Zollo & Turner v Kostoglou
[2008] SADC 74
•19 June 2008
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
ZOLLO & TURNER v KOSTOGLOU & ANOR
[2008] SADC 74
Judgment of His Honour Judge Boylan
19 June 2008
TORTS - TRESPASS - TRESPASS TO GOODS
Defendants, purporting to execute a warrant of distress against a defaulting tenant, seized goods. The plaintiffs claimed the goods belonged not to the tenant but to them. They sued for damages for conversion. Held - plaintiff Turner failed to show both ownership and loss; plaintiff Zollo, while showing ownership of some goods, failed to prove any loss.
Turner & Anor v Kostoglou & Anor (unreported) [2004] SASC 174, discussed.
ZOLLO & TURNER v KOSTOGLOU & ANOR
[2008] SADC 74
These are two claims for damages for the wrongful seizure and detention of goods.
Mr and Mrs Kostoglou leased a shop at Enfield to Mr Tennyson Turner, who is Pamela Turner’s husband. When Mr Turner failed to pay the rent, the Kostoglous executed a warrant of distress, that is, they seized the contents of the premises. Mrs Turner and Mr Zollo say that most of the seized goods belonged not to Mr Turner but to them and that the Kostoglous had no right to the goods. They say that they suffered financial loss by being deprived of the goods and they claim damages for that loss.
Both claims fail. Mrs Turner has proved neither ownership nor loss. Mr Zollo, while he has proved ownership of some goods, has proved no loss.
The two claims are separate but they have a common background. I shall deal with that before turning to my reasons for dismissing each of them.
The premises at Enfield comprised a shopfront with a number of rooms behind it and, at the rear, a shed. In the shopfront, Mr Turner operated a retail business selling art and craft supplies. I shall refer to that business as “the art business”. His daughter and another woman assisted in the shop. He used one of the rooms at the rear of the shopfront as his office. From there, he ran an accounting business. His wife, who did his secretarial work, used another of the rooms. The shed was used for storage. Various artworks by Mr Zollo were stored there.
By February 2002, Mr Turner was well in arrears with his rent. On the 22nd of February 2002, a bailiff instructed by Mr and Mrs Kostoglou attended and served Mr Turner first with a notice of termination of tenancy and next with a warrant of distress. Mr and Mrs Turner were required to leave the premises immediately. The warrant was then executed: the locks were changed and all of the goods in the shop, the offices and the shed were impounded there, most of them for the next 18 months.
Within days of the distraint, Mrs Turner and Mr Zollo issued proceedings in the Magistrates Court pursuant to the provisions of the Landlord and Tenant Act 1936 for the return of the goods. There was a trial before Ms O’Connor SM, who ruled against Mrs Turner and Mr Zollo. They appealed to the Supreme Court. One of the findings on appeal was that the original distraint was unlawful because the tenancy had ended before the execution of the warrant. Mr and Mrs Kostoglou promptly released the goods to Mrs Turner and Mr Zollo but without making any concessions about ownership. Mrs Turner and Mr Zollo then began these actions for damages for conversion. Their actions do not hinge upon the unlawfulness of the distraint but upon their asserted ownership of the goods. As far as I am aware, Mr Turner, the tenant, has taken no action arising out of the unlawfulness of the distraint. Such activity would probably have been pointless. He became bankrupt at the end of 2002 and must have been aware in February of that year that bankruptcy was imminent.
Mrs Turner’s Claims
Mrs Turner claims that, at the time of the distraint, she owned the art business and its stock and by being deprived of it she lost $72,000 in potential profit and a further $7,840, being the amount she lost because some of the goods were so damaged that they were unsaleable. She claims further losses both for damage done to the office equipment and for her being deprived of the opportunity to earn income as a secretary while the office equipment was impounded. She also claims exemplary damages.
Mrs Turner’s claim depends first upon her proving that she had an interest in the stock of the art business and in the office equipment. She says she owned both. As to the stock, Mrs Turner’s case was that from May 1998 she was the sole proprietor of the art business and its stock. While there was no dispute that the business was originally Mr Turner’s and that she had no interest in it, both she and Mr Turner gave evidence that he transferred it to her in May 1998. At that time, they said, the business was running at a loss. Mr Turner was going to close it down, but Mrs Turner was anxious to keep it going for the advantage of their daughter. Accordingly, Mr Turner transferred the business and its stock to Mrs Turner. No money changed hands. Instead, they “stated accounts” between them. Mr Turner owed his wife money for secretarial work done by her. They calculated what she was owed and the value of the stock. She then accepted the stock and the business in satisfaction of Mr Turner’s debt to her. There was no goodwill. Mr Turner told me that they valued the stock at a figure “in the order of $25,000 - $40,000”. There was no independent valuation. No document was created as evidence of the transfer. No stamp duty was paid. The art business continued to use Mr Turner’s cheque account and his EFTPOS facility.
