Highfields Australia Pty Ltd v Advanced Motor Dealers Group Pty Ltd (Receiver and Manager Appointed)

1. [1]

   The central issue in these proceedings is the ownership of four luxury motor vehicles being a Lamborghini Gallardo (registration 0680) (Lamborghini), an Alfa Romeo 4C (registration YDC 44P) (Alfa Romeo), a Lotus Evora (registration CTU 40U) (Lotus) and a Ferrari Spider (registration 458 SPD) (Ferrari). I will refer to these vehicles collectively as “the Vehicles”.

2. [2]

   The plaintiff (Highfields) claims that the vehicles were transferred to it in 2016 under an oral contract entered into by it with the first defendant (AMDG), in exchange for Highfields arranging its own finance to pay for the vehicles. Highfields seeks a declaration that it is the owner of the vehicles and ancillary relief.

Parties

1. [3]

   The plaintiff, Highfields, was incorporated on 16 May 2003. Its sole directors and shareholders at all relevant times were Mr Alan Balout (Mr Balout) and Ms Karen Fox. Mr Balout swore four affidavits in the proceedings and was cross-examined.

2. [4]

   The first defendant, AMDG, was incorporated on 2 June 2014. Its current directors are Mr Balout (appointed on 1 June 2017) and Mr Dalibor Maskaric. Mr Maskaric was the sole director of the company prior to Mr Balout’s appointment. Prior to 1 June 2017, the sole shareholder of AMDG was Dobro Dosle Pty Ltd, the sole shareholder of which is Mr Maskaric. From 1 June 2017, the shareholders of AMDG have been Dobro Dosle Pty Ltd (as to 50%), Wisefox Holdings Pty Ltd, a company associated with Mr Balout (as to 25%), and Mrs Karen Balout, Mr Balout’s wife (as to 25%).

3. [5]

   The second defendant is Mr Joseph Touma (Mr Touma). He was the general manager of AMDG at the time of the transactions with which these proceedings are concerned and is also the sole director of Dobro Dosle Pty Ltd (the sole shareholder of AMDG at the time those transactions occurred). He swore two affidavits in the proceedings and was cross-examined.

4. [6]

   The third defendant is Mr Shumit Banerjee of Westburn Advisory. He was purportedly appointed as a receiver and manager of AMDG on 24 November 2020 by Bilpin Projects Pty Ltd (Bilpin), pursuant to cl 8.2 of the Deed of Charge referred to below. Mr Touma and his wife, Mrs Eleonora Touma, are the sole directors and shareholders of Bilpin.

Procedural background

1. [7]

   The plaintiff commenced the proceedings by Summons filed on 4 December 2020. On 8 December 2020 Robb J made orders by consent for the second defendant to deliver the Lamborghini, the Alfa Romeo and the Lotus to a nominated storage facility and for the plaintiff to deliver the Ferrari to a nominated storage facility. The second defendant and the plaintiff agreed to pay the costs of storage of the Vehicles at the nominated storage facility, in the first instance, in equal shares. The Vehicles have remained at the storage facility since that time.

2. [8]

   The first and third defendants did not file any submissions or appear at the hearing. However, given that the second defendant, Mr Touma, did appear and is a director of the 50 per cent shareholder in the first defendant and Bilpin, which appointed the third defendant, I am satisfied that the first and third defendants had sufficient notice of these proceedings and an opportunity to be heard.

3. [9]

   The only defendant to file a defence in the proceedings was Mr Touma.

Pleadings

1. [10]

   In its Points of Claim, Highfields pleads that the terms of the contract entered into by Highfields and AMDG in around June 2016 are as follows:

2. [11]

   In his Points of Defence, the second defendant (Mr Touma) accepts that while he (acting on behalf of AMDG) had a series of conversations with Mr Balout (acting on behalf of Highfields) under which Highfields and AMDG entered into a contract regarding the refinancing of the Vehicles, it included a term that AMDG would remain the owner of each vehicle.

3. [12]

   Mr Touma pleads that the terms of the contract were:

Relief claimed and issues for determination

1. [13]

   The relief claimed by Highfields in the Summons is as follows:

2. [14]

   The amount claimed under prayer 5 of $19,310.30 was the initial calculation made by Mr Balout of the amounts paid by Highfields to BMW Australia Finance Ltd (BMW Finance), Metro Finance Pty Ltd (Metro Finance) and Capital Finance Australia Ltd (Capital Finance) in respect of loans to fund the purchase by Highfields of the Vehicles after August 2020. In a subsequent affidavit Mr Balout put on evidence that established the total amount paid by Highfields to those lenders was $403,161.29, together with a further amount of $22,275 in respect of storage of the vehicles following the orders made by Robb J on 8 December 2020.

3. [15]

   In my view, the issues for determination in the proceedings are:

Factual background

1. [16]

   Mr Balout and Mr Touma met in June 2014 and in October 2015 they incorporated USR. They were the company’s two directors and each held, through an associated entity, a 50 per cent shareholding interest in the company. USR’s business was to rent sports cars to the public from premises located at 25 Leeds Street, Rhodes, New South Wales. They (or entities associated with them) each made available motor vehicles to USR for the purpose of USR’s business. USR was deregistered on 22 March 2019.

2. [17]

   The entity at the centre of the dispute between Mr Balout and Mr Touma is the first defendant, AMDG. At all relevant times AMDG was a licensed motor dealer. As part of that business, it made motor vehicles available to UDD for use by that company in its business of renting vehicles to customers on a short-term basis, particularly for group activities or events such as weddings, track drives, or day trips. The arrangement between AMDG and UDD was documented in an agreement entitled “Supply Agreement” dated 1 July 2014 (Supply Agreement), which provided relevantly as follows:

3. [18]

   In the period from June to October 2016, during which the key transactions relevant to the present proceeding occurred, Mr Balout was not a director (or otherwise connected with) AMDG and Mr Touma was acting as the company’s general manager. Mr Touma had many years of experience in the motor dealer industry, including as general manager of both AMDG and SPW, and accepted in cross-examination that he had quite a lot of experience in, from time to time, entering into security arrangements with financiers in relation to cars.

4. [19]

   Mr Touma was also the general manager of UDD and gave evidence that the business of UDD differed from that of USR in that UDD rented cars to the public on a short-term basis (typically for only one day) as part of drive experiences.

5. [20]

   Mr Balout acquired an interest in UDD through a related entity on 5 April 2017 and became a director of UDD on 1 June 2017 (the same day he became a director of AMDG).

6. [21]

   Another entity with some relevance to the background to this dispute is Bilpin. On 1 July 2014 Bilpin entered into a loan agreement with AMDG under which Bilpin agreed to lend to AMDG an initial sum of $200,000, and further sums from time to time in its discretion. AMDG executed a Deed of Charge in favour of Bilpin expressed to be “effective from 1 July 2014” (Charge). The Charge is a fixed and floating charge over all the assets and undertaking of AMDG to secure all moneys owing on any account whatsoever by AMDG to Bilpin. The Charge was not registered under the Personal Property Securities Act 2009 (Cth) (PPSA) until 22 October 2020 and was never registered as a charge under the Corporations Act 2001 (Cth).

