FEDERAL COURT OF AUSTRALIA

Tonic Pty Ltd v State of South Australia [2019] FCA 1361

ORDERS

THE COURT ORDERS THAT:

1.    The application is dismissed.

2.    The parties bear their own costs of the application.

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

REASONS FOR JUDGMENT

CHARLESWORTH J:

1    The applicant, Tonic Pty Ltd, is the registered proprietor of a 5% share in land situated at 10 Bushman Drive Walkley Heights in the State of South Australia (the Land). LC&T Investments Pty Ltd (deregistered) (ACN 142 640 800) is the former owner of the remaining 95% interest in the Land. LC&T entered external administration on 19 June 2012.

2    On 4 December 2012 the liquidator issued a notice of disclaimer of onerous property with the Australian Securities and Investments Commission (ASIC) in respect of LC&T’s interest in the Land pursuant to s 568(1)(e) of the Corporations Act 2001 (Cth). The disclaimed property vested in the Crown in right of South Australia by the operation of the legal doctrine of escheat.

3    Tonic now seeks an order pursuant to s 568F(1) of the Act to the effect that the disclaimed property be vested in it, together with ancillary relief. The orders would result in Tonic becoming the sole registered proprietor of the Land.

THE ACT

4    A liquidator of a company may at any time, on the company’s behalf, disclaim property of the company that consists of (among other things) land burdened with onerous covenants or “property where it is reasonable to expect that the costs, charges and expenses that would be incurred in realising the property would exceed the proceeds of realising the property”: s 568(1)(e) of the Act. As soon as practicable after disclaiming property, a liquidator must (relevantly) lodge with ASIC a written notice of the disclaimer. The liquidator must give written notice of the disclaimer to each person who appears to the liquidator to have, or to claim to have, an interest in the disclaimed property: s 568A(1)(a) and (b).

5    A person who has, or claims to have, an interest in disclaimed property may apply to the Court for an order setting aside the disclaimer before it takes effect (s 568B) or after it takes effect in accordance with s 568E of the Act. Section 568E provides:

568E    Application to set aside disclaimer after it has taken effect

(1)    With the leave of the Court, a person who has, or claims to have, an interest in disclaimed property may apply to the Court for an order setting aside the disclaimer after it has taken effect.

(2)    The Court may give leave only if it is satisfied that it is unreasonable in all the circumstances to expect the person to have applied for an order setting aside the disclaimer before it took effect.

  (3)    The Court may give leave subject to conditions.

  (4)    On an application under subsection (1), the Court:

(a)    may by order set aside the disclaimer; and

(b)    if it does so—may make such further orders as it thinks appropriate, including orders necessary to put the company, the liquidator or anyone else in the same position, as nearly as practicable, as if the disclaimer had never taken effect.

 (5)    However, the Court may set aside a disclaimer only if satisfied that the disclaimer has caused, or would cause, to persons who have, or claim to have, interests in the property, prejudice that is grossly out of proportion to the prejudice that setting aside the disclaimer (and making any further orders) would cause to:

(a)    the company’s creditors; and

(b)    persons who have changed their position in reliance on the disclaimer taking effect.

6    The effect of a disclaimer is to terminate (from the date on which the disclaimer takes effect) the company’s rights, interest, liability and property in or in respect of the disclaimed property. The disclaimer does not affect any other person’s rights or liabilities except to the extent necessary to release the company and its property from liability: s 568D(1). Section 568D(2) provides that a person aggrieved by the operation of a disclaimer is taken to be a creditor of the company to the extent of any loss suffered by the person because of the disclaimer and may prove such a loss as a debt in the winding up.

7    Section 568F of the Act provides:

568F    Court may dispose of disclaimed property

(1)    The Court may order that disclaimed property vest in, or be delivered to:

(a)    a person entitled to the property; or

(b)    a person in or to whom it seems to the Court appropriate that the property be vested or delivered; or

(c)    a person as trustee for a person of a kind referred to in paragraph (a) or (b).

(2)    The Court may make an order under subsection (1):

(a)    on the application of a person who claims an interest in the property, or is under a liability in respect of the property that this Act has not discharged; and

(b)    after hearing such persons as it thinks appropriate.

(3)    Subject to subsection (4), where an order is made under subsection (1) vesting property, the property vests immediately, for the purposes of the order, without any conveyance, transfer or assignment.

(4)    Where:

(a)    a law of the Commonwealth or of a State or Territory requires the transfer of property vested by an order under subsection (1) to be registered; and

(b)    that law enables the order to be registered;

the property vests in equity because of the order but does not vest at law until that law has been complied with.

