Wieland Process Equipment Pty Limited v Marcello Giovanni Russo
[2006] NSWDC 79
•21 June 2006
CITATION: Wieland Process Equipment Pty Limited v Marcello Giovanni Russo & Ors [2006] NSWDC 79 HEARING DATE(S): 4 April 2005 - 7 April 2005
JUDGMENT DATE:
21 June 2006JUDGMENT OF: Rolfe DCJ DECISION: 1. On the cross-claim brought by WPE against Hy-Tec and Premier, there will be a verdict and judgment for the Cross-Defendants.; 2. As a consequence of Order 1, in relation to the cross-claim brought by Hy-Tec and Premier against WPE, that cross-claim is dismissed.; 3. I direct the exhibits be returned. CATCHWORDS: C and F Contract - When title to goods passes - Bill of Lading - Payment under Letter of Credit - Relevance of Sale of Goods Legislation LEGISLATION CITED: Fair Trading Act (NSW)
Trade Practices Act 1974 (Cth)
Law Reform (Miscellaneous Provisions) Act 1946
Sales of Goods Act 1923
Sea Carriage Documents Act (1997)
Sales of Goods (Vienna Convention) Act 1986CASES CITED: Comptior d'Achat et De Vente Du Boerenbond Belge SA v Luis De Ridder Ltd (1949) AC 293 at 309
Pacific Carrier Ltd v BNP Paribas (2004) 218 CLR 451
Carrington Shipways Pty Ltd v Patrick Operations Pty Ltd (1991) 24 NSWLR 745PARTIES: Wieland Process Equipment Pty Limited (Cross-Claimant/First Cross Claim)
Hy-Tec Industries Pty Limited (Second Cross-Defendant/First Cross-Claim)
Premier Resources Pty Limited (Fourth Cross-Defendant/First Cross-Claim)
Hy-Tec Industries Pty Limited (First Cross-Claimant/Second Cross-Claim)
Premier Resources Pty Limited (Second Cross-Claimant/Second Cross-Claim)
Wieland Process Equipment Pty Limited (Cross-Defendant/Second Cross-Claim)FILE NUMBER(S): 394/02 COUNSEL: D Hammerschlag SC and J T Gibson (1st Cross-Claiment/Defendant to 2nd Cross-Claim
K Rees ((2nd & 4th Cross-Defendants/Second Cross-Claimants)
JUDGMENT
1 These proceedings were commenced by Statement of Liquidated Claim filed on 29 January 2002. There were nine defendants. As between the plaintiff and those nine defendants, matters have been finalised.
2 There were also various cross-claims filed.
3 When the matter came on for hearing on 4 April 2005 there were two cross-claims which remained to be dealt with. The first cross-claim is that filed in Court on that date, being the Third Further Amended Notice of Cross-Claim, in which Wieland Process Equipment Pty Limited (“WPE”) is the cross-claimant. Four cross-defendants were named, but WPE only proceeded against the second and fourth cross-defendants, namely Hy-Tec Industries Pty Limited (“Hy-Tec”) and Premier Resources Pty Limited (“Premier”). A defence to Wieland’s cross-claim was filed by Hy-Tec and Premier on 10 June 2005.
4 The second cross-claim which remained to be dealt with was the one brought by Hy-Tec and Premier and filed in Court on 10 June 2005. WPE is the cross-defendant to that cross-claim and it filed its defence to it on 21 July 2005.
5 The background to the case is as follows.
6 In its statement of claim, the plaintiff, Orix Australia Corporation Limited, pleaded that pursuant to Asset Purchase Agreement Contract No. 13764 of 16 October 2000, it agreed to purchase a Cedarapids 45” RCII Rollercone Crusher serial number 45164 (the “Crusher”), complete with pneumatic tramp system coarse liners and adjustment pump for Manzel Equipment Pty Limited (“Manzel”) for $250,000. The plaintiff pleaded that under this contract Manzel agreed to pay the amount of $333,345 by 60 monthly instalments and that title to the Crusher did not pass until the final instalment was paid. The plaintiff alleged that Manzel defaulted under the Contract. The plaintiff then sued the first to eighth defendants (inclusive) on the basis that each of them had guaranteed Manzell’s obligations under the plaintiff’s Contract with Manzel.
7 WPE was joined to the proceedings as the ninth defendant. The plaintiff alleged that, on 3 October 2000, the plaintiff had purchased the Crusher from WPE for $250,000. The sale was evidenced by the invoice in WPE’s tender bundle (exhibit A) at A626 and the price was $250,000. Next, the plaintiff alleged that on 15 October 2001, the first and second defendants, Marcello Giovanni Russo (“Russo”) and Vincenzo Russo (“Russo Snr”), acting as directors and officers of Kurnell Recycling Park Pty Limited (“KRP”), the eighth defendant, resold the crusher to WPE for $170,000.
