Federal Court of Australia

Hanwood Pastoral Co Pty Limited v Kelly (No 2) [2022] FCA 850

ORDERS

THE COURT ORDERS THAT:

1.    The further amended originating process be dismissed.

2.    If the parties are unable to agree orders by 18 August 2022 with respect to the payment by the first defendant of fixed sums in respect of the plaintiff’s costs of the case management hearings on 6 November 2020 and 19 November 2021, the costs thrown away by the vacation of the hearing of the strike out application on 11 June 2021, on an indemnity basis, and the first defendant’s application to reopen his case after the exchange of closing written submissions, each party should by no later than that date file and serve a copy of their proposed orders as to the payment of fixed sum costs, together with an outline of written submissions in support not exceeding four pages in length and any evidence by way of affidavit in support of the fixed sum orders sought.

3.    Fixed sum costs orders will then be determined on the papers and without a further oral hearing.

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

REASONS FOR JUDGMENT

HALLEY J:

Introduction

1    By a further amended originating process filed on 25 October 2021, the plaintiff, Hanwood Pastoral Co Pty Limited ACN 003 985 797 (Hanwood) seeks declarations and compensation against the first defendant, Mr Frederick Norman Kelly, for alleged breaches of his duties as a director of Hanwood and an order for reinstatement of Mr Frederick William Renton as a director of Hanwood against the second defendant (formerly the sixth defendant), the Australian Securities and Investments Commission (ASIC), in relation to alleged acts done by Mr Kelly in contravention of the Corporations Act 2001 (Cth) (Corporations Act). The proceedings were dismissed by consent and without admissions as between Hanwood and the former second to fifth defendants on 14 May 2021.

2    Hanwood alleges that Mr Kelly caused Hanwood to suffer detriment by causing it to enter into an uncommercial and onerous property consultancy agreement (Consultancy Agreement) that provided for the payment of fees grossly in excess of the value of the services to be provided by Mr Kerry Nichols and Mr Matthew Somers (together, Consultants) in connection with the sale of an undeveloped property owned by Hanwood in the Hunter Valley (Property), unlawfully removed Mr Renton as a director of Hanwood and improperly caused Hanwood to make payments to his own company, Stintari Pty Limited (Stintari) and other associates out of the sale proceeds of the Property (Impugned Payments).

3    Mr Kelly contends that the entry by Hanwood into the Consultancy Agreement was justified and agreed by Mr Renton, Mr Renton resigned as a director of Hanwood on his own initiative and the Impugned Payments were made to discharge properly recorded and approved commercial liabilities of Hanwood.

4    Hanwood alleges that Mr Kelly:

(a)    contravened s 182(1)(b) of the Corporations Act by causing or allowing Hanwood to enter into the Consultancy Agreement (Uncommercial Contract Contravention);

(b)    contravened s 182(1)(a) of the Corporations Act by unlawfully removing Mr Renton as a director of Hanwood (Removal Contravention); and

(c)    contravened ss 181(1) and 182(1)(b) of the Corporations Act by authorising or allowing payments totalling $2,425,350 to be made, causing detriment to Hanwood in an amount equal to the Impugned Payments (Payments Contravention).

5    The proceedings had a lengthy and acrimonious history in the period leading up to the final hearing of the claims advanced in the amended statement of claim and the relief sought in the further amended originating process.

6    Mr Kelly was not able to secure legal representation after 10 June 2021 and from that time appeared for himself. Mr Farrar of Farrar Lawyers appeared for Hanwood at all times in the proceedings from 10 June 2021.

7    The only relief sought against ASIC was an order for the reinstatement of Mr Renton as a director of Hanwood. ASIC informed the Court that it did not seek to be heard on that issue and it did not appear at the hearing of the proceedings.

8    The determination of the claims made by Hanwood in the proceedings was made significantly more difficult by three matters. First, an intractable dispute as to the location and existence of the historical financial and other corporate records of Hanwood that might evidence the specific liabilities of Hanwood the subject of the Impugned Payments and the basis on which funds might have been advanced by way of unsecured loans to Hanwood to enable such liabilities to be discharged. Second, Mr Kelly’s hearing difficulties and medical issues that presented formidable challenges to his effective participation in the proceedings as a self-represented litigant following the withdrawal of his legal representation in June 2021. Third, the extent to which Mr Renton left the development and realisation of the Property exclusively to Mr Kelly and, as the sole director of Hanwood’s only shareholder, refused to advance any funds to Hanwood to enable it to develop and realise the Property.

9    In the circumstances, it has been necessary to make factual findings by reference to an incomplete documentary record and to the apparent logic of events, particularly given the effluxion of time since most of the material events and the advanced age of both of the principal protagonists, Mr Renton and Mr Kelly.

10    For the reasons that follow I have concluded that:

(a)    the evidence given by Mr Kelly can generally be accepted, notwithstanding the credit challenges made by Hanwood and Mr Kelly’s at times confrontational approach to the proceedings and giving evidence;

(b)    Mr Kelly has produced all relevant books and records of Hanwood in his possession and he otherwise gave Mr Renton the historical books and records of Hanwood, including minute books evidencing, among other matters, the liabilities of Hanwood incurred with respect to the development and realisation of the Property and the means by which those liabilities were discharged;

(c)    the payments made to the consultants under the Consultancy Agreement did not constitute a gross overpayment, and Mr Kelly’s conduct in causing Hanwood to enter into the Consultancy Agreement when viewed objectively and by reference to the standards of conduct expected from a person in Mr Kelly’s position did not confer significant benefits on the Consultants to the detriment of Hanwood;

(d)    Mr Renton resigned as a director of Hanwood of his own volition and Mr Kelly did not unlawfully remove Mr Renton as a director of the company;

(e)    Mr Renton left to Mr Kelly the exclusive responsibility of managing the development and realisation of the Property;

(f)    Mr Renton had made it clear to Mr Kelly that he was not prepared to advance any funds to Hanwood to fund the development and realisation of the Property, notwithstanding he was the only shareholder in Hanwood through his private company Dinomyte Pty Ltd (Dinomyte);

(g)    the discovery of critically endangered Persoonia pauciflora plants on the Property, the refusal of the Cessnock City Council to grant development approval, the proceedings in the Land and Environment Court, the length of time that Hanwood had sought to develop the Property and the time it took to find a purchaser inevitably led to the incurring of significant liabilities that Mr Kelly was obliged to make arrangements to discharge;

(h)    the financial statements of Hanwood prepared by Mr Kelly, in the context of other financial records and bank statements admitted into evidence, can be relied upon, and are sufficiently probative of the facts asserted in them, to permit Mr Kelly to satisfy any evidential onus that he might have been under to establish that he was justified in making the Impugned Payments; and

(i)    Hanwood has not succeeded in establishing the Uncommercial Contract Contravention, the Removal Contravention nor the Payment Contravention.

Factual Background

11    The following factual background is taken from documents tendered in evidence.

Hanwood

12    On 14 May 1990, Hanwood was incorporated as a proprietary company, initially as Redyoke Pty Limited, until it changed its name to “Hanwood Pastoral Co. Pty. Limited” on 31 August 1990.

13    In the period between 7 June 1990 and 14 February 1994, the directors and company secretaries of Hanwood were Mr John Holt and Mr Keith Holmes.

14    On 14 February 1994, Mr Renton and Mr Harry Terrett were appointed as directors and company secretaries of Hanwood.

15    On 3 December 1998, Mr Kelly was appointed as a director and company secretary of Hanwood.

16    On 16 October 2010, Mr Terrett ceased to be a director and company secretary of Hanwood.

17    On 20 May 2014, Mr Renton ceased to be a director and company secretary of Hanwood.

18    At all relevant times Dinomyte has been the sole shareholder of Hanwood. Mr Renton holds all the shares in Dinomyte.

The Property

19    During the early 1990s, Hanwood purchased the Property, located at Hanwood Road, North Rothbury New South Wales, being lots 3, 4 and 5 in DP1042140 in certificate of titles folio identifiers 3-5/1042140.

20    The Property was located in the Hunter Region of New South Wales. It was covered primarily in native vegetation.

September 2008 Consultancy Agreement Letter

21    By letter dated 3 September 2008, Hanwood wrote to Mr Nichols confirming that they wished his company, Hunter Developments Brokerage Limited (HDB), to act as a consultant on the proposed sale of the Property (September 2008 Consultancy Agreement Letter).

22    The September 2008 Consultancy Agreement Letter was signed by Mr Kelly, Mr Renton and Mr Terrett in their capacities as directors of Hanwood. The letter provided for the following consulting fee to be paid (as written):

On settlement of sale ( Hanwood Stage 5 ), ( Hanwood ) will pay ( HDB. ) and or ( HDB’S ) nominee a consulting fee equal to 4% of a sale price up to and including $5,000,000.00 and any sale price in excess of $5,000,000.00 an amount equal to 50% of the excess over $5,000,000.00.

23    The September 2008 Consultancy Agreement Letter also provided that HDB would not charge any other fee for services provided after 15 June 2008 in relation to the Stage 5 development of the Property unless mutually agreed in writing between Hanwood and HDB.

Heads of Agreement

24    The documents discovered by Mr Kelly, as part of what I have referred to below as the Late Discovered Documents, included a document entitled “HEADS OF AGREEMENT FOR THE FORMULATION OF A BIO-BANKING/ENVIROMENTAL OFFSETTING STRATEGY AND ON SALE OF LAND AT NORTH ROTHBURY” dated April 2013 (Heads of Agreement).

25    The parties to the Heads of Agreement were stated to be Hanwood as the owner of the Property and the Consultants (Mr Somers and Mr Nichols). The Consultants were described as “recognised and experienced experts in the development field” with “extensive industry contacts” which gave them the “opportunity to maximise the economic return to owner of the site”. The Heads of Agreement provided that it would expire if a sales contract had not been exchanged within 24 months of execution of the agreement. It also provided that upon a sale of the Property the sale proceeds were to be first allocated to the payment of the costs incurred by the Consultants during the term of the agreement, then a payment of the “base value” of $1.2 million to Hanwood and finally the balance was then to be split between Hanwood (as to 60%) and the Consultants (as to 40%).

Consultancy Agreement

26    On 22 April 2013, Mr Kelly sent an email to Mr Nichols concerning a foreshadowed entry by Hanwood into the Consultancy Agreement (22 April 2013 Email), which included the following confirmation and explanation:

We, Fred Renton and myself have resolved to enter into an agreement with your group.

I have delayed making contact as Hanwood was deregistered due to non payment of fees, however I have made application with ASIC for reinstatement which I am advised will take between 3 - 4 weeks.

27    On 2 July 2013, Mr Nichols sent an email to Mr Kelly attaching a draft of the Consultancy Agreement.

28    On 12 July 2013, Mr Kelly sent an email to Mr Renton and Mrs Renton (12 July 2013 Kelly Email) while they were in Hawaii in these terms (as written):

Many thanks for your contact.

Fred I would like to see you Vi re Hanwood ASAP after you return, and before the scalpel falls AM on the 17th.

I also need time to, in necessary go to Maitland, no later than early pm on the 16th.

It would be appreciated if you would advise ETA Sydney and where I can conveniently meet up with you thereafter?

Your advice is greatly appreciated.

Enjoy the remainder of your so journ and safe and pleasant flight home.

29    Later on 12 July 2013, Mrs Renton responded to the 12 July 2013 Kelly Email in these terms (as written):

Fred will be at Rosé Bay on Tuesday after 9 am 16 th . He will be happy to speak or meet with you then. Maybe you could go to Maitland together- is that the idea?- on that day,as long as you are happy to drive.!!!

Fred intends to be in Sydney til the Thursday 18 th

We are enjoying the sunshine, thanks.

30    On 16 July 2013, Mr Renton’s handwritten diary includes the following entry (Renton 16 July 2013 Diary Note):

11:15 Return

    (OFFICE)

* FR to (Terry Staines) Northbridge

Agreement of Somers + Nichols

    Signed by FNK + FR *

There is an arrow between the words “* FR” and “Agreement” which points to above “11:15”, as follows:

31    The Consultancy Agreement was executed by both Mr Kelly and Mr Renton for Hanwood. It was dated 17 July 2013. I will return to the specific dates on which the Consultancy Agreement was in fact signed later in these reasons.

32    The Consultancy Agreement provided that Mr Nichols and Mr Somers were to provide the following services to Hanwood:

(a)    undertaking and updating flora and fauna studies to identify any endangered species, to secure the optimum biodiversity value of the Property;

(b)    consulting with the Office of Environment and Heritage to determine the environmental credits available for the Property;

(c)    liaising and consulting with New South Wales National Parks to attempt to have land included as part of an adjacent national park;

(d)    obtaining such consents or approvals as necessary for the subdivision of the Property, to optimise the aggregate sale price;

(e)    liaising with and seeking the assistance of the Federal Environmental Department under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) to ensure compliance with the relevant federal legislation; and

(f)    formulating a marketing strategy for the sale of the Property, or parts thereof, to maximise the value of the Property.

33    The Consultancy Agreement further provided that Mr Nichols and Mr Somers would contribute their “skill and expertise” to secure the highest and best use of the Property.

34    Under the Consultancy Agreement, Hanwood was obliged to pay Mr Nichols and Mr Somers for the services they provided:

(a)    all of the expenses incurred by them in relation to those services, in priority to the payment to Hanwood of the original land value; and

(b)    40% of the net sale proceeds plus additional GST.

35    In October 2013, Niche Environment and Heritage Pty Ltd completed a BioBank assessment of the potential offsets available on the Property and another site in the Hunter Valley (Niche Report). The Niche Report confirmed that an estimated 337 ecosystem credits might be generated on the Property and 228 species credits were calculated for 155 individual Persoonia pauciflora plants.

36    Mr Nichols and Mr Somers retained HDB to provide project management and consulting services, including providing a planner and senior planner.

Sale of the Property

37    On 7 January 2015, Hanwood entered into a contract with Warkworth Mining Limited (Warkworth) pursuant to which it agreed to sell the Property to Warkworth for $3.63 million (including GST) (Sale Contract).

38    On 13 March 2015, the Sale Contract completed and Hanwood received the amount of $3,267,154.95 (Settlement Proceeds).This amount was the balance of the purchase price outstanding after settlement adjustments and the earlier payment of the deposit of $363,000 (including GST) (Deposit). The Sale Proceeds were initially paid into the trust account of Patey & Murphy, the solicitors acting for Hanwood on the sale of the Property.

39    By an authority dated 18 March 2015, Mr Kelly directed Patey & Murphy to pay:

(a)    $452,150.18 to each of Mr Nichols and Mr Somers (in aggregate $904,300.36) by payments to their companies PBN Property Investments Pty Ltd and AAJS Pty Limited;

(b)    $43,183.17 to HDB for its services;

(c)    $6,518.76 to Patey & Murphy for its tax invoice dated 13 March 2015; and

(d)    $2,673,555.52, being the balance of the Settlement Proceeds and the Deposit (Net Sale Proceeds), to Hanwood.

40    Mr Kelly then caused Hanwood to make the Impugned Payments, in an aggregate amount of $1,925,341.64. Inexplicably, Hanwood alleges in its amended statement of claim and its closing submissions that the aggregate amount of the Impugned Payments was $2,425,350. It appears that Hanwood overlooked that the payments made by Mr Kelly from the Net Sale Proceeds included a $500,000 payment to Mr Renton. If the payment to Mr Renton is added to the alleged Impugned Payments identified below, the aggregate figure of the amounts disbursed by Mr Kelly from the Net Sale Proceeds increases to $2,425,341.64 (or, given the rounding in the figures in the amended statement of claim, the amount of $2,425,350, the precise amount alleged to be the aggregate of the Impugned Payments).

41    The Impugned Payments were alleged to comprise the following specific payments (noting that the $700,000 term deposit that ultimately found its way to Stintari has been included in the payments to the Stintari category rather than in the other payments category):

(a)    $1,789,991.64 to Stintari in various tranches between 19 March 2015 and 15 June 2015 (Stintari Payments);

(b)    $135,350 in other payments, comprising:

(i)    a payment to TW Staines & Co on 25 March 2015 of $25,000 (Staines Payment);

(ii)    two payments of $30,033 by cheque on 5 June 2015 to Mr Keith Hainsworth and Ms Phyllis Hainsworth, respectively (Hainsworth Payments); and

(iii)    a payment to Ms Biba Zupan on 5 June 2015 of $50,284 (Zupan Payment);

(together, Other Payments).

42    At all material times, Mr Kelly was the sole director, secretary and sole shareholder of Stintari.

Procedural History

43    This matter has a long and complex procedural history. The proceeding as it relates to Mr Kelly, Mr Renton and Hanwood is set out below.

Application for preliminary discovery

44    By summons filed on 20 October 2017, Mr Renton and Dinomyte sought orders in the Supreme Court of New South Wales in the nature of preliminary discovery against Mr Kelly (Supreme Court proceedings). Mr Renton alleged that the orders were necessary due to “an inability to obtain relevant documents/information” from Mr Kelly and “the continued assertion by [Mr Kelly] that Renton was in possession of [Hanwood’s] books and records”: Renton v Kelly [2018] NSWSC 1377 (Renton) at [3] (Ward CJ in Eq, as her Honour then was). By the time the matter came before her Honour for determination, the documents sought under the summons had apparently been produced and the proceedings were dismissed by consent on 17 July 2018, save as to the question of costs: Renton at [13].

