Accom Finance v Coghlan [2009] NSWSC 759 (20 July 2009)

Last Updated: 10 August 2009

NEW SOUTH WALES SUPREME COURT

CITATION:
Accom Finance v Coghlan [2009] NSWSC 759


JURISDICTION:
Equity

FILE NUMBER(S):
2230/06

HEARING DATE(S):
20 July 2009

JUDGMENT DATE:
20 July 2009

EX TEMPORE DATE:
20 July 2009

PARTIES:
Accom Finance Pty Limited ACN 097 598 886 (Plaintiff/First Cross-Defendant)
Peter Charles Coghlan by His Tutor Jeremy Coghlan (First Defendant/Cross-Claimant)
William Patrick Manning (Second Defendant)
Liberty Funding Pty Limited ACN 081 982 872 (Third Defendant)
Comfin Australasia Pty Ltd ACN 102 224 831 (Second Cross-Defendant)
Richard James Thomas (Third Cross-Defendant)

JUDGMENT OF:
Slattery J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Plaintiff/First Cross-Defendant's appearance mentioned by the First Defendant
E Zucker (First Defendant/Cross-Claimant)

SOLICITORS:
Bransgroves Lawyers (Plaintiff/First Cross-Defendant)
Lee & Lyons Lawyers (First Defendant/Cross-Claimant)




CATCHWORDS:
EQUITY
Legal incapacity
Approval of settlement between the plaintiff/cross-defendant and first defendant/cross-claimant
Settlement prudent
Weight given to the opinion of counsel and solicitor that settlement is fair and appropriate

LEGISLATION CITED:
Civil Liability Act 2005
Civil Procedure Act 2005
Contracts Review Act 1980
Corporations Act 2001 (Cth)
Guardianship Act 1987
Protected Estates Act 1983
Trade Practices Act 1974
Trustee and Guardianship Act 2009

CATEGORY:
Principal judgment

CASES CITED:


TEXTS CITED:


DECISION:
Orders:
(1) Leave to proceed is granted pursuant to s 500(2) of Corporations Act 2001against the plaintiff/cross-defendant in liquidation to allow the making of these orders.
(2) The settlement between the plaintiff/cross-defendant and first defendant/cross-claimant is approved under s 76(1) Civil Liability Act 2005.
(3) The statement of claim is dismissed against the first defendant.
(4) The cross claim against the first defendant is dismissed. Note the agreement between the parties that each will bear his own costs of the proceedings.
(5) The cross-claim between the cross-claimant and the second cross-defendant is dismissed.
(6) The cross-claim between the cross-claimant and the third cross-defendant is dismissed. Note the agreement of the parties, that as between the first cross-claimant and the second and third cross-defendants there will be no order as to costs.



JUDGMENT:

- 7 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION


SLATTERY J

MONDAY 20 JULY 2009

2230/06 ACCOM FINANCE PTY LIMITED ACN 097 598 886 v PETER CHARLES COGHLAN BY HIS TUTOR JEREMY COGHLAN, WILLIAM PATRICK MANNING AND LIBERTY FUNDING PTY LIMITED ACN 081 982 872

JUDGMENT

1 HIS HONOUR: The Court's approval today is sought of a settlement in what remains of these proceedings. Approval of the settlement under s 76(1) of the Civil Procedure Act 2005 is necessary because the first defendant/cross-claimant is a person under legal incapacity. His legal incapacity is established for the purposes of these proceedings by the tender of an order of the Guardianship Tribunal made on 9 February 2007 that the estate of the first defendant/cross-claimant be subject to management under the provisions of the Protected Estates Act 1983, which order is Exhibit A on this application. As the subject of such an order, he was a “protected person” within the meaning of the Guardianship Act 1987 and therefore a “person under legal incapacity”, within s 4 of the Civil Procedure Act 2005. Since the making of this order, the Protected Estates Act has been repealed. Its relevant provisions have been replaced by the Trustee and Guardianship Act 2009, s 38 which provides for a similar definition of “protected person” to that under the repealed Act.

2 In support of the application Mr Zucker, who appears for the first defendant/cross-claimant, reads his own affidavit of 17 July 2009 and an affidavit of Stephen Wesley Hathway of 16 July 2009. These two affidavits explain the basis for this application.

