Trad Financial Services Pty Ltd v Trad
[2013] NSWSC 1691
•18 November 2013
Supreme Court
New South Wales
Medium Neutral Citation: Trad Financial Services Pty Ltd & Anor v Trad & Anor [2013] NSWSC 1691 Hearing dates: 22-24 October 2013 Decision date: 18 November 2013 Jurisdiction: Equity Division Before: White J Decision: Refer to para [102] of judgment
Catchwords: CONTRACTS - decision on facts as to whether payments were a loan to defendant - when contract contains term requiring interest to be paid but no rate of interest specified - reasonable rate of interest - when parties in arrangement analogous to partnership - interest rate specified by s 24(1)(3) of the Partnership Act 1892
EQUITY - loan of money to purchase vehicle to be resold with proceeds to be used to repay loan with interest and any balance to be split between lender and borrower - whether arrangement impresses a trust on proceeds from dealing with vehicle - principles of remedial constructive trusts - unconscionability - tracingLegislation Cited: Partnership Act 1892 (NSW)
Civil Procedure Act 2005 (NSW)Cases Cited: Rosenhain v Commonwealth Bank of Australia (1922) 31 CLR 46
Victorian Producers Co-operative Company Limited v Edwards (1993) 62 SASR 415
Giorgi v European Asian Bank AG (No. 2) (Young J, Supreme Court of New South Wales, 21 April 1989, unreported; BC8902265)
Gray v Gray [2004] NSWCA 408; (2004) 12 BPR 22,755
Henry v Hammond [1913] 2 KB 515
Walker v Corboy (1990) 19 NSWLR 382
Beatty v Guggenheim Exploration Co (1919) 225 NY 380
Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41
Muschinski v Dodds (1985) 160 CLR 583
Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315Category: Principal judgment Parties: Trad Financial Services Pty Limited (1st Plaintiff)
Damian Trad (2nd Plaintiff)
Carl Trad (1st Defendant)
Koenigsegg Australia Pty Ltd (2nd Defendant)
Pickles Auctions Pty Limited (3rd Defendant)Representation: Counsel:
F Sinclair (Plaintiffs)
J Cohen (Defendants) (1st day of hearing)
In person (1st Defendant) (2nd & 3rd day of hearing)
Solicitors:
George Khoury & Co. Solicitors (Plaintiffs)
Elliot Lawyers (Defendants) (1st day of hearing)
File Number(s): 2011/208830
Judgment
HIS HONOUR: The second plaintiff, Mr Damian Trad, is a director and shareholder of the first plaintiff, Trad Financial Services Pty Ltd ("Trad Financial Services"). He is the second cousin of the first defendant, Mr Carl Trad. Mr Carl Trad is the sole director and shareholder of the second defendant, Koenigsegg Australia Pty Ltd ("Koenigsegg Australia").
The plaintiffs say that in July 2005 they made a loan of $650,000 to Carl Trad by making two payments on his direction. The plaintiffs say that the loan was made for the purpose of Carl Trad's purchasing a black Koenigsegg motor vehicle that had been imported to Australia by a dealer, Galleria Veloce Pty Ltd ("Galleria Veloce"). A Koenigsegg is a fast, exotic and expensive vehicle produced in Sweden. The plaintiffs plead that it was agreed that the vehicle would be owned jointly by them and Carl Trad and that Carl Trad agreed to repay the principal plus interest when he re-sold the vehicle and agreed to share equally any profit on the resale.
Damian Trad arranged for two bank cheques to be provided, one for $300,000 and one for $350,000. These cheques were handed to Carl Trad. The first cheque for $300,000 was drawn on 12 July 2005 and was payable to a Mr Paul Torbay. The second cheque was drawn on 28 July 2005 and was payable to Galleria Veloce. Damian Trad says that these cheques were drawn on Carl Trad's direction and constitute the loan to him.
Carl Trad denies borrowing any money from Damian Trad or Trad Financial Services. He says that the cheques were loans by Damian Trad or Trad Financial Services to Galleria Veloce or its director, Mr Dimitrios Papadimitriou, known as Jim Papas.
Damian Trad deposed that from mid-August 2005 he pressed Carl Trad to sell the black vehicle and to repay the loan, but was continually put off with excuses as to why Carl Trad had not been able to sell the vehicle.
Receivers were appointed to Galleria Veloce on 22 March 2006 following which there was a dispute between Carl Trad and Galleria Veloce as to who was entitled to the black vehicle. That dispute was settled on 30 October 2007, but there is no evidence that Damian Trad was aware at that time of the resolution of the dispute. GE Commercial Corporation (Australia) Pty Ltd ("GE") claimed to have title or the right to sell the vehicle pursuant to a fixed and floating charge given by Galleria Veloce. Pursuant to the settlement it agreed to release its claim to the vehicle and to withdraw a REVS notice it had filed with respect to the vehicle.
The black vehicle was not registered for on-road use in Australia. It was damaged in February 2008 when being driven by Carl Trad during an exhibition race in Adelaide. Carl Trad gave evidence that the vehicle was later shipped back to Sweden for repair, but he was told that the chassis had been cracked and the vehicle was written off. He said that he was offered and received $110,000 as the salvage value for the vehicle.
Damian Trad deposed that a few days before 27 June 2011 it was drawn to his attention that Carl Trad was proposing to sell a second Koenigsegg, an orange vehicle, by auction.
The orange vehicle was purchased in the name of Koenigsegg Australia, but it did not provide any funds for its purchase.
Damian Trad contended that Carl Trad did not have the resources to purchase the second Koenigsegg, that is, the orange vehicle. He believed that the second vehicle was purchased with proceeds generated by the sale of the first vehicle, or from moneys borrowed on the first vehicle, or from the proceeds of insurance of the first vehicle, and in that way the purchase of the second vehicle was sourced from the funds provided by the plaintiffs in 2005.