7. [22]

   On 23 October 2020, Bilpin issued a letter of demand to AMDG claiming that AMDG was indebted to Bilpin in the amount of $1,014,196.56.

8. [23]

   On 25 November 2020, Mr Banerjee, the third defendant, sent a letter to Mr Balout notifying him that Mr Banerjee had been appointed as the receiver and manager of AMDG on 24 November 2020, pursuant to the Charge. As a consequence of Mr Banerjee’s appointment, he has had control over the books and records of AMDG throughout these proceedings.

Evidence of conversations between Mr Touma and Mr Balout in 2016

1. [24]

   Mr Touma and Mr Balout agreed that they had a number of conversations in the period from June to October 2016 in which Mr Touma sought Mr Balout’s assistance in the refinancing of the Vehicles in order for AMDG to be able to continue to make them available to UDD under the Supply Agreement. However, their recollection of these conversations differs significantly.

2. [25]

   Mr Balout gave evidence that on around Monday, 6 June 2016 he met Mr Touma in the office of USR at Rhodes, Sydney, and had a conversation to the following effect:

3. [26]

   It appears that Mr Touma’s reference to “Eric” was to Mr Eric Christophi, although the evidence does not indicate what, if any, his relationship to Mr Touma and his various companies was. Mr Balout says that he understood Mr Touma’s references to “Sports Car” in this and later conversations was to AMDG in which Mr Balout was not then involved. Car Rental is a reference to USR in which he was a director along with Mr Touma.

4. [27]

   In his first affidavit, Mr Touma did not respond to Mr Balout’s evidence regarding this (or the other) conversations he had with Mr Balout “due to time constraints”. In his second affidavit, sworn nearly a year later, Mr Touma does set out his version of the conversations, and accepts that he had an initial conversation in June 2016 in which he asked Mr Balout to provide assistance with the refinancing of vehicles in which the Lamborghini was discussed but his recollection of the conversation is different. He says that it was to the following effect:

5. [28]

   Mr Touma says that his reference to “Ultimate Sportscar” and “AMDG” in the above conversation were to USR and AMDG respectively.

6. [29]

   Mr Balout says that a few days later, Mr Touma approached him and they had a second conversation to the following effect:

7. [30]

   Mr Touma’s recollection of this second conversation is that he asked Mr Balout if he was happy to proceed and Mr Balout replied “Yes, as long as AMDG makes all the payments”.

8. [31]

   Highfields signed loan documentation with BMW Finance for the Lamborghini on 21 June 2016. It is not in dispute that BMW Finance is the entity which Mr Touma referred to as “Sydney Ferrari Finance”.

9. [32]

   Mr Balout says that on or about Wednesday 15 June 2016 in Rhodes, he had a third conversation with Mr Touma in which they discussed the Alfa Romeo refinancing, to the following effect:

10. [33]

    Mr Touma’s recollection of the third conversation is broadly the same except that he denies that he said “the Alfa will be yours” although he does accept that he said he had found the financier (Capital Finance) and that he said that the terms would be the same as for the Lamborghini. Mr Touma says the conversation was to the following effect:

11. [34]

    Highfields signed loan documentation with Capital Finance for the Alfa Romeo on 28 June 2016.

12. [35]

    Mr Balout says that on or about Saturday 20 August 2016, he had a fourth conversation with Mr Touma regarding the refinancing of the Lotus, to the following effect:

13. [36]

    Mr Touma’s recollection of the conversation is broadly the same including that he told Mr Balout that he had found the financier (Metro Finance) and the terms would be the same as for the Lamborghini and Alfa Romeo. He says the fourth conversation was to the following effect:

14. [37]

    Highfields signed loan documentation with Metro Finance for the Lotus on 23 August 2016

15. [38]

    Mr Balout says that on or about Wednesday 5 October 2016, he had a fifth conversation with Mr Touma regarding the refinancing of the Ferrari, to the following effect:

16. [39]

    Mr Balout says that on 6 October 2016, he attended the Sydney Ferrari office together with his wife and signed the finance documentation for the Ferrari. It is common ground that this was a meeting with a representative of BMW Finance, the same lender as for the Lamborghini.

17. [40]

    Mr Touma’s recollection of the fifth conversation regarding the Ferrari is different in that while he accepts that he said the refinancing would be done in “the same way” as for the Lamborghini, he says that he also said that the amount of the loan would be equal the payout figure under the existing finance for the Ferrari which was less than the value of the vehicle. Mr Touma says it was to the following effect:

18. [41]

    Mr Touma’s version of the various conversations differs from that of Mr Balout in several important respects.

19. [42]

    First, Mr Touma alleges that he said to Mr Balout in the first conversation in June 2016 that “you’re involved in AMDG now, so I don’t think that my companies and I should carry 100% of the risk relating to financing” and “since we’re in this together”. These statements are denied by Mr Balout. Mr Balout’s denial is consistent with the records held at the Australian Securities Investment Commission which show that Mr Balout did not acquire any interest in AMDG until, at the earliest, 1 June 2017. A similar error regarding Mr Balout’s involvement in UDD is made in a conversation recorded in [37] of Mr Touma’s second affidavit in which he alleges that in October 2016 he said to Mr Touma “now that you’re involved in Ultimate Drive Days, lets rent cars out of that company.” The ASIC records show that Mr Balout did not acquire any interest in UDD until, at the earliest, 5 April 2017.

20. [43]

    Second, Mr Touma alleges that he said to Mr Balout in that first conversation that Mr Balout should arrange the new finance under one of his companies and “effectively replace the existing lender and become the lender to AMDG”, with AMDG being “liable to you on the same terms as whoever you have arranged the finance with”. I will call this the “back to back” loan arrangement. Mr Balout denies that these words were ever said. In cross-examination, Mr Touma was asked what the “back to back” loan arrangement meant, and he said that it was not his intention that AMDG would owe moneys to Highfields, but rather that Highfields would owe money to the financier under the new financing arrangement “on behalf of AMDG”. His evidence on this point was as follows:

21. [44]

    The idea that Highfields was to be the borrower from a new lender “on behalf of AMDG” is not reflected in any of the conversations he alleges in his affidavits, nor is it reflected in the loan agreements which Highfields entered into with the three third-party lenders Mr Touma had arranged to provide the finance to Highfields, or in AMDG’s accounts for the 2017 year and subsequent financial years.

22. [45]

    Third, Mr Touma alleges that he said to Mr Balout in the first conversation in June 2016 that “obviously, AMDG remains the owner of the car considering we wouldn’t be putting any money in” and a similar statement about the Alfa Romeo in the third conversation in June 2016 (that “Obviously the car will stay in AMDG’s name”). These statements do not make any sense — why would AMDG remain the owner of the cars if Highfields is borrowing money to refinance the Vehicles and AMDG is not putting any money in? Mr Touma accepted in cross-examination that he told Mr Balout in these conversations in June that AMDG could not finance the cars itself and this was why he needed Mr Balout’s assistance (T96). It is also improbable that Mr Touma would have used the word “obviously”. He and Mr Balout were already in an arrangement with USR under which, on Mr Touma’s evidence, each made available to USR for its use motor vehicles which they (not USR) owned. It would certainly not be obvious that a new arrangement (which clearly Mr Touma himself did not understand given his evidence referred to above) would be entered into with AMDG remaining the owner in circumstances where it could not itself raise the finance from the third-party lender.

