Connway Pty Ltd v Mitchell

[2022] NSWDC 30

District Court

New South Wales

Medium Neutral Citation:

Connway Pty Ltd v Mitchell [2022] NSWDC 30

Hearing dates:

13 and 14 December 2021

Date of orders:

14 February 2022

Decision date:

14 February 2022

Jurisdiction:

Civil

Before:

Grant DCJ

Decision:

1. Judgment in the sum of $112,277.89.

2. The defendant to pay the plaintiff’s costs.

3. Interest on the claim.

4. Grant liberty to apply in regard to the costs.

Catchwords:

CONTRACT – contracting parties – personal liability – limitation of actions – settlement of contract – whether personal loan or company loan – personal agreement

Legislation Cited:

Limitation Act 1969 (NSW)

Category:

Principal judgment

Parties:

Connway Pty Ltd (First Plaintiff)
Christopher Baldwin (Second Plaintiff)
Tim Mitchell (Defendant)

Representation:

Counsel:
Mr J Stavris (First & Second Plaintiffs)
Ms A Hando (Defendant)

Solicitors:
Oceania Lawyers & Consultants (First & Second Plaintiffs)
Harwood Andrews (Defendant)

File Number(s):

2020/00141502

Publication restriction:

Nil

Judgment

BACKGROUND

1. The defendant was a director of Southern Civil (Southern), a company which engaged in earthworks. The company owned a Bobcat and an excavator. The company had a tax liability to the Australian Taxation Office. The ATO had issued wind-up notices upon the company. It also had issued director notices to Mr Mitchell.

2. The plaintiff (Christopher Baldwin) is an accountant. He provides accounting services through Connway Pty Ltd. Accounting services were provided to the defendant and Southern Civil. In an attempt to relieve company tax liabilities, the plaintiff suggested a scheme. The scheme involved the sale of the Bobcat and excavator at an inflated price to the plaintiff. The defendant was to obtain false inflated valuations. The plaintiff used these valuations to obtain chattel mortgages from two financial institutions, namely ANZ Bank and Macquarie Bank. The equipment would remain with Southern for use.

3. The term of the chattel mortgages was five years. The plaintiff paid all moneys due under the chattel mortgages. The advance made by the plaintiff to the defendant was to be paid in four years. The advance moneys were used to pay down the ATO debt in an endeavour to avoid Southern being wound up and to satisfy ATO notices served on Mr Mitchell as a director of the company. The advance moneys have not been fully repaid. Southern was liquidated by the Australian Taxation Office.

4. The plaintiff asserts that he had two agreements personally with Tim Mitchell and Mitchell has not fulfilled those agreements, resulting in loss. The defendant says the agreements were not with him, but, rather, with Southern, and it was Southern who has failed to fulfil the agreements. The issue for determination is who the contracting parties were.

THE PLEADINGS

AMENDED STATEMENT OF CLAIM

THE BOBCAT CONTRACT (2011)

5. In or about December 2011 the first and second plaintiffs jointly and/or severally advanced the sum of $95,170 to the defendant at the defendant’s request. The defendant agreed to pay the sum of $121,405.80 to the plaintiffs within four years. The plaintiffs obtained a chattel mortgage with Macquarie for the sum of $95,170, repayable over five years with interest of 4.55% per annum and totalling $121,405.80.

6. The defendant was to transfer title of a Bobcat Posi‑Track RC50 to the plaintiffs as security, and the defendant was to retain possession of the Bobcat. On 31 December 2011 the plaintiffs advanced $95,170. The defendant paid the plaintiffs $83,690.58, failing to pay the balance of $37,715.22.

THE EXCAVATOR CONTRACT (2013)

7. In or about March 2013 the plaintiffs advanced the sum of $120,000 to the defendant at the defendant’s request, and the defendant agreed to pay the sum of $145,584.60 to the plaintiffs within four years. The plaintiffs obtained a chattel mortgage with ANZ for the sum of $120,000 repayable over five years with interest of 4.187% per annum totalling $145,584.60.

8. The defendant was to transfer title of a 2007 Hitachi excavator to the plaintiffs as security and the defendant was to retain possession of the excavator. On 31 March 2013 the plaintiffs advanced $120,000. The defendant paid the plaintiffs $71,021.93, failing to pay the balance of $74,562.67. In breach of the loan contracts, the plaintiffs have lost $112,277.89.

