DISTRICT COURT OF QUEENSLAND
CITATION:
Associated Equipment Pty Ltd v Evolution Piling Pty Ltd (in liq) & Ors [2019] QDC 249
PARTIES:
ASSOCIATED EQUIPMENT PTY LTD
ACN 131 092 290
(plaintiff)v
EVOLUTION PILING PTY LTD (IN LIQUIDATION)
ACN 148 006 526
(first defendant)MICHAEL DULLAWAY AND MARK WILLIAM PEARCE (IN THEIR CAPACITY AS LIQUIDATORS OF EVOLUTION PILING PTY LTD (IN LIQUIDATION) ACN 148 006 526
(second defendant)PATRICK ROBERT GALLAGHER
(third defendant)FILE NO:
2640 of 2017
DIVISION:
Civil
PROCEEDING:
Trial
ORIGINATING COURT:
District Court at Brisbane
DELIVERED ON:
6 December 2019
DELIVERED AT:
Brisbane
HEARING DATE:
15-16 August 2019, 12 September 2019
JUDGE:
Porter QC DCJ
ORDER:
1. Judgment be entered for the plaintiff in the amount of $115,743.83.
2. The plaintiff’s claim is otherwise dismissed.
3. I will hear the parties as to costs.
CATCHWORDS:
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – where the third defendant caused his company to enter into a written hire agreement for equipment – where the third defendant undertook to guarantee performance – where the hirer ceased to pay the hire rates – where the plaintiff sues the third defendant on the guarantee for unpaid hire payments – whether the plaintiff had title to the equipment hired at the time of the hire agreement – whether any obligation to pay the hire rates arose – whether the hire agreement was a sham.
TRADE AND COMMERCE – COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION – CONSUMER PROTECTION – MISLEADING OR DECEPTIVE CONDUCT – where the third defendant issued a signed tax invoice on behalf of his company disclosing a taxable supply of certain equipment to a third party – where the third defendant’s company never had title to the some of the equipment and where title did not pass to the third party for the remaining equipment – where the third defendant knew that the tax invoice was being used by the third party to obtain funds from the plaintiff as lender or buyer – whether issuing the tax invoice was misleading or deceptive conduct by impliedly representing that title to the equipment had passed to the third party – whether the plaintiff relied upon the tax invoice in purchasing the equipment from the third party – whether the plaintiff suffered loss or damage as a result of reliance upon the tax invoice.
Legislation
Australian Consumer Law, s 18, s 236
Sale of Goods Act 1896 (Qld), s 20, s 21
Cases
A G Securities v Vaughan [1990] 1 AC 417
Butcher v Lachlan Elder Realty Pty Limited (2004) 218 CLR 592
Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471
Hobson & Anor v Taylor & Anor [2019] QCA 265
Jones v Dunkel (1959) 101 CLR 298
Kewside Pty Ltd v Warman International Ltd (1990) ASC 55–964
Minerology Pty Ltd v Sino Iron Pty Ltd (No. 6) (2016) 329 ALR 1
Pavich v Bobra Nominees Pty Ltd (1988) 84 ALR 285; (1988) ATPR (Digest) 46–039
Raftland Pty Ltd v Commission of Taxation (2008) 238 CLR 516
Richard Walter Pty Ltd v Commissioner of Taxation (1996) 33 ATR 97
Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 82 ALR 530
Other Material
Benjamin’s Sale of Good (10th ed, 2017, Sweet & Maxwell)
Seddon & Bigwood, Cheshire & Fifoot’s Law of Contract (11th Australian ed, 2017, LexisNexis Butterworths)
Handley, Estoppel by Conduct and Representation (2nd ed, 2016, Sweet & Maxwell)
COUNSEL:
S R Grant for the plaintiff
N J Shaw for the third defendantSOLICITORS:
Hall & Wilcox for the plaintiff
Shand Taylor Lawyers for the third defendant
Summary
[1]On 8 May 2015, the third defendant (Mr Gallagher) caused his company Evolution Piling Pty Ltd (Evolution) to execute a written hire agreement with the plaintiff (Associated) for the hire of certain heavy equipment for three years at a hire rate of $2,103.99 per week. Mr Gallagher also undertook to guarantee Evolution’s performance of the hire agreement. Evolution soon ceased to pay the weekly hire payments and is now in liquidation. Associated sued on the guarantee for unpaid hire payments in the amount of $307,182.54.
[2]Behind that prosaic transaction are complicated versions by Mr Gallagher and Mr Jonathan Spong (a director of Associated) of their respective dealings with a gentleman called Mr Lorenzo (Laurie) Suarez of Slap Corporation Pty Ltd (Slap Corporation). Both Mr Gallagher and Mr Spong rely on those dealings to sustain their respective positions in the trial. One difficulty in this proceeding was that Mr Suarez was called by neither party (apparently with good cause in both cases, as will be seen). Another was that the objective evidence demonstrates that Mr Gallagher and Mr Spong had few direct dealings with each other, such that their respective understandings of what the other person was doing and why, depended almost entirely on what they were told by Mr Suarez. Adding to the unusual nature of this proceeding was that at key moments, both Mr Gallagher and Mr Spong did not behave in the way sensible commercial persons would be expected to behave. Indeed, both at times showed such remarkable insouciance that it calls into question the credibility of their evidence.
[3]Ultimately, I have found that Associated has failed on its claim on the guarantee but has succeeded on its alternative claim against Mr Gallagher for misleading or deceptive conduct. Accordingly judgment should be entered for Associated for $115,743.83.
Background
Associated and Mr Spong
[4]Associated conducts an equipment hire business, assisting clients to obtain equipment hire or rental with a purchase option. Associated acts both as broker, arranging hire agreements with larger financiers, and, on occasions, as a financier/hirer in its own right. Associated deals in transport and earthmoving equipment and motor vehicles. Associated was set up in about 2006 and has always conducted an equipment hire business. It continues to do so.
[5]Mr Spong was a director and shareholder of Associated and involved in its day to day management. Mr Spong is 39 years old. He has been a director since 2008. I infer he has worked for Associated since then.
[6]Mr Roland Spong is also a director. He is Mr Spong’s father. He was not involved in day to day management of Associated, at least in respect of these events. There is another director, Mr McMahon, who also did not appear to be directly involved.[1]
[1]TS1-18.26
[7]Mr Spong is also managing director and a shareholder of two other companies sufficiently identified as AE Rentals and AE Finance. The former hires out tools and the latter arranges finance for acquisition of heavy equipment.
Evolution and Mr Gallagher
[8]Mr Gallagher and Evolution have rather a different history. Mr Gallagher is 62 years old. He has had a long career in civil engineering type work, particularly tunneling, on and off shore drilling and piling. He has extensive experience in engineering roles in that kind of work and in many countries. He started Evolution in 2010, working in the piling and special foundation industry and, by his account, the company’s technical capacity was held in high regard. Evolution went into liquidation in 2016. Mr Gallagher said that occurred because of difficulties which arose with the Queensland Building and Construction Commission.[2] He was a director of Evolution. At the time of these events, 2014 and 2015, he was the operations manager of Evolution. His daughter, Kelly Cheyne, worked as office administrator.
[2]TS2-10.
