New South Wales Supreme Court CITATION : PASCOE & ANOR v. DUARTE [2006] NSWSC 1233 HEARING DATE(S) : 6 and 7 June 2006 JUDGMENT DATE : 22 November 2006 JURISDICTION : Equity JUDGMENT OF : Hall J at 1 DECISION : (a) I propose to enter judgment in favour of the plaintiffs against the defendant in the sum of $1,160,502.14. (b) I will allow the parties 14 days to make any written submission in relation to the question of costs and interest. (c) I will make formal orders following expiration of the period referred to in (b). CATCHWORDS : CORPORATION – IN LIQUIDATION – director – question whether monies paid to sole director were loan monies or monies in lieu of wages – absence of contemporaneous records such as wage books or other documents evidencing regular payments of salary or wages – characterisation of loan monies – whether drawings made by or on behalf of the defendant were remuneration or loan monies LEGISLATION CITED : Corporations Act 2001 (Cth) Income Tax Assessment Act 1936 Bernard Elsey; FCT v. Whitford's Beach Pty. Limited (1982) 150 CLR 355 Federal Commissioner of Taxation v. Steeves Agnew & Co. (Vic.) Pty. Limited (1951) 82 CLR 408 CASES CITED : Podjie Agencies Pty. Limited v. Vinidex Tubemakers Pty. Limited [2000] NSWCA 105 Integrated Computer Services Pty. Limited v. Digital Equipment Corporation (Australia) Pty. Limited (1988) 5 BPR 11,110 Schmierer v. Taouk [2004] NSWSC 345 Cambridge Electronics v. McMaster [2005] NSWSC 198 PARTIES : SCOTT DARREN PASCOE (IN HIS CAPACITY AS LIQUIDATOR OF PIVOTAL (AUSTRALIA) PTY. LIMITED (IN LIQ.)) & ANOR v. JOE DUARTE FILE NUMBER(S) : SC No. 50017 of 2005 COUNSEL : Plaintiff: M. Aldridge, SC. Defendant: J. Duncan SOLICITORS : Plaintiff: Turkslegal Defendant: Brown Wright Stein IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HALL, J. WEDNESDAY 22 NOVEMBER 2006 No. 50017 of 2005 SCOTT DARREN PASCOE (IN HIS CAPACITY AS LIQUIDATOR OF PIVOTAL (AUSTRALIA) PTY. LIMITED (IN LIQ.)) & ANOR v. JOE DUARTE JUDGMENT 1 HIS HONOUR: The plaintiff commenced proceedings by summons filed on 8 February 2005 in which judgment was claimed against the defendant in the sum of $1,352,783 together with interest and costs. The defendant was a director of the second plaintiff, Pivotal (Australia) Pty. Limited ("the company"). 2 The first plaintiff was appointed Official Liquidator of the second plaintiff pursuant to an order of this Court on 3 June 2003. 3 There was no dispute that from 1998 up to the time of liquidation of the second plaintiff, the defendant received a significant amount of money from the company. The first plaintiffs' essential contention is that the company loaned to the defendant monies totalling $1,352,783. These are referred to in the summons as "the loan monies". In this respect it is contended that:- (a) The amount of the loan monies is reflected in the balance of the defendant's loan account referred to in the Statement of the Financial Position of the company as at 31 October 2002, and in accounts recording transactions to 30 April 2003. (b) The loan monies were repayable on demand. (c) Written demand for payment of the loan monies was made by the first plaintiff on behalf of the company on 11 October 2004. (d) The defendant has failed to repay the loan monies to the first plaintiff. 4 The amount claimed in the summons is made up of the following:- (a) $44,382 (identified in the Trial Balance, June 2003, as "Loan J. Duarte pre 12/97" and in the Statement of Financial Position, Exhibit SDP12 to Mr. Pascoe's affidavit sworn on 21 September 2005). (b) $1,308,401 (identified in the Statement of Financial Position as at 31 October 2002 (including transactions to 30 April 2003), Exhibit SDP12 to the affidavit of Scott Darren Pascoe). 5 On behalf of the defendant, it was contended that, as there was no express or formal agreement evidencing a loan, the plaintiff had the task of proving that such an agreement existed by implication. The first plaintiff and the defendant each relied upon matters in evidence as supporting their competing contentions. 6 The defendant contended that he was the only person who could act on behalf of the company in respect of any loan agreement, he being its "directing mind and will". It was also contended that it was necessary for the Court to look to the purpose of the defendant as the one person who controlled the company at the relevant time in determining the nature of the monies that were paid to or on behalf of the defendant by way of drawings. The defendant relied, in this respect, upon Bernard Elsey; FCT v. Whitford's Beach Pty. Limited (1982) 150 CLR 355. 7 The intent of the defendant, it was contended, was of paramount importance in characterising the payments made to him. In written submissions on behalf of the defendant, it was contended:- "8. If it was the intent of the defendant that those monies would be provided and taken as income (albeit notionally considered as 'drawings', and not as regular … weekly, monthly – wages or salary) for which the defendant would ultimately bear an obligation to pay income tax, then it cannot be said that there was a loan, bearing an obligation of repayment." 8 The defendant relied, inter alia, upon circumstantial evidence in support of his claim that the monies were paid by way of remuneration. I will refer to the specific aspects of the evidence relied upon in this respect later in this judgment. Evidence 9 The affidavit evidence comprised the affidavits of Scott Darren Pascoe, chartered accountant and Official Liquidator, sworn 21 September 2005, Lillian Zhang, accountant, sworn 2 May 2006 and Lisa Gaye Dorman, solicitor, sworn 27 March and 19 April 2006. 10 The exhibits to Mr. Pascoe's affidavit were contained in two volumes, the first comprising exhibits SDP1 to SDP19, the second comprising exhibits SDP20 to SDP22. Mr. Pascoe was cross-examined at some length as to the sources and the reliability of financial statements exhibited to his affidavit and the role the defendant played in the conduct of the company's activities. 11 Mr. Alan Geoffrey Topp, chartered accountant, also gave evidence in the plaintiffs' case in relation to the company's Trial Balance June 2003 and certain extracts of the General Ledger. I will refer to these in some detail later in this judgment. 12 The defendant swore an affidavit on 23 December 2005 upon which he was cross-examined. The evidence given by him will be analysed later in this judgment. 13 A tender bundle exhibit contained copies of most, but not all, of the documents in the exhibits to Mr. Pascoe's affidavit. A number of other exhibits were tendered at the hearing to which I shall refer in due course. 14 It will be necessary in this judgment to refer to and analyse the material made available to the first plaintiff and relied upon by him in support of the claim for recovery of the alleged loan monies. Whilst the defendant did not call any expert evidence as to the basis and accuracy of such material, questions were raised, particularly in the cross-examination of Mr. Pascoe, as to the reliability of accounting/financial records relied upon to support the claim. Facts 15 The company was registered on 22 January 1998. The defendant was appointed director on 22 January 1998 and remained a director thereafter. He later became a shareholder in the company. The company ceased trading at the end of October 2002. Its business was then transferred to Pivotal Human Resources Solutions Pty. Limited (PHRS). This, apparently, occurred in circumstances in which the company's financial provider withdrew its financial support. 16 Fadeliah Duarte was the sole shareholder of the company. She was formerly married to the defendant. 17 The first plaintiff gave notice to the defendant to submit a report as to the affairs of the company pursuant to s.475(1) of the Corporations Act 2001 by 3 June 2003. 18 On 10 June 2003, a meeting took place between the first plaintiff and the company's accountants, Charltons CJC Pty. Limited ("Charltons"). Mr. Pascoe subsequently received from those accountants financial accounts for the company for the period ending 30 June 1998 to 30 June 2002 inclusive and for the period ending 30 October 2002 including transactions up to and including 30 April 2003. Copies of these documents were included in the exhibits to Mr. Pascoe's affidavit, in particular, SDP7 to 12 inclusive. The Statement of Financial Position of the company for the latter period disclosed the defendant as a debtor in the amount of $44,382 and $1,308,401 as at 30 April 2003. A copy of the relevant Statement of Financial Position in this respect was included in the tender bundle (p.121 to 122). The relevant entries appear in Note 4 to the Financial Statement (tender bundle, p.125) as follows:- "NOTE 4: INVESTMENTS Oct 2002 June 2002 Girassol Angola Corp. (L) $3,744,428 $3,721,555 J. Duarte (pre 12/97) $44,382 $44,382 J. Duarte $1,308,401 $896,491" $5,097,211 $4,662,428 19 The transcript of the defendant's examination carried out pursuant to the provisions of the Corporations Act on 28 July 2004 recorded (tender bundle p.274) the following:- "Q. When you gave evidence yesterday that you took some drawings from Pivotal Aust's accounts what were those drawings in relation to? A. … my belief in lieu of wages. Q. How when you say 'in lieu of wages' were you paid a salary by Pivotal Aust? A. …. No to my knowledge that's not the case. Q. You weren't paid a salary? A. … no that's not the case. Q. Now when you say that you took drawings in lieu of wages, what determined what amount of drawings you took? A. … there was no set formula or there was no set rule as to what was taken. … Q. Because it's the fact isn't it that Pivotal Aust. loaned you substantial amounts of money during the period January 1998 until the date of liquidation? A. … that might be the case. To this day I don't know what the actual figure is counsellor." 20 During the course of examination (28 July 2004), the defendant also was examined (tender bundle, p.275 in relation to the following):- "Q. Can you see that, about halfway down the document. Now you'll see there a figure which relates to Girassol for some 3.7 million dollars? A. … yes. Q. And then underneath that you can see two amounts which appear next to your name, assuming that that is a reference to you J. Duarte, is it? A. … I believe that to be the case, yes. Q. Now you can see there … is reference to, in inverted commas, 'investment against your name in the sum of 1.308 million dollars. A. … yes I do. Q. Is that a figure which was derived by adding up the various loans by the company to you? A. … I believe that could've been the case, yes. Q. Is the same to be said of the smaller figure $44,382 that appears just above that? A. … I believe that to be the case, yes. Q. So both of those figures reflect loans by the company to you do they? A. … yeah I believe to be so, but the figure 12/97 that's prior to the commencement of Pivotal Aust." 21 It was common ground between the parties that there were no contemporaneous records such as wage books, group certificates or other documents evidencing regular payments of monies as salary or wages to the defendant. In those circumstances and, having regard to the financial statements to which reference has been made, the plaintiff claimed that the amounts paid to and on behalf of the defendant by the company by way of drawings were loans and that personal income tax returns made in December 2004 and lodged with the Commissioner of Taxation (as to which see discussion below), amounted, in effect, to a "recent invention" that the monies advanced were rather paid as wages. 22 Following the meeting on 10 June 2003, referred to in paragraph [18], on 11 June 2003, Mr. Fitzgerald, an employee of Charltons, met with Mr. Pascoe and his staff to undertake a reconciliation of Pivotal's financial accounts. Mr. Pascoe stated that on 12 June 2003, he received the information requested. This included the financial statements referred to in paragraph [18]. 23 Mr. Pascoe was cross-examined in relation to these last mentioned documents and acknowledged that he was not aware as to whether or not the company by its sole director adopted the accounts marked as "draft" and acknowledged that the copies of the financial statements did not bear the signature of the defendant as its sole director. 24 Mr. Pascoe also produced a number of documents which were together marked as Exhibit D. These related to specific payments made on an American Express account held by the company. The defendant's income tax returns 25 The tender bundle included copies of income tax returns completed in December 2004, that is after the plaintiff's appointment as liquidator and subsequent to the written demand for payment on 11 October 2004. Copies of the returns commencing at p.300 of the tender bundle were in evidence. Each was accompanied by a statutory declaration. In relation to the returns, the following matters are noted:- (a) The 1999 financial year: The defendant's statutory declaration made on 15 December 2004 in respect of this year represented that he received a weekly gross salary of $4,807.69, a total remuneration of $250,000 and weekly tax deductions of $2,201.92 (tender bundle p.301). The defendant agreed that he did not receive that amount on a weekly basis, but claimed that he received it "as a lump" . He also agreed that he had not paid or withheld from the weekly amount stated the sum of $2,605.77 each week as recorded in the abovementioned statutory declaration. He stated that he assumed that Ms. McMaster "was accounting for that" . He denied when it was put to him that the statutory declaration was a "fiction" and was inserted because of an assumed annual wage of $250,000. (b) The year ended 30 June 2000 : the statutory declaration also made on 15 December 2004 represented a weekly gross salary of $4,807.69 with weekly deductions of $2,201.92 and a gross remuneration of $250,000 (tender bundle, p.303). It was again put to the defendant that the defendant did not receive the amounts made nor were deductions made as represented in the statutory declaration. (c) The year ended 30 June 2001 : the defendant made a statutory declaration on 15 December 2004 which represented the defendant's remuneration as a gross salary of $250,000 and a net annual salary as $109,300, the net weekly payments for the 2001 year being stated as $2,705.77, amounts of $2,101.92 being deducted for tax. (d) The year ended 30 June 2002 : the statutory declaration made on 15 December 2004 declared a gross income of $350,000 with weekly payments in the sum of $3,641.73 and amounts of $3,089.04 being deducted for tax. (e) The year ended 30 June 2003 : the statutory declaration made on 15 December 2004 represented a weekly wage of $2,000, the amount of net payments after tax as $1,252.59 and amounts of $747.31 being deducted for tax. 26 On 14 February 2005, Charltons (Mr. Alden Fitzgerald) sent an email to the Australian Taxation Office in which the following statement was made:- "… 5. Mr. Duarte was abroad periodically during the tax years under review and was not subject to normal weekly wages for obvious reasons of confidentiality. As recollected, the then administration manager was directed to account for annual remuneration of $250,000 (and the relevant PAYG Tax thereon) via credits to his loan account. The company ceased trading on 31 October 2002 and no remuneration was drawn down by Mr. Duarte, for the entire period 1998/1999 to 2001/2002. He has no access to the financial documents of the company and, hence, cannot comment on the lack of records of which holding tax being paid as advised by you." 27 On 31 March 2005, Charltons wrote to the Australian Taxation Office in respect of the assessments received for the years ended 30 June 2001, 2002 and 2003 in the following terms:- "We refer to the issue of the above named and specifically to your 'Adjustments to Credits Tax withheld' totalling $308,790 over the three assessments. You have advised that there is no record of both wages paid and tax withheld regarding Mr. Duarte on relevant Payment Summaries submitted to the ATO for the entity ABN 86 081 376 410. Hence it follows that if you EXCLUDE the PAYG credits, you must also EXCLUDE the Wages income relating specifically to these credits. The deferment of primary production losses are accepted at this stage. Please amend and re-issue these assessments after correcting your adjustments via deletion of the income as outlined above. If you disagree, would you kindly note your reasons IN WRITING, in order that we can take the further appropriate steps to eliminate this miscalculated liability." 28 On 7 April 2005, Charltons, by electronic means, lodged "amended" declarations in the respect of the following years:- (a) In respect of the 2001 year – the total taxable income of $149. (b) In respect of the 2002 year – the total taxable income of $0. (c) In respect of the 2003 year – the total taxable income of $0. 29 The defendant lodged individual tax returns in April 2005 as follows:- (a) In respect of the 2003 year, he declared, after modest income in respect of dividends, partnerships and trusts as other income, the amount of $61,850 (data as derived from Film Investment). (b) In respect of the 2004 year (declaration dated 15 December 2004), taxable income of $34,390 was recorded and a total income of $128,619 including a gross income from PHRS of $70,000 and tax instalments deducted of $20,824. 30 The Australian Taxation Office issued notices of assessment dated 15 April 2005 in respect of the following years:- (a) Year ending 30 June 2001 - $189,531.95. (b) Year ending 30 June 2002 - $189,531.95. (c) Year ending 30 June 2003 - $189,531.95. (b) Year ending 30 June 2004 - $186,977.60. 31 In cross-examination, the defendant was asked (transcript 7 June 2006 at p.8):- "Q. How can you possibly assert to the Commissioner that you did not receive that money as wages and assert to his Honour today that you did? A. As I said, I have always assumed that those monies were received as remuneration. On advice, I took the path that we have discussed before. As I said before, there is – amounts have been allocated as income. I have a tax bill to pay, that has not changed." Q. The short answer is, the Commissioner did not accept the amended returns? A. As I said before, I declared income. I have a tax bill to pay. Q. The short answer is the Commissioner did not accept the amended returns? A. That might be the case." 32 The defendant was taken to the tender bundle, p.420, which contained a list of employees. At tender bundle, p.423, his wife's name is included but he accepted that his own name was not included. The explanation was suggested to him as follows:- "Q. Because you were not regarded as an employee, is that correct? A. As a director of the company and the decision-maker of the company, it was always my belief I was an employee of the company." 33 As noted earlier in paragraphs [19] and [20], in the public examination the defendant accepted that the monies referred to could have been loans. The first plaintiff contended that the defendant had subsequently declared the loan to the Australian Taxation Office as a wage in order to avoid repayment of the monies to the plaintiff. 34 The first plaintiff sought access to the documents produced by the Family Court for the purpose of comparing what the defendant swore to be his income in connection with those proceedings to what he claimed in the present proceedings was paid by way of loan. 35 Three documents produced by the Family Court were subsequently admitted into evidence in these proceedings and marked respectively as Exhibits A, B and C. In relation to each of those documents, the following matters are noted:- (a) The defendant's response to application for maintenance filed 2 August 2003 (Exhibit A) discloses an average weekly income (before tax) of only $900. (b) The defendant's financial statement (Exhibit B) filed 9 July 2003 discloses the same details as to average weekly income as in Exhibit A. (c) The defendant swore an affidavit in the Family Court proceedings on 7 July 2003 forming part of Exhibit C. In it he stated that he had earned sufficient income to afford his family a lifestyle of a standard of living which he describes as high. He also stated in the affidavit (paragraph 8) that he was confident that the financial position of the business would improve in the next 12 months to enable sufficient income to be earned by the business and provide him with approximately $900 per week. 36 Mr. Duarte stated in evidence that, at the time he swore the affidavit (Exhibit C) on 7 July 2003 he had not received any demand from the liquidator for repayment of the loan the subject of the present proceedings. The evidence of Mr. Pascoe 37 In cross-examination, Mr. Pascoe agreed that the defendant was at all stages since January 1998 both sole director and sole executive officer of the company and that he was the sole effective controller of the activities of the company. He agreed that the company employed an administration manager who also filled the role of bookkeeper (a Ms. Rhonda McMaster). Mr. Pascoe's understanding was that relevant entries into the MYOB programme were made by her and not by the defendant. The defendant's evidence was that, in respect of the principal dealings between the company and the accountants, Charltons, Ms. McMaster had the majority of those dealings. 38 Mr. Pascoe agreed that the second plaintiff ceased trading at the end of October 2002 and that its business activities were transferred to a corporate entity by the name of PHRS. He stated that he was generally aware that the transfer of business was associated with the fact that the then finance provider for the second plaintiff was withdrawing its financial support. Pivotal Human Resources Solutions Pty. Limited had the defendant as its sole director. 39 In relation to certain financial accounts of the company which were exhibited to Mr. Pascoe's affidavit, he agreed that the "statement by directors" copied in forming part of the tender bundle (SDP7) were not signed by the defendant and he was not able to say whether or not the company by its sole director adopted those accounts. 40 Mr. Pascoe was also taken to Exhibits SDP8, SDP9, SDP10 (in respect of the years ended 30 June 1998, 30 June 2000 and 30 June 2001) and agreed that he did not hold a copy of the accounts for those years signed or verified by the defendant. 41 Mr. Pascoe was also cross-examined in respect of the accounts for the year ended 30 June 2002 which were also marked "draft". The statement of directors again was not signed by the defendant for that year and, as in previous years, he was not able to confirm that the company had adopted the accounts. 42 He was also cross-examined in respect of Exhibit SDP12, which related to the financial position of the company as at 31 October 2002 and which was stated as including transactions up to 30 April 2003. He agreed that he was unable to say whether the document was shown to the defendant before a copy of it had been provided to his firm and he had no knowledge as to whether the company had adopted the report. 43 Mr. Pascoe conceded that the financial statement for the period ended 31 October 2002 which recorded an amount of $1,308,401 owing by the defendant (up from $896,491 as at 30 June 2002) was not corroborated by any other document that had been located. He relied upon SDP12 as the evidence to support the claim made in respect of that amount. 44 Mr. Pascoe also partially relied upon the General Ledger entries of the company for the period 1 July 2001 to 5 July 2005 (SDP13). The entries in it were styled, "Owner's Drawings (J. Duarte)". The document represented a print out from the MYOB programme. It recorded a total amount of "Owner's Drawings (J. Duarte)" after adjustments for the period 11 July 2001 to 27 March 2003 of $941,546.42. This latter amount is also recorded in the Trial Balance, June 2003. Mr. Pascoe confirmed that it was, in part, based upon this document that he asserted that the defendant owed at least that amount of $941,546.42 as stated in the General Ledger. He regarded the ledger (SDP13) as effectively a loan account. 45 He did not accept, when put to him, that the concept of "drawings" was a term that, without more, is "neutral". He agreed that the term was often used by sole traders and partnerships, but not in the context of companies. 46 Mr. Pascoe accepted that the defendant as the sole controlling executive of the company had generated a substantial amount of gross income (said to be multiple millions of dollars) and that he would expect an executive to be entitled to remuneration for his efforts in controlling and running such a company. He agreed that, in his examination of the affairs of the company, that the defendant's almost exclusive source of money, whether properly characterised as remuneration or loan, came from the company. He subsequently qualified this evidence in saying that he was unable to state whether all monies received by the defendant had come from the company as the defendant had been associated with a number of other companies. 47 In re-examination, Mr. M. Aldridge, SC., on behalf of the first plaintiff, took Mr. Pascoe to a deed of release dated 17 November 2003 (tender bundle, p.130). Recital C at tender bundle, p.131, referred to draft accounts prepared on behalf of Pivotal showing debts owed to it as set out in Part A to the Schedule. Page 136 of the tender bundle recorded an amount of $309,139 as owed by PHRS. That entry related to a loan account of PHRS at the time the deed was executed. These entries were later used as some corroboration of certain matters in the Financial Statements of the company for the period ended 31 October 2002. The defendant's evidence 48 Mr. Duarte gave evidence that he was born in Lisbon, Portugal and migrated to Australia in February 1968 at approximately the age of 14 years. He completed his secondary school education in Sydney to Higher School Certificate level and, following University, worked in a number of industries. In 1989 he established the first of a number of subsequent businesses in the labour hire service area. 49 Mr. Duarte stated that, from time to time, he received money from the company either by cheque or by electronic transfer. The payments did not follow any monthly or weekly pattern and the payments were requested or initiated by him. In other words, he authorised on behalf of the company the making of those payments to himself. 50 He was asked about his intention to treat the payments in any way on behalf of the company and stated, "yes, I treated them as part remuneration". 51 He stated that he was associated with other companies in the relevant period but that he did not receive any monies from other sources. He said that initially in terms of allocation of time, the company took 100% of his time up until 2001. From the time it ceased trading he then took over the running of PHRS. In the period in 2001 to October 2002, he estimated that he spent 65 to 70% of his time running the business of the company. 52 In the defendant's affidavit sworn 23 December 2005, the defendant stated that the company had conducted a large recruitment business and had between 400 to 500 employees. He stated that he was preoccupied with running the business and running the investments of the company. He acknowledged that he did not devote sufficient time to the preparation of financial accounts. In consequence, the company had not, as at the date of the appointment of Mr. Pascoe as liquidator, finalised the accounts of the company for a number of years. 53 Mr. Duarte stated that the company's accounts relied upon by the first plaintiff were only draft accounts. He said that they were never finalised and that he did not approve them nor sign them. He also stated the accounts were never audited. 