National Australia Bank Ltd v Charvelle Pty Ltd & Ors [1997] FCA 822

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 981 of 1996

BETWEEN: NATIONAL AUSTRALIA BANK LIMITED

Applicant

AND: CHARVELLE PTY LIMITED

First Respondent

DELTA CHEMICALS PTY LIMITED

Second Respondent

TERRENCE WILLIAM SMITH

Third Respondent

JUDGE: BEAUMONT J. DATE OF ORDER: 31 JULY 1997 WHERE MADE: SYDNEY

THE COURT ORDERS THAT: 1. Judgment be entered in favour of the applicant against the first and third respondents in the sum of $131,065.72, together with interest on the amount unpaid from time to time at the rate specified at the material times pursuant to the provisions of the Supreme Court Act 1970 (NSW). 2. Liberty to apply in connection with the calculation of interest, should there be any dispute about that calculation, is reserved. 3. The first and third respondents pay the applicant's costs of the proceedings. 4. The proceedings against the second respondent be dismissed, and there be no order for costs in that connection. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 981 of 1996

BETWEEN: NATIONAL AUSTRALIA BANK LIMITED

Applicant

AND: CHARVELLE PTY LIMITED

First Respondent

DELTA CHEMICALS PTY LIMITED

Second Respondent

TERRENCE WILLIAM SMITH

Third Respondent

JUDGE: BEAUMONT J. DATE OF ORDER: 31 JULY 1997 WHERE MADE: SYDNEY

REASONS FOR JUDGMENT BACKGROUND These proceedings arise out of a transaction which, in form, was an arrangement by the applicant for the leasing of equipment to a company, Viewicon Pty Ltd ("Viewicon"), now in liquidation. In substance the arrangement, as is common, was a financing deal. Unfortunately, although the applicant was quite innocent in the matter, it is quite clear that the applicant was defrauded in the transaction. Before going to the legal basis upon which the applicant seeks relief, I should mention some of the background which now emerges with clarity, at least in most significant respects. But, given the dynamic process of litigation, it is fair to say that, in the early stages of the hearing, the course of events did not appear to be at all clear. The proceedings commenced as an application for summary judgment against several respondents. When this was vigorously resisted by some respondents, the applicant, with the agreement of those respondents, was content that the application for summary judgment be converted into a final hearing. That was how the matter proceeded before me and it is that final proceeding that is dealt with in these reasons for judgment. The background to the matter is that in July 1994, Mr Thomas Ford, a director and controller of Viewicon, approached the applicant at its Phillip Street branch to seek lease finance for four items of cleaning equipment manufactured by Tennant Company ("Tennant"). Mr Ford informed the applicant that the equipment would be supplied by the first respondent, Charvelle Pty Limited ("Charvelle"), trading as Chemical Cleaning Solutions. On 5 August 1994 Mr Terrence Smith, the third respondent and a director of Charvelle, sent an invoice number 35734 to the applicant. This document is critical for present purposes and is annexed to these reasons. As can be seen, the invoice: included the business name "Chemical Cleaning Solutions"; included the ACN of Charvelle; identified the purchaser as the applicant; identified the invoice as issued on the instructions of Viewicon and as equipment for leasing to Viewicon; identified the four items of equipment there mentioned by description and serial number; and included a statement of a total purchase price of $150,000. On 11 August 1994, relying on this invoice, the applicant entered into the lease agreement with Viewicon. The applicant relied upon the invoice as evidence: that Chemical Cleaning Solutions owned the four items of equipment referred to in the invoice; that the equipment existed; that it was new; and that Chemical Cleaning Solutions offered to sell the equipment to the bank upon payment of the sum of $150,000. In reliance upon these matters, the applicant entered into the lease agreement with Viewicon, as has been noted. On execution of the lease agreement, a bank cheque in the sum of $150,000 was delivered as payment for the goods by the applicant to Mr Smith. On the same day, namely 11 August 1994, Mr Smith deposited the bank cheque in the sum of $150,000 into the account of Charvelle at the Ashfield branch of the bank. Mr Smith then drew four cheques on Charvelle's account, in favour of Mr Ford and Viewicon, totalling $150,000. I have described the foregoing as background. The circumstances so described are plainly established on the evidence beyond any question. It