In the matter of Phoenix Rising Investments Pty Limited (ACN 123 623 754)

[2015] NSWSC 2083

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of Phoenix Rising Investments Pty Limited (ACN 123 623 754) [2015] NSWSC 2083
Hearing dates:	2 – 4 June 2015
Date of orders:	03 June 2015
Decision date:	03 June 2015
Jurisdiction:	Equity
Before:	Brereton J
Decision:	Surcharge permitted to the amount of $3000.
Catchwords:	EQUITY – equitable remedies – accounts and inquiries – surcharges – whether payments treated as dividends.
Category:	Principal judgment
Parties:	David Alexander Grace (plaintiff) Deborah Sharon Grace (first defendant) Julienne Grace (second defendant) Nevilda Holdings Pty Ltd (third defendant) Nevilda Investments Pty Ltd (fourth defendant) Dutchie Pty Ltd (sixth defendant) Phoenix Rising Investments Pty Ltd (seventh defendant)
Representation:	Counsel: D Williams SC w S Goodman (plaintiff) D Stewart (first, second, seventh defendant)   Solicitors: James Tuite & Associates (plaintiff) Clinch Long Letherbarrow Pty Ltd (first, second & seventh defendants/applicant)
File Number(s):	2006/259566

Judgment (ex tempore)

1. HIS HONOUR: Yesterday I ruled in principle that, notwithstanding that cheque butts of Nevilda Investments may bear annotations which suggested that the payments to which they related were by way of dividend, the financial statements were to be preferred, and accordingly I would not allow surcharges in respect of those payments [In the matter of Phoenix Rising Investments Pty Limited (ACN 123 623 754) [2015] NSWSC 2063]. Essentially, as I sought briefly to explain, there is no necessary inconsistency between a cheque butt being notated “dividend” at the time of the payment, but then being treated at year’s end on some other account, such as Director’s fees or on loan account.

2. The exercise undertaken yesterday was undertaken in respect of large numbers of surcharges, falsifications and objections globally, with a view to giving in-principle rulings that would enable the parties to resolve the remaining differences in detail, which largely – and, from the Court’s perspective, very thankfully – they have proceeded to do. But there remain a number of particular items in dispute, in respect of which I would not regard argument as foreclosed by those in-principle rulings.

3. The one which presently falls for consideration is item 35 in the plaintiff’s Notice of Surcharges, in respect of Deborah Grace’s account for the Nevilda Investments Trust Share, whereby the plaintiff seeks to surcharge Deborah with $6000 said to have been received by way of dividend on 2 December 2003.

4. The payment to Deborah Grace is evidenced by a cheque butt annotated “Dividend Deb Grace” of that date. The financial statements of Nevilda Investments for the year in question show that a dividend of $6000 was paid in respect of that year.

5. Deborah Grace’s affidavit of 8 March 2013 deposes that Nevilda Holdings, which held 100 of the 112 issued cumulative preference shares, received no dividend from Nevilda Investments for that year. In that respect, reliance is placed on the fact that the Nevilda Investments tax return does not record a dividend. But it seems to me that the manner in which the dividend has sometimes been recorded and sometimes not recorded in the tax returns means that no inference that it was not declared could be drawn from the tax return, and the financial statement should be preferred in that respect.

6. Ms Grace’s affidavit also says that, as her tax return confirms, she received a total of $14,615 in unfranked dividends that year, but that she believes that those dividends were attributable to other shares held by her, and that she did not believe that she received a dividend from Nevilda Investments, in respect of that year.

7. However, the correspondence of the $6000 referred to in the financial statement and the cheque payable to her marked “dividend”, is striking. It makes this particular instance quite different from the general body of cases to which I have referred and which were contemplated by the “in-principle” ruling. On the other hand, based on what was declared in the financial statement, it is anomalous that Ms Grace would have received the whole of the dividend declared for that year, as opposed to 1/112th of it, as occurred in many other years – although this would not be the only instance in which there had been such an anomaly, since in 2001 it would appear that Nevilda Holdings received 100 per cent of the dividends declared.

8. On the probabilities, it seems to me that Ms Grace received $6000, and that that $6000 has been characterised in the accounts as a dividend. While there is, in the following financial year, an adjustment in her loan account of $6000, I do not see how a movement in the loan account in the 2004-5 financial year can be explained by a payment made on 2 December 2003.

9. However, if she received $6000, prima facie she was entitled only to a small proportion of that and David personally would have been entitled to 10/112, and one might have expected that the account would be limited to 1/112 of the sum declared. It may be that the true position is that Ms Grace has received, by way of dividend, most of that $6000 when she was not entitled to receive it by way of dividend, and that it should have been dealt with on some other account.

10. However, given the state today of the shareholdings in Nevilda Holdings, I think rough justice will be done by requiring her to account for half of that $6000, being the half to which, prima facie, Nevilda Holdings and David were entitled.

11. Accordingly, I would allow surcharge 35, to the extent of $3000.

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