Application for reinstatement of Hanwood and commencement of derivative action

45    On 3 July 2019, Dinomyte and Mr Renton commenced proceedings by originating process in this Court against ASIC, seeking an order that ASIC reinstate Hanwood and for leave to commence proceedings in the name and on behalf of Hanwood against Mr Kelly, Stintari, Mr Nichols, HDB, Mr Somers, and his company, AAJS Pty Limited (proposed derivative action).

46    On 1 August 2019, Gleeson J ordered that ASIC reinstate Hanwood and on 29 August 2019 listed the application to commence the proposed derivative action for hearing on 6 September 2019. The hearing was initially stood over to 20 September 2019 and then subsequently to 27 September 2019.

47    At the hearing on 27 September 2019, Gleeson J granted leave for Mr Kelly to be heard in the proceeding without becoming a party and made orders that Hanwood be joined as the second defendant to the proceeding.

48    On 26 November 2019, Gleeson J delivered judgment in Dinomyte Pty Ltd v Australian Securities & Investments Commission, in the matter of Hanwood Pastoral Co Pty Ltd [2019] FCA 1989. Her Honour found that the evidence suggested that there may be a serious question to be tried, and granted leave to the plaintiffs to file further evidence in support of the application and a further draft statement of claim.

49    On 17 February 2020, Mr Kelly’s solicitors, Makinson d’Apice Lawyers, filed a notice of ceasing to act, which had been preceded by a notice of intention to cease to act filed on 5 February 2020.

50    The matter was listed for hearing before Gleeson J on 2 March 2020. There was no appearance by Mr Kelly. Justice Gleeson noted that Mr Renton and Dinomyte would indemnify Hanwood in respect of its costs of the proceeding and any adverse costs order, and ordered, inter alia, that leave be granted pursuant to s 237 of the Corporations Act to the plaintiffs to file the statement of claim and an amended originating process, and to serve a copy of the orders, the amended originating process and statement of claim on each of the defendants. Hanwood become the plaintiff, and the defendants now became, in order, Mr Kelly, Mr Somers, the Trustee for the MJS Trust, Mr Nichols, K G Nichols Holdings Pty Ltd and ASIC.

51    The second to fifth defendants filed a notice of appearance on 2 April 2020.

52    Mr Kelly did not file an appearance and orders were made on 6 April 2020 for substituted service on Mr Kelly.

Application for default judgment

53    Mr Kelly did not appear at a case management hearing on 28 May 2020. On that date Gleeson J made orders, inter alia, that Hanwood file and serve any application for judgment in default of any appearance by Mr Kelly, together with affidavits in support, by 18 June 2020.

54    On 18 June 2020, Hanwood filed an application for default judgment, seeking declarations that Mr Kelly had contravened a number of civil penalty provisions in the Corporations Act and orders that he compensate Hanwood for his alleged improper actions as a director in causing it to dispose of the sale proceeds of the sale of the Property.

55    On 7 July 2020, the application for a default judgment was heard by Rares J. There was no appearance by Mr Kelly.

56    Justice Rares delivered an ex tempore judgment: Hanwood Pastoral Co Pty Limited v Kelly [2020] FCA 1020 (default judgment).

57    Justice Rares found (at [18]) that a medical certificate dated 23 March 2020 from a general practitioner, Dr Chiew, which Mr Kelly had provided to the Court prior to the hearing on 7 July 2020, was out of date. Further, his Honour found that there was no evidence of any kind to support the granting of an adjournment, and Mr Kelly was well aware that the hearing had been set down for 7 July 2020.

58    Justice Rares found that Mr Kelly was in default of doing an act required to be done by the Federal Court Rules 2011 (Cth) (Rules), namely failing to file a defence, by not attending to hearing on 7 July 2020 or the case management hearing on 28 May 2020 after his solicitors had ceased to act, and in failing to defend the proceeding with due diligence.

59    His Honour ordered, inter alia, that Mr Kelly pay to Hanwood a sum of $1,398,967.62 inclusive of interest up to 7 July 2020 and that Mr Kelly pay Hanwood’s costs of the application for the default judgment. His Honour declared that Mr Kelly had improperly used his position as a director of Hanwood to gain an advantage for himself in contravention of s 182(1)(a) of the Corporations Act by removing Mr Renton as a director of Hanwood and causing ASIC to register on or about 20 May 2014 that Mr Renton had resigned as a director of Hanwood when, in fact, he had not resigned that office.

60    On 22 July 2020, Mr Kelly filed a notice of acting which appointed Mr Phillip Beazley of Beazley Lawyers to represent him.

Application to stay default judgment

61    On 24 July 2020, Mr Kelly filed an interlocutory application seeking an order that the default judgment be stayed, an order that the default judgment be set aside, an order that Mr Kelly be permitted to file a defence in the form annexed to the application and an order that Mr Renton pay the costs of the application.

62    The application was listed for hearing on 21 August 2020. Much of the argument was directed at who was in possession of the books and records the subject of the Supreme Court proceedings, Mr Kelly’s alleged difficulties in attending remote hearings, and alleged deficiencies in and the lateness of Mr Kelly’s defence.

63    At the conclusion of the hearing, Rares J made orders upon the undertaking of Mr Kelly by his solicitor not to reduce the current equity in, or otherwise dispose of, his real or personal property or other assets otherwise than by incurring reasonable medical, legal or usual and living expenses, without the leave of the Court until further order. His Honour ordered that the order of 7 July 2020 requiring payment by Mr Kelly to Hanwood of $1,398,967.62 be vacated and that Mr Kelly file his defence by 31 August 2020. His Honour further ordered that Hanwood prepare a statement on its recoverable costs, with those costs to be fixed on the papers. Finally, his Honour ordered that Mr Kelly provide Hanwood with the current bank or mortgage statements relating to the mortgage over his home and any other indebtedness (current financial records), also by 31 August, and a monthly list of his previous month’s expenses exceeding $1000.

64    On 26 August 2020, Mr Kelly filed a defence.

65    On 25 September 2020, Hanwood’s costs of the hearing on 21 August 2020 were fixed in the sum of $27,500. Justice Rares also made orders for Mr Kelly to give standard discovery on or before 9 October 2020.

66    On 16 October 2020, a case management hearing was held before Rares J, in which Mr Farrar appeared for Hanwood and Mr Beazley appeared for Mr Kelly. Mr Farrar informed Rares J that Mr Kelly had not produced the current financial records, the costs associated with setting aside the default judgment had not been paid, Mr Kelly had not complied with the order for discovery, and Stintari had not complied with a subpoena. Mr Beazley informed Rares J that Mr Kelly was in hospital.

67    On 6 November 2020, Justice Rares made orders for the filing and service of evidence of lay witnesses and expert evidence, and referred the matter to mediation before a Registrar.

Strike Out Application

68    On 12 May 2021, Hanwood filed an interlocutory application (Strike Out Application) seeking the following orders:

(a)    Mr Kelly’s defence filed in August 2020 be struck out;

(b)    Mr Kelly pay Hanwood the sum of $1,436,830.63 inclusive of interest up to 6 May 2021;

(c)    Mr Kelly pay Hanwood’s costs of the proceedings; and

(d)    in the alternative, an order that Order 3 made on 21 August 2020 (being that Mr Kelly was to pay Hanwood’s costs of the interlocutory application for default judgment) be varied so that the payment be made to Mr Renton and Dinomyte.

69    On 7 May 2021, orders were made by Rares J listing the Strike Out Application for hearing on 11 June 2021 and providing for the filing and service of evidence and written submissions.

70    On 14 May 2021, Rares J noted that the second to fifth defendants had entered into a confidential settlement agreement, and the proceeding as between Hanwood and those defendants were dismissed. The only two remaining defendants were Mr Kelly, the first defendant, and ASIC, the sixth defendant.

71    On 28 May 2021, the proceedings were transferred to my docket.

72    At 4.38 pm on 10 June 2021, Mr Beazley lodged a notice of ceasing to act with the Registry. Mr Beazley emailed my chambers at 5.07 pm on the same day, copying Mr Kelly and Mr Farrar, advising that the notice had been lodged but a filed copy had not yet been returned by the Registry. Mr Beazley stated that Mr Kelly had been advised of the hearing details (being the hearing of the Strike Out Application), but that Mr Kelly did not have new representation and Mr Beazley anticipated Mr Kelly would seek an adjournment of the hearing.

73    Mr Kelly did not file any submissions or evidence in opposition to the Strike Out Application.

74    At the hearing of the Strike Out Application on 11 June 2021, I granted leave for Mr Brett Kelly, Mr Kelly’s son, to appear on his behalf by Microsoft Teams for the purposes of making an adjournment application.

75    Mr Kelly was unable to tell me why he had not provided the current financial records, as ordered by Rares J on 21 August 2020. When asked about the utility of granting a three to four week adjournment, Mr Kelly informed me that he would do his best to comply with the Court orders, and that he would attempt to obtain alternative representation. Further, he alleged that Mr Beazley was in possession of the evidence that he wished to rely upon and he had been preparing subpoenas, and that he needed to recover that material. He further submitted that he was restricted by lack of funds and that he had asked Mr Beazley a number of times to apply to the Court to give him permission to borrow additional funds.

76    Mr Farrar, appearing for Hanwood, opposed the adjournment, citing the numerous previous extensions granted to Mr Kelly to comply with orders, and Mr Kelly’s non-compliance with orders, in particular the order that Mr Kelly provide monthly financial records for payments over $1000.

77    In part due to Mr Beazley’s late notice of ceasing to act, I ordered that the hearing of the Strike Out Application be stood over to 21 July 2021 to enable Mr Kelly to obtain legal representation and address his alleged defaults. I also made orders on that date for the parties to file and serve any affidavit evidence on which they sought to rely and that the costs of and incidental to the vacated hearing on 11 June 2021 be paid by Mr Kelly on an indemnity basis.

78    On 21 July 2021, Mr Kelly did not appear. Mr Alexander of counsel appeared for Mr Beazley to explain why more notice had not been given of his decision to cease acting for Mr Kelly on the evening before the date fixed for the hearing of the Strike Out Application. Mr Farrar appeared for Hanwood. Immediately prior to the hearing on 21 July 2021 the Court was provided with a facsimile from Mr Kelly containing financial information in purported compliance with the order made by Rares J on 21 August 2020 to produce the current financial records.

79    During the interlocutory hearing, I formed the view that, rather than proceeding with the Strike Out Application, the interests of justice would be better served by permitting the matter to proceed to a final hearing and for Hanwood’s claims to be determined on their merits. I formed that view principally for the following reasons:

(a)    the lengthy and complex procedural history of the matter;

(b)    Mr Kelly’s hearing difficulties that made it difficult for him to participate in electronic hearings;

(c)    Mr Kelly’s inability at the time to access legal aid due to Mr Beazley remaining on the record;

(d)    Mr Kelly being a self-represented litigant; and

(e)    Mr Kelly appearing to have produced at least some of the sought-after financial records to address his alleged defaults.

80    I therefore listed the matter for a final hearing on 25 October 2021 with an estimate of two days. I further granted leave to Mr Beazley to file a notice of ceasing to act, dispensing with r 4.05(1) of the Rules, ordered that the determination of any personal liability of Mr Beazley for the costs thrown away by reason of the adjournment on 11 June 2021 be reserved, and further that the costs of the hearing set down for 21 July 2021 be reserved.

Pre-hearing case management

81    Mr Beazley’s notice of ceasing to act was eventually filed on 10 August 2021.

82    I conducted case management hearings in the proceedings on 18 August 2021, 1 September 2021, 24 September 2021, 7 October 2021 and 22 October 2021. Mr Kelly did not appear at the case management hearings held on 18 August 2021 and 1 September 2021 because they were conducted by Microsoft Teams. As COVID-19 restrictions eased I was able to make arrangements for the case management hearings on 24 September 2021, 7 October 2021 and 22 October 2021 to be “in person” hearings and Mr Kelly attended each of those case management hearings.

83    The case management hearings were principally concerned with Mr Kelly’s explanations of his unsuccessful applications for legal aid and pro bono assistance, his subsequent unsuccessful attempts to refinance his mortgage to obtain funds to secure legal representation and his ongoing medical conditions.

84    Mr Kelly made an application on 22 October 2021, being one business day before the hearing was to commence, for the hearing to be adjourned. Hanwood strongly opposed any application for adjournment.

85    I permitted Mr Kelly to make an oral application because he was a litigant in person but I had earlier explained to him that any application that he might make to adjourn the hearing needed to be supported by evidence.

86    I refused Mr Kelly’s application for an adjournment of the hearing as the only evidence provided in support of his application was evidence regarding his refinancing attempts, but this did not rise higher than preliminary approaches to financial institutions.

Further application for an adjournment

87    At the commencement of the hearing on 25 October 2021, Mr Kelly renewed his application for an adjournment. The application was again opposed by Hanwood.

88    I refused the renewed application by Mr Kelly.

89    The medical evidence on which Mr Kelly sought to rely was the medical certificate from Dr Chiew dated 23 March 2020 that had been provided to Rares J prior to the hearing of the Strike Out Application on 7 July 2020 and a further certificate from Dr Chiew dated 28 June 2021. The 28 June 2021 certificate stated that:

Mr Frederick Kelly suffers from diabetes, ischaemia heart disease, prostate cancer, previous operation for bowel cancer, hearing loss and a Whipple resection. All these conditions make it very hard for him to prepare for court and to provide evidence in a timely manner.

90    Also annexed to Mr Kelly’s affidavit was a health summary sheet dated 28 June 2021, which outlined the medications Mr Kelly was currently taking, his current medical conditions and past medical history. This evidence did not shed light on whether Mr Kelly was able to hear, or hear sufficiently well to be able to participate in a court proceeding in person. Given his lack of progress to date, I was not confident that finance would become available to Mr Kelly in the foreseeable future to allow him to instruct someone to represent him. Mr Kelly also pointed to documents he was trying to obtain from the Hunter Valley. I was not persuaded that those documents were critical, and the timeframe for obtaining those documents was indeterminate. Finally, I considered Mr Kelly’s demonstrated ability to communicate effectively, at least in writing, and the fact that it is not uncommon for parties to represent themselves at the hearing of commercial matters and that pro bono assistance is very unlikely in a commercial context, particularly where an asset could have been leveraged to obtain funding.

91    The original estimate of two days for the hearing to be conducted proved unduly optimistic. The initial stage of the hearing ultimately took place over three days, 25 to 27 October 2021, and an additional day, 3 December 2021, was set aside for closing submissions.

Application by Mr Kelly to reopen his case to adduce new evidence

92    On 9 November 2021, Mr Kelly sent an email to the Court which appeared to be an application to adduce further evidence from himself and Mr Nichols. Mr Kelly stated in his email (as written):

The Federal Court, through Justice Halley is requested to consider, in a reasonable and proper way, in the interest of “Natural Justice and Procedural Fairness” taking into account the unprecedented and extraordinary circumstances due to the enforced and restricted COVID 19 environment and make provision for the appearance and examination of [Mr Nichols] prior to any final determination of matter NSD 1053/2019.

93    In the email, Mr Kelly alleged that he had asked Mr Nichols to attend the hearing on 27 October 2021 at the “last minute”, and that Mr Nichols had not been able to attend due to appointments that he could not reschedule and the lockdown provisions in Maitland due to COVID-19 restrictions.

94    Mr Kelly also sought a deferral of the continuation of the hearing on 3 December 2021.

95    Hanwood opposed the application.

96    In the light of this communication from Mr Kelly, I listed the matter for a case management hearing on 19 November 2021. I granted leave to Mr Kelly to file his application in Court. Mr Kelly stated that the relevance of Mr Nichols’ evidence was that he had been involved as a consultant to Hanwood going back to the late 1990s and that his company provided details of contractors that were utilised on the site of the subdivisions. Further, he could verify payments made on behalf of Hanwood.

97    I rejected Mr Kelly’s application to defer the final hearing day due to the administration of justice requiring that the matter be dealt with expeditiously in the circumstances of Mr Renton’s ill-health. However, after taking into account that Mr Kelly was a self-represented litigant, his ability to conduct the hearing so far, difficulties imposed by the COVID-19 restrictions, and the apparent relevance of the evidence that Mr Kelly sought to adduce, I granted leave to Mr Kelly to reopen on the condition that the evidence be served in affidavit form prior to 3 December 2021, Mr Kelly make himself available for further cross-examination, and the costs thrown away by the application and the costs of and incidental to the case management hearing be paid by Mr Kelly, to be determined on a fixed sum basis shortly after delivery of this judgment.

98    Mr Kelly relied on an affidavit of Mr Nichols sworn on 29 November 2021 at the continuation of the hearing on 3 December 2021.

99    Mr Kelly also sought and was given leave to rely on a further affidavit from Ms Zupan (Mr Kelly’s carer) and affidavits from Mr Staines and Ms Louise Ellen Creighton (a former receptionist and personal assistant to Mr Nichols). At the same time Hanwood sought and was given leave to rely on an affidavit from Mr Renton’s wife, Mrs Isabel Vivienne Renton.

