Advance Business Finance Pty Ltd v Zip Zap Pty Ltd
[2014] FCCA 483
•14 March 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| ADVANCE BUSINESS FINANCE PTY LTD v ZIP ZAP PTY LTD | [2014] FCCA 483 |
| CONSUMER LAW – Trade Practices – misleading or deceptive conduct – invoice – direct misrepresentation – misrepresentation by omission – course of conduct and association not disclosed – knowledge by respondent of potential for conduct to impact a recognised claim, financiers – misleading and deceptive conduct established. UNJUST ENRICHMENT – Circumstances giving rise to remedy of restitution. DAMAGES – Causation – connection between conduct and damages – assessment. EVIDENCE – Implied admission – use of lies told – untruthfulness as evidence. |
| Legislation: Trade Practices Act 1974 (Cth), ss.4, 51A, 52, 53(bb), 82, 84 |
| Cases cited: ACCC v Air NZ (No.1) (2012) 207 FCR 448 Lockhart, Colin, The Law of Misleading or Deceptive Conduct (LexisNexis Butterworths, 3rd ed, 2011) |
| Applicant: | ADVANCE BUSINESS FINANCE PTY LTD |
| Respondent: | ZIP ZAP PTY LTD |
| File Number: | BRG 447 of 2011 |
| Judgment of: | Judge Burnett |
| Hearing date: | 12 March 2013 |
| Date of Last Submission: | 18 April 2013 |
| Delivered at: | Brisbane |
| Delivered on: | 14 March 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr M. Brady |
| Solicitors for the Applicant: | Clayton Utz |
| Counsel for the Respondent: | Mr P. Freeburn QC |
| Solicitors for the Respondent: | Biggs Fitzgerald Pike |
ORDERS
That on or before 4:00pm on 21 March 2014 the applicant circulate and submit a form of order giving effect to the findings of the Court.
That the application be adjourned for mention and submissions on costs to 10:00am on 26 March 2014.
INDEX
1.Introduction
2.Relationships Between Entities
a.Zip Zap–ACD–Ellamanda Director Relationship
b.ACD/Ellamanda Transactions – a course of dealings
i.The Freightways Tempus Loan
ii.The Holiday Ezy investment
ii.The April 2009 loan
c.Unusual Bookkeeping practices – Invoicing
i.Purpose of Invoices
ii.Manner of Invoicing
d.Prior Zip Zap – ACD purchases involving financiers
i.Invoice 4287/b – Capital Finance
ii.Invoices 4289/a, 4289/d, 4289/e and 4291/b
iii.Invoices 4294,4294/b,4295/b – Technology Leasing Ltd
iv.Invoices 4305ii and 4308
v.Invoice 4411 – Westpac Loan
vi.Invoice 4414 – Circuit Finance Loan
vii.Invoice 7040 – Bank of Queensland
3.Invoice 7072 – The Subject Loan
4.Mr Philp’s Knowledge
5.Material Findings
e.Course of Conduct
6.Events following the Transactions
7.The Applicant’s Heads of Action
f.Section 52 Claim
g.Section 53(bb) – False representation that a person has agreed to acquire goods
h.Restitutionary Claim
i.Loss and Damage
j.Causation
k.Quantum
8.Conclusion
l.Orders
FEDERAL CIRCUIT COURT |
BRG 447 of 2011
| ADVANCE BUSINESS FINANCE PTY LTD |
Applicant
And
| ZIP ZAP PTY LTD |
Respondent
REASONS FOR JUDGMENT
Introduction
Advance Business Finance Pty Ltd (“the applicant”) carried on a financing business which provided financial facilities for commercial enterprises. In mid-2005 it was introduced to Ellamanda Pty Ltd (“Ellamanda”) and ACD Scaffolding Pty Ltd (“ACD”) through Mr Sydney Dittman, a director of both entities. ACD employed Mr Reginald Potts as its general manager. Ellamanda and/or ACD were proposing to purchase scaffolding from Zip Zap Pty Ltd (“the respondent”). There is no direct evidence to demonstrate that at any material time prior to the respondent’s supplying scaffolding material to Ellamanda and/or ACD[1] that it had any knowledge of the applicant.
[1] ACD and Ellamanda are related entities. Although they were separate entities they were generally referred to as Ellamanda/ACD Scaffolds or a variant of these terms. They will be generally referred to as ACD unless circumstances require otherwise.
In mid-2007 the applicant was financing ACD’s acquisition of equipment being supplied by the respondent. It says that it advanced funds to Ellamanda/ACD and in turn paid the respondent for goods ordered, believing that the goods would be exchanged; they were not and its security never attached. Ultimately, ACD fell into default and the applicant now looks to the respondent for relief.
Essentially, this application concerns a scam – possibly one of the oldest in the finance business. The prospective purchaser applies for finance to acquire an asset. The vendor, being in on the scam, produces an invoice invoicing the purchaser for goods to be delivered. The financier, believing all to be above board, finances the transaction. It pays the purchaser on the invoice issued by the vendor. Later, the vendor varies the original invoice and delivers in accordance with the subsequently produced but varied invoice. The difference between the original sum invoiced and the subsequent invoice (having already been received by the vendor) is paid by the vendor to the purchaser. The purchaser then pays the cash to another controlled entity or otherwise disposes of it. Unless the purchaser defaults in the performance of its financial obligations, no one is the wiser and it obtains access to a source of cash. However, these scams come undone, as occurred in this case, when the purchaser is in a precarious financial position. Inevitably, the financier discovers that the security it believed it had is worthless or non-existent, as the invoiced goods it paid for were never delivered and the security attached to little, if anything.
The financier is then left to pursue a man of straw in a situation made all the more difficult because the cash was siphoned off to a third party related to the purchaser.
In this case the applicant now pursues the respondent as vendor of the goods. It alleges that the respondent and ACD had been successfully running this scam against other financiers for some time. The transaction the subject of this claim was however a bigger sting. Each prior transaction had generally been for sums in the range of $30,000.00 to $80,000.00. This transaction was for about $500,000.00. A short time after this transaction the purchaser became insolvent and the applicant was left with its inutile security.
The respondent protests its innocence. It claims that in the transactions between it as vendor and ACD as purchaser it had no notice of the applicant, that from its perspective the transactions were at arm’s length, and that, if anything, it too was unwittingly used by ACD in the scam.
However, the applicant alleges that there was a history of such transactions between the respondent and ACD in scamming other financiers. It alleges that each was similar in structure to the transaction the subject of the claim. Relevantly, the applicant also contends that the respondent knew that ACD was obtaining finance to fund the purchase of the scaffolding; that it knew there was an arrangement between it and ACD whereby the invoices would subsequently be varied; and that it knew there would be a delivery of a lesser quantum of, or varied, stock with the difference being paid out in cash.
The applicant says that it relied upon the issued invoice as a representation that the respondent would supply and deliver goods as described to the purchaser for the full consideration. It alleges that the respondent engaged in misleading and/or deceptive conduct by not informing it of the true nature of the transaction. It says that had it been informed of the true situation it would not have financed the transaction. It alleges by reason of these events that it suffered a loss.
The central issue is whether or not the respondent knew when it issued the invoice that the applicant was advancing funds on the basis that ACD would not ultimately acquire the goods particularised in the invoice.
Relationships Between Entities
The applicant’s central claim is that this was not, as is advanced by the respondent, an isolated transaction involving an innocent and equally duped party. The applicant contends that the transaction reflected a long running understanding between the persons behind those entities involved in the scam and that the respondent was a willing participant. It contends that these matters can be demonstrated by:
a)The relationship between the persons involved in the conduct of the respondent, ACD and Ellamanda;
b)A course of business dealings between those entities, in particular:
a)The Freightways Tempus loan;
b)The Holiday Ezy investment;
c)The unsecured April 2009 loan;
c)Unusual bookkeeping practices concerning invoicing, being:
a)Purpose of invoices;
b)Manner of invoicing.
d)A history of prior transactions involving the respondent, Ellamanda/ACD and other financiers which contained unusual features.
