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  • Unreported Judgment

Cabriolet Royale LLC v Dare

 

[2004] QSC 64

 

SUPREME COURT OF QUEENSLAND

 

CITATION:

Cabriolet Royale LLC & Anor P/L v Tracey Joy Dare & Anor [2004] QSC 064

PARTIES:

CABRIOLET ROYALE LLC “a limited liability company”
(first applicant)
and
OZESHOP.COM.AU PTY LTD
(ACN 090 600 650)
(second applicant)
and
TRACEY JOY DARE AND PHILIP ARTHUR HENNESSEY OF KPMG AS LIQUIDATORS OF CABRIOLET ROYALE PTY LTD
(ACN 093 584 822)
(first respondent)
and
TRACEY JOY DARE AND PHILIP ARTHUR HENNESSEY AS RECEIVERS AND MANAGERS OF OZESHOP.COM.AU PTY LTD
(ACN 090 600 650)
(second respondent)

FILE NO/S:

BS 622 of 2004

DIVISION:

Trial Division

PROCEEDING:

Trial

ORIGINATING COURT:

Brisbane

DELIVERED ON:

25 March 2004

DELIVERED AT:

Brisbane

HEARING DATE:

22, 23 March 2004

JUDGE:

Muir J

ORDER:

That the application be dismissed and that the applicant Cabriolet Royale LLC pay the respondent’s costs of and incidental to the application (including reserved costs, if any) to be assessed on the standard basis

CATCHWORDS:

TITLE TO PERSONAL PROPERTY- where the same person is the sole director and shareholder of three companies- whether title to property acquired by one of the companies with  moneys provided by another is with the former or whether there is a resulting trust or whether the moneys were provided by way of loan – whether any agency was created

Calverley v Green (1985) 155 CLR 242 at 262

Martin v Martin (1963-1964) 110 CLR 297 at 304-5

Napier v Public Trustee (WA) (1980) 32 ALR 153 and Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 at 363-4

Shephard v Cartwright [1955] AC 431

COUNSEL:

P Hackett for the applicants

M Martin for the respondents

SOLICITORS:

N R Barbi for the applicants

McCullough Robertson for the respondents

Introduction

  1. The first applicant, Cabriolet Royale LLC a corporation incorporated in Delaware applies, by originating application, for orders that all completed or partially completed vessels and attachments and equipment relating to them held by the respondents be released to the applicant. The first respondents are Tracey Joy Dare and Philip Arthur Hennessey in their capacities as liquidators of Cabriolet Royale Pty Ltd (in liquidation) (“Cabriolet Royale”). Ms Dare and Mr Hennessey, in their capacities as receivers and managers of Ozeshop.Com.Au Pty Ltd (receivers and managers appointed), are also the second respondents.
  1. I understand that the receivers were appointed receivers and managers of all Ozeshop’s assets and undertakings. It is thus difficult to understand how it is able to be the second applicant. Mr Hackett, who appears for LLC, announced his appearance also for Cabriolet Royale. When attention was drawn to the curiosity of Cabriolet Royale’s position he stated that no relief was being sought in respect of it and the issue was not adverted to again.
  1. Cabriolet Royale and Ozeshop are both companies incorporated in Australia. LLC was incorporated on 4 August 1999, Ozeshop on 18 November 1999 and Cabriolet Royale on 30 June 2000. Marcel Ivan Shears, an Australian citizen and resident, is the sole director and shareholder of LLC and initially, was the sole director and shareholder of the other companies. He ceased to be the sole director and shareholder of Ozeshop on 23 October 2003 when his father, Mr Ivan Shears assumed those roles.
  1. The boats referred to in the originating application, without exception, are boats which were under construction at the time of the appointment of receivers to Ozeshop on 24 October 2003 at Alberton, Queensland in premises leased by Ozeshop. There are five partially completed 34 foot boats designated 002-007. A completed 34 foot boat, Serial No. 001, held in Florida pursuant to a court order and one 27 foot boat, also given Serial No. 001, held in Australia are also within the claim.
  1. The other plant equipment the subject of the application is described in a report dated 29 October 2003 by KPMG Corporate Recovery and principally consists of a forklift, gantry crane, tools and moulds for hulls and hull covers.