3 The plaintiff is a finance company in creditors’ voluntary liquidation. In February 2006 the plaintiff advanced the sum of $550,000 to the first defendant for business purposes at the very high rate of interest of 48% with a default rate of interest of 96%.

4 The advance of $550,000 was disbursed as to $152,000 first to discharge a debt which the first defendant had previously guaranteed; second, to provide various amounts for prepaid interest, costs and fees; and third, the sum of $314,451.75 was advanced jointly to the first defendant and one William Patrick Manning, the second defendant in the proceedings.

5 Although the sum of $314,451 advanced to the first defendant was part of a joint borrowing with Mr Manning, on the available evidence it appears that much of the sum was applied at the direction of, if not for the benefit of the first defendant.

6 The whole of the plaintiff’s advance of $550,000 was secured by mortgage of the first defendant’s commercial real estate at Clovelly. In the Statement of Claim in these proceedings the plaintiffs sought judgement for possession of the Clovelly property. In conformity with this Court’s practice I will not refer to the precise address of the Clovelly property or otherwise identify it in a way which may assist in the wrongful taking of the identities of parties. Its address is ascertainable from the pleadings on the Court file.

7 Due to the high rate of interest on the initial advance the cumulative amount due in July 2006 from the first defendant to the plaintiff was a total sum of $803,914.14, which included all compounded interest, penalties and other costs.

8 The Clovelly property was sold in mid 2006 and the sum claimed to be owing by the plaintiff of $803,914 was paid to the plaintiff from the proceeds of sale. A further amount of $250,000 from the sale of the Clovelly property was paid into a controlled moneys account. I am told by Mr Zucker that the balance of the proceeds of sale of the Clovelly property was applied for the benefit of the first defendant.

9 There has already been a settlement between the first defendant as cross-claimant and the second and third cross-defendants who are no longer active parties to these proceedings. The second and third cross-defendants were respectively a mortgage broker who acted as a go-between between the plaintiff and the first defendant in negotiating this loan and a solicitor who acted on behalf of the first defendant in relation to the taking out of the loan. As a result of that settlement the second and third cross defendants paid the first defendant the sum of $390,000 inclusive of costs.

10 I am told by Mr Zucker, who also deposes to this in his affidavit, that both he and Mr McInerney of counsel, are of the view that the settlement with the second and third defendants was favourable from the first defendant’s perspective. That opinion from such an experienced solicitor, conveying as it does the similar views of experienced counsel, is something upon which the Court can place considerable reliance in an application for approval of this kind.

11 The first defendant also cross-claimed against the plaintiff to set aside this loan transaction under the Contracts Review Act 1980 and under the statutory unconscionability provisions of the Trade Practices Act 1974. He sought the recovery of excessive interest and penalties paid to the plaintiff. The first defendant’s investigations show that the plaintiff has no funds and is unlikely to have funds available to satisfy any judgment which may be obtained by the first defendant cross-claimant against the plaintiff. This is to be inferred both from Mr Zucker's evidence and from the evidence of Mr Hathway, the liquidator of the plaintiff, who has deposed to the fact that he is without funds to participate in the litigation or to instruct lawyers. In those circumstances, the probable outcome of the litigation would be that any judgment which may be obtained by the cross-claimant against the plaintiff/first cross-defendant will not be satisfied.

12 The settlement which is proposed for approval is that the $250,000 in the controlled moneys account plus the accumulated interest which together now amount to a total sum of $277,758.72, will be paid to the solicitors for the first defendant to be administered for his benefit. The statement of claim and cross-claim in the proceedings will otherwise be dismissed and the costs of both the plaintiff and the first defendant will be borne by each of them.

13 Both Mr McInerney of counsel and Mr Zucker recommend this settlement as being fair and appropriate in the circumstances. Their opinions as the counsel and solicitor for the first defendant/cross-claimant have independent weight on an application such as this. For the reasons that follow I agree entirely with the views of counsel and Mr Zucker.

14 The first defendant has repaid approximately $803,914 to the plaintiff. Through his cross-claims the first defendant has now recovered approximately half of that from the second and third cross-defendants. In the first defendant's cross-claim against the plaintiff, he would have to account for the fact that he has received these monies for his own benefit. He is jointly and severally liable with Mr. Manning, the second defendant for the whole $550,000 plus interest and penalties. If the plaintiff recovers from Mr Manning, the first defendant might theoretically have to meet only half the total sum paid of $803,914. However, the matter is complicated by other factors.

15 The first defendant did receive the full benefit of the advance of $152,000 being paid to discharge another debt. The $314,000 paid jointly to the first defendant and Mr Manning was a joint liability with Mr Manning. Mr Manning is a person about whom the parties know very little. Many of the obligations that were satisfied by the joint advance of $314,451 to the first defendant and Mr. Manning were obligations of the first defendant. The first defendant may well be found to have benefited substantially from the whole of the $314,451 which was jointly advanced. Should the first defendant’s cross-claim go to trial, the first defendant/cross-claimant may be limited in a practical sense to a claim for excessive interest and penalties over and above a reasonable rate of interest on the advances of $466,451 (being $152,000 plus $314,451) from which he has arguably benefited. Recoveries from Mr Manning could not be relied upon by the first defendant/cross-claimant on the evidence before me. As the first defendant has already received $390,000, his net position now is one that, subject to the deduction of his reasonable costs, leaves him not that much worse off than he might have been if he were to proceed on the cross-claim against the plaintiff. Double recovery against the plaintiff/cross-defendant and the second and third cross-defendants would not be permitted. Given the benefits the first defendant has probably received from the advance and given the allowances he would have to make for recoveries from the cross-claim against the second and third cross-defendants. Most importantly though, it is doubtful that this litigation would provide any recovery for the first defendant/cross-claimant from the plaintiff because of the plaintiff’s deficiency of assets.

16 In those circumstances, a settlement which allows the amounts set aside from the sale of the Clovelly property to be released to the first defendant/cross-claimant and thereby ending the proceedings would appear to be prudent. It would save the further expenditure of costs on what would appear to be otherwise fruitless litigation against the plaintiff/first cross-defendant.

17 In those circumstances, I am prepared to approve this settlement pursuant to the Civil Liability Act 2005 s 76(1) and to make the orders sought.

18 I initial and date today the Short Minutes of Order which have been handed up in Court today by Mr Zucker. I make the orders and grant the leave and note the several agreements made in accordance with those Short Minutes.

19 I grant leave pursuant to the Corporations Act 2001 (Cth) s 500(2) for these proceedings to proceed for the purposes only of the making of these orders. I vacate the hearing of these proceedings that is listed for five days commencing on 3 August.

20 I approve the settlement of the proceedings between the plaintiff/first cross-defendant and the defendant/cross-claimant being the settlement terms recorded in orders (4), (5) and (6) of those Short Minutes.

21 I dismiss the Statement of Claim between the plaintiff and the first defendant. The cross-claim between the cross-claimant and the first cross-defendant is also dismissed.

22 I note the agreement between the parties that each will bear his and its own costs of these proceedings.

23 I also note the agreement of the parties recorded in paragraph (7) of the Short Minutes handed up today.

24 Mr Zucker has also asked that whilst the proceedings are being finalised that the final orders as between the cross-claimant and the second and third cross-defendants be made.

25 Because the first defendant/cross-claimant was under a disability when the proceedings were disposed of as between him and the second and third cross-defendants it was necessary to obtain the approval of the Court. The matter came before Associate Justice Macready on 26 June 2009 for that purpose. His Honour made orders on that occasion approving the settlement as between the cross-claimant and the second and third cross-defendants.

26 Mr Zucker asks me today to make machinery orders to give effect to that prior approval. He has handed to the Court a separate set of Short Minutes of Order which were the orders which it was contemplated would be made under the Settlement Deed dated 13 July 2009 reached between Richard Thomas and Confec Australia Pty Limited and the first defendant. Mr Zucker has indicated to me that the Short Minutes of Order which he asks the Court to make were Annexure A to that deed. As requested, I also make those orders in these separate Short Minutes which will also be dated today, initialled by me and placed with the Court papers. These separate short minutes result, in the cross-claim between the cross-claimant and the second cross-defendant being dismissed; the cross-claim between the cross-claimant and the third cross-defendant being dismissed; and I note the agreement, that as between the first cross-claimant and the second and third cross-defendants there will be no order as to costs.

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LAST UPDATED:
5 August 2009