSC 2018 case summary — Zoe

[4]

The 2006 proceedings

Mr Rose brought the 2006 proceedings against both the Association and its then secretary, Mr Tunstall.
In June 2006 the Association's application to have the proceedings dismissed failed, with a costs order being made in favour of Mr Rose: Wayne John Rose v Boxing NSW Incorporated & Anor (Supreme Court (NSW) 27 June 2006, unrep). There McLaughlin AsJ rejected the Association's case that Mr Rose, a former member of the executive committee, had never been a member of the Association and thus had no standing to bring the proceedings, which were in any event futile, given the necessity for him to establish that he had suffered injury to his reputation, as the result of the executive committee's resolution.
On 11 December 2006, at the conclusion of the final hearing, Brereton J made declaratory and restraining orders in Mr Rose's favour, as well as an order for $4,000 damages. Mr Rose's claims against Mr Tunstall failed, however. The reasons for those orders were published on 31 January 2007, when Brereton J also made costs orders against the Association and in favour of Mr Tunstall: Rose v Boxing NSW Inc. [2007] NSWSC 256.
In his first judgment Brereton J held that as a member of the Association, Mr Rose had standing to challenge the executive committee's resolution, that arising from a contractual relationship founded on the Association's constitution: at [54]. His Honour also found that the Court's power to grant Mr Rose the relief he sought was enlivened by the consequences of the executive committee's resolution upon his livelihood, given that the Association was not a mere private social club, but had effective control of the sport of amateur boxing in the State, applying Field v New South Wales Greyhound Breeders, Owners & Trainers Association Limited [1972] 2 NSWLR 948 at [58]-[60].
Mr Rose and the Association did not agree on the amount of his costs, which were finally assessed to be $98,846.72. In June 2009 the assessor's certificate was registered in the District Court as a judgment. In November 2009 Boxing NSW Inc. paid $20,463.34 towards that judgment debt. Enforcement of the balance by later service of a writ failed.
The Association's registration under the Associations Incorporations Act was cancelled on 1 October 2010. The Local Court proceedings were commenced in 2015.

[6]

Grounds 1 and 2 - the Association did incur a debt to Mr Rose

In her reasons Atkinson noted by way of background that: "8. Mr Rose's costs were assessed and the costs assessment certificates were registered in the District Court on 24 June 2009. 9. Mr Rose was unable to recover the amount of the judgment debt. The Sheriff attempted to execute a writ for the levy of property but did not recover any property. The Sheriff sent a notice of non-levy dated 19 November 2009 to Mr Rose. 10. On 27 November 2009, the Association paid Mr Rose's costs in relation to the June 2009 interlocutory application less an amount equivalent to Mr Tunstall's costs in relation to the main hearing. 11. Boxing Australia terminated the membership of the Association on 28 November 2009. The Association's incorporation was cancelled on 1 October 2010. 12. Mr Rose and the committee members attempted to resolve the dispute about the payment of Mr Rose's costs without success. 13. Mr Rose commenced these proceedings in May 2015. He is seeking to recover $78,383.38 plus costs and interest."
As to the claimed debt, her Honour held, that: "18. The plaintiff submits that the Association incurred a debt when the costs orders were made in June 2006 and January 2007 and that the debt became due on or about 24 June 2009 when the costs assessment certificates were filed in the District Court. 19. The Defendants submit that the Association did not incur a debt as: ● A costs order turns upon discretionary considerations that arise independently of the entry of judgment and that it is not certain that a court will make a costs order. ● The phrase "incurs a debt" has been interpreted to mean that a company by its conduct and choice subjects itself to a conditional but unavoidable obligation to pay a sum at a future time (see Standard Chartered Bank v Antico (1995) 131 ALR 1 at 57, Hawkins v Bank of China (1992) 26 NSWLR 562 at 572, Harrison v Lewis (2001) 19 ACLC 556 at [27] - [28], Powell v Fryer (2001) 37 ACSR 589 at [73], Jelin Pty Ltd v Johnstone & Anor (1987) 5 ACLC 463 at 464 and 465, Russell Halpern Nominees Pty Ltd v Martin & Anor (1986) 4 ACLC 393, Castrisios v McManus (1991) 9 ACLC 287 at 296). ● The Association did not by its own conduct and choice subject itself to a conditional but unavoidable obligation to pay a sum at a future time. ● The amount of the alleged debt is not what has been claimed as Mr Rose has conceded that he has only paid his legal representatives $15,000 in relation to his costs in the Supreme Court proceedings. 20. I agree with the Defendants' submissions that the Association did not incur the debt. 21. It is reasonable to infer that the Association should have been aware that there was a risk of having an adverse costs order made against it when it chose to defend the Supreme Court proceedings. 22. However, it is not reasonable to infer that on the days that the costs orders were made, the Association conducted itself and chose to subject itself to a conditional but unavoidable obligation to pay a sum at a future time. 23. It was the court that made the decision that required the Association to pay the costs and once that order had been made, the Association had to pay the costs once the amount of costs could be agreed or assessed. 24. I do not agree with the defendants' submissions that if a debt was incurred, the amount of it was only $15,000. 25. The court made costs orders that would oblige the Association to pay Mr Rose's costs whatever they might ultimately be agreed or assessed to be. It is irrelevant that Mr Rose entered into a private arrangement with his legal representatives to delay payment of part of his costs until such time as he recouped the relevant amount of money from the Association. 26. Accordingly, I am satisfied on the balance of probabilities that the Association did not incur a debt. 27. I note in passing that I have difficulties with the plaintiff's assertion that the debt would have been incurred at the time the costs orders were made. 28. In my view, when the court made the costs orders, it was simply imposing an obligation on the Association to pay Mr Rose's costs at some future time once the amount could be agreed upon or assessed. 29. The Association was entitled to ask Mr Rose for information about how much he had incurred in legal costs before it decided if it would pay those costs without an assessment taking place. It was also entitled to require an assessment to take place if the parties could not agree on the amount of Mr Rose's costs. Once the Association received that information it knew what it had to pay."

[7]

What case did Mr Rose advance in the Local Court?

