Cleveland Investment Global Limited v Ficaro Pty Limited

Judgment - EX TEMPORE 1These proceedings, as presently constituted, involve three parties representing two different interests. For convenience in the conduct of the hearing, the expression "the plaintiffs" was used to denote Cleveland Investment Global Limited ("Cleveland") and Ficaro Pty Limited ("Ficaro"). Those parties were represented by a solicitor and counsel. They are in the same interest. On the other side of the record, Mr Peter Evans (for convenience, at the hearing, described as "the defendant") was self-represented. 2Mr Evans is an accountant by profession. Between 8 March 2001 and 15 May 2009 or thereabouts he was retained by Ficaro to provide accounting and secretarial services. Between 2 January 2003 and 18 December 2009 or thereabouts he was a director of the company. He was never a shareholder. 3Under Mr Evans' stewardship, Ficaro was deregistered by ASIC during the period 24 April 2009 and 9 September 2009 or thereabouts, for want of attendance to requirements of the Corporations Act. 4For practical purposes, the principal of both Cleveland and Ficaro was at all material times a Mr John Fletcher, an Englishman resident in Hong Kong. I say "for practical purposes" because Mr Evans acknowledges that, in his dealings with both Cleveland and Ficaro, he looked to Mr Fletcher for instructions, guidance and the provision of funding for Ficaro. In a real sense Ficaro was Mr Evans' company. He had, himself, to deal however with other interests associated with his family in the conduct of the affairs of Cleveland, in particular, but also, at least indirectly, Ficaro. The practical reality is nevertheless that the affairs of both Cleveland and Ficaro were conducted, vis-a-vis Mr Evans, on the basis that Mr Evans was answerable to Mr John Fletcher. 5At all material times Mr John Fletcher's business interests throughout the world banked with the Hong Kong and Shanghai Banking Corporation ("HSBC"). 6In 2009 Ficaro owed a substantial amount of money to HSBC secured by a mortgage over an investment property in Sydney. 7So far as Mr John Fletcher was concerned, the banking operations of Ficaro in Australia were all conducted through HSBC at all material times. Ficaro did indeed bank with HSBC. So far as Mr John Fletcher was aware, it banked only with HSBC. 8Mr Evans was at no time an authorised signatory on Ficaro's account with HSBC. 9The substantive questions in dispute in these proceedings concern: (a) on the plaintiffs' side of the record, two claims for the recovery of moneys said by them to have been misappropriated by Mr Evans and two smaller claims for compensation for breaches of duty alleged against Mr Evans as an officer of Ficaro. (b) on the defendant's side of the record, an assertion of an entitlement to fees for services rendered, principally fees said to be due to Mr Evans as "director's fees". 10The claims of misappropriation relate to two separate amounts: (a) the first claim is for $200,000, applied by Mr Evans for his own benefit from a sum of $700,000 that Cleveland caused to be lent to Ficaro in May 2009 for the purpose of payment to HSBC in reduction of the debt owed by Ficaro to HSBC. (b) the second claim is for $67,517.6, applied by Mr Evans for his own benefit as the proceeds of 40 or so cheques drawn on Ficaro's account with HSBC between 8 June 2007 and 9 December 2008 or thereabouts, which cheques (the plaintiffs allege) were drawn on Ficaro's account by Mr Evans without any authority and in circumstances in which he forged the signature of Mr John Fletcher's son, Mr Simon Fletcher. 11The two claims for compensation relate to two separate amounts: (a) first, there is a claim for $13,127.32 paid out by Ficaro for legal fees to solicitors retained by the company at the request or direction of Mr Evans at a time when he was in a position of conflict between his personal interests and his duty to Ficaro. (b) secondly, there is a claim for $1,267 paid out by or on behalf of Ficaro to ASIC in respect of Ficaro's reinstatement to the register in 2009. 12Mr Evans' assertion against Ficaro of an entitlement to fees is, in my assessment, entirely opportunistic. 13He had an arrangement with Mr John Fletcher that he would be paid a regular amount for the provision of services for work done in relation to Ficaro. That amount started off as $1,500 per year. It became $1,500 per month. There was no separate agreement for the payment of director's fees. 14Throughout 2008 and 2009, if not earlier, Mr Evans was, personally, in straitened financial circumstances. He adduced in evidence credit records that demonstrate that he had overdue accounts referable to debts he owed and, in 2009, two judgment debts. On 22 January 2009 Bankstown City Credit Union Limited obtained a judgment against him in the sum of $8,771. On 17 August 2009 City Credit Union Limited obtained a judgment against him in the sum of $9,599. From time to time he sought financial assistance from Mr John Fletcher outside the terms of any agreement for remuneration. 15As a matter of movements in money, there is no doubt that, of the $700,000 lent by Cleveland to Ficaro in May 2009, only $500,000 found its way to HSBC, and that the bulk of the balance of the $200,000 was applied by Mr Evans for his own benefit. 16Without notice to Mr John Fletcher, shortly before he received the sum of $700,000 on behalf of Ficaro, Mr Evans open two accounts with the ANZ Bank, with which bank he at that time maintained his personal banking account. 17His "practice account" with the ANZ was in the name of the firm of accountants of which he was the only principal. Of the two new accounts he established at the ANZ, one was opened in the name of Ficaro as account holder (designated "the Ficaro account") and the other (designated "the online account") was opened in the name of Mr Evans personally. 18Without notice to Mr John Fletcher, Mr Evans arranged for the $700,000 lent to Ficaro by Cleveland to be paid into the "Ficaro account" at the ANZ Bank. 19Between 5 and 15 May 2009 or thereabouts, the $200,000 loan moneys not paid to HSBC by Ficaro, under Mr Evans' day-to-day control, were applied (by movements between the three ANZ accounts controlled by Mr Evans): (a) as to the sum of $140,000, for the benefit of Mr Evans personally; and (b) as to the balance of $60,000, by placement of that sum to the credit of the ANZ online account. 20In the course of giving evidence at the hearing of the proceedings, Mr Evans acknowledged that any moneys standing to the credit of the online account were, at all times, intended by him to be held on behalf of Ficaro beneficially. 21That acknowledgement renders unnecessary any consideration of whether Cleveland was entitled to claim relief from Mr Evans on the basis of an allegation of a Quistclose trust arising from the fact that the $700,000 lent to Ficaro was lent for a specified purpose. 22As there is an identity of interest in these proceedings between Cleveland and Ficaro, it is unnecessary for Cleveland's trust claim to be pursued further. 23Two of Mr Evans' creditors obtained access to the funds standing to the credit of the ANZ online account for enforcement of judgments they had obtained against him. Of the $60,000 standing to the credit of that account on or about 15 May 2009 (according to a summary prepared by Mr Evans), there is, now, only a balance of about $18,000. 24Although Mr Evans has acknowledged that Ficaro is the beneficial owner of the online account, he nevertheless maintains a claim to be entitled to the whole of the money standing to the credit of that account (and, indeed, to the whole of the $200,000) because, he says, he had an entitlement to unpaid fees as against Ficaro. 25With one exception, I am not satisfied that Mr Evans has any entitlement to fees. The exception relates to a sum of $5,000 referable to his last invoice for accountancy and secretarial services. Ficaro, under the day-to-day control of Mr John Fletcher after Mr Evans' departure as a director, acknowledges that that last invoice was a subject of a cheque, drawn for payment, never presented. The plaintiffs are prepared to allow to Mr Evans the sum of $5,000 referable to that invoice. 26Mr Evans' claim to director fees is based upon an assertion that, as the sole director of Ficaro, he was entitled (under the constitution of the company) to resolve, on his own account and for his own benefit and without notice to the shareholders of Ficaro, that he be paid directors fees. 27If he ever really did record such "resolutions" in the records of Ficaro - which I doubt- he did so for the purpose of attempting to cover his tracks, having misapplied moneys of Ficaro. He did that notwithstanding earlier provision to Mr John Fletcher of Ficaro company accounts in which no liability, or provision for liability, for directors fees was recorded. 