Loiero (aka Lero) v Adel Sportswear Pty Ltd & Ors

Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700 Craven v Gael [1932] VLR 172 Jiwira v PIBA [2000] NSWSC 1094 CASES CITED : May v Ceedive Pty Limited [2006] NSWCA 369 National Australia Bank v Blacker [2000] FCA 1458, 104 FCR 288 Nearhaze Pty Ltd v Official Trustee (1999) BPR 17,273 Reid v Smith (1906) 3 CLR 656

Anthony Tony Mario Loiero (aka Anthony Lero) (Plaintiff) Adel Sportswear Pty Ltd ACN 113 110 893 (First Defendant/Cross Defendant) PARTIES : Robert Tiricovski (Second Defendant) Slavica Tiricovski (Third Defendant) Australia and New Zealand Banking Group Limited ACN 005 357 522 (Fourth Defendant/Cross Claimant)

M Aldridge SC (Plaintiff) J J Loofs (Plaintiff) COUNSEL : No Appearance (First Defendant/Cross Defendant) N Allan (Second and Third Defendants) M J Cohen (Fourth Defendant/Cros Claimant)

Agostino & Co (Plaintiff) SOLICITORS : No Appearance (First Defendant/Cross Defendant) Ziman & Ziman (Second and Third Defendants) Norton Rose Australia (Fourth Defendant/Cross Claimant)

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2010/257862 ANTHONY TONY MARIO LOIERO v ADEL SPORTSWEAR PTY LTD & ORS JUDGMENT

