Re Burton, L.R. v Ex parte Hugh Jenner Wily P/L

Re: LESLIE ROSS BURTON
Ex Parte: HUGH JENNER WILY v. WHITE CONSTRUCTIONS (NSW) PTY LIMITED, BELGRAVIA
INVESTMENTS PTY LIMITED and E.E. EMMETT AND SONS PTY LIMITED
No. NB2172 of 1993
FED No. 389/94
Number of pages - 10
Bankruptcy - Contracts

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
BANKRUPTCY DIVISION
DAVIES J

CATCHWORDS

Bankruptcy - control over property of the bankrupt - entitlement to a debt owed to bankrupt estate.

Contracts - construction according to objective facts

Bankruptcy Act 1966 (Cth)

Bridges and Salmon Ltd v. The "Swan" (Owner) (1968) 1 Ll LR 5

HEARING

SYDNEY, 7 April 1994
#DATE 30:5:1994

Counsel for the Applicant: J.K. Chippindall

Solicitors for the Applicant: Aitken and Magney

Solicitors for the 1st Respondent: Terrence Lee and Associates

Counsel for the 2nd Respondent: P. Whitford

Solicitor for the 2nd Respondent: Corrs Chambers Westgarth

Counsel for the 3rd Respondent: F.P. Donohoe

Solicitors for the 3rd Respondent: Cornell, Martin and Cox

ORDER

The Court Orders that Counsel should bring in, within 14 days, minutes of the orders which they propose which should address the questions of costs. NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Act.

JUDGE1

DAVIES J When this application was commenced on 25 November 1993 in the Bankruptcy Division of the Court, it sought an order that a debt due by White Industries Ltd or White Constructions (NSW) Pty Ltd (to both of which I shall refer as "White") be paid into Court and that the Court should determine entitlement thereto. The sum of $230,000 was subsequently paid in pursuant to an order of the Court. The applicant and one of the claimants to the fund in Court is Mr H.J. Wily in his capacity as trustee of the estate of Mr L.R. Burton, who was made bankrupt on 8 July 1993. The Court has jurisdiction to determine the associated claims either under s.32(1) of the Federal Court of Australia Act 1976 (Cth) or under the cross-vesting legislation.

In 1993, White was holding moneys which it conceded were payable by it under a sub-contract for the supply of concrete for the Nepean Dam. The sub-contract, which was dated 4 September 1991, was between White as contractor and "the Tristar Group" as sub-contractor. The sub-contract having been substantially performed and concluded, White conceded that $211,005 was due by it to the sub-contractor. After negotiations, White was persuaded to accept that $230,000 was due by it to "the Tristar Group" and it was that sum which was paid into Court.
Mr W.G. Hodgekiss, counsel for the trustee, has contended that the additional $18,995 which White agreed to pay over and above the $211,005 originally conceded was not payable under the sub-contract but was merely a "bargained-up" sum which White agreed to pay to get rid of claimants who were affected by Mr Burton's bankruptcy. However, I am satisfied that the total sum constitutes the moneys which White has accepted were due by it under the sub-contract and which were paid into Court awaiting the Court's ruling on entitlement.
There are 3 claimants. The first is the trustee of Mr Burton's estate, who claims that Mr Burton was the sub-contractor and was entitled to the whole $230,000 or, that the sum of $18,955 included therein was paid merely to ensure that threatened writs were not issued. The second is E.E. Emmett and Sons Pty Ltd ("Emmett"), to whom Mr Burton and an associate, Mr David Stanton Nagle, have jointly and severally given a bill of sale over their assets dated 31 October 1989. The third is Belgravia Investments Pty Limited ("Belgravia") which holds a registered first fixed and floating charge over the assets of Tri Star Pre Mix Concrete Pty Limited ("Tri Star Pre Mix"), in respect of which an order for liquidation has been made. The liquidator of Tri Star Pre Mix has been informed of the proceedings but has made no claim.
As is regrettably too common in matters in the Bankruptcy Division, the relevant facts are confused and no evidence has been given with respect to certain matters that would appear to have been particularly relevant. In particular, the books and records of Tri Star Pre Mix, which should be the best evidence as to whether or not Tri Star Pre Mix undertook the work under the sub-contract, were not tendered in evidence. Presumably, they are not available. Nor have counsel sought to tender in evidence the long service leave and superannuation details, the deed of adherence and the copies of certificates of currency for workers' compensation insurance, public liability or personal sickness insurance and top-up workers' compensation insurance which the sub-contract required the sub-contractor to produce. Their absence has not been explained.
At the relevant time, Mr Burton was connected with a number of corporations and businesses, some of which were involved in the production and sale of concrete. Mr Burton dealt with the affairs of these corporations and businesses as if they were his to dispose of as he wished. Although individual businesses were conducted, Mr Burton tended to ignore the legalities. On his instructions, works, income and moneys passed from one business to another as he saw fit. A letterhead used at the relevant time, September 1991, was headed "Tri Star Group". At the foot of the page, four organisations were mentioned: Tri Star Pre Mix, Picton Super Mix, Blue and White Minicrete Pty Ltd and Tri Star Sand and Soil Pty Ltd.
The evidence shows that, although the administration of the businesses under Mr Burton's control was centred at premises at Lot 22, Mamre Road, Kemps Creek, each of the businesses had its own concrete batching plant at different sites. Each of the businesses therefore tended to attract custom within the neighbourhood of its batching plant. It would appear that each of the businesses was a separate business, though the administration was centralised. Of course, in the absence of the books and records of the businesses, there must be a doubt as to whether the businesses were truly separate. There is no evidence as to how employees were paid, or by whom, or as to whether the businesses lodged separate group tax or payroll tax returns, income tax returns and so on. But the probability is that, as the businesses had different names and individual plants or activities at different locations, the businesses were distinct, though having common management.
Mr Burton gave evidence in these proceedings and was cross-examined. His evidence has been challenged, but in general the evidence seems to me to have stated the probabilities of the case. In any event, there is no better evidence of the basic facts. Mr Burton deposed:-