Zip Zap–ACD–Ellamanda Director Relationship
Mr Richard Philp is the alter ego of the respondent. He is a civil engineer by profession, although in more recent times he conducted a building business which transitioned into a scaffolding business. He conducted the scaffolding business as “ACD.” In 2005 he decided to further refine his operation by selling off his scaffolding hire business and concentrating solely on the manufacture and sale of scaffolding. In this context he had entered into an agreement to sell the scaffolding hire business to Ellamanda. The alter ego of Ellamanda was Mr Dittman. Mr Philp says that prior to these events he had never met or had any prior dealings with Mr Dittman. In broad terms, Mr Philp said that he simply sold Mr Dittman the equipment and business name used by the respondent to conduct the hire business. In response to questions directed toward the consideration for the business, his answers appeared puzzling. He was never able to actually state how much the business was sold for, however he noted that the first six invoices issued by the respondent to ACD from 23 May 2005 to 30 June 2005 were in respect of the purchase of the business.[2] Upon that basis the consideration for the business appears to have been approximately $391,884.62.[3] The sale of the scaffold hire business does not appear to have been documented and, as Mr Philp’s table notes, payments for the business were made on various dates between 23 May 2005 and 30 June 2005. The absence of a formal contract and even a ballpark appreciation of the consideration received on account of the sale of the business seems to have set the scene for numerous other transactions between Zip Zap, Ellamanda and/or ACD which were specifically examined in the course of cross-examination.
[2] Affidavit of Richard Philp filed 15 October 2012 Annexure RP4.
[3] In Ellamanda’s accounts the scaffolding is reported as having a value at cost approximating $900,000.00 as at the end of December 2006. The value of purchases of equipment by Ellamanda from Zip Zap between October 2005 and December 2006 approximates $720,000.00. When allowance is made for refunds of $160,000.00, the total value of scaffolds sold by Zip Zap to ACD at cost was about $952,000.00, a figure which does not reconcile with Ellamanda’s accounts.
Although ACD and Ellamanda were separate legal entities, Mr Philp treated them as a common entity because of the common directorship of Mr Dittman. The references to ACD and Ellamanda were used interchangeably and no issue appears to have been taken with that matter.
In broad terms, the applicant’s case is that the nature of transactions entered into between the respondent and ACD/Ellamanda gainsay Mr Philp’s assertions that all transactions between them were conducted at arm’s length and that no arrangement or understanding existed between them in respect of ACD’s purchase of equipment from the respondent.
The respondent contended that the relationship between it and ACD/Ellamanda did not extend beyond the provision of “technical scaffolding support on a regular basis to the field staff,”[4] and that matter was never challenged; nor was it put that the support provided was beyond that appropriate for a supplier/customer relationship. However, whilst that may well have been so, Ms Susanne Coleman’s[5] evidence that Mr Philp frequently met with Mr Dittman at the offices of ACD was not in dispute. Given that these meetings occurred in the “back office with the door shut,” I am satisfied that they were not directed to the provision of technical support to field staff. It is my view that Mr Philp intentionally sought to understate the nature of his relationship with Mr Dittman to the Court, as this evidence demonstrates.
[4] Affidavit of Richard Philp filed 15 October 2012 paragraph 9.
[5] A bookkeeper formerly employed by ACD.
Notwithstanding those matters, the arrangement between these entities was plainly unorthodox and undefined. The relationship lacked an air of commerciality and objectively invites suspicion, although when considered in isolation it does not conclusively prove any untoward element.
ACD/Ellamanda Transactions – a course of dealings
Before proceeding to examine the transactions between ACD/Ellamanda and the respondent, it was submitted that other transactions between Messrs Dittman and Philp raised suspicion. In particular, three transactions were identified, being:
a)The Freightways Tempus loan of $200,000.00;
b)The Holiday Ezy investment of $200,000.00; and
c)The unsecured April 2009 loan.
The Freightways Tempus Loan
On or about October 2005 an advance of $200,000.00 was made by Mr Philp to Ellamanda. The loan was documented in a loan document noting Mr Philp as the lender and Ellamanda as the borrower. Mr Philp also owned and controlled Freightways Tempus Pty Ltd, the company upon which the $200,000.00 advance was drawn. There is no issue that the sum was advanced, nor that it was repaid in accordance with the terms provided for in the loan agreement, which required repayment of $240,000.00 inclusive of interest on 20 December 2005. That is to say the loan was a short term loan of $200,000.00 over two months with interest set at $10,000.00 per month, but in the event of payment in accordance with loan agreement interest was to be fixed in a sum of $40,000.00.[6] The loan had an unquestionably curious air about it. Unusually here the borrower’s solicitors prepared the loan documents rather than the lender’s solicitors. The term was short and the rate was high, although in fairness the loan was only secured by a personal guarantee from Mr Dittman. The parties had not known each other a long time and Mr Dittman confessed that Ellamanda/ACD had a temporary cash flow issue related to a subdivision at Laidley. The parties’ only prior dealings had been in respect of scaffolding on the Sunshine Coast. Except for the curious arrangement concerning the preparation of the loan documentation, I do not think that too much can be inferred from the short term nature of the loan nor the rate of interest that was agreed.
[6] Affidavit of Richard Philp filed 15 October 2012 Annexure RP21 at 141.
In that regard I accept the respondent’s submission that the high risk and short term nature of the loan might justify those terms: PSAL Ltd v Kellas-Sharpe [2012] QSC 31 at [13].
However, what is of note concerning that transaction is that over this same period ACD refunded to the respondent sums of about $73,000.00. The refunds were sourced from advances made to ACD in respect of equipment sales by the respondent which transactions in turn involved refunds of the kind that are in issue in this application. I accept that the refunds would have immediately improved ACD’s cash flow, assisting it to repay the money owed to the respondent.
The Holiday Ezy investment
The second transaction is more puzzling. On or about 3 August 2006 Mr Philp subscribed $200,000.00 to the acquisition of an interest in an entity operated by Mr Dittman known as “Holiday Ezy.” The business was described as a form of internet holiday business. Mr Philp admitted to his net worth being approximately $6-7 million. From that I infer that he is a man of reasonable means although not exceedingly opulent. He acknowledged that the sum of $200,000.00 was a significant sum relative to his total wealth. However, despite that matter this transaction appears to have been undertaken in the vaguest of circumstances. Mr Philp could not recall who he wrote the cheque for $200,000.00 to. Nor did he have even a vague recollection of what he received for his $200,000.00. He was unable to provide any estimate as to his relative interest in the company beyond noting that he had “between 10 and 15 per cent.” Initially he stated that he did not know what percentage of the business he had acquired and certainly was not able to estimate even in broad terms the number of shares that he acquired. Ultimately, he admitted that he did not know what he got for his $200,000.00.
Having invested his money, his ongoing supervision of the investment was also curious in that he did not appear to husband this investment in any real way at all. He deposed to having spoken to the CEO on a number of occasions and he spoke of attending a shareholders meeting with about 20 other people, but beyond that could add little more. His evidence on these points struck me as being particularly cavalier. He possessed an almost nonchalant attitude, and his apparent indifference to the investment of such a large sum of money with someone who only a brief 12 months earlier had ostensibly been a complete stranger was, in my view, quite puzzling. It was also surprising that at about the same time as he subscribed to Holiday Ezy a sum of about $231,979.18 was deposited into the account of Ellamanda. He stated that he knew nothing of that, though acknowledged that the deposit was possible.
Although it is correct, as the respondent submitted, that this transaction does not prove a close financial relationship, it does objectively raise suspicion; common sense dictates that only fools or lunatics are inclined to make investments as recklessly as Mr Philp claims to have done. I did not form the impression that Mr Philp was either a fool or a lunatic.
