New South Wales Supreme Court CITATION : Sturesteps v A G McGrath & ors [2010] NSWSC 169 HEARING DATE(S) : 15-19 February 2010 JURISDICTION : Equity Division JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 19 February 2010 DECISION : The subsidiary (defendant) was the employer. Service with the holding company would in any event have been qualifying service for redundancy pay purposes. Mr Sturesteps did not resign. Parties to bring in short minutes. CATCHWORDS : EMPLOYMENT LAW – identification of true employer – where formal written agreement with holding company but remuneration etc paid by a subsidiary and other indicia of subsidiary as employer – construction – redundancy pay clause – where surrounding circumstances favour wider construction despite narrow definition – resignation – whether acts amount to resignation LEGISLATION CITED : (CTH) Corporations Law, s 237 CATEGORY : Principal judgment Deputy Commissioner of Taxation v Robinswood Pty Limited [2005] WASC 67 CASES CITED : Pacific Carriers Limited v BNP Paribas (2004) 218 CLR 451 Pitcher v Langford (1991) 23 NSWLR 142 2006/258096 George Osvald Sturesteps (plaintiff) Anthony Gregory McGrath (first defendant) PARTIES : Christopher John Honey (second defendant) HIH Casualty & General Insurance Ltd (in Liq) (third defendant) 2006/258096 HIH Overseas Holdings Ltd (in Liq) (plaintiff) Beryl Donna Sturesteps (defendant) FILE NUMBER(S) : SC 2006/258096; 2003/082973 2006/258096 COUNSEL : BW Rayment QC w A Metcalfe (plaintiff) ST White SC w RM Foreman (defendants) 2006/258096 SOLICITORS : Benjamin & Khoury (plaintiff) Blake Dawson (defendants) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRERETON J Friday, 19 February 2010 2006/258096 George Osvald Sturesteps v A G McGrath & Ors 2003/082973 HIH Overseas Holdings Limited (In Liq) v Beryl Donna Sturesteps JUDGMENT (ex tempore) 1 HIS HONOUR: The helpful submissions of counsel have enabled me to reach a firm conclusion on the main issues in dispute in these proceedings and to be able to give judgment now, though perhaps with less ample reasons than might otherwise be the case. 2 The plaintiff in proceedings 2006/258096, George Osvald Sturesteps, commenced employment with M W Payne Liability Agencies Pty Ltd on 10 January 1969, when he was 31 years of age. In 1974, as a result of a takeover by the C E Heath group, M W Payne Liability Agencies underwent a change of name, to C E Heath Underwriting Agencies Pty Limited. Mr Sturesteps remained in its employ. In 1986, he was appointed Managing Director (International) for the CEH group. In December 1988 Mr Sturesteps became a director of the holding company, CEH International, and, in April 1989, of the third defendant, CEH Casualty & General. 3 Who was his employer during the period from 1988 until 1999 is a major issue in the case. A service agreement between him and International was executed on 12 December 1988, together with a separate document by which his accrued benefits in the nature of annual holiday leave and long service leave were purportedly transferred to that company. Mr Sturesteps contends that this agreement was not implemented, or was abandoned, and that he was in fact thereafter employed by C&G. He also suggests that a further service agreement between him and C&G was executed in 1992. 4 Subsequently, CEH International became HIH Insurance Limited, and the third defendant, formerly CEH C&G, became HIH C&G. In 1999, Mr Sturesteps and C&G agreed on the terms of an employment agreement between him and C&G, which both parties now accept governed their relationship from that date. That agreement contained cl 17, as follows: TERMINATION BY HIH FOR REDUNDANCY OR OTHER REASONS 17.1 If: (a) HIH terminates this Agreement by reason of the redundancy of your position; and (b) HIH does not offer you an Equivalent Position then HIH will pay you the following gross sums (less tax): (c) your annual Remuneration Package plus 5/52 of your annual Remuneration Package for each completed year of service, or part of any year of service, with HIH up to a maximum total of three times your annual Remuneration Package; and (d) a sum equal to the bonus paid to you, or due to you, in the 12 months prior to the termination of this agreement. 17.2 If, as part of a restructure of any member of the HIH Group, your status, or authority, or responsibility, or duties are materially adversely changed (including your being required to directly report to a person other than the Chief Executive of the Board) or you are required to work at a location more than 30 kilometres away from your then location, then you will be entitled to resign on one month's notice and HIH must pay you on termination of your employment the net amount you would have received had your employment been terminated under paragraph 17.1. 17.3 The payment amount in paragraph 17.1 is made in recognition of your past service. Without limitation, it is subject to limitations in section 237(6) of the Corporations Law (or any replacement provision). 