Schmierer & Anor v Taouk

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1 HIS HONOUR: In these proceedings the plaintiffs claim the recovery of two sums of money paid by the second plaintiff ("Kentlans" or "the Company") to the defendant on 5 August and 17 September 1998.

2 On 5 August 1998 the defendant received a cheque for $67,100.00 payable to St George Bank Ltd which he banked to his account with that Bank. This amount was part of moneys paid to Kentlans on the completion of the sale of a property at 111 Denman Avenue, Caringbah.

3 On 17 September 1998 the defendant withdrew $164,718.61 from Kentlans' bank account. He deposited that amount into his St George Bank account.[1]

4 Kentlans was incorporated on 15 August 1996. The defendant and Mr Tony Taouk were and are its sole directors and shareholders. They each hold one ordinary share.

5 The company was incorporated as a vehicle through which the defendant and Mr Tony Taouk would pursue a property development. They are distant cousins and brothers-in-law.

6 On 11 March 1997 Kentlans purchased land at 111 Denman Avenue, Caringbah. The purchase price was $230,000.00. The defendant contributed $51,000.00 towards payment of the purchase price.[2] A loan of $180,000.00 was obtained by Kentlans from Colonial State Bank. The defendant and Mr Tony Taouk guaranteed the repayment of that loan.

7 It had been proposed that Kentlans would acquire one or both of the properties adjoining 111 Denman Avenue.[3] However negotiations with the owners of those properties were unsuccessful.[4] Notwithstanding this, an application was made for Council approval to a proposed development involving the demolition of the existing building and development for a dual occupancy.[5] The defendant paid $926.00 to Sutherland Shire Council for fees payable to the Council in respect of the development application made by Kentlans.[6] Architects' fees were incurred in connection with that application. Architects' fees were also incurred for the preparation of plans for the owner of an adjoining property as part of the failed negotiations to interest her in the proposed development.[7] The defendant claims that he paid the architect's fees and other amounts for the benefit of Kentlans. It will be necessary to deal with this claim in more detail later in this judgment.

8 In about June 1998 Kentlans received an offer from Masterton Homes to purchase the property for $420,000.00. At that time the development application for the property had been approved but work on the development had not started.[8] The property was sold to Masterton Homes for that price. Settlement of the sale took place on 5 August 1998. Mr Tony Taouk was then overseas. Hancock Alldis were the solicitors for Kentlans on the sale. It was the defendant's evidence that he asked Mr Hancock of Hancock Alldis to provide him with a cheque payable to the Advance Bank (sic) for $67,100.00 and to put $142,152.00 into Kentlans' account with the State Bank. Mr Hancock said he would have to confirm with Mr Tony Taouk that it was in order to give the defendant the cheque for $67,100.00. The defendant said he was present when Mr Hancock spoke on speakerphone with Mr Tony Taouk and asked whether it was all right to release the funds to the defendant. Mr Tony Taouk said that Mr Hancock should give the defendant w hatever he wanted.[9]

9 Although Mr Tony Taouk gave evidence in his first affidavit that he did not recall giving Mr Hancock authority for the payment of $67,100.00 to the defendant out of the settlement moneys, he did not deny that he had done so.[10] In his oral evidence he readily accepted that Mr Hancock asked him if the defendant could have a cheque for a specified amount and that he gave Mr Hancock authority to give the defendant that cheque.[11] It is clear that Mr Tony Taouk authorised the payment to the defendant of the cheque for $67,100.00 which he received on the settlement of the sale of the property at 111 Denman Avenue. That payment was made on 5 August 1998.

10 In 1997 the defendant and Mr Tony Taouk had agreed that the defendant should carry out some work (either wholly or principally plumbing work) on premises at Rockdale known as the Black Garter. [12] Those premises are owned by a trustee of the family trust of Mr Tony Taouk or his father.[13] The property is managed by a company called Khalil Services Pty Ltd.[14] Kentlans has had no involvement with the Black Garter property. The defendant has not been paid for the work he did at the Black Garter premises. Mr Tony Taouk says the reason for that is that he does not know what the defendant is owed for his work as he has not submitted an invoice or summary of works.[15] The defendant and Mr Tony Taouk are in dispute as to the extent of the work which the defendant did and as to whether the costs the defendant claims he incurred were incurred in connection with the Black Garter property or were for other projects with other clients.

11 In August of 1998, but probably after 5 August 1998, the defendant and Mr Tony Taouk had what appears to have been an acrimonious conversation about the work the defendant had done at the Black Garter premises and the fact that he had not been paid for it.[16] The defendant contends that in that conversation Mr Tony Taouk authorised him to deduct whatever he was owed out of the company account, meaning the Kentlans account. I shall deal with this contention later in the judgment. I do not accept the defendant's evidence about it.

12 On 17 September 1998 the defendant withdrew from the Kentlans account with the Colonial State Bank the sum of $164,718.61 and deposited the cheque into his personal account with the St George Bank at Wentworthville.[17] That withdrawal reduced the balance in the account to $100.00. It is this withdrawal which gives rise to the plaintiff's second claim.

13 Mr Tony Taouk was overseas at this time. He returned on or about 22 September 1998.[18] He claims that it was then that he discovered the withdrawal and asked the defendant about it. The defendant admitted the withdrawal and gave as his reasons for withdrawing the money that he thought that Mr Tony Taouk might need it.[19]

14 Between September 1998 and November 1999 Mr Tony Taouk says that he telephoned the defendant on about 15 occasions and asked him to repay the two sums of $67,100.00 and $164,718.61.[20] The defendant denies that these demands were made.[21] In December 1998 Mr Tony Taouk visited the defendant for the purposes of trying to work out their financial affairs and that of Kentlans.[22]

15 Mr Tony Taouk said, and I accept, that he provided the defendant with the company's financial records that he had with him so that the defendant could give them to his accountant.[23] The defendant denied receiving the company's financial records. The trial was notable for the paucity of such records, with each protagonist contending that the records were in the possession of the other or his accountant.