In oral submissions advanced on this appeal it was submitted for Mr Rose: "HERAGHTY: Well, the three alternative bases upon which Mr Rose says that there was a debt incurred are firstly when the defendants chose to defend the proceedings, secondly when Brereton J gave the costs decision on 31 January 2007 and thirdly when the judgment was entered in the District Court. The plaintiff's preferred submission is that the entry of judgment in the District Court was when the debt was incurred, but given that various cases, including High Court cases, recognise that a contingent debt could be a debt for the purposes of the section, the Corporations Act, Companies (New South Wales) Code and Corporations Act et cetera, Mr Rose says that the preferred submission and the one which he urges your Honour to accept is that when the District Court registered the judgment for the costs that was when the debt was incurred, it was incurred at that time. If your Honour doesn't prefer that holding, then the other alternatives are available."
Later it was submitted that the two earlier dates were the "fallback position" and that the preferable view was that the debt was incurred only when judgment was entered in 2009 in the District Court.
The defence case was that the Supreme Court proceedings had not resulted in the Association having incurred any debt to Mr Rose and that in the Local Court, Mr Rose had relied on the January 2007 costs order, not on either the 2009 District Court judgment, or the commencement of the Supreme Court proceedings, to advance his claim against them under s 38. Further, that if he had advanced an alternative case against them, relying on the entry of the District Court judgment in 2009, they would have met it with evidence which they had not led, because it was not relevant to the claim which was then advanced in relation to the 2007 costs order.
In reply the submission initially advanced for Mr Rose, that a debt had been incurred when the defendants chose to defend the proceedings, was withdrawn. It was argued, however, that in the Local Court Mr Rose had contended, in the alternative to the claim that the Association had incurred a debt to him when Brereton J made the costs order in January 2007, that it was incurred later, in June 2009 when judgment was entered in the District Court. On his case, the preferable view was that the debt was only incurred on the entry of the judgment in 2009.
Whether such an alternative case had been advanced in the Local Court was thus in issue. That issue must be resolved against Mr Rose.
The pleaded claim in his second further amended statement of claim was: "1 An order that judgment in the sum of $78,383.38 plus interest and costs be entered against each of the defendants pursuant to sections 37 & 38 of the Associations Incorporation Act 1984 ("the 1984 Act") by virtue of the fact that on 31 January 2007 the said defendants were committee members of Boxing NSW Inc when a costs order was made against Boxing NSW Inc in Supreme Court proceedings 1477/06 and when The said order was entered as a judgment debt on 24 June 2009 in District Court proceedings 6210/08 (now 2008/320963)."
In written submissions advanced for Mr Rose in the Local Court, it was submitted at [14] and [15] that: "14. On 31/1/07 Boxing NSW Inc incurred a debt under sec. 38(1) Associations Incorporation Act 1984 Brereton SCJ made an order for cots against Boxing NSW Inc. 15. The debt accrued on 24/6/09 when the Judgment was entered in the District Court in respect of the costs order of 31/1/07."
In oral submissions it was argued: "RYAN: The plaintiff sues the defendants on the cause of action arising in s 38(1) of the Associations Incorporation Act. That cause of action arose on 19 November 2009 when the Associations Incorporation Act 1984 div 3 became applicable to Boxing New South Wales when, under a deeming provision in s 37(3) of the 1984 Act, Boxing New South Wales was deemed to be unable to pay its debts when, on 19 November 09, an attempted collection of the money under the District Court judgment debt of 24 June 09 was returned unsatisfied to the sheriff. On that day, Boxing New South Wales became amenable to div 3 of the 1984 Act under s 37(3) and under s 38(1) of div 3 the defendants, as committee members of Boxing New South Wales at the relevant time, which was the time of the costs order or, put alternatively, immediately before the order was made, became jointly and severally liable for the unpaid debt by Boxing New South Wales Inc. I don't think I need to take your Honour to any of the historical milestones before 19 November other than the one I've referred to, the judgment debt in the District Court on 24 June 09 which arose out of an assessment of the two costs orders previously made again Boxing New South Wales. The cause of action under s 38(1) of the 1984 Act requires the plaintiff to prove that, at the relevant time, which is the making of the costs order- HER HONOUR: Is that the relevant time? RYAN. It's expressed in two ways. I'd better get the correct terminology. HER HONOUR: You're saying at the time the debt is incurred9 RYAN. Yes, is incurred, and in 38(1 )(a), that is expressed as being immediately before the time the debt is incurred, so that means some time before 31 January 07 when the costs order was made. Under 38(1 )(b), in reference to the committee members, the relevant time is expressed a little more broadly as being at the time the debt is incurred. In practice, I think in the circumstances in the context of this case, they mean effectively the same time. The plaintiff has to prove that, at that relevant time, there were reasonable grounds to expect that Boxing New South Wales would be unable to pay those two costs orders."
For their part, in their written submissions, the defendants argued that the making of Brereton J's adverse costs order in 2007 had turned upon discretionary considerations which had arisen independently of the later entry of judgment against the Association; that it was the costs order which was the source of the Association's legal liability to pay Mr Rose's costs; that there was no certainty that such an order would be made; that the costs order was not the result of the Association, through its own actions, having subjected itself to a conditional, but unavoidable obligation to pay Mr Rose's costs; that the liability had been imposed upon, not incurred by the Association; that none of its acts could be identified as having brought the liability into existence; and thus it had not incurred a debt or brought the liability of a debtor to a creditor, upon itself: at [22], [32]-[33].
That was also the case advanced orally for the defendants.
Atkinson LCM's reasons are earlier quoted. It is apparent that neither the case advanced for Mr Rose or the defendants in the Local Court, nor her Honour's decision, addressed the alternative case which it was claimed on appeal that Mr Rose had there advanced, namely, that a debt was only incurred in 2009, with entry of the District Court judgment.
In the result, it must be concluded that the only claim Mr Rose pressed in the Local Court was that the making of the January 2007 costs order brought the defendants within s 38, the Association thereby having incurred a debt to him.

[8]

Mr Rose cannot run a new case on appeal

The question of whether the expression used in s 38, "incurs a debt", encompasses the entry of the 2009 judgment, following an assessor's issue of a certificate as to the costs the subject of the 2007 costs order, raises questions which, I am satisfied, Mr Rose cannot raise for the first time on this appeal.
It must be accepted that if Mr Rose had advanced that claim, the defendants would have led other evidence, as a claim under s 38 based on the 2009 District Court judgment raises different questions under both s 38(1) and the defences arising under s 38(2), to those raised by the claim that it was the January 2007 costs order, which fell within the statutory expression "incurs a debt".
Those questions depend in short, firstly, upon the state of the Association's finances in June 2009. Secondly, on whether in the circumstances which then existed, there were reasonable grounds to expect that the Association would not be able to pay either the assessed costs, or all of its debts. Thirdly, whether the defendants then had reasonable cause to expect that the Association would not be able to pay all such debts, as and when they became due.
As was discussed in Mamo v Surace (2014) 86 NSWLR 275; [2014] NSWCA 58 at [75]: "75 A party is bound by the conduct of his or her case. It has long been the law that, except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him or her, to raise on appeal (even one by way of rehearing) a new argument which, whether deliberately or by inadvertence, he or she failed to put during the hearing when there was an opportunity to do so: Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 (at 7 - 8) per Gibbs CJ, Wilson, Brennan and Dawson JJ; approving University of Wollongong v Metwally (No 2) [1985] HCA 28; (1985) 59 ALJR 481 (at 483); Whisprun Pty Ltd v Dixon [2003] HCA 48; (2003) 77 ALJR 1598."
I am satisfied that this is not such an exceptional case, for reasons which will become further apparent from the conclusions which I have reached in relation to the consequences of the making of the 2007 costs order.

[9]

The proper construction of s 38 of the Associations Incorporations Act

Sections 37 and 38 of the Associations Incorporations Act provided: "37 Definitions (1) This Division applies to an incorporated association: (a) that has been wound up or is in the course of being wound up, (b) the incorporation of which has been cancelled by the Director-General, or (c) that is unable to pay its debts. (2) In this Division, appropriate officer means: (a) in relation to an incorporated association that has been or is being wound up - the liquidator, or (b) in relation to an incorporated association the incorporation of which has been cancelled by the Director-General or which is unable to pay its debts - the Director-General. (3) For the purposes of this section, an incorporated association shall be deemed to be unable to pay its debts if, but only if, execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the association is returned unsatisfied in whole or in part. 38 Offences relating to incurring of debts or fraudulent conduct (1) If an incorporated association incurs a debt and: (a) immediately before the time the debt is incurred: (i) there are reasonable grounds to expect that the association will not be able to pay all its debts as and when they become due, or (ii) there are reasonable grounds to expect that, if the association incurs the debt, it will not be able to pay all its debts as and when they become due, and (b) the association is, at the time the debt is incurred, or becomes at a later time, an association to which this Division applies, any person who was a member of the committee of the association at the time the debt was incurred is guilty of an offence and liable to a penalty not exceeding 50 penalty units or imprisonment for a period not exceeding 1 year, or to both such penalty and imprisonment, and the association and that person or, if there are 2 or more such persons, those persons are jointly and severally liable for the payment of the debt. (2) In any proceedings against a person under subsection (1), it is a defence if the defendant proves: (a) that the debt was incurred without the defendant's express or implied authority or consent, or (b) that, at the time the debt was incurred, the defendant did not have reasonable cause to expect: (i) that the association would not be able to pay all its debts as and when they became due, or (ii) that, if the association incurred that debt, it would not be able to pay all its debts as and when they became due. (3) Proceedings may be brought under subsection (1) for the recovery of a debt whether or not the person against whom the proceedings are brought, or any other person, has been convicted of an offence under subsection (1) in respect of the incurring of the debt. (4) Where subsection (1) renders a person or persons liable to pay a debt incurred by an incorporated association, the payment by that person or either or any of those persons of the whole or any part of the debt does not render the association liable to the person or persons concerned in respect of the amount so paid. (5) If: (a) an incorporated association does any act (including the entering into of a contract or transaction) with intent to defraud creditors of the association or of any other person or for any other fraudulent purpose, and (b) the association is at the time it does the act, or becomes at a later time, an association to which this Division applies, any person who was knowingly concerned in the doing of the act with that intent or for that purpose is guilty of an offence and liable to a penalty not exceeding 100 penalty units or imprisonment for a period not exceeding 2 years, or to both such penalty and imprisonment.
In final submissions advanced for the defendants in the Local Court, it was accepted that s 37 had been engaged because s 37(1)(b) had been satisfied in October 2010, when the Association's incorporation was cancelled.
The provisions of s 38 were analogous to those which applied to corporations in s 556 the Companies (New South Wales) Code. Like that provision in the case of companies, s 38 sought to encourage committee members of associations incorporated under the Associations Incorporations Act to carry out their duties properly, especially when their registration or ability to pay their debts were in question, by providing personal sanctions, if they did not do so.
Neither the word "debt", nor the expression "incurs a debt" were defined in either the Associations Incorporations Act or the Companies (New South Wales) Code. As Gleeson CJ discussed in Hawkins v Bank of China (1992) 26 NSWLR 562 at 570, in construing a statute it is always necessary "to guard against the error of considering the operation of the statutory language only by reference to the problem currently under consideration". There in question was whether and when a guarantee "incurs" a "debt".
The predecessors to s 556 of the Code had used the expression "contracting of a debt". In Hawkins Gleeson CJ took the view that the new expression, "incurs a debt", had cast a wider net: at 571. The Chief Justice also observed that "incurs" and "debt" are not words of "precise and inflexible denotation", but must be "applied in a practical and common sense fashion, consistent with the context and with the statutory purposes". Further, that a "debt" is capable of including a contingent liability: at 572.
Later, in Standard Chartered Bank of Australia Ltd v Antico (Nos 1 and 2) (1995) 38 NSWLR 290 Hodgson J, as he then was, came to the conclusion that a company incurs a debt "when by choice" it does or omits to do something, which as a matter of substance and commercial reality, renders it liable to a debt for which it would otherwise not be liable: at 314.
In Shepherd v Australia and New Zealand Banking Group Ltd (1996) 20 ACSR 81, however, Bryson J, as he then was, took a different view. His Honour concluded that the expression "incurs a debt" did not include such a limitation and that in his opinion: "obligations imposed by law, including revenue law and the law of restitution, can be debts for this purpose, whether or not acts or omissions which the company chose to be involved in brought them into existence; there is nothing expressed or implied in s.556 to the contrary. In particular, where the company's conduct and omissions involve it in liability for damages and the general law gives another party an election to recover money paid and by the election to bring a debt into existence, I see no warrant for not regarding that debt as a debt for the relevant purpose, or for not regarding the time of the election as the time when it was incurred."
These competing views arose for consideration in Powell v Fryer [2001] SASC 59; 159 FLR 433, where a Full Court of the South Australian Supreme Court concluded that Bryson J's approach accorded with that of the Court of Appeal in Hawkins and also that of the Full Court of the Supreme Court of Western Australia, in Commissioner of State Taxation (WA) v Pollock (1993) 11 WAR 64. There it was concluded that a company could incur a debt in various circumstances, including when becoming liable to pay taxes.
In ASIC v Edwards [2005] NSWSC 831; 220 ALR 175, Barrett J, as he then was, also concluded that in the case of the successor to s 556, s 588G of the Corporations Act 2001 (Cth), there in the context of a claim for quantum merit liabilities under a building contract, that an element of choice does not form a part of the statutory expression and "that "incurring" is the act, omission or other circumstance which causes the company to owe the debt": at [80]-[81].
In Edwards v Australian Securities and Investments Commission [2009] NSWCA 424; 264 ALR 723, no reference was made to the judgments given in Standard Chartered Bank, Shepherd or Fryer, but at [80] Macfarlan JA observed that the word "debt", in ordinary parlance means "that which is owed; that which one person is bound to pay or to perform for another" or "a liability or obligation to pay or render something" (Macquarie Dictionary, 4th ed. (2005)". Further, that a debt "is distinct from a right to damages for breach of contract". His Honour there also cited other authorities, which did not concern debts which had arisen under contract, including: 1. Spain v The Union Steamship Company of New Zealand Ltd (1923) 32 CLR 138; [1923] HCA 21, where an action by the captain of a ship against the owner, to recover reasonable expenses to which he was entitled under an award, which had been incurred in relation to a hearing before a Court of Marine Inquiry into the cause of the wreck of the ship, was held to be a claim for a "debt or liquidated demand"; 2. Crisp & Gunn Co-operative Ltd v Hobart Corporation (1963) 110 CLR 538; [1963] HCA 55, where a claim to recover compensation for compulsory acquisition of land was also held to be an action to recover a "debt".
Even a trustee who becomes liable to pay equitable compensation for a misappropriation of money in breach of trust, incurs a debt: Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64.
While not strictly bound by the conclusions reached in Fryer, I agree that Bryson J's approach to the construction of the term "incurs a debt" in Shepherd was correct. The statutory expression does not include an element of choice, as Barrett J also held in Edwards.
In the result, it must be concluded that neither the ordinary meaning of the expression "incurs a debt", nor how it was used in s 38, encompasses a limitation of the kind Hodgson J adopted in Standard Chartered Bank of Australia Ltd and for which the defendants contended in this case, namely, that an association only incurs a debt incurred "when by choice", it does or omits to do something.

[10]