"2. Tri Star Pre Mix was involved in the business of selling pre-mixed concrete. I also had an interest as a director and shareholder in other companies engaged in the same business. Those companies were Blue and White Minicrete Pty Ltd and Tristar Sand and Soil Pty Ltd. Together with a partner, David Stanton Nagle, I was also involved in the business known as Picton Supermix.

'Picton Supermix' was an unregistered business name under which my partner and I carried on business as the trustees of the BNG Family Unit Trust.

3. Each of Tri Star Pre Mix, Blue an White Minicrete Pty Ltd, Tristar Sand and Soil Pty Ltd and Picton Supermix operated its own concrete batching plan at separate sites around Sydney. Their administration, however, was handled centrally from offices at Lot 22 Mamre Road, Kemps Creek and their operation and administration were directed and controlled by me.

4. Of those four businesses Tri Star Pr Mix was the largest and the most active. It formed the core around which the other three businesses operate. Only Tri Star Pre Mix had accounts with supplier of sand, cement, gravel and fuel which were essential to the operation of each of the businesses and it employed a Sales Manager who was charged with the responsibility of negotiating contracts and selling concrete on behalf of each of the businesses. Once a particular job had been secured by the Sales Manager it would be handled by the business which was situated geographically closest to the site of the job.

5. In about 1990 Mr Sam Masri, who was then employed by Tri Star Pre Mix as Sales Manager and whose duties included negotiating the sale of concrete on behalf of each of the four businesses, approached me and said words to the effect:

'It is too hard when I'm out in the market selling. I never know which hat I'm wearing at any particular time. When I meet with potential customers I don't know whether to say I'm representing Tri Star Pre Mix or Blue and White or Picton Supermix. Things would be a lot easier if I had a business car which just said Tri Star Group, or something like that, rather than having four differing cards and not quite knowing when to offer which one.'

6. As a consequence of Mr Masri's comments, I decided that it would be a good commercial practice to adopt his suggestion and to use a single name which covered all four businesses. That is how the name "The Tristar Group" was originally formulated. Once that name was adopted I had stationery printed which reflected the fact that all four businesses fell within the Tri Star Group ("the Group"). An example of that stationery appears as Annexure "D" to the affidavit of Lawrence William Emmett sworn 4 February 1994 and filed in this proceeding. My decision to adopt a group name was also based upon my desire to give potential customers an impression of a large organisation which might not be so easily conveyed when presenting as one or other of the four individual businesses. ...

