Introduction
The Federal Court of Australia recently considered in Ross, in the matter of Print Mail Logistics (International) Pty Ltd (in liq) v Elias [2021] FCA 419 (“Proceeding”) the circumstances in which a Jones v Dunkel (1959) 101 CLR 298 inference will be drawn from a party’s failure to call a relevant witness. The rule in Jones v Dunkel allows a Court to infer from a party’s unexplained failure to give evidence; call a witness; or tender documents that the missing evidence would not have assisted that party’s case.
Background
The Proceeding was brought by the liquidators of Print Mail Logistics (International) Pty Ltd (in liq) (“Company”) against the Company’s directors and former directors. The Company was a subsidiary of Print Mail Logistics Limited (“PML”) and part of the “PML Group” of companies. The Liquidators claims arose from two alleged transactions:
- the “Armstrong Agreement”, whereby Armstrong Registry Services Limited (“Armstrong”) allegedly loaned $100,000 to Mr Elias (the director of the Company); and
- the “Wellington Agreement”, whereby the Company allegedly took responsibility for the personal debts of Mr Elias, including the $100,000 loaned under the Armstrong Agreement.
The Liquidators alleged that by entering into the Wellington Agreement, the defendants, as directors of the Company, had entered into an:
(a) unreasonable director-related transaction pursuant to section 588FDA of the Corporations Act 2001 (“the Act”), and had therefore breached their duties pursuant to sections 180, 181, and 182 of the Act; and
(b) insolvent transaction in breach of section 588G of the Act, and an uncommercial transaction pursuant to 588FB of the Act.
The Liquidators claimed the directors were liable to compensate the Company under sections 588FF(1)(a), 588M(2) and/or 1317H(1) of the Act.
This article will consider the dispute between the parties arising from the Armstrong Agreement, the existence of which was denied by Mr Elias.
The Armstrong Agreement
Armstrong provided advisory services to the Company and, from time to time, advanced funds to the PML Group and/or Mr Elias to assist them to conduct their business activities.
The Liquidators alleged Mr Elias and Armstrong entered into the Armstrong Agreement on or about 14 June 2015, pursuant to which Armstrong loaned $100,000 to Mr Elias. To prove their case, the Liquidators asked the Court to draw inferences from various facts and circumstances, including the following:
- a deposit of $100,000 into the Company’s account by Armstrong on 14 July 2015 with a notation that it related to Mr Elias;
- three slightly different versions of a document titled “Unsecured Loan Agreement” (which reflected the terms of the Armstrong Agreement), allegedly signed by Mr Elias and witnessed by a solicitor, Ms Greaves on 14 July 2015 (when both were in Sydney); and
- a PML ledger recording a credit of $100,000 on 14 July 2015 with the notation “funds received from Nigel Elias” and corresponding bank statement.
Mr Elias denied that the signature on the Unsecured Loan Agreement was his, and maintained he had no recollection of signing the agreement. Likewise, Ms Greaves denied that the signature on the Unsecured Loan Agreement was hers.
In relation to the $100,000 deposited by Armstrong into the Company’s bank account on 14 June 2015, Mr Elias denied giving any direction to Armstrong to make that payment. Further, Mr Elias maintained he had “no idea” what the PML ledger entry related to.
The Liquidators did not call Ms Hutson to give evidence, who was the director of Armstrong at the relevant time, and who was funding the liquidation of the Company.
The Court’s decision
The Court considered it was very likely Ms Hutson would have been able to explain the transfer of $100,000 by Armstrong to the Company on 14 July 2015, and the Unsecured Loan Agreement. Having regard to the rule in Jones v Dunkel, and the Liquidators’ unexplained failure to call Ms Hutson, the Court inferred that her evidence would not have assisted the Liquidators. In the absence of Ms Hutson’s evidence, the Court was not willing to draw the inferences advanced by the Liquidators, given:
- Mr Elias’s and Ms Greaves’ evidence regarding the Unsecured Loan Agreement;
- there was no evidence Mr Elias had directed the payment from Armstrong to the Company; and
- PML’s ledger and corresponding bank statement could only support the inference of a loan from Mr Elias to PML (and not a loan from Armstrong to Mr Elias).
Take aways
It is often a difficult task for liquidators faced with incomplete company books and records to prosecute what may be a viable claim. Nevertheless, the unexplained failure to call a critical witness may result in the Court drawing a Jones v Dunkel inference. As was the case in the Proceeding, this may be fatal to the claim, and result in an adverse costs order.
~ with Helen Hodgins, Lawyer
