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Featherstone v D J Hambleton as liquidator of Ashala Pty Ltd (in liq)

 

[2015] QCA 43

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

Featherstone v D J Hambleton as liquidator of Ashala Pty Ltd (in liq) [2015] QCA 43

PARTIES:

DARRELL MORGAN FEATHERSTONE
(appellant)
v
DAVID JAMES HAMBLETON AS LIQUIDATOR OF ASHALA PTY LTD (IN LIQUIDATION)
ACN 108 312 509
(respondent)

FILE NO/S:

Appeal No 2436 of 2014 DC No 2516 of 2013

DIVISION:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:

District Court at Brisbane

DELIVERED ON:

1 April 2015

DELIVERED AT:

Brisbane

HEARING DATE:

27 February 2015

JUDGES:

Gotterson JA and Douglas and Peter Lyons JJ Separate reasons for judgment of each member of the Court, each concurring as to the orders made

ORDERS:

  1. The appeal is dismissed.
  2. The appellant is to pay the costs of the respondent of the appeal, and of the appellant’s applications determined on 27 February 2015, to be assessed on the standard basis.

CATCHWORDS:

APPEAL AND NEW TRIAL – APPEAL – GENERAL PRINCIPLES – INTERFERENCE WITH JUDGE’S FINDINGS OF FACT – FUNCTIONS OF APPELLATE COURT – WHERE FINDINGS BASED ON CREDIBILITY OF WITNESSES – NECESSITY FOR FINDING TO BE CLEARLY WRONG – where, pursuant to a share transfer agreement, the appellant was replaced as the company’s sole director and disposed of all shares in the company – where the company continued to lease, and operate from, premises owned by the appellant’s trust and employed the appellant as an events and training coordinator – where the primary judge found that the appellant continued to control the company and influence the company’s recorded directors after the share transfer agreementwhere the appellant argued that the primary judge erred in regarding one of the company’s recorded directors as a credible witness and erred in rejecting parts of the appellant’s evidence – whether the primary judge’s findings of fact were so glaringly improbable as to overcome the primary judge’s advantage of observing the witness’ testimony

APPEAL AND NEW TRIAL – APPEAL – GENERAL PRINCIPLES – INTERFERENCE WITH DISCRETION OF COURT BELOW – IN GENERAL – where the primary judge admitted the record of a meeting between the appellant, the respondent, and others – where the witness who prepared the record did not disclose her relationship with the respondent – where the appellant applied to further cross-examine the witness after the close of the substantive proceeding at first instance – where the primary judge refused the appellant’s application – whether further cross-examination could have changed the trial’s outcome – whether the primary judge’s discretionary decision was made in error

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – OFFICERS OF CORPORATION – DIRECTOR – WHO IS A DIRECTOR – where, pursuant to a share transfer agreement, the appellant was replaced as the company’s sole director and disposed of all shares in the company – where the company continued to lease, and operate from, premises owned by the appellant’s trust and employed the appellant as an events and training coordinator – where the primary judge found that the appellant continued to control the company and influence the company’s recorded directors after the share transfer agreement – where the primary judge found that the appellant was a de facto director and a shadow director during the relevant period – whether the primary judge erred in finding that the appellant was a director pursuant to s 9(b) of the Corporations Act during the relevant period

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION – OFFICERS OF INSOLVENT CORPORATIONS – DUTY TO PREVENT INSOLVENT TRADING – REASONABLE GROUNDS TO SUSPECT COMPANY IS OR WOULD BECOME INSOLVENT – where the primary judge found that the appellant was a de facto director and a shadow director during the relevant period – where the company had few staff and operated from a single location – where the primary judge found that the appellant was aware of reasonable grounds to suspect the company was insolvent and breached his duty as a director of the company to prevent insolvent trading by the company pursuant to s 588G of the Corporations Act – where the primary judge held that the appellant was liable for $198,151.41 (with interest) for insolvent trading pursuant to s 588M of the Corporations Act – whether the primary judge erred in finding that there were reasonable grounds for suspecting that the company was insolvent – whether the primary judge erred in finding that the appellant was aware of such reasonable grounds – whether a reasonable person in the appellant’s position would have been aware of such reasonable grounds

Corporations Act 2001 (Cth), s 9, s 588G, s 588M

D J Hambleton as liquidator of Ashala Pty Ltd (in liquidation) v Featherstone [2014] QDC 20, discussed

Fox v Percy (2003) 214 CLR 118; [2003] HCA 22, applied

Goldsmith v Sandilands (2002) 76 ALJR 1024; [2002] HCA 31, cited

House v The King (1936) 55 CLR 499; [1936] HCA 40, cited

Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8, cited

McLean v Kalanda Constructions Pty Ltd [1995] QCA 280, cited

Stead v State Government Insurance Commission (1986) 161 CLR 141; [1986] HCA 54, applied

Tierney v Commissioner of Police [2011] QCA 327, applied

COUNSEL:

No appearance for the appellant L Copley for the respondent

SOLICITORS:

No appearance for the appellant Irish Bentley Lawyers for the respondent

[1] GOTTERSON JA:  I agree with the orders proposed by Peter Lyons J and with the reasons given by his Honour.