The April 2009 loan
There was an undocumented loan of $42,494.00 made by Mr Philp to Mr Dittman which does not appear to have been adequately recorded.
Mr Philp says that Mr Potts of Ellamanda requested a loan of that amount because it had cash flow problems and was being pursued by the applicant, an entity Mr Philp claims not to have known of at the time. The loan was effected by a direct deposit to the applicant (as the pursuing creditor).
The loan was unsecured at the time of the advance; it was made directly to the creditor; it was not documented; and was made at a time when the borrower had confessed to carrying bad debts, being engaged in cost cutting and having cash flow problems. It appears that almost as an afterthought Mr Dittman’s wife transferred shares she owned in a Dittman entity to a Philp entity by way of security. If that arrangement itself was not unusual, the curious nature of the security was amplified by its alleged worthlessness.
The respondent correctly noted that these events occurred a few years after the relevant transaction. However, the fact that an objectively curious loan arrangement subsequently occurred demonstrates that these arrangements were not a mere ‘flash in the pan’ but characterised the dealings over time between these individuals
Unusual Bookkeeping practices – Invoicing
Mr Philp engaged in a number of unorthodox business practices. The effect of these practices was to obfuscate. The applicant contends that when considered against the background of its application the practices were plainly engaged to effect a sinister outcome. This was particularly evident with his invoicing practice. Two matters especially stood out:
a)The purpose of issuing invoices; and
b)The manner in which invoices were issued.
Purpose of Invoices
Early in his evidence Mr Philp stated that after having sold off the hire part of his business and focusing upon the sale of new and used scaffolding equipment he was in effect operating as a new business in the market. His quoting and invoicing practices were unorthodox. He said that in the first 12 months or so the manner in which he conducted his operations when dealing with customers such as ACD/Ellamanda was to forward a document entitled “invoice” in response to any invitation to quote or tender for the supply of equipment. He was for instance taken to the term “working sheet never acted upon” where that term regularly appeared in his summary spread sheet.[7] He explained that entry to mean that when called upon to tender or quote for the supply of equipment he would issue an Excel generated document headed with Zip Zap’s letterhead, entitled “invoice.” He stated that he would watch his bank account and upon seeing a deposit into his account he would infer that his quotation had been accepted and action it by delivering equipment which corresponded with that detailed in the invoice. For instance, it was upon that basis that the invoices detailed in his affidavit[8] were said to be instances of where an invoice had been prepared and forwarded to Ellamanda/ACD on the basis that it was a quotation but no funds had been forthcoming consistent with the sum stated in the invoice. Accordingly, those invoices were not actioned by the delivery of the goods stated in the invoice. A summary of those invoices is listed in the table below:
[7] Affidavit of Richard Philp filed 15 October 2012 Annexure RP4 at 53-57.
[8] Being numbered invoices 4286a, 4289, 4289 (where it appears on the second occasion), 4291, 4291 (where it appears on the second occasion), 4292, 4292 (where it appears on the second occasion), 4294, 4296, 4296 (where it appears on the second occasion), 4298, 4298 (where it appears on the second occasion), 4305i and 4305i (where it appears on a second occasion).
Working sheet never acted upon
Date
Invoice no.
Invoice to
Invoice amount [9]
6/10/05
4286a
BoQ
105,712.37
28/10/05
4289
Ella ACD
71,152.15
28/10/05
4289
Ella ACD
49,070.45
4/11/05
4291
Ella ACD
76,321.72*
4/11/05
4291
Ella ACD
52,635.67
14/11/05
4292
Ella ACD
118,380.90*
14/11/05
4292
Ella ACD
81,642.00
25/1/06
4294
Ella ACD
119,543.55
2/3/06
4296
46,013.51
2/3/06
4296
61,351.34
2/3/06
4298
26,560.49
2/3/06
4298
32,804.46
31/3/06
4305i
Enterprise Finance
50,000.00
31/3/06
4305i
Enterprise Finance
35,687.65
[9] Those invoices followed by the * are invoices where when the nominator at 1.45 is applied to the lesser figure in the replicated invoice it equals the figure in the original invoice. This calculation has some significance, as explained below.
Mr Philp claimed not to appreciate the significance of the term “invoice.” In my view his statements concerning these matters simply defy belief. Mr Philp is an educated man. He is a former civil engineer and operated a building company. The looseness of language which he asks the Court to accept might have perhaps been forgiven if dealing with someone with less education and experience. I do not accept Mr Philp’s statements that he did not appreciate the significance of the term “invoice.” For other reasons which follow, the business practices which he says were adopted for the first 12 months or so of his post-May 2005 operations also lack logic.
Mr Philp says that it was only after about 12 months of operation that he was compelled by market forces to change his style of operations to something that conforms with customary business practice. That is to say, equipment would be ordered, an invoice would be raised, goods would be delivered and the unpaid invoice would be carried in his books as a receivable.
Manner of Invoicing
The invoices are central to the applicant’s case. As is discussed below, the applicant contends that there was an arrangement between the respondent and ACD/Ellamanda to permit ACD/Ellamanda to effectively defraud financiers. This entailed the production of misleading invoices to financiers to assist it in securing finance. The respondent says that it had no knowledge of this matter, a fact it says gainsays any assertion of an arrangement or understanding.
The creation of invoices by Zip Zap was explained by Mr Philp. As I have noted earlier, he stated that when called upon to quote for the supply of scaffolding he would prepare a document which was identified as an invoice. Numerous invoices that he acknowledges were produced by Zip Zap were in evidence. He stated that once the invoices were issued they were no longer in Zip Zap’s control. He said that if a request was made to vary an option which had been provided for in a quote he would frequently “wr[i]te over” the electronic version kept by Zip Zap to create a new electronic version of the invoice without retaining the earlier original invoice.[10] In particular, his attention was drawn to a number of invoices which referred to financiers. He states that the insertion of the details of financiers was not undertaken by Zip Zap. That seems likely to be the case in a number of instances.
[10] Affidavit of Richard Phil filed 15 October 2012 at paragraph 21.2.
The explanation for the production of quite a number of invoices referring to financiers was provided by Ms Coleman. She gave evidence that invoices would be received from Zip Zap either by email or post. She noted that sometimes invoices would be delivered to the office by Mr Philp but that they would also come to her through Messrs Dittman and Potts. She noted that the Zip Zap invoices usually involved a lot of time and liaising with Mr Philp to finalize and reconcile them. That is, she noted that the invoices from Zip Zap would often not add up and she would have to liaise with Mr Philp to work out precisely how much the invoice was for and what equipment was being provided. She noted that some invoices related to the purchase of equipment and others to hiring. The smaller quantities observed were usually paid for by ACD but larger quantities were usually acquired by the assistance of finance. Finance was generally arranged through Mr Glynn Wright. Ms Coleman contended that she received various instructions from Mr Dittman which would indicate that he required her to undertake questionable recording activities to enhance ACD’s prospects for finance. She noted for instance that he would direct her to “dummy” accounting figures for Ellamanda so that it would make the accounts look better for the purpose of obtaining finance. It was plain from the cross-examination of Ms Coleman that this included the altering of Zip Zap invoices to delete or vary references to the invoice party from ACD/Ellamanda to various financiers. Furthermore, when transactions had been executed she deposed to the treatment of the credit “refunds” which often flowed. In her evidence she stated that various invoices with common invoice numbers bore a handwritten reference “bank finance” for a higher number than an identical invoice for a lower sum under the handwritten term “actual.”[11] It is therefore incontestable that ACD was scamming the financiers.
[11] Affidavit of Susanne Lorreen Coleman filed 23 May 2012 Annexure SLC12 at 702-708; paragraph 59.
