Dueeasy Pty Ltd v D & M Hughes Civil Engineering Pty Ltd

Dueeasy Pty Ltd v D & M Hughes Civil Engineering Pty Ltd - [2006] NSWSC 333 - NSWSC 2006 case summary — Zoe

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6191/04 Dueeasy Pty Limited v D & M Hughes Civil Engineering Pty Ltd (in liq) ACN 002 135 579 by its Joint Liquidators & 2 Ors JUDGMENT 1 HIS HONOUR: The First Defendant, D & M Hughes Civil Engineering Pty Ltd ("the Company"), went into voluntary liquidation on 15 July 2004. 2 From 13 December 2001, and as at the date of liquidation, the Plaintiff ("DPL") was pursuing the Company in the District Court in relation to monies ($117,000 plus interest) which DPL claimed the Company owed it in respect of building work carried out by DPL at a site in Kellyville as the Company's subcontractor. The fact of liquidation halted the proceedings (by virtue of s 471B of the Corporations Act 2001). Mr F Donohoe of counsel appears for DPL. 3 Following the appointment of Mr De Vries and Mr Tayeh as joint liquidators, certain books and records of the Company were handed over to them, through their employee Ms Sue McCallum ("Ms McCallum"). One of the documents which was handed over to Ms McCallum was a deed bearing the date 9 September 2002 (see paras 7 and 11 of her affidavit). The deed related to Lot 6 Railway Rd Mulgrave ("Lot 6") and was one made between the Company, Rabobi Pty Ltd ("Rabobi") and W & G Lambiris & Sons Pty Ltd ("Lambiris"), the Second and Third Defendants to these proceedings. Mr V R W Gray of counsel appears for Lambiris and Rabobi. The liquidators have filed an appearance on behalf of the Company, but effectively it is a submitting appearance. 4 Lot 6 adjoins Lot 7 and Lot 209, and those three lots were the subject of a plan of subdivision approved by the Hawkesbury City Council ("the Council"), and the subdivided lots have been sold. The lots comprised in former Lot 6 were sold for more than $5 million. Some of the proceeds of sale of the lots have been placed in a bank account of the solicitor handling the sale of the lots pending the outcome of this case. The amount deposited was $820,000. Rabobi and Lambiris claim that the proceeds belong exclusively to them. DPL claims that those proceeds and all the proceeds from the subdivided lots of Lot 6, subject to due allowances, belong to the Company.

