Singleton Earthmoving Equipment Hire Pty Ltd v Singleton Earthmoving Pty Ltd (In Liq) [2005] NSWSC 989

New South Wales Supreme Court

CITATION : Singleton Earthmoving Equipment Hire Pty Ltd v Singleton Earthmoving Pty Ltd (In Liq) [2005] NSWSC 989

HEARING DATE(S) : 6, 7 and 8 September 2005

JUDGMENT DATE : 30 September 2005

JURISDICTION : Equity Division

JUDGMENT OF : Windeyer J at 1

DECISION : Order for delivery made.

CATCHWORDS : PROPERTY - ownership and possession - equipment leased by plaintiff and sub-let to defendant - claim for possession of equipment made by administrator of defendant company - issue of fact - superior right to possession.

Singleton Earthmoving Equipment Hire Pty Limited (Plaintiff) PARTIES : Singleton Earthmoving Pty Limited (In Liquidation) (First Defendant) Stuart Karim Ariff (Second Plaintiff)

FILE NUMBER(S) : SC 1251 of 2005

Mr R R I Harper SC (Plaintiff) COUNSEL : Mr C R C Newlinds SC (Defendants)

Dutton Lawyers (Plaintiff) SOLICITORS : Catalyst Legal Pty Limited (Defendants)

LOWER COURT JURISDICTION :

- 6 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

WINDEYER J

FRIDAY 30 SEPTEMBER 2005.

1251/05 SINGLETON EARTHMOVING EQUIPMENT HIRE PTY LIMITED V SINGLETON EARTHMOVING PTY LIMITED (IN LIQUIDATION) & ANOR

JUDGMENT – on entitlement to possession 1 The question is whether the plaintiff has a superior claim to possession of certain items of earthmoving equipment than the first defendant company which is in liquidation. Facts 2 Singleton Earthmoving Equipment Hire Pty Limited (SEEH) is a company carrying on the business of owning or leasing items of earthmoving machinery for on-hiring. Part of its business was to supply items of equipment to Singleton Earthmoving Pty Limited (SE) usually at rates relating to operational hours. SE then entered into contracts with third parties for the supply of either labour and equipment (wet contracts) or just equipment (dry contracts). In practice the machinery was hired under those contracts to large mining operations in the Hunter Region. 3 SE was placed under administration by resolution of the directors on 28 September 2004. On 17 December 2004 SE was put into liquidation as a result of a resolution at the second meeting of creditors. Mr Ariff, the second defendant, was the administrator and is now the liquidator. 4 In his capacity as administrator or liquidator Mr Ariff took possession of the three items of equipment the subject of this action claiming them to be property of SE and made arrangements for their sale. An order was made restraining the sale from proceeding pending the determination of this action. 5 The equal shareholders in SEEH are Paul Glasson and Valda Johnson. Its directors are those two people and Mr Bernard Wood. Bernard Wood and Valda Johnson were previously married but that marriage has been dissolved it appears in acrimonious circumstances. The directors of SE are Bernard Wood and Valda Johnson. A Mr Douglas Peters was a director of SE from 19 August 2004 until 30 September 2004. Valda Johnson holds 19,999 out of 20,000 issued shares in SE and Mr Wood holds the other share. 6 The items of equipment the subject of this dispute are (a) Caterpillar D5M Bulldozer serial number 05ES00262; (b) Dresser TD12 Bulldozer serial number 122OP1109; (c) Komatsu PC220-6 Excavator serial number 55890. In the pleadings and in this judgment the items are referred as the D5 Dozer, the Dresser Dozer and Komatsu Excavator. In certain of the plaintiff's records the D5 Dozer is described as the D5-3 because it was the third of that type held by one of the companies. The Dresser Dozer is referred to as the TD12 and the Excavator is referred to as E5. 7 It is fair, I think, to say that the liquidator does not know who owns the items of equipment but considers it his duty to hang on to them if possible. It is equally clear that at the time he asserted right to possession of them they were operating in mines having been hired for that purpose by the mine operator from SE. 8 For reasons which I do not understand clear evidence of purchase or of equipment lease from a financier which one would have expected to have been available was not available at the start of the hearing. In the long run that does not matter as I will explain when referring to the documentary evidence. Mr Gleeson gave evidence but finally admitted that he did not have any knowledge of ownership or leasing of any particular item of equipment. Mr Wood maintained the three items were either owned by SEEH or under lease to that company. Valda Johnson did not give evidence. I will deal with the evidence relating to each item. The D5M Dozer 9 This was leased by SEEH from Australian Guarantee Corporation Limited (AGC) by lease commencing on 21 July 1997 for a period of forty-eight months at the expiration of which it was stated that there would be a residual value of $37,700. On an insurance schedule included as part of Exhibit E, which appears to relate to SE equipment there is an asterisk against this item of equipment and a note "insured by SE Hire Pty Limited". This item appears in an accounts depreciation schedule for SEEH for the year ended 30 June 2003. It is referred to as an addition in that schedule at a cost of $37,700 which is the residual value under the AGC lease. It does appear in that schedule on another page under Equipment under Lease but I do not think this has any significance although it was argued that it had some and showed the inaccuracy of the document. It appears on the assets register of SEEH. Maintenance claims for the Dozer were charged to SEEH as far as August 2004. There is no evidence to suggest the D5 is not an asset of SEEH. Mr Wood said that it is. The liquidator does not know that it is not. The fact that it was SE which was entitled to possession against the third party contractor at the end of the contract does not bear on the finding. The liquidator has not continued to trade. I find that the D5 Dozer is the property of the plaintiff. Dresser Dozer 10 This was financed as new equipment through Suncorp Metway Limited under lease commencing 7 July 1999 expiring on 7 July 2003. The lessee was SEEH. The residual value was $36,250. The annual general ledger of SEEH up to 30 June 2003 shows an entry for purchase payments paid by SE and later credited to its loan account with SEEH. An adjustment sheet on 4 August 2004 shows a charge to SE by SEEH for use of the Dresser Dozer for 72 hours. It appears on the depreciation schedule for the year ended 30 June 2003 for SEEH. It appears on a tax invoice for hire charges for SEEH to SE for July, August and September 2004, although it is likely that this document was created after these proceedings commenced. It appears on a depreciation statement in the management accounts of the accountant for SEEH for the year ended 30 June 2004. This shows an acquisition cost of $36,250 at about 1 July 2002. That was the residual value set out in the original leasing documents, but at 30 June 2003. 11 As against this the report as to the affairs of SE signed by Mr Wood – which is the same as that signed by Valda Johnson and probably the same as that signed by Mr Peters - shows the Dresser Dozer as an asset of SE. That is an admission by both of those directors as they were also directors of SEEH. Mr Wood's evidence about this was that he was under great pressure at that time, signing what was put in front of him, and by that time under threat of action by the Australian Securities and Investment Commission for failing to fulfil his statutory duties. In spite of this admission I consider that the documentary material leads to a clear conclusion that on the balance of probabilities the Dresser Dozer is the property of SEEH. The fact that that company was the original lessee, that it paid the lease charges and appears to have acquired the Dozer and brought it into its accounts at the residual value, all supports this. There is nothing to show that SE made any payments towards it. The conclusion must be that it remained with the original lessee which became the owner. Komatsu Excavator 12 This excavator was originally leased by SEEH from CBFC Limited under a lease which expired on 25 November 2003 at which stage the residual value was $45,260. Documentary evidence establishes that this residual payout figure was financed by Westpac Banking Corporation. Thus, Westpac in fact purchased the item from CBFC and then hired it to SE, not SEEH. Mr Wood, Valda Johnson and SEEH and another company were guarantors of the obligations of SE under the hiring agreement. Mr Ariff as liquidator paid to Westpac the balance of $4,509.74 in March 2005, having apparently entered into negotiations to do so before that date. 13 At the time of refinancing SEEH did not have a separate bank account, Valda Johnson having apparently determined that one bank account was sufficient for both companies which could make the necessary adjustments through book entries. In answer to a question about the Westpac transaction Mr Wood said at T34: Q. Could you, please, tell the court what your recollection is? A. As I said before, I would have got the letter from CBFC to say that the payment on the machine was almost complete except for the residual and would you like us to finance or can you organise finance. I approached Garth Bryant of Westpac, the broker, who had financed many of our machines, would he be able to finance the residual on this excavator. They said, yes. Because the accountants of the company had closed our bank accounts with the ANZ and moved on to the National Bank, I said we no longer have a trading account with the bank, so we will have to get Singleton Earthmoving to borrow the money for the residual, which he approved. From that day on, Singleton Earthmoving made the payments on the machine and recharged it back to Singleton Earthmoving Equipment Hire. 14 There is documentary material which supports this claim of recharging in the accounts as having happened. Mr Ariff should not be criticized for being an enthusiastic liquidator but he did say that so far as he was concerned he considered his duty was to do whatever he could to maintain ownership of the three pieces of equipment and he admitted that he relied on Valda Johnson in pressing the claims and particularly her report as to affairs. 15 Without evidence to the contrary from Valda Johnson and while Mr Wood's evidence must, I think, be treated with care, I have come to the conclusion it should be accepted. The method of adjusting accounts between the companies is supported by the accountant. It could not be suggested that there was some loan transaction involved. Either SE was lessee or hirer from Westpac in its own right or it was acting as nominee for SEEH. As between SE and SEEH I find the latter to be the position. Decision 16 It follows from this that SEEH has a superior right to possession of the three items of equipment over any right of SE. It was accepted that if I came to that decision an order for specific delivery could be made. There are problems with the claim for damages and the cross-claim which will require further discussion and consideration. As the question of entitlement required urgent decision I decided to give a separate decision on that question. Order 17 Order the defendants deliver up to the plaintiff the three items of equipment the subject of the action. **********