M-H Engineering Solutions Pty Ltd t/as LMF Earthmoving v Rolfe

Background

1. The first plaintiff was incorporated on 13 July 2000 by Mark Rolfe who is the brother of the first defendant and the uncle of the second plaintiff. On 4 June 2013, the second plaintiff was appointed as sole director and shareholder of the first plaintiff upon Mark Rolfe's retirement as director. The defendants in the pleadings deny that the second plaintiff is the sole shareholder of the first plaintiff although, as I understand it, the contention is not that there are shareholders other than the second plaintiff, but rather, that the defendants have a beneficial interest in the company. That the second plaintiff is the sole shareholder of the first plaintiff is consistent with the company extract annexed to the affidavit of the second plaintiff. While that extract reflects the position in February 2020 there is no suggestion in any of the evidence of any change between that time and the hearing of this motion.
2. Between July and November 2013, the first and second plaintiffs purchased various plant, equipment and vehicles for use in the business. According to the second plaintiff, items were purchased from sources including Rameel Quarries Pty Ltd, Leemar Metal Fabrications Pty Ltd and LMF Earthmoving Pty Ltd. The defendants deny the existence of LMF Earthmoving Pty Ltd and assert that LMF Earthmoving was the trading name used by the first plaintiff. In any event, each of the entities or businesses were closely associated with the defendants. The second plaintiff also states some equipment was bought from the defendants directly. The second plaintiff's evidence is that his father, the first defendant, worked for the first plaintiff from time-to-time as a machinery operator and his mother, the second defendant, was the bookkeeper and administrative assistant for the first plaintiff. The defendants say that they have been continually involved in the administration and everyday operations of the various businesses including that of the first plaintiff.
3. On 4 March 2019, the second plaintiff was involved in a serious motorcycle accident which resulted in injuries to his head, neck, face and shoulder including a suspected brain injury. It appears that from this time, or possibly from a time shortly before, the relationship between the second plaintiff and the defendants soured. The second plaintiff claims that while in hospital he was denied access to his telephone by the second defendant. On 24 March 2019 an enduring power of attorney was executed appointing the second defendant as the second plaintiff's attorney. The second plaintiff denies having ever signed this document and says he only became aware of it sometime later. On 20 May 2019, the first defendant was appointed as a director and made a shareholder of the first plaintiff by the second defendant (using the power of attorney). The second plaintiff claims this was without his knowledge or authority. The second plaintiff also claims that monies were taken from his bank account without his permission. On 24 January 2020, the second defendant was removed as a director and ceased to be a shareholder of the first plaintiff. This appears to be a few days after the plaintiff says he became aware of the existence of the power of attorney.
4. Meanwhile on 22 May 2019 the first defendant incorporated Strathmore Quarrying and Earthmoving Pty Ltd of which he became the sole director and company secretary.
5. The second plaintiff had lived with the defendants at a property where some of the equipment used in the businesses was stored. He moved out of the family home in May 2019. He says that in March 2020 he stopped working for the first plaintiff and around this time he engaged solicitors to act for him and the first plaintiff. On 16 March 2020 the plaintiffs' solicitors wrote to the defendants demanding that all machinery owned by the plaintiffs be delivered up to the plaintiffs. As noted above, on 13 October 2021 the statement of claim bringing the substantive proceedings and the notice of motion were filed in this Court.
6. As is apparent, the plaintiffs claim a right to the various items of property. The defendants claim they have an interest in the property. They say that at all times they considered the various businesses, including that of the first plaintiff, to be part of a family business. In essence, their position is that while the second plaintiff may be the sole shareholder of the first plaintiff, they have a beneficial interest in the company and the property. In relation to the Isuzu wagon, the defendants' case is that it was provided to the second defendant as a gift. The intertwining of the various businesses is, on their case, reflected in the work done by the defendants for the first plaintiff, the purchase by the first plaintiff of equipment from other businesses associated with the defendants including particularly Rameel Quarries Pty Ltd, and the history and interpersonal relationships more generally. In this context, the second defendant stresses that at inception the first plaintiff had no finances and relied on funds from other businesses associated with the defendants and from the defendants personally. Both defendants say they are owed substantial amounts in unpaid wages by the first plaintiff and are owed significantly more as a result of monies invested by them in the first plaintiff.

The appointment of a receiver

1. The appointment of a receiver is sought pursuant to s 67 of the Supreme Court Act 1970 (NSW) which provides: 67 Receiver The Court may, at any stage of proceedings, on terms, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do.
2. The principles to be applied were not in dispute before me. Section 67 is concerned with "the interim preservation of the subject matter of the litigation pending a final resolution of the proceedings": Hall v Foster [2012] NSWSC 974 at [19] per Ball J.
3. The plaintiffs drew attention to the principle in partnership proceedings that a receiver will be appointed practically as of course and that courts will only refuse to do so where serious loss or hardship would result: see Tate v Barry (1928) 28 SR (NSW) 380; Fitz-gibbon v Khoury (Supreme Court (NSW), Powell J, 1 March 1985, unrep). It was, however, accepted by the plaintiffs that this was not the test to be applied in the circumstances of this case. Rather, the plaintiff contended that, assuming satisfaction that there is a serious question to be tried, the determination is to be made having regard to the balance of convenience.
4. The relevant principles were discussed in some detail by Lindsay J in Sengthong v Lao Buddhist Society of NSW Incorporated [2016] NSWSC 1408 at [170]-[195]. The plaintiffs accepted that the appointment of a receiver should be approached with caution but stressed that that principle has particular application where what is sought is the appointment of a receiver to take custody of the assets of a defendant. The plaintiffs submit that what is sought here is the appointment of a receiver to take custody of assets of the plaintiff. It can be accepted that the evidence supports the first plaintiff's claim to legal title of the property. That does not, however, answer the defendants' claim of a beneficial interest. Ultimately, the plaintiffs' submission is that general principles applicable to an application for an interlocutory injunction are apposite to the application for the appointment of a receiver. This approach is supported by the recognition by this Court that the question of whether to appoint a receiver has a similar character to the issues that might arise in an application for an interlocutory injunction, and that the Court's wide discretion in applications such as this (while required to be exercised with caution) allows it to weigh the balance of convenience: see In the matter of Glenvine Pty Limited (in liq) [2020] NSWSC 866 at [2]; Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2008] NSWSC 1006 at [7]. Courts in various cases have adopted a similar approach when considering such an application: see Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd; Liquor National Wholesale Pty Ltd v The Redrock Co Pty Ltd [2007] NSWSC 392; Phelan v Ambridge Corp Pty Ltd (2005) 55 ACSR 136; [2005] NSWSC 875. The matter having been argued on this basis, I am prepared to accept it is the proper approach.
5. The plaintiffs, in this regard also pointed to the observations of Edelman J in Smethurst v Commissioner of the Australian Federal Police [2020] HCA 14; (2020) 94 ALJR 502 at [260] where his Honour said: "Another analogous order arises when a defendant is ordered to deliver up goods to the plaintiff. A court can order delivery up of the goods if a money award would not be adequate redress, such as where the goods are unique or where alternative goods are not immediately available and the goods are particularly needed by the plaintiff. In these cases, there is little concern with the liberty of the defendant to use the goods owned by the plaintiff to the exclusion of the plaintiff. The governing principle is that the order is made to redress the consequences of the wrongdoing by "a complete remedy" in equity whenever "the remedy afforded by the ordinary courts is incomplete". Although the order for delivery up of goods is not, in form, an injunction, it has the same basic aims and in a system of fused administration of law and equity could often be alternatively expressed as a mandatory injunction for delivery of the goods." (footnotes omitted)
6. The approach requires consideration, firstly, of whether there is a serious question to be tried, and secondly, whether the balance of convenience favours the order being made: see Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148; [1986] HCA 58; Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; [2001] HCA 63; Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46.
7. There is little merit in dwelling on the question of whether there is a serious issue to be tried (as to which, see Australian Broadcasting Corporation v O'Neill at [71]). As plain from the brief history set out above, there has been an intertwining of the affairs of the second plaintiff and the defendants', and consequently of entities associated with them including the first plaintiff, over a number of years. The falling out between the parties have led to a real dispute with respect to their entitlements to the various items of property. There was no dispute before me that there was a serious issue to be tried, or in the words of the plaintiffs' counsel, "a red-hot dispute" with respect to the entitlement of the respective parties to the chattels.
8. The real question in this matter, and the one to which the parties devoted the most attention, is the balance of convenience. Given the different nature of the two items in dispute, it is convenient to deal with them separately, noting that there is significant overlap in the considerations that apply to each. I will deal with the excavator first, it being the item that appeared to be of primary concern.

