Highfields Australia Pty Ltd v Advanced Motor Dealers Group Pty Ltd (Receiver and Manager Appointed)

[2023] NSWSC 1458

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Highfields Australia Pty Ltd v Advanced Motor Dealers Group Pty Ltd (Receiver and Manager Appointed) [2023] NSWSC 1458

Hearing dates:

20–22 March 2023

Date of orders:

28 November 2023

Decision date:

28 November 2023

Jurisdiction:

Equity

Before:

Richmond J

Decision:

Judgment for the plaintiff. Parties to bring in short minutes of order reflecting these reasons.

Catchwords:

CONTRACTS — formation — agreement — circumstances of conclusion of agreement — characterisation of agreement as sale or security transaction

PERSONAL PROPERTY — sale of goods — passing of property — where invoices issued

MORTGAGES AND SECURITIES — Personal Property Securities Act 2009 (Cth) — security interest — no security interest proven

Legislation Cited:

Corporations Act 2001 (Cth)

Personal Property Securities Act 2009 (Cth)

Road Transport Act 2013 (NSW)

Road Transport (Vehicle Registration) Regulation 2017 (NSW)

Sale of Goods Act 1923 (NSW)

Cases Cited:

Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (2009) 25 VR 411; [2009] VSCA 238

Australian Securities and Investments Commission v Rich [2009] NSWSC 1229

BCI Finances Pty Ltd (in liq) v Binetter (No 4) (2016) 348 ALR 227; [2016] FCA 1351

Blatch v Archer (1774) 1 Cowp 63; 98 ER 969

Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61

Branir Pty Ltd v Owston Nominees (No 2) PtyLtd (2001) 117 FCR 424; [2001] FCA 1833

Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34

Byrne v Australia Airlines Ltd (1995) 185 CLR 410; [1995] HCA 24

Calverley v Green (1984) 155 CLR 242

Colyer Fehr Tallow Pty Ltd v KNZ Australia Pty Ltd [2011] NSWSC 457

Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317; [2003] HCA 51

Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599; [1999] HCA 15

Ermogenous v Greek Orthodox Community of SA Inc (2009) 209 CLR 95; [2002] HCA 8

Et-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24

Expile Pty Ltd v Jabb’s Excavations Pty Ltd [2003] NSWCA 163

Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236; [1987] HCA 30

Gatward v Alley (1940) 40 SR (NSW) 174

Havas v Standard Knitting Mills Pty Ltd (2001) 52 NSWLR 293; [2001] NSWCA 295

Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220

Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) PtyLtd (1988) 5 BPR 11,110

In re George Inglefield Ltd [1933] 1 Ch 1

John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451

Kent v SS “Maria Luisa” (No 2) (2003) 130 SCR 12; [2003] FCAFC 93

Kreglinger v New Patagonia Meat and Cold Storage Company Ltd [1914] AC 25

Lawrence v Ciantar [2020] NSWCA 89

Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382; [2009] NSWCA 234

Metal Manufactures Ltd v Federal Commissioner of Taxation (1999) 43 ATR 375; [1999] FCA 1712

Michael Gerson (Leasing) Ltd v Wilkinson [2001] QB 514; [2001] 1 All ER 148

RV Ward Ltd v Bignall [1967] 1 QB 534

Watson v Foxman (1995) 49 NSWLR 315

Texts Cited:

Ewan McKendrick, Goode on Commercial Law (LexisNexis, 4th Ed, 2009)

Norman Palmer, Palmer on Bailment (3rd ed, Thomson Reuters, 2009)

Category:

Principal judgment

Parties:

Highfields Australia Pty Ltd (Plaintiff)
Advanced Motor Dealers Group Pty Ltd (Receiver and Manager Appointed) and Shumit Banerjee (1st and 3rd Defendants)
Joseph Anthony Touma (2nd Defendant)

Representation:

Counsel:
Mr P Afshar, J Pokoney (Plaintiff)
Mr P Newton SC (2nd Defendant)

Solicitors:
Mistry Fallahi Lawyers & Business Advisors (Plaintiff)
HWL Ebsworths (1st and 3rd Defendants)
Emerson Lewis (2nd Defendant)

File Number(s):

2020/344338

Publication restriction:

Nil

JUDGMENT

1. The central issue in these proceedings is the ownership of four luxury motor vehicles being a Lamborghini Gallardo (registration 0680) (Lamborghini), an Alfa Romeo 4C (registration YDC 44P) (Alfa Romeo), a Lotus Evora (registration CTU 40U) (Lotus) and a Ferrari Spider (registration 458 SPD) (Ferrari). I will refer to these vehicles collectively as “the Vehicles”.

2. The plaintiff (Highfields) claims that the vehicles were transferred to it in 2016 under an oral contract entered into by it with the first defendant (AMDG), in exchange for Highfields arranging its own finance to pay for the vehicles. Highfields seeks a declaration that it is the owner of the vehicles and ancillary relief.

Parties

3. The plaintiff, Highfields, was incorporated on 16 May 2003. Its sole directors and shareholders at all relevant times were Mr Alan Balout (Mr Balout) and Ms Karen Fox. Mr Balout swore four affidavits in the proceedings and was cross-examined.

4. The first defendant, AMDG, was incorporated on 2 June 2014. Its current directors are Mr Balout (appointed on 1 June 2017) and Mr Dalibor Maskaric. Mr Maskaric was the sole director of the company prior to Mr Balout’s appointment. Prior to 1 June 2017, the sole shareholder of AMDG was Dobro Dosle Pty Ltd, the sole shareholder of which is Mr Maskaric. From 1 June 2017, the shareholders of AMDG have been Dobro Dosle Pty Ltd (as to 50%), Wisefox Holdings Pty Ltd, a company associated with Mr Balout (as to 25%), and Mrs Karen Balout, Mr Balout’s wife (as to 25%).

5. The second defendant is Mr Joseph Touma (Mr Touma). He was the general manager of AMDG at the time of the transactions with which these proceedings are concerned and is also the sole director of Dobro Dosle Pty Ltd (the sole shareholder of AMDG at the time those transactions occurred). He swore two affidavits in the proceedings and was cross-examined.

6. The third defendant is Mr Shumit Banerjee of Westburn Advisory. He was purportedly appointed as a receiver and manager of AMDG on 24 November 2020 by Bilpin Projects Pty Ltd (Bilpin), pursuant to cl 8.2 of the Deed of Charge referred to below. Mr Touma and his wife, Mrs Eleonora Touma, are the sole directors and shareholders of Bilpin.

Procedural background

7. The plaintiff commenced the proceedings by Summons filed on 4 December 2020. On 8 December 2020 Robb J made orders by consent for the second defendant to deliver the Lamborghini, the Alfa Romeo and the Lotus to a nominated storage facility and for the plaintiff to deliver the Ferrari to a nominated storage facility. The second defendant and the plaintiff agreed to pay the costs of storage of the Vehicles at the nominated storage facility, in the first instance, in equal shares. The Vehicles have remained at the storage facility since that time.

8. The first and third defendants did not file any submissions or appear at the hearing. However, given that the second defendant, Mr Touma, did appear and is a director of the 50 per cent shareholder in the first defendant and Bilpin, which appointed the third defendant, I am satisfied that the first and third defendants had sufficient notice of these proceedings and an opportunity to be heard.

9. The only defendant to file a defence in the proceedings was Mr Touma.

Pleadings

10. In its Points of Claim, Highfields pleads that the terms of the contract entered into by Highfields and AMDG in around June 2016 are as follows:

(a)   The plaintiff would purchase various vehicles from AMDG.

(b)   In consideration for the purchase, the plaintiff would pay to AMDG an amount for each of the vehicles equivalent to the amounts owed by AMDG to external financiers of the vehicles.

(c)   The plaintiff would thereafter own the vehicles.

(d)   The plaintiff would grant AMDG possession of the vehicles and a licence for AMDG to use the motor vehicles in the course of its business of hiring out the vehicles.

(e)   AMDG would pay an amount of money to the plaintiff for the use of the vehicles.

(f)   AMDG would pay for inter alia the registration and maintenance of the motor vehicles.

(g)   If AMDG failed to make any of the payments set out in (e) and (f) above, AMDG would return the vehicles to the plaintiff.

11. In his Points of Defence, the second defendant (Mr Touma) accepts that while he (acting on behalf of AMDG) had a series of conversations with Mr Balout (acting on behalf of Highfields) under which Highfields and AMDG entered into a contract regarding the refinancing of the Vehicles, it included a term that AMDG would remain the owner of each vehicle.

12. Mr Touma pleads that the terms of the contract were:

(a)   Mr Balout or his company Wisefox Holdings Pty Limited (Wisefox) would be granted a 50% shareholding interest in AMDG.

(b)   Mr Balout would be appointed as a director of AMDG.

(c)   Sports and Prestige Wholesalers Pty Ltd (SPW) would transfer the registration of all motor vehicles which were being leased by Ultimate Sportscar Rentals Pty Ltd (USR) and/or Ultimate Drive Days Pty Ltd (UDD), into the name of AMDG, including the Vehicles.

(d)   Mr Balout would cause all vehicles registered in his personal name or in the name of companies he controlled (being a Range Rover Evoque and an Audi A5), which were being leased by USR and/or UDD, to be registered in the name of AMDG.

(e)   Upon each of the vehicles referred to in (c) and (d) being registered in the name of AMDG, AMDG would become the owner of that vehicle.

(f)   AMDG would meet all costs and payments required to be made in respect of the vehicles, including finance repayments, maintenance, insurance and registration costs.

(g)   Mr Balout would arrange for Highfields or entities associates with him to borrow funds to refinance loans secured over some of the vehicles.

(h)   Mr Touma would arrange for entities associated with him to borrow funds to refinance loans secured over some of the other vehicles.

1. Upon refinance of loans secured over any of the vehicles, AMDG would remain the owner of each respective vehicle.

(j)   AMDG would license the vehicles transferred to it to UDD in return for which UDD would pay AMDG a fee.

Relief claimed and issues for determination

13. The relief claimed by Highfields in the Summons is as follows:

1.   A declaration that the plaintiff is the owner of the following motor vehicles:

a.   Alfa Romeo 4C bearing the registration number YDC44P (Alfa);

b.   Lotus Evora bearing the registration number CTU40U (Lotus);

c.   Lamborghini Gallardo bearing the registration number 0680 (Lamborghini); and

d.   Ferrari Spider 458 bearing the registration number 458SPD (Ferrari).

2.   An order that the defendants deliver up the Alfa, Lotus and Lamborghini (Motor Vehicles) to 131 Castle Hill Road West Pennant Hills NSW 2125 (Premises).

3.   An order restraining the defendants and their agents, representatives and/or officers form removing or causing or permitting anyone else to remove the Motor Vehicles from the Premises except with the express consent of the plaintiff.

4.   An order restraining the defendants and their agents, representatives and/or officers from in any way selling or dealing with the Motor Vehicles.

5.   An order that the first and second defendants pay the plaintiff the sum of $19,310.30.

6.   An order that the defendants pay the plaintiff’s costs of this proceeding on the indemnity basis.

7.   Alternatively, an order that the defendants pay the plaintiff’s costs of this proceeding on the ordinary basis.

8.   Such further or other orders as the Court considers necessary.

14. The amount claimed under prayer 5 of $19,310.30 was the initial calculation made by Mr Balout of the amounts paid by Highfields to BMW Australia Finance Ltd (BMW Finance), Metro Finance Pty Ltd (Metro Finance) and Capital Finance Australia Ltd (Capital Finance) in respect of loans to fund the purchase by Highfields of the Vehicles after August 2020. In a subsequent affidavit Mr Balout put on evidence that established the total amount paid by Highfields to those lenders was $403,161.29, together with a further amount of $22,275 in respect of storage of the vehicles following the orders made by Robb J on 8 December 2020.

