Highfields Australia Pty Ltd v Advanced Motor Dealers Group Pty Ltd

ll [1967] 1 QB 534 Watson v Foxman (1995) 49 NSWLR 315 Texts Cited: Ewan McKendrick, Goode on Commercial Law (LexisNexis, 4th Ed, 2009) Norman Palmer, Palmer on Bailment (3rd ed, Thomson Reuters, 2009) Category: Principal judgment Parties: Highfields Australia Pty Ltd (Plaintiff) Advanced Motor Dealers Group Pty Ltd (Receiver and Manager Appointed) and Shumit Banerjee (1st and 3rd Defendants) Joseph Anthony Touma (2nd Defendant) Representation: Counsel: Mr P Afshar, J Pokoney (Plaintiff) Mr P Newton SC (2nd Defendant)

Solicitors: Mistry Fallahi Lawyers & Business Advisors (Plaintiff) HWL Ebsworths (1st and 3rd Defendants) Emerson Lewis (2nd Defendant) File Number(s): 2020/344338 Publication restriction: Nil

JUDGMENT

1. The central issue in these proceedings is the ownership of four luxury motor vehicles being a Lamborghini Gallardo (registration 0680) (Lamborghini), an Alfa Romeo 4C (registration YDC 44P) (Alfa Romeo), a Lotus Evora (registration CTU 40U) (Lotus) and a Ferrari Spider (registration 458 SPD) (Ferrari). I will refer to these vehicles collectively as "the Vehicles".
2. The plaintiff (Highfields) claims that the vehicles were transferred to it in 2016 under an oral contract entered into by it with the first defendant (AMDG), in exchange for Highfields arranging its own finance to pay for the vehicles. Highfields seeks a declaration that it is the owner of the vehicles and ancillary relief.

Parties

1. The plaintiff, Highfields, was incorporated on 16 May 2003. Its sole directors and shareholders at all relevant times were Mr Alan Balout (Mr Balout) and Ms Karen Fox. Mr Balout swore four affidavits in the proceedings and was cross-examined.
2. The first defendant, AMDG, was incorporated on 2 June 2014. Its current directors are Mr Balout (appointed on 1 June 2017) and Mr Dalibor Maskaric. Mr Maskaric was the sole director of the company prior to Mr Balout's appointment. Prior to 1 June 2017, the sole shareholder of AMDG was Dobro Dosle Pty Ltd, the sole shareholder of which is Mr Maskaric. From 1 June 2017, the shareholders of AMDG have been Dobro Dosle Pty Ltd (as to 50%), Wisefox Holdings Pty Ltd, a company associated with Mr Balout (as to 25%), and Mrs Karen Balout, Mr Balout's wife (as to 25%).
3. The second defendant is Mr Joseph Touma (Mr Touma). He was the general manager of AMDG at the time of the transactions with which these proceedings are concerned and is also the sole director of Dobro Dosle Pty Ltd (the sole shareholder of AMDG at the time those transactions occurred). He swore two affidavits in the proceedings and was cross-examined.
4. The third defendant is Mr Shumit Banerjee of Westburn Advisory. He was purportedly appointed as a receiver and manager of AMDG on 24 November 2020 by Bilpin Projects Pty Ltd (Bilpin), pursuant to cl 8.2 of the Deed of Charge referred to below. Mr Touma and his wife, Mrs Eleonora Touma, are the sole directors and shareholders of Bilpin.

Procedural background

1. The plaintiff commenced the proceedings by Summons filed on 4 December 2020. On 8 December 2020 Robb J made orders by consent for the second defendant to deliver the Lamborghini, the Alfa Romeo and the Lotus to a nominated storage facility and for the plaintiff to deliver the Ferrari to a nominated storage facility. The second defendant and the plaintiff agreed to pay the costs of storage of the Vehicles at the nominated storage facility, in the first instance, in equal shares. The Vehicles have remained at the storage facility since that time.
2. The first and third defendants did not file any submissions or appear at the hearing. However, given that the second defendant, Mr Touma, did appear and is a director of the 50 per cent shareholder in the first defendant and Bilpin, which appointed the third defendant, I am satisfied that the first and third defendants had sufficient notice of these proceedings and an opportunity to be heard.
3. The only defendant to file a defence in the proceedings was Mr Touma.

Pleadings

1. In its Points of Claim, Highfields pleads that the terms of the contract entered into by Highfields and AMDG in around June 2016 are as follows: (a) The plaintiff would purchase various vehicles from AMDG. (b) In consideration for the purchase, the plaintiff would pay to AMDG an amount for each of the vehicles equivalent to the amounts owed by AMDG to external financiers of the vehicles. (c) The plaintiff would thereafter own the vehicles. (d) The plaintiff would grant AMDG possession of the vehicles and a licence for AMDG to use the motor vehicles in the course of its business of hiring out the vehicles. (e) AMDG would pay an amount of money to the plaintiff for the use of the vehicles. (f) AMDG would pay for inter alia the registration and maintenance of the motor vehicles. (g) If AMDG failed to make any of the payments set out in (e) and (f) above, AMDG would return the vehicles to the plaintiff.
2. In his Points of Defence, the second defendant (Mr Touma) accepts that while he (acting on behalf of AMDG) had a series of conversations with Mr Balout (acting on behalf of Highfields) under which Highfields and AMDG entered into a contract regarding the refinancing of the Vehicles, it included a term that AMDG would remain the owner of each vehicle.
3. Mr Touma pleads that the terms of the contract were: (a) Mr Balout or his company Wisefox Holdings Pty Limited (Wisefox) would be granted a 50% shareholding interest in AMDG. (b) Mr Balout would be appointed as a director of AMDG. (c) Sports and Prestige Wholesalers Pty Ltd (SPW) would transfer the registration of all motor vehicles which were being leased by Ultimate Sportscar Rentals Pty Ltd (USR) and/or Ultimate Drive Days Pty Ltd (UDD), into the name of AMDG, including the Vehicles. (d) Mr Balout would cause all vehicles registered in his personal name or in the name of companies he controlled (being a Range Rover Evoque and an Audi A5), which were being leased by USR and/or UDD, to be registered in the name of AMDG. (e) Upon each of the vehicles referred to in (c) and (d) being registered in the name of AMDG, AMDG would become the owner of that vehicle. (f) AMDG would meet all costs and payments required to be made in respect of the vehicles, including finance repayments, maintenance, insurance and registration costs. (g) Mr Balout would arrange for Highfields or entities associates with him to borrow funds to refinance loans secured over some of the vehicles. (h) Mr Touma would arrange for entities associated with him to borrow funds to refinance loans secured over some of the other vehicles. (i) Upon refinance of loans secured over any of the vehicles, AMDG would remain the owner of each respective vehicle. (j) AMDG would license the vehicles transferred to it to UDD in return for which UDD would pay AMDG a fee.