8    No order under s 568F having been made in 2012, LC&T’s prior interest in the Land escheated to the Crown in right of South Australia: Re Middle Harbour Investments Ltd (in liq) [1977] 2 NSWLR 652; (1976) 2 ACLR 226; National Australia Bank Limited v State of New South Wales [2014] FCA 298 at [11] (Perram J); Australia and New Zealand Banking Group Limited v State of Queensland [2018] FCA 464 at [8] (Logan J). The Crown took the Land subject to any existing mortgages or charges: RAMS Mortgage Corporation Ltd v Skipworth (No 2) [2007] WASC 75; (2007) 239 ALR 799 at [10] (Heenan J); Sandhurst Trustees Ltd v 72 Seventh Street Nominees Pty Ltd (in liq) (1998) 45 NSWLR 556; at 564 (Bryson J); Attorney-General of Ontario v Mercer (1883) 8 App Cas 767 at 772 (Selborne LC); Australia and New Zealand Banking Group Ltd v Fairfield City Council [2016] NSWSC 668 at [33] (Emmett J); Re Middle Harbour at 662.

RELIEF SOUGHT

9    Tonic seeks the following relief:

1.    An order pursuant to section 568F(1) of the Corporations Act 2001 (Cth) that:

1.1.    the 95% holding in the land comprised in Certificate of Title Volume 5713 Folio 537, being the land situated at and known as 10 Bushman Drive, Walkley Heights in the State of South Australia, currently vested in the Defendant, the State of South Australia, pursuant to a disclaimer of onerous property in accordance with section 568 of the Corporations Act 2001 (Cth) by the liquidator of LC & T Investments Pty Ltd (deregistered) ACN 142 640 800, be vested in the Plaintiff immediately; and

1.2.    such vesting occur without any conveyance, transfer or assignment and subject only to the registered dealings recorded on Certificate of Title Volume 5713 Folio 537.

2.    An order that a sealed copy of this order be registered at the Lands Titles Office of South Australia.

3.    An order that, upon registration of a sealed copy of this order, the Registrar General of South Australia amend Certificate of Title Volume 5713 Folio 537 to record the Plaintiff as the sole registered proprietor.

 4.    Costs of and incidental to this action.

EVIDENCE AND FINDINGS

10    Tonic relies on two affidavits of its sole director and shareholder Mr Tony Scaffidi sworn on 19 October 2018 and 11 January 2019. I will refer to those affidavits as the first Scaffidi affidavit and second Scaffidi affidavit respectively. Tonic also relies on an affidavit of the former sole director of LC&T, Mr Leong Kam Chau sworn on 11 January 2019. Mr Chau is Mr Scaffidi’s brother in law.

11    Neither deponent was cross examined.

12    The Land was purchased by LC&T and Tonic as tenants in common on about 24 February 2011 for a purchase price of $470,000. Stamp duty on the purchase and other settlement costs amounted to $24,444.84.

13    A Certificate of Title issued in respect of the Land on 20 June 2018 names LC&T and Tonic as holding 95% and 5% shares respectively. The evidence before the Court does not include any earlier version of the Certificate of Title. The Land is presently subject to an encumbrance relating to its subdivision. It is otherwise unencumbered.

14    In the first Scaffidi affidavit, Mr Scaffidi deposed that the entire funds for the purchase price of the Land was advanced by Tonic as follows:

12.1.    $10,000, comprising the deposit which had been paid by Tonic, was paid by [sic] out of the trust account of Port Adelaide Conveyancers; and

12.2.    $484,444.84 was funded by Tonic by way of electronic transfer from Macquarie Bank (Macquarie) to the trust account of Port Adelaide Conveyancers.

15    Mr Scaffidi went on to assert:

13.    Due to the period of time that has elapsed since the payments referred to in paragraph 12 were made, I am no longer able to obtain records of those payments.

14.    At the time that the Property was purchased Tonic elected to fund the purchase of the Property due to the personal relationship between myself and Mr Chau, however, Tonic took a 5% share of the Property to ensure that the Property could not be sold or otherwise dealt without Tonic’s consent.

16    A purchasers’ settlement statement issued by Port Adelaide Conveyancers evidences the receipt of a $10,000 deposit but does not disclose the provenance of those funds, nor does it disclose the means by which the balance of the purchase price and expenses were paid, nor the entity that advanced the balance of the funds. Mr Scaffidi did not state whether he had made any enquiry of Port Adelaide Conveyancers or of Mr Chau to obtain documents evidencing the payment of the purchase price and other expenses by Tonic.

17    In his affidavit, Mr Chau deposed as follows:

Purchase of the Property

4.    I recall that, when LC&T and Tonic purchased the land comprised in Certificate of Title Volume 5713 Folio 537, being the land situated at and known as 10 Bushman Drive, Walkley Heights in the State of South Australia (Property) in around February 2011, Tonic paid the deposit of $10,000.

5.    I also recall that in or around late 2010, Tonic loaned LC& T $375,000 to assist with opening a trading account with Macquarie Equities Limited (Macquarie). LC& T subsequently used this money to contribute to payment of the purchase price in respect of the Property.