The plaintiffs pleaded that they had the same property and interest in the orange vehicle as they had in the black vehicle, or, alternatively, that the first and second defendants held the orange vehicle on a constructive trust for the plaintiffs because the proceeds of sale, disposal or insurance of the black vehicle were applied in a manner contrary to the parties' agreement that those proceeds would be used to repay the plaintiffs' loan, but were instead used to buy the orange vehicle. As well as seeking repayment of $650,000 plus interest, the plaintiffs seek an order that the first and second defendants deliver up the orange vehicle to them, or, alternatively, a declaration that the defendants hold the orange vehicle on trust for the plaintiffs and an order that it be sold and the moneys owing to the plaintiffs plus interest be deducted from the net proceeds of sale and the balance distributed equally between Trad Financial Services and Koenigsegg Australia.
The defendants say that none of the moneys used to acquire the second Koenigsegg vehicle was sourced from the black vehicle. The defendants contend that even if Carl Trad is found to have borrowed the sum of $650,000 from Damian Trad or Trad Financial Services, those parties have no interest in the orange Koenigsegg vehicle.
I have concluded that on the balance of probabilities the advances made by the plaintiffs were by way of loan to Carl Trad. But I have concluded that the plaintiffs have no proprietary interest in the orange vehicle of which Koenigsegg Australia is the legal owner. There will be judgment for Trad Financial Services against Carl Trad for the loan plus interest as set out at para [86] below, but the balance of the plaintiffs' claim will be dismissed.
Initial advance of $380,000 in September 2004
Damian Trad has worked in the finance or banking industry for about 30 years. Prior to about 2000 he had been a branch manager at the Arab Bank and before that had worked with the National Australia Bank for about 20 years. He is in the business of arranging financial services and loans. In 2004 Carl Trad was working as a salesman at Galleria Veloce for Mr Papas. He introduced Mr Papas to Damian Trad. Damian Trad assisted Galleria Veloce in increasing its floorplan finance with GE.
On 30 September 2004 Damian Trad arranged for Trad Financial Services to lend $380,000 to Galleria Veloce and a company called J P Investments (Aust) Pty Ltd owned by Mr Papas. The loan was for a short term. According to the loan agreement signed by the parties no interest was payable on the loan, but their true agreement was different. Damian Trad agreed that he was paid interest on the loan, which I infer was at a high interest rate of about three to five per cent per month. The loan was made to provide funds to Galleria Veloce to import the black Koenigsegg to Australia. Galleria Veloce needed those moneys to complete its purchase of the vehicle. Galleria Veloce had entered into a contract on 10 April 2004 to buy the vehicle for €389,300, although there was other evidence that the net price payable by it was €361,250. It had made a part-payment on the vehicle and on 30 September 2004 paid €321,500 to complete the purchase using in part the funds provided by Trad Financial Services.
The $380,000 loan was repaid by Galleria Veloce and J P Investments (Aust) Pty Ltd. Galleria Veloce repaid $107,000 on 30 November 2004. J P Investments (Aust) Pty Ltd repaid $273,000 on 6 April 2005. Interest was also paid, although the amount of interest paid has not been established.
On 28 March 2007 Carl Trad swore a statutory declaration for the purposes of a dispute he had with GE. In that statutory declaration he swore that he borrowed the $380,000 from Damian Trad and sent the money directly to Sweden to acquire the black Koenigsegg. He swore that at that time Mr Papas had the vehicle and was the owner of the vehicle, but owed him $380,000. This was confusing but in any event was false. Carl Trad did not borrow that sum from Damian Trad and prior to the payment of $380,000 to Koenigsegg in Sweden, Galleria Veloce was not the owner of the vehicle. The statutory declaration was sworn for the purposes of a dispute between Carl Trad and GE concerning title to the vehicle.
In his statutory declaration of 28 March 2007 Carl Trad also deposed that Mr Papas gave him a tax invoice dated 24 September 2004 as security for a loan, being a loan from him to Mr Papas. This tax invoice purportedly disclosed a sale of the vehicle by Galleria Veloce to Carl Trad for a price of $1.1 million and stated that the purchase price had been paid. In his statutory declaration Carl Trad deposed that Mr Papas said to him words to the effect:
"I will give you a tax invoice for $1.1m which is the insured value of the vehicle and you will become the owner of the vehicle until such time as I repay you the $380,000."
Carl Trad deposed that he told Mr Papas that because he had borrowed the money he needed security and therefore he accepted the tax invoice and accepted the ownership of the vehicle until Mr Papas repaid the $380,000. In his statutory declaration Carl Trad deposed that Mr Papas repaid the $380,000 to him over a period of four or five months after which he gave Mr Papas back the tax invoice and a consignment agreement.
The consignment agreement was dated 30 September 2004 and was signed by Carl Trad as consignor and owner of the Koenigsegg vehicle. Galleria Veloce was named as the consignee. Carl Trad declared that he was the true owner of the vehicle and impliedly authorised Galleria Veloce to sell the vehicle for him.
Carl Trad did not borrow the $380,000 from Trad Financial Services and on-lend it to Galleria Veloce. The loan was made directly by Trad Financial Services to Galleria Veloce. However, Carl Trad took an invoice that purportedly recorded a payment for the vehicle by Carl Trad to Galleria Veloce, although no such payment had been made. He signed a consignment agreement that described him as the owner of the car. Carl Trad said that in taking these steps he was obtaining security for Damian Trad in case the loan was not repaid. The tax invoice was false, in that there had been no sale of the car to Carl Trad for $1.1 million, or any other sum at that time, and no payment of that sum. The consignment agreement was false because Carl Trad was not then the owner of the car. Carl Trad provided no explanation as to why the purported security showed him as the purchaser of the vehicle, rather than Trad Financial Services or Damian Trad who had provided the money.
Carl Trad said that the creation of the invoice and the signing of the consignment agreement that named him as the owner of the vehicle was done for the purpose of providing security for the loan from Damian Trad or Trad Financial Services to Galleria Veloce. He did not tell Damian Trad about the invoice and consignment agreement in his name that purportedly showed him as the owner of the vehicle, but said that as Damian Trad was willing to lend $380,000 to Galleria Veloce unsecured he could have no cause for complaint.
Self-evidently these facts reflect adversely on Carl Trad's credit.
