FEDERAL COURT OF AUSTRALIA

Highup Pty Ltd (in Liquidation) v Gubas [2014] FCA 1170 

Citation:	Highup Pty Ltd (in Liquidation) v Gubas [2014] FCA 1170	
		
Parties:	HIGHUP PTY LTD (ACN 119 418 423) (IN LIQUIDATION) v VESNA GUBAS	
		
File number(s):	ACD 18 of 2014	
		
Judge(s):	BUCHANAN J	
		
Date of judgment:	5 November 2014	
		
Catchwords:	CORPORATIONS – liquidator of a company seeking order to recover from related entity benefit resulting from insolvent transactions of the plaintiff – where plaintiff alleged to have assumed a liability for the defendant and paid money to the defendant to discharge a debt owed by the defendant – whether plaintiff presumed to be insolvent during the relevant period – whether the transactions were insolvent transactions – whether the transactions were uncommercial – whether the transactions were voidable transactions 

EVIDENCE – no evidence given by the defendant – whether Court can accept that any evidence that might have been given would not have assisted the defendant’s case – whether the Court may draw other adverse inferences against the defendant – onus remains on plaintiff to prove the elements of its case	
		
Legislation:	Corporations Act 2001 (Cth), ss 9, 286(1), 286(2), 588E(1)(b), 588E(2), 588E(4), 588E(5), 588FB, 588FB(1), 588FC, 588FC(a)(i), 588FE, 588FE(3), 588FE(4), 588FH(1), 588FH(1)(a), 588FH(1)(b), 588FH(1)(c), 588FH(2), 588G, 588G(2), 588G(3), 588J
Evidence Act 1995 (Cth), ss 67, 81, 87  	
		
Cases cited:	ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65; (2014) 309 ALR 445
Blatch v Archer [1774] EngR2; (1774) 98 ER 969
Capital Finance Australia Ltd v Tolcher (2007) 164 FCR 83
Hawkins v Bank of China (1992) 26 NSWLR 562
Jones v Dunkel (1959) 101 CLR 298
Morgan v Babcock & Wilcox Ltd (1929) 43 CLR 163
Tosich Construction Pty Ltd (In Liq) v Tosich (1997) 78 FCR 363
Vetter v Lake Macquarie City Council (2001) 202 CLR 439
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Western Australia v Wardley Australia Ltd (1991) 30 FCR 245
Weissensteiner v R (1993) 178 CLR 217  	
		
Date of hearing:	16 October 2014	
		
Place:	Canberra	
		
Division:	GENERAL DIVISION	
		
Category:	Catchwords	
		
Number of paragraphs:	79	
		
Counsel for the Plaintiff	Dr G Dempsey with Mr G Watson	
		
Solicitor for the Plaintiff	Colquhoun Murphy	
		
Counsel for the Defendant	Mr DS Weinberger	
		
Solicitor for the Defendant	Deutsch Partners	

IN THE FEDERAL COURT OF AUSTRALIA		
AUSTRALIAN CAPITAL TERRITORY 
DISTRICT REGISTRY		
GENERAL DIVISION	ACD 18 of 2014	
 
BETWEEN:	HIGHUP PTY LTD (ACN 119 418 423) (IN LIQUIDATION)
Plaintiff
	
AND:	VESNA GUBAS
Defendant

JUDGE:	BUCHANAN J	
DATE OF ORDER:	5 November 2014	
WHERE MADE:	Sydney via VIDEOLINK to CANBERRA	

THE COURT ORDERS THAT:

1.	The application be dismissed.
2.	The plaintiff pay the defendant’s costs as taxed if not agreed unless, within 14 days, a contrary order is sought supported by written submissions.
3.	If a contrary costs order is sought, submissions in response are to be filed within 7 days.
4.	Any application for costs will be dealt with on the papers unless a party seeks a further oral hearing.

