Touma v Highfields Australia Pty Ltd

1. [1]

   WHITE JA: I agree with Basten AJA.

2. [2]

   ADAMSON JA: I agree with Basten AJA.

3. [3]

   BASTEN AJA: By orders made on 5 December 2023, the trial judge, Richmond J, resolved a dispute as to the ownership of four luxury vehicles, being an Alfa Romeo 4C, a Lotus Evora, a Lamborghini Gallardo, and a Ferrari Spider. The trial judge declared that Highfields Australia Pty Ltd (Highfields), the plaintiff in the proceedings before him, was the owner of the vehicles. [1]

4. [4]

   The contest at trial was between Highfields and the first defendant, Advanced Motor Dealers Group Pty Ltd (Receiver and Manager appointed) (AMDG). Highfields was controlled by Alan Hisham Balout; AMDG, at least prior to the appointment of a receiver and manager, was controlled by Joseph Touma, though he was not a shareholder or director. It was not contended that either Mr Balout, or Mr Touma, was the owner of the vehicles, but Mr Touma was joined as a defendant in the proceedings below, presumably because Highfields was seeking delivery up of the vehicles and an order restraining removal, selling or dealing with the vehicles without the express consent of Highfields.

5. [5]

   In addition to the declaration as to ownership and an order for delivery up of the vehicles, the trial judge ordered AMDG to pay Highfields a sum of $21,552 on account of payments made by Highfields for the costs of storage of the vehicles. With respect to costs, Mr Touma was ordered to pay Highfields’ costs and AMDG was found “jointly and severally liable” with Mr Touma, for 10% of Highfields’ costs. The judge also ordered that the receiver was not liable for any damages or costs ordered against AMDG. There were consequential orders, including a stay.

6. [6]

   On 16 February 2024, Mr Touma filed a notice of appeal naming Highfields, AMDG and AMDG’s receiver and manager as the respondents. He sought orders setting aside the orders made by the trial judge and an order dismissing Highfields’ summons. The result of Mr Touma’s success would therefore be that the dispute as to ownership of the vehicles remained unresolved. This result was, perhaps, the inevitable conclusion resulting from the fact that Mr Touma had no legal interest in the ownership of the vehicles. To allow a person without standing to bring proceedings and have the proceedings dismissed, with the result that the dispute was not resolved would require the Court to determine whether the appeal should have been allowed to proceed in the absence of an appellant with standing. However, no point was taken by Highfields, even after the matter had been raised by the Court. Because, for the reasons set out below, the appeal must be dismissed on the merits, the question of standing need not be resolved.

Factual background

1. [7]

   Mr Balout and Mr Touma, through their corporate entities, were involved in the business of renting luxury vehicles to the public for short periods. Mr Touma’s evidence was that he needed to refinance the four vehicles, but was unable to do so whilst they were registered in the name of any of his companies. In the course of a conversation with Mr Balout in June 2016, he sought Mr Balout’s assistance. The agreement was that the finance would be arranged through Highfields, which would convey a security interest to the financier. In order to give effect to this arrangement, AMDG issued to Highfields invoices which were in due course paid by money obtained from the financiers, one being BMW Australia Finance Ltd (BMW Finance), which took a charge over each vehicle as security for the loan. It was not submitted by the appellant that the documentation was a sham, nor that Highfields never had any relevant interest in the vehicles. It was, however, submitted that the invoices showing the purchase of the car “were provided to demonstrate to the financiers that Highfields was taking on the liability”. [2]

2. [8]

   Having been refinanced, the vehicles remained or came into the control of AMDG, a licensed motor dealer, which in turn provided them to a related entity, Ultimate Drive Days Pty Ltd (UDD). That company’s business was renting exotic cars to customers on a short-term basis, typically for the purposes of events such as weddings, track days or day trips. UDD paid fees to AMDG for the use of the vehicles; AMDG met all the costs associated with the vehicles. [3] The judge found that the fees paid by UDD to AMDG, at least until 2020, exceeded the payments to the financiers and other costs.