16 There was no precise evidence as to when Mr Tony Taouk made an oral demand on the defendant to repay the sums of $67,100.00 and $164,718.61. Mr Tony Taouk's evidence was that he made such demands frequently either once a fortnight or once a month after September 1998.[24] Mr Tony Taouk's evidence was that the defendant's response was that his accountant was doing the figures. I think it probable that an oral demand for repayment of the two sums was made by Mr Tony Taouk at some time after his attempt in December 1998 to settle accounts failed. The evidence does not permit a finding as to precisely when such a demand was first made. I accept Mr Tony Taouk's evidence that he made frequent oral demands for repayment. I think it probable that the first demand was made no later than 1 March 1999.

17 On 11 November 1999 Hancock Aldiss, purporting to act on behalf of Kentlans, made written demand on the defendant for an amount of $209,252.89 said to have been deposited to the defendant's account with St George on 5 August 1998. This assertion was wrong. Only $67,100.00 was received by the defendant. The balance was deposited to the company's account. However the demand for $209,252.89 for moneys received on settlement of the sale of the property at 111 Denman Avenue clearly enough covered the amount of $67,100.00 the defendant had received. This and a subsequent demand were met with a response from the defendant's solicitors which requested totally irrelevant particulars of matters which were not the subject of the demand.[25]

18 On 6 December 1999 Hancock Aldiss made demand for the two sums of $67,100.00 and $164,718.61.[26]

19 On 9 August 2000 Mr Tony Taouk applied for an order that the company be wound up pursuant to either s 233 or s 461 (k) of the Corporations Law. That order was not opposed by the defendant. On 27 November 2000 an order was made that Kentlans be wound up. The first plaintiff was appointed its liquidator. It is relevant to note that the company was not wound up in insolvency.

20 The liquidator sought recovery of both payments pursuant to s 598 (2) of the Corporations Act. The plaintiffs made alternative claims in respect of both payments that: (a) they were money had and received by the defendant to the use of the company; (b) they were held by the defendant upon trust for the company; (c) they constituted a loan by the company to the defendant payable at will.

21 Ss 598 (2) and (4) of the Corporations Act provide:

598 Order against person concerned with corporation

(2) Subject to subsection (3), where, on application by an eligible applicant, the Court is satisfied that:

(a) a person is guilty of fraud, negligence, default, breach of trust or breach of duty in relation to a corporation; and (b) the corporation has suffered, or is likely to suffer, loss or damage as a result of the fraud, negligence, default, breach of trust or breach of duty;

the Court may make such order or orders as it thinks appropriate against or in relation to the person (including either or both of the orders specified in subsection (4)) and may so make an order against or in relation to a person even though the person may have committed an offence in respect of the matter to which the order relates.

(4) The orders that may be made under subsection (2) against a person include:

(a) an order directing the person to pay money or transfer property to the corporation; and

(b) an order directing the person to pay to the corporation the amount of the loss or damage.

22 The liquidator is an eligible applicant within the meaning of that section.

23 Counsel for the plaintiffs indicated that the liquidator did not allege breach of trust or fraud. The liquidator did however allege negligence, default and breach of duty. The relevant breach of duty which was identified was a breach of fiduciary duty of the director not to prefer his personal interest to that of the company. No breach of a statutory duty was alleged because no such statutory duty had been identified in the originating process.

24 As they were elucidated in the course of submissions, the issues which arose in relation to this payment were as follows:

(a) whether the whole or any part of the payment was recoverable by the liquidator pursuant to subsection of 598 (2) of the Corporations Act;

(b) what was the amount the company owed the defendant immediately before the payment;

(c) whether the debt owed by the company to the defendant was discharged by the payment;

(d) if the debt owed by the company to the defendant was less than $67,100.00, whether the difference between $67,100.00 and the amount of the debt was recoverable by the company, and if so on what basis; and

(e) if such a difference were recoverable, when the cause of action accrued. Was it from the date of payment on 5 August 1998, or from the date of demand or from some other date?

Reasons and conclusions with respect to the first payment

25 I have already observed that the first payment was made at the request of the defendant but with the authority of his co-director, Mr Tony Taouk.

26 When the first payment was made there was no question about the solvency of Kentlans. There was nothing improper about the directors of Kentlans causing Kentlans to repay debts which it owed the defendant or, advancing moneys other than by way of gift to the defendant. The evidence did not suggest that either Mr Tony Taouk or the defendant intended that the company should make a gift to the defendant.

27 The defendant did not breach his fiduciary duty by obtaining payment of the sum of $67,100.00. That payment had been authorised by his co-director. There was no evidence that the interests of creditors were prejudiced by that payment. (cf. Walker v Wimborne (1976) 137 CLR 1 at 7; Re New World Alliance Pty Ltd; Sycotex Pty Ltd v Baseler (1994) 51 FCR 425 at 444-445). The claim under s 598 (2) fails.

28 Ultimately it was not contended by the plaintiffs that the money was received on an express or constructive trust.

29 The question then is whether all or part of the payment of $67,100.00 is repayable by the defendant to Kentlans as money had and received or as a loan repayable on demand, or on another common money count which is fairly within the case fought at trial.

30 To answer that question it is necessary first to identify what amounts if any were owing by the company to the defendant on 5 August 1998. Mr Ashhurst, counsel for the plaintiff, accepted that to the extent the payment of $67,100.00 went to extinguish such a debt owed by the company to the defendant, it could not be recovered by the plaintiffs.