15. In my view, the issues for determination in the proceedings are:

(a)   Did Highfields and AMDG enter into a contract in the period from June to October 2016 regarding the sale of the Vehicles to Highfields.

(b)   If so, did Highfields acquire title to the Vehicles.

(c)   What, if any, relief is Highfields entitled to in respect of the Vehicles.

Factual background

16. Mr Balout and Mr Touma met in June 2014 and in October 2015 they incorporated USR. They were the company’s two directors and each held, through an associated entity, a 50 per cent shareholding interest in the company. USR’s business was to rent sports cars to the public from premises located at 25 Leeds Street, Rhodes, New South Wales. They (or entities associated with them) each made available motor vehicles to USR for the purpose of USR’s business. USR was deregistered on 22 March 2019.

17. The entity at the centre of the dispute between Mr Balout and Mr Touma is the first defendant, AMDG. At all relevant times AMDG was a licensed motor dealer. As part of that business, it made motor vehicles available to UDD for use by that company in its business of renting vehicles to customers on a short-term basis, particularly for group activities or events such as weddings, track drives, or day trips. The arrangement between AMDG and UDD was documented in an agreement entitled “Supply Agreement” dated 1 July 2014 (Supply Agreement), which provided relevantly as follows:

AMDG is a licensed motor dealer. The business buys and sells cars to individuals and other motor dealers and wholesalers. AMDG agrees to provide UDD with the range of vehicles it requires to run its business in return for a monthly payment which will vary from time to time depending on the range of vehicles it has at the time.

AMDG agrees to deduct from this fee any commissions payable to UDD for any customer referred to them that purchase a vehicle.

Both parties agree that a minimum of $8000 per week is payable to AMDG from UDD and that every 3 months a reconciliation will be performed, and each party will pay the other party any balance outstanding.

It is the responsibility of AMDG to provide UDD with the cars it always requires. Should a car break down or be damaged AMDG will endeavour to replace that vehicle at no extra charge to UDD unless the damage weas directly caused by UDD or its customers.

IT IS FURTHER AGREED THAT:

1.   UDD shall be responsible for registration, insurance, maintenance, and servicing of the vehicles on behalf of AMDG.

18. In the period from June to October 2016, during which the key transactions relevant to the present proceeding occurred, Mr Balout was not a director (or otherwise connected with) AMDG and Mr Touma was acting as the company’s general manager. Mr Touma had many years of experience in the motor dealer industry, including as general manager of both AMDG and SPW, and accepted in cross-examination that he had quite a lot of experience in, from time to time, entering into security arrangements with financiers in relation to cars.

19. Mr Touma was also the general manager of UDD and gave evidence that the business of UDD differed from that of USR in that UDD rented cars to the public on a short-term basis (typically for only one day) as part of drive experiences.

20. Mr Balout acquired an interest in UDD through a related entity on 5 April 2017 and became a director of UDD on 1 June 2017 (the same day he became a director of AMDG).

21. Another entity with some relevance to the background to this dispute is Bilpin. On 1 July 2014 Bilpin entered into a loan agreement with AMDG under which Bilpin agreed to lend to AMDG an initial sum of $200,000, and further sums from time to time in its discretion. AMDG executed a Deed of Charge in favour of Bilpin expressed to be “effective from 1 July 2014” (Charge). The Charge is a fixed and floating charge over all the assets and undertaking of AMDG to secure all moneys owing on any account whatsoever by AMDG to Bilpin. The Charge was not registered under the Personal Property Securities Act 2009 (Cth) (PPSA) until 22 October 2020 and was never registered as a charge under the Corporations Act 2001 (Cth).

22. On 23 October 2020, Bilpin issued a letter of demand to AMDG claiming that AMDG was indebted to Bilpin in the amount of $1,014,196.56.

23. On 25 November 2020, Mr Banerjee, the third defendant, sent a letter to Mr Balout notifying him that Mr Banerjee had been appointed as the receiver and manager of AMDG on 24 November 2020, pursuant to the Charge. As a consequence of Mr Banerjee’s appointment, he has had control over the books and records of AMDG throughout these proceedings.

Evidence of conversations between Mr Touma and Mr Balout in 2016

24. Mr Touma and Mr Balout agreed that they had a number of conversations in the period from June to October 2016 in which Mr Touma sought Mr Balout’s assistance in the refinancing of the Vehicles in order for AMDG to be able to continue to make them available to UDD under the Supply Agreement. However, their recollection of these conversations differs significantly.

25. Mr Balout gave evidence that on around Monday, 6 June 2016 he met Mr Touma in the office of USR at Rhodes, Sydney, and had a conversation to the following effect:

Touma:   I need a favour from you.

Balout:      Sure, what is it?

Touma:   Eric wants out. We’re going to have to refinance all our cars or sell them. Charlie [Touma’s brother] has the Ferrari 430 and the Nissan GTR in his company name and can’t add any more and I can’t have any in my name because I can’t show income. I spoke with Sydney Ferrari finance today and they said they can refinance the Lambo for us but I need your help to refinance it under your Highfields company. Can you help us out please?

Balout:   But the Lambo isn’t one of our cars. It belongs to Sports Car. I’m not in that company and I’m not a director.

Touma:   I know. That’s why I need your help as a friend. We’re both partners in the Car Rental and I am hoping you can help us out.

Balout:   I’m not going to make the payments on it.

Touma:   No, Sports Car will make the payments.

Balout:   Explain to me how that will work.

Touma:   Firstly, it’ll be your car. Sports Car will just use the car for drive days and make all the payments for the finance the rego and maintenance.

Balout:   But what if you don’t make the payments?

Touma:   That won’t happen. I’ll help you sell it for more than the finance and get your money back.

Balout:   So Highfields won’t have to pay anything?

Touma:   No, nothing. We’ll make all the payments.

Balout:   Give me a few days to think about it.

26. It appears that Mr Touma’s reference to “Eric” was to Mr Eric Christophi, although the evidence does not indicate what, if any, his relationship to Mr Touma and his various companies was. Mr Balout says that he understood Mr Touma’s references to “Sports Car” in this and later conversations was to AMDG in which Mr Balout was not then involved. Car Rental is a reference to USR in which he was a director along with Mr Touma.

27. In his first affidavit, Mr Touma did not respond to Mr Balout’s evidence regarding this (or the other) conversations he had with Mr Balout “due to time constraints”. In his second affidavit, sworn nearly a year later, Mr Touma does set out his version of the conversations, and accepts that he had an initial conversation in June 2016 in which he asked Mr Balout to provide assistance with the refinancing of vehicles in which the Lamborghini was discussed but his recollection of the conversation is different. He says that it was to the following effect:

Touma:   We need to arrange for refinance on some of the cars that we use for Ultimate Sportscar. You’re involved in AMDG now so I don’t think that my companies and I should carry 100% of the risk relating to financing. We can use this new finance to pay out whatever is left on the existing finance. Obviously AMDG is a new company and we aren’t going to be able to arrange finance through that. Since we’re in this together, I can arrange finance for some of the cars personally and through my other companies as well. Can you do the same? I have spoken to a financier about the Lamborghini, can you refinance it under one of your companies?

Balout:    Ok, explain to me how it would work.

Touma:   You arrange the finance under one of your companies, but only for the payout figure of the existing finance which is less than the true value of the car anyway. Then you effectively replace the existing lender and become the lender to AMDG. AMDG will be liable to you on the same terms as whoever you have arranged the finance with. AMDG will pay all the finance repayments, registration, insurance and maintenance. You won’t have to worry about anything and no cash comes out of your pocket. We’ve never had any issues making repayments in the past so it’s not going to be an issue now, especially if our companies are liable to the financier. Obviously AMDG remains the owner of the cars considering we wouldn’t be putting any money in.

Balout:    Which vehicles are you going to arrange finance for?

Touma:   I can sort out the Nissan GTR, Audi R8, Ferrari California and maybe a few more.

Balout:    Let me think about it.

28. Mr Touma says that his reference to “Ultimate Sportscar” and “AMDG” in the above conversation were to USR and AMDG respectively.

29. Mr Balout says that a few days later, Mr Touma approached him and they had a second conversation to the following effect:

Touma:   Have you had a good chance to think about the Lambo finance we spoke about the other day? What do you think of it? Are you OK to help us out?

Balout:   As long as you guarantee all the payments. Whose finance are you going with?

Touma:   I’ve already teed-it up with the Sydney Ferrari Finance.

30. Mr Touma’s recollection of this second conversation is that he asked Mr Balout if he was happy to proceed and Mr Balout replied “Yes, as long as AMDG makes all the payments”.

31. Highfields signed loan documentation with BMW Finance for the Lamborghini on 21 June 2016. It is not in dispute that BMW Finance is the entity which Mr Touma referred to as “Sydney Ferrari Finance”.

32. Mr Balout says that on or about Wednesday 15 June 2016 in Rhodes, he had a third conversation with Mr Touma in which they discussed the Alfa Romeo refinancing, to the following effect:

Touma:   I’ve found a finance broker who can refinance the Alfa under Highfields the same way as we did the Lambo. Can you do this too please?

Balout:   So, it’s the same deal as the Lambo?

Touma:   Yes. The Alfa will be yours. Sports Car will keep up with the payments.

Balout:   Ok, send me the paperwork.

33. Mr Touma’s recollection of the third conversation is broadly the same except that he denies that he said “the Alfa will be yours” although he does accept that he said he had found the financier (Capital Finance) and that he said that the terms would be the same as for the Lamborghini. Mr Touma says the conversation was to the following effect:

Touma:   I have found a financier that can refinance the Alfa like we did for the Lamborghini. Are you happy to arrange it in your company’s name?

Balout:    Would the terms be the same as the Lamborghini?

Touma:   Yes, all you need to do is help arrange the finance to cover the payout on the existing loan. AMDG will make the payments and take care of everything. Obviously, the car will stay in AMDG’s name.

Balout:    Ok.

34. Highfields signed loan documentation with Capital Finance for the Alfa Romeo on 28 June 2016.

35. Mr Balout says that on or about Saturday 20 August 2016, he had a fourth conversation with Mr Touma regarding the refinancing of the Lotus, to the following effect:

Touma:   I’ve found another finance company through Prolease it’s Metro Finance. They can refinance the Lotus under Highfields. Same way we did the Lambo and Alfa. They’re saying if you sign the paperwork today, they can process it for us quickly.

Balout:   I can do it, but Highfields seems to be taking on a lot of risk. I’m still not involved in your company.

Touma:   I know. I’m on top of the payments. Don’t worry.

Balout:   Fine.

36. Mr Touma’s recollection of the conversation is broadly the same including that he told Mr Balout that he had found the financier (Metro Finance) and the terms would be the same as for the Lamborghini and Alfa Romeo. He says the fourth conversation was to the following effect:

Touma:   I have spoken to another finance company and they are willing to refinance the Lotus. Can you arrange the finance through your company, the same way we did the Lamborghini and the Alfa?

Balout:    Yes. Is the agreement the same?

I said:   Yes. All we need is enough to cover the payout figure on the existing agreement. AMDG will make all payments, same deal as before.

37. Highfields signed loan documentation with Metro Finance for the Lotus on 23 August 2016

38. Mr Balout says that on or about Wednesday 5 October 2016, he had a fifth conversation with Mr Touma regarding the refinancing of the Ferrari, to the following effect:

Touma:   BMW Finance is ready to refinance the Ferrari under Highfields. They’re the ones who refinanced the Lambo. I’ve set up a meeting for you and the Ferrari finance team and they have all the documents ready for you to sign tomorrow.