18    A number of observations may be made at this juncture. First, the sum of the two figures referred to by Mr Chau fall short of the purchase price and stamp duty costs by $109,444.84. Second, Mr Chau did not state how and by whom the shortfall was funded. Third, the loan said to have been advanced by Tonic to LC&T in late 2010 was not referred to by Mr Scaffidi in the first Scaffidi affidavit. Fourth, Mr Chau’s affidavit neither refers to nor annexes any document evidencing the existence of the loan said to have been advanced by Tonic to LC&T in late 2010, nor any financial records to support the contention that LC&T used that loan money to contribute to the purchase of the Land. Fifth, to the extent that Tonic loaned the sum of $375,000 to LC&T in late 2010, there is no evidence that the obligation to repay the loan was secured and there is otherwise no testimonial or documentary evidence of the terms of any such loan before the Court.

19    In his first affidavit, under the heading “The Bank Guarantee”, Mr Scaffidi stated:

16.    On or around 1 April 2011, LC&T and Tonic entered into an agreement with Bank of South Australia (BankSA) for the provision of a bank guarantee for the sole use of LC&T to provide to Macquarie as security for an options trading account in the name of LC&T (Bank Guarantee).

17.    The Bank Guarantee was for an amount of $375,000.

18.    The Bank Guarantee was secured by a mortgage over the Property dated 19 May 2011 (Mortgage). Annexed hereto and marked ‘TS4’ is a true copy of the Mortgage.

19.    In or around August 2011, Macquarie called on the Bank Guarantee, which BankSA paid, converting the Bank Guarantee into a loan provided by BankSA to LC&T and Tonic and secured by the Mortgage (Loan).

20    Mr Chau, however, gave no evidence as to the creation of the bank guarantee nor as to its purpose or terms. The evidence of Mr Chau in relation to the bank guarantee is limited to the following:

6.    I also recall that, in or around August 2011, Macquarie called on a number of bank guarantees, one of which was for the amount of $375,000, issued by BankSA, a division of Westpac Banking Corporation (BankSA), and secured by a mortgage over the Property, in relation to an account held by LC&T with Macquarie, Account Number 2951587, and those calls were satisfied such that the $375,000 bank guarantee was converted into a loan from BankSA.

21    In his second affidavit, Mr Scaffidi corrected the evidence he gave in the first Scaffidi affidavit in relation to the payment of the purchase price for the Land. He deposed:

5.    In paragraph 12.2 of my first affidavit I stated that Tonic paid the amount of $484,444.84, being the balance of the Purchase Price, by way of electronic transfer from Macquarie Bank.

6.    At the time that I swore my first affidavit I verily believed that the matters set out in paragraph 12.2 of my first affidavit were correct, however, I had been unable to locate any statements from this period to inform my belief.

7.    Since swearing my first affidavit I have been provided with copies of bank statements from Chau which evidence that LC&T paid the amount of $484,444.84 and not Tonic. Having seen these documents I now recall that Tonic did not actually pay and my memory was influenced by the fact that Tonic originally loaned to LC&T $375,000 for the purposes of opening a trading account with Macquarie Equities Limited (MEL), which amount was later used to purchase the Property.

22    The bank statement referred to by Mr Scaffidi at [7] is not in evidence. Furthermore, there is no suggestion by Mr Scaffidi that the loan was secured. Tonic has not adduced any financial records that would support the contention that it was owed the sum of $375,000.00 pursuant to a loan agreement with LC&T. No balance sheets or other like records are in evidence.

23    In the second Scaffidi affidavit, Mr Scaffidi deposes to the existence of a number of bank guarantees as follows:

9.    Annexed hereto and marked ‘TS10’ is a true copy of the Bank Guarantee referred to in my first affidavit at paragraph 16, which:

  9.1.    is dated 23 March 2011;

  9.2.    is for the benefit of ASX Clear Pty Ltd (ASX Clear) and MEL;

  9.3.    is in respect of MEL Account Number 2951587 in the name of LC&T;

  9.4.    is marked with the handwritten annotation ‘BG #00336’; and

9.5.    was stamped as being no longer required by ASX Clear and released by MEL on 15 August 2011, which reflects the fact that the Bank Guarantee was called upon and converted into the Loan at around this time, which is consistent with my recollection and with paragraph 19 of my first affidavit, in which I deposed that the Bank Guarantee was called upon in or around August 2011.

10.    Annexed hereto and marked ‘TS11’ is a true copy of a current account statement for the month of September 2011, in respect of MEL Account Number 2951587 in the name of LC&T, which relevantly shows that:

10.1.    as at 1 September 2011, the account had a debit balance of $2,249,700.49; and

10.2.    on 1 September 2011, the account was credited with an amount of $375,000 identified with the description ‘ETO Trust Bank Account - Allocation of Bank Guarantee 336’.