31 For the reasons which follow I have found that at 5 August 1998 the company owed the defendant $51,000.00 as money lent, $926.00 as money paid by the defendant for the benefit of the company to discharge its debt to Sutherland Shire Council, and $5,175.00 as money paid by the defendant on behalf of the company for architect's fees incurred in connection with work at Denman Avenue Caringbah. These amounts total $57,101.00. It was not disputed that the defendant owed the company $1,900.00 paid on his behalf by the company. I have found that the payment of $67,100.00 discharged the nett indebtedness of the company to the defendant of $55,201.00 and that the defendant is liable to make restitution to the company for the difference of $11,899.00 as money had and received by him for the use of the company. Interest is due by the defendant on that sum from 5 August 1998.

The advance of $51,000.00 by the defendant to the company

32 It is common ground that the defendant contributed $51,000.00 to the purchase of the property. The plaintiff contends that those advances were not by way of loan to the company but were a contribution to capital, and did not create a debt owing by the company to the defendant.

33 There was no evidence of any express agreement as to the terms upon which the sums of $11,000 and $40,000 were paid by the defendant to the company.[27] Mr Tony Taouk swore that the defendant told him in June or July of 1996 that he could "put in about $50,000.00".[28] The defendant's evidence was no more specific. He said that he placed a deposit on the property out of his own funds and told Mr Tony Taouk that "as you don't have funds I will purchase this property and you can purchase the adjoining property with your funds".[29]

34 The defendant did not purchase the property. He put the Company in funds so that it could purchase the property using those funds and moneys borrowed from the Colonial State Bank. I do not think that either the defendant or Mr Tony Taouk turned their mind to the legal character of the payments which the defendant made.

35 No issue was raised that the property or its proceeds of sale or any proportion thereof were held by the company on a resulting trust for the defendant.[30]

36 In the Report as to Affairs completed by the defendant which was provided to the liquidator on 19 December 2000 the defendant described the payment of $51,000.00 as a "loan to company for deposit to purchase 11 Denman Avenue, Caringbah". Mr Tony Taouk gave evidence that it was accepted that the defendant would be repaid at least his $51,000.00.[31]

37 Neither counsel was willing to accept without qualification that the payments totalling $51,000 were a loan by the defendant to the company. Nor did the plaintiffs accept that the whole of the amount of $51,000 was a debt payable by the company to the defendant. Mr Tony Taouk deposed in his affidavit of 23/11/01 that the defendant and he "agreed that, after the loans and expenses were paid, any profit would be split equally between us".[32] He adhered to that evidence in cross-examination.[33] It was submitted for the plaintiffs[34] that the parties had agreed that at the completion of the development they would calculate how much money each had put into the venture, that the difference would be repaid to the party who had paid more, and that the profits would then be distributed equally.

38 The plaintiffs submitted that only the difference between $51,000.00 and the amount contributed by Tony Taouk could be treated as a loan or as a debt payable by the company to the defendant. It was ultimately common ground that Mr Tony Taouk or companies associated with him had contributed $33,674.50 by causing deposits in that amount to be made to the company's account. The deposits were made by three companies with which Mr Tony Taouk was associated, namely Hani Property Investors Pty Ltd, A T & T Enterprises Pty Limited and Khalil Services Pty Ltd.[35] Mr Tony Taouk said that he made further payments directly to third parties for the benefit of the company totalling at least $10,000.00.[36]

39 For his part Mr Tregenza, who appeared for the defendant, in his closing submissions did not embrace the description of the payments of $51,000.00 as being by way of loan.[37] He characterised the payments as being made "pursuant to a contractual arrangement, whereby at the conclusion of the venture the profit may be divided proportionally in accordance with the contributions of capital made by each of the two shareholder directors." The defendant gave evidence that before the land at 111 Denman Avenue was purchased he said to Mr Tony Taouk that the percentages would be worked out like a job he had done with his brother at Wentworthville whereby his brother put in $130,000.00 and he put in $60,000.00 and they took an equivalent percentage of the profits.[38]

40 The agreement, if there were one, between Mr Tony Taouk and the defendant as to how the profits should be divided is irrelevant to the determination of what debts were owed by the company to the defendant. Those profits could only be struck after the company's liabilities had been discharged or allowed for.

41 Thus, I do not have to decide whether the defendant and Mr Tony Taouk made an agreement as to how they would share the profits. I would not be prepared on the evidence before me to find that they agreed to share profits otherwise than in accordance with their shareholdings. In case others may take a different view of the relevance of this issue, I should say that I do not accept the defendant's evidence on this point. For reasons which appear later, where the evidence of Mr Tony Taouk and the defendant conflicted I generally preferred the evidence of the former.

42 I do not accept either party's submissions on this point. The defendant did not pay $51,000.00 to the company in order to subscribe for new shares in the company, that is, as a contribution to share capital. There was no evidence that the parties talked about the issuing of further shares. No-one suggested the payments totalling $51,000.00 were a gift. Mr Tony Taouk says it was accepted that the defendant would be repaid his $51,000.00 at least.[39]

43 The essence of a loan is that it involves payment and an obligation to make repayment. (Ferguson v O'Neill [1943] VLR 30 at 32; Pannam, The Law of Moneylenders Australia & New Zealand (1965) p 6). The parties could not have intended that the advance of $51,000.00 be repayable on demand. They did not intend that the loan would be repaid until money was available from the sale of the property to repay it. Nonetheless both directors intended that the money would be repaid to the defendant. (See paragraph 36 above). A loan is a simple contract whereby the lender agrees to pay money in consideration of the borrower's promise of repayment, the obligation to repay is to be found in an express or implied promise to repay. (Pannam, The Law of Moneylenders Australia & New Zealand (1965) p 6). In the circumstances the promise of the company to repay can be implied. I am of the view that Kentlans owed $51,000.00 to the defendant as money lent.