100    Mr Kelly did not seek to adduce any further evidence from himself.

101    On 3 December 2021, Mr Nichols and Ms Zupan were cross-examined. Mrs Renton was called as a witness by Mr Farrar but Mr Kelly stated he was not in a position to cross-examine her. Neither Ms Creighton nor Mr Staines were available to be cross-examined. Mr Farrar indicated that he did not wish to cross-examine Mr Staines and although he initially indicated that he wished to cross-examine Ms Creighton, he ultimately did not press for her to be cross-examined.

Supplementary submissions

102    At the conclusion of the hearing on 3 December 2021, I ordered that any supplementary submissions of Hanwood relating to issues that arose in the cross-examination of Mr Nichols and Ms Zupan, and the affidavits that were read of Mr Nichols, Ms Zupan, Ms Creighton and Mr Staines, be filed and served by 10 December 2021.

103    I also ordered that Mr Kelly file any supplementary submissions in response to Hanwood’s supplementary submissions, and any submissions addressing any issues that arose in the course of the cross-examination of Mrs Renton or in her affidavit, by 17 December 2021.

104    Hanwood filed its supplementary submissions on 10 December 2021.

105    On 17 December 2021, Mr Kelly sent an email to the Court outlining his various health issues and asking for an extension to file his supplementary submissions to 21 December 2021.

106    On the same day, I made orders that Mr Kelly file and serve his supplementary submissions by 21 December 2021.

107    On 21 December 2021, Mr Kelly sent the following email to the Court (as written):

The (1stD) advises due to ongoing problems, both ongoing uncontrollable medical and other matters associated with current covid restrictions, and the inability to obtain assistance as expected, The (1stD) is unable to comply with the established dead line and is endeavour to have the response available for submission by 4.30 tomorrow the 22nd December 2021 together with details that have contributed to they delasy.

108    On 22 December 2021, Mr Kelly sent an email to the Court which appeared to be a combination of submissions and further evidence.

109    On 24 December 2021, Mr Kelly sent a further email to the Court stating that he was preparing his supplementary submissions and requested “allowances” to be made by the Court. A further, similar, email was sent on 29 December 2021, stating that the final submissions would be submitted by no later than 7 January 2022.

110    On 1 February 2022, Mr Kelly sent another email to the Court, giving a relatively detailed summary of his current health issues, and health issues faced by Ms Zupan and requesting a further extension for filing his supplementary submissions until 9 February 2022.

111    I directed my chambers to advise Mr Kelly that any application for a further extension of time to file submissions pursuant to the orders made on 3 December 2021 must be made by way of interlocutory application and accompanied by affidavit evidence.

112    On 28 February 2022, the Registry received a facsimile from Mr Kelly attaching a medical certificate dated 26 February 2022 from St George Hospital, stating that (as written):

Mr Kelly is currently admitted as an inpatient at St George Hospital from the 18th of February requiring intravenous antibiotics for [a medical condition]. His estimate date of discharge is Monday 1st March.

113    The handwritten covering letter to the facsimile, signed by Mr Kelly on 26 February 2022, stated that on discharge from St George Hospital he would not be returning to “the Turramurra residence” for three to four days in case readmission to hospital was necessary. He further stated that the Court would be advised on his return to Turramurra. He also noted that he would not have access to email until his return to Turramurra.

114    Mr Kelly has not filed any interlocutory application for an extension to file his supplementary submissions and the Court has not received any further communication from Mr Kelly since 26 February 2022.

Evidence and credit findings

115    Hanwood relied on affidavit evidence from Mr Renton, Ms Sherwyn Lee, a solicitor employed by Mr Farrar, and an expert report from Mr Adam Blundell dated 26 March 2021 and filed on 6 April 2021. Hanwood also relied on an affidavit from Mrs Renton after Mr Kelly was given leave to reopen his case.

116    Mr Kelly initially relied on a statement that he verified when giving evidence and a statement from Ms Zupan. After he was given leave to reopen his case, Mr Kelly also relied on affidavits from Ms Zupan, Ms Creighton, Mr Staines and Mr Nichols.

Mr Renton

117    Mr Renton provided four signed but unsworn affidavits dated 18 June 2020, 12 August 2020, 17 August 2020 and 21 October 2021 that he verified when giving evidence at the hearing and an affidavit sworn on 9 October 2020. Mr Renton’s evidence was directed at Hanwood’s entry into the Consultancy Agreement, the circumstances in which he ceased to be a director of Hanwood, the extent of his knowledge of the sale of the Property, the disbursement of the Net Sale Proceeds by Mr Kelly and the steps taken by Mr Renton’s lawyers to obtain Hanwood documents from Mr Kelly. Mr Renton annexed to his affidavits most of the documents that were produced by Mr Kelly in response to orders for production or discovery. Mr Renton also gave evidence of the limited involvement he had in the development of the Property and the extent of his reliance on Mr Kelly to conduct the affairs of Hanwood.

118    Mr Renton is 89 years old and suffering from significant medical conditions. At the time he was being cross-examined he was recovering from femoral neck fracture and was taking nine separate medications, including two medications for pain relief. Perhaps understandably in the circumstances, his oral evidence was of limited assistance.

119    It was readily apparent from his demeanour in Court that Mr Renton had a deep antipathy towards Mr Kelly and that he found it difficult to focus on the questions that were being put to him. In the course of seeking to clarify some of his oral evidence, I had the following exchange with Mr Renton:

So Mr Kelly advised you that Hanwood should retain Mr Nichols, is that the case?---Yes. I – I think he actually did it and told us about it later.

Okay. He told you that he had retained Mr Nichols - - -?---Yes.

- - - for Hanwood?---Yes.

Did he tell you why he had retained Mr Nichols?---He said - - -

Sorry?---I beg your pardon?

Did he tell you why he had retained Mr Nichols?---To give him – not really, no.

Was it a matter of any interest to you as to why Mr Nichols had been retained?---Not particularly. It was, yes.

Well, did you think that it would involve the payment of any money by Hanwood to Mr Nichols?---Yes, well we left all that to Mr Kelly, you know, and he was handling it so our involvement was always after the events. So yes, if Mr Kelly - - -

Sorry? Sorry, did you just say if Mr Kelly told you that the company needed some money, you would pay the money?---Yes. We would pay, yes. I’ve forgotten the details but we always paid our bills.

When you say we paid our bills, is that Hanwood paying its bills?---That was – yes, it was personal debts or, like, it’s not personal debt. Yes, it’s just – yes. I can’t – can’t recall that. It’s all a bit vague. I spent, I’ve recently – recently spent six weeks in hospital and all of this is all a bit vague. So I’ve had most of my stomach removed, I’m – I’m just – just not up with it, I don’t think. Sorry.

120    Mr Renton’s difficulties in focusing on the issues on which he was being cross-examined was similarly evident when he was pressed about the circumstances in which he ceased to be a director of Hanwood:

MR KELLY: In relation to your resignation, Mr Renton, do you recall having a meeting whereby you produced your written resignation and explained to me the reason why?---Resignation for where? Resignation for where? From what?

You tabled your resignation and we had discussions as to why you wanted to resign at that time?---I can’t recall - - -

..... - - -?--- - - - any of this. I – I cannot recall any of this.

HIS HONOUR: Mr Kelly is asking you about your resignation as a director from Hanwood?---Of Hanwood. Of Hanwood.

And he’s asking you, do you recall producing a letter of resignation - - -?---I – I don’t recall what - - -

- - - from Hanwood and giving it to - - -?---I – I - - -

- - - Mr Kelly?---I – I don’t recall. What’s the relevance?

Don’t worry about the relevance. Just answer the questions that Mr Kelly - - -?---Yes. Thank you.

- - - is asking you.

MR KELLY: Your Honour, I – I think that it has got to a point where I’ve asked all the questions that I – are reasonable. There’s a lot of things that went on. I will just finally ask Mr Renton, do you recall the many times that we had discussions about the length of time I spent on – not just onsite and – and making decisions in relation to the development and kept you updated over a lengthy period of time, do you recall that I never got paid for that?---I – I – I – I actually do not recall that you never got paid. Every bill that you ever put in you were paid promptly onto – almost on the dot. I think that’s a complete furphy.

121    A matter that Mr Renton was at pains to stress throughout his cross-examination was that he left all matters affecting Hanwood to Mr Kelly. This was emphasised in the following exchange, when I was again seeking to clarify the evidence that Mr Renton had given about the proceedings that Hanwood had brought in the Land and Environment Court challenging the decision of the Cessnock City Council to revoke approval of the proposed sub-division of the Property:

So what did you leave to Mr Kelly, then?---We left it all to him.

When you say, “all”, what do you mean by, “all”?---Well, Harry [Terrett] and I didn’t have anything to – we left him in charge of it, you know what I mean?

Left in charge of what?---Yes. The – the whole – the whole purchase, the whole of the – the – the – we didn’t – Mr Kelly - - -

So the purchase of - - -?---Mr Kelly was handling - - -

Yes?--- - - - everything.

Well, when you say, “everything”, do you mean by that he was making all the decisions - - -?---Yes.

- - - for the company, for Hanwood?---Basically, yes.

And did that include obtaining finance to fund Hanwood’s operations?---Well, I’m not sure of that.

Well, when you said you left everything to him, did that include obtaining money to enable Hanwood to continue to operate?---Yes. He could have done.

So is it your evidence that you don’t know what money was obtained by Mr Kelly for the purpose of conducting the business of Hanwood?---That’s correct. That’s correct. I don’t know.

You left it entirely to Mr - - -?---Kelly, yes.

- - - Kelly?---Yes. Yes. Yes. We did.

Did Mr Kelly tell you from time to time what he was doing with Hanwood?---He did. But after – he did, yes.

122    In his affidavit, sworn on 21 October 2021, Mr Renton gave evidence of his current health conditions, the steps that he has taken to seek to understand what Mr Kelly had done with the proceeds of the sale of the Property and the financial impact to him of pursuing the proceedings against Mr Kelly.

Ms Lee

123    Hanwood also relied on an affidavit of Ms Lee sworn 15 October 2020. She was not cross-examined.

124    Ms Lee gave evidence of communications with Mr Kelly’s former solicitor, Mr Beazley, concerning the adequacy of Mr Kelly’s provision of financial records in compliance with the orders made by Rares J on 21 August 2020 for the production of financial records.

Mrs Renton

125    Mrs Renton is Mr Renton’s wife. She gave evidence, in her statement signed on 1 December 2021 and verified in the witness box on 3 December 2021, that she was with Mr Renton in Hawaii between 27 June 2013 and 14 July 2013 and annexed email communications that she had with Mr Kelly while she was in Hawaii about a meeting that Mr Kelly wished to have with Mr Renton on his return from Hawaii. Mrs Renton was not cross-examined.

Mr Kelly

126    Mr Kelly relied on a statement dated 5 February 2021, which he verified in the witness box on 26 October 2021. Mr Kelly gave evidence principally directed at the entry by Hanwood into the Consultancy Agreement, the resignation of Mr Renton as a director of Hanwood, the provision of funding by Stintari to Hanwood and the sale of the Property and the subsequent disbursement of the Net Sale Proceeds. At times, as I explain further below, Mr Kelly as a self-represented litigant found it difficult to appreciate the difference between submissions and evidence. In making findings of fact in these proceedings, I have only had regard to evidence given by Mr Kelly, either in his statement or in the course of his cross-examination, and I have not had regard to submissions that he has made that are not supported by any evidence.

127    Mr Kelly adopted a combative and belligerent stance throughout much of his cross-examination, as illustrated in the following exchanges with his cross-examiner, Mr Farrar:

MR FARRAR: Since Stintari was incorporated, have you been the sole director?---I – look, I would have to look. I may not have been for the first couple of years. I can’t remember that offhand.

Have you been the sole secretary?---Back when I was an accountant, I had clients. I had – there were hundreds of companies. I would have to do a search to find out exactly when I became a director and shareholder.

I’m not asking you about other companies. I’m asking you about Stintari, your company?---What I’m saying to you, I would have to go back and check to have the dates. No – if Stintari was incorporated, I think in about 1990. I can’t remember exactly.

128    Hanwood submits that the Court should have grave reservations regarding Mr Kelly’s credibility and the reliability of his evidence given the self-serving nature of his answers, his exaggerated difficulties in giving evidence, his overall capability to articulate himself in written form, the passage of time and his ill-health, and the fact that in the absence of a diary his evidence was based solely upon memory.

129    I accept that aspects of Mr Kelly’s evidence, including his explanations of when he commenced and ceased to practice as an accountant, his reluctance to answer questions directly, his tendency to become argumentative and his explanations for the delays in discovering documents, particularly in relation to the initial preliminary discovery orders, reflected adversely on his credit.

130    Nevertheless, I am satisfied that Mr Kelly was seeking to be truthful in his responses in the course of his cross-examination. At times, however, his stubbornness and understandable lapses in memory on questions of detail led him to give evidence that was implausible or to refuse to make concessions that otherwise appeared to be objectively compelling and appropriate. This was particularly evident in his evidence concerning the timing of the execution of the Consultancy Agreement by Mr Renton.

131    On balance, after taking into account the challenges faced by any self-represented litigant and Mr Kelly’s hearing difficulties and other medical issues, I am satisfied that Mr Kelly was generally seeking to give honest and truthful evidence, but his memory of relevant events was at times inconsistent with objective documentary evidence.

132    Moreover, Mr Kelly had an unfortunate tendency to be combative and make serious allegations of dishonest conduct on the part of others, including Mr John Holt, a former director, company secretary and shareholder of Hanwood and, even more concerning, against Mr Farrar. In many ways Mr Kelly was his own worst enemy and often did his cause no favours in his approach to the proceedings.

Ms Zupan

133    Ms Biba Zupan, described as Mr Kelly’s carer, gave a statement dated 5 February 2021 explaining the circumstances in which she came to lend Mr Kelly money. She was not cross-examined on this statement.

134    Ms Zupan gave evidence in her affidavit sworn on 29 November 2021 that Mr Kelly had left her house at Lugarno in Sydney for Maitland at approximately 6.00 am on 16 July 2021, contacted her at about 1.00 pm to inform her that his son was undergoing emergency surgery at Royal North Shore Hospital following a workplace accident and that Mr Kelly returned to her house at approximately 7.00 pm that evening. Ms Zupan was briefly cross-examined on this affidavit. Ms Zupan answered all questions directly and succinctly. I am satisfied that her answers were given truthfully to the best of her recollection.

Ms Creighton

135    Ms Creighton gave evidence in her affidavit sworn on 29 November 2021 that Mr Kelly had attended HDB’s offices in Maitland during the morning on 16 July 2013 to attend a meeting with Mr Nichols and Mr Somers but neither was present at that time. She stated that Mr Nichols returned to the office mid-morning and met with Mr Kelly. She recalled Mr Kelly then telling her that his son had had an accident and he had to leave. She otherwise confirmed that a contract was signed by Mr Somers and Mr Nichols on 17 July 2021 and that she then sent the signed contract to Mr Kelly. She was not available for cross-examination but her evidence was largely non-controversial except to the specific arrival time of Mr Kelly at HDB’s offices in Maitland on 16 July 2013. Hanwood contends that it was more likely, based on Mr Renton’s diary entries, to be early afternoon rather than in the morning.

Mr Staines

136    Mr Staines gave evidence, in his affidavit sworn on 30 November 2021, that Mr Kelly told him on or about 13 July 2013 that he was about to undergo urgent surgery on 17 July 2013 for the removal of his pancreas and that he would be recovering from the operation for at least three months. He also gave evidence that he had no record nor recollection of a visit from Mr Renton on behalf of Hanwood on 16 July 2013. Mr Staines was not cross-examined. The evidence was not controversial. Mr Renton did not suggest that he had any meeting with Mr Staines on 16 July 2013, only that he had met Mr Kelly at the offices of Mr Staines’ firm.

Mr Nichols

137    Mr Nichols is a director of HDB and a party to the Consultancy Agreement. He swore an affidavit on 29 November 2021 addressing the scope of the services provided by HDB in relation to the development of the Property and more specifically the consulting services that he and Mr Somers performed pursuant to the Consultancy Agreement. He was cross-examined.

138    Mr Nichols was an impressive witness. He answered questions that were put to him directly and succinctly and I was satisfied that he was telling the truth and not seeking to embellish his answers or otherwise act as an advocate for Mr Kelly.

Legal Principles

139    The relevant legal principles and statutory provisions were not in dispute.

Section 181(1) of the Corporations Act

140    Section 181(1) of the Corporations Act relevantly provides as follows:

181 Good faith—civil obligations

Good faith—directors and other officers

(1)     A director or other officer of a corporation must exercise their powers and discharge their duties:

(a)     in good faith in the best interests of the corporation; and

(b)     for a proper purpose.

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

141    The duty to act in good faith in the best interests of a corporation and for a proper purpose are conceptually separate duties, even if at times it is difficult to separate considerations relevant to each duty: Bell Group Ltd (In liq) and Others v Westpac Banking Corporation and Others (No 9) (2008) 39 WAR 1; [2008] WASC 239 at [4456] (Owen J).