Damian Trad's evidence of a loan to Carl Trad
Damian Trad deposed that after the repayment of the loan of $380,000 in April 2005 he was in high spirits. He deposed that in early June 2005 Carl Trad visited him at his office and said words to the following effect:
"I want to buy the Koenigsegg. As you know, Papas has the sole distribution rights to import and sell in Australia and has said he will sell me the vehicle in his showroom for $650,000 which I think is a good deal. I don't have the money. Could you lend me $650,000 to buy the Koenigsegg and I will repay you when I sell the vehicle. I will be able to sell it for over one million dollars. I will pay you back your money plus interest and then we will split the difference 50-50."
Damian Trad deposed that a conversation to the following effect ensued:
"'Carl how will you sell the car and where will it be housed?' He replied: 'I will market it from Papas' Rose Bay showroom and it will be stored safely there. I have looked into it and I know the car will be worth more than $1m in the Australian market.' After talking some more I said: 'I agree as long as you have control over the proceeds, repay me with interest and agree to split the proceeds of any profits with me. Let me know when you want the money and I will arrange it.'"
Damian Trad further deposed:
"In the morning of 12 July 2005 the First Defendant phoned me and said: 'The purchase of the Koenigsegg is being arranged and I need the money you are lending me. Can I have a bank cheque today for $300,000 payable to Paul Torbay and that will be the first payment towards buying the car.' I didn't question the First Defendant further but made arrangements for the funds to be transferred as directed."
He also deposed:
"A few weeks later in the morning of 28 July the First Defendant phoned me and said: 'I need the next payment of $350,000 to buy the Koenigsegg and this time the bank cheque is to be payable to Galleria Veloce Pty Ltd.' I then contacted the NAB requesting a bank cheque as directed."
Carl Trad denied that any such conversations took place.
Damian Trad produced ledger entries from the books of Trad Financial Services for loans made in the year ended 30 June 2006. One page was printed on 15 December 2005 and the other on 13 July 2006. There were handwritten amendments and additions to the sheets. Damian Trad said the handwritten changes were made one or two months after the ledger entry was produced for the purposes of preparing GST returns. The printed entries included an entry dated 13 July 2005 with a debit of $300,008 against a description "Contra Carl" and an entry dated 28 July 2005 for a debit amount of $350,000 with a description "Contra Papas". Handwritten annotations refer to both sums against a handwritten annotation "Carl".
It was suggested to Damian Trad in cross-examination that in relation to the second sum of $350,000 the handwritten annotation said "Gall" being a reference to Galleria Veloce and not "Carl". Damian Trad denied this. Although the writing on the copy document which was the exhibit is unclear, I accept Damian Trad's evidence that the written word is "Carl" in capital letters, and not "Gall". This appears more clearly with a magnifying glass where what counsel asserted in cross-examination to be a letter G appears to be a letter C with the commencement of a letter A.
The writing is quite different from the letter G which appears in another item immediately below the entry in question. The handwriting includes a list of cheques to come in to DYA Finance. (DYA Finance Pty Limited is a company of which Damian Trad is a shareholder and director.) These included cheques for $300,008 and $350,000 both from "Carl". The additional eight dollars in relation to the first cheque was said to relate to bank fees. Damian Trad said that the reason the printed report for the entry dated 28 July 2005 for the amount of $350,000 said "Contra Papas" was because the person who logged the transactions, being his accountant or secretary, made the entry, whereas his entry was written in the square alongside the printed entry. He thought that the accountant would have produced the report from his chequebooks.
The handwritten entries do not appear to be a later fabrication. There are handwritten notations in relation to numerous entries which give the appearance of having been made at or about the time the reports were printed. On the whole the documents corroborate Damian Trad's version of events.
Carl Trad's acquisition of black Koenigsegg
There was no dispute that Carl Trad acquired the black Koenigsegg from Galleria Veloce. He said that at some time prior to 24 September 2004 he had a conversation with Mr Papas in which Mr Papas offered to sell him the vehicle for $650,000. He deposed that Mr Papas said:
"I'll sell it to you, the car, for $650,000. But as it is uncomplied, I'll take $300,000 right now and $350,000 once it's been complied. I will make the vehicle compliant in a few months and when it's compliant you can give me the rest of the money."
Carl Trad said that making the vehicle "compliant" meant that it met Australian design standards and could be registered to be driven on public roads.
Carl Trad said that he accepted that offer and that Mr Papas agreed to receive payment of the first $300,000 by taking a new Hummer H2 motor vehicle in part payment to the extent of $150,000. Carl Trad said that the other $150,000 was paid in cash.
In his affidavit Carl Trad said that he purchased the black Koenigsegg on 24 September 2004. This was the date of the invoice purportedly recording the sale of a vehicle to him for $1,100,000 that Carl Trad said he took as security for the loan made by Damian Trad to Galleria Veloce. In his oral evidence Carl Trad said that he purchased the vehicle in about April or May 2005 (T203). There was no document recording a purchase at that time or for a price of $650,000. No document was tendered recording a trade-in, or crediting the trade-in value of $150,000, against the purchase price of the Koenigsegg.
Carl Trad said that the Hummer vehicle was purchased back from Galleria Veloce on 29 November 2005. There is a tax invoice dated 29 November 2005 purportedly describing the sale of the vehicle to Southern Cross Concrete for $150,000. Southern Cross Concrete is the name of a business conducted by Carl Trad's brothers. Carl Trad said that the price on the repurchase was not $150,000 but $120,000, and that the purported sale price was in fact a reference to the insurance value of the car. He said that his brothers did not pay cash for the purchase of the car in November 2005, but instead forgave debts owed to them by Galleria Veloce as consideration for the purchase. An email from within the receiver's office dated 3 August 2006 suggests that the vehicle was not registered to Galleria Veloce until 2 December 2005 and ceased to be registered in that company's name on 3 March 2006. Carl Trad disputed that this was the position. Carl Trad said that after the Hummer was acquired by Galleria Veloce as part of the consideration for the purchase of the Koenigsegg, the Hummer went onto the floor of Galleria Veloce's showroom, and that Mr Papas drove the vehicle and sometimes hired it out to different people, such as celebrities, until the vehicle was bought back by Carl Trad's brother in about November 2005 (T173). If the trade-in occurred, it could be expected that the vehicle would have been registered in the name of Galleria Veloce shortly after its acquisition, i.e. by April or May 2005. No registration papers were tendered.