8. The detail of the contract with White Constructions Limited for the Project was negotiated with Mr Masri. Once he had finalised details he brought the contract to me for my signature. I do not remember where I signed it or who else was present at the time. I signed the contract in the name of the Group, as that was the name which had been used in all the negotiations with White Constructions Limited, however there were a number of significant reasons why Tri Star Pre Mix was the only one of the four businesses in the Group equipped to perform the contract for the Project. The Project was a large one and White Constructions had certain requirements, which are reflected in the contract which appears at pages 2-17 inclusive of annexure 'F' to the affidavit of Hugh Jenner Wily sworn 17 November 1993 and filed in this proceeding, which meant that Tri Star Pre Mix was the only one of the four businesses equipped to comply with those requirements. The most significant of those requirements and the reasons why Tri Star Pre Mix was the business suited to comply with them were:

(i) White Constructions Limited required high strength concrete and did not want concrete travelling the distances which it would have travelled if brought from one of the plants of one of the four businesses. A mobile concrete batching plant had to be set up at the dam site. This necessitated leasing the appropriate equipment. Tri Star Pre Mix had the greatest financial resources of the four businesses and it was the one best placed to lease the equipment. A mobile concrete batching plant which was used on the Project was leased by Tri Star Pre Mix from Westpac, Banking Corporation Limited.

(ii) The sheer size of the Project necessitated the purchase of large quantities of gravel, sand and cement, the raw products from which the concrete was made. Tri Star Pre Mix was the only one of the four businesses in the Group which had accounts with suppliers of those raw materials. It purchased all the materials which were used on the Project.

(iii) Tri Star Pre Mix had recently leased a number of Ford Cargo trucks for transportation of mixed concrete. None of the other three businesses in the Group operated Ford Cargo trucks. These trucks were the only ones in the possession of any of the businesses in the Group which satisfied the requirements of White Constructions Limited reflected in Special Condition 9 of the contract for the Project.

9. Mr Terry Broadhead was a Plant Manager employed by Tri Star Pre Mix in its business. When work on the Project commenced I assigned Mr Broadhead to oversee the operations on site at the Project. Mr Broadhead's wages and the wages of all those who worked under his supervision on the Project were paid by Tri Star Pre Mix for the duration of the entire Project. All work done on the Project was done by Tri Star Pre Mix was expended by Tri Star Pre Mix. None of the other businesses in the Group performed any work on the Project or met any of the expenses associated with the Project."

Similar evidence was given by Mr L.V. Clark who deposed inter alia:-

"1. During the period December 1991 to about August 1992 I was engaged as a consultant, in a management capacity, to the Tri Star Group of businesses ('the Group'). I was engaged on a full time basis from December 1991 until approximately June 1992 and thereafter on a casual basis, as and when my services were required from time to time. I no longer have any involvement with the Tri Star Group. ...

3. From my experience working for the Group I understood that the Group consisted of three businesses, all engaged in the production of ready mixed concrete. Those businesses were conducted by Blue and White Minicrete Pty Ltd and Tri Star Pre Mix Concrete Pty Limited ('Tri Star Pre Mix'). The third business was a Unit Trust, the BNG Family Unit Trust, the trustees of which were Leslie Ross Burton ('Mr Burton') and his partner, David Stanton Nagle. That business was known as Picton Supermix. The operation and administration of the business in the Group was controlled and directed by Mr Burton from offices at Lot 22 Mamre Road, Kemps Creek.

4. Tri Star Pre Mix was the core business of the Group. It had the greatest number of employees. Unlike the other businesses in the Group, it operated from more than one site. It provided financial support to the other businesses by way of loan funds as and when those businesses required financial support. The other businesses also relied on it for supplies as it had accounts with major suppliers of the raw materials used in the businesses, particularly sand, cement, gravel and fuel."

Save in minor respects, this evidence accords with the probabilities of the matter. The sub-contract to undertake concrete work at the Nepean Dam was expressed to be between White and "the Tri star Group". Such a contract is to be interpreted according to the objective facts rather than to that which was known to one party only or which was in the subjective mind of one of the contractors. In Bridges and Salmon Ltd v. The "Swan" (Owner) (1968) 1 Ll LR 5, Brandon J said at 12:-

"The intention for which the Court looks is not the subjective intention of A or of B. Their subjective intentions may differ. The intention for which the Court looks is an objective intention of both parties, based on what two reasonable businessmen making a contract of that nature, in those terms and in those surrounding circumstances, must be taken to have intended."