Note:	Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA		
AUSTRALIAN CAPITAL TERRITORY 
DISTRICT REGISTRY		
GENERAL DIVISION	ACD 18 of 2014	
 
BETWEEN:	HIGHUP PTY LTD (ACN 119 418 423) (IN LIQUIDATION)
Plaintiff
	
AND:	VESNA GUBAS
Defendant

JUDGE:	BUCHANAN J	
DATE:	5 November 2014	
PLACE:	CANBERRA	

REASONS FOR JUDGMENT
Background
1		The plaintiff (“Highup”) was placed in liquidation on 3 April 2013.  The proceedings have been commenced in its name by the liquidator, Michael Slaven.  Between 5 March 2012 and 22 February 2013 Highup made 10 payments (totalling $130,000) to Catering Staff Services Pty Limited (“CSS”), a company of which the defendant was the sole director.  The plaintiff alleges that the payments were made for the benefit of the defendant, and not Highup, and were voidable transactions under the Corporations Act 2001 (Cth) (“the Act”).  The plaintiff seeks orders that the defendant pay the equivalent sum to Highup as reimbursement.  
2		At various times the defendant’s son (Miroslav Gubas) and his wife (Miriana Cavic) were directors of Highup.  Relevantly for present purposes, Miroslav Gubas was a director of Highup from 10 March 2010 until Highup was placed in liquidation.  The defendant was, accordingly, a “related entity” to Highup within the meaning of that term stated by s 9 of the Act.  
3		While it was trading, Highup operated a revolving restaurant in the Telstra Tower in Canberra in the Australian Capital Territory known as “Alto” and a kiosk in the Telstra Tower known as “Panorama Kiosk”.  
The alleged liability of the defendant
4		Miroslav Gubas gave evidence in a compulsory examination conducted under the Act after Highup was placed in liquidation that three companies had been set up at various times to discharge employment liabilities on behalf of Highup.  The first, known as Highup Staffing, was established on 11 May 2006 and went into liquidation on 17 April 2008.  The second, known as HB Staffing, was established on 9 May 2008 and went into liquidation on 14 May 2010.  The third was CSS.  
5		According to an affidavit by Mr Slaven, deposing to his examination of the records of Highup and his investigations, CCS was registered on 7 May 2010 and went into liquidation on 24 November 2011.  
6		On 30 April 2012, Goodman Law, Solicitors, forwarded to the offices of the appointed liquidator of CSS (Mr Frank Lo Pilato of RSM Bird Cameron) the terms of a deed “for execution by the liquidator and the other parties”.  The proposed parties to this deed were Mr Lo Pilato (as liquidator of CSS), the defendant and Mr Gubas.  
7		The deed was not executed.  There is, therefore, a serious question about the relevance of its proposed terms.  Nevertheless, it is the plaintiff’s case that the deed established or effectively records the defendant’s liability to CSS at that time.  I am satisfied that the proposed terms do not have that effect, but reference to those terms is nevertheless required to explain some of my conclusions.  I shall, for convenience, refer to this document as the “proposed deed”.  
8		Recital D and E of the proposed deed provided:  
D.	On 20 February 2012, the Liquidator issued a written demand (“Liquidator’s Demand”) to Vesna Gubas for the payment of $291,801.09, comprising of monies owing to the Company by Vesna Gubas for insolvent trading.  

E.	At a meeting of creditors of the Company held on 18 April 2012, a motion was passed authorising the Liquidator to compromise the debt owed by Vesna Gubas to the Company to a value equal to, or greater than, $150,000.00.  

9		There was no evidence in any other form to support the statement made in Recital D.  I shall return to it shortly.  
10		There was evidence to support the statement in Recital E.  It consisted of the minutes of the meeting of creditors of CSS held on 18 April 2012.  There is no evidence that the defendant was present at this meeting.  She did not sign the attendance sheet and I understood it to be accepted by the plaintiff that she was, in fact, not present.  The meeting was called to consider a report to creditors dated 27 March 2012 and to authorise the liquidator to compromise “the debt owed by the director(s)” (the defendant was the only director).  
11		Presumably, the basis for the claimed debt was disclosed in the report to creditors but that report was not in evidence.  
12		A director’s liability for debts incurred by permitting a company to trade whilst insolvent arises under s 588G of the Act.  The liability may be civil or criminal in nature, depending on the circumstances (c.f. s 588G(2) and (3)).  In proceedings for a civil penalty a court may order the payment of compensation to the company equivalent to loss or damage suffered by the company because of its insolvency (s 588J).  
13		In the present proceedings there is no evidence as to how, if at all, the defendant may be liable to pay compensation to CSS for permitting CSS to trade whilst insolvent, or in what amount, if any, such liability might exist.  The plaintiff submitted that a liability, or a contingent liability, arose because the liquidator of CSS had made a demand on the defendant, but there is no evidence of even such a demand, apart from the reference in Recital D of the proposed deed.  
14		The proposed deed incorporated provisions whereby Mr Gubas would agree to assume any liability of the defendant to CSS.  Clause 2.1(a) of the proposed deed said:  
2	PARTIES’ OBLIGATIONS

2.1	Payment of Settlement Sum

a)	Miroslav Gubas agrees to pay, and the Liquidator agrees to accept, the amount of $150,000.00 (“Settlement Sum”) in full and final satisfaction of any Claim that the Liquidator has, or may have, against Vesna Gubas, as at the date of this Deed.  