28Mr Evans' approach to the preparation of documentation relating to the affairs of himself and Ficaro includes a ready acceptance that he could create self-serving documents (in his personal capacity) and send them to himself (in his capacity as an officer of Ficaro) for the purpose of establishing, in his contention, an entitlement vis a vis Ficaro. The fact that such documents - nominally "invoices" - may have been addressed to Mr John Fletcher and/or Ficaro provides no evidence that they ever came to the notice of Mr Fletcher or, for that matter, anybody within Ficaro other than Mr Evans himself. In my assessment, those invoices were a sham. 29In rejecting Mr Evans' claim of entitlement to the $200,000 lent by Cleveland to Ficaro, I formally record that, where his evidence conflicts with that of Mr John Fletcher and Mr Darren Welsby (a senior officer of HSBC), I prefer the evidence of Messrs Fletcher and Welsby. The evidence of both men establishes that, to the knowledge of Mr Evans, the $700,000 was lent to Ficaro by Cleveland for the purpose of immediate on-payment to HSBC and for no other purpose. In my assessment, the evidence of Mr Evans cannot be accepted without corroboration. I accept Messrs Fletcher and Welsby as truthful witnesses. 30Subject to adjustment in respect of the "last invoice" (for the sum of $500,000), I find that the plaintiffs are entitled to a judgment for the recovery of $200,000, together with a declaration that they are beneficially entitled to the remaining balance of the online ANZ account in partial satisfaction of the judgment for the $200,000. They are also entitled to interest calculated at the Court rate. 31Insofar as Ficaro claims moneys for the recovery of funds misappropriated via forged cheques, I find that it is entitled to succeed. 32Mr Evans acknowledges that the whole of the amount of $67,517.60 claimed by Ficaro was applied, from Ficaro's HSBC account, for his personal benefit. 33He had custody of Ficaro's cheque book. He was not an authorised signatory on that account of Ficaro. 34Two cheques were signed by Mr Simon Fletcher as an authorised signatory, but they were made payable to Telstra. One of those cheques was dated 6 June 2007. The other was dated 8 June 2007. On his own evidence, Mr Evans deleted the name of "Telstra" as a payee, substituted a reference to his accounting firm as payee and initialled the alterations "SF". He said, in the course of giving evidence, that he used Mr Simon Fletcher's initials in that way with the express approval of Mr John Fletcher. I do not accept that evidence. 35Mr Simon Fletcher was not present in Australia during the period covering the dates of all but those two "Telstra" cheques. He could not have signed them on the dates they respectively bear. Mr Evans does not suggest that he did. 36Mr Evans says that, before he went overseas, Mr Simon Fletcher signed all the disputed cheques (other than "Telstra" cheques) in blank. 37Mr Simon Fletcher denies that he ever did such a thing. I accept his denial. He appeared to me to be a truthful witness. It is inherently unlikely that he would have done such a foolhardy thing as leave in the custody of Mr Evans, a substantial number of signed, blank cheques. The unlikelihood of such an event happening is magnified by the fact that only some, not all, the disputed cheques said to have been signed in blank are in sequence so far as appears from their respective numbers in the cheque book. 38The fact that Mr Simon Fletcher's signature on the disputed cheques was forged is supported, at least in part and within the limits of what expert handwriting evidence can achieve, by the evidence of the handwriting expert Mr Steve Dubedat. 39When one places that evidence in context (including the fact that Mr Evans obtained the benefit of the cheques, and was the person with custody of the cheque books, as well as a person who was prepared to use Mr Simon Fletcher's initials for his own purposes) an inference that Mr Evans misappropriated the entire proceeds of the disputed cheques should, in my opinion, be drawn. The fact that he was financially in straightened circumstances adds support for that conclusion. 40In the event, I accept that Mr Evans has a liability to Ficaro of $67,517.60 (together with interest) in respect of the disputed cheques. 41I do not accept Mr Evans' counter contention that he was entitled to the sum of those cheques for services rendered. I have already made findings about the credibility of his contentions on the topic of his entitlement to unpaid fees. 42In relation to the claims for compensation made against Mr Evans by Ficaro, there is, in my finding, a reasonable foundation for a conclusion that Mr Evans was in breach of the standards required of him (as set out in ss 180, 181 and 182 of the Corporations Act 2001 (Cth)) as a director of Ficaro. 