There is therefore no corroboration of Carl Trad's evidence that the Hummer was traded in as part of the consideration for the purchase of the Koenigsegg. He did not call his brother or brothers whom he said traded in the vehicle. Nor did he produce any documentary evidence of the trade-in. Nor did he tender the registration papers.
There is no corroboration of Carl Trad's evidence that he paid $150,000 in cash. As I understood his evidence the cash was provided by one or more of his brothers and not by him. No receipt for the cash was produced. No evidence was called from any of Carl Trad's brothers in relation to the payment of cash. No evidence was called from Mr Papas, but this is explained by evidence from Carl Trad that Mr Papas has been imprisoned in Western Australia. The absence of other corroboration is not adequately explained.
Carl Trad blamed his counsel. He terminated his solicitor's and counsel's retainer after the first day of the hearing. He said that the reason no corroborative evidence was adduced was because he was not told that such evidence would be needed. I cannot determine whether this is true. For better or worse, a party must often bear the consequences of a decision by or omission of his or her legal representatives. In adversary litigation it is not fair to an opponent and not possible for the court to attempt to delve into the reasons said to be internal to the camp of the party and its legal representatives as to why evidence, that on that party's case should be called, was not called.
Dispute with GE
The Koenigsegg remained with Galleria Veloce for the rest of 2005. Carl Trad said that it was left with Mr Papas for him to bring the vehicle into compliance with Australian Standards on Carl Trad's behalf and to sell on Carl Trad's behalf if he found a customer. Carl Trad said that he and Mr Papas went to the United States on business in January 2006. Whilst he was there he learned that Mr Papas was having marital problems and his wife had said she would leave him. He concluded that if she left Mr Papas and froze his assets, he would have a big problem and so directed his brother to pick up the vehicle from the showroom, which he did (T174). According to Carl Trad, the two salesmen who were present knew that he owned the vehicle and gave the vehicle and the keys to his brother. There was no corroboration of this evidence.
Receivers were appointed by GE to Galleria Veloce on 22 March 2006. The receivers contended that the Koenigsegg was the subject of a charge given to GE by Galleria Veloce. There was a dispute between GE and Carl Trad about the ownership of the Koenigsegg and of other vehicles of which Carl Trad had taken possession. According to Carl Trad he attempted to persuade Mr John Boyden of GE that he was the owner of the Koenigsegg and as evidence of the purchase he showed Mr Boyden the tax invoice dated 24 September 2004 that purportedly showed the vehicle having been sold to him for $1.1 million. Of course, this invoice was taken by Carl Trad only as some form of security for repayment of the loan of $380,000 made by Damian Trad or Trad Financial Services to Galleria Veloce, which loan was repaid. Carl Trad said that after the loan was repaid he returned the invoice to Galleria Veloce (T178).
On 26 May 2006 Carl Trad sent a fax to Mr Boyden being a copy of a bank cheque dated 30 September 2004 in favour of Travelex (which sold foreign currency) for $380,000. I infer this was a cheque obtained by Galleria Veloce to acquire foreign currency to assist towards payment for the balance of the moneys owing by it for the purchase of the black Koenigsegg using the funds lent by Trad Financial Services. Carl Trad represented to GE that this was "payment for Koenigsegg" implying that it was payment made by him for the Koenigsegg. In cross-examination he accepted that in sending the fax to Mr Boyden he was telling the receivers that $380,000 was money that he had paid for the Koenigsegg.
Carl Trad refused to disclose to GE where the Koenigsegg was stored. He went to the media. On 9 June 2006 Channel 9 broadcast an interview with Carl Trad on its program "A Current Affair". In the course of his interview Carl Trad said:
"There's money owing on it that is not my debt; you know, this money is not my debt. They [GE] know that; I know that; the dealer knows that; and yet, no-one will do anything about it.
... Like, there's still interest being paid on that money; I borrowed the money for this car; it's not like I have the money."
According to the reporter the vehicle had been imported by Carl Trad. According to the evidence given by Carl Trad in the present proceedings, he had only paid part of the purchase price for the vehicle and he did owe a debt on the car, being the balance of the purchase price payable to Galleria Veloce of $350,000 to be paid when the car was made compliant. He told a different story to GE and to the media.
On 28 March 2007 Carl Trad swore a statutory declaration concerning his acquisition of the Koenigsegg. He declared:
"4. In or about June 2005 the vehicle was still standing on the floor at Galleria Veloce. On a particular day the date of which I cannot recall Pappas said to me words more or less as follows:
'I need to sell the vehicle for $650,000.00 do you know anyone who would want to buy it?'
I replied more or less as follows:
'let me think about it for a few days and I will come back to you.'
I thought at the time that it was a good deal for me and so I discussed it with my cousin Damian Trad and I decided to purchase the vehicle from Pappas for $650,000.00.
5. During the discussions which I was having with Papas he informed me that he owed Paul Torbay an amount of $300,000 and he therefore said words to me more or less as follows;
'Carl I owe Paul Torbay $300,000.00. So give me a cheque for $300,000.00 in favour of Paul Torbay and give me another cheque in favour of my company for $350,000.00'
Papas said to me as follows;
'Carl the vehicle is actually insured for $1.1m so I will give you a tax invoice for that amount as well as a consignment agreement for $1.2m, even though you only paid $650,000.00'
6. The purchase price for the said vehicle was $650,000.00 which amount was paid by me by way of two bank cheques. At that time Pappas handed to me a tax invoice which he signed and I signed, and he gave me a consignment agreement. At that time having paid the purchase price in full and having received the tax invoice I became the owner of the vehicle. That was in July 2005.
7. I enclose a copy of a cheque in favour of Galleria Veloce Pty Ltd for the $350,000 which cheque is dated the 28th July 2005 and issued by the National Australia Bank, Annexure 'B'.
8. I further enclose a copy of a bank cheque in favour of Paul Torbay for $300,000 which cheque is dated the 12th July 2005 and issued by the National Australia Bank, Annexure 'C'.
9. That $650,000 I borrowed from Damian Trad (my cousin) for the express purpose of purchasing the vehicle. I still owe my cousin that amount of money plus interest and which I can only repay when I sell the vehicle. I annexe hereto a Statutory Declaration by Damian Trad marked 'X' in support of the aforegoing."
The plaintiffs rely on this statutory declaration as corroborative of Damian Trad's evidence of the loan.
On or about 30 March 2007 Damian Trad also swore a statutory declaration in which he said:
"4. In particular I say that in or about June 2005, my cousin discussed with me a possible purchase of a Koenigsegg motor vehicle from Galleria Veloce and said to me words to the following effect:
'Pappas wants to sell the Koenigsegg for $650 000.00. which I think is a good deal, but I don't have the money. Could you lend me that amount and I will repay you when I re-sell the vehicle' After a short discussion.
I replied as follows:
'Just tell me when you want the money, and I will arrange it.'
5. Some 2 or 3 weeks later, my cousin told me that the purchase of the said vehicle had been arranged and asked me to provide 2 bank cheques one for $300 000, and another for $350 000., which I did and those are the cheques referred to in paragraph 5 of my cousins [sic] affidavit.
6. My cousin has not yet repaid the money to me, as I believe that he has not yet sold the vehicle."
This was the statutory declaration referred to in paragraph 9 of Carl Trad's declaration.
Carl Trad gave evidence that the statutory declarations were prepared because "things were getting heated up with GE, they wouldn't pull out" (T220). He said that he asked Damian Trad, "If there's any way I could justify $650,000, because that was the original price I was supposed to buy off Papas and I told GE that I paid $650,000 for the car, although it was insured for $1.1. The invoice was $1.1. Damian Trad was the one that came back to me and [said] I have a cheque for Galleria Veloce around this time and a cheque for Paul Torbay around this time, and he done the stat dec."
Damian Trad denies that he prepared either statutory declaration. He was happy to sign his statutory declaration because, according to him, it told the truth.
Carl Trad attempted to deceive GE by:
(a) representing that the invoice dated 24 September 2004 was evidence of his purchase of the vehicle; and
(b) representing that the bank cheque dated 30 September 2004 represented payment made by him for his purchase of the vehicle.
It is Carl Trad's case that he also attempted to deceive GE by:
(a) representing that he had paid $650,000 for the vehicle; and
(b) falsely representing that he had obtained the $650,000 by borrowing the moneys from Damian Trad.
Carl Trad engaged the services of a Mr James Byrnes to endeavour to settle his dispute with GE. Mr Byrnes described himself as consultant representative of Australian Litigation Funders Pty Limited. On 21 August 2007 Mr Byrnes wrote to GE's solicitor in which he set out Carl Trad's instructions. This in substance repeated the matters contained in Carl Trad's statutory declaration of 28 March 2007. Mr Byrnes wrote:
"My client maintains the following.
He knew Mr Papas and had known him for approx. 1 year before undertaking the first transaction with the Koenigsegg.
As I understand the first transaction was one were [sic] Papas could not fulfil the purchase agreement with the Swedish supplier and needed $380,000.
My client provided the funds and title was transferred to my client on a quassi [sic] put and call arrangement . were upon [sic] payment back to my client of the $380,000 and some interest my client would relinquish title back to Papas. payment were made and the ownership again re vested in Galleria.
On or about June 2005. Papas advised my client he had to dispose of the vehicle and that he would do so for $650,000 as he had commitments to a vendor and for new stock.
My client agreed to purchase the car.
My client was instructed to transfer funds to the vendor in the amount of $650,000 and or at his discretion. My client was instructed to direct $300,000 to a Mr Paul Torbay who I understand had placed Mr Papas under some pressure to meet an outstanding payment. ...
So in short my client paid $650,000 being $300,000 at the companies [sic] direction and $350,000 to the company."
Carl Trad now disclaims these statements.
Acquisition of the orange Koenigsegg
Carl Trad was not forthcoming about the details of the acquisition of the orange Koenigsegg. He failed to comply with notices to produce and with an order for discovery I made on 6 December 2012. In an interlocutory judgment on 6 December 2012 (where I adjourned a notice of motion filed by Koenigsegg Australia seeking a mandatory order that the plaintiffs remove a listing of the orange Koenigsegg vehicle from the REVS registry), I said:
"11 ... The plaintiffs plead that the first and second defendants purchased the vehicles (plural) using moneys lent by the plaintiffs. There is no evidence as to when or how the orange vehicle was acquired by the second defendant, or what was the source of funds for the purchase of that vehicle.
12 Notwithstanding that the defendants were ordered to serve their evidence by 27 September 2012, which date was subsequently extended to 2 November 2012, the defendants have not given any evidence about those circumstances. The plaintiffs are in the dark about how the second vehicle was acquired and what has happened with the first vehicle.
13 A notice to produce was served on the defendants requiring documents to be produced by 15 August 2011 relating to the question of the acquisition of the vehicles and the source of funds used for that purpose. No documents were produced at any time in answer to the notice.
...
17 Whilst the plaintiffs have not yet clearly identified how they claim a proprietary interest in the second vehicle, I infer that that is at least largely due to a lack of information about how the moneys advanced were used by Mr Carl Trad, what was the source of the funds for the purchase of the second vehicle and what was done with the first vehicle. That difficulty arises not just because the defendants have not served their evidence, but also because they have not produced documents which they were required to produce pursuant to the notice to produce."
I made an order for discovery and I gave leave to the plaintiffs to administer interrogatories. The order for discovery was not complied with and documents were produced only during the hearing as the result of further orders I made.
In answers to interrogatories verified by Carl Trad and filed on 15 March and 26 June 2013 the defendants stated that the purchase price of the second Koenigsegg vehicle was $610,000 and that the sources of funds for the purchase of the vehicle were loans from George Katrib, Medina Imports Pty Ltd and Unique Finance Pty Ltd.