15		A schedule of payments was set out.  It incorporated a payment which had already been made, attributed to Mr Gubas (but in fact made by Highup), on 5 March 2012.  
16		On 5 March 2012, 8 May 2012, 6 June 2012, 6 July 2012, 10 August 2012, 18 September 2012, 23 October 2013, 12 December 2012 and 28 December 2012 payments of $10,000 each were made by Highup to CSS ($90,000).  On 22 February 2013 a further payment of $40,000 was made by Highup to CSS.  
17		The fact of the payments is undisputed.  There is no direct evidence of the reason for the payments but Mr Slaven attributed them, as a matter of opinion in his affidavit, to performance of the proposed deed.  
18		Although there was rough correspondence between most of the schedule of payments in the proposed deed (which incorporated 14 equal monthly instalments of $10,000 commencing on 5 May 2012, in addition to the payment on 5 March 2012), the payments did not correspond precisely, either as to time or amount.  Not all monthly payments were made.  Finally, $40,000 was paid.  Eventually, the payments were $20,000 short of the proposed figure of $150,000, although the plaintiff was placed in liquidation on 3 April 2013, before the proposed payments were to cease.  
19		Furthermore, none of the payments was made directly by Mr Gubas.  Each of the payments was made by Highup.  
20		There was no evidence which directly explained the reason for any of those discrepancies or why Mr Gubas might have been prepared to assume responsibility for his mother, or why the payments were in fact made by Highup.  
21		The plaintiff’s case was nonetheless, as put in final written submissions:  
88	In this instance, Mr Gubas, has effectively caused Highup to “gift” $130,000 to the liquidator of Catering Staff Services, which was for the benefit of his mother. The payments had no benefit to Highup. Nor can they be explained by any normal commercial practice. 

89	Mrs Gubas has not adduced any evidence to explain the transactions, or to contend that the payments provided any direct or indirect benefit to Highup. 

22		In support of those factual propositions the plaintiff relied also on the following contentions:  
21	The defendant has elected to lead no evidence in her defence, even though both she and her son, Mr Gubas, are apparently available and would be able to give evidence in respect of several material issues in this case. There is no explanation for the failure to call these witnesses. 

22	The Court should have regard to the principle stated in Blatch v Archer, namely that the evidence is to be weighed according to the proof that was within the power of one side to produce and power of the other to contradict.6 

23	Further, by failing to call these witnesses, a Jones v Dunkel inference arises. The Court should infer that the evidence that either Mrs Gubas or Mr Gubas may have given would not have assisted the defendant’s case.7 

24	Accordingly the Court can be confident in making the factual findings sought by the plaintiff and should be very slow to draw inferences favourable to the defendant where contrary evidence might have been offered by either Mrs Gubas and/or her son. 

____________________

6	Blatch v Archer [1774] EngR2; (1774) 98 ER 969 as applied in Vetter v Lake Macquarie City Council (2001) 202 CLR 439 at [36]

7	Jones v Dunkel (1959) 101 CLR 298

The evidentiary onus
23		Before I turn to the statutory provisions upon which the plaintiff relies, it is convenient to deal with the suggestion that the defendant had some operative evidential or other onus to explain the basis of the payments made by Highup.  
24		Highup was not proposed to be a party to the proposed deed.  The additional party (i.e. other than the liquidator of CSS and the defendant) was to be Mr Gubas.  He is not a party to the present proceedings.  The plaintiff’s submission was, however, that Mr Gubas was “in the camp” of the defendant.  I am prepared to make that assumption, although there was no direct evidence to that effect.  
25		The relevant parts of the amended statement of claim were:  
14	In or about May 2012 Frank Lo Pilato in his capacity of liquidator of CSS entered into a deed with Vesna Gubas and Miroslav Gubas (“the CSS Deed”). 