Early dealings
[9]Prior to the events the subject of these proceedings, Mr Gallagher and Mr Spong had had business dealings though their respective companies and knew each other through those dealings, though they appear to have not met in person until 2015.
[10]It seems that in about 2013, Evolution was having structural problems and was obtaining advice from consultants as to how to address them. Mr Gallagher said that in that context, he was introduced to Mr Spong by one of Evolution’s consultants (Mr Pike) as a person who could assist Evolution with finance for projects and machinery.
[11]The first dealing both gentlemen recall was an unsuccessful attempt by Associated to obtain finance for Evolution for a project in the Philippines. Associated also successfully financed equipment on a few occasions.
[12]A person both Mr Gallagher and Mr Spong dealt with in relation to the affairs of Evolution was Mr Lorenzo Suarez. While Mr Suarez’s role in these events is central, the perspectives of Mr Gallagher and Mr Spong on his role and conduct are very different.
[13]Mr Gallagher said that he was introduced to Mr Suarez initially in late 2013 by consultants as Evolution were preparing to build an industrial shed, but that the two did not speak to one another. Mr Gallagher said that the first time the two men spoke was after they were reintroduced by consultants who were assisting Evolution with the Philippines project in early 2014. Mr Gallagher was told Mr Suarez had extensive experience in civil works. Mr Gallagher engaged Mr Suarez as a business development manager and soon after as managing director to oversee Evolution’s civil works. However, at least from Mr Gallagher’s side, Mr Suarez’s role quickly expanded such that he “ultimately took over the finances of the company”.[3] Mr Gallagher did not have day to day involvement in management of Evolution’s finances. His focus and interest seemed to be on operations.[4]
[3]TS2-14.24.
[4]TS2-19.23 to .47.
[14]Mr Gallagher said that he considered Mr Suarez an employee, though his understanding of the character of the formal legal basis of Mr Suarez’s retainer was limited. He was vague in his understanding of whether and to what extent Mr Suarez acted personally as opposed to when he was acting through Slap Corporation.[5] His daughter, Ms Cheyne, was the office manager of Evolution and its related companies. She had a better insight into the formalities. She explained that Mr Suarez initially invoiced personally but soon came to issue tax invoices from Slap Corporation for his payment for his work for Evolution. She described him as initially a contractor but later “an employee really”.[6] She said Mr Suarez become managing director of Evolution.
[5]TS2-16 to 19.
[6]TS2-78.11.
[15]It was not exactly clear when Mr Spong first met Mr Suarez, but it appears to have been in 2014, perhaps late 2014. He said Associated (through Mr Spong) dealt with Mr Suarez in his personal capacity and also on behalf of Slap Corporation. His first dealing involved Associated renting a Mercedes car to Mr Suarez in 2014. From early 2015, Mr Spong said he dealt with Mr Suarez on behalf of the two companies (Slap Corporation and Evolution). Around that time Mr Spong carried out a number of vehicle and finance transactions for Slap Corporation, separate from those the subject of these proceedings. Mr Spong said that he was told Slap Corporation was a contractor to Evolution, performing management of heavy equipment work.[7]
[7]TS1-15.23 to .34.
The proposed acquisition of Argon
[16]Thus we come to the proposed acquisition of a company called Argon Aluminium Pty Ltd (Argon). Argon was a specialist aluminium fabricator for buildings, located at Tweed Heads. This transaction was the genesis of these proceedings. The two principal protagonists’ evidence as to their understanding of this transaction is similar but differs in material respects.
[17]Mr Gallagher said that Mr Suarez introduced the idea of buying Argon to him in late 2014. Mr Gallagher inspected the business but never met the vendors. The business had been listed with a broker with whom Mr Suarez dealt. Mr Gallagher said he did not deal with the broker. He said Mr Suarez’s proposal was for Evolution to buy Argon and for funding to be obtained from Mr Spong.[8] Mr Gallagher said all that followed in respect of Argon was on the basis of his understanding that Evolution, not Slap Corporation, was buying Argon.
[8]TS2-15.3 to.15; TS 2-15.45 to 16.5.
[18]Mr Spong, on the other hand, said that in about March 2015, Mr Suarez approach him to assist Slap Corporation to obtain finance to purchase Argon. He gave evidence that Mr Suarez never mentioned the involvement of another party in the purchase of Argon.[9] Mr Spong said all that followed in respect of Argon was on the basis of his understanding that Slap Corporation, not Evolution, was buying Argon.
[9]TS1-16.24 to .30, TS1-17.37 to .46, TS1-23.15 and TS1-35.34 to .45; Exhibit 2.2 Divider 34.
Associated decides to finance the Argon acquisition
[19]Initially, Mr Spong said, he sought external finance for the Argon acquisition on behalf of Slap Corporation. Mr Spong said Mr Suarez initially sought $450,000 but later said he only need short-term finance for $390,000. Mr Spong said he obtained the information usually required to seek finance: financials of Argon and of Slap Corporation, equipment held by Argon and Slap Corporation, though no financials for Argon were tendered.[10] He said he approached various lenders, but none were interested.
[10]See Exhibit 2.1 Divider 21.
[20]Mr Spong said that he thought that the transaction was feasible, as did his business partners. He said Associated then decided to try to fund the Argon acquisition as lender. To that end, he said he sought to clarify the security which could be given by Slap Corporation. Why his focus was on Slap Corporation and not Argon as well was never explained. I would have thought security over the asset to be acquired would be a logical step for a financier to take.[11] The security he had been told about was equipment he was told was owned by Slap Corporation. It is evident that the equipment put forward by Slap Corporation to assist the funding of the Argon acquisition was: a Baretta drill rig, a Vibro head, a Caterpillar excavator and a Huette drill rig which until about the time of the transaction, had been owned by Evolution (with the exception of the Huette, which I deal with next). When Mr Spong first became aware of the equipment as security for the Argon acquisition is unclear, but he certainly knew of the equipment and how Slap Corporation was said to have acquired it (from Evolution) by 5 March 2015.[12]
[11]TS1-18.38.
[12]Exhibit 2.1 Divider 28.
The curious case of the Huette drill rig
[21]With the exception of the Caterpillar excavator, the equipment in the previous paragraph became the subject of the hire agreement ultimately entered into by Evolution and Associated. One of the defences raised by Mr Gallagher is that Associated never obtained title to the equipment so could not hire it back to Evolution.
[22]That argument is based on two propositions: first, that Evolution never obtained title to the Huette drill rig to pass on to Slap Corporation; and second, that even if it did, Slap Corporation never obtained title to any of the equipment from Evolution.
[23]It is uncontentious that Evolution owned all the equipment in paragraph [20] above as at March 2015 with one exception: the Huette drill rig. The events relating to this machine are somewhat unusual from start to finish. It is convenient to set out Mr Gallagher’s evidence about that matter here.
[24]The Huette drill rig was initially purchased by Mr Gallagher for Evolution to carry out subcontract work at Hay Point for $250,000. At some stage during that contract, Evolution sold the drill rig to the head contractor which had retained Evolution. Mr Gallagher sold it for $250,000, the price he had purchased it for. When the project was completed, he discovered that the drill rig was for sale through Hassalls, an auctioneer and selling agent. Mr Gallagher considered the drill rig to be a valuable and useful machine, so he arranged to buy it back though Hassalls. He said he valued the machine at $350,000 at the time. He described the machine as a “gold mine”. He negotiated to pay $80,000, a remarkable deal if his estimate of its value was correct. It was acquired in about late January 2015.[13]
[13]Exhibit 9.
