Componere Systems Pty Ltd v Spreag, S.R

[1990] FCA 605

JUDGMENT No. .... &~../.?!,

IN THE FEDERAL COURT OF AUSTRALIA	)
) No. NG 191 of

1990

NEW SOUTH WALES DISTRICT REGISTRY )

1

S;ENERAL DIVISION 1

BETWEEN:	COMPONERE SYSTEMS PTY LIMITED
Appellant
AND :	SYDNEY RAYMOND SPREAG AND ANOTHER

CORAM :	WILCOX, FOSTER & HILL JJ	RECEIVED
PLACE :	SYDNEY

- 2 NOV 1990

DATE :  27 SEPTEMBER 1990

FEDERAL COURT OF

PRINCIPAL

BXTEMPORE REASONS FOR JULXMENT RMISTRY

WILCOX J: This appeal arises out of a decision of Sheppard J in a proceeding instituted by the respondents, Sydney Raymond

Spreag and Roland Spreag, against nine respondents. A claim was made for damages arising out of a transaction involving the purchase of a brick making machine.

The present respondents claimed that various misrepresentations were made to them in relation to the characteristics and capacity of the machine. The trial judge found that some respondents to the proceeding had been involved in the making of misrepresentations. He awarded	were five in number and included the present appellant,	damages against those whom he regarded as responsible. They
Componere Systems Pty Limited.
The basis upon which his Honour held Componere Systems to be liable was that the company which actually made the sale to the Messrs Spreag was at the time carrying on business on behalf of Componere. This finding is disputed and is the only point involved in the present appeal.
As is agreed by Mr van Aalst, counsel for the appellant, the question before us is entirely one of fact. Although Mr van Aalst has taken us to a number of cases in which courts have had to consider the question whether one company was carrying on business on behalf of another, I have not found those cases to be of assistance in resolving this case. The reason is that, as is inevitable, the facts of those cases are substantially different from those of the present case.
In his reasons for judgment the trial judge direction of the conclusion that Paeson - the company which summarised in detail the matters which pointed in the
actually made the sale to the present respondents - was
carrying on business on behalf of Componere. There were seven matters noted by his Honour. They included the fact that at no relevant time did Paeson have a bank account, or other assets, or any premises, of its own; or keep any books of account, or prepare any balance sheet or profit and loss account. His Honour noted that Componere kept a set of books and prepared balance sheets and profit and loss accounts in which appeared entries suggesting that payments had been made by Componere on Paesonns behalf for a variety of expenses, including wages.
The trial judge referred to the Componere balance sheet, made as of 30 June 1987, in which, under the heading "Receivables", an item of $790,695 was shown as being a loan due to Paeson. His Honour also referred to the fact that certain of the people who were involved in the actual sale of
the machine - namely, Mr McGrory and the Messrs Foster - were
paid directly from moneys made available by Componere. Furthermore, his Honour noted that the proceeds of sale of the subject machine were paid directly into the Componere banking account. His Honour referred to the circumstance that an invoice which was sent to the Messrs Spreag in respect of hydraulic fluid and freight was issued in the name of Componere. Upon that invoice was a drawing of a brick, with the words "Componere Brickmaker." The words "Componere
Brichaker" were also used on a brochure published in September 1986, just after the subject sale. Also the judge
noted that Foster used a business card with the name "Componere".
The lynchpin of the argument put to the Court by M.r van Aalst is that the records of Componere show the payments which it made in respect of this business as being made by way of a loan account. It seems to me that this is a matter of

some significance in favour of the appellant. But I am not persuaded that it is decisive. On any view of the matter, there was considerable confusion in the minds of those who were responsible for the business and the affairs of the two companies as to the relationship between them. There was considerable laxity. If, indeed, Paeson was carrying on business on its own account, one would have expected that it would have run its own bank account and kept its own records; but at no stage was this done.

I do not think that the mere use of the word "loan", by people who are neither accountants nor lawyers, should necessarily be regarded as decisive. If this was a loan, it was a very altruistic loan. No interest was charged. Componere bore the risk of any failure of the business, because Paeson had no assets from which it could repay the "loan". Insofar as the 1987 balance sheet is concerned, it may be significant that this document was compiled after the present proceeding was commenced.

The circumstance that the wages of the people actually employed in selling the machine were paid by Componere is a fact of some significance, in favour of the view that it was Componere which was conducting the business in which they were engaged. This circumstance gains additional force from the fact that at least one of them was using a business card bearing the name "Componere". It would have been possible for the two companies to have made an

arrangement whereby Cornponere was, in effect, merely the banker of Paeson; prepared to advance moneys as required by way of payment, even for small amounts such as wages, and to have amounts received by Paeson credited in reduction of the debt thereby created. But, if this was the arrangement one would have expected some cogent evidence to that effect. The two directors of Paeson were Mr Farrow, who was also a director of Cornponere, and Mr Cooper, a solicitor. Mr Cooper was not called. Neither was any explanation given as to the reason why Paeson kept no books of account.