Neither Mr nor Mrs Turner suggested that there was ever any transfer to her of the office equipment. The effect of their evidence was that a telephone system, a photocopier, a fax machine and three computers had always belonged to her.
I reject Mr and Mrs Turner’s claim that he transferred the business and its stock to her and I reject her claim that she owned the office equipment. Mrs Turner’s case depends completely on her and Mr Turner’s evidence. I do not believe either of them.
Mrs Turner was a most unsatisfactory witness. She was very evasive. She was unable to support her claims with particulars of them. There were inconsistencies between her evidence and Mr Turner’s; inconsistencies between her evidence before me and before Ms O’Connor, on the one hand, and her evidence in an affidavit on the other; and she admitted that on one topic she gave false evidence before Ms O’Connor. I deal briefly with each of those matters.
Mrs Turner claimed that, during the 18 months during which the goods were impounded, she would have earned some $72,000 in profit in the art business. She could not explain how she arrived at that figure. It is not supported by other evidence. Between the 1st of January 2001 and the 22nd of February 2002, the date of distraint, the business made a profit of less than $1,500. Mrs Turner re-opened the business, at new premises at Prospect, in August 2003 after the release of the goods to her. In its first two years of operation from the premises at Prospect the business made a loss. When she was pressed in cross-examination about how she had arrived at the figure of $72,000, all Mrs Turner could do was suggest that counsel ask Mr Turner. Her inability to explain the figure reflects very badly on her credibility. So, too, with the figure of $7,840. She was unable to say, at the time she gave evidence, how that figure had been calculated.
Although Mrs Turner asserted that she had bought the office equipment, she produced no documents and called no evidence to support her claim. Again, she could not particularise this aspect of her claim. It was so “whittled down” in evidence that, in the end, she claimed only $500, for damage to a fax machine, and some $414 for repairs to a photocopier. Her original claim in respect of the office equipment had been for $9,000.
Mrs Turner has given inconsistent evidence about ownership of the art business and its stock at the time of distraint. In the Magistrates Court, she swore an affidavit to the effect that she and her daughter, Meri, were the joint proprietors of the business. That evidence is inconsistent with her oral evidence before Ms O’Connor and before me; and Mrs Turner’s attempts to explain the inconsistency were unbelievable. Her evidence, again before both me and Ms O’Connor, was also inconsistent with her husband’s evidence before both of us on the topic of ownership of some jewellery at the Enfield premises. Further, Mrs Turner told Ms O’Connor that she had paid the electricity bill for the Enfield premises. She admitted before me that that evidence was false.
For all of those reasons, I find Mrs Turner to be an unreliable witness.
I make the same finding about Mr Turner. Mr Turner is a lawyer who was admitted to practice in 1951. For many years he practised as a solicitor and a tax agent. In 1976, his name was struck off the roll of practitioners after he had been found guilty of fourteen counts of fraudulent conversion. In 1977 and 1981, he was again convicted of offences of fraudulent conversion. In all, he has served three separate terms of imprisonment for offences of dishonesty. In the witness box he gave glib answers, was evasive and sometimes would only answer a question directly if I directed him to do so. Much of his evidence was implausible. For example, he insisted that he transferred the business and stock to his wife yet he, a lawyer and tax expert, did not bother to record that fact. And he valued the stock at some uncertain figure “between $25,000 and $40,000”. Some of his evidence in Mr Zollo’s case was almost farcical.
Mrs Turner had been on notice since the proceedings before Ms O’Connor that, if she wished to make good her claim, then she should produce evidence of the transfer independent of her and her husband’s assertions. She never did so. As I have said, I reject her and Mr Turner’s evidence of the transfer. I find that the art business and its stock were never transferred to her; that Mr Turner owned them at the date of distraint.