8 The plaintiff claimed that the sale on 15 October 2001 to WPE constituted a serious and fundamental breach of its Contract with Manzel, the effect of which was to immediately revest in the plaintiff its immediate right of possession to the Crusher. It was therefore alleged that WPE, along with the first and second defendants, had converted the Crusher to its own use and wrongfully deprived the plaintiff of possession of it.
9 In WPE’s cross-claim, it pleaded various causes of action against Hy-Tech and Premier. However, all these were abandoned by WPE, save for the claim set out in paragraphs 49, 50, 51 and 52 of WPE’s cross-claim in which it alleged that in June or July 2001 Premier and Hy-Tec, represented by Victor Kikalis, represented that it was in order for the Crusher to be sold to WPE, that the financier of the Crusher would be paid in connection with the refinance of KRP’s assets and such refinance was imminent.
10 WPE alleged that these representations were in contravention of section 42 of the Fair Trading Act (NSW) and section 52 of the Trade Practices Act 1974 (Cth) on the basis set out in paragraph 50 of WPE’s cross-claim. Insofar as the representations related to future matters, WPE alleged that Hy-Tec and Premier did not have reasonable grounds for making them and by reason of the representations WPE suffered loss and damage.
11 In its cross-claim, Hy-Tec claimed that if it is held liable in conversion to either the plaintiff or WPE, then it is entitled to indemnity or contribution from WPE pursuant to the provisions of section 5 (1) of the Law Reform (Miscellaneous Provisions) Act 1946. Alternatively, Hy-Tec claimed it is entitled to contribution in equity towards any liability that it may be found to have to WPE.
12 The case has an unusual history in that evidence was taken on 4, 5 and 6 April 2005. On 7 April 2005 the matter was stood over part heard to fix a further date so that Mr Kikalis could be called to give evidence, the Court having been informed that he had a heart condition. Thereafter, the matter was stood over on numerous occasions. A further hearing date of 4 October 2005 was vacated because of problems associated with Mr Kikalis. In the event, Mr Kikalis was not called to give evidence. Accordingly, the Court made orders for the matter to be dealt with by way of detailed written submissions, given the problem confronting the Court by reason of the then protracted nature of the hearing.
13 Counsel for the parties provided the Court with written submissions, the last of which was received on 28 February 2006. On that date the Court reserved its decision.
14 Mr D J Hammerschlag SC appeared with Mr J T Gibson of counsel for WPE. Their written submissions to the Court are dated 2 November 2005, 22 December 2005 and 28 February 2006. Ms K Rees of counsel appeared for Hy-Tec and Premier. Her submissions are dated 30 November 2005 and 20 January 2006.
15 As a preliminary issue, Hy-Tec and Premier submitted that the plaintiff had not obtained title to the Crusher. Therefore, contrary to the plaintiff’s claim against WPE, there had been no act of conversion by WPE on or about 15 October 2001. In turn, therefore, there was no basis upon which WPE could claim compensation from Hy-Tec and Premier.
16 It is necessary to consider the background facts.
17 WPE’s business is the manufacture, importation, sale and distribution of crushing machines used in the mining and quarrying industry. Stewart Wieland (“Wieland”) is the sole director and secretary of WPE and the director and secretary of a related company, Wieland Consumables Pty Limited. Wieland is a very experienced businessman, and is very knowledgeable about WPE’s business.
18 Russo and his father, Russo Snr, operated a demolition and concrete recycling business from about 1989. From 1999 the business was conducted at Kurnell at a location known as “Kurnell Recycling Park”.
19 There were seven companies in a group which operated the demolition and recycling business and Russo Snr and Russo were directors of these companies and the only shareholders of the family trust. In particular, Manzel was the entity which they used to enter lease agreements for equipment used in the business and KRP was the entity which operated the business known as “Kurnell Recycling Park”. Both Manzel and KRP used crushing machines of the type supplied by WPE.
20 Premier is a large supplier of cement and ready-mix concrete. The directors of Premier were Mr Costa, Mr Austen Snr, Mr Austen Jnr (“Austen”), Mr Oakes-Ash and Mr Rafidi (“Rafidi”). The shareholders of Premier were Rafidi, Rivon Investments (Lithgow) Pty Limited and Resource Developments International Pty Limited (“RDI”).
21 Hy-Tec is a wholly owned subsidiary of Premier and a manufacturer and supplier of ready mix concrete. Mr Costa, Mr Austen Snr, Mr Oakes-Ash, Rafidi and Austen were all directors of Hy-Tec.
22 RDI was not part of the Premier Group, although at the relevant time RDI was a substantial shareholder in Premier. Mr Costa, who was a solicitor, was director, secretary and sole shareholder of RDI.
23 Rafidi, who had previously been sole director and secretary of RDI, used that company to hold his shares in Premier. RDI did not have offices of its own and Rafidi worked from Hy-Tec’s offices in Auburn and called on the staff there from time to time to assist him with tasks he was undertaking for RDI.
