Nour Pty Ltd v Fensford Pty Ltd
[2004] VSC 182
•26 May 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 8031 of 2001
| NOUR PTY LTD (ACN 007 337 144) | Plaintiff |
| v | |
| FENSFORD PTY LTD (ACN 060 772 358) | First Defendant |
| RICKY JOSEPH VELLA and BEVERLEY JOAN LEWIS (in their capacity as executors of the estate of Julie Vella) | Second Defendant |
| RICKY JOSEPH VELLA | Third Defendant |
No. 4304 of 2002
| NOUR PTY LTD (ACN 007 337 144) | Plaintiff |
| v | |
| RICKY JOSEPH VELLA | Defendant |
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JUDGE: | Balmford J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 14, 15, 16, 20, 21, 22 and 23 April 2004 | |
DATE OF JUDGMENT: | 26 May 2004 | |
CASE MAY BE CITED AS: | Nour v Fensford | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 182 | |
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Company Law – breach of director’s duties – whether director procured overpayments of salary – whether director charged excessive rent for the use of her home as the company’s principal place of business – whether director’s husband acted as a “defacto” director of the company - whether director’s husband overcharged company for the provision of administrative services - whether director’s husband was employed by the company – whether overpayments could be traced so as to create a constructive trust – whether telephone and credit card charges were applied for company purposes.
Corporations Law s 232
Corporate Affairs Commission v Drysdale (1978) 141 CLR 236
Marchesi v Barnes [1970] VR 434
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms G L Schoff | Herbert Geer & Rundle |
| For the Defendants | Mr W F Gillies | Mian Phillips & Co |
HER HONOUR:
Background
Benson Donald McGann (“Mr McGann”) is a dentist, who lives in California, USA. He was until early this year the sole shareholder and a director of Progressive America Incorporated, which since 1984 has operated a business which has two components: the conduct of seminars to train dentists in orthodontics under the name “Progressive Orthodontic Seminars”, and the supply of equipment for use in the practice of orthodontics under the name of “Progressive Orthodontic Supplies”. The head office of the business is in California, but it operates in approximately twelve countries.
The plaintiff (“Nour”) was established in 1989 to conduct the operations of both sides of the business in Australia. Mr McGann was a director of Nour from its establishment until early this year. There are twelve issued shares in Nour, six of which are held by Mr McGann, the remaining six having been held from time to time by other persons in trust for him.
At some date in 1990 Mr McGann engaged Julie Vella (“Mrs Vella”) to co-ordinate seminars for Nour and to purchase and distribute dental supplies. He appointed Mrs Vella as a director of Nour with effect from 8 November 1990. Mrs Vella died on 19 September 1999. The first defendant to this proceeding (“Fensford”) is a company of which Mrs Vella was a director, and which she controlled. The second defendant is the estate of Mrs Vella; counsel for the plaintiff indicated that it was not proposed to take action against Beverley Joan Lewis in her personal capacity. The third defendant (“Mr Vella”) was Mrs Vella’s husband.
Over time several other people were employed in the business, which was conducted, save for the period from approximately February 1999 to January 2000, from the Vella family home, at different addresses from time to time. In early 1999 Mrs Vella discovered that she was suffering from terminal cancer. She continued to manage the business and to be a director of Nour until her death on 19 September 1999. No other person had been authorised to operate the bank account of the business, and accordingly Mr McGann gave an authority to Mr Vella to operate the account.
Mr Vella purported to act as a director of Nour from at least November 1999. On 22 November 1999 he signed the Directors’ Report for the year ended 30 June 1999 “Ricky Vella per Julie Vella”. The notice, dated 22 November 1999, of the annual general meeting to be held on 15 December 1999 included as an item of business “To elect two Directors. Benson Donald McGann and Ricky Vella per Julie Vella who retire by rotation . . .”. Mrs Vella was then dead, and there is no evidence that Mr Vella had previously been a director of Nour.