Ms Coleman says that when she sought to address these transactions in ACD’s books she was told by Mr Dittman or Mr Potts that “a “kick-back” arrangement existed between ACD Scaffolding and Zip Zap for the purchase of the scaffolding.”[12] However, that observation alone does not prove that to be a fact. Mr Philp says that the refunds were, inter alia, for short delivery of product pursuant to oral requests to deliver less, and that since he had been paid on the premise that he would deliver in accordance with the original invoice he refunded the difference to the purchaser. For reasons which follow I do not accept Mr Philp’s explanation as to why he provided refunds.
[12] Affidavit of Susanne Lorreen Coleman filed 23 May 2012 paragraph 60.
Although the evidence concerning the manner in which Mr Philp says he conducted his business dealings with ACD/Ellamanda does not go to prove any element of the applicant’s case, those matters, together with Mr Philp’s answers to specific allegations which I will detail below, lead me not to accept his evidence as being generally reliable and, indeed, in some instances I have concluded that his evidence was dishonest.
Prior Zip Zap – ACD purchases involving financiers
The thrust of the applicant’s case is that the respondent had an arrangement or understanding with ACD that it would issue invoices. ACD would then use the invoices to raise finance, and upon receiving funds from a financier the terms of the sale would be varied resulting in a cash transfer by the respondent to ACD. It says this arrangement is evidenced by a prior course of conduct. It alleges that ACD utilised finance on 10 occasions prior to the subject transaction to fund purchases from the respondent. Furthermore, of those 12 transactions 7 involved refunds by the respondent to ACD following the provision of finance and alteration of invoices.
The applicant contends that the invoices in the table demonstrate that the respondent and ACD/Ellamanda engaged in a course of conduct intended to mislead financiers. That conduct included the respondent being ‘in on the scam.’ Those invoices require close scrutiny to resolve this issue.
| Transaction | Inv. Date | Inv. No. | Inv. Amount | Who Paid | Value of Scaffolding provided | Amount Paid by Zip Zap to ACD/Ellamanda |
| 1. | 6/10/05 | 4286 | $18,508.42 | Bank of Queensland | ||
| 2. | 14/10/05 | 4287/b | $87,183.62 | Capital Finance | $60,126.64 | $27,056.70 |
| 3. 4. | 28/10/05 | 4289/a 4289/e | $31,577.97 $1,148.40 | Capital Finance Technology Leasing Technology Leasing | Total of $49,070.45 | Total of $20,933.30 |
| 5. | 4/11/05 | 4291/b | $80,769.38 | Technology Leasing | $55,703.02 | $25,066.36 |
| 6. 7. | 25/1/06 25/1/06 | 4294/b 4295/b | $86,250.00 $33,293.55 | CBFC Technology Leasing | Total of $78,637.89 | Total of $40,905.66 |
| 8. | 31/03/06 | 4305ii | $20,000.00 | Enterprise Finance | ||
| 9. | 31/03/206 | 4308 | $40,818.80 | Ellamanda | ||
| 10. | 19/12/06 | 4411 | $53,597.12 | Westpac | $30,000.00 | $23,597.12 |
| 11. | 28/12/06 | 4414 | $53,067.70 | Circuit Finance | $29,470.58 | $23,597.12 |
| 12. | 4/4/07 | 7040 | $249,376.47 | Bank of Queensland | $150,000.00 | $99,376.47 |
The focus of cross-examination was upon invoices listed as transactions 2,3,4,5,6,7,10,11 and 12 in the table. The common characteristic of those invoices was that each concerned a purchase of equipment by ACD/Ellamanda from the respondent which was funded by a third party financier and in respect of which there was a refund after the event. Different explanations were given by Mr Philp for the refunds. They included the delivery of second-hand goods instead of new, the absence of stock and requests by ACD/Ellamanda to withhold delivery. For reasons which follow I do not believe him. His explanations do not withstand scrutiny.
Invoice 4287/b – Capital Finance
Invoice 4287/b was first issued by Zip Zap on 14 October 2005. The invoice was addressed to “Ellamanda/ACD Scaffolds” and the notation recorded that the equipment be shipped to “Ellamanda/ACD Scaffolds.” The invoice listed 20 items of equipment with a total price of $87,183.62. Mr Philp stated that the equipment was new equipment.[13] Zip Zap’s banking records demonstrate that a sum of $87,183.62 was received into its account at the Bank of Queensland on 28 October 2005 with the transaction details recorded as “DIRECT CREDIT CAPIAL FINANCE CFAL ELLAMANDA P/L.”[14] Of particular note from Zip Zap’s bank records is cheque number 140, shown to have been drawn on 31 October 2005 for a sum of $27,056.98.
[13] Trial bundle Volume 1, Tab 9, page 13.
[14] Trial bundle Volume 1, Tab 74, page 99.
Subsequently, Ellamanda’s bank account was credited with an amount of $27,056.98 on 31 October 2005. In Mr Philp’s Annexure RP4, a sum of $27,056.98 was noted as being paid as a “refund” on 31 October 2005. In his affidavit Mr Philp stated that he recalls either Messrs Dittman or Potts contacting him about the deposit of $87,183.62 and requesting that Zip Zap supply used scaffolding instead of new with the difference of $27,056.98 being refunded, thus accounting for the refund referred to in Annexure RP4 evidenced in the bank records.[15]
[15] Affidavit of Richard Philp filed 15 October 2012 paragraphs 21.3-21.4 and paragraphs 24.1-24.2.
The fact remains that, arithmetically, the sum of $60,126.64 equates to $87,183.62 divided by 1.45%.[16] Every line entry of the 20 items in the invoices can be seen to reveal the common application of this factor. As was revealed through the course of cross-examination, and will be detailed elsewhere, the factor of 1.45% was a common feature in the calculation of a number of other refunds in respect of invoices where the explanation for refunds was not given as a variation to purchase second-hand goods.
[16] The figure is actually 1.447% but rounded up by 2 decimal places to 1.45%.
The evidence demonstrates that when the goods were originally invoiced, the invoice made no reference to new goods. Subsequent to the financier paying the amount indicated in the invoice, the respondent and ACD allegedly amended the contract. The variation was said to be for the delivery of second-hand goods rather than new goods as originally invoiced. The difference between invoiced sums was a factor of 1.45%, that is, new goods were said to be 45% more expensive than second-hand goods; and as the applicant had paid the respondent direct it drew a cheque to ACD to pay by way of “refund” the excess in value between the new goods invoiced and second-hand goods delivered.
An odd feature of the transaction included the assertion that the price of used gear, in every instance, equalled the ex-factory price[17] and that the factor in each instance was 1.45%. Mr Philp explained that he sometimes delivered new goods and sometimes second-hand. He explained that the value of the second-hand goods was benchmarked against the ex-factory cost of new goods. That is to say he had a capacity to buy new equipment in China and for certain customers offered them the option of purchasing the goods new ex-factory from China. In that case the customer paid additional freight and shipping costs from China which in effect cost another 45%. As the used goods were allegedly discounted because they were second-hand, the price was set to reflect the ex-factory price. Mr Philp was an importer of this type of equipment from China but was unable to produce evidence of the ex-factory price of such equipment. Alternatively, he stated that he could source second-hand equipment at the same price, that being the ex-factory price.
[17] T221 line 15-46.
His evidence on this matter was plainly quite unconvincing because, as he conceded, the market for second-hand goods is precisely that, a market. Accordingly, the price of second-hand goods will vary depending upon market circumstances. It might well be measured and benchmarked against the cost of new goods, but except in peculiar circumstances I doubt that the value would always equate, for, as Mr Philp deposed, the economic life of scaffolding is about 30 years. No doubt the value of his second-hand equipment would depend upon age, quality and condition. It is difficult to imagine that a usual price for second-hand goods could be achieved against that background. To suggest that it could, as he did, is simply unbelievable. Indeed, his own statement to police in a record of interview given in December 2009 proves the untruthfulness of his evidence on this point. In the interview, when being questioned about the purchase price agreed for the equipment purchases from the liquidator, he stated:
“… I sell brand new for $2,100 a tonne … We settled on a figure. I think it was $1,000 a tonne which was good buying for me. I figured to be honest around the right figure would probably be about $1300/$1400 a tonne. Things change a fair bit from year to year …”
There is no suggestion there of the price equating with the ex-factory price in China. His statement to police more likely accords with the truth as it also reflects common experience.
