FEDERAL COURT OF AUSTRALIA

Trustee of the property of Diamond v Diamond Family Investments Pty Ltd, in the matter of Diamond (Bankrupt) [2024] FCA 18

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) and r 26.01 of the Federal Court Rules 2011 (Cth) summary judgment be entered in favour of the applicant in relation to prayer 5 of the final orders sought in the originating application filed on 23 January 2023.

2.    The respondent pay the applicant the sum of $301,562.01.

3.    Pursuant to s 51A of the Federal Court Act the respondent pay interest on the sum in paragraph 2 above in accordance with the Interest on judgments Practice Note (GPN-INT).

4.    The respondent pay the applicant’s costs as agreed or assessed.

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

REASONS FOR JUDGMENT

MEAGHER J

INTRODUCTION

1    By originating application filed on 23 January 2023 the applicant sought the following relief:

1.    A declaration that the Applicant holds an equitable interest of 33.03% (or such other proportion determined by the Court) of the estate in fee simple of the property located at 31 Heritage Drive, N Mount Nathan, Qld 4211 (more accurately described as Lot 2 on RP 173571 and bearing title reference 16183235).

2.    An order that a judicial sale pursuant to Section 99(2) or alternatively Section 100 of the Property Law Act 1974 (Qld).

3.    In the alternative to 2, statutory trustees for sale be appointed pursuant to Section 38 of the Property Law Act 1974 (Qld).

4.    An order that the Property be delivered to the Applicant and the Applicant have possession of the Property.

5.    The Respondent pay the Applicant $301,562.01 as a debt.

6.    Interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth).

7.    Such further or consequential orders as the Court considers appropriate.

8.    Costs.

2    The Trustee (defined below) claims that Mrs Diamond contributed $301,562.01 to the purchase price of the property located at 31 Heritage Drive, N Mount Nathan, QLD 4211 (property), and therefore the respondent holds 33.03% of the estate in fee simple of the property upon resulting trust for Mrs Diamond. The Trustee alternatively claims that the respondent declared a trust distribution to Mrs Diamond in the sum of $301,562.01 (unpaid trust distribution) pursuant to cl 9.1 of the Deed (defined below). The Trustee seeks declarations and orders to acknowledge Mrs Diamond's interest in the property. 

3    The respondent denies that it is liable to pay the unpaid trust distribution.

4    This is an interlocutory application filed on 4 October 2023 which seeks summary judgment in favour of the applicant pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth) and r 26.01 of the Federal Court Rules 2011 (Cth) as follows:

1.    Pursuant to section 31A of the Federal Court of Australia Act 1976 (Cth) or rule 26.01 of the Federal Court Rules 2011 (Cth) summary judgment be entered in favour of the Applicant in relation to paragraph 5 of the final orders sought on the originating application filed 23 January 2023.

2.    The Respondent pay the Applicant the sum of $301,562.01.

3.    Pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), the Respondent pay interest on the sum in paragraph 2 above in accordance with the Interest on Judgments Practice Note (GPN-INT) and at the rates published by the Federal Court of Australia on its website page titled “Pre-judgment & Post-judgment Interest Rates”.

4.    Costs.

5.    Such further orders as the Court deems appropriate.

5    For the reasons that follow, summary judgement is entered in favour of the applicant.

BACKGROUND

6    The following are uncontroversial background facts.

7    Diamond Family Investments (DFI), the respondent, is the corporate trustee of the Diamond Family Investment Trust (DFI Trust). It was incorporated on 23 February 2013. Mrs Denise Diamond was, from its incorporation until 15 June 2018, the sole director of DFI. On that date Mr Jy Diamond, Mrs Diamond’s son, was appointed a director of DFI and on 26 July 2018 Mrs Diamond ceased to be a director. Mr Murray Kilpin of Walsh & Walsh (accountant) handled the accounting affairs of Mrs Diamond and her husband, as well as their various entities including the DFI Trust.

8    The DFI Trust was established by a Trust Deed dated 8 February 2013. It is a discretionary family trust with DFI holding all trust property subject to the Deed. Mrs Diamond and her husband, Mr Diamond, are the joint appointers of the DFI Trust and are the primary beneficiaries. Mrs Diamond executed the Deed on behalf of the trustee of DFI.

9    On about 2 August 2013, DFI as trustee of the DFI Trust purchased the property for the purchase price of $913,000. In accordance with cl 3 of the Deed, the property forms part of the "Fund" and is subject to the terms of the Deed.

10    On 15 August 2018, Mrs Diamond became a bankrupt upon her own debtor's petition. Mr Stephen Dixon is the Trustee of the bankrupt estate of Mrs Diamond. Mrs Diamond was discharged from bankruptcy on 9 August 2022.