A search of Nour at the Australian Securities and Investment Commission (“ASIC”) records that Mr Vella was appointed a director of Nour with effect from 7 January 2000. He appears to have purported to appoint himself to that position, and there is no evidence that Mr McGann knew of the appointment. The evidence of Mr Vella is that Mr Anderson, the accountant then used by Nour, prepared the document of appointment. On 4 May 2000 Mr Anderson sent a fax to Mr McGann, from which Mr McGann learned for the first time that Mr Vella had for some time been employed by Nour. An earlier fax, sent on 9 February by Mr Anderson had mentioned Mr Vella’s contribution to maintaining financial records of Nour, but not that he was actually employed. Mr McGann sent one of his American executives to Australia, and various changes were made to the organisation of Nour, including the removal of Mr Vella as a director with effect from 12 May and the dismissal of Mr Vella from the employment of Nour.
It will be apparent from [5] and [6] above that there is no reason to suppose that Mr Vella was validly appointed as a director of Nour, although the defendants concede the claim of the plaintiff that he was a director between 7 January 2000 and 30 May 2000. In any case, section 60 of the Corporations Law (“the Law”), which was in force at all relevant times, provided that a “director” of a company includes a person who is not validly appointed to occupy the position of director if that person acts in that position. Further, in Corporate Affairs Commission v Drysdale[1] the High Court held that what was referred to as a “de facto director”, being a person who had continued to act as a director despite not having been re-elected to that position, was a director within the meaning of section 124(1) of the Companies Act 1961 of New South Wales, which requires a director to act honestly. For these reasons, I find Mr Vella to be in the same position, for the purpose of the present proceeding, as though he had been validly appointed a director of Nour for the period 22 November 1999 to 12 May 2000.
[1](1978) 141 CLR 236
The agenda for the annual general meeting of Fensford for 1999, dated 1 November 1999 describes Mr Vella as a director of that company and he remains a director.
Fensford was deregistered on 15 December 2003 on the initiative of ASIC pursuant to section 670AB of the Corporations Act 2001 (“the Act”). I have this day ordered pursuant to section 601AH(2) of the Act that ASIC reinstate the registration of Fensford.
These proceedings
Proceeding No 8031 of 2001 (“the Supreme Court proceeding”) was commenced by writ on 19 October 2001. The second further amended statement of claim (“the statement of claim”) was filed on 18 September 2003. Nour claims and the defendants concede that as directors (or in the case of Mr Vella, a “de facto director”) for the relevant periods, Mr and Mrs Vella each owed duties to Nour:
(a)pursuant to section 232(2) of the Law to act honestly in the exercise of their powers and the discharge of the duties of their office;
(b)pursuant to section 232(4) of the Law, to exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in Nour’s circumstances;
(c)pursuant to section 232(6) of the Law, not to make improper use of their position to gain, directly or indirectly, an advantage for themselves or for any other person or to cause detriment to Nour;
(d)a fiduciary obligation to act honestly and faithfully in the best interests of Nour; and
(e)a fiduciary obligation to avoid any situation or position of conflict between their own interest and the interests of Nour.
Nour’s claims in the Supreme Court proceeding may be summarised as follows:
(i)that, by reason of breaches of those duties by Mr and Mrs Vella the defendants are liable to account to Nour in respect of:
(a)overpayments with respect to the services of Mrs Vella;
(b)payments made to Fensford following the death of Mrs Vella;
(c)amounts paid by way of wages to Mr Vella; and
(d)overpayments of rent with respect to three separate premises occupied by Nour at different times.
(ii)that, by reason of breaches of those duties by Mr and Mrs Vella Mr Vella holds 13-15 Walter Way Cranbourne South as constructive trustee for Nour.
Proceeding No 4304 of 2002 (“the Magistrates’ Court proceeding”) was initiated by complaint in the Magistrates’ Court on 5 March 2001. On 26 January 2002, at the direction of the Designated Judicial Officer, that proceeding was transferred to this Court pursuant to section 21(1) of the Courts (Case Transfer) Act 1991. On 12 November 2003 Master Kings ordered that that proceeding be fixed for trial and heard concurrently with the Supreme Court proceeding.