54 In relation to the financial statements for the period ended 30 October 2000 (including transactions up to and including 30 April 2003), Mr. Duarte similarly stated that the accounts were only draft accounts, were stamped "draft", were never finalised and he did not approve or sign them and that they were never audited. He denied that he was indebted to the company in the amounts of $44,382 and $1,308,401 as at 30 April 2003. 55 The defendant also stated that he drew a salary from the company in the form of drawings and in some years was paid a director's fee. 56 He referred in his affidavit to income tax returns lodged with the Australian Taxation Office for the years 30 June 1988 to 30 June 2003 inclusive. He stated that the reason for the late lodgment of his personal taxation returns was that the accounts of the company were never finalised and there was difficulty collating information required. Documentation evidencing drawings and payments to the defendant (a) The General Ledger 57 Considerable attention was given to the General Ledger for the period 1 July 2001 to 5 July 2005 (SDP13) to which reference has been made above. The defendant, in his affidavit, stated that it was created and printed by the liquidators of the company and neither he nor his accountants had access to the books and records of the company since the date of the first plaintiff's appointment. 58 According to him, it was the practice of the bookkeeper, Ms. McMaster, to allocate amounts which were paid out of the bank account of the company to the General Ledger until such time as the accountants of the company, Charltons, and Ms. McMaster reviewed the accounts with him and a proper allocation of the entries, into the various other general ledgers and expense accounts, were made. 59 He also contended that there were five entries in the General Ledger that related to PHRS totalling $169,089.90. He denied that he was indebted to the company in the amount of $941,546.42 as shown in the document SDP13. 60 Exhibit SPD13 recorded various drawings and a number of payments. It is to be noted that the cumulative total to 30 June 2002 was $563,279.53. This was well in excess of the salary of $356,000 that had been the figure represented in the income tax return as salary paid. The total amount shown on the General Ledger to 27 March 2003 was, as stated earlier, $941,546.42. 61 Mr. Duarte said that he paid expenses of the company with his credit cards and was reimbursed for those expenses by the company. He used his American Express card to pay most of those expenses. When it was not possible for him to use it to pay expenses of the company, he would obtain reimbursement in the form of a cheque or transfer from the company. 62 Mr. Duarte also stated that he was uncertain as to the exact amounts or dates of payments from the company's bank account to him but denied that all of those payments formed part of a loan or loans from the company. He stated that the payments included his remuneration. He specifically denied that all of the payments to his American Express card formed part of any loan from the company to him. Those payments, he asserted, included expenses of the company. He denied that he was indebted in the amount of $957,265.86 referrable to Macquarie Bank payments and American Express payments as summarised in SDP15. 63 In respect of the loan of $44,700, he stated that it was his "understanding" that that loan had been paid out some time during the year ended 30 June 2002. 64 Mr. M. Aldridge, SC. conceded that the documentation, including draft accounts, may not in every respect be entirely accurate. However, he contended that the weight of the evidence suggested that they were essentially correct, particularly when it is borne in mind that the financial statements and General Ledger were prepared by Charltons in the ordinary course of preparing accounts for the company and that they have remained Mr. Duarte's accountants. Mr. Aldridge emphasised that no-one was called from Charltons to say that the accounts were incorrect in any particular way or to provide any explanation as to why matters were not to be taken as recorded. (b) The Trial Balance – June 2003 65 The plaintiff called evidence from Mr. Alan Godfrey Topp, chartered accountant. Mr. Topp had worked under the supervision of Mr. Pascoe in relation to the liquidation of Pivotal Australia Pty. Limited. He stated that the Trial Balance, June 2003 (Exhibit F) was produced under his instructions and was derived from the company's MYOB accounting system. The document had not been introduced into evidence by the affidavit of Mr. Pascoe. Application was later made during the course of the cross-examination of the defendant to re-open the first plaintiff's case to tender the document. 66 Mr. Topp explained that Exhibit F represented a summary of all the accounts and the General Ledger. Each of the entries contained in it could be traced back to a ledger. Mr. Topp instructed his staff to print out a selection of the General Ledger accounts as they related to Mr. Duarte and PHRS copies of the ledger. These were tendered in the course of Mr. Topp's evidence and became Exhibit G. 67 Exhibit G contained the following entries (p.4):- (a) "Investment J. Duarte" revealing a balance of $395,165; (b) "Loan J. Duarte (3.12.97)" in the amount of $44,382; (c) "Owner's Drawings (J. Duarte)" of $941,546.42. 68 Exhibit G also contained General Ledger entries under the title "owner's drawings (J. Duarte)". The document records entries commencing 5 July 2002 to 27 March 2003, totalling $941,546.42, it having been included amongst the documents which together constituted Exhibit SDP13 to Mr. Pascoe's affidavit. I will return to Exhibits F and G below. Corroboration of financial statements to 30 April 2003 69 The defendant did not call evidence from Charltons or Ms. McMaster. He, accordingly, did not seek to adduce evidence as to the accuracy of the company's accounts or the financial statements prepared by Charltons. 70 The first plaintiff, however, having the onus of proof, has required close consideration as to the reliability and accuracy of the records in support of the claim made. In that respect, I consider the following matters are relevant:- (a) The financial statements were prepared by Charltons in the ordinary course of business of preparing accounts for the company. (b) As has been observed, Charltons, as at the date of hearing, remained the accountants for Mr. Duarte and no-one was called from that firm to give evidence challenging the accuracy or reliability of the data contained within the company's financial records. (c) Other documentary evidence in these proceedings did provide a measure of corroboration as to the accuracy of the accounts, at least in certain respects. In this respect, I note the following:- (i) the amount of a loan shown as owing by PHRS in the amount of $309,139 is close to the figure recorded in the General Ledger for the period ended 30 June 2003 (Exhibit G) in the amount of $309,138.37; (ii) the amount shown in Note 4: investments in the financial statements to 30 April 2003 included an amount owing by Girassol Angola Corp. of $3,744,428. It was put to the defendant in cross-examination that PHRS lent Girassol monies in the order of $3.7 million. The defendant did not dispute that amount, saying it was "close enough"; (iii) an amount of $44,382 is recorded as a loan to the defendant "pre 12/97". That figure was one shown historically in various sets of accounts over the years; (iv) the Deed entered into on 17 November 2003 and to which the defendant was a party set out debts as per draft accounts in Part A of the Schedule to the Deed. The Deed constitutes some evidence of the defendant treating the accounts as reliable as to the debt owed by Josha Aust. Pty. Limited in the sum of $38,125 (close to the amount shown in the Trial Balance) and $309,139 as owed by PHRS; (v) the transcript of the defendant's examination on 28 July 2004 included questions directing the defendant's attention to the amount shown by way of loan in the financial statements to 30 April 2003. At p.54 of the transcript, he made a general statement to the effect that he believed that the loan amounts referred to in the financial statements reflected loans by the company to him with the qualification that the figure referrable to 12/97 was relevant to a period prior to the commencement of Pivotal Australia. Owner's drawings 71 As noted above, the General Ledger, SDP13, establishes a total amount of drawings attributed to the defendant in the sum of $941,546.42. That amount is constructed, as evidenced by SDP15, as follows:- • Macquarie Bank payments (SDP13, see also SDP14) in the amount of $729,721.35 together with American Express payments (as per general ledger) in the amount of $227,544.51 totalling $957,256.86. 