Plaintiff v Defendant

Plaintiff v Defendant - [2011] VSC 475 - VSC 2011 case summary — Zoe

[64]

"MR DELANY: I understand that. Just keep that volume available, the lease and if you turn to the first volume of your exhibits and the very first exhibit is the company search of your company?

DEPUTY PRESIDENT: Which number is this?

MR DELANY: Exhibit KN1. Do you have that?---Yes I do.

Company we learn was incorporated on 26 April 2001, correct?---Correct.

The registered office is at Mr Delis's firm and that's at 1 Ricketts Road, Mount Waverley. Is that right?---That's correct.

The principal place of business is currently recorded as your residential address at Koonalda Avenue, Glen Waverley. Is that right?---Yes. That's correct.

You are the sole director of the company?---That's correct.

The sole shareholder?---Correct.

Just keeping that search with you, can you turn back to Exhibit 91 and turn to the schedule. Your company name is K-Line Mobile Mechanics Pty Ltd. That's the claimant in this case. That's not the name that appears in a schedule to the lease is it?---That's correct.

Someone has inserted the word, 'Australia' in handwriting. Is that your handwriting?---That's correct.

You did that did you?---That's right.

The company numbers aren't the same are they?---There's two companies sir.

There are two companies?---Yes.

Where in your witness statement which runs to some 62 pages do you tell anyone that there are two companies?---I don't.

You don't. It's not a mistake that the lessee is K-Line Mobile Mechanics Australia Pty Ltd. Is that right?---No.

That company - - -

DEPUTY PRESIDENT: That's confirmed by the execution clause.

MR DELANY: Indeed. The position is that K-Line Mobile Mechanics Pty Ltd ACN 096617480 is not the lessee of the premises at 251 Princes Highway is it?---No.

...

What I put to you just to be clear about it is that the person who leases these premises is a company called K-Line Mobile Mechanics Australia Pty Ltd. Do you agree with that?---Yes I do.

And what I suggest to you is that if anyone is going to spend 170,000 on repairing or renovating or altering the premises it's going to be K-Line Mobile Mechanics Australia Pty Ltd the tenant isn't it?---Which is me, yes.

Well it's a company which is not the same company as the claimant in the case isn't it?---Well no. I'm not a taxation person, I don't know to answer that question sir."

[68]

"DEPUTY PRESIDENT: Just one point of clarification before we move on from that. If we consider the situation of you as an individual and K-Line and Aust, my impression is, and tell me if I've got this impression wrong, whoever we regard as running it, there's only one business and that's a mechanics business. There aren't any other businesses. It's not that there are three businesses, one of them carried on by you, one by K-Line and another by Aust. There's only one business?---That's correct, sir.

...

MR DELANY: What I put to you is that there have been BAS returns put in by Aust of which you're the sole director, showing it received the income? That's true isn't it?---No, it's not. I don't believe it's true.

You don't think it's true?---No.

You see what I've put to you is Aust was secretly established on your instructions wasn't it?---That's incorrect.

Why is it in your 62 page affidavit and in your second affidavit you make no mention to that - - -?---Because I'm a mechanic and I just run my business as - you know, I leave the - the professionals to deal - that with me.

You're such a good mechanic that as soon as I asked you about that lease yesterday you knew didn't you, Mr Nedanovski, that the lease was in the name of the second company?---I did know, yes.

You knew that was relevant didn't you?---Relevant to what, sir?

Relevant to you seeking to advance on behalf of K-Line, for example, a claim for $176,000 to renovate premises of which Aust is the lessee?---That's incorrect.

See what I put to you is that claim - - -

DEPUTY PRESIDENT: Just a minute. What's incorrect about the statement?---I didn't - I didn't fabricate that company for anything, sir. I - I didn't - - -

It was put to you that you're the directing mind of K-Line that's making a claim for $176,000 compensation for expenditure on premises that K-Line has no interest in. That they're owned by a third party and leased by Aust. That's what was put to you, and as far as I can make out that's the plain truth isn't it? If it's not tell me why it is?---I just - I - I must've heard it incorrectly. I thought that he - I made the company to specifically put the system off. That's what I thought the - - -

I suppose that was - - -

MR DELANY: I put that to you as well, and that's true isn't it?

MR O'BRIEN: Hang on, that was the implication in the question. I'm not wanting to interfere but the two questions should be asked. The practical non-sinister one and the sinister one if they wish but - - -

DEPUTY PRESIDENT: I think, Mr O'Brien, that it's perfectly proper in cross-examination to ask questions which have implications to them, and I think whether there's an implication or not there should be a straight answer given to the question.