In the Magistrates’ Court proceeding Nour claims from Mr Vella reimbursement for telephone charges claimed to be personally incurred by him but charged to Nour, and for charges claimed to be incurred by him on a Visa card issued in the name of Nour, as well as the return of two personal computers claimed to belong to Nour. Mr Vella denies liability. By a counterclaim he seeks rent claimed to be unpaid for the use of premises at 13-15 Walter Way Cranbourne by Nour, compensation for amounts claimed to have been expended on restoration of those premises at the conclusion of the lease, and the return of computers claimed to be his property.
Mr Gillies, for the defendants, submitted that because the plaintiff was alleging dishonesty, which was a serious allegation, the standard of proof should be higher than the balance of probabilities, and he referred to the well-known passage from the judgment of Dixon J in Briginshaw v Briginshaw [2] . However, I do not accept that submission. This is an ordinary civil action and I see no need to depart from the usual standard of proof.
[2](1938) 60 CLR 336 at 368
The Supreme Court proceeding
The law
In Marchesi v Barnes[3] Gowans J was concerned with section 124(1) of the Companies Act 1961, a predecessor of section 232(2) of the Law, but which created a criminal offence. His Honour said:
. . . to “act honestly” refers to acting bona fide in the interests of the company in the performance of the functions attaching to the office of director. A breach of the obligation to act bona fide in the interests of the company involves a consciousness that what is being done is not in the interests of the company, and deliberate conduct in disregard of that knowledge.
[3][1970] VR 434 at 438
The services of Mrs Vella
The principal claim in this proceeding is the claim of Nour that in breach of her duties as a director Mrs Vella procured the payment from Nour to Fensford of overpayments of her salary in the amount of $200,971.09.
Mr McGann stated that his best recollection was that Mrs Vella was hired at $25 per hour, but it could have been $16 per hour, and that there was no written contract of employment. Samantha Piggott (“Ms Piggott”), who was employed by Nour from August 1997, said that Mrs Vella had told her that she was paid $25 per hour. This is the only evidence of the terms on which Mrs Vella was employed, save that Mr McGann said that he was later made aware of the compulsory payment of superannuation contributions under Australian law, and contributions were paid in respect of Mrs Vella. I find, on the balance of probabilities, that Mrs Vella was paid by Nour at the rate of $25 per hour. There is no evidence that she was entitled to receive any other benefits from Nour save the compulsory superannuation contribution, and no such entitlement is pleaded by the defendants. There is no evidence relating to the superannuation fund, save that contributions totalling $26,879.48 were paid by Fensford to FIA Insurance Group on Mrs Vella’s behalf between May 1994 and August 1999.
The plaintiff submits that there was an agreement between Nour and Mrs Vella from 1995 that her salary would be paid to Fensford. There is no documentation of any such agreement, but I accept the submission that such an agreement can be implied from what did occur, bearing in mind that Mrs Vella was a director of both companies. Nor is there any evidence that Mr McGann was aware of any such agreement until his correspondence with Mr Anderson after the death of Mrs Vella. Payments were made by Nour to Fensford on invoices for “administration services”. Mr Hodgkinson, the expert accountant called for the plaintiff, found from examination of the books of account of Nour and Fensford, that those payments totalled $450,137.76 between July 1995 and August 1999, and that calculation is not challenged by the defendants. He was not able to determine from the material available to him how the amounts in the invoices were made up. He agreed in cross-examination that if Mrs Vella had worked a 90 hour week throughout that period, she would have been overpaid by eight or ten thousand dollars. A regular ninety hour working week seems highly improbable.
Much time was devoted at the hearing to evidence relevant to the issue of the number of hours worked by Mrs Vella, a matter as to which there are no records, and which is dealt with below at [24] and following. The plaintiff submits that the evidence shows that Mrs Vella worked a 50 hour week, and accordingly that on Mr Hodgkinson’s unchallenged calculation, $200,971.09 of the sum of $450,137.76 paid by Nour to Fensford as fees for “administration services” was money to which she was not entitled.