As Mr Burton acted as the controlling mind of a number of corporations and businesses, White would have been likely to have understood him to be acting for the corporations and businesses in "the Tristar Group", whether or not White understood exactly which organisations were within that group. White contracted with "The Tristar Group", not with "Leslie Ross Burton". It is improbable that White would have contracted with Mr Burton alone. The contract was a substantial one and it called for performance by an organisation which had the necessary expertise, plant, capability and substance. It is likely that officers of White would have satisfied themselves that the sub-contractor met their requirements. Indeed, the sub-contractor had to be approved by the Principal, which was the Water Board. Mr Burton personally would not have satisfied the requirements as he did not carry on business in his own right, save that he and Mr Nagle in partnership carried on one of the businesses in the group, Picton Super Mix. One company which White would have understood to be in "the Tristar Group" was Tri Star Pre Mix. There is no reason to doubt that that company had a business and demonstrable capacity which would have satisfied White as to its capability.
I accept the substance of Mr Burton's evidence that the contract called for concrete of a particularly high quality, a requirement which Tri Star Pre Mix could meet, that the plant and vehicles used on the site were owned or leased by Tri Star Pre Mix and that the plant manager, Mr Terry Broadhead, and the other workmen employed on the site were employees of, and were paid by, Tri Star Pre Mix. There is nothing improbable about this and there is no evidence to the contrary. Mr Emmett gave evidence that one of the pieces of equipment on the site belonged to Picton Super Mix. Mr Burton denied this. The point is too small to affect my conclusion.
The sub-contract required the establishment of a batching plant on the site of the project at the Nepean Dam to produce concrete of a quality higher than usual. The business Picton Super Mix, which Mr Burton and Mr Nagle conducted in partnership, was the nearest plant to the project. However, Mr Burton has given reasons in the passages from his affidavit which I have set out above and in his oral evidence why Tri Star Pre Mix undertook the performance of the sub-contract. Basically the reasons were that Tri Star Pre Mix had the greatest resources; it already had the necessary vehicles and it was capable of establishing the required batching plant and of securing the supply of the necessary raw materials. I accept Mr Burton's evidence on these matters.

