Hendersons Automotive Technologies Pty Ltd v Flaton

[2009] VCC 834

IN THE COUNTY COURT OF VICTORIA Revised

Not Restricted

AT MELBOURNE
CIVIL DIVISION

COMMERCIAL LIST – GENERAL DIVISION

Case No. CI-08-04232

IN THE MATTER OF HENDERSONS AUTOMOTIVE TECHNOLOGIES

PTY LTD (IN LIQUIDATION) (ACN 108 967 611)

HENDERSONS AUTOMOTIVE TECHNOLOGIES PTY LTD	Plaintiff
(IN LIQUIDATION) (ACN 108 967 611)
v
FLATON MANAGEMENT PTY LTD	Defendant
(ACN 108 988 932)

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JUDGE:	HIS HONOUR JUDGE SHELTON
WHERE HELD:	Melbourne
DATE OF HEARING:	24, 27 and 28 April 2009
DATE OF JUDGMENT:	29 May 2009
CASE MAY BE CITED AS:	Hendersons Automotive Technologies Pty Ltd v Flaton Management Pty Ltd
MEDIUM NEUTRAL CITATION:	[2009] VCC 0834

REASONS FOR JUDGMENT

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Catchwords: Unjust enrichment – payment made by book entry – payment made by direction – Re York Street Mezzanine Pty Ltd (in liq) [2007] FCA 922 – Sheahan v Carrier Air Conditioning Pty Ltd & Campbell (1997) 147 ALR 1 – W Cook Builders Pty Ltd (in liq) v Matthew Lumbers [2007] SASC 20.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J L Evans	Herbert Geer
For the Defendant	Mr P Agardy	Harwood Andrews
HIS HONOUR:

1          In this proceeding, the plaintiff alleges that the defendant has unjustly enriched itself at the plaintiff’s expense and, if so, also seeks a declaration that it has an equitable lien over the property at 8-20 Quay Road, North Geelong (“the property”) which is registered in the name of the defendant.

2 By way of background, at all material times Gunther Jakob Flaton (“Flaton”) was the sole director of the plaintiff and the defendant companies. On 1 November 2007, he appointed Laurence Andrew Fitzgerald and Stephen Robert Dixon as administrators of the plaintiff pursuant to Part 5.3A of the Corporations Act 2001 (Cth). On 29 February 2008, the creditors of the plaintiff placed the plaintiff in liquidation, with Fitzgerald and Dixon becoming joint and several liquidators of the plaintiff.

3          Prior to May 2004, Flaton was the general manager of Hendersons Industries Pty Ltd (“HIPL”), a wholly owned subsidiary of Nylex Limited (“Nylex”). HIPL owned the property upon which there were factory buildings erected, and it carried on business there (“the business”). In 2004, Flaton was negotiating with Nylex to purchase the property and the business. Davidsons, Accountants and Business Consultants (“Davidsons”), and his solicitors, Harwood Andrews, advised Flaton to have one entity purchase the land and another purchase the business.

4          Pursuant to this advice, the plaintiff and the defendant were incorporated on 6 May 2004. The plaintiff, which was to operate the business, was to be the trustee company of the Hendersons Automotive Technologies Trust and the defendant, which was to purchase the property, was to be the trustee company of the Flaton Property Trust. Income from both these trusts then flowed to the Flaton Investment Trust and was distributed by it to Flaton, his wife, Josie, and Flaton Investments Pty Ltd. There was also previously in existence, Flamar Pty Ltd, a building company. I refer to these various entities, including Flaton and his wife, but excluding the plaintiff and the defendant companies, compendiously as “the Flaton entities”.

5          Again, in accordance with the advice, by a Contract of Sale dated 13 May 2004, the defendant agreed to purchase the property from HIPL for the sum of $1.5 million (“the property contract”). The sum of $150,000 was payable upon entering into the property contract. $300,000 was payable on 1 July 2004, $450,000 on 31 December 2004 and the balance of $600,000 was payable on 30 June 2005. On or about 18 August 2004, Nylex and the defendant agreed that the payment of the sum of $450,000 was to be postponed to 28 February 2005 and payment of the sum of $600,000 was to be postponed to 30 August 2005. Nylex and the defendant then agreed to an early settlement under the property contract. There was to be a reduction in the purchase price of $52,000 if the balance of the purchase price outstanding was paid by 1 November 2004. In fact, a transfer of the title to the property was handed over to the defendant on 31 August 2004 in return for two bank guarantees from the Commonwealth Bank of Australia in favour of Nylex totalling $1.05 million, the approximate balance then outstanding under the property contract.

6          The plaintiff entered into a sale of business agreement with HIPL, also dated 13 May 2004, by which it purchased the business for the sum of $855,000 payable by a deposit of 10 per cent, $85,500, on signing, with the balance of $769,500 payable on 30 June 2004 (“the business contract”). The settlement date under the business contract was extended to 30 August 2004. This sum was subject to adjustment for movement between 31 January 2004 and 30 June 2004 in respect of stock, accrued employee entitlements, plant and equipment and, surprisingly, “Land & Buildings”.

7          The plaintiff claims it has paid to Nylex a sum considerably in excess of what it was required to pay under the business contract and that the excess was an advance to the defendant for the purchase of the property. It contends that this results in the defendant, as the owner of the property, receiving a benefit and thereby being unjustly enriched at the expense of the plaintiff.

8          The defendant denies that it has received any such benefit from the plaintiff and states that no monies are owed to it by the defendant.

9          The approach taken by Mr Evans, who appeared on behalf of the plaintiff, was to calculate the sum paid by the plaintiff towards the purchase of the property and the business, to deduct the amount paid by the plaintiff under the business contract and, after making appropriate adjustments and allowances, regard the balance as paid by the plaintiff under the property contract. Mr Evans calculated this sum at $661,125. He conceded that there may be some deductions from this sum which I might allow. In the end though he concluded that even were I to make such deductions, there would still be a substantial net sum due to the plaintiff.

10        Mr Agardy, who appeared for the defendant, submitted that the plaintiff was approaching the matter incorrectly. In particular, he submitted that the plaintiff’s approach did not take account of the evidence of Flaton who was a director of both plaintiff and defendant, particularly with respect to loans made by the Flaton entities to the plaintiff which were then later repaid.

11        Mr Agardy relied upon the comment of Finkelstein J in Re York Street Mezzanine Pty Ltd (in liq) [2007] FCA 922, at para 26, where His Honour stated:

“There is every reason to permit a payment to be made by a book entry. Often it is simply a short-hand for money or a cheque being handed across the table and money or a cheque being handed back. … All that is required is an actual agreement by the relevant parties that payment be made by means of entries in books of account. …”

12        He also relied upon Sheahan v Carrier Air Conditioning Pty Ltd & Campbell (1997) 147 ALR 1, at 20, where Dawson, Gaudron and Gummow JJ stated:

“… Thus, in Re Stevens, it was said that the debtor ‘parted with his assets, and the payment which he himself should have received he has authorised to be made to the creditor, and it is just the same as if he had received payment himself and had himself handed such payment to [the creditor]’. …”

13        Mr Agardy submitted that it was not sufficient to “follow the money” as the plaintiff was doing, but that also various book entries had to be looked at in the context of Flaton’s evidence.

14        I agree with Mr Agardy’s submission.

15        It was not in issue that the law as to unjust enrichment was as stated by Sulan and Layton JJ in W Cook Builders Pty Ltd (in liq) v Matthew Lumbers [2007] SASC 20, at para 63, where their Honours stated:

“Consequently, there are three basic elements of unjust enrichment which are satisfied in the categories of case in which an unjust enrichment has been found. First, the defendant must receive a benefit. Secondly, that benefit must be received at the plaintiff’s expense. Thirdly, it must be shown that it would be unjust if the plaintiff were not remunerated; this element can also be expressed as requiring the plaintiff to establish that it would be unconscionable for the defendant to retain the benefit. A fourth consideration is that there is no defence applicable or available to the claim. … “

16        I turn then to consider whether the defendant received a benefit at the plaintiff’s expense, that is, dealing with the first two elements. This, as I have indicated, requires a consideration of the evidence of Flaton. His evidence needs to be considered against the backdrop of a number of factors. Firstly, Flaton had full authority to act on behalf of both plaintiff and defendant, as well as other Flaton entities. As between plaintiff and defendant, any “agreement” was, in effect, what Flaton intended. Secondly, as a consequence, and not unexpectedly, the passing of monies between the plaintiff, defendant and Flaton entities was not as fully and accurately recorded as might have been the case had the parties been at arm’s length. There were no written loan agreements or company minutes recording the repayment of loan accounts. Thirdly, Flaton gave evidence that relevant financial records were now missing. Fourthly, at the time the transactions under scrutiny took place, there was no suggestion that the plaintiff was in a parlous financial state and that Flaton was moving monies out of the plaintiff to defeat its creditors. Fifthly, the plaintiff’s in-house accountant, Brendan Davey, has shown open hostility towards Flaton and is not available to give evidence for the plaintiff. Many of the financial records were prepared by him. Sixthly, taking all these matters into account, in my view, Flaton was doing his best to tell the truth and I generally accept his evidence.

17        I turn to consider how the plaintiff calculates the figure of $661,125 referred to in paragraph 9 above. As I understand the defendant’s position, these payments are not in dispute.

18        After adding on stamp duty of $82,500 payable on the transfer for the property and $52,606 on the business assets, the sum of $1,582,500 was payable for the property by the defendant, and the sum of $907,606 was payable by the plaintiff for the business.

19        Mr Evans submitted that the following downward adjustments then had to be made:

Under the business contract:

(i)	$78,000, being “the Occupational Health and Safety Adjustment” pursuant to Clause 3.7(e) of the Sale of Business Agreement.
(ii)	$193,000 pursuant to Clause 3.7(d) of the Sale of Business Agreement, being the Completion Statement adjustment.

