Spalla v St George Wholesale Finance Pty Ltd [1999] FCA 208

FEDERAL COURT OF AUSTRALIA

Spalla v St George Wholesale Finance Pty Ltd [1999] FCA 208

ANTHONY PATRICK SPALLA, IRLMOND PTY LTD (RECEIVERS & MANAGERS APPOINTED) & APS (WHOLESALE) PTY LTD (RECEIVERS & MANAGERS APPOINTED) V ST GEORGE WHOLESALE FINANCE PTY LTD, ST GEORGE MOTOR FINANCE PTY LTD, ANDREW STEWART HOME & ANDREW WILLIAM BECK

NO. V 74 OF 1999 JUDGE: FINKELSTEIN J PLACE: MELBOURNE DATE: 4 MARCH 1999

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY V 74 of 1999

BETWEEN: ANTHONY PATRICK SPALLA

IRLMOND PTY LTD (RECEIVERS & MANAGERS APPOINTED) and

APS (WHOLESALE) PTY LTD (RECEIVERS & MANAGERS APPOINTED)

Applicants

AND: ST GEORGE WHOLESALE FINANCE PTY LTD

ST GEORGE MOTOR FINANCE PTY LTD

ANDREW STEWART HOME and

ANDREW WILLIAM BECK

Respondents

JUDGE: FINKELSTEIN J

DATE: 4 MARCH 1999

PLACE: MELBOURNE

REASONS FOR JUDGMENT 1 Irlmond Pty Ltd (Irlmond), the second applicant, conducts the business of selling new and used motor vehicles under the name "Essendon Mitsubishi" pursuant to a franchise granted by Mitsubishi Motors Australia. APS Wholesale Pty Ltd (APS Wholesale), the third applicant, acts as the wholesaling arm for that business. The business is financed by St George Wholesale Finance Pty Ltd, the first respondent, and St George Motor Finance Ltd, the second respondent, each being a subsidiary of the St George Bank. 2 The manner in which finance is provided is as follows. Irlmond has entered into a bailment plan agreement with the financiers. The agreement is dated 21 February 1994. By that agreement, the financiers are to purchase motor vehicles when requested by Irlmond. Irlmond then takes possession of the vehicles as bailee and displays them for sale. Any offer to purchase a vehicle is received by Irlmond as agent for the financiers who may in their complete discretion sell the vehicle. It is not clear whether the sale is to the customer or to APS Wholesale who then sells the vehicle to Irlmond who in turn sells it to the customer. Upon the sale of a vehicle, Irlmond receives the purchase price for the account of the financiers. Out of those moneys, Irlmond is entitled to deduct its commission, being the difference between the price the customer pays for a vehicle and the price at which the vehicle was purchased by the financiers. 3 From time to time, motor vehicles are sold under an agreement whereby the payment of the purchase price is to be deferred for a period after the vehicle has been delivered. By a deferred payment agreement, also dated 21 February 1994, the obligation to pay the financiers the purchase price for those vehicles is deferred until the purchase price is received from the purchasers or 30 days from the date of the delivery of the vehicles, whichever first occurs. 4 The parties have agreed that there should be limits on the facility provided by the financiers. Those limits are that the financiers will at any one time purchase new vehicles to the value of $3.5 million, demonstration vehicles to the value of $350,000 and used vehicles to the value of $1.450 million. The limit on the value of new vehicles to be purchased includes an amount of $800,000 in respect of the deferred payment facility. Thus the "credit" available to Irlmond was agreed to be $5.3 million. 5 In order to secure its obligations under the bailment agreement and the deferred payment agreement, Irlmond has granted to the financiers a fixed and floating charge over its property. A like charge has been granted by APS Wholesale who has guaranteed the obligations of Irlmond. 6 By the end of 1994, Irlmond was in serious financial difficulty. Unsecured creditors were owed in excess of $2 million. The company needed to raise approximately $1 million in order to keep trading. St George Bank was requested to provide this money but only agreed to advance approximately $600,000. 7 Thereafter the business continued to struggle. Not only was it short of working capital, it was suffering trading losses. For example in the year ended 30 June 1997, the losses were of the order of $500,000. To cover the shortage of cash, Irlmond made use of the deferred delivery facility in a way not permitted by the agreements. What occurred was this. Irlmond allocated to the deferred delivery facility vehicles that had been sold and paid for. This enabled Irlmond to make use of the purchase price that had been received for these vehicles for a period of up to 30 days. According to the evidence, about one half of the facility was comprised of vehicles in respect of which the purchase price had been paid. 8 In the period from 1995 to September 1998, the level of the deferred delivery facility fluctuated between approximately $700,000 and $1.8 million of which, as I have said, approximately 50 per cent represented funds that should have been paid to the financiers. Since Irlmond was required to pay the purchase price of the deferred delivery vehicles within 30 days of those vehicles being allocated to the facility, Irlmond not only obtained up to 30 days' credit, but was able to roll over this credit from month to month. 9 Anthony Spalla, the first applicant, is the sole director and a shareholder of the corporate applicants. His evidence is that the financiers were well aware of the fact that Irlmond was making use of the deferred delivery facility in the manner described. According to Mr Spalla, he had discussed the use of the facility with officers of the financiers, in particular Wayne Phillips, Peter Beed and Danny Cahill. Mr Spalla said that each of these officers knew that the deferred delivery facility was being used in order to finance the day-to-day operations of the company's business. He says that not only did the officers of the financiers not object to what was happening, but that he was led to believe by them that the financiers would not require Irlmond to abide by the strict terms of the bailment agreement and the deferred payment agreement without reasonable notice. As at September 1998, the deferred delivery facility stood at around $1.9 million, over half of which represented funds that had been received by Irlmond that were being utilised for operating capital. 10 In September or October 1998, Mr Spalla met Mr Beed. Mr Spalla says that Mr Beed told him that: "We [presumably the corporate applicants and the financiers] have to come clean and tell Sydney the truth, but you'll have to go somewhere else." The reference to "Sydney" I take to be a reference to the St George Bank. The following day Mr Beed