Australian Tailings Group Pty Limited v Hillam

District Court of NSW|2023-07-19|Before: Kirk JA, Meagher JA

Introduction

These proceedings have been brought by the plaintiff (ATG) against its former sole director (Mr Hillam). They concern a transfer of $250,000 made by ATG on 4 October 2019 (the Transfer). The plaintiff accepted however, that of that sum, the amount of $61,500 was transferred back by Mr Hillam into its account, and as such an amount of $188,500 was ultimately claimed by ATG.
ATG's only cause of action is a common law count of money had and received. It made no voidable transaction claims under Part 5.7B of the Corporations Act 2001 (Cth) nor did it make any allegations of breaches of any fiduciary or statutory duties on Mr Hillam's part.
It was not in dispute in the proceedings that the $188,500 was ATG's money, and that it was received by Mr Hillam.
These facts however are insufficient to establish ATG's cause of action. In order to succeed in a restitutionary claim in moneys had and received, a plaintiff must establish "the existence of some qualifying or vitiating factor which gives rise to a prima facie obligation to make restitution" (See Coshott Family Pty Ltd v Lyons [2022] NSWCA 216 at [21]-[22] per Kirk JA (Meagher JA and Griffiths AJA agreeing); David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353).
The plaintiff identified two such vitiating factors. Namely, Mr Hillam's lack of authority to make the Transfer, and a lack of consideration for the Transfer.

The Transfer was recorded in ATG's financial records

I am also of the view that, in any event, ATF's assertion of a lack of external manifestation of the Transfer is not available to it on the evidence. The fact is that there is contemporaneous and corroborative objective evidence of ATG authorising the Transfer. Relevantly, ATG maintained a director's loan account for Mr Hillam. The MYOB ledger for that loan account records the transfer of $250,000 to Mr Hillam (Exhibit DX-2 (CB 516)).
ATG sought to rely on the fact that the Transfer was recorded on 22 October 2021 and not 4 October 2021 (when it was made). In my opinion this fact is immaterial. Mr Hillam's evidence was that loan account records were reconciled on dates later than the dates upon which the transactions took place, and thus it was to be expected that the ledgers of the payee and payer would not immediately correlate perfectly (T25:16-18, 28:11-15). This evidence was unchallenged and uncontradicted. I also note that the transfer is clearly evidenced in the bank records of ATG.
Thus, ATG's own ledgers record the Transfer. This in my view, in and of itself, is also sufficient to dispose of ATG's assertion that in Transfer, Mr Hillam lacked authority, or that the Transfer lacked external manifestation.

ATG's Contractual Arrangements With RnD

In its submissions ATG raises an alternative argument which was stated in reply to be related to the issue of Mr Hillam's authority. The argument was that ATG could not have authorised the Transfer because its contractual arrangements with a third party, RnD Funding Limited (RnD) prevented ATG from dealing with the funds the subject of the Transfer. RnD was a secured creditor.
I see no merit in this argument. To my mind, the argument wrongly conflates ATG's ability to authorise use of its own assets, with its contractual obligations to a third party. Whether the Transfer caused ATG to breach its obligations under a 22 December 2017 Facility with RnD (which may give rise to a claim by RnD against ATG) to my mind is quite irrelevant to ATG's claim against Mr Hillam in moneys had and received.
Mr Hillam in his written submissions at [21] and [22] demonstrated in any event, that at the date of the Transfer, ATG was in funds significantly above the sum of $320,000, the subject of RnD's security. He asserted, correctly in my view, that RnD's security interest did not extend beyond ATG's indebtedness to RnD (Goldus v Cummins (No.4) (2021) 157 ASCR 118 at [518]).
The plaintiffs reply submission at [15], failed to come to grasp with Mr Hillam's submission. In that paragraph ATG refers to the judgment of the Full Court of the Federal Court in RnD Funding v Roncane [2023] FCAFC 28 at [133], suggesting that the secured moneys could exceed the sum in fact advanced by the secured creditor. I do not consider that case to be authority for that proposition. In the quoted passage to which the plaintiff referred, their Honours' referred to the fact that the secured moneys in that case also included interest and fees.
In my view, the Full Court did not decide that the principal sum secured by a secured creditor could extend beyond the sum which was in fact advanced.

ATG has not proved lack of consideration

ATG also submitted that there was no consideration provided for the Transfer. I do not accept this submission.
In my view, this submission must fail for at least two reasons. Namely; 1. First, as I have earlier indicated, ATG's financial records show that the Transfer was applied to Mr Hillam's director's loan account (CB 516). The ledger indicates the Transfer was used to discharge an amount of $78,801.55 which ATG owed to Mr Hillam, and was then subsequently set off against ATG's later indebtedness to Mr Hillam until the loan balance was $0. 2. Secondly, the funds transferred were then applied by Mr Hillam to loan accounts between ATG and its related entities WMG, International Mining Group Pty Ltd (IMG) and Propfest Pty Ltd (Propfest). As I have earlier indicated, the bank records show that Mr Hillam transferred $61,500 back to ATG and the remainder was transferred in batches to: WMG ($22,000), IMG ($101,050) and Propfest ($68,000). (See CB 350-353; CB 357-358; CB 380; CB 398-399; CB 410). These transactions were identified in Mr Hillam's 27 May 2022 Affidavit at [11], [18], [25] and [31] (CB 322-326). 3. Mr Hillam's evidence was that the transfers were intended by him to be in repayment of loans owing by ATG to WMG and IMG and in respect of the loan account between ATG and Propfest (See Hillam 27 May 2022 Affidavit at [19], [26] and [32] (CB 324-5)). The existence of the inter-company loan accounts are evidenced by written loan agreements, and the ledgers maintained by each company (See: Exhibit DX-3 (CB 529) (WMG); Exhibit DX-4 (CB 539) (IMG); ledgers: CB 368 (WMG); CB 391 (IMG); CB 412 (Propfest); CB 374, 394 and 414 (ATG)). 4. Mr Hillam maintained this evidence under cross-examination (T 27:48-28:28). He also readily conceded that the inter-company loan account ledgers between ATG and WMG/IMG/Propfest did not record the transactions (See T 25:41-49; T 28:4-17; see also Hillam 27 May 22 Affidavit at [7] (CB 321)).
In relation to the state of the inter company loan account ledgers, Mr Hillam noted that the inter company accounts were nor kept up to date on a regular basis. He said the process of reconciling the various accounts was complicated, and was performed by the company's accountant after the end of each financial year.
He said that the process was a detailed one which took place over a number of days.
Significantly in my view, while Mr Hillam was cross-examined about what the ledgers of the various companies did or did not say, his evidence regarding the purpose of the payments was not challenged in cross examination.
The plaintiff in its reply submissions [17(3)] did not accept that there was evidence that the transfers by Mr Hillam to the related companies were intended to be a repayment of loans owing by ATG to those companies.
I do not believe that this submission is available to the plaintiff in the absence of challenging Mr Hillam's assertions that this was in fact his intention.
ATG made criticisms of the state of the accounts between ATG and related companies, which to some extent were justified. That said it seems to me that however the various accounts are viewed, they establish that ATG received valuable consideration for the Transfer.
It follows in my view that ATG has not established that the Transfer was made either without authority or that it lacked consideration. Accordingly, its claim for money had, and received should be dismissed.

Change of Position Defence

Mr Hillam also relies on a defence of change of position. This defence was not expressly pleaded by him, but ATG took no point about this fact. In my view, this was an appropriate course for it to take.
I take this view as if the facts giving rise to a defence are made out in the evidence, a restitutionary claim must fail. In David Securities Pty Ltd v Commonwealth Bank of Australia, the majority stated that: "The fact that the payment has been caused by a mistake is sufficient to give rise to a prima facie obligation on the part of the respondent to make restitution. Before that prima facie liability is displaced, the respondent must point to circumstances which the law recognizes would make an order for restitution unjust (97). There can be no restitution in such circumstances because the law will not provide for recovery except when the enrichment is unjust. It follows that the recipient of a payment, which is sought to be recovered on the ground of unjust enrichment, is entitled to raise by way of answer any matter or circumstance which shows that his or her receipt (or retention) of the payment is not unjust." (my emphasis)
In my view, Mr Hillam's evidence clearly establishes his change in position defence. He gave evidence that: 1. his understanding was that amounts advanced by RnD were repayable on 30 October 2019 and therefore were not outstanding as at 4 October 2019 when the Transfer occurred (See T 19:38; T 20:28); 2. he did not believe he required RnD's approval to make the Transfer (See T 24:28); 3. he authorised the Transfer in his capacity as sole director of ATG (See Hillam 27 May 22 Affidavit at [9] (CB 322)); and 4. he transferred the funds comprising the $188,500 the subject of the plaintiff's claim to WMD, IMG and Propfest with the intention that they would be applied towards the inter-company loan accounts between those entities and ATG (See Hillam 27 May 22 Affidavit at [19], [26] (CB 324-5)).
This evidence was not the subject of challenge in cross-examination. As such I accept his evidence as to his subjective belief, which evidence to my mind demonstrates that Mr Hillam acted in good faith. In my view, ATG's criticisms of the subsequent state of the reconciliation of the accounts between ATG and the payee companies (See for example Reply Submissions [19(5)] and [20(3)]) cannot detract from this fundamental fact.
Mr Hillam's own bank records show that, immediately prior to the Transfer, his account credit balance was $4.52. The money he received from the Transfer was then returned to ATG or transferred to WMG/IMG/Propfest (See CB 357-358). Thus, in my view, there can be no question other than that the unreturned funds the subject of the Transfer, were used for the payments to WMG/IMG/Propfest.
This evidence supports Mr Hillam's evidence, and leads to a conclusion that he acted to his detriment on the faith of the Transfer (See Corporate Management Services v Abi-Arraj [2000] NSWSC 361 at [12] per James J).
In summary, I find that the evidence establishes that Mr Hillam received and then paid out the relevant funds to other entities in the honest belief that ATG was obtaining full value for those funds (by discharging liabilities or creating credits in inter-company accounts). He thus acted on the faith of the receipt of the Transfer.
In simple terms, it seems to me that Mr Hillam no longer has that money, in circumstances where it would be inequitable to require him to make restitution.
For these reasons, if ATG had otherwise made out a case in moneys had and received, which in my view it has not, I would have concluded that such a restitutionary claim was defeated by a change of position defence.

Conclusion

For these reasons, the plaintiff's claim should be dismissed with costs.

Orders 1. Judgment and verdict for the defendant against the plaintiff 2. The plaintiff pay the defendant's costs. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 01 September 2023

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