Balout:   Joe, I’ve already taken more of the financial load for Sports Car under Highfields than you or Charlie have. I’m not even in the company. I need to be in to protect my interest.

Touma:   The cars are all yours anyway. Eric is still with us so I can’t bring you in yet.

Balout:   Ok, then you need to sort that out soon.

Touma:   I will Alan. Let’s get this one out of the way first.

Balout:   What time tomorrow?

Touma:   In the afternoon and we can talk to Anthony about the new Ferrari that’s coming out soon.

39. Mr Balout says that on 6 October 2016, he attended the Sydney Ferrari office together with his wife and signed the finance documentation for the Ferrari. It is common ground that this was a meeting with a representative of BMW Finance, the same lender as for the Lamborghini.

40. Mr Touma’s recollection of the fifth conversation regarding the Ferrari is different in that while he accepts that he said the refinancing would be done in “the same way” as for the Lamborghini, he says that he also said that the amount of the loan would be equal the payout figure under the existing finance for the Ferrari which was less than the value of the vehicle. Mr Touma says it was to the following effect:

Touma:   BMW Finance can refinance the Ferrari under one of your companies. We can do the Ferrari the same way we did the Lamborghini. The existing payout figure is way less than the value of the car, so that’s all we need to borrow. Are you happy to do this?

Balout:    Yes.

Discrepancies in recollections of the conversations

41. Mr Touma’s version of the various conversations differs from that of Mr Balout in several important respects.

42. First, Mr Touma alleges that he said to Mr Balout in the first conversation in June 2016 that “you’re involved in AMDG now, so I don’t think that my companies and I should carry 100% of the risk relating to financing” and “since we’re in this together”. These statements are denied by Mr Balout. Mr Balout’s denial is consistent with the records held at the Australian Securities Investment Commission which show that Mr Balout did not acquire any interest in AMDG until, at the earliest, 1 June 2017. A similar error regarding Mr Balout’s involvement in UDD is made in a conversation recorded in [37] of Mr Touma’s second affidavit in which he alleges that in October 2016 he said to Mr Touma “now that you’re involved in Ultimate Drive Days, lets rent cars out of that company.” The ASIC records show that Mr Balout did not acquire any interest in UDD until, at the earliest, 5 April 2017.

43. Second, Mr Touma alleges that he said to Mr Balout in that first conversation that Mr Balout should arrange the new finance under one of his companies and “effectively replace the existing lender and become the lender to AMDG”, with AMDG being “liable to you on the same terms as whoever you have arranged the finance with”. I will call this the “back to back” loan arrangement. Mr Balout denies that these words were ever said. In cross-examination, Mr Touma was asked what the “back to back” loan arrangement meant, and he said that it was not his intention that AMDG would owe moneys to Highfields, but rather that Highfields would owe money to the financier under the new financing arrangement “on behalf of AMDG”. His evidence on this point was as follows:

Q. Let me, perhaps, explain that, so hopefully we're all complete agreement about this. HIGHFIELDS was going to take out a loan from an external financier; is that right?

A. Arrange Yes.

Q. Well, it was going to go to BMW Finance, for example

A. Yes.

Q. it was going to borrow some money from it; is that right?

A. On behalf of AMDG, yes.

Q. I know you say on behalf of AMDG, but the first step, as you understood it, was HIGHFIELDS was going to go and get borrow some money from an external financier; isn't that right?

A. That's correct.

Q. All right. Now, regardless of whether or not I'm not going to ask you about it but regardless of whether or not you say you owned the vehicles and AMDG owns the vehicles and Mr Balout says something different, I'm going to ask you something else. Is it part of your case that a vis AMDG, HIGHFIELDS was going to be a lender?

A. I'm not sure if technically that was would be the case, but you could be correct. Look at it like that.

Q. Are you saying

A. Wasn't our intention.

Q. Was it not your intention, then, that AMDG would owe monies to HIGHFIELDS.

A. No.

Q. In reality, if it wasn't a loan, then the amounts of monies that you paid that AMDG paid on a monthly basis to HIGHFIELDS, was really as a licence fee; is that right?

A. We never paid HIGHFIELDS [any] money.

Q. Well, it paid money to the financier; didn't it?

A. Correct.

Q. But that was because that was really money that HIGHFIELD had to pay that financier, wasn't it?

A. Incorrect.

Q. All right.

A. It was obligated under the contract on behalf of AMDG, as per our agreement.

44. The idea that Highfields was to be the borrower from a new lender “on behalf of AMDG” is not reflected in any of the conversations he alleges in his affidavits, nor is it reflected in the loan agreements which Highfields entered into with the three third-party lenders Mr Touma had arranged to provide the finance to Highfields, or in AMDG’s accounts for the 2017 year and subsequent financial years.

45. Third, Mr Touma alleges that he said to Mr Balout in the first conversation in June 2016 that “obviously, AMDG remains the owner of the car considering we wouldn’t be putting any money in” and a similar statement about the Alfa Romeo in the third conversation in June 2016 (that “Obviously the car will stay in AMDG’s name”). These statements do not make any sense — why would AMDG remain the owner of the cars if Highfields is borrowing money to refinance the Vehicles and AMDG is not putting any money in? Mr Touma accepted in cross-examination that he told Mr Balout in these conversations in June that AMDG could not finance the cars itself and this was why he needed Mr Balout’s assistance (T96). It is also improbable that Mr Touma would have used the word “obviously”. He and Mr Balout were already in an arrangement with USR under which, on Mr Touma’s evidence, each made available to USR for its use motor vehicles which they (not USR) owned. It would certainly not be obvious that a new arrangement (which clearly Mr Touma himself did not understand given his evidence referred to above) would be entered into with AMDG remaining the owner in circumstances where it could not itself raise the finance from the third-party lender.

46. Fourth, Mr Touma’s evidence that he made the statements about ownership of the vehicles referred to in the previous paragraph are difficult to reconcile with the fact that AMDG issued invoices to Highfields for the sale of each of the Lamborghini, Alfa Romeo and Lotus to Highfields. I infer that Mr Touma, as general manager, arranged the issue of the invoices. It is true that registration of these vehicles remained in the name of AMDG, but registration of a motor vehicle is not reflective of ownership (see below).

47. Fifth, Mr Touma gave evidence in his second affidavit of a conversation with Mr Balout in October 2016 (after the fifth conversation referred to earlier) in which he said to Mr Balout:

Touma:   We should stop trading Ultimate Sportscar. Now that you’re involved in Ultimate Drive Days, lets rent cars out of that company. At the moment, the cars we use for Ultimate Sportscar are mainly owned by AMDG and a few are owned by me and my entities or you and your entities. We should have all the cars we want to use for Ultimate Drive Days owned by AMDG and then Ultimate Drive Days would pay that company a fee for the usage pursuant to the supply agreement entered in July 2014.

Balout:      Ok, sounds good.

Touma:   I will see to it that the registration of the vehicles held in the name of Sports and Prestige Wholesalers are transferred and registered in the name of AMDG. Which vehicles do you want to bring across?

Balout:   I will transfer the Range Rover Evoque and Audi A5 convertible.

Touma:   Pursuant to the existing licence agreement between AMDG and Ultimate Drive Days, Ultimate Drive Days pays for usage of the vehicles. AMDG would pay for all the expenses including meeting the finance repayments, registration, insurance and maintenance.

48. Mr Balout denied that this conversation occurred. It seems highly unlikely that it did given that Mr Balout was not “involved” in “Ultimate Drive Days” (ie. UDD) until April 2017 (see [20] above) and when it was put to Mr Touma in cross-examination that he did not say the words “pursuant to the supply agreement entered into in July 2014” he prevaricated and said “I don’t see the relevance. I can’t recall whether I did or didn’t” and “well, I can’t recall” (T100).

49. Due to difficulties with critical aspects of Mr Touma’s recall of the conversations with Mr Balout in June to October 2016, and the significant passage of time between those conversations and the evidence in his affidavit (5 years), I do not accept that Mr Touma’s recollection of his conversations with Mr Balout in this period is reliable. In contrast, I found Mr Balout to be a careful witness who had a good recall of the critical events in his dealings with Mr Touma in the period June to October 2016. I accept Mr Balout’s evidence of the relevant conversations and I prefer, in the case of conflict between them, Mr Balout’s evidence.

50. There are a number of conclusions which I draw from the evidence of the conversations between Mr Balout and Mr Touma in June to October 2016: (a) the explanation for Mr Touma asking for Mr Balout (through Highfields) to enter into the refinancing transactions was that AMDG could not raise the finance itself (a conclusion confirmed by the financial statements of AMDG in evidence); (b) Mr Touma told Mr Balout that under the refinancing transaction for the Lamborghini, “it’ll be your car” and “[AMDG/UDD] will just use the car for drive days and make all the payments for the finance the rego and maintenance”; (c) Mr Touma arranged each refinancing and told Mr Balout that the subsequent refinancings for the Alfa Romeo, the Lotus and the Ferrari would be on the same terms as that first transaction. I am satisfied, for the reasons which follow, that Mr Touma was fully aware at all relevant times of the terms on which the Lamborghini refinancing occurred.

The evidence regarding each refinancing by Highfields

51. I set out below the documentary evidence regarding the refinancing of the four Vehicles.

(a)   Lamborghini

52. The original purchase by AMDG of the Lamborghini is evidenced by an invoice issued by SPW dated 2 September 2014, for the sale of the Lamborghini to AMDG for $294,419.20 (including GST). The funds for the purchase were provided by National Australia Bank (NAB). The vehicle was registered in the name of AMDG on 28 August 2014.

53. On 2 June 2016, the amount of $294,419.20 was debited to AMDG’s bank account with NAB for the “payout of contract”. I infer that this was the repayment of the amount owing to NAB for the finance to fund the purchase of the Lamborghini.

54. On 17 June 2016 AMDG issued to Highfields an invoice for the sale of the Lamborghini to Highfields for a total purchase price (including GST) of $260,000, which records that a deposit of $63,000 had been paid and the balance due was $197,000. The invoice nominates the bank account to which the balance due is payable as AMDG’s bank account with NAB. There is no direct evidence of the payment of the deposit of $63,000 referred to in the invoice. However, AMDG’s bank account with NAB shows that Mr Balout made a transfer of $200,000 to AMDG on 16 June 2016, which is the day before the invoice was issued. I infer that the $63,000 deposit referred to in that invoice was included in this payment. The invoice was produced by BMW Finance, and not by AMDG on discovery.

55. On 21 June 2016, Highfields entered into a Chattel Mortgage Agreement with BMW Australia Finance Ltd, which provided:

The borrower named in item 1 in the Schedule offers to borrow from Alphera Financial Services the sum described in item 2 in the Schedule and, for the purpose of securing repayment of the Amount Financed it together with the Credit Charge specified in item 3 of the Schedule and all other amounts payable by the borrower to Alphera Financial Services under the Agreement, the borrower hereby grants a mortgage over the mortgaged property described in item 6 in the Schedule to Alphera Financial Services subject to the provisions contained in this Offer and the Terms and Conditions.

56. BMW Finance is defined in the Chattel Mortgage Agreement as “Alphera Financial Services” being its trading name, the borrower named in item 1 in the Schedule is Highfields, the sum specified in item 2 of the Schedule is $199,014.60 of which $197,000 is to be disbursed to AMDG, and the mortgaged property described in item 6 of the Schedule is the Lamborghini.

57. The Chattel Mortgage Agreement is expressed to include the terms and conditions contained in a document marked “Alphera CMA – 01/12”. That document includes the following provisions:

3.1   Security

The borrower assigns to Alphera Financial Services all of its interest in the Mortgaged Property. Alphera Financial Services will hold that interest as security for the payment of the Money Secured and for the performance by the borrower of the borrowers obligations under this Agreement.