142    Whether the duty to act in the best interests of the company is determined objectively or subjectively remains unsettled. Justice Black summarised the position in Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789 (Re Colorado Products) (at [420]) in the following terms:

The case law is divided as to whether a contravention of s 181(1)(a) of the Corporations Act requires that it be established that a director engaged deliberately in conduct which he or she knew was not in the company’s best interests: for example, Forge v Australian Securities and Investments Commission (2004) 213 ALR 574; 52 ASCR 1; [2004] NSWCA 448 at [245] per McColl JA (with whom Handley and Santow JJA agreed); Holyoake Industries [(Vic) Pty Ltd v V-Flow Pty Ltd] at [150], varied on appeal on another point in V-Flow [Pty Ltd v Holyoake Industries (Vic) Pty Ltd]. In Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; [2012] WASCA 157 (Westpac Banking Corporation), the Court of Appeal of the Supreme Court of Western Australia unanimously held that the corresponding general law duty to act in good faith in the company’s best interests was subjective and would be complied with if directors honestly believed they acted in the company’s best interests: at [923] per Lee AJA at [1988] per Drummond AJA at [2027], [2772] and [2795] per Carr AJA. The alternative view is that a contravention of that limb of s 181 can be established if the law objectively considers that what the director did was improper, even if the director subjectively believed that he or she was acting in the company’s best interests: see, for example, Australian Growth Resources Corporation Pty Ltd v Van Reesema (1988) 13 ACLR 261 at 270–1; 6 ACLC 529 per King CJ; Mernda Developments Pty Ltd (in liq) v Alamanda Property Investments No 2 Pty Ltd (2011) 86 ACSR 277; [2011] VSCA 392 at [32]–[33]. The difference in those approaches does not seem to me to be material for the purposes of this case. The section may be contravened if a director promotes his or her personal interest in a situation where there is a conflict or real or substantial possibility of a conflict between those interests and the company’s interests: [Australian Securities and Investments Commission v] Adler at [735]; Parker at [72].

143    It is not necessary in the present case to express any definitive view on the differences in approach on this issue. I am satisfied for the reasons that I explain later in these reasons that Hanwood has not established that Mr Kelly has contravened s 181(1)(a) on either an objective or subjective basis.

144    The weight of authority indicates that the question of whether a director has acted for a proper purpose is to be determined objectively: In the matters of Earth Civil Australia Pty Ltd, RCG CBD Pty Ltd, Bluemine Pty Ltd, Diamondwish Pty Ltd and Rackforce Pty Ltd (all in liq) [2021] NSWSC 966 (Earth Civil) at [967] (Ward CJ in Eq, as her Honour then was); citing by way of example, Re Colorado Products at [421]; In the matter of HIH Insurance Limited and HIH Casualty and General Insurance Limited; Australian Securities and Investments Commission v Adler [2002] NSWSC 171 at [738]-[740] (Santow J); Australian Securities and Investments Commission v Somerville (2009) 77 NSWLR 110; [2009] NSWSC 934 at [38] (Windeyer AJ). Her Honour also referred to the distillation of the relevant principles by Ipp J, as his Honour then was, (with whom Seaman J and Malcolm CJ agreed) in Permanent Building Society (in liq) v Wheeler and Others (1994) 14 ACSR 109 at 137 as follows:

The principles applicable in determining whether directors of a company have acted for an improper purpose and in abuse of their powers are well settled. Relevantly, as regards the issues that arise in this case, it may be said that those principles are:

(a)    Fiduciary powers and duties of directors may be exercised only for the purposes for which they were conferred and not for any collateral, or improper purpose.

(b)    It must be shown that the substantial purpose of the directors was improper or collateral to their duties as directors of the company. The issue is not whether a management decision was good or bad; it is whether the directors acted in breach of their fiduciary duties.

(c)    Honest or altruistic behaviour by directors will not prevent a finding of improper conduct on their part if that conduct was carried out for an improper or collateral purpose. Whether acts were performed in good faith and in the interest of the company is to be objectively determined, although statements by directors about their subjective intentions or beliefs will be relevant to that inquiry.

(d)    The court must determine whether but for the improper or collateral purpose the directors would have performed the act impugned.

Section 182(1) of the Corporations Act

145    Section 182(1) of the Corporations Act relevantly provides:

182 Use of position—civil obligations

Use of position—directors, other officers and employees

(1)     A director, secretary, other officer or employee of a corporation must not improperly use their position to:

(a)     gain an advantage for themselves or someone else; or

(b)     cause detriment to the corporation.

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

146    The question of whether a director has used their position improperly to gain an advantage for themselves or another or to cause detriment to the corporation is to be assessed objectively: Earth Civil at [969] (Ward CJ in Eq, as her Honour then was) citing Re Colorado Products at [432]-[433]; Taxa Australia Pty Ltd v Wang (2018) 130 ACSR 531; [2018] NSWSC 1412 at [33] (Black J) and the following statement by Gleeson CJ (with whom Allen and James JJ agreed) in R v Towey (1996) 21 ACSR 46 at 57 that impropriety is established by:

a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties powers and authority of the position and the circumstances of the case.

147    It is not necessary for the relevant advantage or detriment sought be achieved in order to establish a contravention of s 182(1): Re Colorado Products at [433] (Black J).

Section 1317E of the Corporations Act

148    Section 1317E of the Corporations Act relevantly provides:

1317E Declaration of contravention of a civil penalty provision

Declaration of contravention

(1)     If a Court is satisfied that a person has contravened a civil penalty provision, the Court must make a declaration of contravention.

(2)     The declaration must specify the following:

(a)     the Court that made the declaration;

(b)    the civil penalty provision that was contravened;

(c)    the person who contravened the provision;

(d)    the conduct that constituted the contravention;

(e)    if the contravention is of a corporation/scheme civil penalty provision—the corporation, registered scheme or notified foreign passport fund to which the conduct related;

149    Section 1317E(3) relevantly provides that ss 181(1) and 182(1) are corporation/scheme civil penalty provisions.

Section 1317H of the Corporations Act

150    Section 1317H relevantly provides as follows:

1317H Compensation orders—corporation/scheme civil penalty provisions

Compensation for damage suffered

(1)     A Court may order a person to compensate a corporation, registered scheme or notified foreign passport fund for damage suffered by the corporation, scheme or fund if:

(a)    the person has contravened a corporation/scheme civil penalty provision in relation to the corporation, scheme or fund; and

(b)     the damage resulted from the contravention.

The order must specify the amount of the compensation.

Note:    An order may be made under this subsection whether or not a declaration of contravention has been made under section 1317E.

Damage includes profits

(2)     In determining the damage suffered by the corporation, scheme or fund for the purposes of making a compensation order, include profits made by any person resulting from the contravention or the offence.

…

151    As Gleeson J explained in Re IW4U Pty Ltd (in liq) and Others (2021) 150 ACSR 146; [2021] NSWSC 40 at [47]:

The words “resulted from” require a causal connection between the damage and the impugned conduct and do not import the more stringent test in equity for breach of fiduciary duty: Adler v Australian Securities and Investments Commission (2003) 46 ACSR 504; [2003] NSWCA 131 at [707]–[710]. It has been said that the common sense test of causation from March v E & M H Stramare Pty Ltd (1991) 171 CLR 506; 99 ALR 423; 12 MVR 353 whether loss would have occurred had there been no breach of duty, is applicable to s 1317H: Hydrocool Pty Ltd v Hepburn (No 4) (2011) 279 ALR 646; 83 ACSR 652; [2011] FCA 495 at [476]. Such an assessment may involve the positing of counterfactuals: see the remarks of Beach J in Australian Securities and Investments Commission v Mitchell (No 2) (2020) 382 ALR 425; 146 ACSR 328; [2020] FCA 1098 at [1778]–[1780], in the similar context of s 1317G.

Uncommercial Contracts Contravention

Submissions

152    Hanwood submits that the maximum amount that would have been appropriate to be paid for the services provided by the Consultants pursuant to the Consultancy Agreement was $50,000. It relies on the expert evidence of Mr Blundell.

153    Hanwood submits that Mr Renton’s knowledge of the Consultancy Agreement was limited to what he had been told by Mr Kelly, which was only that it was a standard document, Mr Kelly had reviewed it and Mr Renton did not need to seek any advice about it.

154    Mr Kelly gave the following evidence in his statement about the impact of the discovery of the critically endangered plants on the saleability of the Property and the proposed entry into the Consultancy Agreement:

64.     When we put the road in off Hanwood Road, plants started to shoot up right in the roadway. What had happened was that by digging them up, it raised the seeds. Once that happened they said you can’t do any more roadwork for at least seven years and the rest of the seeds in the soil probably have a 15 year life. That was the only access you could get. You couldn’t sell the land. The development was dead in the water. The land was unsalable as a commercial site.

65.     I went to real estate agents and said can we sell and they said we won’t waste our time because the first thing we have to tell people is that you can’t get a road and you can’t get access, so who’s going to buy it so that’s what commenced the discussions with Kerry Nichols, so if you read his write-up, also gives details of his history and experience. He had worked for two or three councils. He said the only thing, and the State government had changed the laws and made biodiversity credits available for certain circumstances. He said that the only possibility. If we can find somebody who needs credits then there’s a chance they might buy the land. That was the basis of going into the consultancy agreement.

66.     They turned at a consultancy agreement. If you look at the details, it’s more like a joint-venture agreement, in other words they paid expenses. Their solicitor said consultancy agreement. I discussed as number of times with Renton, and he got the draft in April, and eventually we got the final agreement.

155    Hanwood submits in response to this evidence of Mr Kelly that there was no evidence that Mr Kelly approached anyone other than the Consultants to provide the “services” in connection with the sale of the Property, no evidence of any competitive tendering process nor any evaluation as to whether the services could be provided by anyone other than the Consultants, and Hanwood was deprived of the opportunity of obtaining the services from other providers, such as Mr Blundell, on “more competitive terms”.

The Consultancy Agreement

156    The scope of the services to be provided under the Consultancy Agreement was specified in the following clauses of the agreement:

2.1    In consideration of Hanwood entering into this Agreement the Consultants undertake to Hanwood to:-

2.1.1    observe and perform all and any of the Consultants’ obligations under this Agreement;

2.1.2    do all things reasonably necessary (including all studies) to meet the requirements of Government Authority to procure the recognition of the Land (or substantial parts thereof) as Environmental Land.

2.2    The Consultants aim to achieve each of the following objectives which are acknowledged by Hanwood:-

2.2.1    to undertake and to update flora and fauna studies for the Land to identify the full extent of Endangered Flora and Fauna so as to secure the Optimum Biodiversity Value;

2.2.2    consult with the Office of Environment and Heritage in order to have determined by the Office the environmental credits attributable to the Land so as to maximise the value of such environmental credits;

2.2.3    liaise and consult with the New South Wales National Parks to secure the inclusion or opportunity for inclusion of the Environmental Land as part of the adjacent National Park;

2.2.4    obtain such consents or approvals as may be necessary to subdivide the Land where the subdivision of the Land will permit separation (by way of separate lots) of:-

(i)    Environmental Land;

(ii)    rural residential land;

(iii)    any other land classification;

where the aggregate value of the Land upon sale is optimised.

2.2.5    liaise with and seek the assistance of the Federal Environmental Department under the Environment Protection and Biodiversity Conservation Act to ensure compliance with relevant Federal Legislation;

2.2.6    formulate marketing strategy for the sale of the Land, or the parts thereof so as to maximise the value of the Land.

2.3    The Consultants will contribute each of the following:-

2.3.1    the funding of all costs necessary to identify and have recognised by Government Authorities the Environmental Land upon the basis they will recover those costs under clause 5;

2.3.2    their skill and expertise to secure the highest and best use of the Land, in terms of its final value, in accordance with this Agreement;

2.3.3    their expertise in environmental matters including securing the necessary reports and liaising with appropriate Government Authorities.

2.3.4    together with all necessary costs to achieve the objectives outlines in Clause 2.2.4

157    Further, cl 3.1 of the Consultancy Agreement provided that:

3.1    During the Environmental Assessment Phase, the Consultants must at their own cost:-    ·

3.1.1    undertake all necessary studies and seek all necessary approvals and otherwise do all things necessary to achieve the environmental recognition;

3.1.2    at the time of lodging the document with the Government Authority to effect the environmental changes, notify Hanwood and provide particulars to Hanwood.

3.2    The Environmental Planning Phase commences on the date of this Agreement and concludes on the date upon which the Office of Heritage and Environment, in conjunction with the Consultants, determine the Optimum Biodiversity Value, including the concurrence of the New South Wales National Parks if required.

158    The allocation of the proceeds of the sale of the Property was addressed in cl 5 of the Consultancy Agreement in the following terms:

5.1    Hanwood, upon completion of the Land Sale Agreement, shall deposit the sale proceeds into a joint account in the names of Hanwood and the Consultants.

5.2    The parties shall cause the sale proceeds to be applied as follows:-

5.2.1    firstly, to pay any costs incurred on the sale of the lot;

5.2.2    secondly, to the Australian Taxation Office that amount as represents any GST received on the sale; in accordance with under the Income Tax Assessment Act

5.2.3    thirdly, to the Consultants to reimburse the Consultants the Consultants’ Expenses;

5.2.4    fourthly, to pay the Base Landholder Sum to Hanwood;

5.2.5    thereafter, the remaining funds shall be paid as follows:-

(i)    as to an amount as represents 40% of the balance to the Consultants jointly as Consultancy Fees together with the GST applicable thereto;

(ii)    as to any balance to Hanwood.

5.3    At the completion of the Project a reconciliation is to be made of the distribution of the sale proceeds with the intention that:-

5.3.1    all GST will be correctly accounted for;

5.3.2    Hanwood will receive the Base Landowner Sum;

5.3.3    Hanwood will pay to the Consultants the Consultants Expenses;

5.3.4    the Consultants will receive the Consultancy Fee;

5.3.5    the consultancy fee will be 40% of the balance of the proceeds as detailed in 5.2.5 (1)

159    The “Base Land Value”, which I infer was objectively intended by the parties to be a reference to the “Base Landowner Sum” in the absence of any other reference in the Consultancy Agreement to a “Base Land Value” and no separate definition of “Base Landowner Sum”, was specified in cl 1.1 to be the sum of $1,200,000 exclusive of GST.

Consideration

160    The generality with which the services are expressed in cls 2.1 to 2.3 and 3.1 of the Consultancy Agreement make any objective assessment of the value or reasonable remuneration for such services inherently problematic. The services are expressed as doing “all things reasonably necessary”, an “aim to achieve each of the following objectives”, securing the “highest and best use of the Land”, undertaking all “necessary studies and seek all necessary approvals” and otherwise doing “all things necessary to achieve the environmental recognition”.

161    Mr Blundell estimated a maximum range, based on hourly rates, for all of the services to be provided under the Consultancy Agreement to be between $20,000 to 40,000. In his opinion, if this were converted to a fixed fee arrangement the maximum amount payable would be between $30,000 and $50,000 for the entirety of the services provided by the Consultants. He also gave evidence that, in his opinion, a fee arrangement whereby a consultant was paid 40% of the sale price for a property was “completely outside the realm of the fee arrangements that were in place at the time”.

162    Mr Blundell was provided with the documents discovered by the Consultants for the purpose of preparing his report but noted that he did not observe any timesheets or other records that would disclose the time spent by the Consultants in providing the services under the Consultancy Agreement. It is not apparent therefore how Mr Blundell was able to identify a range of hours spent by the Consultants or if converted to a fixed fee arrangement how he was able to calculate a maximum amount for the “entirety” of the services provided by the Consultants from his review of the discovered documents. The conclusions he expressed were necessarily impressionistic and no empirical basis was provided for his calculations.

163    Moreover, although the fees payable to the Consultants were described as a consultancy fee and “Consultancy Fee” was defined in cl 1.1 to mean the remuneration payable to the Consultants upon the sale of the Land as determined in cl 5.2, this did not carry with it any necessary implication that the fee was intended to be paid on a time incurred basis rather than as an incentive to achieve as high a price for the Property as possible.

164    Most significantly, contrary to Mr Blundell’s observation at [31] of his report, the obligation of Hanwood was not “to pay 40% of the sale figure”. Rather, it was to pay 40% of the amount realised on the sale of the Property in excess of the costs incurred on the sale of the Property, amounts due to the Australian Taxation Office (ATO) for GST on the proceeds of the sale, the Consultants’ expenses and most significantly the “Base Landholder Sum” of $1,200,000 (exclusive of GST) to Hanwood.

165    The rationale for the remuneration provided for the Consultants in the Consultancy Agreement emerged most clearly at the conclusion of the cross-examination of Mr Nichols in the following exchange:

Is that the extent of the services that were provided under the consultancy agreement?---We held a number of one-off meetings with development companies during that phase, to see if they were interested - to try and get them interested - none of which were. At the end of the process, I reviewed the environmental impact statements of a number of resource-based industries. Rio Tinto appeared to be interested at one stage. We had a number of meetings with them. That did not pan out. We – I noticed that Warkworth Mining Company had a proposal in. I went through their EIS, identified that they were short in certain areas, which – I then sent a letter to Warkworth Mining Company and approached them. I was then contacted by a valuer for that – for that company - a valuer that I had worked with previously, fairly extensively – and was able to secure a sale in that regard.

Was that you personally were able to secure that sale?---Yes.

And how did you do that?---Through my association with – through a long trail of emails backwards and forwards. I think the fact that he was aware of myself, my credentials, and was happy and trusting to work with me. And he worked with us to obtain the sale.