Although Mrs Turner claimed to own the office equipment, I do not believe her. The accounting business was Mr Turner’s and the equipment was used by her in his business. She produced no records to support her claims of ownership. The one relevant document she did produce did not assist her: a repair bill for the photocopier was addressed not to her but to her husband’s business. She has not proved ownership of any items of office equipment. I dismiss her claims in respect of both the stock and the office equipment.
It is not strictly necessary for me to deal with that part of her claim that she described as “injury to her business” because I find that the business and its stock did not belong to her. But I mention that her claim for “injury to business” ended up in her evidence as being a claim for “shock”. I did not permit her to press such a claim.
If I am wrong about the question of ownership of the goods, I would still dismiss all but two of Mrs Turner’s claims because she has not proved any damage. She was quite unable to explain how she arrived at the figures of $72,000 and $7,840 to which I have referred. By the end of cross-examination the only claims which she maintained for office equipment were for repairs to the photocopier and the facsimile machine. If I am wrong about ownership, she is entitled only to $414 for repairs to the photocopier. Had she proved her claims about the facsimile machine, all she would be entitled to is $199, being the cost of replacing it with a similar machine.
Mr Zollo’s Claims
Mr Zollo claims damages for being deprived of a number of works of art stored at the premises: two original paintings entitled David and Mona Lisa; a number of prints of a series entitled Animal Emotions; a number of prints of other paintings; and an original painting. He also claims damages for “loss of reputation”. His total claim is for $1,341,500 plus exemplary damages.
Mr Zollo is a professional artist. He was sponsored by Mr Turner through a body known as the Art Investment Trust of Australia, called AITA.
AITA is a shadowy entity. According to Mr Turner, it is a non-profit organisation. Mr Turner at first was unsure whether or not AITA even had a constitution, although a copy of a constitution was eventually produced. He had no doubt that AITA had a cheque account. It was operated in his name. Mr Turner was president. Other members included some former associates of Mr Turner, some thirty of them. It seems that those whose names were mentioned in evidence are dead or have disappeared. None of the surviving members were named, let alone called to give evidence. AITA’s prime purpose was to promote and to sell Mr Zollo’s art.
Mr Zollo and Mr Turner gave evidence that they both agreed Mr Turner would act as Mr Zollo’s agent. As a result of that agreement, many of Mr Zollo’s works and prints of his works were stored at the Enfield premises on the 22nd of February 2002. With the exception of two large paintings which were released to Mr Zollo in February 2003, all of the paintings and prints remained there until August of that year. Mr Zollo claims that, by being deprived of the art works, he lost the opportunity to earn income and that he also lost income by being unable to sell works which had been damaged because the Kostoglous had failed to take proper care of them. He makes other claims, but I put them aside for the time being.
Mr Zollo’s claims, as in the case of Mrs Turner’s, depend upon his being the owner of the various art works. I shall deal with that issue as I deal with the various parts of his claim. But I mention now that he was bankrupt between the 20th of December 1996 and the 20th of December 1999. It was suggested in argument that his bankruptcy may be relevant to ownership.
David and Mona Lisa
Mr Zollo painted two works entitled David and Mona Lisa. There was no serious dispute about the ownership of these paintings. I find that Mr Zollo always owned them.
They are large, round paintings, each being six feet in diameter. One of them is a representation of Michelangelo’s statue of David and the other of Leonardo’s Mona Lisa. Mr Zollo valued each of them at $500,000. He said that Mr Turner agreed to promote Mr Zollo’s work by staging a play with the two paintings as a backdrop. The subject of the play was a meeting between David, Mona Lisa, Michelangelo and Leonardo. The play was written and actors engaged. There were only about ten performances of the play, at a restaurant in Currie Street in March and April 2000. Patrons paid $37.50 for tickets and paid extra for food and drinks. Mr Zollo estimated that about sixty people attended each performance. Mr Turner put the figure somewhat higher. There was no evidence about the cost of the production or what happened to the takings. I accept Mr Zollo’s evidence that he received nothing. Mr Zollo and Mr Turner both gave evidence that further performances were planned. They intended generating income not just from staging the play but also by selling at performances of it memorabilia – mugs, cups and the like – bearing reproductions of Mr Zollo’s work. No such memorabilia had been produced by the March and April performances. Indeed, none have ever been produced.
After the series of performances in Currie Street, the paintings remained in storage until the date of distraint. Mr Zollo took separate proceedings and eventually obtained an order for their release.