44 Counsel for the plaintiffs accepted that the company was indebted to the defendant in the sum of $926.00, paid by the defendant to Sutherland Shire Council for the benefit of the company.

45 The defendant contended that the company was indebted to him for two cheques drawn on 18 June 1997 in favour of Stephen Barnes, architect, in the amounts of $3,175.00 and $2,000.00.[40] The defendant said that the payments were for work done by the architect in relation to Denman Avenue.[41] He said that one of the cheques was for work done on 109 Denman Avenue and the other for work done on 111 Denman Avenue.[42]

46 Kentlans also paid Mr Barnes for his services. The company's cheque butts show that on 29 January 1997 a payment was made to Mr Barnes of $1,000.00 and on 28 September 1997 a payment was made to him for "DA plans" for $2,800.00[43] Although one might expect that the architect's fees would be paid by the company itself, or, if paid by a third party, that there would be an appropriate accounting, it was clear that the defendant, and at least to an extent Mr Tony Taouk, did not give the attention which as directors of the company they should have given to ensuring that proper accounts were kept. Mr Tony Taouk frankly said that there were no arrangements of any sort for paying architects' fees, but whoever met with the architect paid from either his own chequebook or the company's chequebook.[44] Neither party produced any invoice or receipt from the architect in respect of any of the payments made to him. Nor was the company's cashbook produced.

47 The question therefore seems to me to be whether I should accept the oral evidence of the defendant that the payments to Mr Barnes were made in connection with the Denman Avenue project. Mr Ashhurst submitted that I should not.

48 I formed an adverse view of the defendant's credibility for a number of reasons. His answers in cross-examination were often unresponsive. His evidence of delivering an invoice to Mr Tony Taouk for work on the Black Garter premises to which I refer below was unimpressive. However there were two other matters of greater significance which reflected adversely on him. The first was his conduct in withdrawing $164,718.61 from the company's bank account on 17 September 1998, leaving it with a balance of only $100.00.[45] Even on his own evidence,[46] he did not have authority to deduct more from the company's accounts than that which he claimed to be owing to him in respect of work done on the Black Garter premises. The defendant has not claimed to be owed anything like the sum of $164,781.61 which he withdrew. I find below that this conduct was a serious breach of his duty as a director.

49 The second matter was more significant again. The defendant contended that he was entitled to the payments he received from Kentlans on the basis that he was owed money in respect of the Black Garter property. Accordingly he adduced evidence to show the amount he was owed in respect of that work. He produced a schedule he had prepared summarising a list of cheque butts which were claimed to show payments he had made in respect of the Denman Avenue project and the Black Garter property.[47]

50 The schedule was headed "Advance Bank Cheques paid from Louis Persanal (sic) Account". It included an item in the following terms "04-12-1998 Cement Render and Plastering $12,500.00 Cheque No. 000090". The cheque butt recorded "4/12/98 Ahmed RADWA (Renderer)" "For Tony". The amount was recorded as "$12,500-". In objecting to the tender of the cheque butt counsel for the plaintiff pointed out that the bank statement for the account showed that the relevant cheque was for an amount of $2,500.00, not $12,500.00.[48] In subsequent oral evidence the defendant said that he gave the renderer bits and pieces of money, $2,500.00 and $2,000.00 and a cash amount of $10,000.00. He said that he placed the figure "1" in front of the figure "2" in the figure $2,500.00 on the cheque butt to record that he had paid an additional $10,000.00 in cash to the renderer.[49] I do not accept that evidence. Plainly the cheque butt was intended to convey that the cheque to which it was a butt had been written in the amount of $12,500.00. When a call was made for the production of any documents which recorded the withdrawal of a sum of $10,000 from an account of the defendant being the $10,000 said to have been paid to Mr Ahmed Radwa, no document was produced.[50] I do not accept that the defendant paid $10,000.00 in cash to Mr Ahmed. However, even if he did, the cheque butt and the summary were prepared with what I can only regard as the intention of producing a false impression that the rendering work had been paid for, in part, by a cheque for $12,500.00. I do not accept Mr Tregenza's submission that the cheque butt was merely an indication of the defendant's very informal accounting system in respect of work done. The fact that the deception was readily picked up by the plaintiff's representatives owing to the application of an ink of a slightly different hue of blue on the cheque butt and by comparison with the bank statement, does not persuade me that the defendant did not attempt a deception.

51 Accordingly I have given anxious consideration as to whether I should accept the defendant's evidence that the two payments made by him to Mr Barnes, architect, were made in respect of work on the Denman Avenue project. I have decided that I should accept that part of the defendant's evidence. There is nothing to contradict the statement. I think there is some corroboration of it from the amount of $67,100.00 which the defendant sought to be paid to himself and for which he obtained Mr Tony Taouk's authority. At the time he asked to be paid there had been no falling out with Mr Tony Taouk. The advances of $11,000 and $40,000, the payment to the Sutherland Shire Council, and the two payments to the architect, total $57,101.00. The defendant received payment of $67,100.00. He asserted and asserts a right to be paid by the company an amount of $10,000.00 which he says he paid to a Mr Michael Walls in order to provide funds to Mr Tony Taouk.[51] The fact the defendant should ask for payment of $67,100. 00 is consistent with his having made the two advances totalling $51,000.00, with his considering himself to be entitled to an additional $10,000.00 in respect of moneys paid to Mr Walls, and with his having paid amounts totalling $6,101.00 to the Council and the architect in respect of the Denman Avenue project.

52 The plaintiffs did not submit that if the payments to the architect related to the Denman Avenue project the company was not indebted to the defendant for them. Accordingly I am of the view that prior to 5 August 1998 the company was also indebted to the defendant in an amount of $5,175.00 for moneys paid to Mr Barnes, architect.

Other amounts claimed to be due by Kentlans to the defendant

53 There was naturally enough a dispute about the circumstances surrounding the payment of $10,000 in cash to Mr Walls. There was no dispute that $10,000.00 in cash was paid to Mr Walls. He gave a receipt for it dated 13/3/98.[52] The defendant said that the payment was made because Mr Tony Taouk was short of funds. Mr Tony Taouk said that the defendant paid about $4,000.00 to Mr Walls and he, Mr Tony Taouk, repaid that $4,000.00 to the defendant.[53] I am not called on to decide that dispute. On no view did the defendant's payment of money to Mr Walls create a debt owed by Kentlans to him.

54 The defendant also said that he paid $5,000.00 in cash to Mr Tony Taouk on about 14 January 1997 [54] and said to him that it was "for the mortgage repayments on 111 Denman Avenue Caringbah while I am overseas". The defendant left for overseas in February 1997.[55] I do not accept that evidence. The defendant was unable to produce any bank record showing the withdrawal of such a cash amount at about the time he said the payment was made either from his passbook with Advance Bank[56] or his cheque account[57]. Mr Tony Taouk denied receipt of that sum.[58] It was suggested to Mr Tony Taouk in cross-examination that the defendant had provided $5,500.00 to a company called AT&T Enterprises Pty Ltd in order to put that company in funds to pay $5,500.00 to Kentlans.[59] The bank statements for that company do not show any deposit of an amount answering the description of a provision of funds of $5,500.00 from Mr Louis Taouk.[60] Not only is the defendant's assertion not corroborated by any record, such re cords as have been produced in evidence are inconsistent with his evidence. Mr Tony Taouk denied that he had received the sum of $5,000.00 as claimed by the defendant. I regarded Mr Tony Taouk as being a generally reliable witness. He was prepared readily to make concessions which might have been thought to have been against his interest (including in the important respect that he gave authority to Mr Hancock to pay the cheque of $67,100.00 to the defendant.) When questioned about the detail of accounts he was generally accurate. I accept his denial.

55 There was no evidence of any other amount which the defendant might claim was owed by the company to him.[61]

Indebtedness of the defendant to Kentlans at 5 August 1998

56 It was not disputed that on 17 February 1997 the company paid $1,900.00 to provide a security and alarm system which was installed at the defendant's residence.[62] Counsel for the defendant made no submission that this payment did not give rise to a debt by the defendant to the Company. Nor did he submit that the debt should not be taken into account when determining what was due by the defendant to the Company on the plaintiffs' claims.

Conclusion on Company's indebtedness to defendant at 5 August 1998

57 Accordingly I am of the view that as of 5 August 1998 Kentlans was indebted to the defendant in the amount of $57,101.00. He was indebted to Kentlans in the sum of $1,900.00 which Kentlans had paid on his behalf. The nett indebtedness of the Company to him was $55,201.00.

58 There was no expressed stipulation either by Mr Tony Taouk or the defendant as to what the payment of $67,100.00 was for, nor when or if any part of it should be repaid. Mr Tony Taouk had no idea at that time what amount the defendant was entitled to from the company.[63] He imagined that the defendant would be entitled to more than $67,100.00.[64] However he does not appear to have distinguished between the defendant's entitlement to be paid as a creditor of the company and his entitlement in due course to receive a return as a shareholder.

59 The onus of establishing that all or part of the moneys paid by the company to the defendant was lent to the defendant, or was received by him to the use of the company, lay upon the plaintiffs. That onus is not discharged by mere proof of payment. (Cary v Gerrish (1801) 4 ESP. 9, 170 E.R. 624; Aubert v Walsh (1812) 4 Taunt. 294, 128 E.R. 342; Welch v Seaborn (1816) 1 Stark 474, 171 E.R. 534; Heydon v Perpetual Executors Trustees and Agency Co (WA) Ltd (1930) 45 CLR 111 at 113; Joaquin v Hall [1976] VR 788; Jenkins v Wynen [1992] 1 QdR 40 at 43-44; Motor Auction Pty Ltd v John Joyce Wholesale Cars Pty Ltd (1997) 23 ACSR 647 at 660; Coshott v Sakic (1998) 44 NSWLR 667 at 671-672).

60 However the plaintiff has discharged the onus of showing that the payment was not a gift. It could not have been in the interests of the company for the directors to have made a gift of the company's property to the defendant. Even though Mr Tony Taouk and the defendant as the sole shareholders may have been able to ratify their own breach of directors' duty, there is no reason to infer that they intended such a breach. Secondly, they both realised that the defendant was owed some money by the company. I think it should be implied that they intended that the nett indebtedness of the company to the defendant, whatever it might be, should be discharged or reduced by the payment.[65] Thirdly, the payment was made at the request of the defendant. Where a payment is made at the request of the defendant and for his benefit, even if there is no implied contract of loan, restitution lies where it appears that the plaintiff did not intend to make a gift.[66]

61 Counsel for the defendant submitted that the payment of $67,100.00 could be regarded as a payment in advance on account of an anticipated distribution of profits. However the "profits" of the company can only be struck after the debts of the company and the liquidator's fees and expenses including the costs of litigation are paid or provided for and the assets of the company, including debts owed to it by the defendant, are recovered or allowed for. An agreement between the shareholders as to the division of surplus assets does not affect the right of the company to recover the assets which have to be taken into the calculation of whether there are surplus assets to be distributed. It was implicit in the submission that the company is entitled to be credited with that amount in its accounting with the defendant.

62 Given that the nett indebtedness of the company to the defendant was discharged by the payment, the question remains of how the balance of $11,899.00 should be treated. For the reasons I have given, that amount cannot be regarded as a gift to the defendant. There were no words of gift. The defendant did not contend that the payment was a gift. The first question is whether a contract of loan for the balance should be implied and if so when the loan was repayable. In Seldon v Davidson [1968] 2 All ER 755 Willmer and Edmund Davies LJJ inferred that when the simple payment of money was proved or admitted between strangers, proof of payment imported a prima facie obligation to repay the money in the absence of circumstances from which the presumption of advancement could arise. Their lordships held that in that case the money was prima facie repayable on demand (per Willmer LJ at 757) or at least within a reasonable time of a request for a repayment (per Edmund Davies LJ at 759).

63 Seldon v Davidson has not been followed in Australia. It is inconsistent with the High Court's decision in Heydon v Perpetual Executors Trustees and Agency Co. (WA) Ltd (1930) 45 CLR 111. However where the implication of a gift is negatived, it illustrates the readiness of the law to imply a loan repayable on demand, or a reasonable time after demand.

64 Nonetheless, I do not think I should rely on Seldon v Davidson for this purpose. Not only is it not authority in Australia for what it decided, but principles of restitution have moved on since it was decided. Restitutionary claims no longer depend on the implication of a promise in fact. (Baltic Shipping Company v Dillon (1993) 176 CLR 344 at 356-357; Roxborough v Rothmans of Pall Mall (2001) 208 CLR 516 at 525, 540). It would not be right to imply a contract between the company and the defendant whereby the company agreed to pay him $67,100.00 in consideration of a promise by him to repay that money, or the part of it not applied in discharge of the company's debt, on demand. There was no express promise by the defendant to repay. Unlike the case of the defendant's advances of $51,000.00 there was no evidence that the parties intended that any part of the $67,100.00 would be repaid or turned their minds to that question. Without an express or implied promise to repay the indebitatus count for mone y lent would not lie. (Pannam, The Law of Moneylenders, 1965, page 6.) The defendant was in my view required to make restitution of the money he received to the extent that it exceeded the nett amount the company owed him, but that obligation does not depend upon the implication of a fictional agreement.

65 Although I do not imply as a fact that there was a contract of loan, the defendant did receive $11,899.00 of the company's money which was not a gift. To the extent of $11,899.00 the first payment was a benefit which enriched the defendant at the company's expense. The defendant's retention of that enrichment is unjust. In my view it is an amount which is payable by the defendant to the plaintiff as money received by him for the use of the plaintiff. Bullen & Leake, Precedents of Pleadings, 3 Ed, p 44, described the count for money received by the defendant for the use of the plaintiff as the most comprehensive of all the common money counts and as applicable wherever the defendant had received money which in justice and equity belonged to the plaintiff, under circumstances which render the receipt of it a receipt by the defendant to the use of the plaintiff. (Moses v Macferlan (1760) 2 Burr. 1005, at 1010, 1012; 97 ER 676 at 680-681; Roxborough v Rothmans of Pall Mall (2001) 208 CLR 516 at 550-551). It would be incongruous if money paid to the defendant at his request and for his benefit and at the company's expense were not recoverable, when, if the money had been paid to a third party at his request to discharge a debt owed by the defendant to such a party, the money would plainly be recoverable on a count for money paid. (Israel v Foreshore Properties Pty Ltd (In Liquidation) (1980) 54 ALJR 421 at 423-424).

66 The identification of the cause of action on which the plaintiff is entitled to recover the sum of $11,899.00 determines the date from which interest runs. The cause of action accrues from the time the defendant was enriched by the receipt. (Goff & Jones, The Law of Restitution, 5 Ed p 848; Mason & Carter, Restitution Law in Australia, para 2721; Baker v Courage [1910] 1 KB 56; Maskell v Horner [1915] 3 KB 106; Torrens Aloha Pty Ltd v Citibank NA (1997) 72 FCR 581;Halsbury's Laws of England, 4 Ed, Vol 28, para 672.) Interest under s 94 of the Supreme Court Act may be ordered for the whole or any part of the period between the date when the cause of action arose and the date when the judgment takes effect.

67 It was submitted for the defendant that the cause of action for money had and received only arose when the plaintiff's consent to the defendant's holding of the money was withdrawn. I do not agree. The cause of action arises notwithstanding that the company through its directors consented to the defendant's receipt of the money.

68 An award of interest under s 94 is discretionary. I have considered whether in exercise of my discretion I should postpone the date from which interest accrues to the date of demand. I have decided that I should not. The defendant has had the benefit of the use of the money since 5 August 1998. He included in his request for payment an amount of $10,000.00 which clearly was not due from the company to him. He did not provide his co-director with any account to show what the payment of $67,100.00 was for. In all of those circumstances I see nothing unjust in the company receiving interest on the amount of $11,899.00 from the time of payment.

69 The second claim is for the recovery of the sum of $164,718.61. This was an amount the defendant withdrew from the company's bank account on 17 September 1998 and paid into his own account.

a. the defendant had no authority to withdraw further funds from the company's account;

b. even if the defendant had the authority which he claimed he had, it would not have justified the withdrawal of the sum of $164,718.61;

c. the defendant's claim that he was entitled to all or some of the amount withdrawn because he was owed money by Mr Tony Taouk in relation to work which he did at the Black Garter is without foundation;

d. the withdrawal was made by the defendant in breach of his fiduciary duties to the company;

e. the liquidator is entitled to an order pursuant to s 598 (2) a of the Corporations Act for the repayment of the amount withdrawn by the defendant together with interest from 17 September 1998 to the date orders are made.

71 It was common ground that prior to 17 September 1998 the defendant had carried out plumbing and some other work (the extent of which was not agreed) on the Black Garter premises.

72 The defendant gave evidence that sometime before August 1998 he delivered an invoice for work done at the Black Garter to Mr Tony Taouk. That invoice was not produced. The defendant says he did not keep a copy of it. Mr Tony Taouk denied receiving it. I am not satisfied that it was ever given. The defendant was not able to say how much the invoice was for. However the invoices which he annexed to his affidavit of 20/11/00 (Annexure E) in relation to the work at the Black Garter totalled less than $9,000.00.

73 The defendant then says that he had a telephone conversation with Mr Tony Taouk in August 1998 where he complained that he had not been paid any money for the work he had done on the Black Garter and in response to that complaint was told by Mr Tony Taouk he could "just deduct whatever it is that you are owed out of the company account now and we will call it quits, my share of the property should cover what you have done at the Black Garter." The defendant says that he replied that Mr Tony Taouk had not put anything in to begin with anyway; that he could have bought the property on his own and sold it at a profit and that Mr Tony Taouk was not entitled to anything because he hardly put anything in to begin with. He says that Mr Tony Taouk said that if that is how he felt then to leave it at that.[67]

74 The defendant says that it was on this authority that he withdrew $164,718.61 from the company's account with the Colonial State Bank on 17 September 1998. That withdrawal left the company with $100.00 in its account.

75 Mr Tony Taouk denied the conversation deposed to by the defendant. I accept his denial. Mr Tony Taouk agreed that he had not paid the defendant for the work which had been done at the Black Garter. That was because the defendant had never submitted an invoice or summary of works to establish what he should be paid.[68] The other evidence adduced in these proceedings is consistent with that evidence. Mr Tony Taouk said that he would not have agreed to meeting the costs of the Black Garter work out of the proceeds of the sale of the property owned by Kentlans because the work on the Black Garter property should be paid for by the company that managed the Black Garter property, Khalil Services Pty Ltd, so that it could claim the payment as an expense.[69] That is inherently probable.

76 Mr Tony Taouk's version of events is that he did not give any authority for the withdrawal of the sum from the company's account. He was overseas at the time the money was withdrawn.[70] On his return to Australia on about 22 September 1998 he became aware for the first time that the money was missing. He asked the defendant about it. The defendant confirmed that he had withdrawn the money. When asked why, he was told because he thought he (Mr Tony Taouk) might need it.

77 Mr Tony Taouk also deposed to an acrimonious conversation in August 1998 about the plumbing work which the defendant did at the Black Garter.

78 The work the defendant did at the Black Garter had nothing to do with the Kentlans development. The defendant did not provide any adequate account of the cost or value of the work which he did at the Black Garter. Nonetheless he was unhappy about not having been paid anything for that work. He took the view that he had contributed more to the Kentlans development than his co-shareholder, and that he was owed something in relation to the Black Garter. Taking that view, the defendant helped himself to all save $100.00 of the money in the company's account. He had no authority to do so from his co-director.

79 His withdrawal of the money was a serious breach of his duty to the company.

80 At the time he took the money the company owed at least $33,674.50 to companies associated with Mr Tony Taouk. (Para 38 above). The company also had an unquantified liability to pay capital gains tax arising from the sale of the property. The defendant left the company with no cash to pay those debts and he denies any liability to repay the sum he withdrew. He gave evidence that it was his intention to satisfy the taxation liability himself.[71] There was no evidence that he had done so. It was common ground that as at 30 August, 2002 he had not done so.[72]

81 Even on the defendant's own evidence, he was not authorised to withdraw the money he did. I do not understand how the directors of Kentlans could have properly formed the view that it was in the interests of that company for its money to be used to discharge a liability which Mr Tony Taouk, or the companies which owned or managed the Black Garter had to the defendant in respect of the work carried out by him at that place.

82 Mr Tregenza submitted that the defendant and Mr Tony Taouk as the only two shareholders could agree to the defendant's obtaining a profit so long as the material facts were disclosed to the shareholders and they both acquiesced. He cited Furs Ltd v Tomkies (1936) 54 CLR 583 at 592.

83 I find however that Mr Tony Taouk did not acquiesce in the payment. He was ignorant of it. Nor do I accept that the breach by the first defendant of his duty as a director in applying the company's money to his own benefit could have been authorised or ratified by both shareholders. If, as the defendant contends, the payment was irrecoverable, it rendered the company insolvent. The company's creditors would have an interest in the company which could not be overridden by the shareholders' authorisation or ratification. (Re New World Alliance Pty Ltd; Sycotex Pty Ltd v Baseler (1994) 51 FCR 425 at 444).

84 The defendant's receipt of this sum was a misfeasance in the nature of a breach of trust whereby he acted wrongly by misapplying and retaining in his own hands moneys of the company. It is precisely the kind of conduct to which s 598 (2) and its predecessors is directed. (Walker v Wimborne (1976) 137 CLR 1 at 7).

85 The defendant identified as one of the issues in the proceedings whether, if there were a breach of s 598, the defendant ought to be excused of liability under s 1318 of the Corporations Act. It is a pre-condition to relief under that section that it appear to the Court that the person liable has acted honestly and, having regard to all of the circumstances of the case, that he ought fairly to be excused for his negligence, default or breach.

86 In my view the defendant did not act honestly in applying the company's money to himself. He ought not fairly to be excused for his breach of his duty as a director.

87 In respect of the first payment, there will be judgment for the second plaintiff against the defendant in the sum of $11,899.00 together with interest on that sum from 5 August, 1998 pursuant to s 94 of the Supreme Court Act at the rates in Schedule J to the Rules.

88 In relation to the second payment, I will make an order directing the defendant to pay to the second plaintiff the sum of $164,718.61. The second plaintiff is entitled to interest on that sum from 17 September 1998 either pursuant to s 598 (2) and (4) of the Corporations Act, [73] or, pursuant to s 94 of the Supreme Court Act, at the rates in Schedule J to the Rules.