[25]Mr Gallagher gave evidence that the terms of the purchase from Hassalls were invariably that title did not pass until payment was made and that the equipment was not delivered until payment was made. The terms of the sale included the second term, but did not expressly reserve title.[14] Indeed the tenor of the auction terms do not contemplate goods being delivered without full payment occurring at all.
[14]Exhibit 9.
[26]Despite the auction terms, the Huette drill rig was delivered to Evolution without being paid for. Mr Gallagher could not explain how that occurred.[15] He said after delivery, Mr Frend (of Hassalls) repeatedly asserted by email that the machine had not been paid for. Mr Gallagher said that he left it to Mr Suarez to arrange payment and was reassured payment was being made, or had been made, on a number of occasions.[16]
[15]TS2-22.10.
[16]Exhibit 2.2 Divider 51.
[27]Despite those reassurances, it is uncontentious that the Huette was never paid for. It was repossessed on the evening of 11 May 2015 from Mr Gallagher’s own residential property.[17] On that evening, a large truck arrived and started loading up the machine. Mr Gallagher said he asked the men involved what was going on and they said the machine was being repossessed for non-payment. Mr Gallagher said he believed the machine had been paid for at that time. He said he called Mr Suarez who said he would get it sorted out.
[17]Exhibit 2.2 Divider 57.
[28]Mr Gallagher called the police, but only to complain about how the Huette was loaded onto the truck. Mr Gallagher did not complain to the police about the trespass or the taking of the machine. Nor did he ever discuss the matter with Mr Frend or Hassalls, or try to get the machine back.
[29]Mr Gallagher’s evidence on this point is peculiar. The Huette was said to be a gold mine for Evolution, but it cost only $80,000. Mr Suarez said it had been paid for but Mr Frend’s emails said to the contrary. And when this valuable machine was taken in the middle of the night by two burly fellows, Mr Gallagher did nothing then, or later, to get it back.
[30]Mr Gallagher said that the failure to pay for the Huette was Mr Suarez’s fault and that be believed it had been paid for. His evidence that the failure to pay was Mr Suarez’s fault is inconsistent with his contemporaneous email of 3 March 2015. There he writes to Mr Suarez:[18]
Hi Laurie,
Re capitol, just had a call from John Friend from Hassels Auctions re payment of 80k for the Huette HBR 605 rig we took off the JV. I told him sorry, but I needed the money the JV promised us to pay it.
Don’t think that argument will go to far because they were under instruction from BMW to sell the rig. John is caught in the middle on this, but I’m loath to give anyone there a cent before the JV coughs up.
I’ll leave it in your capable hands though, because I know you live for this crap! Cheers!
[18]Exhibit 10.
[31]This email is consistent with Mr Gallagher’s evidence that he believed Evolution was owed $250,000 by the head contractor Evolution worked for at Hay Point. It seemed to me that at that time, he thought he could extract a self-help remedy for that shortfall by obtaining and not paying for the Huette. The strong inference is that the decision not pay for the Huette was his, or at least one he joined into. His evidence that he believed Mr Suarez was paying for the machine and that he was misled by false assurances is hard to reconcile with this contemporaneous document.
[32]Indeed the matter can be taken further. The evidence shows that Mr Frend made continual demands for payment for the Huette from Evolution starting almost immediately after its delivery and that those demands were brought to Mr Gallagher’s attention at intervals which made any period in which he accepted an assurance from Mr Suarez that payment had or would be made necessarily very short.[19]
[19]TS2-69 to TS2-72
[33]I reject Mr Gallagher’s evidence that he genuinely believed the Huette had been paid for any stage. Since the Huette was repossessed in about mid-May 2015 neither Evolution nor Associated have ever disputed Hassalls’ right to do so on behalf of its principals.
The funding transactions to acquire Argon
[34]By early March 2015 at the latest, the manner in which Associated intended to finance the acquisition of Argon had been developed. Although Mr Spong gave evidence of how he investigated title to the equipment put forward by Slap Corporation to assist with funding the acquisition of Argon, he did not explain how the structure of the funding transactions came to be adopted, except to say that the idea would have come from him (evidence which I found tentative and unconvincing).[20]
[20]TS1-19.10 cf TS1-23.20 to .25.
[35]The funding structure was curious. It appears to have been settled upon in principle between Mr Spong and Mr Suarez at the latest by 5 March 2015. On that day he sent an email to Mr Suarez which set out the structure of the funding transaction to the extent it relate to the equipment. It first identified the four items of equipment and then continued as follows:[21]
[21]Exhibit 2.2 Divider 28.
THIS EQUIPMENT SHOULD BE OWNED – correct?
Total: $388,409 inc. GST less debt apx $20,000 (to be confirmed) = $368,409 @
85% (this is a high as I can go) = $313,147.65 inc. GST – this equipment will be sold to Associated equipment and rented back over a 156 week period and then purchased back for $5,000.00 + GST. It can be purchased back prior to this as per below:Cost per week for rental: $2,449.61 + GST (156 weekly payments) = $2,694.57 inc. Gst
Document Fee: $600.00 + GSTConditions:
1.Master Hire agreement – attached
2.Minimum rental term before buyback option is 26 weeks – then you can purchase under traditional finance
Agreed price of equipment at time of sale to associated equipment is $313,147.65 (subject to approval)
50% of payments made inc. GST will be deducted to agreed price within the first 52 weekly payments (i.e. paid $50,000 all up $25,000 will be deducted from purchase price)
65% of all payments made after the 52 weekly3.Personal Guarantee of Director
4.Heads of agreement with buyback options detailed
5.Direct Debit Authority
6.Insurance Certificate of Currency to be supplied noting Associated equipment P/L
7.Tax Invoice to be supplied (made out to below – we will send a pro forma) and current payout letter for equipment under finance:
Associated equipment Pty Ltd
96 Chirnside Street
Kingsville Vic 3012
Please come back to me regarding the above. Are the weekly payments Ok for Evolutions Budget?
[36]The structure of the transaction was therefore that Slap Corporation would sell “its” equipment to Associated, Associated would borrow the money to buy it, Slap Corporation would therefore obtain the sale proceeds, Associated would hire the equipment to Evolution, that hire agreement would then enable Associated to repay its loan taken out to buy the equipment (with a profit) and at the end of the hire agreement Evolution would buy back the machinery.