Mr Zollo claims that, had he not been deprived of the two paintings, he and Mr Turner would have staged the play again on a number of occasions and earned income both from it and from the sale of the memorabilia. I reject that claim. In a period of nearly two years between the performances in April 2000 and the date of the distraint, there were no further performances. Nor were any efforts made to restage the play. Mr Zollo said that the distraint of the paintings caused his plans to “lose momentum”. What momentum there may have been in early 2000 was lost well before February 2002. For the whole of that period the paintings gathered dust in the shed at Enfield.
Mr Zollo relied upon some evidence which he said demonstrated that performances were planned at the Hotel Adelaide in North Adelaide in March 2002. That evidence comprised a bundle of faxed documents from the hotel to Mr Turner. The faxes appear to confirm that Mr Turner had booked a function room at the hotel for four nights in March 2002. The front page of the fax is dated the 1st of March 2002, some days after the distraint. Those documents do not tend to show that the room was being booked for the purpose of staging the play, let alone a theatre restaurant. They are inconsistent with such a purpose. Mr Turner booked the room for a “seminar”. No catering was required, only iced water and mints. There was no mention of the construction of a stage; a necessity, according to Mr Zollo, for any performance. I do not accept the evidence of the booking of the room as evidence of any planned performance. It was a ruse by Mr Turner to create evidence, for use in a later action such as this, of a function to promote Mr Zollo when he knew such a function could not proceed.
Mr and Mrs Kostoglou released the paintings to Mr Zollo in February 2003. Since then to the time of trial, no efforts had been made to stage the play. Nor had any memorabilia been produced. Production of memorabilia never got underway. Plans for its production went no further than Mr Zollo’s inspecting advertising brochures distributed by the manufacturers of such goods. I find that the paintings David and Mona Lisa would not have produced any income for Mr Zollo had he had access to them between the date of distraint and the date of their return to him. He suffered no loss by being deprived of them.
Animal Emotions
Mr Zollo painted a series of ten paintings, each of a different animal, entitled Animal Emotions. Five thousand prints were made by lithographic process, five hundred of each painting. According to Mr Turner and Mr Zollo, each of the originals was sold for $20,000 and each lithograph, once framed and certified by Mr Zollo as a particular number of a limited edition, was to be sold for $1,000. Mr Zollo said that the framing of the prints was done in batches. There were 2,519 in the shed at distraint. Of those, 473 were damaged beyond repair when they were returned to him. He claims damages of $473,000 for the damaged prints, being the amount lost by their being rendered unsaleable. He claims a further $360,000 for lost sales of the remaining undamaged framed prints. Mr Zollo makes that claim even though the undamaged framed prints were returned to him. There was also a quantity of some 1,500 various unframed prints of Mr Zollo’s other works. Those works were Heart of Australia, The Opal Miner and Congregational Church – North Adelaide. Some of those 1,500 were so damaged as to be unsaleable. Mr Zollo claims $150,000 on the basis of lost sales at $100 per unframed print.
Mr Zollo claimed that all of the prints were his and Mr Turner disclaimed any interest in them. The Kostoglous argued that they belonged either to Mr Zollo’s trustee in bankruptcy or to Mr Turner. I need not deal with the bankruptcy issue as I have come to the conclusion that all of the prints belonged, from the time of their creation, to AITA. AITA paid for the printing and framing. Further, a lease agreement between one Helena Valentine and AITA was produced. It is an agreement to lease to Ms Valentine a set of ten Animal Emotions lithographs. It describes AITA as the owner. The agency agreement between Mr Zollo and Mr Turner to which I have already referred does not suggest that the various prints belonged to Mr Zollo. A letter purportedly evidencing the agreement (Exhibit D5) confirmed only that the ten original paintings always belonged to Mr Zollo. It says nothing about ownership of the prints. I find that all of the prints, framed and unframed, belonged to AITA, not to Mr Zollo. Mr Zollo, therefore, has no claim in respect of them.
In case I am wrong about ownership, I say something about the evidence of their value. It is bizarre. Mr Zollo’s case was that their worth could be established by reference to the prices fetched by other of his works and by reference to the evidence of a Mr Quirk.