That submission assumes that the payments to Fensford for “administration services” were attributable solely to the salary of Mrs Vella. It is not in issue that that salary was included in those payments. Ms Piggott kept the books from shortly before Mrs Vella’s death until she left the company in September 2001, having taken over that duty from Mrs Vella herself. Her evidence was that Fensford had paid for all expenses, including utilities such as electricity and gas, some stationery costs, and one of two telephone lines. She did not know how the “administration services” fee paid to Fensford was calculated; a set amount was paid each month. She later resiled from her evidence that all of Nour’s expenses were being paid by Fensford.
Mr Anderson in a letter to Mr McGann dated 9 February 2000 said that the administration fee paid to Fensford “was not only for Julie’s wages but covered other costs that she incurred in managing the business for you.” He lists a number of line items as expenses paid by Fensford, including superannuation, Workcover, printing and stationery, motor vehicle costs, telephone and depreciation on assets owned by Mrs Vella and used in the business. However, he says at the outset of that letter that for the last 18 months to two years he had had very little involvement with Nour, to the extent that he had been unaware of Mrs Vella’s illness until just before her death. There is no evidence of any agreement that those items were to be paid by Fensford and reimbursed by Nour, and Mr Anderson does not say who instructed him that this was to be the case. Mr McGann’s letter of 6 March in reply to Mr Anderson’s letter does not seem to me to accept what Mr Anderson is saying. The evidence of Mr McGann was that he disagreed with everything in Mr Anderson’s letter.
The evidence of Mr Hodgkinson was that there was nothing in the books of Fensford to indicate that the amounts paid out by it for superannuation and Workcover related only to Mrs Vella; Fensford paid wages to a number of employees, including Ms Piggott and Mr and Mrs Vella. The books of Nour indicate that it was paying group tax and workcover on behalf of its employees. The motor vehicle expenses paid by Fensford covered two cars, only one of which was used by Mrs Vella.
On the evidence before me, I cannot find that the “administration services” fee paid to Fensford included amounts attributable to any items other than Mrs Vella’s salary.
Mrs Vella appears to have kept no record of the hours which she worked, and there is no evidence that her calculation of what was owed to her or to Fensford by way of salary was based on the number of hours which she worked. The office of Nour was in her own home, except for the period from February 1999 to January 2000. She had three children, born in 1985, 1987 and 1995. A number of her friends and neighbours gave evidence that she would often be working when they came to the house, that she was often unable to go away for the weekend because she was working, and that a light in her office window could be seen at times late at night and early in the morning. However, while this evidence indicates that Mrs Vella worked hard, it is not of assistance in determining what hours she actually worked. Her husband said that she “could have worked sixteen hours a day on five to seven days a week”.
Ms Piggott said that work was all that Mrs Vella ever did; that she worked at least 65 to 70 hours per week and on average 85 to 90 hours per week when seminars were being conducted. She said that Mrs Vella would be working when she arrived in the morning and when she left to go home, and in the morning there would be papers organised which indicated that she had been working during the night. Before Ms Piggott was employed Mrs Vella had done everything which needed to be done, including organisation and administration of seminars, purchasing and supplying dental supplies, and all associated office activities such as photocopying, invoicing and packaging.
Elaine Race was employed by Nour from May 1999, when Mrs Vella was already ill, until March 2003. She said that when she commenced working for Nour Mrs Vella was very ill and sometimes unable to attend the office, and when there would work for an hour or so at a time. When she took over Mrs Vella’s duties she worked 40 hours per week on average and 70 hours per week when there were seminars. There were 24 seminars per year, which she said would probably account for about twenty weeks.
Mrs Vella had a personal American Express card on which she was the only signatory. Statements before the court show that charges were incurred on that card at places out of Melbourne between July 1995 and September 1999, which were explained in evidence by Mr Vella. While the dates cannot be determined with certainty, it appears that in that period Mrs Vella used the card in country Victoria or New South Wales on nine occasions. There was evidence from friends that the Vella family attended motocross events on weekends in country Victoria, but often Mrs Vella would only attend on the Sunday. The American Express card had also been used on holidays in Rosebud, Thailand, Bali and the United States (where she took her two elder children) for a total of something over 40 days. Mr Vella did not suggest that the time in the United States (or elsewhere out of Australia) was associated with Mrs Vella’s position at Nour. She continued to cause Nour to make payments to Fensford with regard to her services in respect of the periods when she was absent at Rosebud or overseas, despite the fact that she was paid at an hourly rate.