3. [9]

   Mr Touma’s case was that the arrangement between AMDG and Highfields had been agreed orally in the course of two conversations in June 2016. The judge made findings in relation to the contractual arrangements in the following terms:

4. [10]

   On appeal, Mr Touma challenged those findings on two broad bases. First, it was said that the findings of ownership on the part of Highfields was inconsistent with the accounting records of both companies in the years 2017-2020. Thus, AMDG recorded the vehicles as part of the assets of the company, whereas Highfields did not record them in its assets. Furthermore, as a director of AMDG, Mr Balout had signed the AMDG financial accounts for two years, thus conceding the accuracy of the records.

5. [11]

   Secondly, Mr Touma contended that the finding that Highfields owned the vehicles contradicted commercial experience in circumstances where there was substantial equity in the vehicles when subject to the financing which AMDG had foregone without consideration if, after the “sale”, Highfields owned the vehicles.

Issues on appeal

1. [12]

   The notice of appeal contained seven grounds, but they were addressed in two primary submissions, namely that the trial judge erred:

2. [13]

   Ground 7 stated, generically and in keeping with separate allegations of failure to provide adequate reasons contained in grounds 3 and 5, that there had been a failure by the judge to give reasons for the impugned findings that “Mr Balout’s signing of the financial statements and/or Mr Balout’s admissions in cross-examination were not given any weight”. This ground may be disposed of immediately. As will be explained below, the judge gave detailed reasons for his conclusions, from which it may be inferred that there was no failure to give reasons. If there were matters which were not addressed (which might be inferred from the matters not being referred to in the reasons) that would constitute an error if the matter was material and relevant to one of the impugned factors. In any event, such an error will usually be capable of remedy by this Court on an appeal by way of rehearing: but no matter was identified which was simply not addressed.

3. [14]

   There were four categories of evidence which were central to the trial, namely:

4. [15]

   A central issue in the appellant’s case was the weight to be given to the different categories of evidence. Thus, although there was no challenge to the specific findings as to the effect of the conversations in June 2016, ground 3 alleged that the judge placed “undue weight on the oral evidence of Mr Balout, which was given some four years after the conversations which were found to comprise the contracts that the trial judge concluded gave rise to the findings that [Highfields] was the owner of the vehicles”. Ground 3 also alleged that the judge failed to provide reasons as to why such oral evidence “should be preferred over the [financial] statements of AMDG”.

5. [16]

   Ground 4 complained of the failure to give any weight to “admissions made by Mr Balout in cross-examination regarding the ownership of the vehicles, and those recorded in the documentary records”, being two financial statements of AMDG and Mr Balout’s director’s declarations in relation to them. The director’s declarations were treated as “admissions” made by Mr Balout; it was said that he also made admissions in cross-examination which the trial judge treated as “not constituting an admission (or admissions)”: ground 5.

Determination of appeal

1. [17]

   Chronologically, the first step in the arrangements between Highfields and AMDG, relevantly addressing the ownership of the vehicles, was the oral agreement entered into on behalf of the two companies by way of a conversation (or conversations) in June 2016. Although Mr Touma complained that the trial judge gave too much weight to his findings as to that conversation, it was the foundation of the contractual arrangement upon which Mr Touma himself relied. That the judge did not accept his evidence in key respects was not challenged on the appeal. In any event, the judge in fact gave the conversations less weight than the contemporaneous refinancing documents.

2. [18]

   As the judge correctly explained:

3. [19]

   The second category of evidence, chronologically, comprised the documentary records of the sales and financing arrangements. As those were the operative documents which gave effect to the agreements, the judge placed significant weight on them, and appropriately so. Mr Touma having eschewed any suggestion that they were shams, that documentation was entitled to dispositive weight. The invoices alone would not have demonstrated a completed sale, but in each case the bank records demonstrated that the amounts referred to in the invoices were transferred to AMDG’s accounts and applied to the repayment of earlier loans.

4. [20]

   The third category of evidence concerned the continued inclusion of the vehicles in the documents accompanying the financial accounts of AMDG as part of its assets. On one view, these were critical to the appellant’s case; however, for reasons to be explained, they should not be accepted as contradicting the transaction documentation.

