Mottershead Investments Pty Ltd v Aircraft Support Industries Engineering Pty Ltd (in Liquidation)
[2019] FCCA 1375
•2 July 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| MOTTERSHEAD INVESTMENTS PTY LTD v AIRCRAFT SUPPORT INDUSTRIES ENGINEERING PTY LTD (IN LIQUIDATION) & ORS | [2019] FCCA 1375 |
| Catchwords: CONTRACT – Outstanding invoices – contractual warranty to pay – breach of warranty – assignment of debt. |
| Legislation: Australian Consumer Law 2010 (Cth) Conveyancing Act 1919 (NSW), s.12 Corporations Act 2001 (Cth), s.500 Federal Circuit Court of Australia Act 1999 (Cth), s.76 Federal Court Rules 2011 (Cth) |
| Cases cited: Pentridge Village Pty Ltd (in Liquidation) v Capital Finance Australia Ltd [2018] VSC 633 |
| Applicant: | MOTTERSHEAD INVESTMENTS PTY LTD ACN 119 740 304 |
| First Respondent: | AIRCRAFT SUPPORT INDUSTRIES ENGINEERING PTY LTD ACN 151 103 552 (IN LIQUIDATION) |
| Second Respondent: | MARK CALVIN LANGBEIN |
| Third Respondent: | ANDREW BILL ANGELO PSALTI |
| Fourth Respondent: | SV PARTNERS ADVISORY (NSW) PTY LTD ACN 108 727 975 |
| File Number: | SYG 1248 of 2018 |
| Judgment of: | Judge Driver |
| Hearing dates: | 18, 19 February 2019 and 25 March 2019 |
| Date of Last Submission: | 8 April 2019 |
| Delivered at: | Sydney |
| Delivered on: | 2 July 2019 |
REPRESENTATION
| Counsel for the Applicant: | Mr N Cotman SC |
| Solicitors for the Applicant: | Terrett Lawyers |
| Counsel for the Respondents: | Mr J Johnson |
| Solicitors for the Respondents: | JT Law |
ORDERS
The second respondent is to pay the applicant the sum of $209,000 within 14 days.
The second respondent is to pay interest on that amount up to judgment in accordance with s.76 of the Federal Circuit Court of Australia Act 1999 (Cth) at the rate prescribed in the Federal Court Rules 2011 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 1248 of 2018
| MOTTERSHEAD INVESTMENTS PTY LTD ACN 119 740 304 |
Applicant
And
| AIRCRAFT SUPPORT INDUSTRIES ENGINEERING PTY LTD ACN 151 103 552 (IN LIQUIDATION) |
First Respondent
| MARK CALVIN LANGBEIN |
Second Respondent
| ANDREW BILL ANGELO PSALTI |
Third Respondent
| SV PARTNERS ADVISORY (NSW) PTY LTD ACN 108 727 975 |
Fourth Respondent
REASONS FOR JUDGMENT
Introduction and background
By application filed on 3 May 2018, the applicant, Mottershead Investments Pty Ltd (MI), sought relief against the first respondent, Aircraft Support Industries Engineering Pty Ltd (ASI), the second respondent (Mr Langbein) and the third respondent (Mr Psalti) under the Australian Consumer Law 2010 (Cth) (Australian Consumer Law). In a statement of claim filed on 3 May 2018, MI also brought a claim in debt against the respondents by assignment from the fourth respondent, SV Partners Advisory (NSW) Pty Ltd (SVP).
The statement of claim was amended on 4 December 2018 in part to add SVP as a respondent for the sole purpose of dealing with issues raised in relation to the asserted assignment of the debt from SVP to MI.
In a defence filed on 26 July 2018, Mr Langbein and Mr Psalti pleaded that ASI had been wound up on 29 June 2018 and that no leave to proceed against it had been sought or obtained as required by s.500 of the Corporations Act 2001 (Cth). That is not disputed and no claim for relief was pressed against ASI.
Proceedings against Mr Psalti were discontinued during the second day of the trial of this matter on 19 February 2019. It follows that Mr Langbein is the only remaining respondent against whom relief is sought.
On 17 January 2019, Mr Langbein filed an amended defence in which he denied any liability either under the consumer law or the general law. He also contests the asserted assignment of any debt or other rights from SVP to MI.
The proceedings have been characterised by a series of interlocutory and ancillary issues including evidentiary disputes, a notice to admit facts, an attempt to strike out Mr Langbein’s defence and obtain summary judgment and repeated attempts by MI to obtain wide ranging freezing orders against the assets of Mr Langbein to a value more than three times the principal sum in dispute (taking into account MI’s claim for interest and costs). On 6 March 2019 I ordered that upon the then anticipated sale of real estate owned by Mr Langbein at Manly, the sum of $300,000 be paid into and retained in the trust account of his solicitors pending further order of the Court. A final attempt by MI to expand the scope of those orders, both in terms of their reach and value, was unsuccessful. On 16 May 2019, an affidavit was filed by Mr Langbein’s solicitor (Mr Tomaras) verifying that my order in relation to the retention of $300,000 from the proceeds of the sale of the Manly property had been complied with.
The claim
MI claims to be the legal owner of a $209,000 debt owed by ASI, for which Mr Langbein is liable. MI claims that Mr Psalti (on behalf of Mr Langbein) gave a warranty to Mr Mottershead that the alleged debt would be paid. The alleged warranty is said to be contractual.
MI admits that $11,000 was paid to it but otherwise asserts that no money has been paid to it on account of its liability to SVP. That liability is said to have arisen when Mr Mottershead asked to sever his business relationship with his partners in SVP which became conditional upon MI assuming responsibility for moneys owed by ASI to SVP for the provision of accountancy services.
In the alternative, MI asserts that it was induced to purchase the debt from SVP by false and misleading representations made to it by or on behalf of Mr Langbein. These are said to have been representations as to future matters within the meaning of s.4 of the Australian Consumer Law. MI asserts that there was no apparent intention by Mr Langbein to pay the debt when the representations were made to Mr Mottershead. MI also asserts that there were no reasonable grounds at that time for the making of the representations. MI also asserts that Mr Langbein had no intention to transfer funds to ASI to enable it to pay its debt to SVP and/or MI.