23. [46]

    Fourth, Mr Touma’s evidence that he made the statements about ownership of the vehicles referred to in the previous paragraph are difficult to reconcile with the fact that AMDG issued invoices to Highfields for the sale of each of the Lamborghini, Alfa Romeo and Lotus to Highfields. I infer that Mr Touma, as general manager, arranged the issue of the invoices. It is true that registration of these vehicles remained in the name of AMDG, but registration of a motor vehicle is not reflective of ownership (see below).

24. [47]

    Fifth, Mr Touma gave evidence in his second affidavit of a conversation with Mr Balout in October 2016 (after the fifth conversation referred to earlier) in which he said to Mr Balout:

25. [48]

    Mr Balout denied that this conversation occurred. It seems highly unlikely that it did given that Mr Balout was not “involved” in “Ultimate Drive Days” (ie. UDD) until April 2017 (see [20] above) and when it was put to Mr Touma in cross-examination that he did not say the words “pursuant to the supply agreement entered into in July 2014” he prevaricated and said “I don’t see the relevance. I can’t recall whether I did or didn’t” and “well, I can’t recall” (T100).

26. [49]

    Due to difficulties with critical aspects of Mr Touma’s recall of the conversations with Mr Balout in June to October 2016, and the significant passage of time between those conversations and the evidence in his affidavit (5 years), I do not accept that Mr Touma’s recollection of his conversations with Mr Balout in this period is reliable. In contrast, I found Mr Balout to be a careful witness who had a good recall of the critical events in his dealings with Mr Touma in the period June to October 2016. I accept Mr Balout’s evidence of the relevant conversations and I prefer, in the case of conflict between them, Mr Balout’s evidence.

27. [50]

    There are a number of conclusions which I draw from the evidence of the conversations between Mr Balout and Mr Touma in June to October 2016: (a) the explanation for Mr Touma asking for Mr Balout (through Highfields) to enter into the refinancing transactions was that AMDG could not raise the finance itself (a conclusion confirmed by the financial statements of AMDG in evidence); (b) Mr Touma told Mr Balout that under the refinancing transaction for the Lamborghini, “it’ll be your car” and “[AMDG/UDD] will just use the car for drive days and make all the payments for the finance the rego and maintenance”; (c) Mr Touma arranged each refinancing and told Mr Balout that the subsequent refinancings for the Alfa Romeo, the Lotus and the Ferrari would be on the same terms as that first transaction. I am satisfied, for the reasons which follow, that Mr Touma was fully aware at all relevant times of the terms on which the Lamborghini refinancing occurred.

The evidence regarding each refinancing by Highfields

1. [51]

   I set out below the documentary evidence regarding the refinancing of the four Vehicles.

2. [52]

   The original purchase by AMDG of the Lamborghini is evidenced by an invoice issued by SPW dated 2 September 2014, for the sale of the Lamborghini to AMDG for $294,419.20 (including GST). The funds for the purchase were provided by National Australia Bank (NAB). The vehicle was registered in the name of AMDG on 28 August 2014.

3. [53]

   On 2 June 2016, the amount of $294,419.20 was debited to AMDG’s bank account with NAB for the “payout of contract”. I infer that this was the repayment of the amount owing to NAB for the finance to fund the purchase of the Lamborghini.

4. [54]

   On 17 June 2016 AMDG issued to Highfields an invoice for the sale of the Lamborghini to Highfields for a total purchase price (including GST) of $260,000, which records that a deposit of $63,000 had been paid and the balance due was $197,000. The invoice nominates the bank account to which the balance due is payable as AMDG’s bank account with NAB. There is no direct evidence of the payment of the deposit of $63,000 referred to in the invoice. However, AMDG’s bank account with NAB shows that Mr Balout made a transfer of $200,000 to AMDG on 16 June 2016, which is the day before the invoice was issued. I infer that the $63,000 deposit referred to in that invoice was included in this payment. The invoice was produced by BMW Finance, and not by AMDG on discovery.

5. [55]

   On 21 June 2016, Highfields entered into a Chattel Mortgage Agreement with BMW Australia Finance Ltd, which provided:

6. [56]

   BMW Finance is defined in the Chattel Mortgage Agreement as “Alphera Financial Services” being its trading name, the borrower named in item 1 in the Schedule is Highfields, the sum specified in item 2 of the Schedule is $199,014.60 of which $197,000 is to be disbursed to AMDG, and the mortgaged property described in item 6 of the Schedule is the Lamborghini.

7. [57]

   The Chattel Mortgage Agreement is expressed to include the terms and conditions contained in a document marked “Alphera CMA – 01/12”. That document includes the following provisions:

8. [58]

   The Agreement is executed by Mr Balout and his wife as directors of Highfields and in addition Mr Balout gave a guarantee to BMW Finance of the obligations of Highfields under the Agreement.

9. [59]

   The Schedule states that the total amount payable by Highfields comprises the amount financed together with Credit Charge of $48,996 to be paid by 60 consecutive monthly instalments of $2,833.51, together with a final instalment of $78,000 one month after the last monthly instalment.

10. [60]

    On 23 June 2016, AMDG’s bank account with NAB was credited by BMW with $197,000. The reference of the credit is “Payment … BMWaustralia Fin”. I infer this represents the loan made pursuant to the Chattel Mortgage Agreement.

11. [61]

    Also on 23 June 2016, BMW Finance registered the chattel mortgage under the PPSA. The registration recorded the owner of the vehicle as Highfields

12. [62]

    Mr Balout put into evidence an unsigned document on the letterhead of AMDG entitled “Contract for the purchase of a new vehicle” which is dated 21 June 2016 and states that the total purchase amount is $260,000 comprising a deposit of $63,000 and a balance of $197,000. The document contains a signature block for signature by both the seller (AMDG) and the purchaser (Highfields) but, the copy in evidence is not signed by either party, although Mr Balout’s recollection is that he did sign it on behalf of Highfields. I accept Mr Balout’s evidence (on which he was not cross-examined) that the document was provided to him by Mr Touma on 21 June 2016. Clause 4 is in the following terms:

13. [63]

    The expression “Dealer” is not defined but it is clear that it is intended to be AMDG.

14. [64]

    The original purchase by AMDG of the Alfa Romeo is evidenced by a tax invoice dated 7 July 2015, issued by Leichhardt Fiat Alfa to AMDG for a total price of $106,999.98 (including GST and luxury car tax). The vehicle was registered in the name of AMDG on the same date. The invoice states that it is issued to NAB (with the vehicle delivered to AMDG) and I infer that the payment of the purchase price was funded by a loan made by NAB to AMDG.

15. [65]

    On 6 September 2016, the amount of $97,931.55 was debited to the account of AMDG with NAB to discharge the NAB facility.

16. [66]

    Meanwhile, on 28 June 2016, Highfields and Capital Finance entered into a Specific Security Deed (Goods). This included the following provision:

17. [67]

    The Schedule states that the Amount Financed is $99,448.66 payable to AMDG, and the customer is stated to be Highfields, and the Goods are stated to be the Alfa Romeo.

