Purecab Australia Pty Ltd No. DCCIV-95-822 Judgment No. D3664
[1997] SADC 3664
•22 August 1997
Court
DISTRICT COURT OF SOUTH AUSTRALIA
Judgment of His Honour Judge Kitchen
Hearing
14/04/97 to 18/04/97, 21/04/97 to 22/04/97.
Catchwords
The defendant was a director of and held the position of Chief Executive Officer with the plaintiff - plaintiff claims that the defendant was in breach of his statutory and fiduciary duties as the CEO whereby he misused the plaintiff's funds; facilitated an unauthorised payment to himself; deposited into his own bank account proceeds of travellers cheques; procured moneys from the defendant and misappropriated funds payable to the plaintiff. Judgment for the plaintiff against the defendant in the sum of $7,714.41.
Materials Considered
• Corporations Lawsections 231(1), 232(6), referred to.
• Castlereagh Motors Ltd v Davies-Roe (1966) 67 SR (NSW) 279, applied.
Representation
Plaintiff PURECAB AUSTRALIA PTY LTD:
Counsel: MR F DIFAZIO - Solicitors: PHILLIPS FOX
Defendant DAVID WILLIAM HADDINGTON:
In Person
DCCIV-95-822
Judgment No. D3664
22 August 1997
(Civil)
PURECAB PTY LTD v HADDINGTON
Civil
Judge Kitchen
FILE NO DCCIV-95-822
The defendant was a director of and held the position of Chief Executive Officer with the plaintiff.
In this action the plaintiff claims that the defendant in breach of his statutory and fiduciary duties as the Chief Executive Officer and a director of the plaintiff and the duties of care and diligence he owed to the plaintiff:-
. misused the plaintiff's funds by charging his private expenditure to the plaintiff's American Express Card;
. facilitated an unauthorised payment to himself in relation to the plaintiff's purchase of shares in Purecab International Pty Ltd;
. deposited into his own bank account the proceeds of travellers cheques purchased with the plaintiff's funds;
. procured the plaintiff to pay to the defendant moneys to which the defendant was not entitled.
. appropriated to his own use the cheque of Work Cover Corporation made payable to the plaintiff;
totalling in all $44,252.61.
Tyrofin Pty Ltd was incorporated in December 1985.One of its directors was Stephen Gerard Hernak.The defendant became acquainted with Hernak. Sometime in 1991, both of them came to know one Van Ooten, who as I understand, manufactured a filter device for tractor cabins, a device which had, or for which there was obtained, some patent or intellectual copyright protection.
By steps which the evidence which does not make clear, the plaintiff (formerly Kelly Vale (no 29) Pty Ltd) and Tyrofin became entitled to exploit the filter device, their respective interests in which subsequently became a matter of dispute between them.The defendant and Hernak were the directors and shareholders of the plaintiff, and also of Tyrofin.In October 1992, Tyrofin changed its name to Purecab International Pty Ltd.In the following month, Mr Sam Scammell became a director, and through his family company, a shareholder of the plaintiff, which the defendant said occurred as a means to recompense Scammell for legal services he had provided.
The plaintiff distributed the filter device through a number of licensees, two of whom were James Hooper and Haydn Warwick Smith.They and other licensees were approached by the defendant to invest in the plaintiff.Hooper and Smith decided to invest monies in the plaintiff, and in February 1993 they each became a director of and shareholder in the plaintiff.
The terms on which Messrs Hooper and Smith subscribed funds to the plaintiff gives rise to the plaintiff's first claim against the defendant in point of time.The plaintiff's case is that the defendant obtained for himself a total of $9,788.75 from the plaintiff to which he was not entitled.That amount was made up as follows:-
. a cheque for $5,000 dated 1 March, 1993, drawn on the plaintiff's bank account, made payable to the defendant which was paid into the defendant's bank account.
. the sum of $2,788.75, the proceeds of unused travellers cheques paid for by the plaintiff which the defendant paid into his own bank account.
. a sum of $2,000, the proceeds of a Workcover Corporation cheque payable to the plaintiff which the defendant paid into his own bank account.
The defendant admits obtaining each of those amounts.His case is that he was entitled to $10,000 from the plaintiff as a fee for procuring Messrs Hooper and Smith to subscribe funds to the plaintiff a payment which he said both Hooper and Smith agreed should be made.
Before he became involved in the plaintiff in May 1991, the defendant had worked as a prison officer and a carpet layer.
Mr Hooper and Mr Smith are residents of Queensland and New South Wales respectively.Mr. Hooper is a self employed teacher of breathing methods to asthmatic children.Mr. Smith is a farmer.
In, I think, April 1992, Mr Hooper was appointed a licensee of the plaintiff for the distribution of the filter device in a defined area of Queensland, the licence fee being $20,000 which was paid.He later expanded his territory and paid a further $10,000 to the plaintiff in, he thought, November 1992.In September 1992, Mr Smith and his wife were similarly appointed licensees of the plaintiff in a defined area of New South Wales, the licence fee being $30,000, $20,000 of which was paid, the balance being payable within 12 months, which plays a part in some later events, the subject of this action.
Messrs Hooper and Smith came to Adelaide on 26 February, 1993 and on 27 February, 1993 had a meeting with the defendant, Hernak and Scammell.The arrangement was reached for Hooper and Smith to become directors and shareholders of the plaintiff.Each of them paid $50,000 for shares in the plaintiff and also lent $10,000 to the plaintiff.
I interpolate here that the defendant was not represented by counsel at the trial.As commonly happens, and despite reminders to a party representing himself that he must put to an opposing witness his version of conversations or events about which he will give or call evidence, that is not done as fully and completely as it should be done.The result, as in this case, is that the particularity of the evidence of the party representing himself is not fully put to an opposing witness.Some leeway has to be given so that the full force of the rule in Browne v Dunn. (1893) 6 R 67 (HL) is ameliorated provided no substantial injustice is done to the opposing party.
The defendant's evidence is that in 1992 Mr Hernak decided he wanted to devote his time to his butchery business.The plaintiff had debts of approximately $85,000 and, what the defendant described as, a cashflow problem.The defendant proposed and then promoted the concept of granting licences for the distribution of the plaintiff's filter devices.The defendant then carried on the plaintiff's business, but the debts increased to the order of $110,000 to $120,000.Messrs Hernak and Scammell told the defendant they wished to quit their interest in the plaintiff and said that either the plaintiff should close its doors or find new investors to acquire their interest.The defendant said:
"...I then contacted the State distributors that we had at that time and out of them Mr Hooper and Mr Smith were the two that said that they would be interested.I spent several telephone service and faxes between Mr Hooper and Smith regarding this issue.It was stated at that time that it would cost them each approximately $80,000, which would give the company a total of $160,000, and that out of that I would be paid a commission of $20,000.
Q.What for.
A.For their involvement in Purecab Australia, setting up the whole thing, and although it wasn't stipulated that the 20,000 would be for any one thing, as in commission, wages, anything like that, it was really a package because I had drawn very little wages over the previous twelve months, and it was just a total package, I was going to receive $20,000, if you like, for compensation for what I had missed out on.
Q.Is this what you told each of Mr Hooper and Mr Smith.
A.Yes.
Q.On the telephone.
A.Yes.
Q.And faxes.
A.Yes.
Q.Which of those.
A.Both.Mainly the telephone.Then it came to pass that they couldn't each raise their $80,000 so we then - I mean, obviously from Purecab's point of view we were still fairly keen to keep it in-house and get investors. So it was reduced from $80,000 to $60,000.
Q.How did that come about and by what conversations.
