Citicorp Australia Ltd and Others v Cirillo and Another No. Scciv-85-1481
[2003] SASC 59
•28 February 2003
CITICORP AUSTRALIA LTD AND OTHERS v CIRILLO AND ANOTHER
[2003] SASC 59
Civil
OLSSON AUJ:
Preliminary
I am called upon, by virtue of the order of a Master made on 18 July 2000, to determine certain preliminary issues arising in this matter.
There are a substantial number of persons and entities to which it is necessary to make reference in the course of these reasons. I indicate, at the outset, the manner in which I will describe them. I do so in tabular form.
Description Person/Entity
“Adelaide Excavators” a company incorporated on 7 June 1976 as Adelaide Excavators Pty Ltd, of which Cirillo and his brother were the shareholders. It was eventually wound up, by order of this Court, on 13 December 1982, on the petition of the Australian Taxation Office, for failure to pay group tax instalments.
“Ballista” Ballista Pty Ltd, originally Vince Cirillo Pty Ltd (the name having been changed), which was wound up by order of this Court, made on 10 May 1982.
“Bullwinkel” John Bullwinkel, an account manager of Citicorp.
“Cirillo” the defendant Vincenzo Giovanni Cirillo.
“Citycorp” the plaintiff Citicorp Australia Ltd.
“CWC” a company known as C.W. Construction Pty Ltd, incorporated by Cirillo in 1981, under the name Vince Cirillo & Associates Pty Ltd. It was wound up, by order of this Court, made on 11 March 1985 on the petition of SGIC; and finally dissolved on 22 August 1990.
“Heard” John Harold Heard. He and Stephen Elliott Young, were appointed receivers and managers of CWC on 14 January 1985, pursuant to the provisions of a debenture executed by it in favour of Citicorp.
“Heinrich” John Heinrich, an equity investor in and managing director of CWC, responsible for its administration, for a period during the years 1982 and 1983.
“Heyes” Peter G. Heyes, a principal of a company known as Heytrack (Aust) Pty Ltd which, inter alia, dealt in second-hand earthmoving machinery and was based in Victoria. He is said to have died prior to trial.
“Heytrack” Heytrack (Aust) Pty Ltd.
“Hill” Patrick Hill, accountant for Cirillo personally over many years.
“Hocevar” Ladislav Hocevar, a plant operator employed by CWC to work on the ETSA site at Port Augusta, as a subcontractor.
“Lilley” Brian Lilley, a partner of Coopers & Lybrand in 1983 when that firm was retained by CWC as accountants and auditors.
“McLean” Darrell Roy McLean, a foreman employed by CWC during the early 1980s.
“Mulvaney” Bruce Mulvaney, an employee of Heard in 1984 and 1985.
“Stefanac” Micky Stefanac, a plant operator who worked for Cirillo and CWC, both prior to and during the period of the ETSA contract. During that contract he mainly operated Poclain Excavators.
“Vince Cirillo Pty Ltd a company formed by Cirillo and his equity partners as the operating vehicle through which earthmoving contracts were executed up to at least about mid 1981. It later became Ballista.
“Wales” Bruce Wales, a partner of Coopers & Lybrand engaged by CWC in 1983 as its financial adviser.
A major focus of these proceedings is upon the ownership, at relevant times, of a major item of earthmoving machinery referred to as a Poclain HC 300 Excavator Serial No 77. I shall simply refer to it as “the Poclain”, although it must be borne in mind that there were other Poclain machines adverted to in the course of evidence. A reference simply to the Poclain should be taken as a reference to that of the above model and serial number, unless I otherwise indicate.
It should be stressed at the outset that, of necessity for contextual reasons and also by reason of credibility issues, the evidence, and cross‑examination in particular, ranged somewhat further afield than the core issues to be determined at this juncture. Any discussion of findings as to such peripheral matters must be regarded as provisional only, as further evidence may well be directed towards them in any ongoing conduct of the litigation.
I propose to avoid making definitive findings as to certain matters that were canvassed in cross‑examination of witnesses led by Citicorp, which could only be relevant to credit at this stage. To do otherwise might well lead to future embarrassment in any ongoing conduct of the litigation.
Introduction
On 2 May 1985, Citicorp, CWC (Receivers and Managers Appointed), and Heard and Young instituted these proceedings by writ of summons. Cirillo and a company known as Cobweld Industries Pty Ltd were named as defendants.
The endorsement on the writ asserted that the Poclain was the property of CWC; that it was subject to a charge granted by that company to Citicorp on 18 April 1983; and that the plaintiffs were entitled to immediate possession of it, pursuant to the terms of the charge.
The relief sought included an injunction restraining Cirillo and the co‑defendant from selling, assigning, letting, encumbering, using, damaging, disposing of, or dealing in any other manner with the Poclain, without the written consent of the plaintiffs. The plaintiffs also sought an order for the delivery up of the Poclain to Heard and Young.
At the time of the issue of the writ the plaintiffs also issued an ex parte interlocutory summons, seeking an interim injunction against Cirillo in terms claimed in the writ, save that there was no qualification “without the written consent of the plaintiffs”; and it was also sought to injunct Cirillo against parting with the possession or custody of the Poclain.
Cox J granted an interim injunction on 3 May 1985, in those absolute terms, the plaintiffs having given the usual undertaking as to damages. That injunction originally remained in force until 10 May 1985, but was later continued by White J until 24 May 1985.
Cirillo entered an appearance to the writ on 10 May 1985. Cobweld took no active part in the proceedings.
On 13 May 1985 the plaintiffs issued an inter partes summons, seeking a full, ongoing interlocutory injunction, against Cirillo, in terms similar to that then in force. This came before White J on 24 May 1985. He continued the interim injunction, as a full interlocutory injunction. His order, inter alia, recites that such injunction was granted on -
“The plaintiffs by their solicitor continuing the undertaking to abide by any order the Court or a Judge may make as to damages in case the Court or a Judge should hereafter be of opinion that the first defendant [Cirillo] shall have sustained any by reason of this order which the plaintiffs ought to pay contained in the order made herein on the 10th day of May 1985.”
Following the granting of the interlocutory injunction to which I have referred, Citicorp and its co‑plaintiffs did not take any further steps to prosecute the proceedings over a very considerable time. The Poclain remained stored at premises at Hanson Road, Wingfield, which were originally controlled by Heard, following his appointment as a receiver and manager. Those premises were later purchased by a business associate of Cirillo, in about the first week of April 1985, when sold by Citicorp as mortgagee in possession. Cirillo was then allowed back in possession of the property by the new owner and has remained in occupancy ever since. However, the injunction remained in force until 1993 and, by virtue of it, he was forbidden to use or deal with the Poclain.
Under cross‑examination Heard conceded that, the interlocutory injunction having been obtained, there was what was described by him as “minimal activity” in relation to the present proceedings, notwithstanding that other litigation which was pending at the time was diligently pursued to some ultimate conclusion. He conceded that he had received instructions from Citicorp to adopt that stance and to ensure that minimal ongoing costs were incurred in relation to this action.
When pressed he said that he was unable to recollect when he received those instructions. He agreed that it was hoped by Citicorp and himself, at about the time of the granting of the interlocutory injunction, that Cirillo would be made bankrupt in the then near future. It was felt by them that a trustee in bankruptcy would be far easier to deal with, in attempting to negotiate some form of settlement, than would be the case in dealing direct with Cirillo himself. A good deal of time was spent by counsel in endeavouring to explore the issue of precisely when Heard received his instructions to minimise costs. As I understand Heard’s evidence, this was said to have probably been some time in the period September to November 1985. I am satisfied that the evidence, as a whole, strongly suggests that the decision to do nothing may well have been taken at a much earlier point in time, although it is impossible to determine precisely when this occurred.
I accept Heard’s evidence that, as at the date of the obtaining of the interlocutory injunction, there was a combination of factors which bore on a decision not to immediately file a statement of claim and press on with the action against Cirillo. At about this time Heard had been and became involved, either directly or indirectly, in what proved to be something of a welter of litigation.
Shortly after Heard and Young were appointed as receivers and managers, Cirillo had brought proceedings in this court to challenge the validity of such appointment. That challenge ultimately proved unsuccessful.
In mid‑February 1985 Heard initiated proceedings in the Supreme Court of Victoria against Heytrack, seeking to recover certain Volvo trucks said to be the property of CWC. On 5 March 1985 Starke J declined to grant an interlocutory injunction against Heytrack, but the action continued on foot. There is no definitive evidence as to its ultimate progression, or the details of its final disposal.
After the interlocutory injunction was granted in the present action substantial litigation developed in relation to whether or not the Poclain or a Poclain Serial No 174 had been sold to Heytrack and as to what financing institutions had any claim to either of them. Proceedings in that regard were commenced in the Supreme Court of Queensland on 13 June 1985 and CWC (receivers and managers appointed) was joined as a third party on 5 August 1985.
As will later appear, there is a clear conflict between the evidence given by Cirillo to a Master to the effect that he had sold the Poclain to Heyes, on the one hand, and a statutory declaration made by him, on 30 May 1985 (in relation to the litigation in Queensland) to the effect that it was Poclain No 174 that had been sold to Heyes.
Heard also had to address pressing issues concerning both the need to complete the ETSA contracts (to which I will also later refer) to prevent relevant performance guarantees being called up, as well as the value of any securities held by Citicorp in relation to liabilities owed to it. All of these aspects inevitably gave rise to further cost/benefit issues as to the utility of pursuing of the claim by Heard to the Poclain, having regard to any equity which might possibly remain in it.
It was Heard’s stance, in giving evidence, that it was pointless precipitately pressing on with the litigation related to the injunction until there had been a resolution of the quite separate litigation commenced in Queensland concerning the two Poclains and the competing equities in relation to them. That litigation was ultimately pursued to a final resolution some time in 1987.
That may be so, but there is no convincing explanation of the later delay after that litigation was resolved. A possible reason is that, by then, the Poclain had so deteriorated that it was no longer of any substantial value. However, I think that the more likely explanation is that Citicorp had hoped that a “do nothing” approach might produce the result that Cirillo may well have become bankrupt and his trustee in bankruptcy would, in fact, be far easier to negotiate with. The tone of the much later letter comprising exhibit D71 is consistent with such a tactic. I will shortly return to the content of that letter.
Mulvaney sought to assert that the reason for not pressing on with the preparation and filing of a statement of claim immediately following the granting of the interlocutory injunction was probably that Heard was awaiting the outcome of the then pending examination of Cirillo before the Master. That explanation is scarcely convincing. There was nothing at all to prevent the filing of a statement of claim if, as Mulvaney asserts, there was considered to be a bona fide strong claim at the time. All of the necessary factual information would have been readily available to enable this to have been done.
Cirillo was declared bankrupt on 4 June 1992, on the petition of the Commissioner of Taxation. His personal estate was sequestrated and the Official trustee appointed trustee of it.