The 2007 costs order resulted in a debt incurred to Mr Rose

Undoubtedly, under s 98 of the Civil Procedure Act 2005 (NSW) the making of the 2006 and 2007 costs orders against the Association turned on discretionary considerations and when made, they imposed legal obligations upon the Association, as was the defendants' case.
The defendants' case was further that the statutory expression, "incurs a debt", as used in s 38, had to be interpreted in a practical and common-sense fashion, consistent with the content and statutory purpose of the legislative scheme, which was intended to punish insolvent trading by incorporated associations.
The expression was also submitted to be "apt to describe an undertaking of an engagement to pay a sum of money", for which one became liable, "because of one's own act or omissions" and not one imposed by a court. The term required focus on the conduct and choice of the alleged insolvent association; the time at which the conduct occurred; and the choice made by the association, which caused the alleged debt to be incurred. Further, the costs order did not involve any such choice.
In my view, this approach to the meaning of the words "incurs a debt" is not only inconsistent with that discussed by the Court of Appeal in both Hawkins and Edwards, but it is artificial. That is because it overlooks the reality that it is the executive committee of an association incorporated under the Associations Incorporations Act which, as its guiding mind, determines both how the association will conduct itself and what choices it will make and pursue, including in relation to the conduct and settlement of litigation.
In this case the evidence established, contrary to the view which Atkinson LCM reached, that the making of the 2007 costs order was the result of the conduct which the Association had pursued in 2004, which led Mr Rose to bring the proceedings in this Court. It was the choices which it later made, during that litigation, which finally resulted in the trial at which its defence failed. That conduct and those choices also resulted in the 2007 costs order, by which it incurred another debt to Mr Rose, in addition to that which it had incurred when the 2006 order was made. They both then imposed on the Association a liability to pay Mr Rose something: Edwards at [80].
It is also relevant to bear in mind that in the conduct of that litigation, the Association also incurred its own legal costs in resisting Mr Rose's claim. Thereby it incurred contractual debts to its own legal representatives, which it paid in 2007. There could be no question that had it been the Association's solicitors, for example, whose costs of acting in the proceedings had not been paid, that the Association had incurred a debt to them, to which s 38 could attach, once the requirements of s 37 were engaged. Likewise, the section applied to the debts which the Association had incurred in the litigation to Mr Rose, when the costs orders were made against it.
The defendants' submission that it would be contrary to the policy of the legislative scheme to encompass insolvent associations which incurred such debts while pursuing or resisting litigation, cannot be accepted. Were such debts not intended to be encompassed by the broad expression "incurs a debt" which was used in s 38, the Parliament would undoubtedly have said so expressly.
It was in his first judgment that Brereton J explained the conduct which had led to Mr Rose bringing the proceedings, namely, the executive committee's expulsion resolution, which had also adversely impacted Mr Rose's reputation and ability to pursue his livelihood. His Honour concluded that the executive committee had no power under the Association's rules, to deal with Mr Rose as it had purported to do: at [65]. He also concluded that Mr Rose had been denied the natural justice which he was entitled to receive, given both the deficiencies of the notice he was given by the committee (at [70]) and the committee's refusal to allow him to call evidence (at [71]-[74]).
Brereton J also concluded that the Court had power to award Mr Rose damages for the executive committee's breaches "on the basis of damages for breach of the contract between the members and the club founded on the constitution": at [106]. His Honour also held that they could include damages for financial loss which flowed from the damage caused to Mr Rose's reputation, as the result of the breach of contract involved in the executive committee's breach of the Association's rules: at [112].
In his costs judgment Brereton J described offers and counter offers of settlement which the parties had made to each other, before the December 2006 trial about which the defendants were cross-examined in the Local Court: at [2]-[6]. The judgment established that what both parties had offered was that the Court would declare that Mr Rose's expulsion was null and void and of no effect; the Association would be restrained from taking further steps to implement his purported expulsion; damages; and costs.
It was damages and costs which could not be agreed. As to costs, the Association offered Mr Rose $3,000 at a time when the 2006 costs order already bound it. In his counter offer, Mr Rose proposed an order that his costs be as agreed or taxed.
No agreement was reached and the trial then proceeded. There the Association unsuccessfully defended Mr Rose's claims, it may properly be inferred, aware that it was at risk of adverse orders being made against it, including as to the costs of the proceedings.
That risk materialised at the end of the hearing, when Mr Rose was granted relief and later, when Brereton J also ordered it to pay Mr Rose's costs of the proceedings. There was no appeal from either judgment, but the costs were again not agreed. They were thus later assessed in accordance with the provisions of the Legal Profession Act 2004 (NSW) to be $98,846.72.
There was also no appeal from that assessment, with the result that the assessor's certificate was entered as a judgment of the District Court and its enforcement was pursued by Mr Rose, initially against the Association. Not all of those costs were recovered, Atkinson LCM concluding that the Association had withheld what it assessed Mr Rose owed Mr Tunstall under the costs order made in his favour in 2007.
That finding was not challenged on this appeal.
In those circumstances, there can be no question that it was as the result of choices made by the Association, that it defended Mr Rose's claims at the 2006 trial as to its prior conduct, after its earlier dismissal application had failed and it having offered him what had amounted to a capitulation on the claims which had brought him to court. Settlement was not reached, because of a disagreement over the amount of damages and costs which the Association should pay Mr Rose.
The Association's offer prior to trial, it must be inferred, it having had the benefit of legal advice, was made after it came to appreciate the risks to which it was exposed at trial. Thus it was that it was the result of the choices which the Association then made, having rejected Mr Rose's counter offer and decided to defend Mr Rose's claims at trial, notwithstanding the risks to which that course exposed it, that Brereton J came to make orders against it, including as to costs.
Those orders necessarily reflected not only the Association's conduct in breach of its own rules, denying Mr Rose natural justice and damaging his reputation, but also the choices it later made in electing to defend his claims at trial, despite the risks which that exposed it to in the litigation.
True it is that under s 98 of the Civil Procedure Act and Part 42 of the Uniform Civil Procedure Rules 2005 (NSW), the making of any costs order was discretionary, as the defendants submitted. The discretion which Brereton J exercised was not, however, unfettered. Rather, his Honour was bound to exercise the Court's discretion on the evidence, including as to the Association's conduct and in accordance with the requirements of the applicable Rules and of binding principle.
That required not only that the outcome of the proceedings be taken into account, the usual rule being that costs follow the event (Rule 42.1), but that the parties' conduct in the proceedings also be taken into account.
For example, misconduct in the proceedings on the part of the successful party, if that had occurred, had to be taken into account: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at 122. So, too, did matters such as whether the successful party had failed on any dominant or separable issues: Waters v PC Henderson (Aust) Pty Ltd [1994] NSWCA 338; 254 ALR 328; and whether the parties had bettered offers of settlement which they had made to each other: Uniform Civil Procedure Rules 2005 (NSW) Div 3, Pt 42 in relation to offers of compromise and SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323, [37] in relation to other offers of settlement.
The latter arose to be considered because of the Association's rejection of Mr Rose's offer and the orders which Brereton J had made in his favour, at the hearing.
It follows that even if the unchallenged costs orders were not the result of contract, or even the Association's choice to put itself in debt to Mr Rose, they were the result of its conduct prior to litigation and the choices which it then made in the litigation. That is what finally gave rise to the debt which the Association incurred when the costs orders were made, as the authorities earlier discussed establish.
The relevant conduct was the Association firstly wrongly expelling Mr Rose as a member, contrary to the requirements of its own rules; then denying him natural justice; and then defending his claims in this Court, knowing that it was at real risk of him succeeding and having costs orders made in his favour. That conduct and the Association's choice, finally to run the defences which failed at trial, led to the final results in the proceedings, including the January 2007 costs order by which it was then bound and by which it incurred a debt to Mr Rose.
Also relevant to consider is that under s 98 of the Civil Procedure Act a costs order can take one of three forms: an order for a fixed sum, an indemnity costs order, or an order for party/party costs. In other than the case of an order for a fixed sum, the amount of such costs can be ascertained in one of two ways, namely by agreement or assessment, at the time of the 2006 and 2007 costs orders, in accordance with the provisions of the Legal Profession Act 2004. Even before the District Court judgment was entered in 2009 however, the two costs orders imposed upon the Association a liability to pay Mr Rose the debt it had thereby incurred.
That the assessor's quantification of the amount which the Association was already legally bound to pay Mr Rose as the result of those orders, finally became enforceable as a judgment of the District Court, including by a writ for levy of property, garnishee orders and charging orders under s 138 Civil Procedure Act, does not detract from that position. It was not that judgment which gave rise to the Association's debt to Mr Rose.
As was settled in Hawkins, the expression "incurs a debt" is not synonymous with contracting a debt: at 571-572. Nor is it confined to circumstances where an association "choses" to incur a debt: Shepherd, Edwards and Fryer.
Thus in Spain, a debt was incurred when an award imposed on an employer an obligation to pay reasonable legal expenses incurred in an appearance before a Marine Court inquiry into the cause of the wreck of a ship. It was the Master of the ship who sought to recover those expenses under the provisions of the District Courts Act 1912 (NSW). The employer's defence there failed, because that award, like the costs order which Brereton J made in favour of Mr Rose, had resulted in the employer incurring a debt for an amount which could be ascertained by a calculation made in accordance with the provisions of the applicable statutory scheme.
In this case, like in Spain, the Association could also have met the debt it incurred to Mr Rose when the costs order was made, by paying him an agreed amount, or failing agreement, by paying him the amount certified by an assessor in accordance with the provisions of the applicable statutory scheme.
As it transpired, like in Spain, there was no agreement and so Mr Rose also had to pursue the applicable assessment regime then established by Division 11 of Part 3.2 of the Legal Profession Act, for assessment of the party/party costs this Court had ordered the Association to pay him. They were assessed in accordance with the requirements of s 364, which were concerned with whether or not it had been reasonable to carry out the work; whether it was carried out in a reasonable manner; and what the fair and reasonable amount of those costs were.
It follows that in this case, like in Spain and other cases where debts have been found not to have been incurred as the result of "an undertaking of an engagement to pay a sum of money", for which one became liable simply "because of one's own act or omissions", but rather as the consequence of some other legal obligation, the 2007 cost orders by which the Association was bound, also resulted in it having incurred a debt to Mr Rose.
In the result, ground 1 must be upheld.