24 National Australia Bank Limited (“NAB”) was the lender to the Russo group of companies. NAB provided the group with facilities which, at different times, exceeded $1,000,000. The facilities included lease facilities. Payments for various plant and equipment leased by Manzel from NAB were made by direct debits to Manzel’s working account.
25 As can be seen from the documents at A146, A158, A159 and A 160, as at June 2000, the financial position of the Russo group was reasonably modest; in the previous year a net profit of $155,000 before tax had been achieved, but most of the companies in the group had negative equity with net assets in the group being $443,000.
26 The plaintiff’s records at A499 – 537 disclose that Manzel was in regular default of its obligations to the plaintiff. Between 14 December 1999 and April 2001 there are some 25 diary entries relating to the plaintiff’s efforts to remedy defaults by Manzel in failing to make lease payments.
27 Exhibits 12 and 23 also demonstrate that Manzel was in regular default in accounts which it had with other lenders.
28 Wieland’s evidence was that in late 1999 Russo approached him to acquire a second-hand crusher for the plant at Kurnell. On 9 November 1999 Wieland wrote to APE Pte Ltd (“APE”), a Singaporean company, and inquired as follows (A20):
“Peter told me you had a second hand RC245 cone in your yard that came from the quarry in Malaysia? …I have a possible client for a second hand unit.”
29 At the beginning of 2000 Russo again approached Wieland about obtaining a second hand Crusher and Wieland renewed his inquiry of APE, writing on 28 February 2000 (A123):
“Last year I inquired about the second hand 45RC2 that you had in stock. Is this Crusher still available …”
30 Wieland conceded in his evidence that because it was a second hand Crusher he expected he would have to make repairs to it when it arrived in Australia (T38.20).
31 On 28 March 2000 Wieland submitted a proposal to Russo stating (A125):
“The RC45 Crusher offered is a relatively new machine that had been in service for only a few months and is subject to prior sale.”
32 Russo conceded in cross-examination, when he read this, that the Crusher was not a new machine (T 119.50). Indeed, he went to Singapore to inspect it and it was clear from his inspection that it was not new (T 119.55 – 120.05). The second hand nature of the Crusher was referred to in the valuation which Wieland gave to Russo on 31 January 2001 (A229).
33 When giving evidence about this, Wieland said he found the Crusher and put the deal together. Importantly, although he found the Crusher, Wieland’s evidence was that he allowed Russo to do the deal directly with the Singapore company which was selling the Crusher (exhibit B para 43 and T 55.10).
34 APE paid Wieland $10,000 for putting the deal together (A145, exhibit 4 and T 40.50 – 41.30). It is not in dispute that the purchase price for the Crusher was to be paid by way of a letter of credit (“L/C”) facility which Manzel arranged through the NAB (T 40.15 and T120.10 – 30). Russo had given evidence in the Supreme Court of New South Wales in other proceedings to the effect that he purchased the Crusher for $171,400, that this had been borrowed from the NAB and he had communicated directly with the NAB for that purpose (Supreme Court evidence is exhibit 10, reaffirmed in these proceedings at T 120.05 – 40). Russo was an unsatisfactory witness because he later said that one Tony Moody had organised the L/C (T 132.10), then he said the L/C with the NAB was his father’s facility used like an overdraft to pay accounts, but finally, when pressed, he conceded that the L/C was a documentary letter of credit facility which he arranged on Manzel’s behalf with NAB (T 140.35 – 141.05).
35 Exhibit 3 is the facility letter from NAB to Manzel dated 14 April 2000 confirming a master lease agreement facility of $680,000 and documentary letter of credit facility of $220,000. The facilities were secured by a registered mortgage debenture over the assets and undertaking of Manzel, guarantees from Russo Snr and Russo, KRP and other Russo companies, and a mortgage over a property at Northwood.
36 Wieland was fully aware of the L/C facility which Manzel had obtained from NAB (T55.15, 40.10-15 – 40.40).
37 Wieland gave evidence at T 40.37 that on 19 April 2000 he sent a fax to APE in Singapore attaching an L/C application form and that he was aware the L/C facility had been obtained by Manzel from the NAB. Clearly, and I so infer, what Wieland sent to APE included the NAB facility letter dated 14 April 2000 (exhibit 3). Wieland’s fax is at A132 and is addressed to APE and states as follows:
“Please check the following L/C application and make any suggestions you feel, also fill in the bank from your side.
I need the freight costs as well as the price for the motor and feeder as we need to include all these in the L/C. I need to decide about the motor and feeder before we go ahead.”
38 Shortly after, but on the same date, 19 April 2000, Wieland sent APE the fax at A133 in the following terms:
Please go ahead and get us a quote for the freight to Sydney including the loading in your yard and transport to the port.”“We agree to pay the extra costs of AUD6650 to cover you for the cost of discounting the L/C.