11.    Annexed hereto and marked ‘TS12’ is a true copy of a letter of offer dated 16 May 2011 from BankSA, which relevantly shows that:

11.1.    BankSA provided a bank guarantee facility to Tonic, with a facility limit of $375,000.00;

11.2.    the bank guarantee facility was provided for the purpose of providing a dual beneficiary bank guarantee to cover option trading activities of Tonic with MEL and ASX Clear. In this regard, I note that the reference to Tonic is an error. As recorded on the Bank Guarantee, annexure ‘TS10’, the Bank Guarantee related to an account in the name of LC&T; and

11.3.    the bank guarantee was secured by, inter alia, the Mortgage over the Property.

12.    Annexed hereto and marked ‘TS13’ is a true copy of a letter of offer dated 29 October 2012 from BankSA, which relevantly shows that:

12.1.    BankSA provided a business loan to Tonic, with a facility limit of $373,125.00;

12.2.    the loan was originally provided to provide a dual beneficiary bank guarantee to cover option trading activities of Tonic with MEL and ASX Clear. In this regard, I note that the reference to Tonic is an error. As recorded on the Bank Guarantee, annexure ‘TS10’, the Bank Guarantee related to an account in the name of LC&T;

and

12.3.    the loan was secured by, inter alia, the Mortgage over the Property.

24    The bank guarantee forming annexure TS10 identifies as dual beneficiaries “ASX CLEAR PTY LTD” and “MACQUARIE EQUITIES LIMITED” (Macquarie). Macquarie is defined as the “Participant” and Tonic is defined as the “Customer”. By the guarantee, BankSA at Tonic’s request, undertook to pay on demand amounts not exceeding $375,000 which may be demanded from time to time by (relevantly) Macquarie in respect of money payable to Macquarie by LC&T pursuant to LC&T’s trading account with Macquarie numbered 2951587.

25    Mr Scaffidi does not explain why Tonic requested BankSA (a division of Westpac Banking Corporation) to give a guarantee for the benefit of LC&T in relation to its trading activities with Macquarie, nor does Mr Scaffidi explain the existence or terms of any agreement existing between LC&T and Tonic governing their relations more generally.

26    The statement of LC&T’s account with Macquarie numbered 2951587 (Annexure TS11) shows that the amount of $375,000.00 was credited to the account on 1 September 2011 in a transaction described as “ETO Trust Bank Account – Allocation of Bank Guarantee 336”. The statement also shows that on that day four additional sums totalling $1,365,000.00 were credited the account with similar descriptions naming differing guarantee numbers. It may be inferred that those additional transactions are explained by Macquarie calling on four additional bank guarantees numbered 346, 350, 360 and 367.

27    Annexure TS12 is a letter dated 16 May 2011. It post-dates the provision of the bank guarantee by BankSA to Macquarie forming annexure TS10 by nearly two months. The letter is addressed to Mr Scaffidi in his capacity as the director of Tonic. It is titled “LETTER OF OFFER”. Consistent with that title, BankSA offered Tonic a facility in the nature of a Bank Guarantee in the amount of $375,000.00. The guarantors of that facility are identified as Mr Scaffidi and LC&T. I will refer to the letter as the 2011 letter of offer and the associated facility as the 2011 facility. The purpose of the 2011 facility is expressed as follows:

PURPOSE

The new Bank Guarantee Facility is to be used for the following purposes, or for such other purposes as approved in writing by the Bank:

Provide Dual Beneficiary Bank Guarantee to cover trading activities of Tonic Pty Ltd with Macquarie Equities Limited and ASX Clear Pty Ltd.

28    The 2011 letter of offer states that security for the provision of the facility would be required, including:

•    A 1st Registered Mortgage over Certificate of Title Volume 5713 Folio 537 being Residential Property at 10 Bushman Dr, Walkley Heights SA 5098 given by Tonic Pty Ltd A.C.N. 088 480 040 and LC & T Investments Pty Ltd A.C.N. 142 640 800.

•    A Guarantee given by LC & T Investments Pty Ltd A.C.N. 142 640 800 limited to security property being Residential Property located at 10 Bushman Dr, Walkley Heights SA 5098.

•    A Limited Guarantee and Indemnity of $375,000.00 from Tony Scaffidi.

29    Under the heading “ACCOUNT TO BE DEBITED”, the letter states that fees, charges and other costs would be debited to a bank account held in the name of Tonic.

30    Before the Court is a memorandum of mortgage affecting the Land dated 19 May 2011 and registered on 7 June 2011 naming LC&T and Tonic as mortgagor and Westpac Banking Corporation as mortgagee (the Mortgage). The obligations secured by the Mortgage are defined as follows:

The Mortgagor being registered or entitled to be registered as the proprietor of the estate or such estates above described SUBJECT to such encumbrances liens and interests above described in the land above described IN CONSIDERATION of the Mortgagee forbearing to immediately sue in respect of financial accommodation already provided or presently providing or agreeing to provide financial accommodation or at any time or from time to time in the future providing financial accommodation to or at the request of the Mortgagor and whether at the discretion of or during the pleasure of the Mortgagee or otherwise AND for better securing the payment or repayment of the Secured Moneys the Mortgagor DOES FIRST MORTGAGE TO THE MORTGAGEE all the Mortgagor’s estate and interest in the land above described AND SECONDLY the Mortgagor COVENANTS AND AGREES with the Mortgagee as follows:

31    The document in evidence before the Court ends there. The general terms and conditions of the Mortgage are contained in a separate memorandum which is not in evidence. From the above extract, it may be observed that the obligations secured by the Mortgage are not restricted to Tonic’s obligations to repay amounts owing on the 2011 facility.