is equally well established, and beyond question, that, after entering into the lease agreement, Viewicon paid several of the leasing payments due under the leasing agreement of $2,762.04 each on 15 August 1994, 9 September 1994, 12 October 1994, 9 November 1994, 9 December 1994, 13 February 1995 and 9 March 1995. No further payments were made by Viewicon so that, as from March 1995, Viewicon was in default under the lease agreement. On 1 June 1995, the lease agreement with Viewicon was terminated by the applicant. The result was that of the sum of $150,000 paid by the applicant for the equipment, an amount of $131,065.72 remained unpaid. The applicant has been unable to recover any part of this amount from either Viewicon, or from Mr or Mrs Ford who guaranteed the obligations of Viewicon under the leasing arrangement. I am further satisfied, despite attempts in the early stages of the litigation to suggest to the contrary, that the equipment did not exist and has never existed. Mr Frank Cupido and Ms Margaret Tucker, who are officers of Tennant, have placed before the Court, in a most careful and painstaking way, documentary evidence which establishes, to my satisfaction, that Tennant never manufactured equipment with the serial numbers stated in the invoice or with numbers anything like those numbers. Both Mr Cupido and Ms Tucker were cross-examined on their evidence and I have found it entirely credible. THE NATURE OF THE PROCEEDINGS In these circumstances, the applicant now sues Charvelle, Delta Chemicals Pty Limited ("Delta") and Mr Smith on several causes of action. By its amended statement of claim, the applicant alleges that: Mr Smith was at all material times a director of Charvelle and Delta; that on 5 August 1994, Charvelle and Delta represented to the applicant that they had received an order for the supply of equipment to a customer of the bank, namely, Viewicon; and that, on payment to Charvelle by the applicant of the sum of $150,000, Charvelle would deliver certain identified equipment to Viewicon, to be held by Viewicon as bailee for the applicant, pursuant to the lease agreement to be entered into between Viewicon and the applicant. It is further alleged by the applicant that, on 5 August 1994, Charvelle and Delta represented to it that the equipment existed and that Charvelle was the owner of it. Then it is alleged that each of those representations was separately made by Mr Smith. It is pleaded that, in reliance on the representations, the applicant entered into the lease agreement and delivered the cheque in the sum of $150,000 on 11 August 1994 as the purchase price of the equipment identified in the invoice. The applicant then alleges that, contrary to the representations, neither Charvelle nor Delta had received an order for supply of the equipment to Viewicon; the equipment did not exist; Charvelle did not own the equipment; and none of the respondents ever intended that, upon payment of the sum of $150,000 by the applicant, possession of the equipment would be delivered to Viewicon by Charvelle, to be held by Viewicon as bailee of the applicant. The pleading proceeds to allege that each of the foregoing representations was false with the consequence, it is said, that Charvelle and Delta engaged in conduct which was misleading or deceptive or likely to mislead or deceive in breach of s 52 of the Trade Practices Act 1974. It is further said for the applicant, that Mr Smith engaged in conduct which was misleading and deceptive or likely to mislead or deceive contrary to s 42 of the Fair Trading Act 1987 (NSW). It is next alleged that Mr Smith was knowingly concerned in, or a party to, each of the contraventions of the Trade Practices Act within the meaning of s 75B of that Act. The applicant then claims damages in the sum of $131,065.72 and interest. THE CLAIM AGAINST DELTA I should say at once, as I have already indicated in the course of argument, that I see no basis in this matter for any claim to be made against Delta. It is true that Charvelle and Delta are associated companies and have common directors. It appears that Delta manufactures chemical products which are sold by Charvelle. It is also true that Delta's name appears at the bottom of the invoice which is annexed to these reasons. However, as I put to counsel for the applicant during the course of argument, it appears that this reference to Delta's name was intended to be read, and should be read, as no more than an advertising or marketing statement. When the invoice is read as a whole, it is plain, I think, that, as a matter of form and of substance, it is an invoice issued by Chemical Cleaning Solutions, that is, Charvelle. It