Mr Turner gave evidence that an early work of Mr Zollo’s entitled Heart of Australia was sold in the United States for the equivalent of one million dollars. I say “equivalent” because no money changed hands. Instead, Mr Zollo took as payment a quantity of gemstones. He thought that they were worth one million dollars. He said that, at Mr Turner’s suggestion, he gave most of them to the Women’s and Children’s Hospital. He retained a few but had difficulty selling them. The purchaser of Heart of Australia was not called. No documents were tendered to prove the sale or the sale price. I reject the suggestion that the painting was sold for one million dollars.
Mr Zollo said that each of the originals of the Animal Emotions series had been sold for $20,000. Mr Zollo took no part in any of the sales but said he had overheard one of them being transacted. In proof of the sales and sale prices, Mr Zollo relied upon a series of receipts made out by Mr Turner. Mr Turner purported to confirm that each picture had sold for $20,000. He relied on the receipts only. No bank records were produced to prove receipt of the money. None of the purchasers were called to give evidence. One purchaser was said to have been an Adelaide solicitor, Mr Peter Kerin. He was not called and no explanation was offered for his absence. I conclude that he would not have assisted Mr Zollo’s case. Mr Zollo has never received any part of the $200,000 said to have been realised by the sale of the ten original paintings. I reject Mr Turner’s evidence of the sales and of the sale prices. Further, Mr James Bruce, a valuer, gave evidence that he knew of Mr Zollo’s work because some of his paintings had passed through Mr Bruce’s auction rooms. The paintings commanded no interest.
Mr Quirk is a fruit-grower from the Riverland. Some years ago he was in financial trouble and his bankers were seeking possession of his orchards. He was referred to Mr Turner and, through Mr Turner, introduced to the activities of AITA. Mr Quirk was encouraged by Mr Turner to invest in Mr Zollo’s work and did so in two ways. He went to a great deal of trouble and some expense to arrange for an exhibition of Mr Zollo’s work at Loxton. Further, he agreed to transfer a section of his land to Mr Zollo in return for a share in the proceeds of the sales of the Animal Emotions lithographs. I have had great difficulty in understanding the purpose of Mr Quirk’s evidence. It seems to have been proffered as proof of the value of Mr Zollo’s work generally and, in particular, of the Animal Emotions lithographs. I do not accept the evidence as value of Mr Zollo’s work. Mr Quirk has no qualifications to offer an opinion on that topic. He readily admitted that he knew little about art.
Mr Zollo has not proved the value of any of his originals. Nor has he proved the value of the prints of the Animal Emotions series or of the prints of others of his paintings.
Eagle – Flinders Ranges
One of Mr Zollo’s paintings was entitled Eagle – Flinders Ranges. He claims that that painting was at the premises at distraint and was never returned to him. The painting was, he says, worth $20,000. He arrived at that figure by equating the value of the painting with each of the ten paintings comprising the Animal Emotions series. I heard very little evidence about this painting. There was no evidence about where it was in Mr Turner’s premises, why it was there or for how long it had been there. Significantly, Mr Zollo made no claim for damages for this painting until his final Amended Statement of Claim was filed in December 2006, nearly five years after the distraint and some three and a half years after the Kostoglous released the goods. I find it incredible that a man in Mr Zollo’s position would overlook a painting worth $20,000 when he formulated his claim. I am not satisfied that the painting was at the premises at distraint and I dismiss this part of his claim.
There remains Mr Zollo’s claim for “loss of reputation”. It is not a claim for defamation. As pleaded, it seems to be a claim for “hurt feelings”. There is no such cause of action. If it is a claim for loss of income or loss of opportunity to earn income because Mr Zollo lost the opportunity to promote his work, I have already dealt with it. I dismiss the claim.
Given my findings, there is no need for me to deal with the question of exemplary damages nor is there any need, on account of the findings I have made, for me to deal with other issues raised by Mr Zollo.
I shall not leave this case without making some further observations. I do not believe that Mr Zollo has been dishonest. He honestly believes that he was the owner of all of the paintings and prints and that they are of considerable value. Sadly, he has been deceived by Mr Turner, who is a practised fraudster. In my view, the claims are preposterous. I respectfully refer to what Mulligan J said in the Full Court in Mr Zollo’s and Mrs Turner’s appeals:
Having seen a list of the goods prepared by the respondent Turner, the claims of the respondent Zollo and the findings of the learned Magistrate as to the nature and general value of the goods, it is difficult to take these claims seriously.[1]
[1] Turner & Anor v Kostoglou & Anor (unreported) [2004] SASC 174
In both claims there will be judgment for the defendants.
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