[2] DOUGLAS J:  I agree with the reasons of Peter Lyons J and the proposed orders.

[3] PETER LYONS J:  The appellant has appealed against a judgment given in the District Court in favour of the respondent for a sum of $198,151.14 (with interest) pursuant to s 588M of the Corporations Act 2001 (Cth) (the Act).

[4] The appellant (who did not have legal representation) did not appear at the hearing of the appeal, but sent an email requesting an adjournment.  This was refused.  The appeal has been determined by reference to the grounds of appeal, and the arguments presented by the parties in their written outlines of argument.

Background

[5] Ashala Pty Ltd (Ashala) was incorporated on 10 March 2004.[1]  ASIC records show the appellant as a director of Ashala from 10 March 2004 to 7 October 2005; and again from 28 November 2005 to 12 December 2005.

[6] It is convenient to record some brief matters relating to other companies associated with the appellant.  Ashala Bar Café and Restaurant Pty Ltd (ABCR) was registered on 10 December 2003, with the appellant as its sole director.[2]  Ashala Model Agency Pty Ltd (AMA) was registered on 24 May 2005.[3]  A third company Ashala Hair and Beauty Pty Ltd (AHB) was also associated with the appellant.  It appears from the document next discussed that until about 7 October 2005, the appellant was also the sole director and shareholder of AMA and AHB.  It would also appear that these companies occupied premises owned by the appellant as trustee for his family trust, and located at 1/138 Albert Street, Brisbane, (Albert Street premises) at all times relevant to this appeal.

[7] A letter dated 7 October 2005 (agreement letter), signed by Ms Kristy Marks, addressed to the appellant, recorded an agreement between them relating to the transfer of Ashala, ABCR and AHB from the appellant to Ms Marks.  It recorded that the appellant would transfer to Ms Marks the shares in the three companies, and that she would replace him as the sole director of each of them.  The letter also recorded the agreement of Ms Marks to lodge all necessary documents and notifications with all government authorities and agencies, to transfer the ownership of the companies to her, and to record her replacement of the appellant as sole director of each of the companies.  The signature of the appellant appeared at the foot of the letter, also dated 7 October 2005.

[8] On 7 October 2005, ASIC received notice from Ms Marks that she had replaced the appellant as a director of each of the three companies.[4]

[9] As at 7 October 2005, Ms Marks was 19 years of age.[5]  The appellant gave evidence that Ms Marks paid him $100 for the transfer of each of the three companies, or a total of $300 for the three of them.[6]

[10] A letter dated 22 June 2007 from Ms Marks to the appellant (employment letter) confirmed the appellant’s employment as training and events co-ordinator with Ashala, from 1 July 2007.  That letter recorded that the appellant did not hold a formal role with Ashala and had “no responsibility or rights or powers as a director, secretary, officer or manager of the company”; and that he would not “be involved in any decisions that substantially affect the operation of Ashala Pty Ltd”; though it also recorded that Ms Marks might at times ask the appellant for advice.  The signature of the appellant on this letter is dated 22 June 2007.[7]

[11] Similar letters dated 30 June 2008[8] and 30 June 2009[9] were signed by Ms Marks and the appellant, though the amount for wages decreased.[10]

[12] An ASIC search shows Ms Marks continued to be recorded as a director of Ashala until 1 August 2010.[11]  Mr Malcolm Marshall was recorded as a director of Ashala from 11 March 2010.[12]  On 9 September 2010, the respondent was appointed as Ashala’s administrator,[13] it being a company under administration.  On 14 October 2010, the respondent became the liquidator of Ashala.[14]

[13] On 14 September 2010, the respondent met with the appellant and Ms Marks at the Albert Street premises (September meeting).  Also present at the meeting were Mr Mark Surman; and Ms Linda Moore, from the respondent’s office.

[14] An examination of the appellant under s 596B of the Act was conducted on 12 February 2013 (examination).

[15] The proceedings in the District Court were commenced by an application filed 11 July 2013, seeking payment of an amount of $208,770.33 pursuant to s 588M of the Act, “for insolvent trading against the (appellant) while a director of (Ashala)”.[15]  Debts totalling this amount were said to have been incurred between 30 June 2008 and 9 September 2010.[16]

Decision of District Court

[16] In so far as the amount claimed by the respondent included a sum of $10,619.19 said to be a debt due to Mr Marshall for building works, the application failed.  That was because the primary Judge was not able to conclude that the debt was owed by Ashala, rather than another company associated with it.[17]  Otherwise, the primary Judge found that, in the nominated period, Ashala incurred debts totalling $158,756.18 to the Australian Taxation Office (ATO) for goods and services tax, PAYG, and interest; a further debt of $26,357.76 to the ATO as employee superannuation; and $13,037.20 to Queensland Plumbing Pty Ltd for work done by it.[18]  The tax debts to the ATO, and the quantum of the debt to Queensland Plumbing, were not disputed.[19]

[17] The primary Judge found that the appellant was a director of Ashala during the nominated period.  The primary Judge found that the employment letter (and subsequent versions of it) and the agreement letter “were nothing more than attempts to create self serving evidence in the event (which has turned into fact) that the respondent was sued as a consequence of his involvement” with Ashala and the other companies.[20]  He accepted Mr Marshall’s evidence to the effect that “it was really (the appellant) who pulled the strings in respect of the operation of Ashala and indeed all the other related companies”;[21] and that nothing happened at the premises where these companies carried on business “unless (the appellant) ‘okay’d it’ ”.[22]  He found that this evidence was corroborated by other evidence.  To some extent, that was the information which the appellant provided to the respondent at the September meeting.  However he placed greater weight on admissions given by the appellant at the examination.[23]  The primary Judge also referred to the evidence showing that the appellant had control of AMA, notwithstanding that he was not recorded as a director.[24]  Later in his reasons, the primary Judge accepted a submission that the information which the appellant gave at the September interview was consistent with knowledge available to him either as an employee, or as the landlord of the premises occupied by Ashala; and concluded that this evidence did not advance the respondent’s case in any material way.[25]  For a variety of reasons, the primary Judge rejected the appellant’s explanation of the evidence he had given in the examination, and his evidence about his role in relation to Ashala.[26]  The primary Judge concluded both that the appellant assumed or performed functions which would usually be expected to be performed by a director, or the board of directors (the expression used to describe this was “de facto director”); and that he had influence sufficient to ensure compliance by those who were recorded as the directors of the company with his wishes and instructions (the expression used was “shadow director”).[27]  The primary Judge also accepted the respondent’s evidence demonstrating that Ashala was insolvent between 30 June 2008 and 9 September 2010.[28]

[18] Because of the appellant’s active involvement with the day to day affairs and management of Ashala, the primary Judge found that the appellant was aware from some time in 2008 that the global financial crisis had effectively ended the modelling business.  He also found that the appellant would have been aware of the financial difficulties of Ashala; that it had substantial tax debts; that its income and assets were not sufficient to meet those debts; that associated companies were unable to assist Ashala; and that all of these companies were “struggling” from about 2008 onwards, most likely as a consequence of the global financial crisis.  These circumstances provided reasonable grounds for suspecting that Ashala was insolvent.[29]

Grounds of appeal

[19] A number of grounds of appeal contend that the primary Judge erred in accepting evidence relating to Mr Marshall.  Other grounds contend that the primary Judge erred in fact by relying on parts only of the transcript of the examination of the appellant; failing to recognise that exhibits to an affidavit of the respondent and exhibits to an affidavit of the appellant (the affidavits themselves being exhibits 10 and 13 in the proceedings at first instance) were capable of being construed as supporting the appellant’s case; accepting the affidavit of Ms Moore, and accepting her evidence of a note of the September meeting; rejecting the appellant’s evidence; and failing to treat the evidence of the appellant’s knowledge of the affairs of Ashala, as displayed at the September meeting, as attributable to his ownership of the premises occupied by Ashala.

[20] The grounds of appeal contend the primary Judge erred in law in a number of ways.  They were: finding Ashala was insolvent; finding the appellant was a director of Ashala; finding that a director of Ashala did not have reasonable grounds, at the time when the debts were incurred, for thinking that the company was solvent; failing to find that the debts to the ATO were incurred prior to the time at which the appellant was held to be a director of Ashala; and relying on the fact that the appellant was representing himself in the proceedings at first instance, as a reason to excuse the failure of the respondent to give notice of his intention to rely on the rule in Jones v Dunkel.[30]

Submissions

[21] In essence, the challenges to the evidence of Mr Marshall are based on the fact the primary Judge was not prepared to find that Ashala was indebted to him.  For that reason, it was submitted, the primary Judge should have found the balance of Mr Marshall’s evidence to be unreliable.

[22] The appellant submitted that the primary Judge erred in not permitting him to cross-examine Mr Hambleton and Ms Moore further, as that may have resulted in a different outcome.

[23] The appellant submitted that his acceptance of responsibility for the debt to Queensland Plumbing should have been recognised as an honest admission, based on his interest in the premises where the work was done, and not as evidence that he was a director of Ashala; and that his interest in the premises was relevant to his knowledge of matters about which he gave information at the September meeting.

[24] The appellant submitted that the finding that he was a director of Ashala should not stand, being based on Mr Marshall’s evidence.  Moreover, that evidence related to a period of only approximately 30 days.  The evidence of the events of the September meeting should not be regarded as accurate, for reasons which seem ultimately to relate to the failure of the primary Judge to refuse the appellant’s application to cross-examine Ms Moore further.  It was also submitted that the evidence did not “directly support the contention that the Appellant was a defacto or shadow director” of Ashala, with the result that the finding was in error.

[25] The appellant submitted that the primary Judge did not identify “direct evidence” as to his awareness of reasonable grounds for suspecting that Ashala was insolvent.  Nor was there a finding about when each transaction occurred, and the awareness of the appellant at each of those times.  Accordingly, the judgment could not stand.

[26] The respondent’s submissions referred to the limited circumstances on which findings of fact based on credibility might be overturned.

[27] The primary Judge’s acceptance of Mr Marshall’s evidence was based in part on his assessment of Mr Marshall as an honest and reliable witness, and that his evidence was corroborated; and was supported by the primary Judge’s finding, based on the transcript of the examination, that the appellant had real control of Ashala,[31] a finding not challenged in the appeal.

[28] At the hearing at first instance, Ms Moore had been cross-examined about the events which occurred at the September meeting.  The primary Judge found her to be an honest and reliable witness.  The refusal to permit further cross-examination of her did not result in a substantial injustice, entitling the appellant to a new trial.  The appellant had himself been at the September meeting, and was in a position to put his version of the events which occurred there to Ms Moore when he cross-examined her.  In any event, the evidence of the events of the September meeting was not (ultimately) relied upon by the primary Judge for his conclusion that the appellant was a director of Ashala.  The appellant had not identified how further cross-examination of Ms Moore might have led to different findings about the events which occurred at that meeting.

[29] The respondent also submitted that the primary Judge rejected the appellant’s evidence and found him to be an unconvincing witness on a number of grounds.  They did not include his willingness to be responsible for the debt to Queensland Plumbing.

[30] The respondent submitted that the primary Judge’s conclusion that the appellant was director of Ashala from 30 June 2008 to 9 September 2010 was based on a number of findings of the primary Judge which themselves were not the subject of challenge, save for the challenge to the evidence of Mr Marshall.  Even without the evidence of Mr Marshall the ultimate conclusion of the primary Judge was well supported by the other findings.

[31] The respondent submitted that the appellant was aware that there were grounds for suspecting that Ashala was insolvent in the relevant period because he had real control of Ashala; he took an active part in directing its business affairs; and he was actively involved in its day to day affairs and management.  Moreover, its income and assets were insufficient to meet its debts, and companies associated with it were not in a position to assist it; and the financial circumstances of Ashala would give rise to reasonable grounds for suspecting it was insolvent.

[32] In submissions in reply, the appellant referred to the fact that this appeal is by way of a rehearing.  He submitted that the evidence which he gave at the examination was explicable by his position as an employee, and the landlord, of Ashala.  He submitted that the reliance placed by the primary Judge on the appellant’s attack on the respondent’s witnesses, including assertions of bias, incompetency and outright dishonesty, which were not made out, should be balanced against the primary Judge’s recognition that the appellant had no litigation experience and “little court craft”.[32]

Statutory provisions

[33] Section 588G of the Act provides:

Director’s duty to prevent insolvent trading by company

(1)This section applies if:

(a)a person is a director of a company at the time when the company incurs a debt; and

(b)the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and

(c)at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and

(d)that time is at or after the commencement of this Act.

(1A)For the purposes of this section, if a company takes action set out in column 2 of the following table, it incurs a debt at the time set out in column 3.