A.Just through the conversation between myself, Mr Smith, Mr Hooper.That was the amount that they felt that they could raise, no more than that.So we brought it down to the 60,000.I said 'In that case then I will halve my 20,000 to 10,000'.Then what happened -
MR DI FAZIO:I interrupt the witness.I don't want my silence to be taken to be necessarily an acceptance, that I don't object to this witness's evidence as to these alleged conversations, faxes, etc upon the subject matter of this alleged $20,000, and I do so on the basis that this material wasn't put, at least not in those specific terms, to the plaintiff's witnesses.
HIS HONOUR:Well you (he) may suffer under the usual principles.As I reminded you at the outset, Mr Haddington, it was incumbent upon you when questioning the witnesses called by the plaintiff to put your version to them as particularly as you could in the light of the evidence that you were going to give so that they might deny it or accept it.Of course, if you do not do that, it means that your own evidence is limping because the witnesses from the plaintiff have not had an opportunity to answer it.That is the effect of the intimation from Mr Di Fazio.
Q.So you told them that you would halve your $20,000 to 10,000.
A.Yes.That was agreed to and both Mr Smith and Mr Hooper came down to Adelaide on 26 February to tie up the share sale agreements, removing Scammell and Hernak and bringing in Hooper and Smith.They came to Adelaide and both stayed at my home."(pp 261- 263 inclusive)
The defendant said that in the evening of 27 February, 1992 after the conclusion of the agreement which resulted in Hooper and Smith becoming directors and members of the plaintiff, he and they repaired to the defendant's house where Hooper and Smith were to stay the night.They had a meal, prepared by the defendant's wife:
"... Over that dinner general discussions were held about the way the day had gone, about the way they saw and I saw Purecab going, in other words, what direction we were to sort of go in. Their basic response was 'Just keep doing what you had been doing, because whatever it was it seems to be working, so don't change anything'.During that dinner conversation I got out of my chair to get another bottle of wine and I said, 'Now don't forget, the $10,000 commission.I will take $5,000 immediately, and $5,000 as and when the company can afford it'.Mr Smith's remarks was 'Yeah, well, whatever'.After that evening was done both Mr Smith and Mr Hooper returned back to their respective homes.On 1 March, when the new Purecab company with the new directors started, I immediately drew a cheque for $5,000, and instructed Leah Dittmar, that's the secretary, to keep separate transactions of anything that was owed to the old Purecab, and any invoices that may come in after 1 March belonging to the old Purecab, so that we could keep the monetary record as a separate entity.In other words, if bills came in for the old Purecab, but they came in after 1 March, it would be moneys out of the old Purecab that would pay for it, and not the new Purecab." (pp264-265).
Mr Hooper said that he spoke to the defendant a number of times before deciding to invest in the plaintiff and he received from the defendant or Mr Softley, the plaintiff's accountant, a facsimile of the plaintiff's profit and loss account and balance sheet together with projections of future earnings.His evidence is that the defendant was looking to each investor to put up $100,000-$120,000, but by the time he and Smith came to Adelaide in February 1993, the amount had reduced to $60,000 each for an arrangement that would not only give Hooper and Smith one share in the plaintiff but also there would be at some future time an issue of further shares to the defendant so that the defendant would have 46% of the total shareholding in the plaintiff, a proposal which Hooper said was put by the defendant and accepted by him.He denied that the sum of $20,000 was ever mentioned by the defendant as payment to the defendant for obtaining investors in the plaintiff, or that there was any discussion, whether at the defendant's house on 27 February, 1993 or elsewhere, that the defendant would receive a reduced amount of $10,000 on that account.
Mr Smith said that the defendant told him he wanted 46% of the issued shares of the plaintiff for "lining everything up", that is, arranging for Hooper and Smith to invest in the plaintiff.He denied that at the defendant's house on 27 February, 1993, or at any earlier time, anything was said to the effect that the defendant was to receive $10,000 for arranging the "buy-out" by Hooper and Smith.
The defendant, in cross-examination, was taxed about the conversations he said occurred before 27 February, 1993 and at the meeting at his house on that day concerning this payment of $10,000.The substance of his answers is that in telephone conversations with Hooper and Smith before they came to Adelaide on 26 February, 1993
. he told Hooper, in a context where the defendant was seeking $80,000 each from Hooper and Smith, that he wanted $20,000 for "setting up the whole deal, wages that I just have not really had over the 3 years, couple of years, commission the whole packet" (p336) to which Hooper replied "that seems fair". When Hooper in a later telephone conversation stated he could raise only $60,000, the defendant related he told Hooper he would reduce the $20,000 to $10,000 "but I am not in any specific hurry to take the $10,000" to which Hooper replied "fine" (transcript p341).The defendant agreed he did not put this to Hooper.
. he put the same proposition to Smith about the $20,000, again in a context where $80,000 from each of Hooper and Smith was the topic, and that Smith said "it seems fine, we'll talk about it" and when Smith in a subsequent telephone conversation said he would invest $60,000, the defendant told him that he would "halve the $20,000" to which Smith did not specifically respond but, said the defendant, Smith came to Adelaide and signed "the agreement" when Smith "knew" that of the total of $120,000 the defendant would be receiving $10,000.
The defendant called his wife, Sharon Haddington.Mrs Haddington said that she and the defendant had been living apart since November 1996.Her evidence is that at the dinner had with Hooper and Smith on 27 February, 1993 the conversation was about the events of the day.She said she remembered Smith saying to the defendant that the defendant should "run the company as you have been doing so Dave, and if there needs to be any changes we will let you know", and then when the meal was about halfway eaten, the defendant
".. got up to get a bottle of wine and when he got up from the table he had said to Haydn Smith and James, 'Don't forget guys I will take the $5000 commission immediately and the other $5000 when the company can afford it'. Haydn Smith's reply was, 'No worries, Dave', and then Dave continued to walk into the kitchen to get the bottle of wine and Haydn Smith said to me directly, 'Do you know Sharon, not only has he got us once, he has got us twice'. My reply was, 'What do you mean by that Haydn?', and he said, 'He got commission from us as a state dealer -
OBJECTIONMr Di Fazio objects.
QUESTION ALLOWED
MR DI FAZIO:I would like perhaps simply to articulate for the record that my objection is on the basis that this was just simply never put to Smith.
HIS HONOUR:Mr Haddington will have to suffer the consequences.
HIS HONOUR
Q.You said to Mr Smith, 'What do you mean?' and Smith said what.
A.Haydn Smith said, 'Not only has he got us once, coming in as a state dealer, he has got commission on us twice, now becoming director', and he had a smile on his face." (pp 632 to 633.)
In cross-examination Mrs Haddington denied this conversation had been suggested to her by the defendant or that it did not occur.She said she was first asked to remember the conversation some months after the defendant was dismissed by the plaintiff. The plaintiff was dismissed in April 1995.
Mr Hooper said he did not hear Smith say words to the effect Mrs Haddington deposed to, that is, the defendant had got "them" twice.Smith said that he could not recall saying "Sharon, he's not only got us once, but he's got us twice".
Mrs Haddington's presentation was as a witness who, in my view, was fairly straightforward in giving her evidence and with a good memory.
The defendant called Barry Douglas Softley.He is a retired accountant.In the period from September 1992 to December 1995, as a member of a firm of accountants, he provided accountancy services to the plaintiff.He said he had had a good working relationship with the defendant.