During the hearing Carl Trad produced an invoice from Koenigsegg Sweden dated 12 March 2008 to him for the purchase of the vehicle. The purchase price was stated to be €610,532. Carl Trad said that this was a mistake and the purchase price was in fact $610,532. He produced evidence of payments to Koenigsegg on 8 and 16 May 2008 of €370,532 at a cost of $609,429.17. A further sum of 111,500 Swedish Krona was paid that Carl Trad said was to pay for the transporting of the car from Sweden to Australia.
The Euros paid to Koenigsegg were purchased from Travelex by Trad Commercial Pty Ltd. Carl Trad said that this was a company of his brothers. He said that he sent the money through his brothers' company to get a better exchange rate because that company had an account with Travelex (T258-259).
Contrary to his verified answers to interrogatories, in his affidavit and oral evidence Carl Trad said that the funds to acquire the orange vehicle did not include any money borrowed from Medina Imports Pty Ltd. He said the source of the funds was a loan from a company called Unique Finance Pty Ltd for $300,000, a loan from a Mr George Katrib for $150,000 and the sale of a Ferrari owned by him for $150,000. The only corroboration of this evidence was the tender of a loan contract between him and Unique Finance Pty Ltd dated 16 May 2008 whereby he borrowed $300,000 for one month on security of the black Koenigsegg. Carl Trad said that the loan was for three months, not for one month as stated in the loan agreement. He said that his brothers paid the interest on the loan. He said the loan had been paid out with funds provided by a Mr Carl Jabbour. He also said that Unique Finance took physical possession of the car until the loan was repaid. This further evidence was not corroborated.
Whilst Carl Trad's evidence as to the source of funds for the purchase of the orange vehicle was almost entirely uncorroborated, it does appear that the orange vehicle was not acquired from the sale of the black vehicle. The orange vehicle was acquired in about May 2008. The black vehicle was shipped back to Sweden on or about 21 August 2009.
There is no evidence that the vehicle was insured for the damage it sustained at the exhibition race in February 2008. There is no evidence that any insurance was paid in respect of the vehicle.
Carl Trad admitted to having received $110,000 by way of salvage value for the black vehicle from Koenigsegg. He said that this money stayed in Sweden (T247-248). He said that the money was sitting in an account in Sweden for another vehicle to be built (T248). There is no evidence that the salvage moneys were applied towards the purchase of the orange vehicle.
Were the payments of $300,000 and $350,000 on 12 July and 28 July 2005 a loan to Carl Trad?
Carl Trad identified the following matters as pointing to its being objectively unlikely that Damian Trad had lent $650,000 to him.
First, such an agreement was likely to be in writing and not be made on a handshake.
Secondly, Damian Trad asserted that to his knowledge Carl Trad had no funds and no access to funds. Damian Trad deposed that Carl Trad had been unemployed since 2004 and did not own a house or other property. It was improbable that he would lend $650,000 without security to someone whom he believed to be without assets.
Thirdly, other loans that Damian Trad had arranged for members of Carl Trad's family had been arranged through financial institutions and were secured.
Fourthly, Damian Trad had successfully made a loan to Galleria Veloce in September 2004 that had been repaid by April 2005. This loan had been profitable and Damian Trad was pleased by the success of that venture. It was therefore likely that he would be willing to make another substantial loan to Galleria Veloce rather than to Carl Trad.
Fifthly, the printed ledger of Trad Financial Services has the notation "Contra Papas" in respect of the payment of $350,000 on 28 July 2005. The handwritten alterations to the ledger pages could have been added at any time. If Damian Trad was prepared to swear falsely that the loan had been made to Carl Trad, he could have been prepared to fabricate the evidence relied on as corroboration.
Sixthly, no demand for repayment of the alleged loan was made until Damian Trad heard in June 2011 that the orange vehicle had been advertised for sale.
Seventhly, Carl Trad submitted that Damian Trad made false allegations of a proprietary interest in the orange vehicle and by that means initially obtained a freezing order in respect of the orange vehicle and improperly entered a listing on the REVS registry in respect of the orange vehicle. As I understand it this last submission went to a question of Damian Trad's credit.
There are two additional considerations.
First, it would be unusual for a person to make a loan of $650,000 to be repaid with interest, without agreement as to the rate of interest to be charged. Damian Trad gave no evidence of any discussion with Carl Trad about the rate of interest the loan would attract.
Secondly, the fact that Carl Trad initially gave a false version of events to GE Finance, is some indication that the version of events in his and Damian Trad's statutory declarations of 28 and 30 March 2007 was also false. That is to say, if Carl Trad did borrow $650,000 from his cousin and bought the car by making two payments, one of $300,000 to Paul Torbay on the direction of Mr Papas and the other to Galleria Veloce, it might be expected that that would have been the first version of events presented to GE. Instead, Carl Trad initially misrepresented to GE that the payment of $380,000 in September 2004 was a payment he had made for the purchase of the vehicle. He also initially relied on the invoice dated 28 September 2004 as evidence of his ownership of the vehicle. There would have been no reason for these lies if Carl Trad had purchased the vehicle in 2005 by making the two payments totalling $650,000 that he said he made in the statutory declaration of 28 March 2007.
Damian Trad's response to the first two matters is that he was making a loan to his relative and he was assured by Carl Trad that the vehicle would be sold for a profit and he was assured that the proceeds of sale would be more than adequate to repay the loan with interest. As to the third matter, evidence given by Damian Trad of the loans he had made to other members of Carl Trad's family was successfully objected to by counsel then appearing for Carl Trad. No clear evidence was given as to the extent to which Damian Trad provided financial assistance to Carl Trad's brothers, or other members of his family or on what terms. Damian Trad acknowledged that he had arranged for the National Australia Bank or the Arab Bank to lend money to members of Carl Trad's family on his direction on security of property, but he also said that he lent $100,000 to Carl's brother's company, Trad Enterprises, for which there was no paperwork and which I therefore assume was a loan he said was unsecured. There was no contrary evidence.