39 Next, on 26 April 2000 Wieland sent APE a reminder about the freight costs and his fax to them at A135 states as follows:
“We still require the quote for the freight cost and delivery to port for the Crusher before we can raise the L/C, please advise asap.”
40 The L/C is exhibit 1. The goods are described in the L/C as follows:
CFR Sydney Australia”
“1 Unit used cedarapids EL-JRC 45 rollercone 2
41 Before the L/C could be drawn down, the following documents were required to be produced:
“Full set of clean onboard marine bill of lading made out to the order of shipper blank endorsed and marked freight pre-paid (and) commercial invoice.”
42 The L/C was issued by NAB on 10 May 2000 and is dated 12 May 2000. It records that Manzel was the applicant and APE was the beneficiary in the amount of AUD$170,800.
43 The invoice issued to Manzel by APE is at A294. It records the unit being supplied as one “used cedarapids EL-JRC 45 rollercone 2 CFR Sydney Australia AUD171400” and it records “LCAI2000116262” which is the correct number of the L/C issued by NAB.
44 Exhibit 2 is a copy of the combined transport bill of lading number MOLU332720375 issued by Mitsui o.s.k.Lines Ltd. The bill of lading was dated 29 May 2000 and it was issued “to the order of shipper”. It recorded that freight had been pre-paid and that the container on board the ship “Bunga Teratai Satu” was said to contain the Crusher. The bill of lading identified the L/C and stated “clean on board freight pre-paid”.
45 The terms of the bill of lading which are referred to on the front of exhibit 2 as being “contained on the back hereof” are not in evidence.
46 Hy-Tec and Premier submit, on the basis of the evidence to which I have referred, and in particular to the bill of lading, that the export contract for the sale of the crusher between APE and Manzel was a c & f contract (“cost and freight”). Such a contract is no different from a CIF contract, except that the seller’s obligation in the case of c & f contract does not include an obligation to insure the goods for the buyer’s benefit: see Schmitthoff’s Export Trade, The Law & Practice of International Trade (2000) at 2-038. Essentially a c & f contract is one where the seller’s duties are to ship the goods within the time specified in the contract from the port of shipment, to procure a contract of affreightment, under which the goods will be delivered at the destination, to make out an invoice for the goods and to tender to the buyer the bill of lading and the invoice. The buyer’s obligation is then to take up these documents and pay for the goods. Delivery of the goods is deemed to have been satisfied upon delivery of the documents, as opposed to the actual, physical delivery of the goods: see Sutton Sales and Consumer Law 4th Ed (1995) at 26.12.
47 Hy-Tech and Premier submit that as with CIF contracts, under a c & f contract the property and the goods does not pass on shipment, but passes when the title documents representing the goods are handed over in exchange for the price. Hy-Tech and Premier rely on the decision of the House of Lords in Comptior d’Achat et De Vente Du Boerenbond Belge SA v Luis De Ridder Ltd (1949) AC 293 at 309.
48 Hy-Tec and Premier also rely on the provisions of section 24 of the Sales of Goods Act 1923 (“the SGA”), specifically subsection 2 thereof as follows:
- “(2 )Where goods are shipped and by the bill of lading the goods are deliverable to the order of the seller or the seller’s agent, the seller is prima facie deemed to reserve the right of disposal.”
49 Hy-Tec and Premier submit that as the bill of lading, issued by APE, was made out to the order of the shipper, prima facie, APE retained title in the Crusher until it received payment.
50 The evidence establishes that on 3 October 2000 Wieland sold the crusher to the plaintiff: see the tax invoice at A176. The plaintiff then hired the crusher to Manzel: see the asset purchase agreement schedule at A177.
51 As at 3 October 2000 and 16 October 2000, APE had not been paid for the Crusher. In fact, the evidence establishes that APE was not paid for the Crusher any earlier than 27 November 2000 in the following circumstances:
(b) On 27 November 2000 the L/C was drawn down and Manzel’s account debited in the amount of $171,400.(a) On 24 November 2000 Manzel applied to the Supreme Court of New South Wales for an injunction preventing NAB from making payment to APE for the Crusher under the L/C. As at that date the L/C had not been drawn on but was due to expire on 27 November 2000. Given the delay between the arrival of the Crusher and the application for an injunction, Hamilton J ordered that the NAB pay monies into a suspense account in APE’s name and that the monies be held in that account until 1 December 2000.
52 Hy-Tech and Premier submit that at the date WPE purported to sell the Crusher to the plaintiff, WPE had no title in it because the Crusher was still owned by APE. Therefore, the plaintiff acquired no title in the Crusher and accordingly the plaintiff could not sue WPE for conversion of the Crusher in the circumstances which occurred on 15 October 2001, when the plaintiff alleged that Russo Snr and Russo, as directors and officers of KRP, purported to sell the Crusher to WPE for $170,000. Therefore, there was no act of conversion by WPE in 2001 and, thus, no liability for which WPE was entitled to look to Hy-Tech and Premier for compensation.