72 The ledger balance as shown in SDP15 is the amount of $941,546.42. That amount is based on the above amount of $957,256.86 after adjustments were made. 73 The amount of $941,546.42 includes the following amounts shown in the General Ledger:- "3/01/2003 loan Pivotal HR $24,702.90 31/01/2003 loan Pivotal HR $28,000.00 26/02/2003 loan Pivotal HR $2,027.96 27/02/2003 loan Pivotal HR $28,000.00 27/03/2003 loan Pivotal HR $65,000.00 Total $147,730.86" 74 The first plaintiff was not in a position to refer and rely upon any primary records concerning the above five amounts styled as "loan Pivotal HR". He relied upon the fact that those five amounts, although identified as loans from PHRS, by some means had found their way and were included in the General Ledger which, as earlier noted, was derived from the MYOB accounting system which had recorded such amounts as entries in the defendant's loan account. One possible explanation given in evidence by Mr. Pascoe was that there had been a reallocation of those amounts to the defendant presumably by some person who thought that the transactions were such that the defendant should be liable for them as loans from the company and not PHRS. However, Mr. Pascoe did not suggest that this was verified by any evidence available to him. 75 There being no evidence as to the underlying transactions concerning the abovementioned Pivotal HR loans, the question remains as to whether or not the evidence sufficiently establishes liability in the defendant for the five amounts styled as "loans to Pivotal HR". Account must also be given to the fact that the defendant did not call evidence from Ms. McMaster or Charltons on the point. 76 Four of the above five amounts shown as loans from PHRS are included in a document said to have been prepared by Charltons styled "HRS Loan Account" (tender bundle p.485). It related to the period 1 July 2002 to 30 April 2003. The HRS Loan Account also records two further amounts of $40,000 (described as "Adjustments Drawing J. Duarte") and an amount of $5,000 described in the same terms. I will refer again to those two amounts below. 77 Mr. Pascoe was cross-examined in relation to each of these entries. He stated that he would expect that somebody "has made a decision to charge those to the J. Duarte account rather than Pivotal HR? I don't know the reason for that decision". 78 It was then put to Mr. Pascoe that they could represent erroneous entries. Whilst he was initially reluctant to concede that point, he did state that he understood that the entries into the MYOB had been made by the bookkeeper and that, whilst not common, book keepers did make erroneous entries sometimes in circumstances in which there is a batch of entries and there is no clear understanding of the proper characterisation of transactions. He was taken to p.485 of the tender bundle and agreed that the HRS Loan Account related to the account that Pivotal HRS had with Pivotal Australia. He conceded that the double entries in the HRS Loan Account and in the General Ledger of the company (in respect of the amounts $28,000, $2,027.96, $28,000 and $65,000) could have been entered erroneously or they could have been a reallocation. He, however, was unable to confirm precisely what had occurred with those entries. In other words, he conceded that the entry of those amounts in the General Ledger could be suggestive of error. It was put to him by Mr. Duncan:- "Q. So, in respect of those four entries that I have drawn your attention to in this HRS Loan Account, and to the next 10, that they have identical entries in the account for Owner's Drawings. You can't say here that those amounts and the Owner's Drawings are truly amounts of loan outstanding, loaned by the company to Mr. Duarte, can you? A. I can't say with certainty, no. Q. It goes beyond that. You can't say which is the right version, which is the wrong version, or perhaps that both versions are wrong, can you? A. I can't say that all of both versions are right." 79 He subsequently conceded that he was not able to be certain that the four amounts identified in the preceding paragraph as contained in the General Ledger as Owner's Drawings were in fact monies owing by Mr. Duarte to the company. He conceded that the HRS Loan Account document did not show any "crediting out" from the HRS Loan Account accompanying a debiting to the defendant's loan account. 80 The evidence indicates uncertainty as to how amounts which were loans to HRS came to be entered in the company's General Ledger as "Owner's Drawings". I am not satisfied on the evidence that it has been established that those amounts were, by some means, in fact, reallocated and established as loans by the defendant to the company. 81 Mr. Pascoe conceded that it would be relevant to determine whether or not the HRS Loan Account at p.485 was a later document to the General Ledger recording the same amounts. In the course of his evidence, he stated that entries in both documents could be correct and was asked how that could be so:- "Q. Can you explain how that could be so? A. Well, it would be if the business were originally entered into the HRS Loan Account as they appear on p.485, and were later transferred by crediting the HRS Loan Account, and then debiting the Joe Duarte Loan Account so they would appear annually as debited in the HRS. They then would be credited out, and appear as debited in the Joe Duarte account so if the HRS document was produced first was later changed, they could then appear as both being correct at a period of time at which they were printed. Q. Well, then, the timing of these entries in the different accounts may assume some importance, is that right? A. Yes. … DUNCAN: Q. Further, on this HRS, the loan account document at p.485 of your Exhibit 20, first of all, there is no crediting out of the nature you have just indicated is there? A. No. Q. Then, if you see the entry total about a third of the way down? A. Yes. Q. Then underneath that there is an item described as adjustments? A. Yes. Q. And you see that the first item there is drawings J. Duarte? A. Yes. Q. $40,000? A. Yes. Q. And if you go back to the General Ledger for Owner's Drawings as part of your Exhibit MSTB12, do you see an entry of 29 November 2002 drawings for $40,000? A. Yes I do. Q. And keeping your eye to that location, and then return back to the HRS Loan Account for the moment, the next entry is ditto drawings, ditto J. Duarte 5,000? A. Yes. Q. And returning to the Owner's Drawings General Ledger, the next date from the one I have just taken you to, is 31 December 2002 drawings 5,000? A. Yes. Q. They would seem to be – if I can use the expression loosely – companion entries, don't they? A. Yes, they appear to be. Q. And the HRS Loan Account would seem to be seeking, on its face, that those drawing amounts really should be amounts debited to the HRS Loan Account and not the Owner's Drawing account. That is what it seems to be saying? A. Subject to the same qualifications as before, yes. Q. And if that adjustment entry is correct, then it would be incorrect to claim those two amounts as being owing and outstanding by Mr. Duarte, that's correct, isn't it? A. That's right. Q. To the extent that this HRS Loan Account bears notation of adjustments that aren't picked up in the General Ledger for Owner's Drawings is one indicia, is it not, that perhaps the HRS Loan Account is a later account to the Owner's Drawings Account. That's so? A. Sorry, could you repeat that? Q. To the extent that the HRS, the Loan Account enters the adjustment that I have drawn your attention to, and to the extent that those adjustments do not appear to have been made in the Owner's Drawing Account is one indicia that is consistent with the HRS Loan Account being later in time to the Owner's Drawing Account, that's so, isn't it? A. I think that's possible." 82 Accordingly, the "Owner's Drawings" totalling $941,546.42 should be reduced for the purposes of the present proceedings by the amount of $147,730.86, leaving a balance of "Owner's Drawings of $793,815.56. 83 Mr. Pascoe accepted that the HRS Loan Account would seem to be stating on its face that the two amounts of $40,000 and $5,000 by way of drawings should be amounts debited to the HRS Loan Account and not to the Owner's Drawing Account, subject to qualifications stated. 84 Given the fact that the first plaintiff has necessarily been required to rely upon the General Ledger on its face, I do not consider that one can ignore the entries in the same amount by way of adjustments on the HRS Loan Account. That being the case, there is sufficient doubt as to whether or not those amounts also recorded in the HRS Loan Account to which reference has been made above were properly referrable to drawings by the defendant made on the company. Accordingly, the two amounts totalling $45,000 together with the "Loans Pivotal HR" should be deducted from the total amount of Owner's Drawings shown in the General Ledger. 