15	The CSS Deed compromised the claims against the defendant on terms that: 

15.1	by clause 2.1, Miroslav Gubas pay to CSS a settlement sum of $150,000; 

15.2	by clause 2.2, upon receipt of that settlement sum the defendant was released and discharged from her liabilities to CSS. 

16	Miroslav Gubas caused to be paid in total $130,000 from Highup to the bank account for CSS as set out in Schedule 1 (“the Transactions”). 

… 

18	A reasonable person in the circumstances of Highup would not have entered into the Transactions, because: 

18.1	the Transactions were to the financial detriment of Highup; and 

18.2	there was no benefit to Highup from the Transactions. 

… 

20	By operation of the CSS Deed, the Transactions had the effect of discharging, to the extent of $130,000, the liability of the defendant to CSS. 

26		The defendant denied paragraphs 14, 15, 18 and 20 and did not admit paragraph 16.  
27		Before closing submissions, no complaint was made to the Court that the defendant had not properly pleaded its case, or that the plaintiff would be taken by surprise if it had to prove the pleaded content of its case which had not been admitted.  In final submissions those complaints were made but I am unable to accept them.  
28		The defendant called no evidence at all in her case.  I accept that Jones v Dunkel (1959) 101 CLR 298 is authority for the proposition that any evidence which the defendant or (I accept) Mr Gubas might have given would not have assisted the defendant’s case, but that is the extent of the inference which it is proper to draw from that circumstance.  
29		In Vetter v Lake Macquarie City Council (2001) 202 CLR 439 (in the passage at [36] relied on by the plaintiff as applying Blatch v Archer [1774] EngR2; (1774) 98 ER 969), Gleeson CJ, Gummow and Callinan JJ said:  
36	… As long ago as 1774 Lord Mansfield said that all evidence is to be weighed according to the proof which it is in the power of one side to have produced and the power of the other to have contradicted. … 

(Footnote omitted.) 

30		This passage deals with weighing the evidence which is before the court; not with inferences arising about a state of facts concerning which there is no evidence.  In the same passage (at [36]) a reference was given to Weissensteiner v R (1993) 178 CLR 217 (“Weissensteiner”) (a criminal case) at 226-7.  There are two matters worth noting in connection with that reference.  
31		At 226 in Weissensteiner Mason CJ, Deane and Dawson JJ referred, with evident approval, to Morgan v Babcock & Wilcox Ltd (1929) 43 CLR 163 at 178 saying:  
In Morgan v. Babcock & Wilcox Ltd. the defendant company was convicted of paying a bribe. At its trial it called no evidence. Upon appeal to this Court, Isaacs J. referred to Blatch v. Archer and said: 

“Here the prosecution could not possibly have produced stronger evidence, but it was in the power of the defence to have repelled the inference that arises from the evidence as it stands … Consequently, since the affirmative evidence in the case raises, to say the least, a strong probability that it was the Company that paid, or caused to be paid, the bribe demanded by Maling, the silence of the Company, and its failure to explain, materially weakens any attempt to suggest in its favour possible hypotheses of innocence.” 

(Footnotes omitted.) 

32		At 227 their Honours said:  
We have quoted rather more extensively from the cases than would otherwise be necessary in order to show that it has never really been doubted that when a party to litigation fails to accept an opportunity to place before the court evidence of facts within his or her knowledge which, if they exist at all, would explain or contradict the evidence against that party, the court may more readily accept that evidence. …  

33		The guidance about the evaluation of evidence which is offered in all those references concerns evidence which is already before the court.  None of the references, in my view, supports the proposition that an inference of fact might arise independently from a failure of a party to call evidence about a particular matter.  None of the references serve to deflect attention from the requirement in the present case that the plaintiff must make out each of the elements of its own case.  
Highup’s presumed insolvency
34		Section 588FH(1) and (2) of the Act provide:  
588FH	Liquidator may recover from related entity benefit resulting from insolvent transaction

(1)	This section applies where a company is being wound up and a transaction of the company: 

(a)	is an insolvent transaction of the company; and 

(b)	is voidable under section 588FE; and 

(c)	has had the effect of discharging, to the extent of a particular amount, a liability (whether under a guarantee or otherwise and whether contingent or otherwise) of a related entity of the company. 

(2)	The company’s liquidator may recover from the related entity, as a debt due to the company, an amount equal to the amount referred to in paragraph (1)(c). 

35		The present proceedings rely on s 588FH(2).  The liquidator alleges that the payments made by Highup to CSS between 5 March 2012 and 22 February 2013 had the effect of discharging a liability of the defendant to CSS, and that the other conditions stated by s 588FH(1) have been met.  
36		The proceedings are a “recovery proceeding” within the meaning of s 588E(1)(b).  Section 588E(2), (4) and (5) provide:  
588E	Presumptions to be made in recovery proceedings

… 

(2)	Subsections (3) to (9), inclusive, have effect for the purposes of a recovery proceeding in relation to a company. 

… 

(4)	Subject to subsections (5) to (7), if it is proved that the company: 

(a)	has failed to keep financial records in relation to a period as required by subsection 286(1); or 

(b)	has failed to retain financial records in relation to a period for the 7 years required by subsection 286(2); 

the company is to be presumed to have been insolvent throughout the period. 

(5)	Paragraph (4)(a) does not apply in relation to a contravention of subsection 286(1) that is only minor or technical. 

(Section 588E(7) is not here relevant).  
37		Section 286(1) and (2) (referred to in s 588E(4)) provide:  
286	Obligation to keep financial records

(1)	A company, registered scheme or disclosing entity must keep written financial records that: 

(a)	correctly record and explain its transactions and financial position and performance; and 

(b)	would enable true and fair financial statements to be prepared and audited. 

The obligation to keep financial records of transactions extends to transactions undertaken as trustee. 

Note:	Section 9 defines financial records. 

Period for which records must be retained 

(2)	The financial records must be retained for 7 years after the transactions covered by the records are completed. 

(Emphasis in original.) 

38		In the amended statement of claim the plaintiff pleaded:  
17	During 2012 and 2013 Highup was insolvent. 

Particulars

17.1	Highup did not in 2012 and 2013, or in any other period, keep the financial records as required by s 286 of the Act, namely records: 

(a)	that correctly recorded and explained its transactions and financial position and performance; and 

(b)	would have enabled true and fair financial statements to have been prepared and audited. 

17.2	The plaintiff relies on the presumption of insolvency in s 588E(4) of the Act. 

39		Although Mr Slaven’s affidavit went into a little detail to support a proposition that, in any event, Highup was insolvent from at least 1 August 2012, this was not the pleaded case and it is unnecessary to deal with that assertion.  
40		Mr Slaven has given detailed evidence of his searches and demands for the records of Highup.  I accept his evidence (which was not challenged) that such records as appear to have been kept did not correctly record and explain Highup’s transactions and financial position and performance between 26 April 2006 and 26 April 2013 and did not enable true and fair financial statements to be prepared and audited for that period.  In oral submissions, the defendant sought to argue that there may have been other records in the possession of Highup’s accountants which would resolve any apparent deficiency.  I reject this submission.  Mr Slaven deposed that he caused a summons to be issued to Mr Gubas for the purpose of a compulsory examination under the Act.  He was required to bring Highup’s books.  Any failure to comply with this summons will not open a path to speculation that such records might, nevertheless, be in the possession of Highup’s previous accountants.  It certainly will not sustain such speculation on the part of the defendant who was not an officer of Highup.  
41		Highup is, accordingly, presumed for the purpose of the present proceedings to have been insolvent throughout the period between 26 April 2006 and 26 April 2013.  
Insolvent transactions
42		Section 588FC of the Act provides:  
588FC	Insolvent transactions

A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and: 

(a)	any of the following happens at a time when the company is insolvent: 

(i)	the transaction is entered into; or 

(ii)	an act is done, or an omission is made, for the purpose of giving effect to the transaction; or 

(b)	the company becomes insolvent because of, or because of matters including: 

(i)	entering into the transaction; or 

(ii)	a person doing an act, or making an omission, for the purpose of giving effect to the transaction. 

43		In the present case, it is not alleged that any of the transactions was a preference.  The transactions upon which the liquidator relies will be insolvent transactions under s 588FC(a)(i) if, but only if, they were uncommercial transactions.  
Uncommercial transactions
44		Section 588FB of the Act provides:  
588FB	Uncommercial transactions

(1)	A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company’s circumstances would not have entered into the transaction, having regard to: 

(a)	the benefits (if any) to the company of entering into the transaction; and 

(b)	the detriment to the company of entering into the transaction; and

(c)	the respective benefits to other parties to the transaction of entering into it; and 

(d)	any other relevant matter. 