53 In response, WPE accepted that section 28 of the SGA governed the c & f contract between APE and Manzel but submitted that the provisions of section 28 (2) of the SGA were in the nature of a rebuttable presumption. WPE submitted that the presumption has been rebutted by the delivery of the bill of lading to NAB and the underlying arrangement as between APE and Manzel for payment of the Crusher by way of L/C. WPE submitted that in such circumstances APE was not looking to retain property in the Crusher as security for payment, but was relying on the promise of the NAB to make payment under the L/C. This submission misses the point, namely, that the bill of lading constituted the title document to the goods. Quite simply, whilst the bill of lading remained in the possession of NAB, ownership of the Crusher must have remained in APE. WPE conceded in paragraph 14(a) of its written submissions dated 22 December 2005, that there was no evidence before the Court of APE’s intention. I am therefore not satisfied that WPE rebutted the presumption in section 28 (2) of the SGA that title in the Crusher remained in APE. In coming to this conclusion, I have taken into account the matters set out in the whole of paragraph 14 of WPE’s submissions dated 22 December 2005.
54 Also, in reaching the above conclusion, I have taken into account WPE’s further submissions dated 28 February 2006. WPE is there asking the Court to infer that because the Crusher was installed at Manzel’s premises by mid August 2000, the carrier must have released the Crusher on presentation of an original bill of lading. As conceded by WPE, however, there is no direct evidence that this occurred. WPE submits the Court should infer that the NAB, on receipt of the documents required under the L/C, endorsed the bills of lading to Manzel for collection from the carrier. This is not an inference the Court is prepared to draw because there is no evidence before the Court as to how Manzel, or for that matter anyone else, obtained the Crusher from the carrier. There may have been other ways in which Manzel got hold of the Crusher. It can be demonstrated from Marine Case Law that sometimes carriers release goods in exchange for a letter of indemnity: see the discussion in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451. The Court is not prepared to speculate on whether that is what occurred in this case or how it was that Manzel got hold of the Crusher.
55 As already noted, both parties argued the case on the basis that the SGA provisions set out above applied. Neither party referred the Court to the Sea Carriage Documents Act (1997) or the Sale of Goods (Vienna Convention) Act 1986. Nor were the International Chamber of Commerce Uniform Customs and Practice for Documents Credits and the Uniform Rules for Collection put into evidence. Nor was it submitted that exhibit 1 was not a document of title: see the discussion by Handley JA of the nature of a bill of lading and ocean bills and house bills in Carrington Shipways Pty Ltd v Patrick Operations Pty Ltd (1991) 24 NSWLR 745.
56 In the result, WPE has failed to establish that the plaintiff obtained title to the Crusher in October 2000 and its claim against Hy-Tec and Premier therefore fails.
57 There is an additional, and separate reason why WPE’s claim fails for want of establishing that the plaintiff obtained title to the Crusher and that is because, even if, contrary to the Court’s findings, Manzel obtained title to the Crusher, WPE itself did not obtain title to the Crusher and therefore could not pass title to the plaintiff.
58 Russo decided to acquire the Crusher as part of an upgrade of the plant and equipment at Kurnell Recycling Park. This upgrade was achieved with Wieland’s assistance and appears to have been prompted by a supply agreement entered into between Hy-Tec and Manzel in early 2000.
59 As part of this upgrade, Manzel acquired equipment through other financiers, including CBFC on 3 August 2000 (exhibit 5). The CBFC facility was for $360,000 and on 3 August 2000 Wieland sent Russo a payment breakdown of the finance received from CBFC, listing various expenses incurred in obtaining related equipment, including payments to suppliers and tradesmen totalling $314,630.00 (A144). In the letter, Wieland stated as follows:
“The total is $314,630.00 which leaves $45,370.00 and we still have the jaw frame which has cost $35,000 to date which needs to be paid, however, I have the first $35,000 that you gave me so that can cover that and I will sell the feeder to get my money back.”
60 In cross-examination Wieland denied that the $45,370.00 represented surplus monies from the CBFC finance and sought to assert that his own reconciliation did not include all equipment supplied to Manzel under the CBFC finance arrangement. I do not accept Wieland’s explanation about this. He was cornered when being asked about it and came up with an excuse which I found unconvincing. I accept the submission made by Hy-Tec and Premier that this is an example of both Wieland and Russo extracting money for financiers for amounts in excess of money expended by Manzel on the acquisition of equipment.
61 Russo provided a finance broking firm, Moody Kiddell & Partners, with documents and information to assist them in preparing an application for finance to the plaintiff to purchase the Crusher for $250,000. In that application the Crusher was described as new and although Russo denied telling the broker that, I do not accept his explanation. The application made out that the cost price of the Crusher was $250,000, which was in fact $78,000 more than what APE was to be paid for it. In my assessment, Russo knew that the plaintiff was being misled because the Crusher was not new and did not cost $250,000. This was false information provided to the plaintiff in order to ensure that Manzel would receive $250,000 by way of finance. The matter does not end there however.