1 Mr and Mrs Tiricovski, who are the second and third defendants, carried on for a number of years the business of manufacturing confectionary - principally chocolate coated liquorice. They did so through a number of companies controlled by them and Mr Tiricovski's brother, Victor. Relevantly, those companies were RV & Sons Pty Ltd (RVS), Australian Fresh Confectionary Pty Ltd (AFC), Black Opal Confectionary Pty Ltd (BOC) and Black Opal Liquorice Pty Ltd (BOL). Up until mid-2009, the business was carried on at a factory at Carlton which was owned by a company in which Mr Tiricovski was a shareholder. The business gradually expanded and, in around 2000, Mr and Mrs Tiricovski decided to buy and develop a factory at Kurnell where they could carry on the business. For that purpose, they borrowed money from the ANZ Bank, which is the fourth defendant. The borrowings were secured by a mortgage over the Kurnell property and charges taken over the assets of a number of the companies in the group controlled by Mr and Mrs Tiricovski, including the 4 that I have mentioned. In September 2003, Mr and Mrs Tiricovski became trustees and unit holders in the Alpha Two Unit Trust which it appears was established to carry on at least part of the business at the Kurnell factory. 2 The factory at Kurnell was developed over a period of time. Additional borrowings were made from the ANZ Bank for that purpose and new equipment was bought. In May 2009, Mrs Dragica Mircevski, who is Mrs Tiricovski's mother, lent money to the Alpha Trust to assist in developing the Kurnell factory. That loan was secured by a registered bill of sale over plant and equipment acquired by the trust for the new factory. The bill of sale was granted on 15 December 2009 and registered on 15 January 2010. 3 It appears that the expansion plans for the business were overly ambitious and, in the second half of 2009, the business got into financial difficulties. On 25 November 2009, AFC, RVS and BOL entered into voluntary administration. BOC entered into voluntary administration on 9 December 2009. 4 At about the time the companies went into voluntary administration, Mr Tiricovski was introduced to the plaintiff, Mr Loiero, as a potential investor. Mr Loiero bought the plant and equipment at the Carlton factory from the administrators for $100,000 with the intention of moving that equipment to the Kurnell factory. He also incorporated a new company known as Black Opal Confectionary Australia Pty Ltd (BOCA) for the purpose of carrying on the confectionary business. On 22 January 2010, Mr and Mrs Tiricovski, both in their own capacities and as trustees of the Alpha Trust, Victor Tiricovski, BOCA and Mr Loiero entered into an agreement relating to the business to be conducted at the Kurnell factory. Essentially, what was to happen was that BOCA would take over the confectionary business and it would issue 200 shares to Mr Tiricovski, 200 shares to Victor Tiricovski and 500 shares to Mr Loiero. Mr Loiero would acquire the plant and equipment that had been installed in the factory and which was described in schedule 4 to the agreement and would make the payments set out in schedule 2 to the agreement. 5 Clause 2(1) of the agreement provides that the agreement was "subject to and conditional upon" a number of matters. One of those was approval by the creditors of each of RVS, AFC BOC and BOL of deeds of company arrangement. Others were that: "(j) Robert and Slavica Tiricovski procure a release of Bill of Sale registered number Book 4582 No. 726 from Dragica Mircesvki. (k) The parties executing the Shareholders Agreement [relating to BOCA] which is annexed and marked "A". (l) Alpha transferring to [Mr Loiero} and or [his] nominees within 30 days of the date of this agreement the Plant and Equipment [described in Schedule 4 to the agreement]." 6 Clause 2(1) also provided that the agreement was conditional on Mr and Mrs Tiricovski granting to BOCA a lease of the premises at Kurnell on specified terms and granting Mr Loiero or his nominee a "first right of refusal" to acquire the Kurnell premises. Clause 3(1) required Mr Loiero to call a meeting of BOCA within a year of the approval of the deeds of company arrangement to approve the issue of shares in the proportions I have referred to and clause 3(2) required Mr Loiero to make the payments set out in schedule 2. Various payments are set out in that schedule. There is no real dispute that Mr Loiero has made the first 5 payments set out in the schedule (totalling approximately $450,000). Item 6 of schedule 2 provides for a payment in the following terms: "$280,000.00 within 12 months from the date of this Deed for the plant and equipment from Alpha Unit Trust, such payment to be made at the direction of the Trustees of Alpha Unit Trust." 7 Mr Loiero moved equipment from the Carlton premises to the Kurnell factory and BOCA commenced to manufacture confectionary there. However, on 12 April 2010 the ANZ Bank exercised its rights under the mortgage granted by Mr and Mrs Tiricovski and took possession of the Kurnell factory. It changed the locks and excluded BOCA and Mr Loiero. Subsequently, Mr Loiero obtained a licence from the bank and recommenced operations there. Ultimately, the bank entered into a contract for sale of the property to Adel Sportswear Pty Ltd, who is the first defendant. 