Softley said that between the date the plaintiff was dismissed and December 1995, when he ceased to act as the plaintiff's accountant, he regularly spoke with Smith and Hinkley (who had become a director and shareholder of the plaintiff in June 1994).He said that on the day when Roy Metcalf left the employment of the plaintiff and during a conversation between Softley, Smith and Hinkley, Smith said words to the effect that he (Smith) and Hooper had agreed to pay the defendant $10,000 and that if he (Smith) had to he "would lie in court to get the bastard".He was cross-examined about that evidence:
"Q.And you say that Mr Hooper said words - Mr Smith said words to the effect that he and Hooper had agreed to pay Mr Haddington $10,000 but that if he, that is, Mr Smith, had to, he would lie in court to get the bastard.
A.That's right.
Q.What was said by anybody before Mr Smith made that comment.
A.I cannot recall.
Q.What was said by anybody immediately after Mr Smith made that comment.
A.I can't recall.
Q.Where were you when Mr Smith made that comment.
A.I can tell you exactly where I was standing.I was in the reception area of Purecab at Manton Street, Hindmarsh.I was standing behind the receptionist's desk.If this being the receptionist's desk, Mr Smith was standing right there and Mr Hinkley was standing right there.WITNESS INDICATES.
Q.Can you tell the court anything at all about the context in which Mr Smith allegedly made that remark.
A.He was very angry.
Q.Can you say anything at all about the conversation in the context of which that remark was allegedly made by Mr Smith.
A.All I can recall at the time was the fact that there was general discussion about how their action against Mr Haddington was going and what was happening, and it was generally about that matter.I mean, I can't remember, but I can specifically remember that.
Q.I invite you to assist the court as to how -
A.I'll assist where I can.I've got no axe to grind in this matter.
Q.- how Mr Smith came to state those words.
A.I don't know what made him say it.He said it out of the blue.And I will say to you it's the first time, first and only time, I ever heard him say it.I never heard Mr Hooper ever say it.It was the first and only time I've ever heard him say it, but say it he did.
Q.You recall that there was a discussion about an action against Mr Haddington.
A.Yes.
Q.Had there been talk in the course of the time that you were together with Mr Smith and Mr Hinkley about the company instituting an action against Mr Haddington.
A.On that occasion, you mean?
Q.Yes.
A.That's all they ever talked about.Didn't talk about anything else, at any time.I mean, long before they started proceedings against Mr Haddington.
Q.I ask you to focus on the occasion when Mr Smith allegedly said those words.As I understand your evidence, immediately beforehand somebody had said something about an action against Mr Haddington, is that correct.
A.Well, as I said, that's all they ever talked about.I mean, it was the subject of constant conversation.
Q.Is that what somebody said on that occasion immediately before Mr Smith allegedly uttered those words.
A.They were talking - I don't know the exact words they were saying but they were talking about the action against Mr Haddington.Exactly what they were talking about or what they were saying, but those words stand in my mind because I was absolutely astounded because up to that point in time Mr Smith had always denied that he had any knowledge of it.
Q.So you had talked to Mr Smith about Mr Haddington's assertion that he was owed $10,000.
A.On many occasions it had been raised, on many occasions, but he had never, ever said that he admitted that he had agreed to it.
Q.So he had always denied it, had he.
A.He never said one thing or another.He never said 'I didn't' or 'He did'. He just never said anything.
Q.I thought you said a few moments ago -
A.What I said was I said Mr Hayden Smith had never before admitted that he was privy to the $10,000.I didn't say he had never spoken about it in that context.I mean, I never believed Mr Haddington about the 10,000.I never believed him.He knows I didn't believe him.Because I thought why would anybody pay him $10,000 to bail out a company that was in trouble when he was the major beneficiary of the bail out?I mean, it just seemed ludicrous to me so I didn't believe him.He knows I didn't believe him.
Q.Had that view been put forward by anybody to yourself.
A.No, I was the one - that was my view.And I had told Mr Hinkley and I told Mr Smith on numerous occasions that I didn't believe Haddington because I believed that it was ridiculous that anybody would pay $10,000 to bail out a company that was technically insolvent - no, bankrupt, virtually bankrupt - when he was the major beneficiary.I just couldn't believe it.Why would anybody be so stupid?"
(pp 578 - 580 inclusive.)
In his cross-examination of Smith, the defendant put it to him that in September 1995, one week before the plaintiff moved its operation from Manton Street, Hindmarsh to Sydney, Smith, in a meeting with Softley and Hinkley at Manton Street, mentioned "to Mr Softley and Mr Hinkley that (Smith) and Mr Hooper were aware of a $10,000 commission payment due to myself when you and he purchased into (the plaintiff)".Smith denied that and said no such subject was discussed at all.The defendant did not put Mr Softley's evidence as to what he asserted Smith said in all its plainness, although the defendant but a short time earlier had told the Court and in the absence of Smith, what it was Mr. Softley would say which included words to the effect Smith had said he would lie if he had to.Perhaps the defendant forgot to put the particular words to Smith, or, as the plaintiff's counsel submitted, it is possible the defendant "drew back" from confronting Smith with the full allegation.The alleged statement contains a very serious implication for Smith.I do not think it is fair to accept that the truth is Smith made that statement when he was not given the opportunity to accept or reject it.Although I had no reason to doubt Mr. Softley's evidence on that matter I will not give it any weight in deciding this issue, more particularly as Mr Hinkley said that he did not hear Smith say words to the effect that he and Hooper had agreed to pay $10,000 to the defendant and that he, Smith, would lie in court about it if he had to. Hinkley said there was some conversation with Smith during which the word perjury was used, but that was an allusion different from what Mr. Softley said he heard.
It is apparent from Mr Softley's evidence that he has endeavoured to put from his mind his involvement with the plaintiff and its directors - he said so. Softley was questioned on two occasions by the Police leading up to charges being laid against the defendant concerning some of the claims made in these proceedings, charges which were not proceeded with.Mr Softley impressed me as an honest witness who, in my view, had a vivid memory of some events.
There is a great deal of ill feeling between the defendant and his former co-directors, Hooper and Smith, on account of what Hooper and Smith believe or have come to believe was conduct on the part of the defendant to use the plaintiff's funds to make improper and unauthorised payments to himself, and that has rankled with them.The defendant, for his part, has been less than careful in properly accounting for the plaintiff's money or funds to which it was entitled, indeed in my view he has been somewhat cavalier in using the plaintiff's monies to make payments to himself or for expenses he claims to have incurred on the plaintiff's behalf.Over-arching these attitudes on the part of the three men is the poor attention to proper recording of arrangements or agreements concerning the plaintiff's affairs.
It is for the plaintiff to prove its case and concerning this matter of the "commission" of $10,000 which the defendant says he was entitled to, I am not satisfied on the balance of probabilities that it has been shown the defendant was not entitled to it.His actions are consistent with at least a belief he was so entitled - he drew a cheque on the plaintiff's account for $5,000 on 1 March, 1993, the first working day after 27 February, 1993, and he obtained substantially the whole of the balance on two subsequent occasions by means which, I am prepared to accept, the defendant judged were the plaintiff's funds not immediately needed by it.Mrs Haddington's version of the events at the defendant's house on 27 March, 1993 supports the defendant and, for what it is worth, as being contrary to any suspicion that the defendant's claim to the $10,000 was concocted to explain the taking of the several sums approximating that amount, Mr Softley said he was told by the defendant of his claim to the "commission" about one week after Messrs Hooper and Smith became directors of the plaintiff.
The next issue to which I turn concerns Purecab International.
As part of the arrangement reached on 27 February, 1993 Messrs Hooper and Smith each acquired one share in Purecab International.That is in Exhibit P4, a minute of a meeting of directors (the defendant, Hernak and Scammell) of Purecab International held at Manton Street, Hindmarsh on that day.That document records that each of Haddington, Hernak and Stamford Investments Pty Ltd (Scammell's family company) each of whom already had one share were allotted 11 shares (P12) and Hooper, Peter Hooper (whom I understand to be a brother of Hooper), Smith and Leigh Smith (Smith's wife) were each allotted one share.On the same day a licence agreement (Exhibit P3) and an option agreement (Exhibit P2) were entered into.The licence agreement is between Purecab International as licensor (it is described as licensee but in the context that must be an error) and the plaintiff as licensee concerning an invention (the filter device) for which, it is recited, Purecab International had applied for a patent and in respect of which Purecab International on 15 May, 1991 had granted to the plaintiff a licence to commercially exploit the invention.The agreement, P3, replaced the earlier licence.In substance, Exhibit P3 gave the plaintiff, in consideration of a royalty for each unit sold a licenceto sell products utilising the invention for a term determinable by either party, on one month's notice to the other of them, for a breach of the terms of the agreement.
The option agreement (P2) was made between the defendant, Hernak, and Stamford Investments Pty Ltd, called the grantors, and Hooper and Smith, as grantees. After reciting that the grantors owned 36 shares in the issued capital of Purecab International it provides for an option to Hooper and Smith exercisable at any time before 1 March, 1994 to acquire the grantors' shares for a minimum price of $500,000 and a maximum price of $1 million to be fixed by the grantors upon the exercise of the option.The option entitled Hooper and Smith to nominate any other person or corporation as the purchaser of the shares. Plainly Hernak and Stamford Investments did not own 36 shares in the plaintiff.
The evidence of Hooper is that the defendant sent to him soon after 27 February, 1993 a facsimile of documents which, as I understand, pointed to the plaintiff and not Purecab International being the owner of the patented filter device, which was followed by a telephone call from the defendant who spoke in terms of having "won a lottery or a windfall" concerning the patent but that as he (the defendant) was a director of Purecab International, Hooper should obtain legal advice on the question as to which entity owned the patent and until that was done the royalties due under the licence agreement should be paid.Hooper said it took many months to obtain counsel's opinion.The opinion was to the effect that there could be a protracted dispute about ownership of the patent and the best course would be to try to negotiate a commercial settlement.Hooper said that he reported this to the defendant who told him he would speak to Hernak and Scammell and a week later the defendant telephoned him to say he had arranged a deal with "them" to buy out their shares for $15,000, which would result in a clear title to the patent.Hooper related that the defendant, as he understood, went on to say that once the "camp" including Hooper, the defendant and Smith bought out Hernak and Scammell, the three of them would each own one-third of Purecab International. Hooper said that he understood the plaintiff would acquire the shares of Hernak and Scammell, but that it was only the shares of those two which would be acquired not the defendant's shares.Hooper was aware that a debt of $15,000 was owed by the plaintiff to a Mr Buttery.Smith arranged for his aunt, a Mrs Morton, to lend $30,000 to the plaintiff to be used to repay Mr Buttery's loan and to purchase the shares as Hooper and Smith believed, of Hernak and Scammell in Purecab International.
The plaintiff in fact, as the defendant acknowledges, purchased the shares of the defendant, Hernak and Scammell, in Purecab International.The defendant said he resigned as a director of Purecab International to avoid what he described as a position of conflict concerning this question of the ownership of the patent, and that it was essentially Scammell who determined that the shares would be transferred for $30,000, but that as to $15,000 of that, it would be used to repay the loan of $15,000 from Mr Buttery which Scammell, Hernak and the defendant recognised as a debt of the former proprietors of Purecab Australia.
On receipt of the $30,000 from Mrs Morton, the defendant caused the plaintiff to repay Mr Buttery's loan and after meeting the incidental stamp duty costs relating to the transfer of the shares to the plaintiff, the balance of the $15,000 was paid by way of three cheques of equal amount to Hernak, Stamford Investments and the defendant.
Smith said that the defendant told him that Hernak and Scammell were willing to take $15,000 for their shares in Purecab International, and that the $15,000 "would go to Hernak and Scammell at $7,500 each".Smith said his understanding was that the $30,000 he arranged for Mrs Morton to lend to the plaintiff would be used to acquire the shares of Hernak and Scammell for Hooper and himself and as to $15,000 to pay off Mr Buttery's loan to the plaintiff.He then corrected that to say it was the plaintiff which was to acquire the shares, but then, inconsistently to my mind, said "all the shares would be put together, including Mr Haddington's and we would increase the shareholding in there and then we would split it three ways between Mr Haddington, Mr Hooper and myself" (p115/116).How this might be achieved in circumstances where the plaintiff had purchased the shares with borrowed monies was not explained.It highlights in my view the muddled way in which these three men regarded the affairs of the plaintiff as to an extent indistinguishable from their own.
Smith said he left it to the defendant to attend to the matter of the Purecab International shares.He said he was "totally amazed" when he later found out that the defendant's shares had also been purchased by the plaintiff, because "(the defendant) told us that the $15,000 was for Hernak and Scammell.It was not for him, he told me he wanted no part of it" (p117).
Mr Smith, in my opinion, did not have a very clear understanding of what was to occur in relation to the Purecab International shares.
In further examination-in-chief, Mr Hooper said he understood from a discussion he had with the defendant before the share acquisition that after the plaintiff had acquired the shares of Hernak and Scammell in Purecab International "the shares in Purecab International would be re-allocated on the basis of one-third shareholding to each of us.So that the initial number of 40 shares would be increased by normal methods to an amount which could be divided equally by 3 to produce the equal shareholdings" (p99).
The defendant in cross-examination said he told Hooper and Smith that they, meaning Hernak and Scammell, wanted $30,000 for Purecab International.He denied he told Hooper and Smith that Hernak and Scammell would take $15,000 for their shares, but agreed he did not tell them a portion of the moneys paid would be for his own shares in that company.
The defendant called Mr Hernak.He said that the defendant was acting on behalf of Scammell and Hernak, he was the "go between", in relation to the sale of the shares in Purecab International.He said the price was $30,000 and "we were all aware that there was an amount owing to a chap by the name of Clive Buttery for the amount of $15,000 and the remainder was evenly shared amongst us" (p604), "we" meaning himself, Scammell and the defendant, and that that arrangement had been agreed between the three of them.He identified Exhibit P30 as a letter dated 23 December, 1993 addressed to the directors of the plaintiff and Purecab International signed by him and Scammell.It is to the effect inter alia that having sold their shares in Purecab International and resigned as directors no claim would be made by them against either company in relation to any patents held by either company.
In my view, the purchase of the shares in Purecab International by the plaintiff cannot be seen as an exercise of the option agreement (P2) as the nominee of Hooper and Smith.Its genesis was the dispute about the ownership of the patent.
It is submitted that the plaintiff was deceived when entering into the purchase of the Purecab International shares.From his own evidence the defendant did not specifically inform Hooper and Smith that the defendant's shares were also to be acquired.Hinkley thought that the defendant was acting on behalf of Hinkley and Scammell.It is probable that Hooper and Smith regarded the defendant as representing the interests of the plaintiff, Hooper and Smith holding in their mind the concept that, the shares of Hinkley and Scammell having been acquired, Hooper, Smith and the defendant would allocate the shareholding in Purecab International between the three of them equally.