The American Express statements also show a number of charges incurred during the same period in supermarkets and other shops in the south-eastern suburbs of Melbourne. The only significance of those charges is that they indicate that the evidence of Ms Piggott appearing in [25] above may well be exaggerated. Clearly, as one would expect, Mrs Vella on occasions took time to attend to the needs of her household.
Nothing can be determined with certainty, due to the failure of Mrs Vella to keep records of her hours worked, or to specify in the invoices the basis on which the payments by Nour to Fensford for “administration services” were calculated. She was, it is to be remembered, a director of both companies. The evidence of Mrs Race, who performed similar duties at Nour, is of most assistance. That evidence indicates that Mrs Vella would have worked on average 40 hours per week for 32 weeks of the year and 70 hours per week for 20 weeks of the year, giving an average of 51 hours per week for every week of the year. That calculation makes no allowance for holidays or illness. If an allowance of one hour per week is made to cover those two factors, the average figure is 50 hours per week, as the plaintiff contends.
Doing the best I can with the evidence before me, I accept the submission of the plaintiff set out in [19] above that Mrs Vella worked an average of 50 hours per week, and accordingly that $200,971.09 of the sum of $450,137.76 paid by Nour to Fensford by way of fees for “administration services” was money to which neither Mrs Vella nor Fensford was entitled.
Mrs Vella kept the books of Nour until Ms Piggott took them over shortly before her death. Mrs Race agreed that Mrs Vella was meticulous and neat, and documented things very well [4] . She had told Ms Piggott that she was paid at a rate of $25 per hour. She had many years of administrative experience, and there is no suggestion that she was not a competent administrator. She could not have been unaware that Fensford was not entitled to substantial amounts of the payments which she was causing Nour to make to it, and that the payment of those amounts was not in the interests of Nour. The history of the making of those payments (including payments in respect of periods when she was on holiday outside Australia) [5] makes clear that it was deliberate conduct by Mrs Vella in disregard of her knowledge that the payments were not in the interests of Nour. I find, on the basis of the passage cited in [15] above from Marchesi v Barnes, that Mrs Vella, in arranging the payment of amounts to which neither she nor Fensford was entitled, was in breach of her duty under section 232(2) of the Law to act honestly in the exercise of her powers and the discharge of the duties of her office as a director of Nour. Further, in making those payments to a company which she controlled she was also in breach of her duty under section 232(6) of the Law as well as her fiduciary duty to act honestly and faithfully in the best interests of Nour.
[4]Although the fact that she did not document her own entitlement to payments is inconsistent with that evidence
[5]see [27] above
Payments to Fensford after the death of Mrs Vella
Nour claims that Mr Vella arranged for amounts totalling $83,700 to be paid for “administration services” by Nour to Fensford from October 1999 to March 2000 following the death of Mrs Vella, when Fensford no longer had any entitlement to receive moneys other than rent from Nour. I have found that the payments for “administration services” were attributable only to payments for Mrs Vella’s salary. [6] It is admitted in response to this claim that Mr Vella received payments totalling $83,700 between October 1999 and March 2000. That admission constitutes a concession that payments to Fensford at that period were in effect payments to Mr Vella, who was at that time a de facto director of Nour and a director of Fensford. He agreed that after his wife’s death he became familiar with the books of both companies and that he provided to Ms Piggott invoices from Fensford to Nour.
[6]see [23] above
Mr Vella said that Mr Anderson had told him after Mrs Vella’s death to continue for the time being the same payments from Nour to Fensford as Mrs Vella had made during her lifetime. However, he also said that Mr Anderson did not know how these amounts were made up, and had thought that there was a set fee payable. He agreed that he knew that the “administration services” fee was related to hours worked in the business by his wife. Thus although he claimed that he relied on the advice of Mr Anderson, he was aware that that advice was given in ignorance of the true situation. Despite knowing the true basis of the fee, he said that in about December 1999 he reduced the amount of the fee and said that he did this because he himself was doing less work for Nour than he had done before. He agreed that he was being paid wages by Nour for the period after his wife’s death, while at the same time the payments for “administration services” were still being made from Nour to Fensford.