must follow that any representation or statement made in the invoice is the statement or representation of Chemical Cleaning Solutions and not that of Delta. For that reason I propose to order that the proceedings be dismissed as against Delta. Since there was no separate representation for Delta and since, indeed, in a major part of the proceedings Mr Smith appeared for himself, and for Charvelle and Delta (with the leave of the Court), I propose to make no order for Delta's costs. THE CLAIMS AGAINST CHARVELLE AND MR SMITH I turn next to the claims now made as against Charvelle and Mr Smith. Although, as has been said, Mr Smith did appear for himself and for his companies for a major part of the proceedings, in the earlier hearings, the respondents were represented by solicitors and counsel. Mr Smith's version of the events appears in two affidavits sworn by him on 27 February 1997 and on 5 June 1997. These affidavits were prepared by his solicitors and reference should be made to this evidence, much of which was seriously challenged in cross-examination. In his first affidavit, Mr Smith gave the following evidence. He said that he had been dealing with Mr Ford since the mid 1980s and that in about the middle of June 1994, Mr Ford telephoned Mr Smith and informed Mr Smith that he was interested in purchasing two carpark sweepers and two auto scrubbers. Mr Ford said that finance had been approved and that his finance broker was Mr Phil Tucker who would contact Mr Smith shortly. Mr Smith's evidence then is that, a few days later, Mr Tucker did contact him and asked for a "pro forma" invoice for two carpark sweepers and two auto scrubbers in the name of Sanwa Australia Finance Limited ("Sanwa"). According to Mr Smith's affidavit evidence, he informed Mr Tucker that he would need the serial numbers and all the details of the machines. Mr Tucker said that he would contact Mr Ford and arrange for Mr Ford to ring Mr Smith with these details. Mr Smith's evidence is that he was then contacted by Mr Ford who said that he wanted "two Tennant carpark sweepers, model 385, serial numbers 2652391 and 2652392 and two Tennant auto scrubbers, model 465, serial numbers 48021059 and 48021060." Mr Ford said that these machines had been demonstrated to him by Tennant and that they were the ones that he wanted to buy, and that they had been put aside by the representative of Tennant. Mr Ford asked Mr Smith to fax the details to Mr Tucker. Mr Smith said that he would fax them to Mr Tucker and then said this to Mr Ford: "Why do you want to deal with me, I don't get it any cheaper from Tennant and you can deal with them directly." Mr Ford then said: "I'll give you a spotter's fee of $500.00 and it's better for me to keep in good with you because you do all the maintenance on our machines and you've got Tennant spare parts." According to Mr Smith's affidavit evidence, he then said to Mr Ford that this was "OK, fine." Mr Smith then says that he faxed four invoices, a separate invoice for each piece of equipment, to Mr Tucker. Mr Smith's evidence is that, about two weeks later, he was informed by Mr Tucker that Sanwa had decided not to go ahead with the lease arrangement. Mr Smith then contacted Sanwa and credited the invoice involved. Mr Smith's affidavit evidence next is that, on about 25 July 1994, he was again contacted by Mr Ford on the telephone. Mr Ford then said: "Finance has been arranged with the NAB. The manager at the NAB is Wayne Joliste. His number is 232 1344. Can you fax the invoices to Phil Tucker? The serial numbers for the two carpark sweepers are 2652406 and 26524407 and for the two auto scrubbers are 48021177 and 48021178. The machines that the Tennant rep put away for me on the last time have already gone and I've got these new machines. The rep's name is Frank Cupido. Can you do it straight away?" According to Mr Smith's affidavit evidence he then said: "OK, no worries." Mr Smith proceeded to say that he telephoned Mr Cupido and that Mr Cupido confirmed that he was a Tennant representative. Mr Smith says that he informed Mr Cupido that he had spoken to Mr Ford and that Mr Ford had told him: "[T]here are four machines put away for him, two carpark sweepers and two auto scrubber, is that right?" Mr Smith's evidence then is that Mr Cupido then said: "Yeah, I've demonstrated them to Tom and that is what Tom said he wants." Mr Smith's affidavit evidence is that he then rang Mr Tucker and informed him that Mr Ford was still trying to purchase the machines and that finance had been approved. Mr Smith asked whether this was correct. Mr Tucker said that it was and that it had been approved by the applicant. He suggested