Relief claimed and issues for determination

1. The relief claimed by Highfields in the Summons is as follows: 1. A declaration that the plaintiff is the owner of the following motor vehicles: a. Alfa Romeo 4C bearing the registration number YDC44P (Alfa); b. Lotus Evora bearing the registration number CTU40U (Lotus); c. Lamborghini Gallardo bearing the registration number 0680 (Lamborghini); and d. Ferrari Spider 458 bearing the registration number 458SPD (Ferrari). 2. An order that the defendants deliver up the Alfa, Lotus and Lamborghini (Motor Vehicles) to 131 Castle Hill Road West Pennant Hills NSW 2125 (Premises). 3. An order restraining the defendants and their agents, representatives and/or officers form removing or causing or permitting anyone else to remove the Motor Vehicles from the Premises except with the express consent of the plaintiff. 4. An order restraining the defendants and their agents, representatives and/or officers from in any way selling or dealing with the Motor Vehicles. 5. An order that the first and second defendants pay the plaintiff the sum of $19,310.30. 6. An order that the defendants pay the plaintiff's costs of this proceeding on the indemnity basis. 7. Alternatively, an order that the defendants pay the plaintiff's costs of this proceeding on the ordinary basis. 8. Such further or other orders as the Court considers necessary.
2. The amount claimed under prayer 5 of $19,310.30 was the initial calculation made by Mr Balout of the amounts paid by Highfields to BMW Australia Finance Ltd (BMW Finance), Metro Finance Pty Ltd (Metro Finance) and Capital Finance Australia Ltd (Capital Finance) in respect of loans to fund the purchase by Highfields of the Vehicles after August 2020. In a subsequent affidavit Mr Balout put on evidence that established the total amount paid by Highfields to those lenders was $403,161.29, together with a further amount of $22,275 in respect of storage of the vehicles following the orders made by Robb J on 8 December 2020.
3. In my view, the issues for determination in the proceedings are: (a) Did Highfields and AMDG enter into a contract in the period from June to October 2016 regarding the sale of the Vehicles to Highfields. (b) If so, did Highfields acquire title to the Vehicles. (c) What, if any, relief is Highfields entitled to in respect of the Vehicles.

Factual background

1. Mr Balout and Mr Touma met in June 2014 and in October 2015 they incorporated USR. They were the company's two directors and each held, through an associated entity, a 50 per cent shareholding interest in the company. USR's business was to rent sports cars to the public from premises located at 25 Leeds Street, Rhodes, New South Wales. They (or entities associated with them) each made available motor vehicles to USR for the purpose of USR's business. USR was deregistered on 22 March 2019.
2. The entity at the centre of the dispute between Mr Balout and Mr Touma is the first defendant, AMDG. At all relevant times AMDG was a licensed motor dealer. As part of that business, it made motor vehicles available to UDD for use by that company in its business of renting vehicles to customers on a short-term basis, particularly for group activities or events such as weddings, track drives, or day trips. The arrangement between AMDG and UDD was documented in an agreement entitled "Supply Agreement" dated 1 July 2014 (Supply Agreement), which provided relevantly as follows: AMDG is a licensed motor dealer. The business buys and sells cars to individuals and other motor dealers and wholesalers. AMDG agrees to provide UDD with the range of vehicles it requires to run its business in return for a monthly payment which will vary from time to time depending on the range of vehicles it has at the time. AMDG agrees to deduct from this fee any commissions payable to UDD for any customer referred to them that purchase a vehicle. Both parties agree that a minimum of $8000 per week is payable to AMDG from UDD and that every 3 months a reconciliation will be performed, and each party will pay the other party any balance outstanding. It is the responsibility of AMDG to provide UDD with the cars it always requires. Should a car break down or be damaged AMDG will endeavour to replace that vehicle at no extra charge to UDD unless the damage weas directly caused by UDD or its customers. IT IS FURTHER AGREED THAT: 1. UDD shall be responsible for registration, insurance, maintenance, and servicing of the vehicles on behalf of AMDG.
3. In the period from June to October 2016, during which the key transactions relevant to the present proceeding occurred, Mr Balout was not a director (or otherwise connected with) AMDG and Mr Touma was acting as the company's general manager. Mr Touma had many years of experience in the motor dealer industry, including as general manager of both AMDG and SPW, and accepted in cross-examination that he had quite a lot of experience in, from time to time, entering into security arrangements with financiers in relation to cars.