89 The proceedings will be listed next week for the purpose of making orders to give effect to these reasons. If no other date next week suitable to the parties and to the Court is arranged with my associate by 5.00pm on 11 May, the proceedings will be listed for that purpose at 9.30am on 14 May, 2004. I direct the plaintiffs to bring in short minutes of order to give effect to these reasons. They should include a calculation of interest to the date on which the orders will be made. I will hear submissions on costs, at that time.

1 Exhibit 1 pages 374, 414. 2 The defendant paid $11,000.00 on 19 December 1996 and $40,000.00 on 4 January 1997; Exhibit 1 pages 97 & 98; Affidavit of Fahd Louis Taouk of 20/10/2000, paragraph 9. 3 F Louis Taouk Affidavit 20/10/00 paragraphs 7, 11. 4 F Louis Taouk Affidavit 20/10/00 paragraph 11. 5 Affidavit Tony Taouk 23/11/01 paragraph 10. 6 Cheque butt dated 19/6/97, No 100015 in Exhibit 2; Exhibit C. 7 F Louis Taouk affidavit 20/10/00 paragraph 11. 8 Affidavit Tony Taouk 23/11/01 paragraph 14. 9 F Louis Taouk affidavit 20/10/00 paragraphs 23, 24. 10 Affidavit 23/11/01 paragraphs 17, 18. 11 Transcript 27/4/04 pp 14, 19. 12 Transcript 27/04/04 page 14; Affidavit F Louis Taouk 20/10/00 paragraph 27. 13 Transcript 27/04/04 page 28 14 Transcript 27/04/04 pp 18, 28 15 Transcript 27/04/04 page 15. 16 Affidavit F Louis Taouk 20/10/00 paragraph 31; Affidavit Tony Taouk, 20/11/00 page 3. 17 F Louis Taouk, Affidavit 20/10/00 paragraph 32; Exhibit 1 pages 374, 414 18 Affidavit Tony Taouk 23/11/01 paragraph 21. 19 Tony Taouk Affidavit 23/11/01 paragraph 21. 20 Affidavit Tony Taouk 23/11/01 paragraph 23. 21 F Louis Taouk Affidavit 25/3/02 paragraph 23. 22 Affidavit Tony Taouk 23/11/01 paragraph 24. 23 Affidavit Tony Taouk 23/11/01 paragraph 25. 24 Transcript 27/04/04 page 20. 25 Letter of 2/12/99 from Malouf Solicitors to Hancock Aldiss, Annexure G to affidavit of Tony Taouk of 23/11/01. 26 Annexure H to the affidavit of Tony Taouk sworn 23/11/01. 27 Affidavit of F Louis Taouk, sworn 20/11/00 paragraph 9; Affidavit of Tony Taouk, sworn 23/11/01 paragraph 4. 28 Affidavit of 20/11/00 paragraph 1. 29 Affidavit of F Louis Taouk sworn 20/11/00 paragraph 8. 30 Culverley v Green (1985) 155 CLR 242 at 246-7, 258, 266-7. 31 T 19.10; Affidavit of Tony Taouk sworn 16/04/02 Annexure D. 32 Paragraph 5. 33 Transcript 27/04/04, page 10. 34 On the basis of Mr Tony Taouk's evidence at Transcript 27/04/04, page 10.36 35 Affidavit of Tony Taouk23/04/04 pp 2-4. 36 Paragraph 4. 37 See Transcript 28/4/04 pp 61-62. 38 Affidavit F Louis Taouk 20/10/00 paragraph 3. 39 Transcript 27/04/04, p 19.10. 40 Exhibit 2 Cheque Nos. 100013 and 100014. 41 Transcript 28/04/04 page 4.50. 42 T 7.25 43 Exhibit 1 pp 378, 379. 44 Transcript 27/04/04 page 9.12. 45 Exhibit 1 page 374. 46 Affidavit 20/10/00 paragraph 31. 47 The document was admitted in evidence on 28/4/04; T 43; Exhibit 5. 48 Transcript 28/04/04 page 36; Exhibit 1 page 416. 49 Transcript 28/04/04 p 38.20-30. 50 Transcript 28/04/04 Page 40 51 Affidavit 20/10/00 paragraph 9; Transcript 28/04/04 page 6. 52 Exhibit 1 page 127. 53 Affidavit Tony Taouk 20/11/00 page 2. 54 T 21.17 55 Affidavit 20/10/00 paragraph 10. 56 Exhibit 1 page 98. 57 Transcript 28/04/04 page 20-22. 58 Affidavit 20/11/00 page 2; Transcript pages 24-25. 59 As to the payment of Kentlans see Affidavit of Tony Taouk of 23/04/04 paragraph 3 Annexures F &G and Exhibit 1 page 354. 60 Exhibit D. 61 See Transcript 28/04/04 pages 64-65. 62 Affidavit Tony Taouk sworn 23/04/04 paragraph 5 63 Transcript 27/04/04 page 14. 64 Transcript 27/04/04 page 19. 65 Welch v Seaborn (1816) 1 Stark 474, 171 E.R. 534. 66 Mason & Carter, Restitution Law in Australia, paragraph 841. 67 Affidavit of 20/10/00 paragraph 31. 68 Transcript 27/04/04 Page 15.25. 69 Transcript 27/04/04 page 18.11-.24, 28.51. 70 Affidavit 23/11/01 paragraph 20. 71 Transcript 28/4/04 page 69. 72 Judgment of Campbell J 30/8/02 paragraph 5. 73 See Gamble v Hoffman (1997) 15 ACLC 1314 at 1331

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