Contractual dealings in respect of the boats

  1. LLC, as vendor, entered into a number of contracts in the United States between 29 October 2000 and 15 December 2001 to sell 34 foot “Cabriolet Royale” vessels. One of the vessels was completed and shipped from Australia to Florida in October 2003. The others are only partially completed and are under the control of the first or second respondents. All manufacturing of the vessels has taken place in Australia. Before 30 June 2003 or a little thereafter the manufacturing business was carried on by Cabriolet Royale and after that time by Ozeshop.
  1. On 24 June 2001 Cabriolet Royale entered into two contracts with the liquidators of Minerva Wholesale Pty Ltd for the purchase of: moulds; tooling and design patterns; the trademark “Cabriolet Royale”; a completed vessel and the client base of Minerva. The total purchase price of $209,700 was paid by cheque drawn on Cabriolet Royale’s account. The money was part of the sum of $225,000 transferred into that account on the same day from an account in Mr Ivan Shear’s name. The money had been paid into the latter account by LLC.

The evidence of Mr Shears concerning the structure of his group of companies

  1. Mr Shears in his oral evidence explained the group structure as follows. Ozeshop was set up “as a holding company for the assets”. Cabriolet Royale was to be the “contractor for the boats that we were to build for American clients”. LLC was incorporated so that American customers could deal with a corporation incorporated in the United States and because “all of our stock” was to be purchased within the United States.
  1. Referring to a discussion with Mr Gillard, his accountant, Mr Shears mentioned another, and perhaps primary reason for the use of the Australian companies –

“… my main concern … was I didn’t want someone in the States which is very litigious, to run over their leg with a propeller and sue the company and I loose everything through that situation, so it was suggested Ozeshop was to hold the assets and Cabriolet Royale to be the contractor.”

Aspects of the financial statements of Cabriolet Royale and Ozeshop

  1. Cabriolet Royale’s financial statements for the year ended 30 June 2002 showed trading income of $646,400 derived from sales of boats and a gross profit from trading of $90,886. The profit and loss account for that period included an item of -

“Equipment sundry replacements tools etc   $2,690.56” 

The balance sheet included the entries -

“Work in progress at cost $235,000.00
Finished goods at cost $158,181.82
  $393,181.82”

Included in the company’s non-current liabilities was “Loan Account Ivan $768,804.16”.  “Ivan” is a reference to Mr Ivan Shears. 

  1. Cabriolet Royale’s tax return for the year ended 30 June 2002 showed sales of goods and services of $646,400, current assets of $619,154, “purchases and other costs” of $948,695 and closing stock of $158,182.
  1. Ozeshop’s balance sheet as at 30 June 2002 includes an item “manufacturing equipment @ cost $122,823.33” and depreciation of $22,870 was shown in respect of that asset. The depreciation schedule listed “spray painting equipment, forklift, compressor, 3/4 mould, devine mould and hard top mould”. Some office equipment was listed also. The current assets of “work in progress at cost” and “finished goods at cost” do not appear on Cabriolet Royale’s balance sheet as at 30 June 2003.

Mr Gillard’s evidence

  1. Mr Gillard swore in an affidavit that Ozeshop “was established to be the owner of assets for boat building and would provide these assets to Cabriolet Royale Pty Ltd for a fee … the companies are independent … Cabriolet Royale Pty Ltd acted before its liquidation with funds lent to it by Cabriolet Royale LLC.”
  1. Mr Gillard’s oral evidence included the following. Although Cabriolet Royale was the purchaser under the contracts with the liquidators of Minerva, acting on instructions from Mr Shears, “we then took the assets out of … Cabriolet Royale and put them into the Ozeshop company by way of a journal entry …”. Mr Gillard further explained –

“… we took the assets out of the balance sheet and we put them against a loan account of Ozeshop … in those days it was a loan account called Ivan Shears because that’s where most of the funds were coming (from) … conversely, in the balance sheet of … Ozeshop we created the assets … and the corresponding liability rest (sic) with, again, another loan account in the name of Ivan Shears … so we had the asset on one side and the items – well they haven’t been paid to Cabriolet so there’s a liability owing to Cabriolet on the other side of the balance sheet.  On Cabriolet’s books, the assets have been sold to full value and there’s a debt owing to Cabriolet from Ozeshop.”

  1. The entries in the 2002 books of account of work in progress and finished goods were said to have come about in this way. Cabriolet was applying for an export grant and for that purpose it needed to show to the authorities the costs of sale of the vessels. Accordingly “… we raised a figure called work in progress in stock to reflect part of those costs for the grant application … it wasn’t a figure that was part of the accounting system. It was a figure that was arrived at by Marcel telling us what the stock and work in progress was to date for the grant application.” The items were taken out of the balance sheet in the next financial year. In re-examination it was explained that some items of expense that were incurred in building the boats were taken out of profit and loss by way of journal entry and inserted as work in progress or stock. Those entries were reversed the following year.
  1. Mr Gillard had been told by Mr Shears that the boats, including, I infer, partially completed boats, were owned by their respective purchasers in the United States and, acting on this advice, did not show the partially completed boats as work in progress. Whether this evidence is consistent with the 2002 accounts of Cabriolet Royale may be doubted.

Mr Power’s evidence

  1. Mr Michael Power, who was employed by Cabriolet Royale as a production manager from July 2000 to September 2003, gave the following account. Mr Shears told him in early September 2003 that Cabriolet Royale was being sued for non-delivery of a vessel and the failure to return deposit moneys. Consequently, it would be necessary for Cabriolet Royale to be liquidated and for “everything” to be moved to Ozeshop. The “operation” would however continue to run in the same way and the only change would be that the workers would be employed by a different company. Mr Power, as production manager, had a cheque book on an account maintained by Cabriolet Royale and used company cheques to order and pay for various supplies. In July or August 2000 he was told by Mr Shears not to use the cheque book as there were no moneys in the account. Although Mr Shears attended to making all payments for such supplies from that time, Mr Power continued to order them under the name Cabriolet Royale Pty Ltd.

The applicant’s submissions

  1. Mr Hackett made the following submissions. Cabriolet Royale did not own any assets. It acquired property from Minerva as agent for LLC. The assets were then transferred to Ozeshop “by appropriate journal entries”. The transfer did not result in Ozeshop acquiring any beneficial interest in the property transferred.
  1. The recording of such property and also the boat building equipment as assets in the books of Ozeshop is not determinative of “ownership”. LLC provided all the moneys and the Australian companies were mere agents or trustees for LLC. LLC’s moneys were used at its discretion to acquire boat building assets, employ labour and purchase materials. As the boats were built they became and remained the property of LLC.

Conclusions

  1. Mr Shears appeared to have only a vague understanding of the corporate structure which his accountants had set up for him and of the transactions effected within that structure. It may be doubted also that he has much of an understanding of the nature of corporations as separate legal entities. He took the view that companies should be used to keep valuable assets out of LLC where they would be vulnerable to lawsuits. He understood in this regard that Ozeshop was to be an asset holding company. It is probable that, quite early in the piece he discussed with Mr Gillard the way in which funds received by the Australian companies from LLC or Mr Shears were to be treated from an accounting view point. It is unlikely though that he gave the matter much thought as he probably considered that the inter-company financial arrangements were best left to the accountants. Mr Shears did not cause LLC to do any act or acts which appointed either Cabriolet Royale or Ozeshop its agent for any purpose.
  1. As LLC paid the whole of the purchase price of the property acquired from Minerva there would be a legal presumption, in the absence of evidence displacing it[1], that such property was held in trust for LLC. 
  1. Similar considerations arise in respect of the use of LLC’s money by Cabriolet Royale, and more latterly by Ozeshop, to acquire the materials and parts of the boats being manufactured. The position in this regard, however, is complicated by the fact that these companies were intended to expend money and labour, albeit at the expense of LLC, in converting the materials supplied into boats.
  1. The presumption of a resulting trust can be rebutted by evidence that no trust was intended by the donor. That intention, normally, will be discerned from the circumstances surrounding the transaction but evidence of the donor’s subjective intention is admissible[2].  Such evidence may consist of acts and declarations at or before the time of the transaction by the donor[3]
  1. Mr Shear’s evidence to the effect that he wished to set up a structure to protect assets from law suits in the United States provides some evidence of LLC’s intention at the time the moneys were paid over. Further evidence of LLC’s intention is provided by the fact that such payments were always treated as loans and there is no hint in any financial document of the existence of a trust or trusts.
  1. The accounts of the Australian companies were prepared by Mr Gillard as agent for those companies. The evidence does not establish whether he was the agent of