(2)	A transaction may be an uncommercial transaction of a company because of subsection (1): 

(a)	whether or not a creditor of the company is a party to the transaction; and 

(b)	even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency. 

45		I shall return to this issue.  
Voidable transactions
46		Section 588FH(1)(b) requires that a transaction be voidable under s 588FE.  Section 588FE(3) and (4) provide:  
588FE	Voidable transactions

… 

(3)	The transaction is voidable if:

(a)	it is an insolvent transaction, and also an uncommercial transaction, of the company; and 

(b)	it was entered into, or an act was done for the purpose of giving effect to it, during the 2 years ending on the relation-back day. 

(4)	The transaction is voidable if: 

(a)	it is an insolvent transaction of the company; and 

(b)	a related entity of the company is a party to it; and 
	
(c)	it was entered into, or an act was done for the purpose of giving effect to it, during the 4 years ending on the relation-back day. 

47		In the present case the relation-back day is 3 April 2013, the day Mr Slaven was appointed liquidator.  All of the transactions fall potentially within s 588FE(3).  It is unnecessary to examine the operation of s 588FE(4).  
Assessment of the plaintiff’s case
48		The two questions which require further examination are, firstly, whether the transactions have been shown by the plaintiff to be uncommercial transactions, and therefore to be insolvent transactions, and therefore to fall within s 588FH(1)(a).  
49		The remaining question is whether the transactions had the effect of discharging a liability of the defendant (s 588FH(1)(c)).  
50		The question whether a transaction is uncommercial must be examined from the perspective of the company (Tosich Construction Pty Ltd (In Liq) v Tosich (1997) 78 FCR 363 (“Tosich”) at 366-7.  In Tosich, at 367C-D, the Full Court said:  
The company’s circumstances must include the state of its knowledge, that is, of the knowledge of those who were relevantly its directing mind. Only if the Court can conclude that a reasonable person in the company’s circumstances would not have entered into the transaction does the section make that transaction uncommercial. 

51		To similar effect, Gordon J (with whom Heerey J agreed) said in Capital Finance Australia Ltd v Tolcher (2007) 164 FCR 83 at [129]:  
129	In seeking to address the third of the requirements, the principles to be applied may be summarised as follows: 

… 

(3)	the objective criteria are not considered in some vacuum but by reference to “the company’s circumstances” which must include the state of knowledge of those who were the directing mind of the company, such as its controlling director or directors: Tosich Construction 78 FCR at 367; … 