4.   Obligations relating to the amount financed.

The borrower must use the Amount Financed to pay for the purchase of the Mortgaged Property in the name of the borrower, unless otherwise specified in this Agreement or agreed to in writing by Alphera Financial Services.

13.   Warranty

The borrower warrants:

…

(c)   That the Mortgaged Property is not subject to any Security Interest other than Security Interests the borrower has disclosed to or given to Alphera Financial Services.

58. The Agreement is executed by Mr Balout and his wife as directors of Highfields and in addition Mr Balout gave a guarantee to BMW Finance of the obligations of Highfields under the Agreement.

59. The Schedule states that the total amount payable by Highfields comprises the amount financed together with Credit Charge of $48,996 to be paid by 60 consecutive monthly instalments of $2,833.51, together with a final instalment of $78,000 one month after the last monthly instalment.

60. On 23 June 2016, AMDG’s bank account with NAB was credited by BMW with $197,000. The reference of the credit is “Payment … BMWaustralia Fin”. I infer this represents the loan made pursuant to the Chattel Mortgage Agreement.

61. Also on 23 June 2016, BMW Finance registered the chattel mortgage under the PPSA. The registration recorded the owner of the vehicle as Highfields

62. Mr Balout put into evidence an unsigned document on the letterhead of AMDG entitled “Contract for the purchase of a new vehicle” which is dated 21 June 2016 and states that the total purchase amount is $260,000 comprising a deposit of $63,000 and a balance of $197,000. The document contains a signature block for signature by both the seller (AMDG) and the purchaser (Highfields) but, the copy in evidence is not signed by either party, although Mr Balout’s recollection is that he did sign it on behalf of Highfields. I accept Mr Balout’s evidence (on which he was not cross-examined) that the document was provided to him by Mr Touma on 21 June 2016. Clause 4 is in the following terms:

Title in the motor vehicle will pass to the purchaser upon the latter of:

(a)   receipt in full by the Dealer of the amount set out in the Price and Terms of Settlement as the Balance Payable, or

(b)   the date on which the Dealer acquires clear and unencumbered title to the trade-in vehicle described in this Contract.

63. The expression “Dealer” is not defined but it is clear that it is intended to be AMDG.

(b)   Alfa Romeo

64. The original purchase by AMDG of the Alfa Romeo is evidenced by a tax invoice dated 7 July 2015, issued by Leichhardt Fiat Alfa to AMDG for a total price of $106,999.98 (including GST and luxury car tax). The vehicle was registered in the name of AMDG on the same date. The invoice states that it is issued to NAB (with the vehicle delivered to AMDG) and I infer that the payment of the purchase price was funded by a loan made by NAB to AMDG.

65. On 6 September 2016, the amount of $97,931.55 was debited to the account of AMDG with NAB to discharge the NAB facility.

66. Meanwhile, on 28 June 2016, Highfields and Capital Finance entered into a Specific Security Deed (Goods). This included the following provision:

[Capital Finance] agrees to lend the Amount Financed to the Customer named in the Schedule (“you”) and you agree to borrow the Amount Financed and to give a Security Interest in the Goods on the terms set out in this document, including any special conditions attached to this document. This document will not bind us until it is signed by our authorised officer, at which time a contract will arise without the need for us to give any further notice.

67. The Schedule states that the Amount Financed is $99,448.66 payable to AMDG, and the customer is stated to be Highfields, and the Goods are stated to be the Alfa Romeo.

68. The terms and conditions forming part of the Security Deed include the following:

1.   Loan

1.1   You must only use the Amount Financed to acquire the relevant Goods.

1.2   You irrevocably authorise us, at our election, to pay the Amount Financed directly to the Vendor, to enable you to acquire the Goods. Our election to pay the Vendor will prevail over any contrary instruction, direction or authorisation you give us.

1.3   Payment by us to the Vendor will be a full and sufficient discharge of our obligations under this Agreement.

…

1.5   You agree that we are not obliged to advance any amount is we have notice of another Security Interest in the Goods and we consider that the amount might not be secured under our Security Interest ahead of that other Security Interest.

2.   Payments

2.1   You must pay the Total Amount Payable. You acknowledge that the Total Amount Payable comprises the Amount Financed together with interest calculated in accordance with our usual procedures and practices for transactions of this nature.

…

3.   Security Interest

3.1   In consideration of us agreeing to advance the Amount Financed, you grant to us a PPS Security Interest in the Goods and in all other chattels which are acquired in substitution for any of the Goods to secure the punctual payment of all amounts that are payable, owing but not payable or that otherwise remain unpaid by you to us on any account at any time.

3.2   If you do not have legal title in the Goods at the date of this Agreement, you agree to acquire such legal title to the Goods free from all Security Interests, subject and only to the PPS Security Interest granted under clause 3.1.

69. The Security Deed is executed by Mr Balout and his wife on behalf of Highfields and each of them also entered into a guarantee and indemnity in favour of Capital Finance in respect of Highfields’ obligations under the Security Deed.

70. On 29 June 2016, AMDG issued a tax invoice to Highfields in respect of the Alfa Romeo which states that the vehicle is “sold and delivered to” Highfields for a purchase price of $99,448.66 (including GST). The invoice also includes a “disbursement clause” which states “please pay $99,448.66 to Advance Motor Dealers Group Pty Ltd”. This invoice that was signed, by electronic signature, by Mr Maskaric and Mr Touma, was produced by a finance broker and not by AMDG on discovery.

71. On 30 June 2016, AMDG’s bank account with NAB was credited with the amount $99,448.66. The reference for the credit is “Highfields Austral C Apfinsubs”. In infer that this was payment made by Capital Finance to AMDG to satisfy Highfields obligation to pay the purchase price for the Alfa Romeo.

72. The invoice is silent as to when title in the Alfa Romeo is to pass to the purchaser (Highfields).

73. Capital Finance registered its security interest under the PSSA on 1 July 2016. The registration records Highfields as the owner of the vehicle.

(c)   Lotus

74. The original purchase by AMDG of the Lotus is evidenced by a tax invoice dated 28 May 2015 issued by European Automotive Imports Pty Ltd to AMDG for a total price of $85,000 (including GST). The Lotus was registered in the name of AMDG on 28 May 2015.

75. Mr Touma’s evidence was that the purchase price was funded by a loan by NAB to AMDG. While the loan agreement is not in evidence, there is a document on NAB letterhead stating that the payout figure for the Lotus financing is $78,673.07 and the bank statement for AMDG’s bank account with NAB shows that the amount of $78,673.07 was debited to that account on 24 June 2016.

76. On 23 August 2016, Highfields as borrower and Mr and Mrs Balout as guarantors entered into loan documentation for the new finance for the Lotus to be provided by Metro Finance pursuant to an agreement entitled “Commercial Finance Agreement Schedule” which includes the following:

[Metro Finance] agrees to provide a secured Commercial Loan (CL) to the Borrower on the terms and conditions of the Commercial Finance Agreement which is made up of the Standard Conditions of Commercial Finance Agreement Document ID D221 (“Standard Conditions”) and Schedule (including special conditions, if any). This Agreement will only become binding on the date determined by Metro Finance.

This is followed by a Schedule which names the Borrower as Highfields, and describes the goods as the Lotus and states the amount of the CL to be $99,500 being an amount to be expended in the purchase of the Goods (ie. the Lotus), and the Guarantors to be Mr and Mrs Balout.

77. The Standard Conditions referred to in the clause set out at [76] above is not in evidence, but Metro Finance registered a security interest in respect of the Lotus under the PPSA on 25 August 2016, which states that Highfields is the owner, and hence it can be inferred that the documentation included a security interest granted by Highfields to Metro Finance in respect of the Lotus.

78. The purchase of the Lotus by Highfields is evidenced by a tax invoice dated 3 August 2016 issued by AMDG to Highfields for a total purchase price of $99,500 (including GST). The invoice nominates AMDG’s bank account with NAB for payment of the balance due. The bank statement for AMDG’s bank account with NAB records a credit to the account of $99,500 on 26 August 2016. The reference for the credit is “1711 Inv 205 Pct Net Ro F1”. The reference to “Inv 205” accords with the invoice number for the invoice issued by AMDG to Highfields for the Lotus. I infer that this credit was the payment made by Metro Finance by direction of Highfields for the purchase of the Lotus. The invoice was produced by a finance broker and not by AMDG on discovery.

79. As in the case of the Lamborghini, Mr Balout put into evidence a document on AMDG letterhead entitled “Contract for the purchase of a new vehicle” for the Lotus which stated the purchase price to be $99,500 and referred to invoice No. 205 dated 3 August 2016. The document is in the same form as the one for the Lamborghini. Again, Mr Balout’s evidence is that it was signed by him, but he did not retain a copy. Ultimately, nothing turns on the fact that the document was not signed on behalf of AMDG given that the invoice is in evidence.

(d)   Ferrari

80. There are three invoices for the Ferrari in evidence. The first is an invoice dated 8 June 2016 issued by Romhero Pty Ltd (Romhero) to Highfields for a total purchase price of $380,000 (including GST), which records that a deposit had been paid of $180,000 leaving a balance due of $200,000. It shows that the account to which payment is to be made is the account of AMDG with NAB.

81. Romhero is a company which at all relevant times had as its two directors, Mr Maskaric and Ms Eleonora Touma, the wife Mr Touma. The sole shareholder of Romhero was Ninety Investments Pty Limited, which Mr Touma said was one of his related entities.

82. The second invoice is dated 1 October 2016 and also issued by Romhero but this time to AMDG. It was put into evidence by Mr Touma. It states that the selling price for the vehicle is $349,000 (including GST) and that this is the amount due. The date on the invoice has been ruled through by hand and the words “26/9/16 Paid” have been written by hand above the date. The invoice also bears a stamp “Entered” and there is an accounting record of AMDG (Ex 2) which records the purchase of the Ferrari in the inventory account 1-1320 in AMDG’s general ledger at a purchase price of $349,000. However, while there is a debit entry in AMDG’s bank account with NAB on 26 September 2016 for $341,183.13, this is described as a “miscellaneous debit”, there is no evidence that this was a payment (in part) of the purchase price of $349,000 payable by AMDG to Romhero.

83. There is no explanation in the evidence for either the backdating of the second invoice or why Romhero issued two conflicting invoices for the same vehicle, one to Highfields and one to AMDG.

84. The third invoice is one dated 6 October 2016, issued by McCarroll’s of Moss Vale Pty Ltd (trading as Ferrari Maserati Sydney) (McCarroll’s) to Highfields showing a vehicle price of $420,000 (including GST), with a balance payable of $290,000 after deducting an amount of $128,500 described as “Recpt #: X07123 Part Payment”. The invoice was produced by BMW Finance, and not by any defendant on discovery.

85. The date of 6 October 2016 is significant because on that day Highfields entered into a Chattel Mortgage Agreement with BMW Finance, under which BMW Finance agreed to lend to Highfields $291,277.60 to be disbursed as follows: (a) Ferrari Maserati Sydney (McCarroll’s), $290,000.00; (b) Dealer origination fee, $825.00; (c) PPS Register fees, $13.60; and (d) Establishment fee, $439.00.

86. The Chattel Mortgage Agreement is in the same terms as the corresponding agreement for the Lamborghini. Mr Balout gave evidence that he and his wife attended the Ferrari Maserati Sydney premises on 6 October 2016 to sign the Chattel Mortgage Agreement and associated documents.