that Mr Smith ensure that the invoices were addressed correctly. According to Mr Smith's affidavit evidence, he then telephoned Mr Wayne Joliste (who, it now appears, is correctly named as Mr Joliffe) and asked Mr Joliffe whether finance had been approved for the equipment. Mr Joliffe said that it had. Mr Smith then asked how the applicant wished the invoice to be addressed; Mr Joliffe said that it should be invoiced to National Australia Bank Limited at 169 Phillip Street, Sydney, but that the equipment should be made for delivery to Viewicon Pty Limited, 417 Peel Street, Tamworth. According to Mr Smith, Mr Joliffe then said: "Make sure you have a full description of the equipment. You must note on the invoice that the equipment is new and you must state their serial numbers. Is the total $150,000.00 or more and [is] Ford paying the difference to you." According to Mr Smith, he replied: "No, the total is $150,000." Mr Smith's affidavit evidence is that Mr Joliffe then said to him: "Can you fax the invoice to us so we can process the paperwork because Ford is in a hurry. Address it to my secretary, Kaye and put the original in my mail." Mr Smith then said that he raised an invoice accordingly and sent a copy to Mr Tucker by fax. Mr Smith's evidence then is that on 11 August 1994 he met Mr and Mrs Ford in the city and went with them to the applicant at its Phillip Street branch. Mr and Mrs Ford, according to Mr Smith, then went into an office with a representative of the applicant. When they came out, Mr Ford, according to Mr Smith's evidence, said this to Mr Smith: "Can you repay the money that I've paid to Tennant for the machinery, but can you make it out in four different cheques totalling the $150,000.00? I've had to take the money out of four various accounts to make up the $150,000.00." Mr Smith's evidence is that he then said: "That's OK but I require a letter from your company stating that you have paid for the machinery on my behalf." Mr Smith's evidence is that Mr Ford agreed with this. In his affidavit, Mr Smith next goes on to say that he wrote out the four cheques, rang his manager at the applicant's Ashfield branch and confirmed with him that it was in order to draw against the National Australia Bank cheque for $150,000. Mr Smith then says that he wrote out two cheques payable to Mr Ford, one for $30,000 and one for $10,000, and two cheques in favour of Viewicon, one for $80,000 and one for $30,000. Mr Smith's evidence is that Mr Ford then said to him: "I will send you that letter as soon as I get back to Tamworth." According to Mr Smith he then said to Mr Ford: "Make sure you don't cash the cheques until you do." Mr Smith then said that he telephoned Mr Ford on several occasions seeking the letter that Mr Ford had promised. On 16 September, Mr Smith says he went to Tamworth to fix machinery and sat down with Mr Ford, who then wrote a note, dated 16 September 1995, which is annexed to these reasons. I should say, at this stage of these reasons, that Mr Ford has not been called to give evidence in these proceedings. In his affidavit, sworn 5 June 1997, Mr Smith next says, inter alia, the following: "9. ... I have for many years serviced and maintained Mr Ford's equipment. ... Up until the notification by Ford that he wasn't proceeding with the transaction I intended to draw a cheque to pay Tennant for the equipment. I operate a savings access account with the applicant's Ashfield Branch. At this time I rang my branch manager and had a conversation part of which was to the following effect: I said: `Mr Brown its Terry Smith. Look I'm doing a deal with Tom Ford of Techniclean and he's going to hand to me a bank cheque for $150,000.00. I need to draw on this cheque to pay the supplier Tennant. Can I draw against the cheque? It's a National Australia Bank bank cheque.' He said: `That will be OK but I will need cheque details and the details of the deposit and branch.' 10. I supplied that information and went to lunch with Ford. 11. Later that day I returned to my office at Mascot. Upon my return I received a telephone call from Ford calling off the deal and requesting the cheques that I have referred to in paragraph 18 and 19 of my earlier Affidavit. Prior to drawing those cheques I again rang Ian Brown at the Ashfield branch of the applicant and had a further conversation part of which was to the following effect: I said: `Mr Brown, the deals not going ahead. The client's paid for the equipment himself and wants a refund of his money. Is it still OK to draw on the cheque as we discussed this morning?' He said: `Yes'. 