17.4 In this clause, 'Equivalent Position' means a position with all of the following: (a) a Remuneration Package of the same or greater value for; (b) the same or greater authority, and status, and responsibility, and duties (including your reporting directly to the Chief Executive or the Board) in; and (c) based at the same location or within 30 kilometres of the position you held at the time of termination of this Agreement. 17.5 Notwithstanding the provisions of paragraphs (a) and (b) of subclause 17.1 above, you are entitled to the payments identified in paragraphs (c) and (d) in subclause 17.1 where HIH terminates your employment for a reason not expressly provided for in this agreement but the requirement of that clause are not met for any reason. 17.6 HIH is not required to give you notice of termination if your employment is terminated under paragraph 17.1 5 A second major issue is whether Mr Sturesteps resigned with effect from 31 December 2000, or whether his employment was terminated by the provisional liquidator in April 2001. Following discussions in 1999 between Mr Sturesteps and Mr Williams about the possible separation of Mr Sturesteps from the group, he resigned, at least as a director, in September 2000. There were negotiations as to the terms on which he might leave his employment, as distinct from the directorship, with effect from 31 December 2000, on which date it was contemplated that he would be paid such sum as had been agreed. An amount was ultimately agreed, it would seem, on 15 January 2001, but it was never paid. 6 In these proceedings, Mr Sturesteps sues for his accrued annual holiday leave over the period of his employment from 1988, long service leave, and the cl 17 redundancy payment. There are also other claims and issues, to which I shall come. The proceedings take the form of a claim against the liquidators of C&G, and an appeal from their rejection of Mr Sturesteps' proof of debt. The findings that I propose to make should enable the parties to refine, if not agree, the amounts for which any proof of debt should be admitted. 7 Mr Sturesteps was cross-examined at some length. I must confess to thinking that, even for a party, he was an unacceptably partisan witness. Without being exhaustive: he prevaricated over the receipt of $750,000 compensation for diminution in his benefits under his 1989 employment package in or about 1992; his evidence as to the extent of his perusal of the 1999 contract before he signed it was, at different points, quite contradictory; his evidence in respect of the $200,000 loan in connection with the Californian apartment, especially as to the alleged forgiveness of it, was similarly contradictory and improbable; and his endeavour to pass off his attempt to verbal Mr Williams as to a statement about redundancy as "poor phraseology" was disingenuous.; on the other hand, he plainly conceded, consistently, that Mr Williams had never agreed that he was or would be redundant. Particularly where questions of impression, opinion, conclusions or his state of mind are concerned, I conclude that one must treat very carefully and cautiously with Mr Sturesteps' evidence. Nonetheless, the significance of that is somewhat reduced when there was very little, if any, evidence to contradict him. Employment December 1988 to September 1999 8 The first major issue is, who was Mr Sturesteps' employer from 12 December 1988 until 29 September 1999. 9 Mr Sturesteps, together with Mr Williams and Mr Cassidy, were appointed directors of International on 2 December 1988. However, they were also appointed directors of C&G in April 1989, so the appointment of itself speaks little as to their employment status. On 12 December 1988, each executed an acceptance of an offer of employment by CEH International, and a consent to the transfer of their employment emoluments from CEH Underwriting Agencies to International. On the same day, each also executed a share subscription agreement, pursuant to which they were issued shares in International, and which provided that they were also to execute a service agreement with International. Fundamentally, and most importantly, each, and in particular Mr Sturesteps, on 12 December 1988 executed a service agreement with International – not C&G. 10 The circumstance of the share issue is, I think, of little significance. The share subscription agreement also provided for the issue of shares to other management employees of the CEH group, including many whom it was never contemplated would be employed by International and who were, on any view, ultimately employed by C&G. 11 In 1992 it was contemplated that a flotation of International was imminent and, in recognition that the emoluments being paid to the three senior executives under the existing arrangements were too generous for a public company, negotiations took place to compensate those executives, including Mr Sturesteps, for the acceptance of a reduced package thereafter. As a result of that, Mr Sturesteps received a package worth about $750,000. The defendants submit that the 1992 arrangements effectively confirmed that the 1988 contract remained on foot. I do not think that they are so compelling as that. The 1992 negotiations and arrangements were about quantifying compensation for accepting a reduced package, and not about the identity of the employer. 