Editshare Asia Pacific Pty Ltd v Miles [2018] QSC 68

SUPREME COURT OF QUEENSLAND CITATION: Editshare Asia Pacific Pty Ltd & Anor v Miles & Anor [2018] QSC 68 PARTIES: EDITSHARE ASIA PACIFIC PTY LTD (ACN 154 348 517) (IN LIQUIDATION) (First Plaintiff and Applicant) and PETER ANTHONY LUCAS (Second Plaintiff) v DAMIAN MILES (First Defendant and Respondent) and EDITSHARE AUSTRALIA PTY LTD (ACN 168 223 952) (Second Defendant) FILE NO/S: 615 of 2016 DIVISION: Trial PROCEEDING: Application (in a Claim) ORIGINATING COURT: Supreme Court at Cairns DELIVERED ON: 6 April 2018 DELIVERED AT: Cairns HEARING DATES: 19 January 2018 and 23 February 2018 JUDGE: Henry J ORDERS: 1. Application dismissed. 2. Paragraph 41 of the further amended defence of the first defendant is struck out. 3. The first defendant will file and serve a further further amended defence which properly pleads to paragraph 41 of the amended statement of claim within 28 days hereof. 4. The costs of the application are reserved. CATCHWORDS: PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PRACTISE UNDER RULES OF COURT – SUMMARY JUDGMENT – where plaintiff brought application for summary judgment against first defendant– -- 1 of 7 -- 2 whether plaintiff satisfied Court that defendant had no real prospect of success and that there is no need for a trial PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER UNIFORM CIVIL PROCEDURE RULES AND PREDECESSORS – PLEADING – DEFENCE AND COUNTERCLAIM – where the defendant filed inadequate pleadings – where material facts not pleaded – where inadequate reasons for denial of pleaded allegation – whether pleading should be struck out Uniform Civil Procedure Rules 1999 (Qld), r 149, r 157(a), r 171, r 292(2) LCR Mining Group Pty Ltd v Ocean Tyres Pty Ltd [2011] QCA 105, followed COUNSEL: C J Eylander for respondent SOLICITORS: Connolly Suthers for applicant Cronin Litigation for respondent [1] The applicant first plaintiff (“the plaintiff company”) seeks summary judgment on part of its claim as against the respondent first defendant (“Mr Miles”). Background [2] On 7 March 2014 the plaintiff company was ordered to be wound up in insolvency and the second plaintiff was appointed liquidator. The application for the order was filed on 31 January 2014 (“the relation back day”) and was founded upon the plaintiff company’s failure to pay a creditor’s statutory demand by the Australian Tax Office of 10 October 2013. [3] The plaintiffs’ claim before the Supreme Court in Cairns alleges that after the relation back day but before the winding-up order, the second defendant, a company which assumed a similar name to the plaintiff company, acquired the business of the plaintiff company without the passing of consideration. The amended statement of claim alleges related misconduct, including by Mr Miles, the sole director, secretary and shareholder of both the plaintiff and defendant companies. [4] Of more specific relevance to the present application, the amended statement of claim pleads at paragraph 41 that an amount of $427,384.02 is owed as a debt by Mr Miles, which amount is claimed as monies due and owing (“the director’s loan claim”). The Application [5] The plaintiff company has applied for summary judgment on that part of its claim which is the director’s loan claim. -- 2 of 7 -- 3 [6] To succeed it must, pursuant to rule 292(2) Uniform Civil Procedure Rules 1999 (Qld), satisfy the court that: “(a) the defendant has no real prospect of successfully defending … [the] part of the plaintiff’s claim; and (b) there is no need for a trial of … the part of the claim …” (emphasis added) The need for combined satisfaction of limbs (a) “and” (b) above must not be overlooked. The words “no real prospect of succeeding” in limb (a) are to be applied in conjunction with the requirement, in limb (b), of satisfaction that there is no need for a trial, so as to ensure before any summary intervention that there is a high degree of certainty that a respondent would have no real prospect of succeeding if the case were allowed to go to trial in the ordinary way.1 The Applicant’s Critical Inference [7] The director’s loan claim is premised upon the plaintiff company’s own records apparently recording the amount of $427,384.02 as a debt owing to the plaintiff company by the trustee of Mr Miles’ family trust, which paid the money to Mr Miles. Despite demand by the liquidator, Mr Miles has not repaid the money. [8] The records of this debt are pleaded by way of particulars as being the plaintiff company’s balance sheet and a transaction ledger. The balance sheet as at 30 April 2014 records under current liabilities: “Equity – Miles Family ES Trust ($427,384.02)”. The bracketing of the amount, read with the rest of the document and consistent with common bookkeeping practice, supports an inference the liability is in the negative, that is, it is an amount owing to the plaintiff company. That inference (“the critical inference”) is essential to the success of this part of the claim. The inference that the alleged debt is in truth owed by Mr Miles, as distinct from the trustee of his family trust, is also essential to proof of the director’s loan claim but it is unnecessary to focus further upon it for present purposes. [9] Mr Miles is a beneficiary of the Miles Family ES Trust. Its trustee is Editshare Pty Ltd ACN 123 950 621, which is not the plaintiff company. The transaction ledger is titled: “Equity – Miles Family ES Trust transactions EditShare Asia Pacific From 1 Jan 2000 to 30 Apr 2014.” [10] It records multiple payments to Mr Miles variously labelled “Damian Miles – drawings”, “Damian Miles”, “Damian drawings” and “Damian”. The total sums attributable to payments thus recorded apparently exceed the amount of $427,384.022 though nothing turns on that for present purposes. 