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5 There are in fact two versions of the deed to which I have referred, one dated 9 September 2002 and one dated 14 September 2002. Both versions have been executed by Mr Hughes as a director of the Company, but only the document bearing the date 9 September 2002 has the seal of the Company affixed. The two versions are annexed to Ms McCallum's affidavit and both have been executed by Lambiris and by Rabobi. Lambiris is a company the shares in which are owned by Mr Lambiris; Rabobi is a company the shares in which are owned by Mr Hughes and his wife; and shares in the Company are owned by Mr Hughes and Rabobi. 6 It is conceded by Rabobi and Lambiris that the deeds were not executed on 9 or 14 September 2002 (concession by counsel at T5.5-10), and indeed that the deeds were not prepared until August 2004 (see T164.45-50) (although Mr Lambiris sought to distance himself at T226 from the concession made on behalf of Lambiris (and Rabobi)). It is also conceded by Rabobi and Lambiris that since the Company had been placed in liquidation on 15 July 2004, Mr Hughes had no authority to bind the Company, and that the documents purporting to be deeds have no effect at law. 7 So far as DPL's claim against the Company is concerned, it is conceded by Rabobi and Lambiris that DPL, which is asserting a claim against the Company in liquidation, has standing to bring these proceedings and would be prejudiced by any assignment which constituted an attempt to defraud creditors under s 37A of the Conveyancing Act 1919: see T12.20-34. Submissions of Rabobi and Lambiris which appeared to challenge DPL's standing were, it was agreed on 19 April, no longer relevant. It was agreed that it is no part of the Court's function to make any assessment of whether the Plaintiff's claim upon the Company is valid and if so, to what extent. 8 There were no pleadings in the matter. On 9 February 2006 when the matter was listed before me for directions, I directed, inter alia, the parties to exchange statements of issues and outlines of submissions. These orders were complied with but there was a lack of agreement about the description of issues, which continued at the hearing: see T4.21-11.25. Whether the real differences over the categorisation of issues was slight as Mr Donohoe thought (T4.26-29) is not important for present purposes - what is important is the way in which Lambiris and Rabobi put their case through the outline of submissions tied to the list of issues filed on their behalf and to the cross summons filed. The reason for its importance is that it is DPL's contention that the subsequent submissions, advanced by Lambiris/Rabobi at the close of evidence, were quite different to those advanced in the first submissions, and that to permit such a change of tack was unfair and prejudicial to DPL. I shall refer to this as the "new case" point. 9 I will need to return to the "new case" point but the question of divergence will be better understood after I have dealt with the issues that were presented by counsel as at the commencement of the hearing. 10 DPL's case is that the liquidators on behalf of the Company, and therefore creditors, should be able to have access to all of the net proceeds of sale of the subdivided lots that formerly made up Lot 6. 11 DPL's starting point is that (a) the Company purchased Lot 6 in its name; (b) it paid the deposit of $42,500; (c) it together with Rabobi and Lambiris borrowed in excess of six million dollars from Suncorp Metway ("Suncorp") to finance the balance of the purchase of Lot 6, the balance of the other lots' purchase prices and the construction costs; and (d) it has never transferred the land (i) at law; or (ii) in equity. 12 Rabobi and Lambiris accept (a), (b) and (d)(i) but asserted that in July 2002, the Company by express oral declaration of trust transferred its equitable interest in Lot 6 to Rabobi and Lambiris. Whilst (c) was accepted as a fact, there was some attempt by Mr Hughes to minimise the importance of it. 13 Rabobi/Lambiris read, inter alia, the affidavits of Mr Hughes and Mr Lambiris in support of that case. The thrust of Rabobi/Lambiris' position was that although the deeds dated 9 September 2002 and/or 14 September 2002 were ineffective, they reflected a transfer of interest to Rabobi and Lambiris orally agreed between Mr Hughes on behalf of the Company and Rabobi on the one hand, and Mr Lambiris on behalf of Lambiris on the other. 14 DPL asserts that:

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19 Although the Plaintiff bears the onus of proof, there is no dispute that proceeds derived from the sale of Lot 6, of which the Company is registered owner, have been paid into the account of the solicitor handling the sale of subdivided lots forming part of Lot 6. The Plaintiff has established that the Company was the legal owner of Lot 6 and that it paid the deposit of $42,500 and was a joint borrower of the balance of the funds. 20 The witnesses called on behalf of Lambiris and Rabobi included Mr Fisher, a solicitor who relevantly, after contracts had been entered into between Caltex and the Company but before settlement, was asked to advise Mr Hughes as to whether Rabobi could be substituted for the Company. He advised Mrs Lisa Shepherd (Mr Hughes' daughter) that stamp duty may be payable and that a change would lead to delay in the settlement on the property. He heard no further from Mrs Shepherd or Mr Hughes on the topic. Mrs Shepherd also gave evidence by affidavit and was cross-examined. She stated, inter alia, that it had always been her intention to arrange the transfer of the land from the Company to Rabobi and to arrange a joint venture deed as instructed by her father. She ascribed her failure to raise the question of the joint venture deed with Mr Fisher as an oversight due to her having recently given birth to her third child, and her failure to progress the transfer to the same cause. 21 I have mentioned that it was conceded by Rabobi and Lambiris that the deeds transferring the beneficial interest to them were created in August 2004 and dated 9 and 14 September 2002. Mr Hughes gave evidence that he had asked his solicitor, Mr Stratford of Low Doherty & Stratford, to arrange the documentation, and Mr Hughes asserted that he had done so to reflect what had been agreed in July 2002: see T169.5-25. There is no doubt that the documents were created in the office of Mr Stratford in August 2004 with the year 2002 typed in (the day and month were not typed on the document). Mr Stratford's explanation for having prepared a document in 2004 with a 2002 date was that it was a typographical mistake: T45.36-37. He said he saw the document before it was sent out (T46.11) and seemed to accept that he had seen the date (T46.20-30) but then said he could not remember seeing the date on it: T45.40. He did not unequivocally deny that he was ever told by Mr Hughes that the Company had been placed in liquidation (T46.32) which adds a further disturbing quality to his evidence. 22 Mr Hughes gave evidence on behalf of Rabobi and Lambiris. He was a most unimpressive witness. 23 He admitted that he had given instructions in August 2004 for a document to be prepared with a date in 2002, but T157.44-164.43, forming part of the cross-examination of Mr Hughes, are replete with contradictions, admissions followed by retractions and denials, and indeed evidence that supported and then contradicted Ms McCallum, who attended for cross-examination on 14 March 2006 and whose evidence was never challenged in affidavit or by cross-examination. I will not burden this judgment with the full extent of Mr Hughes' evidence on that aspect, but I will set out some portions of it, which included Mr Donohoe putting to Mr Hughes the contents of para 4 of Ms McCallum's affidavit, in which she set out her version of a conversation with Mr Hughes on 11 August 2004: "DONOHOE: Q. Do you remember having a meeting with Mrs McCallum on 11 August 2004? A. Mrs McCallum, who is that?

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33 I would not be prepared to accept any statement of Mr Hughes, Mr Lambiris or Mrs Shepherd unless it is corroborated by independent evidence, or is an admission against interest, and I am not satisfied that there was any discussion between Mr Lambiris and Mr Hughes that the Company would forfeit the deposit, or an agreement that the Company would transfer Lot 6 to Lambiris and Rabobi or to anyone without receiving the benefit of the proceeds of sale. 34 The objective evidence supports a finding that Mr Hughes did consider, at a stage after entry into the contract between the Company and Caltex for the purchase of Lot 6 and before settlement, transferring Lot 6 from the Company to Rabobi, but when he was informed that it would involve payment of $80,000 stamp duty he decided against that course. 35 There is objective evidence that supports that conclusion that there was agreement between Mr Hughes (on behalf of the Company and Rabobi) and Mr Lambiris (on behalf of Lambiris) that Lots 6, 7 and 209 would be developed together as a joint venture and that the respective owners of Lots 6, 7 and 209 would receive the net profits of the sale of land. What is less clear is the precise basis on which the profits would be divided and I shall return to that point. 36 There is no dispute between the parties that a joint venture was formed. DPL's case is that the joint venture, however it may have been subsequently been presented by Mr Hughes, did not involve the Company transferring its legal and beneficial interest in the land to Rabobi and Lambiris (or to Rabobi) and then the right to the net proceeds of sale of the land arising from the development. 37 The joint venture aspect, involving the three lots and the three companies, and in that sense the appropriation to the joint venture is, in my view, the kernel of truth. The assertion by Mr Hughes that the Company transferred its interests in any fashion beyond permitting Lot 6 to be developed as part of the joint venture with Lots 7 and 209, with the consequential payment of net proceeds to the Company, has not been established by any credible evidence. 38 Some considerable effort was made in the case to establish what value Lot 6 had as at July 2002. There was controversy between two valuers, Mr Hubbard and Mr Brandson. The Plaintiff wanted to establish that what the Company gave away had considerable value and that it had received nothing in return. 39 I do not think it is necessary to determine what value the land had as at July 2002, because in my view the land was owned by the Company at all relevant times and was never effectively alienated by it to Rabobi or to a joint venture constituted by Rabobi and Lambiris, save in the sense that Lot 6 was utilised for the joint development of Lots 6, 7 and 209. 40 Even were I to accept Mr Hughes' version of the conversation in para 18 of his affidavit of 8 February 2006, I do not think it is effective to amount to a declaration of trust. 41 If, contrary to the conclusion to which I have come, there was a transfer of an interest by what occurred, the interest was one in land and, to be effective, the requirements of s 23C of the Act had to be complied with and those requirements were not met. In oral argument Mr Gray advanced the proposition that the accounts of the Company constituted writing capable of satisfying s 23C, but the accounts on which he relies were not signed and the argument was abandoned, and in its place came the following day a new argument which sought to avoid the problems of s 23C entirely, which I shall outline below. 42 Returning then to the Rabobi/Lambiris submissions of 10 March 2006, I have found that there was no agreement to transfer the interest of the Company in Lot 6 (or its interest in the contract for purchase of Lot 6) to Lambiris and Rabobi. Further I find that there is no credible evidence:

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(3) That the evidence is insufficient to determine which of (1) or (2) is the case and the Court should treat Rabobi and Lambiris as having utilised Lot 6 to achieve benefits of sale and should pay to the Company the gross proceeds of sale. Equitable considerations would then apply to take into account improvements made to the property by Lambiris and Rabobi for which allowance would need to be made. 47 I am inclined to think that approaches (2) and (3) are very similar and that (2) achieves a fair result. If approach (2) is taken it means that Rabobi and Lambiris will recover a proportionate share of expenditure they have outlaid (beyond monies jointly borrowed from Suncorp). Mr Hughes was a director of the Company as well as Rabobi, and the evidence was that he was the person with some expertise in property development. There would be no occasion, in my view, for any amount to be attributed to Rabobi for expertise in arriving at a net figure and there is no basis whatsoever for a Ramsden v Dyson or Waltons v Maher estoppel. Mr Hughes and Mr Lambiris at all times knew that there had been no transfer of interest to Rabobi and Lambiris, just as Rabobi and the Company knew that there had been no transfer of interest by Lambiris of Lot 7, and approach (2) takes into account any excess of expenditure by Rabobi and Lambiris. Given the absence of credible evidence to the contrary, approach (2) is the one that I shall adopt. 48 It would appear very likely that the amount of $820,000 at least is an amount to which the Company is entitled, but the case before me was not concerned with the detail of what amount precisely is due to the Company, it being agreed that further enquiry would be required, perhaps by an Associate Judge, or by reference to an expert accountant (the latter course seeming to me to be more appropriate and either course one that should only be adopted after appropriate attempts by the parties (including the liquidator) have been made to achieve agreement on what are the proceeds due to the Company). The alternative arguments 49 At one point during the evidence, objection was taken to Mr Donohoe cross-examining on matters that seemed to be directed to establishing that Mr Hughes had endeavoured to siphon off other assets from the Company ie not just Lot 6. I upheld the objection. During submissions, Mr Gray put arguments that appeared to have no connection with the arguments advanced in the Rabobi/Lambiris outline of submissions of 10 March 2006. Mr Donohoe objected to what he described as a change of tack and he submitted that DPL would be irretrievably prejudiced by permitting such a new case to be mounted. There was argument on the point and I indicated that I would consider this further: see T285. 50 At T291.56-292.31, Mr Gray set out his argument: "GRAY: … Our case is that as at July 2002 the company held an interest as purchaser under an uncompleted contract in respect of which a deposit of 42,500 had been paid. We say that Mr Hughes in his capacity as the governing mind and will of both the company and Rabobi contracted with Mr Lambiris that Mr Hughes would cause the interests of the company under the Caltex contract to be transferred to Rabobi ; that Rabobi would contribute lot 6 which it then acquired to the joint venture or stage 2 of the joint venture just as Mr Lambiris would cause the Lambiris company to contribute lot 7, and that the proceeds of stage 2 would be divided between them through their respective corporate entities, the Rabobi and Lambiris company.