11    Relevantly, the Deed states:

1.    INTERPRETATION

Definitions

1.1    The meanings of the terms used in this deed are set out below.

…

Distribute    in relation to any distribution of or dealing with Net Income or capital means to pay, transfer, apply or set aside that Net Income or capital

…

Fund        (a)     the original settlement amount of $10.00

(b)     all other money and property vested in the Trustee to be held upon the trusts of this deed

(c)     all other property and money acquired by the Trustee for the purposes of this deed

(d)     the property and investments from time to time comprising the assets of the Fund but excluding any Net Income derived from those assets

(e)     any amount that is accumulated and added to capital in accordance with this deed

…

3.    ACCEPTANCE OF TRUSTS

The Trustee agrees to hold the Fund and the income derived from the Fund upon the trusts and with and subject to the powers set out in this deed.

4.    POWER TO ACCUMULATE

The Trustee may accumulate all or any part of the Net Income and will hold any accumulation as part of the Fund.

5.    DETERMINATON AND DISTRIBUTION OF INCOME

…

5.2 The Trustee may in its absolute discretion at any time up to and including the Perpetuity Date Distribute all or part of the Net Income to or for:

(a)     all or any of the Beneficiaries to the exclusion of the others and in whatever shares the Trustee may decide; or

…

7.    DISTRIBUTION OF CAPITAL

Despite the provisions of clause 6, the Trustee may at any time up to and including the Perpetuity Date Distribute the whole or any part of the Fund to or for:

(a)     all or any of the Beneficiaries to the exclusion of the others and in whatever shares the Trustee may decide; or

(b)     the advancement, maintenance, education, support or benefit of all or any of the Beneficiaries to the exclusion of the others and in whatever shares as the Trustee may decide.

…

9.    FUNDS SET ASIDE FORM SEPARATE FUND

9.1 Any amount Distributed to or held for a Beneficiary pursuant to this deed by the Trustee will not form part of the Fund, but will be held for the Beneficiary absolutely and must be paid to the Beneficiary immediately on demand.

9.2 Pending payment the Trustee has power to deal with the amount in the manner provided for in this deed in relation to the Fund and the Net Income.

10.    EXERCISE OF DISCRETION DEEMED IRREVOCABLE

Any discretion, payment or transfer may be exercised or made pursuant to clauses 5 and 7 of this deed either irrevocably or revocably but:

(a)     unless otherwise nominated, any exercise of discretion or payment will be irrevocable; and

(b)     any exercise of discretion or payment that is expressed to be revocable may not be revoked after the Perpetuity Date.

…

12.    EXERCISE OF TRUSTEE'S POWERS

12.1     In Exercising any power or discretion, the Trustee:

(a)     is free from the control or interference of any Beneficiary or other person;

(b)     is not required to provide any reasons for its decisions;

12.3     Any determination to Distribute Net Income or capital of the Fund to a Beneficiary may be made:

(a)     prior to the receipt of the proceeds in respect of which the Distribution is being made;

(b)     in writing signed by the Trustee; or

…

(e)     by crediting an amount of the benefit of a Beneficiary in the books of the Fund.”

THE EVIDENCE

12    In support of the application the applicant read the affidavit of Stephen Robert Dixon affirmed on 4 October 2023 (Dixon Affidavit). 

13    The respondent read the affidavit of Denise Diamond sworn on 2 November 2023 and the affidavit of Jy Diamond sworn on 2 November 2023. For clarity and intending no disrespect I will refer to those affidavits respectively as the Denise Affidavit and the Jy Affidavit.

14    The evidence provided in the Dixon Affidavit relevantly includes:

Financial year ended 30 June 2014 Written Records

19.    On 7 July 2015, DFI, as trustee for the DFI Trust, signed financial statements for the DFI Trust for the financial year ended 30 June 2014 (2014 Financial Statements) which set out an unpaid trust distribution to Mrs Diamond for ‘Drawings’ in the sum of $301,562.01 (unpaid trust distribution).

20.    The 2014 Financial Statements also set out that the DFI Trust had a current liability to Mrs Diamond for $301,562.01 and that it was holding ‘total beneficiary funds’ for Mrs Diamond in the sum of $301,562.01.

21.    Mr Murray Kilpin, the accountant for the DFI Trust, also signed the 2014 Financial Statements.

…

22.    On 7 July 2015, DFI, by way of a signed ‘client verification’, instructed its accountants to execute and lodge a tax return with the ATO which set out that the DFI Trust had current liabilities for the unpaid trust distribution in the sum of $301,562.

23.    The DFI Trust’s tax return for the financial year ended 30 June 2014 was lodged on 7 July 2015 and signed by Mr Kilpin as the accountant for the DFI Trust.

…

Financial year ended 30 June 2015 Written Records

24.    On or about 6 June 2016, DFI, as trustee for the DFI Trust, gave instructions to its accountant to produce financial statements for the DFI Trust for the financial year ended 30 June 2015 (2015 Financial Statements) which again set out an unpaid trust distribution to Mrs Diamond for a ‘Balance brought forward’ in the sum of $301,562.01.