When debts are incurred[operative table]

 

Action of company

When debt is incurred

1

paying a dividend

when the dividend is paid or, if the company has a constitution that provides for the declaration of dividends, when the dividend is declared

2

making a reduction of share capital to which Division 1 of Part 2J.1 applies (other than a reduction that consists only of the cancellation of a share or shares for no consideration)

when the reduction takes effect

3

buying back shares (even if the consideration is not a sum certain in money)

when the buy-back agreement is entered into

4

redeeming redeemable preference shares that are redeemable at its option

when the company exercises the option

5

issuing redeemable preference shares that are redeemable otherwise than at its option

when the shares are issued

6

financially assisting a person to acquire shares (or units of shares) in itself or a holding company

when the agreement to provide the assistance is entered into or, if there is no agreement, when the assistance is provided

7

entering into an uncommercial transaction (within the meaning of section 588FB) other than one that a court orders, or a prescribed agency directs, the company to enter into

when the transaction is entered into

(2)By failing to prevent the company from incurring the debt, the person contravenes this section if:

(a)the person is aware at that time that there are such grounds for so suspecting; or

(b)a reasonable person in a like position in a company in the company’s circumstances would be so aware.

Note:This subsection is a civil penalty provision (see subsection 1317E(1)).

(3)A person commits an offence if:

(a)a company incurs a debt at a particular time; and

(aa)at that time, a person is a director of the company; and

(b)the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and

(c)the person suspected at the time when the company incurred the debt that the company was insolvent or would become insolvent as a result of incurring that debt or other debts (as in paragraph (1)(b)); and

(d)the person’s failure to prevent the company incurring the debt was dishonest.

(3A)For the purposes of an offence based on subsection (3), absolute liability applies to paragraph (3)(a).

Note:For absolute liability, see section 6.2 of the Criminal Code.

(3B)For the purposes of an offence based on subsection (3), strict liability applies to paragraphs (3)(aa) and (b).

Note:For strict liability, see section 6.1 of the Criminal Code.

(4)The provisions of Division 4 of this Part are additional to, and do not derogate from, Part 9.4B as it applies in relation to a contravention of this section.”

[34] Section 588M of the Act provides:

Recovery of compensation for loss resulting from insolvent trading

(1)This section applies where:

(a)a person (in this section called the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and

(b)the person (in this section called the creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company’s insolvency; and

(c)the debt was wholly or partly unsecured when the loss or damage was suffered; and

(d)the company is being wound up;

whether or not:

(e)the director has been convicted of an offence in relation to the contravention; or

(f)a civil penalty order has been made against the director in relation to the contravention.

(2)The company’s liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage.

(3)The creditor may, as provided in Subdivision B but not otherwise, recover from the director, as a debt due to the creditor, an amount equal to the amount of the loss or damage.

(4)Proceedings under this section may only be begun within 6 years after the beginning of the winding up.”

[35] Section 9 of the Act relevantly provides:

director of a company or other body means:

(a)a person who:

(i)is appointed to the position of a director; or

(ii)is appointed to the position of an alternate director and is acting in that capacity;

regardless of the name that is given to their position; and

(b)unless the contrary intention appears, a person who is not validly appointed as a director if:

(i)they act in the position of a director; or

(ii)the directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes.

Subparagraph (b)(ii) does not apply merely because the directors act on advice given by the person in the proper performance of functions attaching to the person’s professional capacity, or the person’s business relationship with the directors or the company or body.

Note:Paragraph (b)—Contrary intention—Examples of provisions for which a person referred to in paragraph (b) would not be included in the term “director” are:

  • section 249C (power to call meetings of a company’s members)
  • subsection 251A(3) (signing minutes of meetings)
  • section 205B (notice to ASIC of change of address).”

Evidence of Mr Marshall

[36] The primary Judge’s acceptance of the evidence of Mr Marshall as to the appellant’s involvement in the management of Ashala was in part based on his observations of Mr Marshall in the witness box.[33]  In his submissions in reply, the appellant accepted that, in such a case, an appellate Court must respect the advantages of a trial judge, especially where the decision is affected by the Judge’s impression about the credibility of witnesses whom the appellate Court does not see.  It is only if, making proper allowances for the advantages of the trial judge, the appellate Court concludes that error has been shown, that it can (and should) intervene.  These principles are to be found in the judgment of Gleeson CJ, and Gummow and Kirby JJ in Fox v Percy[34] (Fox).

[37] However, their Honours went on to identify circumstances where intervention might be warranted.  Thus, where rejected evidence is “incontrovertible”; or where the decision reached at trial is “glaringly improbable” or “contrary to compelling inferences”, an appellate Court must give effect to its own conclusions about the case.[35]  In Tierney v Commissioner of Police[36] Margaret Wilson AJA, with the agreement of McMurdo P and Chesterman JA said:

“Thus, where a finding of fact depends on a view taken of conflicting testimony, error is established only –

(a) where the trial court failed to use or palpably misused its advantage; or

(b) where incontrovertible facts or uncontested testimony demonstrate that the trial court’s conclusions were erroneous; or

(c) where the appellate court concludes the decision at trial was glaringly improbable or contrary to compelling inferences.”

