Fibre-Tek (Gold Coast) v Bennett [2006] NSWSC 150 | Case summary

3376/04 FIBRE-TEK (GOLD COAST) PTY LTD V SKYE BENNETT BY HER TUTOR CHRISTOPHER WALKER JUDGMENT (Ex tempore; revised 15 March 2006) 1 HIS HONOUR: By a statement of claim filed on 10 June 2004 the plaintiff asserts that the directors and financial controller of the plaintiff are in breach of their fiduciary obligations at general law, in that they caused money of the plaintiff in the sum of $232,500 plus stamp duty to be used to purchase a property at 54 Bald Mountain Road, Limpinwood in New South Wales for the benefit of the defendant. The plaintiff claims that it can trace purchase funds for that property from its own bank accounts into the bank account of its holding company, Fibre-Tek Holdings Pty Limited, ("Holdings") and then to the property. 2 The defendant has not appeared at today's hearing. Evidence was placed before the Court to the effect that on 6 February 2006 solicitors who had until that time been acting for the defendant, and who had on her behalf, filed a notice of defence and made answers to a request for particulars, filed a notice of ceasing to act as solicitor. Pre-trial directions were made after that filing occurred, and efforts were made to inform the defendant of those pre-trial directions and of the fact of today's hearing date. The defendant had appeared by her tutor, and efforts were also made to notify the tutor of these matters. It is unnecessary for me now to recount in detail the substance of those efforts, but they are set out in the affidavits of Zaccaria Alexander Casagrande, sworn on 25 February 2006, Camille Heather Simon sworn on 6 March 2006, and Jadene Susan Vituli sworn on 7 March 2006. I am satisfied that all reasonable efforts have been made to provide proper notice to the defendant of what was required to be done to prepare for the hearing and the fact of the hearing today, and the contents of the relief that the plaintiff seeks against her. 3 However, it seems to me appropriate, as I foreshadowed to counsel for the plaintiff at the conclusion of the hearing, that attempts be made at personal service of the defendant or her tutor of the orders that the Court will now make, and the orders will make some provision for that matter accordingly. 4 The principles upon which the plaintiff seeks relief emerge clearly from the judgment of Moffitt P in Paul Davies (Australia) Pty Limited (In Liq) v Davies [1983] 1 NSWLR 440 at 442. There the learned President noted that the breach of duty that had been found by the trial judge in that case was that the respondents as directors of the appellant company used moneys of the company for their own purposes and not for any purpose of the company. His Honour noted that in that case the evidence showed that the finding did not involve fraud, conscious wrongdoing or absence of bona fides in the subjective sense, but it was unnecessary for any such finding to be made for the relief to be granted. 5 Applying that approach, it is unnecessary for me to make any finding in the present case on the questions of fraud, conscious wrongdoing or absence of bona fides in a subjective sense. The crucial issue is whether the evidence is sufficient to show that the directors of the plaintiff used money of the plaintiff for purposes other than the purposes of the plaintiff. 6 A central part of that evidence relates to bank accounts of the plaintiff and Holdings. The plaintiff maintained bank accounts with the Commonwealth Bank and Suncorp Metway. Holdings maintained a bank account with the Commonwealth Bank. 7 In evidence before me (exhibit P1 - page 241ff) is a bank statement for Holdings' Commonwealth Bank account for the period from 30 October 1999 to 7 February 2000. The bank statement shows that at the beginning of November 1999 there was a credit balance in the amount of $676.59. Then there were some credits and debits to the account in the period November/December, which are of crucial importance in this case. 8 The first transaction was a deposit to the Holdings account of $150,000 on 3 November 1999. That deposit, shown in the bank statement, was the deposit of a cheque number 596 drawn on the plaintiff's Commonwealth Bank account for that amount (exhibit P1 - page 220). It appears from the evidence that one of the signatories of that cheque and of all the other cheques of the plaintiff to which I shall refer was Bernard Hilbert, one of the directors of the plaintiff at the material times. 9 The second transaction was a deposit of a total amount of $150,000 shown in the Holdings bank statement to have been made on 10 November 1999. In fact, that deposit comprised two components: the first was a cheque drawn on the plaintiff's Commonwealth Bank account in favour of Holdings for $75,000 and dated 10 November 1999 (exhibit P1 - page 221). The second was a cheque for $75,000 drawn by the plaintiff on its Suncorp Metway account and also dated 10 November 1999 (exhibit P1 - page 233). There is evidence in the form of a bank statement for the plaintiff's Suncorp Metway account showing the debit of $75,000 on that day (exhibit P1 - page 226). 