25.    The 2015 Financial Statements also set out that the DFI Trust had a current liability for an unpaid trust distribution in the sum of $301,562.01.

…

26.    The DFI Trust’s tax return for the financial year ended 30 June 2015 set out ‘all current liabilities’ for the unpaid trust distribution as being in the sum of $301,562 and was lodged with the ATO on 6 June 2016.

…

Financial year ended 30 June 2016 Written Records

27.    On or about 10 January 2018, DFI, as trustee for the DFI Trust, signed financial statements for the DFI Trust for the financial year ended 30 June 2016 (2016 Financial Statements) which set out an unpaid trust distribution to Mrs Diamond for a ‘Balance brought forward’ in the sum of $301,562.01.

28.    The 2016 Financial Statements also set out that the DFI Trust had a current liability for unpaid trust distributions in the sum of $301,562.01 and that it was holding ‘total beneficiaries funds’ for Mrs Diamond in the sum of $301,562.01.

29.    On or about 10 January 2018, Mrs Diamond as director of DFI, signed a director’s declaration declaring that the 2016 Financial Statements presented fairly the trust’s financial position as at 30 June 2016 and its performance for the year ended on that date.

…

30.    On or about 10 January 2018, DFI, by way of a signed ‘client verification’, instructed its accountants to execute and lodge a tax return with the ATO which set out that the DFI Trust had current liabilities for the unpaid trust distribution in the sum of $301,562.

31.    The DFI Trust’s tax return for the financial year ended 30 June 2016 was lodged on 2 May 2019 and contained a number of declarations signed by Mrs Diamond on behalf of DFI.

…

Financial year ended 30 June 2017 Written Records

32.    On or about 17 December 2018, while Mrs Diamond was an undischarged bankrupt, she signed financial statements for the DFI Trust for the financial year ended 30 June 2017 which, for the first time, set out an unpaid trust distribution to ‘Diamond Family’ for a ‘Balance brought forward’ in the sum of $301,562.01.

33.    On or about 17 December 2018, DFI, by way of Mrs Diamond signing a ‘client verification’, instructed its accountants to execute and lodge a tax return with the ATO which set out that the DFI Trust had current liabilities in the sum of $301,562.

34.    The DFI Trust’s tax return for the financial year ended 30 June 2017 was lodged on 5 April 2019 and contained a number of declarations signed by Mrs Diamond.

…

15    The Dixon Affidavit also sets out the following evidence:

(1)    Mr Dixon had received email correspondence from the accountant advising that Mrs Diamond had not been paid the “UPE from 2016”. He understood UPE to mean an “Unpaid Present Entitlement” or unpaid trust distribution. He also stated that he had seen email correspondence from the accountant to DFI’s legal representative stating that the unpaid trust distribution expressed to be in favour of Mrs Diamond as at 30 June 2016 was “reclassified as an amount owing to the Diamond Family (not owing to Denise ‘per-se’).”

(2)    Mr Dixon had made two demands for the unpaid trust distribution, the first on 12 August 2021 and the second on 20 October 2021, but that the amount “remains due and owing and has not been paid to him by” DFI.

(3)    Contrary to DFI’s defence, the financial statements and income tax returns to which Mr Dixon had referred disclose that the DFI Trust had not incurred trading losses of $301,562 (the amount of the unpaid trust distribution) nor had it borrowed money from any party other than its secured lender, the National Australia Bank.

(4)    The “reclassification” of the debt of Mrs Diamond to “other persons/entities of the Diamond family” is inconsistent with the three years of financial statements and tax returns signed by Mrs Diamond, which income tax returns, based upon the financial statements, Mrs Diamond instructed the accountant to lodge with the ATO. Mr Dixon also stated that the “reclassification” occurred after Mrs Diamond had become bankrupt and deposed to his beliefs regarding the reasons for such “reclassification”.  

16    In the Denise Affidavit, Mrs Diamond deposed to the following in relation to the arrangement between herself and the accountant:

15.    In the process of preparing the financial statements and tax returns, both on a personal level and the various entities within the corporate group, Murray would be provided with bank account statements sourced from the bank, and, spreadsheets which were prepared by Mrs Stone, the bookkeeper, based on the transactions shown in the bank account statements. I had no involvement in instructing Murray in respect of the financials he was preparing for the DFI Trust. Murray operated on the basis that he would prepare the financials based on what he considered to be appropriate and then would have those financials sent for signature.  

16.    Once Murray prepared various financial statements, he would send them for signature. Often, other persons applied my electronic signature to those financial statements without me seeing them. Sometimes, I was simply told by Murray or someone from Walsh and Walsh to sign the documents so they can be lodged. There was rarely, if at all, a discussion about how to financial statements were completed by Murray. We relied heavily on Murray's expertise as an accountant and took comfort from the fact that he was worked off the bank statements he was provided for a particular entity when preparing the financial statements and tax returns.