And that was what entitled you to almost a million dollars in consideration for the services; is that right?---No. No, it’s not only that. We took that on as a – a win or lose situation. So, if we won, we were using our ability – our knowledge; our experience in the development industry. We put a proposal forward at that, that was accepted, and we think that was a fair and reasonable uplift, given that the value at the time, when we went into this, was less than a million dollars.

So you treated the arrangement as a commission arrangement rather than a services arrangement; is that right?---Yes, you could say that. Yes, it was more that than a consultancy arrangement. Yes.

So more of a – like a real estate agent’s commission for transacting a sale?---No. No. No, certainly not. I’m not a real estate agent. I’ve got nothing to do with that. No. I used my experience in that industry, and that of Mat. I put it to him together ..... get the job done, and that was what we did.

So, how many other arrangements did this consultancy agreement – how many other arrangements like this did you have on foot in July 2013?---Just completed one, which was one other matter. And I’ve done, probably, two since.

You had completed one in July 2013?---Probably two. Not in July 2013. There was one going on. Prior to that – we still continue, actually, at that stage. So that was the – the Sweetwater Project. And I did one for Musswellbrook [sic] Showground, which was an uplift. And they’re not uncommon in the development industry. It’s a situation where, if you can make things happen with – with your contacts – with your input and your knowledge – then, if we can make a significant gain – then it’s a product of sharing in that gain.

I’ve got nothing further, your Honour.

[Emphasis added.]

166    In the light of Mr Nichols’ explanation of the fee arrangements provided for in the Consultancy Agreement I am satisfied that they had a legitimate commercial rationale. Moreover, the arrangements are substantially the same as the fee arrangements that both Mr Renton and Mr Terrett accepted in the September 2008 Consultancy Agreement Letter.

167    Mr Renton gave the following evidence as to the circumstances in which he signed the Consultancy Agreement:

On 16 July 2013, I attended the Offices as requested by Mr Kelly and he handed me a document. We had a conversation in words to the following effect:

He said:     “Jared [his son] has suffered an injury and I want to visit him in hospital. I need you to sign this agreement now so we can move forward.”

I said:         “What is it?”

He said:     “It is a standard document to engage some consultants to assist in the sale of some of Hanwood’s property. The consultants will assist in maximising the outcomes and returns for Hanwood. They will help Hanwood achieve significant outcomes in relation to the sale of its land. I have read and reviewed it and I am comfortable with its content. You do not need to seek any legal advice or any advice about it. I have already reviewed it.”

I said:         “Okay, I trust that you have reviewed it on behalf of Hanwood”

I did not read the document closely and nor did I seek any advice. From what I did read, I thought that the essence of the contract “to sell” was acceptable although I did not understand all the terms. I then proceeded to sign the agreement on the spot. This exchange lasted less than ten minutes.

168    By reference to the Renton 16 July 2013 Diary Note, I am satisfied that Mr Renton’s meeting with Mr Kelly took place shortly prior to 11.15 am on that day. Given Mr Kelly’s evidence about his concern to get the Consultancy Agreement signed before his operation the following day I am also satisfied that any explanation that Mr Kelly may have provided was relatively brief and would have largely consisted of telling Mr Renton that the document was in an appropriate form to be signed and that it was unnecessary for Mr Renton to obtain any further advice before signing the agreement. Mr Renton, however, was mistaken in his recollection that Mr Kelly had referred to any injury to his son. I am satisfied given the evidence of both Mr Kelly and Ms Creighton that Mr Kelly did not learn of the injury to his son until later that day while he was in Maitland at the offices of Mr Somers and Mr Nichols.

169    Further, in response to a request to clarify whether he had had any conversation with Mr Renton before Mr Renton had signed the Consultancy Agreement, Mr Kelly responded:

Yes, I did, but it was not on the 16th. It was an earlier date in July. I can’t remember the exact date. And I spent quite a bit of time. Mr Renton was convinced that the consultants were getting 40 per cent of the proceeds. But when – and I actually did some calculations for him, which showed because they allowed a base price for the land, that the – the 40 per cent didn’t commence until after the base price. And I can recall saying to Mr Renton, “I don’t really care if – if they get $10 million for the business. If they do, they’re entitled to 40 per cent. But Hanwood will get a lot more money out of it.” So the – the basis of the agreement was to provide an incentive, and I knew we were entering into an agreement with people that were very experienced. Back in those days, there were very few people that knew that much about critically endangered plants. They knew about endangered plants under the state plan, but once you got involved with a Commonwealth declared critical endangered species, it’s a whole new boardgame, and you can’t – it’s almost impossible to get out of it. So Mr Nichols had experience with it, and that’s why I was prepared and negotiated with him over a three-month period. It wasn’t short-changed. It took time.

170    Mr Kelly gave similar evidence in his statement at [71] (as written):

Initially when I discussed the deal with Fred Renton he said “The 40% commission is too high.” I said to Fred “I replied “Well they are taking the risk and putting money in. We have no more money. Since I sold my house I’ve can’t keep putting in more money. If you want to negotiate their fees down, be my guest. Anyway, don’t look that way, they are allowing $1.2 million for land value to come off, so off they’re really not getting 40%”. He said that’s what it says, and I said yes but they’re taking the land value off. So off the gross receipts, they’re not getting 40% of the gross receipts. When I worked it out based upon Kerry Nichols’ estimate that he felt it would get somewhere between $1,750,000 and $2,250,000. I did a calculation for Fred similar to that and I think it works out at about 10% of the gross, and I believe that’s the realistic way to look at it, not just look at the 40%. Annexed and marked “A’ is how I worked out the figures and showed him. Renton then signed.

171    Mr Kelly confirmed in his cross-examination that the Annexure A referred to at [71] of his statement was prepared in the course of drafting his statement in order to illustrate the calculation he had done for Mr Renton at the time of the conversation; it was not a copy of the calculation that he in fact had shown to Mr Renton.

172    Given that the draft of the Consultancy Agreement was not provided to Mr Kelly until 2 July 2013 and Mr Renton was in Hawaii between 27 June and 14 July 2013 (returning to Sydney on 15 July 2013), Mr Kelly could not have literally discussed the terms of the Consultancy Agreement on “an earlier date in July”. However the critical aspect of Mr Kelly’s evidence was a discussion with Mr Renton of a 40% split to the Consultants. The proposed 40% split was included in the Heads of Agreement dated April 2013, and in the 22 April 2013 Email Mr Kelly informed Mr Somers and Mr Nichols that he and Mr Renton had resolved to enter into “an agreement with your group”.

173    I am satisfied that Mr Kelly did have a conversation to the effect of the conversation that he described in the extract from the transcript above and at [71] of his statement but it took place in or about April 2013 prior to the despatch of the 22 April 2013 Email to Mr Somers and Mr Nichols.

174    Moreover, I am satisfied that Mr Kelly has explained the rationale for the proposed 40% split to Mr Renton in April 2013 and Mr Renton had accepted that explanation.

175    In the light of the above evidence from Mr Nichols, the problems that Hanwood had encountered with the Property after the discovery of the critically endangered plant species, Persoonia pauciflora, and the absence of any evidence of contemporaneous valuations of the Property materially in excess of $1,200,000 at the time of Hanwood’s entry into the Consultancy Agreement, I am not persuaded that the entry into the Consultancy Agreement can be characterised as a breach by Mr Kelly of his duties to Hanwood.

176    I am not satisfied that Hanwood has demonstrated that the Consultancy Agreement conferred very significant benefits on the Consultants to the detriment of Hanwood. Hanwood also stood to gain significant benefits, if, notwithstanding the impact on the value of the Property by reason of the inability of Hanwood to proceed with the proposed subdivision given the lack of an access road and the other hurdles that Hanwood had encountered, the Property was able to be sold at a price in excess of $1,200,000 (excluding GST), selling costs, GST payable to the ATO and the Consultants’ incidental expenses. The Consultants bore the commercial risk that if the Property could not be sold for an amount in excess of those amounts, in aggregate, they would receive no consulting fee and would only be able to recover their incidental expenses.

177    Nor could it be assumed, and no evidence was led to suggest, that notwithstanding the bespoke difficulties that arose with the Property because of the discovery of the Persoonia pauciflora it would have been possible to have engaged consultants on alternative reduced but more certain remuneration terms. This possibility is made much more uncertain given Mr Renton’s longstanding refusal to contribute any funds to meet Hanwood’s expenses and the very significant sums already advanced by Mr Kelly and Stintari to Hanwood and outstanding amounts due to Mr Kelly for his work in relation to the proposed development and realisation of the Property.

178    Finally, I note that Hanwood has asked the Court to draw an inference pursuant to the principle in Jones v Dunkel (1959) 101 CLR 298 (Jones v Dunkel) by reason of Mr Kelly’s failure to seek to adduce evidence from Mr Somers. I am not prepared to draw such an inference. Hanwood has not established that it was within Mr Kelly’s power to obtain evidence from Mr Somers. Further, in the light of the evidence of Mr Nichols it would not have been natural for Mr Kelly to seek to lead evidence from Mr Somers nor might it reasonably be expected that he would give evidence and there is no requirement to call merely cumulative evidence. In any event, I am satisfied that any inference that might have been drawn that Mr Somers’ evidence would not have assisted Mr Kelly in his defence to the Uncommercial Contracts Contravention would not have caused me to come to a different conclusion on whether that contravention had been established, given the evidence that I have accepted of Mr Nichols and the apparent logic of events.

179    For these reasons, I am satisfied Mr Kelly did not improperly use his position as a director of Hanwood to cause detriment to Hanwood in causing Hanwood to enter into the Consultancy Agreement. The Uncommercial Contract Contravention has not been established.

Removal Contravention

Submissions

180    Hanwood submits that viewed objectively, Mr Kelly used his position as a director of Hanwood to gain an advantage for himself and Stintari by removing Mr Renton as a director so that he could deal exclusively with the disposal of the Property. It submits that no reasonable director in Mr Kelly’s position would have determined in all the circumstances that it was proper to remove Mr Renton as a director of Hanwood.

181    Mr Kelly submits that Mr Renton resigned as a director of Hanwood because he did not want to be a director at the time that the Property was sold as Mr Renton and Mr Harry Terrett were still in dispute about the separation of their respective businesses.

Consideration

182    Hanwood submits that the Court should accept Mr Renton’s evidence that he had never given notice of his resignation as a director of the company, Mr Kelly did not give notice of his intention to lodge a form with ASIC in relation to Mr Renton’s resignation as a director, Mr Kelly did not obtain Mr Renton’s consent to the lodgement of the form with ASIC and Mr Kelly did not have authority to lodge the form with ASIC.

183    Hanwood submits that the Court should also accept Mr Renton’s evidence that he wished to remain a passive director due to his indirect shareholding interests in the company. Whereas, it submits, Mr Kelly had a motivation for removing Mr Renton as a director, namely to free Mr Kelly from the restraints of having to arrange for Mr Renton to execute documents as a co-director of Hanwood, such as the Sale Contract, and to allow him to deal exclusively with the allocation of the sale proceeds from the sale of the Property.

184    Mr Kelly gave evidence that on or about 20 May 2014 Mr Renton handed him an undated handwritten notice of resignation as a director of Hanwood and said to him words to the following effect:

I have decided to resign as a director of Hanwood. I don’t want to be a director at the time the land is sold. Harry [Territt] and I are still in dispute with the separation of our businesses.

185    Mr Kelly gave evidence that he then drafted a minute, placed the minute in the minute book and hand wrote a form for submission to ASIC notifying it of Mr Renton’s resignation, completed an envelope addressed to ASIC and then gave it to Mr Renton to post.

186    Mr Kelly also gave evidence that in the course of reviewing an ASIC search in or about November 2014, in the context of a strike out application by ASIC against Hanwood for not paying ASIC fees, he became aware that Mr Renton was still recorded as a director of Hanwood. He stated that he then met with Mr Renton and had a conversation to the following effect:

Mr Kelly:    Did you post off the resignation form to ASIC? You are still listed as a Director of Hanwood?

Mr Renton:    I thought I did.

Mr Kelly:    Well do you want me to redo the paper work with ASIC?

Mr Renton:    Yes, I don’t want to be a director.

187    Mr Kelly gave evidence that he then drafted the ASIC form and backdated it to the date of resignation in the minute book of Hanwood and lodged it at ASIC’s Sydney office on 8 December 2014. He confirmed that he had to pay a fee for the late lodgement of the form.

188    On balance I accept Mr Kelly’s evidence in preference to that of Mr Renton. It is more consistent with the apparent logic of events.

189    The fact that Mr Renton was no longer a director of Hanwood at the time of the settlement of the sale of the Property allowed Mr Kelly to make the Impugned Payments without obtaining Mr Renton’s approval but that does not establish that it was the reason why he might have ceased to be a director.

190    There was no evidence that Mr Renton had sought to obstruct or otherwise Mr Kelly’s actions in seeking to develop and realise the Property for sale. To the contrary, Mr Renton admits that he left the matter entirely to Mr Kelly to progress and made it very clear to Mr Kelly that he was not prepared to advance any further funds to Hanwood.

191    There was no evidence that Mr Renton attended or sought to attend any board meetings of Hanwood at any time between the entry into the Consultancy Agreement in July 2013 and the settlement of the sale of the Property on 13 March 2015. Further, Mr Renton gave evidence that he was not even aware that he was no longer a director of Hanwood until he obtained and viewed a company search of Hanwood on or about 22 May 2015.

192    There was no evidence that Mr Renton ever sought any updates from Mr Kelly as to the progress of the sale of the Property at any time between the entry into the Consultancy Agreement in July 2013 and the settlement of the sale of the Property on 13 March 2015. Indeed, it would appear from Mr Renton’s evidence he was not even aware that the Property had been sold until he had lunch with Mr Kelly on 25 March 2015 at the Peacock Gardens Restaurant.

193    A decision to resign as a director of Hanwood because of a lack of any expressed interest in having any involvement in or information about the steps being taken by Mr Kelly to develop and sell the Property, the only substantive asset of Hanwood, is more consistent with the apparent logic of events than a decision to remain as a “silent” director of Hanwood.

194    Further, backdating the date of Mr Renton’s resignation to 20 May 2014 on the notification of the resignation of Mr Renton to ASIC on 8 December 2014 is consistent with Mr Kelly’s explanation of the circumstances in which Mr Renton resigned, namely the earlier alleged resignation and entries made in the minute book for Hanwood on or about 20 May 2014. The “backdating” of the resignation to 20 May 2014 gave rise to the need to pay a late notification fee to ASIC. It is more consistent with an attempt to ensure that the date of the resignation is accurately recorded rather than any belated desire on 8 December 2014 to remove Mr Renton as a director shortly prior to Hanwood entering into a contract for the sale of the Property.

195    Moreover, the theory that Mr Renton was removed as a director to enable the Impugned Payments to be made does not sit comfortably with the fact that Mr Kelly proactively notified Mr Renton of the settlement of the sale of the Property and provided him with a bank cheque for $500,000, consistently with the liabilities of Hanwood recorded in the financial records of Hanwood tendered in evidence and discussed in more detail subsequently in these reasons.

196    For these reasons, I am not satisfied that Mr Kelly improperly used his position as a director of Hanwood to remove Mr Renton as a director without his permission or consent. The Removal Contravention has not been established.

197    Had I been satisfied that Hanwood had established the Removal Contravention, it would have amounted to a contravention of a civil penalty provision of the Corporations Act. It is not apparent how the alleged Removal Contravention, if established, would have given rise to any entitlement for compensation. Mr Renton does not allege that he has suffered any specific loss, such as the loss of director’s fees and Hanwood. Rather, the Removal Contravention appears to have been advanced as a matter providing evidential support for the Payments Contravention, a matter that would give rise to an entitlement for Hanwood to seek compensation, not Mr Renton. As the case was pleaded by Hanwood and advanced in the hearing, in order to establish that Hanwood has suffered loss by reason of the removal of Mr Renton as a director it would also be necessary for Hanwood to establish the Payment Contravention.

198    Finally, I note given my findings above I do not consider that Hanwood has established any basis for an order to be made requiring ASIC to reinstate Mr Renton as a director of Hanwood.

Payments Contravention

Submissions

199    Hanwood submits that Mr Kelly has not produced any documents that would justify him making the Impugned Payments from the proceeds of the sale of the Property and that he has failed to produce any documents from Stintari that would otherwise provide any justification for Hanwood making any payments to Stintari.

200    Hanwood submits that Mr Kelly’s evidence given in cross-examination of oral agreements reached with Mr Renton and Mr Terrett as to the basis on which Stintari was to advance funds to Hanwood is “beyond implausible” and in any event did not include any provision for the payment of consultancy fees to Mr Kelly. Further, Hanwood submits that the handwritten notes of estimates of amounts due to Stintari prepared by Mr Kelly on or about 5 February 2021 provide “no credible basis” for the Court to conclude that Mr Kelly was justified in causing Hanwood to make any payments to Stintari.

201    Hanwood submits that, contrary to Mr Kelly’s claims that he gave the books and records of Hanwood to Mr Renton, Mr Kelly had them at all times that he was a director of Hanwood and has consistently acted to deny Mr Renton visibility as to the disbursement of the sale proceeds of the Property.