The sequestration of Cirillo’s estate did not stimulate any action in relation to the present proceedings. As appears from exhibit D71, Heard or his employees had actively canvassed support for the proposed bankruptcy from other creditors, obviously with a view to bringing all outstanding issues with Cirillo to some conclusion. Heard conceded that, as at the time of the bankruptcy, the value of the Poclain had greatly diminished, by virtue of it standing idle for a very long time, exposed to the elements. Although Heard was somewhat coy on the topic, I am satisfied that he must have appreciated that, to employ an expression coined by Mr Ribbands, of counsel for Cirillo, it may well have been of little more than scrap value by that time. The cost of removal and sale -- even if Heard had the legal right to organise this -- could have been disproportionate to any sale price recovered. In so saying I by no means ignore the content of the affidavit filed by Cirillo in the proceedings in the bankruptcy jurisdiction in which, inter alia, he asserted that the Poclain was worth $80,000. This was in the context of a desperate attempt on his part to demonstrate that he was solvent, having regard to the value of the assets that he owned. I entertain no doubt that, for that purpose, he substantially inflated some relevant values. However, that is not to gainsay the accuracy of what was put to Heard and, as I understand it, acceded to by him.
On 29 December 1990 Cirillo served on Citicorp a notice of his intention to proceed in the action after the expiry of one month. On 3 May 1991 his solicitor issued a summons seeking an order that the claim against Cirillo be dismissed for want of prosecution. This application came before a Master on numerous occasions over a period of some 18 months.
On 7 October 1992 a Master made the following fiat -
“The plaintiff seeks to discontinue and will, if advised, do so in its discretion.
The question of costs and the question of the undertakings as to damages, however, remains alive. Having heard the plaintiff' s counsel, the Official Receiver and Mr Cirillo himself, I now order that, if by 31/1/93 Mr Cirillo is still bankrupt and the action has been discontinued, then there will be no order as to the costs of that discontinuance and the plaintiff will automatically be released from the undertakings as to damages given earlier in these proceedings. If, however, at that date the action, having been discontinued, Mr Cirillo has been discharged from bankruptcy, then the question of costs of the discontinuance and the application for release from undertakings is reserved for further consideration upon the application of Mr Cirillo.”
In the event, neither of the contingencies envisaged by the Master occurred. The plaintiffs ultimately filed a notice of discontinuance of their claim against Cirillo on 4 February 1993. There has been no explanation why this did not occur prior to 31 January 1993. The proposed witness Christie, a solicitor who had the conduct of the proceedings, was not called, despite an intimation that he was to be a witness. I am therefore left to draw the inferences above recited.
Heard, somewhat remarkably, asserted in cross‑examination that such a discontinuance, had it occurred within the four corners of the above fiat, would have resulted in the outcome that he would automatically have become entitled to the Poclain -- because the Official Receiver would not dispute his ownership of it.
The rise and fall of CWC
CWC was originally incorporated (under the name “Vince Cirillo & Associates Pty Ltd”) on 5 March 1981. It changed its name to CWC on 9 November 1981.
The company was expressly brought into being for the purpose of carrying out major contract works at the site of what was to be the then new ETSA North Power Station at Port Augusta. The tender for the work was actually submitted in the name of Vince Cirillo Pty Ltd, but expressly foreshadowed the creation of the new entity, in the event that such tender was successful. As will hereafter appear, it was, in fact, successful and CWC duly embarked on the relevant contract works.
Citicorp appointed Heard and Young as receivers and managers of CWC on 14 January 1985, pursuant to the provisions of a floating charge over its undertaking, property and assets. CWC had executed the relevant debenture on 18 April 1983, to secure certain advances to which I will later refer in more detail. It was said that, on the former date, CWC was in default under that debenture charge.
The instrument of appointment (exhibit P245) does not seek to particularise any specific default relied upon. It merely recites that Citicorp is entitled to make the appointment, pursuant to clause 6.1 of the debenture charge. It was associated with an instrument of demand for payment of all money secured to Citicorp under the debenture, bearing the same date.
Heard contended that the circumstances giving rise to the right to make the demand and exercise the power of appointment included the facts that the stage had been reached at which there was no workers compensation cover for CWC employees, the assets of the company were said to be at risk of being lost or seized because various hire purchase and leasing instalments had fallen into arrear, one of several contracts then held by CWC had been terminated and there was a garnishee threat by the Australian Tax Office.
In the course of his cross‑examination on 23 October 2002 Heard was constrained to concede, on the facts and figures put to him by counsel for Cirillo, that, as at the date of the appointment of the receivers and managers by Citicorp, CWC may not have been in default as to any financial amounts then currently accruing due in relation to any loans secured by the debenture charge. It was argued that, leaving aside any contingent liability on performance guarantees, the only actual debt due to Citicorp at the time was the mortgage liability in respect of the Wingfield premises, the equity in relation to which exceeded the amount owed. Even that debt was not due by CWC, but by an associated holding company. Bullwinkel was driven to a similar concession in cross‑examination.
Whether that be so or not, there can, in my view, be no question but that Citicorp was entitled to appoint a receiver and manager under the debenture by virtue of several other provisions of clause 4 of that document. Without attempting to be fully definitive in that regard, it is to be noted that CWC had failed to pay premiums in respect of its workers compensation insurance cover, as a consequence of which it could not lawfully continue to employ persons to execute its work, it had not honoured its obligations to supply financial statements to Citicorp on time, it was clearly unable to pay its debts as they fell due, and I consider that its liabilities did, in fact, exceed its assets at the time -- as contended for by Mr McNamara, of senior counsel for Citicorp. The fact that certain actions by CWC, as explored by Mr Ribbands in his cross‑examination of Bullwinkel, may have contributed to those situations is beside the point.
Cirillo's claim pursuant to the undertaking as to damages
Cirillo was unable to use the Poclain during the whole of the time from 24 May 1985 to the date of discontinuance, because he had been injuncted against so doing. It simply stood idle in the open and deteriorated mechanically, to the point of becoming inoperable and beyond economic repair.
He was discharged from his bankruptcy on 20 June 1995. The Official Trustee executed a deed of assignment dated 29 May 1996 to Cirillo of every chose in action that the Official trustee had, as trustee of his sequestrated estate, against Citicorp, Heard and Young. Notice of that assignment was duly given to Citicorp. The relevant terms of the assignment were expressed as follows:
“1.1 The Assignor hereby sells, assigns and transfers to the Assignee absolutely every chose in action (and all rights, title and interest thereto) which the Assignor as trustee of the bankrupt estate of the Assignee and Grieves may have against Citicorp, John Harold Heard and Stephen Elliott Young howsoever arising, including but not limited to the causes in action (sic) specified in the proceedings commenced in the Supreme Court of South Australia being Action No 80 of 1991.
1.2 The sale and assignment of every chose in action referred to in clause 1.1 hereof shall include every chose in action arising out of or consequent upon the appointment of John Harold Heard and Stephen Elliott Young as Receivers and Managers by Citicorp over the assets and the property of C.W. Construction Proprietary Ltd (Receivers and Managers Appointed) A.C.N. 007 947 935 but shall exclude any legal entitlement to set aside the appointment of the Receivers and Managers in the event that any such legal entitlement vested in the Assignor by virtue of the Bankruptcy Act upon the sequestration order made against the estate of the Assignee and Grieves.”
The present proceedings having been discontinued by Citicorp, Cirillo now seeks to enforce the undertaking originally given by it as a condition of the granting of the injunctions in relation to the Poclain. In essence, Cirillo contends that Citicorp was never entitled to obtain the injunction in the first place; and that he has sustained very substantial damages as a result of his inability to use and maintain the equipment. He asserts that its enforced disuse eventually rendered it virtually valueless and that he was not able to avail himself of its considerable earning capacity over a very long period of time.
This claim has given rise to a substantial number of issues between the parties. On 18 July 2000 a Master directed that five of such issues be heard and determined as preliminary issues in the action. One of those issues was amended at trial.
Expressed in summary form those issues, as they finally stand, are -
(1) Whether Cirillo has standing to pursue his claim for relief against Citicorp, in light of the events which have occurred;
(2) Whether Cirillo was the owner of the Poclain as at, or subsequent to, 18 April 1983, or was a person in actual and/or apparent possession of the Poclain from and after 19 June 1976 and had all rights and remedies of a person entitled to a right of possession in respect of the equipment;
(3) Whether Cirillo is estopped from asserting that he was the owner of the Poclain;
(4) Whether Cirillo transferred or assigned his interest in the Poclain; and
(5) Whether Cirillo abandoned his interest in the Poclain.
Accordingly, these reasons are limited to a consideration of such issues, in light of the considerable volume of evidence, both oral and documentary, which has been placed before me.
Relevant background history
Cirillo’s personal history is, in some respects, quite remarkable. He came to Australia in 1949 with his family, at the age of 10. They were refugees and he had received little or no formal education. The family literally lived in a General Motors-Holden’s shipping container type box in the West Lakes area for about two years. Cirillo assisted his father in market gardening activities.
He secured paid employment at the age of 14. He learnt from others over time and, from 1961, steadily acquired specialist knowledge in the earthmoving industry and equipment used in that work. He obtained a truck when he first entered this area. By the mid-1970s, Cirillo owned or controlled a range of special purpose plant. He would usually purchase second-hand equipment and then refurbish it into excellent working order. Apart from a considerable mechanical flair, he seems to have developed specialised expertise in drainage related, pile driving and drilling type work, gradually taking on larger and larger contracts. He also executed more general civil construction works.
Cirillo obviously concentrated his personal endeavours on the operational and technical aspects of earthmoving and related work. He worked long hours and, of necessity, depended on others to attend to the general administration of his business interests. In part he relied on employees and, in part, on persons who, from time to time, were equity contributors to the business.
Cirillo brought several corporate entities into existence, as part of his developing business structure - particularly in the 1980s. However, the evidence clearly indicates that, in practice, he rarely drew any rigid distinction between assets belonging to any corporate entity and his own personal assets. At times, plant and machinery were acquired in the name of a corporate entity and, at times he, personally, purchased items of plant. He freely made his plant available to his corporate entities, to use and/or raise finance in their names.
The situation in the 1970s is, perhaps, best illustrated by reference to a number of documents to be found in Volume 1 of the tender books. The evidence indicates that, in that period, one corporate entity was Adelaide Excavators, of which Cirillo and his brother were the sole shareholders. Another was Vince Cirillo Pty Ltd, which seems, at one point, to have been called V G Cirillo Earthmovers Pty Ltd. Hill testified that this latter company was the operating entity.
Schedules of plant and equipment which were prepared by Hill clearly disclose that, as at 30 June 1978, a significant amount of plant and equipment, including the Poclain, was shown as belonging to Cirillo personally (exhibit P4). A separate list of heavy earthmoving plant, forming portion of the same exhibit, indicates the items said to have been owned by Vince Cirillo Pty Ltd. The same picture emerges from schedules prepared in relation to the following three financial years, given that CWC had come into existence by 30 June 1981 and was said, in its accounts, to have already acquired some items of plant.
I note that there are a number of references in documentary exhibits to an HC 300 Poclain excavator, valued at $110,000 being available to Vince Cirillo & Associates Pty Ltd, at a point prior to the acquisition of another HC 300 Poclain serial No 102, for that same sum. Citicorp contends that the references in question obviously relate to the Poclain (see, for example, Appendix A attached to exhibit P6; and also exhibit P94). A similar value was attributed to what can only be the Poclain in the schedule of Cirillo’s plant and equipment comprising portion of exhibit P4.
The depreciation schedules for Cirillo for the year ending 30 June 1982 still contain an item for an HC 300 Poclain equipment (incorrectly referred to as an “HC 300 Proclain”), with no figures adjacent to it; whilst, for the first time, a claim for depreciation for an HC 300 Poclain is included in the depreciation schedule for CWC for that period. I took Cirillo, initially, to say that this last‑mentioned item and the entry related to his Dino Ferrari were the same items as are included in a hire purchase agreement dated 1 July 1981 entered into by the then Vince Cirillo & Associates Pty Ltd with Lombard Australia Ltd (“the Lombard agreement”) (exhibit D16), which describes the chattels, the subject of it, in these terms -
“1973 FERRARI DINO
COLOR (sic): GREEN
ENG: 135CS05938
REG: SYC - 699
1976 POCLAIN
HC 300 EXCAVATOR
ENG: 12264”
[These details have been inserted in the printed document in handwriting. The evidence does not identify the author.]
The nominal term of the Lombard agreement was for three years, although, in fact, all payments due under it were not made until about September 1984. All such payments (both capital and interest) were made by the entity which became CWC.
Cirillo contends that the description of the Poclain excavator set out in the Lombard agreement is erroneous, because it speaks of a Poclain HC 300 model with the engine number referred to in the document -- that number is, he insists, not the engine or serial number of the Poclain, or of an HC 300 model at all. He says that it is a serial number referable to one of two 120 model Poclains, which were acquired by him from Roche Bros in the 1970s; one being a GCK model, with a straight boom, and the other a GC model, with an articulated boom (See illustrations in exhibits D2 and D1 respectively). It is of interest to note that, when asked, in re-examination, to identify in exhibit P213 which were the two 120’s in question, Cirillo selected the two 1970 GCK 120 models at the bottom of page 3 of the exhibit - totally ignoring a 1969 GC 120 model said to have been owned by Roche Bros at the time, referred to near the top of the same page.
He claimed, at one point in his cross‑examination, that the reference in the Lombard agreement was, in fact, to the second 120 model Poclain purchased (T 289-291). He asserts that he signed the Lombard agreement form in blank and that Wagnitz filled in the detail later. Wagnitz has not been called as a witness and there is no explanation for his absence. I infer that, had he been called, he would not have given evidence supportive of Cirillo’s assertion.
The detail in the document is incorrect on any view. The number “12264” is, in fact, the serial number of one of the 1970 model GCK 120 Poclains to which I have referred (exhibit P213). It is not an engine number at all. It is to be noted that, whereas the Poclain is described in exhibit P213 as a 1969 model and the GCK 120 serial No 12264 is listed as a 1970 model, the Lombard agreement refers to a 1976 model equipment. None of the equipment under discussion fits that description. However, the Poclain was, in fact, purchased second-hand in that year.
Cirillo testified that he freely “lent” plant owned by him personally for the purposes of contracts entered into by his companies, or by way of collateral for finance raised by them. This, for example, included his own Dino Ferrari motor vehicle, in relation to the Lombard agreement. That agreement covered a total advance of $75,000 to Vince Cirillo & Associates Pty Ltd, which actually received the money for its purposes, despite the fact that Cirillo asserts that it never owned any beneficial interest in the vehicle.
Insurances for the various Poclains were, from and after July 1981, taken out by and in the name of CWC. As appears from exhibits P145, P147, P148, P149, P151 and other subsequent insurance documentation, one of the items covered was consistently listed as an HC 300 Poclain, engine number 12264 (which, as has been seen, is not an engine number at all and does not relate to any HC 300 Poclain). This contrasts with the engine number of the Poclain, as noted at the view. That number was 8BA‑91239. It is clear to me that, at some point, a clerical error was made and then simply perpetuated. (For the sake of completeness I note that, in one insurance document, there is reference to an HD 300 Poclain. This is an obvious clerical error.) I entertain no doubt that the excavator the subject of both the Lombard agreement and the various insurances was and was always intended to be the Poclain. I do not find the argument of Mr Ribbands, concerning what he says is the inference properly to be drawn in relation to the detail in the Lombard agreement, persuasive. For reasons which I later express, I simply do not accept that either Cirillo, or any of his companies, owned or possessed a GCK 120 Poclain beyond 1979.
There are some entries for plant hire, as between corporate entities and Cirillo, up until the time of the recorded acquisition by CWC of Cirillo’s plant items on 14 May 1983 (see exhibit P79), but, thereafter, certainly CWC did not pay such hire. Cirillo says that, when equipment was lent, the relevant company had to pay all finance instalments on it, to his exoneration. No hire was paid to Cirillo in respect of the Poclain after the Lombard agreement had run its course in September 1984.
The name “CW Construction Pty Ltd” was painted on it at some stage. This remained the situation as at 1 March 1985 (T410). The name is still apparent on the equipment at this time, as was observed during the view, although there has been a partially effective attempt to paint it out. (Cirillo says that he roughly painted over the signs at some date after the receivers and managers had been appointed). There was also a “For Hire” sign painted on the rear of the equipment. This included the CWC telephone number.
Cirillo sought to convey to me that he simply left it to those attending to the administrative aspects of operations to deal with finance and accounting matters - particularly arrangements made to raise finance, when required for the purposes of business operations. I am prepared to accept that, at times, Cirillo may well have not appreciated all of the fine detail of how financial transactions were treated, for accounting purposes, as between himself and his companies. On the other hand, I have little doubt that he appreciated, in general, what financial transactions were initiated to raise funds to finance operations and how repayment of such funds was secured.
The evidence indicates that Cirillo was seriously in default in relation to the lodgment of his personal income tax returns in respect of the financial years ended 30 June 1982 to 1988 inclusive (exhibit P73). Hill had actually prepared returns for the first two of those years and sent them to Cirillo for signature on 7 May 1984 (exhibit P71). However, Cirillo professes no memory of ever having received the documents. He certainly did not sign and return them.
Hill’s office ultimately prepared all of the outstanding returns in 1988, including fresh returns for the first two years of the period. These were signed by Cirillo and lodged at a time when the issues in the present litigation were well known to and must have been appreciated by him.
Relevantly, as to depreciation aspects, Cirillo’s returns, reproduced in 1988 in respect of the years 1982 and 1983, contain detail the same as that shown in the 1984 editions.
The last‑mentioned two documents, which were reflected, as to their depreciation content, by related items in CWC returns for the same periods, purported to show a disposal of most of the vehicles and plant owned by Cirillo to CWC, as of 14 May 1983. The same items were, correspondingly, taken up in the CWC depreciation schedules at the relevant depreciated values. The Dino Ferrari and what was simply described as an HC Poclain, taken in at a value of $50,000, were shown in CWC schedules for the year ended 30 June 1982 as being “Ex HP Agreements”. Inter alia, the schedules included the assets the subject of the Lombard agreement, whatever they were. Those two items were shown in CWC schedules for the year ended 30 June 1982, as having been additions at 1 July 1981. This coincides with the date of commencement of the Lombard agreement. It is to be noted that, in paragraph 6.8.2 of exhibit D19, the vendors of shares in CWC to Cirillo expressly warrant to him the accuracy of those depreciation schedules. He signed the document, accepting that warranty, without demur.
The CWC financial statements for the year ended 30 June 1983 were the first statements prepared by Coopers & Lybrand and were audited by Lilley. Lilley testified that there were some problems associated with picking up the threads from the previous year and he has a positive recollection of discussing the ownership of certain plant items (about 6 ‑ 10) with Cirillo, to clarify the situation. He cannot now recall the precise details. At any event the depreciation schedules prepared for tax purposes tied in with those prepared by Balnaves Stevens & Co for the previous year.
Lilley confirmed that what he said in his letter of 21 August 1985 to Heard (exhibit P268) accurately reflects his memory of what transpired. In that letter he was responding to a query from Heard to the effect that, on his examination before the Master, Cirillo had said that the entries in the accounts prepared by Coopers & Lybrand were incorrect and should be corrected. Lilley had written-
“We refer to your letter dated August 13, 1985 in which you referred to certain claims made by Mr Cirillo relating to instructions he had given us on the preparation of accounts of CW Constructions Pty Ltd as at 30th June, 1983.
As we had explained to members of your staff on numerous occasions the circumstances under which the accounts for 30th June, 1983 were completed were difficult as the accounting records had been kept in an unorthodox way prior to our involvement. The matter in contention in your inquiry relates to the treatment of fixed assets in the year prior to our involvement with that company. We have, in our possession, a fixed asset schedule prepared for and included in the tax return of the company for the 30th June, 1982, which purports to show certain assets owned by the company and which I believe are now subject to dispute by Mr Cirillo. At the time we were completing the June, 1983 accounts Mr Lilley of this office, Ms Grieves and Mr Cirillo spent some time nominating which of those assets belonged to the company and which had been notionally acquired by the company from Mr Cirillo personally. We have shown those schedules to Mr Thompson of your office and if you wish can be shown to you again. In direct response to the claims made by Mr Cirillo, and after checking that the title to the individual items of plant were with the company and with Mr Cirillo's full knowledge, entries were made in the accounts for the period ended June, 1983, which reflected the acquisition by the company of those plant items from Mr Cirillo.
At no time did he or Ms Grieves instruct us to reverse the entries made, and in respect of his claim individual items of plant shown on the June, 1982 tax return can be traced through with due credit being placed on his current account in the accounts for the year ended June, 1983.
……”
In the course of his evidence Mr Lilley said that the use of the word “notional” in the letter was really meaningless. Having considered what he had to say it is my view that he was simply seeking to draw a distinction between transactions put through as book entries, by way of contrast with actual physical transactions, as, for example, on the purchase of a new item from an external supplier.
Mr Ribbands sought, during the cross‑examination of Lilley, to establish the fact that the discussion had with Cirillo was, in reality, limited only to some 6 ‑ 10 items, the identity of which is not now clear. Whilst that may primarily be so, and Lilley’s memory is now somewhat dull on the subject, that does not gainsay the essential substance of the content of Lilley’s letter written as long ago as 1985, when the situation was relatively fresh in his mind. There can be no doubt that, whatever deficiencies existed in the primary record keeping prior to Coopers & Lybrand taking over, the depreciation schedules were professionally prepared and the accounts of CWC for both the 1982 and the 1983 years plainly show a change of ownership and the passing of related credits and debits. It is not to be imagined that the accountants concerned merely prepared these documents as a flight of fancy, without specific instructions from and approval by Cirillo.
Wales, who presented as an excellent and objective witness, confirmed that conclusion in his evidence concerning exhibit P127. He made the point that his amendments to Cirillo’s statement of personal net worth as at 1 March 1984 (set out at page 44 of Tender Book Volume 6) by excising an original reference to plant and machinery owned by Cirillo and including the value of all plant in the “breakup” value of his shares in CWC would not have been made, other than on the instructions and with the personal knowledge of Cirillo. Over time he prepared a series of statements on the footing that Cirillo had divested himself of all of his plant and machinery.
Hill’s office prepared Cirillo’s personal income tax return in respect of the year ended 30 June 1982, as a reflection of what had already been done by Coopers & Lybrand in relation to the CWC return for that year. Exhibit P79 is a copy of a letter written by that firm to Hill on 19 March 1984. It advised him, inter alia, that, on 14 May 1983, CWC purchased the plant indicated in the relevant CWC depreciation schedules at a total written down value of $97,837. He was supplied with copies of the relevant schedules.