17.    The first set of financial accounts and statements for the Respondent was prepared by Murray and his team then at Walsh and Walsh in 2014. I am now aware (since this issue was first raised by Mr Dixon in the course of my bankruptcy in July 2021) that the financials were prepared which contained an incorrect entry of an unpaid trust distribution for “Drawings” in my name for the amount of $301,562.01 (UPE).

17    The Denise Affidavit also contained the following in relation to queries made of her by Mr Dixon regarding the unpaid trust distribution:

(1)    That prior to it being raise with her by Mr Dixon, Mrs Diamond had never heard of the term “unpaid trust distribution” and did not know what it meant. It was agreed at a Zoom meeting between Mrs Diamond, Mr Dixon, the solicitor for DFI and others that the accountant would be asked to comment upon the unpaid trust distribution particularly as to whether it was “an accounting entry or a ‘real’ unpaid distribution which is payable”. Mrs Diamond understood that if it was an “accounting entry only” Mr Dixon would not pursue the matter.

(2)    Mrs Diamond set out some of the contents of an email from the accountant to DFI’s legal representative dated 11 August 2021, attached to an email dated 18 August 2021, as follows:

You were enquiring about the UPE that was listed in the financials for Diamond Family investment (sic) Trust.

I note the 2016 financials reflected a UPE owing to Denise Diamond for $301,562 at 30 June 2016.

To the best of my knowledge this amount represents funds that were provided/loaned by members of the extended Diamond family to fund its trading losses and an initial deposit for the original NAB loan to purchase the property. I believe the UPE was erroneously listed under Denise's name as I recall funds were injected by all/any members of the family as the situation demanded to cover any expenses.

You will note from 2017 onwards the UPE was reclassified as an amount owing to the Diamond Family (not owing to Denise 'per-se').

Further, please note the Trust has been trading in losses for the time I have been familiar with preparing the accounts. I am led to believe the Trust has nil cash reserves and would be unable to pay out the loan/UPE owing back to the Diamond family. I also understand the NAB is the secured lender for the Trust.

(3)    Mr Dixon objected to Mrs Diamond’s discharge from bankruptcy on several bases but not the unpaid trust distribution, so she considered that Mr Dixon was no longer pressing the matter.

(4)    Mr Dixon withdrew his objection to Mrs Diamond’s discharge from bankruptcy on 9 August 2022.

18    As to the unpaid trust distribution, the Denise Affidavit stated that Mrs Diamond:

    Did not know why the financials contained the unpaid trust distribution in her favour;

    Did not read the financials before they were signed;

    Did not instruct the accountant to declare a trust distribution in her favour;

    Did not “make a decision to declare the UPE”, and never had done so during her term as a director of DFI; and

    Was aware that enquiries made of the accountant “conclude” that a decision was made by the accountant or someone at the accountant to declare the unpaid trust distribution “on their own accord”.

19    The Denise Affidavit also stated that Mr Jy Diamond had contributed money from the sale of a property he owned in New South Wales to the purchase of the property, and that had Mrs Diamond been aware of the “need to enter an unpaid trust distribution to reflect the financial contribution made by Jy” she would have instructed the accountant “to enter the unpaid trust distribution in Jy’s name”.

20    The Jy Affidavit contained the following evidence:

(1)    Mr Jy Diamond sold a property in Penrith and contributed the net proceeds of that sale to the purchase of the property. In that regard the Jy Affidavit annexes a letter from DFI’s current accountant which opines that he has been able to confirm that Mr Jy Diamond contributed $249,100 to the purchase of the property. Mr Jy Diamond and his family have lived at the property since about 2013.

(2)    Prior to Mr Jy Diamond’s appointment as a director of DFI, he was not involved in the preparation of its financial statements and tax returns, however since his appointment he is aware that “financials” were prepared which incorrectly set out that there was an entry of an unpaid trust distribution for “Drawings” in the name of Denise Diamond in the sum of $301,562.01.

(3)    Mr Jy Diamond deposed to a number of matters also the subject of the Denise Affidavit with respect to queries regarding the unpaid trust distribution and Mrs Diamond’s discharge from bankruptcy.

(4)    The accountant now engaged by DFI considers that the entry in Mrs Diamond’s favour occurred as “an account balancing entry only to balance the books of the DFI Trust”. Mr Jy Diamond gave no instructions, nor found a record of any instructions given prior to his appointment as a director, to the accountant by Mrs Diamond to enter the unpaid trust distribution into the financial statements.

(5)    Mr Jy Diamond has instructed the new accountant of DFI to lodge “correct and amended financial statements” with the ATO, and that he believes that Mr Dixon has been aware of the “incorrect entry” since at least 18 August 2021.  

21    The Jy Affidavit referred to correspondence between the lawyer for DFI and the accountant as follows:

27.    On 2 August 2023, the Respondent's lawyer emailed Murray as follows:

Dear Murray,

We refer to the financials you prepared for Diamond Family Investments.

We need some clarity as to why, in preparing the 2016 and 2017 financials, you have entered an UPE in favour of Denise Diamond for $301,562.01. Where did this figure come from? Who gave you instructions to make this entry? How was that amount calculated? Where are source documents to support that entry?

Please reply by 4pm on Friday, 4 August 2023.

28.    On 4 August 2023, Murray replied as follows:

Hi Omar,

The amount of $301,562 would be an accumulation of monies lent into the trust (cr entry) and drawings paid from the trust (db entry) over a period of time from inception to 2016-17. It could potentially include a 'share of profit distributions as well (cr entry), however I can't recall the Trust ever making a profit and thus, no distribution would have been effected (a review of Denise's personal income tax returns over this period would confirm if she in fact did receive a distribution).

No-one specifically provided an instruction to create this entry. As I point out in the paragraph above, it was the culmination of monies lent into the trust and any drawings coming out of the Trust get coded to this account from the MYOB file and/or other information provided by the Trustee (receipts/invoices etc).

Walsh Accountants might have a soft-copy of old MYOB file back-ups that could assist and various source documents (summaries of receipts & invoices) saved down.

29.    On 4 August 2023, the Respondent's lawyers emailed Murray as follows:

Hi Murray

Thanks for the email.

Why was the entry put into the name of Denise Diamond?

Having reviewed her personal ITRs she did not have those funds available to advance to

the trust. Just trying to understand the entry as it is the cause of litigation

30.    On 4 August 2023, Murray replied as follows:

Hi Omar,

I'm not 100% sure why the entry had Denise's name in the account description.

One possibility could be when we receive the file from the bookkeeper they often allocate all the drawings or loans contributed to just one person or account code for ease of data entry (this can be random whether Graeme or Denise or jointly), potentially whichever staff member was entering the data, might have simply copied the file description.

22    The Jy Affidavit deposed that:

Upon discovering the erroneous entry of the UPE in the financial records of the Respondent, I have instructed the Respondent's current accountant to amend and correct the financial statements for the Respondent for period of 2013 to 2019. To complete this process, David has reconstructed the financial accounts from the commencement of the DFI Trust by reference to bank statements for accounts of the DFI Trust.

LEGAL FRAMEWORK

23    Pursuant to s 31A of the Federal Court Act, the Court has the power to give summary judgment:

31A Summary judgment

(1)    The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:

(a)    the first party is prosecuting the proceeding or that part of the proceeding; and

(b)    the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding.

(2)    The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:

(a)    the first party is defending the proceeding or that part of the proceeding; and

(b)    the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding.

(3)    For the purposes of this section, a defence or a proceeding or part of a proceeding need not be:

(a)    hopeless; or

(b)    bound to fail

for it to have no reasonable prospect of success.

(4)    This section does not limit any powers that the Court has apart from this section.

(5)    This section does not apply to criminal proceedings.

24     Pursuant to r 26.01 of the Rules, a party may make an application for summary judgment:

26.01 Summary judgment

(1)    A party may apply to the Court for an order that judgment be given against another party because:

(a)    the applicant has no reasonable prospect of successfully prosecuting the proceeding or part of the proceeding; or

(b)    the proceeding is frivolous or vexatious; or

(c)    no reasonable cause of action is disclosed; or

(d)    the proceeding is an abuse of the process of the Court; or

(e)    the respondent has no reasonable prospect of successfully defending the proceeding or part of the proceeding.

(2)    The application must be accompanied by an affidavit stating:

(a)    the grounds of the application; and

(b)    the facts and circumstances relied on to support those grounds.

(3)    The application and the accompanying affidavit must be served on the party against whom the order is sought at least 14 days before the hearing of the application.

(4)    If an order is made under subrule (1) dismissing part of the proceeding, the proceeding may be continued for that part of the proceeding not disposed of by the order.

(5)    If an order is made under subrule (1) giving judgment for the applicant against the respondent for the whole or part of the applicant’s claim, a respondent who has a cross-claim against the applicant or some other party may:

(a)    continue to prosecute the cross-claim against the applicant or other party; and

(b)    apply to the Court for an order staying execution on or enforcement of the judgment until the respondent’s cross-claim is determined.

Note: See also section 31A of the Act.

25    The inclusion of s 31A of the Federal Court Act broadened the scope of the Court's power to summarily dismiss applications which are unmeritorious and have no reasonable prospects of being successfully defended. In determining whether a proceeding ought to be dismissed pursuant to s 31A, the Court is not bound to consider the merits of the case as it ordinarily would after a trial, rather it must consider whether the defence raised by the respondent has any reasonable prospect of succeeding: Jefferson Ford Pty Ltd v Ford Motor Co of Australia Ltd (2008) 167 FCR 372 at [45] (Rares J). As summarised by Rares J in Jefferson Ford at [45]: "The section requires a prediction of the outcome of a trial on the merits but is not an actual adjudication of those merits." 

26    To succeed in bringing a summary judgment application, the applicant is not required to prove that a defence is "hopeless" or "bound to fail": Spencer v Commonwealth (2010) 241 CLR 118 at [52] (Hayne, Crennan, Kiefel and Bell JJ). The prospect of the defence succeeding must be real, as opposed to fanciful or merely arguable: White Industries Aust Pty Ltd v Commissioner of Taxation (2007) 160 FCR 298 at 809 (Lindgren J). 

27    In relation to the test as to whether there is a reasonable prospect of success, Gilmour J in Nyoni v Chee Koon Hee (No 4) [2013] FCA 948 at [14] said that where a factual issue is in dispute, "the court must decide whether the opposing party has evidence of sufficient quality and weight to succeed at trial", citing Jefferson Ford.  

28    Steward J recently summarised the principles which apply to summary judgment applications in Pathmanathan v Healthscope Operations Pty Ltd [2020] FCA 65 at [8]:

(1)    the legislative purpose of s 31A is to strengthen “the power of the court to deal with unmeritorious matters by broadening the grounds on which federal courts can summarily dispose of unsustainable cases”: Second Reading Speech of the Migration Litigation Reform Bill 2005 (Cth);

(2)    the moving party bears the onus of persuading the court that the opponent has no reasonable prospect of success: Australian Securities and Investments Commission v Cassimatis (2013) 220 FCR 256 at 271 [46] per Reeves J.; Crayford Freight Services Ltd v Coral Seatel Navigation Co (1998) 82 FCR 328 at 333 per Burchett, Ryan and Marshall JJ;

(3)    assessment of whether a proceeding or a part of a proceeding has no reasonable prospect of success will necessarily require: (i) identification of the cause of action pleaded; (ii) identification of the pleaded facts said to give rise to that cause of action; (iii) a review of the evidence (if any) tendered in support of the claim for judgment; (iv) identification of the defence pleaded; (v) identification of any facts pleaded which are said to give rise to the defence; and (vi) a review of the evidence (if any) tendered in defence of the claim: Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372 at 406 –407 [126] per Gordon J.;

(4)    once a moving party has established a prima facie case that the opponent has no reasonable prospect of success, the opposing party must respond by pointing to specific factual or evidentiary disputes that make a trial necessary; general or non-particularised denials will be insufficient to defeat the motion; Jefferson Ford Pty Ltd at 407 [127] per Gordon J. citing Fortron Automotive Treatments Pty Ltd v Jones (No 2) [2006] FCA 1401 at [22] per French J. (as his Honour then was);

(5)    summary disposition of a proceeding is authorised on a variety of bases. It will, for example and without limitation, be appropriate in a case: (i) in which the pleadings disclose no reasonable cause of action and their deficiency is incurable; (ii) in which there is unanswerable or unanswered evidence of a fact fatal to the pleaded case and in any case which might be propounded by permissible amendment; or (iii) that is “frivolous or vexatious or an abuse of process”: Spencer v Commonwealth (2010) 241 CLR 118 at 131 [22] per French CJ and Gummow J.;

(6)    the determination of a summary dismissal application does not require a mini-trial based upon incomplete evidence to decide whether a proceeding is likely to succeed or fail at trial. Instead, it requires a critical examination of the available materials to determine whether there is a real question of law or fact that should be decided at trial: Cassimatis at 271 [46] per Reeves J.; and

(7)    an application for summary dismissal is likely to succeed if the moving party is able to demonstrate that the applicant’s success in the proceeding relies upon a question of fact that can be truly described as “fanciful, trifling, implausible, improbable, tenuous or one that is contradicted by all the available documents or other materials”: Cassimatis at 272 [47] per Reeves J. 

CONSIDERATION

Prima facie case

29    The 2014 financial statements of DFI declared a distribution of $301,562.01 owing to Mrs Diamond from the capital of the Fund. On 7 July 2015, Mrs Diamond signed a director’s declaration which attested to the correctness of the 2014 financial statements of DFI. Mrs Diamond also signed a client verification which verified that she had examined the prepared tax returns, was satisfied as to the content of the documents, that she had discussed the matters in the tax return with the accountant and declared all claims for deductions had been based on specific instructions. Before the Court is also an unsigned director’s declaration relating to the 2015 financial statements of DFI and a signed but undated copy of the client verification and directors’ declaration relating to the 2016 and 2017 financial statements of DFI. DFI does not contend that Mrs Diamond did not sign any of the director’s declarations or client verifications. In each of the tax returns for the financial years ending in 2014, 2015, 2016 and 2017 a liability is recorded in the sum of $301,562. 

30    Pursuant to cl 9.1 of the Deed, the unpaid trust distribution is held for Mrs Diamond absolutely, and must be paid immediately on demand. Pursuant to cl 10 of the Deed, the exercise of distribution of capital is irrevocable. That the money was for Mrs Diamond’s benefit is supported by cl 12.3(e) of the Deed which provides that a determination to make a distribution “may be made by crediting an amount of the benefit of a Beneficiary in the books of the Fund”.  

31    The 2014, 2015, 2016 and 2017 financial statements and income tax returns were prepared by the accountant, who was provided with bank account statements sourced from the bank and spreadsheets prepared by the bookkeeper based on transactions shown in the bank account statements. As part of the books of DFI they are prima facie admissible evidence of “any matter stated or recorded in the book”: s 1305(1) Corporations Act 2001 (Cth).  

32    Up until Mrs Diamond was declared a bankrupt, the unpaid trust distribution was recorded as being a liability owing to Mrs Diamond. Upon becoming a bankrupt, Mrs Diamond's property vested with the Trustee. The Trustee has demanded payment from DFI, which has not been paid.  

33    There is a prima facie case that DFI owes the Trustee the unpaid trust distribution of $301,562.01.   

Defences 

34    In its defence filed on 27 March 2023, DFI denies that it is liable to pay the unpaid trust distribution to the Trustee. DFI says that the 2016 financial statements of DFI erroneously stated that Mrs Diamond was the beneficiary entitled to the distribution of $301,562, when they ought to have stated that the beneficiary was the "Diamond Family" as has been recorded since the 2017 financial statements of DFI were prepared. In its defence, DFI says that the amount represented funds that were provided and loaned to fund trading losses not related to Mrs Diamond. DFI claims that Mrs Diamond was only entitled to the distribution in her capacity as trustee for other persons or entities of the Diamond family. The distribution is not one vested in her or extending to the Trustee. DFI says that amended tax returns have been lodged which show that the unpaid trust distribution is owed to the Diamond Family.

35    The evidence produced in support of this defence is two emails from the accountant, extracted above at paragraph [21] above, stating that the unpaid trust distribution should have been attributed to the Diamond Family rather than Mrs Diamond personally.

36    To the extent that it is submitted that all or part of the unpaid trust distribution is owed to Mr Jy Diamond in recognition of the contribution claimed to have been made by him towards the purchase price of the property, the defence contains no pleading to that effect. What is pleaded is that the amount represents funds that were loaned to DFI by persons/entities other than Mrs Diamond to fund its trading losses. While DFI submitted that this supports the contribution by Mr Jy Diamond of monies for the purchase of the property, that is simply not what the defence pleads.

Application granted

37    The Trustee’s application for summary judgement is granted for the following reasons.

38    The financial statements and income tax returns of DFI for 2014, 2015 and 2016 clearly set out that the unpaid trust distribution was for the benefit of Mrs Diamond. By operation of the Trust Deed, Mrs Diamond is a primary beneficiary, in respect of whom a distribution has been made. Pursuant to cl 9.1 of the Deed any distribution will be held for the beneficiary absolutely and cl 10.1 provides that, unless otherwise nominated, any exercise of such discretion is irrevocable. In this case no nomination was made in respect of the unpaid trust distribution. Therefore, the operation of the Deed makes it plain that that the distribution is for the benefit of Mrs Diamond, and that it cannot be changed after the fact. With respect to the 2017 financial statements and income tax return and the reported amended tax returns there is no current basis upon which the “Diamond Family” of itself can be a beneficiary of the trust. In any case, that the tax returns have been amended does not assist DFI in circumstances where the Deed makes it clear that the distribution is irrevocable.

39    DFI argued that the entries setting out that Mrs Diamond was the beneficiary of the unpaid trust distribution were made in error. The Denise Affidavit and Jy Affidavit both state that the entry was an accounting error and there is correspondence from the accountant stating that an error was made. The Jy Affidavit stated that he had been informed that the entry was “simply as an accounting balancing entry only to balance the books of the DFI Trust,” and supported that with a letter from DFI’s new accountant stating that is what likely occurred, and that such an entry is "common practice in the industry". The evidence as to the “errors” is not compelling.

40    In the Denise Affidavit, Mrs Diamond deposed that the accountant prepared the financial statements for, inter alia, DFI based on bank statements and documents provided to him by the bookkeeper. There is no evidence before me, aside from an email from the accountant attached to the affidavits, that an error occurred. The accountant himself has not provided an affidavit to the effect that an error occurred. There is no explanation as to how such an error could have been allowed to persist over three years. DFI’s case is that the error only came to the attention of DFI because of questions asked of Mrs Diamond by the Trustee. The applicant submitted that it was “convenient” that DFI’s claim that the entry was an error coincided with Mrs Diamond being made bankrupt. As to Mr Jy Diamond, his evidence is based only on what he has been told. DFI’s new accountant has not provided an affidavit and his letter only speculates as to “what likely occurred”.

