Campus Group Pty Ltd v Daylesford Pty Ltd [2008] NSWCA 252

New South Wales Court of Appeal

CITATION: Campus Group Pty Ltd v Daylesford Pty Ltd [2008] NSWCA 252

HEARING DATE(S): 8/10/08 JUDGMENT OF: Giles JA at 1; Bell JA at 2; Sackville AJA at 31

EX TEMPORE JUDGMENT DATE: 8 October 2008

DECISION: Appeal dismissed with costs

CATCHWORDS: Challenge to credit based fact-finding - implied actual authority to enter loan agreement

LEGISLATION CITED: Corporations Act 2001

CATEGORY: Principal judgment

CASES CITED: CSR v Maddalena (2006) HCA 1, 224 ALR 1 Fox v Percy (2003) HCA 22; 214 CLR 118

PARTIES: Campus Group Pty Ltd (Appellant) Daylesford Pty Ltd (Respondent)

FILE NUMBER(S): CA 40751/07

COUNSEL: M Slattery QC / J Turnbull (Appellant) M Aldridge SC / D Skennar (Respondent)

SOLICITORS: Teece Hodgson & Ward (Appellant) Sally Nash & Co (Respondent)

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): 950/05

LOWER COURT JUDICIAL OFFICER: Ashford DCJ

LOWER COURT DATE OF DECISION: 5/10/07

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40751/07 DC 950/05

GILES JA BELL JA SACKVILLE AJA

WEDNESDAY 8 OCTOBER 2008

CAMPUS GROUP PTY LIMITED v DAYLESFORD PTY LIMITED Judgment 1 GILES JA: The Court is in a position to give judgment and I would ask Justice Bell to give the first reasons. 2 BELL JA: This is an appeal from the decision of her Honour Judge Ashford, delivered on 5 October 2007, giving judgment in the sum of $100,000 with interest from 21 January 2003 to the respondent, Daylesford Pty Limited (Daylesford). Daylesford's claim was for the payment of the principal due under a loan agreement entered between it and the appellant, Campus Group Pty Limited (Campus), on 21 October 2002. The facility was for three months with interest at 20 per cent to be repaid on 20 January 2003. 3 Campus denied entering into the loan agreement. The agreement was signed by Mr Peter Gibson. A critical issue at the trial was whether he had the authority of Campus to sign on its behalf. The primary judge found that Mr Gibson signed the loan agreement at the direction of Gerard Croke. She found that Mr Croke had implied actual authority from Campus in relation to negotiations for the contract of sale and in relation to the loan facility agreement and that Mr Gibson, having been instructed by Mr Croke to sign the loan agreement, did so as agent for Campus. (Red 25.J-K) The execution of the agreement conformed to the requirements of s 126(1) of the Corporations Act 2001. 4 The facts found by the primary judge are as follows. 5 Leath Hagstrom is the director of Daylesford. Mr Gibson was known to Ms Hagstrom and was a family friend. In about September 2000 Mr Gibson moved to Adelaide. Subsequently, he advised Ms Hagstrom that he was engaged in business dealings with Gerard Croke and that Mr Croke had a business partner named Mark Skinner. Mr Gibson asked Ms Hagstrom if she would be interested in investing $100,000 for three months with interest at twenty per cent. The loan was to facilitate the purchase of the IMAX building in Adelaide, which was to be converted into student accommodation. Mr Gibson advised Ms Hagstrom that a company, Student Lodging Australia Pty Limited (SLA), was related to another entity, Campus. Mr Skinner was the sole director of Campus. Its secretary was Richard Solly. Mr Skinner was a director of SLA between April 1998 and May 2004 and Mr Croke was a director of SLA between June 2000 and August 2003. 6 On 17 October 2002, a company, SLA Properties Pty Limited (SLAP), was incorporated. Mr Gibson was a director of SLAP from the date of its incorporation until 19 October 2004. In the period June 2003 to June 2004 Mr Croke was also a director of SLAP. Mr Croke became involved in the negotiations with Ms Hagstrom concerning the proposed loan. Following representations made to her by Mr Croke, Ms Hagstrom stated that she was prepared to invest the money but that she would, "want a letter from the director of the company I am lending the money to as well as company financials and a copy of the purchase contract". (Red 16.L-M) 7 Initially Mr Gibson forwarded a loan agreement to Ms Hagstrom, which identified the parties as Ms Hagstrom personally and SLA, together with a copy of the contract of sale and Campus' balance sheet. Ms Hagstrom told Mr Gibson that she would only enter into a loan agreement with the purchaser named in the contract. Mr Gibson forwarded a new loan facility agreement dated 21 October 2002, which nominated Daylesford as the lender and Campus as the borrower. A copy of Campus' balance sheet and its profit and loss statement for the year ending 30 June 2002 were also sent to her. The loan agreement had been signed by Mr Gibson on behalf of the borrower. Ms Hagstrom signed the agreement on behalf of Daylesford. To Ms Hagstrom's knowledge Mr Gibson was not a director, employee or office bearer of Campus. 