62 When the Crusher arrived in Australia in August 2000 and Russo somehow or other got it, it ended up at WPE’s workshop and Wieland arranged for it to be stripped so he could inspect and repair it at a cost of $13,206.71, after which it was sent to the Kurnell Recycling Plant (A229, A172, T41.50-42.15).
63 Russo telephoned Wieland on 25 September 2000 and told him that he had not received the model which he understood he was buying from APE. Wieland told him that Russo had received a roller cone classic, rather than the expected roller cone RCII (T47.50 – 48.25). Not only did the machine which Russo received produce less, it was worth less than the one he was acquiring from APE.
64 The upshot of this was that Wieland wrote to APE on 26 September 2000 complaining that they had sent the wrong model. He noted in his letter that the price of the model received was “much lower than an RCII” (A170, T47.50 – 48.30). Wieland failed to inform the plaintiff through the brokers that he knew that the model received was a lesser piece of equipment and not worth as much. Russo was evasive in the witness box about the matter, although he acknowledged that the plaintiff should have been told and I am satisfied that Russo did not tell the plaintiff, again deliberately deceiving it. There is no doubt that Russo was extremely unhappy about what had occurred because on 28 September 2000 Wieland submitted a proposal to Russo to upgrade the Crusher to a Cedarapids/EL-JJAY 54 Classic in place of the one that had been received, at no cost to Russo (A174).
65 Also, on 28 September 2000, WPE wrote to Russo setting out the equipment acquired in the upgrade thus far and expenses incurred. Taking into the account the reconciliation at A172 and Wieland’s evidence in cross-examination about it at T49-50, the position was as follows:
“Expenses paid or payable - $511,326.50
Received from CBFC - $360,000
Received from Manzel - $60,000
“We have paid you back - -$75,000 Deposit for 45
Rollercone”Total receipts - $345,000.00
Next finance amount $250,000 less GST - $225,000.00
Balance to be paid to Mr Russo - $58,673.50”Less due to Wieland Consumables Pty Ltd - $166,326.50
66 At A173 Wieland went on to tell Russo:
“The 250K from Moody’s is inclusive of GST there we need to charge GST to Manzel when buying the cone crusher which we have sold to the finance company, either way there is 25K less in the kitty.”
67 Wieland went on to request Russo to pay various “way overdue” invoices to WPE’s subsidiary, Wieland Consumables Pty Limited, as well as money owing to Crushing And Mining Consumables Pty Limited.
68 Wieland concluded the letter by telling Russo as follows:
“I will then need a pre-GST invoice for the Cedarapids 45 Rollercone for the value of 133,673.50.
That means the nett to you is going to be $46,244.79 after paying us back the above invoice.”
69 Wieland conceded in cross-examination that it was his intention to use the $250,000 facility from the plaintiff to ensure debts owed to Wieland Consumables Pty Limited were discharged. It was his intention to pay the balance left over to Russo (T51.45).
70 Russo’s evidence about this was all over the place. Initially, he said that the plaintiff’s funding of $250,000 would be used to discharge the NAB debt. He moved away from this, but at the same time denied that any monies received from the plaintiff would go directly to him or his companies.
71 Other than concessions extracted from Russo, I regard him as a most unsatisfactory witness who would say anything to avoid being caught out. I was not impressed by Wieland either. He was in the witness box for a long time and my assessment of him was that his evidence was unreliable and untruthful. Wieland was heavily involved in the upgrade of the plant at Kurnell for Manzel and with regard to the finance which Manzel received from CBFC and the plaintiff, in which Wieland was involved, I am comfortably satisfied that:
(a) There was no delineation between the equipment for which CBFC provided finance and that for which the plaintiff provided finance. Both sets of finance were put into the same ‘pot’ to pay for all expenses associated with the plant upgrade.
(c) There was a clear overstating of the prices paid for the equipment, and a clear intention to pay the surplus to Russo.(b) There was no intention to use the monies paid by the plaintiff to discharge the NAB L/C facility for the Crusher.
72 In re-examination Wieland conceded that he and Russo proceeded on the basis that any monies obtained from a finance source were not generally used to acquire the piece of machinery for which the finance was provided, but to meet whatever equipment expenses or outgoings were owing at the time. Russo conceded this as well in his evidence and adopting what he had said in the earlier Supreme Court proceedings confirmed that the $250,000 drawn down by Manzel from the plaintiff went directly to WPE, which put it into other plant and equipment, none of it being paid to NAB in reduction of the L/C facility.
73 The reality was that Russo obtained two sources of finance to acquire the Crusher, one through NAB and the other through the plaintiff. Initially he sought to blame Kikalis for where the monies advanced under the NAB L/C would go, but retracted this. He also sought to blame the broker “for what should go where and with what finance” (T132.15). All of this evidence was unconvincing. The reality was that Russo used both the NAB L/C and the plaintiff’s facility, not just to acquire a Crusher, but to get extra plant. Wieland was well and truly aware of this, conceding at T80.30 that the finance application to the plaintiff was a device which he and Russo used to obtain additional funds for the plant upgrade for items other than the Crusher.