1 LCR Mining Group Pty Ltd v Ocean Tyres Pty Ltd [2011] QCA 105, [26]-[30]. 2 Affidavit of Steven John Tapiolas court file doc 57. -- 3 of 7 -- 4 The Respondent’s Evolving Response [11] The further amended defence of Mr Miles denied paragraph [41] of the amended statement of claim, pleading, as the basis of his belief that it is untrue: “(a) the first defendant has not received the sum of $427,384.02 from the first plaintiff, by way of loan or otherwise; (b) if the sum of $427,384.02 was loaned by the first plaintiff (which the first defendant denies) it was loaned to the Miles Family ES Trust and not to the first defendant; (c) neither the first plaintiff as trustee of the Miles Family ES Trust nor any other person is entitled to any indemnity, reimbursement or recompense from the first defendant as a beneficiary of the trust. Particulars Trust Deed of the Miles Family ES Trust dated 16 May 2007 Deed of appointment and removal of trustee of the Miles Family ES Trust dated 25 November 2011”3 [12] An affidavit by Mr Miles deposed: “6. As set out in the balance sheet of the first plaintiff as at 30 April 2014 … the sum of $427,384.02 was paid by the first plaintiff to the Miles Family ES Trust. 7. I am the beneficiary of the Miles Family ES Trust. … 8. … I say that the ledger titled “Equity – Miles Family ES Trust Transaction”: (a) does not show advances to me by the first plaintiff over the period from December 2009 to March 2014 in the amount of $427,384.02; (b) shows payments to me by the Miles Family ES Trust over the period from December 2009 to March 2014 in the amount of $427,384.02.”4 [13] This appeared to implicitly accept the total in question was indeed paid by the plaintiff company to the Miles Family ES Trust and that payments in the same total were received by Mr Miles. [14] When the application was first heard it became apparent that material facts referred to in submissions advanced for Mr Miles did not appear in his affidavit. The matter was adjourned to allow further affidavit evidence to be filed, with Mr Miles being ordered to pay the applicant’s costs thrown away in consequence of the adjournment. 3 Further amended defence of the first defendant [41]. 4 Affidavit of Damian Miles court file doc 51. -- 4 of 7 -- 5 [15] The respondent filed further affidavits. An affidavit by Gregory O’Donnell, the accountant engaged by Mr Miles to perform accounting services for the plaintiff company, explained he did not know why the payments made to the Miles Family ES Trust were recorded as a liability in the balance sheet of the first plaintiff as at 30 April 2014. He asserted the fact that such payments were recorded in the balance sheet as a liability was “purely a function of the incorrect set-up of the Xero chart of accounts which the first defendant put in place for management purposes only”.5 He made a similar assertion about the transaction ledger. These assertions appeared to be mere assumptions, without any evidentiary foundation being advanced for them. [16] A further affidavit by Mr Miles did at least contain some admissible evidence, but it appeared light on detail and left much unsaid. [17] Mr Miles’ further affidavit explained the Miles Family ES Trust “earned an income” from the plaintiff company and he received an income from the trust. How the trust “earned an income”, for example whether it was work performed by Mr Miles for the trustee and, indirectly, the plaintiff company, was not explained. [18] Mr Miles deposed to using a XERO accounting system to manage the recording of the plaintiff company’s transactions from which database his accountant would download information at the end of each accounting period. He contradicted the critical inference by deposing the balance sheet recording of payments made to the trust was an error and instead “the payments should have recorded as an expenditure for income owing to the trust for services rendered, not as a loan”.6 Why this revelation was not pleaded or deposed to in Mr Miles’ first affidavit is not apparent. [19] According to Mr Miles’ further affidavit the payments recorded in the transaction ledger when described as “Damian Miles – drawings” were either paid to the trust as income owed or to Editshare Asia Pte Ltd, yet another similarly named company based in Singapore, for services it performed for the plaintiff company. Mr Miles also deposed the trust would loan funds to the