[11]

Ground 5 - the rejection of the Phillips' report

Mr Tunstall died in February 2016. In the Local Court in 2017, various correspondence he had sent and documents he had signed were in evidence, including statements which had accompanied the financial records which the Association had filed with the Department of Fair Trading; an unsworn and undated affidavit; and a letter which he had sent to a member of the Association in March 2007, advising: "It is with regret that I advise that because of the legal actions of Wayne Rose, whereby the 5-year ban imposed on him by the Council of the Association on 11 September 2004 was heard in the NSW Supreme Court on 8 and 11 December 2006. Judge Brereton ruled in W Rose's favour and the ban was lifted. The legal cost to the Association at this point of time is in the vicinity of $60,000 with the Judge still to make a decision on further costs. This action means the Association is financially bankrupt. In other words, has no cash."
Mr Rose's case was that there Mr Tunstall was referring to the Association's legal costs; that this advice had amounted to an admission that the Association was then insolvent; and that it had thus established his case against the defendants.
Mr Rose also sought to tender a copy of a 2009 report commissioned by a "Judiciary Tribunal enquiry constituted by Boxing Australia under its rules, into the affairs of Boxing New South Wales Inc". The enquiry was conducted by Mr Phillips SC, Mr Belbin and Mr Goodes as the Tribunal members and the report had been signed by Mr Phillips. There reference was made to opinions which Mr Tunstall had expressed about the Association's finances, on which Mr Rose sought to rely.
Atkinson LCM upheld the defendants' objection to the tender of the report as a business record of the Association on two grounds.
The first, because the report was not admissible under the business record exception to the hearsay rule: s 69 of the Evidence Act 1995 (NSW). The second, because its receipt would have caused unfair prejudice to the defendants, given its late service, only the week before the trial.
The case advanced for Mr Rose was that the report was not hearsay, but "a public document as between the parties"; that the document itself established that it had been commissioned by the Association; and that it was later acted on by Boxing Australia Inc, with the result the termination of the Association's membership of that body. It was thus admissible under s 69, as the Association's business record. Further, its late service had caused no prejudice because it had been completely within the defendants' knowledge for some three years.
These submissions were not accepted.
Atkinson LCM accepted the defendants' case, that the report had been commissioned by Boxing Australia Inc, not the Association and that while it could be a business record of Boxing Australia Inc, its purported tender through the evidence of Mr Rose's solicitor, Mr Myers, could not bring it within the business exception to the hearsay rule under s 69.
It was not contended for Mr Rose on appeal that the report was a "public document", understandably, given the definition of that expression in the Dictionary to the Evidence Act. Nor was the submission that it was the Association which had commissioned the enquiry which had resulted in the production of the report on which Boxing Australia Inc had later acted, pressed. That submission also clearly had no foundation in either the evidence, or the report itself.
What was contended for Mr Rose was that the report was admissible under s 69, as a business record of Boxing Australia Inc; that proof that it was such a record did not depend on s 170 and s 171 of the Evidence Act; and that "verification is one thing and it has nothing to do with admissibility". That was not Mr Rose's case at trial. Nor were the submissions made good.
The purpose of the tender of the report was to prove previous representations made by Mr Tunstall.
Section 59(1) of the Evidence Act provides that evidence of a previous representation is not admissible to prove the existence of a fact that it can reasonably be supposed that the person intended to assert by the representation he or she made, namely in this case, as to the financial viability of the Association. Section 69, however, provides that: "69 Exception: business records (1) This section applies to a document that: (a) either: (i) is or forms part of the records belonging to or kept by a person, body or organisation in the course of, or for the purposes of, a business, or (ii) at any time was or formed part of such a record, and (b) contains a previous representation made or recorded in the document in the course of, or for the purposes of, the business. (2) The hearsay rule does not apply to the document (so far as it contains the representation) if the representation was made: (a) by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact, or (b) on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact. (3) Subsection (2) does not apply if the representation: (a) was prepared or obtained for the purpose of conducting, or for or in contemplation of or in connection with, an Australian or overseas proceeding, or (b) was made in connection with an investigation relating or leading to a criminal proceeding. (4) If: (a) the occurrence of an event of a particular kind is in question, and (b) in the course of a business, a system has been followed of making and keeping a record of the occurrence of all events of that kind, the hearsay rule does not apply to evidence that tends to prove that there is no record kept, in accordance with that system, of the occurrence of the event. (5) For the purposes of this section, a person is taken to have had personal knowledge of a fact if the person's knowledge of the fact was or might reasonably be supposed to have been based on what the person saw, heard or otherwise perceived (other than a previous representation made by a person about the fact)."
Mr Myers' affidavit did not reveal how he came to have possession of the report. There was no suggestion that he had any position of responsibility with Boxing Australia Inc in relation to the making, or keeping of the report. Nor did his evidence seek to establish that the report had come to form a part of the Association's records.
There is thus no question that Mr Myers was not a person authorised under ss 170 and 171 of the Evidence Act to give evidence to prove that the report was a business record of Boxing Australia Inc.
It was contended for Mr Rose, however, that it was not necessary to call evidence from such a person, in order to prove that the report was a business record of Boxing Australia Inc, relying on Southern Cross Airports v Chief Commissioner of State Revenue [2011] NSWSC 349; 83 ATR 612 at [41], where Gzell J concluded that a valuation of land and buildings at Sydney Airport obtained for stamp duty purposes, was admissible as a business record, it being a document "relevant to the conduct of the business" and "part of, the records belonging to or kept in the course of, or for the purposes of the business": at [43].
Reliance was also placed on Thomas v State of New South Wales [2007] NSWSC 160 at [12], where Price J, as his Honour then was, concluded that admissions recorded in the transcript of proceedings before the Police Royal Commission were admissible under s 69, they being a previous representation contained in a document which was part of the records of its business.
The difficulty which arose in this case was, however, different, given the controversy in the Local Court as to whether or not the report formed part of the records of the Association.
It is s 48 of the Evidence Act which governs proof of the contents of documents, including by tender of a copy of a document, which forms part of the records kept by a business: s 48(1)(e). Still, the authenticity of the document must be established by evidence, if that is in issue: Australian Securities and Investments Commission v Rich [2005] NSWSC 417; 216 ALR 320 at [150]-[152].
Under s 183 of the Evidence Act reasonable inferences could be drawn from the report itself, such as that the enquiry had been commissioned by Boxing Australia Inc, not the Association, but as discussed by Bryson J, as he then was in National Australia Bank Ltd v Rusu (1999) 47 NSWLR 309; [1999] NSWSC 539, at [17]: "Before a business record or any other document is admitted in evidence it is obviously necessary that there should be an evidentiary basis for finding that it is what it purports to be. Documents are not ordinarily taken to prove themselves or accepted as what they purport to be; there are exceptions under the Common Law and under statutes for public registers and for many kinds of documents when certified in various ways: and see the method of proof provided in some cases by ss 170 and 171 of the Evidence Act 1995. At the simplest, the authenticity of a document may be proved by the evidence of the person who made it or one of the persons who made it, or a person who was present when it was made, or in the case of a business record, a person who participates in the conduct of the business and compiled the document, or found it among the business's records, or can recognise it as one of the records of the business."
Mr Myer was not such a person.
Further, while Bryson J accepted that the documents in question in Rusu, bank statements, were relevant if authentic, authenticity being something on which relevance depended (at [19]), he considered that while s 51 of the Evidence Act had abolished the original evidence rule, there was still a need to prove that a document tendered was the document which it purported to be. Further, that s 48(1) does not authorise the adduction of evidence merely by tendering a document, in the absence of any evidence establishing what the document is; that s 48(1) leaves untouched the need to establish that a document is what it purports to be; and that it does not mean that documents prove themselves, as if judicial notice must be taken of them (at [26]).
In this case, at trial there was no attempt to lead evidence to address any of these matters. What was relied on was simply the report itself, which it was claimed established that it was a business record of the Association, which had established the enquiry. That was not a basis on which the admissibility of the document under s 69 could be established.
It might reasonably be thought, it appears to me, that pursuit of the objection to the report under s 69 was not entirely consistent with the obligations imposed on the defendants by s 56(3) of the Civil Procedure Act.
Nevertheless, the parties having joined issue over whether the document was a business record of the Association admissible under s 69 and Mr Myers' affidavit not being capable of proving that it was, her Honour was correct to conclude that it was not admissible under the section. Nor did Mr Myers' affidavit establish that the report was a business record of Boxing Australia Inc.
Such proof could have been provided in other obvious ways, including production of the report under subpoena, or by calling evidence from a person involved in the conduct of that body.
No such evidence was led. Further, even though most of the defendants were members of the executive committee of the Association at the relevant time, it appears that when they gave evidence they were not asked about whether the report had been kept in the course of, or for the purposes of the Association's business, or whether they had been aware of it since 2009, as was contended in the submissions advanced for Mr Rose, in order to meet the complaint of prejudice flowing from its late service. Had such evidence been obtained, the admissibility of the report under s 69 might have been established.
In the result, however, it cannot be concluded that Atkinson LCM erred in concluding that the report was not admissible under s 69 of the Evidence Act, as a business record of the Association.
In any event, even if Mr Rose had proven both that the report was admissible under s 69 and that there was no prejudice flowing from its late service, because it had been in the defendants' hands since 2009, that it would have shed light on the financial affairs of the Association in January 2007 and its ability then to meet its debts, does not seem likely.
On this appeal the report was sought to be relied on to advance the case which I have concluded Mr Rose could not advance for the first time on appeal, namely, that it was the District Court's June 2009 judgment, which gave rise to the relevant debt.
Accordingly, this ground of appeal must also fail.