AMENDED DEFENCE

9. The defendant says that the plaintiffs were the accountant for Southern Civil Constructions Pty Ltd, of which he was a director. Southern Civil in 2011 was indebted to Brown Baldwin in respect of accounting services and indebted to the ATO in respect of unpaid tax liabilities. Acting on the advice of Christopher Baldwin, Southern Civil entered into the 2011 and 2013 contracts with Connway Pty Ltd (first plaintiff), purporting to sell the Bobcat and excavator for a price above market value, and the first plaintiff would provide the invoices to a third‑party lender (ANZ, Macquarie), knowing they were false.

10. The defendant says that the payments were made by Southern Civil and not by the defendant. The defendant was not a party to the contracts and does not owe money to the plaintiffs. In the alternative, the defendant says that on 11 May 2016 on behalf of Southern Civil he had paid $50,000 in settlement of the loan contracts and the plaintiffs are estopped from claiming further amounts from the defendant. The defence pleads that the cause of action has expired, or, alternatively, the loan contracts are illegal and unenforceable.

EVIDENCE

11. Mr Baldwin and Mr Mitchell gave evidence on the trial. The evidence of the plaintiff and the defendant needs to be looked at with the backdrop of a short chronology. The relevant dates are as follows:

1. 2010 the defendant received directors penalty notices from the ATO.

2. 7 October 2011 first ATO wind-up notice (CB386).

3. 7 December 2011, 2011 contract (Bobcat) and advancement of funds (CB46 - 53 and 72).

4. 10 January 2012, payment made to ATO of $100,000 by Brown Baldwin Accountants (CB54 and 56).

5. 7 March 2012, second ATO wind-up notice (CB386).

6. 1 July 2012, Tim Mitchell ceased as director of Southern Civil Constructions Pty Ltd (CB377).

7. 4 September 2012, director’s penalty notice to Tim Mitchell for PAYG withholding amounts owed to ATO in the sum of $246,351.44 (CB447 - 448).

8. 6 December 2012, third ATO wind-up notice.

9. 11 March 2013, 2013 contract (excavator)(CB200 - 208).

10. 8 April 2013, fourth ATO wind-up notice (CB390).

11. 26 November 2014, Raymond Anthony Sutcliffe (liquidator) completed a declaration of independence, relevant relationships and indemnities. The defendant provides the liquidator with an indemnity in relation to fees and disbursements for the administration (CB373 - 375).

12. 3 December 2015, the defendant pays $5,000 to the first and/or second plaintiff (CB469).

13. 11 May 2016 the defendant paid $50,000 to the first and/or second plaintiff (CB470).

MR BALDWIN

EVIDENCE IN CHIEF

12. Mr Baldwin is an accountant. Mr Mitchell is a former client of his previous business. He completed returns of his company and his personal returns. He left his previous practice in 2015. He understood that Southern Civil was having cash flow problems. He received his instructions from Mr Mitchell. He entered into a chattel mortgage (2011) with Macquarie Leasing to enable Mitchell enough money to continue to operate the business.

13. He suggested to Mitchell the arrangement of where he would finance the machine (Bobcat) and Mitchell would use that money to pay the ATO to ease his cash flow problems. Mitchell would be able to use the Bobcat and pay the payment to him and he would then pay the finance company. He paid the loan off to Macquarie. He found out that Mitchell had not been making the payments and contacted Mitchell.

14. In 2013 he entered into the excavator contract. He discussed it with Mitchell. It was the same arrangement as previously. Mitchell was to make payments and he would pay the finance company. The purpose of the agreement was to keep Mitchell happy and hopefully work his way out of the problem.

15. He received two payments from Mitchell of $5,000 and $50,000. He received the $5,000 in cash in Albury from Mitchell. There was a Ford utility. He did not receive it. One of the people he was with may have driven it back to Shepparton. He advanced the money to Mitchell. He was not interested in dealing with his company because it had financial issues. He is owed $112,277.89.

CROSS-EXAMINATION

16. He asked Mitchell to get an invoice for the Bobcat. Mitchell told him that Southern Civil owned the Bobcat outright. He agreed that it was Connway Pty Ltd as Trustee of the Hillston Income Trust on his behalf that got the chattel mortgage (CB47 - 52). He directed Mitchell to get the invoices. He accepted that the second valuation was higher than the original valuation. He accepted it was because that was the price Mr Mitchell was selling it for. He accepted that the moneys from the Bobcat agreement went into Southern Civil’s bank account (CB72, $94,270).