41    DFI's defence stated only that the 2016 financial statements of DFI erroneously recorded Mrs Diamond as being entitled to the unpaid trust distribution. No reference is made to the 2014 or 2015 financial years. Further, the explanation provided that the unpaid trust distribution represented funds provided to fund trading losses is inconsistent with the actual financial statements which do not record trading losses in the amount of $301,562. It is therefore unclear to me how the unpaid trust distribution could be attributed to trading losses.

42    I therefore accept the applicant’s submission, that the evidence regarding the error is a “contrivance”; it is implausible and improbable. 

43    The Denise Affidavit and Jy Affidavit state that the accountant was not given instructions to enter the unpaid trust distribution in the financial statements as owing to Mrs Diamond. As to Mrs Diamond, while she now deposes to being distant from the preparation of the accounts, unaware of the existence or nature of the unpaid trust distribution until it was raised with her by Mr Dixon, that she often instructed others to sign the accounts, did not read them and relied on the accountant for their preparation, there is also evidence before me that Mrs Diamond signed numerous documents attesting to the accuracy of the financial statements, and that she had discussed them with the accountant. I therefore do not find Mrs Diamond’s evidence as to her ignorance of, and lack of involvement in, the financial statements compelling. While DFI relies on the statement contained in the letter of the accountant that he was not instructed to make the earlier entry in favour of Mrs Diamond, that statement does not assist in light of the directors’ declarations and client verifications signed by Mrs Diamond referred to above, and the duties she had as a company director.

44    I accept that Mr Jy Diamond has been unable to identify anything suggesting that the accountant was given instructions to enter the unpaid trust distribution as he did, but that evidence is of no assistance given the systems that were in place for the preparation of the financial statements and income tax returns, including that they were provided to Mrs Diamond for her information and sign off, and that to do so was a duty she held as a result of her position as a company director. Beyond that I give little weight to Mr Jy Diamond’s evidence in relation to this issue as he also stated that he was not involved in the preparation of financial statements prior to his appointment as a director in 2018.

45    The Denise Affidavit states that Mr Jy Diamond made a “significant” contribution to the purchase of the property and the Jy Affidavit states that Mr Diamond contributed $249,100 to its purchase. DFI asks the Court to infer that some portion of the unpaid trust distribution is therefore owed to Mr Jy Diamond.

46    Evidence of the sale by Mr Jy Diamond of a property in New South Wales was put before the Court but that does not assist in demonstrating that Mr Jy Diamond contributed to the purchase of the property. DFI submitted that the time which had elapsed since the purchase of the property meant that it was difficult to obtain supporting evidence of the sale of the property in New South Wales, but that should more time be available attempts to obtain such evidence would continue. That submission does not assist DFI.

47    First, evidence of the sale of one property is not evidence of a contribution towards the purchase of another. Further, DFI have been on notice of the Trustee’s application since at least 23 January 2023, and this interlocutory application was filed on 4 October 2023, five weeks prior to the date upon which it was heard. Discovery is complete. DFI has had ample time to put on any evidence upon which it might seek to rely, yet no documentary evidence has been produced which supports that Mr Jy Diamond contributed to the purchase of the property.

48    DFI submitted that its case raises questions of fact that require resolution. They include the provenance of the “erroneous” entry in the financial statements, the dearth of evidence as to who, if anyone, instructed the accountant to make the entry, whether any exercise of discretion as to the unpaid trust distribution has occurred, as to the financial statements more broadly, and as to whether Mr Jy Diamond contributed to the purchase price of the property.

49    The Court is not required to conduct a “mini-trial based upon incomplete evidence to decide whether a proceeding is likely to succeed or fail at trial”. What is required is analysis of the evidence available to establish whether it discloses a real question of fact or law such that a trial is necessary for its determination: Pathmanathan at [8].

50    In this case the evidence advanced to support the argument that the financial statements and tax returns prior to 2017 contain an error is contrived, after the event, to best serve DFI’s purpose. The argument that Mrs Diamond signed them without reading them or discussing them with the accountant, did not understand the nature of an unpaid trust distribution and was unaware of its inclusion in the financial statements is both implausible and improbable, and inconsistent with her duties as a director, and the argument advanced that Mr Diamond contributed to the purchase of the property is neither supported by documentary evidence, nor is it referred to in DFI’s defence.

51    I do not consider that DFI has “evidence of sufficient quality and weight to succeed at trial": Nyoni at [14]. The arguments advanced are at best “fanciful or merely arguable”: White Industries at 809. Accordingly, DFI has not demonstrated that there is a reasonable prospect of it successfully defending the Trustee's claim against it.

CONCLUSION

52    As I am not satisfied that DFI has a reasonable prospect of success in defending this proceeding, it follows that the Trustee is entitled to summary judgment for the whole of is claim against DFI. Costs ought to follow the event. I will make those orders accordingly.

Associate:

Dated:    18 January 2024