52		In the present case the “directing mind” of Highup at the time the payments were made was Mr Gubas, who has given no evidence.  Apart from the fact that there is documentary evidence tracing the payments from Highup’s bank accounts into the hands of the liquidator, and the fact that some rough correspondence exists with the proposed schedule of payments under the proposed deed, no other light has been shed on the purpose of the payments by the evidence.  Mr Slaven has given no evidence, based on his investigations, beyond volunteering the opinion that the terms of the proposed deed “were performed and satisfied” by the payments.  
53		Upon this foundation the plaintiff invites the inference that the payments were of no commercial utility to Highup and can only be (or at least should be) explained as a “gift” to the defendant.  
54		There are too many imponderables involved to permit me to accept this submission.  
55		One purpose of the establishment of CSS was the provision of employment and related services to Highup.  There is no evidence about how any debt was incurred by CSS by trading while it was insolvent or what such debts relate to.  I am not prepared to simply assume, in favour of the plaintiff, that the payments by Highup to CSS “cannot” be explained by normal commercial practice.  I know nothing about whether Highup may have had a legitimate commercial reason for making a payment on its own behalf to CSS, or a legitimate commercial reason for making such a payment on behalf of Mr Gubas, on the assumption that he had assumed some such obligation.  I am not prepared to conclude that the only explanation for the payments lies in a desire to acquit a liability on behalf of the defendant, or that the terms of the proposed, unexecuted deed should be regarded as legally effective, much less that they should be regarded as explanatory of the conduct of Highup, which was not proposed to be a party to it.  
56		I am not satisfied, therefore, that the plaintiff has established that the transactions were uncommercial transactions (s 588FB(1)), insolvent transactions (s 588FC) or fell within s 588FH(1)(a).  
57		The plaintiff’s case, based on s 588FH(1)(c) also faces difficulties which were, in my view, not overcome by the evidence.  
58		The evidence did not establish that the defendant was subject to a liability to CSS, much less in any particular amount.  
59		There was no evidence, aside from the terms of the proposed deed, which might be relied upon to fix the defendant with such a liability.  There was no evidence in the present proceedings that CSS had traded whilst insolvent, or incurred debt as a result which represented relevant loss or damage to CSS beyond the possible formation of an opinion to that effect by Mr Lo Pilato (which was accepted by the creditors of CSS for the purpose of the meeting on 18 April 2012).  There was no direct evidence that any demand had been made against the defendant, or in what amount.  I am not prepared to regard the terms of Recital D or E of the proposed deed as probative evidence of the suggested fact that a demand for payment of $291,801.09 had been made by Mr Lo Pilato, much less that a unilateral demand of this kind would suffice to establish the existence of a liability within the meaning of s 588FH(1)(c).  
60		Whatever significance they may have, the fact of the payments by Highup will not establish the terms of a binding agreement (or an assumption of liability) by the proposed parties to the proposed deed.  The deed (if executed in those terms) was intended to operate without admission of liability by the defendant or Mr Gubas with respect to the alleged debt.  
61		Furthermore, although the fact of the payments may suggest the existence of some form of arrangement, it is not one which may be attributed to Highup by means of reference to the terms of the proposed deed.  If the payments made by Highup breached Mr Gubas’ duties as director, that might expose him to civil, or criminal, proceedings, but the terms of the proposed deed cannot, in my view, be used to base a submission that Highup (which was not to be a party) was acting in furtherance of that proposal.  
62		I also cannot conclude that the final arrangement (whatever it was) was reflected by the terms of the proposed deed.  The payments might equally have reflected some modified stance on the part of the proposed parties.  I simply do not know.  
63		In his compulsory examination, Mr Gubas gave the following evidence:  
This is the third liquidation that has been effectively done through Mr Lo Pilato of RSM Bird Cameron.  What happened in the course of this liquidation?---We agreed to pay $150,000.  

Who is “we” in this instance?---Well, Highup; I did.  

Which one, Highup or you?---Well, privilege.  I can’t remember what we did as a settlement deed under me or under the Highup.  

And do you have a copy of that settlement deed?---Privilege.  Not right here.  

Would you be able to provide one tomorrow to the liquidator here in court?---Privilege.  Yes.  

64		Mr Gubas did not provide the promised copy at that time.  The summons issued by Mr Slaven sought a copy of any such document.  I infer that none was provided in response to the summons either.  Although this evidence (which was permitted without objection after notice was given under s 67 of the Evidence Act 1995 (Cth)) may also be taken, if relevant, to constitute an admission (see ss 81 and 87 of the Evidence Act) that does not take the plaintiff’s position far enough.  Mr Gubas is not a party to the present proceedings.  Such value as his statements might have as representations of fact in their own right cannot provide a sufficient basis for concluding that the terms of the proposed deed constitute evidence of a liability within the meaning of s 588FH(1)(c).  They do not constitute an admission of any kind by the defendant.  The plaintiff cannot rely upon them as an “admission” by itself.  
65		The plaintiff submitted that s 588FH(1)(c) was satisfied in the present case because a demand from Mr Lo Pilato that the defendant pay $291,801.09 raised a contingent liability which was, in part, satisfied by the payments by Highup.  There are also a number of difficulties with this argument.  
66		First, there was no evidence that such a demand, in those terms, had been made.  The plaintiff relied on Recital D in the proposed deed but in my view that does not constitute material which is probative of the proposition.  
67		The second difficulty is that I am not able to accept the bald submission, unsupported by reference to authority, that a mere demand raises a contingent liability of the kind referred to in s 588FH(1)(c).  
68		In Hawkins v Bank of China (1992) 26 NSWLR 562 (“Hawkins”), Gleeson CJ (then of the New South Wales Supreme Court ) said (at 572):  
 “Debt” is capable of including a contingent liability. The word was used in that sense in s 291 of the Companies Act 1961, which referred to “debts payable on a contingency”. That expression did not involve a contradiction in terms. Dictionaries define “debt” as a liability or obligation to pay or render something. Such a liability may be conditional as well as present and absolute. In Williams v Harding (1866) LR 1 HL 9, there was an issue as to the effect of a statute dealing with insolvency which made a debt incurred by a non-trader insufficient to found an adjudication of bankruptcy unless it was contracted after a certain date. The debt in question in that case was a liability to pay calls made by a joint stock company. The question was whether the appellant’s debt was contracted when he signed the deed of settlement making him a shareholder, or when the calls were made. It was held that the former was the case. Lord Cranworth LC said (at 21) that the date of the appellant’s debt was when he executed the deed, and Lord Chelmsford (at 24) referred to the amount of the calls as a debt to which the appellant was “antecedentally liable”. 