17. He said it was Mitchell’s decision for Southern Civil to use the moneys from the Bobcat arrangement to pay down Southern’s tax liability. He agreed that bank records disclosed a transfer on 6 January 2012 of $5,000 from Southern to Connway Pty Ltd for the Bobcat and a further transfer on 28 March 2012 of $2,997.11 and a transfer on 26 April of $2,335.77.

18. He said he was not worried about where the money was coming from as long as it was coming. He said he lent the money to Tim Mitchell, not Southern. It was his view that the money came from Southern and that although the money came from Southern Civil it was irrelevant. In evidence in chief and cross‑examination he said he was not making any money on these agreements, nor did he make any money on the hire purchase agreement (transcript p 8 lines 40 - 42, transcript 21 lines 15 - 21).

19. I reject that evidence. On the agreements before the Court they were to be repaid within four years, but Mr Baldwin’s agreement with the finance providers was for five years. He had the benefit of 12 months. At court book 274 - 278 is the schedule of assets of the Hillston Income Trust for the period 1 July 2015 to 30 June 2016. It demonstrates that Mr Baldwin had engaged in 45 finance agreements.

20. I reject his contention that, "I don’t make any money out of it. It’s more of a guts-ache than a profit-earning business" (transcript 21 lines 20 - 21). He explained the delay in chasing "The money" as a result of leaving the firm Brown Baldwin, setting up a new firm, and over 5,000 tax returns to deal with (transcript 31 lines 1 - 4). He denied Mitchell offered him $50,000, "For you to go away and for it to be all done" (transcript 33 lines 12 - 15). He did receive $50,000.

RE-EXAMINATION

21. He sold the business in 2011 or early 2012.

MR MITCHELL

EVIDENCE IN CHIEF

22. He commenced Southern Civil in 2008 with Jayme Craze. He met with Mr Baldwin in 2009 and he was brought on as Southern’s accountant and did his personal returns. They (he and Baldwin) worked out what machinery that Southern owned in clear title and then it was sold to Connway to raise funds to pay the ATO. Southern Civil was to pay it, "Like a hire fee". It was his understanding the agreement was between Southern Civil and Connway. He never told Mr Baldwin that he would pay him, nor did he ever pay him apart from $5,000, $50,000 and the Ford ute. Southern Civil made the payments for the Bobcat.

23. He resigned as a director on 1 July 2012. He stayed involved in the business and stepped in to assist in the day-to-day running of the business due to significant personal problems of the director. In 2013 he approached Baldwin about the second agreement. He was not a director at the time. The company had exhausted all avenues of meeting its obligations to the ATO. The idea was suggested of doing a similar thing. The excavator was owned outright. Southern Civil received $118,000, although the deal was for $120,000.

24. He had a director’s penalty notice issued by the ATO against him in relation to his time as a director. He initiated the liquidation on behalf of Jayme Craze’s parents. He paid $5,000 to Baldwin in December 2015 as a "show of good faith more than anything because we built a relationship over the years". He borrowed money to pay Southern’s debts to the local businesses and personnel, leaving the ATO matter outstanding.

25. As to the payment of $5,000 he said that Baldwin, Davinder Singh and an associate came to see him at the company’s premises. He was on "the seat of his pants". There was a company ute that was the only asset that was there from Southern. He gave him the ute and $5,000 cash from the safe. In 2016 Mr Baldwin asked for more money.

"He came and saw me on a job site at Wagga Road in Lavington. He needed to raise capital fast. I had offered and said, ‘I’ll pay the $50,000 if it helps’, at the time, and for all this to be put to bed, essentially."

26. It was his understanding that the $50,000 would address the issues that were outstanding from Southern Civil. He asked Baldwin how much Southern Civil owed. Baldwin was unable to say. He offered him $50,000 and said, "That would be the end of the matter". He said, "If I could give him $50,000, ‘That would be great’". From that interchange he formed the view that was the end of the matter.