plaintiff company which it would reimburse and he would also “record these payments as Damian Miles – drawings”. Discussion [20] The veracity of Mr Miles’ affidavit evidence is unclear, particularly given the absence of any particularity or adequate records exhibited about the expenditures sufficient to explain the reason for which they were made or owed. The evolving and in parts vague nature of his account, on one view, involved some factual inconsistency. [21] All of this heralds potential problems for the credibility of Mr Miles at any trial. However, despite its inadequacies, Mr Miles’ further affidavit does expressly contradict the critical inference relied upon by the applicant to sustain its director’s loan claim. It does so by direct evidence that the balance sheet entry is in error in representing the amount is an amount owing to the plaintiff company. 5 Affidavit of Gregory O’Donnell court file doc 58. 6 Affidavit of Damian Miles court file doc 56. -- 5 of 7 -- 6 [22] It is no part of my present role to assess the veracity of that direct evidence as against the strength of the indirect evidence said to prove the critical inference relied upon by the plaintiff company. Such a task requires the exposure and testing of the evidence through the conventional forum of a trial. It is not possible, in the context of this summary judgment application, to reach a concluded view as to Mr Miles’ credibility generally or, more specifically, as to his belated assertion of a bookkeeping error in the evidence relied upon to support the critical inference against him. [23] It follows I cannot be satisfied in this application that Mr Miles has no real prospect of successfully defending the director’s loan claim and that there is no need for a trial of that part of the claim. Strike Out [24] I record for completeness that an initial additional component of the summary judgment application, relying upon an alleged deemed admission in Mr Miles’ pleaded defence, was rendered academic by the filing of the further amended defence. That said, in light of the information deposed to in answer to the summary judgment application by the respondent, it is apparent the pleading of the further amended defence was deficient. [25] In responding to paragraph 41 of the plaintiff’s amended statement of claim, the further amended defence did not, as it should have, pursuant to rule 149 Uniform Civil Procedure Rules, state material facts relied upon in respect of the plaintiffs’ director’s loan claim. It is obvious that of all the players it is Mr Miles who would know the material facts. The information advanced by Mr Miles about the accuracy of the balance sheet and the reason for the payments recorded to him in the transaction ledger was information which should have been pleaded pursuant to rule 166(4) in direct explanation for his belief that the allegation in paragraph 41 of the amended statement of claim was untrue. If Mr Miles’ pleaded reason was to prevent surprise at trial, as it should have pursuant to rule 157(a), then the reason for the denial should have explained that the entry in the balance sheet was an error and asserted what the correct entry should have been. Further, it should have pleaded, with explanation of the particulars of the relevant entries in the transaction ledger, the reasons why such entries supported the entry it is now asserted should correctly have been recorded in the balance sheet. [26] Had those matters been pleaded, as they should have, the summary judgment application would probably not have been made. This failure to comply with the Uniform Civil Procedure Rules of pleading has a tendency to prejudice or delay the fair trial of the proceeding, which in turn enlivens the court’s power to strike out part of a pleading pursuant to rule 171. The application included a fall back request for “such further or other order as this Honourable Court deem meet”. Even if it had not, the clear exposure of the pleading deficiency by the application, including by Mr Miles’ affidavits in response to it, makes this an appropriate case, consistently with the purpose of the Uniform Civil Procedure Rules articulated in rule 5, to exercise the power conferred by rule 171. [27] Accordingly, in dismissing the application I shall nonetheless strike out paragraph 41 of the further amended defence and require Mr Miles to file a further further amended -- 6 of 7 -- 7 defence which properly pleads to paragraph 41 of the amended statement of claim. To remove doubt, by “properly pleads” I mean pleads at least as contemplated in paragraph [25] above. Orders [28] In circumstances where there has been a mixed outcome for the application and given the present application was made in a claim I will reserve costs. [29] My orders are: 1. Application dismissed. 2. Paragraph 41 of the further amended defence of the first defendant is struck out. 3. The first defendant will file and serve a further further amended defence which properly pleads to paragraph 41 of the amended statement of claim within 28 days hereof. 4. The costs of the application are reserved. -- 7 of 7 --