202    Hanwood submits that a reasonable director of Hanwood in Mr Kelly’s position would not have made the Impugned Payments and in making the Impugned Payments, Mr Kelly caused a serious detriment to Hanwood for which he should be liable to pay compensation.

203    In broad terms, Mr Kelly submits that the liabilities owing by Hanwood to the recipients of the Impugned Payments were properly recorded in the financial statements of Hanwood, interest owing on the liabilities was accrued each financial year and the financial accounts of Hanwood recording the transactions giving rise to the liabilities were approved and signed off by the Hanwood Board, presented at annual general meetings of Hanwood and accepted and signed off by the representative of the shareholder. He also submits that the historical books and records of Hanwood evidencing the incurring of the liabilities the subject of the Impugned Payments were delivered to Mr Renton.

204    Mr Kelly’s more specific submissions with respect to the making of the Impugned Payments travelled beyond the evidence that he had given in the proceedings. In addressing the Payments Contravention I have only had regard to Mr Kelly’s evidence, both in statement form and in the course of his cross-examination by Mr Farrar.

205    I have not had regard to the supplementary evidence purported to have been given by Mr Kelly in his closing written submissions after the conclusion of his cross-examination. In any event, I was satisfied that the supplementary evidence in Mr Kelly’s closing written submissions was broadly consistent with the evidence that he had given with respect to the Impugned Payments and it was not necessary to consider other case management alternatives to accommodate or address the issue in order to avoid undue prejudice to a litigant in person.

Onus of proof

206    In essence, Hanwood contends that Mr Kelly has failed to establish any justification for making the Impugned Payments. It submits that it therefore follows that the payments were not made in good faith in Hanwood’s best interests or for a proper purpose, and that it necessarily follows that Mr Kelly thereby contravened s 181(1) of the Act by improperly using his position as a director to cause Hanwood to make the Impugned Payments.

207    In advancing those contentions, Hanwood might be thought to be seeking to reverse the onus of proof.

208    A similar situation arose in Crowe-Maxwell v Frost (2016) 91 NSWLR 414; [2016] NSWCA 46 (Crowe-Maxwell). In that case the New South Wales Court of Appeal was required to determine whether payments made by two directors for personal expenses were unreasonable director-related transactions within the meaning of s 588FDA of the Corporations Act in circumstances where they had failed to keep the company’s expenses separate from their personal finances and there was no record of the company paying wages to either of them for the services that they allegedly provided to the company.

209    In Crowe-Maxwell, Beazley P (with whom Macfarlan and Gleeson JJA agreed) observed with respect to the onus of proof in relation to unreasonable director-related transactions:

89    A common thread in the uncommercial transaction cases is that, where there is limited evidence of the nature or purpose of a transaction, but the surrounding circumstances show it to be a departure from normal commercial practice and to raise inferences as to a lack of benefit to the company, detriment caused to the company, or benefit accruing to other parties, absent some commercial explanation, courts may infer the transaction was uncommercial, without requiring the liquidator to prove its precise uncommercial nature. The same may be said with respect to the identification of unreasonable director-related transactions.

90    In those limited circumstances, for practical purposes, a defendant may be said to bear an “onus”, sometimes referred to as an evidentiary onus, of raising some commercial explanation for the transaction. Thus, in Hawksford v Hawksford (2005) 191 FLR 173; [2005] NSWSC 463 Campbell J explained, at [54]:

“[54] The distinction between an onus of proof and an onus of adducing evidence is of particular relevance in the present situation. Where party A has the legal onus of proving a negative proposition, and relevant facts are peculiarly in the knowledge of party B or where party B has the greater means to produce evidence relating to those facts, then provided party A establishes sufficient evidence from which the negative proposition may be inferred, party B then comes under an evidential burden, or an onus of adducing evidence.” (Citations omitted)

91    Hawksford concerned a challenge to a solicitor’s retainer with two corporate entities in which the plaintiffs had interests. Campbell J, at [55], considered that while the legal onus of proving that the absence of a retainer lay on the plaintiffs, once they had raised an inference of the negative proposition, the defendants carried an evidential burden “to advance in evidence any particular matters with which (if relevant) the plaintiffs would have to deal in the discharge of their overall burden of proof”: Apollo Shower Screens Pty Ltd v Building and Construction Industry Long Service Payments Corporation (1985) 1 NSWLR 561 at 565 (Hunt J). Campbell J’s statement is an application, in the context of proof of a negative proposition, of the principle in Blatch v Archer (1774) 1 Cowp 63; 98 ER 969 at 970 that:

“… all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted.”

210    I am satisfied that, consistently with the principles stated in Crowe-Maxwell, Mr Kelly bears an evidential onus to raise a commercial explanation for the making of the Impugned Payments. It is an evidential onus that principally arises because of the incomplete books and records of Hanwood.

Missing Hanwood documents

211    It is necessary first to address the absence of historical Hanwood documents evidencing the specific liabilities of Hanwood the subject of the Impugned Payments. Mr Kelly gave evidence that in or about early 2013 after the sale of his Wahroonga house he gave Mr Renton, who at that time was a director and company secretary of Hanwood, all the Hanwood documents because he had nowhere to store them.

212    Hanwood maintains Mr Kelly never gave such documents to Mr Renton and submits that either the documents never existed or Mr Kelly has failed to produce them in response to repeated requests because they would not assist his attempts to justify his actions in causing Hanwood to make the Impugned Payments.

213    On 10 August 2015, Mr Farrar wrote to Hanwood on behalf of Mr Renton and Dinomyte requesting access to the books and records of Hanwood pursuant to s 198F of the Corporations Act by no later than 17 August 2015. The letter was addressed to:

The Secretary

Hanwood Pastoral Co Pty Limited

T.W. Staines & Co

Suite 7 67 Strathhallen Avenue

NORTHBRIDGE NSW 2083

214    On 8 September 2015, Mr Farrar wrote a further letter to Hanwood noting that no response had been received to the letter dated 10 August 2015, and stating that he had received instructions from his clients to commence proceedings seeking orders for access unless access was given by no later than 5.00 pm on 11 September 2015. The letter was addressed in the same way as his 10 August 2015 letter.

215    Mr Farrar gives evidence that in or about December 2016 he engaged ARA process servers to locate Mr Kelly given the lack of any response to his letters to Hanwood in August and September 2015.

216    ARA process servers provided a report to Mr Farrar dated 8 December 2016 in which they outlined the scope of their enquiries and provided Mr Farrar with a home address for Mr Kelly.

217    On 29 March 2017, Mr Farrar wrote to:

(a)    Patey & Murphy, the solicitors who had acted for Hanwood on the sale of the Property, requesting a copy of the Sale Contract and access to their conveyancing file or alternatively a copy of the settlement adjustment sheet from the sale and any cheque direction given to the purchaser;

(b)    the Secretary of Hanwood at the TW Staines & Co address requesting access to the books and records of Hanwood by no later than 5.00 pm on 4 April 2017;

(c)    Ms Rebecca McMahon, the solicitor who acted for Warkworth, the purchaser of the Property, requesting copies of the Sale Contract, settlement statement and any cheque direction;

(d)    Hills Solicitors, the firm that prepared the Consultancy Agreement, requesting information about their engagement and asking if they would be prepared to release documents in relation to services provided under the agreement; and

(e)    Mr Somers and Mr Nichols, requesting a signed copy of the Consultancy Agreement, details and copies of any documents evidencing services provided by them under the agreement, information or documents identifying the flow of funds on the sale of the Property and a copy of the Sale Contract.

218    By a letter dated 1 April 2017, Mr Kelly wrote to Mr Renton stating (as written):

The company has received Another request for company records.

I refer to previous correspondence to which no response was received I am aso advised no records have been received at the registered office.

I repeat the previous requests and again confirm if theses records are not returned then the company is unabe to fully comply.

Please advise, by return mail, your intensions, if you do not wish to deliver them to the registered office then please take steps to deliver them to your solicitor and have them adsise me accordingly.

Your response is awaited.

219    By a letter also dated 1 April 2017, Mr Kelly wrote to Mr Farrar in which he advised him (as written):

I didn’t respond to your previous correspondence, in relation there to please find attached copies of letters forwarded to Mr. Renton that explains the reason for not so doing.

The company is still awaiting a response from Mr. Renton and the return of the records that were delivered to him, at his request, during his capacity as a Director and Secretary of the company.

I apologise for not contacting you direct at the time as Mr. Renton was requested to keep you informed.

220    Mr Kelly attached to his letter to Mr Farrar copies of the letter that he had sent to Mr Renton earlier that day and two handwritten letters to Mr Renton.

221    The first of the handwritten letters was dated 14 August 2015 (14 August 2015 letter). The letter was written on the letterhead of Hanwood and was in the following terms (as written):

DEAR FRED,

I HAVE RECEIVED THE ATTACHED LETTER FROM YOUR SOLICITOR IN RELATION TO RECORDS OF HANWOOD.

TO ENABLE ME TO PROPERLY COMPLY THERE WITH IT IS NECESSARY FOR ME TO OBTAIN THE RECORDS YOU ARE HOLDING WHICH WERE DELIVERED TO YOU AT YOUR REGO.

IT WOULD BE APPRECIATED IF YOU WOULD DO SO AS SOON AS POSSIBLE BY HAVING THEM DELIVERED TO NORTHBRIDGE.

WOULD YOU ALSO KEEP YOUR SOLICITOR ADVISED OF THIS REQUEST.

THANK YOU.

Fred Kelly

14/08/2015

222    The second of the handwritten letters was dated 16 September 2015 (16 September 2015 letter). The letter was also written on the letterhead of Hanwood and was in the following terms (as written):

DEAR FRED,

I HAVE RECEIVED ANOTHER REQUEST FOR RECORDS OF HANWOOD.

YOU HAVE NOT RESONDED TO MY PREVIOUS LETTER IN RELATION THERETO.

PLEASE ADVISE, IN WRITING, WHAT YOU INTEND TO DO AND KEEP YOUR SOLICITOR ADVISED.

THANK YOU.

Fred Kelly

16/09/2015.

223    By letter dated 6 April 2017, Mr Kelly wrote again to Mr Farrar in which he advised him (as written):

Dear Mr. Farrar,

I have just received another copy of your letter dated 29th March 2017.

…

I confirm a response was sent to you in regards to this matter, such response included copies of letters to Mr. Renton the last of which was sent to him by registered mail so that acceptable evidence exists as too wether the letter was delivered and recived.

It woulod be appreciated if you would confirm receipt of the companies response to your first delivered letter.

It is repeated as soon as Mr. Renton returns the companies records that were delivered to him, and he accepted, the sooner this matter can properly proceed.

224    On 27 April 2017, Mr Kelly again wrote to Mr Farrar and Mr Renton in relation to the books and records of Hanwood. In his letter to Mr Farrar, Mr Kelly stated (as written):

I refer to recent correspondence in relation to your client Mr. Renton and note there has been no response.

This Company await’s a proper response, in particular the return of all records previously delivered to and remain under the control of Mr. Renton.

I am in Sydney for a few days after which I shall nbe absent for some 2-3 weeks.

Attached is a copy of a letter sent to Mr. Renton again by registered mail.

225    In his 27 April 2017 letter to Mr Renton, Mr Kelly stated (as written):

The Company refers to recent correspondence in relation to records previously delivered to you and are under your control.

You have not returned the records to the Company at it registered office nor have you and or your legal advisors responded.

You are again requested to return the above mentioned records, without further delay.

226    Hanwood alleges that the 14 August 2015 letter and 16 September 2015 letter (together, Disputed Letters) were not in fact written by Mr Kelly until 1 April 2017, immediately prior to them being attached to the letters from Mr Kelly to Mr Farrar and Mr Renton on that day. Hanwood alleges that the Disputed Letters were backdated fabrications on the part of Mr Kelly to make it look like he had taken immediate and appropriate steps to respond to Mr Farrar’s 10 August 2015 and 8 September 2015 letters. It is a very serious allegation. If genuine, the Disputed Letters otherwise reveal an immediate reaction from Mr Kelly to request that Mr Renton provide records of Hanwood to Mr Farrar. It is a proactive reaction consistent with Mr Kelly’s claims that he had provided the historical records of Hanwood to Mr Renton because he did not have room to store them after he sold his house.

227    Mr Kelly steadfastly denied the fabrication theory advanced by Hanwood in the course of his cross-examination.

228    Mr Renton emphatically denied that he had ever seen the Disputed Letters at any time before they were shown to him in the witness box. This denial cannot be accepted. Hanwood does not dispute and rather advances a case that the Disputed Letters were attached to at least the 1 April 2017 letter to Mr Farrar, if not also the letter of the same date to Mr Renton. It is implausible that Mr Farrar would not have referred the Disputed Letters to Mr Renton at the time that he received them on or about 1 April 2017.

229    Hanwood submits that it is implausible that Mr Renton would have proceeded with the preliminary discovery application against Mr Kelly if he had the books and records of Hanwood and Mr Kelly’s ultimate belated discovery of Hanwood documents demonstrates that to the extent they might exist, Mr Kelly had the books and records of Hanwood.

230    I am satisfied that Mr Kelly has discovered whatever books and records of Hanwood he still has in his possession, although it is regrettable that some documents, for whatever reason, were not brought to the attention of Hanwood until the last day of the hearing. I do not accept, given the relevance and relative granularity of the documents produced on the last day of the hearing, as explained below, that Mr Kelly has any other books and records of Hanwood that he has not discovered to Hanwood. It would have been antithetical to Mr Kelly’s interests for him not to discover documents that might justify the making of, or otherwise provide context for, any of the Impugned Payments.

231    The vigour with which Mr Kelly pursued Mr Renton to produce the historical books and records of Hanwood is more readily explicable on the basis that Mr Kelly recognised those records would include the primary documents evidencing the specific liabilities of Hanwood that were the subject of the Impugned Payments, rather than as an integral element of a subterfuge on the part of Mr Kelly designed to disguise the absence of any justification for making the Impugned Payments.

232    On the other hand, Mr Renton would have no incentive to locate or retain documents that might justify the making of, or otherwise provide context for, any of the Impugned Payments. I make that observation not to suggest that Mr Renton has knowingly failed to produce documents of Hanwood relevant to the making of the Impugned Payments. Rather I make the observation to emphasise that if the documents existed it is more likely that Mr Kelly provided them to Mr Renton and Mr Renton has not retained them or lost them rather than Mr Kelly has retained those records and not produced them.

233    It is inherently unlikely that there were no other books and records of Hanwood in connection with the development and realisation of the Property. The documents discovered by Mr Kelly demonstrate at a general level the extent of the work undertaken over a large number of years in an effort to develop, maintain and ultimately realise the Property for sale.

234    On balance, I am satisfied by reference to the apparent logic of events that Mr Kelly did indeed provide the bulk of the historical books and records of Hanwood, evidencing the specific liabilities that Hanwood incurred in relation to the Property, to Mr Renton in or about early 2013 because he lacked the room to store them when he sold his house.

Stintari documents

235    A related issue to the missing Hanwood documents is the dearth of documents produced by Stintari evidencing the making of advances to Hanwood and the basis upon which those advances were made to Hanwood. Unlike the position with the Hanwood documents there was no suggestion that Mr Kelly gave the historical books and records of Stintari to Mr Renton.

236    Mr Kelly agreed in cross-examination that as a director of Stintari he was under an obligation under the Corporations Act to maintain proper books and records for a period of time. He then provided this evidence as to the extent of the Stintari records that he maintained relevant to the Stintari Payments:

And you don’t know what period of time you’ve kept them for?--- Stintari is a $2 company. I would have records, that would – I believe which would cover the requirements under the Companies Act. It hasn’t traded with anybody for quite some time – many years. But I would like to have the time to be able to go and check that.

But does – you hold records for Stintari that would demonstrate the moneys that it used to pay for the property that we discussed earlier - - -?---That’s one of the problems I’ve got. No, it doesn’t – some of those payments go back to 2002, 2003, up to two thousand and – probably nine, 10 at least. No, I haven’t got all those records.

So you have Stintari’s records, but you don’t have records that would evidence the payment of the moneys that you say Stintari paid towards the purchase price of the property?---Not completely, no.

Do you have any records that would support your contention that Stintari paid for the purchase price and the incidentals?---No, I looked for that and I couldn’t find it.

So there’s no documentary evidence?---That goes back to 2002.

Yes. But as you sit there today, you don’t have any documentary evidence to support your contention?---Sorry, I - - -

As you sit in the box now, in the witness box now - - -?---Yes.

- - - you do not have any documents that support your contention that Stintari paid for the purchase price of the property plus the incidentals?---Plus the what?

The legal costs and the stamp duty?---No. I don’t believe so.

237    Mr Kelly also gave the following evidence when pressed further in his cross-examination about the absence of documents from Stintari:

But I asked you to – there are no documents that support the contention that Stintari was owed money by Hanwood that entitled Stintari to be paid $1.8 million - - -?---That’s not correct.

- - - on or about 13 March 2015?---Sorry?

There are no documents which record the liability of Stintari – sorry, the liability of Hanwood to pay Stintari $1.8 million dollars after 12 March 2015?---The document that I’ve had – have been presented. I don’t have all the documents because the only document that could be provided would be the payment of the money. Hanwood incurred the debts: all the invoices for such were with records handed to Mr Renton. Hanwood didn’t have any money so who paid them?