[37]There are some curious aspects of this funding structure:
(a)Why would Slap Corporation sell the equipment to Associated and then have Associated hire it to Evolution when the more direct approach would be for Associated to lend the money on the security of Slap Corporation’s equipment? It might be that Associated could only raise the money from external lenders (as it ultimate did from the Commonwealth Bank (CBA)) to purchase the equipment rather than to fund a loan on the security of the equipment, though I cannot see the difference and no such explanation was ever given;
(b)It was curious that the equipment seemingly sold to Slap Corporation was to remain with Evolution who would then hire back its own equipment. This round robin transaction, which resulted in Evolution apparently paying a substantial sum to use its own equipment, was never really explained by Mr Spong at least in any manner which I find persuasive. Further, Slap Corporation offered to pay the hire payments and did so for some weeks. I will return to these matters;
(c)It was very curious that Mr Spong did not seek or offer finance for any of the purchase price of Argon over the assets being acquired. That is particularly so as it was never suggested that Argon was not a genuine and valuable business and Mr Spong (apparently) had been provided with financial and equipment records of that business;
(d)Finally, it was curious that the transaction even as initially contemplated did not raise sufficient funds to cover the acquisition of Argon in any event: at that time $370,000 seemingly was required. It also appears that within a week of the above email, it emerged (as will be seen) that the third party lender (CBA) would not lend Associated the amount there specified and would only lend $210,000 on the equipment at a lower valuation and excluding the excavator. The gap in funding seems to have been filled by Mr Spong’s father’s own funds in the order of $100,000[22] and a further $50,000 lent in uncertain circumstances some time prior to 15 April 2015 (see paragraph [56] below).
[22]See Exhibit 2.2 Divider 36, 39 and 40 and see Mr Spong’s evidence at TS1-87.35
[38]Having outlined the funding transactions as contemplated on 5 March 2015, it is now necessary to set out step by step the events leading to the completion of these transactions.
Funding to acquire Argon: Mr Spong’s evidence
[39]Mr Spong, not surprisingly, took steps to investigate title in the equipment put forward by Slap Corporation. The starting point is the email by Mr Suarez in response to the 5 March 2015 email. On 6 March 2015, Mr Suarez wrote as follows:[23]
[23]Exhibit 2.2 Divider 28.
Jono,
That equipment is owned and the following are conservative figures for these items;
DRIG-02 Baretta Drill Rig $120,000
VIBR-01 Vibro Head $40,000
XCAV-01 Cat 325 Excavator $40,000
DRIG-01 Huette Drill Rig $250,000
$410,000
Mate the rest of the proposal is fine and I think the weekly figure is fine. Once again you know if he requires help I will be happy to assist in the payments till he gets on his feet.
[40]Consistent with that email, Mr Spong was provided with a tax invoice in the following terms dated 11 March 2015 (the Evolution Tax Invoice):[24]
[24]Exhibit 2.2 Divider 31.
TAX INVOICE / PROGRESS CLAIM
INVOICE REFERENCE: SLAP-001
Logo Evolution Piling
644 Tomewin Mountain RoadCurrumbin Valley Qld 4101 DATE: 11.03.15
ABN: 75148 006 526
Phone: 07)5533 0419TO:FOR:
Accounts Department
SLAP CORPORATION PTY LTD
27 CASTLEBAR STREET`
KANGAROO POINT QLD 4169
ABN: 33 601 930 732
DESCRIPTION
QUANTITY
RATE
AMOUNT
SALE OF EQUIPMENT AS FOLLOWS
YEAR
MAKE
MODEL
ASSET ID
HOURS
2007
BARETTA DRILL RIG
DRIG-02
58807
493
2012
VIBRO HEAD
VIBR-01
180
1994
CATERPILLAR EXCAVATOR
CAT-325
8NL00131
13830
2007
HUETTE DRILL RIG
DRIG-01
H60SZX0130
4065
1.00
1.00
1.00
1.00
$120,000.00
$40,000.00
$40,000.00
$250,000.00
$120,000.00
$40,000.00
$40,000.00
$250,000.00
SUBTOTAL
GST
TOTAL
$450,000.00
$45,000.00
$495,000.00
DIRECT BANK TRANSFER PAYMENTS
Our banking details are as follows:
Bank: NAB Account Name: Evolution Piling Pty Ltd
BSB: 084 572 Account 188102198
SIGNED: handwritten signature
NAME: PATRICK GALLAGHER
POSITION: DIRECTOR
PAYMENT DUE DATE: 11.03.15
INVOICE REFERENCE: SLAP-001
This is a payment under the Building and Construction Industry Payments Act 2004
[41]It is not disputed that the Evolution Tax Invoice was signed by Mr Gallagher.
[42]Mr Spong responded to the Evolution Tax Invoice by emailing Mr Suarez asking for tax invoices for purchasers of the equipment adding “hopefully they are from a reputable supplier – so we can demonstrate title flow – either way we will sort it out just quicker”.[25] It is understandable Mr Spong would seek such information given the risk that Evolution did not have title to sell the equipment to Slap Corporation.[26] (That concern was justified in respect of the Huette, as has been seen.) No evidence demonstrating title flow to Evolution as requested by Mr Spong was adduced, and it seems doubtful to me that any such evidence was ever supplied. Certainly it is not mentioned again in the subsequent correspondence tendered, nor did Mr Spong give evidence about it. Mr Suarez did ask Ms Cheyne to provide that information to Mr Spong,[27] but one wonders what information, if any, was provided, particularly in respect of the Huette. Mr Spong said in cross examination that the request was directed to individual tax invoices from Evolution, but that answer was suggested to him, it does not make sense of the “reputable supplier” point and his response did not suggest any specific recollection.[28] The plain meaning of the email is as I have identified.
[25]Exhibit 2.2 Divider 31.
[26]Exhibit 2.2 Divider 31.
[27]Exhibit 2.2 Divider 31.
[28]TS1-44.22.
[43]Mr Spong did give evidence that, having noted that Evolution had been the owner of the equipment, he did a search of the Personal Property Securities Register (PPSR). He noticed that NAB and Coates Hire were secured creditors of Evolution. He therefore sought confirmation from those companies that they did not maintain any security interest in the equipment.
[44]Over 11 and 12 March 2015, Mr Spong corresponded by email with the NAB and ultimately secured releases for the four pieces of equipment from that bank’s security interests.[29] This email exchange was copied to Mr Gallagher by Mr Spong on two occasions. Associated relies on these as showing Mr Gallagher understood that Associated was genuinely intending to acquire the equipment:
(a)The first email relied upon was sent at 3.59pm to Ms Nieass of NAB, copied to Mr Suarez and Mr Gallagher, the subject being “Evolution Piling P/L - NAB - No Interest in Units being sold”. It asked Ms Nieass to confirm NAB had no interest in the four items because “the business is looking to sell these ASAP and requires this to finalise”.
(b)The second email was sent at 5.44pm to Ms Nieass which included information asked for by Ms Nieass and said relevantly “you have to confirm acceptance of the sale of this equipment”.
[29]Exhibit 2.2 Divider 41.
[45]Neither email suggests that the purchase of the equipment by Associated is somehow conditional on completion of the purchase of Argon by Evolution (as Mr Gallagher says was his understanding, see from [60] below). Both emails communicate that Associated was looking to buy the equipment. Mr Gallagher accepted in cross examination that he saw these emails and knew they were part of Associated’s process to ensure clear title,[30] though there is no evidence that he responded to Mr Spong confirming he had read them.
[30]TS2-56.23 to .41.
[46]Mr Spong also gave evidence that Coates provided confirmation of clear title.[31] This is confirmed by documentary evidence, however, the release was given on 15 April 2015 as part of the settlement on the CBA loan.[32]
[31]TS1-21.45.
[32]Exhibit 1 Divider 7.
[47]Having obtained confirmation that neither NAB nor Coates claimed an interest in the equipment and having obtained the Evolution Tax Invoice from Slap Corporation, Mr Spong sought finance from CBA for Associated to acquire the equipment.