The excavator

1. The first thing that might be noted is that the goods in general, and particularly the excavator, are not suggested to be of any sentimental value or otherwise irreplaceable. The second significant feature is that the property is, in the case of the excavator, income producing. The third relevant observation is that the plaintiffs seek to have the property placed in the hands of the receivers who will be responsible for storing the property. The result of these matters is that the choice is between locking up the property such that it cannot be used by anyone, and to incur costs in doing so, or allowing the property to continue to be used for its intended purpose of deriving income.
2. The first defendant claims that he will not be able to live if denied of the equipment. This claim was made in the defendants' affidavits on the assumption that the application related to all of the property referred to in the original notice of motion. This perhaps overstated the position as some of the equipment is not income producing, but I accept that, as the first defendant claims, at 65 years of age, it will be difficult for him to obtain employment and he is therefore dependent on running his own business.
3. It is not clear how and to what extent the defendants' assertion as to the importance of continued access to the equipment is affected by the contraction of the dispute subsequent to the filing of the affidavits. Relatedly, counsel for the plaintiffs complains that the defendants' evidence does not go beyond a broad statement that they are dependent on the various items of equipment including those now in dispute, without providing any detail as to the particular use to which the various machines has been, and will be, put; why other machines at the defendants' disposal could not be used as alternatives; or the loss likely to be caused to the defendants as a consequence of being deprived of equipment, and in particular the excavator.
4. Nonetheless, it was part of the plaintiffs' case that records with respect to the excavator show that the defendants have continued to utilise it in their business up until 31 August 2021 when the second plaintiff stopped receiving notifications of use (which he had, until then, been receiving remotely). Given the nature of the equipment and its use by the defendants until at least 31 August 2021, I accept that its loss will impact on the livelihood of the first defendant, and consequently also of the second defendant.
5. The plaintiffs complain that they have had to hire machinery to compensate for the absence of access to the machinery. Placing the excavator in storage, however, will not solve this.
6. The plaintiffs also complain that the continued use of the excavator is likely to result in wear and tear and a diminution in its value of the property. So much can be accepted. Ultimately, however, while I have no evidence of the precise loss likely to be suffered by the defendants if denied the excavator, nor do I know what loss is likely to result as a consequence of wear and tear to the machine. Additionally, I do not know what the likely costs will be of placing the property in the hands of receivers, including the cost of storing the machine, including maintaining it whilst in storage, or the likely depreciation of the machine.
7. Weighing the various considerations, there is, in my mind, little to recommend placing the excavator in storage. To the extent that the (unknown) loss resulting from the use of the item will be to the detriment of the plaintiffs, on the assumption that the defendants are running a viable business (and there was suggestion they are not), it can be assumed that the excavator generates more income than is lost through depreciation. In other words, the loss to the defendants of denying them access to the excavator can be assumed to be greater than the loss to the plaintiffs in allowing it to be used. When the cost of the receivers is factored in, the undesirability of that course becomes clearer.
8. Ultimately, when regard is had to the fact that refusing the order with respect to the excavator will allow it to be put to the use for which it is intended in order to generate income, the balance falls heavily in favour of refusing the relief sought by the plaintiffs. While any such income will be income accruing to the defendants and not to the plaintiffs, it will, nonetheless, increase the pool of funds from which the plaintiffs will ultimately seek to draw in the event they are successful.
9. Finally, to the extent that the plaintiffs will suffer detriment as a result of the use of the excavator, this can be largely ameliorated by obtaining an assessment of the present value of the excavator which can be compared to its value if and when it is returned to the plaintiffs. This was raised as an option by me at the hearing and the parties were given leave to provide an appropriate form of order to achieve this, either as an agreed form of order, or, absent agreement, the parties' alternative formulations of an appropriate form of order. I will return to the form of these orders later in these reasons.