8 Ms Hagstrom paid the loan funds as directed by Mr Gibson to the trust account of the solicitors acting for the Trust Company of Australia, the vendor of the IMAX building. In January 2003 Mr Gibson telephoned Ms Hagstrom and advised her of a variation to the contract of sale between Campus and the Trust Company of Australia, which extended the date for settlement to 31 March 2003. A copy of the variation of contract, dated 23 January 2003 and signed by Mr Skinner on behalf of Campus, was forwarded to Ms Hagstrom with an interest payment of $5,000, which was deposited to her account on 21 January 2003. The interest appeared to have been paid by SLAP. 9 The loan was not repaid and Daylesford commenced these proceedings to recover it. 10 The contract for the purchase of the IMAX building identified Campus "and/or its nominee" as the purchaser. SLAP was nominated as the purchaser under the contract shortly prior to settlement being effected. 11 The Notice of Appeal challenges the judgment on seven grounds. The first four grounds overlap. Grounds 1 to 3 challenge her Honour's fact finding based upon her acceptance of the evidence of Gerard Croke in preference to that of Mark Skinner. Ground 3 contends that her Honour failed to consider or consider properly the evidence given on behalf of Campus to the effect that Mr Croke was not authorised to borrow or raise funds from Daylesford in the name of Campus. Ground 4 contends that her Honour failed to give any, or any adequate, reasons for rejecting the evidence given on behalf of the appellant in this respect. 12 In the written submissions and on the hearing of the appeal, grounds 3 and 4 were the central basis of the challenge. Mr Slattery SC, who with Mr Turnbull appeared on Campus's behalf, submitted that there were five important items of evidence that her Honour failed to deal with and which on proper analysis were inconsistent with her acceptance of Mr Croke. In paragraphs 27 to 35 of the written submissions filed in support of the appeal, Campus addressed questions of apparent authority. On the hearing, Campus accepted that her Honour's finding was that Mr Croke had implied actual authority to direct Mr Gibson to sign the agreement on its behalf and it did not press any submissions going to apparent or ostensible authority. Grounds 5 and 6 contend error in finding an enforceable contract between Campus and Daylesford and in finding that Ms Hagstrom was entitled to rely upon the loan agreement. They add nothing to grounds 1 to 4. 13 Before turning to the particular respects in which the challenge to her Honour's credit based findings of fact is advanced, it is appropriate to refer to those findings. Her Honour found that Mr Croke appeared to give straightforward evidence and she assessed him as a truthful witness. (Red 20.L) She found Mr Skinner was not a reliable witness, he had sought to obfuscate detail and, at times, gave responses which were described as "devious". (Red 20.P) In explaining the latter impression, her Honour noted the following: 1 His initial denial that Campus had a particular post office box allocated to it. 2. His initial denial of his previous business association with Mr Croke in circumstances in which he later came to acknowledge that the two had business interests in common and had been directors of a company at the same time. 3. His response to a question asking whether he was a director of SLA at the same time as Mr Croke, which was to say "he asked me to sit on the [SLA board], I did and then resigned from it". (Red 21.G) In light of the substantial period when their directorships of SLA overlapped, her Honour considered it nonsensical to have minimised their degree of contact. (Red 21 J) 4. His "flippant" response to the question of whether he spoke during the meeting with Babcock & Brown at which financing for the purchase of the IMAX building had been discussed; "I believe I said I'd have coffee, thank you". (Red 22 B) The meeting had lasted at least an hour. Her Honour considered it inconceivable that Mr Skinner had had no input into the meeting. 5. His initial claim to have been merely a shareholder in SLA in circumstances in which he later came to acknowledge that Campus had resolved to provide financial support to SLA to enable it to pay its debts as and when they fell due. 14 I return to the respects in which Campus asserts that her Honour's factual finding miscarried by reason of her failure to take into account certain evidence. The first item was the evidence of the financial records of SLAP which showed SLAP as indebted to Daylesford in the sum of $100,000. Allied to this was the evidence that SLAP paid the interest on the loan (the second matter) and the circumstance that Campus did not receive the loan monies, which were paid into the trust account of the solicitor acting for the vendor (the fourth matter). 