It is clear that after the death of Mrs Vella there was no ground for the payment by Nour to Fensford of the fees for “administration services” and that Mr Vella was aware of this. He cannot have imagined that the making of those payments was in the interests of Nour. The evidence establishes that his conduct in making the payments was deliberate. I find, on the basis of the passage cited in [15] above from Marchesi v Barnes, that in arranging the payment of those amounts he was in breach of his duty under section 232(2) of the Law to act honestly in the exercise of his powers and the discharge of the duties of his office as a de facto director of Nour. Further, in making those payments to a company which he now controlled (and I note the concession set out in [32] above that he personally received the amount of the payments) he was also in breach of his duty under section 232(6) of the Law as well as his fiduciary duty to act honestly and faithfully in the best interests of Nour.
Mr Vella’s wages
The plaintiff claims that Mr Vella had no entitlement to receive the amount of $6,175, which the defence admits was paid to him by Nour as “predominantly” wages between October and December 1999. No submission was made by the defence that any component of that payment did not consist of wages. There is considerable evidence as to the role played by Mr Vella in the business of Nour before his wife’s death, and his tax returns show that he received wages from Nour from July 1994. However no claim is made in respect of any period before October 1999.
Mr Vella said that he took over the management of Nour after his wife’s death, appointing Ms Piggott office manager. He worked very hard because there were large numbers of people attending seminars. He went through the books of Nour with Mr Anderson. Mrs Race said that he told her that he was now the manager, and started to attend the office, although he was not there every day. Ms Piggott said that at this time he was “still doing the basic runaround jobs” which he had done before his wife’s death, and that he used to deal with the accountant a lot and also attend the seminars.
There was correspondence in early 2000 between Mr McGann and Mr Anderson. On 10 May 2000 Mr McGann wrote to Mr Vella dismissing him from the employment of Nour, and stating “You were never hired by the company”.
Mr McGann said that Mrs Vella “could hire, after authorisation was given to hire someone, to hire a person, then she would have authority to choose that person but she did not have authority to just hire any number of people that she wanted in this company.” There is no documentary evidence of the extent of Mrs Vella’s authority in that regard, or of her awareness of the extent of her authority, given the lack of documentation of her terms of employment. It is clear on the evidence that Mr Vella did work for Nour and did receive wages from July 1994, although he was receiving income from other sources during that time. As Ms Schoff, for the plaintiff, pointed out, he has made no quantum meruit claim. Nevertheless, I would have difficulty in finding that he was not entitled to payment for the work which he undoubtedly did for Nour between October and December 1999. The plaintiff’s claim in respect of wages paid to Mr Vella in that period accordingly fails.
Rent
Mr McGann said that he knew that Mrs Vella was using part of her home as an office for Nour and that Nour was paying rent. He did not know the amount of the rent that was being paid. The plaintiff claims that excessive rents were paid in respect of three premises: 33 Cotoneaster Way, Langwarrin (“Cotoneaster Way”), 7 Trimble Drive, Langwarrin (“Trimble Drive”) and 13-15 Walter Way, Cranbourne South, (“Walter Way”)
Cotoneaster Way
Correspondence between Nour and Fensford, each letter being signed by Mrs Vella, records an agreement that from 21 February 1995 Nour would pay rent to Fensford as a subtenant of premises leased by Fensford at Cotoneaster Way at the rate previously paid for premises in Marcella Place, Carrum Down, which was expressed to be $800 per month with an annual review. The defence concedes the claim of Nour that sums totalling $74,500 were paid by Nour to Fensford for the rent of Cotoneaster Way between December 1996 and December 1999, presumably after annual reviews of rent. [7] However, at the hearing it became apparent that for the period from February 1999 to January 2000 the office of Nour was in fact not at Cotoneaster Way, but at Trimble Drive, which was a separate property, not part of the Vella family home as had been the case with Cotoneaster Way. Thus the rent paid in that period, for twelve months at $1800 per month, totalling $21,600, was in fact paid in respect of Trimble Drive, leaving an amount of $52,900 paid in respect of Cotoneaster Way from December 1995 to January 1999.