If considered alone there may be nothing suspicious about this matter. However, as later invoices reveal, his explanation is flawed, so much so that I consider it to be a deceitful fabrication.
Another concern related to this invoice was Mr Philp’s evidence concerning the payment to Ellamanda. He sought to give the impression that he was not too interested in reviewing his bank statements to see when and if the funds arrived from the financier. He says that he simply telephoned his wife and asked her for the account balance. Upon hearing that the balance appeared to be such that it included a deposit of about $87,000.00, he authorised the refund. It is puzzling that he might make such a broad assumption that the money was in respect of that invoice. I reject his evidence on this point and consider it to be untruthful.
The respondent contends that, in any event, even if Mr Philp had examined the bank statement the entry was so equivocal as not to inform him that the funds were deposited by Capital Finance. I reject that submission. It requires little acumen to recognise that the deposit of the sum of $87,183.62 coupled with the words “DIRECT CREDIT CAPITAL FINANCE CFAL ELLAMANDA P/L” meant that some third party was involved, even if Mr Philp did not recognise the reference to “CAPITAL FINANCE” or “CFAL.” He plainly would have understood the meaning of “DIRECT CREDIT” and understood the reference to “ELLAMANDA P/L.” That is, a deposit was being made on its behalf, in contrast to being made by it.[18] Even to ignore this matter does not assist the respondent, who contends that, because of timing differences, when decisions were made they were uninformed by the facts evident in the bank statements. Mr Philp is a man of commerce. He has accumulated a significant degree of wealth. He would have been unlikely to do so if he was reckless or indifferent about money. While that conclusion does not establish that he knew the source of funds, it would suggest that ordinarily he would have been keen to ensure that funds accrued before were they paid out and, more significantly, that they would not be paid out without good reason. I find that his purported reason for paying a refund was simply untrue. For reasons detailed below I am satisfied that the money was paid out because of an arrangement between Messrs Philp and Dittman. This one instance does not of itself prove the arrangement, but is one strand of many in the cable[19] which the applicant asserts and which I am satisfied the evidence demonstrates.
[18] The respondent’s bank statements are replete with other direct credits and debits. To contend that he would not have discerned the interest of a third party in this transaction and others is entirely disingenuous.
[19] Shepherd v R (1990) 170 CLR 573 at 579.
Invoices 4289/a, 4289/d, 4289/e and 4291/b
Approximately two weeks later, on 28 October 2005, invoice 4289a was raised. It was addressed to “Ellamanda/ACD Scaffolds” for shipment of the listed equipment to “Ellamanda/ACD Scaffolds.” The total of the invoice was $31,577.98. On the same day, two further invoices issued, they being invoices 4289/d and 4289/e. Each of those subsequent invoices was issued to Technology Leasing Ltd with shipping to Ellamanda/ACD. They were for sums of $38,425.78 and $1,148.40 respectively. Invoice 4289/a addressed to Ellamanda/ACD was not paid for by Technology Leasing Ltd. It was paid for by Capital Finance by direct deposit into Zip Zap’s accounts on 9 November 2005 in the sum of $31,577.98. The transaction details in Zip Zap’s bank accounts read “DIRECT CREDIT CAPITAL FINANCE CFAL ELLAMANDA PL.” A 17 November 2005 entry in Zip Zap’s bank account reveals a direct deposit of $38,425.78 from “DIRECT CREDIT TECHNOLOGY LEASI,” with the transaction details noted as “TECHNOLOGY LEASING.”
On 4 November 2005 invoice 4291/b was raised. It was addressed to Technology Leasing Ltd for an amount of $80,000.00 in respect of equipment with a value of $80,769.38. Zip Zap’s bank account reveals that on 23 November 2005 a sum of $81,917.78 was directly deposited into its account by “DIRECT CREDIT TECHNOLOGY LEASI.” The transaction details record “TECHNOLOGY LEASING.” The sum of $81,917.78 appears to have been made up of $80,769.38 (the value of invoice 4291/b) and $1,148.40 (the value of invoice 4289/e).
At about this time a refund of $20,933.30 was paid by Zip Zap to Ellamanda/ACD. In cross-examination it was put that the sum of $20,933.30 is a compilation of $9,800.00 from invoice 4289/a and $11,925.00 from invoice 4289/d, giving a total of $21,725.00 less $792.00 (refund on invoice 4289/e).
Invoice 4289/a
$9,800.00
Invoice 4289/d
$11,925.00
Refund of Invoice 4289/e
-$792.00
Total:
$20,933.00
Mr Philp denied that matter. However, again it seems a little more than serendipitous that these three figures relate as they do. Further, this instance can be afforded meaning by reference to the 1.45% figure which appears in a number of other calculations and figures.[20] In particular, the respondent’s reasoning was revealed in a spread sheet he prepared for his own accounting purposes. A review of these transactions in the respondent’s spread sheet demonstrates many instances of relationships between figures that suggest they were generated to deal with numerical outcomes. For instance, invoice 4289/e issued for $1148.40. That figure corresponds with a figure which is a product of the refund of $20,933.30, an input figure. However, that figure is part of a string of calculations commencing with the underlying figure of $22,081.70 (a compilation of refunds for invoices 4289/a, 4289/d and 4289/e) less the input figure to generate that outcome. The reasoning behind these figures is not apparent. The respondent’s counsel contended that this, in part, was caused by a ‘cut and paste’ error, and that the refund was due to the non-delivery of planks when no planks and ladders were provided for in the original invoice. The entry is simply untrue; it was inserted, no doubt, to put off an inquiring mind. Except for the coincidental factor of 1.45%, Mr Philp’s explanation may have been afforded the benefit of the doubt. However, in this instance the excuse is too convenient to be believable.
[20] The value of invoice 4289/a and 4289/e is $71,152.15. Divided by 1.45 equals the net sum of $49,070.45 received by the respondent.
The respondent also contends that the 1.45 denominator only applied to two refunds and accordingly did not prove the theory. However, the submission ignores the invoices prepared in respect of transactions that did not proceed. The 1.45 denominator applies to another three instances, giving a total of 5 occasions all up. While I accept that the denominator did not universally apply, a close examination of the detail of the transactions to which it did casts doubt upon the evidence that this matter was mere co-incidence. I also reject the respondent’s contention that this represents some attempt by the applicant to embellish the statistics, as was contended. This matter represents just another factor in the mix, proving truth of Sir Walter Scott’s statement: “Oh, what a tangled web we weave, when first we practice to deceive!”[21]
[21] Sir Walter Scott’s Marmion, Canto VI Stanza 17.
Invoice 4291/b was directed to Technology Leasing Ltd for the sum of $80,769.38. That sum was paid by direct deposit included in the deposit of 23 November 2005. Again, in respect of that invoice a refund of $25,066.36 was provided, the calculation of which refers to the 1.45% figure of other calculations. Curiously, for this invoice the refund was purportedly made in respect of non-delivered equipment. Again, it seems entirely serendipitous that that value of non-delivered goods was $25,066.30, reflecting the invoice sum of $80,769.38 divided by 1.45%. This also happens to equal the alleged cost of the same equipment sold second-hand. In my view this is no coincidence. Mr Philp was simply not telling the truth about the basis for the refund, which brings into question the basis for the refunds given.