15 Her Honour did not refer to the first of these matters. She did note both that SLAP paid the interest and that the loan monies had been paid to the vendor's solicitor. The complaint, as I understand it, is of her failure to analyse this body of evidence, which was said to point to the conclusion that in reality the loan was to SLAP and Mr Croke had simply employed Campus' name to persuade Ms Hagstrom to advance the monies. 16 Neither Babcock & Brown, acting on behalf of the vendor, nor Ms Hagstrom on behalf of Daylesford, were willing to enter into a contract with SLAP, an unknown entity. It was in this context that Campus was relied upon as a vehicle that would be acceptable to both the vendor and Ms Hagstrom. There is nothing remarkable about the circumstance that the loan funds were paid to the vendor's solicitor, nor that SLAP, which by January 2003 had been incorporated and which had an interest in the project as the proposed nominee paid the interest. Given that SLAP became the purchaser, it is unsurprising that in the financial records which later came into existence the sum of $100,000 should be shown as a liability owed by SLAP to Daylesford. However, none of these circumstances are inconsistent with an acceptance of Mr Croke's account of the relevant events. 17 The third matter on which Campus placed reliance was that the primary judge did not deal with the evidence of Mr Solly that he had reported the matter to the police towards the end of 2004. It is not apparent why acceptance of Mr Solly's evidence undermines her Honour's preference for Mr Croke's evidence to that of Mr Skinner. In his affidavit Mr Solly confirmed the matters set out in paragraphs 2, 3 and 5 of Mr Skinner's affidavit (Blue 14-16). In paragraph 5, Mr Skinner asserted that at no time had Campus arranged finance for the purchase nor authorised anyone to arrange finance on its behalf for the purchase. Mr Solly's evidence was that Mr Skinner approached him, showing him a copy of the loan agreement and that this was the first time that he had seen the document. A reasonable inference to draw from his acceptance of paragraph 5 of Mr Skinner's affidavit is that he understood that Mr Skinner had not authorised any person to enter into the agreement. Mr Solly stated that he had not authorised any person to enter into the agreement and it is in this context that his account of reporting the matter to the police at the end of 2004 is to be understood. 18 The case made by Daylesford was that Mr Skinner was the source of Mr Croke's implied authority to enter the loan agreement. Her Honour's failure to refer to Mr Solly's evidence of complaint to the police does not detract from her findings based on her acceptance of Mr Croke. 19 The final matter on which Mr Slattery relied concerns her Honour's assessment of the evidence of Mr Skinner's dealings with Ms Hagstrom. Mr Skinner and Ms Hagstrom gave evidence of Mr Skinner's representations concerning attempts to recover the loan funds for her benefit. 20 Her Honour concluded that "No feasible explanation was advanced as to why he [Mr Skinner] would involve himself in attempting to assist Daylesford recover their money". (Red 22.I) It was Campus' submission that the content of the affidavits of Mr Skinner and Ms Hagstrom and an exchange of email pointed to Mr Skinner acting from the honourable motive of attempting to assist "a fellow victim" of the fraud to recover her moneys. 21 Mr Aldridge SC, who with Ms Skennar appeared for Daylesford, contended that the significance of the emails was the absence of a contemporaneous assertion that the loan agreement had been forged. He pointed to Mr Skinner's email of 28 January 2004, in which he stated "I think we have the problems under control" (Blue 104.G), to the later communication by Mr Skinner to Ms Hagstrom of 27 February 2004, "I am expecting a meeting in Adelaide next week (late) to clear the last hurdle to free up some of the funding which will then come your way" (Blue 105.F), and to the concluding item of correspondence, from Mr Skinner to Ms Hagstrom of 8 July 2004, "We are now getting to the stage where we think that paperwork for the loans is getting very close and if we can see what was your total deal we can then make sure it's all built in". (Blue 111.F-G) In Mr Aldridge's submission, the correspondence was entirely consistent with Mr Croke's account of matters. I accept that that is so. 22 It may have been something of a flourish for her Honour to say that no "feasible" explanation was advanced as to why Mr Skinner would involve himself in attempting to assist Daylesford to recover its money, in that it may be thought feasible that Mr Skinner would endeavour to help an innocent party to a fraud perpetrated in his company's name to recover the money from the "true borrower" thus saving his company the stain of association with a fraud. The difficulty with Mr Slattery's submission is that her Honour's adverse credit finding was based on an analysis of Mr Skinner's evidence which was unsatisfactory in the respects to which I have referred. It was open to her Honour to reject Mr Skinner's account of his motives for his asserted assistance to Ms Hagstrom in the period following her demand for the return of her funds. In my opinion, that is how the concluding sentence of para [32] of her Honour's reasons is to be understood. 23 When Mr Slattery outlined his submissions in opening he referred to six particulars of ground 3. In the way the matter was developed the sixth particular raised a contention not advanced in Campus' written submissions and not directly raised by the grounds of appeal: that, upon an acceptance of Mr Croke's evidence, it was nonetheless an error to find that he had implied actual authority to direct Mr Gibson to sign the loan agreement on Campus' behalf. In oral submissions it was put that an analysis of Mr Croke's evidence on this point fell "vaguely short" of establishing that fact. In this regard, Mr Slattery referred both to Mr Croke's evidence-in-chief and a passage in cross-examination: "Q. Did you have a discussion with Mr Skinner about the money from Daylesford Pty Limited? A. Yes. Q. When was that discussion? A. On or about this time when it was effected. Q. What did you say to Mr Skinner? A. I said that I have collected some monies to pay the deposit from various parties and as per the structure we would then proceed to sign that contract and then proceed to settle that contract. At all times his words were please keep me informed." (Black 97.M-Q) "Q. Do you say you've told Mr Skinner, 'I have collected some moneys to pay the deposit,' is that right? A. Words to that effect, yes. Q. And Mr Skinner said words to the effect, 'Please keep me informed'? A. Yes. Q. I want to suggest to you, sir, that that conversation never took place, do you agree with that or disagree? A. No, I disagree with that. Q. I want to suggest to you that at that time that is when the $100,000 went into the O'Loughlin's trust account you did not discuss and did not discuss this loan with Mr Skinner, do you agree with that? A. No. Q. You didn't discuss it with Mr Solly, did you, at that time? A. Not Mr Solly, no, it was only Mark Skinner and myself involved at that stage. Q. You had a falling out with Mr Skinner in late 2003, is that right? A. I think it was late 2003, yes." (Black 126.F-O) 24 Mr Slattery submitted that all that could be taken from this evidence was that Mr Croke's authority did not extend beyond obtaining investors for the project. It was said that it might encompass obtaining equity investors who would take an interest in the acquisition of the IMAX building or in SLAP, but did not extend to entering into a loan agreement for the provision of the deposit. 25 The answer to this contention is that Mr Croke's evidence is to be understood as a whole and that her Honour's finding was of implied, not express, actual authority. Mr Croke's evidence, relevantly, included: "Q. Subsequent to that letter, can you tell the Court what occurred in relation to the contract? A. When we received the contract, I would have reviewed it, discussed it with Mark and looked at ways to satisfy the conditions of that contract. Q. When you say you discussed it with Mark, do you recall having a conversation with him about it? A. Yes. Q. What was that conversation? A. Raising the issues of timing, deposits or deposit and settlement, how we were going to do that, how the structure would be formed. Q. What was his response? A. I will leave it up to you that's my role. Q. What was your role exactly? A. My role was development manager in creating these developments, identifying them, conducting feasibilities, negotiating instruments, contracts, doing research, due diligence. Everything that is associated with doing the homework on projects development like that to benefit Mark and myself and others. Q. Could the witness please be shown exhibit J. Is that the contract for the purchase of the site about which you've spoken? A. Yes. Q. Was the solicitor acting in relation to that contract? A. Yes. Q. Who was that? A. Mr Peter Peddler from Adelaide. Q. Do you know how Mr Peddler came to be acting in relation to that contract? A. Yes, I had known Peter some time before this contract and we had engaged, I had engaged his company, Cassof Cardinal Knox (?) who he was working for at the time to do some minor conveyancing and things for us and I instructed him to deal with this contract being based in Adelaide. Q. When did you do that? A. Around the time that this contract was issued. Q. Where did you get him instructions to act on behalf of? A. Campus Group Holdings. Q. You will see that contract refers to the purchaser as Campus Group Holdings Pty Limited and/or nominee, I think it says and/or its nominee? A. Yes. Q. Do you recall anything about that description of the purchaser? A. Yes we discussed -- Q. You have to identify who discussed and then give it a direct speech? A. Mark and I discussed the issue of Campus Group Holdings and the matter of and/or its nominee, which was -- Q. You just have to say what you said to Mark about? A. Right Mark and I discussed the Campus Group Holdings was the purchaser and we had the ability to – Mark and I discussed the ability within this -- OBJECTION. FORM. SKENNAR: Q. Direct speech as best you can, you said to him what? A. I said to Mark the benefit of this contract is that we can settle it in another name other than Campus Group that will benefit us too, because we can introduce other stake holders. Q. Did he have a response? A. Yes. Q. What was that? A. He agreed that it was a benefit." (Black 89.N-90.X) 26 The implication of Mr Croke's authority arose from the dealings between the parties, which included Mr Skinner's statement with respect to the structure of the project, "I will leave it up to you"; Mr Skinner's letter to Babcock & Brown dated 20 September 2002 (Blue 115); that Mr Skinner sighted the letter addressed to Daylesford of 18 October 2002 signed by Mr Croke on Campus' letterhead (Blue 170); and that Mr Skinner attended the meeting with Babcock & Brown and was active in discussing the financing of the project. It will be recalled that at the time of the initial dealings with Babcock & Brown, SLAP had not been incorporated. In my opinion, there was ample material on which it was open to her Honour to find as she did that the course of dealings between Mr Skinner and Mr Croke was such that Mr Croke had implied actual authority to commit Campus to the loan agreement with Daylesford. 27 The first five matters on which Campus relied all went to her Honour's credit based findings of fact. The principles that are to be applied by this Court in the determination of appeals challenging findings based on credit are set out in Fox v Percy [2003] HCA 22, (2003) 214 CLR 118 per Gleeson CJ, Gummow and Kirby JJ at 128-129 [28]-[31] and CSR Ltd v Maddalena [2006] HCA 1, (2006) 224 ALR 1. It is not necessary to restate them. Her Honour provided reasons for her preference for the evidence of Mr Croke over that of Mr Skinner. None of the matters relied upon by Campus suggests that her Honour's findings are attended by error. Her preference for the evidence of Mr Croke was not contrary to compelling inferences to be drawn from the other evidence. Her failure to address the matters on which reliance was placed does not amount to error. Her Honour's reasons are an adequate statement of the basis upon which she arrived at her finding. I would reject grounds 1 to 4 and, in consequence, grounds 5 and 6. 28 Ground 7 is addressed to the finding at para [55], which was in the alternative. Her Honour accepted Daylesford's submission that Campus was estopped from denying the loan agreement. Ground 7 asserts error in this respect. In light of the conclusion to which I have come with respect to grounds 1 to 6, it is not necessary to deal with ground 7. For these reasons I propose that the appeal be dismissed with costs. 29 GILES JA: I agree with the orders proposed by Justice Bell and with her Honour's reasons. 30 I would add only, in amplification of her Honour's reference to the letter of 18 October 2002, that it stated that it "serves as acknowledgement of the loan facility provided to Campus Group Holdings Pty Limited by Daylesford Pty Limited to the value of one hundred thousand dollars ($100,000)" and purported to record a promise by Campus to indemnity Daylesford in certain events, the occasion for which is not entirely clear. As her Honour has said, Mr Croke gave evidence that he showed this letter to Mr Skinner when it was issued. This may not have been on 18 October, and Mr Croke said that he showed it to Mr Skinner as soon as possible after the letter was produced and that Mr Skinner's comment was that, "It won't be settled in Campus Group's name, the contract". This is of particular significance, in my view, in rebuttal of the sixth particular, going to the extent of authority impliedly conferred by Mr Skinner on Mr Croke. 31 SACKVILLE AJA: I agree with the reasons of Justice Bell and with the orders that her Honour proposes. I agree with the additional comments made by the presiding judge. 32 GILES JA: The orders of the court are that the appeal is dismissed with costs. We thank you for your assistance.