12 On the other hand, Mr Sturesteps suggested that in 1992 he signed another service agreement, this time with C&G. There is nothing in the documentary material to support that obligation. I do not regard Mr Cassidy's evidence as in substance corroborating it. In another part of his evidence, Mr Sturesteps gave contradictory evidence on the topic. He may have confused the compensation arrangements with a new service agreement. I reject the suggestion that there was any such 1992 agreement as he alleged. 13 So far as can be told, all relevant operative terms of the service agreement were implemented. It was, as Mr White SC, for the liquidator, submits, a part of the formal arrangements then being made in preparation for a restructure and float. Other employees were expressly transferred to C&G, not to International. Mr White correctly points out that there was no positive act of abandonment of any contract with International, but once again, I think that circumstance is to some extent equivocal: the terms of the contract as to remuneration and conditions of service remained in force; and the question is whether the true employer was International (as the written instrument would suggest) or whether in fact the true employer was C&G. 14 From the outset of the 1988 arrangements, Mr Sturesteps' remuneration was paid by C&G. He was issued group certificates naming his employer as C&G. For the 1988/89 financial year, he received two group certificates, one from his former employer C E Heath Underwriting Agencies, and the second from C&G, commencing with effect the date his employment with Underwriting Agencies came to an end. C&G, not International, paid worker's compensation premiums in respect of Mr Sturesteps. C&G, not International, paid payroll tax. Mr Sturesteps' travel expenses were paid by C&G, and Mr Sturesteps was issued credit cards on C&G accounts, not on International's accounts. His pay slips were issued by C&G. 15 Moreover, there were no intercompany arrangements that suggest that C&G was paying his salary on behalf of International. No relevant intercompany loan account was raised. It was submitted that this was because Mr Kelly, who was probably responsible for such financial matters, was unaware of the 1988 service agreement. But that (as he says) he was, only tends to reinforce the view that the identity of the employer under that agreement was treated by all parties as a matter of irrelevance. 16 The circumstances of entry into the 1999 service agreement are, to my mind, very significant. First, that agreement itself contained the following recital: HIH has decided to introduce formal executive service agreements both to provide proper security of employment to key senior executives so as to secure their continued dedication and loyalty and so as they are not distracted by personal uncertainties or consider other employment opportunities, and to ensure that HIH's interests are properly protected in the event of a key senior executive resigning. 17 That suggests that, rather than a new employment being embarked upon, existing arrangements were being formalised, as between existing employer and employee. Secondly, and perhaps more importantly, there does not appear to have been any suggestion or contemplation in 1999 that there would be any termination entitlement or transfer of emoluments upon execution of the new contract. This strongly suggests that, up until that point, all parties had assumed that the true employer in fact was C&G, not International. 18 In Pitcher v Langford (1991) 23 NSWLR 142, Handley JA said (at 161): His Honour then noted (at 8) that here "the question is by whom the person is employed, it not being disputed that he was a worker employed by either of them or perhaps by both" the owner and the contractors. In my opinion the trial judge did not err in holding that the courts are entitled, independently of any statutory power in that behalf, to consider the reality of purported contractual arrangements. No case was sought to be made at the trial that the written agreement between the owner and the worker was a sham: compare Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802 per Diplock LJ and Cam & Sons Pty Ltd v Sargent (1940) 14 ALJ 162. Furthermore no such case was sought to be made in this Court either. But independently of the sham principle the courts can consider what the parties to a contract have done, in order to see whether it has been ignored or abandoned. In R v Foster; Ex parte Commonwealth Life (Amalgamated) Assurances Ltd (1952) 85 CLR 138, in a case where the prosecutor alleged that its insurance canvassers employed under a written agreement were independent contractors because the agreement so provided, Dixon, Fullagar and Kitto JJ said (at 151 and 155): " ¼ if in practice the company assumes the detailed direction and control of the agents in the daily performance of their work and the agents tacitly accept a position of subordination to authority and to orders and instructions as to the manner in which they carry out their duties, a clause designed to prevent the relation receiving the legal complexion which it truly deserves would be ineffectual ¼ The case for the respondent union simply is that [the agreement] does not represent the reality of the