The motor vehicle

1. While some of the discussion above, such as the cost of the receivers, is also relevant to the Isuzu wagon, that vehicle is not suggested to be income producing. There also appears to be less concern in relation to wear and tear with respect to that vehicle. Irrespective of wear and tear, the vehicle will inevitably lose value simply as a result of the passage of time. Storage will not prevent this. Refusing the application will, of course, mean that if the plaintiffs are ultimately successful with respect to this item, it will have incurred additional mileage and presumably general wear and tear by the time they obtain possession. In the case of a vehicle of this nature however, counsel for the plaintiffs accepted that it can be expected that evidence will be readily available as to the change in value of the vehicle. Indeed, even if placed in storage, the change in value of the vehicle will still need to be assessed to calculate the loss suffered by the plaintiffs (assuming their success). The balance of convenience with respect to the Isuzu wagon does not favour placing it into the hands of a receiver.
2. Before leaving the issue with respect to the Isuzu wagon, I note that I was informed, without objection, that the vehicle is currently unregistered and subject to finance presently being met by the second plaintiff. It was not clear whether this is being done directly or through the first plaintiff and nothing, in any event, turns on this. The parties were granted leave to provide a joint position, or if no joint position can be achieved, each party's proposal as to the appropriate form of orders to enable registration of the vehicle and transfer of finance to the defendants in the event that the motion is denied with respect to the vehicle.

The form of the orders

1. The parties each filed proposed orders in very similar terms. The only difference was that the plaintiff sought an order for a weekly report to be provided by the defendants to the plaintiffs specifying the total hours of operation of the excavator over the previous week and the current odometer reading of the Isuzu wagon. I am of the view that this is not an onerous obligation on the defendants and is appropriate in order to keep the plaintiffs appraised of the use of property they claim belongs to the first plaintiff.
2. The defendants also proposed an order that the chattels in the original notice of motion that were not ultimately the subject of dispute be "retained and stored, but are not used, by the Defendants in the manner directed by the Receiver". Given my determination in relation to the excavator and the Isuzu wagon, the only property to be in the hands of the receivers will be property dealt with in the consent orders. It is not appropriate to make any changes to those orders.
3. Each of the parties in their proposed orders dealing with the valuation of the excavator and the registration and maintaining of finance proposed that costs be in the cause. While the defendants have had substantial success in relation to the property ultimately in dispute on the motion, they have also received the benefit of the continued possession and use of items which, it may ultimately be found, they had no entitlement to. In these circumstances, it is appropriate that costs be in the cause as proposed by the parties.

Conclusion

1. For the reasons given above, I do not propose to grant the relief sought by the plaintiffs. I would, however, make orders to allow for a valuation of the excavator and the transfer of the registration and finance of the vehicle. The orders in this regard will be in the form of the orders proposed by the parties subject to what has been said above. It will also be necessary to make orders in the form of the consent orders filed prior to the commencement of the hearing on 22 June 2022.