As to five specific items referred to in the letter (including an HC 300 Poclain) the letter commented -
“A hire charge for the use of the V.G. Cirillo owned plant by the company for the period 1st July 1981 to 30th June, 1982 and from 1st July, 1982 to 14th May 1983 of $33,235 and $22,696 respectfully(sic) has been credited to VG Cirillo's loan account. With the exception of the following plant: --
Poclain HC 300 Ford 350 Tipper
White Autocar prime mover Low loader
Ferrari Dinowhich had previously incurred depreciation in the company's tax return for the year ended 30th June, 1982, the hire charge is equivalent to the tax depreciation for the period.”
Hill apparently took the view that, given that the five items had previously been made available to CWC for its use on hire, the letter did not convey to him that the ownership of them had also passed to the company. He testified that he was reinforced in that view, by reason of the fact that, in his opinion, the figure attributed to the written down value of plant purchased was not sufficient to encompass the five items as well. He accordingly retained the items in Cirillo's personal depreciation schedules, but did not insert any figures adjacent to them. He apparently assumed that it was intended that a hiring arrangement would continue.
I must say that I do not place such a construction on the letter, read according to the normal connotation of the language used, even if there is some difficulty in reconciling the total written down value figures. The plain fact is that, in its own taxation depreciation schedules for both the 1982 and 1983 years, CWC had claimed depreciation for the five items in question -- which it would only be entitled to do if it owned them. Exhibit P87 clearly indicates that the CWC depreciation schedules for the year ended 30 June 1982 state that the HC Poclain, the Ferrari, and the White Autocar were all acquired by the company on 1 July 1981. The Ford Tipper and the Low‑loader were shown as having been acquired by it on 10 March 1982.
That situation must have been apparent to Hill, had he paused to reflect on it. I am of opinion that his evidence on this score has the flavour of somewhat inaccurate memory reconstruction.
I do not see how, in the circumstances, even given his apparent difficulty in reconciling total written down values, Hill and his staff could logically have concluded that, somehow, Cirillo had retained ownership of the five items of plant. Neither of the exhibits to which I have referred could reasonably have led to such an understanding. Moreover, there is a particular significance in the fact that the depreciation schedules show a transfer of the ownership of both the Poclain and the Ferrari as of 1 July 1981. This was, of course, the date on which the Lombard agreement was consummated.
Cirillo insisted, in the course of his examination before the Master on 12‑13 August 1985, that it had never been intended that the beneficial ownership of his plant should pass to CWC. Although he was aware that it had been listed as plant belonging to CWC it was, he declaimed, merely lent to that company for use and so that it could raise funds (see page 94 of transcript of proceedings before the Master). This is to be read in concert with his further evidence, on that occasion, to the effect that the according to him of a 40 per cent interest in the capital of CWC, after its formation, was partly to recognise the input of his expertise and partly in recognition of the benefit of plant made available by him for use by CWC (both generally and to raise funds), but not its value on a transfer of beneficial ownership.
Such an assertion is not, of course, consistent with the entries in the taxation depreciation schedules, to which Cirillo was, in my view, plainly a party. Nor is it consistent with the content of various schedules prepared by Wales. These were, in my assessment, prepared either on the basis of information positively supplied by Cirillo, or with his approval, as a basis for seeking financial accommodation. (As to this see exhibits P120, P96, P97 and P98. In the affidavit exhibit P99 Cirillo, in effect, deposed (inter alia) that the Poclain was an asset of CWC at the time when the receivers and managers were appointed.) This documentation unequivocally and consistently showed the plant items in question as CWC assets. Virtually all of it proceeds on the implicit footing that the Poclain, the subject of the Lombard agreement, is the Poclain.
The oral evidence given by Wales concerning this is important. His notes comprising exhibit P396 specifically referred to Poclain No 174 as having been that encumbered to Esanda in about March 1984. The CWC plant summary prepared by Wales as of 1 September 1984 (exhibit P97) also shows all three Poclains as being its assets, one being encumbered to Esanda; the HC 300 L model being encumbered to Citicorp; and what must have been the Poclain as encumbered to Lombard.
Wales says that the summary was prepared by him from information which he would have obtained from Cirillo. When his attention was directed to the evidence of Cirillo at T834 that he was told that one Poclain was Cirillo’s, or that, when it was “paid out” it would revert to him, Wales denied that any such statements were made. I accept that denial. As he fairly pointed out, had this been said to him, he would not, in the documentation prepared by him, have treated the items as being an asset of CWC. I took him also to question the accuracy of the evidence of Cirillo concerning a meeting in May 1983 (T987), although he had no specific present memory of such a meeting.
Equally, a series of documents prepared by Wales in 1984, purporting to set out what is described as Cirillo’s net worth for the purposes of submissions to financial lending institutions, are completely devoid of any mention of residual (or any) plant owned by him (see, for example, exhibits P127, P128, P129 and P130). Cirillo attempted to distance himself from these, but it is an inescapable conclusion that the summaries were prepared on the basis of information supplied by Cirillo and with his approval.
All of the above-mentioned documentation needs to be seen in the context of that comprising the exhibits P173 and P175.
The former indicates that, both before and immediately after the granting of the Citicorp loan, Cirillo owed considerable amounts to CWC on his loan account in respect of either cash drawings or personal debts paid for, on his account, by CWC. Indeed, Heinrich had demanded, as a term of the buy out of his equity, that personal debts of Cirillo, of the order of $62,000, be satisfied (exhibit P49). Certainly, exhibit P173 indicates that, following the buy out, the debit balance in the loan account rapidly escalated to $130,598 (cf exhibit D19, tender book Volume 4 Page 22). Exhibit P180 shows a debit balance in the loan account of $279,125 as at 30 June 1983.
The latter discloses that, as at June 1984, total debits to the loan account amounted to just over $254,116, against which substantial offsetting journal credits were then passed. One of these was a sum of $97,837, which was a credit for “Proceeds of Sale of Equipment”. (See Tender Book Volume 4 Page 200) This, of course, serves, at least in part, to explain why Cirillo may have had little option but to sell his plant to CWC in any event. There can be no doubt that he, personally, was in considerable difficulty at the time. He was being pressed by creditors and may well have been unable to pay his debts as they fell due.
There is also another dimension to the transactions recorded in the depreciation schedules and the accounts of CWC. As Mr McNamara QC pointed out, in the course of his examination before the Master in August 1985 Cirillo volunteered the comment that the reason why he had 40 per cent of CWC was both because he supplied the expertise in the field and also in recognition of what he described as “the plant that I put in”. As appears from exhibit P31, the original P101 of the transcript before the Master records Cirillo as saying -
“The reason why I had 40% of CW Construction was because I supply the expertise in the field and the plant so how -- when I explain to the court that 20% of the 40% was on the plant that I put in and 20 percent my expertise in the field.”
In reviewing the foregoing aspects of the evidence there is one important, additional point to be made.
It must firmly be borne in mind that, at the material times, Cirillo’s wife Sybille Grieves was responsible for key clerical and administrative functions in the office of CWC and, as from early 1983, actually became a director of that entity. As I understand the evidence, she personally maintained the prime financial and accounting records of CWC and was, on financial record aspects, the main day‑to‑day point of contact between CWC and its accountants. She is said to have set up and kept excellent financial records and clearly had a detailed grasp of the books, records and financial transactions entered into by the company and the administration of those transactions. I infer that this would have included tax related aspects, at least insofar as they impacted on the proper maintenance of books and records. She obviously had close interaction with the various financiers with which CWC was involved.
The clear implication is that she had an excellent grasp of relevant administrative and financial operations of CWC, to the point that, at least in some respects, she had a much better overview of the financial situation at many times than did Cirillo himself.
Ms Grieves was in court, obviously taking a close interest in the proceedings and from time to time taking notes, almost constantly throughout the trial.
As was pointed out, it is significant that she was not called as a witness to support the evidence given by Cirillo and no reason was advanced to justify her failure to enter the witness box. It is quite clear that she could have given important evidence bearing on many of the topics under discussion in these reasons. The inescapable implication is that, had she been called, she would not have been able to give evidence favourable to what was being advanced by Cirillo.
Her absence enables me, more readily, to draw the inferences related to the internal financial and other transactions pertaining to CWC and the dealings recorded in the various company documents referred to in these reasons that I, from time to time, express.
Before parting from this general topic, it should be said that, in the course of his evidence, Cirillo sought to distance himself from the various schedules, often by categorically denying any prior knowledge of them, or of their content. Mr McNamara QC effectively debunked such a thesis, by inviting his attention to contrary evidence such as affidavits sworn by him in 1996 (see exhibits P98, P99).
The original acquisition of the Poclain and certain other equipment
The Poclain was one of a number of Poclain Excavators, of differing models, procured by Cirillo over time, either personally or through one or other of his companies.
He testified that the first such acquisition was in about 1975, when a GCK (ie straight boom) 120 model was purchased from Roche Bros. It is depicted in the photograph comprising exhibit D12. This was purchased by Cirillo personally and is said to be that shown in the schedule of plant and equipment held by him as at 30 June 1978.
He next purchased the Poclain in 1976. It was an HC 300 model.
This was acquired in the name of Cirillo personally, from an organisation known as “Banbury Engineering”, a division of HC Sleigh Ltd. Invoice number 8574, issued by that organisation and made out to Cirillo personally, evidences the sale as of 16 June 1976 (exhibit D5). The sale price was $29,000, including certain spare parts.
The invoice originally envisaged payment to the vendor by instalments, but the sale was not actually consummated in that fashion. In an affidavit tendered at trial, Graham Love, an employee of Banbury Engineering who negotiated the transaction with Cirillo, says that the whole amount payable for the equipment was paid to that vendor at time of delivery.
In giving evidence Cirillo initially said that he, personally, directly paid the whole amount. He was constrained, in cross‑examination, to concede that this was not the situation.
As I originally understood his evidence, he maintained that he personally did at least pay the initial deposit of $10,000.
Exhibit P2 renders it apparent that the balance of the purchase price was actually financed by means of an advance made by HC Sleigh Ltd, the parent company of Banbury Engineering. On 11 June 1976 Adelaide Excavators executed a bill of sale over the Poclain in favour of HC Sleigh Ltd, to secure repayment of a sum of $19,000. This was plainly the balance due on the purchase of that equipment. In that document Adelaide Excavators warranted its ownership of the Poclain. There can be no doubt that Cirillo must have instigated the transaction.
There is no evidence as to how it came about that Adelaide Excavators, rather than Cirillo, was the grantor under the bill of sale. Nor is there any evidence of the sale or assignment of the Poclain from Cirillo to it. This was a typical example of what occurred on a number of occasions, although Hill contended that Adelaide Excavators was never an operating entity. Plant was simply made available by Cirillo to a corporate entity to pledge, by way of security for an advance, at times without regard to who was the beneficial owner of it and without the taking of any formal steps to effect an assignment.
The compelling inference from the evidence is that, regardless of the reason why Adelaide Excavators became the grantor under the bill of sale to HC Sleigh Ltd, it was always the intention of Cirillo and Adelaide Excavators that he would retain the beneficial ownership of the Poclain, subject only to the due payment of the purchase price to the grantee of the security. A perusal of exhibit P11 readily reveals the original source of the funds used to pay both the deposit and also the subsequent instalments under the bill of sale to HC Sleigh Ltd in relation to the Poclain. These manifestly came from Cirillo’s loan account with the then V. G. Cirillo Earthmovers Pty Ltd, later Vince Cirillo Pty Ltd, and then Ballista. I shall hereafter use the name “Ballista” as including the former V. G. Cirillo Earthmovers Pty Ltd and Vince Cirillo Pty Ltd, where relevant.
I took Mr McNamara QC to suggest, at one point, that this may be taken to indicate that the actual purchaser of the Poclain was the entity later known as Ballista, and not Cirillo. Such a situation does not follow. The company records indicate that Cirillo drew the funds from a loan account which he had with Ballista for the purpose of completing a transaction which was personal to him. All that the entries in question really show is that Cirillo became indebted to Ballista, in respect of the relevant monies. The evidence reveals that, ultimately, the liquidator of Ballista sued Cirillo in an endeavour to recover the debit balance of his loan account, which was contributed to, in part, by the withdrawals used to complete the purchase of the Poclain. This is not consistent with Ballista having acquired any beneficial interest in it.
Cirillo testified that, subsequently to the original purchase of the Poclain, he successively arranged for the acquisition of another 120 model Poclain (this time a GC, articulated boom, model, which was also purchased from Roche Bros), a 45 model Poclain, and two additional HC 300 model Poclains.
The second 120 model was said to have been purchased in 1978 or 1979 (T247). He stated that one of the 120 models was sold in about February 1979 (T1098) and the other in mid‑1983. He was adamant that the first sale was of the GC (or articulated boom) model (see T1098, 1117).
Mr McNamara QC contends that the evidence does not support a finding that Cirillo ever purchased more than one 120 model Poclain. He stressed that only one is ever referred to in the documentation tendered at trial.
There is a record of a GCK 120 Poclain in Cirillo’s personal depreciation schedules, which he is shown as having sold in February 1979 (exhibit P81).
It is significant that there is no record whatsoever, in either Cirillo’s taxation documentation, or any other documentation of relevant corporate entities produced in these proceedings, which indicates ownership, post‑1979, of any 120 model. Nor is there any record of a sale of such a model in 1983, as claimed by Cirillo.
It is also important to note that the ETSA site meeting schedules are devoid of any reference to such an item, notwithstanding Cirillo’s contention that a 120 model Poclain was on site for at least five to six weeks in the very early stages of the contract.
Stefanac testified that-
(1) At some time in the 1970s, Cirillo purchased two 120 Poclains from Roche Bros, one having a straight boom and the other having an articulated boom;
(2) The articulated boom 120 Poclain was only kept for a few months and Stefanac never saw it again; and
(3) The straight boom 120 model was taken to Port Augusta for about five to six weeks at the beginning of the ETSA contract in 1981, to dig the initial de-watering channel. It then returned to Adelaide.
It must be remembered that this witness, who had a long association with Cirillo, was, he said, first asked to recollect events extending back some 25 years ago only several weeks before he actually gave evidence. Quite apart from his past association with Cirillo, there was no particular reason why any of the relevant facts should have remained clear and fresh in his mind. I therefore view his evidence with considerable caution.
Having said that, I recognise that his evidence is lent positive support by that of Hocevar, who also had a long association with Cirillo.
Hocevar was a plant operator who worked for Cirillo and/or his companies for a total of 14 years and then subcontracted to them, albeit that he was absent in Europe commencing from some time in 1979 and extending into some part of 1980.
This witness was positive in his memory that, not long after arriving back from Europe, he went to Port Augusta and worked on the ETSA contract for a short period of one or two weeks. He says that he actually operated a GCK 120 model Poclain (of the type depicted in exhibit D1), trimming the channels during that period. He then returned to Adelaide.
He further said that, at one stage, Cirillo had two 120 model Poclains, one of them being equipped with an articulated boom, as in exhibit D2 (ie a GC model). On one occasion he assisted to load the latter onto a “float”, after which he did not see it again. This was prior to his departure for Europe in 1979 and occurred somewhere in Adelaide.
McLean also spoke of the presence, at the Port Augusta site, of what he described as a rather tired, smaller model Poclain, but could not be more specific than that.
I re‑emphasise that the evidence of these witnesses is impossible to reconcile with the detailed plant records maintained in respect of either Cirillo or his companies. I consider it inconceivable that, if he did have two such items of major plant, there would be no accounting or tax record of any 120 model, post‑1979. Moreover, it is beyond question that the record of the item sold in February 1979 specifically refers to a GCK model. (It is so recorded in the documentation tendered in evidence and Cirillo did not, initially, dissent from that (T656)).
Moreover, the value of the Poclain carried forward in the books of CWC and listed in the insurance records as an HC 300 Poclain Engine No 12264 was shown at $50,000, a value which, on the evidence, would, prima facie, have been inappropriate to a 120 GC or GCK model.
Stefanac was specific that the 120 model Poclain said to have been taken to Port Augusta to dig the de‑watering channel was a GCK model and not one with an articulated boom. Hocevar’s evidence was to the same effect.
The foregoing inconsistency in the evidence was compounded by the lack of any plant record of a 120 model being on site at all at Port Augusta at any stage.
The resolution of this evidentiary inconsistency is no simple matter.
On the one hand, both Hocevar and Stefanac presented as apparently straightforward and unequivocal witnesses, given that they were speaking of events many years ago. They did not patently project as being partisan, but their long association with Cirillo cannot be ignored.
Their evidence simply cannot be reconciled with the quite specific documented plant schedules or depreciation records which, as I have earlier indicated, make no reference to any GC 120 model Poclain (at least in respect of the financial years post 30 June 1976). I reiterate that those documents are totally devoid of any reference to a 120 model Poclain, of any type, post 30 June 1979.
I conclude, on the balance of probabilities, that, at the very least, Hocevar and Stefanac must be mistaken in their memories, as the documentary evidence to the contrary and/or lack of relevant documentary evidence seems to me to speak in overwhelming terms.
I understood Stefanac to suggest that the two 120 model Poclains were purchased either at the same time or very close to one another, with the GC model being disposed of very shortly afterwards. Any such disposal must have occurred prior to the financial year ended 30 June 1978, being the first financial year for which records are now available.
The records for the financial years 1977/1978 and 1978/1979 are quite specific and disclose ownership of only one 120 model Poclain (misspelt in those records “Proclain”). They are equally specific in recording the sale of a GCK 120 model in February 1979 at a price of $30,000 ie in excess of the then depreciated value of the plant. This necessitated the writing back in, for tax purposes, of a sum of $926 recouped depreciation. The only references in the taxation and accounting documentation thereafter are to HC 300 Poclain models. Such references undoubtedly relate to the acquisition of the equipments of that type as are referred to in these reasons and could not be mistaken references to a 120 model.
This being so, it seems to me that the clear accounting and tax records must be accorded much greater weight than the now very old, recently resurrected memories of Hocevar and Stefanac - even putting aside possible partisan attitudes on their part. Those records render it apparent that the only GCK 120 model Poclain had been disposed of by sale long before CWC embarked upon the ETSA contract. Furthermore, as Wales pointed out, he personally did not know the difference between a 120 and the 300 model. All references in the schedules prepared by him were to three HC 300 models. He said that he must have received that description from CWC officers, if not Cirillo himself. Had reference been made to a 120 model, he would have so described the relevant item of plant.
The second HC 300 Poclain (Serial No 102), depicted in the photograph exhibit D11, was a model “L”, long track, equipment purchased in the name of Vince Cirillo & Associates Pty Ltd, through Heytrack at a cost of $110,000. It arrived in Adelaide, ex Hawaii, on about 10 September 1981. The purchase was financed, on a hire purchase contract, through Citicorp (exhibit D10).
The depreciation schedules for CWC for the year ended 30 June 1982 show this equipment as having been acquired, by that entity, as of 4 December 1981 at a value of $110,000, but then depreciated by $1155 (exhibit P228) .
The same schedules also show an HC Poclain “ex HP Agreements”, acquired as of 1/7/81, at a value of $50,000, to which earlier reference has been made.
The CWC depreciation schedules for 30 June 1983 (exhibit P92) did not show an HC 300 Poclain at $110,000 less depreciation, as such, but they did include two separate items of $11,000 and $99,000 respectively (see tender book Volume 4 pages 239, 240) which, collectively, obviously relate to the HC 300 Poclain serial No 102. (These schedules also refer to an item “Poclain Excavator” at an original cost of $172,500, which had been depreciated to $142,899. It is common ground that this must have been a clerical mistake. The entry plainly refers to the Manitowoc Dragline referred to in the schedule on the second page of exhibit P86. It is of no relevance to the present proceedings).
It is manifest that the HC 300 Poclain serial No 102 was specifically acquired for the purposes of the ETSA contract; and was, almost immediately, taken to the Port Augusta site. At the time the Poclain was engaged on work at North Haven, although it was brought to Port Augusta for certain work at a later stage -- in April 1983.
The third HC 300 Poclain (Serial No 174) was purchased by CWC in Darwin from John Holland Constructions in November 1982 at a price of $23,000. (See exhibit D14). It was taken up in the 1983 CWC depreciation schedule, at that figure, as of 19 October 1982 (exhibit P92) This excavator did not arrive on-site at Port Augusta until about October 1983. Cirillo said that, following the purchase of the third HC 300, it was not brought down to Adelaide until about 20 December 1982. It was defective and inoperable at that stage. It had to be rebuilt in the CWC workshop in Adelaide, hence the low purchase price. There was a delay of some months in procuring parts for it, at sensible prices, from overseas suppliers. This explains the substantial delay before it went Port Augusta.
There are, therefore, clear references in the CWC 30 June 1983 depreciation schedules to three HC 300 Poclains. The question arises as to whether that valued at $50,000 was the Poclain, or some quite different model then subject to the Lombard agreement.
I reiterate, I entertain no doubt that the reference in that agreement was to the Poclain. I will return to how that value was arrived at in due course.
The ETSA tender
ETSA called for tenders, in 1980, in relation to major civil engineering works required in connection with the construction of its then proposed new Northern Power Station at Port Augusta. These included the construction of two cooling water channels, together with an associated deepwater intake structure and some other concrete works at the power station end.
Cirillo and his associates caused a tender of almost $8 million, on their preferred method of construction, to be submitted to ETSA, on or about 18 December 1980, for the work specified in a document known as Spec No NICS - 029. This was the largest job that he had ever proposed to undertake.
The tender was submitted on letterhead bearing the name Vince Cirillo Pty Ltd, which, inter alia, listed items of major plant which Cirillo or his company already had, or which were to be acquired for the purposes of the contract works. That letter rendered it clear that, in the event that the tender was accepted, the operational entity would be a then newly formed company Vince Cirillo & Associates Proprietary Ltd (later to become CWC).
The tender for the work was formally accepted on 17 June 1981 (see ETSA Order, portion of exhibit P165). Work got underway, on site, very shortly thereafter -- probably by the end of that month.
There are two aspects of the consummation of the ETSA contract that are significant for present purposes.
First, it seems to me to have been common ground that it was an express provision of the contract that the tenderer had to bring on site a quantity of plant and equipment, scheduled in the tender, with which to execute its contractual obligations; and also that, upon any item of plant coming on site with the approval of ETSA, the property in such plant was, forthwith, to vest in ETSA for the duration of the contract works (cf exhibit P10, clause A29.3 relating to the subsequent “Ash Ponds” contract). (See T578 to 580). This was one of several performance guarantee provisions, designed to ensure that, in the event of default by the contractor, ETSA would have adequate plant and equipment on site to facilitate completion of the work by other means.
Second, in the course of post tender correspondence between Vince Cirillo & Associates Pty Ltd and ETSA in the first half of 1981 - as a prelude to the actual letting of a contract - that company specifically confirmed the minimum plant that would be brought on site and stated that such plant would be owned by it at the award of the contract. (See letter dated 7 May 1981 -- exhibit P6. This letter was signed by a senior officer of CWC and I entertain no doubt that he did so with Cirillo’s knowledge and approval.) The schedule to exhibit P6, inter alia, lists an HC 300 Poclain excavator of an attributed value of $110,000. Citibank argues that this is a reference to the Poclain, because it was the only HC 300 equipment which had been acquired by either Cirillo or his companies at the time of writing the letter. I consider that this is correct, because there are several references to the attribution of such a figure to the Poclain for tax depreciation purposes. (See, for example, exhibit P4 tender book Volume 1 Page 130, exhibit P5 tender book Volume 1 Page 145, exhibit P94 tender book Volume 1 Pages 343 and 344 (note (3)).
The value of $110,000 was certainly also the purchase price of the HC 300 Poclain purchased through Heytrack - although this did not occur until about two months later, in mid-July. On arrival, that equipment went up to Port Augusta almost immediately, whilst the Poclain remained working at North Haven. The latter was not taken up to Port Augusta until April 1983, as earlier recited. On the other hand, Cirillo accepted in cross examination that the reference in exhibit P6 to an HC 300 Poclain valued at $110,000 must have been to the Poclain (see T256, 262, 263).
It is fair comment to say that, subsequent to the acceptance by ETSA of the CWC tender, all documentation subsequently raised in relation to the company and its activities and financing was consistent with CWC being the owner of all three HC 300 Poclains and inconsistent with it not being the owner of them.
CWC obtains finance from Citicorp
At the time when CWC moved on site at Port Augusta, Cirillo had the 40 per cent equity interest in that company referred to by Cirillo in the course of his examination before the Master, whilst two solicitors named Ouwens and Wagnitz held the other 60 per cent through nominees. The working arrangement which they (and particularly Wagnitz) had with Cirillo was that he would attend to on-site operational matters, whilst they would be responsible for the company administration, including the raising of necessary finance.
It is clear that, over time, relationships deteriorated both between Cirillo and Wagnitz and also between the latter and ETSA. At one stage, early in 1982, work fell well behind schedule due to this.
This led to a situation in which the Ouwens and Wagnitz interests in CWC were, in effect, bought out by Heinrich, a company known as Thomas & Rowe Pty Ltd (of which Heinrich was a principal) and a solicitor named Trennery, in about April 1982. Heinrich, a then experienced commercial business executive, became chairman of directors and, for a time, successfully managed the administration and finance activities of CWC.
I pause at this juncture to make some comments concerning Heinrich and his performance in the witness box.
Overall, I consider that he was less than helpful and that his professed lack of memory of some of the relevant details of what occurred (albeit a long time ago) was a ploy to distance himself from an involvement in the litigation and to avoid having to give evidence adverse to Cirillo. I simply do not believe that he has no present memory of certain of the salient features of relevant transactions and I view his evidence with considerable reservation.
He claims, for example, that he initially went into the arrangements with Cirillo on faith and with little due diligence investigation, because he had been a friend of Cirillo since the late 1950s and wished to save him from what appeared to be a potentially dangerous situation. At the time he was obviously a hard headed and experienced business person and the approach which he now says that he adopted seems to me to be totally out of character - the more so as he obviously raised or committed funds of the total order of almost $300,000 (in 1982 values) in relation to the venture and also personally guaranteed certain aspects.
In giving evidence he was most uncooperative and, at times, truculent. Information had to be gouged out of him by persistent cross‑examination, based on available documentation.
Although, on or about 2 June 1982, he wrote a letter to creditors asking for a moratorium (exhibit P158), he now says that this was a “sales pitch” and that its contents were not fully true - in that he had not really got on top of the CWC administration until the end of 1982.
He agreed that he was a party to a revaluation, on 1 December 1982, of the plant and equipment of CWC (virtually its only tangible asset), to operate retrospectively to the previous 30 June. He accepted that he also signed the CWC taxation return for the year ended 30 June 1982 with depreciation schedules based on it, but said that he did so without ever taking any steps to verify the nature and extent of plant held by CWC, or the ownership of and extent of equity in, it. This is simply unbelievable in relation to a person of his experience and, in my opinion, reflected a partisan approach designed to avoid prejudice to his friend Cirillo.
A somewhat similar picture emerged in relation to his evidence concerning the degree of his involvement with Citicorp and knowledge of Cirillo's arrangements to buy out his interest.
I am left with the distinct impression that Heinrich knew and remembered much more about the assets and financial position of CWC, from time to time, than he was prepared to divulge in court.
The evidence indicates that, by early 1983, Cirillo had determined to acquire the controlling interest in CWC. He said that he considered that, although he was working very long hours in the operational aspects of the business, he was receiving what he regarded as a financial pittance, whilst Heinrich was drawing substantial sums for his input. (This suggestion ignored very substantial sums which were also being made available to Cirillo, on loan account, to satisfy his financial commitments - to which I will shortly return).
Heinrich testified, in effect, that the rift which arose really stemmed from what he described as philosophical issues related to management practices.
I construe his evidence as indicating that, from a management viewpoint, Cirillo was virtually impossible to work with. He would commit CWC to major expenditures (particularly with regard to the acquisition of plant) without prior consultation or due regard to cash flow considerations, and he refused to sell redundant plant when its functions had been completed on the job. I have no difficulty in accepting that evidence.
Accordingly, Cirillo entered into negotiations with Citicorp, through Bullwinkel, to refinance operations and raise funds with which to buy out the Heinrich interests. The negotiations were successful, with the result that such a buy out was implemented as of 18 April 1983. Those negotiations had been preceded by several separate financing transactions related to the acquisition of specific items of plant or equipment under leasing or hire purchase contracts with Citicorp.
I here pause to refer to one important aspect of the factual history related to the refinancing arrangements, the negotiations for which culminated in the credit approval recommendation, exhibit P291 (tender book Vol 3 pages 125 ‑ 135).
As is to be seen from that document, a condition precedent proposed by Bullwinkel and accepted by the credit committee of Citicorp was -
“Independent confirmation to be obtained of ownership of company machinery, together with level of encumbrances.”
The only confirmation sought, obtained and accepted by Bullwinkel is to be found in the form of a letter written by Wales to Citicorp on 6 April 1983 (exhibit P341). This commences with the sentence-
“You have requested that we make certain inquiries concerning the above Company's lease and hire purchase obligations.”
Wales indicated, in the course of his evidence, that this accurately reflected his understanding of the task allocated to him. He worked from a plant schedule actually supplied to him by Citicorp for the purpose, a copy of which appears at the Tender Book Volume 3 Page 209. This had originally emanated from Heinrich.
The essential focus of the Wales letter is upon a verification of the outstanding balances on encumbered plant, including some items held in the names of companies controlled by Wagnitz, who had expressed a willingness to have them assigned to CWC. The Wales letter says nothing of significance concerning verification of plant ownership and precious little on the issue of value verification. (cf also the content of paragraph 8.9 of the loan agreement, exhibit D22, which tends to limit the relevant condition precedent to particulars of lease and hire commitments and omit consideration of plant ownership and value). The Wales letter merely seems to accept the Heyes’ revaluation figures (as reported in a schedule originally produced by Heinrich) at face value. The figures referred to in that letter are limited to encumbered plant items.
The final sentence of the Wales letter reports-
“…. Nothing came to our attention which causes us to doubt the material completeness of the schedule of lease and hire purchase commitments (copy attached).”
It is to be noted that the schedule attached (see exhibit P341) is one of two schedules originally attached to a letter written by Wagnitz to Heyes on 11 January 1983, a copy of which was sent by Heinrich to Citicorp on or about 29 March 1983 (exhibit P169). A copy of this material had been supplied by Heyes direct to Bullwinkel on or about 1 February 1983. The Wagnitz letter also had a list of unencumbered plant attached (see exhibit P341 at Tender Book Volume 3 Page 213), but there is no evidence that this was ever supplied by Citicorp to Wales. I do not accept that it was. Had he received it then one would have expected reference to it in his letter. There is no such reference.
The obvious conclusion is that Bullwinkel, for reasons unexplained, did not ever seek to satisfy the whole of the above condition precedent. I conclude that he did not ever take steps to independently verify plant ownership or, for that matter, values. (The Heyes valuation, which had been made earlier, was simply accepted.) I regard Bullwinkel’s suggestion that information supplied by Heinrich (who was both a CWC director and also had his own interests to serve) constituted independent verification is little short of ludicrous.
By letter dated 26 September 1984, written by Cirillo on CWC letterhead (exhibit P37), it was again certified to Heytrack that the title to the HC 300 serial number 174 was clear and unencumbered; and that CWC had been paid in full for it. On that representation, Heytrack onsold that HC 300, the purchaser Turnbull being financed by National Westminster, which became assignee from him (T525). This later precipitated a raft of claims, when Esanda seized HC 300 serial number 174 , following the appointment of the receivers and managers of CWC.
Cirillo sought to explain this double dealing by saying that his staff must, somehow, have confused serial numbers; and that it had been intended to give the above bills of sale to Esanda over the Poclain. I do not accept that suggestion. The relevant documentation was not only very specific at all levels, but it was also initiated by Cirillo personally. He was obviously well aware of what was being done. I unhesitatingly conclude that he deliberately and quite improperly made false representations, with a view to raising money, when he desperately needed it. I also reject his vacillating evidence which, at times, suggested that what was sold to Heyes was a 120 model Poclain. (cf T420, 423-424, 456, 466, and 539. Compare also exhibit P36). This shifting of ground reflected very adversely on his credit.
For the sake of completeness I note Mr McNamara QC’s suggestion to Cirillo, late in the latter’s cross‑examination, that the evidence before the Master may well have been correct and that the 1983 sale to Heyes may well have been HC 300 serial number 77.
The difficulty with that proposition is that it runs counter to the documentation raised at key times. Cirillo was well aware of the relevant serial numbers and he had a particular attachment to number 77. It is most unlikely that he would either have made a mistake, or sold 77 in preference to 174.
What is inexplicable, on either thesis, is that Heyes was apparently content to leave the relevant HC 300 with Cirillo or CWC, after sale, and permit apparently unrestricted use of it, over a prolonged period of time, without any hiring fee being paid. There is no real explanation concerning this.
Yet another illustration of Cirillo’s unreliability as a witness is the contrast between his evidence in chief and his cross‑examination concerning what he said to Bullwinkel when he initially held discussions with him concerning finance to buy out the Heinrich interests.
In the course of his evidence in chief he unequivocally said that there was no discussion at all concerning plant owned by himself by way of contrast with that owned by CWC (T150). He changed tack completely at an advanced stage of his cross‑examination and said that he did discuss that topic. He now asserts that he specifically told Bullwinkel, at the outset, that he owned the Poclain and some other plant and that, although the other plant was available as security, the Poclain was not. He endeavoured to explain his about-face by saying that, when he gave his answers in evidence in chief, he was merely intending to convey that he did not say anything about plant in writing.
This explanation was quite unconvincing and I do not believe it. It was a fabrication on Cirillo’s part, in a last-minute attempt to bolster his case, at a time when it was obvious that there were many unsatisfactory features of his evidence. It was even less convincing than his assertion that, when Bullwinkel presented him with Citicorp’s final letter of offer, he merely signed an acceptance of it (exhibit P164) without reading its terms, or even having had an explanation of them by Bullwinkel, evidence which I also reject as untrue. Cirillo further denied having ever taken the copy income tax return and schedules (exhibit P87) to Bullwinkel as a basis for discussion - obviously because the content of the plant schedules was not helpful to his case. I consider it more probable than not that he did give this material to Bullwinkel.
Another matter for consideration as to his credibility is the content of the letter written by Wagnitz to Heyes on 11 January 1983, at a time when an approach was being made to the latter to potentially finance the Heinrich buy out (exhibit P165). This included a schedule of unencumbered plant, including an HC 300 Poclain. I agree with Mr McNamara QC that the compelling inference is that Cirillo must have given the relevant information to Wagnitz. There is no other logical conclusion on the evidence. Cirillo’s evidence that he does not recall the letter and did not give instructions to Wagnitz to write it was most unconvincing. There is no apparent reason why Wagnitz would write such a letter, without instructions, to a close associate of Cirillo. The very tone of the letter indicates that Wagnitz sought to distance himself from any representations made. It is clearly a letter written by a person who is acting under instructions by which he does not wish, personally, to be bound.
Further, the various dealings by Cirillo with items of plant must be seen against his somewhat incredible assertion, late in his cross-examination, to the effect that it was his understanding that, notwithstanding the floating charge to Citicorp, it remained open to CWC to deal in plant and equipment at will and, in particular, sell it without prior approval. I do not accept that evidence, or that he ever held such a belief. His evidence runs counter to other evidence given by him concerning the seeking of specific approval of Bullwinkel to sell plant, given that, in some instances, he was certainly dealing with items under separate forms of financing security.
Finally, an important matter for consideration is the fact that although, in the weeks following the appointment of Heard and Young as receivers, there was a series of discussions between Heard and Mulvaney and Cirillo, with a view to identifying the assets of CWC and their location and what items of plant were specifically claimed by Cirillo as his property, it was not until 4 March 1985 that, for the first time, Cirillo asserted that he owned the Poclain. Such a delayed claim, when he had, at the outset, positively identified a substantial list of other items as allegedly belonging to him personally, is inexplicable. The Poclain was a very major item of plant clearly included in the list produced as a computer print out dated 10 December 1984, which had been the basis of discussion at all stages (see, for example, exhibit P207), yet no claim was made in relation to it for many weeks.
The foregoing examples are by no means exhaustive. They are merely intended to be illustrative. There were many matters of detail in relation to Cirillo’s evidence which were highly unsatisfactory; and his memory was, patently, very selective.
In general, I find myself unable to accept Cirillo’s evidence where it conflicts with that of other witnesses, unless it is unequivocally confirmed by other acceptable evidence.
Findings and Conclusions
I now turn to the specific issues before me, in light of my above summation of the evidence. In doing so it is convenient, first, to address the second question to be determined.
It follows from what I have already said that I am compelled to the conclusion that Cirillo was not the legal or beneficial owner of the Poclain as at, or subsequent to, 18 April 1983.
The evidence before me conclusively and overwhelmingly establishes that the legal and beneficial ownership of that equipment was vested in CWC as at 1 July 1981 and I so find. There is a consistent and clearly documented history of such a situation, which was, of course, in conformity with the undertaking given by CWC to ETSA in May 1981 (see exhibit P6).
I have earlier discussed the relevant detailed evidence bearing on this issue and there is no point in retracing the same ground. There is no evidence to suggest that such ownership subsequently reverted to Cirillo, or that he, personally, was in actual or apparent possession of the Poclain at any time relevant for present purposes. Although he orchestrated its use subsequent to 1 July 1981, he did so in his capacity as an officer of CWC and for the purposes of the execution by it of its various contractual obligations. The equipment actually bore the name of CWC and I see no evidence that it was used for other than its purposes. CWC duly paid all monies secured on it to Lombard.
It is true that, at about the time at which the injunctions were sought, the Poclain was in the possession of Don Mazzone, a business acquaintance of Cirillo. It was Mazzone’s claim to the receivers and managers, in March 1985, that he had lent $60,000 to Cirillo to enable CWC wages to be paid. Cirillo had told him that he would be repaid from the Burra Highways plant (sic), the sale proceeds of the Poclain , or would actually be given the Poclain. In the event Mazzone was unable to maintain any claim to the plant. It was for that reason that he had delivered it to the Wingfield premises.
Accordingly, at the times when the injunctions were obtained, the receivers and managers were entitled to possession of the Poclain and to deal with it as an asset of CWC, to the exclusion of Cirillo. The evidence excludes any inference that he, personally, had any beneficial or other right to the plant which was enforceable as against the receivers and managers.
In so concluding I do not ignore the original curious dealing with the Poclain in the name of Adelaide Excavators. However, the compelling inference arising from the evidence is that either it was not intended to do other than make the Poclain available to that entity, at that time, for the purpose of raising finance, or that, at a subsequent date, in some fashion not now apparent, the legal and beneficial ownership reverted to Cirillo until, on 1 July 1981, it passed to CWC.
The ultimate discontinuance of the present action by the plaintiffs does not gainsay the above conclusions. By that time there was no economic utility in continuing the proceedings, as the then residual value of the Poclain was patently negligible.
The foregoing conclusion sounds the death knell of the application by Cirillo to enforce the undertakings as to damages. The other issues before me become academic.
Nevertheless, lest I be considered incorrect as to the above question, it is desirable that I indicate my conclusions concerning certain of them. I will do so in fairly brief terms.
I took Mr McNamara QC to indicate that he did not now pursue any argument to the effect that, at some stage, Cirillo abandoned his interest in the Poclain. Such a possibility does not really arise on the evidence and is subsumed by the other issues arising for consideration.
Equally, I did not take Mr McNamara QC to advance any substantial argument as to the issue of whether Cirillo relevantly transferred or assigned his interest in the Poclain. The original contention in that regard was based on pleas in the defence that, if Cirillo did own the Poclain at any relevant time, he divested himself of it by reason of Bills of Sale executed in respect of it to Recht Nominees, Wagnitz & Sons Pty Ltd, and Westpac Banking Corporation respectively.
The short answer to such a contention is that, on the face of them, none of those securities, in terms, purported to attach to the Poclain. At best, there was a general provision in the bills of sale pledging all other chattels owned from time to time by the grantor. In any event, under all of the securities, the legal title in the chattels in question reverted to the grantor non-payment of the monies secured.
I therefore restrict my attention to the issues related to standing and estoppel.
Leaving aside the vexed question of the ownership of the Poclain, a primary contention on behalf of Citicorp was that Cirillo must fail in his attempt to enforce the relevant undertakings as to damages because, having regard to the narrative facts, he lacks standing to bring an application to do so.
In essence, that submission is based upon the provisions of the Bankruptcy Act 1966 (Cth) (“the Act”) and what is said to be the effect of its operation in the circumstances of this case. Distilled to its essence, the argument addressed by Mr McNamara QC was to this effect --
(1) The “right” to apply for damages pursuant to the undertakings to the Court was one which vested in the Official Trustee on the sequestration of Cirillo's personal estate (s 58 and s 116(1)(b) of the Act);
(2) the “right” to call up the undertakings was not assigned to Cirillo under the deed executed by the Official Trustee on 29 May 1996, because that instrument assigned only “choses in action” to him and the right to call up the undertakings is not a chose in action; and
(3) the discharge of a person from bankruptcy does not (of itself) revest in that person assets previously owned by him.
It is not in dispute that, if the so called “right” to apply for damages may properly be characterised as an existing chose in action, then it constituted property of Cirillo which vested in the Official Trustee on his bankruptcy. (See Re Nguyen (1992) 35 FCR 320 at 325; Geia v Palm Island Aboriginal Council (1992) 152 FLR 135)
I did not take Mr McNamara QC to contend that the right was a chose in action and thus within the primary definition of “property” contained in s 5 of the Act. Rather, he submitted that it fell within one of the limbs of the expression “property of the bankrupt” as contained in s 116(1)(b).
He argued that a right to call up an undertaking as to damages was a “capacity to exercise and to take proceedings for exercising all such powers in, over or in respect of property as might have been exercised by the bankrupt for his or her own benefit at the commencement of the bankruptcy ….” within the meaning of that subsection. He submitted that the right in question was one which was in, over or in respect of property, in that it necessarily attached to the Poclain and followed the ownership of it. It was, he said, illogical to view the ownership and possession of the Poclain as being something quite divorced from a right to seek damages for the alleged improper procurement of the injunctions in relation to it. What had passed to the Official Trustee was a “bundle” of rights -- any right to the Poclain and also any right to damages related to the exercise of injunctive powers concerning it.
The obvious commencement point is a consideration of the nature of the “right” to request the Court to call up the relevant undertakings.
The undertakings are given to the Court and not any particular party. It is trite to say that any enforcement of them is a matter within the discretion of the Court. (Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1979 - 1981) 146 CLR 249 at 311 - 312, 323). I agree with Mr McNamara QC that no actual right to damages arises until, after inquiry, the Court determines that it is appropriate that damages be paid (Cheltenham & Gloucester Building Society v Ricketts [1993] 4 All ER 276, Balkanbank v Taher [1994] 4 All ER 239 at 257). Thus the “right” pursuant to an undertaking cannot be a chose in action because a chose in action is, necessarily, an existing legally enforceable right -- either vested or contingent (Norman v Federal Commissioner of Taxation (1963) 109 CLR 9). The type of reasoning in In Re Campbell (a bankrupt) [1997] Ch 14 at 17 is apposite.
The parties are ad idem as to the concept that the undertaking itself does not found any cause of action. In that sense the capacity to make application for enforcement is, as Mr Ribbands insists, a personal right. He contended that, by analogy with the situation under consideration in Coffey v Bennett [1961] VR 264 (a testator’s family maintenance case), Cirillo’s right to enforce the undertaking (assuming the existence of a relevant ownership or possessory right in the Poclain to support it) was a non transmissible, personal right which did not pass to the Official Trustee.
However, that case must be contrasted with what was said in Jones v Skelton (1966) 9 FLR 318, in which it was held that the ability to seek a discretionary grant of an indemnity certificate for costs vests in an Official Trustee.
In my opinion the cases illustrate that there is no general rule related to rights which may be conferred in the discretion of the Court. As Scholl J illustrated in Coffey v Bennett --
"No one, I venture to think, ever heard of a stranger to the testator coming to the Court as an applicant for testator's family maintenance and suing for such as the assignee of a right vested by the Administration and Probate Act in the widow or a child of the testator, any more than anyone ever heard of an assignee of the rights of a deserted wife or child suing as such assignee for maintenance under the Maintenance Act or under the Marriage Act……
….the right to make an application for an order under the Act depends upon considerations wholly personal to the applicant, including his or her actual relationship to the testator, the moral claim which he or she had on his bounty, the standard of maintenance which the testator might have been expected to provide for the applicant, and the applicant's actual needs. Only the applicant personally can come to the court to seek such a provision and, in my opinion, it is impossible to hold that the right may be split, so that the trustee in bankruptcy of a widow or of a child of the testator may come as applicant to seek a provision in the nature of a pecuniary benefit which could be made available to the creditors, leaving the bankrupt personally to apply for benefits so expressed as to be unable to be reached by the trustee in bankruptcy, as in the examples earlier given.”
(The rights there discussed were, of course, all statutory rights)
This falls to be contrasted with other situations in which the discretionary remedy does not rely on considerations entirely personal to the applicant, such that it would be unthinkable (on policy grounds) that a stranger to the relevant scenario could seek to assume them. There is no obvious reason why a stranger to the original transaction, such as an Official Trustee, ought not to seek to claim a benefit related to an improper injuncting against use of commercial property, in which a concept similar to that discussed in Jones v Skelton arises.
I reject the proposition that the “right” here in issue was a personal right of such an inherent nature that it would be unthinkable that a stranger would be permitted to avail himself of it. However, at the end of the day, the question is whether, on the facts, it can fairly be said to constitute a capacity to exercise and to take proceedings for exercising all such powers in, over or in respect of relevant property within the meaning of s 116(1)(b) of the Act.
In Jones v Skelton Sugarman JA made this point --
"Notwithstanding the element of contingency attached to it by the existence of this discretion, the right to apply is not analogous to a mere possibility or expectancy of an interest in property, or a chance of obtaining a benefit from a relative, or a spes successionis, or the possibility of becoming the object of a power of appointment (see Re Finn [1942] VLR 125 at 128); nor is it a bare right to litigate, incapable of conferring a benefit upon the creditors (Davies v ES&A Bank (1934) 7 ABC 210). On the contrary, the object of the application is to obtain an indemnity; and the benefit of a right of indemnity conferred by law in general passes to the official receiver…. The indemnity in question here is associated with the debt for costs. If these have been paid before bankruptcy, a fund is provided for the replacement in the assets available to creditors of the money thus expended; if they have not already been paid, then, there being by reason of the bankruptcy a lack of means to pay the whole of them, the discretion conferred upon the Under-Secretary enables an indemnity in the equitable sense to be given against a liability which otherwise would fall upon the assets available to creditors.”
In the course of his judgment Sugarman JA emphasised that, whilst it must be accepted that the relief sought was in the discretion of the Court, that discretion was not arbitrary, but had to be exercised judicially. If the facts demanded its exercise as a matter of reason or justice, then it would be capricious and arbitrary not to grant the application. In other words, the discretion was not at large and the Court was bound to exercise it in accordance with well settled legal principles. (See also Mason J in Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (supra) at 323).
That is precisely the situation in the instant case and no policy considerations related to the personal circumstances of the applicant, such as arise in relation to family support and succession matters, exist.
In my opinion the right to enforce the undertakings did not remain vested in Cirillo personally, but passed to his Official Trustee by virtue of s 116(1)(b) of the Act. As Mr McNamara QC put it, any right to apply to the Court necessarily followed the ownership or possession of the Poclain, because there could have been no damage sustained by anyone who could not establish that, at the relevant time, such person had a right of ownership in or possession of it.
That being so, the question then arises as to whether, by virtue of the relevant assignment, that right was revested in Cirillo, so as to found his standing in the present proceedings.
As earlier recited, the deed executed by the Official Trustee (exhibit D30) purports to assign to Cirillo “every chose in action” which the Official Trustee may have against Citicorp and the receivers and managers “howsoever arising”, including causes of action specified in proceedings No 80 of 1991 in this Court.
The deed appears to have been professionally drafted and is quite clear and specific in its terms. The subject of the assignment are any relevant choses in action. The authorities above adverted to render it clear that a capacity to seek to enforce an undertaking given by another party to the Court is not and cannot constitute a chose in action in the legal sense of that phrase.
As is demonstrated in Norman v Federal Commissioner of Taxation (supra), if an asserted right is to constitute a chose in action in the legal sense, it must be an existing proprietary right, albeit that it may be contingent. The mere capacity to come to the Court and request it, as an exercise of discretion, to enforce an undertaking given to it, is not of that nature. In that regard the argument advanced by Mr Ribbands to the effect that the capacity to apply for enforcement of the undertakings remained as a personal right which could not pass to the Official Trustee is really inconsistent with any suggestion that a chose in action existed.
I therefore accept Mr McNamara QC’s submission that the deed of assignment executed by the Official Trustee was ineffective to confer standing on Cirillo to prosecute the present application.
There only remains issue as to whether, in all the circumstances, Cirillo is estopped from claiming that he was the owner of the Poclain.
It is set against him that he made or caused to be made oral and documentary representations to Citicorp to the effect that, at all material times, the Poclain was the property of CWC and that Citicorp was induced to act on those representations to its detriment by advancing monies to CWC on the faith of a security which was thought to embrace that plant as an item falling within it. It is further said that, in the alternative, there was such a representation by silence in that, in the documentation supplied by or with the authority of Cirillo to Citicorp in support of loan applications, the Poclain was always clearly shown as an asset of CWC and Cirillo failed to tell Citicorp at any stage that it was not, in fact, an asset of that entity.
Both parties put quite detailed submissions to me on this issue. However, I do not consider it profitable to discuss those at length. I will do no more than indicate some basic conclusions.
I entertain no doubt that, at all material times, Cirillo did, expressly or impliedly, represent to Citicorp or authorise the making of such representation to it, as a basis for the making of successive advances, that, inter alia, the Poclain was the property of CWC and that the equity in it was to constitute portion of the security given by that company. In this regard the ultimate execution of the debenture under which the receivers and managers were appointed must be viewed in light of the events which led up to it and the whole history of oral and written communications passing between Cirillo and CWC (and persons authorised by them), on the one hand, and Citicorp, on the other.
For example, Mr Ribbands asserts that the content of certain documentation is too vague and uncertain to constitute a specific representation as to the Poclain. At best, he says, there was some more general representation of the existence of plant to a particular “all up” value. The short answer to that suggestion is that relevant documentation has to be considered in context and as a whole. When that is done in a manner typified by my foregoing analyses of the facts, the import of it, relevant for present purposes, is clear and obvious.
In his separate written submissions on this topic, Mr McNamara QC detailed the various documents on which he relied, the most important of which was said to be the copy of the so‑called Wagnitz letter of 11 January 1983 and the Annexures to it (exhibit P165). Of particular importance is the content of the relevant depreciation schedules supplied to Citicorp.
As Mr McNamara QC stressed, it is beyond doubt that the relevant documentary material (including the copy Wagnitz letter and certain taxation records) was supplied to Citicorp with the express authority of Cirillo, as was the material sent by the witness Wales.
I do not propose to rehearse and detail the documentation relied on by Mr McNamara QC. His written memorandum traverses it in extenso. Suffice to say that the only reasonable interpretation to be placed on the whole of the material supplied to Citicorp was that it held out that the assets of CWC included the Poclain or any equity in it.
Moreover, the ongoing discussions between Cirillo and others authorised by him over time and representatives of Citicorp all went forward on the footing that the real physical security being offered by virtue of the debenture ultimately entered into was both the unencumbered plant of CWC and also its equity in encumbered plant owned by it - including the Poclain.
Furthermore, there is force in the contention that, in the above circumstances, the documentation referred to by Mr McNamara QC in paragraphs 22 and 25 of his written memorandum having clearly (at the very least) implied that the Poclain was an asset of CWC, a failure by Cirillo to specifically tell Citicorp that it was his personal property and not owned by CWC constituted a representation by silence that CWC was entitled to it.
It is vital to bear in mind that the credit approval authorising the loan on the security of the debenture pursuant to which the receivers and managers were appointed was granted in the context of a considerable quantity of documentation supplied to it over time, on a cumulative basis. All of this pointed in the one direction, namely that the Poclain was the property of CWC and not that of Cirillo. I specifically reject any suggestion by Cirillo that he ever said anything to the contrary. In particular I do not accept his evidence that, prior to the making of the 1983 loan, he told Bullwinkel that the Poclain was his and was not available to CWC to use as security to Citicorp.
There is not the slightest doubt that the representations that the Poclain was the property of CWC (subject to any existing encumbrance on it) and that the equity in it would be subject to the debenture was a material inducement which led Citicorp to enter into the relevant loan transaction, to its detriment. It was not, of course, the only inducement. A major factor was the cash flow generated, or to be generated, by CWC contracts. However an important purpose of the debenture was to take security over the CWC plant and equipment, which was always understood by Citicorp to include the Poclain.
I accept Bullwinkel’s evidence that lending to companies in the earthmoving industry was perceived by Citicorp as high risk and that, if he had been made aware that Cirillo personally had owned any assets of substance (for example, an equity in the Poclain), he would have sought collateral security from him. Bullwinkel was not challenged as to that. At all material times Cirillo’s personal tangible net worth was held out to and accepted by Citicorp as not being significant.
The foregoing summation does less than justice to the detailed submissions made on various aspects of the estoppel issue. However, it will suffice to illustrate the general basis of my approach to it. If it became relevant, I would hold that, in all of the circumstances, Cirillo is estopped from denying that CWC was the beneficial owner of the Poclain, by reason of the representations made to Citicorp, which induced it to act to its detriment in entering into the relevant loan transaction.
In this regard I should record that Mr Ribbands sought to escape such a conclusion by embracing what he said was the merger of the doctrines of common law estoppel and equitable estoppel in conformity with what fell from Mason CJ, Deane and Gaudron JJ in The Commonwealth of Australia v Verwayen (1990) 170 CLR 394. He submitted that the law had developed to the point at which it was open to the court to take into account the wider conduct of Citicorp, particularly the manner in which it had led CWC into the Thomson purchases on an unfulfilled promise to refinance, the early debiting of the participation fee and its conduct in seeking the injunctions to put Cirillo out of business and prosecuting the present proceedings in a manner tantamount to an abuse of process. Any representations had been made innocently and were not of paramount importance with respect to any lending decision. Citicorp was, he said, the architect of its own detriment and it negated equitable concepts of fairness and justice to ignore these considerations by upholding a form of estoppel described as “common law”.
He contended that Verwayen stands as authority for the proposition that the estoppel relied on by Citicorp could be qualified, on general equitable grounds, to the extent that the effect of that estoppel would otherwise exceed what might be satisfied by the requirements of conscientious conduct; that there needed to be a degree of proportionality between the remedy sought and the detriment which the plaintiff seeks to avoid. It would be inequitable to insist upon a disproportionate making good of a representation made. (cf Mason CJ in Verwayen at 413). In the instant case the conduct of Citicorp was such that a disproportionality of that type would necessarily arise.
Such an argument cannot be sustained.
Having regard to what fell from the High Court in Giumelli and Another v Giumelli (1998) 196 CLR 101 at 112, it simply cannot affirmatively be asserted that there has been a merger of the two doctrines, as contended for by Mr Ribbands. I cannot perceive any basis in established principle for reasoning in the manner sought to be applied by him. Verwayen was, of course, clearly a case of equitable estoppel and any dicta in the judgments related to it must be seen in that light.
Having indicated my basic conclusions in this matter, I will now hear counsel as to the formal manner in which I ought to deal with the issues before me and with the action generally.
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