I consider the sub-contract to have been a contract between White and a group of businesses which included Tri Star Pre Mix and Picton Super Mix. It is unnecessary to consider the position of Blue and White Minicrete Pty Ltd and Tri Star Sand and Soil Pty Ltd as they make no claim and no claim is made against them. Mr Burton had ostensible authority to act on behalf of all these organisations and, in the case of the sub-contract, did so, at least so far as Tri Star Pre Mix and Picton Super Mix were concerned.
Counsel for Emmett and counsel for the trustee have a common interest in demonstrating that Mr Burton's evidence should not be accepted. They pointed out first that, contrary to Mr Burton's evidence that Tri Star Pre Mix was the only organisation concerned with the sub-contract, there are in evidence some invoices from Picton Super Mix to White for concrete supplied to the Nepean Dam project from 6 September to 30 October 1991. The first cheque paid by White was drawn in favour of Picton Super Mix. However, when this was stated to Mr Burton in cross-examination, he recalled that some preliminary works were required to establish the plant at the site of the dam and that concrete was supplied by Picton Super Mix for this purpose. Mr Burton said in cross-examination that Picton Super Mix carried on business nearest to the Nepean Dam and that it was the organisation which supplied the concrete necessary for the establishment of the plant on the site. Mr Burton said that there was a difference between the ordinary concrete which was then required and the high quality concrete which was specified for the contract works. There is nothing improbable in this evidence.
The next cheque in evidence was drawn in favour of Tri Star Pre Mix. Thereafter, cheques were apparently drawn by White in favour of "Tri Star" or "Tri Star Group". Until the end of March 1992, most cheques were paid into the account of Picton Pre Mix. During April and May and until the middle of June 1992, they were paid into the account of Tri Star Pre Mix. From 19 June 1992, cheques were again paid into the account of the partnership Picton Super Mix. On 19 June 1992, the business of Picton Super Mix was sold to another organisation, South Coast Basalt Pty Ltd. Emmett released its security over the assets sold. For the purposes of the sale it was beneficial for Picton Super Mix to be seen to be receiving income, and after the sale, it was necessary to provide Picton Super Mix with funds as its bank manager required that the liabilities be reduced. Among the list of customers of the business sold was the name of White Industries and the year to date value stated in respect of White was $454,636. There would be nothing improbable with this being a deception. Nor is it improbable that there was a diversion by Mr Burton of income from one organisation which was entitled to it to another business to which he preferred to pay the moneys.
In the middle of 1992, White received a claim from Belgravia alleging that Belgravia was entitled to all moneys payable under the contract. Moreover, "the Tristar Group" was not performing the contract to White's satisfaction. White withheld payments. Mr Burton was advised by his solicitor to register the business name "The Tristar Group" in his own name, with a view to his seeking payment from White. Mr Burton was unable to register this name, but, on 24 July 1992, he registered the name "Burton Tristar Group", showing himself as the proprietor. A large number of invoices headed "Burton Tristar Group" were forwarded to White. Mr Burton sought payment, which was refused. A demand under s.460 of the Corporations Law in Mr Burton's name was served on White on 11 August 1992, but White declined to pay.
In 1993, Mr Burton faced personal financial difficulties. On 9 March 1993, for the purposes of a first meeting of his creditors, Mr Burton verified a statement of his affairs which showed the sum of $300,000 owing to him by White. Subsequently, the information which Mr Burton gave to the trustee was inconsistent. In his examination he did say, however, that the plant and trucks at the Nepean dam site were leased by Tri Star Pre Mix from Westpac Banking Corporation. At various times Mr Burton informed Mr E.E. Emmett that the moneys payable by White were a debt due to him personally.
Counsel for the trustee and Emmett and counsel for Emmett relied upon these matters as showing that Mr Burton was personally entitled to the moneys payable under the sub-contract. However, in my opinion, in signing the sub-contract, Mr Burton acted as director or agent of a number of corporations and businesses. At that time, he did not carry on business under his own name and would not have been understood by White to have done so.
On 16 July 1993 an agreement was executed by Belgravia and by Mr and Mrs Burton. The agreement, which recited inter alia that Mr Burton alleged that the White debt was due to Tri Star Pre Mix over which Belgravia held a debenture charge, foreshadowed a compromise of Mr Burton's indebtedness to his creditors, a compromise which did not eventuate. The agreement does not affect the indebtedness of White to Tri Star or the validity of Belgravia's security. Counsel for the trustee submitted that the execution by Belgravia of this agreement influenced Mr Burton to change his story, and that, for the previous twelve months, he had claimed that White owed the debt to him personally. I am satisfied, however, that Mr Burton was not the sub-contractor. The contract was with "The Tristar Group".
In the circumstances, I accept the substance of the evidence given by Mr Burton in this application.
There is a substantial issue as to the part played by Picton Super Mix in the project. Almost one-half of the moneys paid by White were paid into the bank account of Picton Super Mix; but this may be explained by financial exigencies. Mr Burton gave evidence, both in his examination and in his application, that the plant and vehicles used in the works were plant and vehicles of Tri Star Pre Mix, obtained by using lease facilities provided by Westpac Banking Corporation. This evidence, if incorrect, could readily have been disproved. It was not. As to employees, Mr Burton said that these came from the Tri Star Pre Mix organisation. This evidence also was not disproved. Rather, it is supported by letters emanating from White during the course of the project which were addressed to "Tristar Concrete", a name similar to that of Tri Star Pre Mix but not to that of Picton Super Mix.
I conclude that the work under the sub-contract was done substantially by Tri Star Pre Mix. I do not regard the matter as one in which the members of the Tri Star Group were carrying on business in common with a view to profit, that is to say in partnership, but rather one in which Mr Burton, as director or agent for each of the organisations of the Tri Star Group, contracted that the work would be done. The work was carried out almost wholly by Tri Star Pre Mix. It follows that the moneys remaining to be paid under the sub-contract are payable to Tri Star Pre Mix.
It is not in dispute that, in that circumstance, Belgravia, which has a registered fixed and floating charge over the assets of Tri Star Pre Mix, lodged under the Corporations Law on 25 November 1991, is entitled to the moneys which are in Court.
The dispute between the trustee and Emmett turned upon several issues. Counsel for Emmett contended that, if the moneys payable under the sub-contract were payable to Mr Burton, then the charge, which was lodged as an ordinary bill of sale on 15 November 1989, was a valid charge and Emmett was entitled to the moneys. Counsel for the trustee contended that it had not been established that Emmett was owed moneys or that the debt was secured. He submitted, moreover, that the bill of sale lodged on 15 November 1989 did not cover the moneys due by White and that the bill had not been lodged as a Trader's bill of sale. In view of my finding that the moneys are due to Tri Star Pre Mix and Belgravia, it is inappropriate to consider those issues.
For these reasons, I shall order that the moneys in court, including any interest thereon, be paid out to the solicitors for Belgravia Investments Pty Limited.
Counsel should bring in, within 14 days, minutes of the orders which they propose. The minutes should address the question of costs.

[1994] FCA 389

30 MAY 1994