74 The matter does not end there because on 3 October 2000 WPE issued the invoice to the plaintiff which is at A176. That invoice clearly describes the Crusher as a “new machine”. Wieland knew at the time that the description was false and that the Crusher was second hand and less valuable than the model particularised in the invoice. He also knew that the sales price to the plaintiff was well in excess of the value of the Crusher in terms of the price which Manzel was to pay for it in due course. In this respect I do not accept Wieland’s evidence that he did not know what the position was because he did not prepare the invoice. WPE was a company of which he was sole director and the transaction was an important one and he was heavily involved in it. In my assessment, he knew exactly what was in the invoice before it was sent to the plaintiff.
75 I have set out the above background facts and findings because they are material to the Court’s conclusion below.
76 Wieland conceded in cross-examination that he had not paid Manzel for the Crusher at the time he prepared the invoice sent to the plaintiff, that he did not intend to use the finance provided by the plaintiff to pay for the Crusher and that he intended to use that finance to extinguish debts owed to Wieland Consumables Pty Limited for unpaid spares and repairs, with the surplus funds being paid to Russo (T 52).
77 Although the reconciliation of 28 September 2000 above referred to a deposit of $75,000 having been paid for the Crusher, Wieland agreed that he did not actually pay the deposit and Russo said he had not received a cheque or money from WPE for $75,000 for the Crusher. Rather, it was a Pegson Crusher which Russo had purchased from WPE “which I used and that was a refund on that crusher” (T 129.20). In my opinion, as has been correctly submitted, the $75,000 represents the difference between what APE charged for the Crusher and the amount of finance obtained from the plaintiff. The $75,000 was, in effect, WPE’s contribution to the raising of finance, being the extent to which the plaintiff was persuaded to extend finance above and beyond what the Crusher actually cost. In any event, Wieland conceded in cross-examination that he had not paid Manzel for the Crusher at the time he prepared the invoice to the plaintiff. His evidence at T 56.30 was as follows:
“Q. At the time when you were finalising the arrangements with Orix, you have said earlier that you had not paid Manzel for the crusher, correct?
A. Correct.Q. So it’s the case, isn’t it, that you did not – your company never purchased the crusher from Manzel did you?Q. And that you did not intend to pay Manzel for the crusher using the proceeds of the Orix finance but rather to pay it to Wieland Consumables on the one hand and to Mr Russo on the other, correct?
A. Correct.
A. No.”
78 Although Wieland said in re-examination that the “No” was intended to be an answer in disagreement with the question that was put, that is not the way I clearly understood the answer at the time it was given in cross-examination. I also do not accept Wieland’s attempt to explain how WPE acquired the Crusher by way of a contra deal. All he was saying was that WPE spent money on various pieces of equipment and agreed to accept the proceeds of the plaintiff’s finance against what was owing to WPE, with Russo to get the surplus. It does not follow that under any contra arrangement that WPE obtained title to the Crusher. Moreover, there was no evidence of any discussion between Wieland and Russo in terms of WPE acquiring title in the Crusher so it could sell it to the plaintiff. I am therefore comfortably satisfied that WPE did not acquire title in the Crusher to enable it to sell it to the plaintiff. In the result, the plaintiff’s claim in conversion against WPE was bound to fail.
79 It therefore follows that WPE’s cross-claim against Hy-Tec and Premier fails. Strictly speaking, therefore, it is not necessary for the Court to consider the merits of the claim brought by WPE for misleading and deceptive conduct. However, the Court will do so briefly, given the detailed submissions it has received from the parties. In summary:
1. During 2000 Russo Snr decided he wanted to get out of the business and this was passed on by Russo to Rafidi. The result was Rafidi proposed to Russo that Hy-Tec, or its nominee, be granted an option to purchase up to 50% of the business, if Russo could establish within three months that he would meet cash flow targets.
2. On 12 January 2001 Premier, KRP and Manzel signed heads of agreement.
3. In order to achieve the production levels referred to in the heads of agreement, a substantial upgrade of plant was required.
4. In late January 2001 Mr Austen Snr informed Austen that Premier was no longer interested in acquiring any interest in the business at Kurnell. Rafidi, however, remained interested.
5. During the three month period referred to in the heads of agreement the finances of Manzel were in disarray and it did not upgrade its plant, although Russo calculated the costs of an upgrade, but without making any allowance to repay the plaintiff NAB and CBFC from the proceeds of sale of the equipment.
6. In April 2001 Russo Snr entered into an agreement with RDI to sell 50% of his shares in the Russo group. As noted earlier, RDI was a major shareholder of Premier and so Rafidi was using RDI to pursue his interest in acquiring the Kurnell Recycling Park business, given that Premier was no longer interested.