Similarly, the word “incurs” takes its meaning from its context and is apt to describe, in an appropriate case, the undertaking of an engagement to pay a sum of money at a future time, even if the engagement is conditional and the amount involved uncertain. Once it is accepted that “debt” may include a contingent debt then there is no obstacle to the conclusion that, in the present context, a debt may be taken to have been incurred when a company entered a contract by which it subjected itself to a conditional but unavoidable obligation to pay a sum of money at a future time. This is such a case. 

(Emphasis added.) 

69		Kirby P said (at 576):  
The expression “incurs a debt” in s 556(1) is, in isolation, entirely apt to describe an act on the part of a corporation whereby it renders itself liable to pay a sum of money in the future as a debt. The act of “incurring” happens when the corporation so acts as to expose itself contractually to an obligation to make a future payment of a sum of money as a debt. The mere fact that such sum of money will only be paid upon a future contingency does not make the assumption of the obligation any less “incurring” a “debt”. As the Bank pointed out, many debts are incurred on a contingent basis. Goods are ordered by a buyer from a seller for future delivery. In such cases, the buyer is exposed to a future liability to pay the price upon delivery of the goods, absent some special condition requiring prepayment. 

(Emphasis added.) 

70		Much depends on the statutory context (Hawkins at 572D; ABN AMRO Bank NV v Bathurst Regional Council [2014] FCAFC 65; (2014) 309 ALR 445 at [684]).  
71		The exact reference in s 588FH(1)(c) is to: “a liability (whether under a guarantee or otherwise and whether contingent or otherwise)”.  
72		This formulation is apt to include potential liabilities which have not yet crystallised, such as those voluntarily assumed as a guarantor on behalf of another, or those which depend upon the fulfilment of a stated condition (i.e. contingent liabilities).  However, I do not see any foundation for regarding the statutory formulation in s 588FH(1)(c) as extending to a unilaterally asserted debt or obligation, without more.  
73		In Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, Mason CJ, Dawson, Gaudron and McHugh JJ referred (at 524) with apparent approval to observations by a Full Court of this Court about the circumstances in which a liability of the State of Western Australia for debts of Rothwells Ltd to the National Australia Bank Ltd was rightly seen to be “contingent and executory”.  The liability arose under an indemnity which was contingent in the sense that:  
… before the Bank might make any claim under the indemnity upon the State, Rothwells would have to have failed to satisfy in full its liability under the facility and the Bank would have to have proceeded to the fullest extent of its rights against Rothwells to obtain payment out of the assets of Rothwells. 

(Western Australia v Wardley Australia Ltd (1991) 30 FCR 245 at 252).  
74		I can readily see how discharge of a potential liability made under a contingent arrangement of that kind, or under a guarantee, falls within s 588FH(1)(c), even though the liability has not crystallised.  A potential obligation of that kind has been assumed, even if it depends on future events.  I do not, at present, see the foundation for treating a demand in the same way.  
75		Even if an arrangement to discharge an asserted liability might fall within s 588FH(1)(c), it would still need to be shown that the impugned transaction had that “effect”.  For the reasons given earlier, that has not been established.  
76		As a result, the plaintiff in my view has also failed to satisfy s 588FH(1)(c).  
Conclusion
77		For those reasons, the plaintiff has failed to make out its case for the orders which it seeks.  The application will be dismissed.  
78		The plaintiff indicated that it wished to be heard on costs, but not whether it wished to be so heard if it lost.  
79		I am inclined to think that the appropriate order is that the plaintiff pay the defendant’s costs, as taxed if not agreed.  Any submission to the contrary should be filed within fourteen days, with any answering submission within seven days thereafter.  Any application for costs will be dealt with on the papers unless either party seeks a further oral hearing, which may be at that party’s cost, if found not to be justified.  

I certify that the preceding seventy-nine (79) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Buchanan.	

Associate:

Dated:	5 November 2014