Evidence of conversations between Mr Touma and Mr Balout in 2016

1. Mr Touma and Mr Balout agreed that they had a number of conversations in the period from June to October 2016 in which Mr Touma sought Mr Balout's assistance in the refinancing of the Vehicles in order for AMDG to be able to continue to make them available to UDD under the Supply Agreement. However, their recollection of these conversations differs significantly.
2. Mr Balout gave evidence that on around Monday, 6 June 2016 he met Mr Touma in the office of USR at Rhodes, Sydney, and had a conversation to the following effect: Touma: I need a favour from you. Balout: Sure, what is it? Touma: Eric wants out. We're going to have to refinance all our cars or sell them. Charlie [Touma's brother] has the Ferrari 430 and the Nissan GTR in his company name and can't add any more and I can't have any in my name because I can't show income. I spoke with Sydney Ferrari finance today and they said they can refinance the Lambo for us but I need your help to refinance it under your Highfields company. Can you help us out please? Balout: But the Lambo isn't one of our cars. It belongs to Sports Car. I'm not in that company and I'm not a director. Touma: I know. That's why I need your help as a friend. We're both partners in the Car Rental and I am hoping you can help us out. Balout: I'm not going to make the payments on it. Touma: No, Sports Car will make the payments. Balout: Explain to me how that will work. Touma: Firstly, it'll be your car. Sports Car will just use the car for drive days and make all the payments for the finance the rego and maintenance. Balout: But what if you don't make the payments? Touma: That won't happen. I'll help you sell it for more than the finance and get your money back. Balout: So Highfields won't have to pay anything? Touma: No, nothing. We'll make all the payments. Balout: Give me a few days to think about it.
3. It appears that Mr Touma's reference to "Eric" was to Mr Eric Christophi, although the evidence does not indicate what, if any, his relationship to Mr Touma and his various companies was. Mr Balout says that he understood Mr Touma's references to "Sports Car" in this and later conversations was to AMDG in which Mr Balout was not then involved. Car Rental is a reference to USR in which he was a director along with Mr Touma.
4. In his first affidavit, Mr Touma did not respond to Mr Balout's evidence regarding this (or the other) conversations he had with Mr Balout "due to time constraints". In his second affidavit, sworn nearly a year later, Mr Touma does set out his version of the conversations, and accepts that he had an initial conversation in June 2016 in which he asked Mr Balout to provide assistance with the refinancing of vehicles in which the Lamborghini was discussed but his recollection of the conversation is different. He says that it was to the following effect: Touma: We need to arrange for refinance on some of the cars that we use for Ultimate Sportscar. You're involved in AMDG now so I don't think that my companies and I should carry 100% of the risk relating to financing. We can use this new finance to pay out whatever is left on the existing finance. Obviously AMDG is a new company and we aren't going to be able to arrange finance through that. Since we're in this together, I can arrange finance for some of the cars personally and through my other companies as well. Can you do the same? I have spoken to a financier about the Lamborghini, can you refinance it under one of your companies? Balout: Ok, explain to me how it would work. Touma: You arrange the finance under one of your companies, but only for the payout figure of the existing finance which is less than the true value of the car anyway. Then you effectively replace the existing lender and become the lender to AMDG. AMDG will be liable to you on the same terms as whoever you have arranged the finance with. AMDG will pay all the finance repayments, registration, insurance and maintenance. You won't have to worry about anything and no cash comes out of your pocket. We've never had any issues making repayments in the past so it's not going to be an issue now, especially if our companies are liable to the financier. Obviously AMDG remains the owner of the cars considering we wouldn't be putting any money in. Balout: Which vehicles are you going to arrange finance for? Touma: I can sort out the Nissan GTR, Audi R8, Ferrari California and maybe a few more. Balout: Let me think about it.

Discrepancies in recollections of the conversations

1. Mr Touma's version of the various conversations differs from that of Mr Balout in several important respects.
2. First, Mr Touma alleges that he said to Mr Balout in the first conversation in June 2016 that "you're involved in AMDG now, so I don't think that my companies and I should carry 100% of the risk relating to financing" and "since we're in this together". These statements are denied by Mr Balout. Mr Balout's denial is consistent with the records held at the Australian Securities Investment Commission which show that Mr Balout did not acquire any interest in AMDG until, at the earliest, 1 June 2017. A similar error regarding Mr Balout's involvement in UDD is made in a conversation recorded in [37] of Mr Touma's second affidavit in which he alleges that in October 2016 he said to Mr Touma "now that you're involved in Ultimate Drive Days, lets rent cars out of that company." The ASIC records show that Mr Balout did not acquire any interest in UDD until, at the earliest, 5 April 2017.
3. Second, Mr Touma alleges that he said to Mr Balout in that first conversation that Mr Balout should arrange the new finance under one of his companies and "effectively replace the existing lender and become the lender to AMDG", with AMDG being "liable to you on the same terms as whoever you have arranged the finance with". I will call this the "back to back" loan arrangement. Mr Balout denies that these words were ever said. In cross-examination, Mr Touma was asked what the "back to back" loan arrangement meant, and he said that it was not his intention that AMDG would owe moneys to Highfields, but rather that Highfields would owe money to the financier under the new financing arrangement "on behalf of AMDG". His evidence on this point was as follows: Q. Let me, perhaps, explain that, so hopefully we're all complete agreement about this. HIGHFIELDS was going to take out a loan from an external financier; is that right? A. Arrange Yes. Q. Well, it was going to go to BMW Finance, for example A. Yes. Q. it was going to borrow some money from it; is that right? A. On behalf of AMDG, yes. Q. I know you say on behalf of AMDG, but the first step, as you understood it, was HIGHFIELDS was going to go and get borrow some money from an external financier; isn't that right? A. That's correct. Q. All right. Now, regardless of whether or not I'm not going to ask you about it but regardless of whether or not you say you owned the vehicles and AMDG owns the vehicles and Mr Balout says something different, I'm going to ask you something else. Is it part of your case that a vis AMDG, HIGHFIELDS was going to be a lender? A. I'm not sure if technically that was would be the case, but you could be correct. Look at it like that. Q. Are you saying A. Wasn't our intention. Q. Was it not your intention, then, that AMDG would owe monies to HIGHFIELDS. A. No. Q. In reality, if it wasn't a loan, then the amounts of monies that you paid that AMDG paid on a monthly basis to HIGHFIELDS, was really as a licence fee; is that right? A. We never paid HIGHFIELDS [any] money. Q. Well, it paid money to the financier; didn't it? A. Correct. Q. But that was because that was really money that HIGHFIELD had to pay that financier, wasn't it? A. Incorrect. Q. All right. A. It was obligated under the contract on behalf of AMDG, as per our agreement.