Invoices 4294,4294/b,4295/b – Technology Leasing Ltd
Invoice 4294 first issued on 25 January 2006. It was addressed to “Ellamanda/ACD” with a direction for equipment to be shipped to “Ellamanda/ACD.” The invoice identified a list of equipment which was all described as “new.” The total price identified on the invoice was a sum of $119,543.55. That invoice was subsequently cancelled. However, a second invoice numbered 4294 also issued the same day. It was in respect of exactly the same items, quantity and description of equipment but the listed price for the equipment was $77,637.89. The difference in price was $41,905.66.
It appears that neither of those invoices were actioned, although the difference between them, namely the sum of $41,905.66, has some significance as will be explained below. Importantly, a refund of $40,905.66 followed a series of similar transactions. That is a sum $1,000.00 less than the difference between the two invoice 4294s.
Two further invoices issued dated 25 June 2006. They were invoices 4294/b and 4295/b. Invoice 4294/b was directed to “CBFC” with the shipping to “Ellamanda/ACD Scaffolds.” It identified equipment which correlated with items 1 and 4 in the cancelled invoice 4294. However, the price per item varied from $45.68 to $35.00 in respect of the “plank 2.4” and $34.00 instead of $26.22 in respect of the “ledger 2.4.” Invoice 2495/b was directed to “Technology Leasing.” Again, shipping was to “Ellamanda/ACD Scaffolds.” As with the original invoice 4294 the equipment was new. This invoice picked up the balance of equipment provided for in the original invoice 4294. That is, 390 x “plank 1.8,” 270 x “plank 1.2,” 12 x “stillage” and 8 x “aluminium stairs.” However, the prices varied from the original prices by slight amounts given that the total due on that invoice was $33,293.55. Significantly, the sum of invoices 4294/b of $86,250.00, plus the total of invoice 4295/b of $33,295.00, equated with the original invoice 4294 of $119,543.55.
It is accepted that the sums referred to in the invoices were deposited into the respondent’s account by Ellamanda/ACD’s financiers. However, issue is taken concerning the purpose for refund. Mr Philp says that his records indicate a note made in Zip Zap’s computer files recording a conversation with Mr Potts. The note states:
“received 86250 from ACD
Reg said they didn’t need all ledgers right now.
wants me to get the planks and 1 stillage of ledgers away immediately
will pay back 40905.66.
check back with reg in march for rest of ledgers.”
He says that in accordance with that request Zip Zap repaid the sum of $40,905.66 on 20 February 2006, I infer by way of refund.
The note is clearly in error. First, $86,250.00 was not received from ACD. The respondent’s bank records plainly note “DIRECT CREDIT CBFC LIMITED 4294/B” for a sum of $86,250.00 made 14 February 2006. A subsequent entry appears in his bank statement for 17 February for “DIRECT CREDIT TECHNOLOGY LEASI ACD SCAFFOLDING-EL,” referring to a deposit of $33,293.55. Those two sums total $119,543.55. Subsequently, a debit entry referring to cheque 162 appears on 28 February in respect of a cheque for $40,905.66 which Mr Philp accepts was drawn in favour of Ellamanda/ACD.
It is noteworthy that almost two weeks passed between the deposits recorded in his bank statement and the cheque. In any event, Mr Philp’s evidence is that the cheque was drawn in respect of goods no longer required. I do not believe him. Not only is his record concerning the receipt of money inaccurate, but his evidence concerning his transactions sought to be misleading. The arithmetic surrounding this transaction is relatively straight forward. Indeed, it would be expected that an honest witness would have no difficulty acknowledging not only the arithmetic but the facts evident from within the invoices that clearly demonstrate that the product to be supplied by cancelled invoice 4294 was subsequently re-invoiced in invoices 4294/b and 4295/b. That is, that invoice 4294 was split. When Mr Philp was cross-examined about this matter he was taken through the invoices and the arithmetic. Subsequent to that, the following exchange occurred:
“Q: Now, is it the case that for some reason the original invoice 4294 was split in two, as it were, of which 86,000 was addressed in an invoice to CBFC, and the 33,000 was addressed in an invoice to Technology Leasing?
A: No.
Q: You don’t think that’s what has happened?
A: Yes, I don’t think that’s what has happened.
…
Q: All I’m suggesting is that those other two invoices, 4294/b and 4295/b, effectively split the original invoice that you prepared?
A: Well – well, the numbers – numbers is – yes.
Q: Yes, all right?
A: Sorry? They’re not split. No, I wouldn’t say that. But I would say they – the numbers are the same.” [22]
[22] T243 line 34-39; T244 line 1-6.
After having the express quantities brought to his attention, Mr Philp accepted that the two subsequent invoices, that is invoices 4294/b and 4295/b, were a split of cancelled invoice 4294.
However, Mr Philp’s explanation still does not make sense even if I were to accept it (which I do not). He says that the refund was because the purchaser did not need “all ledgers right now.”[23] Invoice 4294/b identified the sale of 1200 x “ledger 2.4” at a price of $34.00 or $37.90 (including GST) per item, giving a total value including tax of $44,682.00. Arguably, if ledgers had been returned as contended by Mr Philp the division of $37.40 into $40,905.66 would produce a whole number. However, that calculation produces a result of 1093.74. Plainly, part of a ledger would not have been withheld from supply. The arithmetic itself casts doubt upon the veracity of Mr Philp’s version of events.
[23] T248 line 5.
It was contended for the applicant that the basis for the refund is not evident from the respondent’s material. I accept that submission. While there was, no doubt, some reasoning behind the selection of such a precise number, that reasoning is not evident. When taken to these matters Mr Philp appeared to have no apparent explanation beyond noting that none of this appeared to be extraordinary. He simply claimed to have accepted Ellamanda’s requests at face value.[24] In any event, it is not for the reason given by Mr Philp, which I consider to be untruthful.
[24] T253 line 41-45; T254 line 1-11.
Invoices 4305ii and 4308
Invoice 4305ii dated 31 March 2006 issued to “Essanda Finance” with shipping to “Ellamanda/ACD.” The respondent’s bank statements demonstrate that on 12 April 2006 a sum of $20,000.00 was credited to its account with the transaction details recorded as “DIRECT CREDIT ESSANDA FINANCE 488176624.” There was no refund associated with this transaction.
No issue arises in respect of invoice 4308.
Invoice 4411 – Westpac Loan
Invoice 4411 was issued on 19 December 2006 to “Westpac Finance” for an amount of $53,597.12. That sum was paid into Zip Zap’s account on 21 December 2006, with the transaction detail recorded as “DIRECT CREDIT WESTPAC E0635514382808 ELL.” The following day, 22 December 2006, a refund of $23,597.12 was made by Zip Zap to Ellamanda. That sum was made up of two payments, the first being an internet transfer of $10,000.00 and the second being a cheque drawn in the sum of $13,597.12. In the spread sheet the refund was said to be on account of “planks and ladders [not] needed.” However, by reference to invoice 4411 it can be seen that the value of the planks and ladders identified in the description section of the invoice total $13,943.71 including GST. No plausible explanation was provided as to why a refund for $23,597.12 was settled upon when the value of the goods said to no longer be required was $13,943.71. That is a difference of $9,653.41.
Further, when cross-examined in respect of this invoice Mr Philp conceded that he knew that Westpac were providing the finance and that they were the purchasers of the equipment;[25] so much is obvious from the invoice being addressed to Westpac Finance. When asked whether he thought that Westpac would have relied upon his invoice, he remarked that he did not know what finance companies would rely upon. I think the intent of the cross-examiner’s question was plain: did Mr Philp regard the description set out in his invoice addressed to Westpac Finance as material to that party? I do not think that it requires any specific knowledge to appreciate that a representation of the kind contained in an invoice directed to a finance company in respect of goods for the purpose of advancing funds would be regarded as material by a financier. That is all the more so when the financier is the putative purchaser of the goods, as was the case in respect of invoice 4411.