relation in practice of the agents and the prosecutor company ¼ [the evidence fails] to exclude to our satisfaction the possibility that the real relation between some or all of the agents and the prosecutor company in their actual work, week in week out, is in fact that of employer and employee, whatever the agreement may say." This decision was applied in Ex parte Robert John Pty Ltd; Re Fostars Shoes Pty Ltd [1963] SR (NSW) 260; 80 WN (NSW) 408, in determining whether a deed of "licence" between the parties prevented their relationship being that of landlord and tenant. Sugerman J said, quoting from earlier authority (at 269; 414): " ¼ It is not necessary to go so far as to find the document a sham. It is simply a matter of finding the true relationship of the parties. Later he said (at 272; 416): "In determining whether the fair rents board had jurisdiction ¼ it is necessary to have regard to the real character of the relationship of the parties if this be found, as their relations worked out in fact, to have differed from the relationship which might be taken as intended to be constituted by the deed of licence if considered alone." In my opinion this is what the trial judge did in the present case. He held (at 5) that "no actual difference could be discerned between how the operation was carried out on that occasion" from how it had been carried out on earlier occasions when the relationship of employer and employee undoubtedly existed between the contractors and the shearers. He said (at 9) "that nothing really changed" and (at 10) that "it was business as usual". To these findings must be added the finding that the signing of the written contract by the owner (at 9) was a "mere formality". 19 Consistent with that approach, it seems to me that the realities of the situation here were that the true employer in fact was C&G. I do not overlook that payment of remuneration and issue of group certificates is not conclusive on this topic and, indeed, that for taxation purposes it is possible that there may be more than one employer, as Wheeler J explained in Deputy Commissioner of Taxation v Robinswood Pty Limited [2005] WASC 67. But nonetheless, those matters are relevant indicia, and here, taking into account all the indicia, it seems to me that, without regarding the 1988 service agreement as a sham, an examination of the facts show that the employer in fact was C&G. The 1999 Employment Agreement 20 As I have said, all parties accept that, with effect from September 1999, the employment agreement of that date binds them. Two questions of construction arise under it. The first is whether service with a predecessor employer, as distinct from with C&G as employer under that contract itself, qualifies as relevant service under cl 17.1. In view of the conclusion to which I have come on the first issue, this is not as significant as it otherwise might have been, but lest I be wrong on that issue it is appropriate that I resolve the question of construction here. 21 In Pacific Carriers Limited v BNP Paribas (2004) 218 CLR 451, in the joint judgment of Gleeson, Gummow, Hayne, Callinan and Heydon JJ at 462, it was said that construction – there, of letters of indemnity – was to be determined by what a reasonable person in the position of Pacific would have understood them to mean, and that this required consideration not only of the text of the documents, but also of the surrounding circumstances known to Pacific and BNP and the purpose and object of the transaction. 22 The plain words of cl 17.1 – in particular, the definition of "HIH" – would of themselves point against service with a predecessor employer qualifying, and would limit the qualifying service to service with "HIH" as defined – that is to say, with C&G. 23 Mr Rayment QC, for Mr Sturesteps, submits that, notwithstanding the plain words and definition, the words must be understood as referring to employment in the HIH group as a whole. A number of factors tell in favour of that view. The first is that there was a group-wide practice of using an employee's start date in any predecessor business to calculate redundancy payments. Mr White argued powerfully that that was so only in respect of employees who did not have a contractual redundancy entitlement, and to whom there was a practice of applying a 65 week cap. But while it is true that the practice was shown to apply in that context, it was not established that it did not apply otherwise. Moreover, the records of the company, including records relating to executives who did not fall in the category to which the 65 week cap applied, consistently showed as their start date the start date in the predecessor business, rather than under their most recent service agreement. One of the liquidators, Mr MacIntosh, gave evidence to the Industrial Relations Commission of the existence of such a practice. Much time was spent in seeking to show that it applied only in the context of a 65 week cap, but in my view what was established was that the group as a whole treated employment as continuous from the first date on which an employee commenced work in a predecessor business. 