[12]

Ground 4 - the failure to consider the case advanced under s 38(1)(a)(ii) of the Associations Incorporations Act

The onus fell on Mr Rose to establish what he advanced under s 38(1)(a)(i) and (ii), both of which it was common ground, he had relied on. They, it will be remembered, provided: (1) If an incorporated association incurs a debt and: (a) immediately before the time the debt is incurred: (i) there are reasonable grounds to expect that the association will not be able to pay all its debts as and when they become due, or (ii) there are reasonable grounds to expect that, if the association incurs the debt, it will not be able to pay all its debts as and when they become due, and (b) the association is, at the time the debt is incurred, or becomes at a later time, an association to which this Division applies, any person who was a member of the committee of the association at the time the debt was incurred is guilty of an offence and liable to a penalty not exceeding 50 penalty units or imprisonment for a period not exceeding 1 year, or to both such penalty and imprisonment, and the association and that person or, if there are 2 or more such persons, those persons are jointly and severally liable for the payment of the debt."
Atkinson LCM's views in relation to the first limb of s 38(1)(a) were not challenged. Whether her Honour considered the case which Mr Rose had advanced under s 38(1)(a)(ii) was in issue, her Honour not having referred expressly to either paragraph. At [36]-[43] her Honour concluded: "36. I do not accept the argument that the notice of non-levy is insufficient to prove that a writ for the levy of property had been issued as it is implicit in the notice that a writ had been issued and that the Sheriff had attempted to execute it. 37. Section 37(3) does not state to whom the execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the association must be returned. 38. NSW courts and tribunals operate under various NSW Acts of Parliament. However the Civil Procedure Act 2005 and the Uniform Civil Procedure Rules 2005 contain the mechanisms by which civil judgments can be enforced in NSW (e.g. s.78 of the Civil and Administrative Tribunal Act 2013 provides for the recovery of non-penalty amounts and civil or other penalty amounts to be filed or registered in a court of competent jurisdiction and to be enforced accordingly). 39. Relevantly, UCPR 39.51 reflects the terminology in s.37 (3) when it refers to the "return" of a writ to a court. In my view, it can be inferred that when s.37(3) refers to the return of an execution or other process issued on a judgment, decree or order of any court it is referring to the process contemplated by UCPR 39.51. 40. The plaintiff has not adduced any evidence to show that the writ was returned to the court unsatisfied. Accordingly, I find on the balance of probabilities that the deeming provision contained in s.37 (3) does not operate in the present case. 41. Despite Mr Tunstall's comments to Mr Brunker about the Association being "bankrupt" and the Association's financial statements not fully disclosing the amount of the assessed costs, I am not satisfied on the balance of probabilities that there were there reasonable grounds to expect that the association would not be able to pay all of its debts as and when they became due. The Association had a significant amount of money in its bank accounts and it had the ongoing capacity to raise further funds when it staged tournaments. The capacity to raise further funds was not lost until the Association became disaffiliated from Boxing Australia. 42. It can be inferred that the Association could and did rein in expenditure where necessary (e.g. when it refused to pay Mr Brunker's costs of attending a tournament.) 43. In light of the above, I find that the plaintiff has not proven on the balance of probabilities that immediately before the alleged debt was incurred, there were reasonable grounds to expect that the association would not be able to pay all of its debts as and when they became due."
In so approaching Mr Rose's case, her Honour did not deal separately with what he had advanced under s 38(1)(a)(ii), which required consideration to be given to whether, if the debt which resulted from the 2007 costs order was incurred, there were reasonable grounds to expect that the Association would not be able pay all of its debts as and when they became due. That is no doubt because of the view which her Honour had reached, that the Association had not incurred a debt to Mr Rose, when the costs order was made in 2007.
In the circumstances the parties agreed that if it was accepted that her Honour had erred in dealing with s 38(1) as she did, the Court should resolve what remained in issue as to what they had advanced in respect of s 38(1)(a)(ii), rather than remitting the matter to the Local Court for further hearing, exercising the Court's discretions under s 41(1) of the Local Court Act 2007 and s 75A of the Supreme Court Act 1970 (NSW): Lend Lease Development Pty Ltd v Zemlicka (1985) 3 NSWLR 207.

[13]