[7]The concession is expressed to relate to the period from 31 December 1996 to December 1999, although the claim relates to the period from 31 December 1995. However, I take that to be an error in the Defence, given that payment of the full amount of $74,500 is conceded
The only valuer called to give evidence was Mr Wheeler, who was called by the plaintiff. There is no issue as to his qualifications. He was asked to assess a fair market rent for the premises occupied by Nour at Cotoneaster Way and at Walter Way, on the assumption that the area at Cotoneaster Way was the same as that of the premises at Walter Way, namely 86.2 square metres. He found that in each case the occupancy of the premises was a non-conforming use in that it did not comply with the requirements of the relevant municipal councils for the use of residential premises for non-residential purposes. He was unable to find examples of parts of dwellings leased by their owners to third parties on an arms length basis, and accordingly it was not possible to assess a market rent. In each case he assessed what he considered to be a reasonable rent on the basis of deriving a value for the whole dwelling and then adopting an average between that value and prevailing office values in respect of the relevant area. In the absence of other evidence as to valuation, I accept that the method of valuation which Mr Wheeler adopted was appropriate in all the circumstances.
On that basis, Mr Wheeler considered that a reasonable annual rental for the premises occupied by Nour at Cotoneaster Way would be:
In 1996: $8,025
In 1997: $8,264
In 1998: $8,606
In 1999 $8874.
For the period in question, being the whole of 1996, 1997, and 1998 and one month in 1999, that gives a total reasonable rent for Cotoneaster Way of $25,635. The difference between that amount and $52,900, the amount of rent actually paid, is $27,265.
Walter Way
The office of Nour moved to Walter Way in February 2000, occupying a small part of Mr Vella’s new home and paying a rent of $1800 per month. It moved to other premises in Hallam, not associated with Mr Vella, from 15 June 2000. Ms Piggott said that she had been concerned that the rent of Walter Way was too high, and had seen advertisements in local newspapers for equivalent and adequate premises for between $700 and $1,000 per month.
The claim of Nour in respect of Walter Way relates only to the first three months of 2000. Mr Wheeler’s evidence, using the same valuation method as in respect of Cotoneaster Way, was that a reasonable rent for that period for the premises occupied by Nour at Walter Way would be $2065. The difference between that amount and $5400, the amount of rent actually paid, is $3335.
Trimble Drive
During the twelve months’ period from February 1999 to January 2000, rent was paid by Nour to Fensford in respect of Trimble Drive at a rate of $1800 per month. Fensford was paying rent to its landlord for that property at $780 per month. This evidence was unchallenged. The whole of the property at Trimble Drive was used by Nour. It is not suggested that Fensford added value to the premises in any way. The books were kept by Mrs Vella until shortly before her death, and Mr Vella agreed in evidence that he was aware of the disparity in the payments. After Mrs Vella’s death he instructed his sister-in-law as to what entries to make in the books. The total amount paid by Nour to Fensford for Trimble Drive was $23,400. Twelve months’ rent at $780 per month would total $9,360, the difference being $14,040.
The total amount of the excessive rents charged in respect of those three properties for the periods in question is $44,640. Again, Mrs Vella, and after her death Mr Vella, must have been aware, in deliberately charging Nour excessive rents in respect of all three properties, for the benefit of Fensford which they respectively controlled, that they were not acting in the interests of Nour; and must have deliberately made those payments in disregard of that knowledge. I find that in so doing they were in breach of sections 232(2) and 232(6) of the Law, as well as their fiduciary duty to act honestly and faithfully in the best interests of Nour.
Constructive Trust
It is not in issue that in 1998 Mrs Vella became the registered proprietor of the land at Walter Way, and subsequently she and Mr Vella caused a house to be constructed on that land. The plaintiff claims that the land was purchased, and the house constructed, with money which Mr and Mrs Vella had procured from Nour and for which they were liable to account as constructive trustees. Mr Vella became the registered proprietor of the land following his wife’s death, and the plaintiff claims that Mr Vella now holds that land as a constructive trustee on behalf of Nour.
