Gralton & Anor v. Hopfner

[2009] QSC 16

SUPREME COURT OF QUEENSLAND

CIVIL JURISDICTION

[2009] QSC 16

FRYBERG J

No 1525 of 2009

DAVID JOHN GRALTON AND ANOTHER	Applicants
and
RUDOLF RICHARD HOPFNER AND OTHERS	Respondents

BRISBANE

..DATE 10/02/2009

DAY 2

CONTINUED FROM 02/02/09

ORDER

HIS HONOUR:  I have before me an application for orders that the first respondent be held in contempt of Court and punished for failing to cause the second respondent to comply with orders 3 and 4 of this Court made by Justice Dutney on the 10th of March, 2008, and that the second respondent be held in contempt and fined for failing to comply with order 3.

Another ground of contempt referred to in the application, that is, failure to comply with order 5 of the orders, has not been pressed.

The corporate respondent carried on business in 2007 providing business services including business administration, business management, book keeping, accounting, tax accounting consultancy and the cash flow funding.

In the course of carrying on that business it set up an arrangement with the Bank of Queensland.  Under that arrangement, amounts in which the company's customers were indebted to it would be assigned to the bank.  The bank would advance the amount of the assigned debts to the company, the debts would be payable to the bank, and when received by the bank, would be dealt with in a way that I shall describe shortly.  The amount advanced by the bank in the first place was 80 percent of the face value of the relevant invoice, and after the invoice was paid, and the possibility of any refund removed, the bank would pay the remaining 20 percent of the value of the invoice to the company.

In January 2008, arrangements were made between the respondents and the applicants for some services to be provided by the respondents for the applicants, but it seems that this arrangement was not formally reduced to writing beyond some apparent heads of agreement, and did not last very long.

By February 2008 it had been terminated.  Before its termination a number of invoices had been sent out on behalf of the applicants requiring payment of the amount owing to them to the Bank of Queensland via an account, the last three digits of the number of which were 805.  It seems that the applicants were unaware of the detail of the arrangements between the respondents and the bank.

After the arrangements between the applicants and the respondents ceased to operate, the applicants sent out their invoices to customers marked for payment by cheque or remittance in some other way but not marked for direct credit to the account previously specified on invoices sent to customers.

The applicant also made a substantial effort to contact customers and to tell them not to remit money to the Bank of Queensland in the manner specified on earlier invoices.  However, it was apparent by the beginning of February that there would be some of the applicants' customers who might have older invoices unpaid, which would be paid into the bank account, and that some customers might wrongly remit money under newer invoices into the bank account.

That was how matters stood when the proceedings came before Justice Dutney.  They had already been before the Court a couple of times, and an injunction had been issued and a receiver appointed which in effect froze the second respondent's account with the bank.  That had the effect of drying up cash flow, and when the matter came before his Honour it was envisaged that the freezing order would no longer continue to operate.  Instead his Honour made, so far as is relevant, the following orders:

"3.  That the amount of all other payments received by the respondents or any of them in payment of invoices rendered by the applicants or the second respondent in the name of or on behalf of JungleBusters or 1300 Labourers, are to be paid without deduction within seven days of receipt of payment to the first applicant.

4.   In the event that the respondents are unable to pay any amount referred to in Order 3 within the time specified the first and second respondents are to provide a statutory declaration declaring to the fact of inability to pay and the reason for inability to pay, such statutory declaration to be delivered within the seven days allowed for payment."

The applicants now allege that subsequent to the making of those orders, the second respondent received payments of invoices rendered by the applicants and did not either pay the amounts without deduction within seven days to the first applicant, or in the alternative, comply with order 4 of the orders.

The evidence establishes that there were six payments in respect of rather more than six invoices made on and between the 14th of March 2008 and the 13th of May, 2008, into the 805 account at the bank.

It also establishes that the amounts of those payments were not paid by the respondents in accordance with the order, and that no compliance occurred with paragraph four of the order in the alternative.

In response the respondents make a number of submissions.  The first two may be dealt with quickly.  First, they submit that some at least of the invoices were not issued by either applicant but rather by some other identity known as the JB Trust.  It is far from clear that the first applicant is not the trustee of any trust, but more importantly, there is no reason to think that whatever the wording on the invoices, they were not issued as invoices of the applicants. 

Second, it was suggested that on some, or even all of the invoices, no balance was shown as payable.  On the evidence I think it is clear that money was payable under them, and certainly that is how the invoices treated.

The respondents also submitted that the first respondent believed at all material times that there were no more invoices to come in.  I take note of the evidence of the first respondent about that, but I do not accept it, nor do I accept his evidence that he was unaware of the money being deposited into the Bank of Queensland account.  I found the first respondent an evasive witness who was not forthright in his answers, and have no confidence in much of what he said.

In the alternative, he submitted that the second respondent was unable to make the payments because the finance facility was frozen, but of course that cannot explain a failure to comply with order 4 of the orders.

I should enlarge a little on those findings.  I say that those matters would not excuse a failure to comply with the orders on the assumption that on their proper interpretation, the orders applied to the six payments to which I have referred.  That is a question to which I will return subsequently.  For the present I will assume that it did apply to those payments.

The evidence discloses that the payments into the 805 account were made by direct credits in the following amounts and by the following invoicees:  On 14th March 2008, $2,564.10 from Coles Hotels; on 20th March 2008, $444.40 also from Coles Hotels; on 31st March 2008, $3,113.55 also from Coles Hotels; on 3rd April 2008, $981.75 from Springfield Land Corporation; on 14th April 2008, $140.25 from a lady named Margi Moore, and finally on 13th May 2008, an amount of $383.63 from Mr Derek Thompson.

By that time the bank had become aware of the litigation and to some extent had become involved.  During March it terminated the electronic access of the respondents to the account for a period, but that access was subsequently restored.

The amounts, when paid into the account, remained in that account until the night of the day on which the payments were made.  The bank then transferred the credits represented by the payments to a suspense account where they were mixed not only with other credits on behalf of the company, but in fact with all monies received from all bank customers on similar financing arrangements.  At the time the bank did this, it was unaware that the debts in question belonged to the applicants and had therefore not been assigned by the respondents to the bank.

Some time later the bank credited various amounts of money to an account maintained by the second respondent with it, the last three digits of which were 529.  $33,000 was credited to that account on the 27th of March and amounts of $5,000 were credited on each of the 1st of April, the 4th of April, the 8th of April and the 14th of April.  $2,000 was credited on the 16th of April, $4,956.77 on the 22nd of April, $4,402.41 on the 8th of May, $383.63 on the 15th of May, $48.27 on the 23rd of May and on the 30th of May, $2,675.41.

Those credits had the effect of reducing the amount of the credit in the suspense account referable to the second respondent to zero.  On the other hand, of course, they boosted the amount in the second respondent's account.  That amount peaked after the deposit of the $33,000 and remained in credit at least until the end of May when there was a credit of over $6,000.

The respondents contend that because the finance facility was frozen and never restored, notwithstanding the fact that the 529 account was unfrozen, the second respondent was never able to make the payments which the order required.

They point to some statements made by Justice Dutney in the course of argument which do suggest that he envisaged that the finance facility would become, again, available to the second respondent.  That may be so.

However, it was not a condition of the order that the payment be made out of the finance facility and although the first respondent contended that the second respondent did not have sufficient money otherwise to make the payments, it is evident that there was sufficient money in account 529.

The first respondent resisted the idea that that money should have been used because it was, he said, attributable to other clients and not properly to be paid for these purposes.  I doubt whether that was so, but if for some reason he had felt that that made it impossible to make the payment, he could have complied with paragraph 4 of the order.  He could have made the statement there referred to.

Alternatively, he could have come back to the Court and sought variation of the order.  He did neither thing. 
Initially, his explanation for not doing either thing was that he did not know of the payments and had no reason to believe that they existed, that they had been made.  That was the stance which he took when the matter first came before me in the Applications jurisdiction last week.  I then embarked on the hearing of the matter, having been told it was estimated that it would take two hours.  After substantially more than two hours, it became evident, not only that the matter was not going to finish in a timely way, but that the cross-examination of the first respondent raised one or two new issues which had not previously been raised.

Consequently, the respondents successfully sought an adjournment to this week to enable further evidence to be procured.  In an affidavit filed today, the first respondent conceded that his earlier statement was incorrect.  He had said that he had not been aware of any of the payments into the 850 account until late December last year.  He now recalls, however, that he was aware of two payments into that account relating to Coles Hotels which he discussed with his solicitors in March 2008.  No affidavit from them has been produced, despite the fact that this was one of the reasons for last week's adjournment.  On the contrary, the solicitors have ceased to act for the respondents.  I am satisfied that at all material times the first respondent was aware not only of those payments but of all of the payments. 

In forming that view I not only have regard to the proceedings before Justice Dutney, but also to the note which is at the end of Exhibit F to the affidavit of Mr Anderssen where the respondent wrote the identities of what he described as "850 receipts caught under order".  Also the affidavit of Ms Luscombe exhibited printouts from part of the accounts of the second respondent.  The entries in a number of those accounts, journal entries, could only have been made if the person making them (Ms Luscombe or someone else in the bookkeeping staff of the second respondent) had been in possession of the

information which was required to be transmitted by the order.  That is, the payments received into the 850 account.

The evidence from Ms Carlson, an employee of the bank, showed that the bank system automatically sent a fax fairly early each morning to the second respondent, setting out details of the amounts received into the 850 account.  Large numbers of these were delivered to the applicants, pursuant to order 5 of the orders.  However, none was delivered in respect of the payments the subject of these proceedings, that is the six payments to which I have referred.  Mr Hopfner sought to suggest that this was because they were not received by the second respondent.  I reject that evidence.  A number of the bookkeeping entries referred to the specific monetary amounts and, in some cases, the name of the invoicee.  That could not have been done without the information contained in the facsimiles.  I am satisfied that they were sent to the second respondent. 

In the light of that evidence, the first respondent, in his final submissions, rephrased his position slightly.  He submitted that he had not known for certain what payments had been made, though he might have had suspicions.  There is no suggestion that he made any attempt to find out what payments had been made, notwithstanding his awareness of the order and his obligation to comply with it.  Had he attempted to do so from the bank, the information which was on the facsimiles sent to the second respondent would have been provided to him. 

He also sought to excuse his non‑compliance with the order by a submission that he believed that the invoices in question may have been factored.  The reality is that he did not ask, at least until this week, and I really do not think he held any such belief or attempted in any way to ascertain the true position.

That brings me finally to the question of whether, on its proper interpretation, the order applied to the six payments to which I have referred.  That requires a somewhat more detailed explanation of the arrangement between the second respondent and the bank. 

The 850 account, though some of the documentation bore the second respondent's name, was not an account of the second respondent.  It was not the account holder and monies credited to that account were not its property.  They were regarded by the bank as the bank's property and the account was one for the bank's own credit.  That followed from the fact that the amounts which were supposed to be paid into the account were intended to be debts which had been assigned to the bank.
The practice of the bank, which it maintained until the end of May at least, was as I have said, to sweep all amounts from the 850 account at the end of each day and transfer the credits to a general suspense account kept for all of its loan finance business.

While the credits were in this general account, amounts would be debited to the account in respect of bank charges or any other incidentals which the bank regarded itself as entitled

to debit and the amounts so charged would be identified to the particular customer.

The records of the suspense account identify the second respondent by reference to its client account; the 529 account.

...

HIS HONOUR:  The amounts might stay in suspense for an indeterminate time.  That was because the bank regarded itself as entitled to keep them until satisfied that no refund would be payable to the invoicee.  Eventually, the outstanding 20 per cent of the invoice amount would be paid to the second respondent.

When the matter was before Justice Dutney, the detailed operation of this arrangement was not in evidence.  It seems fairly clear from the transcript that his Honour believed that the 850 account was a credit account in the name of the second respondent, that amounts were paid into it by invoicees, and that they there stood to the credit of the second respondent until at night they were removed into the bank's own custody for subsequent payment, perhaps to the second respondent.

Moreover, it also appears that no analysis was then undertaken of the situation which would arise if an invoicee made a payment into the account in respect of an invoice which had not been the subject of an assignment; in other words, which had not been factored.  That was the position with respect to all six of the deposits with which I am concerned.  They were made after the termination of the arrangement between the applicants and the respondents and after the termination of the financing arrangement between the second respondent and the bank.  They were made by invoicees contrary to the instructions on the invoice.  It was, of course, the invoicee's duty to seek out the creditor and to pay it.  The creditor was the first or the second applicant.  For reasons which may perhaps be ascribed to human fallibility, debtors of the applicants did not follow the instructions on the new invoices, but rather remitted the credits into the 850 account.

It seems clear that the bank had no entitlement to receive that money.  It had not agreed ever to factor debts owed to persons other than the second respondent and these invoices reflected debts owed not to the second respondent, but to the applicants.

The bank would, therefore, have been obliged, if asked, to repay the money to the debtors.  It seems unlikely that the applicants could have made a claim to the bank for the money and equally, it seems that the second respondent had no right to receive it.

The wording adopted by his Honour in the order required that the amount of payments received by the respondents in payment of invoices rendered by the applicants be paid to the first applicant.  The question is whether the amounts which were paid into the 850 account were at any time within the description of payments received by the respondents in payment of the invoices. 

Initially, the applicants' case seemed to be that the words of the order were satisfied upon payment into the 850 account.  But the evidence of Ms Carlson today made it clear, I think, that this could not be correct.  These were not payments received by the respondents.  In the end, the applicant submitted that they became payments received by the respondents when the lump sum credits were made to the 529 account by the bank after the receipt of the credits by the bank.

What was then received in all but one case was a large and rounded amount.  It was an amount which bore no relationship to the invoice amount.  It was received a time and in circumstances which bore no such relationship.  It was received into the 529 account from the bank, not from the invoicee.  It had spent some time mixed with a large number of other credits in the suspense account, and it was money from which the bank, at least on one occasion, had made deductions for its own use and against which it evidently maintained the right to make deductions.

Those features in my judgment, are sufficient to make the lump sums received into the 529 account incapable of answering the description of payments received by the respondents in payment of invoices rendered by the applicants.  I have little doubt that had the true circumstances been known to the judge, he would have made an order which applied in the true circumstances, but the circumstances weren't known.  Had the second respondent been entitled to credits in the 850 account, as seems to have been thought at the time the matter was before his Honour, the order would have been perfectly appropriate.

I cannot either twist the words of the order or twist the facts to meet a situation which the order was not apt to cover.  In my judgment, the terms of order 3 were not satisfied.  In consequence, the six payments to which I have referred were not covered by that paragraph of the order and in consequence order 4 never fell to be complied with.

It follows from that conclusion that the application must be dismissed.

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