The evidence regarding each refinancing by Highfields

1. I set out below the documentary evidence regarding the refinancing of the four Vehicles.

(a) Lamborghini

1. The original purchase by AMDG of the Lamborghini is evidenced by an invoice issued by SPW dated 2 September 2014, for the sale of the Lamborghini to AMDG for $294,419.20 (including GST). The funds for the purchase were provided by National Australia Bank (NAB). The vehicle was registered in the name of AMDG on 28 August 2014.
2. On 2 June 2016, the amount of $294,419.20 was debited to AMDG's bank account with NAB for the "payout of contract". I infer that this was the repayment of the amount owing to NAB for the finance to fund the purchase of the Lamborghini.
3. On 17 June 2016 AMDG issued to Highfields an invoice for the sale of the Lamborghini to Highfields for a total purchase price (including GST) of $260,000, which records that a deposit of $63,000 had been paid and the balance due was $197,000. The invoice nominates the bank account to which the balance due is payable as AMDG's bank account with NAB. There is no direct evidence of the payment of the deposit of $63,000 referred to in the invoice. However, AMDG's bank account with NAB shows that Mr Balout made a transfer of $200,000 to AMDG on 16 June 2016, which is the day before the invoice was issued. I infer that the $63,000 deposit referred to in that invoice was included in this payment. The invoice was produced by BMW Finance, and not by AMDG on discovery.
4. On 21 June 2016, Highfields entered into a Chattel Mortgage Agreement with BMW Australia Finance Ltd, which provided: The borrower named in item 1 in the Schedule offers to borrow from Alphera Financial Services the sum described in item 2 in the Schedule and, for the purpose of securing repayment of the Amount Financed it together with the Credit Charge specified in item 3 of the Schedule and all other amounts payable by the borrower to Alphera Financial Services under the Agreement, the borrower hereby grants a mortgage over the mortgaged property described in item 6 in the Schedule to Alphera Financial Services subject to the provisions contained in this Offer and the Terms and Conditions.
5. BMW Finance is defined in the Chattel Mortgage Agreement as "Alphera Financial Services" being its trading name, the borrower named in item 1 in the Schedule is Highfields, the sum specified in item 2 of the Schedule is $199,014.60 of which $197,000 is to be disbursed to AMDG, and the mortgaged property described in item 6 of the Schedule is the Lamborghini.

(b) Alfa Romeo

1. The original purchase by AMDG of the Alfa Romeo is evidenced by a tax invoice dated 7 July 2015, issued by Leichhardt Fiat Alfa to AMDG for a total price of $106,999.98 (including GST and luxury car tax). The vehicle was registered in the name of AMDG on the same date. The invoice states that it is issued to NAB (with the vehicle delivered to AMDG) and I infer that the payment of the purchase price was funded by a loan made by NAB to AMDG.
2. On 6 September 2016, the amount of $97,931.55 was debited to the account of AMDG with NAB to discharge the NAB facility.
3. Meanwhile, on 28 June 2016, Highfields and Capital Finance entered into a Specific Security Deed (Goods). This included the following provision: [Capital Finance] agrees to lend the Amount Financed to the Customer named in the Schedule ("you") and you agree to borrow the Amount Financed and to give a Security Interest in the Goods on the terms set out in this document, including any special conditions attached to this document. This document will not bind us until it is signed by our authorised officer, at which time a contract will arise without the need for us to give any further notice.
4. The Schedule states that the Amount Financed is $99,448.66 payable to AMDG, and the customer is stated to be Highfields, and the Goods are stated to be the Alfa Romeo.
5. The terms and conditions forming part of the Security Deed include the following: 1. Loan 1.1 You must only use the Amount Financed to acquire the relevant Goods. 1.2 You irrevocably authorise us, at our election, to pay the Amount Financed directly to the Vendor, to enable you to acquire the Goods. Our election to pay the Vendor will prevail over any contrary instruction, direction or authorisation you give us. 1.3 Payment by us to the Vendor will be a full and sufficient discharge of our obligations under this Agreement. … 1.5 You agree that we are not obliged to advance any amount is we have notice of another Security Interest in the Goods and we consider that the amount might not be secured under our Security Interest ahead of that other Security Interest. 2. Payments 2.1 You must pay the Total Amount Payable. You acknowledge that the Total Amount Payable comprises the Amount Financed together with interest calculated in accordance with our usual procedures and practices for transactions of this nature. … 3. Security Interest 3.1 In consideration of us agreeing to advance the Amount Financed, you grant to us a PPS Security Interest in the Goods and in all other chattels which are acquired in substitution for any of the Goods to secure the punctual payment of all amounts that are payable, owing but not payable or that otherwise remain unpaid by you to us on any account at any time. 3.2 If you do not have legal title in the Goods at the date of this Agreement, you agree to acquire such legal title to the Goods free from all Security Interests, subject and only to the PPS Security Interest granted under clause 3.1.