32    Annexure TS13 is a letter titled “LETTER OF OFFER” dated 29 October 2012, that is, more than 12 months after Macquarie called on the bank guarantee forming TS10 and after the appointment of a liquidator to LC&T (see below). I will refer to the letter as the 2012 letter of offer.

33    By that letter, BankSA offered Tonic a business loan facility in the amount of $373,125.00 (the 2012 facility). The guarantors in respect of the proposed facility are Mr Scaffidi and (surprisingly) LC&T. Annexures to the letter suggest that the guarantors would provide their guarantees by way of an “extension” to guarantees and indemnities that had been given on 17 May 2011 in respect of Tonic’s obligations to BankSA.

34    The purpose of the business loan facility is described as follows:

The Business Loan Facility is to be used for the following purposes, or for such other purposes as approved in writing by the Bank:

•    Originally to provide Duel [sic] Beneficiary Bank Guarantee to cover option trading activities of Tonic Pty Ltd with Macquarie Equities and ASX Clear Pty Ltd.

35    Interest, fees, charges and other costs under the facility were to be debited to a working account held in the name “Kam L Chau the director of L C & T Investments Pty Ltd”.

36    The 2011 letter of offer and the 2012 letter of offer relate to different facilities having different terms. By [12] of the second Scaffidi affidavit it may be inferred that the offer for the facility proposed in the 2012 letter of offer was accepted by Tonic. However, there are no loan account statements evidencing transactions on the 2012 facility since it was first opened. Although the evidence is scant, I am prepared to accept that loan monies were drawn down on the 2011 facility in September 2011 when Macquarie called upon the bank guarantee. I will assume that money was drawn down on the 2012 facility to refinance and so discharge the 2011 facility, although the evidence is inadequate to support any such finding.

37    An ASIC extract for LC&T shows that the company entered into external administration on 19 June 2012 pursuant to a winding up order made by the Supreme Court of New South Wales.

38    On 3 July 2013, the liquidator received a report of LC&T’s affairs from Mr Chau pursuant to s 475 of the Act. The only creditors identified by Mr Chau in that report are described as “Macquarie Bank & Accountant”. Tonic is not identified as either a secured or unsecured creditor. In an annexure to the report, Mr Chau stated (without alteration):

LC&T Investments P/L has only one asset. That is 95% share of the residence in which they live in at Walkley Heights S.A., the other 5% is owned by Tonic P/L.

As you already known LC&T hold a $375K guarantee over this property which was used as security to trade in options. As of Aug 2011 this guarantee was called on and now it is a $375K default mortgage with BankSA. This is the only loan secured by an asset of LC&T Investments the other loans owed to BankSA by LC&T Investments P/L are secured by personal property K.L. Chau.

That is a share of hogs breadth café, 2nd Residential rental at Angle Park., and his Brothers House also, of which LC&T Investments P/L borrowed the deeds to raise a further guarantee of $340K, which is now a debt owing to BankSA.

If you liquidate and sell the only asset of LC&T Investments P/L and their happens to be excess funds (over the $375K mortgage) Bank SA will not release any of the excess because of the Banks cross collaterilization of all the above loans of LC&T Investments P/L.

Could you please attach this sheet to each of the forms you sent out, i.e. the 507 form and the 507A form etc. etc.

Thank you

on behalf of LC&T Investments P/L

39    The effect of this statement was that the Mortgage secured a number of obligations and not merely the obligation to repay an amount of $375,000.00. As a result, according to Mr Chau, a payment of the amount of $375,000.00 would not result in the release of the mortgage and the realisation of any net sale proceeds that might be divisible among LC&T’s creditors. No mention is made in Mr Chau’s statement that the obligation secured by the mortgage was Tonic’s obligation to repay the balance owing on the 2011 facility in accordance with its terms.

40    On 6 July 2012, the liquidator lodged a report pursuant to s 476 of the Act. The liquidator estimated the total realisable assets of the company to be $470,000.00 and the total liabilities to be $1,218,313.00. It may be readily inferred that the liquidator accepted Mr Chau’s assertion that LC&T’s only asset was its 95% interest in the Land and that the liquidator estimated the value of that interest having regard to the price paid for it in February 2011. The causes of the company’s failure were said to be “Poor financial control including lack of records”, “Poor strategic management of business” and “Trading losses”.