MR O'BRIEN: But as I took his answer it's in clarification to you, and I'm not wanting to interfere. The witness did disagree with the sinister aspect of it but not the - - -

DEPUTY PRESIDENT: But he wasn't disagreeing with the literal factual premises - - -

MR O'BRIEN: That's where it got - yes.

DEPUTY PRESIDENT: Thank you, Mr O'Brien. Please continued, Mr Delany.

MR DELANY: Let me just put this to you that the claim that K-Line seeks to advance of which you are a director, for $176,000 in relation to work not carried out to premises in respect of which it is not lessee, is quite frankly a fraudulent claim and you know it?---That's incorrect because I'm working as K-Line. I'm K-Line and if it's K-Line Australia it's just me. I just believe that I'm the director of it. I - I don't know the - the tax parts of - of these things. I mean everyone's got their own tax people that they deal with but I'm just leaving up to the professionals. I - I know that I'm K-Line and that's what I do. I'm just trying to find a location where I can rebuild my business because of what's happened.

DEPUTY PRESIDENT: Just let me understand what you mean by that. Does that mean that as you see things, and I can understand that in many respects it's a completely realistic view, that you're running the show? It's your business whether it's K-Line or K-Line Aust or K-Line Victoria or K-Line something else? It's really all the same and there's no distinction to be drawn, and you just leave that to the accountant?---That - that's correct, sir.

So if that's right how then can you confidently deny what was put to you by Mr Delany, namely that all of the incomes since 1 July 2008 has been derived by Australia - - -?---I don't think - - -

- - - if these sorts of distinctions are pretty much irrelevant to way you look at things? How can you be sure?---Sir, I - I don't think that K-Line Australia has any income. I don't believe - I write cheques out from K-Line Mobile Mechanics; that's it. I don't write any cheques out from K-Line Australia.

...

Which bank is it that Aust has its cheque account with?---The same, with Westpac.

Which branch?---In Dandenong.

I see. See, what I'm putting to you is that income in the 07/08 year and in particular in the last quarter of 07 and 08 from the business was paid into the Aust new account at the bank, wasn't it?---I can't answer that question, sir.

You know, don't you.

DEPUTY PRESIDENT: So does that mean it might have been?---I don't think so, sir. I honestly don't believe that anything's been functioning from K-Line Aust. I believe that sincerely.

...

[After the tendering of an exhibit - documents relating to the account of K-Line Mobile Mechanics Australia Pty Ltd with Westpac Banking Corporation]

So in relation to that, it was put to you that you may have been attempting to funnel money into that account or that company, K-Line Australia as an attempt to manipulate the books to increase your claim for compensation?

---Yes it was put to me like that.

Do you recall that being put to you?---Yes I do.

What do you say in relation to that suggestion?---That was untrue.

And why do you say that?---Because I know that I've never written a cheque out from K-Line Australia. And I know the account was never operable."

[72]

"MR DELANY: Thank you. Well, I was wrong. Now, you mentioned to the Tribunal that the company which I will refer to as Aust was incorporated in, and we have the company search here, 23 June 2008. And the purpose of incorporation of that company was what?---The purpose was to give potentially another option to K-Line moving forward into the future, having regard to the assessment concluding in a short period at that point in time, with a view to maybe restructure the affairs of K-Line to work in a, I suppose a more secure manner dealing with the unknown and the contingencies that were confronted at the time.

DEPUTY PRESIDENT: So does that mean that it was a contingency against K-Line collapsing into insolvent liquidation?---That was a concern that we had initially. Once we had an understanding of the resources that K-Line was able to access, that is through his officeholder, Mr Nedanovski, a loan facility as far as we were aware, was available that Mr Nedanovski could lean on, and introduce new capital into the business from time to time when it needed it over, yes.

...

DEPUTY PRESIDENT: So what, to your understanding, is the connection between K-Line and the premises of which the business, and I'll use that neutral term, the business is now carried on?---Yes, Your Honour. K-Line Aust, it appears, holds the lease.

Yes?---And there would be a sublease arrangement to the business, come operator, but known as K-Line.

And so am I right in saying that normally if such a thing were to be done, it would be documented in some way, a letter perhaps, board resolutions, we haven't heard anything of that type, are you aware of any documentation, resolutions, exchange of letters in that respect?---I know there was discussions with the landlord, ah, to ah, confirm that arrangement.

I see. And so it's a subtenancy, is there any rent payable by the subtenant?

---Well, obviously they'd have to meet the rent expense.