[38] It is at least conceivable that a particular case in the future may result in the identification of some other circumstance in which an appellate Court will intervene, notwithstanding findings made by a trial judge based on the Judge’s observation of a witness.  However, it is apparent from the principles stated in Fox that an appellate Court must respect the advantage which a trial judge has, because of that Judge’s opportunity to observe a witness and form an impression of the witness’s reliability.

[39] In the present case, it is apparent that the primary Judge gave some care to the assessment of the evidence of Mr Marshall.  His Honour noted the difficulty which Mr Marshall displayed in distinguishing between the roles of the appellant, Ashala, and other related companies, and his uncertainty about some matters.  It cannot be said that his Honour engaged in uncritical acceptance of Mr Marshall’s evidence.  Moreover, evidence about who was responsible for payment for the work done by Mr Marshall is quite different in character from Mr Marshall’s evidence about the appellant’s conduct at the premises where the companies carried on business.  The primary Judge’s reason for not accepting some of Mr Marshall’s evidence does not provide a logical basis for not accepting his evidence about the appellant’s conduct.  Moreover, that evidence had the benefit of corroboration.  It cannot be said in the present case that the primary Judge palpably misused his advantage; nor that the evidence was shown to be erroneous by other incontrovertible evidence; nor was the conclusion glaringly improbable or contrary to compelling inferences.  Nor has any other sufficient reason been identified for not recognising the advantage enjoyed by the primary Judge.  Indeed, no real basis has been identified for criticising the reasoning which led to the acceptance of the evidence of this witness.

[40] In the absence of the identification of any proper ground for interfering with the finding of the primary Judge, I would conclude that the appellant’s submissions about the evidence of Mr Marshall should be rejected.

Evidence of Ms Moore

[41] About six weeks after the primary Judge had reserved his decision on the substantive application, the appellant made an application for the further cross-examination of Ms Moore.  The appellant also sought to cross-examine the respondent further.  The ground of the application was that Ms Moore was in fact married to Mr Imray, a business partner of the respondent, but by using her maiden name she had concealed that fact.  The complaint about Ms Moore’s evidence is based on the refusal of this application.

[42] The appellant’s written submissions referred to principles set out in a passage from McLean v Kalanda Constructions Pty Ltd.[37]  The relevant statement of principle seems to be that if admissible evidence was rejected by the judge at first instance, and substantial injustice was thereby occasioned, the injured party was entitled to a new trial, provided that the party had tendered the evidence, or the judge had made plain that the evidence would not be admitted under any circumstances.

[43] The submissions do not seek to demonstrate how the principle is relevant in the present case.  The appellant’s complaint is not that an attempt was made to tender admissible evidence, which was rejected by the Judge.  Rather it is that he was not permitted to have Ms Moore (and the respondent) recalled for further cross-examination.

[44] The appellant’s submissions also referred to Stead v SGIC.[38]  That case stands for the proposition that where a party has, during the trial, been deprived of the opportunity to advance an aspect of that party’s case, then a breach of the rules of natural justice will have occurred, and the party will ordinarily be entitled to a new trial.  However the case also recognised an exception, namely, where the loss of opportunity to advance that aspect of the party’s case could not have affected the outcome of the trial.  The present case does not (at least directly) come within the principle for which Stead stands as authority.  The appellant does not suggest that when he was cross-examining Ms Moore in the course of the hearing, anything occurred which prevented him from putting any aspect of his case to her, or otherwise advancing his case.

[45] The appellant’s submissions do not deal with the principles relevant to the application for further cross-examination of Ms Moore.  In Cross on Evidence[39] the learned authors indicate that such an application is dealt with in accordance with the principles relating to the calling of evidence in rebuttal or the reopening of a case;[40] and that the decision is discretionary.  They also refer to Goldsmith v Sandilands,[41] where leave to reopen a case was refused where the proposed evidence only went to a collateral issue, namely, the reliability of a witness as to the location at which admissions were made.

[46] Because the application to cross-examine these witnesses further required an exercise of the discretion of the primary Judge, the appellant, to succeed, would need to demonstrate some error in the exercise of that discretion of the kind discussed in House v The King.[42]  The appellant has not attempted to do this.  Indeed, although the appellant has asserted that a different outcome to the trial would have been available if the cross-examination had been permitted, he has not attempted to demonstrate why that is so.  He has therefore failed to demonstrate the utility of such cross-examination.

[47] The evidence of Ms Moore went only to the events at the September meeting, which she recorded in handwritten notes.[43]  Her evidence of these events was not challenged in cross-examination, although the appellant was present at that meeting.  There is no reason to think that further cross-examination of Ms Moore would have assisted the Court, or might potentially have led to a different outcome; nor was there any reason to think that the primary Judge’s discretionary decision was made in error.  The appellant’s submissions relating to the evidence of Ms Moore should be rejected.

The evidence of the appellant

[48] The submissions made by the appellant about his own evidence have already been mentioned.  It is apparent that the primary Judge understood the respondent’s willingness to accept responsibility for the debt of Queensland Plumbing as relating to the fact the work was done on premises owned by him as trustee for his family trust; and not as providing a basis for finding some other ground on which the respondent might be liable for this debt.  The position taken by the primary Judge was, at least in broad terms, consistent with a submission made by the appellant, as I understand it.

[49] The appellant also submitted that the fact the appellant was prepared to take responsibility for this debt should have been considered in assessing the significance of the events which occurred at the September meeting.  But ultimately, the primary Judge considered that these events did not advance the respondent’s case against the appellant in any material way.[44]  The primary Judge’s conclusions about the appellant’s evidence was supported by a number of other matters, identified in his reasons.  The willingness of the appellant to accept responsibility for the debt to Queensland Plumbing does not detract from the significance of those matters which support the primary Judge’s conclusions about the appellant’s evidence.  The appellant’s submissions, so far as they suggest that the primary Judge erred in rejecting significant parts of the appellant’s evidence, should not be accepted.

Was the appellant a director of Ashala?

[50] As mentioned, the appellant submitted that even if Mr Marshall’s evidence were accepted, it related to a limited period of 30 days.  He also relied on the submissions, discussed earlier, about the significance of the information he provided at the September meeting.  Beyond that, there appears to be no more than a broad assertion that the evidence does not support the conclusion that he was either a de facto director or shadow director of Ashala, and that accordingly the decision of the primary Judge was erroneous.

[51] As the submissions for the respondent pointed out, the decision of the primary Judge was based on a number of matters beyond the evidence of Mr Marshall.  They included his conclusions about the agreement letter and the employment letter; and the appellant’s answers in the course of the examination.  The primary Judge’s conclusions about these matters were not attacked.

[52] The evidence to which the primary Judge referred included an admission by the appellant in the course of his examination that, when he was in Brisbane, he was in attendance at the premises of the companies each day, and was involved in “making decisions and the like” for both Ashala and AMA; and that he was in Brisbane for all but “a couple of months a year I guess”.[45]   That evidence is consistent with his earlier statement that, after he resigned as a director of Ashala in 2005, he “continued to run the day-to-day – be involved in the day-to-day affairs of everything that was happening”.[46]

[53] Notwithstanding his other evidence that Ms Marks had paid $100 for the shares in Ashala, in his examination the appellant said that the shares “were always held on trust for me”.[47]  With respect to AMA, the appellant’s evidence was that his ownership of the shares in it had the effect that Ms Marks, as director, was subject to his direction.[48]  There is no reason to think that he held a different view in relation to Ashala.  His evidence rather strongly suggests that it was his decision to accept the involvement of Mr Marshall in both AMA and Ashala.[49]  The control which the appellant exerted by reason of his ownership of the shares was, in relation to AMA, demonstrated by the fact that he would not permit Mr Marshall, the sole director at the time, to be a signatory on that company’s bank account.[50]  The primary Judge took into account the whole of the appellant’s evidence at the examination when considering whether the appellant was a director of Ashala, though he made specific reference to only a part of it.[51]

[54] The conclusions reached by the primary Judge about the agreement letter and the employment letter were available to him on the evidence as a whole. 

[55] There is nothing to suggest that the primary Judge did not appreciate the fact that Mr Marshall had limited involvement with the affairs of Ashala; rather his Honour acknowledged this.[52]  Nevertheless, Mr Marshall’s evidence was capable, along with the other evidence relied upon by his Honour, of providing a basis for his finding about the role of the appellant.

[56] The evidence on which the primary Judge relied was, in my view, sufficient to support the conclusions which he reached to the effect that the appellant was both a de facto director and a shadow director of Ashala.

