New South Wales Court of Appeal CITATION: Sebastiano CANNAVO v Brian Hugh ALLEN & ANOR [2008] NSWCA 303 HEARING DATE(S): 4 November 2008 JUDGMENT OF: Allsop P at 1; Bell JA at 17; Handley AJA at 18 EX TEMPORE JUDGMENT DATE: 4 November 2008 DECISION: Appeal dismissed with costs. LEGISLATION CITED: Civil Procedure Act 2005 (NSW) Corporations Act 2001 (Cth) PARTIES: Sebastiano CANNAVO Brian Hugh ALLEN & ANOR FILE NUMBER(S): CA 40032/2008 COUNSEL: D A Allen A Reoch SOLICITORS: V L Macri Lawyers John Dowling LOWER COURT JURISDICTION: Supreme Court - Equity Division LOWER COURT FILE NUMBER(S): 2065/2004 LOWER COURT JUDICIAL OFFICER: Bergin J LOWER COURT DATE OF DECISION: 27 November 2007 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40032/08 ALLSOP P BELL JA HANDLEY AJA 4 November 2008 Sebastiano CANNAVO v Brian Hugh ALLEN & ANOR Judgment 1 ALLSOP P: This is an appeal from orders made by the Court (Bergin J sitting in the Equity Division, Corporations List) made after a judgment delivered on 27 November 2007. The orders of the Court were that there be verdict and judgment for the first and second applicants (the respondents to the appeal) in the sum of $218,564. The second respondent to the application below (the appellant in this Court) to whom I will refer as Mr Cannavo, was ordered to pay interest on the judgment pursuant to s 100 of the Civil Procedure Act 2005 (NSW) in the sum of $34,463. Mr Cannavo was ordered to pay the costs of the applicants (the respondents to the appeal) on a party/party basis up to 29 August 2007 and thereafter on an indemnity basis. 2 There was judgment for the first respondent below (Ms Ardizzone) against the applicants but no order for costs was made. Ms Ardizzone took no part in this appeal which is brought by Mr Cannavo. 3 The nature of the appeal is best understood by a description of the background to the matter taken from the reasons of the primary judge at [1]-[7] is as follows: [1] This is an application brought by the applicants Brian Hugh Allen, the court-appointed liquidator of Flametime Pty Limited (the Company), and the Company against the first respondent, Josephine Ardizzone and the second respondent, Sebastiano Cannavo. [2] The liquidator was appointed on 7 May 2004. Upon his appointment he served orders to obtain various documents and established that the first respondent is the sole director of the Company and that the Company was in the business of earth moving and concreting. At the commencement of this case there was some controversy about the conduct of the first and second respondents. It is clear beyond any doubt that they have failed to comply with Court orders and directions for the filing of defences and points of defence and/or submissions. However the position ultimately taken by the liquidator was that rather than delay the proceedings he would not object to the filing of a Defence today and to the filing of an affidavit by the second respondent. [3] The Defence raises a number of issues one of which is not pressed (the pleading point). Mr D A Allen, of counsel, who appears for the respondents has taken a sensible course to shorten these proceedings to which I will refer shortly. [4] The applicants make claims in respect of four transactions. One is a payment out of Company funds for the purchase of a bobcat, the second is payment out of Company funds for the purchase of a trailer, the third is a payment in respect of a five percent deposit on a house in Mollymook out of Company funds and the fourth is payment for stamp duty on the contract for purchase of the Mollymook house, once again out of Company funds. [5] There is no issue that the second respondent signed a number of cheques including the cheque for the trailer in the amount of $60,550 on 25 August 2003. It is not known who signed the cheque for the bobcat. The second respondent signed the cheque for the deposit of $56,250 and it appears that the first respondent signed the cheque for $58,369 for the purchase of a bank cheque to pay the stamp duty. [6] It is apparent from the evidence that the first and second respondents are living in a de facto relationship and have been so for some years. Mr Allen has not sought to argue against the deemed insolvency of the company as at 1 July 2003 by reason of the provisions of the Corporations Act 2001 (Cth) in respect of the failure to keep proper books and records of the company. The cheques for the deposit on the house and the payment of the stamp duty are within the relation back period and Mr Allen conceded sensibly that if his arguments do not find favour, then his client is required to pay $114,619, being the total of the two cheques in respect of the Mollymook property, back to the Company. [7] The claim in relation to the bobcat and trailer is a claim in conversion in respect of both items of equipment. Mr Allen's short submission is that if I am to find that the trailer and bobcat were converted then there is no evidence of the value at the time because it is not clear when there was a conversion of those items of equipment. He submitted that an inference cannot be drawn that the value of the equipment was the amount paid for the equipment as recorded in the documents. 4 The appeal was limited to one subject matter. The relevant grounds of the appeal were as follows: 1. Her Honour erred in ordering the Second Appellant to pay damages for conversion of two items of equipment in that: (i) Her Honour ought to have found that the Second Appellant had not converted the equipment. (ii) There was no evidence of when the equipment was converted. (iii) There was no evidence of the value of the equipment when converted. 5 Mr Cannavo accepted that Flametime (the second appellant, the company in liquidation) paid for the equipment. He asserted that the equipment was purchased in the name of KC and MR Smith Pty Limited and that it was leased back to Flametime and the provision of the purchase money was a pre-payment of rent for use of the equipment. Mr Cannavo complains that instead of determining who had an immediate right to possession, the primary judge addressed a question of ownership and held that Flametime was the owner. He submitted that the evidence indicated that the equipment was purchased by and in the name of KC and MR Smith which suggested that they were the owners and thus had an immediate right to possession, subject to the terms of any lease. He submitted that the fact that Flametime provided the purchase money may give rise to a debt but not an immediate right to possession of the equipment purchased by and in the name of KC and MR Smith. 6 The appellant complained that the primary judge found that in the absence of any evidence as to the date upon which KC and MR Smith actually started using the items the irresistible inference to be drawn was that the conversion took place at the time the payment was made to purchase the items. Mr Cannavo submitted that there was no satisfactory evidence as to who had possession of the equipment at any point in time before Mr Allan was appointed liquidator. Mr Cannavo's assertion of a lease from KC and MR Smith to Flametime suggests that Flametime had possession. This is consistent with KC and MR Smith being in the business of leasing earth moving equipment. The consequence of this was that conversion could not have taken place when the equipment was purchased. It was submitted that her Honour wrongly drew an inference that there was a conversion at the date of purchase simply to fill the gaps in the case of the applicants below. 7 Next Mr Cannavo complained that the only evidence of value was the price paid. By equating the value of the equipment with the purchase price her Honour erred because the purchase price was evidence only of value in the hands of the seller. Once it was sold its value depreciated. 8 The submissions of the appellant Mr Cannavo do not correctly set out with precision the terms of the findings of the primary judge and the evidence before her. Her Honour found and the evidence revealed the following: 1. Mr Cannavo arranged for the purchase of a trailer and wrote a cheque on the company's account in the sum of $60,500 on 25 August 2003. The cheque was used to purchase the trailer: see paragraph [5]. 2. It was not known who signed the cheque in the sum of $43,395 which was debited to the company's account on 10 December 2003 but that cheque was used for the purchase of a bobcat: judgment paragraph [5]. This purchase was out of company funds from the company's cheque account: judgment paragraph [9]. 3. It was clear from the transcript that the transactions for the purchase of the trailer and the bobcat was organised by Mr Cannavo. 4. Both cheques were written after 1 July 2003 when the company became statutorily insolvent. 5. At the time of the hearing in Court both the bobcat and trailer were in the possession of KC and MR Smith Pty Limited: transcript and judgment [10]. 6. Mr Cannavo was at all relevant times a director of KC and MR Smith Pty Limited: transcript p 29.45. 7. There was no documentation, namely purchase documents, registration documents, invoices, receipts or any other like documents evidencing any transactions concerning either the purchase of, subsequent delivery or any leasing of the trailer or bobcat: transcript p 31.5 and judgment [9]. 8. There was no evidence when the goods passed into the possession of KC and MR Smith Pty Limited. 9. No document was ever produced either to the liquidator or to the Court proving the ownership of the trailer or bobcat in the name of KC and MR Smith Pty Limited nor in respect of any lease or other arrangement. 10. The liquidator said that he had obtained two boxes of records from the company and other sources and in those boxes of documents there were incomplete banking records, no invoices, no quotations, no lists of equipment, no depreciation schedules, no inventory of stock, no asset register, no loan documents, no lease agreements, no tax returns from 1999 and no company minutes. 9 In all these circumstances there was a clear available inference that Flametime bought the trailer and bobcat, and that there was an unauthorised transfer or disposition of the trailer and bobcat by Mr Cannavo as a director of the company to KC and MR Smith Pty Limited, being a company of which he was also a director. The findings as to conversion at the time of purchase were plainly open to her Honour. No error has been demonstrated. 10 It was asserted in argument that the matter had not been appropriately pleaded. There were no particulars sought and it is evidence that the trial was conducted on the basis of the sparse evidence and assertion of conversion. 11 The measure of the full damage to the innocent party when it has been deprived of its chattel will ordinarily be the full value together with any special loss. In the case of any doubt the highest possible value of the goods is to be assumed. Here, the only evidence of value is the purchase price. No attempt was made to identify what, if any, depreciation would have occurred at the point of purchase. It was open to the primary judge to conclude that the purchase price was the measure of the conversion. No error has been demonstrated. 12 For these reasons the appeal should be dismissed. 13 In any event, if there be any doubt about the primary judge's conclusions and the conclusions which I have reached, the notice of contention put on by the respondents must be considered. In the notice of contention, the liquidator asserted that Mr Cannavo had breached his common law and statutory duties either as a director or as an officer of the company. As the company was insolvent the liquidator and Flametime were also said to be entitled to an order to pursuant to Pt 5.7B of the Corporations Act 2001 (Cth). I will limit my comments to the Corporations Act, s 182 14 Directing oneself to the sums paid for the trailer and bobcat, and assuming that Mr Cannavo was correct in relation to the absence of any proof of conversion, in all the circumstances an order as sought would be made under s 182 for the following reasons. 15 On the evidence Mr Cannavo caused the purchase from company funds of the two pieces of equipment. The equipment was let into the possession of KC and MR Smith Pty Limited. No records identified the basis of that possession. Mr Cannavo appears to have caused the company to fund the purchase of and lose title to and possession of the trailer and bobcat thereby causing the detriment to it by the loss of the company funds and the apparent loss of the assets without any documented or any commercial basis for a return. Mr Cannavo both generally and in relation to the transaction, appears to have failed to keep records to explain the affairs of the company and in particular in relation to this transaction. There was no evidence of any unanimous informed consent of the shareholders of Flametime about the loss of the funds to purchase the equipment and the equipment itself. In all the circumstances, it was proved that there was a contravention of s 182(2) of the Corporations Act to the value of the purchase of the trailer and bobcat. 16 In my view the appeal should be dismissed with costs. 17 BELL JA: I agree. 18 HANDLEY AJA: I agree. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.