HIS HONOUR: But if Stintari paid them, Stintari - - -?---Sorry?

If Stintari paid these debts of Hanwood - - -?---That’s right.

- - - Stintari’s payment would be recorded on its bank statements?---Sorry?

Stintari’s bank statements would show that it had made payments?---Stintari’s?

Bank statements?---Yes, but I haven’t got those. And when I tried to get them from the bank they said they didn’t have them. I didn’t keep bank statements going back 20 years.

238    The absence of any records of Stintari evidencing the advances made to Hanwood or the specific basis on which they were advanced is troubling. I accept, however, given the effluxion of time and the informal manner in which Mr Kelly was apparently advancing funds from Stintari to Hanwood that the absence of such documents from Stintari is not determinative of whether Stintari did in fact advance any funds to Hanwood.

239    I also accept Mr Kelly’s evidence that he has searched for and been unable to locate any relevant Stintari documents and that his efforts to obtain historical Stintari bank statements were unsuccessful because of the time that has elapsed since the alleged advances were made by Stintari to Hanwood.

240    Ultimately, I have had regard to the financial records of Hanwood and other documents identified below in determining whether, bearing in mind the evidential onus on Mr Kelly, Hanwood has established that Stintari did not in truth advance the loans to Hanwood the subject of the Stintari Payments.

Mr Renton’s knowledge of the Impugned Payments

241    Mr Renton gave evidence that he was not aware of any contractual or other obligation on the part of Hanwood to make any of the Impugned Payments, he did not authorise any of the payments to be made and he was not aware of them at the time they were made. He also gave evidence that he was not aware of any loan being made by Stintari to Hanwood to enable it to purchase the Property or to enable it to pay legal costs and expressly denied that any money was owed to Stintari for any services alleged to have been provided by Mr Kelly to Hanwood.

242    Mr Renton gave evidence that on 25 March 2015 he was given a bank cheque for $500,000 from Mr Kelly at the Peacock Gardens Restaurant and told “Hanwood has been sold”, which he understood to be a reference to the sale of the Property. He stated that at the time he was given the cheque he was not asked to sign anything nor given any supporting documentation and he therefore had some concerns as to why he had received the cheque and what it represented. In response to a query he made as to whether there was any tax liability on the cheque, he stated that Mr Kelly told him, “No, it’s all yours.” Mr Renton recorded receipt of the cheque in his “daybook” on 25 March 2015.

243    Mr Renton gave evidence that on 23 April 2015, he met with Mr Kelly, initially at the offices of TW Staines & Co and then had lunch with him at the Sailors Bay Road Restaurant. He stated that he asked for details of the sale of the Property but his request was brushed off by Mr Kelly on the basis it was not necessary.

244    Mr Renton also gave evidence that on 30 April 2015, Mr Kelly came to his house at Laguna and in response to a further request that he made for details of the sale of the Property, Mr Kelly offered him a further $200,000 if he agreed to “deal with” Mr Terrett. Mr Renton stated that he found the offer offensive and refused to accept it.

Mr Kelly’s explanations for the Impugned Payments

245    Mr Kelly gave the following evidence in relation to the Impugned Payments:

(a)    Ms Zupan had lent money to Hanwood in response to his request that he had made because “Stintari was paying the bills” and he had mortgaged his house, and because he had “helped her out in the past”;

(b)    Mr Staines had lent money to Hanwood in or about 2004 because he had told Mr Staines that funds “were drying up” and Mr Staines had been prepared to lend funds to Hanwood “when needed”;

(c)    Mr Hainsworth worked for Mr Staines, and he (Mr Kelly) used to do a “lot of management work and the accounting, bookkeeping” for him, and Mr Hainsworth lent money to Hanwood when “it needed money to pay bills”;

(d)    Stintari lent money to Hanwood to enable it to meet its liabilities, Stintari made payments on behalf of Hanwood because Mr Renton and Mr Terrett would not give him the sole right to sign cheques and it was often hard to obtain their signatures and further, if any surplus funds were paid into Hanwood’s account then “all of a sudden they took it out for their own use”; and

(e)    he prepared the accounts for Hanwood and paid out the loan accounts with 4% interest and Stintari “just got back some of the money it advanced”.

246    Mr Kelly provided the following explanation in his statement as to how he became personally financially involved in Hanwood in or about 2001 (as written):

45.    In order to proceed with settlement, I offered to loan funds through Stintari Pty Ltd my family company and participate in the results of the development and sale of lots 3,4 & 5, within the” Wild Life Estate”. In addition I offered to effectively capitalise consultancy fee amounts owing to me and or my entities for provided services etc, to Renton & Terrett’s entities over the past few years which remained outstanding.

46.    An agreement was reached with Renton & Terrett and recorded in Hanwood’s minute book and other Tebor Group company minutes all of which were signed by Renton & Terrett as directors and by me. This agreement included the participation of me or my nominee and a receipt of an agreed share of subdivided lots.

47.    Funds required for settlement were provided by Stintari this added to other arrangements involving (Richards /Misthold and outstanding (TB) accounts to service entities of mine involving pre 2002 fees owed to me controlled trustees Sabswing Pty Ltd, Jarndo Pty Ltd, East Coast Management Pty Ltd and East Coast Management (NSW) Pty Ltd. All outstanding accounting and extensive consulting fee etc were paid by each relevant (TB) company with funds advanced to Hanwood by Stintari and formed part of the loans funds outstanding to Stintari at settlement date of lots 3,4 &5. Full details of which were included in and transferred to the control of director and company secretary Renton on or about early 2013 following the sale of my Wahroonga residence. All the documents of Hanwood up to 2013 were given to Renton as I had nowhere to store them.

247    When pressed in cross-examination as to his recollection of the discussion he had with Mr Renton and Mr Terrett about providing funds to Hanwood and requested by the cross-examiner to give evidence in direct speech, Mr Kelly responded:

We commenced the meeting. I said to Mr Renton and Mr Terrett that Hanwood was – had no money. It was in difficult positions. They replied to me and said they were not prepared to put any more money in …

…

I suggested to them – they owed – the [Tebor] Group owed me money, and I said I need to get that paid so I can clear up tax. Okay. But I’m more than prepared to provide it back into Hanwood to pay expenses of Hanwood and continue negotiations for you, particularly in relation to personal guarantees that were committed for, and the money had not been paid to the mortgagees. Mr Renton and Mr Terrett responded by saying, “We accept that, but you’ve got to understand we are not going to put any more money into Hanwood.”

248    Mr Kelly was then asked by the cross-examiner if he could recall anything else that might have been said in the conversation regarding his consultancy fees to which he responded, “No. Not particularly.”

249    The cross-examiner then had the following exchange with Mr Kelly about whether the agreement was documented:

MR FARRAR: And then did you draw up an agreement between you or Stintari or Hanwood to reflect what was discussed in that – your offer in that conversation?---What? Sorry.

In the conversation you just – the evidence you just gave, following that, did you then reduce that into writing?---I prepared minutes in Hanwood’s books, but I didn’t worry about Stintari because I was a director. I knew what I was doing.

Did you get a - - -?---I did prepare minutes in Hanwood’s books, and those minutes were signed by both Mr Renton and Mr Terrett and myself, which was a practice then that I got them to sign minutes before I signed it so that I knew they had agreed, in a director’s meeting, to accept the terms as detailed in the minutes.

And you don’t currently have a copy of the minutes of that meeting?---What?

You don’t have minutes of that meeting that took place in 2001?---They were in the minute book of Hanwood. I haven’t got a copy. The minute books were handed over to Mr Renton together with the records of Hanwood.

Disbursement of sale proceeds of the Property

250    Unlike the position with respect to documents evidencing the liabilities of Hanwood alleged to have been the subject of the Impugned Payments, the documentary record evidencing the disbursement of the sale proceeds of the Property is substantially complete.

251    The documents exhibited to Mr Renton’s first affidavit included the following documents that had been discovered by Mr Kelly in response to the summons for preliminary discovery:

(a)    a one page handwritten document entitled “HANWOOD PASTORAL CO PTY LTD, TRIAL BALANCE, 30/06/2013” but stated to be for the period “30/06/2014” that has been signed by Mr Kelly (2014 Trial Balance);

(b)    bank statements for the Hanwood business cheque account with St George Bank (Hanwood St George Account) for the period 16 March 2015 to 15 July 2015 with handwritten annotations (Hanwood bank statements);

(c)    a letter to Hanwood entitled “Your Term Deposit is about to mature” from St George Bank dated 30 April 2015 with respect to a $700,000 two month term deposit placed by Hanwood with the St George Bank on 19 March 2015 ($700,000 Term Deposit) and a term deposit closing statement dated 19 May 2015;

(d)    a letter to Hanwood entitled “Your Term Deposit is about to mature” from St George Bank dated 4 June 2015 with respect to a $1,000,000 three month term deposit placed by Hanwood with the St George Bank on 19 March 2015 ($1,000,000 Term Deposit) and a term deposit closing statement dated 5 June 2015;

(e)    a one page handwritten document entitled “HANWOOD PASTORAL CO PTY LTD, ACN 003 985 797 T Balance” and stated to be for the period “30/06/2015” (2015 Trial Balance);

(f)    six pages of handwritten journal entries for Hanwood stated to be for the period “30/06/2015” (Hanwood 2015 journal entries);

(g)    a balance sheet for Hanwood as at 30 June 2015;

(h)    a one page handwritten profit and loss statement for Hanwood for 2015 with corresponding figures for 2014; and

(i)    41 handwritten ledger folios for Hanwood with entries for the financial years ending 30 June 2014 and 30 June 2015 (Hanwood Ledgers).

(together, Hanwood Financial Records).

252    The 2014 Trial Balance relevantly records that the following unsecured loans that had been made to Hanwood were outstanding as at 30 June 2014:

Tebor                $263,983 (with a notation “prior 1998”)

Ms Zupan             $35,000 and accrued interest of $12,550

Mrs Hainsworth         $20,000 and accrued interest of $5,783

Mr Hainsworth          $20,000 and accrued interest of $5,783

TW Staines & Co         $25,000

Mr Renton        $340,000 and accrued interest of $133,000

Mr Kelly             $22,500 (Kelly Loan)

Stintari                  $1,878,940 and accrued interest of $338,000

253    The 2014 Trial Balance also records a consultancy and project management fee due to Mr Kelly of $625,000 (Kelly Consulting Fee).

254    The Hanwood Financial Records and the settlement statements for the sale of the Property establish that the balance held in the trust account of Patey & Murphy on 14 March 2015 following settlement on 13 March 2015 was $3,627,577.81 (comprising the Deposit of $363,000 and the Settlement Proceeds, being the net amount paid by the purchaser on settlement of $3,267,452.83 after allowing for $2,385.68 for municipal rates and $509.34 for land rates).

255    The Hanwood Financial Records and the settlement statements for the sale of the Property reveal that the Net Sale Proceeds were ultimately disbursed as follows (after taking into account the respective maturities of the $700,000 Term Deposit and the $1,000,000 Term Deposit that were invested from the Net Sale Proceeds on 19 March 2015):

(a)    $452,150.18 by bank cheque to PBN Property Pty Ltd (Mr Nichols’ company);

(b)    $452,150.18 by bank cheque to AAJS Pty Ltd (Mr Somers’ company);

(c)    $6,518.76 to Patey & Murphy in payment of their 13 March 2015 tax invoice;

(d)    $43,183.17 to HDB in payment of their tax invoice 6799;

(e)    $1,789,991.64 to Stintari (comprising: a $50,000 transfer on 19 March 2015; a $9,000 cash withdrawal on 19 March 2015; a $100,000 transfer on 17 April 2015; $700,000 together with interest of $3,041.64 on the maturity of the $700,000 Term Deposit on 19 May 2015; $931,000 by transfer to Stintari on 5 June 2022; less $3,050 paid back by Stintari on 30 June 2015) stated to be for repayment of unsecured loans by Stintari to Hanwood;

(f)    $6,000 by bank cheque to Northbridge for secretarial and administrative services on 19 March 2015;

(g)    $500,000 by bank cheque to Mr Renton stated to be for repayment of an unsecured loan and payment of interest on 25 March 2015;

(h)    $25,000 by bank cheque to TW Staines & Co stated to be for repayment of an unsecured loan on 25 March 2015;

(i)    $241,545 by cheque to the ATO for GST on 29 April 2015;

(j)    $1,500 as a donation by bank cheque to Westmead Millennium Foundation on 5 June 2015;

(k)    $1,500 as a donation by bank cheque to Kids with Cancer Foundation on 5 June 2015;

(l)    $1,500 as a donation by bank cheque to Australian Cancer Research Foundation on 5 June 2015;

(m)    $30,333 by bank cheque to Mr Keith Hainsworth for repayment of an unsecured loan and payment of interest on 5 June 2015;

(n)    $30,333 by bank cheque to Ms Phyllis Hainsworth for repayment of an unsecured loan and payment of interest on 5 June 2015;

(o)    $50,284 by bank cheque to Mrs Zupan for repayment of an unsecured loan and payment of interest on 5 June 2015; and

(p)    $3,000 donation to an unspecified recipient on 30 June 2015.

256    I note that the Hanwood bank statements record that the $1,000,000 Term Deposit on maturity was paid into the Hanwood St George Account on 5 June 2015, together with interest of $5,128.77, and then subsequently disbursed but there was no corresponding payment into the Hanwood St George Account on the maturity of the $700,000 Term Deposit on 19 May 2015. The Hanwood 2015 journal entries record that on maturity the $700,000 Term Deposit, together with interest of $3,041.64, was paid directly to Stintari.

257    The codes next to each entry in the 2014 Trial Balance and the 2015 Trial Balance correspond to the 41 numbered folios in the Hanwood Ledgers. By way of example, “24” is the code for the loans stated to have been made from Stintari to Hanwood. Folio 24 records an opening balance of $1,878,940 outstanding for the Stintari loans as at 1 July 2013 and a closing balance outstanding as at 30 June 2015 of $55,484.66. Folio 14 records an outstanding balance outstanding for interest on the Stintari loans as at 1 July 2013 of $338,000 and a closing outstanding balance of $402,000 as at 30 June 2015.

258    I am satisfied that the various Hanwood Financial Records are consistent with each other and relevantly record that after the disbursement of the Net Sale Proceeds the position was as follows:

(a)    the Stintari loans were not paid in full — $55,484.66 remained outstanding;

(b)    no interest was paid on the Stintari loans — $402,000 remained outstanding;

(c)    no repayments were made with respect to the Kelly Loan — $22,500 remained outstanding;

(d)    each of the loans recorded as being made by Mr Renton, Ms Zupan and the Hainsworths, together with interest, had been paid in full;

(e)    the loan recorded as being made by TW Staines & Co was paid in full; and

(f)    no payments were made referrable to the Kelly Consulting Fee — $625,000 remained outstanding.

Hanwood particular payment records

259    In the course of the hearing of the proceedings Mr Kelly discovered a further bundle of documents which he tendered, over objection (Late Discovered Documents). Mr Kelly submitted that he had provided copies of the documents to his solicitors at the time he was required to comply with the orders made by Rares J for discovery but he could not explain why they had not been produced to Hanwood at that time. On balance, I was prepared to admit the documents into evidence as they are relevant to matters in issue. Hanwood did not point to any specific prejudice if the documents were tendered and the delay in production appears to be attributable more to Mr Kelly’s former legal representatives rather than Mr Kelly himself.

260    The Late Discovered Documents include:

(a)    an authority to commence works for “Landscaping and Drainage Work” at Lots 38 & 184 Hanwood Rd, North Rothbury addressed to Tarmac Constructions dated 4 April 2003 and a copy of a cheque drawn by Stintari in favour of Tarmac Constructions that appears to have been dated 2 April 2003, in the sum of $3,358;

(b)    a copy of a local telegraphic transfer form dated 10 September 2004 recording a transfer from Stintari to the Thompson Norrie Trust Account, with a stated purpose of “RE HANWOOD PASTORAL CO” and a handwritten annotation of “LAWYER HANWOOD” in the sum of $6,000 ;

(c)    a copy of a cheque drawn by Stintari in favour of Ecotone Ecological Consultants Pty Ltd dated 24 September 2004 in the sum of $2,500;

(d)    a copy of a local telegraphic transfer form dated 10 March 2005 recording a transfer from Stintari to a Melvin John Gorham, with a handwritten annotation next to his name of “SALES AGENT” in the sum of $1,000;

(e)    a copy of a local telegraphic transfer form dated 19 March 2008 recording a transfer from Stintari to the Mallik Rees Law Practice Trust A/C, with a stated purpose of “REIMBURSEMENT COST / COURT OF APPEAL” and a handwritten annotation of “LAWYER CESSNOCK COUNCIL COSTS” in the sum of $28,533; and

(f)    a copy of a local telegraphic transfer form dated 18 December 2007 recording a transfer from Stintari to the Thompson Norrie Trust Account, with a stated purpose of “HANWOOD PASTORAL COMPANY, DEBT RECOVERY” and a handwritten annotation of “THOMPSON NORRIE, RE H/WOOD” in the sum of $9,118.94,

(together, Hanwood particular payment records).