24 Some further support for this is derived from the reference in cl 17.3 to "past service". I accept that, from a legal perspective, that provision was probably included in light of then Corporations Law, s 237, and was intended by the lawyer who drafted it to speak from the date of payment of the benefit; but the lay person reading and signing the agreement at the time would reasonably have understood it as picking up service before the date of execution of the agreement. In addition, as was pointed out, in order to achieve the cap – whether it be 104 weeks or 156 weeks, to which I shall come – the employee would need to render 21 years qualifying service at least. It seems an improbable contemplation that any of Mr Williams, Mr Cassidy or Mr Sturesteps would do so after executing the 1999 Agreement. 25 More significantly, as already mentioned, no termination payment was contemplated, and no payout of annual leave or long service leave was contemplated or offered, in 1999 at the time of execution of the new contract. Indeed, in the course of its negotiation there was no suggestion, and in my view it did not occur to anyone, that its effect would be to interrupt continuity of service from an emoluments perspective. It would have come as a shock to any participant – particularly given the standard policy of the company as to continuity of employment – had such a suggestion been raised. 26 For those reasons, and despite the words and definition in the policy, the surrounding context was such that the parties would reasonably have understood the reference to "HIH" as being a reference to the HIH group, and that cl 17 would, therefore, have caught service with a predecessor, such as International – had Mr Sturesteps employment from 1988 until 1999 been with International. 27 A further question of construction arises in respect of cl 17.1(c), in particular whether the cap which it imposes on payments is a total of three years (including the initial one year) or a total of four years (being one plus up to three accumulated years). This is largely a matter of impression. There is some force in the submission of Mr Rayment that such a formula would not have been necessary had it imposed an overall total of three years, because Mr Sturesteps would already have exceeded the qualification period for that cap. On the other hand, the combined use of the words "maximum total" convey a clear intention that the maximum total under the whole clause be three years of the remuneration package, and it is that consideration which is determinative in my mind. I conclude that the cap is a maximum total of three years for the whole payment referred to in cl 17.1(c), that is to say, the initial one year period plus up to a further 104 weeks. 28 The conclusions which I have so far reached relieve me of the need to decide whether a similar result would be achieved on the basis of some estoppel. It will suffice to record at this stage that in my view such an argument would have encountered serious difficulties from the perspective of establishing any relevant detriment, as the 1999 contract was plainly beneficial – in the sense of providing a higher level of emoluments, including for redundancy, than the pre-existing arrangements. Resignation or Redundancy 29 The next major issue is whether Mr Sturesteps resigned, with the result that he would be ineligible for any redundancy payment. In favour of the view that he did resign, is the circumstance that he gave as his reasons for wishing to leave the employment of the company a series of considerations – including concerning his wife's health, the length of time he had been there, diminished job satisfaction and the lack of real work for him – none of which would be addressed by merely retiring as a director. 30 But there are very powerful considerations pointing in the opposite direction. The whole basis of the discussions between him and Mr Williams up to December 2000 was that he would receive some payment upon leaving the company. In 1999, he had suggested that he would be looking for redundancy, which I take to mean looking for a redundancy payment. Under cl 17, he was in a position of considerable strength: short of summary dismissal, any steps which the defendant took to remove him would likely trigger an entitlement to a payment under cl 17(1). He could virtually do nothing and wait to be made redundant. In my view, from at least 1999, he was positioning himself to secure a redundancy payment, and he was not going to go easily without one. It is impossible to understand why a redundancy payment would be considered by the Human Relations Committee, and agreed the Board, unless it was on the basis that he at least had some claim for redundancy, and had not already resigned. 31 When he tendered his resignation from the board, it was explicitly from the board only, and it was expressed to be effective immediately, not on 31 December 2000. On no view did he resign his employment before 31 December 2000, and in my view what he said did not amount to giving notice of resignation. It is not suggested that he gave any written notice of resignation as an employee. He may well have agreed to leave with effect to 31 December, but plainly on the basis that he would be treated as redundant if he were to do so. The underlying assumption, known to Mr Williams as well as to him throughout their negotiations, was that if he were to leave there would have to be some redundancy package. I reject the submission that at any point Mr Sturesteps unequivocally resigned so as to be ineligible for a redundancy. 