Australian Tailings Group Pty Limited v Hillam

[2023] NSWDC 346

District Court

New South Wales

Medium Neutral Citation:

Australian Tailings Group Pty Limited v Hillam [2023] NSWDC 346

Hearing dates:

19 July 2023

Date of orders:

1 September 2023

Decision date:

01 September 2023

Jurisdiction:

Civil

Before:

Weber SC DCJ

Decision:

(1) Judgment and verdict for the defendant against the plaintiff

(2) The plaintiff pay the defendant’s costs.

Catchwords:

RESTITUTION – Moneys had and received – Director’s Authority to transfer funds – Change of Position

Legislation Cited:

Corporations Act 2001 (Cth)

Cases Cited:

Corporate Management Services v Abi-Arraj [2000] NSWSC 361

Coshott Family Pty Ltd v Lyons [2022] NSWCA 216T

David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353

Fisher v Divine Homes Pty Ltd [2011] NSWSC 8

Goldus v Cummins (No.4) (2021) 157 ASCR 118

RnD Funding v Roncane [2023] FCAFC 28

Twigg v Twigg (2011) 85 ACSR 512; [2022] NSWCA 68

Texts Cited:

Nil

Category:

Principal judgment

Parties:

Plaintiff: Australian Tailings Group Pty Limited (In Liquidation) (Receiver and Manager Appointed)
Defendant: John Hillam

Representation:

Counsel:
Plaintiff: Mr A Mathas (Solicitor)
Defendant: Mr A Oakes

Solicitors:
Plaintiff: Mathas Law
Defendant: Mars Legal

File Number(s):

2020/00270861

Publication restriction:

None

JUDGMENT

Introduction

1. These proceedings have been brought by the plaintiff (ATG) against its former sole director (Mr Hillam). They concern a transfer of $250,000 made by ATG on 4 October 2019 (the Transfer). The plaintiff accepted however, that of that sum, the amount of $61,500 was transferred back by Mr Hillam into its account, and as such an amount of $188,500 was ultimately claimed by ATG.

2. ATG’s only cause of action is a common law count of money had and received. It made no voidable transaction claims under Part 5.7B of the Corporations Act 2001 (Cth) nor did it make any allegations of breaches of any fiduciary or statutory duties on Mr Hillam’s part.

3. It was not in dispute in the proceedings that the $188,500 was ATG’s money, and that it was received by Mr Hillam.

4. These facts however are insufficient to establish ATG’s cause of action. In order to succeed in a restitutionary claim in moneys had and received, a plaintiff must establish “the existence of some qualifying or vitiating factor which gives rise to a prima facie obligation to make restitution” (See Coshott Family Pty Ltd v Lyons [2022] NSWCA 216 at [21]-[22] per Kirk JA (Meagher JA and Griffiths AJA agreeing); David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353).

5. The plaintiff identified two such vitiating factors. Namely, Mr Hillam’s lack of authority to make the Transfer, and a lack of consideration for the Transfer.

Lack of Authority

6. As I have indicated, at all times relevant to the proceedings Mr Hillam was the sole director of ATG. He gave evidence that the Transfer “was made with my authority as the director of ATG” (See Affidavit of John Frederick Hillam affirmed 27 May 2022 at [9]). That evidence was not challenged in cross-examination.

7. It is trite to say that companies can only act through their directors. It is also trite to say that in circumstances of a company having only one director, that company can only act through the decisions of that person. Accordingly, as Mr Hillam’s evidence is that the sole director of ATG approved the Transfer, in my view, that evidence is itself probably sufficient to dispose of the plaintiff’s assertion of a lack of authority.

8. ATG submitted that Mr Hillam did not have the power to authorise the Transfer. I do not accept that this is the case. The type of authority in question in this case, is authority in the context of a claim for money had and received. These proceedings are not concerned with a payment which may have been authorised, but which nonetheless was made in breach of directors’ duties.

9. ATG relied upon Twigg v Twigg (2011) 85 ACSR 512; [2022] NSWCA 68. That case however, concerned a claim for a director’s breach of duty. It was not a claim for money had and received. The passage upon which the plaintiff relied, concerned an issue as to whether the director in that case had been given delegated authority (by the other director) to approve trust distributions. This issue arose in circumstances where the payment of such distributions required the approval of both directors (See Twigg v Twigg at [38]).

10. Thus, the facts in Twigg bears little resemblance to the present case.

11. That said, I should also note that in Twigg, Brereton JA noted that “the making of payments was clearly within [the director’s] usual authority” (Bell CJ and Payne J A concurred).

12. The Plaintiff in reply sought to suggest that Brereton JA’s statement was to some extent qualified by what followed in the extract which I have just set forth. I do not believe that this is the case. To my mind, the full quote set out by the plaintiff in its reply [9] do not represent statements of principle, but rather they are concerned with the facts of Twigg, which as I have earlier indicated, were quite different from the present case.

13. It seems to me therefore, that the making of the Transfer was clearly within Mr Hillam’s usual authority as the sole director of ATG. Whether doing so hypothetically involved a breach of duty on his part is a quite separate question, and one which was not the subject of the plaintiff’s claim.

14. ATG also submitted that in order to be effective, Mr Hillam’s decision to make the Transfer required some form of external manifestation. In so doing, it relied on Fisher v Divine Homes Pty Ltd [2011] NSWSC 8. In my view, Fisher is not authority for the proposition that every transaction between a company and its sole director must be recorded in a resolution, or some other formal instrument. In my view, there is no such principle.

15. Fisher relevantly concerned a director’s misfeasance claim. That claim was brought under section 598(2) of the Corporations Act 2001 (Cth). The extract upon which ATG relied concerned the issue as to whether the director had established a quantum meruit defence based on a service contract which he asserted that he entered into with the company (See [51]). As such, in Fisher, the director bore the onus of proving the existence of the agreement with the company and failed to do so. In this case, Mr Hillam is not sued for misfeasance, nor does he bear an onus.

16. It is again worth emphasizing that no breach of duties is pleaded against Mr Hillam. I repeat this fact as the plaintiff, especially in reply, regularly relied upon authority relevant to such cases, which are not, in my opinion, relevant to a case in moneys had and received.

The Transfer was recorded in ATG’s financial records

17. I am also of the view that, in any event, ATF’s assertion of a lack of external manifestation of the Transfer is not available to it on the evidence. The fact is that there is contemporaneous and corroborative objective evidence of ATG authorising the Transfer. Relevantly, ATG maintained a director’s loan account for Mr Hillam. The MYOB ledger for that loan account records the transfer of $250,000 to Mr Hillam (Exhibit DX-2 (CB 516)).

18. ATG sought to rely on the fact that the Transfer was recorded on 22 October 2021 and not 4 October 2021 (when it was made). In my opinion this fact is immaterial. Mr Hillam’s evidence was that loan account records were reconciled on dates later than the dates upon which the transactions took place, and thus it was to be expected that the ledgers of the payee and payer would not immediately correlate perfectly (T25:16-18, 28:11-15). This evidence was unchallenged and uncontradicted. I also note that the transfer is clearly evidenced in the bank records of ATG.

19. Thus, ATG’s own ledgers record the Transfer. This in my view, in and of itself, is also sufficient to dispose of ATG’s assertion that in Transfer, Mr Hillam lacked authority, or that the Transfer lacked external manifestation.

ATG’s Contractual Arrangements With RnD

20. In its submissions ATG raises an alternative argument which was stated in reply to be related to the issue of Mr Hillam’s authority. The argument was that ATG could not have authorised the Transfer because its contractual arrangements with a third party, RnD Funding Limited (RnD) prevented ATG from dealing with the funds the subject of the Transfer. RnD was a secured creditor.

21. I see no merit in this argument. To my mind, the argument wrongly conflates ATG’s ability to authorise use of its own assets, with its contractual obligations to a third party. Whether the Transfer caused ATG to breach its obligations under a 22 December 2017 Facility with RnD (which may give rise to a claim by RnD against ATG) to my mind is quite irrelevant to ATG’s claim against Mr Hillam in moneys had and received.

22. Mr Hillam in his written submissions at [21] and [22] demonstrated in any event, that at the date of the Transfer, ATG was in funds significantly above the sum of $320,000, the subject of RnD’s security. He asserted, correctly in my view, that RnD’s security interest did not extend beyond ATG’s indebtedness to RnD (Goldus v Cummins (No.4) (2021) 157 ASCR 118 at [518]).

23. The plaintiffs reply submission at [15], failed to come to grasp with Mr Hillam’s submission. In that paragraph ATG refers to the judgment of the Full Court of the Federal Court in RnD Funding v Roncane [2023] FCAFC 28 at [133], suggesting that the secured moneys could exceed the sum in fact advanced by the secured creditor. I do not consider that case to be authority for that proposition. In the quoted passage to which the plaintiff referred, their Honours’ referred to the fact that the secured moneys in that case also included interest and fees.

24. In my view, the Full Court did not decide that the principal sum secured by a secured creditor could extend beyond the sum which was in fact advanced.

ATG has not proved lack of consideration

25. ATG also submitted that there was no consideration provided for the Transfer. I do not accept this submission.

26. In my view, this submission must fail for at least two reasons. Namely;

1. First, as I have earlier indicated, ATG’s financial records show that the Transfer was applied to Mr Hillam’s director’s loan account (CB 516). The ledger indicates the Transfer was used to discharge an amount of $78,801.55 which ATG owed to Mr Hillam, and was then subsequently set off against ATG’s later indebtedness to Mr Hillam until the loan balance was $0.

2. Secondly, the funds transferred were then applied by Mr Hillam to loan accounts between ATG and its related entities WMG, International Mining Group Pty Ltd (IMG) and Propfest Pty Ltd (Propfest). As I have earlier indicated, the bank records show that Mr Hillam transferred $61,500 back to ATG and the remainder was transferred in batches to: WMG ($22,000), IMG ($101,050) and Propfest ($68,000). (See CB 350-353; CB 357-358; CB 380; CB 398-399; CB 410). These transactions were identified in Mr Hillam’s 27 May 2022 Affidavit at [11], [18], [25] and [31] (CB 322-326).

3. Mr Hillam’s evidence was that the transfers were intended by him to be in repayment of loans owing by ATG to WMG and IMG and in respect of the loan account between ATG and Propfest (See Hillam 27 May 2022 Affidavit at [19], [26] and [32] (CB 324-5)). The existence of the inter-company loan accounts are evidenced by written loan agreements, and the ledgers maintained by each company (See: Exhibit DX-3 (CB 529) (WMG); Exhibit DX-4 (CB 539) (IMG); ledgers: CB 368 (WMG); CB 391 (IMG); CB 412 (Propfest); CB 374, 394 and 414 (ATG)).

4. Mr Hillam maintained this evidence under cross-examination (T 27:48-28:28). He also readily conceded that the inter-company loan account ledgers between ATG and WMG/IMG/Propfest did not record the transactions (See T 25:41-49; T 28:4-17; see also Hillam 27 May 22 Affidavit at [7] (CB 321)).

27. In relation to the state of the inter company loan account ledgers, Mr Hillam noted that the inter company accounts were nor kept up to date on a regular basis. He said the process of reconciling the various accounts was complicated, and was performed by the company’s accountant after the end of each financial year.

28. He said that the process was a detailed one which took place over a number of days.

29. Significantly in my view, while Mr Hillam was cross-examined about what the ledgers of the various companies did or did not say, his evidence regarding the purpose of the payments was not challenged in cross examination.

30. The plaintiff in its reply submissions [17(3)] did not accept that there was evidence that the transfers by Mr Hillam to the related companies were intended to be a repayment of loans owing by ATG to those companies.

31. I do not believe that this submission is available to the plaintiff in the absence of challenging Mr Hillam’s assertions that this was in fact his intention.

32. ATG made criticisms of the state of the accounts between ATG and related companies, which to some extent were justified. That said it seems to me that however the various accounts are viewed, they establish that ATG received valuable consideration for the Transfer.

33. It follows in my view that ATG has not established that the Transfer was made either without authority or that it lacked consideration. Accordingly, its claim for money had, and received should be dismissed.

Change of Position Defence

34. Mr Hillam also relies on a defence of change of position. This defence was not expressly pleaded by him, but ATG took no point about this fact. In my view, this was an appropriate course for it to take.

35. I take this view as if the facts giving rise to a defence are made out in the evidence, a restitutionary claim must fail. In David Securities Pty Ltd v Commonwealth Bank of Australia, the majority stated that:

“The fact that the payment has been caused by a mistake is sufficient to give rise to a prima facie obligation on the part of the respondent to make restitution. Before that prima facie liability is displaced, the respondent must point to circumstances which the law recognizes would make an order for restitution unjust (97). There can be no restitution in such circumstances because the law will not provide for recovery except when the enrichment is unjust. It follows that the recipient of a payment, which is sought to be recovered on the ground of unjust enrichment, is entitled to raise by way of answer any matter or circumstance which shows that his or her receipt (or retention) of the payment is not unjust.” (my emphasis)

36. In my view, Mr Hillam’s evidence clearly establishes his change in position defence. He gave evidence that:

1. his understanding was that amounts advanced by RnD were repayable on 30 October 2019 and therefore were not outstanding as at 4 October 2019 when the Transfer occurred (See T 19:38; T 20:28);

2. he did not believe he required RnD’s approval to make the Transfer (See T 24:28);

3. he authorised the Transfer in his capacity as sole director of ATG (See Hillam 27 May 22 Affidavit at [9] (CB 322)); and

4. he transferred the funds comprising the $188,500 the subject of the plaintiff’s claim to WMD, IMG and Propfest with the intention that they would be applied towards the inter-company loan accounts between those entities and ATG (See Hillam 27 May 22 Affidavit at [19], [26] (CB 324-5)).

37. This evidence was not the subject of challenge in cross-examination. As such I accept his evidence as to his subjective belief, which evidence to my mind demonstrates that Mr Hillam acted in good faith. In my view, ATG’s criticisms of the subsequent state of the reconciliation of the accounts between ATG and the payee companies (See for example Reply Submissions [19(5)] and [20(3)]) cannot detract from this fundamental fact.

38. Mr Hillam’s own bank records show that, immediately prior to the Transfer, his account credit balance was $4.52. The money he received from the Transfer was then returned to ATG or transferred to WMG/IMG/Propfest (See CB 357-358). Thus, in my view, there can be no question other than that the unreturned funds the subject of the Transfer, were used for the payments to WMG/IMG/Propfest.

39. This evidence supports Mr Hillam’s evidence, and leads to a conclusion that he acted to his detriment on the faith of the Transfer (See Corporate Management Services v Abi-Arraj [2000] NSWSC 361 at [12] per James J).

40. In summary, I find that the evidence establishes that Mr Hillam received and then paid out the relevant funds to other entities in the honest belief that ATG was obtaining full value for those funds (by discharging liabilities or creating credits in inter-company accounts). He thus acted on the faith of the receipt of the Transfer.

41. In simple terms, it seems to me that Mr Hillam no longer has that money, in circumstances where it would be inequitable to require him to make restitution.

42. For these reasons, if ATG had otherwise made out a case in moneys had and received, which in my view it has not, I would have concluded that such a restitutionary claim was defeated by a change of position defence.

Conclusion

43. For these reasons, the plaintiff’s claim should be dismissed with costs.

Orders

1. Judgment and verdict for the defendant against the plaintiff

2. The plaintiff pay the defendant’s costs.

Decision last updated: 01 September 2023