10 The next transaction noted on the Holdings bank statement, relevantly, is the withdrawal from the account of a sum of $23,250 on 18 November 1999. The evidence includes a cheque for that amount (exhibit P1 - page 247) made in favour of the Commonwealth Bank and drawn on the Holdings Commonwealth Bank account, presumably for the purpose of the issue of a bank cheque. The payee of the bank cheque is not shown on the face of the cheque. However, there are surrounding circumstances from which an inference can be made. 11 There is a contract for the sale of land in evidence (exhibit P1 - page 95). It is a contract by which Mary Marguerite Leneen Forde and Caron Marie Forde sold Lot 15, Bald Mountain Road, Limpinwood to Skye Bennett, the defendant, on 22 November 1999 for a purchase price of $232,500, of which a deposit of $23,250 (the amount debited to Holdings' Commonwealth Bank account) was payable on exchange of contracts. On 19 November 1999 the solicitor named as the purchaser's solicitor in the contract, wrote to the agent named in the contract enclosing a cheque for the sum of $23,250, being the full amount of the deposit in respect of that purchase. It seems to me that this evidence, when read together, supports the inference, which I make, that the $23,250 debit to Holdings' Commonwealth Bank account was a debit made for the purpose of providing the deposit money for the purchase of the Limpinwood property. 12 The next transaction to be mentioned is the deposit of $80,000 into Holdings' Commonwealth Bank account on 23 November 1999. This represents a cheque drawn by the plaintiff on its Commonwealth Bank account for that amount on that day (exhibit P1 - page 222). 13 Next, the Holdings' bank statement shows a deposit of $100,000 on 30 November 1999. That appears to correlate with the plaintiff's cheque drawn on its Commonwealth Bank account again in favour of Holdings for $100,000 dated 29 November 1999 (exhibit P1 - page 223). 14 Then there is a series of transactions between 1 and 7 December 1999 that appear to be related to one another in sequence. The net effect of the transactions is that Holdings withdrew $108,000 from its Commonwealth Bank account and, shortly afterwards, made deposits amounting to $108,000. The particulars are that on 1 December 1999 Holdings executed a cheque in favour of the Commonwealth Bank for $43,000, presumably drawn in that way for the purpose of the issue of a bank cheque. On 3 December 1999 Holdings executed another cheque in favour of the Commonwealth Bank for $65,000, again presumably for the purpose of the issue of a bank cheque (exhibit P1 - pages 249 and 249A). There is then in evidence a deposit slip showing the deposit to Holdings' Commonwealth Bank account of $108,000 and on the back of that deposit slip endorsements which indicate that the deposit comprised two bank cheques of the Commonwealth Bank for $43,000 and $65,000 respectively. 15 On 1 December 1999 it appears that a cheque was presented on the Holdings' Commonwealth Bank account made out to cash for $20,000. An endorsement in the records produced by the bank would suggest that the bank's payment was made in the form of 200 $100 bills. The significance of that cash withdrawal will become evident. 16 The next transaction was a withdrawal of $110,000 which, in the circumstances that I shall describe, appears to have been used for the purposes of the purchase of the Limpinwood property. It is necessary to give some background to this transaction. As to the provenance of the evidence of the transaction, the plaintiff's liquidators wrote to the Commonwealth Bank at Ashmore on 11 May 2004, requesting copies of certain presented cheques. One of them was cheque number 455 for $110,000. The reply to the liquidator's request appears to have been progressive, partly made on 19 May in the early afternoon and partly later on the same day. If one considers the facsimile imprints for the replies to the request (exhibit P1 - pages 251A to 251D), the inference can be made that the cheque for $110,000 was supplied by the bank in response to the liquidator's request and appears to be a copy of cheque number 455. Therefore, I infer that the document in evidence (exhibit P1 - page 252) is a copy of a cheque that was debited to the Holdings' Commonwealth Bank account on 7 December 1999. 7 December 1999 is a significant date, because that was the date of settlement of the purchase of the Limpinwood property. 17 On 2 December 1999 the solicitors for the vendors wrote to the solicitors for the defendant as purchaser, indicating that they would require cheques on settlement including a cheque for $104,155.20 in favour of L Forde and a cheque for $104,155.16 in favour of de Groot & Co. On 7 December 1999 the same solicitor wrote to Mrs L Forde, confirming that settlement had been effected and enclosing a bank cheque payable to L Forde and a bank cheque payable to de Groot & Co for the amounts previously stated. 