Davies v Apted - [2013] SASCFC 92

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
DAVIES v APTED
[2013] SASCFC 92
Judgment of The Full Court
(The Honourable Chief Justice Kourakis, The Honourable Justice Vanstone and The Honourable Justice Peek)
17 September 2013
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - FORMATION OF CONTRACTUAL RELATIONS - CONTRACT IMPLIED FROM CONDUCT OF PARTIES
CONTRACTS - PARTICULAR PARTIES - PRINCIPAL AND AGENT - CREATION OF RELATIONSHIP OF AGENCY
Plaintiff took action to recover monies advanced in accordance with an oral agreement - defendant denied liability on the basis that in negotiating the loan he had acted in his capacity as controlling director of a company - trial judge found that the borrower was the defendant acting in his own right - on appeal it was argued that the judge erred in law in denying himself resort to the surrounding circumstances and purpose of the transaction, and that the judge overlooked or wrongly disregarded relevant items of evidence.
Held: appeal dismissed - no error of law or approach made out.
Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165; Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193; Graziano v Graziano [2010] SASCFC 76; (2010) 273 LSJS 553; Western Export Services Inc & Others v Jireh International Pty Ltd [2011] HCA 45; VTB Capital Plc v Nutritek International Corporation & Others [2012] 2 Lloyd's Rep 313; Prest v Petrodel Resources Ltd & Others [2013] 3 WLR 1, considered.

DAVIES v APTED
[2013] SASCFC 92
Full Court: Kourakis CJ, Vanstone and Peek JJ

KOURAKIS CJ: I would join in the orders proposed by Vanstone J for the reasons given by her Honour.
I would make a brief additional observation. It is not uncommon for the identity of a contracting party to be complicated by the circumstance that a natural person has structured his financial and commercial affairs around one or more corporate alter-egos. Legislative reform which has allowed for privately formed trading “corporations sole” and the commercial and taxation advantages afforded to corporations has contributed to this phenomenon. The ease with which corporate structures can be rearranged, assets moved and liabilities incurred makes contracting with a corporate alter-ego a fraught undertaking.
In a number of recent English authorities a concept referred to as “piercing” or “lifting” the corporate veil has been discussed.[1] The principle, as best it can be identified, addresses the dishonest use of corporate vehicles to evade legal liability by fixing others with the liability evaded.[2] The principle does not extend to holding the natural person who is the principal of a company liable for the contractual obligations of the company under a contract expressly entered into with the company alone.[3] However, in my view, it is consistent with the objective theory of contract to have regard to the hesitation that a party would feel about adopting the fraught option of contracting with the corporate alter-ego alone and not with its principal, in determining whether an oral contract was made with the principal, the corporate alter-ego, or both. Equally, the reasonable bystander can take it that a person engaged in contractual negotiations appreciates the reluctance that the other party may feel about contracting with his or her alter-ego, or, at least, about contracting with the alter-ego alone.
[1]    VTB Capital Plc v Nutritek International Corporation & Others [2012] 2 Lloyd’s Rep 313; Prest v Petrodel Resources Ltd & Others [2013] 3 WLR 1.
[2]    Prestv Petrodel Resources Ltd & Others [2013] 3 WLR 1, [81]-[83] (Lord Neuberger PSC), [17]-[28], [34]-[35] (Lord Sumption JSC).
[3]    VTB Capital Plc v Nutritek International Corporation & Others [2012] 2 Lloyd’s Rep 313, [136] (Lord Neuberger PSC).
A principal who operates a business through a corporate vehicle, or vehicles, which he or she controls, is likely to use the personal pronoun in the course of contractual discussions. If there are also references to one or more of his or her corporate alter-egos in the contractual discussions, such that there is some ambiguity about the identity of the contracting party, the considerations to which I have just referred may become important. At the very least, the considerations are a reason for caution in concluding that the contracting party is the corporate alter-ego of the principal merely because there are references to the company in the course of the conversation.
Of course, the principal may expressly nominate his or her corporate vehicle as the contracting party as will often be the case with written contracts. Alternatively, the corporate vehicle may be identified as the contracting party by implication from the matrix of facts and circumstances in which the contractual promises were made. The reasons of Vanstone J show that that is not this case.