Mr Rose did not establish his case under s 38(1)(a)(ii) on the evidence

Mr Rose's case was advanced on the basis that the evidence of the Association's financial position before judgment was entered in the District Court in June 2009, established that it was then unable to pay its debts as and when they fell due. Further, this was the position earlier, when the costs order was made in January 2007.
It was not suggested, however, that the amount of the costs Mr Rose had incurred was then known to either the Association, or to the defendants. The evidence does not appear to have revealed when that was first disclosed by Mr Rose. Thus it was submitted for Mr Rose on the appeal, that no one could say what the amount of his costs were, when the costs order was made in 2007, that only having become certain when they were assessed.
For their part, in written submissions on appeal the defendants contended that Mr Rose had not articulated what the reasonable grounds he relied on were, or how they had arisen. In his written reply submissions, they were identified at [18] to be: 1. The 2006 Annual Statement; 2. The January 2007 to June 2008 Annual Statement; 3. Mr Tunstall's 7 March 2007 letter; and 4. The October 2009 Phillips report, which was not admitted.
As I earlier explained, however, opinions which Mr Tunstall expressed in 2009 as to the Association's financial circumstances, could not establish what fell on Mr Rose to establish under s 38(1)(a)(ii), as at the time the costs order was made in January 2007, when the debt was incurred, even if the Phillips' report had been admitted.
On what was in evidence, I am satisfied that Mr Rose has not established, on the balance of probabilities, that in January 2007 if the debt which was incurred as the result of the second costs order, there were reasonable grounds to suspect that the Association would be unable to pay all its debts, as and when they become due.
As Lockhart J discussed in Rema Industries and Services Pty Ltd v Coad [1992] FCA 118; 107 ALR 374 at 381, there in the context of s 592 of the Corporations Law, which contained similar provisions to s 38(1)(a), it is the time when the debt was incurred, that the "reasonable grounds" expectations as to the Association's inability to pay all its debts, must be determined. Contrary to the case the defendants sought to press, that time was January 2007, even though the amount of the assessed costs was not finally determined until 2009, after which judgment was entered and the costs could be enforced.
What must be considered is "reasonable grounds" according to the standards of executive committee members of reasonable ability, not considered by reference to subjective considerations personal to the defendants, but determined by application of an objective test: State Government Insurance Corporation v Pollock (1993) 11 ACLC 839 at 846.
Further, as discussed in Southern Cross Interiors Pty Ltd (in liquidation) v Deputy Commissioner of Taxation (2001) 53 NSWLR 213; [2001] NSWSC 621 at 224 and quoted in Lewis (a liquidator of Doran Constructions Pty Ltd) v Doran [2005] NSWCA 243; 219 ALR 555 at [93], it must be borne in mind that insolvency, with which s 38(1) is concerned, is a question of fact: " … to be ascertained from a consideration of the company's financial position taken as a whole. In considering the company's financial position as a whole, the Court must have regard to commercial realities. Commercial realities will be relevant in considering what resources are available to the company to meet its liabilities as they fall due, whether resources other than cash are realisable by sale or borrowing upon security, and when such realisations are achievable".
Whether there were reasonable grounds to expect that if the costs order was made in January 2007, the Association would be unable to pay all its debts as and when they become due, thus had to be determined having regard to the circumstances as they were then known, or ought to have been known to the defendants, without intrusion of hindsight, but with consideration of the immediate future. How far into the future consideration must be given to, will depend on the particular circumstances. If known, future liabilities must be taken into account, but the "unexpected later discovery of a liability, or later quantification of a liability at an unexpected level, may be excluded from consideration if the liability was properly unknown or seen in lesser amount at the relevant time": Lewis at [103].
Accordingly, in this case, s 38(1)(a)(ii) required consideration to be given to whether, in January 2007, if the costs order was made, there were reasonable grounds for expecting that the Association would not be able to pay all its debts as and when they fell due. That required consideration to be given to when it was that such debts would fall due.
Determination of whether Mr Rose had made out his case under s 38(1)(a)(ii) could not, however, turn only on the views which Mr Tunstall expressed in March 2007, in a letter which did not accurately reflect the course of the litigation. His view alone, could not establish what fell on Mr Rose to prove under s 38(1)(a)(ii). The evidence as to the Association's then finances, its ongoing conduct of the sport which it administered, as well as the steps taken to rein in its expenses in pursuing that undertaking, all also arose to be considered.
In January 2007 the Association maintained its affiliation with Boxing Australia Inc, which entitled it to administer the sport of amateur boxing in NSW, as it continued to do until November 2009. Its financial records reveal that before and after the costs order was made it had considerable assets and continued to receive income from revenue generated by boxing tournaments, from member registration fees and from donations.
The case advanced for Mr Rose was that the debt which he was owed in 2006 as the result of the first costs order and that which came into existence in 2007, when the second order was made, had been concealed, because if revealed in the Association's financial accounts, that would have established its inability to pay its debts. It appears, however, that the costs the Association was ordered to pay in 2006 were, in fact, later paid and so the case pressed by Mr Rose in the Local Court related only to the debt which arose out of the 2007 order.
The Association's position in 2006, prior to the final hearing in December, was that a costs order had already been made against the Association, but it remained unpaid. Prior to that hearing it offered to settle the proceedings on payment of $3,000 of Mr Rose's costs. The negotiations Mr Tunstall conducted in an attempt to resolve the proceedings failed, the trial proceeded, the Association's defence failed, and the second costs order was made in January 2007, the costs of the trial having by then also been incurred by both parties.
It was only in June 2009 that the costs were assessed to be over $98,000. There was no suggestion that the costs were due to be paid in 2007. Atkinson LCM's finding that the Association had paid those costs, less what Mr Rose owed Mr Tunstall, was not challenged. Enforcement of the balance failed, despite service of a writ on the Association.
Even then non-payment of the assessed costs did not, of itself, establish an inability to pay that debt, no matter "however much it may lead to a suspicion that the debtor is not merely unwilling but in fact unable to pay it, the continuance of the unpaid debt of itself does not establish the fact of that inability: in particular, it does not establish that fact as at any particular time": Sandell v Porter (1966) 115 CLR 666 at [19]; [1966] HCA 28.
The conclusion urged for Mr Rose was, nevertheless, that the evidence established that after the 2007 costs order was made, the Association was "going downhill steadily". It was also argued that a "commercial and matter of fact" approach should be taken to Mr Tunstall's March 2007 statement that the Association was then financially broke, with the result that it would be concluded that it could then not pay its debts. Further, that in coming to a conclusion as to that question, no account could be taken of its future income: Sheahan v Hertz Australia Pty Ltd (1995) 16 ACSR 765.
There were a number of difficulties with the case, so advanced.
Neither the Association's 2006 accounts, nor the records which revealed its financial position to June 2008, made reference to either of the two costs orders which had been made against it. Undoubtedly this liability should have been reflected in the accounts, but there was no evidence as to how the unassessed costs should have then been accounted for.
Nor did Mr Rose lead any expert accounting evidence, either to prove that the Association's liability for the 2007 costs order established the Association's insolvency in January 2007, or that there were reasonable grounds then to expect that if the order was made, it would not have been able to pay all of its debts, as and when they became due. It must be inferred that if such evidence had been available to him, it would have been led. That it was not, appears to accord with what the records in evidence do disclose.
Those records, albeit submitted to be "rubbery", reveal that both before and after the costs order was made in January 2007, the Association not only traded, but it earned income, paid its other debts, including the costs which it owed its own lawyers and still maintained considerable assets.
The Association's balance sheet as at 31 December 2006, revealed that it then had accumulated funds of $85,924.15, as well as other assets. It had income that year of $109,214.38; expenditure of $113,720.36; a net loss from ordinary activities before tax of $4,505.98; and liabilities of $3,476.64. It was accompanied by the committee's June 2007 statement, signed by Mr Tunstall as secretary, which stated that the accounts fairly represented the Association's financial position as at 31 December 2006 and that there were reasonable grounds then to believe that it would be able to pay its debts, as and when they fell due. There was also a compilation report provided by Mr Varis of Hill Rae & Embrey, as to the report having been prepared in accordance with APS9: Statement on Compilation of Financial Reports.
There was no suggestion that in January 2007 the Association's financial position was materially different to that revealed by the 2006 accounts, other than in respect of the 2006 costs order, liability for which was not reflected in the accounts, but which seems to have been later paid. When, is not apparent.
In 2007 the Association changed its accounting year. The next financial records, to June 2008, revealed that the Association also continued to trade in that period. Those accounts disclose operating profit after providing for income tax of $12,146.80, net assets of $84,927.58 and liabilities of only $3,936, liability for the then unassessed 2007 costs order there not being disclosed.
The records also reveal that in 2007 the Association generated income of some $77,092.82 and in the 6 months to June 2008, a further $103,806.07. Amongst the liabilities it paid in 2007 were its own costs of the litigation, of some $48,461.66. That was less than the $60,000 Mr Tunstall had referred to in his March 2007 letter, when he wrote of his belief as to the Association being financially bankrupt, as the result of the costs order. A basis for that belief is not disclosed by these accounts.
In oral submissions on appeal a calculation was advanced for Mr Rose, which was also not advanced in the Local Court. Then it was argued, based on what was said to have been cost estimates which the Association's solicitors had provided it as to its costs of the proceedings, initially $44,000 and later for $60,000, that it was known to the Association in January 2007, that Mr Rose's costs of the hearing must have been $72,000. The evidentiary foundation for this submission is not apparent.
What the evidence does establish is that this case was not akin to that which arose for consideration in Sheahan, where the evidence of insolvency was found to be overwhelming, applying the test discussed in Sandell v Porter (1966) 115 CLR 666 at 670; [1966] HCA 28. There insolvency was said to be an inability to pay debts out of the debtor's own money, that including cash resources and money which can be procured within a relatively short time, given relevant circumstances, including the nature of the business, out of realisation by sale, mortgage or pledging assets.
Unlike this case, in Sheahan there was evidence of very substantial debts which were presently payable, at a time when there was no ready money to pay them; where there had been tardy payment of creditors; where there was a deficiency of current assets and liabilities; taxes had not been paid; and a working overdraft was overdrawn. In those circumstances, the prospect that the company might trade profitably in the future, thereby restoring its financial position, was found not to be a basis on which solvency could be established.
The Association's circumstances were entirely different.
In 2006 it had traded at a small loss, but it had few outstanding liabilities, other than that flowing from the 2006 costs order. It also maintained considerable assets, while continuing to trade. It was not established that its assets were then insufficient to meet the 2006 costs order, which it later paid, or any of its other liabilities.
There is thus no reason to conclude that Mr Rose established, on the balance of probabilities, that in January 2007 there were reasonable grounds to expect that if the costs order was then made, that the Association would not be able to pay all of its debts as and when they fell due, given the amount of its assets; the sources and amount of its ongoing income; and the steps it took to rein in its expenses. Even if Mr Rose's costs had then been agreed and so became immediately payable, the evidence did not establish a basis for the conclusion which he urged.
In the result, this ground must also fail.