261    The Late Discovered Documents also include:

(a)    a handwritten direction addressed to the St George Bank requesting the bank to rollover for a further 60 days an amount of $50,000 held in A/C 552426368 and that interest be paid to Stintari, signed by both Mr Kelly and Mr Renton as directors and bearing a St George Bank stamp dated 18 February 2009; and

(b)    a typed letter from Hanwood to the St George Bank requesting that the $50,000 that had been deposited with the bank in A/C 552426368 to secure a bank guarantee issued in favour of Cessnock City Council on 19 August 2005 be released, together with accumulated interest, to Stintari. The letter was signed by both Mr Kelly and Mr Renton as directors of Hanwood and each dated their signatures 18 December 2012.

Stintari Payments Schedule

262    Mr Kelly also tendered a three page handwritten document purporting to record a summary that he had prepared of payments made by Stintari on behalf of Hanwood with respect to the development of the Property (Stintari Payments Schedule).

263    The Stintari Payments Schedule recorded payments made by Stintari for Hanwood in an aggregate amount of $1,889,150, comprising:

(a)    $912,800, (incorrectly recorded as $922,800) comprising in aggregate 23 separate categories of invoices received by Hanwood and paid by Stintari “on a loan basis” including $142,000 for “LEGAL FEES RE COUNCIL/LAND & ENVIROMENTAL COURT ETC”, $145,000 to HDB and $165,000 for “WAGES PAID AND ABN HOLDERS” and items as small as $1,500 for “PURCHASE OF PLANT/TREES ETC”. The 23 separate categories and the amount specified for each category were stated to be prepared “to the best of my recollection”;

(b)    $224,225 for 14 separate services provided by contractors to Hanwood, including $55,500 for “ROAD EXCAVATION & STORMWATER EXCAVATION”, $36,500 for “CLEARING & RUBBISH REMOVAL LOTS 3,4,5 & 6” and $575 for “SECURITY MEASURE ETC”;

(c)    $225,185 for “PAYMENTS RE SETTLEMENT LOTS 3,4,5,6”; and

(d)    $505,790 for “BALANCE OWING TO STINTARI P/L PRIOR TO SETTLEMENT OF LOTS 3,4,5,6 INLCUDING PAYMENTS TO MISTHOLD P/L”.

264    The Stintari Payments Schedule was annexed to Mr Kelly’s statement but the only explanation provided in the statement for the schedule was:

Attached and marked “B” is a list of what I or Stintari loaned to Hanwood. There are various documents that I have discovered showing payments made by Stintari on behalf of Hanwood.

265    It would appear that the reference to the discovery of documents may at least in part have been a reference to the documents included in the Late Discovered Documents referred to above (which in fact had not been discovered at the time that the statement was served).

266    Mr Kelly gave the following explanation of the documents he relied upon to produce the Stintari Payments Schedule in response to questions from the Court in the course of his cross-examination:

I – to verify a lot of the figures I attended the office of HDB and went through estimates and documents that they had up there and in order to develop an assessment. I didn’t have hard copy documents to verify everything, but I knew of the type of expenditures that I – they had paid for and I had no alternative but to – when I say “estimate”, it was based on fact, of documents that Mr Nichols had in his files for work that was performed over the time and because the actual invoices and wages records were all in the records that I gave to Mr Renton.

…

I – I – the documents that I had are the way they’ve been previously prepared in – with the solicitors and I did find that even the ones that are in this morning, I have gave them – I had given those to the solicitor before.

…

Well, there are copies of bank transfers in the documents this morning and there – there were previous documents from – from the council verifying that Stintari had paid rates - - -

267    The references to documents “this morning” was a reference to the Late Discovered Documents.

Hanwood Project Spreadsheet

268    The documents annexed to Mr Nichols’ affidavit included a two page spreadsheet entitled “HANWOOD PASTORAL” that contained a list of invoices in an aggregate amount of $176,893.41 that were issued in the period between 30 November 2002 and 19 January 2015, and for each invoice identified, the amount of the invoice, the date on which it was paid, and in most cases the entity that had paid the invoice and the cheque number (Hanwood Project Spreadsheet).

269    Mr Nichols gave the following unchallenged explanation of the Hanwood Project Spreadsheet in his affidavit:

38.    Early in 2008 Mr Kelly advised me that Hanwood had run out of funds with which to continue the project. He advised that previously people associated with the site had lost interest and, for some time, were no longer contributing any funds to the project. I understand from what I was told by Mr Kelly that for some time he had funded the project.

39.    This was evident in the number of payments received from Stintari Pty Limited which I understand was Mr Kelly’s company. In addition, it was very difficult to get accounts paid. I refer to the document annexed hereto and marked with the letter “J” which shows a spreadsheet proposed [sic] in approximately 2015 detailing payments received in relation to the Hanwood project.

270    It is readily apparent from Mr Nichols’ explanation that the Hanwood Spreadsheet is a record of invoices issued by Mr Nichols’ firm in relation to work undertaken for Hanwood.

271    The Hanwood Project Spreadsheet records the identity of the paying entity for invoices in aggregate in the amount of $143,613.32. Of this amount, Stintari is recorded as being the paying entity for invoices in an aggregate amount of $97,823.77, Mr Kelly for two invoices paid by bank cheque in an aggregate amount of $2,608.38 and Patey & Murphy for an invoice in the amount of $43,181.17 paid on settlement of the sale of the Property on 18 March 2015.

Consideration

272    Mr Kelly has attempted to justify causing Hanwood to make the Impugned Payments (and thus discharge his evidential onus) by a combination of recollection and reliance on an incomplete documentary record. The incomplete documentary record includes the Hanwood Financial Records and the further particularisation provided in the Stintari Payments Schedule.

273    I accept that the documentary record is largely but not exclusively of a general nature, as explained above.

274    Nevertheless I am satisfied that the documents in evidence establish that:

(a)    the proposed development of the Property was significantly compromised by the discovery of the critically endangered Persoonia pauciflora plants;

(b)    Hanwood was involved in a lengthy dispute with the Cessnock City Council with respect to the proposed subdivision of the Property that culminated in substantive contested proceedings in the Land and Environment Court;

(c)    the discovery of the Persoonia pauciflora plants and the unsuccessful Court proceedings that effectively precluded the proposed subdivision of the Property, significantly added to the complexity of the proposed sale of the Property and significantly reduced the number of potential purchasers; and

(d)    by reason of the above matters, it is readily apparent that Hanwood must have incurred significant liabilities that would have to be satisfied, if not met earlier, from the proceeds of the sale of the Property.

275    Hanwood accepted, and it was common ground, that Mr Renton was not prepared to advance any funds to Hanwood to meet these expenses.

276    Hanwood also accepted, and it was common ground, that Mr Renton left the conduct of the development and realisation of the Property exclusively to Mr Kelly. That inevitably had the consequence that Mr Renton left to Mr Kelly the exclusive responsibility for taking steps to ensure that Hanwood was in a position to meet all of its liabilities as and when they fell due for payment.

277    Notwithstanding any evidential onus borne by Mr Kelly, the burden of proof of the contraventions alleged by Hanwood remains on Hanwood. Ultimately, in order to succeed, Hanwood has to demonstrate by reference to the whole of the evidence that Mr Kelly has contravened ss 181(1) and 182(1)(b) of the Corporations Act in the respects alleged. Had Mr Kelly not given evidence as to the circumstances in which the Impugned Payments had been made, that may well have been a straightforward exercise given the relative paucity of documents justifying the making of the Impugned Payments.

278    The profound difficulty for Hanwood in the proceedings is that it did not lead any evidence challenging Mr Kelly’s steadfastly maintained explanations in cross-examination of the circumstances in which the Impugned Payments were made or contend that the Hanwood Financial Records were fabricated or forgeries.

279    Rather, Hanwood submitted that in the absence of underlying primary records evidencing the liabilities the subject of the Impugned Payments, such as invoices and bank statements, the Hanwood Financial Records and the Stintari Payments Schedule were not capable of providing any justification for Mr Kelly to have made the Impugned Payments.

280    Hanwood sought to rely on inferences of improper purposes by reason of alleged failures by Mr Kelly to keep proper books and records of Hanwood documenting the liabilities the subject of the Impugned Payments and its challenges to Mr Kelly’s credit. As I explain above, I am satisfied having observed Mr Kelly closely in the witness box that he was genuinely seeking to give honest and truthful evidence, notwithstanding his belligerence at times to his cross-examiner and his reluctance to accept that his recollection of the specific timing of events might not be correct. Further, as I have found above, I am satisfied on the balance of probabilities that Mr Kelly did provide the historical books and records of Hanwood to Mr Renton for safekeeping.

281    I have concluded that Mr Kelly has satisfied any evidentiary onus that he might have borne with respect to establishing that he was justified in making the Impugned Payments.

282    There is nothing in the Hanwood Financial Records or the Stintari Payments Schedule that appears implausible or inconsistent with the apparent logic of events.

283    I am satisfied that the payments recorded in the Stintari Payments Schedule reflect a genuine attempt by Mr Kelly to recall both the categories of invoices alleged to have been paid by Stintari on behalf of Hanwood and the quantum of those payments. It was not suggested to Mr Kelly in cross-examination that the figures in the schedule were not a genuine estimate by Mr Kelly of the amounts paid by Stintari on behalf of Hanwood in relation to the expenses of the Property.

284    Moreover, the Hanwood Particular Payment Records and the Hanwood Project Spreadsheet establish that Stintari was making substantial payments to third parties on behalf of Hanwood in the years leading up to the sale of the Property. Moreover, Mr Renton, contrary to his evidence in the hearing, must have appreciated that Stintari was providing financial support to Hanwood. It is telling that Mr Renton agreed on 18 December 2012 that the sum of $50,000 held by St George Bank to support a bank guarantee issued by the bank to secure Hanwood’s obligations to the Cessnock City Council was to be returned to Stintari with accumulated interest, rather than to Hanwood.

285    The Hanwood Financial Records on their face provide a comprehensive, albeit high level, picture of the liabilities of Hanwood as at the date of the settlement of the sale of the Property and the means by which they were substantially satisfied as recorded in trial balances, a balance sheet and a profit and loss statement that are supported by journal and ledger entries and bank statements.

286    Importantly, the Hanwood Financial Records include both a loan from Mr Renton to Hanwood and substantial interest that had accrued on that loan. They also include the Kelly Loan and the Kelly Consulting Fee, neither of which was satisfied from the Net Sale Proceeds. If the Hanwood Financial Records were fabricated there was no apparent reason to include a record of any loan to Mr Renton, bearing in mind that Mr Renton’s evidence was to the effect that he did not even understand why he was receiving the $500,000 from Mr Kelly after the sale of the Property. Nor was there any apparent reason to include liabilities for amounts significantly in excess of the Net Sale Proceeds and which would never be recoverable.

287    It is implausible, in the absence of fraud or dishonesty, neither of which was alleged, that the Hanwood Financial Records were not prepared on or about the dates that each bears or that the information recorded in those records was not a genuine record of the amounts owing by Hanwood to entities and persons who had made payments on its behalf in the period after Mr Renton made it clear to Mr Kelly that he was not prepared to advance any further funds to facilitate the development and ultimate sale of the Property.

288    In addition, it is implausible in the absence of fraud or dishonesty, neither of which was alleged, that the Stintari Payments Schedule was fabricated and not a genuine recollection and estimation by Mr Kelly of the categories of expenses and quantum of the amounts paid by Stintari on behalf of Hanwood.

289    I am not satisfied that Mr Kelly failed to act in good faith in the best interests of Hanwood or for a proper purpose in causing Hanwood to make the Stintari Payments. Nor am I satisfied that Mr Kelly improperly used his position as a director of Hanwood to cause detriment to Hanwood in causing Hanwood to make the Stintari Payments.

290    As I have concluded above, the Stintari Payments were limited to repayment of moneys that I have found were advanced by Stintari to Hanwood as unsecured loans to enable Hanwood to discharge its liabilities to third parties. Further, the making of the Stintari Payments left a small shortfall in the principal amount outstanding to Stintari, did not include any interest on the unsecured loans advanced by Stintari and left unpaid the Kelly Consulting Fee and the Kelly Loan.

291    Viewed objectively, causing a corporation to repay or reimburse funds to entities and persons that had provided funding to enable the only substantive asset of a corporation to be developed and sold is not conduct that can be construed as conduct that is not engaged in good faith in the best interests of a corporation, nor is it conduct engaged in for an improper or collateral purpose or conduct that relevantly causes detriment to the corporation.

292    Equally, I am not satisfied that Mr Kelly failed to act in good faith in the best interests of Hanwood or for a proper purpose in causing Hanwood to make the Other Payments or that he improperly used his position as a director of Hanwood to cause detriment to Hanwood in causing Hanwood to make the Other Payments.

293    It is consistent with the apparent logic of events that Mr Kelly was looking to and relying on third parties for assistance in obtaining funds to enable Hanwood to proceed with the development of the Property, in particular unanticipated expenses arising by reason of the discovery of the Persoonia pauciflora plants, the revocation of the subdivision approval for the Property by Cessnock City Council and the costs of the proceedings in the Land and Environment Court.

294    Further, the payment of interest on the loans to Ms Zupan and the Hainsworths was at a relatively modest rate and at the same rate as the interest paid on the unsecured loan from Mr Renton. I accept that Ms Zupan was not able to give evidence of the intended destination of the funds that she provided to Mr Kelly but as I explain above I am satisfied that the Hanwood documents admitted into evidence in the proceedings as a whole are sufficient to meet any evidentiary onus that Mr Kelly might have to establish that the moneys advanced by Ms Zupan were applied to the benefit of Hanwood and that he was thereby justified in making the Zupan Payment.

295    I am equally satisfied that the Hanwood documents admitted into evidence in the proceedings as a whole are sufficient to meet any evidentiary onus that Mr Kelly might have to establish that the moneys advanced by the Hainsworths and Mr Staines through TW Staines & Co were applied to the benefit of Hanwood and that he was thereby justified in making the Hainsworth Payments and the Staines Payment.

296    Hanwood asks the Court to draw Jones v Dunkel inferences in relation to Mr Staines’ failure to address in his affidavit the alleged loan from TW Staines & Co to Hanwood and in relation to the absence of any further explanation by Ms Zupan in her affidavit about the circumstances in which she advanced money to Mr Kelly. I accept that these matters could well have been expected to have been addressed in these affidavits and I am prepared to draw inferences that had such evidence been given it would not have assisted Mr Kelly. Having said that, I am not persuaded that such inferences are sufficient to establish that the loans were not in fact made by TW Staines & Co to Hanwood and by Ms Zupan to Hanwood via Tebor given the entries in the Hanwood Financial Records and the number of years that have elapsed since the alleged loans were made.

297    For these reasons, I am not satisfied that Mr Kelly did not exercise his powers and discharge his duties as a director of Hanwood in good faith in Hanwood’s best interests and for a proper purpose in causing Hanwood to make the Impugned Payments. Nor am I satisfied that Mr Kelly improperly used his position as a director of Hanwood to cause Hanwood to make the Impugned Payments and thereby cause detriment to Hanwood.

298    The Payments Contravention has not been established.

Costs

299    Ultimately, Hanwood has been entirely unsuccessful in the proceedings. Subject to any interlocutory costs orders, as the successful party was an unrepresented litigant it would follow that there would be no order as to costs.

300    The following interlocutory costs orders, however, have been made against Mr Kelly with respect to Hanwood’s costs:

(a)    of the case management hearing on 6 November 2020;

(b)    thrown away by the vacation of the hearing of the strike out application on 11 June 2021, on an indemnity basis;

(c)    of the case management hearing on 19 November 2021; and

(d)    thrown away by Mr Kelly’s application to reopen his case after the exchange of closing written submissions.

301    I propose to make fixed sum costs orders on the papers with respect to each of these costs orders after giving the parties the opportunity to advance short submissions on the appropriate amounts of those orders and to adduce evidence by way of affidavit in support of those submissions.

302    The costs of the vacated strike out hearing on 21 July 2021 and the 18 August 2021 case management hearing were reserved but given the absence of any success by Hanwood at the final hearing and that Mr Kelly is a self-represented litigant no costs order will be made in respect of these reserved costs. Nor, in light of the explanation provided by counsel for Mr Beazley at the case management hearing on 21 July 2021, do I propose to make any costs order against Mr Beazley personally in respect of the vacation of the strike out hearing on 11 June 2021.

303    Finally, I note that Hanwood’s costs of the hearings before Rares J on 7 July 2020 and 21 August 2020 have already been fixed in the sum of $27,500.

Disposition

304    The further amended originating process is to be dismissed with no order as to costs other than Mr Kelly is to pay on a fixed sum basis the existing costs orders made against him with respect to Hanwood’s costs of the case management hearings on 6 November 2020 and 19 November 2021, the costs thrown away by the vacation of the hearing of the strike out application on 11 June 2021, on an indemnity basis, and Mr Kelly’s application to reopen his case after the exchange of closing written submissions. The parties will be given an opportunity to file short submissions and supporting evidence with respect to the quantification of those costs on a fixed sum basis and the matter will then be determined on the papers.

305    No order is to be made requiring ASIC to reinstate Mr Renton as a director of Hanwood.

Associate:    

Dated:    21 July 2022