So the - you say there's a deal between Aust and K-Line that K-Line is to indemnify Aust?---Yes.

And so does that entail Aust deriving any assessable income?---It would derive assessable income to the value of the rent that it's liable for.

And would that be consistent with it having the status that you've accorded of - in your evidence today as being a dormant and non operating company that's deriving assessable income?---Well, no, pre knowing the lease was in Aust's name, it was dormant was far as I was aware. With a lease in its name it's active - it's physically trading."

[96]

"212 To resort again to the analogy of the damaged motor vehicle (or shop or aircraft) it may be reasonable after damage is initially inflicted to attempt to repair the vehicle. These repairs can be seen to have their analogy in the present case in the attempt to relocate K-Line's business. Accepting as we do that these steps at least in prospect were reasonable for K-Line to take, compensation should be fixed on that basis with K-Line compensated for the relevant losses. Nevertheless, when in Mr Fitzgerald's report which is relied upon by K-Line, Mr Fitzgerald nominates as appropriate for compensation the capital value of K-Line's business on the basis that in the events that had occurred it now has no value, it is difficult to regard this as other than an election ultimately to 'write off' the business. In his initial report Mr Fitzgerald had rejected the use of a capital value for the business derived by the use of a multiplier upon its maintainable earning. His calculation applied cash flow over an assumed 27 years remaining in the working life of Mr Nedanovski, adjusted it for tax and discounted it at 11% calculating a figure of $381,408. Following the conference of experts he modified his view accepting a capital calculation based on a multiplier in accordance with the figures referred to at [222] below. In making that claim for compensation for capital value of the business and making that election (we use the term in a broad sense rather than in any technical legal sense) K-Line necessarily abandons compensation for any amounts representing the cost of resuscitating the business in the future. Once an owner of a damaged motor car receives by way of damages of the car on a 'write off' basis no further damages are awarded for the repair of the wreck. It follows that the various costs of providing a replacement above ground dynamometer, fitting out new premises at 251 Princes Highway, funding an accreditation course for Mr Nedanovski are necessarily excluded. The amounts claimed for fitting out the premises at 251 Princes Highway are in any event excessive or unrealistic by reference to the opinions of Mr Di Paola which the claimant was happy enough to adopt for other purposes.

[97]

213 We are fortified in our view that none of these amounts should be allowed by the evidence which to our mind supports the view that K-Line has in effect 'retired from business'. That evidence showed that the lease of the premises at 251 Princes Highway is in the name of Aust and that no sub-lease is in existence. No landlord consent for any sub-lease by Aust to K-Line has been given for instance. As from 1 July 2009 not only is the business such as it is conducted from premises owned by Aust but the WorkCover agent has been informed that Aust is the employer. The computer system was programmed so that the accounts which recorded the transactions of the business did so under the banner of Aust. We cannot accept the submissions made on behalf of K-Line that this is some sort of red herring or just a mistake. This confluence of events occurred only because of the adoption of a deliberate strategy by those in control of K-Line and Aust, viz Mr Nedanovski, that the K-Line business would hence forward be conducted by Aust and not by K-Line. Any further losses or outlays will therefore be Aust's not K-Line's. With some hesitation however we refrain from making the finding that the business was transferred to Aust with affect from the financial year commencing 1 July 2009. Such a finding would be contrary to the evidence both of Mr Nedanovski and Mr Delis. Moreover despite attempts by subpoena to find evidence of a trading account in the name of Aust none was demonstrated to exist. Even in the absence of such a finding however, what we have said already as to the destruction of the value of the goodwill in K-Line's business means that a line must be drawn at a particular point at which the K-Line business must be treated as 'written off'. This process began when K-Line left its original premises upon acquisition and went into storage. There is much to be said for the view that the process of destruction of the value of the goodwill was complete by the time K-Line vacated the premises at Doveton, nevertheless a more conservative view would have the point of ultimate destruction at 30 June 2010 when even a year's trading in the vicinity of K-Line's original premises (across the Princes Highway) had failed to restore the business to profitability. Choice of this date therefore means that the costs of losses incurred in the year 2009/2010 and the costs of the move to 251 Princes Highway are included amongst K-Line's compensable losses.
No separate allowance should be made for the effect of unsatisfactory premises or the lack of a dynamometer because insofar as compensation claims have been made with respect to the incurring of losses or the destruction of goodwill of the business, the losses relative to the unsuitability of premises and the lack of an operating dynamometer are already reflected in those figures to which we will turn in due course."

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Judgment (205 paragraphs)

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Legislation Cited (24)

Cases Cited (26)