MI asserts that it paid SVP $220,000 for the debt due from ASI to SVP and that it has suffered a loss of at least $209,000 by relying on the representations. That sum is said to be comprised of fees relating to accounting services provided to ASI between December 2015 and June 2017 by SVP. Mr Mottershead was a director and employee of SVP at the relevant time. He is also a director and shareholder of MI.
Mr Langbein was, at the relevant time, the managing director and sole shareholder of ASI.
Critically, MI asserts that Mr Mottershead and Mr Psalti had a meeting in the Manly office of ASI on 25 May 2017. MI asserts that at that meeting, two matters were discussed: first, the decision of Mr Mottershead to leave SVP and, related to that, whether his services would continue to be required or used by ASI. Mr Mottershead is said to have disclosed that he was considering whether he would acquire the outstanding amount of the ASI debt due to SVP so as to be relieved from a restraint of trade clause in his agreement with SVP. That release was necessary in order to permit Mr Mottershead to do further work for ASI and related companies. The second and related issue in this meeting was the payment of the ASI debt that Mr Mottershead would have to acquire.
MI asserts that Mr Psalti, on behalf of ASI, represented and warranted that, first, it was desired to maintain the relationship with Mr Mottershead if he left SVP and have him do future work for the ASI group of companies and, secondly, that the sum of $220,000 owed to SVP would be paid to it or to Mr Mottershead in respect of outstanding tax invoices issued by SVP.
MI asserts that at this meeting, Mr Psalti represented to Mr Mottershead that he was authorised by Mr Langbein to agree the money amount of the fees that ASI would pay to SVP and that ASI would pay SVP the agreed sum of $220,000 in respect of its outstanding invoices.
MI contends that the representations made at this meeting by Mr Psalti were misleading within the meaning of s.4(1) of the Australian Consumer Law for the reason that Mr Psalti did not have reasonable grounds to make the representations.
MI further asserts that the representation was promissory, in that it was the common understanding of the parties that those controlling the affairs of ASI would need to cause or permit the payment of the amount agreed. That is, the representation is said to have included a promise that necessary steps to pay the invoices would be taken by Mr Psalti and Mr Langbein. MI asserts that in consideration of Mr Mottershead taking steps to enable him to perform work for the ASI Group in the future, and in particular, acquiring the ASI debt, Mr Psalti warranted payment of the SVP invoices. Mr Psalti is said to have known that ASI did not have sufficient funds to pay the debt itself and that funds would need to be made available from related companies.
MI contends that, at a subsequent lunch time meeting on the same day between Mr Mottershead, Mr Langbein, Mr Carlos Toda (who formerly provided legal services to ASI and Mr Langbein) and Mr Psalti, Mr Mottershead advised Mr Langbein that he had reached agreement with Mr Psalti for ASI to pay the outstanding SVP invoices totalling $220,000, that Mr Psalti had told Mr Mottershead that Mr Psalti was authorised to reach that agreement, that Mr Mottershead was shortly due to cease working for SVP and could only continue working for ASI and its related companies if he purchased the ASI debts from SVP, and he could not purchase the ASI debts from SVP unless the agreement to pay $220,000 was in writing because of the risk to him of a failure to pay.
MI contends that at this subsequent meeting, Mr Lanbein represented and warranted to Mr Mottershead, that:
a)SVP would be paid $220,000 by ASI for the tax invoices it had issued for accounting services;
b)ASI and its related companies would continue to engage the services of Mr Mottershead or his company after Mr Mottershead ceased to work for SVP; and
c)ASI would confirm in writing its agreement to pay.
Mr Langbein is said to have promised and warranted that he would procure payment of the debt to SVP or, after acquisition of the debt, to Mr Mottershead, in the knowledge of the significance of this to Mr Mottershead. He is said not to have disputed Mr Psalti’s authorisation to reach agreement and Mr Psalti is said to have confirmed the agreement by emails sent on 8 and 16 June 2017. In the latter email, Mr Psalti referred to the agreement as a “proposal” to pay $220,000 by 10 monthly instalments of $22,000 commencing in July 2017.
Mr Mottershead is said to have accepted the proposal orally on 16 June 2017 and in a subsequent email to Mr Psalti on 19 June 2017.
SVP assigned the $220,000 debt to MI on 7 July 2017. Mr Mottershead was one of three directors of SVP until he resigned that day. There is said to have been an oral agreement on that day between Mr Mottershead and his two co-directors to take the assignment of the ASI debt from SVP. A Deed of Separation and a buy back deed were signed on that day.
SVP sent a letter to ASI on 28 July 2017 which gave notice to ASI of the assignment.
MI and SVP were the parties to a further deed of assignment dated 27 April 2018 which confirmed the earlier assignment. This further agreement was notified by SVP to ASI on 27 April 2018. The notice of assignment was served on ASI on or about that day.
Mr Langbein is said to have admitted the debt due from ASI to MI in the sum of $209,000 in a “presentation of summary of affairs” document dated 25 June 2018. However, the only amount paid was $11,000 in September 2017. The balance remains unpaid.
Mr Mottershead gave evidence in support of his case and was cross-examined at length. Mr Toda also gave evidence orally on subpoena. MI’s case was completed by evidence from Darren John Vardy (a director of SVP).
The defence
Mr Langbein concedes that SVP provided accountancy services to his business over several years and that Mr Mottershead provided those services. He concedes that on 29 January 2015 Mr Mottershead forwarded a letter on behalf of SV Partners Forensics (NSW) Pty Ltd (SVP Forensics) which, it is submitted, sets out the contracting parties for the purpose of any performance of work by any entity within the SV group of companies. Mr Langbein contends that there was an agreement or understanding that the fees for the provision of those services would be $150,000. Mr Langbein contends that that sum was paid and that there was no additional entitlement for payment. He admits that additional invoices were provided by SVP but does not concede that any benefit of those invoices has been assigned to MI.
Mr Langbein disputes that the documents evidencing Mr Mottershead’s separation from SVP reflects any contractual assignment on the part of either SVP or SVP Forensics to MI. Any assignment is said to be an assignment by SV Group Pty Ltd.
Mr Langbein also disputes that Mr Mottershead relied upon representations made by Mr Psalti in his capacity as Chief Financial Officer of ASI. Mr Langbein asserts that Mr Psalti had no authority to make representations binding ASI and that Mr Mottershead knew that Mr Psalti was acting only as a conduit from Mr Langbein. Mr Langbein concedes that meetings took place on 25 May 2017 but disputes what was said during the meeting he attended and the circumstances in which alleged statements were made.