8 Mr Loiero commenced these proceedings when he was excluded from the Kurnell factory again. Precisely what has happened since then is not important. However, one issue that is raised by the proceedings commenced by Mr Loiero is who owns the equipment referred to in schedule 4 to the agreement dated 22 January 2010. At the time these proceedings were commenced, Adel Sportswear asserted that it owned the plant and equipment on the basis that they were fixtures and were sold to it with the property. Mr Loiero asserted that he owned the plant and equipment on the basis of the agreement dated 22 January 2010. Mr and Mrs Tiricovski assert that they, as trustees of the Alpha Trust, continue to own the plant and equipment on the basis that it was never transferred to Mr Loiero under the agreement. On 4 August 2010, White J ordered that the question of "which party is the true owner or entitled to possession of" the equipment be determined as a separate question. This judgment is concerned with that question. Are the plant and equipment fixtures? 9 The first issue that needs to be addressed is whether the items on schedule 4 are fixtures. 10 Consideration of that question has been affected by the fact that, on the first day of the hearing, the solicitor for Adel Sportswear sought leave to withdraw. I granted that leave. As a result, Adel Sportswear was unrepresented at the hearing, although, before withdrawing, its solicitor provided me with written submissions. It is also worth observing that it appears that Adel Sportswear is no longer willing to complete the contract for the purchase of the property and I granted leave to the bank to make an application to the duty judge in that regard. In the meantime, however, the bank did not seek to submit that any of the items on schedule 4 were fixtures. 11 The question whether an item is a chattel or a fixture depends on whether it was placed on the land with the intention that it become part of the land or whether it was placed on the land with the intention that it remain separate from it: Reid v Smith (1906) 3 CLR 656. Generally, the intention of the person who placed the item on the land is to be determined objectively: May v Ceedive Pty Limited [2006] NSWCA 369 at [65] per Santow JA (with whom Mason P and Beazley JA agreed), although, in some cases, courts have been prepared to look at the subjective intention of the person who placed the item on the land: for discussion, see National Australia Bank v Blacker [2000] FCA 1458, 104 FCR 288 at [12] per Conti J. Of particular significance in determining the party's intention is whether the item has been affixed to the land and, if so, the degree of annexation: Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700 at 712-3 per Jordan CJ. Indeed, it is often said that if an item is affixed to the land then there is a presumption that it is a fixture (the strength of the presumption depending on the degree of annexation) and if it is not affixed then there is a presumption that it is not a fixture: Coroneo (1938) 38 SR (NSW) 700 at 712. However, the fact that the item is affixed to land is not determinative. An item may be a fixture where it simply rests on land by virtue of its own weight. A house resting on wooden piles is an obvious example: Reid v Smith (1906) 3 CLR 656, although even then there may be cases where a demountable house is not regarded as a fixture: Jiwira v PIBA [2000] NSWSC 1094. Conversely, an item that is fixed to land may not be a fixture. A typical case is where machinery is attached to land for the more effective use of the machinery rather than with the intention of improving the land: Reid v Smith (1906) 3 CLR 656 at 680-1 per O'Connor J; cf Australian Provincial Assurance Co Ltd v Coroneo (1938) 38 SR (NSW) 700 at 712 per Jordan CJ. 12 In the case of plant or machinery consisting of a number of separate parts, it is necessary to determine whether the item as a whole is a fixture, not whether each individual part is: Craven v Gael [1932] VLR 172 at 176-7. 13 I am satisfied that the items in this case are chattels, not fixtures. The items can be divided into two categories. First, there are various items of office furniture and equipment such as desks, chairs, sofas, filing cabinets and computing equipment. These items are clearly not fixtures. 14 Secondly, there is the plant and equipment associated with manufacturing confectionary. Those items include tanks of various types, cooking vessels, extruders and conveyers, packing benches and storage racks. Most of the items are freestanding. Some of them are on wheels. Some of the tanks sit on what are referred to as "load cells", which are very large scales. Those tanks are connected to the load cells by horizontal bolts. Generally, the various items look as if they are housed in the factory rather than as if they were intended to be an improvement to the building. That conclusion is consistent with the fact that Mr and Mrs Tiricovski structured the business to be carried on at the new factory so that they owned the building in their own right whereas the plant and equipment were owned by the Alpha Trust or, possibly in the case of some equipment, by one or more of the companies they controlled. Mr and Mrs Tiricovski granted a bill of sale over some of the equipment to Mrs Tiricovski's mother as security for a loan that she made. Mr Loiero had no difficulty in moving similar plant and equipment from the factory at Carlton. Having regard to those matters, I am satisfied that the plant and equipment are not fixtures. Did Mr Loiero obtain ownership of the plant and equipment?