32 It follows that, however little work he did thereafter, including in particular during the first four months of 2001, he remained in employment until his employment was terminated by the provisional liquidator in April 2001. Statutory etc Entitlements 33 The next issue covers entitlements to accrued annual holiday leave and long service leave. The issues already addressed largely resolve these; in particular, they resolve his entitlement to annual holiday leave, although not its quantum. 34 So far as quantum is concerned, while the evidence is less than ideal, when it comes to matters of quantification courts have to do the best they can with often imperfect material. The best available evidence – although as I say it still suffers from some defects – is the schedule prepared by Mr Kelly which, subject to one or two qualifications, establishes a net entitlement of 226 days. 35 There was an issue as to the starting point of that calculation, namely the 98 days brought forward in 1992. For some time I was unpersuaded that that should be allowed, as I thought that Mr Sturesteps had at least at one point said that he had been paid out in 1992. However, on review of precisely what he said on that issue, coupled with a review of the Arthur Andersen documents in 1992, I think it is clear enough that he was not paid out annual leave as such, but simply received a package of $750,000, not necessarily referable to annual leave. As Mr Kelly said, the balance was taken from the company ledgers, and had he been paid out it would not have appeared in the company ledgers. Ultimately, I will allow the starting point of 98 days. 36 On any view, there remained doubt as to 1993 and 1994. There is no acceptable evidence before the Court as to what, if any, leave Mr Sturesteps took during that period. The onus of proof falls upon him. The best I can do in the circumstances is to gain some idea from the pattern of leave that he took in subsequent years. Mostly he took about ten days annual leave each year. I propose to proceed on the basis that he took ten days in 1993 and ten days in 1994. That reduces his claim from 226 days to 206 days annual leave. 37 The defendants submitted that Mr Sturesteps was not entitled to annual leave loading, because he did not actually take the leave. That raises a further question of construction, this time referable to cl 7(1) of the 1999 contract. Again, the issues are largely of impression and are relatively finely balanced, but in circumstances where the clause first refers to paid annual leave, secondly to annual leave loading during any period in which annual leave is taken, and thirdly to payment out of unused annual leave on termination, I think the better view is that the unused annual leave on termination includes the loading. I will therefore allow the 17.5 per cent loading. 38 So far as long service leave is concerned, the defendants accepted that, by operation of the applicable Victorian statutory provisions, the third defendant was responsible for Mr Sturesteps' long service leave. The only issue was quantum. Again, while the evidence may not be perfect, there is some evidence that his long service leave entitlement was calculated by C&G in an amount of $369,279.98, and never contradicted, nor placed in dispute. I propose to allow that amount. 39 The defendants concede that if Mr Sturesteps continued to be employed – as I have found he did – until 18 April 2001, his claim for unpaid wages succeeds. Similarly, they concede that if – as I have found – his employment continued to that date, his claim for unpaid superannuation contributions for that period also succeeds. Alternative Claim – Alleged Compromise 40 Again, the conclusions which I have so far reached relieve me of the necessity of considering the alternative case that Mr Sturesteps was entitled to benefits as negotiated with Mr Williams in late 2000 and early 2001 for redundancy, save to note that in my view there was not a concluded agreement between them as at 9 January 2001. There remained a proviso about "sorting out" the question of the San Francisco apartment, which precluded there being a full and final agreement. It is demonstrative of that that Mr Sturesteps did not at that point pack up and leave the premises and cease to work. US Losses Claim 41 Mr Sturesteps claims that there was a further agreement between C&G and him to reimburse or indemnify him in respect of any losses incurred by him or his wife while residing in the United States for the purpose of his employment. The only evidence of any such agreement appears to be in paragraph 17 of his 19 September affidavit, which reads: The executives were indemnified by C E Heath for their travel expenses, accommodation expenses and all other out of pocket expenses incurred in the performance of their duties. 