[25] T264 line 30-33.
By reference to the spread sheet, the refund figure of $23,597.12 appears as a concluded figure, that is, an input figure rather than one derived by reference to any calculation. Analysis of the formulae in the metadata sitting behind the figures displayed in the spread sheet differs from the concluded figure of $23,597.12, that being the refund requested by Ellamanda. It reveals that Zip Zap tailored the figures internally to produce that outcome. The fact that the respondent’s substituted invoice issued for $29,999.74, but a sum of $23,597.12 was refunded, supports that conclusion. Plainly the respondent rounded up figures on this transaction, charging $30,000 when only $29,999.74 was invoiced. Mr Philp says that he was simply asked by Ellamanda to provide a refund based upon the non-delivery of goods. However, that explanation cannot be reconciled against the facts, and I do not accept his evidence. Additionally, in this case he must have appreciated that the goods were not Ellamanda/ACD’s but belonged to Westpac and he was plainly aware of his involvement in the scam.
Invoice 4414 – Circuit Finance Loan
The next invoice was invoice 4414 dated 28 December 2006. This was addressed to “Ellamanda/ACD Scaffolding.” Curiously, the invoice sum on its face is in respect of equipment totalling $53,067.70. However, on 19 January 2007 Circuit Finance paid Zip Zap the sum of $53,597.12 in respect of transaction details recorded as “DIRECT CREDIT CIRCUIT FINANCE INV:DITTMAN.” The clear inference from the transaction details recorded in the bank statement is that there was indeed an invoice directed to Ellamanda/ACD, which in turn submitted it to Circuit Finance for a loan. What is odd however is that the amount loaned, as evidenced by the sum deposited into Zip Zap’s account, was $53,597.12 and not $53,067.70, the sum evident on the face of the invoice. In other words, $529.42 appears to have been advanced by Circuit Finance in respect of this transaction for no apparent reason. It is also noteworthy at this point that the sum advanced by Circuit Finance equates precisely with the figure in invoice 4411, an invoice directed to Westpac. The invoices were drawn up nine days apart and the quantum of refund in this instance was $23,065.27. The spread sheet reveals that this refund was achieved by deleting goods originally invoiced.
The circumstances surrounding the creation of this invoice are curious. They suggest that invoice 4411 was drawn up by Ellamanda/ACD and offered to a number of financiers through the broker, as can be seen to have occurred on other occasions. Perhaps by coincidence invoice 4414 had been presented at the same time. Given its closeness in quantity to the other version, it was most likely presented and processed by the financier without observation by Mr Philp. Unlike refunds in respect of other invoices, he was unable to explain this.[26]
[26] T267 line 40-44.
Invoice 7040 – Bank of Queensland
Invoice 7040 was made out on 4 April 2007 to “Ellamanda Pty Ltd.” On 26 April 2007, the invoiced amount of $249,376.49 was deposited into Zip Zap’s account. The relevant transaction details for the deposit were recorded as “DIRECT CREDIT BOQ EQUIP FIN 000813938.” Mr Philp says that he did not know that ACD/Ellamanda would be obtaining finance to pay that invoice. He did however acknowledge that at the time ACD/Ellamanda was in arrears in its running account with Zip Zap and that there were peaks and troughs in its cash flow. It was against that background that Mr Philp says he acquiesced to a request by Mr Dittman to refund $99,376.47 to ACD/Ellamanda. After allowing for the refund of $99,376.47, a sum of $150,000.00 worth of equipment was said to have been delivered. Again, by reference to the spread sheet it can be seen that the figure of $99,376.47 was a fixed figure representing a conclusion, with the metadata revealing the earlier figures as being re-engineered and adjusted to achieve that outcome. As the applicant contended, the evidence concerning this matter was most unsatisfactory. In his statement Mr Philp says that he was requested to “delay some of the delivery of the scaffolding.”[27] In cross-examination he said that he had some stock shortages or that Mr Dittman had said “supply $150,000.00 worth of gear and refund the remainder.”[28] As was submitted by the applicant, the figure of $99,376.47 was a fixed figure. It was not capable of objective calculation, despite there being a detailed invoice. His evidence on this point was in my view quite incredible and unbelievable.
[27] Affidavit of Richard Philp filed 15 October 2012 at paragraph 33.
[28] T275 line 1-2.
Invoice 7072 – The Subject Loan
Invoice 7072, dated 15 May 2007, was issued by Zip Zap to “ACD Scaffolding.”
It was raised against the following background facts:
·Some invoices had been addressed to finance institutions;
·Although some invoices were directed to Ellamanda/ACD, the funds were received directly from finance institutions, as was revealed in the bank statements; and
·Ellamanda/ACD had a history of non-payment of invoices addressed to it which were not the subject of deposits made by banks or other financial institutions.
On 18 January 2007 the broker on behalf of ACD applied in writing to the applicant for commercial finance in the sum of $500,000.00 to enable it to purchase scaffolding. By letter of 6 March 2007 from the applicant to ACD it confirmed that the finance application was approved subject to ACD making an offer in respect of finance to the applicant, completing the documentation relevant to that offer and such offer being accepted by the applicant. The terms of the offer which the applicant required from ACD were that ACD would:
a)Seek a loan of $500,000.00, to be used for the purposes of financing new business assets;
b)Offer security in the nature of bills of sale by Ellamanda over existing scaffolding as per a then pending valuation;
c)Offer a bill of sale by ACD over the new scaffolding as per the invoice to be raised; and
d)Provide a second mortgage debenture over ACD’s assets.
I do not accept that the applicant did not view the invoice as constituting a representation. Its conduct in acting upon the invoice at face value, and by paying the respondent on ACD’s request, is clear evidence of its belief that the invoice constituted a representation of the matters referred to in it, particularly that the specified goods were to be delivered in exchange for the noted consideration. The fact that settlement occurred well after the offer of finance was “approved in principle” is of no assistance to the respondent on this point. First, the offer was clearly conditional. For instance, a condition of any agreement was that the advance would only be in respect of “tangible goods.” Secondly, the structure of the transaction was one whereby ACD offered to the applicant the opportunity to advance funds on a representation that it would provide the goods listed in invoice 7072 as security. This was the offer accepted. Plainly, if the applicant had been informed of the true nature of the underlying transaction it would not have advanced the funds. To do so would have been contrary to its own required terms of agreement, if nothing else.
The respondent also sought to make something of the difficulty in distinguishing the individual items of scaffolding. While I accept it as correct that the scaffolding itself was not readily identifiable on an individual basis, I do not necessarily accept that generally the scaffolding was not readily identifiable. First, by reason of the cross-security provided by both ACD and Ellamanda, all of the scaffolding was subject to a charge in favour of the applicant. As Mr Crutchley stated, and as was confirmed by reference to the company search, an earlier charge in favour of Bank of Queensland had been released and accordingly the applicant’s charges took priority. The respondent contends however that there were other charges. The charge register notes other charges but Mr Crutchley’s evidence was that those charges related to chattel leases and so would not have impacted the applicant’s charge or security. It is unclear from the company’s accounts whether the leased equipment was indeed brought to book in Ellamanda’s accounts. Ellamanda’s accounts however do show assets with a value of approximately $1,000,000.00 in respect of scaffolding. There are various liabilities recorded but the nature and the identity of the creditors is not disclosed in the accounts.
The respondent contends that the applicant’s loss has been occasioned because:
a)it failed to make proper inquiries prior to advancing funds; and
b)it failed to properly secure the chattels taken by way of security in respect of the advance.
In this case I accept that greater care on Mr Crutchley’s part could have been taken to protect the applicant’s position. However, ultimately he was induced to advance funds because of his state of belief, which was engendered by the representations made in the invoice and the failure to disclose the arrangement or understanding between the respondent and ACD. In short, he believed that the respondent would supply the scaffolding particularised in invoice 7072 to ACD. That was never to be the case. His mistaken belief was induced by the respondent’s contravening conduct and the applicant thereby suffered loss. The respondent’s conduct was a significant factor in the applicant’s loss.
The respondent contends that the applicant’s claim must fail because generally no causation can be established. That is, the applicant can show no “loss or damage” by the respondent’s conduct: s.82 TPA. It contends that:
a)The applicant was not “motivated” by the respondent’s impugned conduct to enter into the loan agreement. The respondent’s submission on this point focuses only upon the applicant’s entry into the loan agreement. It ignores the fact that the transaction cannot be so neatly separated. The decision to make the advance was inextricably bound to the applicant’s acceptance of the apparent bona fides of the transaction reflected in the invoice and the matters addressed earlier which the invoice represented. Respectfully, for the respondent to submit that the invoice would not have been crucial to the decision to grant the loan is to neglect any understanding of the commercial reality. No financier would have made any advance to fund the acquisition of the goods, as was the express purpose of the advance, unless there was a concluded or conditionally concluded and enforceable agreement in relation to the acquisition of the goods. An invoice would ordinarily satisfy that requirement with the financier’s advance in payment of it perfecting the agreement.
b)The respondent contended that there was no sufficient link between the act of reliance and the loss. It particularly contended that the applicant lost money not because the respondent reduced the order, but because it made a decision to advance funds to an uncreditworthy borrower. Respectfully, the respondent’s submissions seek to confine the ambit of the inquiry. The circumstances must be considered as a whole. If the applicant had been informed that the representation in the invoice was incorrect or more particularly of the arrangement or understanding between the respondent and ACD the transaction would have been seen for what it truly was and the applicant would not have proceeded. In those circumstances there would have been no need for any inquiry about ACD’s creditworthiness.
Finally, the respondent contends that the applicant’s conduct broke the chain of causation. The relevant principles addressing causation were well settled by the High Court in Henville v Walker (2001) 206 CLR 459 and I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109. Those decisions are clear authority for the following related propositions:
a)To establish causation it is necessary only to demonstrate that the contravening conduct materially contributed to the loss or damage and it is not essential for it to be the sole cause of the loss or damage.[61]
b)Generally, once a material contravention is established a contravener will be liable for the full loss unless a part of the loss unrelated to the conduct can be dissected from the claim.[62]
[61] Henville v Walker per Gleeson CJ at [14], Gaudron J at [69], McHugh J at [107]-[109] and Hayne J at [165].
[62] I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd per Gleeson CJ at [30], Gaudron, Gummow and Hayne JJ at [62] and McHugh J at [102].
In this case, I accept Mr Crutchley’s evidence that the applicant would not have proceeded to advance funds if he had known the true nature of the transaction, that is, that invoice 7072 misstated the proposed contract between the applicant and ACD because there was an arrangement or understanding between the respondent and ACD in respect of the invoice. I accept that but for those matters the advance would not have been made and the loss not suffered. There was clear reliance by the applicant upon the representation/conduct and direct causation between that and the applicant’s loss. While the respondent might be able to point to some aspects of the applicant’s conduct that demonstrate a degree of imprudence on its own part, that is not a disabling factor in this case as no loss can be specifically attributable to that conduct. Indeed, this case amplifies the accuracy of the observations of Gleeson CJ in Henville v Walker, where his Honour stated at [13]:
“It will commonly be the case that a person who is induced by a misleading or deceptive representation to undertake a course of action will have acted carelessly, or will have been otherwise at fault, in responding to the inducement. The purpose of the legislation is not restricted to the protection of the careful or the astute. Negligence on the part of the victim of a contravention is not a bar to an action under s.82 unless the conduct of the victim is such as to destroy the causal connection between contravention and loss or damage.”
I do not consider the applicant’s conduct to have destroyed that causal connection.
Quantum
By reason of the contravening conduct the applicant advanced $500,000.00 to ACD which was dispersed by a payment of $492,125.03 to the respondent and $7,874.97 to ACD. In addition, a sum of $27,500.00 was paid to the broker by way of a fee. In total the applicant dispersed $527,500.00 on the transaction.
Although the applicant had a fixed and floating charge over ACD’s chattels, it does not appear to have been able to enforce that security. A significant quantity of scaffolding equipment was found on various sites and the only prospective purchaser of that equipment introduced by the liquidator was Apex Scaffolding, an entity associated with Mr Philp. It is unnecessary to explore the detailed negotiations between Mr Philp and the applicant concerning the prospective sale of that equipment. Needless to say, they were unsatisfactory and ultimately the applicant was not prepared to enter into any agreement with Mr Philp concerning the sale of that equipment because Mr Crutchley was concerned by one condition required by Mr Philp, namely that as a condition of sale Mr Crutchley waive the rights all further claims. Although at that time Mr Crutchley had no basis to be unduly suspicious of Mr Philp’s demand for such a condition, he was sufficiently perspicacious to reject it. Ultimately, on 12 June 2010 the equipment which was recovered was sold at auction for $100,000.00 including GST. After selling costs a sum of $91,961.76 was recovered and a cheque for that sum was drawn in favour of the applicant on 14 June 2010.
Otherwise as at 1 July 2009, that being the date of the winding up order for Ellamanda, the balance outstanding on ACD’s account was a sum of $499,346.68. That sum included allowance for interest which was paid before default, as well as legal costs of approximately $11,440.00 incurred in recovery against Ellamanda/ACD to that time.
In Schedule A to its submissions, the applicant has detailed the damages it claims to have suffered. In particular, it includes claims for expenses incurred in the recovery, holding and disposal of the scaffolding it was able to recover. Those costs were reasonably incurred and are related to the contravening conduct. Given that the total recovered on the realisation of the scaffolding broadly equated with those costs, it is apparent that the exercise proceeds to be financially sterile. Nonetheless, the applicant does not appear to have acted unnecessarily in pursuing that course. I accept that Schedule A represents the loss causally related to the respondent’s conduct, save for one matter. The applicant also paid a fee of $27,500.00 to the broker for its introduction of the deal. The applicant ought be allowed to recover that loss.
If I am wrong in my finding that the applicant is entitled to damages pursuant to s.82 TPA, I am satisfied that it is entitled to recover $370,000.00 by way of restitution. It is also entitled to interest on that sum if that be the appropriate loss as set out in Schedule B to its submissions.
Conclusion
The applicant to this application was the innocent party to a scam perpetrated by a borrower. However, the borrower requested and had the assistance of the respondent as vendor of the subject goods to give effect to it. The respondent as vendor of the goods made express and implied misrepresentations in contravention of s.52 by the production of an invoice it knew would be used by the borrower to facilitate the scam. The express representation was made by the respondent in producing the invoice knowing that it would be used by the borrower, which it knew would in turn be submitted to a financier such as the applicant. It knew that the represented offer to sell the goods listed in the invoice was never to be acted upon, but rather once finance was provided an invoice for the sale of a lesser quantity of goods would be prepared and acted upon. The difference would be refunded in cash.
Further, the respondent by its conduct engaged in misleading and deceptive conduct by its silence in omitting to inform the applicant of the true nature of the proposed transaction and of the arrangement or understanding between it and the borrower that was intended to give effect to it.
The applicant suffered loss and damage which was both occasioned by its reliance upon the contravening conduct and is causally related to it.
In the event that no contravention of the TPA has been established, the applicant is at best entitled to restitution in respect of a lesser sum which passed from the hands of the respondent into the hands of the borrower in circumstances which were not bona fide.
Orders
That on or before 4:00pm on 21 March 2014 the applicant circulate and submit a form of order giving effect to the findings of the Court.
That the application be adjourned for mention and submissions on costs to 10:00am on 26 March 2014.
I certify that the preceding one hundred and ninety-four (194) paragraphs are a true copy of the reasons for judgment of Judge Burnett
Date: 14 March 2014
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