Under the property contract:

(iii)	$52,000 – being the deduction for early settlement.
(iv)	$3,901.93 –adjustments at settlement upon outgoings in favour of the defendant.

20        Flaton stated that the reduction of $193,000 was to be applied towards monies owing under the property contract, not the business contract. I cannot accept this. A letter from Nylex to the plaintiff dated 27 October 2004 states the sum of $193,000 is “the balance owing to you under the Completion Statement”. The phrase “Completion Statement” is used in Clause 3.7(d) of the business contract. It is clear that the purpose of the Completion Statement is to show adjustments due to “Stock, Accrued Employee Entitlements, Land & Buildings and Plant & Equipment … and the Further Employee Provisions Adjustment”. Mr Agardy submitted that the sum of $193,000 could not relate to the business contract since settlement under it had taken place in August 2004. However, the Completion Statement was not required until sixty days after completion, i.e., the end of October 2004.

21        I agree with Mr Evans’ submission that the sum of $193,000 is an adjustment under the business contract and not the property contract.

22        Making these downward adjustments gives a net figure payable under the business contract of $636,606 and under the property contract of $1,526,598.07.

23        The plaintiff alleges that it paid the following sums in relation to the performance of both contracts:

(i)	$270,000 paid to Nylex on 30 August 2004;
(ii)	$805,000 paid to Nylex on 1 November 2004 – Mr Agardy strongly disputed that this payment was in relation to the performance of either the property contract or the business contract. I deal with this later;
(iii)	$135,106 being the sum of $82,500 and $52,606, paid to the State Revenue Office on 19 October 2004.

24        Thus, adding these figures, the plaintiff contends that it paid $1,210,106 in respect of the property contract and the business contract.

25        The defendant paid the sum of $241,564.28 to Nylex on 30 August 2004.

26        The plaintiff contends therefore that it paid $661,125 towards the purchase price of the land. This sum is calculated by taking the sum of $1,210,106 referred to above and making the following adjustments:

• Deducting the net amount payable by the plaintiff under the sale of business contract as indicated above, $636,606.

• Adding the deposit of $85,000 paid by Flamar Pty Ltd on 13 May 2004, being 10 per cent deposit under the business contract.

• Adding interest payments on the bank guarantees for the months of September and October 2004 of $2,625.

27        I have considerable difficulty in understanding why the sum of $85,000 should be added back, and Mr Evans virtually conceded this. In the event however, there is no need for me to make a final determination with respect to this sum.

28        I turn to consider the payment of $805,000 paid by the plaintiff to Nylex on 1 November 2004. The manner in which this sum is calculated is set out in the letter of 27 October 2004 from Nylex to the plaintiff and is as follows:

Balance outstanding under the property contract

at 1 November 2004:	$1,050,000
Less: Discount for early payment	$52,000
Adjustment under Completion Statement	$193,000
________

$245,000

________

$805,000

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29        Flaton gave detailed evidence of various advances made by the Flaton entities to the plaintiff, going painstakingly through a spreadsheet he had prepared in relation to loans to the plaintiff by Flaton entities prior to 1 November 2004. In particular, he gave evidence that, since debtors had not been purchased under the business contract, it was necessary to inject funds into the plaintiff by way of loans to finance its operation and this was done by loans from Flaton entities to the plaintiff. At 1 November 2004, advances made to the plaintiff totalled $780,402.13. Flaton gave detailed evidence as to how this sum was calculated. The payment of $805,000 on 1 November 2004 was, the plaintiff stated, a payment at his direction to repay funds advanced to the plaintiff of $780,402.13 and in addition, advancing a further sum of $24,597.87 rather than a payment under the property contract. He referred to a spreadsheet which although entitled “Share Capital”, was in fact a loan account. He stated that Davey recorded it under this heading on account of an antiquated accounting system being used. Share Capital is shown for October 2004 at $1,010,892 and for November 2004 as $205,892, a difference of $805,000. I accept Flaton’s evidence as to how the payment of $805,000 is to be characterised.

30        In a late amendment made to its Defence, the plaintiff claims an allowance of $50,000 in respect of a 300-ton press purchased by Flaton on 15 July 2004 and provided to the plaintiff. On Flaton’s evidence, it appears clear to me that when he purchased the press he was acting on behalf of the plaintiff and not on his own behalf. Further, there was no evidence before me to support the valuation of $50,000 on this press. I disallow this item.

31        As mentioned above, the maximum sum which the plaintiff claims in this proceeding is $661,125. Taking the sum of $780,402.13 and deducting from it the sum of $50,000 disallowed for the press and the sum of $24,597.87 overpaid, gives a net figure of $705,804.26. This sum is in excess of the sum of $661,125. I thus conclude that there are no monies owing by the defendant to the plaintiff. The defendant has not received a benefit. The plaintiff’s claim fails. There is no need for me to consider whether the plaintiff is entitled to an equitable lien over the property.

32        There will be judgment for the defendant.

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