Mr Langbein contends that Mr Mottershead had already made a decision to leave the SV Group prior to the meetings on 25 May 2017 and was aware at that time of his then existing obligation under his restraint agreement.
Mr Langbein disputes that the emails issued on 8 June and 16 June 2017 gave rise to a contractual warranty and, in any event, contends that any offer in those emails was not unconditionally accepted by Mr Mottershead at any time. Further, he contends that Mr Mottershead had already made his decision to leave the SV Group in the knowledge of his then existing obligations at law under the restraint agreement which were subsequently reflected in the SVP separation documents.
Mr Langbein concedes the payment of $11,000 but characterises that as only a goodwill gesture.
Mr Langbein gave evidence on his own behalf and was extensively cross-examined on his affidavits. His case was completed by the evidence of Mr Psalti, upon which he was also cross-examined.
Consideration
Legal principles
Contractual warranties
A warranty in contract law is a promise or guarantee from one party to another that the facts represented are true and reliable. A contractual warranty gives rise to an enforceable obligation based upon the representation that the facts are true. If those facts ever become untrue, the warranty protects the recipient of it for any losses that may arise.
Warranties may be express or implied. An express warranty must be clearly expressed either in writing or orally. Express warranties are commonly given in relation to the quality of goods or services. In the present case, the warranty given is said to have been express and given orally and in writing as to the acceptance of the debt due to SVP and the arrangements for its payment.
Warranties, representations and guarantees are similar, in that they are all forms of assurances provided by one party (or in the case of guarantees by a third party) to the other with respect to a transaction entered into between the parties. Generally, breach of a warranty gives a right to claim damages.
A guarantee is an undertaking by the guarantor to the beneficiary to be responsible for the debts or defaults of a third party in respect of a transaction between the guarantor and the beneficiary. Commonly, guarantees are either a guarantee for payment of a specific amount of money or a guarantee to perform the third party’s obligations under a contract.
In the present case the claim against Mr Langbein could be viewed as either a claim that he gave a warranty that ASI would perform its agreed financial obligations under its contract with SVP or a guarantee by Mr Langbein that the agreed payments would be made.
Representations
A representation is usually a written or oral statement of fact. It is commonly given before, or at the time of, parties entering into a contract. If a representation is made to induce a party to enter into a contract, and if the representation is not correct and the innocent party suffers a loss, then the party who did not honour the representation may be liable in damages under the Australian Consumer Law.
In the present case the alleged representation made by or on behalf of Mr Langbein are said to have induced Mr Mottershead to enter into his agreement (made by MI) with SVP to acquire the ASI debt.
Assessment of the evidence
Technical issues were raised concerning the SVP and ASI groups of companies in terms of which entity was providing services, which entity was receiving them and in relation to the assignment of the benefit of the invoices issued. I place no special significance on the precise identity of related companies. This is addressed in more detail below. There is no doubt that the accountancy business contracted to provide accountancy services to Mr Langbein’s business. Those services were provided over several years by Mr Mottershead. Mr Langbein became uncomfortable when the cost of those services exceeded $150,000. While he maintains that there was an agreement that that would be the cost of the services, if such an amount was mentioned, I accept that it was only an estimate. Nevertheless, Mr Langbein’s companies ceased payment of invoices issued subsequently, which confirms his concern over the mounting cost. This became an issue for Mr Mottershead and his partners. His partners did not view the ASI work as core business and were supportive of Mr Mottershead, through MI or otherwise, taking responsibility for that work. His departure from the partnership was dependent, however, on him accepting responsibility for the outstanding debt. This was plainly an issue of significance for Mr Mottershead. He wanted it resolved before he acquired that debt from his partners. It is plain from the evidence of Mr Psalti that Mr Mottershead pressed him hard on the issue at their initial meeting. It is also apparent that Mr Psalti, under pressure, gave ground. It appears, however, that Mr Mottershead got little further from Mr Langbein at their subsequent meeting that day (wherever that was). Mr Mottershead wanted the assurance of a written undertaking. He was sufficiently satisfied with what he got to proceed with the acquisition of the debt and his separation from the partnership. It is clear that there was an assignment of the debt from the accountancy business to Mr Mottershead or MI. If it was not a legal assignment, it was at least an equitable one. The real questions in this case are whether Mr Langbein should be held to a purported promise to pay the outstanding invoices in contract or whether he should be liable for the damage suffered by Mr Mottershead for relying on the promise allegedly given.
At the time of the work which underlies the bills the subject of these proceedings, Mr Mottershead was a partner through the shareholding of MI in SVP and responsible for the ASI account and with it, work for that company and others in the ASI group.
ASI was a client being serviced by SVP, which raised all invoices on ASI, paid and unpaid. I reject the proposition about SVP Forensics having anything to do with performance of the work, or more particularly, the right to receive payment for the work. That much is clear from, at the least, the terms of the 8 June and 16 June 2017 emails between ASI and SVP, which commence by reciting that there is no anterior written agreement for the work done, which work and the fees for it is then discussed.
Well before 25 May 2017, Mr Mottershead had been in discussions concerning leaving SVP. Mr Vardy confirmed as much by reference to his email traffic. Mr Mottershead clearly was subject to a restraint of trade clause from his employment and shareholder agreements. In addition, and as a simple practical matter, SVP would not allow work to be done for ASI by Mr Mottershead after he left without the ASI debt being first paid, for obvious reasons. SVP did not want to be left unpaid:[1]
MR COTMAN: Mr Vardy, on Mr Mottershead leaving the business and taking [ASI] as a client, would SV Partners have been prepared to continue as the – being owed some 240-odd thousand dollars by [ASI]? Was – would you have been prepared to enter into the deeds that we’ve seen today, absent being, in effect, repaid the amount or paid the amount of 240-odd thousand dollars?‑‑‑No.
Why is that?‑‑‑Because it would, effectively, be leaving SV Partners with all the risk of the recovery of that debt without knowing that the very person who was responsible for the – doing the work would be continuing to operate – to provide advice in the future to that particular client.
[1] Transcript, page 52
The practical result was, that if Mr Mottershead was to continue doing work for ASI and the ASI group after he left SVP, either ASI had to pay the debt or Mr Mottershead would have to buy the debt from SVP.