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GRAY: We say it doesn't affect the position of the company, D & M Hughes Civil Engineering, because the company was out of the picture. It had no interest in whatever happened to lot 6 and lot 7." [emphasis added] 51 It will be noted that Mr Gray has introduced a new note - that Mr Hughes on behalf of the Company and Rabobi contracted with Mr Lambiris on behalf of Lambiris that Mr Hughes would cause the interests of the Company under the Caltex contract to be transferred to Rabobi, and that Rabobi would contribute Lot 6, which it had then acquired. The agreement asserted by Mr Hughes had been that the Company had agreed to transfer its interest to Rabobi and Lambiris and the Statement of Issues and the cross summons reflect that. The change in tack seemed to be consequent on the failures of Mr Hughes to establish the previously expressed reasons for the transfer to Rabobi and Lambiris and the fact that there was evidence corroborated by Mr Fisher (and less importantly Mr Hughes' daughter) that Mr Hughes had at one point considered transferring the land out of the name of the Company and into that of Rabobi. 52 At T300 Mr Gray asserted that there was a constructive trust (T300.10-301.2). At T301.36, Mr Gray in answer to my question as to whether it was a new point said: "Certainly in the way it's now put." 53 In written submissions of 5 April 2006, Mr Gray responds to the Plaintiff's assertion that the Lambiris/Rabobi position has changed, saying that "is incorrect. The stance Lambiris and Hughes have taken throughout this litigation has never changed." If by using the phrase "Lambiris and Hughes" Mr Gray was drawing a distinction between Mr Lambiris and Mr Hughes on the one hand and Lambiris and Rabobi on the other, then I do not think that is relevant. What the Court is presently concerned with is whether Lambiris and Rabobi are running a new and different case to that foreshadowed in the outline of submissions of 10 March 2006. 54 Not only were the original submissions directed to the contention that there was a transfer of interest to Rabobi and Lambiris, but it was Mr Hughes' evidence that the deed he instructed Mr Stratford to prepare, which became the deed dated 9 September 2002, reflected the agreement which he asserted. 55 In my opinion, DPL was entitled to assume and proceed upon the basis that what was in issue was whether there had, in July 2002, been an agreement reached between Mr Hughes on behalf of the Company, with Rabobi and Lambiris, that the Company would transfer the beneficial interest in the contract for purchase and or in Lot 6 to Lambiris and Rabobi and if so whether that agreement was void either because of the absence of compliance with s 23C or because it was void as a fraud on creditors, and further there was a question of whether Lambiris and Rabobi were entitled to rely on the principles of Ramsden v Dyson, or conventional estoppel against DPL's claim. No question arose of contract for the transfer of Lot 6 from the Company to Rabobi. One of the evidentiary matters upon which Mr Gray seeks to rely in relation to the alleged constructive trust is the contents of the accounting records of the Company. These records were prepared after the financial accounts for the year ending 30 June 2003 and had been signed off on 1 March 2004 and amount to book entries, the justification for which were not explored by DPL. Nor was the solvency, or lack thereof, of the Company post-March 2004 under consideration. 56 The use which Mr Gray seeks to make of them now was not known to DPL (because the issue had not been advanced as an issue) and I do not think it is appropriate for DPL to have to deal with such evidence without having been forewarned. In my view, the submissions now advanced do involve a significant change of tack and the new case is one that Lambiris and Rabobi ought not, in the circumstances, be permitted to run. 57 Whilst it is therefore strictly not necessary to do so, I will however, deal briefly with the submissions advanced on behalf of Lambiris and Rabobi. The further written submissions of 5 April 2006 helpfully re-state the "thesis" at para 15: "(a) Mr Hughes was the controlling mind and will of both Rabobi and the Company,

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(g) Mr Gray spoke of a constructive trust at para 16 of the submissions of 5 April 2006, saying that "It is the name given to the relationship which exists when a vendor has received the consideration for a transfer of an asset but still retains legal title". Other than a book entry made in 2004, and it would appear after 1 March 2004, there is no evidence of consideration being paid to the Company by Rabobi. Mr Hughes gave no evidence in that connection or as to how the book entry was made, nor did the accountant, save that the instructions on which it was undertaken were given by Mr Hughes. The book entries in 2004, so close in time to the placing of the Company in liquidation, without evidence of actual consideration received, are in my view, no different in character to the deed of 9 September 2002. No funds were provided by Rabobi for the purchase of Lot 6, and substantial monies were borrowed from Suncorp equally by the Company, Rabobi and Lambiris. The demands of justice and good conscience (matters with which constructive trusts have generally been seen as being concerned - see Edmund Davies LJ in Carl Zeiss Stiftung v Herbert Smith & Co (No 2) [1969] 2 Ch 276) all point in the opposite direction to that for which Rabobi and Lambiris contend. 59 It follows that in broad terms, the Plaintiff is entitled to orders 1, 2A, 3A, 3B and/or 6F, but with some adjustment required to take into account the need for apportionment of any amount incurred solely by Rabobi and/or Lambiris relating to the development of Lot 6, and adjustments to the amounts due as a result of such apportionment and amounts paid by Rabobi and Lambiris and/or due to be repaid by Rabobi and Lambiris from monies each of those entities have received. The parties should be given an opportunity to agree on the appropriate form of declarations and orders before the matter is re-listed before the Corporations List Judge. Other matters 60 There are a number of disturbing matters about this case that go beyond the matter between DPL, Lambiris and Rabobi, and they are:

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