(c) Lotus

1. The original purchase by AMDG of the Lotus is evidenced by a tax invoice dated 28 May 2015 issued by European Automotive Imports Pty Ltd to AMDG for a total price of $85,000 (including GST). The Lotus was registered in the name of AMDG on 28 May 2015.
2. Mr Touma's evidence was that the purchase price was funded by a loan by NAB to AMDG. While the loan agreement is not in evidence, there is a document on NAB letterhead stating that the payout figure for the Lotus financing is $78,673.07 and the bank statement for AMDG's bank account with NAB shows that the amount of $78,673.07 was debited to that account on 24 June 2016.
3. On 23 August 2016, Highfields as borrower and Mr and Mrs Balout as guarantors entered into loan documentation for the new finance for the Lotus to be provided by Metro Finance pursuant to an agreement entitled "Commercial Finance Agreement Schedule" which includes the following: [Metro Finance] agrees to provide a secured Commercial Loan (CL) to the Borrower on the terms and conditions of the Commercial Finance Agreement which is made up of the Standard Conditions of Commercial Finance Agreement Document ID D221 ("Standard Conditions") and Schedule (including special conditions, if any). This Agreement will only become binding on the date determined by Metro Finance. This is followed by a Schedule which names the Borrower as Highfields, and describes the goods as the Lotus and states the amount of the CL to be $99,500 being an amount to be expended in the purchase of the Goods (ie. the Lotus), and the Guarantors to be Mr and Mrs Balout.
4. The Standard Conditions referred to in the clause set out at [76] above is not in evidence, but Metro Finance registered a security interest in respect of the Lotus under the PPSA on 25 August 2016, which states that Highfields is the owner, and hence it can be inferred that the documentation included a security interest granted by Highfields to Metro Finance in respect of the Lotus.
5. The purchase of the Lotus by Highfields is evidenced by a tax invoice dated 3 August 2016 issued by AMDG to Highfields for a total purchase price of $99,500 (including GST). The invoice nominates AMDG's bank account with NAB for payment of the balance due. The bank statement for AMDG's bank account with NAB records a credit to the account of $99,500 on 26 August 2016. The reference for the credit is "1711 Inv 205 Pct Net Ro F1". The reference to "Inv 205" accords with the invoice number for the invoice issued by AMDG to Highfields for the Lotus. I infer that this credit was the payment made by Metro Finance by direction of Highfields for the purchase of the Lotus. The invoice was produced by a finance broker and not by AMDG on discovery.

(d) Ferrari

1. There are three invoices for the Ferrari in evidence. The first is an invoice dated 8 June 2016 issued by Romhero Pty Ltd (Romhero) to Highfields for a total purchase price of $380,000 (including GST), which records that a deposit had been paid of $180,000 leaving a balance due of $200,000. It shows that the account to which payment is to be made is the account of AMDG with NAB.
2. Romhero is a company which at all relevant times had as its two directors, Mr Maskaric and Ms Eleonora Touma, the wife Mr Touma. The sole shareholder of Romhero was Ninety Investments Pty Limited, which Mr Touma said was one of his related entities.
3. The second invoice is dated 1 October 2016 and also issued by Romhero but this time to AMDG. It was put into evidence by Mr Touma. It states that the selling price for the vehicle is $349,000 (including GST) and that this is the amount due. The date on the invoice has been ruled through by hand and the words "26/9/16 Paid" have been written by hand above the date. The invoice also bears a stamp "Entered" and there is an accounting record of AMDG (Ex 2) which records the purchase of the Ferrari in the inventory account 1-1320 in AMDG's general ledger at a purchase price of $349,000. However, while there is a debit entry in AMDG's bank account with NAB on 26 September 2016 for $341,183.13, this is described as a "miscellaneous debit", there is no evidence that this was a payment (in part) of the purchase price of $349,000 payable by AMDG to Romhero.
4. There is no explanation in the evidence for either the backdating of the second invoice or why Romhero issued two conflicting invoices for the same vehicle, one to Highfields and one to AMDG.
5. The third invoice is one dated 6 October 2016, issued by McCarroll's of Moss Vale Pty Ltd (trading as Ferrari Maserati Sydney) (McCarroll's) to Highfields showing a vehicle price of $420,000 (including GST), with a balance payable of $290,000 after deducting an amount of $128,500 described as "Recpt #: X07123 Part Payment". The invoice was produced by BMW Finance, and not by any defendant on discovery.
6. The date of 6 October 2016 is significant because on that day Highfields entered into a Chattel Mortgage Agreement with BMW Finance, under which BMW Finance agreed to lend to Highfields $291,277.60 to be disbursed as follows: (a) Ferrari Maserati Sydney (McCarroll's), $290,000.00; (b) Dealer origination fee, $825.00; (c) PPS Register fees, $13.60; and (d) Establishment fee, $439.00.

(e) Some conclusions on the documentary evidence

1. I note the following about the documentary record of the refinancing transactions: (a) Each transaction involved the issue of an invoice to Highfields, the borrower from the third-party lender under each transaction, showing an amount due which matched the loan to be made by the lender. The existence of the invoice is consistent with the terms of the loan documentation which required that Highfields give a security interest to the lender as owner of the vehicle. The invoices are silent as to the time when title to the vehicle is to pass to the purchaser, Highfields. (b) The invoices in favour of Highfields were not held in the records of AMDG, but rather were held in the records of the relevant lender. Despite this, it was not suggested by the second defendant that the invoices were a sham or not genuine. (c) The monthly payments due under the loan agreements between Highfields and each lender (excluding the final balloon payment at maturity) were $2,833 (Lamborghini), $1,598 (Alfa Romeo), $1,463 (Lotus) and $4,166 (Ferrari), which totals $10,060 per month. This is considerably less than the monthly licence fee paid by UDD to AMDG under the Supply Agreement after the refinancings were undertaken (see [100] below).

