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[2013] FCA 19
Federal Court of Australia
2013-01-17
McKerracher J, Sah P
Original judgment source is linked above.
INTRODUCTION 1 The applicant (the Liquidator) seeks a declaration under s 468(1) of the Corporations Act 2001 (Cth) (CA) that the disposition of a truck with former vehicle plate number 1CBA538 (the Truck) from PB Enterprises (WA) Pty Ltd (PB Enterprises) to the second respondent (Southland) is void. By way of interim relief, the Liquidator sought a warrant pursuant to s 530C CA for the seizure of the Truck. 2 The application is supported by two affidavits of the Liquidator, the first being sworn on 17 February 2012 and the second on 19 April 2012. The application is opposed by the first respondent (Mr Pratt) who supports his opposition with an affidavit sworn on 27 September 2012.
THE EVIDENCE 3 In his 17 February 2012 affidavit, the Liquidator records that the directors of PB Enterprises, as at 8 May 2011, were Ms Belinda Anne Topping and Mr Paul McKenzie Topping of Bullsbrook in Western Australia. On that date, PB Enterprises was the registered proprietor of the Truck. 4 A notification of change of ownership form was purportedly signed by Ms Topping in favour of 'SAH P/Earls ATF Southland Trust' (SAH) on the same day. Exhibited extracts of the records of the Australian Securities and Investments Commission (ASIC) in relation to Southland, as at 22 November 2011, confirm that the Truck was transferred to Southland on the same day. The notification of change of ownership was signed on the part of SAH by Mr Pratt. 5 Based on company extract for Southland, the Liquidator was of the view that the Truck was located at an address in Lamington in Western Australia. The Liquidator believed that the transfer of the Truck was a void disposition of PB Enterprises' property having been made after the date of the winding up on 25 January 2011. The Liquidator contended that he was entitled to possession of the Truck. Given it was highly movable and that there was risk that it could be moved in an attempt to thwart his taking possession, he sought a seizure warrant from the Court. 6 In his 19 April 2012 affidavit, the Liquidator produced a copy of the licence and third party insurance policy for the Truck. It specified that the chassis number for a vehicle with the vehicle plate number KBC686A was the same chassis number for the Truck. He believed, accordingly, that the vehicle plate number for the Truck had changed to KBC686A. 7 Mr Pratt contends that he purchased the Truck on an entirely lawful basis. An agreement was reached by the parties that rather than depriving him of use of the Truck, he could indemnify the Liquidator for any damage caused to the Truck from the date of undertaking which was filed with the Court on 17 September 2012. 8 Mr Pratt's affidavit confirms that he is the sole director and secretary of Southland. In about January or February 2011, he met Mr Topping in Kalgoorlie, Western Australia, in the company of an identified mutual friend (the Friend). Mr Topping mentioned to Mr Pratt that he was in the transport business and had trucks in Perth. Mr Pratt knew nothing else about him. In about April or May 2011, he had another discussion with the Friend in Kalgoorlie. He asked Mr Pratt if he would have any use for the Truck. 9 At this time, Mr Pratt was of the view that the fair value of the Truck would have been about $60,000. He based this view on his experience of buying and selling equipment. Over the past 30 years he has purchased 15-20 trucks, many sight unseen and all second hand. 10 He had been told that the Truck had travelled some 500,000 kilometres during 11,000 engine hours. That suggested to him that the Truck would be towards the end of its life. At that time he was not specifically looking to purchase a new truck. He asked the Friend about the history of the Truck. 11 Mr Pratt was told that Mr Topping was fighting an action against a liquidator and the Truck was owned by Mr Topping and his wife personally. He was told the Toppings needed to sell the Truck to finance the legal action against the Liquidator. The Friend said that a man who was identified but whom I will simply call 'the Representor' from a company based in the eastern states was representing the Toppings. The Friend showed Mr Pratt a photograph of the Truck. 12 Mr Pratt spoke to the Representor on the telephone in or about the end of April or beginning of May 2011. The Representor confirmed that he represented the Toppings and said words to the effect that 'Paul Topping was not well' and gave details of the medical condition. The Representor said that he held powers of attorney for the affairs of both of the Toppings. He reiterated to Mr Pratt that someone had to buy the Truck so that Mr Topping could fund the action to oppose the liquidation. Mr Pratt said that the Toppings proposed to sell the Truck because it was owned by them personally and not by the business and that the sale would enable them to keep their property in Bullsbrook and their other trucks and assets. 13 Mr Pratt asked the Representor whether the Truck was encumbered in any way and the Representor assured him on a number of occasions that it was free from any encumbrance. The Representor said, in substance, that the Truck was registered in the name of the business for tax purposes only but, in fact, was owned by the Toppings personally. Mr Pratt said he did not think anything was unusual about that set up as he knows that there may be advantages available for registering equipment in particular ways. He gave an example of a trailer which was owned by his brother but which was registered in the name of Southland. At no stage did the Representor inform Mr Pratt that the Truck was a business asset or part of a liquidation. 14 Mr Pratt took the additional step of examining the Register of Encumbered Vehicles (REV) website to ensure that the Truck was unencumbered. He deposes that his search revealed no encumbrances however he did not print out the results of the search at that time or purchase a REV certificate at the time. 15 Mr Pratt explained that on or about 5 May 2011 he offered on behalf of Southland $66,000 inclusive of goods and services tax (GST) for the Truck. The offer was accepted by the Representor. During the conversation the Representor tried to negotiate a higher price but Mr Pratt made it clear that this was his final offer. The Representor pressed him for urgent payment, saying that the Toppings needed the money urgently and it was necessary to come to an arrangement as quickly as possible. Mr Pratt says that if the offer had not been accepted, he simply would not have purchased the Truck. 16 The Representor asked for payment of the entire amount straight away but Mr Pratt indicated that he would need to secure the funds. The Representor pressed him for $20,000 to engage a forensic accountant to help them fight for liquidation urgently so Mr Pratt did agree to pay the $20,000 deposit as soon as possible and to pay the balance as soon as he could arrange the funds. The Representor wanted to arrange payment swiftly and Mr Pratt wanted to arrange for final payment to coincide with taking possession of the Truck. Nevertheless he hoped that this would not take longer than a week. 17 Accordingly, instead of arranging finance, Mr Pratt borrowed $46,000 from a friend to whom he had spoken in late April or early May on the topic. The funds were advanced quickly on the basis that Mr Pratt would repay the Friend the principal sum and interest when he was in a position to do so. The funds were transferred into Mr Pratt's account on 12 May 2011. Southland paid the deposit on 6 May 2011. It was paid into an account held by the company based in the eastern states, the details of which were provided to Mr Pratt by the Representor. The Representor issued Southland an invoice for the purchase price of $66,000 and issued Southland a memorandum authorising the collection of the Truck from Mr Topping's property. The balance of the invoice for the Truck was paid by Southland on 12 May 2011. After speaking to a friend who informed Mr Pratt that a REV check was insufficient and that a REV certificate is what protects against repossession, he decided that he should purchase a REV certificate for Southland's records. On 20 May 2011, Mr Pratt undertook a second REV check in respect of the Truck. The REV check, again, indicated there were no encumbrances on the Truck. He ordered a REV certificate on this occasion. 18 At around this time and shortly after paying the balance of the purchase price, Mr Pratt went to Perth to pick up the Truck which he considered to be his property as a result of paying for it. While he was in Perth collecting the Truck, he provided the Representor with transfer papers for the Truck and asked him to sign them and return them. Mr Pratt had filled in all of his details and used a date around the date of the deposit date as the transfer date. After taking possession of the Truck while still in Perth, the Representor then contacted Mr Pratt to say that he had another buyer willing to pay a higher price for the Truck. He asked if Mr Pratt would be happy to have his money back. At that stage the Truck had not been transferred into Mr Pratt's name or Southland's name and Mr Pratt needed $20,000 for another transaction he was organising. Mr Pratt did not believe that the Truck was worth any more than what he had paid for it so he agreed to the proposal advanced by the Representor as long as his money was returned. 19 Mr Pratt told the Representor he needed $20,000 immediately from that money. That sum was put back into Mr Pratt's account soon after. Mr Pratt then met the new buyer when he undertook a test drive of the Truck. The new buyer seemed happy with the Truck and said that he was going to pay $88,000 inclusive of GST for it, although Mr Pratt had no confirmation of this. After a week and a half had passed following the return of the $20,000, the Representor contacted Mr Pratt to say that the deal with the other purchaser had fallen through. The Representor wanted to proceed with the sale to Mr Pratt. 20 Mr Pratt says that by this stage he was getting nervous as the remaining $46,000 of what he had paid to the Representor had not been returned to him and nor had the transfer papers to transfer the Truck. He agreed, once again nevertheless, to go ahead with the sale saying that he would repay the $20,000. The Representor said that he would send the registration papers to Mr Pratt. Following this exchange, Mr Pratt, in accordance with instructions from the Representor, paid $16,000 of the money back into the account previously given to him by the Representor in two payments of $10,000 and $6,000. The last $4,000 was paid into a separate trust account operated by his then lawyer. Mr Pratt made the payments in this way as his daily transfer limit was $10,000. 