Roufeil v Lusby [2003] NSWSC 1002

New South Wales Supreme Court

CITATION : Roufeil v Lusby [2003] NSWSC 1002 HEARING DATE(S) : 03/09/03 JUDGMENT DATE : 5 November 2003 JURISDICTION: Equity Division JUDGMENT OF : Barrett J DECISION : Declaration that company is owner in equity

CATCHWORDS : EQUITY - estoppel - acquisition by estoppel - father and son cause company to be represented as owner of property purchased by them with funds provided by father and mother - company conducts itself as owner and acknowledges debt to father and mother - father and son estopped from denying company's ownership CASES CITED : Dillwyn v Llewellyn (1862) 4 DeGD&J 517 Ramsden v Dyson (1866) LR 1 HL 129 Mark Damian Charles Roufeil - First Plaintiff PARTIES : Lusby's Furniture Company Pty Limited (in liquidation) - Second Plaintiff Craig Steven Lusby - First Defendant Denis Raymond Lusby - Second Defendant FILE NUMBER(S) : SC 1863/03 COUNSEL : Mr S M Golledge, Solicitor - Plaintiffs Mr A J O'Brien - Defendants SOLICITORS : The Argyle Partnership - Plaintiffs King Cain - Defendants

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

BARRETT J

WEDNESDAY, 5 NOVEMBER 2003

1863/03 – MARK DAMIAN CHARLES ROUFEIL & ANOR v CRAIG STEVEN LUSBY & ANOR JUDGMENT 1 At issue in these proceedings is the ownership of a factory and certain plant and equipment within it. The rival claimants are, on the one hand, Lusby's Furniture Company Pty Ltd (a company of which Mr Roufeil is liquidator pursuant to an order for winding up in insolvency made by this court on 28 April 2002) and, on the other, Craig Lusby and his father Dennis Lusby. It is necessary to review, in the first instance, the circumstances of the acquisition of the property in question. 2 In May 1996, Craig Lusby became aware that the assets of a furniture manufacturing business were available for purchase from a company which had gone into liquidation. Craig Lusby was the licensee of a hotel at Rockley, the town in which the furniture business operated. He and his father inspected the premises and plant and decided to submit an offer. The liquidator found the offer acceptable. In late June 1996 (or on 1 July of that year), Craig Lusby and Dennis Lusby went to see Mr Cain, a solicitor in Bathurst, to instruct him in relation to the purchase of the real estate. At about the same time (but after the visit to the solicitor), Craig Lusby alone went to see Mr Harris, an accountant in practice in Bathurst, to obtain advice about the structuring of the new business. Mr Harris advised that a company structure should be used. Craig Lusby gave evidence that in late June 1996, Dennis Lusby gave him two bank cheques, each for $25,000, and that he gave one to the liquidator of the company that operated the business "for the purchase of the plant and equipment" and the other to McDowall & Co "for arranging matters with the liquidator". I infer that these cheques were handed over soon after Craig Lusby received them from Dennis Lusby in late June 1996. 3 Contracts for the purchase of the real property were exchanged on 4 July 1996, with Craig Lusby and Dennis Lusby as purchasers. The next day, 5 July 1996, a company was, at Mr Harris' request, registered under the name "Lusby's Furniture Company Pty Ltd" and Craig Lusby and Dennis Lusby became its shareholders and directors. On 11 September 1996, the purchase of the real property under the contract dated 4 July 1996 was completed. Craig Lusby and Dennis Lusby both testified that the whole of the deposit and balance of purchase moneys was provided by Dennis Lusby. 4 The company commenced to conduct the furniture manufacturing business. In doing so, it occupied the premises and used the plant and machinery acquired by Craig Lusby and Dennis Lusby. 5 In June 1997, Craig Lusby consulted Mr Harris about the preparation of financial statements and an income tax return of the company for the period ended 30 June 1997. Accounts of what transpired when they met differ. I shall come back to that matter. It is sufficient to record, at this point, that journal entries were on 30 June 1997 made in the books of the company recognising the land, buildings, plant and equipment and associated legal fees and stamp duty as an asset and also recognising a liability to D & S Lusby equal to the acquisition cost of those items. The financial statements and tax return of the company for the period to 30 June 1997 were prepared on the basis that the company owned the land, buildings, plant and equipment and that it owed the Messrs Lusby an amount equal to the acquisition cost. That same pattern was continued in the accounts and tax returns for all subsequent years. The tax returns included claims for deductions for depreciation of plant. Such deductions are available under taxation legislation only in respect of plant or articles "owned" by the relevant taxpayer and used by that taxpayer for the purpose of producing assessable income. 6 Following the making of the winding up order in respect of the company in April 2002, Craig Lusby, as a contributory, made an application to the court for an order terminating the winding up. In support of that application, he filed affidavits sworn by him on 30 August 2002 and 19 September 2002 and an affidavit of the accountant, Mr Harris, sworn on the former day. In his second affidavit, Craig Lusby swore that the sum of $133,447 was owed on loan account by the company to his parents, Dennis Lusby and Sylvia Lusby. He also swore that he was informed by his parents that they would enter into a deed of subordination in respect of their loan. Mr Harris annexed to his affidavit a trading account of the company for the period 1 July 2002 to 31 July 2002, a profit and loss account for that period and a balance sheet as at 31 July 2002. Also annexed were corresponding documents for the year ended 30 June 2002 and the company's tax return for that year. Mr Harris said that, in preparing the documents annexed, he had relied upon information given by Craig Lusby, as well as primary records "such as tax invoices, accounts from creditors and the like". The two balance sheets showed non-current asset items as follows: