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  • Unreported Judgment

Associated Equipment Pty Ltd v Evolution Piling Pty Ltd

 

[2019] QDC 249

 

DISTRICT COURT OF QUEENSLAND

 

CITATION:

Associated Equipment Pty Ltd v Evolution Piling Pty Ltd (in liq) & Ors [2019] QDC 249

PARTIES:

ASSOCIATED EQUIPMENT PTY LTD

ACN 131 092 290

(plaintiff)

v

EVOLUTION PILING PTY LTD (IN LIQUIDATION)

ACN 148 006 526

(first defendant)

MICHAEL DULLAWAY AND MARK WILLIAM PEARCE (IN THEIR CAPACITY AS LIQUIDATORS OF EVOLUTION PILING PTY LTD (IN LIQUIDATION) ACN  148 006 526

(second defendant)

PATRICK ROBERT GALLAGHER

(third defendant)

FILE NO:

2640 of 2017

DIVISION:

Civil

PROCEEDING:

Trial

ORIGINATING COURT:

District Court at Brisbane

DELIVERED ON:

6 December 2019

DELIVERED AT:

Brisbane

HEARING DATE:

15-16 August 2019, 12 September 2019

JUDGE:

Porter QC DCJ

ORDER:

  1. Judgment be entered for the plaintiff in the amount of $115,743.83.
  2. The plaintiff’s claim is otherwise dismissed.
  3. I will hear the parties as to costs.

CATCHWORDS:

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – where the third defendant caused his company to enter into a written hire agreement for equipment – where the third defendant undertook to guarantee performance – where the hirer ceased to pay the hire rates – where the plaintiff sues the third defendant on the guarantee for unpaid hire payments – whether the plaintiff had title to the equipment hired at the time of the hire agreement – whether any obligation to pay the hire rates arose – whether the hire agreement was a sham.

TRADE AND COMMERCE – COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION – CONSUMER PROTECTION – MISLEADING OR DECEPTIVE CONDUCT – where the third defendant issued a signed tax invoice on behalf of his company disclosing a taxable supply of certain equipment to a third party – where the third defendant’s company never had title to the some of the equipment and where title did not pass to the third party for the remaining equipment – where the third defendant knew that the tax invoice was being used by the third party to obtain funds from the plaintiff as lender or buyer – whether issuing the tax invoice was misleading or deceptive conduct by  impliedly representing that title to the equipment had passed to the third party – whether the plaintiff relied upon the tax invoice in purchasing the equipment from the third party – whether the plaintiff suffered loss or damage as a result of reliance upon the tax invoice.

Legislation

Australian Consumer Law, s 18, s 236

Sale of Goods Act 1896 (Qld), s 20, s 21

Cases

A G Securities v Vaughan [1990] 1 AC 417

Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592

Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471

Hobson & Anor v Taylor & Anor [2019] QCA 265

Jones v Dunkel (1959) 101 CLR 298

Kewside Pty Ltd v Warman International Ltd (1990) ASC 55–964

Minerology Pty Ltd v Sino Iron Pty Ltd (No. 6) (2016) 329 ALR 1

Pavich v Bobra Nominees Pty Ltd (1988) 84 ALR 285; (1988) ATPR (Digest) 46–039

Raftland Pty Ltd v Commission of Taxation (2008) 238 CLR 516

Richard Walter Pty Ltd v Commissioner of Taxation (1996) 33 ATR 97

Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 82 ALR 530

Other Material

Benjamin’s Sale of Good (10th ed, 2017, Sweet & Maxwell)

Seddon & Bigwood, Cheshire & Fifoot’s Law of Contract (11th Australian ed, 2017, LexisNexis Butterworths)

Handley, Estoppel by Conduct and Representation (2nd ed, 2016, Sweet & Maxwell)

COUNSEL:

S R Grant for the plaintiff

N J Shaw for the third defendant

SOLICITORS:

Hall & Wilcox for the plaintiff

Shand Taylor Lawyers for the third defendant

Summary

  1. [1]
    On 8 May 2015, the third defendant (Mr Gallagher) caused his company Evolution Piling Pty Ltd (Evolution) to execute a written hire agreement with the plaintiff (Associated) for the hire of certain heavy equipment for three years at a hire rate of $2,103.99 per week.  Mr Gallagher also undertook to guarantee Evolution’s performance of the hire agreement.  Evolution soon ceased to pay the weekly hire payments and is now in liquidation.  Associated sued on the guarantee for unpaid hire payments in the amount of $307,182.54. 
  2. [2]
    Behind that prosaic transaction are complicated versions by Mr Gallagher and Mr Jonathan Spong (a director of Associated) of their respective dealings with a gentleman called Mr Lorenzo (Laurie) Suarez of Slap Corporation Pty Ltd (Slap Corporation).  Both Mr Gallagher and Mr Spong rely on those dealings to sustain their respective positions in the trial.  One difficulty in this proceeding was that Mr Suarez was called by neither party (apparently with good cause in both cases, as will be seen).  Another was that the objective evidence demonstrates that Mr Gallagher and Mr Spong had few direct dealings with each other, such that their respective understandings of what the other person was doing and why, depended almost entirely on what they were told by Mr Suarez.  Adding to the unusual nature of this proceeding was that at key moments, both Mr Gallagher and Mr Spong did not behave in the way sensible commercial persons would be expected to behave.  Indeed, both at times showed such remarkable insouciance that it calls into question the credibility of their evidence. 
  3. [3]
    Ultimately, I have found that Associated has failed on its claim on the guarantee but has succeeded on its alternative claim against Mr Gallagher for misleading or deceptive conduct.  Accordingly judgment should be entered for Associated for $115,743.83.

Background

Associated and Mr Spong

  1. [4]
    Associated conducts an equipment hire business, assisting clients to obtain equipment hire or rental with a purchase option.  Associated acts both as broker, arranging hire agreements with larger financiers, and, on occasions, as a financier/hirer in its own right.  Associated deals in transport and earthmoving equipment and motor vehicles.  Associated was set up in about 2006 and has always conducted an equipment hire business.  It continues to do so.
  2. [5]
    Mr Spong was a director and shareholder of Associated and involved in its day to day management.  Mr Spong is 39 years old.  He has been a director since 2008.  I infer he has worked for Associated since then.
  3. [6]
    Mr Roland Spong is also a director. He is Mr Spong’s father.  He was not involved in day to day management of Associated, at least in respect of these events.  There is another director, Mr McMahon, who also did not appear to be directly involved.[1] 
  4. [7]
    Mr Spong is also managing director and a shareholder of two other companies sufficiently identified as AE Rentals and AE FinanceThe former hires out tools and the latter arranges finance for acquisition of heavy equipment. 

Evolution and Mr Gallagher 

  1. [8]
    Mr Gallagher and Evolution have rather a different history.  Mr Gallagher is 62 years old.  He has had a long career in civil engineering type work, particularly tunneling, on and off shore drilling and piling.  He has extensive experience in engineering roles in that kind of work and in many countries.  He started Evolution in 2010, working in the piling and special foundation industry and, by his account, the company’s technical capacity was held in high regard. Evolution went into liquidation in 2016.  Mr Gallagher said that occurred because of difficulties which arose with the Queensland Building and Construction Commission.[2]  He was a director of Evolution.  At the time of these events, 2014 and 2015, he was the operations manager of Evolution.  His daughter, Kelly Cheyne, worked as office administrator.

Early dealings

  1. [9]
    Prior to the events the subject of these proceedings, Mr Gallagher and Mr Spong had had business dealings though their respective companies and knew each other through those dealings, though they appear to have not met in person until 2015. 
  2. [10]
    It seems that in about 2013, Evolution was having structural problems and was obtaining advice from consultants as to how to address them.  Mr Gallagher said that in that context, he was introduced to Mr Spong by one of Evolution’s consultants (Mr Pike) as a person who could assist Evolution with finance for projects and machinery.
  3. [11]
    The first dealing both gentlemen recall was an unsuccessful attempt by Associated to obtain finance for Evolution for a project in the Philippines. Associated also successfully financed equipment on a few occasions.
  4. [12]
    A person both Mr Gallagher and Mr Spong dealt with in relation to the affairs of Evolution was Mr Lorenzo Suarez.  While Mr Suarez’s role in these events is central, the perspectives of Mr Gallagher and Mr Spong on his role and conduct are very different. 
  5. [13]
    Mr Gallagher said that he was introduced to Mr Suarez initially in late 2013 by consultants as Evolution were preparing to build an industrial shed, but that the two did not speak to one another.  Mr Gallagher said that the first time the two men spoke was after they were reintroduced by consultants who were assisting Evolution with the Philippines project in early 2014.  Mr Gallagher was told Mr Suarez had extensive experience in civil works.  Mr Gallagher engaged Mr Suarez as a business development manager and soon after as managing director to oversee Evolution’s civil works.  However, at least from Mr Gallagher’s side, Mr Suarez’s role quickly expanded such that he “ultimately took over the finances of the company”.[3]  Mr Gallagher did not have day to day involvement in management of Evolution’s finances.  His focus and interest seemed to be on operations.[4]
  6. [14]
    Mr Gallagher said that he considered Mr Suarez an employee, though his understanding of the character of the formal legal basis of Mr Suarez’s retainer was limited.  He was vague in his understanding of whether and to what extent Mr Suarez acted personally as opposed to when he was acting through Slap Corporation.[5]  His daughter, Ms Cheyne, was the office manager of Evolution and its related companies.  She had a better insight into the formalities.  She explained that Mr Suarez initially invoiced personally but soon came to issue tax invoices from Slap Corporation for his payment for his work for Evolution.  She described him as initially a contractor but later “an employee really”.[6]  She said Mr Suarez become managing director of Evolution.
  7. [15]
    It was not exactly clear when Mr Spong first met Mr Suarez, but it appears to have been in 2014, perhaps late 2014.  He said Associated (through Mr Spong) dealt with Mr Suarez in his personal capacity and also on behalf of Slap Corporation.  His first dealing involved Associated renting a Mercedes car to Mr Suarez in 2014.  From early 2015, Mr Spong said he dealt with Mr Suarez on behalf of the two companies (Slap Corporation and Evolution).  Around that time Mr Spong carried out a number of vehicle and finance transactions for Slap Corporation, separate from those the subject of these proceedings.  Mr Spong said that he was told Slap Corporation was a contractor to Evolution, performing management of heavy equipment work.[7] 

The proposed acquisition of Argon 

  1. [16]
    Thus we come to the proposed acquisition of a company called Argon Aluminium Pty Ltd (Argon).  Argon was a specialist aluminium fabricator for buildings, located at Tweed Heads.  This transaction was the genesis of these proceedings.  The two principal protagonists’ evidence as to their understanding of this transaction is similar but differs in material respects.
  2. [17]
    Mr Gallagher said that Mr Suarez introduced the idea of buying Argon to him in late 2014.  Mr Gallagher inspected the business but never met the vendors.  The business had been listed with a broker with whom Mr Suarez dealt.  Mr Gallagher said he did not deal with the broker. He said Mr Suarez’s proposal was for Evolution to buy Argon and for funding to be obtained from Mr Spong.[8]  Mr Gallagher said all that followed in respect of Argon was on the basis of his understanding that Evolution, not Slap Corporation, was buying Argon.
  3. [18]
    Mr Spong, on the other hand, said that in about March 2015, Mr Suarez approach him to assist Slap Corporation to obtain finance to purchase Argon.  He gave evidence that Mr Suarez never mentioned the involvement of another party in the purchase of Argon.[9] Mr Spong said all that followed in respect of Argon was on the basis of his understanding that Slap Corporation, not Evolution, was buying Argon.

Associated decides to finance the Argon acquisition

  1. [19]
    Initially, Mr Spong said, he sought external finance for the Argon acquisition on behalf of Slap Corporation.  Mr Spong said Mr Suarez initially sought $450,000 but later said he only need short-term finance for $390,000.  Mr Spong said he obtained the information usually required to seek finance: financials of Argon and of Slap Corporation, equipment held by Argon and Slap Corporation, though no financials for Argon were tendered.[10]  He said he approached various lenders, but none were interested. 
  2. [20]
    Mr Spong said that he thought that the transaction was feasible, as did his business partners.  He said Associated then decided to try to fund the Argon acquisition as lender.  To that end, he said he sought to clarify the security which could be given by Slap Corporation.  Why his focus was on Slap Corporation and not Argon as well was never explained.  I would have thought security over the asset to be acquired would be a logical step for a financier to take.[11]  The security he had been told about was equipment he was told was owned by Slap Corporation.  It is evident that the equipment put forward by Slap Corporation to assist the funding of the Argon acquisition was: a Baretta drill rig, a Vibro head, a Caterpillar excavator and a Huette drill rig which until about the time of the transaction, had been owned by Evolution (with the exception of the Huette, which I deal with next).  When Mr Spong first became aware of the equipment as security for the Argon acquisition is unclear, but he certainly knew of the equipment and how Slap Corporation was said to have acquired it (from Evolution) by 5 March 2015.[12] 

The curious case of the Huette drill rig

  1. [21]
    With the exception of the Caterpillar excavator, the equipment in the previous paragraph became the subject of the hire agreement ultimately entered into by Evolution and Associated.  One of the defences raised by Mr Gallagher is that Associated never obtained title to the equipment so could not hire it back to Evolution. 
  2. [22]
    That argument is based on two propositions: first, that Evolution never obtained title to the Huette drill rig to pass on to Slap Corporation; and second, that even if it did, Slap Corporation never obtained title to any of the equipment from Evolution.
  3. [23]
    It is uncontentious that Evolution owned all the equipment in paragraph [20] above as at March 2015 with one exception: the Huette drill rig.  The events relating to this machine are somewhat unusual from start to finish.  It is convenient to set out Mr Gallagher’s evidence about that matter here.
  4. [24]
    The Huette drill rig was initially purchased by Mr Gallagher for Evolution to carry out subcontract work at Hay Point for $250,000.  At some stage during that contract, Evolution sold the drill rig to the head contractor which had retained Evolution.  Mr Gallagher sold it for $250,000, the price he had purchased it for.  When the project was completed, he discovered that the drill rig was for sale through Hassalls, an auctioneer and selling agent.  Mr Gallagher considered the drill rig to be a valuable and useful machine, so he arranged to buy it back though Hassalls.  He said he valued the machine at $350,000 at the time.  He described the machine as a “gold mine”.  He negotiated to pay $80,000, a remarkable deal if his estimate of its value was correct.  It was acquired in about late January 2015.[13]
  5. [25]
    Mr Gallagher gave evidence that the terms of the purchase from Hassalls were invariably that title did not pass until payment was made and that the equipment was not delivered until payment was made.  The terms of the sale included the second term, but did not expressly reserve title.[14]  Indeed the tenor of the auction terms do not contemplate goods being delivered without full payment occurring at all. 
  6. [26]
    Despite the auction terms, the Huette drill rig was delivered to Evolution without being paid for.  Mr Gallagher could not explain how that occurred.[15]  He said after delivery, Mr Frend (of Hassalls) repeatedly asserted by email that the machine had not been paid for.  Mr Gallagher said that he left it to Mr Suarez to arrange payment and was reassured payment was being made, or had been made, on a number of occasions.[16]
  7. [27]
    Despite those reassurances, it is uncontentious that the Huette was never paid for.  It was repossessed on the evening of 11 May 2015 from Mr Gallagher’s own residential property.[17]  On that evening, a large truck arrived and started loading up the machine.  Mr Gallagher said he asked the men involved what was going on and they said the machine was being repossessed for non-payment.  Mr Gallagher said he believed the machine had been paid for at that time.  He said he called Mr Suarez who said he would get it sorted out. 
  8. [28]
    Mr Gallagher called the police, but only to complain about how the Huette was loaded onto the truck.  Mr Gallagher did not complain to the police about the trespass or the taking of the machine.  Nor did he ever discuss the matter with Mr Frend or Hassalls, or try to get the machine back.
  9. [29]
    Mr Gallagher’s evidence on this point is peculiar.  The Huette was said to be a gold mine for Evolution, but it cost only $80,000.  Mr Suarez said it had been paid for but Mr Frend’s emails said to the contrary.  And when this valuable machine was taken in the middle of the night by two burly fellows, Mr Gallagher did nothing then, or later, to get it back.
  10. [30]
    Mr Gallagher said that the failure to pay for the Huette was Mr Suarez’s fault and that be believed it had been paid for.  His evidence that the failure to pay was Mr Suarez’s fault is inconsistent with his contemporaneous email of 3 March 2015. There he writes to Mr Suarez:[18]

Hi Laurie,

Re capitol, just had a call from John Friend from Hassels Auctions re payment of 80k for the Huette HBR 605 rig we took off the JV. I told him sorry, but I needed the money the JV promised us to pay it.

Don’t think that argument will go to far because they were under instruction from BMW to sell the rig. John is caught in the middle on this, but I’m loath to give anyone there a cent before the JV coughs up.

I’ll leave it in your capable hands though, because I know you live for this crap! Cheers!

  1. [31]
    This email is consistent with Mr Gallagher’s evidence that he believed Evolution was owed $250,000 by the head contractor Evolution worked for at Hay Point.  It seemed to me that at that time, he thought he could extract a self-help remedy for that shortfall by obtaining and not paying for the Huette.  The strong inference is that the decision not pay for the Huette was his, or at least one he joined into.  His evidence that he believed Mr Suarez was paying for the machine and that he was misled by false assurances is hard to reconcile with this contemporaneous document. 
  2. [32]
    Indeed the matter can be taken further.  The evidence shows that Mr Frend made continual demands for payment for the Huette from Evolution starting almost immediately after its delivery and that those demands were brought to Mr Gallagher’s attention at intervals which made any period in which he accepted an assurance from Mr Suarez that payment had or would be made necessarily very short.[19]
  3. [33]
    I reject Mr Gallagher’s evidence that he genuinely believed the Huette had been paid for any stage.  Since the Huette was repossessed in about mid-May 2015 neither Evolution nor Associated have ever disputed Hassalls’ right to do so on behalf of its principals. 

The funding transactions to acquire Argon

  1. [34]
    By early March 2015 at the latest, the manner in which Associated intended to finance the acquisition of Argon had been developed.  Although Mr Spong gave evidence of how he investigated title to the equipment put forward by Slap Corporation to assist with funding the acquisition of Argon, he did not explain how the structure of the funding transactions came to be adopted, except to say that the idea would have come from him (evidence which I found tentative and unconvincing).[20]
  2. [35]
    The funding structure was curious.  It appears to have been settled upon in principle between Mr Spong and Mr Suarez at the latest by 5 March 2015.  On that day he sent an email to Mr Suarez which set out the structure of the funding transaction to the extent it relate to the equipment.  It first identified the four items of equipment and then continued as follows:[21]

THIS EQUIPMENT SHOULD BE OWNED – correct?

Total: $388,409 inc. GST less debt apx $20,000 (to be confirmed) = $368,409 @ 85% (this is a high as I can go) = $313,147.65 inc. GST – this equipment will be sold to Associated equipment and rented back over a 156 week period and then purchased back for $5,000.00 + GST.  It can be purchased back prior to this as per below:

Cost per week for rental: $2,449.61 + GST (156 weekly payments) = $2,694.57 inc. Gst

Document Fee: $600.00 + GST

Conditions:

  1. Master Hire agreement – attached
  1. Minimum rental term before buyback option is 26 weeks – then you can purchase under traditional finance

Agreed price of equipment at time of sale to associated equipment is $313,147.65 (subject to approval)

50% of payments made inc. GST will be deducted to agreed price within the first 52 weekly payments (i.e. paid $50,000 all up $25,000 will be deducted from purchase price)

65% of all payments made after the 52 weekly

  1. Personal Guarantee of Director
  1. Heads of agreement with buyback options detailed
  1. Direct Debit Authority
  1. Insurance Certificate of Currency to be supplied noting Associated equipment P/L
  1. Tax Invoice to be supplied (made out to below – we will send a pro forma) and current payout letter for equipment under finance:

Associated equipment Pty Ltd

96 Chirnside Street

Kingsville Vic 3012

Please come back to me regarding the above.  Are the weekly payments Ok for Evolutions Budget?

  1. [36]
    The structure of the transaction was therefore that Slap Corporation would sell “its” equipment to Associated, Associated would borrow the money to buy it, Slap Corporation would therefore obtain the sale proceeds, Associated would hire the equipment to Evolution, that hire agreement would then enable Associated to repay its loan taken out to buy the equipment (with a profit) and at the end of the hire agreement Evolution would buy back the machinery.
  2. [37]
    There are some curious aspects of this funding structure:
    1. (a)
      Why would Slap Corporation sell the equipment to Associated and then have Associated hire it to Evolution when the more direct approach would be for Associated to lend the money on the security of Slap Corporation’s equipment?  It might be that Associated could only raise the money from external lenders (as it ultimate did from the Commonwealth Bank (CBA)) to purchase the equipment rather than to fund a loan on the security of the equipment, though I cannot see the difference and no such explanation was ever given;
    2. (b)
      It was curious that the equipment seemingly sold to Slap Corporation was to remain with Evolution who would then hire back its own equipment.  This round robin transaction, which resulted in Evolution apparently paying a substantial sum to use its own equipment, was never really explained by Mr Spong at least in any manner which I find persuasive.  Further, Slap Corporation offered to pay the hire payments and did so for some weeks.  I will return to these matters;
    3. (c)
      It was very curious that Mr Spong did not seek or offer finance for any of the purchase price of Argon over the assets being acquired.  That is particularly so as it was never suggested that Argon was not a genuine and valuable business and Mr Spong (apparently) had been provided with financial and equipment records of that business;
    4. (d)
      Finally, it was curious that the transaction even as initially contemplated did not raise sufficient funds to cover the acquisition of Argon in any event: at that time $370,000 seemingly was required. It also appears that within a week of the above email, it emerged (as will be seen) that the third party lender (CBA) would not lend Associated the amount there specified and would only lend $210,000 on the equipment at a lower valuation and excluding the excavator.  The gap in funding seems to have been filled by Mr Spong’s father’s own funds in the order of $100,000[22] and a further $50,000 lent in uncertain circumstances some time prior to 15 April 2015 (see paragraph [56] below).
  3. [38]
    Having outlined the funding transactions as contemplated on 5 March 2015, it is now necessary to set out step by step the events leading to the completion of these transactions.

Funding to acquire Argon: Mr Spong’s evidence

  1. [39]
    Mr Spong, not surprisingly, took steps to investigate title in the equipment put forward by Slap Corporation.  The starting point is the email by Mr Suarez in response to the 5 March 2015 email.  On 6 March 2015, Mr Suarez wrote as follows:[23]

Jono,

That equipment is owned and the following are conservative figures for these items;

DRIG-02 Baretta Drill Rig

$120,000

VIBR-01 Vibro Head

$40,000

XCAV-01 Cat 325 Excavator

$40,000

DRIG-01 Huette Drill Rig

$250,000

$410,000

Mate the rest of the proposal is fine and I think the weekly figure is fine.  Once again you know if he requires help I will be happy to assist in the payments till he gets on his feet.

  1. [40]
    Consistent with that email, Mr Spong was provided with a tax invoice in the following terms dated 11 March 2015 (the Evolution Tax Invoice):[24]

TAX INVOICE / PROGRESS CLAIM

INVOICE REFERENCE: SLAP-001

Logo Evolution Piling

644 Tomewin Mountain Road

Currumbin Valley Qld 4101  DATE: 11.03.15

ABN: 75148 006 526

Phone: 07)5533 0419

TO: FOR:

Accounts Department

SLAP CORPORATION PTY LTD

27 CASTLEBAR STREET`

KANGAROO POINT QLD 4169

ABN: 33 601 930 732

 

DESCRIPTION

QUANTITY

RATE

AMOUNT

SALE OF EQUIPMENT AS FOLLOWS

 

YEAR

MAKE

MODEL

ASSET ID

HOURS

2007

BARETTA DRILL RIG

DRIG-02

58807

493

2012

VIBRO HEAD

 

VIBR-01

 

180

1994

CATERPILLAR EXCAVATOR

CAT-325

8NL00131

13830

2007

HUETTE DRILL RIG

DRIG-01

H60SZX0130

4065

 

 

 

 

1.00

 

1.00

 

1.00

 

1.00

 

 

 

$120,000.00

 

$40,000.00

 

$40,000.00

 

$250,000.00

 

 

 

$120,000.00

 

$40,000.00

 

$40,000.00

 

$250,000.00

SUBTOTAL

GST

TOTAL

$450,000.00

$45,000.00

$495,000.00

DIRECT BANK TRANSFER PAYMENTS

 

Our banking details are as follows:

Bank: NAB Account Name: Evolution Piling Pty Ltd

BSB: 084 572 Account 188102198

 

SIGNED:  handwritten signature

NAME:  PATRICK GALLAGHER

POSITION:  DIRECTOR

PAYMENT DUE DATE: 11.03.15

INVOICE REFERENCE: SLAP-001

This is a payment under the Building and Construction Industry Payments Act 2004

  1. [41]
    It is not disputed that the Evolution Tax Invoice was signed by Mr Gallagher. 
  2. [42]
    Mr Spong responded to the Evolution Tax Invoice by emailing Mr Suarez asking for tax invoices for purchasers of the equipment adding “hopefully they are from a reputable supplier – so we can demonstrate title flow – either way we will sort it out just quicker”.[25]  It is understandable Mr Spong would seek such information given the risk that Evolution did not have title to sell the equipment to Slap Corporation.[26]  (That concern was justified in respect of the Huette, as has been seen.)  No evidence demonstrating title flow to Evolution as requested by Mr Spong was adduced, and it seems doubtful to me that any such evidence was ever supplied.  Certainly it is not mentioned again in the subsequent correspondence tendered, nor did Mr Spong give evidence about it.  Mr Suarez did ask Ms Cheyne to provide that information to Mr Spong,[27] but one wonders what information, if any, was provided, particularly in respect of the Huette.  Mr Spong said in cross examination that the request was directed to individual tax invoices from Evolution, but that answer was suggested to him, it does not make sense of the “reputable supplier” point and his response did not suggest any specific recollection.[28]  The plain meaning of the email is as I have identified.
  3. [43]
    Mr Spong did give evidence that, having noted that Evolution had been the owner of the equipment, he did a search of the Personal Property Securities Register (PPSR).  He noticed that NAB and Coates Hire were secured creditors of Evolution.  He therefore sought confirmation from those companies that they did not maintain any security interest in the equipment.
  4. [44]
    Over 11 and 12 March 2015, Mr Spong corresponded by email with the NAB and ultimately secured releases for the four pieces of equipment from that bank’s security interests.[29]  This email exchange was copied to Mr Gallagher by Mr Spong on two occasions.  Associated relies on these as showing Mr Gallagher understood that Associated was genuinely intending to acquire the equipment: 
    1. (a)
      The first email relied upon was sent at 3.59pm to Ms Nieass of NAB, copied to Mr Suarez and Mr Gallagher, the subject being “Evolution Piling P/L - NAB - No Interest in Units being sold”.  It asked Ms Nieass to confirm NAB had no interest in the four items because “the business is looking to sell these ASAP and requires this to finalise”. 
    2. (b)
      The second email was sent at 5.44pm to Ms Nieass which included information asked for by Ms Nieass and said relevantly “you have to confirm acceptance of the sale of this equipment”. 
  5. [45]
    Neither email suggests that the purchase of the equipment by Associated is somehow conditional on completion of the purchase of Argon by Evolution (as Mr Gallagher says was his understanding, see from [60] below).  Both emails communicate that Associated was looking to buy the equipment.  Mr Gallagher accepted in cross examination that he saw these emails and knew they were part of Associated’s process to ensure clear title,[30] though there is no evidence that he responded to Mr Spong confirming he had read them. 
  6. [46]
    Mr Spong also gave evidence that Coates provided confirmation of clear title.[31]  This is confirmed by documentary evidence, however, the release was given on 15 April 2015 as part of the settlement on the CBA loan.[32] 
  7. [47]
    Having obtained confirmation that neither NAB nor Coates claimed an interest in the equipment and having obtained the Evolution Tax Invoice from Slap Corporation, Mr Spong sought finance from CBA for Associated to acquire the equipment.
  8. [48]
    The timing and details of the application for finance by Associated to acquire the equipment is unclear on the evidence. It appears Mr Spong might have started the process of seeking finance for Associated to acquire the equipment from Slap Corporation as early as 10 March 2015.[33]  If so, however, the process continued for some time thereafter. 
  9. [49]
    Mr Spong said he first sought finance for the equipment including the excavator but was quickly told that the CBA would not finance that machine because of its age.[34]
  10. [50]
    Thereafter there is no documentary evidence of any progress until 13 April 2015, when Mr Spong received a tax invoice from Slap Corporation for the equipment less the excavator (the first Slap invoice).  The first Slap invoice was for $330,000 including GST for the Huette, the Baretta and the Vibro head.  On the same day, Mr Spong received a statutory declaration from Ms Pettit, a director of Slap Corporation and a person known to Mr Spong as Mr Suarez’s de facto partner.[35]  By that statutory declaration, Ms Pettit swore Slap Corporation’s clear title to the financed equipment.[36]  Both the documents were intended for the CBA and were ordinary requirements for funding by that bank.
  11. [51]
    I developed the strong impression from Mr Spong’s evidence and the timing of the provision of the statutory declaration that the document was obtained to persuade the CBA to lend funds to Associated.  It was not asked for at any earlier time by Mr Spong, it was the form required by the CBA[37] and Mr Spong seemed to have little objective basis to believe Ms Pettit was best placed to swear the declaration when Mr Suarez was conducting all the dealings for Slap Corporation. 
  12. [52]
    It appears that soon after that date, a valuer did a valuation of the equipment and concluded that it was not valued at the amount in the first Slap invoice.  Mr Spong said his agreement with Mr Suarez was that Associated would only acquire the equipment to market value (though that is never mentioned in any of the correspondence that I could see).  However, Slap Corporation did issue another tax invoice dated 21 April 2015 which allocated specific values to the equipment and totaled $260,000 including GST (the second Slap invoice).[38]  The Huette was valued at $85,000 as compared to Mr Gallagher’s estimate, though I recognise that the machine had special value to him.
  13. [53]
    The loan agreement with the CBA to acquire the equipment was entered into on about 15 April 2015.  The amount advanced was $210,000, paid on 21 April 2015.  The relevant terms were as follows:
    1. (a)
      The loan was to be repaid with interest by 36 monthly instalments of $6,251.55; and
    2. (b)
      The total interest payable was $15,055.80.
  14. [54]
    Associated had paid out this loan in accordance with its terms.[39]
  15. [55]
    The funds lent by CBA were paid to Slap Corporation on or about the settlement date of 21 April 2015.  Mr Spong gave that evidence,[40] it is confirmed by a CBA document[41] and it was not challenged in cross examination. 
  16. [56]
    That sum is less than the amount on the second Slap invoice.  However that document records $50,000 as having been paid by Associated as a deposit.  The evidence about this sum was also curious.  Mr Spong said that Associated had lent $50,000 to Slap Corporation already as funds to assist with the purchase of Argon.[42]  This evidence seemed to come out of the blue during evidence in chief and I could not find any evidence which unequivocally refers to it in the contemporaneous documents tendered.  It was not explored in cross examination, and the second Slap invoice is evidence that some such payment was made.  I accept that the deposit had been paid.  However no claim is made in the proceedings in respect of that sum, so little appears to turn on it. 
  17. [57]
    The end result therefore is that Associated advanced a total of $260,000 to Slap Corporation, $50,000 at some point before settlement of the CBA loan and $210,000 on or about 21 April 2015 so that Slap Corporation could acquire Argon.  Further, Mr Spong’s father also advanced $100,000 personally to Slap Corporation.  The total funds advanced therefore was $360,000.[43]
  18. [58]
    Before moving to Mr Gallagher’s evidence on the funding process, it is worth noting this further curiosity.  The evidence which will be referred to next shows that Mr Suarez communicated to Evolution and Mr Gallagher that Argon had been acquired on 17 March 2015 (see from paragraph [70] below) for some $419,208.33.  That is before any of the CBA sourced funding was paid to Slap Corporation. 
  19. [59]
    Mr Shaw for the third defendant asked a question of Mr Spong that assumed the transaction was nearing completion on 11 March 2015.  Mr Spong’s response was ambiguous.[44]  Later Mr Shaw asked him if he found out that the Argon purchase completed and Mr Spong said he only found out the details when preparing his statement for this trial.  He agreed March 2015 sounded right but was not cross examined about the timing of settlement compared to the CBA advance.  Given his unchallenged evidence that the CBA loan was paid to Slap Corporation for the Argon purchase, it seems highly unlikely he knew in 2015 that Argon had apparently settled in March.  I am find that he did not.  This discontinuity in the evidence was not explored or explained further (this is not an implied criticism of counsel: if every curious matter in this case had been fully explored in evidence, the trial would have gone much longer).

Funding to acquire Argon: Mr Gallagher’s evidence

  1. [60]
    It will be recalled that Mr Gallagher’s evidence was that he understood that Associated was going to provide finance to Evolution to acquire Argon.  Mr Gallagher did give evidence that Evolution paid $30,000 towards the acquisition of Argon.  He said this payment was by way of reimbursement to Mr Suarez (whether personally or on behalf of Slap Corporation, see [14] above) of the deposit on Argon, which Mr Gallagher says he believed had been paid by Mr Suarez.[45]
  2. [61]
    Mr Gallagher’s evidence about  place of the Evolution Tax Invoice in those arrangements is worth setting out verbatim:[46]

How did you come to sign this tax invoice?---We were at our Kangaroo Point offices at the time, I was, and so was Mr Suarez. During the morning sometime, he came into my office and said that they’d had trouble with the finance for Argon Aluminium. It still hadn’t been finalised, even though he said it had earlier, and we thought it had. He then indicated – he said to me, “We’ve got to mortgage the equipment” – “We’ve got to mortgage some equipment”, or “We can mortgage some equipment to fund that”, and it’s something that he’d spoken about, and then he had this invoice raised from… Evolution Piling to Slap Corporation for this sum, so that we would mortgage this machinery to the value of the purchase price of Argon Aluminium, and then the title could pass to us because the reason he had to transfer the equipment into his Slap Corporation, because I asked, I said, “This isn’t a mortgage, this is a sale, and it’s not to Jonathon Spong, it’s to Slap Corp”, and he said that’s because Jonathon and he had already paid for Argon Aluminium and needed to do this for Argon Aluminium to be transferred – for the title to be transferred to our company, and what this would do is we would still mortgage the machinery, he explained to me. The machinery would still be mortgaged, and we’d make the payments, and then after we paid that out, we’d own the machinery again, but we’d always retain the machinery.

[underlining added]

  1. [62]
    If this is what Mr Suarez said, it is directly inconsistent with Mr Spong’s evidence as to how the acquisition of Argon was to be funded and inconsistent with the documentary record because there is no hint that Associated had lent any money by 11 March 2015, the date of the tax invoice.  Needless to say, this conversation also happened over a month before the CBA advance to Associated was paid to Slap Corporation. 
  2. [63]
    If this is what Mr Suarez said, it also creates a logical difficulty.  If Associated and/or Slap Corporation had already paid for Argon as at 11 March 2015, why would Evolution need to transfer the equipment to Slap Corporation and pay down a mortgage on the equipment for that sum by way of repaying Slap Corporation/Associated for the purchase price of Argon?  Surely it would be a simple case of either transferring the equipment directly in exchange for ownership of Argon or mortgaging the equipment to secure repayment of a loan of the amount of the purchase price of Argon.  I explored this with Mr Gallagher:[47]

Your evidence was they’d already paid for Argon Aluminium and needed to do this?---So – so – so Mr Suarez told me.

Yes. Well, if you needed to prove – if your understanding was you needed to provide $495,000 of value to the people who’d already paid for Argon, why isn’t that given effect to by this transaction whereby you give them machinery worth $495,000 and they give you Argon back? Is that – isn’t that the way you thought it was going to work?---This – this – the way I understood it, your Honour, and, as I said, this was a surprise to me that it went this way.

Yes. Yes?---And Mr Suarez said it just has to be this way.

Yes?---I accepted that. Yes?---That we would – originally we needed to obtain finance for Argon Aluminium.

Yes?---The way we would obtain it, finally, came to us was that we would mortgage equipment.

Yes?---And that equipment would then transfer to Mr Spong.

Yes?---And we would pay that equipment off under a mortgage agreement so we would always have the machinery, always had the machinery, and that when that was paid off then we’d own the machinery back, but the whole time we would own Argon Aluminium.

  1. [64]
    His evidence seemed to come to this: Evolution would transfer the machinery to Slap Corporation and then Slap Corporation would transfer Argon; but Evolution needed the machinery so it would mortgage the equipment and pay it off.  He did not say who he thought would fund the mortgage.  Nor did he advert the oddity of the notion of transferring ownership then mortgaging the equipment. 
  2. [65]
    Despite that evidence, Mr Gallagher maintained that he did not intend that Evolution would transfer the equipment to Slap Corporation.[48]  However, that intention was inconsistent with his evidence as to how Evolution was to have Argon transferred to it.  He gave evidence that the transfer of the equipment was to acquire Argon from Slap Corporation (which had already paid for it, according to Mr Suarez). 
  3. [66]
    He also said that “it was explained to me that this was just title transfer…” (whatever that means) followed by this “the… machinery would be mortgaged under a finance arrangement which we would pay, and then once the amount was paid out, $450,000, we have… clear title to the equipment again, but it would be mortgaged”.[49]  I do not understand this evidence.
  4. [67]
    Mr Gallagher also said he did not intend to transfer title because he was waiting for paperwork which would “tie [the transfer]…in with Evolution and the finance from [Mr Spong]”.[50]
  5. [68]
    I accept that Mr Gallagher believed that Evolution would transfer the equipment to Slap Corporation and get Argon transferred to it in return. I also accept that Argon was never transferred to Evolution. 
  6. [69]
    However, I find that Mr Gallagher had no understanding of the convoluted transaction put to him by Mr Suarez and (if events happened as he said) Mr Gallagher showed naiveté in his acceptance of Mr Suarez’s explanations, especially as he never discussed matters with Mr Spong at the time (if ever), despite his clear lack of understanding of what was occurring.[51]  I find that at this stage he was willing to accept whatever Mr Suarez said, no matter how little he understood it, and to sign whatever Mr Suarez asked him to sign, in relation to the Argon acquisition. 

Evidence about the acquisition of Argon 

  1. [70]
    I preface what is to follow with the warning that no direct evidence was adduced which showed the completion of acquisition of either the business of Argon Aluminum or of the company of that name.  Business registration details for “Argon Aluminum Welding Fabrication” were tendered but they prove little except the registration of that name to Slap Corporation on 25 March 2017.[52]  The liquidators of both Evolution and Slap Corporation located no evidence in the books and records of either company showing Argon was acquired by either of those companies.[53]  I am not persuaded on the evidence adduced that Argon was ever acquired by either company.
  2. [71]
    On 17 March 2015, Mr Suarez apparently sent an email to Mr Gallagher, his daughter and two others involved with Evolution.  It stated:[54]

Please see attached.

Proud to announce that Argon Aluminum is now part of the group.

  1. [72]
    Attached is a document which appears to be a Commonwealth Bank International Money Transfer by which McInnes Wilson Lawyers Pty Ltd sent $419,208.33 to Ingwersen and Lansdown Trust account. The document is marked customer copy, and is not signed.  It is dated 17 March 2015.  It does not demonstrate so far as I can see that the transfer has occurred.  There is no other mention of either firm in the evidence, oral or documentary.
  2. [73]
    That afternoon, Ms Cheyne sent an email to Mr Suarez and Mr Gallagher stating:[55]

Good afternoon gents,

Thanks to Batman, we now officially own Argon.

Fraser has set up and Argon Aluminium file in the …Server….you each have access to this file and this is where I will save all Argon documents, payroll etc…

Pat & Michel, Laurie has informed me that Argon is owned by Slap Corp, so any important documentation needs to be read as Slap Corporation T/A Argon Aluminium with both logos on them please.  We will set up letterhead template reflecting the same….

  1. [74]
    These emails beg the question: Why does Slap Corporation own an asset which Evolution was supposed to buy?  There is nothing in the documentary record which shows any surprise or query from Mr Gallagher, Ms Cheyne or anyone else at Evolution about this situation.
  2. [75]
    Further, while the transaction as explained to Mr Gallagher (on his account anyway) contemplated Slap Corporation already having bought Argon, there was no suggestion of any “mortgage back” of the equipment of the kind discussed by Mr Gallagher.  Further, given the equipment had been “sold” to Slap Corporation on 11 March 2015, why was Argon not owned by Evolution at this point?
  3. [76]
    Mr Gallagher gave evidence that he was concerned that Slap Corporation appeared to own Argon.  He said that he asked Mr Suarez about it and that Mr Suarez said it was just part of the process and Mr Gallagher accepted that explanation, in part because he was busy himself with work.  In cross examination about this matter, Mr Grant established that Mr Gallagher expected there to be an agreement for the acquisition of Argon.  However Mr Gallagher was unable to give any specific evidence about any such agreement.[56]  Like so many other matters, Mr Gallagher did not follow up the matter of ownership of Argon until after the dismissal of Mr Suarez in May 2015, discussed further below.
  4. [77]
    Ms Cheyne also gave evidence about the Argon acquisition.  Her evidence was clearer than Mr Gallagher’s evidence.  She recalled conversations in late 2014 to the effect that Mr Suarez was looking to obtain funding to acquire Argon by mortgaging equipment with Associated.  She said there were thereafter many conversations about purchasing Argon and she appears to have done some work at the business on payroll issues (though when that occurred in unclear).  She said Mr Suarez said Slap Corporation had paid the deposit of $30,000 and he gave Ms Cheyne an invoice for that amount and said Evolution would be buying Argon.
  5. [78]
    She recalled the email saying that Argon had been purchased set out above. She recalled her email of 17 March 2015 set out above and the conversation she had with Mr Suarez stated there.  She says she queried the inclusion of the Slap Corporation logo when she thought Evolution owned Argon and “he said that it was to do with the financing and that we did own Argon, but because of the finance arrangement that it had to be described that way for, well, whatever purpose that was.  I can’t quite recall.”[57]
  6. [79]
    Ms Cheyne gave no other evidence of any concrete event demonstrating ownership of Argon by Evolution or “the group”, despite being the office manager and despite apparently having had pre-purchase involvement with Argon’s payroll system (and no such evidence was located in the books and records of Evolution or Slap Corporation[58]).  This appears not to have alarmed her.  She “completely believed [Argon] was our company” until Mr Suarez left Evolution in May 2015. 
  7. [80]
    The other evidence to deal with in this regard is the tax invoice at Exhibit 1 Divider 4.  That is dated 23 March 2015.  Given the evidence from the witnesses at the trial about what they say they were told by Mr Suarez and what they thought had occurred, it is a remarkable document.
  8. [81]
    It appears to have been sent by Mr Suarez to Ms Cheyne on 23 March 2015 who probably forwarded it to Lissa Burton in accounts at Evolution for action around 30 March 2015.[59]  The first point to note is that it is an invoice from Mr Suarez to Slap Corporation, not Evolution.  Next, it includes the following items:

Quantity

Description

Unit Price

Total

 

Purchase of Business Argon
Aluminum

 

$450,000.00

 

Rent in Advance Premises 9 Industry
drive South Tweed Heads Argon

 

$23,480.00

 

Rent Deposit Argon Aluminum

 

$20146.00

 

Adjustments in Purchase Contract
Argon Aluminum

 

$55,250.00

 

Wages W/E 15/03/2015 Argon

 

$8048.89

 

Wages W/E 22/03/2015 Argon

 

$10,891.89

 

Wages Hames Maher Argon

 

$3,822.00

 

Payment to Downee Argon

 

$643.00

 

Cash Purchase Argon

 

$2650.00

 

Reimbursements (John, Lance)

 

$812.75

 

Cash Purchases Argon

 

$550.00

 

 

Subtotal

$576,294.53

 

 

Sales Tax

 

 

 

Shipping & Handling

 

 

 

Total Due By 12.31.2012

$576,204.53

  1. [82]
    It seems that the document is, in substance, a record of loans made by Mr Suarez to Slap Corporation.  It does not appear to record taxable supplies by him to Slap Corporation (though it is unclear if these amounts include GST).
  2. [83]
    More unusual, given the evidence from the witnesses at the trial, it records (seemingly) that Mr Suarez lent the money to Slap Corporation to buy Argon and lent Slap Corporation other large sums in relation to that transaction.  If that is correct, all of the evidence of Mr Gallagher and Mr Spong must be mistaken.  Their evidence, divergent though it is as to detail, is united in this one consideration: all their actions relevant to this proceeding were to fund the acquisition of Argon.  On the face of this document, neither Slap Corporation nor Evolution needed to borrow from Associated to fund the acquisition of Argon.  Mr Suarez lent the money to Slap Corporation.
  3. [84]
    Most unusual, given Ms Cheyne’s evidence, is that this document was provided to her on 23 March 2015, apparently with no query being made about how it conflicted with her understanding of the Argon acquisition being funded by Associated.  And that seems so even though, when asked for receipts and settlement statements by Ms Burton, Mr Suarez referred her to Ms Cheyne.  There was no meaningful evidence about this document.[60]
  4. [85]
    Mr Gallagher’s and Ms Cheyne’s evidence about the timing of the apparent acquisition of Argon remains directly inconsistent with Mr Spong’s evidence on that question (see paragraph [59] above).  All parties showed remarkable insouciance as to the circumstances and authenticity of this transaction, given the liabilities they incurred in relation to it. 

The hire agreement is executed

  1. [86]
    The above narrative left Mr Spong, on 21 April 2015, having paid the money Associated borrowed from the CBA to Slap Corporation (see paragraph [57] above).  As at the same date, Mr Gallagher was fending off demands from Mr Frend for payment for the Huette (soon to be repossessed) and seemingly waiting for the further transactions to give effect to the financing for the acquisition of Argon which he believed had occurred.  As to that, it will be recalled he said he believed that Associated would mortgage the equipment in the Evolution Tax Invoice back to Evolution (see paragraphs [61] to [67] above).
  2. [87]
    Thus we finally arrive at the hire agreement introduced in the first paragraph of this judgment. 
  3. [88]
    On the day after the payment of the $210,000 to Slap, Mr Spong sent draft hire agreement documents to Mr Suarez.[61]  That seems to have been the trigger for Mr Suarez to tell Mr Spong that Slap Corporation would be making the hire payments on behalf of Evolution because Evolution was having some cash flow issues.  Mr Spong was unconcerned about that information.  At one point in his evidence he said that he knew that Evolution had a good stream of work underway and that temporary cash flow issues were not of concern to him.  The source of this knowledge was presumably Mr Suarez.  He later added that he knew that Evolution and Slap Corporation were working together and assumed they had some internal arrangement about the payments.
  4. [89]
    Mr Spong told his assistant to revise the documents to include a direct debit for Slap Corporation and to record payments by Slap Corporation as payments on behalf of Evolution.[62]  Ms Pettit was to sign the Slap Corporation direct debit and Mr Gallagher the hire agreement documents. Again there was no direct discussion between Mr Spong and Mr Gallagher.
  5. [90]
    On 8 May 2015, Mr Gallagher signed the hire agreements and the guarantee.  An electronic copy was sent by a Ms Anne Cheyne (presumably Kelly Cheyne’s mother, there being evidence that she was a director of Evolution) to Mr Suarez, who forwarded it to Mr Spong.
  6. [91]
    Mr Gallagher admitted executing both the hire agreement and the guarantee.  He gave the following evidence about his state of mind when doing so (which is relevant at the least to the sham allegation):[63]

And, when you signed it, did you intend that Evolution – was it your intention that Evolution would pay that weekly amount?---Yes.

Was it your intention that Evolution would pay that weekly amount immediately after signing the agreement?---As soon as – as soon as the transaction was – Argon was finalised.

As soon as the transaction of what, sorry?---Bringing Argon into our company was finalised.

  1. [92]
    No evidence was adduced which showed that that condition was ever communicated to Mr Spong, much less accepted by him, much less included in the hire agreement.
  2. [93]
    It will be recalled that Mr Gallagher’s evidence was that his understanding of the financing transactions was that there was to be a mortgage of the equipment to Associated.  I have already explained that that notion was hard to explain given that Mr Gallagher also understood he was transferring ownership of the equipment to Slap Corporation (see paragraphs [64] and [66] above).  Mr Grant (for the plaintiff) cross examined Mr Gallagher about the conflict between his apparent understanding of the way the funding was to work and the character of the agreement as a hire agreement not a mortgage.  Mr Gallagher’s evidence at this point was unsatisfactory.  He accepted that he understood the difference between a hire agreement and a mortgage, and that he had extensive experience with hiring equipment.  He then maintained that when he signed the hire agreement he did not understand it was a hire agreement not a mortgage agreement.  His defiant response when challenged on that discontinuity also did him no credit.[64]  The inference which I draw is that Mr Gallagher just signed whatever he was told to sign by Mr Suarez, without applying his own attention or judgment to the document.
  3. [94]
    On 12 May 2015, consistent with the discussion between Mr Spong and Mr Suarez, Ms Pettit signed a direct debit request for Slap Corporation in favour of Associated starting 13 May 2015 for weekly payments of $2,103.99.[65]

The terms of the hire agreement

  1. [95]
    The hire agreement was part of the following documents:
    1. (a)
      A covering letter from Associated to Evolution dated 22 April 2015 identifying the documents provided and the first payment amount required;
    2. (b)
      A tax invoice from Associated to Evolution for a documentation fee of $660;
    3. (c)
      The hire agreement heads of agreement of two pages (the Heads of Agreement);
    4. (d)
      The standard terms and conditions (the Master Agreement); and
    5. (e)
      A personal guarantee of two pages (the Guarantee).
  2. [96]
    The Heads of Agreement was the part of the hire agreement specific to this transaction.  The first page identified the parties (Evolution and Associated) and the equipment, the weekly payments of $2,103.99 per week and the term of 156 weeks.
  3. [97]
    The Heads of Agreement:
    1. (a)
      Included a clause designated “Purchase Option”, which provided:

50% OFF ALL RENTAL PAYMENTS INC. GST WILL BE DEDUCTED FROM RENTAL PAYMENTS MADE IN FULL FROM ORIGINAL AGREED PRICE OF $210,000 INC. GST.  THIS APPLIES ONLY TO THE FIRST 52 WEEKLY PAYMENTS BEING MADE.  ALL PAYMENTS THERE AFTER WILL HAVE 70% OF WEEKLY PAYMENT DEDUCTED SHOULD RENTEE WISH TO EXERCISE PURCHASE OPTION (52 weeks @ 50%, then 70% each week thereafter starting on 53rd weekly payment).  TAX INVOICE MAY BE SUPPLIED FROM THIRD PARTY COMPANY FOR SALE OF EQUIPMENT.  UNIT CAN BE SOLD AT ANYTIME AFTER MINIMAL RENTAL TERN HAS BEEN SATISFIED AND PAYMENTS RECEIVED.  THIS IS SUBJECT TO ASSOCIATED EQUIPMENT P/L HAVING SUPPLIED A PAYOUT FIGURE AND THIS IN TURN BEING MET.

MINIMUM SUCCESSFUL PAYMENTS PRIOR TO SALE OR PURCHASE OF SAID EQUIPMENT: 26 weekly payments.

  1. (b)
    Provided under the heading “Conditions of Rental Agreement”, relevantly:

 RENTAL COMPANY ASSOCIATED EQUIPMENT PTY LTD (A.C.N.: 131 092 290) IS TO BE NOTED AS JOINT INSURED ON THE SAID EQUIPMENT DETAILED ON PAGE 1 OF THIS AGREEMENT.  THIS MUST BE COMPREHENSIVELY INSURED AND ALL IDENTIFY’S TO BE NOTED ON POLICY.  INSURANCES MUST BE KEPT CURRENT AND PROOF OF THIS SUPPLIED EACH YEAR (UPON RENEWAL) OR UPON REQUEST. 

 THE SAID EQUIPMENT MAY BE PURCHASED FROM RENTAL COMPANY AT ANY TIME SUBJECT TO STATED AMOUNT SUPPLIED BY ASSOCIATED EQUIPMENT PTY LTD.  OWNERSHIP WILL TRANSFER UPON CLEARANCE OF FUNDS TO ASSOCIATED EQUIPMENT P/L.

  1. [98]
    The Master Agreement relevantly provided:
    1. (a)
      By clause 1:

1. Interpretation

1.1 In this agreement:

Equipment’ means the item/s supplied by the Owner to the Hirer and any replacement and includes all accessories and other equipment;

Owner’ means ASSOCIATED EQUIPMENT PTY LTD (ACN 131 092 290) of [address, phone and fax numbers], and its substitutes, successors and permitted assigns;

  1. (b)
    By clause 2, relevantly:

    2. Rental of equipment

2.1  The Owner agrees to hire the Equipment to the Hirer for the Hire Period and the Hirer agrees to take the equipment on hire for that period and to pay the Hire Rate for the Hire Period, together with any applicable GST, on the terms and conditions set out in this agreement.

2.2  The Hirer is entitled to use the equipment for the Hire Period.

2.3  For the avoidance of doubt, the Hirer will continue to incur and be liable for all Hire Charges (including GST) and all other monies payable under this agreement, until the latter of:

  1. (a)
    The end of the Hire Period; or
  1. (b)
    All of the equipment (including all parts of the equipment) being back in the possession of the Owner in full working order and in the same condition as the commencement of the equipment hires (fair wear and tear exempted).
  1. (c)
    By clause 9:

9. Title to goods

9.1  The Hirer acknowledges that the Owner retains title to the Equipment and that the Hirer has rights to possess the Equipment as a mere bailee only.  The Hirer does not have any right to pledge the Owner’s credit in connection with the Equipment and agrees not to do so.

9.2  The Hirer also agrees not to agree, attempt, offer or purport to sell, assign, sub-let, lend, pledge, encumber, mortgage, let on hire or otherwise part with or attempt to part with the personal possession of or otherwise deal with the Equipment and not to conceal or alter the Equipment or make any addition or alteration to, or repair of, the Equipment, without the prior written consent of the Owner.

  1. (d)
    By clause 10:

10. Guarantee

10.1 In consideration of the Owner entering into this agreement with the Hirer at the request of the Guarantor, the Guarantor hereby (and if more than one, jointly and severally) guarantees to the Owner the due performance and observance by the Hirer of all the terms, covenants, agreements and stipulations contained or implied in this agreement on the part of the Hirer including the due payment of any Hire Rates and other monies payable under this agreement. The Guarantor further agrees to indemnify and keep indemnified the Owner against any losses, costs, expenses and/or damages sustained or incurred by the Owner arising out of any breach of this agreement by the Hirer.

10.2 The guarantee and indemnity contained in clause 10.1 shall be irrevocable and continuing and shall not be revoked by notice or by any reason of the death, bankruptcy, liquidation or mental incapacity of the Guarantor, or any of them or of [clause ends].

  1. [99]
    The Guarantee relevantly provided by clauses (a) to (h):

In consideration of ASSOCIATED EQUIPMENT PTY LTD A.C.N.: 131 092 290 (Company) agreeing to hire equipment to

Evolution Piling Pty Ltd

A.B.N: 75 148 006 526 / ACN: 148 006 526

(herein after called the Hirer) each person that signs below (Guarantor) agrees to provide the guarantee set out in this document on the following terms. 

(Guarantee).

  1. (a)
    In consideration for the Company accepting the Hirer’s application to hire certain equipment from the Company, each Guarantor unconditionally and irrevocably guarantees the punctual payment of all money owing to the Company by the Hirer or in connection with the terms and conditions attached to the Account Application in the form of the Agreement to Hire equipment (which include security provisions) (Hire Agreement) and the terms and conditions of the Account Application (Guaranteed Money),
  1. (b)
    Each Guarantor must on demand immediately pay to the Company an amount of Guaranteed Money not paid by the Hirer by the due date for payment, even if the Company has not made a demand for payment on the Hirer.
  1. (c)
    Each Guarantor indemnifies the Company against any and all loss or damage (including, without limitation, direct, indirect and consequential loss) which the Company suffers as a direct or indirect result of:
  1. (i)
    the Hirer or a Guarantor failing to pay any Guaranteed Money to the Company;
  1. (ii)
    the Hirer breaching any provision of the terms of the Account, the Hire Agreement or any other agreement with the Company; or
  1. (iii)
    any Insolvency Event (as that term is defined in the Hire Agreement) occurring in respect of the Hirer or any other Guarantor;
  1. (d)
    Each Guarantors obligations under clauses (a), (b) and (c) are that of principal debtor and not merely as surety.
  1. (e)
    Each Guarantors obligations under clauses (a), (b) and (c) and its other obligations under the guarantee:
  1. (i)
    are continuing obligations, separate and independent from the Guarantors other obligations under this Guarantee;
  1. (ii)
    extend to all amounts of Guaranteed Money presently owing or owing at any time in the future; and
  1. (iii)
    remain in force until the Company (in its sole discretion) notifies the Guarantor in writing of the discharge of the obligations.
  1. (f)
    Each Guarantors obligations under this Guarantee are affected by anything which might otherwise operate to release, affect or discharge them in any way (whether at law or equity).
  1. (g)
    The Company may enforce any right under this Guarantee regardless of whether it has made a demand on the Hirer or enforced any other security.
  1. (h)
    Each Guarantor cannot withdraw from, terminate or revoke this Guarantee.

Payments under the hire agreement (and lack thereof)

  1. [100]
    The plaintiff alleges that between 13 May 2015 and 13 January 2016, Slap Corporation made 10 weekly payments on behalf of Evolution of $2,103.99 per week apparently pursuant to the agreement.  The payments were made weekly from 13 May 2013 to 10 June 2015, then on 1 July and 29 July 2015, 7 October 2015 and 14 October 2015 and 9 December 2015.[66]  The third defendant denies the payments of those amounts were made and denies they were on behalf of Evolution or pursuant to the hire agreement.  I find that those payments were made by Slap Corporation in the amounts alleged.  The third defendant did not really suggest otherwise.[67]
  2. [101]
    In cross examination, the third defendant rather focused on the fact that Associated’s bank statements revealed that the 10 June, 1 July and 29 July 2015 payments were immediately followed by a payment to Slap Corporation of the exact amount: $2,103.99.  It is hard to imagine that these did not comprise repayments of amounts apparently paid by Slap Corporation on account of the hire payments.  Mr Spong did not suggest the contrary.  He did not recall why the reversals occurred but said that Associated sometimes reversed automatic debit amounts if a client requested some indulgence.
  3. [102]
    Although it is to look ahead in the narrative, it is convenient to note here the curious manner in which Mr Spong responded to the payments on the hire agreement.
  4. [103]
    It can be seen that payments were made in accordance with the hire agreement terms until 10 June, that is for just five weeks, with the fifth payment seemingly reversed.  From then on, the compliance with payment obligation was very poor, then soon became non-existent.  One would expect a prudent financier would have been chasing payments consistently, and probably taking action under the hire agreement when payments effectively ceased.  Mr Spong’s response to the failure of Evolution/Slap Corporation to make payments was to do nothing.  His cross examination on this point reflects the case as ultimately put by the third defendant:[68]

Well, you – your evidence is, isn’t it, that you were under the impression you owned these machines?---Correct.

And you received your last payment on the 9th of December 2015?---Yes.

And you didn’t extend the term, did you? The term of the agreement?---Recontract the agreement?

You didn’t recontract that hire agreement?---No, we didn’t.

You didn’t sue anyone for the weekly rental payments?---No.

You didn’t repossess the machine?---No.

You didn’t even call Mr Gallagher and say, “Give me back 5 the machine,” did you?---No, I didn’t.

If this is an arm’s length commercial arrangement, why wouldn’t you do one of those things?---Why wouldn’t I do any of those things? Because I was under the belief we had security over the equipment, so if anything goes wrong we could simply realise that and collect our money back.

But something had already gone wrong, hadn’t it, when the payments aren’t made?---It is, but we’re still happy with the security we had in the equipment - - -

Okay?--- - - - your Honour.

And all this while you’re repaying the Commonwealth Bank on the loan, aren’t you?---Correct.

So from a cash flow perspective, you’re losing money, aren’t you?---It’s negative cash flow, yes.

And this machine – these machines, I should say, or these pieces of equipment, to your knowledge, are still being used?---I believe so. I wasn’t 100 per cent if they were being used at the time.

You didn’t make any inquires about whether they were still being used?---No.

So it was certainly possible to your mind that they were racking up machine hours every day?---it’s possible.

And to your mind that would reduce the value of those pieces of equipment, wouldn’t it?---Yes.

And that would then, of course, reduce your comfort in the level of security you had in the equipment?---The security in the equipment would be affected, correct.

And still you didn’t send any letter or any email to confirm what was happening with the rental arrangement or the equipment?---No, not at that point.

And you didn’t do that because this wasn’t a real transaction, was it?---It was a real transaction.

This was something you put in place with Mr Suarez in order to obtain finance only, wasn’t it?---To obtain – no. It was to say he could use that capital, or Slap Corporation, rather, could use that capital, and that capital was contributing to the purchase of a business called Argon Aluminum.

[underlining added]

  1. [104]
    The problem with the proposition put in the underlined section is this: the hire agreement was unnecessary to get finance from the CBA.  The finance was secured without the hire agreement being even mentioned in the finance application.  True it is that the hire agreement was a method of getting Associated repaid, but that could have been done by Slap Corporation entering into a loan agreement to repay Associated on security of the financed equipment.  I suppose it might be said that getting Evolution to undertake the liability by hiring the equipment back from Associated was a way of Slap Corporation avoiding any liability in the transaction, but that tends to suggest that there was a conspiracy by Mr Spong and Mr Suarez to trick Evolution.  This was never suggested in cross examination.  It also sits uneasily with how exposed Associated would have been to the CBA when Evolution discovered the conspiracy, which it must surely have done at some point over the hire period if it did not become the owner of Argon. A fortiori for Mr Spong senior, who had also lent money to Slap Corporation to buy Argon.
  2. [105]
    There is another oddity about the payments: payments were made sporadically from 1 July 2015.  However Mr Suarez and Evolution parted company at the end of May 2015.  Mr Spong found out about this in June 2015.  Yet sporadic payments kept being made by Slap Corporation in circumstances where there seems no rational reason why that would have been occurring.  Why this might have been happening was not explored.

Other events immediately following execution of the hire agreement

  1. [106]
    Events happened quickly after the execution of the hire agreement.

Repossession of the Huette 

  1. [107]
    As explained above (see paragraph [27] above), on 11 May 2015, just days after the execution of the hire agreement, the Huette was repossessed.  Mr Gallagher gave evidence that he spoke to Mr Spong within days to say how disappointed he was “to lose a machine like that due to not being funded”.[69]  Mr Spong initially did not recall the call but later agreed in cross examination that he was told at about that time about the repossession of the Huette.  Mr Spong said that he was told by both Mr Suarez and Mr Gallagher that it was a misunderstanding and would be sorted out.[70]  As will be seen, Mr Gallagher confirmed some such thing was said in the conversation by Mr Spong in relation to an assurance from Mr Suarez, though Mr Spong did not do anything to follow up that assurance or check it had been carried through.
  2. [108]
    Also odd was Mr Gallagher’s evidence given for the first time in cross examination that he also told Mr Spong that any assurance he had from Mr Suarez that the Huette problem would be sorted out should not be relied upon nor that Mr Suarez could be relied upon.[71]  Mr Gallagher did not give this evidence in chief.  Further Mr Shaw’s cross examination on the 11 May conversation was clearly well prepared.  He did not, however, suggest that Mr Gallagher had said any of those things. 
  3. [109]
    I do not accept that Mr Gallagher made the comments about Mr Suarez which he alleged in cross examination.  Apart from the circumstances of the giving of this evidence, at this time, the fall out between he and Mr Suarez was still to come.  He was still apparently leaving the financial affairs of the company in Mr Suarez’s hands. 
  4. [110]
    What is also remarkable about the conversation following repossession of the Huette is that neither party appears to have probed the other as to what the other party understood was going on with the equipment sale and hire back and the Argon purchase.  Even some basic questions would have probably revealed some of the inconsistencies in their respective understandings of the transactions they had entered and the circumstances surrounding them. 

Mr Suarez parts company with Evolution

  1. [111]
    It is worth recapping that Mr Suarez, first introduced as a consultant, quickly took over the financial affairs of the Evolution.  He appears to have frequently paid amounts on behalf of Evolution through Slap Corporation and put in significant claims for reimbursement, the 17 March 2015 document being an example.  There was also some suggestion of a merger between Evolution and Slap Corporation, though Mr Gallagher denied any such merger occurred.  It also appeared that Mr Suarez was reporting on other acquisitions involving significant funds in April 2015.  Mr Gallagher’s evidence on this was vague, but appeared to confirm that the transaction in question was under consideration.[72]  It will also be recalled that there were considerable oddities about the Argon acquisition and the dealings in the equipment which accompanied it. 
  2. [112]
    Mr Gallagher gave emotive evidence about the parting of ways with Mr Suarez.  He describes a situation where Mr Suarez was proposing that the business of Evolution be transferred to a phoenix company with the debts left in Evolution.  Whether that is fair to Mr Suarez I do not know.  It is clear from the contemporaneous email traffic between Mr Suarez and Mr Gallagher, that some takeover of Evolution by Slap Corporation was under consideration, and that Mr Gallagher did not have much understanding of what was involved.[73]
  3. [113]
    In any event, Mr Gallagher finally became sufficiently concerned about the financial affairs of the company and the implications of the contemplated “takeover” to take two steps. 
  4. [114]
    First, he rang Mr Spong.  This must have been about 25 May 2015.  I accept this call occurred.  It was not disputed at the trial and the cross examination seemed to accept it occurred.  It is also referred to in the emails.  The content of the discussion during the call is more obscure.  It seems clear that Mr Gallagher asked Mr Spong about the personal guarantees he had given for finance transactions involving Mr Spong.  Indeed, about a week later Mr Spong sent Mr Gallagher a copy of the contracts involving Associated (whether as broker or hirer, see paragraph [119]).  It included the hire agreement.  This call seems to have touched off open conflict with Mr Suarez.  The emails around this time are the only examples of substantive communications from Mr Suarez in all of this.  They reflect poorly on him.  They are replete with abuse and economic threats.[74]  They also confirm that there was a buyout intended and that the issue of concern was the personal guarantee.
  5. [115]
    Second, Mr Gallagher decided to go to a meeting proposed by Mr Suarez to sort everything out.  During an adjournment in the discussions, Mr Gallagher arranged an accountant and a solicitor to attend with him at the resumption.  Mr Suarez and “his” employees (who had joined Evolution at his behest) promptly resigned.
  6. [116]
    On 2 June 2015, a letter was sent by Evolution to Mr Suarez.  It was settled by a solicitor.  It belatedly raises many of the issues which have already been highlighted in this judgment.  It queries the ownership of Argon, payments made out to Slap Corporation by Evolution and concerns regarding “the transactions between Slap Corporation and [Associated] involving the two drill rigs and head”.[75]  Thereafter, despite the intemperate threats, there is no evidence that claims were made by Mr Suarez or Slap Corporation against Mr Gallagher or Evolution.
  7. [117]
    Mr Spong agreed that he was told of the parting of the ways between Mr Suarez and Mr Gallagher.  He gave evidence that his impression from the communications (so far as he recalled) was that the separation was not hostile.[76]  Given the evident anxiety which Mr Gallagher suffered and the aggression in Mr Suarez’s emails, it seems odd to the say the least that Mr Spong could have formed that impression.  That is particularly so given that Mr Spong had on-going dealings with Mr Suarez for about 18 months thereafter. 

The subsequent dealings between Evolution and Associated

  1. [118]
    The events between the departure of Mr Spong and the commencement of these proceedings were no less odd than those that came before.
  2. [119]
    First, on 3 June 2015, Mr Spong sent a copy of the Evolution contracts brokered by or entered into with Associated to Mr Gallagher, including the hire agreement.  Mr Gallagher gave evidence that he never had a telephone conversation with Mr Spong after that day.[77]  Mr Spong did not give any evidence to the contrary that I could locate.
  3. [120]
    Second, Mr Spong did not take any steps to investigate the fate of the Huette or the location or use of the other equipment.  He explained his inactivity by his satisfaction with his security.  He presumably means the fact that Associated’s interest as owner in the hired equipment was sufficient to cover the loan. The difficulty with that is that equipment is no good as security if it is lost, or damaged or used so heavily as to make it less valuable.  Mr Spong had no direct evidence that any of those things were not occurring.  His sanguine approach is reflected in his registration of a further PPSR security interest over the financed equipment, including the Huette, in January 2016 in anticipation of hire of the equipment to a company called Aligned Hire, in which Mr Spong had a partial interest.  Despite being told in May 2015 that the Huette had been repossessed by Hassalls, he gave evidence that he still did not know that the Huette was not in the possession of Evolution and did not take any steps to check.[78]
  4. [121]
    Third, Evolution was wound up on 31 March 2016.  On 1 April 2016, the liquidators apparently sent an email to the email address used by Associated on its PPSR registrations in relation to Evolution, seeking particulars of the securities.  Mr Spong said he was not aware of the email nor of the winding up until early 2017.  On 18 January 2017, his solicitors wrote to the liquidators asserting Associated’s rights in the Baretta and the Vibro head and enclosing the hire agreement.  Mr Spong took no steps to pursue Associated’s rights to payment under the hire agreement until that time.
  5. [122]
    Fourth, Mr Spong had on-going dealings with Mr Suarez and Slap Corporation until at least February 2017. 
    1. (a)
      In May 2016, Associated registered another security relating to an anticipated hire agreement with Aligned Hire which contemplated an on-hire from Aligned Hire to Slap Corporation of the Huette.  At this time, Mr Spong gave evidence that the Huette was believed by him to be in the possession of Slap Corporation, despite being told by Mr Gallagher for Associated that the Huette had been repossessed in May 2015 and despite him being aware that Slap Corporation and Associated had parted company; and
    2. (b)
      In January 2017, Mr Spong also asked Mr Suarez to obtain offers to buy the equipment, including the Huette, from potential purchasers to use in his claim against the liquidators.[79]  By this time, Associated had lost money on the hire agreement and the CBA loan (which it was repaying) as a result of dealing with Mr Suarez.  When asked why he would be dealing with Mr Suarez further, he said:[80]

…probably my logic would be trying to recoup some of the money. And I believed he had access to either sell the equipment or help me to recover the equipment.

  1. [123]
    Why he would think that remained unclear, especially as he knew liquidators had been appointed to Evolution by that time and Evolution was the last entity to possess the equipment.  Mr Spong also had some ongoing finance contracts with Slap Corporation at that time.  However, Mr Spong said he had not had contact with Mr Suarez since then, except for a text he did not respond to.  He said his father had not been fully repaid by Slap Corporation.  He considered suing, but Slap Corporation went into liquidation and Ms Pettit was made bankrupt.  He said he did not know where Mr Suarez was.  He said Mr Suarez was not a person he wanted to have anything to do with moving forward.

The liquidations 

  1. [124]
    Slap Corporation is in liquidation.  The witness statement of one of its liquidators was tendered without objection.  Mr Karageozis said that the books and records of the company contain no documentary evidence of payments being made by Slap Corporation to Evolution in relation to the alleged sale of the equipment in March 2015, nor any written agreement for such sale, save the Evolution Tax Invoice.[81]
  2. [125]
    A similar statement from one of the liquidators of Evolution states that a review of the books and records of Evolution leads to the same conclusions from Evolution’s perspective.  The books and records also, relevantly:
    1. (a)
      Contain no evidence of payment for the Huette;
    2. (b)
      Contain no evidence of a request from Evolution that Slap Corporation pay the hire instalments on the hire agreement; and
    3. (c)
      Contain no evidence of demands under the hire agreement from May 2015 to March 2016.
  3. [126]
    The plaintiff commenced proceedings against Evolution and the liquidators in July 2017.  In April 2019, the plaintiff settled proceedings against the first and second defendant for $103,000 along with costs of $22,000.  The Settlement Deed comprised a payment in respect of the Baretta and the Vibro head.  The Huette was not included.  The reason it was omitted is not proved directly, though one might infer it was because the liquidators never had possession of the Huette.[82] 

Joinder of Mr Gallagher

  1. [127]
    No direct evidence of the joinder application was tendered.  However it was admitted on Mr Gallagher’s defence, at least by implication, that an application to join him to these proceedings, relevantly, as guarantor was served on him which included a draft of the current pleading asserting claims under the guarantee.[83]

Observations on the witnesses’ accounts

  1. [128]
    Not surprisingly, given the improbability of much of the evidence, each of the parties’ submissions attacked the reliability of the other party’s evidence. 
  2. [129]
    The plaintiff pointed to the following considerations:[84]
    1. (a)
      The unreliability of Mr Gallagher’s evidence that he relied on Mr Suarez for assurances about payment of the Huette and continued to believe them despite the emails from Mr Frend;
    2. (b)
      The improbable nature of Mr Gallagher’s evidence that he believed the transfer of the equipment was to take place only after Argon was transferred to Evolution, given that at the time he signed the hire agreement he knew Argon was owned by Slap Corporation and had raised no complaint about that matter; and
    3. (c)
      Mr Gallagher did not register Evolution’s interest in the equipment on the PPSR and did not do anything about the apparent takeover of Evolution by Slap Corporation.
  3. [130]
    I do not find the last matter as demonstrating Mr Gallagher’s evidence to be self-serving and unreliable.  The first two, however, seriously impugn Mr Gallagher’s reliability.  His evidence about the Huette is particularly troubling.  He seemed in the witness box to have convinced himself that it was all Mr Suarez’s responsibility and that he had not known that Evolution had never paid for the Huette.  The facts demonstrate that was wrong.  I find that Mr Gallagher knew that the Huette had never been paid for.  That Mr Gallagher should have been so certain about that matter reveals a capacity for self-serving recollection.  His evidence on the dealings with the Huette is made even more incredible given his view that the machine was a “gold mine” for his company, bought at an extremely low price, but he did nothing to ensure it was retained. 
  4. [131]
    There are many other examples where Mr Gallagher’s evidence is improbable or inconsistent with contemporaneous documents.  His evidence about his understanding of the transactions involved in acquiring Argon for Evolution was incredible.  His evidence about why the transfer of the equipment to Slap Corporation was necessary was unintelligible.  He accepted that the hire agreement bound Evolution to pay the hire payments, but said that that obligation was conditional.  Yet no condition appeared in the hire agreement or anywhere else in the documentary record.  His evidence that he thought the agreement was a mortgage was incredible (see paragraph [93] above).  There are other specific comments about matters going to Mr Gallagher’s credit in my summary of the evidence above.
  5. [132]
    Overall, I do not find him a reliable witness and do not accept his evidence except where it is demonstrably credible by reference to other evidence which I accept as reliable, either because it is consistent with contemporaneous documents which I accept or otherwise inherently probable in the context of other facts I accept.  I do not think, however, that Mr Gallagher was being dishonest in his evidence.  In my judgment, having observed Mr Gallagher in the witness box and reflected on the whole of his evidence, Mr Gallagher’s difficulties arose from the fact that he appeared to me to be naïve and gullible in commercial affairs (despite his obvious technical ability).  That shortcoming in commercial nous was aggravated by a personal pride in his integrity and ability, which made it difficult for him to accept errors he had made in managing the affairs of Evolution and in his dealings with Mr Suarez and made I difficult for him to concede his lack of understanding of what had gone on in Evolution’s affairs.
  6. [133]
    One consequence of this characterisation of his evidence is that I do accept his overall narrative.  That is, I accept that he believed the transactions the subject of these proceedings were for the purpose of acquiring Argon and that he accepted Mr Suarez’s assurances that that was the purpose of them (incredible though that might seem).  I accept that because it is consistent with the concrete steps he took in signing the Evolution Tax Invoice and the hire agreement, which otherwise seem hard to explain, and are consistent with someone relying on the advice of another without much independent thought and judgment.  However, that subjective belief has little role to play in the resolution of most of the issues which arise in this proceeding.
  7. [134]
    Ms Cheyne’s evidence was reliable so far as it went.  However, her role was as office administrator, not as a commercial manager.  I infer she has limited commercial experience.  This is probably the explanation for the lack of reaction to the circumstances of the Argon acquisition, would have caused a more experienced person to react with skepticism.
  8. [135]
    The third defendant’s submissions in turn attack Mr Spong’s evidence with perhaps even more vigour.  Some of those matters involved errors in Mr Spong’s evidence which did not seem to me to be material.[85]  However, Mr Gallagher also pointed to the following matters of substance:
    1. (a)
      Mr Spong’s inability to explain the repayment to Slap Corporation of instalments apparently paid under the hire agreement;
    2. (b)
      Mr Spong’s inactivity following the chronic default in payments under the hire agreement and his failure to pursue Mr Gallagher until the joinder application in 2018; and
    3. (c)
      Mr Spong’s failure to take possession of the equipment and his evidence that he was content to “rely on his security” despite the repossession of the Huette and his lack of knowledge of where and how the other equipment was used.
  9. [136]
    Mr Shaw, for the third defendant, also pointed to Mr Spong’s failure to contact Mr Gallagher directly in the period February to April 2015.  The lack of direct dealing between the two is unusual, but this is just as true of Mr Gallagher.  He also pointed to the continued dealings between Mr Spong and Mr Suarez after May 2015.  That is certainly odd, though it is hard to be confident what it signifies.  I deal with the Jones v Dunkel point below.
  10. [137]
    The matters raised in paragraph [135] are just some of the examples which show a strange insouciance by Mr Spong in relation both to the transactions to which Associated was a party.  Other matters include:
    1. (a)
      The unexplained failure to seek security over Argon;
    2. (b)
      The lack of curiosity about why Slap Corporation would be conveniently acquiring the equipment from Evolution then arranging for it to be hired back to Evolution with Slap Corporation paying the hire instalments;[86]
    3. (c)
      The unusual transactions in the equipment on the PPSR in 2017 without inquiry as to the location or use of the equipment, especially the Huette, including dealings with Slap Corporation; and
    4. (d)
      The odd fact that intermittent payments kept coming in from Slap Corporation of hire instalments until December 2015, despite Mr Spong knowing that Mr Suarez and Mr Gallagher had gone their separate ways.
  11. [138]
    Unlike Mr Gallagher, there was scant examples where Mr Spong’s evidence could be directly contradicted by other evidence.  Further, Mr Spong did not exaggerate or appear to reconstruct parts of his evidence in the way Mr Gallagher did.  However, I harbour concerns as to the reliability of his evidence for two reasons:
    1. (a)
      His account shows such careless disregard for ordinary commercial prudence as to make much of his evidence seem improbable; and
    2. (b)
      He frequently gave evidence that he could not recall points of detail where I would expect him to have some recollection, given the recent nature of the events involved.
  12. [139]
    There is a big difference, however, between having concerns about the reliability of Mr Spong’s evidence and concluding that some other specific events occurred.  The alternative which the third defendant might have contended for is that the improbabilities of Mr Spong’s evidence pointed to a conspiracy between him and Mr Suarez to the detriment of Evolution and Mr Gallagher.  However:
    1. (a)
      No such conspiracy was pleaded nor put to Mr Spong. 
    2. (b)
      The uncontested evidence told against such a conspiracy because in the end, Associated and Mr Spong’s father have been left with substantial real losses on these transactions. 
    3. (c)
      There is no direct evidence of Mr Spong having insight into what was going on at Evolution.  The documents show him acting consistently with his stated understanding from Mr Suarez that Slap Corporation was buying Argon in April 2015. 
  13. [140]
    The explanation of the oddities in Mr Spong’s evidence might be that he is a person who conducts Associated’s business in the most trusting and casual way.  It is difficult to be sure, however, that this is a full explanation of what has occurred.
  14. [141]
    Bearing those matters in mind, I also must treat Mr Spong’s evidence with some care and generally I have looked to some objective corroboration to accept it on disputed points.  However, there is no basis entirely to reject his evidence.  As with Mr Gallagher, I accept his overall narrative that he believed the transactions were to fund Slap Corporation to acquire Argon because that is consistent with the concrete steps he took and the contemporaneous documents. 
  15. [142]
    The real difficulty in this case seems to arise from the fact that Mr Suarez was relied upon by both parties, and neither party had substantive direct discussions about what they believed was going on.  It is difficult to avoid suspicions about the propriety of Mr Suarez’s dealings with both parties in this case.  His conduct at the end of the relationship with Evolution tends to add to that suspicion.  However, I am conscious that he was not before the Court to give his version of events.  The case can be resolved without making any findings about that matter.
  16. [143]
    It will be necessary to make further specific findings to resolve the issues in this proceeding.  I do so when analysing the issues.

Jones v Dunkel issue

  1. [144]
    Mr Shaw urged me to draw a Jones v Dunkel[87] inference arising out of Mr Spong’s failure to call Mr Suarez.  I decline to do so.  Mr Spong’s continued dealings with Mr Suarez until early 2017, though odd, is not such as to lead me to conclude that Mr Suarez was in Mr Spong’s camp at that time.  Slap Corporation still owed Mr Spong’s father money, and there appears to have been other agreements on foot.  Mr Spong’s evidence that he was trying to get payments made is credible. 
  2. [145]
    In any event, Mr Spong gave evidence that by the time of this trial, Mr Suarez had disappeared and he had not been able to be located.  That was never challenged.  Further, it was not challenged that Slap Corporation still owed money to Mr Spong Senior.  Finally, there is grounds for suspicion (no more) that Mr Suarez might not have dealt properly with Mr Spong.  I see no sufficient basis to infer that Mr Spong would be expected to have called Mr Suarez and did not do so because of his fear as to what Mr Suarez would say.
  3. [146]
    Further, even if Jones v Dunkel did apply, it was unclear to me how that would have assisted the third defendant.[88]  The Jones v Dunkel inference is limited to an inference that Mr Suarez’s evidence would not have assisted Mr Spong.  However, any such inference was not linked to any particular finding favouring Mr Gallagher would could be more comfortably drawn.  The problem in the case in large part seems to have been that only Mr Suarez knew what was truly occurring, and both of the parties to this case suffered genuine losses (or are exposed to genuine losses in this proceeding) because of their reliance on Mr Suarez.
  4. [147]
    Mr Shaw also raised the failure to call Ms Pettit as a matter giving rise to a Jones v Dunkel inference. However, the onus was on the third defendant to establish on evidence that I should infer that the reason she was no called was because Mr Spong feared to call her.  However, no sufficient foundation was laid to draw the inference.  One obvious reason she was not called is that she had nothing to do with the dealings the subject of the proceedings except to swear the statutory declaration.  There was no detailed cross examination as to why he accepted the declaration from her.  Further, the point made in the previous paragraph also applies to the failure to call her. 

The issues

  1. [148]
    The third defendant does not dispute that he executed the hire agreement for Evolution nor that he signed the Guarantee.  He does not dispute the terms of either document.  Nor is there any genuine dispute that the payments under the hire agreement were not made.  The issues which arise in respect of the Guarantee are these.
  2. [149]
    First, the plaintiff alleges that it was the owner of the equipment and pleads:
    1. (a)
      That Slap Corporation became the owner of the equipment by purchasing it from Evolution in or about 12 March 2015 as evidenced by the Evolution Tax Invoice; and
    2. (b)
      That Associated became the owner of the equipment by purchasing it from Slap Corporation, as evidence by the second Slap invoice.
  3. [150]
    The third defendant denies both propositions:
    1. (a)
      In respect of the Huette, because it should be inferred that Evolution never had title to it; and
    2. (b)
      In respect of all of the equipment, because there is insufficient evidence to conclude that either sale occurred.
  4. [151]
    Second, if the plaintiff was not the owner of the equipment, the third defendant contends that, on the proper construction of the hire agreement, no consideration moving from the plaintiff and accordingly no principal debt arose.  The third defendant contends this follows even if just the Huette was not owned by the plaintiff.  Mr Gallagher also puts the unpleaded alternative proposition that the hire agreement was frustrated by reason of Associated’s lack of title to some or all of the financed equipment.
  5. [152]
    The plaintiff disputes that even if Associated was not the owner of some or all of the equipment, there was no consideration under the hire agreement because it is sufficient if Associated had a “lesser interest” for consideration to flow under the hire agreement.
  6. [153]
    Third, the third defendant submits that the hire agreement was a sham.  The plaintiff disagrees.
  7. [154]
    Fourth, if the hire agreement was otherwise valid, the third defendant submits that no demand has been given under the Guarantee and that on the proper construction of the Guarantee, a demand was necessary.  The plaintiff submits that the application for joinder was a valid demand under the Guarantee.
  8. [155]
    Fifth, if the Guarantee is valid, the third defendant submits that the plaintiff had a duty to mitigate its loss under the hire agreement and failed to do so by getting possession of the equipment or hiring it to another party.
  9. [156]
    If the Guarantee is found to be unenforceable against Mr Gallagher, Associated advances two alternative claims.
  10. [157]
    Associated firstly alleges, in broad terms, that Mr Gallagher is bound by an estoppel by convention which has the consequence that he is liable for the sum which would have been payable if the Associated had good title to the equipment.  The third defendant rejects any convention was adopted as alleged by Mr Gallagher and disputes the consequence of any such estoppel.
  11. [158]
    Associated secondly alleges that if the Guarantee is not binding, then Mr Gallagher is liable for damages for misleading or deceptive conduct, that conduct being the issue of the Evolution Tax Invoice knowing it was to be used to obtain finance from Associated in circumstances where Mr Gallagher knew some or all of the equipment had not been sold to Slap Corporation.  Associated alleges Mr Spong relied on that to borrow the funds from the CBA which were paid to Slap Corporation and lost.  It therefore claims the net loss on the sums repaid to the CBA.  It pleaded, but did not press at trial, any alternative measure.
  12. [159]
    Mr Gallagher disputes:
    1. (a)
      That any relevant representation arose out of the issue of the Evolution Tax Invoice; and
    2. (b)
      That Mr Spong did not rely on the Evolution Tax Invoice to borrow from the CBA to pay Slap Corporation.

Did Associated own the equipment?

  1. [160]
    For Associated to establish that it owned the equipment (as it pleads), it needs to make good the chain of title from Evolution, to Slap Corporation, to Associated and must do so in respect of each item of the equipment.

Alleged sale of the equipment from Evolution to Slap Corporation 

The Huette

  1. [161]
    There is no dispute that Evolution was the owner of the Baretta and the Vibro Head.  So the chain of title for those items can start from the premise that Evolution could confer good title to those items on Slap Corporation.  The position with the Huette is different.
  2. [162]
    It might be thought that Evolution never obtained title to the Huette simply because it was bought at auction, never paid for, and repossessed by the auction house without any objection from Evolution (or anyone else for that matter, including Associated).  The third defendant’s trial submissions proceed on that assumption.  It is unclear that that is necessarily correct.  The terms of the auction sale contract do not appear to contemplate delivery before payment at all and do not directly deal with when title passes.[89]  Further, it is otherwise unclear whether title passed in the Huette pending payment.  The evidence does not permit an assessment of that matter: see ss. 20 and 21 Sale of Goods Act 1896 (Qld). 
  3. [163]
    Whether title has passed in turn informs whether the unpaid seller can repossess the goods or is limited to a claim for the price or damages[90] (assuming the seller is not in possession of the goods: see Part 5 Sale of Goods Act).  However, while it might have been theoretically possible to show that Evolution obtained good title to the Huette despite never paying the purchase price, there was no evidence to sustain that proposition.  The onus lay on Associated to make good its allegation that it received good title to the Huette.  It has not made good that allegation.  As will be seen, Associated’s written submissions did not seek to maintain that allegation, though it did not formally abandon it.[91] 

The sale from Evolution to Slap Corporation

  1. [164]
    The third defendant also contended that (regardless of the particular considerations relating to the Huette), there was never a transfer of title by sale from Evolution to Slap Corporation.  The evidence of a sale between Evolution and Slap Corporation is unsatisfactory.  To determine whether there was in fact a sale of the financed equipment and on what terms, the only evidence available is the Evolution Tax Invoice and Mr Gallagher’s evidence about his contemporaneous discussions with Mr Suarez about the transfer of the equipment. 
  2. [165]
    Although, in broad terms, the effect of Mr Gallagher’s evidence seemed to be that he understood that he would transfer title in the equipment to Slap Corporation in return for the transfer of Argon from Slap Corporation to Evolution, I am unable to extract from his evidence any sufficiently certain agreement for the sale of the equipment. 
  3. [166]
    I was not assisted in this by the plaintiff, who did not develop any submissions on the evidence as to how I could extract from Mr Gallagher’s sometimes incoherent and ambiguous evidence any certain contract on any particular terms (especially as to the passing of title).
  4. [167]
    Further, Mr Shaw pointed out that there was no basis to believe that the price was ever paid for the equipment.  That certainly appears to be correct: there was no evidence of any payment in the books and records of either company, nor of the forgiveness of any debt between the two companies by way of consideration.  (One would not expect that of course because there was apparently no promise by Mr Suarez to do either.)  Further, Argon was never transferred (if it was ever acquired, which is doubtful).  Of course, as I have already observed, if title had passed under any contract of sale, Evolution might not have been able to re-vest title in the goods for non-payment.  However, that depends on title having passed, which is impossible to determine from the evidence.  Further, even if title had passed, Evolution was at all times in possession of the equipment, it so may have been able to rely on the rights of an unpaid vendor in possession under the Sale of Goods Act.
  5. [168]
    All of this simply highlights the impossibility on the evidence given at trial of concluding that there was a binding and certain contract of sale for the equipment pursuant to which title ever passed. 

Conclusion

  1. [169]
    Associated has not made out that Slap Corporation ever obtained title to any of the financed equipment.

Alleged sale from Slap Corporation to Associated

  1. [170]
    Again the plaintiff did not develop a positive case that there was a sale of the financed equipment from Slap Corporation to Associated.  The point is largely moot if the plaintiff does not establish that Slap Corporation had title to pass to Associated.  However, to the extent Slap Corporation had title, I am satisfied that there was a contract of sale from Slap Corporation to Associated of the equipment.  Mr Spong gave evidence of his discussions with Mr Suarez about this which was much clearer than Mr Gallagher’s evidence.  If one accepts Mr Spong’s evidence on this point as reliable, it is plain that he agreed with Mr Suarez to buy the equipment from him for the sum in the second Slap invoice.  In my view, despite my concerns about much of Mr Spong’s account, I do accept his evidence in this regard.  Contemporaneous documents show that the purchase of the financed equipment was part of the funding process for Associated from early March 2015.  Associated’s payment of the consideration using funds borrowed from an external lender also corroborates his account. 
  2. [171]
    I do not think the informal way that this agreement was made and carried out is a reason not to accept his evidence.  Mr Spong appears to have conducted Associated’s business in an informal way.  The only other likely explanation for his evidence is that it was a part of an unrevealed conspiracy to achieve some other collateral purpose (i.e. other than funding Slap Corporation’s Argon purchase).  I am not satisfied any such conspiracy existed.  However, there was no basis to find that caveat emptor did not apply to Associated when acquiring the financed equipment.  I am not persuaded that Slap Corporation ever obtained title.  I am therefore not persuaded that Associated ever obtained title.

Did any obligation arise under the Guarantee?

  1. [172]
    Counsel for Mr Gallagher’s substantive contentions were these:
    1. (a)
      If Slap Corporation never had title to the financed equipment, then Associated never obtained title;
    2. (b)
      On the proper construction of the hire agreement, Associated had to hire as owner and if it did not, then no consideration passed from Associated under the hire agreement and it was unenforceable by Associated; and
    3. (c)
      If no enforceable obligations arose under the hire agreement, there was no principal obligation and therefore no obligation to which the Guarantee could apply.
  2. [173]
    The plaintiff’s counsel’s submission in this regard was articulated in writing as follows:[92]
  1. It is the Plaintiff’s case that, on the evidence, the Agreement can be found to be valid, and as such the Guarantee remains in force. While it is pleaded that Associated equipment had clear title to the equipment, a finding as to this is not necessary to determine the validity of the Agreement.
  1. As canvassed by the Court, the Agreement does not provide that Associated equipment holds clear title in the equipment. In contrast to what is submitted by Mr Gallagher, it is submitted as possible at law for the equipment to be provided, for example, under a lesser interest. On Mr Gallagher’s own evidence, the machinery was being transferred to Slap Corp for the purpose of raising finance, and Evolution Piling was agreeing to hire the machinery back.
  1. If it is accepted that the interest transferred from Slap Corp to Associated equipment was sufficient to allow for the Agreement to be entered into, then the Agreement would stand on its own terms. The purchase option contained within the Agreement is in accordance with the evidence of Mr Gallagher – at the end of the term, Evolution Piling would be able to regain clear title in the machinery. Until that time, the amount due under the Agreement was required to be paid. At the end of the term, for a minimal payment, Associated equipment would hold no further interest in the equipment.

[Footnotes omitted]

  1. [174]
    It can be seen that at the heart of the plaintiff’s submission is the proposition that, even if Associated did not have good title to the financed equipment, it was sufficient if it had a lesser interest.  However the plaintiff does not explain what that lesser interest might be (and no such interest was pleaded).  The lesser interest seemed to arise out of the Mr Gallagher’s evidence that he was transferring the equipment to Slap Corporation to raise finance.  However, I do not understand what interest that would give rise to, if there was no transfer of title under a sale from Evolution to Slap Corporation, and the plaintiff did not explain the point. 
  2. [175]
    There seem to be others contentions advanced however.
  3. [176]
    One contention appears to pick up on comments I made at trial.  Mr Grant seems to contend that it is sufficient for the hire agreement to be valid that Associated promises to hire the financed equipment as owner.  That promise is argued to be sufficient consideration to make the hire agreement binding on Evolution.  According to this argument, it is immaterial that Associated is not in fact able to hire as owner, at least until the time comes when Associated must perform a promise under the hire agreement which requires it to be the owner of the financed equipment. That point only arises, according to the plaintiff, when the time for exercise of the option arises at the end of the hire period.  I am not sure, frankly, that this contention was advanced by the plaintiff, but if it is, I reject it. 
  4. [177]
    The promise made by Associated on the proper construction of the hire agreement is to hire the financed equipment to Evolution as owner.  The hire agreement expressly identifies Associated as the owner (and see clauses 1.1 and 9.1) and there is no reason not to give that word its ordinary meaning.  The time for Associated to perform its promise to hire the equipment to Evolution as owner arises at the commencement of the hire agreement.  If Associated is never the owner of the equipment, then it can never perform its promise.
  5. [178]
    However, the necessity to be the owner as a matter of law is a moot point because I find that Associated never performed its central promise to hire the equipment to Evolution in any event.  The Huette was never provided to Evolution under the hire agreement: there was never any hire of that machine because it was never supplied to Evolution by Associated to use (see the definition of equipment and see clause 2.2).  The other pieces of the equipment at all times remained the property of Evolution.  Evolution could not hire machinery which it already owned and had in its possession.  Accordingly Associated never performed its central obligation under the hire agreement to hire the equipment to Evolution (see clause 2.1), not for even one moment.
  6. [179]
    It is plain from the hire agreement that the promise to pay the hire rate under clause 2.1 is conditional on the performance by Associated of its promise to hire the equipment to Evolution.  Any other construction would be absurd.  No obligation to pay any hire rate arose until the equipment was supplied by Associated to Evolution to use.  As that never happened, no obligation to pay any amount under the hire agreement ever arose.
  7. [180]
    This point is the foundation of the third defendant’s attack on the claim on the Guarantee.  Mr Shaw submits that if no amount was ever legally required to be paid under the hire agreement, then there is no money sum to which the Guarantee can respond.  That is consistent with the language of the Guarantee.  The plaintiff did not contend to the contrary, at least so far as I could discern.
  8. [181]
    Accordingly, I conclude that no obligation arose under the Guarantee to pay any sum to Associated.

The third defendant’s approach to validity of the agreements 

  1. [182]
    Before leaving this issue, I refer to the allegation in the Amended Defence (repeated in respect of the sale from Slap Corporation to Associated and the hire agreement) that the agreements were discharged by frustration (because of the lack of title to the Huette or the other financed equipment) or that no enforceable contract was formed because the consideration from Slap Corporation or Associated respectively, wholly failed.[93]
  2. [183]
    I do not think either proposition of itself answers the plaintiff’s case on any of the agreements.
  3. [184]
    For the sale agreements, it does not ordinarily frustrate a sale of goods that the seller has no title to the goods it agrees to sell.  The risk that the seller will not have title or be prevented from making title on goods the seller sells will, absent some specific agreement, lie with the seller. 
  4. [185]
    Similarly, the complaint of the third defendant that the agreements were not enforceable contracts because “the consideration from [the relevant party] failed” is also not a correct proposition of law. The promise to sell goods and the promise to hire goods are good consideration and capable of giving rise to a binding contract.  The consequences of a promisor failing to perform the promise by not actually providing the consideration does not make the contract unenforceable absolutely.  It can of course have the consequence that the party in breach is not able to call for any performance by the other party, though that depends on the nature of the breach and the circumstances of the particular contract.  So, as here, where the hirer never provides any goods promised for hire, no obligation to pay arises.  However, where the price is not paid for goods sold to another party, the consequences can be quite different.  As a general proposition, therefore, the third defendant’s proposition does not answer the plaintiff’s allegations. 

Was the hire agreement a sham?

  1. [186]
    The conclusion that no liability arises under the hire agreement or the Guarantee makes the question of whether the hire agreement is a sham less relevant.  However, it might still be relied upon by the Mr Gallagher to answer the alternative claims by Associated.  If the hire agreement and Guarantee are held to be shams, it might impact on those claims. 

Relevant principles

  1. [187]
    A summary of the principles applied in identifying a “sham” transaction was given in Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 82 ALR 530 at 536 where Lockhart J (with whom Foster J agreed) observed:

The nature of "sham" transactions

The meaning of the word "sham" has been considered in many cases. In Scott v. Federal Commissioner of Taxation (No. 2) (1966) 40 ALJR 265 Windeyer J. said at 279:

"On the other hand, if the scheme, including the deed, was intended to be a mere facade behind which activities might be carried on which were not to be really directed to the stated purposes but to other ends, the words of the deed should be disregarded ... A disguise is a real thing: it may be an elaborate and carefully prepared thing; but it is nevertheless a disguise. The difficult and debatable philosophic questions of the meaning and relationship of reality, substance and form are for the purposes of our law generally resolved by asking did the parties who entered into the ostensible transaction mean it to be, and in fact use it as, merely a disguise, a facade, a sham, a false front - all these words have been metaphorically used - concealing their real transaction ..."

I shall have occasion to refer again to this passage later in this judgment.

Diplock L.J. described the "popular and perjorative word" sham in Snook v. London & West Riding Investments Limited (supra) at 802 in these terms:

"I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the 'sham' which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities ... that for acts or documents to be a 'sham', with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating."

A "sham" is therefore, for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive.

[emphasis added]

  1. [188]
    Later cases adopt this approach of focusing on the intention of both parties to a transaction and considering whether they intend to give effect to the ostensible transaction or intend that transaction to conceal a different legal relationship or no legal relationship at all from third parties or the Court. 
  2. [189]
    In Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at [46], the High Court held:

Each of these transactions was legally effective. None of the transactions that took place on 30 June 1989 could be said to be a sham. The primary judge was wrong to characterise them, as he did by his references to "artifice", "façade" and "charade", as shams. "Sham" is an expression which has a well-understood legal meaning. It refers to steps which take the form of a legally effective transaction but which the parties intend should not have the apparent, or any, legal consequences. [referring to Sharrment]

  1. [190]
    Similarly, in Raftland Pty Ltd v Commission of Taxation (2008) 238 CLR 516, a case dealing with entitlement to income of a trust, the majority held (omitting footnotes):

[33]  ... In various situations, the court may take an agreement or other instrument, such as a settlement on trust, as not fully disclosing the legal rights and entitlements for which it provides on its face. If that be so, the parol evidence rule in Australia identified with Hoyt’s Pty Ltd v Spencer does not apply.

[34]  One such case is where other evidence of the intentions of the relevant actors shows that the document was brought into existence “as a mere piece of machinery” for serving some purpose other than that of constituting the whole of the arrangement. That, in essence, is the respondent’s case with respect to the alleged existence of the “present entitlement” of the trustee of the E & M Unit Trust to the income of the Raftland Trust.

[35]  The term “sham” may be employed here, but as Lockhart J emphasised in Sharrment Pty Ltd v Official trustee in Bankruptcy the term is ambiguous and uncertainty surrounds its meaning and application. With reference to remarks of Diplock LJ in Snook v London and West Riding Investments Ltd,7 Mustill LJ later identified as one of several situations where an agreement may be taken otherwise than at its face value, that where there was a “sham”, the term, when “[c]orrectly employed”, denoted an objective of deliberate deception of third parties.

  1. [191]
    It is not necessary in order to conclude that a transaction is a sham, that the plaintiff prove the alternative transaction for which the sham transaction is a disguise.  It is sufficient if the impugned transaction is a disguise for no transaction at all.[94]  The whole of a transaction or suite of transactions does not have to be identified as a sham for the principle to apply.  A part only of a transaction or instrument might be characterised as a sham.[95]
  2. [192]
    The real difficulty in cases where an allegation of sham is made is in the application of those principles.  In Sharrment, Lockhart J identified a number of matters which  might assist in characterising a transaction as a sham (at 537-538):
  1. First, the fact that the transaction involved a round robin of cheques does not necessarily establish that the transaction is a sham, even when no party has funds to meet the cheques: Re Barnett; Perpetual Trustee Co. Limited v. Barnett (1969) 2 NSWR 721.
  1. Second, the artificiality of the transaction does not give rise to its characterisation as a sham or to the characterisation of the constituent documents as a sham so long as each document "had the effect that it purported to have", and so long as none of the documents purported "to do something different from what the parties had agreed to do": Inland Revenue Commissioners v. Littlewoods Mail Order Stores Limited (1962) 2 All ER 279 per Lord Reid at 285.
  1. Third, the complexity of the transaction does not in itself establish its character as a sham. In Coppleson's Case (supra) Hunt J. of the Supreme Court of New South Wales considered a gift to a hospital of redeemable preference shares instead of cash. His Honour observed at 4023 that the fact that "the transaction became complex and elaborate rather than simple and straightforward does not seem to me to affect its true nature if in legal form it is a gift and if the parties thereto intended it to be operative according to its tenor".
  1. Fourth, a purported disposal of property, and by analogy a purported creation of a debt, may be a sham where donor and donee (or lender and debtor) do not intend to give effect to the transaction, it being agreed between them that there will be no change in the legal and beneficial ownership of the property...
  1. Fifth, the fact that the transactions of 1979 may have been intended by Mr. Wynyard to present a shield against creditors does not, absent the transactions being set aside under the relevant provisions of the Bankruptcy Act, characterise them as a sham. The transactions may in themselves be legally effective although intended to achieve an unacceptable purpose. In Miles v. Bull (supra) Megarry J. said at p 264:

"A transaction is no sham merely because it is carried out with a particular purpose or object. If what is done is genuinely done, it does not remain undone merely because there was an ulterior purpose in doing it."

Megarry J. went on to observe that in the context of determining whether a sale of property was a sham so as to allow a defence to an action for possession that:

"mere circumstances of suspicion do not by themselves establish a transaction as a sham; it must be shown that the outward and visible form does not coincide with the inward and substantial truth." (at 264)

  1. [193]
    There are many cases where allegations of sham have been advanced and, less commonly, upheld.  Ultimately, each case has to be determined on its own facts.

The hire agreement and Guarantee were not sham transactions

  1. [194]
    Mr Gallagher signed the hire agreement and Guarantee and gave evidence that he understood Evolution had to pay the hire rates under the hire agreement on a number of occasions.[96]  This is an unlikely foundation for establishing that those agreements were shams.
  2. [195]
    The argument of the third defendant appeared to have two steps.
  3. [196]
    The first step was that the Court should find as a fact that none of the tax invoices reflected actual sales, and were produced merely to trick the external financier into advancing funds to Associated for the acquisition of Argon. The next step was that the Court should find that the hire agreement and Guarantee were also not intended to be binding because (so far as I could tell) those agreements were further steps in process of misleading the financier so that Associated could obtain finance.
  4. [197]
    A further variation on that theme, advanced in oral argument, was that Mr Gallagher’s intention when signing the Evolution Tax Invoice and presumably the hire agreement and Guarantee was that it was done on condition that Evolution would receive Argon in return.
  5. [198]
    In my view, the hire agreement and Guarantee were not sham transactions.
  6. [199]
    As to the first step, while I accept that there were many oddities about Mr Spong’s conduct in relation to the transactions generally, I am not persuaded that from his perspective, the sale of the financed equipment from Slap Corporation to Associated was a disguise for some other transaction or no transaction.  I considered the issues pointed to by Mr Shaw in paragraph 29 of the third defendant’s trial submissions.  I will not deal with them individually.  It is sufficient to repeat my overview of Mr Spong’s evidence in paragraph [139] above and my analysis of the Slap Corporation/Associated sale in paragraphs [170] and [171] above.  Despite the oddities in his commercial conduct, Mr Spong and his father ultimately had much to lose if Slap Corporation did not have title to pass to Associated.  Further, the inevitable consequence of the third defendant’s argument is that in relying on the tax invoices in Associated’s finance application, Mr Spong might have engaged in a deliberate fraud on the CBA.  No such proposition was pleaded or put to Mr Spong.  I reject the first step in the plaintiff’s sham argument. That conclusion has the necessary consequence that the next step in the argument also fails.
  7. [200]
    As to the further argument advanced orally, even if it were accepted that Mr Gallagher subjectively believed that the hire agreement would not be binding unless and until Argon was transferred to Evolution (and I would not make such a finding in any event), that would not be sufficient to make that agreement a sham, not least because there is no basis to find that Mr Spong knew that matter.  Even if it he did, that situation would not make the hire agreement a sham.  It might provide a foundation for relief in equity for unilateral mistake if it were thought that Mr Spong had taken unconscientious advantage of Mr Gallagher’s misunderstanding.  If might also provide a foundation for argument that there was a collateral contract or perhaps that the hire agreement did not record the whole of the parties’ agreement.  However, it would not make the hire agreement a sham.

The misleading or deceptive conduct claim

  1. [201]
    The plaintiff opened its misleading and deceptive conduct claim in a simpler and more direct manner than in its pleading.[97]  No objection was taken to this at trial.  In the plaintiff’s opening, the case was put in this way:
  1. Further, if the Court finds that Evolution –

a. did not have property in the Hutte such that it could be sold by Evolution to Slap, and/or

b. did not sell the equipment to Slap,

then Associated equipment claims that Mr Gallagher signing the invoice of Evolution to Slap was a breach of the ACL.

  1. In particular, Associated equipment submits Mr Gallagher has breached section 18 of the ACL, in that it was misleading or deceptive for Mr Gallagher to issue the invoice on behalf of Evolution to Slap Corporation in circumstances where –

   a. the invoice reflected the unconditional sale of –

i. a piece of property Evolution did not have the right to sell; and

ii. property that Evolution did not intend to transfer to Slap; and

   b. Mr Gallagher knew the property covered by the invoice was to be used as security for the extension of finance by a finance provider: National Exchange Pty Ltd v ASIC (2004) 49 ACSR 369 at [18] and [38].

  

  1. Associated equipment relied on the invoice as evidencing the unconditional sale of the property identified therein from Evolution to Slap. In the absence of proof of sale of the property to Slap, Associated equipment would not have –

   a. proceeded to purchase the equipment and the Hutte from Slap; and

   b. entered into the equipment loan agreement with CBA to finance the purchase from Slap, thereby incurring interest charges on the money borrowed in addition to the obligation to repay the amount financed.

  1. [202]
    The third defendant responded with equal brevity.  He submitted that:[98]
    1. (a)
      The case on misleading conduct fails because a signed tax invoice from Evolution to Slap Corporation was not a representation by Mr Gallagher to Associated that Slap Corporation owned the financed equipment or that title passed at a particular point, but was at best a request for payment; and
    2. (b)
      Mr Spong did not place any reliance on the conduct alleged, or if he did, it was not reasonable to so rely.

The Evolution Tax Invoice was misleading

  1. [203]
    The following facts are uncontentious or have been found already in the course of these reasons:
    1. (a)
      Evolution never had title to the Huette;
    2. (b)
      Evolution did have title to the other items of the equipment
    3. (c)
      No sale contract has been established by which title passed from Evolution to Associated to the other financed equipment;
    4. (d)
      The Evolution Tax Invoice was signed by Mr Gallagher and provided to Mr Suarez in the knowledge that it was intended to be used to obtain finance from Associated to fund the acquisition of Argon;
    5. (e)
      Mr Gallagher knew from emails copied to him on 12 March 2015, that Mr Spong was making inquiries with the NAB in relation to the machines listed in that invoice to ensure that there was clear title; and
    6. (f)
      Mr Gallagher never told Mr Spong that the Huette had not been paid for.
  2. [204]
    The issue to be resolved is whether the provision of the signed Evolution Tax Invoice to Slap Corporation in that context was misleading because it carried with it the false representation that there had been an unconditional sale of the equipment effective to confer title on Slap Corporation in respect of the equipment (the title representation).
  3. [205]
    I think it was.  It can be accepted that the provision of a tax invoice, of itself, does not necessarily communicate that title has passed in the course of the taxable supply identified in the tax invoice.  However, that is not the issue here.  The issue here is whether it communicated that matter in the context of this case.
  4. [206]
    The first point to note is that this is not a case where conduct was directed to all persons or a class of persons.  Mr Gallagher was told by Mr Suarez that the tax invoice was needed to obtain finance from Mr Spong of Associated in respect of the Argon acquisition.  That is in fact what it was used for by Mr Suarez.  Accordingly, whether the conduct is misleading must be assessed by reference to the character of the particular conduct by Mr Gallagher in relation to Mr Spong, bearing in mind what matters of fact each knew about the other as a result of the nature of their dealings and the conversations between them, or which each may be taken to have known.[99] 
  5. [207]
    Despite the confusing role of Mr Suarez as agent for Evolution, it was true that, and Mr Gallagher knew that:
    1. (a)
      Mr Spong, through Associated, was looking to finance the Argon acquisition in some way;
    2. (b)
      Mr Spong was looking to acquire or take security over the equipment to facilitate that finance; and
    3. (c)
      Mr Spong was taking other steps to confirm clear title in the equipment from the NAB.
  6. [208]
    The next step is to identify the erroneous assumption which the plaintiff contends Mr Spong adopted by the conduct of provision of the Evolution Tax Invoice.  The plaintiff answers that directly in its trial submissions: provision of the tax invoice was likely to lead any financier or purchaser of the equipment into the error of assuming that Slap Corporation owned the equipment unconditionally.[100]
  7. [209]
    The question then is whether that assumption is a reasonable one in the circumstances of this case.  I think that it is.
  8. [210]
    First, a tax invoice is a statutory document.  It records a taxable supply for consideration.  While it is correct that that does not necessarily communicate, of itself, that the consideration has been paid nor that title to the goods the subject of the tax invoice has passed, that is certainly one possible inference.
  9. [211]
    Second, that inference is a reasonable one in the circumstances of this particular case.  The Evolution Tax Invoice was provided for the purpose of assisting in obtaining finance.  It was provided to Mr Suarez expressly on the basis that it would be provided to Mr Spong for that purpose.  It was in fact supplied to Mr Spong for that purpose.  Mr Gallagher knew that Mr Spong was dealing with Mr Suarez for that purpose.  The Evolution Tax Invoice would be useless for that purpose unless it recorded not just a taxable supply for consideration, but that the consideration had been given and title had been passed. 
  10. [212]
    Third, the Evolution Tax Invoice did not emerge from thin air.  Mr Spong knew Mr Gallagher and had had previous dealings with him and Evolution.  He was aware that there had been on-going dealings between Evolution and Slap Corporation. 
  11. [213]
    Fourth, while Mr Shaw emphasised that there were aspects of the Evolution Tax Invoice which should have caused Mr Spong to query it, I do not think they are such as to answer the reasonableness of an assumption that the tax invoice recorded a completed and effective transaction.  He pointed for example to the fact that the tax invoice contemplated payment to a bank account, when it is said he was told that the consideration was the forgiveness of debts due from Evolution to Slap Corporation.  However, I do not think that that answers the argument that the Evolution tax invoice was capable of inducing the assumption contended for by the plaintiff.  In particular, all it would have taken to clarify the situation would be a word from Mr Gallagher.  He never rang Mr Spong to discuss the tax invoice, nor did he ever raise any concern with Mr Spong when he received and noted Mr Spong’s other efforts to determine that Slap Corporation would have good title.  Absent some clarification or limitation on the apparent inference which flowed from the Evolution Tax Invoice in the context in which it was, to Mr Gallagher’s actual knowledge, provided to Mr Spong, I think the Evolution tax invoice was capable of reasonably inducing the erroneous assumption that the equipment had been sold to Slap Corporation and title had passed. 
  12. [214]
    Lying behind much of Mr Shaw’s submissions on this point was (again) the suggestion that there was some reason not to accept Mr Spong’s evidence at face value that he was seeking to raise funds to permit Slap Corporation to buy Argon, but rather that some other concealed arrangement or plan was afoot.  Curious though much of his behaviour was, I am simply not satisfied that I can make any finding to that effect. 
  13. [215]
    Although it might be relevant to reliance and causation rather than whether the conduct was misleading, I wish to deal with a submission made by Mr Shaw with some vigour relevant to the point in the previous paragraph.  Mr Shaw submitted that it could be inferred that the Evolution Tax Invoice was not a genuine transaction because it included the Caterpillar earthmoving machine which was later omitted from the machinery acquired from Slap Corporation because it would not be funded by the CBA.  In my view, no such inference arises.  Rather, this tends to demonstrate that the transaction between Evolution and Slap Corporation was an arm’s length one between those two entities.  It was not for Mr Spong to speculate about that transaction or to seek its amendment, and he did not.  The evidence that there was some later version of the Evolution tax invoice was of no assistance.  Mr Gallagher was vague as to its genesis and the document tendered through Mr Gallagher, on its face, demonstrates nothing except that someone at some time drew a line through the reference to the Caterpillar.[101]

Reliance and causation 

  1. [216]
    The plaintiff contends that Associated, by Mr Spong relied on the Evolution Tax Invoice in deciding to purchase the equipment from Slap Corporation and to borrow money from the CBA to facilitate that purchase. 
  2. [217]
    Reliance in the context of a claim for loss and damage by reason of misleading or deceptive conduct is a part of the causation analysis which links misleading conduct to the loss claimed.  The loss claimed in this case is the loss arising from the loan taken from the CBA and paid to Slap Corporation to acquire the equipment.  The question then is whether the misleading conduct of Mr Gallagher was a material inducement to Mr Spong causing Associated to purport to buy the equipment from Slap Corporation and enter in the loan transaction with the CBA for that purpose.
  3. [218]
    In approaching the evidence on that question, the following observations are helpful to consider[102] (footnotes omitted):

[70]  Undoubtedly, it was necessary for the respondents to prove that the making of the agreement was induced by one more of these representations. It was sufficient for them to prove that at least one of the representations was a substantial inducement. It was not the respondents’ case that it was only by a combination of each and every representation which they had pleaded that they were induced to have Wandani enter into the agreement.

[71]  The inducement could have been proved by direct evidence, which of course could have come only from Mr Taylor, by a process of inference from other facts or by a combination of the two. In Hanave Pty Ltd v LFOT Pty Ltd, Kiefel J (with whom Wilcox J agreed) said:

“The question of causation can sometimes be resolved not by direct evidence as to what part a misrepresentation played in the process of entry into contract, but by a court determining what effect must be taken to have resulted. Indeed this course may sometimes be preferable to one which rested solely on evidence later given on the point. In Gould v Vaggelas at CLR 236, Wilson J held that if a material representation is calculated (which is to say, objectively likely: Ricochet Pty Ltd v Equity Trustees Executor & Agency Co Ltd (1993) 41 FCR 229; 113 ALR 30; Henderson v Amadio Pty Ltd (No 1) (1995) 62 FCR 1 at 166; 140 ALR 391) to induce the representee to enter into a contract and the person in fact enters into a contract, a fair inference arises that the representation operated as an inducement, adding that it need not be the only cause.

A conclusion of inducement may then be reached where a combination of factors, including the quality of the representation itself, goes unanswered. In relation to the representation itself it would need to be of a kind likely to provide that inducement and such that: “… common sense would demand the conclusion that the false representations played at least some part in inducing the plaintiff to enter into the contract” (per Wilson J at CLR 238), a statement regarded by the full court in Ricochet as providing a practical guide to the drawing of inferences in such cases.”

  1. [219]
    In my respectful view, the title representation was a material cause of Associated purporting to purchase the equipment from Slap Corporation and borrowing from CBA and paying those funds to Slap Corporation. 
  2. [220]
    Mr Spong’s direct evidence of his reliance on the title representation was imprecise.  However, in my view it was tolerably clear that the gravamen of his direct evidence on the point was that he relied on the tax invoice as evidence that Slap Corporation had acquired title to the equipment from Evolution and that that was relied upon by him to borrow from CBA and pay the purchase price because it proved “title flow”.[103]
  3. [221]
    To the extent that his evidence is imprecise in that regard, the objective circumstances support the conclusion of reliance.  Mr Spong was engaged in a process of financing what I accept he believed was the acquisition of Argon by Slap Corporation, by buying the financed equipment from Slap Corporation and hiring it back to Evolution.  No financier would engage in that suite of transactions unless it believed it was obtaining good title from Slap Corporation.  Indeed, given that the Evolution Tax Invoice was provided to induce him to provide finance “common sense would demand the conclusion that the” title representation played at least some part in inducing Mr Spong to rely on it in financing the Argon acquisition (as he understood it).
  4. [222]
    Further, Mr Spong undertook other steps consistent with engaging in the ordinary process of determining that he would obtain good title for Associated from Slap Corporation: in particular he undertook PPSR searches and secured written releases from the NAB and Coates.  In this area of his work he was diligent and careful.  It is obvious in that circumstance that he would also rely on the Evolution Tax Invoice.  The reasonableness of his reliance on the tax invoice as sustaining an assumption of good title in Slap Corporation is also supported by the lack of any response by Mr Gallagher to the emails copied to him relating to the inquiries with NAB. 
  5. [223]
    Mr Shaw submitted that I ought to reject the direct evidence and indirect inference of reliance on the Evolution Tax Invoice as representing title had passed to Slap Corporation.  None of the reasons he advances persuade me to that view.  The below list seeks to deal directly with the main points advanced by Mr Shaw.
  6. [224]
    First, Mr Shaw submitted that Mr Spong gave evidence that he had decided to acquire the financed equipment before he received the Evolution Tax Invoice. The passage to which he refers could be read that way.[104]  However, read in context I do not think that was Mr Spong’s meaning and I consider Mr Shaw’s interpretation to be unfairly literal.  It is equally open to read it as saying he had decided to buy the equipment if satisfied as to title. 
  7. [225]
    Second, Mr Shaw submitted that Mr Spong did not come out and state in terms that without the Evolution Tax Invoice, he would not have paid Slap Corporation for the equipment.  That is true.  However, self-serving statements of that kind can be of less persuasive value than the context in which the representation was made and the conduct of the representee.  Those matters favour the conclusion that Mr Spong did rely on the invoice as explained in paragraphs [221] and [222] above.
  8. [226]
    Third, Mr Shaw relied on the inclusion of the Caterpillar in the Evolution Tax Invoice. For the reasons given in paragraph [215], I do not find that a compelling point telling against reliance.
  9. [227]
    Fourth, Mr Shaw points again, understandably, to the curious omissions in Mr Spong’s investigation of title, and the curiosities in his approach to the transactions generally.  One obvious matter in relation to title is the apparent decision by Mr Spong not to pursue evidence of the chain of title from a reputable supplier to Evolution (which would have likely exposed the problem with the Huette).  However, as I have said, I am not persuaded that Mr Spong was engaged in some alternative or different transaction for which the purchase of the equipment and the hire agreement was a disguise.  Once that conclusion is stated, this lack of diligence seems to be just that: lack of diligence.  It suggests Mr Spong rather relied on the Evolution Tax Invoice and his other inquiries.
  10. [228]
    Finally, Mr Shaw pointed to the reliance on the statutory declaration as somehow displacing reliance on the Evolution Tax Invoice.  The statutory declaration was obtained because it was a requirement of CBA for funding.  It might not have played a role in Mr Spong’s decision, because Ms Pettit was not the person he was dealing with.  However, even if it did, there is no reason why that would exclude reliance on the Evolution Tax Invoice.  It was correct to characterise that document as the beginning of the chain of title relied upon by Mr Spong.  Further, it is sufficient if the reliance on the Evolution Tax Invoice is a material cause of the loss.

What is Associated’s loss and damage?

  1. [229]
    Associated claims as loss and damage the amount paid to Slap Corporation to (try to) acquire the financed equipment along with the interest paid to the CBA in repaying the loan facility in the amount of $15,055.80.  This totals $225,055.80.  The third defendant did not dispute that those amounts are prima facie loss and damage by the misleading conduct alleged.
  2. [230]
    Rather the third defendant raised two points:[105]
    1. (a)
      It contended that Associated’s loss should be reduced for failure to mitigate by seeking to obtain possession of the equipment on the default in payment of instalments; and
    2. (b)
      It contended that Associated had to bring into account the payment made by the liquidators on account of the Baretta and the Vibro head of $103,000.
  3. [231]
    As to mitigation, there is no distinct concept of mitigation of loss when assessing loss and damage under s. 236 Australian Consumer Law (ACL).  Rather, the concept of mitigation must manifest itself, if at all, in considering whether identified loss and damage is “because of the” misleading conduct established by the plaintiff.  The section permits recovery by an applicant for loss or damage notwithstanding his, her or its failure to mitigate unless the applicant’s own carelessness or disregard of his, her or its interests leads to the conclusion that some part, or all, of the loss and damage was not because of the misleading conduct.[106]  The third defendant did not advance specific submissions to meet that test.  In any event, however, it is a moot point. 
    1. (a)
      As to the Huette, I find that nothing that Mr Spong could have done, short of paying the purchase price again, would have recovered that machine.  Hassells recovered the machine for its principal because it had not been paid for. There was no prospect of it surrendering the machine to Associated on any basis other than that Associated pay for it.  Mr Spong would have been left $85,000 out of pocket. 
    2. (b)
      As to the other equipment, if Mr Spong had sought to recover possession promptly, he would likely have been met with the issues raised by Mr Gallagher in these proceedings.  Additionally, his pursuit of the liquidators of Evolution was effective to mitigate his loss to the extent of $103,000 even though it seems it might have been open to them to dispute the entitlement asserted. (This is not, and is not intended to be, a comment questioning the liquidators’ judgment to pay that amount.  It should not be treated as such.  That judgment was made in different circumstances and in the context of advice and evidence which is not before this Court or known to the parties).
  4. [232]
    As to the payment by the liquidators, it seems to me that this reduced the loss suffered by Associated to that extent.  Mr Grant did not really contend to the contrary.
  5. [233]
    Another issue arose in oral argument.  Mr Shaw submitted that, if I found that the payments by Slap Corporation were payments on account of the hire agreement, those payments had the effect of reducing the loss and damage suffered by Associated by relying on the provision of the Evolution Tax Invoice.  This was not pleaded, but it raised no new factual issue.  Indeed the character and purpose of those payments had been an issue in the pleadings and the subject of evidence.
  6. [234]
    In my view, the payments by Slap Corporation did reduce the loss and damage suffered because of the misleading conduct established by Associated.  However, it did so only to the extent that Associated ended up with a net payment.  Thus the amounts immediately repaid must also be taken into account.  The co-incidence in the amount and the timing of those repayments satisfies me that they were repayments of sums paid on account of the hire agreement.  The total payments were $21,039.90, with three payments immediately reversed (see paragraph [101] above) totalling ($2,103.99 x 3 =) $6,311.97.
  7. [235]
    Accordingly, the net loss and damage suffered by Associated is calculated as follows:

   $225,055.80 – $103,000 – $6,311.97 = $115,743.83.

Conventional Estoppel

  1. [236]
    In Minerology Pty Ltd v Sino Iron Pty Ltd (No. 6) (2016) 329 ALR 1, Edelman J articulated the current state of the law in relation to the elements of estoppel by convention as follows:

3.7.1  The legal test for estoppel by convention

  1. In Con-Stan Industries of Australia Pty Ltd v Norwich Wincherthur Insurance (Australia) Ltd [1986] HCA 14; (1985) 160 CLR 226, 244, Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ observed that estoppel by convention “Is a form of estoppel founded not on a representation of fact made by a representor and acted on a by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state or facts, which both will be estopped from denying”.
  1. There was no dispute in this case that the doctrine of estoppel by convention is also capable of applying in cases where the common assumption concerns a matter relating to private legal rights…
  1. A commonly cited Australian authority on estoppel by convention is the decision of Brereton J in Moratic Pty Ltd v Lawrence James Gordon [2007] NSWSC 5; (2007) 13 BPR 24,713, 24,722 [31]-[33]. The principle set out in that decision have been adopted on a number of occasions: Sze Tu v Lowe [2014] NSWCA 462 [431] (Gleeson JA, with Meagher and Barrett JJA agreeing)… In Sze Tu v Lowe Gleeson JA, with whom Meagher and Barrett JJA agreed, summarised Brereton J’s reasoning as requiring five elements to be satisfied before an estoppel by convention can arise, precluding a denial of the assumed state of affairs:
  1. (1)
    the plaintiff has adopted an assumption as to the terms of its legal relationship with the defendant;
  1. (2)
    the defendant has adopted the same assumption;
  1. (3)
    both parties have conducted their relationship on the basis of that mutual assumption;
  1. (4)
    each party knows or intends that the other will act on that basis; and
  1. (5)
    departure from the assumption will cause detriment to one of them.
  1. [237]
    The plaintiff’s case on conventional estoppel was pleaded as follows:

Estoppel by convention

17A If any of the matters pleaded at paragraphs 5, 5A(b) and (c), 6, 6A(b), 9(b), or 10A of the defence are true, then in the premises pleaded in paragraphs 4, 4A, 4C, 5C, 7 and 9C, and 14A above, and clause 9.1 of the Agreement, by the time the Agreement and the Guarantee were signed by the third defendant:

  1. (a)
    the plaintiff and the third defendant had adopted the convention that:
  1. (i)
    from 12 March 2015, Evolution Piling had transferred ownership of the equipment and the Hütte to Slap Corporation;
  1. (ii)
    from 21 April 2015, the plaintiff had bought the equipment and the Hütte from Slap Corporation;
  1. (iii)
    from about 8 May 2015, the plaintiff had a sufficient legal interest in the equipment and the Hütte to allow it to hire them to Evolution Piling under the Agreement;
  1. (iv)
    from about 8 May 2015, further, or alternatively, the plaintiff was entitled to be paid the Hire Rates under the Agreement by Evolution Piling or the third defendant in accordance with the terms of the Agreement and the Guarantee;
  1. (b)
    the plaintiff and the third defendant acted upon that convention, in that:
  1. (i)
    the plaintiff paid Slap Corporation $210,000.00 for the equipment and the Hütte and borrowed money from the CBA for that purpose (as pleaded above);
  1. (ii)
    the plaintiff has repaid the CBA Purchase Loan Agreement, and incurred interest expenses;
  1. (iii)
    in accordance with the Agreement, the plaintiff made the equipment and the Hütte available for the use of Evolution Piling;
  1. (iv)
    Evolution Piling used the equipment and the Hütte;
  1. (v)
    a limited number of Hire Rate payments were made on behalf of Evolution Piling (as pleaded at paragraphs 9A and 14A above);
  1. (vi)
    the plaintiff lodged the caveats pleaded at paragraphs 16D and 16E above;
  1. (c)
    in the premises, it would be unconscionable for the third defendant to now deny that convention, and he is estopped from doing so.
  1. [238]
    The plaintiff further alleged that by reason of the estoppels arising as alleged, Mr Gallagher is liable to pay the whole of the sums provided for under the hire agreement.
  2. [239]
    The chapeau provision in paragraph 17A of the Second Further Amended Statement of Claim requires further explanation.  The matters posited as giving rise to the conventional estoppel if true are, in summary, the third defendant’s allegations that:
    1. (a)
      There was no sale of the equipment from Evolution to Slap Corporation that passed title;
    2. (b)
      Evolution never had title to the Huette; and
    3. (c)
      The plaintiff never hired the Huette nor the other equipment because it never had title to any of it.
  3. [240]
    The matters pleaded as giving rise to the conventional estoppel if those matters were untrue were:
    1. (a)
      The alleged sale of the equipment by Evolution to Slap Corporation, along with the representation by the provision of the Evolution Tax Invoice that Evolution had provided good title to Slap Corporation;
    2. (b)
      Mr Gallagher’s failure to tell Mr Spong about the problem with the sale to Slap Corporation at the time of the NAB emails;
    3. (c)
      Mr Gallagher’s failure ever to tell Mr Spong about the problems with the Huette and the sale to Slap Corporation at any time until signing of the hire agreement;
    4. (d)
      The entry into the hire agreement and the delivery of the equipment to Evolution on that day;
    5. (e)
      The making of payments under the hire agreement; and
    6. (f)
      The failure to pay instalments under the hire agreement.
  4. [241]
    The first subparagraph alleges four matters said to have been adopted as conventions by Evolution and Mr Gallagher.  However, I found it impossible to discern how the matters recited in the chapeau provision identified the elements requirement to establish each of the alleged conventions.  For example, the allegation fails to identify which of the allegations incorporated by reference in the chapeau provision demonstrate a “mutually manifest conduct by the parties” that each of the alleged conventions were was adopted as correct regardless of whether the subject matter of the convention was true or not.[107]
  5. [242]
    The second subparagraph adopts the same approach.  It does not identify which conventional assumption relates to which of the matters alleged, and it can be seen that those matters are of considerable variation in character and timing.  Some of them are plainly untenable.  For example, paragraph 17A(b)(iv) alleges Evolution used the equipment and Huette.  That proposition makes no sense as a statement of fact: it is plain that Evolution lost possession of the Huette just three days after entry into the hire agreement and never got it back.  (Further, Mr Spong knew the first matter almost immediately and never checked whether the second matter was true or not.)  The same is true of the allegation in 17A(b)(iii).  There is no evidence of any act by Associated to make the Huette or the other equipment available to Evolution.  It could not have done so for the Huette and there is no evidence of any act by which it did so for the other pieces of equipment. 
  6. [243]
    With respect of the plaintiff, I do not consider that paragraph 17A pleads an intelligible conventional estoppel which sustains its claim to be entitled to the whole of the sums payable under the hire agreement and therefore to recover those sums from Mr Gallagher as guarantor.
  7. [244]
    The written submissions advance a different, narrower, case from that advanced in the pleadings.[108]  However it also fails properly to articulate the basis for establishing a conventional estoppel. The common assumptions articulated in the written submissions are: first, the assumption by Associated and Mr Gallagher that Associated had contracted with Evolution by the hire agreement; and second, that the hire agreement was valid (see 58(e) of the plaintiff’s trial submissions). 
  8. [245]
    Neither assumption has been found by these reasons to be incorrect.  Most relevantly, the hire agreement has not been found to be invalid.  Rather, as I have construed it and on my findings of fact, no liability to pay the Hire Rates arose because Associated did not make the equipment available for hire.  The third defendant takes this point in its pleading in response to the conventional estoppel case.[109]
  9. [246]
    Further, the central significance of the conventional estoppel claim for the plaintiff is to make good an entitlement to the sums due under the hire agreement as if the equipment had in fact been made available for hire for the whole period of the agreement.  No submission was advanced as to why that consequence should flow.  It is not obvious to me that it should.  Even if Mr Gallagher was bound to the common assumption that Associated had title to the equipment to be hired under the hire agreement, I cannot see that in fact the obligation to hire that equipment was ever performed, much less over the whole period of the hire agreement.  At the least, this applies to the Huette, which left the possession of Evolution just three days after the hire agreement was signed, never to return, with Mr Spong content to assume (in a remarkable example of optimism) that the Huette would be recovered after its repossession. 
  10. [247]
    There are other difficulties with the proposition that the consequence of the conventional estoppel, if any, which could be articulated should properly be such as to bind Evolution and Associated to the terms of the hire agreement until it expired.  This might have engaged the question about whether the effect of the estoppel was permanent or merely suspensory of the rights which Evolution would ordinarily have had under the hire agreement where the Hirer did not have title to the hired goods and/or failed to make them available for use.[110]  It would also have engaged the question of whether any common assumption to that effect could survive those events.[111]
  11. [248]
    The plaintiff did not address the conventional estoppel case in oral argument.  I was left to make of it what I could on the written submissions.  For the above reasons, I do not think that that the written submission made out the claimed estoppel. The conventional estoppel allegations are not established.

Was there a demand under the Guarantee?

  1. [249]
    I have found that Mr Gallagher has no liability under the Guarantee.  It is therefore moot whether, on the proper construction of the Guarantee, a demand was an essential pre-condition to liability or whether if so, the serving of the application to join Mr Gallagher as a party to the proceedings was a demand.
  2. [250]
    However, it seems to me that the answer to the second question was yes (making the first issue doubly moot).  The circumstances of the joinder application were not adduced in evidence.  However, it was uncontentious on the pleadings that the joinder application was served and that it contained with it a copy of the Second Further Amended Statement of Claim.[112]  There was no specific requirements as to the form of the demand under the Guarantee.  Accordingly, the question is whether, looked at objectively, the application to join Mr Gallagher on the terms of the Second Further Amended Statement of Claim met the requirements of a demand under paragraph (b) of the Guarantee. 
  3. [251]
    In my view, it did.  The Second Further Amended Statement of Claim made clear that the plaintiff was seeking to join Mr Gallagher for the purpose of suing him on the Guarantee and identified with precision the amount claimed.  It is hard to see how Mr Gallagher could have been in any doubt that he was being called on to “immediately pay to [Associated] an amount of Guaranteed Money not paid by the Hirer by the due date for payment”.  The fact that the demand took the form of an interlocutory step in the proceedings is no reason to disregard its substantive character.

Conclusion

  1. [252]
    Accordingly, Associated’s claim on the Guarantee is dismissed.  Associated has made out its claim for damages brought under the ACL in the amount of $115,743.83.
  2. [253]
    I will hear the parties as to costs.

Footnotes

[1] TS1-18.26

[2] TS2-10.

[3] TS2-14.24.

[4] TS2-19.23 to .47.

[5] TS2-16 to 19. 

[6]  TS2-78.11.

[7] TS1-15.23 to .34.

[8] TS2-15.3 to.15; TS 2-15.45 to 16.5.

[9] TS1-16.24 to .30, TS1-17.37 to .46, TS1-23.15 and TS1-35.34 to .45; Exhibit 2.2 Divider 34.

[10] See Exhibit 2.1 Divider 21. 

[11] TS1-18.38.

[12]  Exhibit 2.1 Divider 28.

[13]  Exhibit 9.

[14] Exhibit 9.

[15] TS2-22.10.

[16] Exhibit 2.2 Divider 51.

[17] Exhibit 2.2 Divider 57.

[18] Exhibit 10.

[19] TS2-69 to TS2-72

[20] TS1-19.10 cf TS1-23.20 to .25.

[21] Exhibit 2.2 Divider 28.

[22] See Exhibit 2.2 Divider 36, 39 and 40 and see Mr Spong’s evidence at TS1-87.35.

[23] Exhibit 2.2 Divider 28.

[24] Exhibit 2.2 Divider 31.

[25]  Exhibit 2.2 Divider 31.

[26]  Exhibit 2.2 Divider 31.

[27]  Exhibit 2.2 Divider 31.

[28]  TS1-44.22.

[29]  Exhibit 2.2 Divider 41.

[30]  TS2-56.23 to .41.

[31]  TS1-21.45.

[32]  Exhibit 1 Divider 7.

[33]  See the date on the Quantum Finance Application in Exhibit 1 Divider 7 and TS1-42.

[34]  TS1-23.40 to .44.

[35]  TS1-21.

[36]  Exhibit 1 Divider 6.

[37]  TS1-21.

[38]  Exhibit 2.2 divider 52.

[39]  Exhibit 1 Divider 13.

[40] TS1-24.7.

[41] Exhibit 1 Divider 8.

[42] TS1-35.22 to .30.

[43] TS 1-86.30 to 87.40.

[44] TS1-88.

[45] TS2-16.10.

[46] TS2-34.10 to .27.

[47]  TS2-37.4 to .29.

[48]  TS2-35.31 to .45.

[49]  TS2-35.45 to 36.2.

[50]  TS2-36.8.

[51] TS2-37.45 to 38.4 and TS2-65.12 to .33.

[52] Exhibit 2.2 Divider 46.

[53] Exhibit 7 at paragraph 8 and Exhibit 8 at paragraph 13.

[54]  Exhibit 2.2 Divider 42.

[55]  Exhibit 2.2 Divider 44.

[56] TS2-62.

[57] TS2-80.1 to .6.

[58]   See footnote 53.

[59] Exhibit 1 Divider 5.

[60] It was briefly covered in cross examination of Mr Gallagher, but without adverting to the issues which the document raises discussed in these reasons: TS2-49.25 to 50.25.

[61] Exhibit 2.2 Divider 55.

[62] Ibid.

[63]  TS2-42.27 to .41.

[64] TS2-58.11 to TS2-59.15.

[65]  Exhibit 2.2 Divider 58.

[66] Second Further Amended Statement of Claim at paragraphs 9A, 14A.

[67] TS1-33; Exhibit 2.2 Divider 65.

[68]  TS1-64.39 to 66.2.

[69] TS2-26.19 to .31.

[70] TS1-67.15 to .33 and see TS1-72.21 to 73.3.

[71]  TS2-72.8 to .19.

[72] TS2-59.17 to 60.17.

[73] Exhibit 2.2 Divider 59.

[74]  Exhibit 2.2 Divider 59.

[75]  Exhibit 2.2 Divider 60.

[76] TS1-32.40.

[77] TS2-64.5.

[78] TS1-77.

[79] Exhibit 6; TS1-83.

[80]  TS1-83.33 to .35.

[81] Exhibit 7.

[82] Exhibit 2.2 Divider 72.

[83] Second Further Amended Statement of Claim at paragraph 22 and Further Amended Defence at paragraph 32(a).

[84] Plaintiff’s trial submissions at paragraph 37.

[85] Third defendant’s trial submissions at paragraphs 3(a) and (b).

[86] See specifically in relation to this TS1-36.1 to .15.

[87]  (1959) 101 CLR 298.

[88]  Heydon, Cross on Evidence, online service as at 3 December 2019 at [1215].

[89] Exhibit 9, clauses 14, 21, 23 and 31 of the Terms & Conditions of Auction Sale.

[90] Benjamin’s Sale of Good (10th ed, 2017, Sweet & Maxwell) at 5-003 to 5-005.

[91]  Plaintiff’s trial submissions at paragraph 51.

[92]  Plaintiff’s trial submissions at paragraphs 51-53.

[93]  As to the sale from Evolution to Slap see Further Amended Defence at paragraph 6A(c)(i); as to the hire agreement see Further Amended Defence at paragraph 10A(f)(i).

[94] Richard Walter Pty Ltd v Commissioner of Taxation (1996) 33 ATR 97 at 110 per Hill J.

[95] A G Securities v Vaughan [1990] 1 AC 417 at 462-463 approved in Raftland Pty Ltd v Commission of Taxation (2008) 238 CLR 516 per the majority at [47].

[96]  TS2-42.33; TS2-58.26; TS2-72.33.

[97]  Compare the plaintiff’s opening submissions at paragraphs 15 and 16 to the Second Further Amended Statement of Claim at paragraphs 4A to 4C and 24 to 26.

[98]  Third defendant’s trial submissions at paragraphs 39 to 45.

[99] Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592 at [36] to [37] (per Gleeson CJ, Hayne and Heydon JJ).

[100]  Paragraph 63.

[101]  Exhibit 13.

[102] Hobson & Anor v Taylor & Anor [2019] QCA 265 per McMurdo JA with whom Sofronoff P and Gotterson JA agreed.

[103]  TS1-19.7 to 20.12.

[104]  TS1-19.43.

[105]  Third defendant’s trial submissions at paragraphs 50 to 52.

[106] Pavich v Bobra Nominees Pty Ltd (1988) 84 ALR 285; (1988) ATPR (Digest) 46–039 at 53,124; Kewside Pty Ltd v Warman International Ltd (1990) ASC 55–964 at 58,824.

[107]  See the summary of the doctrine in Handley, Estoppel by Conduct and Representation (2nd ed, 2016, Sweet & Maxwell) at 8-001.

[108]  Plaintiff’s trial submissions at paragraph 58.

[109]  Further Amended Defence at paragraph 28A.

[110]  Seddon & Bigwood, Cheshire & Fifoot’s Law of Contract (11th Australian ed, 2017, LexisNexis Butterworths) at 2.17 and see Minerology Pty Ltd v Sino Iron Pty Ltd (No. 6) at [765] to [769].

[111]  Handley, Estoppel by Conduct and Representation (2nd ed, 2016, Sweet & Maxwell) at 8-020.

[112]  The allegation in paragraph 22 of the Second Further Amended Statement of Claim was not denied in accordance with r. 166 UCPR in the Further Amended Defence and strictly speaking an implied admission of those facts arose.

Close

Editorial Notes

  • Published Case Name:

    Associated Equipment Pty Ltd v Evolution Piling Pty Ltd (In liquidation), Michael Dullaway and Mark William in their capacity as liquidators of Evolution Piling Pty Ltd (In liquidation) and Patrick Robert Gallagher

  • Shortened Case Name:

    Associated Equipment Pty Ltd v Evolution Piling Pty Ltd

  • MNC:

    [2019] QDC 249

  • Court:

    QDC

  • Judge(s):

    Porter DCJ

  • Date:

    06 Dec 2019

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.
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