5. [21]

   The fourth category concerned two admissions allegedly made by Mr Balout. One involved his signature on the director’s declaration accompanying the financial statements of AMDG for the June 2017 and June 2018 years, both signed in February 2019. The other was a concession in the course of cross-examination in relation to those records.

6. [22]

   When the first conversation occurred in about June 2016, Mr Touma was the general manager of AMDG, but was not a director or shareholder of that company. The sole director of AMDG at that point was Dalibor Maskaric who was also the sole shareholder of another company, Dobro Dosle Pty Ltd, which was, in turn, the sole shareholder of AMDG. Mr Touma was the sole director of Dobro Dosle from 17 August 2020 but appears to have held no financial interest in or control of the company prior to that date. Accordingly, his discussions with Mr Balout in June 2016 were in his role as general manager of AMDG.

7. [23]

   In Mr Balout’s account, Mr Touma asked him for “a favour”, noting that “we’re going to have to refinance all our cars or sell them” and “I can’t have any in my name because I can’t show income”. [4] At that stage Mr Balout and Mr Touma had joint interests in a company which owned luxury cars, but the cars in question did not belong to that company, as Mr Balout pointed out in the first conversation, which concerned the Lamborghini. Mr Balout said, “I’m not going to make the payments on it", to which Mr Touma replied that “Sports Car will make the payments” (which the parties understood to be a reference to AMDG). Mr Touma then said:

8. [24]

   That account was contained in an affidavit of 3 December 2020 sworn by Mr Balout: when Mr Touma responded with an affidavit dated 8 December 2020 he did not set out a different conversation and, indeed, did not do so until an affidavit sworn on 18 November 2021. The conversation then recounted by Mr Touma included the following propositions:

9. [25]

   The reference to the excess value, over and above the refinancing amount, was relied on as the basis for an argument that it would have been “uncommercial” for AMDG to “sell” the car to Highfields for the cost of refinancing. However, it might have been thought uncommercial for Highfields, first, to represent to a financier that it owned the vehicle when it did not and, further, to do so in circumstances where if AMDG defaulted, it had no interest in the vehicle.

10. [26]

    There were other difficulties with Mr Touma’s version of the conversation. The trial judge noted:

11. [27]

    The trial judge preferred the evidence of Mr Balout as to the conversations, and drew the following inferences:

12. [28]

    The refinancing transactions which followed almost immediately the conversations between Mr Balout and Mr Touma provide the best contemporaneous evidence of the arrangements between AMDG and Highfields. These arrangements included not only the four vehicles the subject of this proceeding, but three other vehicles. One was of particular significance because it predated the first refinancing of the four vehicles now in dispute, namely the Lamborghini. The earlier vehicle was an Audi R8. Both the Lamborghini and the Audi were owned by Sports and Prestige Wholesalers Pty Ltd (SPW), a company of which Mr Touma was the general manager. The refinancing of the Audi did not involve Highfields, but another company, KG Realty Pty Ltd. On 20 June 2016, that company entered into a chattel mortgage agreement with BMW Finance for a loan of $197,06.60 of which $195,000 was paid to AMDG. Three days earlier, AMDG had paid out the amount owing by SPW to the previous financier, the National Australia Bank (NAB), for the purchase of the Audi. The chattel mortgage agreement identified the “mortgaged property” as the car the subject of the refinancing. The agreement provided in the chapeau:

13. [29]

    Noting that "Alphera Financial Services" was the trading name of BMW Finance, the judge set out the following terms and conditions:

14. [30]

    The trial judge inferred from this transaction that “at the time Mr Touma arranged for AMDG to issue an invoice to Highfields for the Lamborghini, and when Highfields entered into the chattel mortgage agreement for the Lamborghini that Highfields would need to satisfy BMW Finance that it was the purchaser of the vehicle”. [5] The judge also inferred that Mr Touma had similar knowledge when Highfields entered into the agreements with respect to the Alfa Romeo, the Lotus and the Ferrari. [6]

15. [31]

    With respect to the Lamborghini, two invoices were in evidence. The first, dated 2 September 2014, was issued by SPW, the purchaser being AMDG. Funds for the purchase were provided by the NAB. The second, dated 17 June 2016, was an invoice issued by AMDG for the sale of the Lamborghini to Highfields for a price of $260,000, including GST. The latter invoice recorded that a deposit of $63,000 had been paid and that the balance of $197,000 was payable to AMDG’s bank account with the NAB.

16. [32]

    The second invoice was not provided by AMDG by way of discovery, but was obtained from BMW Finance pursuant to a subpoena, with a chattel mortgage agreement in the amount of $197,000 to be disbursed to AMDG; that accorded with the balance due on the invoice. The chattel mortgage agreement was signed by Highfields and by Mr Balout as guarantor. The date of execution was 21 June 2016.

17. [33]

    The significance of the documents being sourced from BMW Finance and not AMDG was that it might be inferred that AMDG did not have a copy of the documents to provide to its accountant, who therefore may well have been unaware of the transaction when preparing the company accounts, a matter to which it will be necessary to return.

18. [34]

    Similar arrangements were made with respect to each of the other vehicles, the details of which are set out by the trial judge and need not be repeated. The judge reached the following conclusions in relation to the refinancing transactions:

19. [35]

    The most significant matter relied upon by Mr Touma on the appeal in relation to the accounting treatment of the vehicles was twofold. First, he submitted that Highfields’ accounts for the period 1 July 2018 to 30 June 2020 did not record that it was the owner of the vehicles. On the other side of the record, AMDG maintained in its financial records for the relevant period that it was the owner of the vehicles. From 1 June 2017, Mr Balout was a director of AMDG. Mr Balout’s attention was drawn in cross-examination to his signature on the director’s declaration for AMDG’s financial report for the years ended 2017 and 2018, apparently signed on one occasion in February 2019. He accepted that the motor vehicles were listed in the assets of AMDG. The following exchange took place: [7]

20. [36]

    For reasons which will be noted shortly, the trial judge gave little weight to this concession. However, the submission on the part of Mr Touma that this was an “admission” tended to obscure the relationship between the parties. It is doubtful that Mr Balout could be thought to be acting as a director or officer of Highfields in signing AMDG’s financial accounts. On the other hand, the failure of Highfields to include the vehicles in its financial reports might have been treated as an “admission”. That admission would also have carried little weight, because Highfields failed to disclose its liabilities under the chattel mortgage agreements with the financiers.

21. [37]

    The appellant’s submission was that the trial judge erred in giving “no weight” to the financial records of AMDG, in the face of s 1305(1) of the Corporations Act 2001 (Cth), which states that “[a] book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book”.

22. [38]

    The trial judge acknowledged the submission and addressed it in the following passage:

23. [39]

    The appellant took issue with the second reason given by the trial judge on the basis that Mr Touma was not an officer of AMDG and was not in control of the company. Rather, it was submitted, Mr Balout was an officer of AMDG and “is in control of AMDG”. [8] That submission should not be accepted. First, Mr Balout is not in control of AMDG – the receiver and manager is and was at the time the proceedings were brought and decided. Secondly, the plaintiff in the court below was Highfields, not Mr Balout. Highfields was not in control of AMDG and was under no obligation to explain an apparent inconsistency in the records which AMDG should have held but appeared not to. Indeed, the fact that the critical invoices were not disclosed or discovered by AMDG, but by the financier, makes it unlikely that AMDG had the critical material when the accounts were prepared with the result that the accounts were inadequate for the simple reason that the accountant did not have the relevant material.

24. [40]

    The trial judge was conscious of the content of s 1305(1) of the Corporations Act and addressed it. He also addressed Mr Touma’s submissions in relation to the financial records. He referred, appropriately, to the following passage in the judgment of Austin J in Australian Securities and Investments Commission v Rich: [9]

25. [41]

    It may have been a flourish on the part of the trial judge to say that he gave “no weight” to the financial accounts of AMDG for the 2017 and 2018 years, but there was no error in his recognition that they carried very little weight. He preferred the contemporaneous documents giving effect to the refinancing arrangements and was correct to do so. He was also correct in concluding that the circumstances in which the financial accounts of AMDG were prepared cast doubt upon their accuracy.