[14]

Ground 3 - the defences in s 38(2)(b)(ii)

Section 38(2)(b)(ii), it will be remembered, provides: "(b) that, at the time the debt was incurred, the defendant did not have reasonable cause to expect: … (ii) that, if the association incurred that debt, it would not be able to pay all its debts as and when they became due."
This defence depends upon proof of an actual expectation, not mere hope, possibility or suspicion, that the Association was and will continue to be solvent. Such expectations must be based on reasonable grounds. They cannot be based on ignorance, neglect of duty or failure to make necessary enquiries: Tourprint International Pty Ltd (in liq) v Bott [1999] NSWSC 581; 32 ACSR 201 at [67].
Atkinson LCM held: "44. The plaintiff submitted that the defendants have not proven that they did not have reasonable cause to expect that the Association would not be able to pay all its debts as and when they became due as: • Mr Tunstall had a key role to play in the Association's financial affairs • The Association's financial statements and Mr Tunstall's letter to Mr Brunker show that he must have been aware that the Association would not be able to pay all its debts as and when they became due • The other defendants: o Were aware of the impending costs orders in 2006 but they were prepared to leave the issue entirely to Mr Tunstall o Turned a blind eye to their responsibilities as committee members of the Association o Gave an implied authority through Mr Tunstall for the Association to incur the debt o Had constructive knowledge of the Association's absence of funds to pay the costs debt. 45. The defendants submitted that the statutory defence is made out as: • Assuming the debt was incurred, it was done so without the defendants' express or implied consent as it was imposed by the court in the exercise of its discretion • Mr Tunstall and Mr Hailwood made the decisions about finance • The reports that were tabled at committee meetings always showed positive cash flow and did not cause the defendants any concern about the Association's ability to pay its debts as and when they fell due • The defendants were not involved in any decisions made during the proceedings • The sole reason for the Association's demise was its disaffiliation with Boxing Australia. • Mr David Birchell had no relevant involvement with the Association at the relevant time as he was not a committee member. 46. In my view, it is not sufficient for defendants 2 to 4 say that they did not have reasonable cause to expect that the Association would not be able to pay all its debts as and when they became because Mr Tunstall was handling the Association's financial affairs and they did not know about those affairs. Committee members cannot abrogate their responsibilities in relation to the management of an incorporated association. Even though one person might have primary responsibility for dealing with an association's finances, all of the committee members would have been given the opportunity to examine and comment on the financial reports that were tabled at committee meeting. They were responsible for ensuring that the Association was being properly managed. 47. The defendants say that the financial reports that were presented to them showed that the Association had a positive cash flow. Only some of the Association's financial records were tendered in evidence but these do support an assertion that the Association did have financial resources available to it. For example, the Association's balance sheet as at 31 December 2005 showed that it had equity/net assets of $90,430.13; the balance sheet as at 31 December 2006 showed that it had net assets of $85,924.15. Both balance sheets show that the Association generated significant income during those years. 48. It was only when the Association could not generate income through staging tournaments that its financial position became dire and it subsequently was deregistered. 49. On this basis, I find that the defendants have proven on the balance of probabilities that at the time the debt was said to have been incurred, they did not have reasonable cause to expect that the Association would not be able to pay all its debts as and when they became due."
Mr Rose's case was that while her Honour's conclusion at [46] was correct, she had also failed to resolve what lay in issue in relation to the defendants' 38(2)(b)(ii) defence. He contended that defence had not been made out, because it depended on what the defendants' reasonable expectations were at the relevant time, no matter when that was held to be.
The evidence was that each defendant had left all the Association's financial affairs to Mr Tunstall; they had no knowledge of the Association's financial position at the relevant time; and Mr Tunstall's view was then that the Association was bankrupt. In the result, the defendants had not turned their minds to whether or not the relevant reasonable expectation had been satisfied and so the s 38(2)(b)(ii) defence had not been made out.
The defence case was that not only did the evidence establish the financial resources of the Association, both in terms of assets as at January 2007 and ongoing income which was being generated, it also established that the Association's financial position had only become "dire" as the result of the steps taken by Boxing Australia Inc in November 2009, when its affiliation was brought to an end.
Further, that the evidence established that in January 2007, Mr David Birchell, the fourth defendant, was not a member of the executive committee; that the evidence of Mr Hailwood, the second defendant and that of Mr Raymond Birchell, the third defendant was that financial reports tendered at executive committee meetings had always disclosed positive cash flow, which did not cause them any concern; and finally, that this accorded with the financial records in evidence.

[16]

The other defendants

As to the other defendants, there was no issue that they were members of the executive committee in January 2007. They gave evidence in the Local Court in 2017 about events which had occurred between 2004 and 2009.
The evidence of Mr Hailwood, the former President of the Association for example, was that the Association's 2006 financial records had been prepared and sent to the Department of Fair Trading with his agreement. In cross-examination he said that the Association had been a not-for-profit organisation and that when he signed the 2006 Statement by members of the committee, as President in 2007, he thought the Association was in a good position, paying its bills. He was aware of Brereton J's earlier costs order, and agreed that the result of the order was that the Association owed Mr Rose a debt, but he did not know the amount which was then owed. He was also aware that there had been earlier negotiations about a settlement, the details of which he could not remember, because they had been conducted by Mr Tunstall, who he said had been responsible for the money side of the Association, which was not "his affair".
When pressed Mr Hailwood explained that had had nothing to do with the Association's finances; that there were then 12 members of the executive who had each had separate roles; and that his was selection and training and Mr Tunstall's was finances. He was thus unable to explain why no reference was made in the 2006 and 2007 accounts to the costs orders, but he did not accept that the accounts were inaccurate.
Evidence of an approach of that kind on the part of members of the executive committee, it must be accepted, could not have provided a basis for a positive conclusion in relation to the s 38(2)(a)(ii) defences, had Mr Rose proven his case against the defendants other than Mr David Birchell. That is because they depend upon proof of the holding of an actual expectation, based on reasonable grounds about the consequences of incurring a particular debt. Such a defence cannot be established by ignorance, neglect of duty, or failure to make necessary enquiries about such financial matters.
Members of executive committees of associations which obtained incorporation under the Associations Incorporations Act, thus could not approach their responsibilities in the way that Mr Hailwood described in his evidence members of the executive committee did, by effectively delegating to one of their number responsibility for the associations financial affairs, notwithstanding that their positions were voluntary. Such an approach precluded the defences which s 38(2) provided being established.
Mr Rose not having met the onus which fell upon him under s 38(1) however, dismissal of the appeal does not depend on the defendants other than Mr David Birchell having established a s 38(2) defence.

[17]

Contention - the proceedings were brought within time

The Local Court proceedings were not commenced until May 2015. When the limitation period began to run was in issue, s 14(1)(d) of the Limitations Act 1969 (NSW) providing as it does: "14 General (1) An action on any of the following causes of action is not maintainable if brought after the expiration of a limitation period of six years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims: … (d) a cause of action to recover money recoverable by virtue of an enactment, other than a penalty or forfeiture or sum by way of penalty or forfeiture."
In the Local Court the defendants accepted that s 37 of the Associations Incorporations Act had been engaged when the Association's incorporation was cancelled in October 2010, after its disaffiliation with Boxing Australia Inc, in November 2009: s 37(1)(b). On their case, in January 2007 it had been able to meet its debts and, in any event, the costs order then made was not a debt to which s 38 attached.
Despite this, the defendants argued that Mr Rose's cause of action against them had accrued in January 2007, when the costs order was made. In the result, the proceedings were out of time, having been commenced longer than 6 years after that date, a period which expired in January 2013.
These submissions cannot succeed.
While the result of the costs order was that in January 2007 the Association did incur a debt to Mr Rose, as I have explained, the evidence did not establish that it was then "unable to pay its debts", that being what s 37(1)(c) is concerned with. In the result, s 37 was not then engaged.
It may have been earlier than October 2010 that the Association in fact became unable to pay its debts, but neither party advanced such a case. It was in November 2009 that it was disaffiliated from Boxing Australia Inc, with the result that it could no longer administer the sport of amateur boxing in the State, thereby no doubt losing a considerable part of its ongoing income stream. Its financial records for the years after June 2008 were not, however, in evidence. Even if it was as a result of its disaffiliation in November 2009 that the Association became unable to pay its debts, however, the limitation period would not have expired until November 2015, after the proceedings were commenced in May 2015.
It follows that as was the defendants' case in the Local Court, when the Association's incorporation was cancelled in 2010, there was no question that Mr Rose was then entitled to bring proceedings against them under s 38. In the result, the proceedings were brought within time.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (19 paragraphs)

Parties

Legislation Cited (11)

Cases Cited (43)

Cited By (2)