27. He agreed with me at transcript 50, lines 45 - 46, that Baldwin saying, "That would be great", was not acknowledging that would be end of the matter. He did not get him to sign a document saying the debt had been expunged, nor did he send an email in those terms. The $50,000 payment was made on 11 May 2016 from his then-company Mitchell Constructions to Connway (CB 47). At transcript 52, lines 3 - 5, I asked:

"Q. In relation to the Bobcat and the conversation about it, did you tell Mr Baldwin that this debt will be a debt for Southern?

A. No. There was no written arrangements in that regard."

28. He told his counsel that it was always Southern Civil who would repay the debt. At transcript 52, lines 19 - 22, I asked him:

"Q. Did you say to Mr Baldwin when you had a conversation with him about the Bobcat and the dry hire, did you say to him Southern Civil will make the payments? Did you say that?

A. No."

29. He could not recall in the excavator discussions telling Baldwin that Southern Civil would repay the debt.

CROSS-EXAMINATION

30. At the time he contacted Mr Baldwin for the Bobcat agreement, his company was insolvent. He asked Mr Bullock for the false invoice. The first invoice was for $74,635, but this was negotiated up to $94,270 (CB45). That amount was more in line with what was the tax obligation. He agreed that he would do whatever was needed to clear the obligation to the tax office because he knew the company was trading while insolvent.

31. When he asked for the Bobcat loan he was in receipt of a director’s penalty notice. He did not tell the liquidator of giving $5,000 to Baldwin on 3 December 2015 or handing over the Ford ute, which was company property. He agreed that he did not have authority to give away company property.

32. He was then cross-examined about parts of his evidence that his counsel did not put to Mr Baldwin, including an initial offer of $15,000 that increased to $50,000. The payment of $50,000 would settle Southern’s debt, although the liquidation was still ongoing. He denied making preference payments from Southern Civil to Southern Steel Constructions, knowing Southern Civil was insolvent.

33. He acknowledged these payments but they were at the direction of Jayme Craze’s mother Cath, because she felt he had done a good job helping out the family. He conceded that Cath was not a director. He conceded that when he borrowed the money (excavator) that money went first to satisfy the director’s penalty notice. He never told Mr Baldwin that the debt was owed by Southern Civil (transcript 78 lines 39 - 40).

RE-EXAMINATION

34. The reason why Mr Baldwin and Connway Pty Ltd did not show up on the balance sheet was because they were instructed by the accountants to enter it as a hire arrangement because Southern Civil Constructions had sold the plant to Connway. He paid Mr Baldwin $50,000, "to make sure that we addressed the insolvency issue in the company".

PLAINTIFF’S SUBMISSIONS

35. Mr Mitchell admitted that when he met Mr Baldwin to discuss the Bobcat loan in 2011 his company was insolvent. Mr Mitchell accepted the loan as a personal liability by his actions and post‑liquidation conduct by giving away the falcon ute that belonged to the company in circumstances where he was neither a director nor had authority to do so.

36. He was not a truthful witness. He was evasive, making excuses. At no stage did he say, "the debt belongs to Southern Civil. Leave me alone". He made up answers, "to get out of the pickle he was in". Many of his answers were suggestive of recent invention. There was no follow‑up after the payment of $50,000 to say it was in full and final settlement.

DEFENCE SUBMISSIONS

37. Mr Baldwin knew that the equipment (Bobcat and excavator) were owned by Southern Civil Constructions. Mr Baldwin accepted that he told Mr Mitchell he needed an invoice to take to the bank to obtain the chattel mortgage. Baldwin knew that moneys were used by Southern Civil and its directors to pay ATO liabilities. Southern Civil at the hire arrangement in its profit and loss statement in at least 2012.

38. Mr Baldwin as the accountant would have known that. I note that although the profit and loss statement had the name of Mr Baldwin on it, it was unsigned. The financial records demonstrate payments from Southern Civil to Connway. Therefore one can infer by post-contract conduct that the loan agreement was with Southern Civil.

39. The Court should accept the evidence of Mr Mitchell that the payment of $50,000 was, "For it to be final and for the matter to be at an end", as opposed to the evidence of Mr Baldwin that the conversation did not take place. If the contracts do exist between Mr Mitchell and the plaintiffs, they should be found unenforceable due to the illegality involving the use of false invoice to obtain the moneys.

40. Ms Hando conceded in oral argument that if Mr Baldwin had paid the money back to ANZ and Macquarie, her submission must fail. It was the unchallenged evidence of Mr Baldwin that he had paid the bank all moneys under the chattel mortgage agreements. I reject the submission made by Ms Hando. Ms Hando conceded that if I found the payments in 2015 and 2016 were payments on contracts between Mr Baldwin and Mr Mitchell, the pleading of limitation of actions must fail.

CONSIDERATION

41. The question for determination is whose evidence do I prefer; that of the plaintiff or the defendant? On balance, I prefer the evidence of the plaintiff and I do so for the following reasons:

1. In the Southern Civil in Liquidation minutes of meeting of creditors (CB381 and 384) neither Mr Baldwin or Connway are listed as a creditor. I infer that the agreements were between Baldwin and Mitchell and not the company.

2. Although the evidence of Mr Baldwin was vague at times (I suspect as a product of his age), he gave cogent evidence about the terms of the agreement and who the parties were to that agreement.

3. Prior to formation of the agreements the company was trading insolvent.

The defendant in 2010 received his first director’s penalty notice (transcript 58 lines 12 - 20). He did not provide it, that is the copy of the director’s notice, because he did not think it was relevant. It was relevant because it showed the severe financial pressure Mr Mitchell was under personally.

In my view, the approach to Baldwin was twofold. First, to relieve the personal demand by the ATO, and, secondly, relieve the company debt to the ATO. Although he ceased being a director on 1 July 2012 after the Bobcat agreement and before the excavator agreement, he continued the day‑to‑day running of the company and its financial plight. He was, in all respects, controlling the company. On 7 July 2012 (CB209) the defendant received his second director’s penalty notice. This is consistent with the second contract being between he and Mr Baldwin as opposed to the company due to his personal indebtedness.

4. Although I rejected the evidence of Mr Baldwin about making a profit on the agreements, it did not affect my assessment as to his truthfulness concerning the terms of the agreement and the parties. A judge is entitled to accept some evidence and reject other evidence. Because a judge rejects some evidence, it does not follow that he must reject all of the evidence of a witness.

5. The money borrowed on the excavator agreement was used to satisfy the director’s penalty notice. I infer from this that the agreement was between he and Mr Baldwin.

6. At no time did Mr Mitchell tell Mr Baldwin that the agreements were between Baldwin and Southern. Nor did he tell Baldwin that Southern Civil would make the payment. He never told Mr Baldwin that the debt was owed by Southern Civil.

7. The evidence of Mr Mitchell lacked detail. It was vague to the extreme. At times the evidence bordered on what he believed as opposed to actually what happened. It was evidence of general impressions. It was only as a result of questions asked by me that detail emerged. At transcript 48 I asked:

"Q. Why didn’t you tell your counsel about that when she was asking you questions in regard to it?

A. Because it was a long time ago. I wish I had recorded the conversation, I guess."

He was an unimpressive witness. His evidence smelt of recent recollection. I accept Mr Stavris’ submission that his answers were suggestive of recent invention. I reject Ms Hando’s submission that the defendant was becoming more comfortable in talking about everything in a very uncomfortable situation.

8. I prefer the version given by Mr Baldwin for the asking of and payment of $50,000. I do not accept Mr Mitchell’s evidence that the payment of $50,000 for it to be final and for the matter to be at an end. I am fortified as to this view by the failure of Mr Mitchell to follow up by any means and confirm that the payment was in final settlement.

9. I reject the submission that because Southern made the payments I should infer that Southern was the contracting party. Southern was simply a vehicle that Mr Mitchell would use to make payments owed by him. As Mr Baldwin said in evidence, he was not worried about where the money was coming from as long as it was coming.

10. The handing over of the Falcon ute the property of the company to which Mr Mitchell was not a director and had no authority to do so is indicative of a personal loan, not a company loan. He was treating company assets as his own to ameliorate his personal debt.

11. Mr Mitchell gave evidence that Baldwin constantly harangued him for the repayment of the debt. In those numerous telephone conversations or meetings, never once did he say, "It’s not my debt. It is Southern’s debt". I infer from such failure that it was a personal agreement.

12. I am satisfied that the payment of $5,000 and $50,000 were pursuant to the agreement and the LimitationAct has no application.

ORDERS

1. Judgment in the sum of $112,277.89.

2. The defendant to pay the plaintiff’s costs.

3. I make an order that there be interest on the claim.

4. I grant liberty to apply in regard to the costs.

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Decision last updated: 22 February 2022