87. The bank statement for AMDG’s bank account with NAB records that an amount $290,000 was credited to that account on 13 October 2016. The description for that credit entry is “Maserati – Artarmon McCarroll Automo”. Also, Highfields’ copy of the Chattel Mortgage Agreement contains a handwritten notation beside the provision that the amount of $290,000 is to be disbursed to Ferrari Maserati Sydney (McCarroll) which is “CR NAB # 4020 AMDG”, which is a reference to AMDG’s bank account with NAB.

88. I infer from both the bank statement, the copy of the Chattel Mortgage Agreement referred to in the previous paragraph and Mr Touma’s close involvement in arranging the provision of finance by BMW Finance for the Ferrari, that BMW Finance paid the amount of $290,000 to AMDG at the direction of the vendor under the third invoice (McCarrolls) and AMDG.

89. On 7 October 2016, BMW Finance registered the security interest created by the Chattel Mortgage Agreement under the PPSA which records Highfields as the owner of the vehicle.

90. The Ferrari was not registered in the name of AMDG until 22 February 2017.

(e) Some conclusions on the documentary evidence

91. I note the following about the documentary record of the refinancing transactions:

(a)    Each transaction involved the issue of an invoice to Highfields, the borrower from the third-party lender under each transaction, showing an amount due which matched the loan to be made by the lender. The existence of the invoice is consistent with the terms of the loan documentation which required that Highfields give a security interest to the lender as owner of the vehicle. The invoices are silent as to the time when title to the vehicle is to pass to the purchaser, Highfields.

(b)    The invoices in favour of Highfields were not held in the records of AMDG, but rather were held in the records of the relevant lender. Despite this, it was not suggested by the second defendant that the invoices were a sham or not genuine.

(c)    The monthly payments due under the loan agreements between Highfields and each lender (excluding the final balloon payment at maturity) were $2,833 (Lamborghini), $1,598 (Alfa Romeo), $1,463 (Lotus) and $4,166 (Ferrari), which totals $10,060 per month. This is considerably less than the monthly licence fee paid by UDD to AMDG under the Supply Agreement after the refinancings were undertaken (see [100] below).

The evidence regarding each refinancing of other vehicles arranged by Mr Touma

92. Mr Touma says that in the initial conversation he had with Mr Balout in June 2016, he told Mr Balout that he (Mr Touma) would “sort out the Nissan GTR, Audi R8, Ferrari California and maybe a few more”.

93. Mr Touma has put into evidence documentation relating to the refinancing of the three vehicles specifically mentioned by him in that conversation, being a Nissan GTR R35 (registration CSL 96Y), an Audi R8 (registration CV0 60X) and a Ferrari California F149 (registration DCI 46T). The Audi R8 and the Ferrari were financed by BMW Finance in June and November 2016 respectively and the Nissan GTR R35 was financed by the Commonwealth Bank in July 2016. The Audi is significant because the new finance was provided by BMW Finance shortly before Highfields entered into the Chattel Mortgage Agreement with BMW Finance for the Lamborghini, using a Chattel Mortgage Agreement in the same form as that used for the Lamborghini.

94. The evidence in relation to the Audi R8 discloses that:

(a)   SPW purchased the Audi R8 for $215,000 (including GST) in September 2014 (CB 1032). It was registered in the name of AMDG on 27 September 2014.

(b)   On 17 June 2016, AMDG paid $189,656.68 to NAB to payout the amount owing by SPW to NAB for the purchase of the Audi R8 (CB 313 and 1016-17).

(c)   On 20 June 2016, KG Realty Pty Ltd (a related entity of Mr Touma) as borrower entered into a Chattel Mortgage Agreement with BMW Finance for a loan of $197,006.60 of which $195,000 was to be disbursed to AMDG (CB 1052). The Dealer is described as being Ferrari Maserati Sydney (McCarroll). It is in the same terms as the Lamborghini Chattel Mortgage.

(d)   On 22 June 2016, the amount of $195,000 was credited to AMDG’s bank account with NAB with reference “payment … Bmw Australia Fin”, which I infer was the amount advanced to KG Realty Pty Ltd under the Chattel Mortgage (CB 313).

(e)   The only invoice in evidence regarding this vehicle (apart from that referred to in (a) above) is an invoice dated 1 July 2016 issued by SPW to AMDG for $195,000 (including GST) (CB 1031). However, it is unlikely that this was the invoice on which BMW Finance relied in making the loan of $195,000 as it post dates the loan by over a week and does not show KG Realty Pty Ltd as the purchaser of the vehicle. This anomaly is not explained in the evidence.

95. Given that Mr Touma’s evidence is that he arranged this loan by BMW Finance for the Audi R8 and that the Chattel Mortgage Agreement is identical to that for the Lamborghini, I infer that Mr Touma was aware at the time AMDG issued the invoice to Highfields for the Lamborghini (17 June 2016) and when Highfields entered into the Chattel Mortgage Agreement with BMW Finance for the Lamborghini (21 June 2016) that Highfields would need to establish to the satisfaction of BMW Finance that it was the purchaser of the Lamborghini in order to satisfy BMW Finance’s requirements.

96. I also infer that he had the same knowledge when Highfields entered into the other loan agreements for the Alfa Romeo, Lotus and the Ferrari.

97. The evidence in relation to the Nissan GTR R35 is as follows:

1. There is an invoice dated 2 September 2014 for the sale by SPW to AMDG of the Nissan GTR R35 for $121,699.40 (including GST). The invoice number is 108 (CB 1182). The vehicle was registered in the name of AMDG on 28 August 2014.

2. On 24 June 2016, AMDG paid $121,699.40 to NAB to payout the amount owing by SPW to NAB in respect of the Nissan GTR R35 (CB313 and 1023).

3. On around 4 July 2016, KG Realty Pty Ltd entered into loan document with CBA for a loan of $149,000 to purchase the Nissan GTR R35, on the security of a first registered charge over the vehicle (CB 195). The loan agreement includes a direction to pay the loan amount to AMDG and a representation by KG Realty Pty Ltd that “you own [the vehicle] or will own [the vehicle] when we advance the loan to you”.

4. On 20 September 2016, CBA issued a letter to KG Realty Pty Ltd stating that settlement of the loan agreement had been effected and that “payment of $149,000 for the goods will be credited to the following account overnight”. The nominated account is AMDG’s account with NAB. The letter quotes (as “your reference”) “Invoice Number – 209”.

5. On 20 September 2016, the amount of $149,000 was credited to AMDG’s account with NAB. The reference given in the bank statement is “Inv No – 209 Commonwealth Ban”. There is no Invoice No. 209 in evidence, but a reasonable inference is that AMDG issued an invoice bearing that number for the sale of the vehicle to KG realty Pty Ltd for $149,0000 in order to satisfy CBA’s requirements for its registered charge.

98. The evidence relating to the Ferrari California is as follows:

1. There is an invoice dated 21 November 2016 for the sale by PAG (WA) Pty Ltd, a car dealer in Western Australia, of this vehicle to AMDG for $220,000 (including GST) of which $198,000 remained payable on delivery.

2. On 25 November 2016, Nine T Investments Pty Ltd (a related entity of Mr Touma) as borrower entered into a Chattel Mortgage Agreement with BMW Finance for a loan of $199,277.60 of which $198,000 was to be disbursed to “McCarrolls Maserati” (the Dealer).

3. The vehicle was registered in the name of AMDG on 23 December 2016.

4. There is a letter from BMW Finance to Nine T Investments Pty Ltd dated 7 December 2020 quoting the payout amount for the loan as $113,185.80.

5. The reasonable inference from (a) to (d) above is that BMW Finance made the loan to Nine T Investments Pty Ltd for the original purchase of the vehicle (and not as a refinancing). It is not clear from the evidence whether an invoice was issued by AMDG to Nine T Investments Pty Ltd for the vehicle in order to satisfy BMW Finance that the latter was the owner of the vehicle. However, it is quite possible that such an invoice was issued. A search of the PPSA register against AMDG on 23 October 2020 disclosed no security interests granted by AMDG to BMW Finance, which suggests that it had registered its security interest over this vehicle against Nine T Investments Pty Ltd.

99. The absence of invoices in favour of KG Realty Pty Ltd and Nine T Investments Pty Ltd, being the entities that paid the purchase price for each of these vehicles, given the circumstances referred to above suggesting that such invoices are likely to have existed, raises further doubt as to the reliability of AMDG’s financial records.

Subsequent events

100. After the refinancing of each vehicle, AMDG retained or obtained (in the case of the Ferrari) possession of each vehicle and hired it to UDD under the Supply Agreement. The bank statements for AMDG record that UDD made monthly payments of rent to AMDG, which I infer was the monthly payments for use of these vehicles (and other vehicles) supplied to it by AMDG. The amounts are significant, being $28,000 per month in November and December 2016 and $23,000 per month thereafter.

100. In the period from each refinancing up to around June 2020, AMDG: (a) paid the monthly instalments due by Highfields to BMW Finance, Capital Finance and Metro Finance under the loan agreements for the Vehicles (in the amounts referred to at [91] above); and (b) paid all registration, insurance, maintenance and other expenses in relation to the Vehicles.

101. Between 3 August 2020 and 27 October 2022, it was Highfields rather than AMDG which paid the monthly instalments due by Highfields to BMW Finance, Capital Finance and Metro Finance in respect of the Vehicles, totalling $110,604.78 in respect of the monthly instalments due in respect of the Lamborghini; $31,404.63 in respect of the Alfa Romeo; $48,693.90 in respect of the Lotus and $202,457.98 in respect of the Ferrari. In addition, Highfields has incurred costs for the storage of the vehicles pending the outcome of these proceedings. These storage costs were $22,275 in the period to 24 February 2023.

102. The security interests over the Vehicles held by BMW Finance, Capital Finance and Metro Finance have been discharged and currently the only entity claiming a security interest in the four vehicles is Bilpin under its Charge.

Accounting treatment

104. The unaudited financial statements for Highfields for the years ended 30 June 2017 to 30 June 2020 (inclusive) are in evidence and did not record Highfields as the owner of the Vehicles. Mr Balout in cross examination accepted the proposition put to him that he “at all times regarded AMDG as remaining the owner of the four motor vehicles, notwithstanding the finance arrangement that had been entered into” (T63). In contrast, the financial statements for AMDG for the years ended 30 June 2017 and 30 June 2018 (which are also unaudited) did record the Vehicles as forming part of the inventory of AMDG. Mr Balout signed a director’s declaration for each of those financial statements on 18 February 2019, in which he declared that the financial statements and notes present fairly the company’s financial position as at the end of the financial year.

105. As noted at [82], a copy of the general ledger of the inventory account for AMDG for the 2018 year records each of the Vehicles as part of the inventory account for AMDG and total amount of that inventory account was included in the balance sheet for the 2018 year. I note that the general ledger records in three cases (the Ferrari, the Lamborghini, and the Alfa Romeo) that the vehicle is “still owned with financing” and in one case (the Lotus) as one of the “purchases” in the 2017 year.

106. The general ledger account also records the Audi R8, Nissan GTR R35 and the Ferrari California as part of AMDG’s inventory. It is not clear that this is accurate given the evidence referred to at [94]–[98] above which indicates that the purchase price of each vehicle was paid by KG Realty Pty Ltd and Nine T Investments Pty Ltd, entities associated with Mr Touma, with borrowed funds. Even if legal title was acquired by AMDG, there would be a rebuttable presumption that because each of those entities paid the purchase price in full (with borrowed funds) it would have the beneficial interest in the vehicle under an apparent purchaser resulting trust: Calverley v Green (1984) 155 CLR 242 at 262-263.

107. Mr Balout did not create the general ledger accounting record (Ex 2). When it was shown to him in cross-examination, he accepted that he had seen it sometime in 2020, that it was provided to him by an accountant working in the office of AMDG’s external accountants, Traverse Accountants Pty Ltd, and that as a director of AMDG in 2020 he understood that “AMDG continued to own the four motor vehicles” (T69). There is an apparent inconsistency between this evidence about ownership (and the similar statement noted at [104] above) and his evidence earlier in his cross examination that he understood that Highfields became the owner of the Vehicles after each refinancing transaction (T52-T54) and later in cross-examination that Mr Touma never said to him that AMDG would after the refinancing remain the owner of the four vehicles (T78 and T84). My assessment of Mr Balout’s evidence on these matters after he was shown the financial statements for Highfields and AMDG, and the general ledger record (Ex 2), is that he was confused and felt that as he had signed the director’s declaration it followed that he must accept that AMDG was the owner of the vehicles after the refinancing. For the reasons given below I do not regard either these accounting records or Mr Balout’s evidence in cross examination as of any assistance in resolving the dispute as to the ownership of the Vehicles.

Consideration

Whether Highfields and AMDG entered into a contract for the sale of the vehicles

Relevant principles

108. Whether a contract exists, and its terms is a question of fact: Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382; [2009] NSWCA 234 at [90(4)] (per Campbell JA, Allsop P and Basten JA agreeing).

109. Under the traditional analysis of contract formation, it is necessary to identify for a valid contract the presence of an agreement supported by a consideration, an intention to create legal relations, and certainty as to the essential terms.

110. As to the first element, in circumstances where no formal offer and acceptance can be identified, a court may infer formation of the relevant agreement and its terms from the conduct of the parties, including their conversations, the surrounding circumstances (including their previous dealings) and post-contractual conduct: Lawrence v Ciantar [2020] NSWCA 89 at [114] (Bathurst CJ, Meagher and Gleeson JJA agreeing).

111. The circumstances in which a contract can be inferred from conduct were explained in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117–11,118 by McHugh JA (Hope and Mahoney JJA concurring):

It is often difficult to fit a commercial arrangement into the common lawyers’ analysis of a contractual arrangement. Commercial discussions are often too unrefined to fit easily into the slots of “offer”, “acceptance”, “consideration” and “intention to create a legal relationship” which are the benchmarks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance together with an intention to create a binding legal relationship … A bilateral contract of this type exists independently of and indeed precedes what the parties do. Consequently, it is an error “to suppose that merely because something has been done then there is therefore some contract in existence which has thereby been executed” ... Nevertheless, a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words … The question in this class of case is whether the conduct of the parties viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract …Care must also be taken not to infer anterior promises from conduct which represents no more than an adjustment of their relationship in the light of changing circumstances.

…

Moreover, in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties’ subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed.

112. In Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 at 525; [2001] FCA 1833 Allsop J said:

… a number of authorities discuss the need not to constrict one’s thinking in the formation of contract to mechanical notions of offer and acceptance. Contracts often, and perhaps generally do, arise in that way. They can also arise when business people speak and act and order their affairs in a way without necessarily stopping for the formalities of dotting i’s and crossing t’s or where they think they have done so … Sometimes this failure occurs because having discussed the commercial essentials and having put in place necessary structural matters, the parties go about their commercial business on the clear basis of some manifested mutual assent, without ensuring the exhaustive completeness of documentation.

In such circumstances, even in the absence of clear offer and acceptance, and even without being able … to identify precisely when a contract arose, if it can be stated with confidence that by a certain point the parties mutually assented to a sufficiently clear regime which must, in the circumstances, have been intended to be binding, the court will recognise the existence of a contract. Sometimes this is said to be a process of inference or implication. For my part, I would see it as the inferring of a real intention expressed through, or to be found in, a body of conduct, including, sometimes, communications, even if it be the case that the parties did not consciously advert to, or discuss, some aspect of the relationship and say: “and we hereby agree to be bound” in this or that respect. The essential question in such cases is whether the parties’ conduct, including what was said and not said and including the evident commercial aims and expectations of the parties, reveals an understanding or agreement or, as sometimes expressed, a manifestation of mutual assent, which bespeaks an intention to be legally bound to the essential elements of a contract.

113. Where the existence and terms of an oral contract is in issue, consideration of the surrounding circumstances including the history of the relationship between the parties and their conduct prior to and at the time the alleged contract was entered into is permissible, as well as post-contractual conduct: Colyer Fehr Tallow Pty Ltd v KNZ Australia Pty Ltd [2011] NSWSC 457 at [47]–[50]; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [25].

114. When a party seeks to rely on conversations occurring many years ago, it is necessary to bear in mind the well-known observations of McLelland CJ in Eq regarding the fallibility of human memory in Watson v Foxman (1995) 49 NSWLR 315 at 319:

… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consider­ation of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.

115. It is for this reason that where the events (including conversations) relied upon took place many years ago, it is recognised that “the only safe course is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities together with the documentation tendered in evidence”: Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599; [1999] HCA 15 at [15]–[16]; Et-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24 at [25]–[29] (and cases there cited).

116. As to whether the parties intended to create legal relations, this is determined objectively. The essential question is whether a reasonable person in the position of each party would think that the other party intends to be subject to a legally enforceable duty: Ermogenous v Greek Orthodox Community of SA Inc (2009) 209 CLR 95; [2002] HCA 8 at [25].

Required approach to fact finding

117. Highfields, as plaintiff, bears the onus of establishing on the balance of probabilities the existence of a contract between it and AMDG of the kind which it alleges and that under that contract Highfields acquired ownership of each vehicle.

118. In Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34, Dixon J emphasised that when the law requires the proof of any fact the Court must feel an actual persuasion of its occurrence or existence before it can be found, and “it cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality” (at 361).

119. What is necessary to attain the required degree of actual persuasion was explained by Hammerschlag J in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 as follows:

[94] Where a party seeks to rely upon spoken words as a foundation for a cause of action, including a cause of action based on a contract, the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its occurrence or its existence. Moreover, in the case of contract, the court must be persuaded that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences: see Briginshaw v Briginshaw (1938) 60 CLR 336 at 362; Helton v Allen (1940) 63 CLR 691 at 712; Rejfek v McElroy (1965) 112 CLR 517 at 521; Watson v Foxman (1995) 49 NSWLR 315 at 319.

[95] The sensation of feeling an actual persuasion, after a contest, that an event has happened or that something exists is one which is well known and recognised by experienced trial judges for what it is.

120. In BCI Finances Pty Ltd (in liq) v Binetter (No 4) (2016) 348 ALR 227; [2016] FCA 1351 Gleeson J made the following observations on the determination whether a plaintiff has discharged its onus of proof:

[122]  Where a plaintiff has the onus of proving a matter, and “relevant facts are peculiarly in the knowledge of the defendant or where the defendant has the greater means to produce evidence relating to those facts”, then if the plaintiff provides sufficient evidence from which the matter may be inferred, “the defendant then comes under an evidential burden, or an onus of adducing evidence”: Krstic v Brindley [2006] NSWSC 1414 at [26].

[123]  Where a fact is peculiarly within the knowledge of a party to litigation, slight evidence of that fact may suffice to prove the fact unless that evidence is explained away by the party with the knowledge of the fact: Hampton Court Ltd v Crooks (1957) 97 CLR 367at 375; 64 ALR (CN) 1201; Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333 at [121]; Parker v Paton(1941) 41 SR (NSW) 237 at 243; Ex parte Ferguson; Re Alexander (1944) 45 SR (NSW) 64 at 67, 70.

[124]  A failure by respondents to deny or explain facts when it was in the respondents’ exclusive power to do so allows increased strength or weight to be given to primary facts favourable to the applicants and allows inferences favourable to the applicants to be more confidently drawn: United Group Resources Pty Ltd v Calabro (No 5 ) (2011) 198 FCR 514; 288 ALR 1; [2011] FCA 1408 at [75], [76]. The silence of a party may serve to resolve a doubt or an ambiguity regarding the existence of a fact, especially where the facts are peculiarly within the knowledge of the silent party: Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125; (1996) 9 ANZ Insurance Cases 61-385 at 142.

[125]  All evidence “is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted”: Coshott v Prentice (2014) 221 FCR 450; [2014] FCAFC 88 at (2016) 117 ACSR 18 at 41 [80], quoting Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970. This maxim also bears upon the appropriateness of deciding whether a fact has been proved when only limited evidence is available. In Ho v Powell (2001) 51 NSWLR 572; [2001] NSWCA 168 at [14], [15], Hodgson JA (with whom Beazley JA agreed) said:

[I]n deciding facts according to the civil standard of proof, the court is dealing with two questions: not just what are the probabilities on the limited material which the court has, but also whether that limited material is an appropriate basis on which to reach a reasonable decision …

In considering the second question, it is important to have regard to the ability of parties, particularly parties bearing the onus of proof, to lead evidence on a particular matter, and the extent to which they have in fact done so …

[126]  In RHG Mortgage Ltd v Ianni [2015] NSWCA 56, McColl JA (with whom Sackville AJA agreed) said (at [76]):

The circumstances for drawing a Jones v Dunkel inference are found where the uncalled witness is “a person presumably able to put the true complexion on the facts relied on [by a party] as the ground” for any inference favourable to the plaintiff: Jones v Dunkel (at 308) per Kitto J; Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; 286 ALR 501; 88 ACSR 246; [2012] HCA 17 at [168] per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ.

[127]  In the passage from Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; 286 ALR 501; 88 ACSR 246; [2012] HCA 17 to which McColl JA was referring, the High Court emphasised that a missing witness will only be significant where the evidence which such a person is expected to give would (not might) elucidate a particular matter in issue.

[128]  As to the significance to be given to the failure to adduce the evidence, that is explained in Jones v Dunkel (1959) 101 CLR 298; [1959] ALR 367 itself where it was said (at CLR 308) per Kitto J (and see also at CLR 312 per Menzies J, and at CLR 320–1 per Windeyer J) that:

[A]ny inference favourable to the plaintiff for which there was ground in the evidence might be more confidently drawn when a person presumably able to put the true complexion on the facts relied on as the ground for the inference has not been called as a witness.

[129]  This aspect of the principle is summarised in Cross on Evidence, where it is stated (at [1215]) that:

[T]he rule [in Jones v Dunkel] only applies where a party is “‘required to explain or contradict”’ something. What a party is required to explain or contradict depends on the issues in the case as thrown up in the pleadings and by the course of evidence in the case. No inference can be drawn unless evidence is given of facts “‘requiring an answer”’. (Citations omitted).

[130]  Thus, there must be some existing basis in the evidence before the Court to support the inference which the party relying on the principle seeks to have drawn before the absence of evidence from the opponent takes on any significance.

[131]  In Paul’s Retail Pty Ltd v Sporte Leisure Pty Ltd (2012) 202 FCR 286; 95 IPR 151; [2012] FCAFC 51, the Full Federal Court (Jacobson, Yates and Katzmann JJ) said (at [95]):

The purpose of the rule is to enable the tribunal of fact to more readily draw an inference “fairly to be drawn from the other evidence” if a witness able to contradict that inference has not been called: State Bank (NSW) v Brown (2001) 38 ACSR 715; [2001] NSWCA 223 at [17], [18] per Spigelman CJ. Such an inference is drawn, if at all, once all the evidence in the case is in. Before that can happen, there must first be an available inference against the party on the evidence: Manly Council v Byrne [2004] NSWCA 123 per Campbell J, Beazley JA and Pearlman AJA agreeing at [54].

[132]  In Department of Health v Arumugam [1988] VR 319 at 330; (1988) 30 AILR 117, Fullagar J said:

If all that is proved, by inference or otherwise, in the absence of explanation, is less than all the elements of proof required for the complaint to succeed, neither a total absence of explanation nor a non-acceptance of an explanation can by itself provide an element of proof required. It can enable already available inferences to be drawn against dishonest explainers with greater certainty, but that is all.

Factual findings regarding contract formation

121. In my view, this is not a case where the parties can be said to have entered into a single overarching agreement for the Vehicles in one or two conversations in June 2016. Rather, a separate contract in respect of each vehicle is to be inferred from the parties’ conduct, including conversations, over the period from June to October 2016.

122. For the reasons given below, I find that on each occasion that Highfields entered into a loan agreement with the relevant third-party lender for the refinancing of each vehicle, a separate contract was entered into between Highfields and AMDG in respect of that vehicle on the following terms:

1. AMDG would sell or procure the sale of the relevant vehicle to Highfields for an amount equal to the price stated in an invoice issued to Highfields funded to the extent necessary by moneys borrowed by Highfields from the third-party lender arranged by AMDG.

2. Highfields would hire that vehicle to AMDG on terms that AMDG would pay the monthly amounts due to the third-party lender under Highfields loan agreement, together with the cost of registration, maintenance and insurance of the vehicle.

3. While the parties did not agree the period of the hiring of each vehicle a term should be implied that the licence was terminable on reasonable notice by either party at which time possession of the vehicle would be returned to Highfields.

123. Each of these transactions involved a sale of the vehicle to Highfields and a hiring (ie. bailment) of the vehicle to AMDG.

124. I do not accept that there was a “back to back” loan arrangement between Highfields and AMDG: the obligation of AMDG to pay the monthly instalments owing to BMW Finance, Capital Finance and Metro Finance would continue only for the period in which the bailment of the Vehicles from Highfields to AMDG continued.

125. Set out below are my reasons for the above finding as to the contracts entered into by Highfields and AMDG; starting with the Lamborghini, as that was the first transaction.

126. The refinancing of the Lamborghini was the subject of the first two conversations in June 2016. The other vehicles were not discussed until after the Lamborghini refinancing occurred. The finding at [122] is consistent with Mr Balout’s recollection of the conversations leading up to the refinancing of the Lamborghini in June 2016 and the further conversations thereafter in which Mr Touma said that the refinancing of the other Vehicles would be in the same form as for the Lamborghini.

127. I infer from the fact that Mr Touma was experienced in the activities of motor dealers and also organised the financing by BMW Finance for the Audi R8 earlier in June 2016 that he was aware of the way that such a financing would be effected for the Lamborghini, including in particular the requirement of BMW Finance that the borrower (Highfields) needed to be the owner of the vehicle. Consistently with this awareness, I infer also that the invoice issued by AMDG to Highfields for the Lamborghini was intended to effect the sale of the vehicle to Highfields so that it could satisfy the requirements of BMW Finance for making the loan to Highfields under the Chattel Mortgage Agreement, which was, as intended, paid by direction to AMDG. This is consistent with Mr Balout’s recollection of the conversation with Mr Touma in early June that Mr Touma said “It’ll be your car”. The consideration for the sale of the Lamborghini is the purchase price stated in the invoice which Highfields paid to AMDG.

128. I infer from both the first conversation between Mr Balout and Mr Touma and their subsequent conduct that it was agreed that on the acquisition of the Lamborghini, Highfields would hire it to AMDG for the purposes of its use for “drive days”. In the first conversation, Mr Touma said “SportsCar will just use the car for Drive Days and make all payments for the finance, the rego and maintenance”. The consideration for the hire was the agreement by AMDG to pay the monthly amounts due to BMW Finance under the Chattel Mortgage Agreement, as well as the costs of insurance, maintenance, and registration of the vehicle. The evidence of Mr Balout and Mr Touma is essentially the same on this aspect. The only real difference is that Mr Balout thought that AMDG would be the entity which used the vehicle for “drive days”. In fact, it was UDD pursuant to the Supply Agreement but nothing turns on this.

129. There is no evidence of any discussion between Mr Balout and Mr Touma as to the period of the hire. On ordinary principle, the Court should infer, in order to give business efficacy to the contract for hire, an implied term that the hire would continue until determined by either party on reasonable notice to the other: Byrne v Australia Airlines Ltd (1995) 185 CLR 410 at 422; [1995] HCA 24; Havas v Standard Knitting Mills Pty Ltd (2001) 52 NSWLR 293; [2001] NSWCA 295 at [2] and [24].

130. It is also relevant to have regard to the object of each transaction. It is clear that AMDG’s object was that Highfields should be the entity that was indebted to BMW Finance, not AMDG. This was the reason why Mr Touma put Mr Balout in touch with BMW Finance in the first place (and, later, Capital Finance and Metro Finance). It is also clear that AMDG wanted to retain possession of each of the Vehicles so that it could continue to licence it to UDD under the Supply Agreement in return for the fee payable by UDD under that agreement. It can be inferred that AMDG was prepared to pay the monthly payments to the financier together with the costs of insurance, maintenance, and registration of the vehicle because it could recoup those amounts from UDD under the Supply Agreement: see [91(c)] above.

131. It only made sense for Highfields to take on the liability to the financier if it had ownership of the Vehicles because in the event that AMDG ceased to pay the monthly instalments to the financier, it could expect the financier to seek to recover those amounts from Highfields and the shareholders (Mr and Mrs Balout). There was never any suggestion by Mr Touma that AMDG would give a security interest in the Vehicles to Highfields (indeed in his Point of Defence, Mr Touma denies that Highfields has a security interest) and consequently the only asset from which Highfields could recoup amounts paid by it to the lender would be the proceeds of sale of the Vehicles. I note that had AMDG given a security interest to Highfields, it would have ranked in priority behind Bilpin’s charge unless Highfields had registered the security interest under the PPSA: PPSA, s 55(2).

132. The contract described at [122] above is straightforward, consistent with the parties’ conduct at and subsequent to the refinancing, and its essential terms are clear. When viewed objectively, the parties intended to create legal relations: an invoice was issued by AMDG for sale of the Lamborghini to Highfields and while the hire of that vehicle to AMDG was not documented, AMDG paid the consideration for the hire of the vehicle which was considerable, which supports the objective conclusion of an intention to be legally bound.

133. The position is the same for the transactions relating to the Alfa Romeo and the Lotus. While they were arranged with a different financier to the Lamborghini (Capital Finance and Metro Finance) it is common ground that Mr Touma introduced Highfields to those financiers, and he told Mr Balout that they would follow the same structure as the refinancing for the Lamborghini.

134. The circumstances surrounding the refinancing of the Ferrari differ from those for the earlier transactions in one respect: there is no invoice from AMDG in favour of Highfields in evidence. Rather, there are three invoices: one from Romhero to Highfields, one from Romhero to AMDG, and one from McCarroll’s to Highfields. In my view the absence of evidence of an invoice from AMDG to Highfields does not lead to a different outcome. Romhero is an entity within Mr Touma’s camp. The existence of conflicting Romhero invoices, the uncertainties attaching to those invoices referred to at [80]–[83] above and the reason why BMW Finance paid the loan amount of $290,000 to AMDG apparently at the direction of McCarroll’s and AMDG were matters for Mr Touma to explain and he did not.

135. Applying the principles stated at [120] above, I am satisfied that there is evidence which enables the conclusion to be drawn that the contract described at [122] above was made for the Ferrari. In particular, I refer to the fact that Mr Touma said that the refinancing for the Ferrari was to take the same form as for the Lamborghini, that the Lamborghini refinancing involved the issue of an invoice to Highfields for the vehicle, and my conclusion that Mr Touma knew that it was a necessary part of the refinancing that the vehicle would be sold to Highfields. I consider it is a reasonable inference that the McCarroll’s invoice in favour of Highfields was issued with AMDG’s knowledge and approval in order to enable Highfields to raise finance from BMW Finance which was ultimately paid to AMDG.

Second defendant’s submissions

136. It was submitted for the second defendant that Highfields had not proved that it entered into the alleged contract for essentially four reasons:

1. Highfields had not proved each of the terms of the contract as pleaded in the Points of Claim, and several of the alleged terms are not established by Mr Balout’s version of his conversations with Mr Touma. In particular, Mr Balout does not assert that Mr Touma ever said words to the effect that AMDG will sell or transfer the Vehicles to Highfields.

2. The surrounding circumstances including post-contractual conduct was consistent with AMDG remaining the owner of the Vehicles, with reliance placed on the fact that the Vehicles remained registered in the name of AMDG, and AMDG retained possession and paid the monthly instalments to the financiers, insurance, maintenance and registration fees.

3. The purpose of each of the invoices in evidence which show a sale of each vehicle to Highfields was to enable a security interest to be granted in vehicles owned by AMDG to the new lender and not to evidence of an actual sale to Highfields.

4. The accounting treatment of the Vehicles in the financial statements of both Highfields and AMDG recognise the Vehicles as an asset of AMDG and not Highfields, which was confirmed by Mr Balout’s acceptance in cross-examination that he regarded AMDG as remaining the owner of the Vehicles.

137. In relation to the first submission, I accept that the evidence does not establish a single contract made in one or more conversations. However, I am satisfied that there were four separate contracts (one for each vehicle) implied from conduct including but not limited to the conversations between Mr Balout and Mr Touma. While it is true that there is no evidence that Mr Touma said that AMDG would sell the Vehicles to Highfields, there are four invoices in evidence which each record a sale to Highfields (in three of which, AMDG is named as the seller). Mr Touma did not challenge the genuineness of these invoices. In addition to the invoices, there is the overall context of the transactions which is that the financing arrangements with each financier (BMW Finance, Capital Finance and Metro Finance) required a sale to Highfields so that it would become owner and be able to give a security interest to the lender.

138. As to the second submission, as the plaintiff submitted, registration of the Vehicles in the name of AMDG has no bearing on ownership: Expile Pty Ltd v Jabb’s Excavations Pty Ltd [2003] NSWCA 163 at [15]; Road Transport Act 2013 (NSW), s 64(2). This reflects the fact that a person is entitled to register a motor vehicle in its name if it is either the owner or is managing the vehicle, eg. as lessee: Road Transport (Vehicle Registration) Regulation 2017 (NSW), reg 6(1). As AMDG had use and management of the Vehicles, it was appropriate that it should register the Vehicles in its name.

139. As to the third submission, the four invoices were tendered by the plaintiff in opening its case. They had not previously been put into evidence. The second defendant did not challenge their authenticity, nor did he suggest they were shams. Rather, it was submitted that they were no more than part of the mechanism for satisfying each lender’s requirements for the making of the loan. In my view, it can be accepted that the invoices were issued to satisfy each lender’s requirements, but that supports rather than detracts from the plaintiff’s argument that the vehicles were sold to it: the purchase of the vehicles by Highfields was a necessary step to obtain the loan from the lender to fund payment of the purchase price for the vehicle, which was the object of the transaction.

140. As to the fourth submission, it is true that the financial statements of AMDG are books and records and therefore prima facie evidence of any matter stated or recorded therein: s 1305(1) of the Corporations Act 2001. However, while the books are prima facie evidence of the matters stated in them, the weight of that evidence is to be measured in accordance with the common sense of the Tribunal of fact and also in light of all the other evidence: Australian Securities and Investments Commission v Rich [2009] NSWSC 1229 at [394]–[400].

141. In my view, the accounting treatment of the inventories in the accounts of AMDG for the 2017 and 2018 years should be given no weight for two reasons. First, the inclusion in the general ledger of three of the vehicles as inventory of AMDG as of 30 June 2017 is inconsistent with the invoices in evidence which show that the Lamborghini, Alfa Romeo, and Lotus were sold by AMDG to Highfields in that year. Also, the reliability of AMDG’s general ledger for the inventory account (Ex 2) is in doubt for three other vehicles which were refinanced by Mr Touma: see [106] above.

142. Second, the person who prepared the accounts for AMDG was not called to give evidence and so the apparent inconsistency arising from the three invoices is unexplained. It was a matter for AMDG to explain that apparent inconsistency, not Highfields: Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970.

143. What Mr Balout, as director of AMDG said about the matter when he signed a director’s declaration in the financial statements or when he made statements in cross examination about the ownership of the Vehicles after each refinancing is not an “admission” that can assist the Court in determining the question of ownership because it requires the application of a legal standard: Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317; [2003] HCA 51 at [70]. As explained by the Victorian Court of Appeal in Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (2009) 25 VR 411; [2009] VSCA 238 at [44]:

Since the existence and effect of a legally binding agreement is to be determined objectively according to what a reasonable person would take to be the intend of the parties as evidenced by their actions in the circumstances of the case, and not according to the subjective interpretation of the parties, what the Atco directors thought to be the effect of what had occurred was largely irrelevant as Brooking J observed in FJI Traders Insurance Co Ltd v Savoy Plaza Pty Ltd, although a question of law may be made the subject of an admission, if the question is one of contract construction, the admission is not something from which the Court is likely to derive any assistance. Equally in our view where the question is whether conduct has been sufficient to constitute a contract, an admission as to whether the conduct had that effect is not something from which the Court is likely to derive assistance.

Did Highfields acquire title to the Vehicles?

144. The concept of ownership is a slippery one. As is explained in Ewan McKendrick, Goode on Commercial Law (LexisNexis 4^th Ed, 2009) at 34–35 (footnotes omitted):

Ownership, one of the most elusive concepts of English law, is conventionally defined as the residue of legal rights in an asset remaining in a person, or in persons concurrently, after specific rights over the asset have been granted to others. A person in whom such residue of rights is vested is said to have an absolute interest in the asset. By contrast, one who enjoys merely specific rights, e.g. possession under a pledge, lien or other bailment, has only a limited interest.

Interest is to be distinguished from title. A person’s interest in an asset denotes the quantum of rights over it which he enjoys against other persons, though not necessarily against all other persons. His title measures the strength of the interest he enjoys in relation to others. English law attributes great significance to possession. A person in possession with the intention of assuming ownership is treated as owner, and given all the rights and remedies available in tort and property law for the protection of the owner, as against everyone except him who has better title. If O is the true owner but T has taken possession of the asset, animo domini, both are considered to have title to the absolute interest in the property. O’s title being the best, is indefeasible: T’s is a defeasible title, being subordinate to that of O but effective against all others not claiming under O or defending T’s claim with O’s authority.

145. In Kent v SS “Maria Luisa” (No 2) (2003) 130 FCR 12; [2003] FCAFC 93, Tamberlin and Hely JJ made the following observations on the concept of “ownership” at [61]–[65]:

The word “owner” cannot be given any general description. But ordinarily the incidents of ownership of a chattel include the right to make physical use of the chattel, the right to the income from it, the power of management, and the right of alienation: Lawson & Rudden, at p 8. In the Iron Shortland (at 544) Sheppard J quoted from the decision of the Singapore Court of Appeal in The Ohm Mariana; Ex Peony [1993] 2 SLR 698 that the term “owner” means any person who is vested with such ownership as to have the right to sell, dispose of or alienate the ship, and that a beneficial owner of the ship comes within that term. See also to similar effect The Permina 3001 [1979] 1 Lloyd's Rep 327 at 329.

The notion of “ownership” carries a connotation of dominance, ultimate control and of ultimate title against the whole world: cf O W Holmes, The Common Law (1882) pp 242-246; Blackstone's Commentaries, (18th ed, 1829) Vol 2, p 389; and Holdsworth, A History of English Law (1925) vol VII, p 449.

In Jeffries v Great Western Railway Co (1856) 119 ER 680, Lord Campbell CJ said:

I am of opinion that the law is that a person possessed of goods as his property has a good title as against every stranger, and that one who takes them from him, having no title in himself, is a wrongdoer, and cannot defend himself by shewing that there was title in some third person; for against a wrongdoer possession is a title.

That approach was applied by the Court of Appeal in The Winkfield [1902] P 42 at 55 by Collins MR. These statements accord with the primary definition of “owner” in The Oxford English Dictionary as:

(a) … One who owns or holds something as his own; a proprietor; one who has the rightful claim or title to a thing (although he may not be in possession) …

A helpful description of “ownership” is formulated by Jordan CJ in Gatward v Alley (1940) 40 SR (NSW) 174 at 178, where his Honour said in relation to a question as to ownership of a car:

A good title to property, in the sense of such ownership as the law allows, consists in having the legal right to exercise with respect to it all such rights, as against all such persons, as by law are capable of being exercised with respect to property of the class in question. A person who has possession of property but not ownership has, as a general rule, the same legal rights as the owner, save to the extent to which those rights are qualified as against the owner …

146. As noted by Jordan CJ in Gatward v Alley (1940) 40 SR (NSW) 174 in the passage quoted above, a person who has possession of goods has, generally, the same legal rights as the owner except as against the owner.

147. In the present case, it is not in dispute that AMDG was the owner of the Lamborghini, the Alfa Romeo, and the Lotus immediately before the transaction with Highfields. I will assume, in favour of AMDG, that it was also the owner of the Ferrari before the transaction with Highfields. Hence, the question is whether it can be established that Highfields acquired title to the Vehicles from AMDG.

148. I have found that there was a contract for the sale of each vehicle to Highfields. The time at which title passes under a contract for the sale of goods is set out in section 22 of the Sale of Goods Act 1923 (NSW) which provides:

(1) Where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.

(2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties, and the circumstances of the case.

149. Section 23 of the Sale of Goods Act sets out the “rules” which apply to ascertain the intention of the parties unless a different intention appears. The relevant rule for present purposes is rule 1, which provides:

Unless a different intention appears, the following are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer.

Rule 1. Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, be postponed.

150. If rule 1 applies here, then title passed when Highfields entered into each contract with AMDG. However, it has been said that “in modern times very little is needed to give rise to the inference that property in specific goods is to be pass only on delivery or payment”: RV Ward Ltd v Bignall [1967] 1 QB 534 at 545; see also Michael Gerson (Leasing) Ltd v Wilkinson [2001] QB 514; [2001] 1 All ER 148 at [48]–[49]. In my view, that is so in the present case and title will pass at the time the parties intended it to pass in accordance with s 22. It was essential to the arrangement between Highfields and AMDG that the funds to be advanced by the third-party lender in satisfaction of the balance of the purchase price for each vehicle would be paid to AMDG. I infer that it was intended that title to each vehicle would pass on payment of the amount paid by Highfields (funded by the loan made by the third-party lender) to satisfy the payment of the purchase price.

151. Although in the case of the Ferrari there is no invoice from AMDG in favour of Highfields, the position is the same. It can be inferred (and I do infer) that the issue of the McCarroll’s invoice referred to at [84] above was the method chosen by AMDG to effect the sale of the vehicle to Highfields in order to satisfy the requirements of BMW Finance so that the loan would be made and AMDG would be paid the balance owing of $290,000. For the same reasons given in the previous paragraph, title to the Ferrari was intended to pass to Highfields when that payment was made to AMDG. If the assumption that AMDG was the owner of the Ferrari before the transaction with Highfields is wrong, the reasonable inference is that McCarroll’s was the owner and title will have passed to Highfields on the sale by McCarroll’s to Highfields, evidenced by the McCarroll’s invoice and payment of the balance due under that invoice.

152. It is necessary to consider whether the transfer of title to Highfields was not absolute but rather by way of security. This question turns on the real intention of the parties, to be gathered not only from the terms of the particular instrument but from all the circumstances of the transaction and parol evidence is admissible where the real intention is in doubt: Kreglinger v New Patagonia Meat and Cold Storage Company Ltd [1914] AC 25 at 47. Two matters which distinguish a transfer which is absolute from one which is by way of mortgage, charge or other security are that in the case of the latter the transferor has a right to get back the property the subject of the transfer when the debt or other obligation secured has been discharged, and that if the transferee has sold that property to recoup the secured amount and there is a surplus, the transferor is entitled to it: In re George Inglefield Ltd [1933] 1 Ch 1 at 27. In the present case, there is no evidence to suggest that the real intention of the parties was that AMDG would be entitled to the return of the Vehicles when the third party lenders were repaid or to any surplus in the event that Highfields sold the Vehicles to meet the debt owing by it to the lenders. Further, the second defendant has stated positively in his Points of Defence that there was no intention to create a security interest.

153. For these reasons, in my view, Highfields has established that it acquired title to each of the Vehicles from AMDG in 2016.

154. This conclusion is not affected by the fact that AMDG appears to have retained possession of each vehicle. It did so under a bailment of the goods. A bailment arises “upon a delivery of goods of one person, the bailee, upon a promise, express or implied that they will be re-delivered to the bailor or dealt with in a stipulated way”: Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220 at 238. For this purpose, constructive delivery is sufficient, and that includes the situation where a seller in possession assents to hold the goods sold on account of the buyer (of which a classic example is a sale and lease back transaction): Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236 at 262; [1987] HCA 30; Metal Manufactures Ltd v Federal Commissioner of Taxation (1999) 43 ATR 375; [1999] FCA 1712 at [199]–[200]; N Palmer, Palmer on Bailment (3^rd ed, Thomson Reuters, 2009) at [1-024]. The assent to hold each vehicle as bailee after the sale is to be inferred from the statement by Mr Touma that “It’ll be your car. Sports Car will just use the car for Drive Days”.

155. I note for completeness that it was not suggested that a sale of the Vehicles to Highfields breached Bilpin’s Charge. It seems to me that it did not. The Charge creates a floating charge over AMDG’s stock in trade, and AMDG is permitted to deal with property subject to the floating charge provided such dealings are in the ordinary course of its business, pursuant to cl 2.1 and cl 2.2 of the Deed of Charge. Given the nature of AMDG’s business, the Vehicles were stock in trade of AMDG and there is no reason on the evidence to doubt that the refinancing transactions were in the ordinary course of that business.

156. I also note that it has not been suggested that the refinancing transactions for the Vehicles created a security interest under s 12(2) of the PPSA. Had the question arisen I would have concluded that it did not, on the basis that while the refinancing transaction for each vehicle involved both a lease of goods and a transfer of title, which are examples given in s 12(2)(i) and (k) of the PPSA of transactions which may give rise to a security interest, the chapeau of s 12(2) makes clear that it is necessary that the transaction in substance secures payment or enforcement of an obligation. In my view the transactions here did not.

Relief to which Highfields is entitled

157. For the above reasons, in my view Highfields is entitled to a declaration that it is the owner of the Vehicles. It is also entitled to recover, as damages for breach of contract from the first defendant the costs of storage of the Vehicles, which will have increased since the hearing.

158. However, Highfields is not entitled to recover from any of the defendants amounts paid by Highfields to BMW Finance, Capital Finance and Metro Finance as Highfields had the obligation to pay those amounts to the lenders and the obligation of AMDG to pay equivalent amounts to Highfields as hiring fees ceased when the bailment terminated. There may be an entitlement to accrued but unpaid hiring fees prior to the termination of the bailment, but this question was not addressed in submissions and the evidence as to precisely when the bailment terminated is unclear, but it clearly was at or around June 2020 at which time Highfields became entitled to immediate possession of the Vehicles.

159. As to costs, I see no reason why costs should not follow the event and as Highfields has had substantial success on the proceedings, it is entitled to its costs.

160. I invite the parties to bring in short minutes of order which reflect these reasons and finalise the proceedings within seven days.

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Amendments

28 November 2023 - Update to coversheet

Decision last updated: 28 November 2023