LLC.  Nevertheless, it may be inferred that LLC had knowledge of and acquiesced in the accounting treatment of the subject payments by the Australian companies.  Mr Shears, the sole director of all three companies, approved the accounts and there is no reason to suppose that Mr Gillard acted in any way inconsistent with his instructions.  The adoption of Mr Gillard’s accounting treatment took place after the payment of some of the subject moneys but remains of probative value as a declaration against interest[4].  Also, as I mentioned earlier the general accounting approach to be adopted was probably discussed between the two men at an early stage.

  1. No evidence was forthcoming as to how, if at all, the payments and property in question had been dealt with in the books of LLC. It may therefore be inferred that there was no documentary evidence of this nature which would have assisted LLC. There are also admissions by Mr Shears in affidavits sworn by him in proceedings 9055 of 2003, brought by the Australian Securities and Investments Commission, that moneys paid by LLC to Cabriolet Royale were provided by way of loan.
  1. Mr Shears did give some evidence favourable to LLC’s case and Mr Hackett relied on it. For example, he expressed opinions about the legal bases on which goods were ordered; the title to boats and goods and contractual relationships. Such opinions, apart from being on questions of law and, on some issues, swearing to the issue for determination were self serving and formed with the benefit of much hindsight. They have little, if any, evidentiary value.
  1. For these reasons LLC’s application must fail. It is unnecessary for present purposes and, perhaps undesirable, to make declarations as to the title to property and I will make only a few brief observations. The evidence appears to establish clearly enough that Ozeshop has title to the assets acquired from Minerva and to the manufacturing plant and equipment. LLC has not established title to the completed or uncompleted boats and it has no property in goods acquired with any of the loan moneys.
  1. There was no separate exploration, of the question of whether LLC might have title to goods purchased directly by it and sent to Australia for incorporation on a boat or boats. But the evidence appears to show that the purchase price of such goods was treated as a loss by LLC to Cabriolet Royale. LLC thus gains no assistance from being the purchaser and provider of these goods. There was no exploration of the legal consequences, if any, of the incorporation of such goods in a completed or partially completed boat. That is probably explained by the matter I have just mentioned. Mr Hackett placed considerable weight on the content of the shipping documents relating to the shipment from Australia of the vessel now in Florida. It did not seem to me that anything in that documentation could establish title as between LLC and the Australian companies.
  1. Subject to any submissions the parties may make, I propose to order that the application be dismissed and that the applicant Cabriolet Royale LLC pay the respondents’ costs of and incidental to the application, including reserved costs if any, to be assessed on the standard basis.

Footnotes

[1] Napier v Public Trustee (WA) (1980) 32 ALR 153 and Charles Marshall Pty ltd v Grimsley (1956) 95 CLR 353 at 363-4

[2] Martin v Martin (1963-1964) 110 CLR 297 at 304-5

[3] Shephard v Cartwright [1955] AC 431 and Calverley v Green [1984] 155 CLR 242 at 251, 262, 269

[4] Calverley v Green (1985) 155 CLR 242 at 262

Close

Editorial Notes

  • Published Case Name:

    Cabriolet Royale LLC & Anor P/L v Tracey Joy Dare & Anor

  • Shortened Case Name:

    Cabriolet Royale LLC v Dare

  • MNC:

    [2004] QSC 64

  • Court:

    QSC

  • Judge(s):

    Muir J

  • Date:

    25 Mar 2004

Litigation History

No Litigation History

Appeal Status

No Status