42 Such an agreement is not an agreement in the terms pleaded in paragraph 57 of the statement of claim. Such an agreement as deposed to in paragraph 17 would not catch the losses particularised in paragraph 61 of the further amended statement of claim. 43 In those circumstances, I do not consider that the US losses claim is sustained. The California Apartment 44 In proceedings 82973/03, HIH Overseas Holdings Limited (in liq) (formerly, Heath Cal) sues Mrs Sturesteps for principal and interest in respect of a $200,000 loan said to have been made to her in 1987 in conjunction with the purchase of a unit in California in that year. At that time, Mr Sturesteps was spending nearly half of his time in California, alternating between Australia and California, and spending much time in hotel rooms. He proposed to Mr Williams that he and his wife buy 203, 1255 California Street for $250,000, that the HIH group lend them $200,000 for that purpose, that they would contribute $50,000, and that they would rent it to the company so that staff could use it when they were absent from it. 45 Mr Williams indicated agreement to this and Mr Sturesteps then discussed the terms with his wife, and informed her of what had been discussed with Mr Williams. He told her, "I have made this arrangement for us to buy an apartment with borrowing $200,000 from the company." She responded that that would be nice. She certainly did not object. 46 Subsequently, in a telephone meeting, the board of Heath Cal resolved to ratify its borrowing of $200,000 from C E Heath Underwriting Agencies and to lend the proceeds of that loan to Mrs Sturesteps for a term of 15 years at an interest rate of 7.5 per cent interest only, on the security of the California apartment. Mr Sturesteps was a participant in that meeting. His protestation that he did not consider that he was speaking on behalf of Mrs Sturesteps is incredible. 47 $200,000 was then paid by HIH into Mrs Sturesteps' account and subsequently applied to the purchase. Mr Sturesteps told his wife that interest at $15,000 per annum would be charged and paid out of her account. Mr Sturesteps arranged for the apartment to be rented to an HIH Group company, and annually Mrs Sturesteps drew a cheque for $15,000 on her account, which she gave to Mr Sturesteps, who gave it to Heath Cal. 48 Subsequent discussions, in about 1994, related to the purchase of a replacement unit at 408, 1550 Jackson Street, for $300,000. Although there was some preliminary discussion about a gift of the California Street unit to Mr Sturesteps as a bonus in conjunction with a release of the loan, the ultimate practical effect of what was agreed was that the HIH Group would pay Mr Sturesteps a bonus of up to $300,000 by funding the purchase of a replacement unit up to that value, and the Sturesteps would remain liable to repay the original loan in respect of the original unit, although interest would be foregone in consideration of them making the unit available for company executives to occupy. 49 The replacement unit was purchased, by arrangement, in the name of another HIH company as trustee for the Sturesteps, and on the basis that legal title would be transferred once the original loan of $200,000 was repaid. The original unit was not sold until December 1996. The net proceeds were $226,000. The title had been transferred to Mrs Sturesteps in accordance with an accountant's earlier advice, but only shortly before the sale. However, the loan was not repaid from the proceeds. 50 In 1998, Mrs Sturesteps deposited $50,000 as security for an obligation of Sean Bailey, the proprietor of a brokerage which Heath Cal was to some extent supporting, in circumstances where Heath Cal and other HIH companies were not able to do so at the request initially of Mr Bailey, and conveyed through Mr Sturesteps. Mr Bailey subsequently defaulted, and Mrs Sturesteps has lost that $50,000. 51 Insofar as I can tell, the legal position is fairly plain. The Sturesteps acquired a beneficial interest in the second apartment, which was held upon trust for them. That apartment has since been sold by the HIH company which held it on trust, but that company is not the present defendant. It may well be that some breach of trust was involved in that sale, but any claim that the Sturesteps have in that regard are not against the present defendant. 52 The Sturesteps have not been released from the obligation to repay the $200,000 loan, at the latest upon sale of the California Street unit, although they were released from interest. In my view, HIH Overseas Holdings is entitled to judgment for the principal of $200,000 plus interest at court rates from the date on which the sale was completed – when the loan should have been repaid to HIH Overseas Holdings. 53 Because, on any view, even if it can be found – which is doubtful – that the request for the security deposit of $50,000 was made by an HIH company and for the benefit of an HIH company, the company making any such request was not HIH Overseas Holdings Limited, and there is no basis upon which that $50,000 could be set-off against the liability to repay $200,000. 54 I direct that the parties bring in short minutes to give effect to this judgment. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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