[48]The timing and details of the application for finance by Associated to acquire the equipment is unclear on the evidence. It appears Mr Spong might have started the process of seeking finance for Associated to acquire the equipment from Slap Corporation as early as 10 March 2015.[33] If so, however, the process continued for some time thereafter.
[33]See the date on the Quantum Finance Application in Exhibit 1 Divider 7 and TS1-42.
[49]Mr Spong said he first sought finance for the equipment including the excavator but was quickly told that the CBA would not finance that machine because of its age.[34]
[34]TS1-23.40 to .44.
[50]Thereafter there is no documentary evidence of any progress until 13 April 2015, when Mr Spong received a tax invoice from Slap Corporation for the equipment less the excavator (the first Slap invoice). The first Slap invoice was for $330,000 including GST for the Huette, the Baretta and the Vibro head. On the same day, Mr Spong received a statutory declaration from Ms Pettit, a director of Slap Corporation and a person known to Mr Spong as Mr Suarez’s de facto partner.[35] By that statutory declaration, Ms Pettit swore Slap Corporation’s clear title to the financed equipment.[36] Both the documents were intended for the CBA and were ordinary requirements for funding by that bank.
[35]TS1-21.
[36]Exhibit 1 Divider 6.
[51]I developed the strong impression from Mr Spong’s evidence and the timing of the provision of the statutory declaration that the document was obtained to persuade the CBA to lend funds to Associated. It was not asked for at any earlier time by Mr Spong, it was the form required by the CBA[37] and Mr Spong seemed to have little objective basis to believe Ms Pettit was best placed to swear the declaration when Mr Suarez was conducting all the dealings for Slap Corporation.
[37]TS1-21.
[52]It appears that soon after that date, a valuer did a valuation of the equipment and concluded that it was not valued at the amount in the first Slap invoice. Mr Spong said his agreement with Mr Suarez was that Associated would only acquire the equipment to market value (though that is never mentioned in any of the correspondence that I could see). However, Slap Corporation did issue another tax invoice dated 21 April 2015 which allocated specific values to the equipment and totaled $260,000 including GST (the second Slap invoice).[38] The Huette was valued at $85,000 as compared to Mr Gallagher’s estimate, though I recognise that the machine had special value to him.
[38]Exhibit 2.2 divider 52.
[53]The loan agreement with the CBA to acquire the equipment was entered into on about 15 April 2015. The amount advanced was $210,000, paid on 21 April 2015. The relevant terms were as follows:
(a)The loan was to be repaid with interest by 36 monthly instalments of $6,251.55; and
(b)The total interest payable was $15,055.80.
[54]Associated had paid out this loan in accordance with its terms.[39]
[39]Exhibit 1 Divider 13.
[55]The funds lent by CBA were paid to Slap Corporation on or about the settlement date of 21 April 2015. Mr Spong gave that evidence,[40] it is confirmed by a CBA document[41] and it was not challenged in cross examination.
[40]TS1-24.7.
[41]Exhibit 1 Divider 8.
[56]That sum is less than the amount on the second Slap invoice. However that document records $50,000 as having been paid by Associated as a deposit. The evidence about this sum was also curious. Mr Spong said that Associated had lent $50,000 to Slap Corporation already as funds to assist with the purchase of Argon.[42] This evidence seemed to come out of the blue during evidence in chief and I could not find any evidence which unequivocally refers to it in the contemporaneous documents tendered. It was not explored in cross examination, and the second Slap invoice is evidence that some such payment was made. I accept that the deposit had been paid. However no claim is made in the proceedings in respect of that sum, so little appears to turn on it.
[42]TS1-35.22 to .30.
[57]The end result therefore is that Associated advanced a total of $260,000 to Slap Corporation, $50,000 at some point before settlement of the CBA loan and $210,000 on or about 21 April 2015 so that Slap Corporation could acquire Argon. Further, Mr Spong’s father also advanced $100,000 personally to Slap Corporation. The total funds advanced therefore was $360,000.[43]
[43]TS 1-86.30 to 87.40.
[58]Before moving to Mr Gallagher’s evidence on the funding process, it is worth noting this further curiosity. The evidence which will be referred to next shows that Mr Suarez communicated to Evolution and Mr Gallagher that Argon had been acquired on 17 March 2015 (see from paragraph [70] below) for some $419,208.33. That is before any of the CBA sourced funding was paid to Slap Corporation.
[59]Mr Shaw for the third defendant asked a question of Mr Spong that assumed the transaction was nearing completion on 11 March 2015. Mr Spong’s response was ambiguous.[44] Later Mr Shaw asked him if he found out that the Argon purchase completed and Mr Spong said he only found out the details when preparing his statement for this trial. He agreed March 2015 sounded right but was not cross examined about the timing of settlement compared to the CBA advance. Given his unchallenged evidence that the CBA loan was paid to Slap Corporation for the Argon purchase, it seems highly unlikely he knew in 2015 that Argon had apparently settled in March. I am find that he did not. This discontinuity in the evidence was not explored or explained further (this is not an implied criticism of counsel: if every curious matter in this case had been fully explored in evidence, the trial would have gone much longer).
[44]TS1-88.
Funding to acquire Argon: Mr Gallagher’s evidence
[60]It will be recalled that Mr Gallagher’s evidence was that he understood that Associated was going to provide finance to Evolution to acquire Argon. Mr Gallagher did give evidence that Evolution paid $30,000 towards the acquisition of Argon. He said this payment was by way of reimbursement to Mr Suarez (whether personally or on behalf of Slap Corporation, see [14] above) of the deposit on Argon, which Mr Gallagher says he believed had been paid by Mr Suarez.[45]
[45]TS2-16.10.
[61]Mr Gallagher’s evidence about place of the Evolution Tax Invoice in those arrangements is worth setting out verbatim:[46]
How did you come to sign this tax invoice?---We were at our Kangaroo Point offices at the time, I was, and so was Mr Suarez. During the morning sometime, he came into my office and said that they’d had trouble with the finance for Argon Aluminium. It still hadn’t been finalised, even though he said it had earlier, and we thought it had. He then indicated – he said to me, “We’ve got to mortgage the equipment” – “We’ve got to mortgage some equipment”, or “We can mortgage some equipment to fund that”, and it’s something that he’d spoken about, and then he had this invoice raised from… Evolution Piling to Slap Corporation for this sum, so that we would mortgage this machinery to the value of the purchase price of Argon Aluminium, and then the title could pass to us because the reason he had to transfer the equipment into his Slap Corporation, because I asked, I said, “This isn’t a mortgage, this is a sale, and it’s not to Jonathon Spong, it’s to Slap Corp”, and he said that’s because Jonathon and he had already paid for Argon Aluminium and needed to do this for Argon Aluminium to be transferred – for the title to be transferred to our company, and what this would do is we would still mortgage the machinery, he explained to me. The machinery would still be mortgaged, and we’d make the payments, and then after we paid that out, we’d own the machinery again, but we’d always retain the machinery.
[underlining added]
[46]TS2-34.10 to .27.