Except for Purecab International's entitlement under the licence agreement, it appears from its financial statements for the year to 30 June, 1993, that it had no other significant assets, so that by the share purchase in December, 1993 the plaintiff controlled all the rights which it and Purecab International had in the patent including the licence agreement, and it did so substantially on legal advice.If the plaintiff had not acquired the defendant's shares, to that extent its control would have been less.
It was the duty of the defendant, as a director of the plaintiff, to disclose to the plaintiff (namely its other directors) the interest he had in the proposed share purchase which he knew would include the defendant's shares.He did not, in terms, as I find, disclose that interest.
By participating in the sale, the defendant effectively:
. paid out his share (as between himself, Hernak and Scammell, being together the "former Directors" responsible for it) his share of the loan from Buttery, but contemporaneously he depleted his equity as a shareholder in the plaintiff by approximately the same amount by reason of the Morton loan to the plaintiff.
. disposed of his shares in Purecab International for the sum of approximately $5,000 but indirectly, through the plaintiff, he obtained what would appear to be an approximately equivalent interest in Purecab International.However he also depleted his equity in the plaintiff, again by reason of the Morton loan, by approximately the same amount,
so that it would appear the defendant did not derive any benefit, the plaintiff for the price of $30,000 acquired 36 not 24 shares, and except for 4 shares the plaintiff had control of the plaintiff.
Section 231(1) of the Corporations Law requires a director of a proprietary company to declare at a meeting of directors any interest he has, whether directly or indirectly, in a contract or a proposed contract with the company. The defendant knew that the defendant would cause the plaintiff to acquire the defendant's shares in Purecab International.He should have disclosed that to the other directors.However, a breach of Section 231 does not providethis plaintiff with a basis for monetary compensation from the defendant. Castlereagh Motels Ltd. v Davies-Roe (1966) 67 S.R. (N.S.W.) 279.
By Section 232(6) an officer of a corporation must not make improper use of his or her position as such an officer to gain directly or indirectly an advantage for himself or herself or to cause detriment to the corporation."Officer" includes, inter alios, a director or executive officer of the corporation.
In my opinion there is insufficient evidence before the Court to conclude that by acquiring the defendant's shares in Pinecab International the plaintiff suffered a detriment.On the contrary for a price of $30,000 it acquired substantially all the shares in that company, not merely the shares of Hernak and Scammell (or his family company).I say $30,000because that, effectively, was the amount paid.It is possible that the other directors of the plaintiff would have declined to agree to the plaintiff acquiring the defendant's shares, so that for $25,000 the plaintiff would have obtained the shares of Hernak and Scamell, leaving the defendant with his twelve shares in Purecab International, but I am not prepared to find that would have been the case.
I find that the defendant without the knowledge of his co-directors concluded the transfer of his shares to the plaintiff, and in my view that was an improper use of his position as a director.
Did the defendant gain an advantage for himself?I find that for approximately $5000 he extracted himself from being left in a position where, with twelve shares in Purecab International, the value of that holding may have been of questionable worth but what worth I am unable to find.
For a breach of Section 232(6), it is prescribed by Section 1317 HD that a corporation may recover as a debt due to the corporation any profit the person in breach has made because of the breach and any loss or damage the corporation has suffered as a result of the breach.
The evidence is wholly insufficient for me to find the quantum of the profit made by the defendant or the loss or damage (if any) suffered by the plaintiff. The plaintiff alleged that Purecab International was a "valueless" company.I cannot accept that.The plaintiff had legal advice that the dispute between it and Purecab International concerning the ownership of the patent or other rights in the filter device should, if at all possible, be resolved by a commercial settlement.It was so resolved and the plaintiff secured control of the rights in the filter device.Plainly that was of value to the plaintiff and I am not satisfied that the plaintiff acquired the defendant's shares in Purecab International for more than they were worth.
The plaintiff submits the defendant should re-pay to the plaintiff the amount he received for his shares and that the plaintiff transfer those shares to the defendant, urging that that would put the parties back in the position each would have occupied but for the failure of the defendant to make full disclosure.Such a result was not canvassed with either Hooper or Smith. Clearly it was vital, having regard to the legal advice Hooper said he obtained, that the plaintiff gain control of Purecab International to resolve the dispute concerning the patent.Hooper and Smith, I infer, knew that the Buttery loan was a liability which Scammell, Hernak and the defendant acknowledged was their responsibility.Hooper called it a pre-existing debt of the company.He agreed it was a debt to the account of the pre-February 1993 directors.Smith said that he bought into the plaintiff on "a debt free basis apart from (an) already established" loan from Buttery.
The plaintiff's submission that there should be repayment and re-transfer was not fully developed by the plaintiff.It was founded, in my view, upon Purecab International being a valueless company.I have already said that in my opinion that has not been proved to have been the case.
The plaintiff in effect says either the transaction with the defendant was avoidable by it at law because the transaction, as the defendant knew, was not properly authorised by the plaintiff, or it seeks the equitable remedy of rescission based upon the defendant's breach of his fiduciary obligation as a director of the plaintiff.
As to the remedy at law, the plaintiff's co-directors have known of the transaction concerning the defendant's shares since at least soon after April 1995 yet no step was taken by the plaintiff to "avoid" the transaction;it has merely claimed the recovery of a proportion of the price paid for the shares. In essence its claim is for damages.As I have said I am not satisfied it has suffered the loss it claims, that is it paid for shares in an allegedly valueless company.
As for the equitable relief which the plaintiff claims, that was not raised in the plaintiff's statement of claim either as originally pleaded or as twice amended and consequently there has been no investigation in the evidence concerning the ability of the plaintiff for its part to restore the parties to the status quo ante with such consequential orders as by the nature of the case, had there been evidence on the matter, might have been necessary.(Alati v Kruger (1955) 94 C.L.R. 216).The plaintiff has cast its case in debt or in damages.I decline to make an order for rescission.
An item of the plaintiff's claimalleges that the defendant obtained from the plaintiff sums of money as purported commissions for the granting of licences for the distribution of the filter device.They comprised two amounts, each of $1,250 on 1 March, 1993 and one of $1,330 on 19 May, 1993.They are items 3, 4 and 10 in Exhibit D27.The defendant admitted he obtained each of those amounts in that character.His defence is that he was entitled to receive those commissions.
The defendant said that when he proposed, and Messrs Hernak and Scammell his then co-directors of the plaintiff agreed, that distributors be licensed to sell the filter device, it was also agreed that the defendant would receive a commission of 12.5% of the price paid.There is no written record of this arrangement.The defendant agreed (he said it never came up) that he did not inform Hooper or Smith of his alleged entitlement to such a commission, and I accept the evidence of Hooper and Smith that they did not know of the defendant's alleged entitlement.
One of the amounts of $1,250 paid on 1 March, 1993 was, the defendant said, his commission in relation to Hooper's payment of $10,000 in about November, 1992 to extend the territory of his licence and that the payment of $1,330 on 19 May, 1993 related to the licence granted to Hinkley for a territory in South Australia.The defendant said the $1330 was the net amount of the commission after the deduction of income tax.There is a pencilled entry to that effect in the Cash Book (Exhibit P17) kept by Ms Dittmar, the receptionist/book-keeper of the plaintiff.The defendant said he could not identify the pencilled handwriting.The second amount of $1,250, item 4 in Exhibit D27, was explained by the defendant to be his commission relating to a payment of $10,000 by Smith when Smith extended the territory of his licence.
Mr Hernak's evidence is that it was agreed between him, the defendant and Scammell that the defendant would be entitled to a commission on the price at which a licence was sold.He thought it was about 10% but agreed it could have been 12.5%.The defendant abandoned the claim against the defendant so far as it concerned the commissions in relation to Hooper and Hinkley.
