Invicta Group Industries P/L v Chesterfield Carpet Mills P/L

[1994] FCA 218

2lE: 9y

JUDGMENT No. ......,,........ .. I , ...,,,..,.

IN THE FEDERAL COURT OF AUSTRALIA	)
)

NEW SOU	TH WALES DISTRICT REGISTRY	)	No. NG3241 of 1993
1

GENERAL DIVISION 1

IN THE MATTER OF:

CHESTERFIELD CARPET MILLS PTY.

LIMITED. ACN 003 027 610

BETWEEN:

INVICTA GROUP INDUSTRIES PTY.

LIMITED ACN 003 027 610

CHESTERFIELD CARPET MILLS PTY.

LIMITED ACN 003 027 610

First Respondent

AND:

ALI REZA VP ?ANDOUST

Second Respondent

Wily, and the second respondent, Mr. Vatandoust. The	liquidator of Chesterfield Carpet Mills Pty. Limited, Mr.
liquidator claims that the carpet is the property of the company and has seized it. Mr. Vatandoust claims that he bought the carpet from the company before it went into liquidation. He claims to have bought it in two parcels and to have paid $30,000 for the first and $20,000 for the second.
Before I proceed to the substance of the matter, I need to say something about the way this application has been brought and my jurisdiction to dispose of it. It is to be observed that the matter bears the name of the company in liquidation and is said to be between another company, Invicta Group Industries Pty. Limited, as applicant, the company in liquidation, which was the original respondent, and Mr. Vatandoust. The application in this matter (NG3241 of 1993) was originally for the issue of summonses pursuant to the then provisions of s.596 of the Goruorations Law for the examination of certain persons as to their knowledge of the company's property and affairs. The company had been wound up as a consequence of the institution of proceedings in matter
No. NG3155 of 1993. There is yet another matter (for the most part unrelated to this one) (NG3206 of 1993) in which the
liquidator has sought an order that a disposition of property (not the one in question here) was void.
There is a question whether the proceeding in question (i.e. the dispute here to be resolved) was properly added to a matter which concerned the issue of examination summonses. Provisionally, I am of opinion that a separate application should have been filed. It seems quite inappropriate for it to have been dealt with in the way that it has been. Rather than reach any conclusions about this matter at the moment, I propose, after I express my conclusion as to what the outcome of this matter should be, to direct the Registrar to make inquiries particularly for the purpose of determining whether the aoplication should have been commenced by the filing of an independent application and, if so, what fees are properly payable in respect of it. In the meantime, no orders will be made.
In the initial stages of the hearing, I raised with counsel the question of the Court's jurisdiction to hear this matter. I have not found the written submissions which have been made to me particularly helpful. Reference is there made to ss.474 and 483 of the Cor~orations Law. Neither section is, in my view, applicable to the circumstances of this case. Nor is s.489 which I have also considered. The dispute is a dispute about property which the liquidator claims to be the
property of the company. It is thus a matter in respect of
which the liquidator could have applied for directions pursuant to subsec.479(3) of the Coroorations Law. He has not, however, taken that course. Rather, he appears to have acted as a respondent (although unnamed as such) to the application brought by Mr. Vatandoust who is himself named as a respondent.
As I pointed out in argument, the case could have been brought in a court of ordinary jurisdiction as an action by Mr. Vatandoust against the liquidator for detinue or conversion of his property. This Court has jurisdiction to hear such a claim by reason of the provisions of the Jurisdiction of Courts (Cross-vestina) Act 1987 (NSW). The provisions of s.40 of the cor~orations (New South Wales) Act 1990 are not of relevance in this context. Ordinarily the Court would not, in the exercise of its discretion, hear a dispute such as this. It would be transferred to the appropriate Supreme Court for remission to a district or county court but, in the light of what has occurred, I think it is too late to take that course. To do so would be to involve the parties in substantially increased expense and delay. Accordingly, I propose to determine the matter.
I turn to the substance of it. The persons principally concerned in the transaction alleged by Mr. Vatandoust are Mr. Vatandoust and Mr. Mansour Khodjasteh (Mr. Mansour). According to Mr. Vatandoust, on 31 May 1993, he paid the sum
his affidavit is an invoice from the company addressed to him of $30,000 to the company for 28 rolls of carpet. Annexed to
and dated 31 May 1993. It contains the words, "To supply only 28 rolls of carpets and vinyl as shown on the list of stock take attached." The total amount said to be payable was $30,000. Payment of this amount was acknowledged. Annexed to the invoice is a hand written list which purports to ldentify 28 rolls of carpet. There is a further invoice dated 3 June 1993 for the supply of 25 pieces of full rolls and off-cuts of carpet said to be shown on an attached list. The total amount payable was $20,000 of which payment of $10,000 was acknowledged. The balance of $10,000 was said to be due before delivery. Again there is a list which specifies the 25 rolls and off-cuts of carpet.
Mr. Vatandoust said that towards the end of June 1993, he arranged for the 53 rolls of carpet to be taken into storage at the premises of North Queensland Express, Silverwater, a Sydney suburb. He said that he had no warehouse facilities and that the storage arrangements were made by one of the company's employees. On 13 August 1993 he sought to remove the carpet. He was informed that "a court order" prevented him from taking it. He was given a copy of a letter addressed to North Queensland Express from a firm of solicitors, M.D. Nikolaidis & Co., who are the solicitors for the liquidator. The letter said that inquiries made by the liquidator indicated that North Queensland Express was holding about 40 rolls of carpet which were assets of the company. The letter
been sent to North Queensland Express. The effect of the said that copies of orders made by this court had previously
orders was said to be to restrain certain persons including Mr. Mansour from dealing with the carpet. The letter said that the carpet was not to be removed or interfered with. In this respect I have noted an order made on 13 August 1993 which is filed in matter NG3206 of 1993.
The issue in this case is whether the transaction between Mr. Vatandoust and Mr. Mansour on behalf of the company was
one of sale or one of loan. If the latter, it would involve the carpet having been lodged as a pledge or security for the repayment of money which . Vatandoust had advanced to Chesterfield. The parties agreed that this was the issue.
Mr. Mansour did not give evidence although there has been tendered the transcript of his examination under the ~or~orations Law and portion of an affidavit sworn by him in one of the other proceedings (NG3206 of 1993). Mr. Vatandoust was extensively cross-examined. In addition, there is evidence from a Mr. Khashayar Bayat (Mr. Khashayar), Mr. Buckland, Mr. Nikolaidis and Ms. Collin. Despite the other evidence which there is, the question at issue will be determined upon the basis of the view I take of the reliability of Mr. Vatandoust's evidence. Contemporary documents and the surrounding circumstances together with the overall probabilities will provide the best guide to the truth of the matter.
It is necessary first to refer to some aspects of Mr. Vatandoust's oral evidence. He said that he had had a service station in 1989 and a panel beating business in 1991. Previously he had worked for the Ford Motor Company. He visited the United States for approximately one year and returned to Australia in April 1993. For the seven weeks or so before he gave evidence, he had been receiving unemployment benefits. He said that he knew Persian carpets very well but was not familiar with carpet of the kind in question.
Mr. Vatandoust said that he knew Mr. Mansour. He has known him since 1985. He thought that he was "a very rich man in business carpet industry." Mr. Vatandoust said he had done no business with him before the transaction in May 1993. He said that Mr. Mansour had never asked him to lend him money. His evidence continued:-

SHEPPARD J.

25 FEBRUARY 1994

REASONS FOR JUDGMENT

SHEPPARD J.: This is a proceeding in which the parties seek to resolve a dispute which has developed between the

"I think there is something we have to explain a little bit about the Persian language. When we talking about the Persian, I don't know how do you call the lend of the money. As my understanding I don't call that lend of the money.

Well, what do you call it?---He asked me, 'Do you have the money?' I say, 'Yes, I do, I do have the

money. ' I don't know what do you call that, that's

important.

He said to you did you have any money?---Did you or

do you, I think - - -

'Do you have any money?'--- Do you have - because it's hard for me to translate the language from Persian to English.

HIS HONOUR: Do you understand what is meant by a loan?---Yes, if somebody wants some money I have to

bank.	give him - like the bank give me a loan - like the
Yes, well, a friend can give you a loan, too, can he not?---Maybe $100, $50 or $200, I do that. If somebody asked me for $50 I do that of course. Even my brother always ask me for $100, $200.
Well, that is what we mean by a loan, too?---Yes. If you talking about the loan at the banks, like that - loan like that, no, he never asked me like
that. "

Later Mr. Vatandoust said that Mr. Mansour had said to him, "Do you have a (sic) money?" Mr. Vatandoust had said "No." But he said in his evidence that he had a total of $84,000 which he had received as the consequence of an insurance claim in respect of the loss of a motor car. Further evidence given by him was as follows:-

"Well, you see, you can have a gift or you can have a loan or you can have a sale? ---Yes. He asked me, 'Do you have some money', I said, 'Yes, I do'. He told me, 'Can you give me some money', and I say - that's exactly conversation, I told him, 'Look, you know I am looking for a business', and he told me, 'Look, I sell you the carpet, what else do you

want ' .

What did he say, sorry? ---He told me, 'I sell you the carpet'.

I sell you the carpet? ---This is the best and gold business in Australia. See, look at my home, look at my Mercedes Benzes, this is the best and gold maker business in Australia. I told him, 'Look, I want to buy one apartment'. He told me, 'Why do you want to buy one apartment and sit at home, just what is this - I tell you how to make the money', and that was exactly the thing happening."

Mr. Vatandoust referred to the invoice earlier mentioned and said that he paid the $30,000 in two instalments, one by a cheque in the sum of $10,000 and the other by a payment of

$20,000 in cash. The reason he paid Mr. Mansour in cash was,

so he said, that Mr. Mansour asked for $20,000 in cash so that

he could pay his solicitor.

In relation to the second invoice which was for $20,000, he said that he paid $10,000 by cheque and $10,000 in cash, although in relation to this transaction he said "I think I did. I don't remember exactly." His recollection was that he paid $10,000 on the day of the transaction and the balance a few days later.

It seems that Mr. Vatandoust at about the time of the transactions or shortly before them was engaged by another company or firm which bore the name Payless Carpets with which Mr. Mansour appears also to have been associated, to sell

ca:pet on commission. There is evidence that he was paid $500

a week for this work although his evidence would suggest that
not very many payments were received.

It seems clear that after the transactions in question,

Mr. Vatandoust was given two cheques, one for $500 and the

other for $10,000. There is no question but that the $500 was for Mr. Vatandoust. He cashed the two cheques and there is a question whether the cheque for $10,000 was intended to repay him for part of an advance made by him or whether he cashed the cheque and brought the proceedings back to Mr. Mansour. I need to refer to some other evidence about this matter. At this point, however, it is clear that the matter is important

intended for Mr. Vatandoust personally, it seems probable that	for the outcome of the case. If the cheque for $10,000 was
it was given to him as a partial repayment of money which he had advanced.
I have by no means referred to the entirety of Mr. Vatandoust's evidence, but I have taken the whole of it into account and I believe I have referred to the essential parts of it except in one respect which I shall mention a little later.
The exhibits which were tendered include the transcript of Mr. Vatandoust's examination pursuant to 9.596 of the Corporations Law and para. 20 of the affidavit sworn by Mr. Mansour on 13 August 1993 filed in matter No. NG3206 of 1993. Paragraph 20 of the affidavit was admitted over the objection of counsel for Mr. Vatandoust. It was admitted for the limited purpose of assisting to explain Mr. Vatandoust's own evidence concerning his understanding of transactions of sale and loan. It was not admitted for the purpose of establishing Mr. Mansour's account of the conversation. Since I reserved my decision, I have developed reservations as to whether I should have admitted the affidavit at all. No harm is done, because on no basis was it admitted as evidence of the fact. The direct evidence about Mr. Vatandoust's conversations with Mr. Mansour is Mr. Vatandoust's evidence and, to an extent, the evidence of Mr. Khashayar. The fact that Mr. Mansour was not called as a witness in these proceedings is a matter I
overall consideration of the matter. need to take into account. I shall mention it again in my
I have read the transcript of Mr. Vatandoust's examination. I do not find in it any substantlal inconsistency with the evidence given by him in his affidavit filed in these proceedings and in his oral evidence.
I next refer to Mr. Khashayar's affidavit. He is Mr. Vatandoust's brother-in-law. He recalled going to the company's premises at the end of May 1993 with Mr. Vatandoust and seeing Mr. Mansour. Mr. Mansour said that he had carpets at a very good price. He told Mr. Vatandoust that, if he had money, he could sell the carpets very cheaply. He was sure Mr. Vatandoust would get a good price for the carpets in 2 to 3 months time. Eventually Mr. Vatandoust said that he would pay $30,000 for the carpet. Mr. Mansour agreed to this. Mr. Khashayar said that he saw Mr. Vatandoust commence to write a cheque. Mr. Mansour asked him for some money in cash. He said that he would give him a cheque for $10,000 and the rest in cash.
Mr. Khashayar was cross-examined, but I have not found it necessary to refer to the detail of the cross-examination. Mr. Khashayar did not concede that his account of the transaction was in any way wrong.
Mr. Buckland was, between 15 November 1992 and 17 July He managed its day to day cash flow and prepared and 1993, the accountant and financial controller of the company.
supervised payments to creditors. He reported directly to Mr. Mansour. He said that, throughout the period of his employment, the company was consistently short of cash and needed "cash injections" to meet both its day to day operating costs and demands by suppliers for overdue payments. He said that in May, June and July 1993 the company suffered critical shortages of cash. Many of its suppliers were demanding immediate payment of outstanding accounts.

Mr. Buckland said that he met Mr. Vatandoust in May 1993.

He was told by Mr. Mansour to pay him $500 per week for work

done by him at Payless Carpets. He added, "Just draw a cheque for Ali and I will tell you later how it is to be allocated."

Thereafter Mr. Buckland drew cheques for $500 on a weekly

basis in favour of Mr. Vatandoust. In his language, the pbWentS "remained unallocated." Mr. Buckland said he was waiting for instructions from Mr. Mansour as to how the payments were to be allocated. These instructions did not come.

Mr. Buckland said that during May and June 1993 he recalled sums of money being paid into the company's account. Mr. Mansour told him that they came from Mr. Vatandoust. He was not told that the moneys were for sales of carpet. On 24 June 1993, Mr. Mansour said to Mr. Buckland, "You have to give Ali $10,000. Please make out a cash cheque and give it to Ali

today. " Mr. Buckland did this. The cheque was signed by Mr.

Mansour. Mr. Buckland denied that Mr. Vatandoust gave him the $10,000 in cash. The bank statements of the company show that the cheque was presented and paid.

In his oral evidence Mr. Buckland filled in some of the detail of payments which were received by the company. I do not find it otherwise necessary to refer to the detail of his oral evidence. I found Mr. Buckland's evidence straightforward and direct and I accept it. That finding is of critical significance.

There is then evidence of a telephone conversation which Mr. Vatandoust had with Mr. Nikolaidis, the solicitor for the liquidator of the company, on 16 August 1993. Mr. Vatandoust rang his mobile telephone whilst Mr. Nikolaidis was driving in his car. There is no issue between the two as to the fact that the conversation was held nor as to the fact that it was Mr. Vatandoust who rang Mr. Nikolaidis. He did so because he was not allowed to take the carpet from North Queensland Express. Mr. Nikolaidis said that his recollection of the conversation was that Mr. Vatandoust acknowledged that he had lent Mr. Mansour or his company money; Mr. Vantandoust denied this and said that the words he used made it clear that his understanding of the transactions was that they were transactions of sale. I shall make a finding about this conversation in due course.

It remains to mention the affidavit of Ms. Collin. I have not found her evidence of assistance in resolving the questions to be decided. It does not touch upon the matters in issue in any direct way.

The question to be resolved is whether I accept Mr. Vatandoust's evidence that the transactions in question were transactions of sale and not transactions of loan. To support his version of the evidence are the two invoices and lists of carpet to which I have earlier referred. It is not clear to me how these documents originated. I think it unlikely that they were prepared either by Mr. Vatandoust or by Mr. Mansour. It does not appear that Mr. Buckland prepared them. Be that as it may, they are more consistent with the transactions being transactions of sale, but they would also be consistent with a transaction of loan if one read them as a means of providing security for it. It is not uncommon for goods to be pledged or charged in some way for the purpose of securing the repayment of money. A method of doing this is for the borrower to sell (in the sense of transferring the title of) goods to the lender. The intention is that, in the event that the loan is not repaid, the lender has access to the goods which he may realise in order to satisfy the indebtedness.

I have earlier said that I consider the handing over by or on behalf of Mr. Mansour of the cheque for $10,000 to Mr. Vatandoust to be significant. Apart from his evidence, there is no evidence to support Mr. Vantandoust's claim that he

Buckland has no knowledge of that being done and there is no	cashed the cheque and paid the proceeds to the company. Mr.
record of it in any book of account. I think the probabilities are that Mr. Vatandoust retained the $10,000 for himself. He did so because the payment was regarded by him and by the company as rightly belonging to him. That could only be the case if the transactions were transactions of loan and not sale. The payment would be quite inconsistent with a sale of the carpet.
That then leads me back to the conversation between Mr. Vatandoust and Mr. Nikolaidis over the telephone. I wondered whether the difference which there is between them could be explained by the fact that the call was made over a mobile telephone whilst Mr. Nikolaidis was driving in his car and to the fact that, according to Mr. Vatandoust's evidence, Persians do not understand transactions of loan in the same way as they are understood in this country. Mr. Nikolaidis gave his evidence straightforwardly. Having considered the matter, I have decided that I should accept it. Mr. Vatandoust's account of the conversation is rejected.
So far as Mr. Vatandoust's understanding of the nature of transactions of loan is concerned, one needs to bear in mind that he has been in Australia for some years and that he has been in business here. He speaks English well enough and appears to understand everyday expressions. I think his evidence that there is a difference in the way that Persians understand business dealings of this kind needs to be treated

with some caution. I do not regard it as signficant in the

overall determination of the matter.

I have taken into account the absence of Mr. Mansour from the witness box. I think that, in the circumstances of this case, that is a neutral factor. The fact that he was not called does not give either party an advantage, the reason for this being that he ought not to be regarded as a witness "in the camp" of either of them. The case must be determined on the basis of the evidence which there is.

In all the circumstances I think the essential probabilities of this matter are that the transactions were transactions of loan and not sale so that the relationship between Mr. Vatandoust and the company was a debtor creditor relationship and not a vendor purchaser relationship. It follows that Mr. Vatandoust's evidence, along with that of Mr. Khashayar, should be rejected with the consequence that his claim to be the owner of the carpet fails.

In the course of the hearing I raised with counsel for Mr. Vatandoust the possibility that his client, if not a purchaser, may have been a secured creditor with an entitlement to a lien or charge over the carpet. Counsel expressly disclaimed reliance on such an approach with the consequence that i have not considered it further. It may be that the correct view is that the documents, that is the invoices and the lists of carpet, are bills of sale which,

because they have not been registered, are of no effect	against the liquidator; cf. Bills of Sale Act 1898 (NSW). I
have no way of knowing whether this is so or not and, as I say, I have not considered this aspect of the case because there have been no submissions about it.
It follows that Mr. Vatandoust will be entitled to prove in the winding up as an unsecured creditor. The evidence does not enable me to say in what sum his entitlement will be.

That will be a matter that will have to be determined in the usual way when the liquidator comes to the question of the amount in which the proof is to be allowed.

In the result the application made by Mr. Vatandoust will be dismissed with costs but the orders to give effect to my decision will not, for the reasons earlier given, be made until the proceedings have been regularised.

I certify that this and the 16 preceding

pages are a true copy of the reasons for

ludgment herein of The Honourable

Mr Justice Sheppard