15 The next issue is whether Mr Loiero obtained ownership of the plant and equipment in accordance with cl 2(1)(l) of the 22 January 2010 agreement. The debate in relation to this issue centred on five questions. They were:

a Whether the agreement imposed an obligation on and Mrs and Mrs Tiricovski to transfer the plant and equipment; b Whether a notice of transfer purportedly given by Mr and Mrs Tiricovski on 18 February 2010 was genuine; c Whether a transfer occurred as a consequence of Mr Loiero taking possession and using the plant and equipment; d Whether Mr Loiero has paid for the plant and equipment; e Whether Mr and Mrs Tiricovski were able to transfer the plant and equipment having regard to the rights of Mrs Tiricovski's mother under the bill of sale. Were Mr and Mrs Tiricovski obliged to sell the plant and equipment by the agreement? 16 In my opinion, the answer to this question is that they were. Although the agreement was expressed in cl 2(1)(a) to be subject to and conditional upon the Alpha Trust transferring to Mr Loiero within 30 days of the date of the agreement the plant and equipment, I think that that clause must be interpreted as an obligation that they do so. Almost all of the substantive provisions of the agreement are contained in cl 2(1). Apart from the matters I have already mentioned, cl 2(1) contains terms relating to the dismissal of court proceedings between Mr and Mrs Tiricovski and Victor Tiricovski, the transfer of shares in RBS, AFC, BOC and BOL to Mr Loiero "as soon as possible" and various ancillary matters to that, the transfer to Mr Loiero of control of other companies controlled by Mr and Mrs Tiricovski, and the appointment of Mr Loiero as a signatory to bank accounts held by those companies. It is difficult to see how the parties could have intended that the matters dealt with in cl 2(1) be independent conditions each of which must occur before any party had any obligations under the agreement. For example, suppose that Mr and Mrs Tiricovski granted Mr Loiero a lease of the Kurnell factory and a first right of refusal to buy it and suppose also that they arranged for the bill of sale over the plant and machinery to be released and for that plant and machinery to be transferred to Mr Loiero, but suppose that Mr Loiero refused to sign the shareholders agreement in relation to BOCA. It could not seriously be suggested that the signing of the shareholders agreement was merely a condition precedent so that Mr Loiero was not obliged to sign it and therefore (because that condition was not satisfied) was not obliged to make any of the payments set out in schedule 2 but was entitled to keep the plant and equipment and the benefit of the lease and the right of first refusal. Rather, in my opinion, apart from the term concerning approval of the schemes of arrangement, the provisions of cl 2(1) identify a number of interdependent obligations that the parties must have intended each would comply with. One of those interdependent obligations was an obligation imposed on the Alpha Trust to transfer to Mr Loiero within 30 days of the date of the agreement the plant and equipment. Was the notice of transfer genuine? 17 The notice of transfer is addressed to "Anthony Tony Loiero aka Anthony Lero". It appears to be signed by Mr and Mrs Tiricovski and purports to be given by them as trustees for the "Alpha Unit Trust". The notice says that Mr and Mrs Tiricovski transfer "all of our shares and interest in the plant and equipment". It then goes on to say: "We confirm that we have now settled all claims previously made by Dragica Mircevski. However you are required to pay the total of $280,000.00 to Robert and Slavica Tiricovski when due and not Dragica Mircevski. … In the event any Kurnell equipment is covered by the ANZ charge, we consent to that amount be [sic] deducted." The last point was a reference to the fact that there was a concern on the part of Mr Loiero that the bank may make a claim in respect of some of the plant and equipment on the basis that the relevant invoices were addressed to companies in respect of which it held a charge rather than to Mr and Mrs Tiricovski or the trust. 18 A considerable amount of evidence and extensive submissions were directed to the question whether this notice was genuine. It was also put to Mr Loiero in cross-examination that a number of other letters he said he sent to Mr Tiricovski were never sent. Those letters form a series in which Mr Loiero claims that he was misled by Mr Tiricovski. One of them is a fax dated 15 April 2010 which refers to the February notice. 19 Mr and Mrs Tiricovski admit that the signatures on the copy of the notice of transfer that was in evidence appeared to be their signatures. However, the original of the document was not produced which made examination of the signatures impossible. A court appointed expert was retained to examine the computers of Mr and Mrs Tiricovski and Mr Loiero. The effect of that evidence was that the expert could not find a copy of the notice of transfer on the computer used by Mr and Mrs Tiricovski. On the other hand, the expert did find copies of the notice on a computer used by Mr Loiero. According to the expert evidence, which was not challenged, those copies were created in August 2010. 20 Mr Allan, who appeared for Mr and Mrs Tiricovski, pointed to a number of other matters that he says suggest that the notice was not genuine. First, he says that the notice contained a number of errors that Mr Tiricovski would not have made or information that he did not know. So, for example, Mr Allan submitted that Mr Tiricovski did not know that Mr Loiero's middle name was "Tony". On the other hand, he would have known that the trust's correct name was the "Alpha Two Unit Trust". Second, Mr Allan submitted that the notice did not make sense having regard to an email sent on 20 February by Mr Loiero to Mr Tiricovski in which Mr Loiero did not refer to the notice but expressed his concerns that it was being suggested that the trust did not own the plant and equipment. Third, Mr Allan submitted that Mr Tiricovski could not have sent the notice at the time it is said that he did because at that time he was pre-occupied with getting a shipping container out of customs in the UK. 21 I do not accept Mr Allan's submission. The expert evidence is inconclusive. The notice could have been prepared on a computer other than the one identified by Mr and Mrs Tiricovski as belonging to them. Mr Loiero gave evidence that his laptop had been stolen and that he could have received the notice on it. He says that he reported the theft of his computer to the police and I accept his evidence on this aspect of the case. Mr Loiero gave an explanation of how he came to create copies of the notice on his computer in early August 2010. He said that he scanned a hard copy of the notice on to his computer so that he could attempt to remove handwriting on it to create a clean copy which could be attached to an affidavit that it was proposed he would file in these proceedings. I do not think that that explanation is completely implausible. Some of the errors in the notice are equally unlikely to have been made by Mr Loiero if he had been fabricating the notice. The reference to the "Alpha Unit Trust" is not obviously an error at all, since that is how the trust is described in item 6 of schedule 2 of the 22 January agreement. It does not strike me as odd that Mr Loiero would express concern that some of the plant and machinery may be owned by one of the companies rather than the trust without referring to the notice, and I do not think that the fact that Mr Tiricovski was doing other things on the evening of 18 February means that the notice could not have been sent. 22 In addition, it is important to bear in mind the context. At the time, the agreement with Mr Loiero represented the best, and probably the only, means by which Mr Tiricovski could save his business and continue to participate in it through a shareholding in BOCA. That agreement required the plant and equipment to be transferred to Mr Loiero within 30 days of the date of the agreement - that is, by 21 February 2010. Even on Mr and Mrs Tiricovski's case, that transfer was a pre-condition to the January agreement coming into effect. It is most unlikely that Mr Tiricovski would have been prepared to jeopardise that agreement at the time by not complying with its terms. 23 Finally, as I have said, in a fax dated 15 April 2010, Mr Loiero refers to "a Notice of Transfer attached to your email on 18 February 2010 signed by both of you [ie Mr and Mrs Tiricovski]". On Mr and Mrs Tiricovski's case, not only was this fax not sent but it must have been created in early August as part of an elaborate plot to mislead the court into believing that the 18 February notice was sent. In my view, that is inherently implausible and is not supported by the evidence. Even if the fax dated 15 April was not received by Mr and Mrs Tiricovski, there is no reason to suppose that it was not created on or about the date it bears. 24 Having regard to these matters and to the seriousness of the allegation, I am not satisfied that Mr Loiero fabricated the notice. Did a transfer occur as a consequence of Mr Loiero taking possession and using the plant and equipment? 25 Mr Allan, in his written submissions, made a valiant attempt to resist the conclusion that Mr Loiero took possession of the plant and equipment. His argument boiled down to two propositions. The first was that Mr Loiero was never given exclusive possession of the Kurnell factory. At most, he obtained access to the factory but not to the exclusion of Mr and Mrs Tiricovski. The second was that, if anyone obtained possession of the plant and equipment, it was BOCA and not Mr Loiero, since it was BOCA that began manufacturing confectionary using the plant and equipment and, in fact, there was some evidence that BOCA had paid the costs of repairing it. 26 Section 22 of the Sale of Goods Act 1923 provides: "(1) Where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. (2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties, and the circumstances of the case."