Mr Hodgkinson was asked by the solicitors for the plaintiff to trace monies paid by Nour to Fensford and to ascertain whether any of those funds were applied to the purchase of the property at Walter Way. He examined relevant bank accounts, but on the information available to him when he prepared his report of 27 June 2003 was unable to substantiate that the funds from which payments were made on the mortgage by which the purchase of that property was financed derived from Nour. Nor could he determine that the payments on the mortgage by which the purchase of Cotoneaster Way had been financed had derived from Nour, or that the proceeds of sale of Cotoneaster Way had been used to purchase Walter Way. His report of 13 April 2004, while containing further information, is in my view inconclusive. I am unable, on the evidence before me, to find that the Walter Way property was financed with money which Mr and Mrs Vella had procured from Nour and for which they were liable to account to Nour. [8] That being so, this claim fails.
[8]
Liability of Fensford
The common directorship of Fensford and Nour has the effect that Fensford must have been aware that the excessive payments from Nour to it for “administration services” and rent were made in breach of the duties of Mr and Mrs Vella respectively. Gibbs J in Consul Development Pty Ltd v DPC Estates Pty Ltd[9] adopted the finding of Ungoed-Thomas J in Selangor United Rubber Estates Ltd v Cradock [No 3][10] that directors of a company should be regarded as holding on trust any moneys of the company under their control and that agents of the directors who received moneys of the company in circumstances that showed that they assisted “with knowledge in a dishonest and fraudulent design” on the part of the directors were liable as constructive trustees.
[9](1975) 132 CLR 373 at 396
[10][1968] 1 WLR 1555 at 1580-1582
Liability of the estate of Mrs Vella
Counsel for the defendants submitted that the proceedings against the estate of Mrs Vella should be dismissed, on the ground that the assets of the estate had been fully administered. However, there was no evidence to that effect from either of the executors, and the evidence of Mrs Lyttleton, the solicitor who attended to the administration of the estate, went no further than a confirmation that the amounts which had been in her trust account had been paid to the executors and she had advised them to open an administration account. That defence accordingly fails.
The Magistrates’ Court proceeding
The claim and counterclaim in this proceeding are summarised at [13] above.
Telephone charges
Ms Piggott produced a statement which she had prepared showing an amount of $1027.73 owing by Mr Vella to Nour in respect of telephone calls made on his personal lines which had been paid for by Nour, and which, it was claimed, should be reimbursed to Nour by Mr Vella. No evidence was produced or submissions made to rebut this claim.
Visa card
Mrs Race produced a summary which she and Ms Piggott had prepared and which Mr Gillies conceded was an accurate summary, of statements relating to the Visa card issued in the name of Nour which Mr Vella had used, and which had been paid by Nour . She identified the items, principally cash advances, for which she stated that Mr Vella was liable to reimburse Nour, being amounts not related to the business of Nour, and which he had not repaid. Those items which are unequivocally marked on the statement as attributable to Mr Vella total $7367.62. No evidence was produced or submissions made to rebut this claim.
Computers
The evidence relating to the computers used in the business does not enable me to make any finding on either the claim or the counterclaim relating to the return of computers.
Rent
Mr Vella said in evidence that Nour did not vacate Walter Way until after 14 July 2000 but had paid rent only until 30 June 2000. He did not know what the amount of rent was. There is no evidence before me from which I could determine the amount of rent, if any, which should have been paid in that period.
Restoration of premises
Mr Vella produced several quotations for works to be performed at Walter Way to restore the premises occupied by Nour to the state which they had been in when Nour went into possession. However, his evidence was that none of those works had been carried out.
Conclusion
For the reasons I have given, there will be orders in the Magistrates’ Court proceeding, that Mr Vella pay to Nour the sum of $8,395.35, being the total of the amounts owing on the telephone and Visa accounts and that the claim in respect of the computers and the counterclaim be dismissed.
I invite submissions from counsel as to the form of the orders to be made as a result of my findings and as to costs.
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See Paul A Davies (Australia) Pty Ltd (in liq) v Davies [1983] 1 NSWLR 440 and
Attorney-General for Hong Kong v Reid[1994] 1 AC 324
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