43In relation to Ficaro's difficulties with ASIC, money was provided to Mr Evans for the payment of fees due to ASIC. He did not pay ASIC and the company was deregistered. 44The legal fees incurred on behalf of Ficaro were incurred in circumstances in which, while still a director of the company, Mr Evans commenced proceedings against it. It was not until Mr John Fletcher regained control of the company that the conflict of interest involved in these circumstances was removed, and the solicitors retained by Mr Evans had their retainer terminated. 45In each circumstance (that is, in relation to the company's deregistration and in connection with the incurring of legal fees), Mr Evans demonstrated a lack of the reasonable care and diligence expected of a director in those circumstances. Particularly is that so, bearing in mind that he is qualified as an accountant, and his association with Ficaro stemmed from the fact of his professional qualifications. 46I find that Mr Evans is liable to Ficaro for the payment of compensation as claimed referable both to the incurring of legal fees and to the payment of fees to ASIC. 47In relation to each component of their respective entitlements to judgment, the plaintiffs are entitled to interest at court rates. 48For the reasons I have elaborated, I make the following orders: (1)Order that judgment be entered for Cleveland Investments Global Limited and Ficaro Pty Limited against Peter Evans in the sum of $259,000 (representing a judgment debt of $195,000 plus an allowance for interest on that amount). (2)Order that judgment be entered in favour of Ficaro Pty Limited against Peter Evans for the sum of $110,067.23 (representing principal amounts of $67,517.60 in relation to misappropriated cheques, $13,127.32 in relation to compensation for legal fees wrongly incurred, and the amount of $1,267 as compensation referable to the payment of ASIC fees, together with interest calculated on the aggregate of those three sums). (3)Declare that Peter Evans holds on trust for Cleveland Investments Global Limited and Ficaro Pty Limited, all moneys standing to the credit of the ANZ online bank account in his name bearing the reference BSB xxxxxxxxxxxxxxxxx. (4)Order that the cross-claim filed in these proceedings by Peter Evans (namely the second amended first cross-claim filed 7 December 2012) be dismissed. (5)Order that Peter Evans pay the costs of Cleveland Investments Global Limited and Ficaro Pty Limited as agreed or assessed, such costs to be assessed on the ordinary basis. (6)Reserve to Cleveland Investments Global Limited and Ficaro Pty Limited liberty to apply for such, if any, further relief as may be necessary to enforce their entitlement to recover the moneys standing to the credit of the ANZ online account. (7)Note that any moneys recovered by Cleveland Investments Global Limited and Ficaro Pty Limited from the ANZ online account, are to be treated as recovery of moneys due to them in respect of the judgment debt recorded in order 1 of these orders. (8)Order that exhibits and subpoenaed material may be returned forthwith. Any exhibits returned must be retained intact by the party or person that produced the material until the expiry of the time to file an appeal, or until any appeal has been determined. (9)Order that the freezing order made on 3 June 2009 and extended on 11 June 2009 in relation to the ANZ Online Saver account in the name of Peter Evans (BSB xxxxxxxxxxxxxxxxx) be varied to permit payment out of that account of all moneys to the solicitors for Cleveland Investments Global Limited and Ficaro Pty Limited (Ian Tremback Lawyers) on behalf of Cleveland Investments Global Limited and Ficaro Pty Limited. (10)Order that the freezing order made on 15 May 2009 and extended on 11 June 2009 in relation to the ANZ Online Saver account in the name of Ficaro Pty Limited (BSB/xxxxxxxxxxxxxxxxx) be discharged. (11)Order that Cleveland Investments Global Limited be released from the undertaking given by that company to the Court on 20 October 2011 in relation to the retention by it of at least $200,000 worth of shares in Australia. (12)Order that the orders made today be stayed until and including 14 December 2012 or such other date as may be appointed by the Court.