12. I wasn't going to make any money out of this transaction apart from gaining the maintenance over the equipment to be acquired by Mr Ford and his company. Mr Ford was one of my longest and most trusted customers. I had absolutely no reason at that time to doubt his word. I received the benefit of his business for over 10 years that brought in approximately $4,000.00 to $6,000.00 on average per month. I did not know of the fact that Ford did not acquire the subject equipment until after the police investigation commenced." All the applicant's officers involved in the transaction have given evidence in affidavit form in the first instance and have been cross-examined. The officers include the officers based in the applicant's premises in 169 Phillip Street, Sydney but also Mr Brown who, at the relevant time, was the manager of the Ashfield branch. Mr Brown says that he cannot recall the discussion with Mr Smith, deposed to by Mr Smith in para 11 of his affidavit, sworn 5 June 1997, which I have set out above. On this matter, I accept the evidence of Mr Brown. It seems to me quite extraordinary that Mr Brown would not take any action in response to the receipt of such dramatic information. As I have already said, payments were made by Viewicon pursuant to the lease throughout 1994 and well into 1995. It would be quite irresponsible, and grossly incompetent conduct on the part of Mr Brown, to ignore information to the effect that the leasing agreement was off, once that transaction had previously proceeded to fulfilment. It is possible that Mr Smith, who has no documentary corroboration of this alleged conversation, has mistaken it in his own mind with the conversation in which he was seeking permission to draw against the cheque provided by the Phillip Street branch, but that is an entirely different matter. On behalf of the applicant, it is submitted that by providing the invoice to it, Charvelle engaged in conduct which was misleading or deceptive. I agree with the submission advanced on behalf of the applicant that Charvelle's conduct was incontrovertibly misleading and deceptive, given that the equipment did not exist. I further accept the submission, made on behalf of the applicant, that, with its specificity, its form and its status as an invoice, the document clearly communicated that the equipment existed; that Charvelle was the owner or immediately entitled to the equipment; and that, upon payment of the sum of $150,000, Charvelle would deliver, or cause to be delivered, the equipment into the possession of Viewicon. I further accept the submission, advanced on behalf of the applicant, that it is clear that both Charvelle and Mr Smith, knowing that the applicant would act on the invoice, intended that the applicant would accept it as evidence of the existence of the goods, that the goods were within the power or possession of Charvelle and Mr Smith, if not legally owned by them, at that precise point of time, and that they would, upon sale of the equipment to the applicant, cause the equipment to be delivered to Viewicon. I further agree with the submission that the existence of this intention supports the conclusion that the conduct of Charvelle and of Mr Smith was misleading and deceptive. It may be that the conduct of Mr Smith in the matter was itself misleading conduct within the meaning of ss 41-2 of the Fair Trading Act. But I need not express a concluded view on this matter. In my opinion, Mr Smith was "knowingly concerned" in the conduct of Charvelle, in the sense explained by the High Court of Australia in Yorke v Lucas (1985) 185 CLR 661. The loss caused by the conduct complained of is, as has been previously calculated, the sum of $131,065.72, being the amount of $150,000 paid out by the applicant in reliance on the invoice, less the seven payments mentioned. This loss was clearly caused by the conduct complained of, at least as a contributing cause; see Gould v Vaggelas (1985) 157 CLR 215. In the circumstances, I make the following orders: 1. I order that judgment be entered in favour of the applicant against the first and third respondents in the sum of $131,065.72, together with interest on the amount unpaid from time to time at the rate specified at the material times, pursuant to the provisions of the Supreme Court Act 1970 (NSW). 2. I reserve liberty to apply in connection with the calculation of interest, should there be any dispute about that calculation. 3. I order that the first and third respondents pay the applicant's costs of the proceedings. 4. I order that the proceedings against the second respondent be dismissed, and I make no order for costs in that connection. I certify that this and the preceding ten (10) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont