Harris v Harris

1. [1]

   BASTEN JA: I agree with Gleeson JA.

2. [2]

   GLEESON JA: Up until December 2017, the third respondent, Sirrah Pty Ltd, carried on the business of providing aged care accommodation services under the name “Cabrini” from premises at Westmead. On 15 December 2017, Sirrah completed the sale of its business for a net consideration in excess of $27 million and thereafter had no ongoing trading operations. The directors of Sirrah were the first appellant, Mr William Harris (William), since 2002, and his daughter, the fourth respondent, Ms Michelle Harris (Michelle), from 9 November 2017. The majority shareholder in Sirrah was the second appellant, Harris Health Care Pty Ltd (HHC), holding approximately 52.5 per cent of the shares. HHC is controlled by William. The other shareholders are the first and second respondents, Mr Gregory Harris (Gregory) and Ms Monica Brown (Monica) (together, the respondents), as the executors of the estate of the late Mrs Aileen Harris who died on 25 March 2016, holding approximately 47.5 per cent of the shares.

3. [3]

   Following a successful application for access to certain categories of books of Sirrah pursuant to s 247A of the Corporations Act 2001 (Cth), [1] Gregory and Monica commenced proceedings by originating process filed 19 December 2017, seeking leave pursuant to ss 236 and 237 of the Corporations Act, to bring derivative proceedings on behalf of Sirrah against William, Michelle and HHC in respect of certain dealings with property and funds of Sirrah, both before and after the sale of its business. Black J granted such leave on 13 November 2018 under s 237 of the Corporations Act. [2] A further grant of leave was given in the Court’s inherent jurisdiction on 24 February 2021 following the appointment of Mr Alan Hayes as provisional liquidator of Sirrah on 14 October 2019.

4. [4]

   The subject matter of the derivative claims ultimately pursued at hearing included (a) management fees paid by Sirrah to HHC in the period 2012 to 2016, when no service agreement was in place between Sirrah and HHC, and since 1 December 2016, following the entry into a service agreement between Sirrah and HHC dated 1 December 2016, (b) money alleged to have been loaned by Sirrah to each of William and HHC in the period 2012 to 2019, and (c) amounts paid by Sirrah to HHC as “reimbursement” of expenses purportedly paid by HHC on behalf of Sirrah. The claim against Michelle was not pressed and was dismissed at hearing.

5. [5]

   On the afternoon of 22 March 2021, the day prior to the commencement of the hearing, the defendants, William, Michelle and HHC, filed an application to vacate the hearing. The stated basis of the application was to afford the defendants an opportunity to inspect certain documents to assist them in establishing defences to the claims made against them, including a possible application to withdraw admissions made in their defences concerning loans alleged to have been made by Sirrah to HHC and William. According to the submission, there were significant prospects of the defendants being permitted to withdraw the admissions in the defences as to loan balances if the hearing was vacated and such an application was made after inspection of documents sought on a subpoena issued to the provisional liquidator of Sirrah. That application was adjourned to 26 March 2021 when it was dismissed by the primary judge (Black J), who gave reasons for that decision in his judgment delivered on 23 April 2021 (the principal judgment). [3]

6. [6]

   In the principal judgment, the primary judge concluded that William had breached his fiduciary duties to Sirrah by causing the payment of the following amounts by Sirrah (a) $3,754,902.58 for management fees to HHC, (b) $1,014,244 as loans to himself, (c) $11,044,660.24 as loans to HHC, and (d) $875,173 as purported “reimbursement” of expenses to HHC. His Honour found that HHC was also liable to Sirrah in respect of the amounts referred to in (a), (c) and (d). [4]

7. [7]

   In a further judgment dealing with costs and final orders delivered on 7 May 2021, [5] Black J ordered that Sirrah be wound up on the just and equitable ground under s 461(1)(k) of the Corporations Act and appointed Mr Hayes as liquidator of the company, and made further orders to the following effect:

8. [8]

   The judgment for $15,674,735 is comprised of the following components and amounts:

9. [9]

   The additional judgment against William for $1,014,244 represented the amount of William’s loan account with Sirrah, which was admitted on the pleadings, in his evidence, and by his counsel in closing submissions at hearing. Although the relief sought in the notice of appeal seeks to set aside orders 5 and 6, senior counsel for the appellants confirmed that the appellants do not seek to withdraw the admissions made by William as to loans made to him personally.

Issues on appeal

1. [10]

   The notice of appeal raises two discrete issues:

   1. (1)

      whether the primary judge erred in the exercise of his discretion by dismissing the application to vacate the hearing of the proceedings below; and

   2. (2)

      whether the primary judge erred in making findings and granting relief in relation to the claim to recover management fees paid to HHC.

2. [11]

   If the appellants succeed on the first ground, the relief sought is a new hearing in relation to the alleged loans made by Sirrah to HHC since 30 June 2017, totalling $9,845,373.24. [6] There is no dispute that HHC is liable to Sirrah in respect of the loans totalling $1,119,287 as recorded in the audited financial statements of Sirrah for the year ended 30 June 2017. To obtain a rehearing on any ground, the appellants must establish that “some substantial wrong or miscarriage has been … occasioned”. [7] The appellants say that the miscarriage occasioned by the refusal to vacate the hearing is the loss of the opportunity to review certain records of Sirrah “to see whether or not there’s a basis to withdraw the admissions”.

3. [12]

   The second ground raises a narrow point as to whether the basis on which the respondents succeeded in recovering judgment for management fees paid to HHC was outside the pleadings or the case run at hearing.

4. [13]

   For the reasons that follow, the challenge to his Honour’s discretionary decision to refuse to vacate the hearing should be rejected, and there was no error in determining the claim for management fees paid to HCC. Accordingly, the appeal should be dismissed.

A. Dismissal of application to vacate the hearing

1. [14]

   The background circumstances relevant to the application to vacate the hearing were as follows.

2. [15]

   The loans made by Sirrah to William and HHC, [8] and the fact that the loans had not been repaid, [9] were admitted on the pleadings in verified defences filed on 25 February 2019 and 18 February 2020. Specifically, the appellants admitted that the loan balance owing as at 30 September 2019 by HHC was $11,044,660.24. The amount of $11,044,660.24 included $6,556,623.16 which William caused Sirrah to pay to HHC in the period 2 March 2018 to 24 September 2019. The defence in each case was verified by William for himself and as a director of HHC.

3. [16]

   In his affidavit sworn 25 March 2021 in support of the application to vacate the hearing, William deposed that when admitting the amount of $11,044,660.24 as being loans from Sirrah to HHC, he understood he was only admitting that those payments were made to HHC by Sirrah. In an earlier affidavit sworn 18 June 2018 in response to the application for leave to bring derivative proceedings on behalf of Sirrah, William deposed at [105]:

4. [17]

   Notwithstanding that statement, an unaudited balance sheet of HHC printed on 16 March 2021 and annexed to William’s affidavit of 25 March 2021, recorded as a liability “Loans From Sirrah” in the amount of $5,195,909.30 and as assets, loans to entities described as Ionic, Ridley, Scooti, and Scootin totalling $5,452,574.37. As to the latter, William deposed in his 25 March affidavit that he did not agree that “those loans recorded in that balance sheet [of HHC] are owed to HHC”. He asserted his “belief” that many of those transactions concern investments placed by HHC for and on behalf of Sirrah in businesses such as Scooti or Tyde. These were “ride-share” companies in which William or companies owned by him had acquired a substantial interest during 2018. In his principal judgment, Black J made an adverse credit finding against William, that he was unable to accept William’s evidence in cross-examination that he never intended Sirrah to be wound up and the proceeds of sale distributed to shareholders, but instead held that William intended that the proceeds would be retained for new business activities. [10]

5. [18]

   In about late July/early August 2020, the appellants engaged new solicitors to act for them – Yates Beaggi Lawyers (YBL). On 10 August 2020, those solicitors filed an interlocutory process seeking leave to withdraw admissions as to the loan balances made in the defence filed 18 February 2020. However, that application was withdrawn and dismissed by consent at the hearing on 17 August 2020. In his ex tempore judgment, Black J noted that the appellants’ proposed amended defence did not put forward any alternative position or reflect any true position for which they contended, but simply did not admit the allegations and put the respondents to proof as to loans alleged to have been made by Sirrah to HHC and William. [11] Counsel foreshadowed at the hearing on 17 August 2020 that the appellants might bring a further application for leave to withdraw those admissions at a later stage.

6. [19]

   On 21 August 2020, the appellants filed a defence to the further amended statement of claim filed 1 June 2020. That defence contained the same admissions in relation to the loans made to HHC and William as in the previous defences. However, William’s affidavit verifying the defence for himself and HHC deposed that certain paragraphs of the defence, including pars [45] and [46], “are not verified as being true and will be the subject of further application for leave to withdraw the pleading in the future conduct of litigation”.

7. [20]

   On 22 October 2020, the proceedings were fixed for hearing to commence on 23 March 2021. [12] In November 2020, the appellants’ solicitors requested urgent access to records held by the provisional liquidator and, on 20 November 2020, a USB drive containing “Quickbooks” records in relation to Sirrah was delivered to the appellants’ solicitors. There was evidence that earlier in 2020, the provisional liquidator had provided William by letter dated 13 February 2020 a USB drive containing a backup of Sirrah’s “Reckon” accounts. It is common ground that the accounting software “Reckon” was previously called “Quickbooks”.

8. [21]

   In an email to the provisional liquidator’s solicitors on 13 November 2020, the appellants’ solicitors acknowledged that it was their understanding that a copy of certain records was sent by letter to William “some time in February” and requested a copy of the letter. In an email on 19 November 2020 the provisional liquidator’s solicitors provided a copy of the 13 February 2020 letter to William’s solicitors and confirmed that such records had been provided to William in February 2020. Although William deposed that he did not recall receiving the 13 February letter, the reasonable inference is that he did.

9. [22]

   The USB drive provided to the appellants on 20 November 2020 was not inspected by William until “in or about” January 2021. The inference is that such inspection occurred towards the end of January 2021, given that on 27 January 2021 William instructed his solicitors to enquire whether the provisional liquidator had access to other books and records of Sirrah, apart from the “Quickbooks” accounting records.

10. [23]

    On 3 February 2021, following a request by the appellants, agreement for access to Sirrah’s server (under supervision at the provisional liquidator’s offices) was reached. However, Mr Anthony Saccaro of Spry Roughley, the accounting firm retained by the appellants, delayed inspection for over a week until 11 February 2021, citing other commitments as the explanation for the delay which he attributed to the pressures of work. The primary judge gave little weight to that matter as an explanation for the delay. [13] William deposed that the files on the hard-drive containing a copy of the Sirrah server, which was inspected at the provisional liquidator’s offices on 11 February 2020 by Mr Saccaro, Mr Tim Channon of YBL and William, were not kept in the same structure as on the Sirrah server, that the files were sorted by file name rather than by descriptors used on the Sirrah server, and that the only way of ascertaining the content of the files was to open each one individually.

11. [24]

    Following a request for urgent “virtual” access to the Sirrah server on 11 February 2021, the provisional liquidator’s solicitors indicated on 15 February 2021 that such access would be granted. In response to the appellants’ request for “remote” virtual access to the Sirrah server, the provisional liquidator’s solicitors indicated on 17 February 2021 that such access would only be granted on the giving of certain undertakings by Spry Roughley. Ultimately, inspection of Sirrah’s server by William and Mr Saccaro took place at the provisional liquidator’s office under supervision on 24 February and 1 March 2021.

12. [25]

    In the meantime, the appellants filed an interlocutory application on 17 February 2021 seeking to vacate the hearing and for leave to withdraw certain admissions in their defence, specifically, pars [11], [26E] and [30]. On 22 February 2021, the application to vacate the hearing was withdrawn and the application to withdraw specified paragraphs of the defence was dismissed. [14] The parties agreed a regime for immediate access and production of documents on issue of a subpoena.

13. [26]

    On 3 March 2021, Mr Channon of YBL emailed the provisional liquidator’s solicitors a draft subpoena which sought production of documents by 9 March 2021 and an agreement for short service. The provisional liquidator consented to short service of the subpoena the following day. On 5 March 2021, the subpoena was issued to the provisional liquidator returnable on 10 March 2021. On 9 March 2021, the provisional liquidator’s solicitors indicated that further time was required to produce documents in response to the subpoena and sought to extend the date to 17 March 2021. On 15 March 2021, the provisional liquidator’s solicitors sent a letter to the appellants’ solicitors contending that the subpoena was oppressive as an initial review of the documents had identified 31,517 individual files comprising 30.7 Gb of data to produce (referred to as the Initial Documents). The letter proposed four alternatives:

14. [27]

    The provisional liquidator suggested that either the first or second option was the most appropriate to ensure fair and proper disclosure to the parties prior to the hearing. The appellants’ solicitors did not respond to that letter in any substantive way. On 17 March 2021, the subpoena was adjourned to 22 March 2021. On 19 March 2021, the parties agreed to stand the subpoena over to 23 March 2021, the first day of the hearing.

15. [28]

    At the commencement of the hearing on 23 March 2021, counsel for the provisional liquidator informed the Court that informal production of the Initial Documents would be provided to the appellants later that day.

16. [29]

    In dismissing the application to vacate the hearing, the primary judge gave the following reasons.

17. [30]

    First, with respect to the appellants’ asserted “inability” to access documents, the appellants did not act with due dispatch and with the degree of expedition which might be expected of them. [15] Specifically, his Honour found that:

18. [31]

    Second, his Honour found that there was an inconsistency in William’s evidence as to the circumstances of verifying the amended defence, and that there was no complexity in the amendments which William verified. [24]

19. [32]

    Third, as to other sources of information available to the defendants, his Honour found that HHC’s financial records were not under the control of Sirrah’s provisional liquidator. [25]

20. [33]

    Fourth, as to the possibility that the loans admitted in the defence were in fact investments by Sirrah, his Honour observed:

21. [34]

    Fifth, as to prejudice were the hearing to be vacated, his Honour found that there was no certainty that the appellants could pay the costs “thrown away” in addition to any award of damages. [26]

Additional evidence on appeal

1. [35]

   It is necessary to address one preliminary matter. The appellants sought to rely upon additional evidence on appeal concerning matters occurring after the judgment. [27] The appellants’ solicitor, Mr Farshad Amirbeaggi, deposed in an affidavit dated 26 November 2021 as to requests made in emails dated 16 and 17 November 2021 to the liquidator’s solicitors for “urgent” access to the documents which had been produced to the appellants informally at the hearing on 23 March 2021. The respondents objected to the admission of this affidavit on appeal as irrelevant. The Court indicated that it would rule on the application in its judgment, having regard to the argument advanced by the appellants as to the relevance of this evidence.

2. [36]

   Senior counsel for the appellants submitted that the affidavit showed prejudice to the appellants because of the judge’s refusal to vacate the hearing. That is incorrect. As counsel conceded, it can be inferred from the affidavit that the appellants had taken no steps prior to early November 2021 to access the USB drive containing the documents which had been produced at the commencement of the hearing on 23 March 2021. Moreover, the issue of access to documents two weeks prior to the hearing of the appeal has no connection to the asserted prejudice to the appellants in relation to a decision to refuse an application to vacate the hearing seven months earlier. The motion for leave to rely upon fresh evidence on appeal should be dismissed.

Consideration

1. [37]

   The primary judge's decision to vacate the hearing was discretionary. To succeed on their submission that the judge erred in refusing to vacate the hearing, the appellants must establish error in one of the ways described in House v The King. [28] It is well-established that particular caution must be exercised by appellate courts when asked to intervene in matters of practice or procedure. [29]

2. [38]

   The appellants submitted that the primary judge erred by failing to take into account, or give sufficient weight to, the material facts referred to below. However, matters of weight are irrelevant to the question of whether the exercise of a discretion miscarried within the principles referred to in House v The King unless the outcome is unreasonable or plainly unjust. In Durham v Durham, [30] Tobias JA (Campbell and Young JJA agreeing) said at [72]:

3. [39]

   The first matter which the appellants say the primary judge failed to take into account is the circumstances that necessitated the application to vacate the hearing being made late. The appellants say that the informal late production of documents in answer to the subpoena disadvantaged the appellants by depriving them of the opportunity to review the documents before the hearing commenced such that, with the aid of them, fresh applications to withdraw the admissions could be considered.

4. [40]

   The premise of this submission is flawed. The appellants were not deprived of the opportunity to review the documents. The appellants had belatedly sought documents on subpoena in circumstances where his Honour found that the appellants had not acted with due dispatch and with the degree of expedition which might be expected of them. Those findings are not challenged on appeal.

5. [41]

   It bears repeating that having foreshadowed a further application to withdraw admissions on 17 August 2020, the appellants (a) delayed seeking documents from the provisional liquidator until November 2020, (b) delayed inspecting the USB drive containing the Sirrah Quickbooks/Reckon accounts provided in November 2020 until January 2021, (c) did not devote any significant time to reviewing the hard-drive of the Sirrah server made available to Mr Saccaro at the provisional liquidator’s office on 11 February 2021, nor to inspection of Sirrah’s server at the provisional liquidator’s office on 24 February and 1 March 2021, and (e) did not issue a subpoena until 5 March 2021, and then failed to constructively engage in narrowing the scope of the subpoena which was too wide in terms of its date range and categories of documents sought, a matter properly conceded by senior counsel for the appellants in this Court.

6. [42]

   Next, the appellants say that the primary judge erred in taking into account that the appellants had access to Sirrah’s documents before the appointment of the provisional liquidator on 14 October 2019. Contrary to the appellants’ submission, this was a relevant consideration in circumstances where William ought reasonably to have anticipated a challenge to the substantial payments to HHC in excess of $6.5 million which he authorised between March 2018 and September 2019, given that he had sworn in his June 2018 affidavit that the only activity of Sirrah after the finalisation of the sale of the business was holding and distributing the proceeds of that sale. The weight to be given to this consideration was a matter for the primary judge and the appellants have not shown that the outcome in terms of refusing to vacate the hearing is unreasonable or plainly unjust.

7. [43]

   Next, there is no substance in the appellants’ complaint that his Honour’s reference to an “absence of any evidence of any substantial further investigation” by William or his advisers between August 2020 and the commencement of the hearing [31] ignored the various steps and interlocutory applications made by the appellants “geared towards obtaining relevant records and investigating the alleged loans”. His Honour did not ignore those steps and interlocutory applications, which were chronicled in his judgment. The finding that no “substantial further investigation” had been made of the alleged loans by the appellants was well-open, given his Honour’s accurate description of the appellants’ position at the time they sought to vacate the hearing: the appellants had identified “no more than a hope that, if wider access to records of Sirrah and HHC may be obtained, … then something might turn up to assist [William] in that respect”. [32]

8. [44]

   Turning to the appellants’ challenge to several factual findings in their statement under UCPR, r 51.36(2), the first concerned the finding that William was provided with “relevant” documents on a hard-drive in November 2020. [33] The appellants contended that this finding was not available because the only documents produced on the hard-drive in November 2020 were “Quickbooks” records and “Reckon” accounts. No oral submission was made in support of this challenge. This is not surprising.

9. [45]

   Plainly, as a record of Sirrah’s transactions and financial position, the Quickbooks/Reckon documents were relevant to the characterisation of payments made by Sirrah to William and HHC. That these documents did not apparently support the appellants’ characterisation of the payments as investments by Sirrah, rather than loans, did not render the documents irrelevant.

10. [46]

    The two other findings challenged by the appellants are related and can be dealt with together. One is the finding that records were available on a hard disk “given” to William in February 2021 and that William and his advisers chose not to access those records. [34] This misstated the finding; the finding was that William had “access” to the records stored on a hard-drive. The other is the finding that from at least 12 February 2021 the appellants had access to documentation comprising Sirrah’s accounting files but made no serious attempt to exercise that access. [35]

11. [47]

    In oral argument, counsel for the appellants accepted that the challenge to these findings was “a fine line”, given that there was “obviously access”. The appellants say that the findings concerning access to documents was an oversimplification of the access provided, given the difficulties faced by the appellants in inspecting 31,500 documents in a form not connected to the server and in a form not previously seen or understood by William and Mr Saccaro. However, his Honour took both of these matters into account. [36]

12. [48]

    As to the volume of documents on the hard-drive, this reflected the unconfined scope of the appellants’ request for access to documents on Sirrah’s server. As to the form of the documents, counsel for the appellants accepted that the decision was made by the appellants not to inspect the documents in the form that they were provided, and his Honour correctly took this into account in finding that a deliberate forensic choice was made by the appellants not to access and review documents as and when they were available in the hope that they would later become available in a more convenient form. Accepting, as his Honour did, that the documents were in a form that the appellants and their advisers regarded as difficult to access, there was no error in finding that the appellants made no serious attempt to access the documents from 12 February 2021.

13. [49]

    The appellants did not identify any actual prejudice caused by the dismissal of their application to vacate the hearing. Before his Honour, and again in this Court, the appellants did not positively contend that any of the payments made by Sirrah to HHC between March 2018 and September 2019 were investments and not loans. The appellants’ case is no higher than, if they had been afforded access to Sirrah’s documents in a more convenient form, inspection might have revealed documents consistent with characterising some of the payments to HHC as investments, not loans, which in turn might have justified the withdrawal of HHC’s admissions as to the loan balances. The assertion of “prejudice” is entirely speculative. In my view, there was no error in the primary judge’s discretionary decision to dismiss the application to vacate the hearing.

14. [50]

    Further, and in any event, the appellants have not demonstrated that a substantial wrong or miscarriage has been occasioned by the dismissal of the application to vacate the hearing, assuming contrary to the above conclusion, that the primary judge’s exercise of discretion miscarried. The appellants are in no better position now to seek to withdraw the admissions by HHC as to the loan balances than they were at the time of the application to vacate the hearing in March 2021.

15. [51]

    For reasons unexplained, the appellants have not accessed the documents from Sirrah’s server contained on the USB drive that were provided at the commencement of the hearing in March 2021 over 7 months ago. Counsel for the appellants submitted that an inference should be drawn from the email correspondence annexed to Mr Amirbeaggi’s affidavit that the appellants recently attempted to access those documents but were “locked out” from access. Aside from the difficulty of the absence of evidence from which such an inference might be drawn, the asserted explanation is beside the point.

16. [52]

    A late attempt by the appellants to access such documents does not explain the failure to access the documents between March 2021 and October 2021 with a view to seeking leave to adduce additional evidence on appeal in support of the submission that a miscarriage has been occasioned because of the “possibility” that documents on Sirrah’s server might have provided the basis for a further application to withdraw admissions. There is no justification for ordering a new hearing, as submitted by the appellants’ counsel, for the purpose of affording the appellants an opportunity of “trying to find some basis [on which] these investments were made on behalf of Sirrah”.

B. Claim for management fees

1. [53]

   The appellants submitted that the findings by the primary judge that William breached his duties to Sirrah by causing Sirrah to pay management fees to HHC from 2007 to 1 December 2016 which were “above market rate”, [37] and by causing Sirrah to enter into the 2016 service agreement and paying management fees under that agreement which were “above market rate”, [38] were outside the pleadings. This submission directs attention to the pleadings and the case run at hearing.

2. [54]

   The claim in respect of management fees covered two periods: the first from 2007 to 1 December 2016 when no service agreement was in operation, and the second since 1 December 2016, when the 2016 service agreement was operative.

3. [55]

   As to the first period, the pleading alleged in par [33(c)]:

4. [56]

   The particulars given of the alleged breach of duty included that William:

5. [57]

   In their defence, the appellants contended for an entitlement to “reasonable remuneration” on the basis of an implied contract or quantum meruit, or “reasonable remuneration” by way of an allowance, for the period after the expiry of the 1997 service agreement and before the 2016 service agreement..

6. [58]

   At hearing, the respondents accepted that the claim for management fees paid prior to 17 December 2011 was statute barred. The claim for the period 1 January 2012 to 1 December 2016 was $1,601,519.83, being the difference between the amounts actually paid by Sirrah to HHC in that period and the CPI adjusted fee under the 1997 service agreement between Sirrah and HHC, which had expired and had not been replaced by any other agreement.

7. [59]

   As to the second period, the pleading alleged in par [40] that the “Service Fee was, and is, excessive in circumstances where”:

8. [60]

   Paragraph [41] of the pleading alleged:

9. [61]

   The particulars given of this alleged breach of duty in pars (e) and (f), included the same particulars as given under par [33] of the amended statement of claim (see [55] above).

10. [62]

    The claim in respect of management fees since 1 December 2016 was particularised as:

11. [63]

    In their defence, the appellants contended that Sirrah was required to make monthly payments pursuant to the 2016 service agreement during the term of that agreement.

12. [64]

    With respect to the management fees paid to HHC prior to the sale of the business, the respondents’ written opening relied upon an expert report of Ms Zoe Lockyer dated 16 October 2020 on the issue of the “quantification of reasonable remuneration payable in an arms’ length arrangement”. For the period since 15 December 2017, the respondents contended that all management fees paid to HHC should be repaid in full. The appellants did not object at the hearing to the written opening as being outside the pleadings.

13. [65]

    In support of their defence that they were entitled to “reasonable remuneration”, the appellants relied upon William’s evidence that he had worked hard and that the scale of the business of Cabrini had increased over the years up to the sale of the business. They also relied upon evidence from Mr Greg Anderson, a director of a boutique consulting and advisory business that assists health, aged care and disability organisations, who said that in or around 2016, his firm researched the market in relation to management fees and gave advice to William as to the market rates that would be appropriate for Sirrah to pay to William’s management company, HHC. [39]

14. [66]

    The primary judge found that William had not established any significant increase in the scope of his or HHC’s responsibilities up until the Cabrini business was sold in December 2016, still less one that would justify the very significant increase in the amount of management fees paid, especially in the 2014-2015 and 2016-2017 financial years. [40]

15. [67]

    The primary judge also found that Mr Anderson’s evidence was of little weight as it was based on a document dated December 2019 but in fact contained information from an earlier document first prepared in 2016. Further, the document did not constitute advice as to the market rates that would be appropriate for Sirrah to pay to HHC but appeared to be a proposal for Mr Anderson’s firm to provide services. [41]

16. [68]

    After observing that Ms Lockyer did not incorrectly assume the continuation of the 1997 service agreement, which she rightly recognised had ceased to have effect from 2002, his Honour found: [42]

17. [69]

    The primary judge rejected the appellants’ contention that the claim in respect of the management fees (for the period prior to 1 December 2016) was outside the pleading in par [33(c)], as an “unduly technical reading of the pleading”. [43] He found that the substance of the respondents’ pleaded case advanced “the proposition that the payment substantially exceeded the remuneration payable to HHC pursuant to the 1997 service agreement in support of the somewhat wider contention that the payments made were unreasonable in amount”, [44] giving three reasons:

18. [70]

    Turning to the period 1 December 2016 to 15 December 2017, the primary judge again rejected the pleading point taken by the appellants, finding that it gave too little weight to the issue raised in par [40] of the amended statement of claim that the service fee payable under the 2016 service agreement was “excessive” in the pleaded circumstances (see [58] above). [46]

Consideration

1. [71]

   The function of pleadings is “to state with sufficient clarity the case that must be met”; this reflects “the basic requirement of procedural fairness that a party should have an opportunity of meeting the case against him or her”. [47]

2. [72]

   However, pleadings are not an end in themselves, instead they are a means to the ultimate attainment of justice between the parties to litigation. [48] Thus, a case may be decided on a basis different from that disclosed by the pleadings where the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities. [49]

3. [73]

   As to what is sufficient to inform the other party of the case it has to meet, in Thomson v STX Pan Ocean Co Ltd [50] at [13], Greenwood, McKerracher and Reeves JJ said:

4. [74]

   Their Honours cited the decision of Martin CJ in Barclay Mowlem Construction Ltd v Dampier Port Authority [51] including at [6]-[8], where Martin CJ said that contemporary case management techniques including preparation and exchange of witness statements and hearing bundles:

5. [75]

   Viewed in these terms, the question is whether the appellants knew the nature of the case they had to meet. The appellants submitted that the “issue put in play” on the pleadings was whether the 1997 service agreement was the only contract entitling William or HHC to payment for the management services provided to Sirrah. It follows, so the appellants say, that the premise upon which the primary judge read the pleadings as a “wider contention” to that pleaded was not available. There are two difficulties with this submission. One is that it does not fairly reflect the pleadings. The other is that it ignores the way the case was run at hearing.

6. [76]

   Addressing the period prior to 1 December 2016, the pleadings stated with sufficient clarity that the respondents’ case was that Sirrah had paid HHC management fees in excess of the appropriate yardstick for the remuneration for the services which had been provided (being the fees calculated by reference to the 1997 service agreement, as CPI adjusted). Although the respondents did not expressly plead that the management fees in this first period were “excessive” or exceeded the market rate for the provision of the management services provided by HHC to Sirrah, the issue of “reasonable remuneration” was raised by the appellants’ defence and evidence adduced in support of that defence which pleaded that either or both appellants were entitled to “reasonable remuneration”. As no reply was filed to the defence, there was an implied joinder of issue. [52]

7. [77]

   As to the period from 1 December 2016, being the date of the 2016 service agreement, the pleadings were clear and the parties joined issue on whether the management fees paid under the 2016 service agreement were “excessive” in circumstances where the respondents alleged that (a) the management services provided by HHC did not substantially change from the services provided under the 1997 service agreement, (b) the total fees paid to HHC substantially exceeded the remuneration payable to HHC pursuant to the 1997 service agreement as CPI adjusted, and (c) no services were required to be provided after the sale of Sirrah’s business on 15 December 2017.

8. [78]

   To the extent that there was any lack of clarity in the pleadings as to the issue raised in the first period prior to 1 December 2016, that could not be said of the pleadings for the period after 1 December 2016. Moreover, the Lockyer report was sufficient to put the appellants on notice that the respondents were making a claim in respect of both periods that the management fees paid to HHC were not reasonable insofar as the amounts paid to HHC were substantially in excess of the yardstick of reasonable management fees being the amounts calculated by reference to the 1997 service agreement, as CPI adjusted, which Ms Lockyer said accorded with the market.

9. [79]

   That the appellants understood that this was the case they had to meet is evident from three matters. First, the appellants served lay and expert evidence in response to the Lockyer report, contending that the 1997 service agreement was not relevant. The appellants contended that the services provided by HHC in the period January 2012 to 1 December 2016 were at an increased level to that under the 1997 service agreement, that the level of fees under the 2016 service agreement was more reflective of reasonable remuneration for those services, and Mr Anderson had given expert advice in 2016 as to the reasonableness of the management fees payable under the 2016 service agreement.

10. [80]

    Second, there was the absence of any objection by the appellants at trial to the respondents’ written opening.

11. [81]

    Third, when raising the pleading objection for the first time in oral closing submissions, the appellants’ response to the respondents’ reliance on the 1997 service agreement as CPI adjusted as the yardstick of reasonable remuneration was that the earlier service agreement was not relevant because it was, in effect, out-of-date and not reflective of reasonable remuneration in the period from 2012.

12. [82]

    No pleading point arises in relation to the period since 15 December 2017. In respect of this period, the appellants relied upon a different argument (which his Honour rejected). Assuming, as the appellants contended, that the 2016 service agreement created an unconditional obligation on Sirrah to pay HHC for the services “even if they were not provided or were not provided in respect of the operation of the business”, his Honour found that all of the management fees paid since 15 December 2017 were excessive on the basis that William’s conduct in causing Sirrah to enter into the 2016 service agreement amounted to a breach of his duties of care and diligence as a director, and occurred in circumstances where he faced a material conflict of interest. There is no challenge to this finding.

13. [83]

    There is no substance in the pleading point.

Costs

1. [84]

   The appeal has failed and there is no reason why costs should not follow the event. [53] The appellants should pay the costs of the first and second respondents.

2. [85]

   A separate issue arises as to whether a costs order should also be made in favour of the third respondent, Sirrah, which was separately represented by counsel on the hearing of the appeal.

3. [86]

   Counsel for the liquidator submitted that separate representation on the appeal was justified because the liquidator, in his previous capacity as provisional liquidator, had the main carriage of opposition to the application to vacate the hearing where there was a controversy about access to documents held by the provisional liquidator.

4. [87]

   It does not follow that there was a need for Sirrah to be separately represented on the appeal, especially as the first and second respondents had filed detailed submissions, which sought to uphold the decision of the primary judge to dismiss the application to vacate the hearing. The submissions filed by the liquidator’s solicitors on behalf of Sirrah largely duplicated the submissions of the other respondents. In the circumstances, there should be no order as to costs of the appeal in favour of Sirrah.

Conclusion and Orders

1. [88]

   I propose the following orders:

   1. (1)

      Appeal dismissed.

   2. (2)

      Appellants to pay the first and second respondents’ costs.

2. [89]

   BRERETON JA: I agree with Gleeson JA.