21 Over the period of making these transfers, he formed a view after discussion with a friend that the payments should be made into a trust account. Originally he was not worried as he had seen the power of attorney and considered that it was safe to deal with the Representor directly. By this stage, he was less confident. Accordingly Mr Pratt tried to stop payment of the $16,000. He was unable to do so. It was for that reason he put the remaining $4,000 into his lawyer's trust account. 22 A little later, on about 20 May 2011, the Representor provided Mr Pratt with a letter from a lawyer which, while stating that the Truck was owned by 'his client' whom he stated to be Mr Topping, suggested that the Truck was owned PB Enterprises and that Mr Topping's power of attorney was revoked. However, at this time Mr Pratt had already completed the transaction under what he believed was a valid power of attorney and he had paid for the Truck. He believed there was nothing else he could do but finalise the transfer of the registration to Southland. 23 On 1 June 2011, Mr Pratt attended the Kalgoorlie licensing centre to transfer the registration of the Truck into the name of Southland. The Department of Transport wanted to sight the power of attorney held by the Representor. Mr Pratt phoned the Representor while he was at the licensing centre and requested him to email direct to that centre copies of the signed transfer papers and the power of attorney documentation. Those were emailed by the Representor as requested. At some point a copy of the email was forwarded to Mr Pratt. Prior to receipt of the email he had seen the power of attorney from Mr Topping but had not seen the one from Mrs Topping until that time. Whilst he was at the licensing centre, Mr Pratt changed the registration plates on the Truck to Kalgoorlie plates to bring them into line with his other trucks which were all located in Kalgoorlie. 24 After registering the Truck in the name of Southland, Mr Pratt proceeded to undertake a 'major program' of maintenance and repair of the Truck as it had been neglected and was in poor condition. He spent some $17,000 on those repairs, parts and maintenance. He was then offered the opportunity to cart grain in Esperance for the 2011/2012 harvest season and used the Truck for that purpose. Since completion of the harvest season in early February 2012 he has regularly driven the Truck until recent times when he has refrained from doing so in light of the undertaking given to indemnify the Liquidator against any damage to the Truck. He ceased using the Truck in August 2012. 25 Mr Pratt has suffered personal financial hardship as a result of the events which have transpired. It has been his plan to move with his family to Albany. He put an offer on a business in Albany with the intention of selling the Truck and other assets in order to undertake a purchase of the business. He sold assets that he knew he would not need for that business. In July 2012 he made arrangement for the sale of the Truck to the operator of another business in Kalgoorlie. That sale fell through when he was informed by the prospective purchaser that there was some sort of encumbrance on the Truck. This came as a surprise to Mr Pratt because there had been no encumbrance revealed by the REV certificate when it was purchased by Southland. 26 Following this, Mr Pratt had contact with the Liquidator and became involved in these proceedings. He was unable to pursue the purchase of the Albany business and unable to move his family from Kalgoorlie to Albany as planned. In the meantime, the Representor has disappeared. Mr Pratt has had no contact with either the Representor or Mr Topping since late 2011. He has assisted the Western Australian police with enquiries concerning the circumstances in which representations were made to him in relation to the Truck sale. He has now lost opportunity to take the potential proceeds of the sale of the Truck to the Kalgoorlie business, which has purchased another truck. The sale was at a higher price than he paid having spent considerable time and money on improving the Truck. The proceedings have quite understandably caused Mr Pratt considerable stress over and above the financial hardship.
THE LIQUIDATOR'S CLAIM 27 The date of winding up PB Enterprises was 25 January 2011. 28 The transfer of the Truck from PB Enterprises to Southland was on 8 May 2012, well after the date of winding up. 29 The Liquidator therefore contends that as the disposition of property occurred after the winding up of a company, the transfer of the Truck to Southland is void pursuant to s 468(1) CA. 30 In short, the Liquidator argues that there is no doubt that at all times the Truck was the property of PB Enterprises. The Liquidator never had any dealings with the Representor and never authorised him to sell the Truck. The Liquidator has not received the funds from the Representor or from any other person in respect of the purported sale of the Truck. The Liquidator argues that the change of notification of ownership dated 8 May 2011 was effected by the Representor with the assistance of Mr Topping in circumstances where the respondents knew or ought to have known that the Truck was the property of PB Enterprises. From this it follows, it is said, that the respondents have no claim against PB Enterprises in respect of the $66,000 paid to the Representor that was never passed on to the company. The Liquidator accepts that the respondents may be able to lodge a proof of debt in relation to improvements effected to the Truck beyond ordinary maintenance and repair.
ARGUMENTS ADVANCED FOR MR PRATT 31 Mr Pratt's main point is that at all times he acted totally honestly, reasonably and cautiously and should not be required to part with the Truck having paid for it. Mr Pratt makes the point that for several months following the winding up the Liquidator could have secured the Truck. Mr Pratt emphasises that if the Liquidator's interest had been registered and known to him when Mr Pratt conducted the REV check, he would never have purchased the Truck and passed over the funds which have now disappeared. Mr Pratt also says there is no satisfactory proof of ownership of the Truck. 32 The Liquidator says in response to the argument about his delay that there was difficulty in securing cooperation from Mr Topping which would appear to have some support from the suggestion of disputation that was occurring. The Liquidator says that, at best, as unfortunate and regrettable as it may be without making any statements as to the conduct of the Representor, Mr Pratt has paid funds to the Representor for a truck which he could not convey to Mr Pratt. Any cause of action that Mr Pratt may have against the Representor is a separate matter but is still preserved. But none of that, the Liquidator says, should bear upon the fact that the Truck should be returned to him. CONSIDERATION 33 In substance, the request by Mr Pratt is for the Court to enable him to resist the operation of s 468(1) CA in the exercise of the Court's discretion conferred by the expression 'unless the Court otherwise orders' appearing in that section. There is discussion by Greenwood J in Carringbush Corporation Pty Ltd v Australian Securities and Investments Commission (2008) 72 ATR 17 (at [23]) where his Honour said that 'ordinarily the discretion will not be exercised in favour of an order unless the Court is satisfied that the order serves either the interests of the company or its creditors'. In Carringbush the transaction concerned was a transfer of shares before the insertion of s 468A CA on 31 December 2007. The statement of general principle expressed by his Honour was in relation to both the disposition of property and the transfer of shares and is now addressed by s 468A CA. I respectfully agree with the observations of Greenwood J. 34 The Full Court (Woodward, Neaves and Beaumont JJ) considered the nature of the discretion in Jardio Holdings Pty Ltd v Dorcon Constructions Pty Ltd (1984) 3 FCR 311. In discussing the discretion conferred on the Court in similarly worded state legislation, the Full Court expressed the following view (at 317): A transaction entered into in good faith which offers actual or prospective advantage to the company or its general body of creditors would, ordinarily, be sanctioned by the court even if an incidental advantage were obtained by one creditor or one class of creditors. 35 There is no doubt that the onus of persuading the Court to exercise the discretion rests with Mr Pratt and Southland. In Re Terene Pty Ltd (In Liq) (1992) 7 ACSR 309 Hedigan J said (at 314) that it was: incumbent upon [the transferee in that case] to establish facts giving rise to a conclusion that the impugned payments were made in good faith, for valuable consideration and in the ordinary course of business and that there was a countervailing benefit to the company. 36 See also more recently Pilmer v HIH Casualty & General Insurance Ltd (No 2) (2004) 212 ALR 636. Two factors were identified in that case, namely, whether the respondents acted in good faith with honest intentions and, secondly, whether the respondents were aware that the company had been wound up. 37 I have no basis whatsoever for any conclusion other than that Mr Pratt acted honestly at all times. While the Representor was not called to present his side of the story, it would appear that there are certainly grounds to believe that the representations he made to Mr Pratt and on which Mr Pratt relied were the true cause of Mr Pratt's problems. However, in light of his absence at the hearing I have refrained from identifying him. Additionally, I make no finding against any party who has not participated in this proceeding. 38 The Liquidator contends that the discretion should not be exercised because Mr Pratt was aware that Mr Topping was in possession of the Truck and Mr Topping was involved in a dispute with the Liquidator. He was alerted therefore in January or February 2011 that the Truck may have been the subject of the Liquidator's claim. Mr Pratt should have, at least, proceeded with more caution. The Liquidator submits that Mr Pratt ought to have been aware that Mr Topping was either a director or shareholder of the company in liquidation and that the Truck was registered in the name of the company in liquidation of which Mr Topping was either a director or shareholder. The Liquidator submits, and I accept, that there is no distinction as Mr Pratt understood there to be between legal ownership and legal ownership 'for tax purposes'. 39 In written submissions the Liquidator contended that Mr Pratt has not even demonstrated that he acted in good faith. I am unable to accept this submission. In my view, Mr Pratt, although he may have been gullible, has certainly acted in good faith even though the circumstances threw up enough anomalies to cause him to conduct his own enquiries rather than simply taking the Representor's assertions at face value. Once being aware of the dispute, even broadly described by the Representor, it would have been reasonable for Mr Pratt to make more detailed enquiries to satisfied himself as to the true ownership of the Truck. The matter is further complicated by the fact that Mrs Topping (who was not called to give evidence) is shown as the seller on the transfer form but it was signed by the Representor at a time when the power of attorney was not in operation. 40 The Liquidator argues that there are aspects about the transaction between the Representor and the respondents that call into question whether the transfer of the Truck was performed in good faith and at arms length. In particular, the Liquidators point to the fact that Southland transferred $66,000 to the Representor without being provided with a signed notification of change of ownership. Mr Pratt dated the notification of change of ownership 8 May 2011 whereas that document was signed by the Representor purportedly pursuant to the power of attorney granted to him by Mrs Topping on 28 May 2011. The notification of change of ownership was lodged by Mr Pratt on 1 June 2011 in circumstances where on 20 May 2011 he was expressly notified that the Truck was the property of PB Enterprises. I am not prepared to reach any conclusion adverse to Mr Pratt in relation to his good faith. Nevertheless these factors with others are relevant to whether Mr Pratt acted reasonably in the circumstances. 41 The difficulties with which Mr Pratt is confronted is that he relied upon assurances from the Representor, at a time when the Representor actually held no power of attorney, that the Truck was in fact owned by Mr Topping who was having a dispute with the liquidator as to the ownership of the vehicles. At that stage, there was no evidence that he was informed of the actual name of the company but by the time of signing the transfer for the company, the transfer revealed that the company was indeed a company in liquidation. Mr Pratt says that he did not treat the registration as binding proof of ownership of the Truck because he knows of other circumstances in which vehicles are registered in one name even though they are owned by other people. I am not persuaded that this is so. Even if it is, the information Mr Pratt had should reasonably have put him on notice to at least make further enquiries as to the true ownership of the Truck. He should not have proceeded with the transaction and of course now regrets doing so. 42 Mr Pratt says that if steps had been taken by the Liquidator within the four or five months from the date of liquidation to the date of the transaction to lodge a caveat under the chattel security legislation in existence at the time then he would have been alerted to the Liquidator's interest on doing a search of the chattel. The difficulty with this argument appears to be that such provision did not exist in the state legislation at the time, although there may now be a broader definition of security under the personal property securities legislation which is federal legislation. It is not clear that the Liquidator could have done more than he did at the relevant time. 43 Another feature of the loss of funds by Mr Pratt arises from the post contractual conduct. The Representor approached Mr Pratt after Mr Pratt had paid over the purchase price to advise that he had found someone prepared to pay more for the Truck. In response Mr Pratt agreed that the Truck could be sold to the third party if his payment was refunded. To enable this to occur, he signed a backdated transfer but his money was not returned. It seems that Mr Pratt, while being honest, has been far too trustworthy in this situation. While this does not bear upon the Liquidator's claim, it does illustrate that to some extent, regrettably, Mr Pratt was the author of his own misfortune. 44 Mr Pratt should have done more in the circumstances to satisfy himself that PB Enterprises, as distinct from Mr Topping, owned and thus had the capacity to sell the Truck. It would not be in the interests of creditors to decline to declare the transaction void. The Liquidator is entitled to the relief sought. Any foreshadowed cross-claim by Mr Pratt must also be dismissed. Any loss he sustained flowed from the void transaction. It has not been proven that the value of the Truck was enhanced in his possession because, as the Liquidator points out, Mr Pratt has not distinguished between works that were ordinary maintenance and repair and works that were improvements. Of course if Mr Pratt can demonstrate such a distinction, the Liquidator has accepted that he is entitled to lodge a proof of debt. 45 I will order that the Liquidator file and serve a minute within ten days reflecting these reasons. The judgment and final orders will then be pronounced in open court. I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.
Conlan
Pratt
(1984) 3 FCR 311
(2004) 212 ALR 636