18 The cheque that was presented for payment to the Holdings' Commonwealth Bank account on 7 December 1999 was, as I have said, for $110,000. It was made out in favour of the Commonwealth Bank, suggesting that the cheque was used for the issue of one or more bank cheques. There is an endorsement on the back of the cheque which indicates "bank chq in favour of de Groot & Co for $104,555.16". That evidence, together with the other evidence I have mentioned, is amply sufficient to justify the inference that the amount specified for payment to de Groot & Co was drawn out of the Holdings' cheque account. 19 The endorsement on the back of the cheque also refers to the Office of State Revenue. Adjacent to it there is an amount of $6,631.50. As I have said, the consideration for the Limpinwood property was $232,500. The evidence before me indicates that the stamp duty payable on a contract for the sale of real property for that price is $6,627.50. But duty is also payable on the additional copy of the contract for sale in a conveyancing transaction in the sum of $2, and duty is payable on the transfer in the sum of $2. The transfer is in evidence and shows that $2 was paid. Thus, the total amount of stamp duty corresponds with the amount endorsed on the back of the cheque. I therefore infer that this part of the money drawn from the Holdings' Commonwealth Bank account was used to pay stamp duty in the Limpinwood transaction. 20 The amount paid to de Groot & Co, when added to the amount for stamp duty, exceeds the total amount deposited by a figure of $788.66, to which one must add a fee for issuing bank cheques of $10. But the endorsement helps us as to the source of that surplus money too. It appears that the bank relied, for the purpose of issuing bank cheques, on the receipt of an additional $800, which it received in $100 bills. Having received that money, it paid over some change to whomever it was who was procuring the bank cheques. 21 In the circumstances I think it appropriate to infer that source of the $800 paid over to procure the bank cheques was the withdrawal of $20,000 in $100 bills, which, as I have said, took place on 1 December 1999. 22 All of that evidence shows, therefore, that the part of the purchase money paid to de Groot & Co and for stamp duty on settlement was withdrawn from the Holdings' account. 23 There was also, as I have said, an amount paid on settlement to L Forde. As to that, the evidence indicates that the source of the money was not the Holdings' account, but rather the plaintiff's Suncorp Metway account, plus some cash. The amount in question was $104,155.20. The evidence includes a copy of a cheque drawn on the plaintiff's Suncorp Metway account on 7 December 1999 for $100,000 made in favour of Suncorp Metway. I infer that that cheque was used for the purpose of Suncorp Metway issuing a bank cheque (see exhibit P1 - page 234). 24 The evidence about this bank cheque is less than satisfactory. On 4 December 2003 the liquidator of the plaintiff wrote to Suncorp Metway seeking copies of certain cheques, including the cheque to which I have just referred, which was described as cheque number 71, for $100,000. The liquidator's letter identified an account as the account to which the cheque was deposited. In fact, for the various cheques referred to in the liquidator's letter, there were two accounts identified. 25 Suncorp Metway responded on 22 December 2003 saying that those two accounts were "branch internal processing accounts". But the letter was able to enclose a copy of a withdrawal form providing details of withdrawal of the cheques referred to from those accounts. 26 The withdrawal forms show that on 7 December 1999 a cheque in favour of L Forde for $104,155.20 was withdrawn from one of the two branch internal processing accounts, and the accompanying withdrawal record identifies a negative balance in that account after the withdrawal. 27 It is impossible to be sure, but what seems to have happened is that the $100,000 for which a cheque was drawn on the plaintiff's account was combined with some other funds (which may have been extended by the bank on credit to the plaintiff, or may have been supplied in cash, perhaps from the $20,000 withdrawal on 1 December). What emerged was a bank cheque for the amount that was to be paid on settlement to L Forde, and that bank cheque was issued on the account of the plaintiff. 28 In that somewhat tortuous way, the evidence suggests to me that the plaintiff's money was used for the whole of the amount paid to L Forde on settlement. 29 Consequently, the entire purchase money paid on settlement of the purchase of the Limpinwood property was supplied either directly from the plaintiff's account or else from the account of Holdings, which, with the exception of a small amount it contained at the beginning of October, was entirely supplied by deposits from the plaintiff's accounts. 30 As I have said, the first matter that the plaintiff must demonstrate is that the directors of the plaintiff caused withdrawals to be made of its moneys for purposes other than proper corporate purposes. The directors of the plaintiff at the relevant time were Mr Hilbert, to whom I have referred, and one Peter Walker, also known as Jeff Curling and Jeff Bennett. Herman Lucas was the plaintiff's general manager and general financial controller, and he was an authorised signatory to the plaintiff's bank accounts. The evidence satisfies me that one, some or all of these three individuals caused the cheques to be drawn on the plaintiff's accounts to which I have referred. 