Leasing Centre (Aust) Pty Ltd v Shepard

Case [2011] FCA 443

FEDERAL COURT OF AUSTRALIA

Leasing Centre (Aust) Pty Ltd v Shepard [2011] FCA 443

Citation: Leasing Centre (Aust) Pty Ltd v Shepard [2011] FCA 443
Parties: THE LEASING CENTRE (AUST) PTY LTD (ACN 057 766 551) v CRAIG PETER SHEPARD, JOHN RICHARD PARK and FRIGRITE REFRIGERATION PTY LTD (IN LIQUIDATION)
File number(s): NSD 321 of 2011
Judge: ROBERTSON J
Date of judgment: 6 May 2011
Catchwords:

CORPORATIONS – Appeal from administrators’ decision – Corporations Act s 1321 – Whether administrators wrongly decided that the plaintiff was an unsecured creditor – Leave to proceed – Extension of time

EQUITY – Fraudulent misrepresentation – Standard of proof


SALE OF GOODS –Total failure of consideration – Action for money had and received - Whether proprietary remedy available

Legislation: Corporations Act 2001 (Cth)
Federal Court (Corporations) Rules 2000
Federal Court Rules
Cases cited: Ausintel Investments Australia Pty Ltd v Lam (1990) 19 NSWLR 637
Australia and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 672
Baltic Shipping Co v Dillon (1993) 176 CLR 344
Briginshaw v Briginshaw (1938) 60 CLR 336
Chahwan v Euphoric Pty Ltd [2006] NSWSC 1002
Chahwan v Euphoric Pty Ltd (2008) 245 ALR 780
Farah Constructions Pty Ltd v Say-Dee Pty Ltd(2007) 230 CLR 89
Global  Partners Fund Ltd v Babcock & Brown Ltd (in liq) (2010) 267 ALR 144
Global Partners Fund Ltd v Babcock & Brown Ltd (in liq) (2010) 79 ACSR 383
Martin v Sitwell (1691) 1 Show KB 156; 89 ER 509
Orix Australia Corporation Ltd v Moody Kiddell and Partners Pty Ltd [2005] NSWSC 1209
Re Gordon Grant and Grant Pty Ltd [1983] 2 Qd R 314
Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516
Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550
Wambo Coal Pty Ltd v Ariff [2007] NSWSC 589; 63 ACSR 429
Date of hearing: 28 April 2011
Place: Sydney
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 66
Counsel for the Plaintiff: Mr P Cutler
Solicitor for the Plaintiff: The Leasing Centre (Aust) ) Pty Ltd
Counsel for the Defendants: Mr A Shearer
Solicitor for the Defendants: Maddocks Lawyers

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 321 of 2011
BETWEEN:

THE LEASING CENTRE (AUST) PTY LTD (ACN 057 766 551)
Plaintiff
AND:

CRAIG PETER SHEPARD
First Defendant

JOHN RICHARD PARK
Second Defendant

FRIGRITE REFRIGERATION PTY LTD (IN LIQUIDATION)
Third Defendant

JUDGE:

ROBERTSON J

DATE OF ORDER:

6 MAY 2011

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The application be dismissed with costs.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 321 of 2011
BETWEEN:

THE LEASING CENTRE (AUST) PTY LTD (ACN 057 766 551)
Plaintiff
AND:

CRAIG PETER SHEPARD
First Defendant

JOHN RICHARD…

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AGLC
Leasing Centre (Aust) Pty Ltd v Shepard [2011] FCA 443
Case
[2011] FCA 443
Decision Date

CaseChat Overview and Summary

Leasing Centre (Aust) Pty Ltd v Shepard was a case heard by the Federal Court of Australia. The plaintiff, Leasing Centre (Aust) Pty Ltd, sought to recover the money paid for goods that were never delivered, alleging fraudulent misrepresentation by the defendant, Shepard. The case involved complex issues of corporate law, equity, and the sale of goods. The plaintiff argued that the defendant had made fraudulent misrepresentations leading to the payment of money for goods that were never delivered, and sought a proprietary remedy.

The legal issues the court had to decide included whether the plaintiff was wrongly categorised as an unsecured creditor by the administrators, the standard of proof for fraudulent misrepresentation, and the availability of a proprietary remedy for the total failure of consideration. The court examined the evidence presented, including affidavits, to determine if the plaintiff had established the elements of fraudulent misrepresentation and if the failure of consideration was total.

The court found that the plaintiff had not established fraudulent misrepresentation as they failed to meet the standard of proof required in equity. The court also concluded that the failure of consideration was total, but that this did not support the proprietary remedy sought by the plaintiff. The court held that a total failure of consideration results in a personal remedy, not a proprietary one, and thus the plaintiff's claim was dismissed. The court further ruled that the application for leave to proceed and the extension of time were not justified, and the application was dismissed with costs.

In summary, the court dismissed the plaintiff's claims, finding that they did not meet the necessary legal standards and that the remedies sought were not available under the law. The court's decision highlighted the importance of meeting the burden of proof in equity cases and the distinction between personal and proprietary remedies in the context of total failure of consideration.

Orders

Orders of the court

1. The application be dismissed with costs.

Note:

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

As to whether any terms should be imposed under s 500(2) it was submitted on behalf of the defendants that, if leave were granted, the relevant term should be that there be no order as to costs as sought by TLC. I am unpersuaded that this is an appropriate condition. In my view, given the proprietary nature of the claim, the stage which these proceedings have reached and the point at which the question of leave has arisen, no term should be imposed and costs should follow the event. Objections to Affidavit Evidence I indicated in the course of the hearing that I would deal, in my reasons, with certain objections to the affidavit evidence and I now do so. One affidavit read on behalf of TLC was made by Nicholas Aronson. I admit paragraphs 5 and 6 on the basis that they disclose the negative results of the deponent’s search and review and are therefore not hearsay. Paragraph 7 of Mr Aronson’s affidavit I rejected on the basis that it was hearsay. Paragraphs 8 and 9 were also objected to on the ground of relevance. It was common ground that the deponent, Mr Aronson, was not involved in the present transaction. As to paragraph 8, I admit it, although I regard it as of little ultimate relevance. It says no more than what Mr Aronson’s experience is of TLC’s usual practice. It does not bear directly on the transaction in issue. As to paragraph 9, it is not in dispute that TLC paid the full amount of the invoice to Frigrite on 28 September 2010. Since it was common ground that Mr Aronson was not involved in the present transaction, the balance of paragraph 9, consistently with my ruling on paragraph 7, can only relate to the state of the business records Mr Aronson searched and reviewed. On that basis I will admit the balance of paragraph 9. I note as well that there is no reason why the word “thereafter” which the deponent has used should be notionally omitted, as Mr Cutler submitted it should be. The paragraph makes sense with the word “thereafter” included. The result is that the balance of paragraph 9 has nothing to say about communications on or preceding 28 September 2010 which is when TLC alleges the fraudulent misrepresentation was made. As to paragraph 10, I admit the first sentence as referable to the results of the search and review which Mr Aronson conducted. Thus it is admitted on the limited basis that it is a statement of what Mr Aronson did not find. Similarly, in relation to the second sentence in paragraph 10, I admit it as limited to the results of Mr Aronson’s search and review. Otherwise it would seek to be evidence of other undisclosed communications with other undisclosed members of TLC. The other outstanding matter of evidence is the objection made to paragraph 6 of the affidavit sworn by Rodney Bolt on 14 April 2011. I admitted the first part of paragraph 6 down to and including the word “practices”. This was on the basis that I was satisfied that, as the manufacturing manager of Frigrite, Mr Bolt was qualified to speak about the ordinary business practices of Frigrite in respect of the allocation of tracking numbers to the freezers in the invoice. As to the second part of paragraph 6, I reject it on the basis that the deponent fails to state any of the primary facts on which the conclusory statement made in that part of paragraph 6 is based. I should indicate as well that whether or not, in the circumstances of this case, Frigrite had had previous dealings with TLC is of no ultimate relevance.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Thus the first limb of TLC’s case fails. Was there a total failure of consideration and, if so, what are the relevant consequences of such a failure? The first issue here is one of fact, that is, whether TLC has failed to establish that the 4 new “Patch ends” were not received by it such that there was not a failure of consideration which was total. In my view it is sufficiently clear that all of the goods referred to in the invoice were paid for. Also the patch ends were dealt with by TLC and Frigrite as part of the invoiced goods which constituted, in the main part, the 10 freezers. There is no separate treatment in the correspondence of the patch ends and I infer, as their name suggests, that once installed they would be attached to the freezers. Thus, although the evidence is unsatisfactory, I conclude that none of the invoiced goods, including the patch ends, was delivered and that there was a total failure of consideration. One of the examples of total failure of consideration referred to in the judgment of Gleeson CJ, Gaudron and Hayne JJ in Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at [20] is where there has been a prepayment for goods which are never delivered. In that case the duty to make restitution is clear. I therefore reject the submission put by Mr Shearer of counsel, who appeared for the defendants, that on the facts there had been no total failure of consideration. I note that ‘consideration’ in this context does not have its technical meaning but a colloquial one akin to benefit received under the contract: Martin v Sitwell (1691) 1 Show KB 156 at 157; 89 ER 509 at 510 per Holt CJ; Stoljar SJ A History of Contract at Common Law (Australian National University Press, 1975) at page 182; and Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 350-351. Where this part of TLC’s case meets an insuperable obstacle is in respect of the consequences of the total failure of consideration. Mr Cutler, as I understood his submissions, accepted that restitution was a personal right and was not a proprietary remedy. I was referred by Mr Shearer to Mason K, Carter JW, Tolhurst GJ Mason and Carter’s Restitution Law in Australia (2nd ed, LexisNexis Butterworths, 2008) p 237 and to Ausintel Investments Australia Pty Ltd v Lam (1990) 19 NSWLR 637. Those references support the conclusion that a total failure of consideration does not support the relief sought by TLC in the present case. Mason, et al (2008) at p 237 state that restitutionary claims deriving from the common money counts, such as money had and received, result in a personal remedy in the form of an order to pay money. See also Australian and New Zealand Banking Group Ltd v Westpac Banking Corporation (1988) 164 CLR 662 at 673. In Ausintel, the New South Wales Court of Appeal considered whether the company’s obligation to Mrs Lam was a fiduciary duty in reliance on Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567. The argument was that the company, having notionally received Mrs Lam’s money, held it as trustee for the sole purpose for which it was advanced, viz, the allotment of shares. Quistclose depends however on a mutual intention that the money advanced should not become part of the assets of the payee but should be used exclusively for a specific purpose. Meagher JA, with whom Gleeson CJ agreed, said at 647G-648C that there was no agreement, express or implied, as to how the money should be treated if no allotment of shares took place, nor was there any evidence of a mutual intention that the moneys should not become part of the company’s general funds. In the absence of some special arrangement, where money has been paid to a company for the purpose of obtaining an allotment of shares the payment is made on the basis that the money becomes part of the company’s general assets. See also the consideration of this issue by Mahoney JA at 641 B-641E.