85 The plaintiff's claim, as I have earlier set out, was in the amount of $1,352,783 which is taken as including the abovementioned owner's drawings of $941,546.42. That figure, for reasons explained above, should be adjusted downwards to allow for the entries in the HRS Loan Account. Accordingly, the total of the amount of $147,730.86 referred to in paragraph [73] together with the additional two amounts totalling $45,000 referred to above amounts to $192,730.86. That is the amount by which the Owner's Drawings of $941,546.42 is to be reduced. The amount claimed, namely, $1,352,783 adjusted by the abovementioned allowance of $192,730.86, accordingly, reduces the plaintiff's claim to the sum of $1,160,052.14. Submissions as to the defendant's taxation returns 86 The first plaintiff's submission was that the defendant's position, so far as his declarations of wages to the Australian Taxation Office was concerned was "extraordinary". In this respect, the evidence indicated that:- (a) Taxation returns were lodged on the defendant's behalf with the Australian Taxation Office on the basis that weekly sums had been drawn and paid by way of PAYG tax. However, there was no evidence of any monies being withdrawn or advanced. (b) The Australian Taxation Office then issued assessments to the defendant. (c) On receiving the assessments, the defendant sought a re-assessment on the basis that he did not receive remuneration in the nature of wages and salary. Amended tax returns were in due course lodged deleting the earlier reference to wages or salary. 87 The first plaintiff submitted that, insofar as the defendant was now asserting that the monies were not advanced by way of loan but were remuneration, he was acting totally inconsistently with the stance that he had most recently taken up with the Australian Taxation Office. 88 Ms. McMaster's letter to the Commissioner which sought to explain why the defendant had not received regular wage payments (that he was out of the country a good deal of the time) is hardly an explanation which validates his claim that he was paid the monies by way of wages or remuneration and not by way of loan. Mr. Aldridge observed, correctly, that some significance was to be attached to the fact that Ms. McMaster was not called to give evidence and to explain certain inconsistencies that arose in respect of her letter drafted for the purposes of submission to Macquarie Bank and her letter to the Australian Taxation Office. 89 The overall effect of the evidence is that at no time did the defendant or those acting on his behalf specifically treat the monies, alleged to have been paid by way of loans, as salary or wages or any other form of remuneration. No contemporaneous business records exist indicating that he was, for remuneration purposes, treated or regarded as an employee of the company. I do not consider that Exhibits A, B and C by themselves sufficiently evidence contemporaneous dealings consistent with the drawings and other payments being treated as wages or salary. 90 In the circumstances, I accept the submission made that the evidence strongly points to the establishment of a loan account and the advancement of monies by way of loan by the company to the defendant. There is substance to the submission that the defendant now, with the benefit of hindsight, seeks to reconstruct factual events relevant to the legal conclusions that are to be drawn from the various transactions that occurred during the period of the company's operations. 91 Finally, the defendant did not seek to explain the evidence that he gave at the examination on 28 July 2004 which would suggest that the monies in question were paid as loan monies. The defendant's submissions 92 Mr. J. Duncan of counsel for the defendant, provided a written outline of submissions for the defendant and written supplementary submissions for the defendant. 93 In the former, he asserted, correctly, that the first plaintiff's claim as to the existence of a loan by the company to the defendant was a matter in respect of which he was required to discharge the onus of proof as to the existence of the loan, the terms of the loan, the amount of the loan and that there had been a breach of the loan by the defendant. 94 As to the existence of an agreement, Mr. Duncan acknowledged that there must be a "meeting of the minds" between the parties to the loan and that, for this purpose, the defendant acted in respect of his own interest and on behalf of the company, he being the sole director of the company that he controlled and operated. 95 Mr. Duncan also correctly observed that there was no suggestion in the present case of any loan agreement or agreements in writing or made orally. That meant that the first plaintiff had the task of proving a loan which was wholly implied from relevant dealings or transactions. 96 Accordingly, it was submitted that the defendant was the "directing mind and will" of the company and that in considering monetary transactions concerning the defendant, it was necessary for the Court to look to the purpose of the person who controlled the company. Reliance, as earlier noted, in this respect, was placed upon the decision in Bernard Elsey; FCT v. Whitford's Beach Pty. Limited (1982) 150 CLR 355. 97 Hence, it was contended, it was of paramount importance to consider the intent of the defendant in having the company provide to himself the monies claimed. 98 The defendant's submission therefore was that if it had been the intent of the defendant that the monies in question were provided and taken as income (although notionally considered as "drawings" and not as regular payments by way of wages or salary) and for which the defendant ultimately bore an obligation to income tax, it could not be said that there were loan transactions bearing an obligation of repayment. 99 Reliance was placed upon circumstantial evidence which included:- (a) The fact that the business undertakings of the company were substantial. The defendant, as the sole executive officer effectively ran the company. Such a role ordinarily would attract income and a substantial one. (b) The company was the only source of remuneration for the defendant. (c) The defendant lodged tax returns (albeit in more recent times) in which he declared income from the company. The income declared was consistent with the defendant's role and the size and turnover of the business. (d) There is an inherent unlikelihood that the defendant would have intended the monies to be provided by way of a loan. (e) The absence of any documentation of a loan on ordinary commercial terms. (f) A loan from the company to the defendant that was not paid out each year would be deemed assessable income in the hands of the defendant. It would be highly improbable that the defendant intended for there to be a repayable loan to the company and for him to bear an obligation for personal income tax in respect of the monies loaned. (g) Reliance was also placed upon correspondence in SDP20 of the affidavit of Mr. Pascoe, in particular, p.243 (29 March 2001), p.240 (22 August 2001), p.270 (14 January 2002) and p.339 (23 June 2003). (h) The affidavit sworn by the defendant on 7 July 2003 in the Family Court was said to reflect his mind and intent that the monies that he received were by way of income. 100 In Mr. Duncan's supplementary submissions for the defendant, it was submitted that the Court should not, in effect, place undue reliance upon the failure by the defendant to observe the formalities of recording and treating monies paid as wages or salary and that "form should not dictate function". 101 Specific reliance was placed upon the letter written by Charltons to the defendant dated 22 August 2001 (tender bundle, p.240) making reference to an assessment of the defendant's approximate taxation liability and upon the letter written by Charltons to the defendant on 14 January 2003 which makes reference to the enclosure of "draft" tax returns for the years 1998/1999 and 1999/2000. The letter refers to "the income stated therein arose from company remuneration in order to eliminate personal drawings in relevant years". 102 These two letters were said to reflect a clear and unambiguous understanding that the monies obtained by the defendant were in the nature of income, that the accountants were not concerned with matters of form as to the monies obtained and there was no reference to any concern that the drawings account was in fact a loan account. 103 It was also observed that the defendant would have obtained no remuneration, on the first plaintiff's case, from the company for the whole of the period from January 1998 until October 2003. 104 Mr. Duncan, in his oral submissions, emphasised that in determining whether the monies advanced were by way of loan or by way of remuneration, it was important not to "pigeon hole" the remuneration into it being either loan or wages or salary. It was in this context that he emphasised the importance of the "legal fiction" whereby the mind of the company and the mind on the other side of the "contractual equation" was one and the same. In this case, the defendant, it could be inferred, provided to the company his services as sole executive officer of the corporation and would conduct its affairs and in exchange would be entitled to "remuneration". It was submitted that it was not necessary to go beyond that point, the contract being one to be inferred by conduct. 105 The contract to be implied, Mr. Duncan submitted, was an employment contract. To support such an implication, he relied upon the matters in paragraph [99]. 106 Mr. Duncan submitted that there was no benefit to the defendant in taking monies by way of a loan, having regard to the provisions of Division 7A of the Income Tax Assessment Act 1936. Mr. Duncan stated that the Court could draw the inference that by reason of the existence of those provisions, neither the defendant nor the company would have seen any benefit in treating the monies as loan monies and not as income. 