VANSTONE J: On 30 June 2004 the respondent (plaintiff) handed to the appellant (defendant) a blank cheque for $100,000 which was borrowed from the trustees of a superannuation fund, SPC. The cheque was paid initially into the account of SABC Project Management Pty Ltd, a company of which the appellant was the controlling director. Shortly afterwards most of it was placed into the account of the wife of the appellant. Subsequently most of that amount was used to purchase a large stake in a bar business operating on Gouger Street, Adelaide. The name of the purchaser appearing in a share sale agreement executed over a month later was SABC.
In June 2011 the respondent, Mr Apted, took proceedings in the District Court to recover from the appellant, Mr Davies, the amount advanced together with interest. He contended that the loan was made to Mr Davies personally, as opposed to the company SABC. No agreement in writing was made. Mr Davies answered that the advance was always to be made to SABC and that this was borne out by the use to which the money was put. By the time of the proceedings SABC was in liquidation.
The judge found for Mr Apted. Upon appeal it is argued that the judge wrongly denied himself resort to the surrounding facts and circumstances in construing the terms of the oral contract and it is further argued that he misused items of evidence in arriving at his conclusion.
Background
Mr Apted and Mr Davies were known to each other over many years through business, although they did not have any business interests in common. Either on 30 June 2004, or a day or so prior to that, the two men met at Mr Davies’ office. According to Mr Apted, Mr Davies told him that he had a strong interest in “taking a controlling position in a business known as ‘The Bar on Gouger’” and that, while he already had about 40 per cent of it, he wished to take a complete interest. Mr Apted said that Mr Davies asked whether Mr Apted knew where a “quick $100,000” could be found. He told Mr Apted that there would be something in it for him. He described the business as having a good cash flow. Mr Apted said that he would see about it. He spoke to two old friends, P and G, who were the trustees of the superannuation fund, SPC. They decided to have SPC borrow $100,000 from its banker, ANZ, and a cheque was drawn on 30 June 2004. The payee of the cheque was left blank, according to Mr Apted, on the instruction of Mr Davies. Mr Apted said he was told by Mr Davies that this would enable him to deposit the cheque into the account of whichever company he determined upon, he not operating a personal bank account.
Mr Apted said that later that day he was at the business premises of P and G when a representative of the ANZ Bank telephoned P and G advising that a special answer had been sought in relation to the cheque and querying whether the cheque should be paid into the account of SABC, who was (by now) nominated as payee. The call was passed to Mr Apted. Mr Apted knew that SABC was a company associated with Mr Davies and so told the bank that the cheque should be met.
The term of the loan was to be one year and the interest rate just over 9 per cent. When Mr Apted failed to repay the money to SPC he was sued and a default judgment entered against him. That led to him repaying the full amount, plus interest and costs.
It was put to Mr Apted in cross-examination that at the time of the initial conversation he was told by Mr Davies that it was SABC which wished to acquire the balance of the shares in the Bar on Gouger. He denied that. He said that at all times he was dealing with Mr Davies as an individual. He said “I wasn’t dealing [with] tricky companies on the side or how he was going to do it. I was just dealing with Mr Davies”. He said he was unaware of the vehicle (if any) which Mr Davies would use to acquire the outstanding shares.
It was put to Mr Apted that during the initial conversation with Mr Davies, Mr Davies had raised the question of an “outstanding debt” owed to SABC by Plastic Recyclers, a company associated with Mr Apted. In answer to that line of questioning Mr Apted asserted that there was no debt and the two issues were not connected. He explained that SABC had lost its investment in Plastic Recyclers and that there was no outstanding indebtedness. He said he had “no knowledge of those two issues being discussed on that day”, but said that later Mr Davies would often use the Plastic Recyclers matter as an excuse not to repay the $100,000 debt. He said the Plastic Recyclers issue was “never discussed specifically at that point”.
It was put to Mr Apted that he had filled in SABC as the payee on the cheque, but he denied writing on it at all. The cheque was not in evidence.
It was put to Mr Apted that in June 2005 when the loan had not been repaid Mr Davies offered to draw a cheque on the SABC account to cover the loan on the proviso that Mr Apted arrange for “Plastic Recyclers [to repay] its debt to SABC”. Mr Apted replied that this was totally incorrect and that the Plastic Recyclers issue had already been resolved. Later on in the trial, when Mr Apted was cross-examining Mr Davies, he produced Exhibit P12, a Deed of Release and Settlement as between Plastic Recyclers and others and SABC, dated 10 June 2004. It bore Mr Davies’ signature on behalf of SABC. The terms of that document indicate that all claims arising from that matter were settled. It will be noted that the Deed of Release and Settlement was executed several weeks before 30 June 2004 when the $100,000 the subject of this claim was advanced.
For his part, Mr Davies described the first discussion with Mr Apted regarding the Bar on Gouger in the following terms. Like Mr Apted, he said it occurred in his, Mr Davies’, office. He said he told Mr Apted “I needed to have SABC acquire Kyle Church’s shareholding out of the Bar on Gouger and I needed to have Plastic Recyclers repay their funds to enable me to do that”. He elaborated saying “God, SABC’s got 40 per cent of a company called FACAC which owns the Bar on Gouger and I need to buy out a troubled shareholder and to do that I’m going to require funds to do it.” He went on “SABC really would like its funds repaid from Plastic Recyclers because we’re in need of those funds to protect the investment in FACAC.” Mr Davies said he told Mr Apted that it was a matter of urgency. He said he told Mr Apted that if he were able to remove Mr Church as a shareholder, then when it was sorted out Mr Apted could take a shareholding. He said that when he next saw Mr Apted he was told that the funds had been sourced. They then spoke about Mr Davies’ plans for the Bar on Gouger.
Mr Davies said that, later, Mr Apted arrived with a blank cheque for $100,000 and that he asked Mr Apted to make it out to SABC. He said he believed Mr Apted wrote the name of the payee on the cheque. He instructed his secretary to obtain a special clearance on the cheque in order to expedite the purchase of the outstanding shares.
As mentioned, the Deed of Release and Settlement, Exhibit P12, was produced to Mr Davies in cross-examination by Mr Apted. Mr Davies acknowledged having previously seen the document and indeed having been a signatory to it. What had previously been referred to by Mr Davies and his counsel as a debt owing by Plastic Recyclers to SABC was thenceforward referred to by Mr Davies as a “moral obligation”.
The judge found that even on Mr Davies’ own account of the initial conversation with Mr Apted the words he used in relation to the proposed loan were suggestive of his negotiating in his own capacity.
The judge preferred the evidence of Mr Apted. He found that Mr Davies’ evidence was unsatisfactory. He placed some emphasis on the fact that while the defence initially claimed that the alleged debt of Mr Apted to Plastic Recyclers was intrinsically connected with Mr Davies’ request of Mr Apted that he source $100,000, that position changed completely after Mr Apted produced the Deed of Release, Exhibit P12 (which had not been discovered). He said:
³²This changed position is completely at odds with the stance that the Plastic Recyclers loan was the ‘essence and genesis of the discussions for the current loan’. For that and the above reasons, Mr Davies’ evidence must be rejected. It was inconsistent with the settlement agreement which destroys the premise lying behind the defence case that the loan arose from an outstanding debt owed by Plastic Recyclers to SABC. It is convincingly demonstrated that this transaction could not have its origin in any Plastic Recyclers debt because there wasn’t one.
The judge further noted that had the cheque been intended for SABC it would have been made out to that company when it was drawn: [34]. Additionally, the judge observed that there was no convincing evidence that the loan ever made its way into the books of SABC: [26]. The judge found that had Mr Apted known that the funds were going to a corporate account “he surely would have taken steps to better secure his position”.
Argument of the appellant
Mr B Roberts, for the appellant, put that in determining the identification of the parties to an oral contract and the terms of the contract, a trial judge must have regard to an objective interpretation of the surrounding circumstances known to the parties, including the genesis of, and purpose of, the agreement and what was said by the contracting parties at the time of striking it. He referred to Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165 at [40], Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 348-353 per Mason J and Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22]. Mr Roberts argued that, in his reasons at [18], the judge misstated the relevant principle and that he then wrongly disregarded relevant items of evidence, which counsel contended pointed clearly to the borrower being SABC rather than Mr Davies.
Mr Roberts referred to [25] in the reasons which, he put, showed that the judge had wrongly thrown an onus onto the defendant to prove that he made it plain when he entered into the contract that he was speaking in his capacity as director of SABC. Then, counsel submitted that the judge erred in dismissing as self-serving evidence that on 6 August 2004 SABC executed a Share Sale Agreement by which it acquired from Mr Church 60 per cent of the shares in the Bar on Gouger. Mr Roberts submitted that this evidence of events subsequent to the contract was available for use in determining the terms of an oral contract. He relied on Country Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [20]-[21] (dealing with identification of the subject matter of the contract) and Graziano v Graziano [2010] SASCFC 76; (2010) 273 LSJS 553 at [59]-[60] (resort to the contracting parties’ subsequent communications to each other permissible on the question of whether an agreement had been reached).
Mr Roberts pointed to a number of items of evidence – some of which were findings of fact by the judge – which he said were either wrongly excluded from consideration by the judge because of his misapprehension of the relevant principle, or alternatively, if considered, not afforded appropriate weight in the reasoning process.
The most significant of the facts either not in contest or found by the judge were as follows: prior to striking this agreement Mr Apted knew that, through SABC, Mr Davies held a 40 per cent interest in the Bar on Gouger; Mr Davies told Mr Apted that he needed the $100,000 loan in order to be able to acquire the remaining 60 per cent of the shares; Mr Apted expected the funds to be used for that purpose; Mr Davies suggested that Mr Apted could expect to receive some shares in Bar on Gouger in return for his assistance in sourcing the funds; Mr Apted acquiesced in the cheque being paid into the account of SABC; most of the $100,000 was applied to the purpose of purchasing the 60 per cent interest and the share sale agreement showed the purchaser as being SABC. Other matters relied on by Mr Roberts under this head were either disputed, or in my view, colourable, or irrelevant.
Counsel also placed emphasis on what he characterised as a “concession” made by Mr Apted in his closing address at trial to the effect that he decided not to sue SABC because it had gone into liquidation and instead sued Mr Davies as he was “the sole director of SABC at the time that the funds were received”.
Analysis
The judge’s decision as to the identity of the borrower rested on his acceptance of Mr Apted’s evidence to the effect that a loan to SABC was not discussed, which finding was supported by a number of circumstantial matters. In my view the judge’s analysis was valid. The claim that the judge erred in the approach he took to determining the terms of the contract is not made good. The appellant’s particular complaint is based on the following sentence in the reasons, at [18]:
However in Western Export Services Inc v Jireh International Pty Ltd, three judges of the High Court reaffirmed what was said in Codelfa Construction Pty Ltd v State Rail Authority of NSW, [at 352] to the effect that it is essential to identify ambiguity in the language of a contract before the court may have regard to the surrounding circumstances and objects of the transaction.
The attribution to the judgment of Mason CJ in Codelfa is correct. However, Mr Roberts argues that what was there under discussion were written contracts and so the approach is relevantly different. However, the trial judge went on to say in the following paragraph that in the present case the “precise mutual understanding [was] somewhat elusive, owing to the informality of the transaction …”. A fair reading of the reasons in their entirety clearly indicates that the judge did have regard to the surrounding circumstances and to the objects of the transaction, and evaluated what was said by the parties in that light. As I said, the reference to Codelfa was in fact accurate and it occurred in the course of a paragraph which set out a number of general principles relating to construction of contracts. I do not consider that any error is indicated.
The complaint that the judge wrongly threw an onus onto the defendant, Mr Davies, arises from [25]. I set it out in full.
²⁵Although Mr Apted was aware some shares in the Bar on Gouger were held by SABC, Mr Davies should have made it clear what he intended on this occasion. He instead did nothing at all to disabuse Mr Apted of the understanding – objectively viewed – that this was a personal transaction. The fact that the funds went into his wife’s account for a short period of time – even if that had utility – is evidence in itself that Mr Davies felt entitled to appropriate the funds as he pleased.
(italics added)
Again, I do not think the paragraph indicates error. These observations were made against the background of a finding that at no time did Mr Davies say that the loan was to SABC, as opposed to himself personally. In my view, the impugned sentences in [25] can be read as saying, in effect, that unless Mr Davies stated that he was speaking as a director, or acting on SABC’s behalf, he was liable to be taken at his word, that is, that he was acting in his personal capacity. No reversal of onus is involved.

As to the complaint that the subsequent transfer of shares in Bar on Gouger showing SABC as purchaser was dismissed as “purely self serving so far as the defendant’s case is concerned”, again I find it without substance. There is a nice question as to whether such an event taking place some weeks after the monies were advanced could bear any evidential weight in terms of the identity of the borrower. In a real sense the identity of the purchaser of the shares is entirely neutral in terms of who the borrower had been. It will be remembered that on Mr Apted’s case, even if he knew that it was SABC which held the existing 40 per cent stake in Bar on Gouger, he had no interest in whether Mr Davies would use the funds to purchase the outstanding shares in his own name, SABC’s or in that of one of the other companies he controlled. I do not know that I would have used the term “self serving” in relation to the share sale agreement, rather I would have said that it was neutral or equivocal in terms of Mr Davies’ case.
Because of my view that the share sale agreement has, in the circumstances of this case, no evidentiary value, it is unnecessary to deal with Mr Apted’s application to call fresh evidence on this topic and the competing arguments going to it. I am content to uphold the judge’s finding on this issue as it stands. Especially in the absence of complete documentation of the loan, the path the loan monies took and the chronology of dealings in respect of the shares held by Mr Church, that evidence is in my view of no importance at all. For those reasons I would not admit the fresh evidence tendered by the respondent, or the appellant’s counter.
The observations I have just made about the share sale agreement foreshadows the attitude I take to the other facts relied on by Mr Roberts which he suggested compelled the conclusion that SABC was the purchaser. Those included Mr Apted’s knowledge (if he indeed had such knowledge) that SABC held the 40 per cent interest in the Bar on Gouger and his acquiescence in the cheque being paid into the account of SABC. In my mind these matters were neutral as to the identity of the borrower. Even if Mr Apted knew that SABC was the current shareholder, it did not follow that he would expect that the same entity would be used to acquire the outstanding shares. Even if SABC were the purchaser (as the judge found) it might have used funds loaned to it by Mr Davies. That the cheque was ultimately made out to SABC was consistent with such an arrangement. In other words, there was no real nexus between the knowledge imputed to Mr Apted and the identity of the borrower.
In my mind, the absence of proof that the loan was reflected in SABC’s books and the complete undermining of the defendant’s contention that the loan was to go to SABC as atonement for the monies previously advanced by SABC to Plastic Recyclers were more telling factors.
Mr Roberts also challenged the admissibility of the evidence of Mr Apted that he did not intend to deal with any “tricky companies”. I note that the evidence was not the subject of objection when given, but anyway, in my opinion it was admissible. If the identity of the borrower was a matter of importance to Mr Apted then he was likely to be vigilant about any suggestion that the borrower would be other than Mr Davies. He was not to know of SABC’s financial position. The judge’s observation that the prospect of a loan to SABC would likely have led Mr Apted to better secure his position was open to him.
In relation to the so-called “concession” made by Mr Apted in his closing address relating to why he sued Mr Davies as opposed to SABC, several observations could be made. First, this was the statement of an unrepresented man made in the course of submissions, rather than in evidence. It may well reflect a lay person’s views about the responsibilities of company directors. Second, on agency principles and depending on the facts found, both SABC and Mr Apted may well have been liable. In the end, the identity of the borrower is a question of fact and irrespective of the plaintiff’s own understanding of the legal situation, there was a clear basis for the findings made by the judge.
Conclusion
In my opinion the reasons of the trial judge are comprehensive, concise and compelling. I have no misgivings in relation to the findings made or the ultimate decision.
I would make the following orders:
1.the affidavit of Benjamin Robert Williams sworn 5 August 2013 tendered by the respondent is not admitted;
2.the appeal is dismissed;
3.the appellant is to pay the costs of the respondent of and incidental to the appeal.
PEEK J. I agree with the orders proposed by Vanstone J and with her Honour’s reasons. I also agree with the additional reasons of the Chief Justice.