18. [68]

    The terms and conditions forming part of the Security Deed include the following:

19. [69]

    The Security Deed is executed by Mr Balout and his wife on behalf of Highfields and each of them also entered into a guarantee and indemnity in favour of Capital Finance in respect of Highfields’ obligations under the Security Deed.

20. [70]

    On 29 June 2016, AMDG issued a tax invoice to Highfields in respect of the Alfa Romeo which states that the vehicle is “sold and delivered to” Highfields for a purchase price of $99,448.66 (including GST). The invoice also includes a “disbursement clause” which states “please pay $99,448.66 to Advance Motor Dealers Group Pty Ltd”. This invoice that was signed, by electronic signature, by Mr Maskaric and Mr Touma, was produced by a finance broker and not by AMDG on discovery.

21. [71]

    On 30 June 2016, AMDG’s bank account with NAB was credited with the amount $99,448.66. The reference for the credit is “Highfields Austral C Apfinsubs”. In infer that this was payment made by Capital Finance to AMDG to satisfy Highfields obligation to pay the purchase price for the Alfa Romeo.

22. [72]

    The invoice is silent as to when title in the Alfa Romeo is to pass to the purchaser (Highfields).

23. [73]

    Capital Finance registered its security interest under the PSSA on 1 July 2016. The registration records Highfields as the owner of the vehicle.

24. [74]

    The original purchase by AMDG of the Lotus is evidenced by a tax invoice dated 28 May 2015 issued by European Automotive Imports Pty Ltd to AMDG for a total price of $85,000 (including GST). The Lotus was registered in the name of AMDG on 28 May 2015.

25. [75]

    Mr Touma’s evidence was that the purchase price was funded by a loan by NAB to AMDG. While the loan agreement is not in evidence, there is a document on NAB letterhead stating that the payout figure for the Lotus financing is $78,673.07 and the bank statement for AMDG’s bank account with NAB shows that the amount of $78,673.07 was debited to that account on 24 June 2016.

26. [76]

    On 23 August 2016, Highfields as borrower and Mr and Mrs Balout as guarantors entered into loan documentation for the new finance for the Lotus to be provided by Metro Finance pursuant to an agreement entitled “Commercial Finance Agreement Schedule” which includes the following:

27. [77]

    The Standard Conditions referred to in the clause set out at [76] above is not in evidence, but Metro Finance registered a security interest in respect of the Lotus under the PPSA on 25 August 2016, which states that Highfields is the owner, and hence it can be inferred that the documentation included a security interest granted by Highfields to Metro Finance in respect of the Lotus.

28. [78]

    The purchase of the Lotus by Highfields is evidenced by a tax invoice dated 3 August 2016 issued by AMDG to Highfields for a total purchase price of $99,500 (including GST). The invoice nominates AMDG’s bank account with NAB for payment of the balance due. The bank statement for AMDG’s bank account with NAB records a credit to the account of $99,500 on 26 August 2016. The reference for the credit is “1711 Inv 205 Pct Net Ro F1”. The reference to “Inv 205” accords with the invoice number for the invoice issued by AMDG to Highfields for the Lotus. I infer that this credit was the payment made by Metro Finance by direction of Highfields for the purchase of the Lotus. The invoice was produced by a finance broker and not by AMDG on discovery.

29. [79]

    As in the case of the Lamborghini, Mr Balout put into evidence a document on AMDG letterhead entitled “Contract for the purchase of a new vehicle” for the Lotus which stated the purchase price to be $99,500 and referred to invoice No. 205 dated 3 August 2016. The document is in the same form as the one for the Lamborghini. Again, Mr Balout’s evidence is that it was signed by him, but he did not retain a copy. Ultimately, nothing turns on the fact that the document was not signed on behalf of AMDG given that the invoice is in evidence.

30. [80]

    There are three invoices for the Ferrari in evidence. The first is an invoice dated 8 June 2016 issued by Romhero Pty Ltd (Romhero) to Highfields for a total purchase price of $380,000 (including GST), which records that a deposit had been paid of $180,000 leaving a balance due of $200,000. It shows that the account to which payment is to be made is the account of AMDG with NAB.

31. [81]

    Romhero is a company which at all relevant times had as its two directors, Mr Maskaric and Ms Eleonora Touma, the wife Mr Touma. The sole shareholder of Romhero was Ninety Investments Pty Limited, which Mr Touma said was one of his related entities.

32. [82]

    The second invoice is dated 1 October 2016 and also issued by Romhero but this time to AMDG. It was put into evidence by Mr Touma. It states that the selling price for the vehicle is $349,000 (including GST) and that this is the amount due. The date on the invoice has been ruled through by hand and the words “26/9/16 Paid” have been written by hand above the date. The invoice also bears a stamp “Entered” and there is an accounting record of AMDG (Ex 2) which records the purchase of the Ferrari in the inventory account 1-1320 in AMDG’s general ledger at a purchase price of $349,000. However, while there is a debit entry in AMDG’s bank account with NAB on 26 September 2016 for $341,183.13, this is described as a “miscellaneous debit”, there is no evidence that this was a payment (in part) of the purchase price of $349,000 payable by AMDG to Romhero.

33. [83]

    There is no explanation in the evidence for either the backdating of the second invoice or why Romhero issued two conflicting invoices for the same vehicle, one to Highfields and one to AMDG.

34. [84]

    The third invoice is one dated 6 October 2016, issued by McCarroll’s of Moss Vale Pty Ltd (trading as Ferrari Maserati Sydney) (McCarroll’s) to Highfields showing a vehicle price of $420,000 (including GST), with a balance payable of $290,000 after deducting an amount of $128,500 described as “Recpt #: X07123 Part Payment”. The invoice was produced by BMW Finance, and not by any defendant on discovery.

35. [85]

    The date of 6 October 2016 is significant because on that day Highfields entered into a Chattel Mortgage Agreement with BMW Finance, under which BMW Finance agreed to lend to Highfields $291,277.60 to be disbursed as follows: (a) Ferrari Maserati Sydney (McCarroll’s), $290,000.00; (b) Dealer origination fee, $825.00; (c) PPS Register fees, $13.60; and (d) Establishment fee, $439.00.

36. [86]

    The Chattel Mortgage Agreement is in the same terms as the corresponding agreement for the Lamborghini. Mr Balout gave evidence that he and his wife attended the Ferrari Maserati Sydney premises on 6 October 2016 to sign the Chattel Mortgage Agreement and associated documents.

37. [87]

    The bank statement for AMDG’s bank account with NAB records that an amount $290,000 was credited to that account on 13 October 2016. The description for that credit entry is “Maserati – Artarmon McCarroll Automo”. Also, Highfields’ copy of the Chattel Mortgage Agreement contains a handwritten notation beside the provision that the amount of $290,000 is to be disbursed to Ferrari Maserati Sydney (McCarroll) which is “CR NAB # 4020 AMDG”, which is a reference to AMDG’s bank account with NAB.

38. [88]

    I infer from both the bank statement, the copy of the Chattel Mortgage Agreement referred to in the previous paragraph and Mr Touma’s close involvement in arranging the provision of finance by BMW Finance for the Ferrari, that BMW Finance paid the amount of $290,000 to AMDG at the direction of the vendor under the third invoice (McCarrolls) and AMDG.

39. [89]

    On 7 October 2016, BMW Finance registered the security interest created by the Chattel Mortgage Agreement under the PPSA which records Highfields as the owner of the vehicle.

40. [90]

    The Ferrari was not registered in the name of AMDG until 22 February 2017.

41. [91]

    I note the following about the documentary record of the refinancing transactions:

42. [92]

    Mr Touma says that in the initial conversation he had with Mr Balout in June 2016, he told Mr Balout that he (Mr Touma) would “sort out the Nissan GTR, Audi R8, Ferrari California and maybe a few more”.

43. [93]

    Mr Touma has put into evidence documentation relating to the refinancing of the three vehicles specifically mentioned by him in that conversation, being a Nissan GTR R35 (registration CSL 96Y), an Audi R8 (registration CV0 60X) and a Ferrari California F149 (registration DCI 46T). The Audi R8 and the Ferrari were financed by BMW Finance in June and November 2016 respectively and the Nissan GTR R35 was financed by the Commonwealth Bank in July 2016. The Audi is significant because the new finance was provided by BMW Finance shortly before Highfields entered into the Chattel Mortgage Agreement with BMW Finance for the Lamborghini, using a Chattel Mortgage Agreement in the same form as that used for the Lamborghini.

44. [94]

    The evidence in relation to the Audi R8 discloses that:

45. [95]

    Given that Mr Touma’s evidence is that he arranged this loan by BMW Finance for the Audi R8 and that the Chattel Mortgage Agreement is identical to that for the Lamborghini, I infer that Mr Touma was aware at the time AMDG issued the invoice to Highfields for the Lamborghini (17 June 2016) and when Highfields entered into the Chattel Mortgage Agreement with BMW Finance for the Lamborghini (21 June 2016) that Highfields would need to establish to the satisfaction of BMW Finance that it was the purchaser of the Lamborghini in order to satisfy BMW Finance’s requirements.

46. [96]

    I also infer that he had the same knowledge when Highfields entered into the other loan agreements for the Alfa Romeo, Lotus and the Ferrari.

47. [97]

    The evidence in relation to the Nissan GTR R35 is as follows:

48. [98]

    The evidence relating to the Ferrari California is as follows:

49. [99]

    The absence of invoices in favour of KG Realty Pty Ltd and Nine T Investments Pty Ltd, being the entities that paid the purchase price for each of these vehicles, given the circumstances referred to above suggesting that such invoices are likely to have existed, raises further doubt as to the reliability of AMDG’s financial records.

50. [100]

    After the refinancing of each vehicle, AMDG retained or obtained (in the case of the Ferrari) possession of each vehicle and hired it to UDD under the Supply Agreement. The bank statements for AMDG record that UDD made monthly payments of rent to AMDG, which I infer was the monthly payments for use of these vehicles (and other vehicles) supplied to it by AMDG. The amounts are significant, being $28,000 per month in November and December 2016 and $23,000 per month thereafter.

51. [101]

    In the period from each refinancing up to around June 2020, AMDG: (a) paid the monthly instalments due by Highfields to BMW Finance, Capital Finance and Metro Finance under the loan agreements for the Vehicles (in the amounts referred to at [91] above); and (b) paid all registration, insurance, maintenance and other expenses in relation to the Vehicles.

52. [102]

    Between 3 August 2020 and 27 October 2022, it was Highfields rather than AMDG which paid the monthly instalments due by Highfields to BMW Finance, Capital Finance and Metro Finance in respect of the Vehicles, totalling $110,604.78 in respect of the monthly instalments due in respect of the Lamborghini; $31,404.63 in respect of the Alfa Romeo; $48,693.90 in respect of the Lotus and $202,457.98 in respect of the Ferrari. In addition, Highfields has incurred costs for the storage of the vehicles pending the outcome of these proceedings. These storage costs were $22,275 in the period to 24 February 2023.

53. [103]

    The security interests over the Vehicles held by BMW Finance, Capital Finance and Metro Finance have been discharged and currently the only entity claiming a security interest in the four vehicles is Bilpin under its Charge.

Accounting treatment

1. [104]

   The unaudited financial statements for Highfields for the years ended 30 June 2017 to 30 June 2020 (inclusive) are in evidence and did not record Highfields as the owner of the Vehicles. Mr Balout in cross examination accepted the proposition put to him that he “at all times regarded AMDG as remaining the owner of the four motor vehicles, notwithstanding the finance arrangement that had been entered into” (T63). In contrast, the financial statements for AMDG for the years ended 30 June 2017 and 30 June 2018 (which are also unaudited) did record the Vehicles as forming part of the inventory of AMDG. Mr Balout signed a director’s declaration for each of those financial statements on 18 February 2019, in which he declared that the financial statements and notes present fairly the company’s financial position as at the end of the financial year.

2. [105]

   As noted at [82], a copy of the general ledger of the inventory account for AMDG for the 2018 year records each of the Vehicles as part of the inventory account for AMDG and total amount of that inventory account was included in the balance sheet for the 2018 year. I note that the general ledger records in three cases (the Ferrari, the Lamborghini, and the Alfa Romeo) that the vehicle is “still owned with financing” and in one case (the Lotus) as one of the “purchases” in the 2017 year.

3. [106]

   The general ledger account also records the Audi R8, Nissan GTR R35 and the Ferrari California as part of AMDG’s inventory. It is not clear that this is accurate given the evidence referred to at [94]–[98] above which indicates that the purchase price of each vehicle was paid by KG Realty Pty Ltd and Nine T Investments Pty Ltd, entities associated with Mr Touma, with borrowed funds. Even if legal title was acquired by AMDG, there would be a rebuttable presumption that because each of those entities paid the purchase price in full (with borrowed funds) it would have the beneficial interest in the vehicle under an apparent purchaser resulting trust: Calverley v Green (1984) 155 CLR 242 at 262-263.

4. [107]

   Mr Balout did not create the general ledger accounting record (Ex 2). When it was shown to him in cross-examination, he accepted that he had seen it sometime in 2020, that it was provided to him by an accountant working in the office of AMDG’s external accountants, Traverse Accountants Pty Ltd, and that as a director of AMDG in 2020 he understood that “AMDG continued to own the four motor vehicles” (T69). There is an apparent inconsistency between this evidence about ownership (and the similar statement noted at [104] above) and his evidence earlier in his cross examination that he understood that Highfields became the owner of the Vehicles after each refinancing transaction (T52-T54) and later in cross-examination that Mr Touma never said to him that AMDG would after the refinancing remain the owner of the four vehicles (T78 and T84). My assessment of Mr Balout’s evidence on these matters after he was shown the financial statements for Highfields and AMDG, and the general ledger record (Ex 2), is that he was confused and felt that as he had signed the director’s declaration it followed that he must accept that AMDG was the owner of the vehicles after the refinancing. For the reasons given below I do not regard either these accounting records or Mr Balout’s evidence in cross examination as of any assistance in resolving the dispute as to the ownership of the Vehicles.

Whether Highfields and AMDG entered into a contract for the sale of the vehicles

1. [108]

   Whether a contract exists, and its terms is a question of fact: Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382; [2009] NSWCA 234 at [90(4)] (per Campbell JA, Allsop P and Basten JA agreeing).