107 Mr. Duncan placed emphasis upon the letter written by Ms. McMaster on 29 May 2001 to Mr. Fitzgerald of Charltons (tender bundle, p.243) to which I have earlier referred. That letter contained a "to whom it may concern" document setting out the total salary package for the defendant in respect of the years 1998/1999 "in excess of" $250,000 and in respect of the year 1999/2000 "in excess of" $250,000. Mr. Duncan submitted that these documents show "within the company a consideration of an entitlement of the defendant to income" (transcript, p.48). Reliance was also placed upon letters at tender bundle p.270 and p.272 as supportive of the proposition that it was the defendant's intent and consequently the company's intent that the monies from the company to the defendant be by way of assessable remuneration rather than under or pursuant to a loan account. 108 Reliance was also placed upon the letter written by Charltons to Star Dean-Willcocks on 23 June 2003 (tender bundle, p.339). It contained an assertion attributable to the defendant that funds had been advanced to him over the years as remuneration and expense reimbursement. 109 These letters, do not, in my opinion evidence contemporaneous dealings. In this regard:- (a) The letter written by Ms. McMaster on 29 May 2001 refers to a total salary package "in excess of" the amount of $250,000 but does not purport to record any precise sum actually paid or payable. The letter written by Ms. McMaster "to whom it may concern" suggests that it was written for a specific purpose, namely, for presentation to a third party. Whilst that does not, of itself, indicate that the letter is of no probative value, it does suggest that it was written for a specific purpose. (b) In relation to the letter written by Charltons on 14 January 2002 to Mr. Duarte, the references to personal tax returns is merely a statement by the accountants as to the way in which drawings are to be treated. They were referred to as "draft" tax returns and there is no evidence that those particular returns were acted upon. (c) The letter written to Star Dean-Willcocks is an ex post facto reconstruction setting out an assertion made by the defendant as to what had happened over a number of years previously. Whilst the letter is not totally devoid of evidentiary value, it, alone, does not constitute a contemporaneous record verifying the nature of the payments made to the defendant. 110 In reply, Mr. Aldridge referred to Ms. McMaster's facsimile dated 30 September 2003 to Charltons which, it was contended, accepted the concept of a loan. It stated:- "Attached is detailed General Ledger report for Joe's loan account up to 30 September 2003. Regards" Drawings made by or on behalf of the defendant: whether remuneration or loan monies? 111 The first plaintiff's claim, as earlier stated, is based upon the proposition that the monies paid to or on behalf of the defendant, as identified in paragraph [4] of this judgment, were paid by way of loan and not as remuneration (whether as "wages" or "salary"). As has been seen, the monies were entered in the financial records of the company as either "Owner's Drawings J. Duarte" in the General Ledger or as "Investment J. Duarte" and as "Loan J. Duarte (pre 12/97)". 112 In order to resolve the primary issue in these proceedings, it is necessary to identify the character of the payments by reference to the nature of the legal obligation that attached to or were connected with them. As has been noted, the defendant's fundamental contention was that, having regard to the scale or scope of the company's activities and his role as sole executive officer of the company, one may readily infer that a relationship of employment existed between him and the company and that the monies were paid pursuant to and were referable to that relationship. 113 The first plaintiff, on the other hand, contends that there is evidence of an implied contract of loan. He also contended that there is no evidence of an employment contract that could constitute the source of any obligation in the company to pay the defendant remuneration. 114 In resolving these competing positions, it is necessary to analyse the evidence so as to determine whether or not the various payments and drawings were referable to a particular legal obligation. In this respect, the facts established by the evidence are to be examined with a view to determining:- (a) Whether, apart from the payments and drawings themselves, there is otherwise evidence of an employment relationship as claimed by the defendant. (b) Whether the payments made by way of drawings and otherwise may, by process of inference, be considered as remuneration for services rendered by the defendant. 115 As to the first issue, it was common ground that there was no affirmative evidence to show an employment relationship in the nature of an express agreement or employment records such as wage or salary records, time sheets or other contemporaneous records pertaining to taxation instalment deductions or group certificates. 116 In contrast to such a lack of evidence, there was evidence that the company did maintain employment records in which relevant particulars of employees (including the defendant's former wife) were recorded. The plaintiff relied upon the absence of any reference to the defendant in such records as reaffirming his contention that there was no basis which either expressly or impliedly supported the existence of an employment relationship. In this respect, the first plaintiff, as earlier mentioned, contended that personal tax returns belatedly lodged on behalf of the defendant in December 2004 were ex post facto reconstructions of events and could not be taken as evidencing such a relationship. This, it was said, was especially so, given the defendant's attempt to later amend the returns as discussed earlier in this judgment. 117 I have earlier commented upon specific documents that were relied upon by Mr. Duncan of counsel. However, for reasons there stated, I do not consider that they represent evidence from which one may conclude that an employment agreement was in fact entered into between the company and the defendant. 118 The conclusion in that respect requires that attention be given to the second of the two issues above, namely, whether or not the making of payments, by way of drawings and otherwise, of themselves constitute evidence from which an inference may be drawn that the monies were paid pursuant to an employment contract and not by way of loan. 119 It is possible to conceive of a situation in which a director/manager of a company receives monies by way of drawings, such payments being made at his own direction, which could be characterised as wages or salary. Whether, however, that is the correct conclusion to be drawn in a particular case will depend upon whether or not an underlying legal obligation was created in the company to pay the director remuneration for the services rendered in the relevant period of time. 120 There have been many decisions in which questions have been raised as to whether monies paid to a person rendering services have been paid by way of remuneration or were paid by way of loan or by way of gratuity or gift. In many such cases, specific provisions of the Income Tax Assessment Act and their application to particular payments have been in question. 121 In Federal Commissioner of Taxation v. Steeves Agnew & Co. (Vic.) Pty. Limited (1951) 82 CLR 408,Dixon, J. (as he then was) considered the nature of payments made to one Welch, who was the managing director of the company. The issue was whether or not the company was in breach of the obligation of an employer to make deductions on account of tax from the salary or wages paid by an employer to an employee. It is unnecessary to consider the particular statutory provisions under the Income Tax Assessment Act 1936-1943 there in question. The case, however, is illustrative of circumstances in which drawings may be characterised as remuneration. 122 In that case, the relationship between Welch and the company was governed by an agreement entered into in 1944. The relevant period in that case in which the payments were made spanned two years. Welch, being in command of the company, made drawings on account of his salary apparently as he thought fit. One portion of the monies in question were transferred from a loan account. Other monies were taken as drawings. 123 In the course of his judgment, Dixon, J. (at 414-415) stated:- "The difficulty, however, in the way of the Commissioner, lies in the character of the payments actually made. There can, in my opinion, be no doubt that the sum transferred from the loan account represented payments by way of loan. The other payments to Welch's debit in the ledger account, his drawings, appear to me in fact to have been advances." 124 In respect of the drawings, a relevant matter in determining the nature of the payments was that the agreement entered into between Welch and the company provided for remuneration by way of a share of profits. It also provided that payment of remuneration could be made in a manner whereby the manager could draw monthly in anticipation of the remuneration to be paid to him by the company. Dixon, J. determined that the sums drawn had to be treated as advances on account of salary and not as definite payments in respect of salary:- "… they are drawings on account of an expected obligation which did not become a complete obligation under the first agreement until the accounts were made up at the end of the year and the amount of remuneration was ascertained …" 125 Accordingly, in that case, it was held that, in respect of the first period in question, it did not follow that the drawing of a regular amounts every week represented salary or wages in respect of any particular week. Dixon, J. in that respect, added (at 419):- "… it is one thing for advances to be regularly made in order to meet the regular needs of the recipient and another to pay salary or wages in respect of a weekly period of employment. The former is not concerned with remuneration for service or work done over a period of time, while it is the very foundation of the latter." 126 The facts established in the evidence in the present case as to drawings and payments made to and on behalf of the defendant similarly could not, without more, in my opinion, be considered to have been made by way of salary or wages. In Steeves Agnew & Co. (supra), there was evidence of an underpinning legal obligation between the managing director and the company whereby advances could be made on a regular basis. The legal obligation attaching to the payments were properly characterised as advances on account of salary but not as payments actually made in respect of salary. 127 In the present case, there is no express or implied evidence of any agreement or obligation in the company to make payments or permit drawings either as wages or salary or on account of any expected obligation in the company to pay the defendant wages or salary. The amount to be paid to an employee or the basis upon which remuneration is to be calculated is an essential term of any employment contract. The evidence did not, however, disclose any agreement in that respect. 128 The evidence fails, in other words, to establish an underlying legal obligation in the company based on any express or implied agreement to make payments whether by way of advances on wages or salary or as wages or salary. In a case, as here, where the sole executive officer of a company is unable to identify a pre-existing legal obligation arising from a legal relationship entered into with the company and simply makes drawings on an "as needs" basis, the making of such payments or drawings cannot, in my opinion, of themselves and without more, support an inference or conclusion that the payments were made by way of remuneration for services rendered by that officer under a contract of service. 129 I turn then to consider the first plaintiff's contention that payments and drawings are, as a matter of legal conclusion, to be properly characterised as monies advanced to or on behalf of the defendant by way of loan. 130 It was, as earlier noted, common ground between the parties that there was no formal agreement by way of a loan nor any documentary evidence otherwise of an express agreement between the company and the defendant. In these circumstances, it was the first plaintiff's contention that the Court could readily infer or imply the existence of a loan, in particular, from the financial statements of the company including the Financial Statements, General Ledger and the Trial Balance. 131 I have earlier referred to Mr. Duncan's submissions on the question of the alleged loans. The onus falls upon the first plaintiff to establish the fact of an agreement between the parties. In this respect, the onus was upon the first plaintiff to establish a number of matters which gave rise to the asserted contractual implication. As also earlier noted, Mr. Duncan submitted that there had to be a meeting of "minds" between the parties to the loan, in this case the company and the defendant. In determining contractual intent, Mr. Duncan observed that the mind of the defendant had to be relevantly treated as the company's mind. Accordingly, it was essential to consider the intent of the defendant in having had the company provide to him the subject monies. 132 In determining whether there existed an implied contract, it is essential to identify some evidence of contractual intent on the part of the company and the defendant and, in this regard, it is necessary to examine the acts and conduct of the parties in the light of relevant or surrounding circumstances that permit a conclusion to be drawn of an implied or tacit agreement or understanding. 133 In Podjie Agencies Pty. Limited v. Vinidex Tubemakers Pty. Limited [2000] NSWCA 105, the New South Wales Court of Appeal determined the existence of the implied contract of indemnity based on the tacit understanding or agreement of the parties in that case. Mason, P. cited dicta of McHugh, JA. (as he then was) in Integrated Computer Services Pty. Limited v. Digital Equipment Corporation (Australia) Pty. Limited (1988) 5 BPR 11,110 at 117-118. There, McHugh, JA. stated:- "It is often difficult to fit a commercial arrangement into the common lawyers' analysis of a contractual arrangement. Commercial discussions are often too unrefined to fit easily into the slots of 'offer', 'acceptance', 'consideration' and 'intention to create a legal relationship' which are the benchmarks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance together with an intention to create a binding relationship … A bilateral contract of this type exists independently of and indeed precedes what the parties do. Consequently, it is an error 'to suppose that merely because something has been done then there is therefore some contract in existence which has thereby been executed': Howard 'Contract, Reliance and Business Transactions [1987] Journal of Business Law at 127. Nevertheless, the contract may be inferred from the acts and conduct of parties as well as or in the absence of their words: Empirnall Holdings Pty. Limited v. Machon Paull Partners Pty. Limited (Court of Appeal, unreported 11 November 1988). The question in this class of case is whether the conduct of the parties viewed in light of the surrounding circumstances show a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract … Care must be taken not to infer anterior promises from conduct which represents no more than an adjustment of their relationship in the light of changing circumstances." 134 In the present proceedings, the relevant period of time in which the conduct in question arose was between 22 January 1998 and October 2002. Neither party contended that drawings or payments made on or by the company were made by way of gift, the question being whether the monies were to be regarded as loan monies or as remuneration. In the absence of evidence establishing an employment relationship as discussed above, the Court is left with the evidence, including entries in the financial statements of the company and the other documentation to which reference has been earlier made. Whilst the terms "investment", "loan" and "drawings" have variously been employed in the documents concerning various payments identified and/or referred to in SDP14 and SDP15 to Mr. Pascoe's affidavit, in my opinion, they do constitute evidence of the making of drawings and payments by way of loan or loans. The evidence given by the defendant in the public examination, although it cannot be regarded as definitive evidence, is, to some extent, at least, corroborative of an inference that otherwise may be drawn from the documents to which reference has been made earlier in this judgment. 135 On the basis of the conclusions expressed above, I am of the opinion that the plaintiff is entitled to judgment in the amount claimed in the summons, namely, $1,160,052.14. 136 In the course of submissions, the attention of counsel was drawn to the judgment of White, J. in Schmierer v. Taouk [2004] NSWSC 345, being a claim in that case by the plaintiff liquidator seeking recovery of payments to a director under s.598(2) and (4) of the Corporations Act 2001 (Cth) and to the judgment of McDougall, J. in Cambridge Electronics v. McMaster [2005] NSWSC 198. Whilst Mr. Aldridge at transcript p.33 stated that, his attention having been drawn to the provisions of s.598, he "would not abandon" reliance upon that provision, he also acknowledged that a case had not been pleaded on that basis. Mr. Duncan of counsel opposed the case being determined on that basis unless a formal application to amend to rely upon it was made. No such application having been made, I consider that the first plaintiff's entitlement to the monies claimed in the summons must be determined on the sole basis that the monies were payable, on demand, pursuant to a loan or loan agreements and not upon the statutory basis to which I have referred. 137 Accordingly, I make the following orders:- (a) I propose to enter judgment in favour of the plaintiffs against the defendant in the sum of $1,160,502.14. (b) I will allow the parties 14 days to make any written submission in relation to the question of costs and interest. (c) I will make formal orders following expiration of the period referred to in (b). ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.