31 I am also satisfied by the evidence that the payments either to the Holdings Commonwealth Bank account or directly in settlement of the Limpinwood acquisition were not payments of company money for any purpose of the company and therefore were payments made in breach of fiduciary duty. 32 The evidence that persuades me of that conclusion is the evidence given by Mr Damien Justin Bender (see especially his affidavit sworn on 8 June 2004, paragraphs 17 to 48). That evidence shows that there is no record in the plaintiff's financial records of any trading between the plaintiff and Holdings, nothing to indicate that the plaintiff used Holdings as a sales or marketing company or otherwise engaged it to perform services in any capacity. In fact, the plaintiff, which manufactured and sold fibreglass swimming pools, used another company as its selling agent. 33 Further, Mr Bender's evidence indicates that, given the losses the plaintiff incurred in recent times (losses which were contributed to by the enormous amount of litigation in which the plaintiff was involved), there was no prospect that dividends could be declared by the plaintiff in favour of its parent company. Nor is there evidence that any loan accounts were established by which the payments made to Holdings and in respect of the settlement of the Limpinwood property could be treated as loans or repayments of loans by the plaintiff to its holding company or directors or anyone else. 34 In the absence of any other explanation, the proper inference to draw is that the payments were made for the purpose of assisting the defendant, by providing the funds for the acquisition of the Limpinwood property, which was acquired in her name and is still held by her. 35 On the authority of Paul A Davies v Davies I am satisfied that this evidence demonstrates a breach of fiduciary duty by one, some or all of the two directors of the plaintiff and the general manager. That breach of fiduciary duty gives the plaintiff, through its liquidator, a number of remedies, including the remedy of asserting an equitable proprietary interest against assets representing the proceeds of the breach of duty. 36 In the present case the evidence shows, in the end quite clearly, that the entire purchase price for the Limpinwood property was drawn from the plaintiff's funds. The plaintiff is entitled to trace the money diverted from its bank accounts into that property: Scott v Scott (1963) 109 CLR 649 at 661. 37 Having done so, the plaintiff is entitled to elect to take the property into which the funds have been traced, by asserting beneficial ownership of that property under a constructive trust, rather than simply asserting an equitable charge over it: Re Hallett's Estate (1880) 13 ChD 696 at 699. The plaintiff has elected to pursue that remedy and has made its case for tracing. 38 The defendant is in the position of a volunteer, not having provided any valuable consideration herself for the acquisition of the property. The plaintiff is entitled to assert its claim to beneficial ownership against the property in the defendant's hands. The property is subject to a mortgage in favour of the Sandhurst Trust, which is aware of these proceedings. The plaintiff does not seek to assert that its beneficial ownership has any priority over the mortgage interest of Sandhurst Trustees. I cannot see any basis for Sandhurst Trustees to object to making the Certificate of Title for the property available so as to permit the transfer of the registered proprietorship of the land to be registered in favour of the plaintiff. However, I shall grant liberty to apply should any difficulties arise. 39 It is appropriate to make the declaration sought as to the beneficial ownership of the plaintiff, and to order that the Limpinwood property be transferred to it. 40 An issue has arisen with respect to the stamp duty. The evidence shows that the amount of stamp duty was provided out of the plaintiff's funds. Stamp duty is, of course, payable as part of the cost of acquisition of real property. But it is appropriate to allow the plaintiff to make a separate money claim for the stamp duty against the defendant, who has had the benefit of the money used to pay the stamp duty, in addition to allowing a claim to the beneficial ownership of the land. The plaintiff's equity over the land arises as an assertion of equitable ownership of that asset. The diversion of the plaintiff's money to incur expenditure is, it seems to me, another heading of recovery in equity. Stamp duty is the payment of a tax associated with the acquisition of a property, but is not directly part of the purchase money itself. I therefore intend to make an order for the recovery from the defendant of the amount of stamp duty paid out of the plaintiff's money. **********

Fibre-Tek (Gold Coast) v Bennett

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