As to the commission the plaintiff asserted he was entitled to for the Smith "extension", there is no evidence before the court of there being such an extension.However, as I related earlier, Smith obtained his licence on terms that $10,000 of the price he agreed to pay was to be paid by September, 1993. Hooper's evidence is that on 27 February, 1993, in the meeting between him, the defendant and Smith he learned that there was a balance of $10,000 to be paid by Smith which Smith said he did not want to pay because the $60,000 he was subscribing to the plaintiff was all he had.Hooper said the defendant replied "don't worry about that.Because of the extra influx of cash we can simply waive that", to which Hooper agreed.Smith's evidence as to the $10,000 remaining to be paid is that he told Hooper and the defendant he had little cash left and he would not be able to pay the $10,000 when it fell due in September, 1993, whereupon Hooper and the defendant said they "would waive that $10,000 or they would forgive it".The defendant did not cross-examine either Hooper or Smith about that evidence.
The defendant in cross-examination on this issue said he could not remember whether the $10,000 payable by Smith was "waived" but "I heard it earlier on (he meant during the evidence) and probably it did occur".He said he thought there was an extension of Smith's territory for which Smith paid a further amount "of either $10,000 or $15,000".The defendant did not suggest to Smith that there was such an extension and his own evidence about that topic is quite imprecise.The defendant has failed to put forward any believable evidence that his commission was in respect of an extension of Smith's territory.
I accept the evidence of Hooper and Smith that payment of $10,000 due by Smith in September, 1993 was waived, and that it was a decision in which the defendant actively participated and concurred.In my opinion, the defendant having agreed to that in his capacity as a director, his duty as a director required him to obtain the agreement of the plaintiff (that is of his co-directors) that his commission be paid, notwithstanding the plaintiff would not be receiving the very payment from which his commission would be met.This is not a case where for reasons beyond the defendant's control the plaintiff would not or could not obtain Smith's $10,000.In different circumstances, for example if a licensee defaulted in making payment for his licence, the defendant might still have been entitled to his commission, but here, the defendant was one of those instrumental in the plaintiff's "decision" not to require Smith's payment to be made, and it was that fact which, in my opinion, disentitled the defendant from his commission unless the plaintiff agreed otherwise.
The defendant's failure to inform his co-directors of the plaintiff's liability to pay commission in relation to Smith's obligation effectively denied them the opportunity to make an informed decision on behalf of the plaintiff whether to waive Smith's obligation in whole or only in part.
The plaintiff succeeds in respect of this claim for $1,330.
As I noted earlier, Hinkley became a director and shareholder of the plaintiff in June, 1994.He resided in Adelaide and he often visited the plaintiff's factory premises in Manton Street.He was involved with the defendant in 1994 in matters concerning an indicator device for a face mask in relation to which the defendant caused the plaintiff to pay $6,500 to a patent attorney in December, 1994.The plaintiff claims that that payment was made without authority.
The utility of the indicator device was assessed and reported on by CSIRO for a fee (according to Mr Hinkley) of $5,000, the report observing, Hinkley said, that full tests at a cost of up to $250,000 would be needed to fully assess the device.The report was not adduced in evidence.Hinkley said that the defendant was very enthusiastic about the potential of the device and, if fully developed, the contribution it could make to the plaintiff's earnings.Hinkley read the CSIRO report but he could not remember whether he did that before or after a "field test" of the device which he arranged for a pest controller to carry out.He said the test did not prove the utility of the device.I find that the field test was carried out after CSIRO provided its report.
Hinkley's evidence is that the defendant wanted the device patented so that it might be included in the plaintiff's profile because the defendant wished to "sell the business", and in that context the defendant mentioned he had approached a company, Croplands, "to take control of" the plaintiff.He said the defendant told him $6,500 would have to be spent to patent the product.
"QDid you express your views to Mr Haddington as to whether that six and a half thousand dollars should be spent.
AI said if the product had been proven to be an effective product.We are talking about a product that is going to save lives, it's going to stop people getting poisoned, so very important that thorough tests are carried out, and once those tests were done, the product was approved, yes, it's worthwhile then spending the money.
QDid you say anything to Mr Haddington about what he should do in relation to Mr Hooper or Mr Smith before expending the six and a half thousand dollars.
AYes, I asked him whether he had had discussions with Mr Smith and Mr Hooper, and he said he had had discussions, but he couldn't get an answer from them, and he said 'I have got to do something.Time is running out.' And I said 'Well, you're the chief, it's your decision.If you want to do it'.He did say, if I could finish, he did say he didn't care what Hooper and Smith said anyway, he was going to do it."(pp163-64)
In cross-examination, Hinkley said he judged the CSIRO report about the indicator device to be unfavourable and he did not read nor did the defendant read out to him a letter accompanying the report to the effect that there should be more research and development on the device and that it would be a good export product.He also said that he did not hear the pest exterminator who tested the device in his and the defendant's presence say that the product was "fantastic".He said he was standing with the Manager of the exterminator company at the time and does not remember the operator saying anything to that effect.He agreed he was told by the defendant that the defendant had not been able to "get hold" of Mr Smith for an urgent decision about sending off the cheque for $6,500 to the patent attorney and that he, Hinkley, had responded "well, you are the Chief Executive, that's an executive decision", or words to that effect.
Hooper's evidence is that he, at first, judged the indicator device was a good idea.He learned the CSIRO had carried out tests on it.He came to the view the device would not work.He said he told the defendant so, when he spoke to the defendant after the CSIRO report but before the test arranged by Mr Hinkley with the pest exterminator, and that he also said to the defendant, "don't proceed further with any patents", to which he said the defendant replied, "oh, all right, I'll think about that".
Hooper identified a minute of a directors' meeting on 20 June, 1993 (Exhibit P8).It includes:-
"Managing Director and Chief Executive Officer
It was unanimously resolved that David Harrington be officially recognised as the Managing Director and Chief Executive Officer of Purecab Australia Pty Ltd. That he be given a free hand to manage the day to day activities of the Company and pursue the sale of international licences for Purecab patents.He would be required nevertheless to consult with the other directors regarding major decisions and any new projects or direction that the Company should take.
International Patents
It was suggested that with the high projected cost of applying for international licences, that the CEO should prepare a budget for this item.In particular stating the dates to which such payments would have to be paid .."
Hooper said
"QComing back to the question whether there should be any further action taken in relation to pursuing the patent for the face mask indicator, first of all, what was your understanding as to what was necessary to be done further following the reports of the CSIRO in relation to that matter.
AIn terms of getting the patent?
QYes.
AA further payment to confirm the patents was needed, a substantial payment would be required.
QDid you have any understanding of how substantial that payment was to be.
AHaddington told me it was six and a half thousand dollars.
QDid you regard that as a matter which came within the day-to-day activities of the company to be left to Mr Haddington to decide upon.
ANo, the day-to-day activities of the company were simply purchase of raw materials, ensuring delivery of the product essentially.
QDid you regard the question of further progress on the face mask patent as a major decision or a new direction.
AVery definitely."(p65)
Smith said he was told by Hinkley that the test of the indicator device by a pest exterminator had not been successful.He said that in late 1994 he and the defendant spoke over the telephone:
"... We had a phone conversation about it and he said 'What are we going to do about the face mask, are we going to patent it?' I said 'I'm not really convinced on it.' He said 'Well, okay, we'll just leave it.' At that I said 'Before you want to make any further decision give me a ring and we'll discuss it further.' Getting towards the latter part of that year he didn't phone me but I phoned him and I said 'What have we decided on the patent for the face mask?' and he said 'Oh, it's too late mate I've already done it.' I said to him, at that time I said, 'You had no right to do that, it was a decision that all the directors should have made.'