The only cross-examination of Damian Trad in relation to the time at which the handwritten alterations were made to the ledger pages was that counsel put to him that he was simply making his evidence up: a proposition he denied. Damian Trad was not cross-examined to any effect in relation to the delay in commencing proceedings for recovery of the asserted loan. He was not cross-examined on his evidence that he sent Carl Trad regular text messages and rang his mobile phone on numerous occasions to chase up the money. As I understand Damian Trad's affidavit he did this until about mid-2007 when according to him, Carl Trad answered his phone and told him to lose his number and stop ringing him. Damian Trad deposed that he was embarrassed and upset by the matter and fell into depression. He was not cross-examined about that evidence.
Damian Trad's version of events was not successfully attacked in cross-examination. It is not on that account necessarily true, but in weighing the oath of Damian Trad and the oath of Carl Trad, I have to take into account that Carl Trad admittedly sought to deceive GE and on his version of events compounded the deceit by swearing a false statutory declaration. Those matters have to affect his credit. There is not a similar basis for impugning Damian Trad's credit.
Damian Trad's version of events had some limited corroboration from a Mr Jackson. According to Carl Trad, he did not discuss the purchase of the Koenigsegg with Damian Trad in about July 2005. Indeed, he said he had already purchased it. Mr Jackson is a co-director and shareholder with Damian Trad in the finance company called DYA Finance. They work out of the same office. Mr Jackson gave evidence of Carl Trad's having been introduced to him in July 2005 at which time Damian Trad told him, in the presence of Carl Trad, that Carl was there to see if he could arrange finance to purchase the Koenigsegg. He deposed that Damian said in Carl's presence words to the effect:
"Carl has the opportunity of purchasing one of those flashy super fast cars, a Koenigsegg, for a very cheap price, but he needs to borrow $650,000. He will be able to onsell the car very quickly are there are a lot of buyers and money would be repaid very quickly from the onselling of the vehicle. The vehicle is valued at over $1 million and is said to be the fastest in the world."
Mr Jackson was not shaken on this evidence in cross-examination, although Carl Trad denied it.
There were also objective considerations in support of Damian Trad's version of events.
Carl Trad ended up with the black Koenigsegg. Damian Trad says that he bought the car from Galleria Veloce with the $650,000 that he borrowed from Damian Trad and Trad Financial Services. Carl Trad admits buying the car but denies the loan. But there is a lack of objective support for Carl Trad's evidence as to how he acquired the vehicle. On his own evidence he paid only part of the purchase price for the vehicle. How then did he acquire possession of it? He said that employees of Galleria Veloce permitted one of his brothers to take the vehicle. There was no corroboration of that evidence. The evidence is implausible. Nor, for the reasons given above, was there any corroboration of Carl Trad's evidence as to how he paid $300,000 for the vehicle. Of course, Carl Trad might not have been telling the truth about his acquisition of the vehicle, but might be telling the truth in denying the loan, but that is not the case he put.
I do not consider that any of the objective circumstances summarised above as supporting Carl Trad's version of events, either alone or in combination, warrants my rejecting Damian Trad's sworn evidence of his conversations with Carl Trad, that is consistent with Carl Trad's own sworn evidence in his statutory declaration of 28 March 2007. I conclude that Trad Financial Services lent $650,000 to Carl Trad on the terms deposed to by Damian Trad with the payments being made on Carl Trad's direction.
Carl Trad did not plead or submit that the loan was a "without recourse" loan that was only repayable from the proceeds of sale of the black Koenigsegg.
Interest on loan
According to Damian Trad, the loan carried interest, but he gave no evidence of a rate of interest having been discussed. In those circumstances a reasonable rate of interest can be implied (Rosenhain v Commonwealth Bank of Australia (1922) 31 CLR 46 at 51; Victorian Producers Co-operative Company Limited v Edwards (1993) 62 SASR 415 at 418). There was no evidence nor any submission addressed to the question as to what would be a reasonable rate of interest. If Trad Financial Services were paying interest at bank overdraft rates that would provide a guide as to what was a reasonable rate, but there was no such evidence.
The law formerly took the rate of five per cent as being a reasonable rate of interest, being influenced by the usury laws that forbad the imposition of a higher rate on a mortgage advance (Rosenhain v Commonwealth Bank of Australia at 31; Giorgi v European Asian Bank AG (No. 2) (Young J, Supreme Court of New South Wales, 21 April 1989, unreported; BC8902265 at 4)). But that is no longer the case (Gray v Gray [2004] NSWCA 408; (2004) 12 BPR 22,755 at [79]-[85]). In the absence of evidence I could allow interest at the rates provided for the purposes of the inclusion of interest in a judgment for the recovery of a money sum pursuant to s 100 of the Civil Procedure Act 2005 (Gray v Gray at [85]). That section cannot be directly applicable as it does not authorise the giving of interest on a debt for which interest is payable as of right (s 100(3)(b)).
I prefer to take guidance as to the appropriate rate of interest from s 24(1)(3) of the Partnership Act 1892 (NSW). Although the plaintiffs did not plead that they were in partnership with Carl Trad, the substance of the case put was that they entered into the venture in common with Carl Trad with a view of profit by their providing the capital for his acquisition of the vehicle and by his using his skills to sell the car at a profit, with the profits to be shared between them after the repayment of the plaintiffs' advance with interest. It is unnecessary to decide whether there was a partnership between the plaintiffs and Carl Trad. If not, their relationship was at least analogous to a partnership. In the absence of an agreement to the contrary, the plaintiffs were entitled to repayment of their advance with interest at the rate of seven per cent per annum (Partnership Act, s 24(1)(3)). The plaintiffs only sought interest from 28 July 2005.
As the advance was made by Trad Financial Services there will be judgment for Trad Financial Services for the sum of $650,000 together with interest at the rate of seven per cent per annum from 28 July 2005.
Proprietary claim to the orange Koenigsegg
The plaintiffs pleaded that the black Koenigsegg was to be purchased with the funds provided by the plaintiffs and was to be jointly owned by them and Carl Trad. However, Damian Trad's evidence was not that there was any agreement that he or Trad Financial Services would be a joint owner of that vehicle with Carl Trad. In cross-examination he disclaimed any claim to ownership of the black Koenigsegg. Rather, the plaintiffs' case was that the proceeds of sale of the black Koenigsegg, or any insurance proceeds, or moneys raised on security of the black Koenigsegg, were held on trust for the plaintiffs who were entitled to trace their beneficial interest in those moneys into the orange Koenigsegg that, the plaintiffs asserted, was acquired using such moneys.