The evidence regarding each refinancing of other vehicles arranged by Mr Touma

1. Mr Touma says that in the initial conversation he had with Mr Balout in June 2016, he told Mr Balout that he (Mr Touma) would "sort out the Nissan GTR, Audi R8, Ferrari California and maybe a few more".
2. Mr Touma has put into evidence documentation relating to the refinancing of the three vehicles specifically mentioned by him in that conversation, being a Nissan GTR R35 (registration CSL 96Y), an Audi R8 (registration CV0 60X) and a Ferrari California F149 (registration DCI 46T). The Audi R8 and the Ferrari were financed by BMW Finance in June and November 2016 respectively and the Nissan GTR R35 was financed by the Commonwealth Bank in July 2016. The Audi is significant because the new finance was provided by BMW Finance shortly before Highfields entered into the Chattel Mortgage Agreement with BMW Finance for the Lamborghini, using a Chattel Mortgage Agreement in the same form as that used for the Lamborghini.
3. The evidence in relation to the Audi R8 discloses that: (a) SPW purchased the Audi R8 for $215,000 (including GST) in September 2014 (CB 1032). It was registered in the name of AMDG on 27 September 2014. (b) On 17 June 2016, AMDG paid $189,656.68 to NAB to payout the amount owing by SPW to NAB for the purchase of the Audi R8 (CB 313 and 1016-17). (c) On 20 June 2016, KG Realty Pty Ltd (a related entity of Mr Touma) as borrower entered into a Chattel Mortgage Agreement with BMW Finance for a loan of $197,006.60 of which $195,000 was to be disbursed to AMDG (CB 1052). The Dealer is described as being Ferrari Maserati Sydney (McCarroll). It is in the same terms as the Lamborghini Chattel Mortgage. (d) On 22 June 2016, the amount of $195,000 was credited to AMDG's bank account with NAB with reference "payment … Bmw Australia Fin", which I infer was the amount advanced to KG Realty Pty Ltd under the Chattel Mortgage (CB 313). (e) The only invoice in evidence regarding this vehicle (apart from that referred to in (a) above) is an invoice dated 1 July 2016 issued by SPW to AMDG for $195,000 (including GST) (CB 1031). However, it is unlikely that this was the invoice on which BMW Finance relied in making the loan of $195,000 as it post dates the loan by over a week and does not show KG Realty Pty Ltd as the purchaser of the vehicle. This anomaly is not explained in the evidence.

Subsequent events

1. After the refinancing of each vehicle, AMDG retained or obtained (in the case of the Ferrari) possession of each vehicle and hired it to UDD under the Supply Agreement. The bank statements for AMDG record that UDD made monthly payments of rent to AMDG, which I infer was the monthly payments for use of these vehicles (and other vehicles) supplied to it by AMDG. The amounts are significant, being $28,000 per month in November and December 2016 and $23,000 per month thereafter.
2. In the period from each refinancing up to around June 2020, AMDG: (a) paid the monthly instalments due by Highfields to BMW Finance, Capital Finance and Metro Finance under the loan agreements for the Vehicles (in the amounts referred to at [91] above); and (b) paid all registration, insurance, maintenance and other expenses in relation to the Vehicles.
3. Between 3 August 2020 and 27 October 2022, it was Highfields rather than AMDG which paid the monthly instalments due by Highfields to BMW Finance, Capital Finance and Metro Finance in respect of the Vehicles, totalling $110,604.78 in respect of the monthly instalments due in respect of the Lamborghini; $31,404.63 in respect of the Alfa Romeo; $48,693.90 in respect of the Lotus and $202,457.98 in respect of the Ferrari. In addition, Highfields has incurred costs for the storage of the vehicles pending the outcome of these proceedings. These storage costs were $22,275 in the period to 24 February 2023.
4. The security interests over the Vehicles held by BMW Finance, Capital Finance and Metro Finance have been discharged and currently the only entity claiming a security interest in the four vehicles is Bilpin under its Charge.

Accounting treatment

1. The unaudited financial statements for Highfields for the years ended 30 June 2017 to 30 June 2020 (inclusive) are in evidence and did not record Highfields as the owner of the Vehicles. Mr Balout in cross examination accepted the proposition put to him that he "at all times regarded AMDG as remaining the owner of the four motor vehicles, notwithstanding the finance arrangement that had been entered into" (T63). In contrast, the financial statements for AMDG for the years ended 30 June 2017 and 30 June 2018 (which are also unaudited) did record the Vehicles as forming part of the inventory of AMDG. Mr Balout signed a director's declaration for each of those financial statements on 18 February 2019, in which he declared that the financial statements and notes present fairly the company's financial position as at the end of the financial year.
2. As noted at [82], a copy of the general ledger of the inventory account for AMDG for the 2018 year records each of the Vehicles as part of the inventory account for AMDG and total amount of that inventory account was included in the balance sheet for the 2018 year. I note that the general ledger records in three cases (the Ferrari, the Lamborghini, and the Alfa Romeo) that the vehicle is "still owned with financing" and in one case (the Lotus) as one of the "purchases" in the 2017 year.
3. The general ledger account also records the Audi R8, Nissan GTR R35 and the Ferrari California as part of AMDG's inventory. It is not clear that this is accurate given the evidence referred to at [94]-[98] above which indicates that the purchase price of each vehicle was paid by KG Realty Pty Ltd and Nine T Investments Pty Ltd, entities associated with Mr Touma, with borrowed funds. Even if legal title was acquired by AMDG, there would be a rebuttable presumption that because each of those entities paid the purchase price in full (with borrowed funds) it would have the beneficial interest in the vehicle under an apparent purchaser resulting trust: Calverley v Green (1984) 155 CLR 242 at 262-263.
4. Mr Balout did not create the general ledger accounting record (Ex 2). When it was shown to him in cross-examination, he accepted that he had seen it sometime in 2020, that it was provided to him by an accountant working in the office of AMDG's external accountants, Traverse Accountants Pty Ltd, and that as a director of AMDG in 2020 he understood that "AMDG continued to own the four motor vehicles" (T69). There is an apparent inconsistency between this evidence about ownership (and the similar statement noted at [104] above) and his evidence earlier in his cross examination that he understood that Highfields became the owner of the Vehicles after each refinancing transaction (T52-T54) and later in cross-examination that Mr Touma never said to him that AMDG would after the refinancing remain the owner of the four vehicles (T78 and T84). My assessment of Mr Balout's evidence on these matters after he was shown the financial statements for Highfields and AMDG, and the general ledger record (Ex 2), is that he was confused and felt that as he had signed the director's declaration it followed that he must accept that AMDG was the owner of the vehicles after the refinancing. For the reasons given below I do not regard either these accounting records or Mr Balout's evidence in cross examination as of any assistance in resolving the dispute as to the ownership of the Vehicles.

Whether Highfields and AMDG entered into a contract for the sale of the vehicles

Relevant principles

1. Whether a contract exists, and its terms is a question of fact: Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382; [2009] NSWCA 234 at [90(4)] (per Campbell JA, Allsop P and Basten JA agreeing).
2. Under the traditional analysis of contract formation, it is necessary to identify for a valid contract the presence of an agreement supported by a consideration, an intention to create legal relations, and certainty as to the essential terms.
3. As to the first element, in circumstances where no formal offer and acceptance can be identified, a court may infer formation of the relevant agreement and its terms from the conduct of the parties, including their conversations, the surrounding circumstances (including their previous dealings) and post-contractual conduct: Lawrence v Ciantar [2020] NSWCA 89 at [114] (Bathurst CJ, Meagher and Gleeson JJA agreeing).
4. The circumstances in which a contract can be inferred from conduct were explained in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117-11,118 by McHugh JA (Hope and Mahoney JJA concurring): It is often difficult to fit a commercial arrangement into the common lawyers' analysis of a contractual arrangement. Commercial discussions are often too unrefined to fit easily into the slots of "offer", "acceptance", "consideration" and "intention to create a legal relationship" which are the benchmarks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance together with an intention to create a binding legal relationship … A bilateral contract of this type exists independently of and indeed precedes what the parties do. Consequently, it is an error "to suppose that merely because something has been done then there is therefore some contract in existence which has thereby been executed" ... Nevertheless, a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words … The question in this class of case is whether the conduct of the parties viewed in the light of the surrounding circumstances shows a tacit understanding or agreement. The conduct of the parties, however, must be capable of proving all the essential elements of an express contract …Care must also be taken not to infer anterior promises from conduct which represents no more than an adjustment of their relationship in the light of changing circumstances. … Moreover, in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties' subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed.

Required approach to fact finding

1. Highfields, as plaintiff, bears the onus of establishing on the balance of probabilities the existence of a contract between it and AMDG of the kind which it alleges and that under that contract Highfields acquired ownership of each vehicle.
2. In Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34, Dixon J emphasised that when the law requires the proof of any fact the Court must feel an actual persuasion of its occurrence or existence before it can be found, and "it cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality" (at 361).
3. What is necessary to attain the required degree of actual persuasion was explained by Hammerschlag J in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 as follows: [94] Where a party seeks to rely upon spoken words as a foundation for a cause of action, including a cause of action based on a contract, the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its occurrence or its existence. Moreover, in the case of contract, the court must be persuaded that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences: see Briginshaw v Briginshaw (1938) 60 CLR 336 at 362; Helton v Allen (1940) 63 CLR 691 at 712; Rejfek v McElroy (1965) 112 CLR 517 at 521; Watson v Foxman (1995) 49 NSWLR 315 at 319. [95] The sensation of feeling an actual persuasion, after a contest, that an event has happened or that something exists is one which is well known and recognised by experienced trial judges for what it is.

Factual findings regarding contract formation

1. In my view, this is not a case where the parties can be said to have entered into a single overarching agreement for the Vehicles in one or two conversations in June 2016. Rather, a separate contract in respect of each vehicle is to be inferred from the parties' conduct, including conversations, over the period from June to October 2016.
2. For the reasons given below, I find that on each occasion that Highfields entered into a loan agreement with the relevant third-party lender for the refinancing of each vehicle, a separate contract was entered into between Highfields and AMDG in respect of that vehicle on the following terms: 1. AMDG would sell or procure the sale of the relevant vehicle to Highfields for an amount equal to the price stated in an invoice issued to Highfields funded to the extent necessary by moneys borrowed by Highfields from the third-party lender arranged by AMDG. 2. Highfields would hire that vehicle to AMDG on terms that AMDG would pay the monthly amounts due to the third-party lender under Highfields loan agreement, together with the cost of registration, maintenance and insurance of the vehicle. 3. While the parties did not agree the period of the hiring of each vehicle a term should be implied that the licence was terminable on reasonable notice by either party at which time possession of the vehicle would be returned to Highfields.
3. Each of these transactions involved a sale of the vehicle to Highfields and a hiring (ie. bailment) of the vehicle to AMDG.
4. I do not accept that there was a "back to back" loan arrangement between Highfields and AMDG: the obligation of AMDG to pay the monthly instalments owing to BMW Finance, Capital Finance and Metro Finance would continue only for the period in which the bailment of the Vehicles from Highfields to AMDG continued.
5. Set out below are my reasons for the above finding as to the contracts entered into by Highfields and AMDG; starting with the Lamborghini, as that was the first transaction.
6. The refinancing of the Lamborghini was the subject of the first two conversations in June 2016. The other vehicles were not discussed until after the Lamborghini refinancing occurred. The finding at [122] is consistent with Mr Balout's recollection of the conversations leading up to the refinancing of the Lamborghini in June 2016 and the further conversations thereafter in which Mr Touma said that the refinancing of the other Vehicles would be in the same form as for the Lamborghini.