7. On 30 April 2001 Wieland submitted a proposal to Russo to upgrade the plant at a cost of $2,252 million. Part of the proposal included trading in the Crusher and a link belt screen and frame which was subject to the plaintiff’s facilities and the CBFC facilities. Wieland knew therefore at this time that the plaintiff and NAB’s facilities, in relation to the Crusher, were still in place, but he presented his proposal to Russo on the basis that neither the plaintiff nor the NAB would make a claim on the proceeds of sale of the Crusher.
8. Wieland’s proposal was revised in May 2001, but again he assumed that the proceeds of the trade-ins, including the Crusher, would be available to Russo to fund new plant without the plaintiff or NAB facilities being paid out.
9. Meantime, Manzel’s financial position deteriorated and so Rafidi came to Russo’s aid by arranging for an account to be opened for KRP with the ANZ Bank with the assistance of Kikalis. Hy-Tec then began paying certain debts owed by Manzel and KRP, offsetting those payments against monies owed by Hy-Tec to KRP for supplying material. In this context, Hy-Tec employees did the banking for KRP. Although in this context Kikalis wrote several letters to Manzel and KRP’s creditors indicating that the Premier Group had acquired 50% of the Russo Group of companies, which was not correct, no such letter was sent to WPE and accordingly, it was not thereby misled. What Rafidi was clearly trying to achieve was the eventual takeover of the business by assisting Russo in the meantime with problems he was experiencing with creditors. In fact, neither Hy-Tec nor Premier had taken over the business at this point.
10. In June 2001 Wieland submitted another proposal to Russo for the provision of plant under which WPE would receive payment for each tonne produced by the plant. The proposal included a trade-in of the Crusher without any suggestion that the proceeds would be paid to the plaintiff, even though Wieland knew that the plaintiff was still owed money.
11. In July 2001 WPE found a purchaser in New Zealand for the Crusher for $196,500.00. Russo knew that this was insufficient to pay out the plaintiff, which was owed a minimum of $250,000.00, or to reduce the NAB overdraft debt which had been created by the drawdown of the L/C. In this context, Wieland’s assertion was that Russo assured him that Hy-Tec had no problem with the sale of the Crusher and the plaintiff’s debt had been paid off. I do not accept that this statement was made to Wieland by Russo. In fact, he conceded as much in his evidence when he said at T 36.55 that he was not 100% certain that Russo told him the finance was all okay and had been paid off. The reason Wieland put it this way was because he well knew that Russo denied having said the words to him.
12. Wieland’s evidence about the conversation with Russo is at odds with the document dated 7 January 2002 (exhibit 9). I therefore do not accept his evidence that Russo made the statement referred to above to Wieland. Nor do I accept his evidence, which was contradictory at times, that he was simply unaware of whether the plaintiff’s facility was in place and that he made assumptions it had been paid out. This was because Russo was the only person he had spoken to at the time of selling the Crusher.
13. Although WPE relies on the document at A 329, it does not specify what, if anything, was said by Russo to Kikalis. There was nothing in the memorandum which suggests that Kikalis told Russo that the plaintiff’s facility had been paid out, what was intended to be done with the proceeds of sale of the Crusher, or how the plaintiff would be repaid if the Crusher was sold. The document is nothing more than a record of Russo having told Kikalis of the sale effected by Wieland. Accordingly, WPE cannot make out any Jones v Dunkel point out of the fact that Kikalis did not give evidence.
15. I have also taken into account the fact that Wieland agreed to pay Russo a personal commission of $20,000 in relation to the sale of the Crusher to the purchaser in New Zealand. The reality was Wieland knew this was a secret commission and he did not tell anyone from Hy-Tec or Premier. This flies in the fact of his assertion that he understood the finance on the Crusher had been paid out, possibly by Hy-Tec or Premier and that one or other of them owned the Crusher and was therefore entitled to the proceeds of sale. This demonstrates that Wieland gave untruthful evidence.14. Accordingly, I am comfortably satisfied that at the time of sale of the Crusher, Wieland was not told anything about whether finance remained in respect of it by Hy-Tec or Premier, or anyone on their behalf, and in fact he knew that monies were still owed to the plaintiff in respect of it and probably the NAB were looking to repayment of their overdraft facility out of the proceeds of sale of the Crusher as well.
80 In the result, WPE has failed to establish misleading and deceptive conduct on the part of Hy-Tec or Premier.
81 The Court therefore makes the following orders.
1. On the cross-claim brought by WPE against Hy-Tec and Premier, there will be a verdict and judgment for the cross-defendants.
3. I direct that the exhibits be returned.2. As a consequence of Order 1, in relation to the cross-claim brought by Hy-Tec and Premier against WPE, that cross-claim is dismissed.
82 WPE should pay Hy-Tec and Premier’s costs of these proceedings on the usual party/party basis. However, if either of the parties wishes to contend otherwise, I will entertain submissions in due course.
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