41    On 4 December 2012, the liquidator lodged a document titled Notice of Disclaimer of Onerous Property. The Notice describes the disclaimed property as “95% ownership of real property at 10 Busherra Drive, Walkely Heights” [sic]. It identifies the property as consisting of “property where it is reasonable to expect the costs charges, and expenses that would be incurred in realising the property would exceed the proceeds of realising the property”. Mr Scaffidi does not assert that the spelling errors in the description of the disclaimed property render the Notice ineffective.

42    I infer from the Notice that the liquidator proceeded on the basis that upon the sale of the property, there would be little or no net proceeds available for distribution to LC&T’s creditors by reason of the Mortgage securing obligations in excess of $375,000.00, as Mr Chau had asserted.

43    Mr Scaffidi’s evidence is that he cannot recall whether he was served with the Notice.

44    On 18 December 2012, the liquidator lodged a final presentation of accounts and statement. The accounts record that LC&T had no secured creditors and five unsecured creditors. The company’s unsecured debts totalled $989,408. No dividend was paid and the liquidator received no remuneration. The final accounts record that the liquidator ceased to act on 4 December 2012.

45    I infer from the liquidator’s final accounts that Tonic did not assert to the liquidator that it was a secured creditor of LC&T. Whether or not Tonic otherwise lodged a proof of debt in the liquidation cannot be ascertained on the material before me. Mr Scaffidi’s affidavits are silent on the question. That is notwithstanding that on the evidence of Mr Scaffidi and Mr Chau, Tonic was a creditor of LC&T both in respect of the $375,000.00 loan advanced to LC&T in 2010 and possibly in connection with Tonic’s procurement of the bank guarantee in a further amount of $375,000.00. It does not appear that Tonic asserted any interest in the Land over and above its 5% holding as tenant in common in the course of the winding up. Nor did Tonic make any application to set aside the disclaimer, whether before or after it came into effect.

46    LC&T was deregistered on 24 February 2013. The company’s deregistration was ASIC initiated pursuant to s 601AB of the Act on the basis that there was no liquidator acting or that no company returns had been filed.

47    It is Tonic’s case that the bank guarantee provided by BankSA to Macquarie “converted” to a loan “owed by Tonic and LC&T” from the time that BankSA paid the guaranteed amount on Macquarie’s demand. From there, Mr Scaffidi asserts the following (first Scaffidi affidavit):

20.    Interest on the Loan was paid by LC&T and/or Chau personally during the period between August 2011 and 31 January 2017.

21.    On 31 January 2017, Tonic paid $348,972.04 in full satisfaction of the Loan. Annexed hereto and marked ‘TS5’ is a true copy of bank statements in respect of a bank account held in the name of Tonic, which record this payment (with all other transactions redacted).

22.    Tonic paid the amount referred to in paragraph 20 because around this time Tonic was seeking to refinance its other borrowings with BankSA and in order for this refinance to proceed BankSA required that the Loan be satisfied. Annexed hereto and marked ‘TS6’ is an email from BankSA to Tonic dated 16 December 2016 in which Mr Kevin Moodley, of BankSA, advised that in ‘relation to the debt for $350,000 ino Tonic (Walkley Heights) ... the Bank requires this debt to be refinanced at same settlement’, which was a reference to the Loan secured by the Mortgage over the Property.

48    To the extent that it is asserted that LC&T made interest payments on the loan at any time after the date that it became deregistered, that assertion must be rejected. I will proceed on the basis that interest repayments were paid by Mr Chau personally and will discuss the significance of that finding later in these reasons.

49    It may otherwise be inferred that in late 2016 and early 2017, Tonic dealt with BankSA for the purpose of financing proposed property transactions and that, as a condition of BankSA extending finance for Tonic’s desired transactions it would be necessary for the outstanding balance of the 2011 facility (or the 2012 facility as the case may be) to be “refinanced”.

50    The bank statement annexed at TS5 is heavily redacted. The visible portion of the document includes a debit transaction occurring on 31 January 2017 in the amount of $348,972,04. The description of this transaction is obscured by handwriting and what appears to be a highlighting marker. The original document contains the description “TRANSFER TO A/C”. No account number is visible. A handwritten notation beside the description reads “To Tonic P/L (FOR LC&T)”. The intended meaning of the words “FOR LC&T” are not explained. The words form no part of the banking record. The notation is curious given that at the time of the asserted payment, LC&T had been wound up in liquidation and had been deregistered for nearly four years. No bank statement is provided to show the transferred funds being applied to discharge any loan secured by the Mortgage, let alone any particular loan account owing its existence to the bank guarantee forming TS10. The amount of the transfer does not coincide with the amount of the bank guarantee, nor with the amount of the facility referred to in the 2012 letter of offer.