26. [42]

    The appellant sought to place weight upon two admissions by Mr Balout, one being the signing of the director’s declarations for the financial statements of AMDG, and the other the concession made in the course of cross-examination in relation to the financial statements and his signature of the director’s declarations, noted above.

27. [43]

    The trial judge considered that the statements in cross-examination did not constitute an “admission” because they related to the question of ownership which required the application of a legal standard. [10] The appellant challenged that approach on the basis that a director’s declaration inherently required an opinion to be formed about the company’s affairs, its liabilities, and its assets. No doubt it is true that a director must form such an opinion, but it does not follow that the opinion will necessarily bear significant weight. The reasons why it should not bear significant weight include the matter noted above, namely that the concession was not made on behalf of Highfields.

28. [44]

    Secondly, the judge noted that the cross-examination in relation to the financial records led to a concession which was not only inconsistent with the transaction documents, but with direct answers Mr Balout gave earlier in his cross-examination to the following effect, on being shown the documents containing the financing arrangements and references to the respective “mortgaged property”: [11]

29. [45]

    The cross-examination as to ownership was revisited in the following passages dealing with the conversations with Mr Touma: [12]

30. [46]

    Having referred to these passages in the evidence, on either side of the “concession”, the trial judge stated:

31. [47]

    The explanation for not placing weight on Mr Balout’s “concession” was entirely plausible. Without the benefit enjoyed by the trial judge of hearing Mr Balout’s evidence, a reading of the transcript would lead to the same conclusion. There was no error.

Conclusions

1. [48]

   Contrary to the grounds of appeal, it was not correct to assert that the trial judge failed to give sufficient weight to the financial statements of AMDG for the years 30 June 2017 to 30 June 2020. Nor was it correct to state that the director’s declarations for each of those financial years were made by Mr Balout: he signed on one occasion for two years. For the reasons explained by the trial judge and elaborated upon above, the judge correctly gave less weight to the subsequent statements in AMDG’s financial records (prepared in February 2019) than to the contemporaneous documentation and the oral evidence of Mr Balout as to the arrangements between Mr Balout and Mr Touma, which he found was consistent with that documentation.

2. [49]

   The refinancing transaction documents were persuasive: indeed, if Highfields did not have sufficient proprietary interest to mortgage the chattels in accordance with the agreements (which included an acknowledgement that the chattels were not subject to any prior security interest) Highfields would have been involved in a fraud on the financiers.

3. [50]

   Accepting that, at least in relation to some vehicles, the value of the vehicle exceeded the refinancing amount, it does not follow that it was “uncommercial” for AMDG to allow Highfields to obtain property in the vehicles for less than their commercial value. As appeared from Mr Touma’s statements, without the assistance of Mr Balout and Highfields, AMDG would in all likelihood have been forced to relinquish the vehicles. The suggestion that Highfields would have taken upon itself the risks of a refinancing arrangement without any ability to protect itself from default by AMDG to whom it was to bail the vehicles, would have been an entirely uncommercial proposition. As it was, it is unclear whether Highfields was obtaining any financial benefit from the refinancing arrangements. AMDG, on the other hand, obtained a very real commercial benefit in so far as the amounts it received from hiring the vehicles to UDD exceeded the payments to be made to the financiers.

4. [51]

   The contention based on uncommerciality must be rejected. The construction of the financial arrangements accepted by the trial judge could not be dismissed on that basis.

5. [52]

   The grounds of appeal, as noted, tended to be repetitive and imprecise. None carried weight. The appeal should be dismissed. No submission was made that costs should not follow the event. Accordingly, the Court should make the following orders:

   1. (1)

      Dismiss the appeal from the judgment given in the Equity Division on 28 November 2023 and the orders made on 5 December 2023 and 1 February 2024.

   2. (2)

      Order that the appellant (Joseph Anthony Touma) pay the costs of the first respondent (Highfields Australia Pty Ltd) in this Court.