This claim fails on two levels. The first is that the moneys used to acquire the orange Koenigsegg were not sourced from the sale of the black Koenigsegg, nor from its insurance proceeds. Three hundred thousand dollars was raised by Carl Trad on security of the black Koenigsegg that he said was used to acquire the orange Koenigsegg. But that was a short term loan that was repaid.
Secondly, even if the black Koenigsegg had been sold, and the proceeds applied in the purchase of the orange Koenigsegg, the plaintiffs did not have a beneficial interest in the proceeds of sale. Nor would they have had a beneficial interest in any insurance proceeds. Nor did they have a beneficial interest in moneys raised on security of the black Koenigsegg.
Damian Trad's evidence of the terms of his agreement with Carl Trad, which is set out at paras [24] and [25] above, contains no reference to the plaintiffs' having an interest in the black Koenigsegg. Damian Trad said in cross-examination that it was never his car (T60). His evidence that Carl Trad agreed to repay the loan with interest after the vehicle was sold and that they "split the proceeds of any profits" does not establish any trust over the proceeds. There was no agreement that Carl Trad would hold the proceeds of sale of the black Koenigsegg as a separate fund from which to repay the loan, pay interest and half of the net profits. In the absence of any express words creating a trust, and in the absence of any words imposing an obligation on Carl Trad to keep the proceeds of sale separate from his other money, one cannot imply an intention to create a trust (Henry v Hammond [1913] 2 KB 515 at 521; Walker v Corboy (1990) 19 NSWLR 382 at 397).
As the vehicle itself was not held on trust for the plaintiffs, and as there was no declaration of any trust in respect of insurance proceeds, no insurance proceeds would be held on trust. Similarly, as Carl Trad must be taken to have been the beneficial owner of the black Koenigsegg, in the absence of any express provision to the contrary, and there was no such provision, he was free to mortgage that vehicle to raise the $300,000 loan from Unique Finance Pty Ltd. He did not hold the proceeds of loan on trust for the plaintiffs. For the same reasons, he does not hold the salvage value paid to him by Koenigsegg, which he said was held in an account in Sweden, on trust for the plaintiffs.
Counsel for the plaintiffs argued that Carl Trad had acted unconscionably in relation to his dealing with the black Koenigsegg and that a court would bind the conscience of Carl Trad and impress the orange Koenigsegg with a constructive trust. She cited a statement of Cardozo J in Beatty v Guggenheim Exploration Co (1919) 225 NY 380 at 386 cited by Mason J in Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 at 108 where Cardozo J said:
"A constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee.
...
A court of equity in decreeing a constructive trust is bound by no unyielding formula. The equity of the transaction must shape the measure of relief."
As I understood the submission, it was that it would be unconscionable for Carl Trad to retain the beneficial ownership of the orange Koenigsegg where he has not repaid the loan used to acquire the black Koenigsegg.
I do not accept this submission. As Deane J said in Muschinski v Dodds (1985) 160 CLR 583 at 615:
"The fact that the constructive trust remains predominantly remedial does not, however, mean that it represents a medium for the indulgence of idiosyncratic notions of fairness and justice. As an equitable remedy, it is available only when warranted by established equitable principles or by the legitimate processes of legal reasoning, by analogy, induction and deduction, from the starting point of a proper understanding of the conceptual foundation of such principles."
In Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315, Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ said (at 324):
"... whether a particular case amounts to a breach of trust or abuse of fiduciary duty is determined by reference to well developed principles, both specific and flexible in character. It is to those principles that the court has first regard rather than entering into the case at that higher level of abstraction involved in notions of unconscientious conduct in some loose sense where all principles are at large."
The statement of Cardozo J in Beattie v Guggenheim Exploration Co quoted above must be understood in the context of the facts of that case. His Honour was analysing the remedy of the constructive trust as it applied to breaches of fiduciary duty in fiduciary relationships, such as agency or partnership. In Hospital Products, Mason J noted that the statement in Beattie v Guggenheim Exploration Co was made in the context of remedies available for default by a fiduciary.
There is no principle that a constructive trust can be imposed as a remedy on property of a debtor because it is asserted that a debtor would be acting unconscionably if he or she were to enjoy the property without having discharged his or her debt.
For these reasons the plaintiffs' claim to a beneficial interest in the orange Koenigsegg should be dismissed.
Defendant's notice of motion of 28 September 2012
On 28 September 2012 the defendants filed a notice of motion seeking an order that "the plaintiffs remove the listing of the Koenigsegg from REVS registry". In my reasons of 6 December 2012 I ordered that the notice of motion be adjourned and said that in my view it should be heard at the same time as the claim for final relief, as it was truly in the nature of a cross-claim. I stood the matter over to the next return date in the Registrar's list in case the circumstances were such as to then make it necessary for the defendants to seek to have the application heard.
No cross-claim was filed and no reference was made to the notice of motion by the defendants or their counsel. I assume that the REVS registry referred to in the notice of motion is now the Personal Property Securities Register. I have received no evidence of exactly what entry has been made in that register. Nor have I received any evidence or submissions as to whether Koenigsegg Australia is entitled to the removal of whatever entry has been made. I will stand the proceedings over to a convenient time to deal with any application that the defendants might have about the correction of the register.
The plaintiffs foreshadowed that they might seek a freezing order in support of a judgment debt against Carl Trad. The evidence suggests that Koenigsegg Australia holds the orange vehicle on a resulting trust for him. If any such application is made I will hear it at the same time.
Orders
For these reasons I give judgment for the first plaintiff against the first defendant in the sum of $650,000 plus interest at the rate of seven per cent per annum from 28 July 2005 to the date of entry of judgment. I order that the plaintiffs' claims for relief in the amended statement of claim be otherwise dismissed. I will hear the parties on costs and will stand over the proceedings to a convenient time to deal with any other matters that might arise in consequence of these orders.
Decision last updated: 18 November 2013
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