Citation: Killen v Rennie; Aroona Developments v Rennie [2003] NSWSC 1154
Court: Supreme Court of New South Wales, Equity Division
Date: 8 December 2003
Judge(s): Austin J
Background
Two related proceedings arose from competing proofs of debt lodged in the liquidation of Rotor-Work Pty Ltd, a company that was wound up in a creditors' voluntary winding up in January 1993. Both Aroona Developments Pty Ltd (itself in liquidation) and Mrs Rosanne Killen claimed the same sum of approximately $616,041, described as loan funds advanced to Rotor-Work. The claims were mutually inconsistent: Aroona Developments claimed the debt as its own asset, while Mrs Killen claimed the money had always been beneficially hers and that Aroona Developments had merely acted as her trustee in advancing it.
The liquidator of Rotor-Work, Mr Rennie, rejected both proofs of debt on the basis that they were inadequately supported by particulars, primary documents and evidence. He submitted to the court's order on the substance of the appeals, but contested a personal costs order sought against him by Aroona Developments.
The two proceedings were heard together, with the evidence in each being evidence in the other. Mrs Killen and Aroona Developments were contradictors of one another, each being a party in the opposing proceeding.
Legal Issues
- Whether Aroona Developments held the debt owed by Rotor-Work on a resulting trust for Mrs Killen, based on evidence of her actual intention at the time funds were advanced
- Whether an oral contract for the disposition of an equitable interest in the debt was enforceable, or was void under the Statute of Frauds (as reflected in s 54A of the Conveyancing Act 1919 (NSW))
- Whether a minute of a directors' meeting of Aroona Developments dated 8 July 1974 constituted a sufficient note or memorandum of any such contract for the purposes of the Statute of Frauds
- Whether that minute accurately recorded what was decided at the meeting, in light of other financial records and evidence of indebtedness
- Whether the liquidator, Mr Rennie, should be held personally liable for costs
Decision
Austin J dismissed both appeals. The court carefully examined the financial records of Aroona Developments and Rotor-Work across several decades, including balance sheets, auditor reports, directors' reports, and the 1974 minute on which Mrs Killen principally relied. The evidence did not establish that Aroona Developments held the claimed debt on trust for Mrs Killen.
On the resulting trust question, the court applied the principle from Calverley v Green (1984) 155 CLR 242 that a resulting trust depends on the actual intention of the person providing the relevant funds. The financial records of Aroona Developments consistently treated the amount as a company asset rather than a liability to Mrs Killen, undermining her claim that the funds were always held on her behalf.
The 1974 minute was central to Mrs Killen's case that there had been an oral contract assigning the equitable interest in the debt to her. The court considered whether that minute satisfied the requirements of a note or memorandum under the Statute of Frauds, as required by s 54A of the Conveyancing Act. Austin J found that the minute did not accurately reflect the financial position as disclosed by the broader body of contemporaneous and subsequent evidence, and therefore could not be relied upon to satisfy the statutory requirement.
On costs, the court held that Mr Rennie had acted reasonably in rejecting both proofs of debt given the factual and legal complexity, and that this was not an exceptional case warranting a personal costs order against a liquidator. However, because Aroona Developments had specifically sought a personal costs order against Mr Rennie, thereby forcing him to retain counsel solely to defend that claim, he was entitled to a costs order against Aroona Developments limited to the costs of defending that personal claim.
Orders Made
• Aroona Developments' costs in proceeding No 1810 of 2002 up to 2 October 2002 to be paid by Mr Rennie out of the assets of the company in liquidation
• Mr Rennie entitled to recoup his own costs of both proceedings from the assets of the company in liquidation
• Costs order in both proceedings against Mrs Killen in favour of Aroona Developments
• Aroona Developments not to have its costs with respect to the claim against Mr Rennie personally
• Mr Rennie entitled to an order for costs against Aroona Developments limited to costs incurred with respect to Aroona's claim against him personally
• Mr Rennie entitled to an order against Mrs Killen for his costs in proceeding No 4112 of 2002
• For costs assessment purposes: half of hearing time devoted to each of the two proceedings, with 10% of hearing time treated as directed to the claim by Aroona Developments against Mr Rennie personally
Key Takeaways
- Both appeals against the liquidator's rejection of proofs of debt were dismissed, with the court finding the claims insufficiently supported on the evidence.
- A resulting trust in favour of a claimant requires proof of that person's actual intention at the time funds were provided; consistent treatment of the relevant amount as a company asset in financial records is inconsistent with such an intention.
- Under s 54A of the Conveyancing Act 1919 (NSW), an oral contract for the disposition of an equitable interest must be evidenced by a sufficient note or memorandum; a directors' meeting minute may in principle satisfy this requirement, but only if it accurately records what was agreed.
- Where a minute's accuracy is contradicted by a substantial body of contemporaneous financial records, it will not serve as a reliable memorandum for Statute of Frauds purposes.
- A liquidator who rejects a complex, poorly particularised proof of debt and then submits to the court's order on appeal will not ordinarily be held personally liable for costs, unless the case is genuinely exceptional.
Legislation and Cases Referenced
Legislation:
- Conveyancing Act 1919 (NSW), s 54A (Statute of Frauds requirement for disposition of equitable interests)
- Companies Act 1961 (NSW), s 123
- Corporations Act 2001 (Cth), s 1321 (appeals against liquidator's decisions on proofs of debt)
Cases:
- Calverley v Green (1984) 155 CLR 242
- Cresvale Far East (in liq) v Cresvale Securities Pty Ltd (No 2) (2001) 39 ACSR 622
- Kirwan v Cresvale Far East (in liq) (2002) 44 ACSR 21
- Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation (1983) 1 NSWLR 1
- Dyer v Dyer (1788) 2 Cox Eq Cas 92
- Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353
- Woolworths Ltd v Kelly (1991) 22 NSWLR 189
- Commercial Union Insurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389
- Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549
- Jones v Victoria Graving Dock Company (1877) 2 QBD 314
- Irons v Merchant Capital Ltd (1994) 116 FLR 204
- Roden v International Gas Applications (1995) 18 ACSR 454
- Permanent Trustee Company Ltd v FAI Insurances Ltd [2003] HCA 25