51    At [24] of the first Scaffidi affidavit it is asserted that Tonic has paid $494,444.84 comprising the entire purchase price for the property and $348,972.04 to BankSA to discharge the loan. Mr Scaffidi stated that Tonic “now wishes to have LC&T’s share in the Property vested in it, and the CT amended to reflect that Tonic owns the Property outright, to reflect the fact that Tonic has paid the amounts referred to in paragraph 24 and to permit Tonic to deal with the property”. The second Scaffidi affidavit should be read so as to correct these propositions and to reduce Tonic’s asserted financial contributions to $358,972.04, being the sum of the asserted loan repayment and the $10,000.00 deposit. The sum of those two amounts is $135,472.80 less than the purchase price and expenses paid upon the acquisition of the property in 2011. There is no current valuation for the property in evidence before the Court.

52    Mr Scaffidi asserts that Tonic has previously sought to have the Land transferred into its name through conveyancers without success. No details are given as to when those attempts were made and on what factual or legal basis. Mr Scaffidi asserts that Tonic has not had to deal with the property since it was disclaimed in 2012 and that it had only recently become aware that this application was a necessary step in having the disclaimed property vested in it.

THE CROWN’S POSITION

53    The State is critical of the evidence adduced by Tonic in support of its claims. Counsel for the Crown submitted, correctly, that there is an absence of financial records verifying critical transactions, including the advancement of $375,000.00 loan from Tonic to LC&T predating the purchase of the Land and the advancement by LC&T of that sum from its Macquarie account to the conveyancer at the time that the Land was purchased.

54    The Court afforded Tonic the opportunity to adduce any additional evidence upon which it might rely in support of its application. By email to the Court dated 31 January 2019, Tonic confirmed that it did not propose to obtain or adduce any further evidence.

ANALYSIS

55    On the evidence before me I do not consider Tonic to be a person who is entitled to the disclaimed property for the purposes of s 568F(1)(a) of the Act, nor do I consider Tonic to be a person in whom it is appropriate that the disclaimed property be vested for the purposes of s 568F(1)(b).

56    The Crown’s submission concerning inadequacies in the evidence are warranted. I would add that the inadequacies are not limited to transactions in 2010 and 2011 but affect nearly all of the transactions upon which Tonic relies.

57    The Land was not subject to the Mortgage prior to May 2011. I find that the whole of the Land became burdened by the Mortgage because of Tonic’s decision to procure a bank guarantee to secure LC&T’s obligations to Macquarie on a trading account. As such, Tonic assumed the risks inherent in LC&T’s trading activities. The risks transpired in or around September 2011 when Macquarie called on the guarantee.

58    The bank guarantee did not “convert” to a loan “owed by Tonic and LC&T” when Macquarie called on it. On the evidence before me, Tonic obtained the 2011 facility some months before the guarantee was called upon. The Mortgage secured Tonic’s obligations under the 2011 facility and other obligations. It too, predated the calling on the guarantee. I have nonetheless found that the secured 2011 facility (already in existence) was drawn down upon after Macquarie called on the bank guarantee such that Tonic’s obligation to repay its debt to BankSA owed its existence to Tonic’s assumption of risk in relation to LC&T’s trading losses.

59    The reason for Tonic procuring the guarantee and obtaining the 2011 facility in its own name and burdening the Land in connection with it are not explained on the evidence. Tonic does not suggest that the financial benefits and accommodations it conferred on LC&T were in the nature of a gift. However, its affidavits are silent as to the consideration given by LC&T for the benefits it derived either from any initial loan advanced in 2010 or from Tonic’s procurement of the bank guarantee to secure LC&T’s trading activities or from Tonic entering into the 2011 facility secured by the Mortgage. In my view, the legal arrangements between LC&T and Tonic are largely undocumented and opaque. I find that the financial affairs of the two entities were so intermingled that Mr Scaffidi could not precisely recall, at the time that he swore the first Scaffidi affidavit, important events concerning the extent of Tonic’s initial contribution toward the purchase price. That is surprising given that the acquisition of the property and LC&T’s trading activities would in the ordinary course have given rise to reporting obligations under laws relating to (at least) capital gains and land tax. Tonic’s tax treatment of the transactions has not been disclosed to the Court.

60    I infer that Mr Scaffidi, as the sole director of Tonic, considered it to be in Tonic’s best interest to advance financial benefits to LC&T including for the purpose of facilitating LC&T’s ultimately unsuccessful trading activities. It may also be reasonably inferred that Mr Scaffidi considered it appropriate to grant an initial loan to LC&T that was unsecured. Even if LC&T had applied the loan money toward the purchase price of the Land, that circumstance would not confer upon Tonic an interest in LC&T’s 95% holding. To the extent that Tonic asserts any such proprietary entitlement, its nature and extent has not been clearly articulated on the evidence or in oral or written submissions. As I have said, any loan advanced by Tonic to LC&T in 2010 was an unsecured loan. Assuming the loan to exist, Tonic stood as an unsecured creditor in respect of its repayment in the winding up.

61    The money drawn down on the 2011 facility (or, if it be the case, the 2012 facility) was not applied toward the purchase or improvement of the Land or toward the acquisition of LC&T’s interest in it. As I have said, the fact that money was drawn down on either facility is explicable by Tonic’s decision to procure a bank guarantee to secure investments by LC&T. Those investments had nothing to do with the Land.

62    As a consequence of Tonic’s commercial dealings, on the date that LC&T went into liquidation, BankSA stood as a secured creditor in relation to Tonic and Tonic stood as an unsecured creditor in relation to LC&T. That was a risk allocation of Tonic’s choosing.

63    The disclaimer of LC&T’s interest in the Land did not affect Tonic’s entitlement as a tenant in common to seek an order for the partition or sale of the whole of the Land under s 69 and s 70 of the Law of Property Act 1936 (SA) or to otherwise cooperate with the Crown in right of South Australia to effect the sale of the Land and the realisation of their respective interests in it. In that event, the sale proceeds would first have been applied to repay any obligations secured by the Mortgage and the net proceeds would then have been divisible between the Crown and Tonic in their respective shares. Why Tonic did not seek to effect the sale of the property and the discharge of the Mortgage by that means is unclear.

64    In my view, the evidence is inadequate to support a finding that the payment by Tonic of the sum of $348,972.04 was made for the purpose of repaying any loan balance solely referable to the earlier bank guarantee. As I have said, the secured obligations referred to on the face of the Mortgage are defined widely and are not limited to a debt that might have owed its existence to Tonic’s decision to procure the bank guarantee to facilitate LC&T’s trading activities.

65    Notwithstanding the deficiencies in the evidence, for the purpose of what follows, I will assume that Tonic repaid, from its own funds, the balance of any loan facility secured by the Mortgage. I will also assume, again for the purpose of what follows, that the loan facility had not previously been repaid in part and again drawn down upon for Tonic’s business purposes at any time between 2011 and January 2017. I will make those assumptions notwithstanding that Tonic has not adduced any loan account statements to support any finding as to how and for what purposes either facility had been used over that significant period of time.

66    Proceeding on those assumptions, it is not correct to say that Tonic repaid the balance of the 2012 facility “for LC&T” as the hand written notation on the bank statement suggests. If Tonic repaid the facility it did so because it was indebted to BankSA on its own account and because it could not enter into other desired transactions relating to several other properties unless the balance of the loan secured by the Mortgage was repaid. None of that creates an entitlement in Tonic to the disclaimed property, nor does it make it appropriate to vest the disclaimed property to “reflect” the payment.

67    Furthermore, to the extent that Tonic seeks the orders in “recognition” of the payment of the $10,000.00 deposit and the repayment of either the 2011 facility or the 2012 facility secured by the Mortgage, the orders would appear to confer upon Tonic a windfall for two reasons. The first is that Tonic presently holds a 5% interest in the Land as tenant in common. It is to be recalled that the property was purchased for $470,000.00 and that stamp duty and other expenses totalled $494,444.84. As at 2011, Tonic’s 5% interest in the Land was valued at significantly more than $10,000.00. Tonic’s payment of the deposit is sufficiently reflected in its 5% holding as a tenant in common. The amount paid by Tonic to discharge the loan secured by the Mortgage falls well short of the value of the Land as at 2012. There is no evidence before me of the present day value of the Land, but it is reasonable to infer that the value of the disclaimed property exceeds the amount of $348,972.04, and considerably so.

68    It seems to me that Tonic is seeking to have the Court recognise that it has made loans or advances to LC&T or otherwise conferred financial benefits upon LC&T that were never repaid by LC&T. To a degree, that is understandable. However, in my view, the Court should not make orders that would put Tonic in a better position than any other unsecured creditor of LC&T. I do not consider it appropriate to vest LC&T’s prior interest in the Land in Tonic in circumstances where all other unsecured creditors received no dividend and the liquidator received no remuneration in the winding up. That is particularly so in circumstances where the disclamation of LC&T’s interest appears to be explained at least in part by the existence of the Mortgage which Tonic itself had procured for reasons that are not apparent on the evidence before me.

69    Finally, on the material before me, I cannot be satisfied that the benefits of the order sought by Tonic would not be shared with Mr Chau. It is to be recalled that Mr Chau was the sole director of LC&T and that the financial collapse of the company was, in the view of the liquidator, due to financial mismanagement, trading losses and poor record keeping. Mr Chau has not intervened to oppose the order notwithstanding that on Mr Scaffidi’s evidence “Mr Chau or LC&T” has paid interest on the loan facility since 2011. It may be inferred that the interest payments over that time would be significant. Even if there was otherwise a proper basis for making the orders sought I would not do so in the absence of a firm disavowal by Tonic that the benefits flowing from the order would not be enjoyed by the former director of LC&T at the expense of the company’s creditors and the liquidator.

70    If that were the only basis for refusing the relief I would have been minded to invite Tonic to make further submissions in respect of that limited issue. However, in the circumstances I have described, I am not persuaded that the orders should be made in Tonic’s favour, and I maintain that view irrespective of whether the order might also have conferred a benefit on Mr Chau.

71    The application should be dismissed.

Associate:

Dated:    26 August 2019