However, as I have said, it is not inconsistent with a loan situation that payments were made direct. So I would not reach a conclusion adverse to the appellant merely on this ground. But I think that the use of the description "Componere Briclanaker," both on the invoice and on the brochure, is highly significant. This was a description applied at the very time of the transaction. The evidence is that Mr Farrow became aware of the new brochure, bearing the

description "Componere Brickmaker", on 20 September 1986; that is within a few days of the relevant transaction. He took no	action to change the brochure or to suppress its use.
It was said in evidence by Mr Farrow that the brochure was authorised by Mr Smith, who described himself as
the manager for Paeson. Mr Smith said that Mr Farrow saw the
brochure in draft form, but Mr Farrow denied this. Whatever the position might be, it is significant that the person who was managing the business thought that it was proper to refer to the machine as a "Cornponere Brickmaker". And whether or not he saw the brochure in draft form Mr Farrow who was, as I have said, a director of Cornponere, accepted the use of that description. That acceptance Is inconsistent with the notion that Cornponere was merely the banker of Paeson, without any direct involvement in the business.
In my view, the conclusion of fact reached by the trial judge on this aspect of the matter - namely that Paeson was carrying on the business on behalf of Cornponere - is a
conclusion which was well open to him. Indeed, in my respectful opinion, his Honour's conclusion accurately reflects the balance of the relevant evidence. I would dismiss the appeal.
FOSTER J: I am in agreement. The question of whether
Cornponere was a principal or merely a financier at the time of the relevant sale was quite clearly one of fact. His Honour
weighed all the factual arguments in a very careful judgment. He arrived at a conclusion that, in his opinion, notwithstanding the existence of the loan account in
Cornponere's balance sheet and the references to payments being made on behalf of Paeson in Componere's books of account, the reality was that it was Cornponere which was carrying on the business.

Mr van Aalst, in a very careful argument, has put to

us a number of considerations of fact based upon references

made in the accounts of the company as to certain amounts

being loans. It is quite clear in my mind that his Honour

took those arguments into account in arriving at the finding

.

that he did. I consider that both his Honour's and, with respect, the presiding judge's comments upon those matters are quite sufficient to dispose of the careful arguments that have been based upon them.

It was indeed a question of fact. I see no reason whatever for differing from the findings that his Honour made on that crucial matter. Indeed, in my view, they were clearly correct. I therefore support the order proposed.

HILL J: I, too, am of the same opinion. The high point of the appellant's argument in the present case was that it would appear that some, although not all, of the expenses of the brickmaking activity were treated as a loan from Componere to Paeson. The one item, at least, that was clearly not treated

not so treated, was an amount of tax that had been deducted	as a loan, and it was apparent from the evidence that it was
from salary of employees and paid to the Commissioner of Taxation.
It is not entirely clear from the judgment whether his Honour took the view that no loan existed at the relevant time. There was certainly evidence before him which permitted that conclusion to be reached. In part the resolution of the
issue depended upon the testimony of Mr Farrow and MS Bayer. In respect of that testimony his Honour said:

"I did not find either Mr Farrow or MS Bayer a particularly impressive witness but on due reflection I have reached the conclusion that this should not lead me to reject the general purport of their evidence."

His Honour did not say that he rejected the totality of their evidence; nor did his Honour say that he accepted the totality of it.

There are some passages in his Honour's judgment that would suggest that his Honour, after considering the whole of the evidence, was of the view that there was in truth no loan. Thus his Honour in one passage said:

"In my opinion, notwithstanding the existence of the loan account In Componere's balance sheet and the references to payments being made on behalf of Paeson in Componere's books of

which was carrying on the business." account, the reality was that it was Componere Later, on the same page, his Honour, in referring to

the absence of a bank account of Paeson, said:	"At the most
it had a loan account in the books of Componere."

On the other hand, some lines later in the judgment, his Honour, dealing with a hypothetical situation of what would happen in the event that Paeson was wound up, referred to Componere itself as then being a substantial creditor.

However, at the end of the day, the matter is ultimately one of fact. Aftex reading the evidence to which counsel for the appellant has referred the Court, it seems to me that the label "loan", as used by MS Bayer in recording items of expenditure and, for that matter in subsequent accounting records, was not, on all the evidence, an accurate one but rather that the evidence as a whole, to which the presiding judge has referred in detail, leads to the conclusion that the brickmaking activities were activities carried on by Componere. Accordingly I would dismiss the appeal.

TAE COURT: The order of the Court will be that the appeal be dismissed and that the appellant pay to the respondents their costs of the appeal.

I certify this and the eight (8)

preceding pages to be a true copy of

the Reasons for Judgment of

their Honours Justices Wilcox, Foster and Hill

Associate:

Date :	24/September 19-90
Counsel for the Appellant:	J S van Aalst
Solicitors for the Appellant:	Hardings
Counsel for the Respondent:	B A Coles
Solicitors for the Respondent:	Holman Webb
Date(s) of hearing:	27 September 1990