2. [109]

   Under the traditional analysis of contract formation, it is necessary to identify for a valid contract the presence of an agreement supported by a consideration, an intention to create legal relations, and certainty as to the essential terms.

3. [110]

   As to the first element, in circumstances where no formal offer and acceptance can be identified, a court may infer formation of the relevant agreement and its terms from the conduct of the parties, including their conversations, the surrounding circumstances (including their previous dealings) and post-contractual conduct: Lawrence v Ciantar [2020] NSWCA 89 at [114] (Bathurst CJ, Meagher and Gleeson JJA agreeing).

4. [111]

   The circumstances in which a contract can be inferred from conduct were explained in Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117–11,118 by McHugh JA (Hope and Mahoney JJA concurring):

5. [112]

   In Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 at 525; [2001] FCA 1833 Allsop J said:

6. [113]

   Where the existence and terms of an oral contract is in issue, consideration of the surrounding circumstances including the history of the relationship between the parties and their conduct prior to and at the time the alleged contract was entered into is permissible, as well as post-contractual conduct: Colyer Fehr Tallow Pty Ltd v KNZ Australia Pty Ltd [2011] NSWSC 457 at [47]–[50]; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [25].

7. [114]

   When a party seeks to rely on conversations occurring many years ago, it is necessary to bear in mind the well-known observations of McLelland CJ in Eq regarding the fallibility of human memory in Watson v Foxman (1995) 49 NSWLR 315 at 319:

8. [115]

   It is for this reason that where the events (including conversations) relied upon took place many years ago, it is recognised that “the only safe course is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities together with the documentation tendered in evidence”: Effem Foods Pty Ltd v Lake Cumbeline Pty Ltd (1999) 161 ALR 599; [1999] HCA 15 at [15]–[16]; Et-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24 at [25]–[29] (and cases there cited).

9. [116]

   As to whether the parties intended to create legal relations, this is determined objectively. The essential question is whether a reasonable person in the position of each party would think that the other party intends to be subject to a legally enforceable duty: Ermogenous v Greek Orthodox Community of SA Inc (2009) 209 CLR 95; [2002] HCA 8 at [25].

10. [117]

    Highfields, as plaintiff, bears the onus of establishing on the balance of probabilities the existence of a contract between it and AMDG of the kind which it alleges and that under that contract Highfields acquired ownership of each vehicle.

11. [118]

    In Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34, Dixon J emphasised that when the law requires the proof of any fact the Court must feel an actual persuasion of its occurrence or existence before it can be found, and “it cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality” (at 361).

12. [119]

    What is necessary to attain the required degree of actual persuasion was explained by Hammerschlag J in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 as follows:

13. [120]

    In BCI Finances Pty Ltd (in liq) v Binetter (No 4) (2016) 348 ALR 227; [2016] FCA 1351 Gleeson J made the following observations on the determination whether a plaintiff has discharged its onus of proof:

14. [121]

    In my view, this is not a case where the parties can be said to have entered into a single overarching agreement for the Vehicles in one or two conversations in June 2016. Rather, a separate contract in respect of each vehicle is to be inferred from the parties’ conduct, including conversations, over the period from June to October 2016.

15. [122]

    For the reasons given below, I find that on each occasion that Highfields entered into a loan agreement with the relevant third-party lender for the refinancing of each vehicle, a separate contract was entered into between Highfields and AMDG in respect of that vehicle on the following terms:

16. [123]

    Each of these transactions involved a sale of the vehicle to Highfields and a hiring (ie. bailment) of the vehicle to AMDG.

17. [124]

    I do not accept that there was a “back to back” loan arrangement between Highfields and AMDG: the obligation of AMDG to pay the monthly instalments owing to BMW Finance, Capital Finance and Metro Finance would continue only for the period in which the bailment of the Vehicles from Highfields to AMDG continued.

18. [125]

    Set out below are my reasons for the above finding as to the contracts entered into by Highfields and AMDG; starting with the Lamborghini, as that was the first transaction.

19. [126]

    The refinancing of the Lamborghini was the subject of the first two conversations in June 2016. The other vehicles were not discussed until after the Lamborghini refinancing occurred. The finding at [122] is consistent with Mr Balout’s recollection of the conversations leading up to the refinancing of the Lamborghini in June 2016 and the further conversations thereafter in which Mr Touma said that the refinancing of the other Vehicles would be in the same form as for the Lamborghini.

20. [127]

    I infer from the fact that Mr Touma was experienced in the activities of motor dealers and also organised the financing by BMW Finance for the Audi R8 earlier in June 2016 that he was aware of the way that such a financing would be effected for the Lamborghini, including in particular the requirement of BMW Finance that the borrower (Highfields) needed to be the owner of the vehicle. Consistently with this awareness, I infer also that the invoice issued by AMDG to Highfields for the Lamborghini was intended to effect the sale of the vehicle to Highfields so that it could satisfy the requirements of BMW Finance for making the loan to Highfields under the Chattel Mortgage Agreement, which was, as intended, paid by direction to AMDG. This is consistent with Mr Balout’s recollection of the conversation with Mr Touma in early June that Mr Touma said “It’ll be your car”. The consideration for the sale of the Lamborghini is the purchase price stated in the invoice which Highfields paid to AMDG.

21. [128]

    I infer from both the first conversation between Mr Balout and Mr Touma and their subsequent conduct that it was agreed that on the acquisition of the Lamborghini, Highfields would hire it to AMDG for the purposes of its use for “drive days”. In the first conversation, Mr Touma said “SportsCar will just use the car for Drive Days and make all payments for the finance, the rego and maintenance”. The consideration for the hire was the agreement by AMDG to pay the monthly amounts due to BMW Finance under the Chattel Mortgage Agreement, as well as the costs of insurance, maintenance, and registration of the vehicle. The evidence of Mr Balout and Mr Touma is essentially the same on this aspect. The only real difference is that Mr Balout thought that AMDG would be the entity which used the vehicle for “drive days”. In fact, it was UDD pursuant to the Supply Agreement but nothing turns on this.

22. [129]

    There is no evidence of any discussion between Mr Balout and Mr Touma as to the period of the hire. On ordinary principle, the Court should infer, in order to give business efficacy to the contract for hire, an implied term that the hire would continue until determined by either party on reasonable notice to the other: Byrne v Australia Airlines Ltd (1995) 185 CLR 410 at 422; [1995] HCA 24; Havas v Standard Knitting Mills Pty Ltd (2001) 52 NSWLR 293; [2001] NSWCA 295 at [2] and [24].

23. [130]

    It is also relevant to have regard to the object of each transaction. It is clear that AMDG’s object was that Highfields should be the entity that was indebted to BMW Finance, not AMDG. This was the reason why Mr Touma put Mr Balout in touch with BMW Finance in the first place (and, later, Capital Finance and Metro Finance). It is also clear that AMDG wanted to retain possession of each of the Vehicles so that it could continue to licence it to UDD under the Supply Agreement in return for the fee payable by UDD under that agreement. It can be inferred that AMDG was prepared to pay the monthly payments to the financier together with the costs of insurance, maintenance, and registration of the vehicle because it could recoup those amounts from UDD under the Supply Agreement: see [91(c)] above.