Second defendant's submissions

1. It was submitted for the second defendant that Highfields had not proved that it entered into the alleged contract for essentially four reasons: 1. Highfields had not proved each of the terms of the contract as pleaded in the Points of Claim, and several of the alleged terms are not established by Mr Balout's version of his conversations with Mr Touma. In particular, Mr Balout does not assert that Mr Touma ever said words to the effect that AMDG will sell or transfer the Vehicles to Highfields. 2. The surrounding circumstances including post-contractual conduct was consistent with AMDG remaining the owner of the Vehicles, with reliance placed on the fact that the Vehicles remained registered in the name of AMDG, and AMDG retained possession and paid the monthly instalments to the financiers, insurance, maintenance and registration fees. 3. The purpose of each of the invoices in evidence which show a sale of each vehicle to Highfields was to enable a security interest to be granted in vehicles owned by AMDG to the new lender and not to evidence of an actual sale to Highfields. 4. The accounting treatment of the Vehicles in the financial statements of both Highfields and AMDG recognise the Vehicles as an asset of AMDG and not Highfields, which was confirmed by Mr Balout's acceptance in cross-examination that he regarded AMDG as remaining the owner of the Vehicles.
2. In relation to the first submission, I accept that the evidence does not establish a single contract made in one or more conversations. However, I am satisfied that there were four separate contracts (one for each vehicle) implied from conduct including but not limited to the conversations between Mr Balout and Mr Touma. While it is true that there is no evidence that Mr Touma said that AMDG would sell the Vehicles to Highfields, there are four invoices in evidence which each record a sale to Highfields (in three of which, AMDG is named as the seller). Mr Touma did not challenge the genuineness of these invoices. In addition to the invoices, there is the overall context of the transactions which is that the financing arrangements with each financier (BMW Finance, Capital Finance and Metro Finance) required a sale to Highfields so that it would become owner and be able to give a security interest to the lender.
3. As to the second submission, as the plaintiff submitted, registration of the Vehicles in the name of AMDG has no bearing on ownership: Expile Pty Ltd v Jabb's Excavations Pty Ltd [2003] NSWCA 163 at [15]; Road Transport Act 2013 (NSW), s 64(2). This reflects the fact that a person is entitled to register a motor vehicle in its name if it is either the owner or is managing the vehicle, eg. as lessee: Road Transport (Vehicle Registration) Regulation 2017 (NSW), reg 6(1). As AMDG had use and management of the Vehicles, it was appropriate that it should register the Vehicles in its name.

Did Highfields acquire title to the Vehicles?

1. The concept of ownership is a slippery one. As is explained in Ewan McKendrick, Goode on Commercial Law (LexisNexis 4th Ed, 2009) at 34-35 (footnotes omitted): Ownership, one of the most elusive concepts of English law, is conventionally defined as the residue of legal rights in an asset remaining in a person, or in persons concurrently, after specific rights over the asset have been granted to others. A person in whom such residue of rights is vested is said to have an absolute interest in the asset. By contrast, one who enjoys merely specific rights, e.g. possession under a pledge, lien or other bailment, has only a limited interest. Interest is to be distinguished from title. A person's interest in an asset denotes the quantum of rights over it which he enjoys against other persons, though not necessarily against all other persons. His title measures the strength of the interest he enjoys in relation to others. English law attributes great significance to possession. A person in possession with the intention of assuming ownership is treated as owner, and given all the rights and remedies available in tort and property law for the protection of the owner, as against everyone except him who has better title. If O is the true owner but T has taken possession of the asset, animo domini, both are considered to have title to the absolute interest in the property. O's title being the best, is indefeasible: T's is a defeasible title, being subordinate to that of O but effective against all others not claiming under O or defending T's claim with O's authority.
2. In Kent v SS "Maria Luisa" (No 2) (2003) 130 FCR 12; [2003] FCAFC 93, Tamberlin and Hely JJ made the following observations on the concept of "ownership" at [61]-[65]: The word "owner" cannot be given any general description. But ordinarily the incidents of ownership of a chattel include the right to make physical use of the chattel, the right to the income from it, the power of management, and the right of alienation: Lawson & Rudden, at p 8. In the Iron Shortland (at 544) Sheppard J quoted from the decision of the Singapore Court of Appeal in The Ohm Mariana; Ex Peony [1993] 2 SLR 698 that the term "owner" means any person who is vested with such ownership as to have the right to sell, dispose of or alienate the ship, and that a beneficial owner of the ship comes within that term. See also to similar effect The Permina 3001 [1979] 1 Lloyd's Rep 327 at 329. The notion of "ownership" carries a connotation of dominance, ultimate control and of ultimate title against the whole world: cf O W Holmes, The Common Law (1882) pp 242-246; Blackstone's Commentaries, (18th ed, 1829) Vol 2, p 389; and Holdsworth, A History of English Law (1925) vol VII, p 449. In Jeffries v Great Western Railway Co (1856) 119 ER 680, Lord Campbell CJ said: I am of opinion that the law is that a person possessed of goods as his property has a good title as against every stranger, and that one who takes them from him, having no title in himself, is a wrongdoer, and cannot defend himself by shewing that there was title in some third person; for against a wrongdoer possession is a title. That approach was applied by the Court of Appeal in The Winkfield [1902] P 42 at 55 by Collins MR. These statements accord with the primary definition of "owner" in The Oxford English Dictionary as: (a) … One who owns or holds something as his own; a proprietor; one who has the rightful claim or title to a thing (although he may not be in possession) … A helpful description of "ownership" is formulated by Jordan CJ in Gatward v Alley (1940) 40 SR (NSW) 174 at 178, where his Honour said in relation to a question as to ownership of a car: A good title to property, in the sense of such ownership as the law allows, consists in having the legal right to exercise with respect to it all such rights, as against all such persons, as by law are capable of being exercised with respect to property of the class in question. A person who has possession of property but not ownership has, as a general rule, the same legal rights as the owner, save to the extent to which those rights are qualified as against the owner …

Relief to which Highfields is entitled

1. For the above reasons, in my view Highfields is entitled to a declaration that it is the owner of the Vehicles. It is also entitled to recover, as damages for breach of contract from the first defendant the costs of storage of the Vehicles, which will have increased since the hearing.
2. However, Highfields is not entitled to recover from any of the defendants amounts paid by Highfields to BMW Finance, Capital Finance and Metro Finance as Highfields had the obligation to pay those amounts to the lenders and the obligation of AMDG to pay equivalent amounts to Highfields as hiring fees ceased when the bailment terminated. There may be an entitlement to accrued but unpaid hiring fees prior to the termination of the bailment, but this question was not addressed in submissions and the evidence as to precisely when the bailment terminated is unclear, but it clearly was at or around June 2020 at which time Highfields became entitled to immediate possession of the Vehicles.
3. As to costs, I see no reason why costs should not follow the event and as Highfields has had substantial success on the proceedings, it is entitled to its costs.
4. I invite the parties to bring in short minutes of order which reflect these reasons and finalise the proceedings within seven days.

Amendments 28 November 2023 - Update to coversheet 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: 28 November 2023