Q.What did you understand that he had done.
A.He had applied for or spent money to get the patent.
Q.What was your understanding of the amount of money that had been spent.
A.It was some six and a half thousand dollars, it was ridiculous on top of the five that we'd already spent."(p120)
Smith said that he was annoyed at what the defendant had done.
In cross-examination Smith said he first saw the CSIRO report after the defendant was dismissed by the plaintiff and he did not remember seeing a letter which accompanied that report to the effect that the indicator device was a worthwhile project which, if perfected, would be an excellent export product.
In a "status report" dated 2 June, 1994 (Exhibit P37) Dr Wyk informed the plaintiff of the then position in respect of numerous patents or patent applications in the plaintiff's name.One of them concerned the indicator device (called a "respiratory filter indicator") which was the subject of a provisional patent application due to expire "on 5 November, 1994 unless a complete specification is filed by that date".In a letter dated 10 August, 1994 (Exhibit P38) to the plaintiff, Dr Wyk advised that to preserve the priority date obtained by the provisional application, the complete specification must be filed and at a cost of $6500 the plaintiff could protect the priority date overseas by filing an application pursuant to the Patent Corporation Treaty, whereas a filing only in Australia would cost $1,400.He asked for instructions by no later than 10 October, 1994 because the complete specification would take several weeks to prepare.
It appears Dr Wyk was instructed to proceed to file the complete specification under the Treaty;he wrote to the plaintiff on 7 October, 1994 (Exhibit P39) forwarding a draft specification which was filed on 2 November, 1994.The account for $6,500 was paid by the plaintiff in December, 1994, the month in which the plaintiff was informed (Exhibit P43) by Dr Wyk that the next step would be to file a request before 5 June, 1995 for a preliminary examination.
In April 1995 the plaintiff was dismissed from his employment with the plaintiff.In a letter dated 16 May, 1995 (Exhibit P45) addressed to Hinkley, Dr Wyk wrote to acknowledge the plaintiff's instructions that the treaty application was to be allowed to lapse; the plaintiff had decided not to proceed with the preliminary examination.
In his evidence, the defendant spoke of the contents of a letter from a scientist, which he said accompanied the CSIRO report, to the effect that further development of the indicator device would be costly but it should be pursued because, the defendant said, "if it could be fine-tuned" it would be an excellent product.The letter was not produced by either party.The defendant said he could not remember whether there was any substantial difference between the report and the letter.He said he showed the letter to Hinkley, spoke to his fellow directors about it and subsequently the pest exterminator operator test was organised.The operator, the defendant said, exclaimed that the device was "fantastic".
The defendant said he discussed at length with Hinkley and on a number of occasions with Smith, the topic that the patent for the indicator device would lapse if not pursued.He said he spoke to Smith wanting to know that day about the step of paying the $6,500, and that Smith said he would speak to Hooper, but Smith did not return to him that day, and the defendant made the decision to send the cheque.He said he told Hinkley he had sent the cheque, and that Hinkley said "that is an executive decision.You are the Chief Executive".He denied Hooper told him not to pay the $6,500.
It is apparent that a decision had to be made and in a fairly short time-frame about what should be done concerning the soon-to-lapse provisional application. The evidence of those concerned in that matter has a number of common features. Each of Hooper, Smith and the defendant, as I judged in the course of their evidence have, consciously or unconsciously, related what they remember but the memory of each of them, in my view, has been coloured by the other events which resulted in the defendant being dismissed in April 1995, and that has led each of them to reconstruct to an extent their part in events.
I find that soon after the defendant instructed Dr Wyk to proceed and sent the cheque, Hinkley, Hooper and Smith learned that that had happened.The defendant was enthused about the potential for the indicator device when his co-directors were not, and he took the view that he had the authority to do what he did because of his position as the Chief Executive Officer of the plaintiff and as its Managing Director, the appointments made in the minute, Exhibit P8.I am not satisfied that the defendant acted without authority in causing the plaintiff to instruct Dr Wyk to proceed thereby incurring and subsequently paying the fee of $6,500 for the preparation of a complete specification and an application under the Treaty.It may have been an unwise decision but that is a different matter.
The next group of amounts claimed by the plaintiff concern payments to three persons, Peter Joseph, Greg Fahey and Michael Dixon, totalling, it is claimed, $4,700.
Joseph gave evidence.He said he was engaged by the defendant to work for the plaintiff selling what were described in evidence as Convair extraction units which comprised a filter device of the plaintiff's design installed in a casing incorporating other components manufactured by Seeley Industries.Joseph said he received $400 for each such unit he sold.I accept his evidence and the defendant's evidence to the same effect.Exhibit D27 includes several payments by the plaintiff to Joseph identified to be for commission.They total, as I calculate, $3,800.There is a further amount of $140 recorded in that exhibit identified as the cost of business cards for Joseph paid for by the plaintiff. I accept that that amount was properly authorised by the defendant.
As to two amounts totalling $400 appearing in Exhibit D27 as payments to Fahey, I accept that those were paid and properly so, as an incentive to Fahey, an hotel owner, to instal the Convair units as a means of promoting them in the market place.
Although the remaining amount of the $4,700 is greater than $500, I think the remainder relates to a payment of $500 from the plaintiff's moneys which the defendant gave to Dixon, an employee of Seeley Industries.It is shown in Exhibit D27 as a "commission".Dixon said he did not expect it and was embarrassed to receive it.The import of the defendant's evidence is that he paid that amount to Dixon as a token of the defendant's appreciation for what Dixon had done concerning the development of the Convair unit.In my view, it was an improper payment to say the least of it, bearing in mind that Dixon was remunerated by his employer, Seeley Industries, for any work done by him for the plaintiff.The defendant must repay that amount to the plaintiff.
The remaining claims are for amounts paid to or on behalf of the defendant by cash or cheque (they are itemised in Exhibit D27), or charged by the defendant to the plaintiff's American Express Credit Card (they are set out in Exhibit D26).Many of them concerned payments in respect of petrol purchased by the defendant and fall within the compass of the plaintiff's case that the defendant was paid a monthly motor car allowance of $800 which included all fuel purchases.It is also an issue whether that allowance was paid in arrears or in advance.
In the minute, Exhibit P8, it was resolved that the defendant in his position as Chief Executive Officer be paid a salary of $31,200 per annum and motor vehicle allowance of $800 per month.Hooper said that before that meeting he "knew" the defendant had a motor vehicle provided by the plaintiff and, at the meeting, Softley suggested that as the use, or maintenance, of that vehicle may incur the plaintiff in fringe benefits tax, it would be better to pay the defendant a monthly allowance of $800.Hooper maintained that the discussion on the subject was that the allowance would be for the defendant to provide his own transport "and his costs", and that he (Hooper) was aware the defendant from time to time was required to attend field days in country areas.In cross examination it was put to Hooper that it was discussed between Softley, Hooper and Smith that the defendant "receive an $800 per month car allowance to run, insure (the defendant's motor car) in the metropolitan area".Hooper's answer was "a car allowance was for that purpose, yes" (p90).He denied that before the meeting recorded in Exhibit P8, the defendant was paid "a car allowance of $200 a week for metropolitan and Adelaide use only and not for field trips outside of the metropolitan area" (p92).
Smith said he understood that the defendant travelled to country towns by motor car to attend shows and he thought the allowance of $800 a month, which he said he judged to be generous, was to cover leasing and running costs of a motor car.