24. [131]

    It only made sense for Highfields to take on the liability to the financier if it had ownership of the Vehicles because in the event that AMDG ceased to pay the monthly instalments to the financier, it could expect the financier to seek to recover those amounts from Highfields and the shareholders (Mr and Mrs Balout). There was never any suggestion by Mr Touma that AMDG would give a security interest in the Vehicles to Highfields (indeed in his Point of Defence, Mr Touma denies that Highfields has a security interest) and consequently the only asset from which Highfields could recoup amounts paid by it to the lender would be the proceeds of sale of the Vehicles. I note that had AMDG given a security interest to Highfields, it would have ranked in priority behind Bilpin’s charge unless Highfields had registered the security interest under the PPSA: PPSA, s 55(2).

25. [132]

    The contract described at [122] above is straightforward, consistent with the parties’ conduct at and subsequent to the refinancing, and its essential terms are clear. When viewed objectively, the parties intended to create legal relations: an invoice was issued by AMDG for sale of the Lamborghini to Highfields and while the hire of that vehicle to AMDG was not documented, AMDG paid the consideration for the hire of the vehicle which was considerable, which supports the objective conclusion of an intention to be legally bound.

26. [133]

    The position is the same for the transactions relating to the Alfa Romeo and the Lotus. While they were arranged with a different financier to the Lamborghini (Capital Finance and Metro Finance) it is common ground that Mr Touma introduced Highfields to those financiers, and he told Mr Balout that they would follow the same structure as the refinancing for the Lamborghini.

27. [134]

    The circumstances surrounding the refinancing of the Ferrari differ from those for the earlier transactions in one respect: there is no invoice from AMDG in favour of Highfields in evidence. Rather, there are three invoices: one from Romhero to Highfields, one from Romhero to AMDG, and one from McCarroll’s to Highfields. In my view the absence of evidence of an invoice from AMDG to Highfields does not lead to a different outcome. Romhero is an entity within Mr Touma’s camp. The existence of conflicting Romhero invoices, the uncertainties attaching to those invoices referred to at [80]–[83] above and the reason why BMW Finance paid the loan amount of $290,000 to AMDG apparently at the direction of McCarroll’s and AMDG were matters for Mr Touma to explain and he did not.

28. [135]

    Applying the principles stated at [120] above, I am satisfied that there is evidence which enables the conclusion to be drawn that the contract described at [122] above was made for the Ferrari. In particular, I refer to the fact that Mr Touma said that the refinancing for the Ferrari was to take the same form as for the Lamborghini, that the Lamborghini refinancing involved the issue of an invoice to Highfields for the vehicle, and my conclusion that Mr Touma knew that it was a necessary part of the refinancing that the vehicle would be sold to Highfields. I consider it is a reasonable inference that the McCarroll’s invoice in favour of Highfields was issued with AMDG’s knowledge and approval in order to enable Highfields to raise finance from BMW Finance which was ultimately paid to AMDG.

29. [136]

    It was submitted for the second defendant that Highfields had not proved that it entered into the alleged contract for essentially four reasons:

30. [137]

    In relation to the first submission, I accept that the evidence does not establish a single contract made in one or more conversations. However, I am satisfied that there were four separate contracts (one for each vehicle) implied from conduct including but not limited to the conversations between Mr Balout and Mr Touma. While it is true that there is no evidence that Mr Touma said that AMDG would sell the Vehicles to Highfields, there are four invoices in evidence which each record a sale to Highfields (in three of which, AMDG is named as the seller). Mr Touma did not challenge the genuineness of these invoices. In addition to the invoices, there is the overall context of the transactions which is that the financing arrangements with each financier (BMW Finance, Capital Finance and Metro Finance) required a sale to Highfields so that it would become owner and be able to give a security interest to the lender.

31. [138]

    As to the second submission, as the plaintiff submitted, registration of the Vehicles in the name of AMDG has no bearing on ownership: Expile Pty Ltd v Jabb’s Excavations Pty Ltd [2003] NSWCA 163 at [15]; Road Transport Act 2013 (NSW), s 64(2). This reflects the fact that a person is entitled to register a motor vehicle in its name if it is either the owner or is managing the vehicle, eg. as lessee: Road Transport (Vehicle Registration) Regulation 2017 (NSW), reg 6(1). As AMDG had use and management of the Vehicles, it was appropriate that it should register the Vehicles in its name.

32. [139]

    As to the third submission, the four invoices were tendered by the plaintiff in opening its case. They had not previously been put into evidence. The second defendant did not challenge their authenticity, nor did he suggest they were shams. Rather, it was submitted that they were no more than part of the mechanism for satisfying each lender’s requirements for the making of the loan. In my view, it can be accepted that the invoices were issued to satisfy each lender’s requirements, but that supports rather than detracts from the plaintiff’s argument that the vehicles were sold to it: the purchase of the vehicles by Highfields was a necessary step to obtain the loan from the lender to fund payment of the purchase price for the vehicle, which was the object of the transaction.

33. [140]

    As to the fourth submission, it is true that the financial statements of AMDG are books and records and therefore prima facie evidence of any matter stated or recorded therein: s 1305(1) of the Corporations Act 2001. However, while the books are prima facie evidence of the matters stated in them, the weight of that evidence is to be measured in accordance with the common sense of the Tribunal of fact and also in light of all the other evidence: Australian Securities and Investments Commission v Rich [2009] NSWSC 1229 at [394]–[400].

34. [141]

    In my view, the accounting treatment of the inventories in the accounts of AMDG for the 2017 and 2018 years should be given no weight for two reasons. First, the inclusion in the general ledger of three of the vehicles as inventory of AMDG as of 30 June 2017 is inconsistent with the invoices in evidence which show that the Lamborghini, Alfa Romeo, and Lotus were sold by AMDG to Highfields in that year. Also, the reliability of AMDG’s general ledger for the inventory account (Ex 2) is in doubt for three other vehicles which were refinanced by Mr Touma: see [106] above.

35. [142]

    Second, the person who prepared the accounts for AMDG was not called to give evidence and so the apparent inconsistency arising from the three invoices is unexplained. It was a matter for AMDG to explain that apparent inconsistency, not Highfields: Blatch v Archer (1774) 1 Cowp 63 at 65; 98 ER 969 at 970.

36. [143]

    What Mr Balout, as director of AMDG said about the matter when he signed a director’s declaration in the financial statements or when he made statements in cross examination about the ownership of the Vehicles after each refinancing is not an “admission” that can assist the Court in determining the question of ownership because it requires the application of a legal standard: Dovuro Pty Ltd v Wilkins (2003) 215 CLR 317; [2003] HCA 51 at [70]. As explained by the Victorian Court of Appeal in Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (2009) 25 VR 411; [2009] VSCA 238 at [44]:

Did Highfields acquire title to the Vehicles?

1. [144]

   The concept of ownership is a slippery one. As is explained in Ewan McKendrick, Goode on Commercial Law (LexisNexis 4th Ed, 2009) at 34–35 (footnotes omitted):

2. [145]

   In Kent v SS “Maria Luisa” (No 2) (2003) 130 FCR 12; [2003] FCAFC 93, Tamberlin and Hely JJ made the following observations on the concept of “ownership” at [61]–[65]:

3. [146]

   As noted by Jordan CJ in Gatward v Alley (1940) 40 SR (NSW) 174 in the passage quoted above, a person who has possession of goods has, generally, the same legal rights as the owner except as against the owner.

4. [147]

   In the present case, it is not in dispute that AMDG was the owner of the Lamborghini, the Alfa Romeo, and the Lotus immediately before the transaction with Highfields. I will assume, in favour of AMDG, that it was also the owner of the Ferrari before the transaction with Highfields. Hence, the question is whether it can be established that Highfields acquired title to the Vehicles from AMDG.

5. [148]

   I have found that there was a contract for the sale of each vehicle to Highfields. The time at which title passes under a contract for the sale of goods is set out in section 22 of the Sale of Goods Act 1923 (NSW) which provides:

6. [149]

   Section 23 of the Sale of Goods Act sets out the “rules” which apply to ascertain the intention of the parties unless a different intention appears. The relevant rule for present purposes is rule 1, which provides:

7. [150]

   If rule 1 applies here, then title passed when Highfields entered into each contract with AMDG. However, it has been said that “in modern times very little is needed to give rise to the inference that property in specific goods is to be pass only on delivery or payment”: RV Ward Ltd v Bignall [1967] 1 QB 534 at 545; see also Michael Gerson (Leasing) Ltd v Wilkinson [2001] QB 514; [2001] 1 All ER 148 at [48]–[49]. In my view, that is so in the present case and title will pass at the time the parties intended it to pass in accordance with s 22. It was essential to the arrangement between Highfields and AMDG that the funds to be advanced by the third-party lender in satisfaction of the balance of the purchase price for each vehicle would be paid to AMDG. I infer that it was intended that title to each vehicle would pass on payment of the amount paid by Highfields (funded by the loan made by the third-party lender) to satisfy the payment of the purchase price.

8. [151]

   Although in the case of the Ferrari there is no invoice from AMDG in favour of Highfields, the position is the same. It can be inferred (and I do infer) that the issue of the McCarroll’s invoice referred to at [84] above was the method chosen by AMDG to effect the sale of the vehicle to Highfields in order to satisfy the requirements of BMW Finance so that the loan would be made and AMDG would be paid the balance owing of $290,000. For the same reasons given in the previous paragraph, title to the Ferrari was intended to pass to Highfields when that payment was made to AMDG. If the assumption that AMDG was the owner of the Ferrari before the transaction with Highfields is wrong, the reasonable inference is that McCarroll’s was the owner and title will have passed to Highfields on the sale by McCarroll’s to Highfields, evidenced by the McCarroll’s invoice and payment of the balance due under that invoice.

9. [152]

   It is necessary to consider whether the transfer of title to Highfields was not absolute but rather by way of security. This question turns on the real intention of the parties, to be gathered not only from the terms of the particular instrument but from all the circumstances of the transaction and parol evidence is admissible where the real intention is in doubt: Kreglinger v New Patagonia Meat and Cold Storage Company Ltd [1914] AC 25 at 47. Two matters which distinguish a transfer which is absolute from one which is by way of mortgage, charge or other security are that in the case of the latter the transferor has a right to get back the property the subject of the transfer when the debt or other obligation secured has been discharged, and that if the transferee has sold that property to recoup the secured amount and there is a surplus, the transferor is entitled to it: In re George Inglefield Ltd [1933] 1 Ch 1 at 27. In the present case, there is no evidence to suggest that the real intention of the parties was that AMDG would be entitled to the return of the Vehicles when the third party lenders were repaid or to any surplus in the event that Highfields sold the Vehicles to meet the debt owing by it to the lenders. Further, the second defendant has stated positively in his Points of Defence that there was no intention to create a security interest.

10. [153]

    For these reasons, in my view, Highfields has established that it acquired title to each of the Vehicles from AMDG in 2016.

11. [154]

    This conclusion is not affected by the fact that AMDG appears to have retained possession of each vehicle. It did so under a bailment of the goods. A bailment arises “upon a delivery of goods of one person, the bailee, upon a promise, express or implied that they will be re-delivered to the bailor or dealt with in a stipulated way”: Hobbs v Petersham Transport Co Pty Ltd (1971) 124 CLR 220 at 238. For this purpose, constructive delivery is sufficient, and that includes the situation where a seller in possession assents to hold the goods sold on account of the buyer (of which a classic example is a sale and lease back transaction): Gamer’s Motor Centre (Newcastle) Pty Ltd v Natwest Wholesale Australia Pty Ltd (1987) 163 CLR 236 at 262; [1987] HCA 30; Metal Manufactures Ltd v Federal Commissioner of Taxation (1999) 43 ATR 375; [1999] FCA 1712 at [199]–[200]; N Palmer, Palmer on Bailment (3rd ed, Thomson Reuters, 2009) at [1-024]. The assent to hold each vehicle as bailee after the sale is to be inferred from the statement by Mr Touma that “It’ll be your car. Sports Car will just use the car for Drive Days”.

12. [155]

    I note for completeness that it was not suggested that a sale of the Vehicles to Highfields breached Bilpin’s Charge. It seems to me that it did not. The Charge creates a floating charge over AMDG’s stock in trade, and AMDG is permitted to deal with property subject to the floating charge provided such dealings are in the ordinary course of its business, pursuant to cl 2.1 and cl 2.2 of the Deed of Charge. Given the nature of AMDG’s business, the Vehicles were stock in trade of AMDG and there is no reason on the evidence to doubt that the refinancing transactions were in the ordinary course of that business.

13. [156]

    I also note that it has not been suggested that the refinancing transactions for the Vehicles created a security interest under s 12(2) of the PPSA. Had the question arisen I would have concluded that it did not, on the basis that while the refinancing transaction for each vehicle involved both a lease of goods and a transfer of title, which are examples given in s 12(2)(i) and (k) of the PPSA of transactions which may give rise to a security interest, the chapeau of s 12(2) makes clear that it is necessary that the transaction in substance secures payment or enforcement of an obligation. In my view the transactions here did not.

Relief to which Highfields is entitled

1. [157]

   For the above reasons, in my view Highfields is entitled to a declaration that it is the owner of the Vehicles. It is also entitled to recover, as damages for breach of contract from the first defendant the costs of storage of the Vehicles, which will have increased since the hearing.

2. [158]

   However, Highfields is not entitled to recover from any of the defendants amounts paid by Highfields to BMW Finance, Capital Finance and Metro Finance as Highfields had the obligation to pay those amounts to the lenders and the obligation of AMDG to pay equivalent amounts to Highfields as hiring fees ceased when the bailment terminated. There may be an entitlement to accrued but unpaid hiring fees prior to the termination of the bailment, but this question was not addressed in submissions and the evidence as to precisely when the bailment terminated is unclear, but it clearly was at or around June 2020 at which time Highfields became entitled to immediate possession of the Vehicles.

3. [159]

   As to costs, I see no reason why costs should not follow the event and as Highfields has had substantial success on the proceedings, it is entitled to its costs.

4. [160]

   I invite the parties to bring in short minutes of order which reflect these reasons and finalise the proceedings within seven days.