In the event, the latter course became necessary, when the separation date approached and the ASI debt was still unpaid.
By 25 May 2017 the subject of payment of the outstanding bills owed by ASI was clearly a pressing one for all concerned. SVP wanted to be paid and Mr Mottershead wanted assurance of payment if he was to acquire the SVP debt.
The first 25 May meeting
On 25 May 2017, there was one meeting between Mr Psalti and Mr Mottershead, followed by a further meeting or lunch attended by Mr Mottershead, Mr Toda and Mr Langbein, with a short attendance by Mr Psalti.
There was a suggestion of a meeting of Mr Psalti, Mr Mottershead and Mr Toda by Mr Psalti in early May that Mr Psalti recites in his affidavit. Such a meeting may have occurred but it was of no consequence. The consequential meeting was on 25 May involving only Mr Psalti and Mr Mottershead, according to both Mr Toda and Mr Mottershead. It was not put to Mr Toda that he attended that meeting.
On any view, on 25 May 2017, the subject of payment of the ASI debt was discussed and in that connection the amount compromised from the sum of the billed and actual unbilled work, to an agreed total amount of $220,000.
It is also clear that performance of future work was also discussed.
I accept that at that meeting Mr Mottershead said he wanted written confirmation that payment would be made.
That these matters were discussed is clear because:
a)Mr Mottershead issued an SVP invoice on 7 June 2017 in an amount that brought the aggregate bills to $220,000. That invoice is marked by Mr Psalti himself as “Approved”;[2]
b)Mr Psalti wrote an email on 8 June 2017 (as written confirmation of the arrangements made);
c)Mr Psalti’s email of 8 June recites the compromise amount, and he does not suggest that that number ($220,000) was his idea between 25 May and 8 June, or there was any other discussion of a compromise number between those dates; and
d)Mr Psalti also discusses in the 8 June email the fixing of terms for future work, other than or additional to the immediate tasks in hand.
[2] Court Book, page 81
The other matter agreed on 25 May 2017, however tentatively, was that $220,000 would be paid in 10 instalments, commencing in July. That too is confirmed in the 8 June 2017 Psalti email and its later 16 June 2017 iteration.
The second 25 May meeting
There was undoubtedly a second meeting attended, initially, by Mr Mottershead, Mr Langbein and Mr Toda. Mr Langbein’s affidavit reflects at least some of the matters discussed that day, which were also recalled by Mr Toda and Mr Mottershead. That is:[3]
a)Mr Mottershead had resigned as director from SV Partners - he did not specify any particular company;
b)Mr Mottershead and/or MI had sold or was proposing to sell his/its shares in SVP Partners;
c)Mr Mottershead had established his own business - again the identity of the name of that new business was not disclosed; and
d)Mr Mottershead had allegedly purchased or was intending to purchase the debt payable by ASI to SVP.
[3] Langbein affidavit of 6 February 2019 at [43]
Those topics being admitted by Mr Langbein as having been discussed, I find that Mr Mottershead:
a)enquired as to whether his services would be required when he left SVP and commenced his own business because;
i)that was a matter of some considerable interest to Mr Mottershead alone, let alone to both he and Mr Langbein, given Mr Mottershead’s deep familiarity with the affairs of the ASI group and its accounting affairs. If he was not required, buying the ASI debt was not a pressing issue;
ii)Mr Toda’s recall was a response: “we appreciate what you’ve done and you’re still part of the team”;[4] and
iii)that response is also consistent with the 8 June email, seeking to set up terms for future work, and Mr Mottershead’s email of 19 June 2017 flagging performance of future work;
b)discussed the restraint issue, to which the sale of shares (admitted as discussed) and the future work issue (see above) and purchase of debt issue (admitted as discussed) was of course connected; and
c)enquired whether he had Mr Langbein’s assurance that ASI would pay the outstanding debt, that Mr Langbein admits Mr Mottershead disclosed he would purchase, which matter was:
i)a matter he had just spent some time with Mr Psalti agreeing the amount;
ii)a question of critical importance to someone considering acquiring the debt, because of its size; and
iii)a question he could ask of the very person who controlled who got paid by ASI, and could control whether ASI was put in a position to pay by other companies in the group, or himself, Mr Langbein.
[4] Transcript, page 35
Apart from inherent probabilities, Mr Toda makes it clear those matters were discussed:[5]
HIS HONOUR: Carry on?‑‑‑Mr Mottershead said, “I’m due some fees. As you know they’ve been outstanding for some time. I’m in the process of leaving SV – SV Partners. I have to come to some arrangement with you because I’m buying the debt from SV Partners and I need an assurance before I do so from you that my fees will be paid, because I am intending to fund that purchase and I need some sort of assurance it all will be paid. Not necessarily a lump sum, but some arrangement needs to be made to give me some comfort so I can proceed.” That’s sort of the best I can recollect from what he said.
MR COTMAN: Do you recall what Mr Langbein said to that?‑‑‑Sure. Mr Langbein said, “Yes, of course.” Sorry, at that stage Ross was, from memory, still part of the team so he said, “I appreciate that very much and, yes, we can organise – come to an arrangement for the payment of your fees.” Yes.
Now, do you recall any conversation on that occasion about the future performance of work by Mr Mottershead?‑‑‑One of the things Ross said, which I will try and do in direct speech, was obviously, “It would mean – it would be important to me to have ongoing work from you as part of this arrangement.” And Mr Langbein said, “Yes, of course. You know, we appreciate what you’ve done and you’re still part of the team.”
[5] Transcript, pages 34-35
Mr Mottershead gave evidence that on Mr Psalti’s arrival at the second meeting, he confirmed with Mr Langbein in Mr Psalti’s presence, that they (Mr Psalti and he) had agreed the debt amount. Again, it is inherently improbable why that matter, which had just been discussed, would not be confirmed with the other person with a key interest in the issue.
The account given by Mr Langbein as to the whole of the conversation on these matters at the second meeting is improbable. He says that he told Mr Mottershead the debt was too much, was queried, and required substantiation and was simply told by Mr Mottershead that he was buying the very debt that had just been queried.
Apart from the improbability of the conversation claimed by Mr Langbein, Mr Toda denied and Mr Mottershead denied that the words Mr Langbein attributes to himself were said. Those denials are persuasive:[6]
[6] Transcript, page 39 ff
MR JOHNSON: All right. Now, I want to put to you that at that meeting Mr Mottershead said, “Mark, we need to resolve this issue. We need to be paid. You know, I can discount the numbers”?‑‑‑He might have said that, yes.