Softley was not questioned by any party concerning the motor car allowance, so the court derived no assistance from that quarter.
The defendant's evidence (p288/291) is that before Hooper and Smith joined the plaintiff, the plaintiff paid all the fuel purchased for his motor car for both metropolitan and country travel which was altered to an arrangement that he receive, he thought, $400 per month at about the time distribution licences were being sold, but the cost of fuel purchased on country or interstate trips was paid additionally by the plaintiff.He said the allowance was then increased to $800 a month.He asserted that the plaintiff was also to meet the cost of fuel for country trips to fairs and the like and for interstate trips, and that is why he charged those costs to the plaintiff.
In cross-examination, the defendant said that before March, 1993 he was leasing a motor car, he thought from Ford Credit, for $510.45 per month, which was paid by the plaintiff and that the plaintiff also reimbursed him for petrol and other motor vehicle expenses (he did not say what they were).He accepted that after the meeting on 20 June, 1993 the last payment by the plaintiff of $510.45 to Ford Credit was made in June, 1993.According to the plaintiff's records (Exhibit P17) it was made on 24 June, 1993.Thereafter the plaintiff received the allowance of $800 per month.The defendant gave some evidence about another motor car he might have acquired about that time, but it was so confusing it does not permit any finding.
No evidence was given by the defendant concerning the quantum of his motor fuel costs preceding June 1993, and neither did the defendant suggest that the plaintiff paid for the registration or insurance or repairs to his motor car. The allowance of $800, after deducting a lease payment of $510, would leave approximately $300 per month to meet the cost of fuel.I find that the car allowance of $800 paid by the plaintiff was to include the cost of all fuel the defendant purchased for his motor car, and he was not entitled to charge the cost of it to the plaintiff.He must repay the sum of the amounts he received on that account.
From Exhibit P17, it appears under "Cash Payments July 1993" that on 1 July, 1993 and 29 July, 1993, two payments each of $800 described as "M/V Allowance" were made to the plaintiff.No similar entry appears under the "Cash Payments August 1993" but in "Cash Payments September 1993" there is recorded a payment to the defendant of $800 on 1 September, 1993;similarly in October 1993.
The defendant said that after the agreement to pay him a car allowance of $800 he "took it straightway" which no doubt explains the entry in Exhibit P17 for 1 July, 1993.He said he was not sure whether that was for June or whether it was for April or May.He agreed to the effect, as I find, that whenever he incurred a cost for fuel he promptly recovered it from the plaintiff.I infer that by the end of June, 1993 he was not owed anything by the plaintiff for prior purchases of fuel.I reject the defendant's evidence implying that the allowance of $800 was paid in arrears.In my opinion, the payment to him on 1 July, 1993 was for the month of July, 1993 and not for any earlier period.
From Exhibit P18, on 1 March, 1995 and again on 24 March, 1995, the plaintiff paid the defendant his motor car allowance of $800.I find that those payments were for the months of March and April 1995 respectively.The defendant was dismissed by the plaintiff on 28 April, 1995 after what was said to have been a purported but possibly ineffectual attempt to dismiss him a few days earlier. On 27 April, 1995 when, I find, the defendant was aware of a meeting the following day to dismiss him, a meeting which he attended (Exhibit P10), the defendant obtained cheques from the plaintiff, including one for $800, which I infer he signed, that is recorded in Exhibit P18 as being for "M/V allowance". There is no challenge in the case before me as to the lawfulness or otherwise of the defendant's dismissal.Therefore, on the basis he was lawfully dismissed (and of course I make no finding on that matter), the defendant was not entitled to the sum of $800 he procured for himself on 27 April, 1995, and the plaintiff is entitled to recover it.
Item 28 in D27 is an amount ($400) which the defendant could not satisfactorily explain.He must repay that.
I return to the amounts listed in Exhibit D26 (the charges to the plaintiff's American Express credit card) claimed by the plaintiff, the quantum and description of which the defendant admits.Nineteen of them, as I count, are for amounts charged by the defendant for meals at Lois' Restaurant, an establishment close to the defendant's workplace at Manton Street.He says that they were all occasions when he entertained for the purposes of the plaintiff's business.Joseph gave some evidence of his attendance on some of those occasions.Ms Dittmar, whose evidence I accept on all matters about which she gave evidence, said, in effect, that the defendant rarely gave her any receipts for expenses at Lois' and that frequently when an account was received from American Express for expenditure at that establishment and she asked him what it was for the defendant responded with a question to the effect, "Whom have we not recently entertained?".Except for his own general evidence of what was the purpose of the occasion or who was his guest, the defendant's case was singularly lacking in particularity concerning expenses at Lois' Restaurant.
I accept that on occasion the defendant did entertain at Lois' Restaurant in the proper interests of the plaintiff, but he has not justified each and every occasion.I will use a broad approach of which the plaintiff, because of his failure to cause proper records to be kept, cannot be heard to complain.It perhaps errs in his favour.There will be included in the judgment against him one-third of the total amounts spent at Lois'.The total is $2,386.80.I calculate one-third of that to be $795.60.
Items 72, 74, 97, 103 and 106 is expenditure which the defendant could not identify as being on the plaintiff's business.They total $316.70.That must be repaid.
Item 89 was for an occasion the defendant said he entertained at a cost of $200 relatives from the United Kingdom who had been helpful to him when he was on the plaintiff's business there.I am not satisfied that it was an authorised expenditure.It must be repaid.
Items 92, 93 and 95 are expenses incurred with Qantas which I find was private expenditure involving those same relatives, the defendant and his wife journeying to Cairns.The total is $2,328.The defendant said he repaid $750 to the plaintiff.His evidence is that he gave it to Ms Dittmar.I accept her evidence that it was not paid.He must account for that.
Item 43 is for $440, the cost of an opal, which the defendant agrees he must repay to the plaintiff.
The purchases in D26 which are directly or inferentially identifiable as fuel purchases (Items 47, 48, 51, 69, 70, 76 and 77) total $252.11.For the reasons I gave earlier that must be repaid by the defendant to the plaintiff.
As to all other items in Exhibit D26 I am not satisfied the defendant did not have the authority to incur the expense to the plaintiff's account.
Included in Exhibit D27 are two amounts which the plaintiff paid for road traffic fines incurred by the defendant.They total $272.00.I find the defendant had no authority to require the plaintiff to pay them.In my view it is insufficient that they arose in the course of him being on the plaintiff's business.
Also in the list D27 are reimbursements to the defendant for expenses incurred in travelling to country shows and the like or interstate.Insofar as I can infer they included the cost of fuel, the defendant must repay them.I so identify Items 32, 34 and 38.They total $430 which, I accept, includes not only fuel costs but also authorised expenditure.Again, I shall have to take a broad approach.I fix $80 as being the likely cost of fuel.
As to all other items in Exhibit D27 which have not been dealt with in these reasons, I accept the defendant's evidence or I am not satisfied the expenditure was unauthorised.
In summary the plaintiff is entitled to recover from the defendant:-
Smith commission$1330
Dixon payment500
Car allowance payment800
Lois' Restaurant795.60
The following items in D26:
72, 74, 97, 103 and 106316.70
89200
92, 93 and 952328
43440
47, 48, 51, 69, 70, 76 and 77 for the fuel proportion252.11
The following items in D27:
11 and 39(fines)272
32, 34 and 38 for the fuel proportion80
28 unexplained expenditure400________
$7714.41
There will be judgment for the plaintiff against the defendant in the sum of $7714.41.
I will hear the parties as to costs and interest.
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