27 In this case, the 22 January agreement contemplated that the plant and equipment would be transferred to Mr Loiero within 30 days of the agreement being signed. The clear intention was that that plant and equipment would then by used by BOCA - a company controlled by Mr Loiero - to manufacture confectionary in premises owned by Mr and Mrs Tiricovski. There is no dispute that BOCA did start manufacturing confectionary using the plant and equipment. Although no formal lease had been entered into at that time, it is clear that Mr Loiero (and BOCA) were given access to the Kurnell factory to enable that to happen. In those circumstances, the parties must have intended by then to have transferred property in the plant and equipment to Mr Loiero. Has Mr Loiero paid for the plant and equipment? 28 It is not necessary to deal with this question in any detail. It is clear that Mr Loiero was obliged to pay $280,000 for the plant and equipment. However, payment was not a condition precedent to property in the plant and equipment passing to him. Rather, item 6 of schedule 2 to the 22 January agreement provides that payment must be made within 12 months "at the direction of The Trustees of Alpha Unit Trust". Mr Loiero claims that he has made part payment either because of various set-offs it was agreed that he could make or because of payments he made at the direction of Mr Tiricovski. Those amounts are $10,000 towards legal fees incurred by Mr and Mrs Tiricovski, $50,000 towards the costs of moving equipment from the Carlton factory to the one at Kurnell on the basis that that move was wasted, $55,000 as compensation for the fact that the administrators had made a claim in respect of some of the plant and equipment, $5841.48 in respect of a Mazda motor vehicle said to be owned by Mr Tiricovski, $8,000 in respect of a liability of Steve Tiricovski, $6,000 towards a boiler and $500 for a pallet jack that Mr Tiricovski is said to have taken. It is not necessary in this hearing to resolve whether Mr Loiero was entitled to set off those amounts against the $280,000 in this hearing. Even if there has not been part payment, that does not affect whether property passed in the plant and equipment.

Were Mr and Mrs Tiricovski able to sell the plant and equipment? 29 The security interest obtained by Mrs Mircevski in the plant and equipment took the form of a mortgage over chattels - that is, an absolute assignment of ownership to her coupled with a contractual right to reassignment of the mortgaged property when the debt owed to her had been repaid or the mortgage discharged in some other way. 30 Section 26(1) of the Sale of Goods Act 1923 provides: "Subject to the provisions of this Act, where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by the owner's conduct precluded from denying the seller's authority to sell."

This provision is subject to some exceptions. There was no suggestion that any of those exceptions applied in this case. Consequently, Mr and Mrs Tiricovski were not in a position to sell the plant and equipment unless the mortgage granted to Mrs Mircevski had been discharged. The question, then, is whether that mortgage has been discharged. 31 Mr Allan submitted, on the basis of Bryson J's decision in Nearhaze Pty Ltd v Official Trustee (1999) BPR 17,273 at [20] that the onus of proof was on Mr Loiero to prove that the mortgage had been discharged and that he had failed to satisfy that onus. It is not at all clear to me that the principle stated by Bryson J in Nearhaze Pty Ltd v Official Trustee is applicable in this case. That case concerned an equitable mortgage of real property where the question was whether a creditor had rights against the debtor arising from the mortgage. In this case, the question is whether a purchaser has rights against a vendor in respect of goods which are said to be the subject of a legal mortgage in favour of a third party. 32 Whatever the position in relation to the onus of proof, I am satisfied on the balance of probabilities that the mortgage was discharged before property in the plant and equipment was transferred to Mr Loiero. Mr and Mrs Tiricovski were under a contractual obligation to arrange for that mortgage to be discharged. Having regard to their relationship with the mortgagee, that is something that it is likely that they would have been able to achieve. They said in their notice dated 18 February 2010 that they had settled all claims made by Mrs Mircevski. As I have indicated, I accept that that notice was genuine. Mrs Mircevski was not called to give evidence to deny that the mortgage had not been discharged and no explanation was given for her absence. In those circumstances, I think the likelihood is that the mortgage was discharged although the register has not been updated to reflect that fact. Orders 33 Mr Loiero is entitled to a declaration that he is the true owner and is entitled to possession of the items listed on schedule 4 to the agreement dated 22 January 2010. 34 I will hear the parties in relation to costs.

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