[62]If this is what Mr Suarez said, it is directly inconsistent with Mr Spong’s evidence as to how the acquisition of Argon was to be funded and inconsistent with the documentary record because there is no hint that Associated had lent any money by 11 March 2015, the date of the tax invoice. Needless to say, this conversation also happened over a month before the CBA advance to Associated was paid to Slap Corporation.
[63]If this is what Mr Suarez said, it also creates a logical difficulty. If Associated and/or Slap Corporation had already paid for Argon as at 11 March 2015, why would Evolution need to transfer the equipment to Slap Corporation and pay down a mortgage on the equipment for that sum by way of repaying Slap Corporation/Associated for the purchase price of Argon? Surely it would be a simple case of either transferring the equipment directly in exchange for ownership of Argon or mortgaging the equipment to secure repayment of a loan of the amount of the purchase price of Argon. I explored this with Mr Gallagher:[47]
Your evidence was they’d already paid for Argon Aluminium and needed to do this?---So – so – so Mr Suarez told me.
Yes. Well, if you needed to prove – if your understanding was you needed to provide $495,000 of value to the people who’d already paid for Argon, why isn’t that given effect to by this transaction whereby you give them machinery worth $495,000 and they give you Argon back? Is that – isn’t that the way you thought it was going to work?---This – this – the way I understood it, your Honour, and, as I said, this was a surprise to me that it went this way.
Yes. Yes?---And Mr Suarez said it just has to be this way.
Yes?---I accepted that. Yes?---That we would – originally we needed to obtain finance for Argon Aluminium.
Yes?---The way we would obtain it, finally, came to us was that we would mortgage equipment.
Yes?---And that equipment would then transfer to Mr Spong.
Yes?---And we would pay that equipment off under a mortgage agreement so we would always have the machinery, always had the machinery, and that when that was paid off then we’d own the machinery back, but the whole time we would own Argon Aluminium.
[47]TS2-37.4 to .29.
[64]His evidence seemed to come to this: Evolution would transfer the machinery to Slap Corporation and then Slap Corporation would transfer Argon; but Evolution needed the machinery so it would mortgage the equipment and pay it off. He did not say who he thought would fund the mortgage. Nor did he advert the oddity of the notion of transferring ownership then mortgaging the equipment.
[65]Despite that evidence, Mr Gallagher maintained that he did not intend that Evolution would transfer the equipment to Slap Corporation.[48] However, that intention was inconsistent with his evidence as to how Evolution was to have Argon transferred to it. He gave evidence that the transfer of the equipment was to acquire Argon from Slap Corporation (which had already paid for it, according to Mr Suarez).
[48]TS2-35.31 to .45.
[66]He also said that “it was explained to me that this was just title transfer…” (whatever that means) followed by this “the… machinery would be mortgaged under a finance arrangement which we would pay, and then once the amount was paid out, $450,000, we have… clear title to the equipment again, but it would be mortgaged”.[49] I do not understand this evidence.
[49]TS2-35.45 to 36.2.
[67]Mr Gallagher also said he did not intend to transfer title because he was waiting for paperwork which would “tie [the transfer]…in with Evolution and the finance from [Mr Spong]”.[50]
[50]TS2-36.8.
[68]I accept that Mr Gallagher believed that Evolution would transfer the equipment to Slap Corporation and get Argon transferred to it in return. I also accept that Argon was never transferred to Evolution.
[69]However, I find that Mr Gallagher had no understanding of the convoluted transaction put to him by Mr Suarez and (if events happened as he said) Mr Gallagher showed naiveté in his acceptance of Mr Suarez’s explanations, especially as he never discussed matters with Mr Spong at the time (if ever), despite his clear lack of understanding of what was occurring.[51] I find that at this stage he was willing to accept whatever Mr Suarez said, no matter how little he understood it, and to sign whatever Mr Suarez asked him to sign, in relation to the Argon acquisition.
[51]TS2-37.45 to 38.4 and TS2-65.12 to .33.
Evidence about the acquisition of Argon
[70]I preface what is to follow with the warning that no direct evidence was adduced which showed the completion of acquisition of either the business of Argon Aluminum or of the company of that name. Business registration details for “Argon Aluminum Welding Fabrication” were tendered but they prove little except the registration of that name to Slap Corporation on 25 March 2017.[52] The liquidators of both Evolution and Slap Corporation located no evidence in the books and records of either company showing Argon was acquired by either of those companies.[53] I am not persuaded on the evidence adduced that Argon was ever acquired by either company.
[52]Exhibit 2.2 Divider 46.
[53]Exhibit 7 at paragraph 8 and Exhibit 8 at paragraph 13.
[71]On 17 March 2015, Mr Suarez apparently sent an email to Mr Gallagher, his daughter and two others involved with Evolution. It stated:[54]
Please see attached.
Proud to announce that Argon Aluminum is now part of the group.
[54]Exhibit 2.2 Divider 42.
[72]Attached is a document which appears to be a Commonwealth Bank International Money Transfer by which McInnes Wilson Lawyers Pty Ltd sent $419,208.33 to Ingwersen and Lansdown Trust account. The document is marked customer copy, and is not signed. It is dated 17 March 2015. It does not demonstrate so far as I can see that the transfer has occurred. There is no other mention of either firm in the evidence, oral or documentary.
[73]That afternoon, Ms Cheyne sent an email to Mr Suarez and Mr Gallagher stating:[55]
Good afternoon gents,
Thanks to Batman, we now officially own Argon.
Fraser has set up and Argon Aluminium file in the …Server….you each have access to this file and this is where I will save all Argon documents, payroll etc…
Pat & Michel, Laurie has informed me that Argon is owned by Slap Corp, so any important documentation needs to be read as Slap Corporation T/A Argon Aluminium with both logos on them please. We will set up letterhead template reflecting the same….
[55]Exhibit 2.2 Divider 44.
[74]These emails beg the question: Why does Slap Corporation own an asset which Evolution was supposed to buy? There is nothing in the documentary record which shows any surprise or query from Mr Gallagher, Ms Cheyne or anyone else at Evolution about this situation.
[75]Further, while the transaction as explained to Mr Gallagher (on his account anyway) contemplated Slap Corporation already having bought Argon, there was no suggestion of any “mortgage back” of the equipment of the kind discussed by Mr Gallagher. Further, given the equipment had been “sold” to Slap Corporation on 11 March 2015, why was Argon not owned by Evolution at this point?
[76]Mr Gallagher gave evidence that he was concerned that Slap Corporation appeared to own Argon. He said that he asked Mr Suarez about it and that Mr Suarez said it was just part of the process and Mr Gallagher accepted that explanation, in part because he was busy himself with work. In cross examination about this matter, Mr Grant established that Mr Gallagher expected there to be an agreement for the acquisition of Argon. However Mr Gallagher was unable to give any specific evidence about any such agreement.[56] Like so many other matters, Mr Gallagher did not follow up the matter of ownership of Argon until after the dismissal of Mr Suarez in May 2015, discussed further below.
[56]TS2-62.
[77]Ms Cheyne also gave evidence about the Argon acquisition. Her evidence was clearer than Mr Gallagher’s evidence. She recalled conversations in late 2014 to the effect that Mr Suarez was looking to obtain funding to acquire Argon by mortgaging equipment with Associated. She said there were thereafter many conversations about purchasing Argon and she appears to have done some work at the business on payroll issues (though when that occurred in unclear). She said Mr Suarez said Slap Corporation had paid the deposit of $30,000 and he gave Ms Cheyne an invoice for that amount and said Evolution would be buying Argon.
[78]She recalled the email saying that Argon had been purchased set out above. She recalled her email of 17 March 2015 set out above and the conversation she had with Mr Suarez stated there. She says she queried the inclusion of the Slap Corporation logo when she thought Evolution owned Argon and “he said that it was to do with the financing and that we did own Argon, but because of the finance arrangement that it had to be described that way for, well, whatever purpose that was. I can’t quite recall.”[57]
[57]TS2-80.1 to .6.
[79]Ms Cheyne gave no other evidence of any concrete event demonstrating ownership of Argon by Evolution or “the group”, despite being the office manager and despite apparently having had pre-purchase involvement with Argon’s payroll system (and no such evidence was located in the books and records of Evolution or Slap Corporation[58]). This appears not to have alarmed her. She “completely believed [Argon] was our company” until Mr Suarez left Evolution in May 2015.
[58]See footnote 53.
[80]The other evidence to deal with in this regard is the tax invoice at Exhibit 1 Divider 4. That is dated 23 March 2015. Given the evidence from the witnesses at the trial about what they say they were told by Mr Suarez and what they thought had occurred, it is a remarkable document.
[81]It appears to have been sent by Mr Suarez to Ms Cheyne on 23 March 2015 who probably forwarded it to Lissa Burton in accounts at Evolution for action around 30 March 2015.[59] The first point to note is that it is an invoice from Mr Suarez to Slap Corporation, not Evolution. Next, it includes the following items:
[59]Exhibit 1 Divider 5.
Quantity
Description
Unit Price
Total
Purchase of Business Argon
Aluminum$450,000.00
Rent in Advance Premises 9 Industry
drive South Tweed Heads Argon$23,480.00
Rent Deposit Argon Aluminum
$20146.00
Adjustments in Purchase Contract
Argon Aluminum$55,250.00
Wages W/E 15/03/2015 Argon
$8048.89
Wages W/E 22/03/2015 Argon
$10,891.89
Wages Hames Maher Argon
$3,822.00
Payment to Downee Argon
$643.00
Cash Purchase Argon
$2650.00
Reimbursements (John, Lance)
$812.75
Cash Purchases Argon
$550.00
Subtotal
$576,294.53
Sales Tax
Shipping & Handling
Total Due By 12.31.2012
$576,204.53
[82]It seems that the document is, in substance, a record of loans made by Mr Suarez to Slap Corporation. It does not appear to record taxable supplies by him to Slap Corporation (though it is unclear if these amounts include GST).
[83]More unusual, given the evidence from the witnesses at the trial, it records (seemingly) that Mr Suarez lent the money to Slap Corporation to buy Argon and lent Slap Corporation other large sums in relation to that transaction. If that is correct, all of the evidence of Mr Gallagher and Mr Spong must be mistaken. Their evidence, divergent though it is as to detail, is united in this one consideration: all their actions relevant to this proceeding were to fund the acquisition of Argon. On the face of this document, neither Slap Corporation nor Evolution needed to borrow from Associated to fund the acquisition of Argon. Mr Suarez lent the money to Slap Corporation.
[84]Most unusual, given Ms Cheyne’s evidence, is that this document was provided to her on 23 March 2015, apparently with no query being made about how it conflicted with her understanding of the Argon acquisition being funded by Associated. And that seems so even though, when asked for receipts and settlement statements by Ms Burton, Mr Suarez referred her to Ms Cheyne. There was no meaningful evidence about this document.[60]
[60]It was briefly covered in cross examination of Mr Gallagher, but without adverting to the issues which the document raises discussed in these reasons: TS2-49.25 to 50.25.
[85]Mr Gallagher’s and Ms Cheyne’s evidence about the timing of the apparent acquisition of Argon remains directly inconsistent with Mr Spong’s evidence on that question (see paragraph [59] above). All parties showed remarkable insouciance as to the circumstances and authenticity of this transaction, given the liabilities they incurred in relation to it.
The hire agreement is executed
[86]The above narrative left Mr Spong, on 21 April 2015, having paid the money Associated borrowed from the CBA to Slap Corporation (see paragraph [57] above). As at the same date, Mr Gallagher was fending off demands from Mr Frend for payment for the Huette (soon to be repossessed) and seemingly waiting for the further transactions to give effect to the financing for the acquisition of Argon which he believed had occurred. As to that, it will be recalled he said he believed that Associated would mortgage the equipment in the Evolution Tax Invoice back to Evolution (see paragraphs [61] to [67] above).
[87]Thus we finally arrive at the hire agreement introduced in the first paragraph of this judgment.
[88]On the day after the payment of the $210,000 to Slap, Mr Spong sent draft hire agreement documents to Mr Suarez.[61] That seems to have been the trigger for Mr Suarez to tell Mr Spong that Slap Corporation would be making the hire payments on behalf of Evolution because Evolution was having some cash flow issues. Mr Spong was unconcerned about that information. At one point in his evidence he said that he knew that Evolution had a good stream of work underway and that temporary cash flow issues were not of concern to him. The source of this knowledge was presumably Mr Suarez. He later added that he knew that Evolution and Slap Corporation were working together and assumed they had some internal arrangement about the payments.
[61]Exhibit 2.2 Divider 55.
[89]Mr Spong told his assistant to revise the documents to include a direct debit for Slap Corporation and to record payments by Slap Corporation as payments on behalf of Evolution.[62] Ms Pettit was to sign the Slap Corporation direct debit and Mr Gallagher the hire agreement documents. Again there was no direct discussion between Mr Spong and Mr Gallagher.
[62]Ibid.
[90]On 8 May 2015, Mr Gallagher signed the hire agreements and the guarantee. An electronic copy was sent by a Ms Anne Cheyne (presumably Kelly Cheyne’s mother, there being evidence that she was a director of Evolution) to Mr Suarez, who forwarded it to Mr Spong.
[91]Mr Gallagher admitted executing both the hire agreement and the guarantee. He gave the following evidence about his state of mind when doing so (which is relevant at the least to the sham allegation):[63]
And, when you signed it, did you intend that Evolution – was it your intention that
Evolution would pay that weekly amount?---Yes.
Was it your intention that Evolution would pay that weekly amount immediately after signing the agreement?---As soon as – as soon as the transaction was – Argon was finalised.
As soon as the transaction of what, sorry?---Bringing Argon into our company was finalised.
[63]TS2-42.27 to .41.
[92]No evidence was adduced which showed that that condition was ever communicated to Mr Spong, much less accepted by him, much less included in the hire agreement.
[93]It will be recalled that Mr Gallagher’s evidence was that his understanding of the financing transactions was that there was to be a mortgage of the equipment to Associated. I have already explained that that notion was hard to explain given that Mr Gallagher also understood he was transferring ownership of the equipment to Slap Corporation (see paragraphs [64] and [66] above). Mr Grant (for the plaintiff) cross examined Mr Gallagher about the conflict between his apparent understanding of the way the funding was to work and the character of the agreement as a hire agreement not a mortgage. Mr Gallagher’s evidence at this point was unsatisfactory. He accepted that he understood the difference between a hire agreement and a mortgage, and that he had extensive experience with hiring equipment. He then maintained that when he signed the hire agreement he did not understand it was a hire agreement not a mortgage agreement. His defiant response when challenged on that discontinuity also did him no credit.[64] The inference which I draw is that Mr Gallagher just signed whatever he was told to sign by Mr Suarez, without applying his own attention or judgment to the document.
[64]TS2-58.11 to TS2-59.15.
[94]On 12 May 2015, consistent with the discussion between Mr Spong and Mr Suarez, Ms Pettit signed a direct debit request for Slap Corporation in favour of Associated starting 13 May 2015 for weekly payments of $2,103.99.[65]
[65]Exhibit 2.2 Divider 58.
The terms of the hire agreement
[95]The hire agreement was part of the following documents:
(a)A covering letter from Associated to Evolution dated 22 April 2015 identifying the documents provided and the first payment amount required;
(b)A tax invoice from Associated to Evolution for a documentation fee of $660;
(c)The hire agreement heads of agreement of two pages (the Heads of Agreement);
(d)The standard terms and conditions (the Master Agreement); and
(e)A personal guarantee of two pages (the Guarantee).
[96]The Heads of Agreement was the part of the hire agreement specific to this transaction. The first page identified the parties (Evolution and Associated) and the equipment, the weekly payments of $2,103.99 per week and the term of 156 weeks.
[97]The Heads of Agreement:
(a)Included a clause designated “Purchase Option”, which provided:
50% OFF ALL RENTAL PAYMENTS INC. GST WILL BE DEDUCTED FROM RENTAL PAYMENTS MADE IN FULL FROM ORIGINAL AGREED PRICE OF $210,000 INC. GST. THIS APPLIES ONLY TO THE FIRST 52 WEEKLY PAYMENTS BEING MADE. ALL PAYMENTS THERE AFTER WILL HAVE 70% OF WEEKLY PAYMENT DEDUCTED SHOULD RENTEE WISH TO EXERCISE PURCHASE OPTION (52 weeks @ 50%, then 70% each week thereafter starting on 53rd weekly payment). TAX INVOICE MAY BE SUPPLIED FROM THIRD PARTY COMPANY FOR SALE OF EQUIPMENT. UNIT CAN BE SOLD AT ANYTIME AFTER MINIMAL RENTAL TERN HAS BEEN SATISFIED AND PAYMENTS RECEIVED. THIS IS SUBJECT TO ASSOCIATED EQUIPMENT P/L HAVING SUPPLIED A PAYOUT FIGURE AND THIS IN TURN BEING MET.
MINIMUM SUCCESSFUL PAYMENTS PRIOR TO SALE OR PURCHASE OF SAID EQUIPMENT: 26 weekly payments.
(b)Provided under the heading “Conditions of Rental Agreement”, relevantly:
•RENTAL COMPANY ASSOCIATED EQUIPMENT PTY LTD (A.C.N.: 131 092 290) IS TO BE NOTED AS JOINT INSURED ON THE SAID EQUIPMENT DETAILED ON PAGE 1 OF THIS AGREEMENT. THIS MUST BE COMPREHENSIVELY INSURED AND ALL IDENTIFY’S TO BE NOTED ON POLICY. INSURANCES MUST BE KEPT CURRENT AND PROOF OF THIS SUPPLIED EACH YEAR (UPON RENEWAL) OR UPON REQUEST.
…
•THE SAID EQUIPMENT MAY BE PURCHASED FROM RENTAL COMPANY AT ANY TIME SUBJECT TO STATED AMOUNT SUPPLIED BY ASSOCIATED EQUIPMENT PTY LTD. OWNERSHIP WILL TRANSFER UPON CLEARANCE OF FUNDS TO ASSOCIATED EQUIPMENT P/L.
[109]Further Amended Defence at paragraph 28A.
[246]Further, the central significance of the conventional estoppel claim for the plaintiff is to make good an entitlement to the sums due under the hire agreement as if the equipment had in fact been made available for hire for the whole period of the agreement. No submission was advanced as to why that consequence should flow. It is not obvious to me that it should. Even if Mr Gallagher was bound to the common assumption that Associated had title to the equipment to be hired under the hire agreement, I cannot see that in fact the obligation to hire that equipment was ever performed, much less over the whole period of the hire agreement. At the least, this applies to the Huette, which left the possession of Evolution just three days after the hire agreement was signed, never to return, with Mr Spong content to assume (in a remarkable example of optimism) that the Huette would be recovered after its repossession.
[247]There are other difficulties with the proposition that the consequence of the conventional estoppel, if any, which could be articulated should properly be such as to bind Evolution and Associated to the terms of the hire agreement until it expired. This might have engaged the question about whether the effect of the estoppel was permanent or merely suspensory of the rights which Evolution would ordinarily have had under the hire agreement where the Hirer did not have title to the hired goods and/or failed to make them available for use.[110] It would also have engaged the question of whether any common assumption to that effect could survive those events.[111]
[110]Seddon & Bigwood, Cheshire & Fifoot’s Law of Contract (11th Australian ed, 2017, LexisNexis Butterworths) at 2.17 and see Minerology Pty Ltd v Sino Iron Pty Ltd (No. 6) at [765] to [769].
[111]Handley, Estoppel by Conduct and Representation (2nd ed, 2016, Sweet & Maxwell) at 8-020.
[248]The plaintiff did not address the conventional estoppel case in oral argument. I was left to make of it what I could on the written submissions. For the above reasons, I do not think that that the written submission made out the claimed estoppel. The conventional estoppel allegations are not established.
Was there a demand under the Guarantee?
[249]I have found that Mr Gallagher has no liability under the Guarantee. It is therefore moot whether, on the proper construction of the Guarantee, a demand was an essential pre-condition to liability or whether if so, the serving of the application to join Mr Gallagher as a party to the proceedings was a demand.
[250]However, it seems to me that the answer to the second question was yes (making the first issue doubly moot). The circumstances of the joinder application were not adduced in evidence. However, it was uncontentious on the pleadings that the joinder application was served and that it contained with it a copy of the Second Further Amended Statement of Claim.[112] There was no specific requirements as to the form of the demand under the Guarantee. Accordingly, the question is whether, looked at objectively, the application to join Mr Gallagher on the terms of the Second Further Amended Statement of Claim met the requirements of a demand under paragraph (b) of the Guarantee.
[112]The allegation in paragraph 22 of the Second Further Amended Statement of Claim was not denied in accordance with r. 166 UCPR in the Further Amended Defence and strictly speaking an implied admission of those facts arose.
[251]In my view, it did. The Second Further Amended Statement of Claim made clear that the plaintiff was seeking to join Mr Gallagher for the purpose of suing him on the Guarantee and identified with precision the amount claimed. It is hard to see how Mr Gallagher could have been in any doubt that he was being called on to “immediately pay to [Associated] an amount of Guaranteed Money not paid by the Hirer by the due date for payment”. The fact that the demand took the form of an interlocutory step in the proceedings is no reason to disregard its substantive character.
Conclusion
[252]Accordingly, Associated’s claim on the Guarantee is dismissed. Associated has made out its claim for damages brought under the ACL in the amount of $115,743.83.
[253]I will hear the parties as to costs.