And that Mr Langbein responded, “Ross, let’s discuss this after work”?‑‑‑I don’t recall him saying that.
Then it went on that Mr Langbein said – and I just put this to you – “Ross, your bills cannot be justified. The numbers and the bills are too big with no backup to show what you have done”?‑‑‑No, I don’t recall him saying that, I’m sorry.
And Mr Mottershead said, “I have taken you out of the mess. I have taken care of you and your company for all this time and if it wasn’t for me you wouldn’t be here right now”?‑‑‑Well, I recall Mr Mottershead saying that at some stage, but not at that meeting.
And then Mr Langbein said, “My accounts team haven’t paid your bills because you haven’t backed it up. The last bundle of bills came together and were one big hit”?‑‑‑I don’t remember him saying that at that meeting, I’m sorry.
Excuse me, your Honour.
I want to put to you that there was no discussion about the monetary amount at this meeting that might have been agreed upon between Mr Psalti and Mr Langbein. This is the meeting at the restaurant.
MR COTMAN: I object to the question. No one suggested there was an agreement between Mr Psalti and Mr Langbein about an amount. I don’t know what my learned friend is now referring to.
MR JOHNSON: Do you agree with me that there was no discussion?‑‑‑Yes, I do agree.
Thank you?‑‑‑About a specific amount, no. I mean, Ross did mention an amount that was owing at some stage in the meeting, but, yes, that’s – that’s about it.
Concerning the proposition that ASI would require Mottershead to continue providing services after he left SVP, Mr Langbein’s evidence is to the following effect:[7]
So is this right? Whether it be SV Partners or whether it be Mr Mottershead, you had no intention of continuing to use the services of either of those entities in the future?‑‑‑Correct.
Right. And I take it you told Mr Mottershead that at this lunch, did you?‑‑‑No.
[7] Transcript, page 144
The email traffic in June
The agreement as to the amount due and the assurance at the second meeting of payment is repeated and reinforced, with specifics, by two emails sent subsequently.
The 8 June 2017 email from Mr Psalti to Mr Mottershead, Mr Langbein’s affidavit recites, was written at Mr Langbein’s direction. It was also copied to him. No comment, protest, disavowal or other response came from Mr Langbein after being sent the email of 8 June, or the 16 June version, or Mr Mottershead’s responsive email of 19 June.[8]
[8] Langbein affidavit at [50]
The 8 June email was responded to by Mr Mottershead on the same day, within hours, describing the outstanding work on the accounts and the proposed means for finalising it (“as discussed with Mark” (Mr Langbein)). There is no challenge to that description made at the time, or, indeed, for months afterward, when ASI was in default of the arrangement.[9]
[9] Langbein affidavit at [52]
What is clear from the 8 June and 19 June responses from Mr Mottershead, is that the contention by Mr Psalti that his email was met with a point-blank refusal by Mr Mottershead to do any work until all the debt was paid, is improbable. His 8 June email says exactly the opposite. Mr Mottershead anticipated work being done during the early part of the payment period of ten months.
Mr Langbein’s evidence establishes to my satisfaction that he never intended to make arrangements for ASI to make the monthly $22,000 payments referred to in the emails. His evidence is as follows:[10]
Of course. But to return to my question, so far as either the email of the 8th or the email of the 16th represented or suggested that a payment would be made to SV Partners on a monthly basis at $22,000, that was simply false?‑‑‑I don’t believe that was going to happen, yes.
[10] Transcript, page 151
The debt and the creditor
I find that the admitted debt of ASI to SVP was $220,000, at the latest after 7 June when the last invoice making the aggregate that sum was received.
That is the amount, less $11,000, that Mr Langbein discloses as the debt of ASI but owed to MI in his statutory report on the winding up of ASI.[11] That MI is disclosed as the creditor is significant because that identification is not in the invoices, or the emails of June, when SVP was still named as the creditor.[12] A statutory demand was made on ASI but withdrawn, no doubt due to its insolvency.
[11] Mottershead affidavit, 26/10/2018, Annexure ‘F’, Court Book p 116
[12] Court Book, page 111
It is in a 28 July 2017 email and SVP letter sent by Mr Mottershead to Mr Langbein confirming that he has bought the ASI debt from SVP that MI is identified as the creditor by assignment.
That is, Mr Langbein admits by his disclosure document in the liquidation what is apparent from the correspondence, namely that he knew the ASI debt had been transferred to MI. Thereafter, he is told that fact repeatedly by Mr Mottershead in email traffic when payment was being sought. It was not challenged by Mr Langbein until the defences in these proceedings.
Mr Langbein raises as a defence that no notice was given of the assignment, or the wrong party made the assignment to Mr Mottershead or MI.
If the identity of the creditor was some explanation of the failure to pay, an issue concerning the assignment may have some relevance to the case.
However, what is clear is that the officers of ASI (Mr Psalti and Mr Langbein) both knew and were proceeding on the basis that MI was the actual assignee in a transaction that had been foreshadowed on 25 May 2017.
In short, nothing of relevance to the claims turns on who the assignor was or the identity of the assignee.
The applicant is MI. It is acknowledged as being the creditor of ASI by the controller of ASI, Mr Langbein. It is the corporate vehicle for Mr Mottershead’s practice, the existence of which, but not the name of which, Mr Langbein anticipated from his conversation of 25 May 2017 on his own account of things, set out above.
Further, SVP is itself a party. Mr Vardy gave evidence.[13] On any version of things, SVP overtly contends that it has assigned the ASI debt to MI for consideration. In those circumstances a failure to pay SVP is effectively a failure to pay MI, because SVP necessarily accepts that it would be accountable as the vendor of the debt. Conversely a finding that MI was entitled to be paid, had obtained judgment for the debt, and could give a good discharge of the debt on payment, would bind SVP as a party.
[13] Court Book, page 364. Transcript, pages 43-53
The warranty claim
What was being sought by Mr Mottershead in the conversations of 25 May 2017 to which he was a party was clearly not simply a statement that ASI was liable to SVP, or might pay SVP at some time, or might not.
That was the existing state of affairs. It was precisely that state of affairs that created the risk that Mr Mottershead was addressing if he or MI bought the debt.
As Mr Toda says, Mr Mottershead made it clear that a change in circumstances, the purchase of the debt, would make it critical to him whether the debt would in fact be paid, and have certainty wrapped around that, because of the very large financial commitment he was going to make, if he was to buy the ASI debt:[14]
Mr Mottershead said… “I have to come to some arrangement with you because I’m buying the debt from SV Partners and I need an assurance before I do so from you that my fees will be paid, because I am intending to fund that purchase and I need some sort of assurance it all will be paid.”
[14] Transcript, pages 34-35
The threshold issue was whether he was going to be retained in the future. If he was, then the issue was whether he should buy the debt, which in turn critically depended on whether he received an assurance it would be paid, from the controller of the company.
Having disclosed the possibility of him buying the debt from SVP, the assurance sought was obviously directed to whether he should in fact do so.
Mr Mottershead sought the certainty of an assurance in writing of payment precisely because there was a considerable sum that had not been paid by ASI, and ASI was not the master of its own affairs. Mr Langbein would determine what, if anything, was to be paid.
The conversations of 25 May 2017, with the emails of 8 and 16 June, establish that Mr Mottershead sought Mr Langbein’s promise to cause ASI to pay $220,000, by instalments of $22,000, starting in July 2017, in consequence of which he would cause MI to buy the debt and stand ready to perform work for ASI and the related companies.
The warranty or guarantee given clearly was not just a corporate promise of ASI. It was already liable to pay.
The promise of payment was the promise by Mr Langbein, who controlled the corporations, to put ASI, or any company in the group, in a position to pay the ASI debt, and causing payment to be made. The primary and probably only person who could do that was Mr Langbein.
The promise to pay or cause payment was sought from Mr Langbein, personally. There were good reasons for that:[15]
[15] Transcript, page 152
But the company never had the means by which to pay a debt unless ‑ ‑ ‑?‑‑‑No. I tell you why. Because he was going to attack me personally.
You knew ‑ ‑ ‑?‑‑‑A gold digger
‑ ‑ ‑ the company never had the means to pay a debt unless you put it into the circumstances that would permit it to pay that debt. That’s right, isn’t it?‑‑‑Repeat it, please.
In relation to the conduct of the affairs of the company, Aircraft Support Industries Engineering, it was always the situation that its capacity to pay a debt turned on whether or not you put it in funds to pay it?‑‑‑Correct.
At the time of the conversations and emails, the debt was owed to SVP. Had it been paid then to SVP, no purchase of debt would have been needed at all and no risk of loss would have fallen on Mr Mottershead. It was not paid.
There was no payment to either SVP or MI by ASI or any other entity, save as to $11,000.
I find that that is a breach of warranty or guarantee, which sounds in damages.
The damage is the amount of the payment promised, because no other source of debt recovery is suggested to be possible.
I reject the propositions concerning SVP Forensics, dealt with in Mr Langbein’s submissions. A 29 January 2015 letter on the letterhead of “SV Partners Forensics (NSW) Pty Ltd” is not significant to the present proceedings and that document does not set out the contracting parties.
Mr Mottershead gave detailed affidavit evidence[16] which I accept, about providing all of his services to ASI through SVP. The invoices were issued by that entity.
[16] Court Book, pages 419-420
Mr Mottershead also gave detailed evidence, which I accept, about the changing nature of his instructions from Mr Langbein over time.[17]
[17] at [10]-[21] of his 23.04.2018 affidavit; Court Book, pages 560-563
I also reject Mr Langbein’s submissions concerning the alleged “quoted amount of fees would be ‘$150,000’”.
I accept Mr Mottershead’s affidavit evidence where he says: “There never was a quoted amount [of] $150,000”, and then explains his position.[18] Such a figure may have been mentioned to Mr Langbein but if it was it was never more than a rough estimate, to which SVP was not bound.
[18] Court Book, page 481
Assignment
It is not central to Mr Mottershead’s case that Mr Langbein agrees that there was an assignment of the ASI debt or that MI, as creditor, was bound by a legal assignment. There was at least an equitable assignment of the debt to MI by SVP and Mr Langbein knew it.
As noted above, the fact that there had been an assignment of the ASI debt was admitted by Mr Langbein in the “Presentation of summary of affairs of a company” presented by Mr Langbein to the Liquidator of ASI,[19] which described MI as a creditor for $209,000.
[19] Court Book, pages 114-116
The amended statement of claim[20] refers to a legal assignment and, in the alternative, an equitable assignment. It is against that second possibility that SVP, the assignor, has been joined.
[20] Court Book, page 20-21 at [3D]-[5B]
In that regard MI relies upon each of:
a)The deed of separation;[21]
b)the letter from SVP to ASI dated 28 July 2017;[22]
c)the deed of assignment;[23]
d)the notice of assignment;[24] and
e)the oral assignment of the debts by Mr Vardy on behalf of SVP.[25]
[21] Exhibit A3
[22] Mottershead affidavit, 26.10.2018, Annexure “C”, Court Book, page 111
[23] Mottershead affidavit, 26.10.2018, Annexure “D”, Court Book, page 112
[24] Mottershead affidavit, 26.10.2018, Annexure “E”, Court Book, page 113
[25] Vardy affidavit, 05.11.2018, at [12], Court Book, page 364
Added to that is the express admission of assignment in the “Presentation of summary of affairs of a company” presented by Mr Langbein to the liquidator of ASI.[26]
[26] Court Book, pages 114-116
Mr Langbein submits that SVP was not a named party to the deed of separation[27] or the share buy-back deed.[28] That is literally correct but is immaterial for the following reasons:
[27] Exhibit A3
[28] Exhibit A4
a)both deeds prominently deal with “Client Engagements”, “Book Debts”, “WIP and Debtors Consideration” and “Completion Date Book Debts” and the assignment of the book debts;[29]
b)clause 12.2 of the deed of separation states that:[30] “[i]n consideration of the matters contained in this Deed, each of SV Partners and SVP Group in their own capacities and as trustee for and on behalf of any other SVP Group Company …” undertake various commitments (emphasis added);
c)clause 15.5 of the deed of separation states:[31]
Each party must promptly execute all documents and do all things that another party from time to time may reasonably request to effect, perfect or complete this Deed and all transactions incidental to it.
d)at the very least, the assignment of the ASI debts was a matter incidental to the deed;
e)Mr Vardy gave evidence that SVP signed the separation documents as trustee on behalf of “the other SVP Group Companies”;[32]
f)the deed of assignment and notice of assignment[33] were executed by the relevant parties pursuant to clause 15.5 of the deed of separation; and
g)Mr Vardy gave evidence that he and Mr Van der Velde[34] orally agreed “to transfer all of the ASI Debts from [SVP] to [MI]”.[35]
[29] Deed of Separation, Exhibit A3: clause 2.1 pages 4-5; clause 5.1 and 6.1 pages 7-8; clause 7.2(c) page 11; clauses 12.1 and 12.2 page 16; Annexure B pages 21-27; Annexure C page 28; Share Buy-Back Deed: clause 1.1 pages 1-2, clause 2.1 page 5: Annexure A page 9; Annexure B page 10
[30] at page 16
[31] at page 18
[32] Vardy affidavit, 05.11.2018, at [13], Court Book, page 364
[33] Annexures “D” and “E” to Mottershead affidavit, 26.10.2018, Court Book, pages 112-113
[34] the Managing Director of the SVP Group
[35] Vardy affidavit, 05.11.2018, at [12], Court Book page 364
For the above reasons I find that the ASI debt was assigned at least in equity by SVP to MI.
The Australian Consumer Law clam
On the other hand, the claim based upon the Australian Consumer Law is, in my opinion, not made out. First, there is the problem of reliance and secondly, there is the problem of assignment of the cause of action.
Reliance
It is asserted by Mr Mottershead that he, on behalf of MI, relied upon representations made by Mr Psalti.
Mr Psalti was acting as Chief Financial Officer of ASI in making any representations, all of the documentary materials record Mr Psalti as “General Manager” and this is confirmed in the affidavit of Mr Psalti made on 7 February 2019.[36] The position as general manager was subsequently confirmed by Mr Mottershead in cross-examination.[37] In any event he only commenced working for ASI in that capacity from 1 May 2017.[38]
[36] Court Book, page 382 at [5]: and annexure “A”; Court Book, page 388
[37] Transcript, pages 59.42
[38] Court Book page 384 at [17], accepted by Mr Mottershead in cross-examination: transcript, page 59.40
Mr Psalti was making representations said to be relied upon by Mr Mottershead and said to be made to him personally and without qualification, in circumstances where the evidence makes it clear that Mr Psalti was only acting on explicit instructions received from Mr Langbein, to the knowledge of Mr Mottershead. In cross-examination Mr Mottershead confirmed that in meeting with each of Mr Psalti and Mr Langbein on 25 May 2017 he was doing so in his capacity as an officer of SVP.
The discussions at the meetings conducted on 25 May 2017 are said to have resulted in Mr Mottershead acting to his detriment and to the detriment of MI. Whilst there is no dispute as to those meetings having taken place there is a dispute as to what was said during those meetings and the circumstances under which statements were made. Detriment must be relevantly proven and this flows from the course of conduct before the representations associated with the retention agreement between ASI and MI burdened MI and Mr Mottershead. Evidence is given in relation to this by Mr Langbein,[39] and by Mr Psalti.[40]
[39] Court Book pages 413-414 at [36]-[48]
[40] Court Book pages 385-386 at [20]-[24]
It appears from the evidence that Mr Mottershead had already made his decision to leave the SV Group prior to the meetings on 25 May 2017 and was aware at that time of his then existing obligation as recounted under his restraint agreement with his partners.
MI places reliance upon the email dated 8 June 2017 issued by Mr Psalti,[41] the terms of that communication in the circumstances under which it was sent are explained in subsequent emails.[42] The arrangement contemplated by the email of 8 June 2017 was not immediately or unconditionally accepted by Mr Mottershead at that time. In any event he had already made his decision to leave the SV Group having then existing obligations at law under the restraint agreement and which subsequently were reflected in the SVP separation documents;
[41] Court Book 104-105
[42] Court Book 106-110 and evidence given by Mr Psalti in his affidavit: Court Book 379 at 385 at [25]-[27]; and Langbein affidavit, Court Book 408 at 415 at [49]-[58]
Subsequently, MI placed reliance upon a payment made in the amount of $11,000. There is no dispute about the payment of $11,000 having been made. The dispute related to the circumstances and intention at the time of it being made and the precise entity to which it was received.[43] A number of issues arise from this, one being that to the extent that the communications constituted a representation made by Mr Langbein they were not, separately, matters under which it could be established that there was any causal connection to the loss or damage to MI, that having been established upon completion of the SVP separation documents or loss, being the value of the invoices. There was a contractual warranty or guarantee given to SVP by Mr Langbein, which MI took the benefit of by assignment, but the elements of the consumer protection claim are not established.
[43] Court Book 386-387 at [28]–[29]; Court Book 416 at [59] and Court Book 424 at [34]
MI places substantial reliance on particular discussions pre-dating the entry into of the deed of separation dated 7 July 2017,[44] namely:
a)meetings that occurred on 25 May 2017; and
b)the email forwarded by Mr Psalti on 8 June 2017.
[44] Exhibit A3
It must be remembered that the discussions that were taking place on 25 May 2017 were discussions between each of Mr Psalti, as general manager, and Mr Langbein as the controlling mind of ASI on the one hand and Mr Mottershead on the other representing the interests of SVP. The representations that were made at those meetings gave rise to a contractual warranty or guarantee to SVP.
Under the terms of the employment agreement between SVP and Mr Mottershead[45] in any event it might be seen to be premature for Mr Mottershead to be discussing matters associated with the movement of work from entities within the SVP Group to either himself or MI.[46] Equally he had duties arising from his position as a director of SVP.
[45] Exhibit A1
[46] clauses 30 and 31
Mr Mottershead in cross-examination confirmed that:
a)he was conducting these discussions “representing SV Partners Group”;[47] and
b)he did not disclose at the meeting on 25 May 2017 the existence of MI as being the party being considered to be engaged by ASI;[48] and
c)at his first meeting with Mr Psalti on 4 May 2017 he did not indicate that he was resigning from “SV Partners”;[49]
d)he did not at that meeting on 4 May 2017 provide Mr Psalti with copies of the outstanding tax invoices;[50] and
e)For most of the time between 4-25 May, Mr Langbein was in the Philippines and Mr Psalti communicated with him by email prior to the meetings on 25 May 2017.[51]
[47] Transcript, pages 64.15
[48] Transcript, pages 67.30-68.4
[49] Transcript, pages 66.26-66.40
[50] Transcript, page 66.46
[51] Transcript, pages 68.45 – 69.20
Mr Mottershead did not have any contemporaneous notes of important matters at these discussions.
I accept Mr Langbein’s submission that, to the extent that representations were made at the two meetings on 25 May 2017, they are not matters that could be the subject of any consumer protection claim founded upon reliance by MI in the present proceedings and that part of the claim ought be dismissed.
MI also places reliance upon the email dated 8 June 2017 from Mr Psalti to, among others, Mr Mottershead.[52] This email was the subject of a series of subsequent communications including on 16 June 2017.[53]
[52] Court Book 59-60
[53] Court Book 59-65
It is clear from the email from Mr Psalti of 8 June 2017 that it was directed at the performance of work and payment to “SVR Partners”. That email was forwarded at the direction of Mr Langbein.[54] It was not directed to Mr Mottershead personally, but rather in his capacity as an officer of SVP. That email was also foreshadowed finalisation of the works required to be performed. In relation to the performance of works:
a)Mr Vardy gave evidence that following cessation of any involvement on the part of Mr Mottershead, SVP would be unable to fulfil those works;[55]
b)Mr Mottershead, whilst a director of SVP, does not appear to have done any further work in connection with the finalisation of the accounts from at least 4 May 2017;[56] and
c)the evidence of Mr Psalti was that the works were in fact finally carried out by other professional advisers and not by SVP or MI or Mr Mottershead. That was disputed by Mr Mottershead. It is not necessary to resolve that dispute. The availability of Mr Mottershead to undertake further work provided consideration for the warranty or guarantee given by Mr Langbein, whether or not further work was in fact undertaken.
[54] Transcript, page 137.11
[55] Transcript, page 51.30
[56] Transcript, pages 63.12-63.17
Mr Langbein submits that a condition precedent to the instalment arrangement being entered into, having regard to his clearly expressed dissatisfaction with the ongoing cost, was never fulfilled and therefore there was no obligation arising from the representations that were made by him. That puts the matter rather too highly as I have found that Mr Langbein warranted or guaranteed the payment of existing debts owed to SVP, but it is a further problem for the consumer protection claim, given that Mr Mottershead claims to have been induced to commit to ongoing work.
Fundamentally any communications after the time of the entry into of the deed of separation cannot be raised by way of either reliance or causative loss or damage to the Australian Consumer Law claim as against Mr Langbein on the basis pleaded.
Assignment of the debts of SVP
The assignment that is said to have taken place is referred to in clause 5.1 of the deed of separation.[57]
[57] Exhibit A3
There is nothing in the deed of separation which would evidence or record an assignment of anything more than the benefit of the “WIP and Debtors” as defined in clause 2 of the deed.
Therefore in terms of the deed of separation there has been no assignment of the benefit of any chose in action arising under the Australian Consumer Law which are said to be attached. In consequence the notice given consistently with the terms of the deed of separation, to the extent that it goes beyond the mere assignment of the tax invoices the subject of the present proceedings as against ASI, has not occurred.
MI contends that a notice which would comply with the requirements of s.12 of the Conveyancing Act 1919 (NSW) (Conveyancing Act) was issued on 28 July 2017 in relation to the tax invoices.[58]
[58] Court Book 376
This is reinforced by the fact that there is no evidence of any variation to the deed of separation to include a provision encompassing a consumer protection claim, assuming there is a power to do so (see below) and the deed of separation itself is said to reflect the entirety of the agreement between the contracting parties.
Any claim founded upon an assignment contained in the deed of separation, to the extent that it includes any claim under the Australian Consumer Law, must therefore fail.
MI contends that on 27 April 2018 there was an “assignment” of the tax invoices entered into between SVP and MI.[59] This is said to have been also the subject of a notice of assignment of the same date.[60]
[59] Court Book 377
[60] Court Book 378
In relation to this document evidence was given by Mr Vardy[61] as to the author of the document and the circumstances under which it was signed by him. Clearly it was intended that this document would have its foundation derived from the deed of separation.[62]
[61] Transcript, pages 46.17–46.43
[62] Exhibit A3
Mr Mottershead gave evidence in respect of this same document and the assignment of the tax invoices.[63]
[63] Transcript, pages 88.42–89.39 and 90.12–90.29
To the extent that it is suggested that what was sought to be assigned was the benefit of the claim under the Australian Consumer Law I find that this is not possible and that the inclusion of the additional words relating to choses in action was neither intentionally derived out of the deed of separation itself or possible as a matter of law.[64] Whilst Pentridge was a judgment founded upon the provisions of the Trade Practices Act 1974 (Cth) the equivalent provisions are the subject of the present claim sought to be maintained in respect of the tax invoices that were assigned and, in my view, apply equally so far as the ability to effect a valid and effective assignment from SVP to MI of a chose in action under the Australian Consumer Law.
[64] Pentridge Village Pty Ltd (in Liquidation) v Capital Finance Australia Ltd [2018] VSC 633 at [62]-[103] and the authorities referred to
To the extent that any claim is sought to be maintained against Mr Langbein founded upon an assigned chose in action under the consumer law evidenced by the agreement identified as an “Assignment”[65] and any notice that has been given purporting to comply with the requirements of s.12 of the Conveyancing Act[66], they are not valid and effective and are not able to be enforced by MI.
[65] Court Book 377
[66] Court Book 378
The claim founded upon an assignment contained in the assignment dated 27 April 2018, to the extent that it includes the claim under the Australian Consumer Law therefore fails.
Conclusion
MI has succeeded in establishing that part of its claim based upon debt, and the contractual warranty given by Mr Langbein to pay that debt under an instalment payments agreement. The claim based upon the Australian Consumer Law has not been established.
The applicant should receive the relief sought in respect of the principal sum, plus interest up to judgment in accordance with the rules of this Court.
I will hear the parties as to costs and any necessary ancillary orders to effect payment of moneys from the funds currently held in trust by Mr Langbein’s solicitors.
I certify that the preceding one hundred and thirty-four (134) paragraphs are a true copy of the reasons for judgment of Judge Driver
Date: 2 July 2019
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