Reasonable grounds for suspecting that Ashala was insolvent

[57] The primary Judge found both that the appellant was aware that there were reasonable grounds for suspecting that Ashala was insolvent over the period during which the debt to the ATO accrued, and at the time at which the debt to Queensland Plumbing accrued.  He also found that a reasonable person in a similar position in a company would, in the circumstances of Ashala, have been aware that there were reasonable grounds to suspect Ashala was insolvent in this period.

[58] The appellant submitted that the primary Judge did not identify any “direct evidence” as to the appellant’s state of awareness of these matters; nor did he make a finding as to when each “transaction” occurred (no doubt a reference to the fact that the debts to the ATO accrued progressively; as well as to the accrual of the debt to Queensland Plumbing); nor did he make a finding about the appellant’s state of mind at that time.  Accordingly, he could not have reached a conclusion as to the liability of the appellant under s 588M of the Act.

[59] The findings of the primary Judge, to which the respondent’s submissions referred, relevant to these matters, were that the appellant had the “real control” of Ashala;[53]that the appellant “took an active part in directing the business affairs of Ashala”;[54]and that the appellant was “actively involved in the day to day affairs and management of Ashala”.[55]

[60] Ashala was a relatively small company.  Its business was conducted from a single location.  Few people were active in it.  The appellant has not sought, in his submissions, to identify areas of its business operations, or aspects of its financial position, with which he was unfamiliar.  The evidence relied upon for the conclusion that he was a director rather strongly suggests the opposite.

[61] In my view, the matters relied upon by the primary Judge provided a firm foundation for his conclusions.  The submissions of the appellant should not be accepted.

Conclusion

[62] Accordingly, I would dismiss the appeal.  I propose the following orders:-

(a) The appeal is dismissed;

(b) The appellant is to pay the costs of the respondent of the appeal, and of the appellant’s applications determined on 27 February 2015, to be assessed on the standard basis.

Footnotes

[1] Vol 1 of Appeal Record Book (1 AR) p 404.

[2] D J Hambleton as liquidator of Ashala Pty Ltd (in liquidation) v Featherstone [2014] QDC 20 (RJ) at [14].

[3] RJ at [14].

[4] RJ [14].

[5] Her date of birth appears at 1 AR 406.

[6] RJ [21].

[7] 2 AR p 777.

[8] 2 AR p 778.

[9] 2 AR p 779.

[10] RJ [22].

[11] 1 AR p 406.

[12] 1 AR p 406.

[13] 1 AR p 384.

[14] 1 AR p 384.

[15] 2 AR p 852.

[16] 1 AR 397.

[17] RJ [12].

[18] RJ [8]-[13].

[19] RJ [9].

[20] RJ [28].

[21] RJ [29].

[22] RJ [29].

[23] See RJ [31] – [32].

[24] RJ [34].

[25] RJ [46].

[26] RJ [33]; [39] – [40].

[27] RJ [41] – [43].

[28] RJ [47].

[29] See RJ [51]; [55] – [56].

[30] (1959) 101 CLR 298.

[31] See RJ [34].

[32] See RJ [50] and [64].

[33] RJ [30].

[34] (2003) 214 CLR 118 at [26] – [27].

[35] Fox at [29].

[36] [2011] QCA 327 at [52].

[37] [1995] QCA 280.

[38] (1986) 161 CLR 141 at 145-147.

[39] J D Heydon, Cross on Evidence (LexisNexis, 10th Aust ed, 2015).

[40] J D Heydon, Cross on Evidence (LexisNexis, 10th Aust ed, 2015), at [17620].

[41] (2002) 76 ALJR 1024.

[42] (1936) 55 CLR 499, 505.

[43] 1 AR pp 375-379; pp 162-163.

[44] RJ [46].

[45] 2 AR p 692.

[46] 2 AR p 684.

[47] 2 AR p 684.

[48] 2 AR p 688.

[49] 2 AR pp 689-691.

[50] 2 AR p 703.

[51] RJ [34].

[52] RJ [29].

[53] RJ [34].

[54] RJ [42].

[55] RJ [51].

Close

Editorial Notes

  • Published Case Name:

    Featherstone v D J Hambleton as liquidator of Ashala Pty Ltd (in liq)

  • Shortened Case Name:

    Featherstone v D J Hambleton as liquidator of Ashala Pty Ltd (in liq)

  • MNC:

    [2015] QCA 43

  • Court:

    QCA

  • Judge(s):

    Gotterson JA, Douglas J, P Lyons J

  • Date:

    01 Apr 2015

Litigation History

Event Citation or File Date Notes
Primary Judgment - - QDC
Appeal Determined (QCA) [2015] QCA 43 01 Apr 2015 -

Appeal Status

{solid} Appeal Determined (QCA)