Orders

1. I make the following orders: Orders in the form of the consent orders filed on 22 June 2022 1. Order pursuant to s 67 of the Supreme Court Act 1970 (NSW), that Andrew Bowcher and Timothy Gumbleton of RSM Australia Partners be appointed, without security, as the receivers and managers (Receivers) over all the property and chattels listed below (Assets) pending final determination of these proceedings: 1. Prime Mover Caterpillar CT630B 2010 1HSJRSCR5AE371019 White 2. Front end loader Ranger LG938 2007 92019917 Yellow 3. Dual cab ute Chevrolet Silverado 2009 1GCHC23DX6F265471 Grey 4. Semi water tanker Highgate SEMI 1984 10743 5. Off-road vehicle Canam MaverickX3 XRS 2018 3JBUXAW44JK004115 orange/black 1. Order that the need for the Receivers to file a guarantee under r 26.3 of the Uniform Civil Procedure Rules 2005 (NSW) be dispensed with. 2. Order than the Receivers have, in respect of the Assets, all the powers provided for under s 420 of the Corporations Act 2001 (Cth), provided that no distribution is to be made of any Assets without the leave of the Court. 3. Order that the reasonable costs, expenses and remuneration incurred by the Receivers, as receivers of the Assets, be paid: 1. in the first instance, by the first plaintiff; and 2. otherwise, in priority from the Assets. 1. Note that the defendants are to retain the following chattels, without admissions, pending final determination of these proceedings and subject to a reservation of the rights of all parties with respect to those chattels: 1. Quad float Lusty Colron QUAD98A 2011 6X9C1JA44BB046425 Red/grey 2. Grader John Deere 770CH 2005 595100 Yellow 1. The Court notes the defendants' undertaking to the Court to: 1. do all things necessary to assist the Receiver in locating the chattels listed in Order 1 above; and 2. properly maintain and keep in a good working order the chattels listed in Order 5 above. Orders in relation to the Hitachi excavator and the Isuzu Wagon 1. Order that the defendants retain the following chattels, without admissions, pending final determination of these proceedings and subject to a reservation of the rights of all parties with respect to those chattels: 1. 2007 Hitachi Excavator (VIN: HCM1V100T00021704) (Hitachi Excavator), and its attachments, as identified in items 8 to 13 of Annexure "A" to the plaintiffs' notice of motion filed 13 October 2021. 2. 2017 Isuzu MU-X13A (VIN: MPAUCS85GHT006901) (MU-X) identified as item 7 of the plaintiffs' notice of motion filed 13 October 2021. 1. Order that the defendants have liberty to take all such necessary steps, including registration, to enable the defendants to make appropriate use of the chattels noted in Order 7 above at their own cost. 2. The Court notes the defendants' undertaking to the Court to properly maintain and keep in good working order the chattels noted in Order 7 above. 3. The Court notes that the MU-X is subject to a finance agreement as between the first plaintiff and The Australia and New Zealand Banking Group Limited (ANZ) dated 14 December 2017, reference number 251172536. 4. From the date of these Orders, order that the defendants pay directly to ANZ, via BPAY, the following amounts with respect to the defendants' retention of the MU-X on a without admission basis and pending final determination of these proceedings: 1. $787.76 on or before the 14th day of each month, from 14 July 2022 to 14 November 2022 inclusive; and 2. $9,569.74 on or before 14 December 2022; 3. and that the defendants are to provide to the plaintiffs' solicitor receipt of payment within 48 hours with respect to each payment made in accordance with this Order. 1. Order that the plaintiffs provide to the defendants the necessary ANZ BPAY details with respect to the MU-X as noted in Order 11 above by no later than 5pm on 6 July 2022. 2. The Court notes that the defendants put forward the following independent valuers, the quotations of which are located at Annexure "A" to the Short Minutes of Order contained in MFI 2, for the purpose of a valuation of items 8 to 13 of the plaintiffs' notice of motion filed 13 October 2021: 1. Regional Valuations Plant & Equipment Valuers; and 2. Pickles Valuations. 1. The Court notes that the plaintiffs elect to appoint Regional Valuations Plant & Equipment Valuers (Valuer) to undertake the valuation of items 8 to 13 of the plaintiffs' notice of motion filed 13 October 2021 (Valuation). 2. Order that the parties are to agree to and issue a joint letter of instruction to the Valuer with respect to the Valuation by no later than 5pm on 6 July 2022, with such valuation to be produced by the Valuer as soon as practicably possible. 3. Order that the defendants provide access and/or do all things necessary for the Valuer to undertake the Valuation. 4. The Valuer's costs of $1,500.00 plus GST are to be shared equally between the plaintiffs and the defendants, namely $750.00 plus GST paid by the plaintiffs, or either of them, and $750.00 plus GST paid by the defendants, or either of them. 5. The defendants shall provide to the plaintiffs a weekly report by no later than 5pm each Friday, specifying: 1. the total hours of operation of the Hitachi Excavator over the prior seven days; and 2. the current odometer reading of the MU-X; 3. until the final determination of these proceedings. Further orders 1. Grant liberty to the parties to restore on 2 days' notice in the event of dispute concerning these orders. 2. Costs of the plaintiffs' motion be costs in the cause. 3. Otherwise dismiss the plaintiff's motion.

Amendments 20 July 2022 - Case name amended to short title 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: 20 July 2022