Lykouressis v Lykouresis & Ors [2009] NSWSC 80 (26 February 2009)

Last Updated: 27 February 2009

NEW SOUTH WALES SUPREME COURT

CITATION:
Lykouressis v Lykouresis & Ors [2009] NSWSC 80


JURISDICTION:
Equity Division

FILE NUMBER(S):
5951/05

HEARING DATE(S):
2 to 5 February 2009

JUDGMENT DATE:
26 February 2009

PARTIES:
Athena Lykouressis as Administratrix of the estate of the late Dionysios Lykouresis (Plaintiff)
Michael Lykouresis (First Defendant)
Lykouresis Enterprises Pty Ltd (Second Defendant)
Irene Lykouresis (Third Defendant)
Regina Ioannides (aka Regina Lykouresis) (Fourth Defendant)
Joanna Lykouresis (Fifth Defendant)

JUDGMENT OF:
Palmer J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
E. Chrysostomou (Plaintiff)
B. Spinks (Sol) (3rd, 4th & 5th Defendants)

SOLICITORS:
Populaw (Plaintiff)
Spinks Eagle Lawyers (3rd, 4th & 5th Defendants)


CATCHWORDS:
DECEIT – First Defendant induced deceased to lend money to company to start a business when First Defendant had no intention that company would carry on business – First Defendant withdrew loan monies from company for benefit of himself and family.
HELD: First Defendant liable in deceit.
DIRECTORS’ DUTIES – First Defendant breached statutory and equitable duties as director – DERIVATIVE CLAIM – LEAVE TO PROCEED – administratrix of deceased’s estate sought leave under CA s 237 to bring suit in company’s name against First Defendant’s family who had withdrawn money from company’s account – relief sought related only to status of administratrix as secured creditor of company, not to status as shareholder.
HELD: Application for leave not “in good faith” – leave refused.
COSTS: successful Defendants were guilty of dishonest conduct – claim against them failed only because Plaintiff had not appointed receiver who could have sued in company’s name without leave – successful Defendants deprived of costs order.

LEGISLATION CITED:
Corporations Act 2001 (Cth) – s 180(1), s 181(1), s 182(1), s 237, s 420, s 1317H

CATEGORY:
Principal judgment

CASES CITED:
- Antoun v R [2006] HCA 2
- Barnes v Addy (1874) LR9ChApp 244
- Cesan v The Queen (2008) 83 ALJR 43
- Chahwan v Euphoric Pty Ltd (2008) 65 ACSR 661
- Derry v Peek (1889) 14 App Cas 337
- Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337
- Galea v Galea (1990) 19 NSWLR 263
- Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298
- Jones v Dunkel (1959) 101 CLR 298
- McLean v Lake Como Venture Pty Ltd [2004] 2 Qd R 280
- Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859
- Malouf v Malouf [2006] NSWCA 83
- Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333
- North Australian Aboriginal Legal Aid Service Inc v Bradley (2004) 218 CLR 146
- Reg v Watson; ex parte Armstrong (1976) 136 CLR 248
- South Johnstone Mill Ltd v Dennis [2007] FCA 1448, 64 ACSR 447
- Spies v R (2000) 201 CLR 603
- Swansson v R.A. Pratt Properties Pty Ltd (2002) 42 ACSR 313
- Vakauta v Kelly (1989) 167 CLR 568
- Walker v Wimborne (1976) 137 CLR 1

TEXTS CITED:


DECISION:
Judgment for Plaintiff against First Defendant; judgment for Third, Fourth and Fifth Defendants.



JUDGMENT:

5951/05 Lykouressis v Lykouresis & Ors

JUDGMENT

26 February, 2009

Introduction

1    The Plaintiff, Athena Lykouressis, is the administratrix cta, and sole beneficiary, of the estate of her late father, Dionysios Lykouresis, who died on 5 April 2007.

2    The First Defendant, Michael Lykouresis, was a distant relative of the deceased but was a close friend of his for many years. The Second Defendant, Lykouresis Enterprises Pty Ltd (“Enterprises”) is a company incorporated by the deceased and the First Defendant, who were its sole directors and shareholders. The Third Defendant, Irene Lykouresis, is the ex-wife of Michael Lykouresis. The Fourth and Fifth Defendants, Regina Ioannides and Joanna Lykouresis, are the daughters of Michael and Irene.

3    For the sake of convenient reference, and without intending any disrespect, I will refer to the members of the two families by their first names.

4    In March 2005, Dionysios owned three unencumbered properties, including his home. He mortgaged them to secure a loan of $640,000 which, after deduction of borrowing expenses, he lent to Enterprises to provide the working capital for an excavation business which he and Michael proposed to carry on.

5    Enterprises never commenced any business. About $30,000 lent by Dionysios to the company was expended during a trip to Greece by Dionysios and Michael in 2005. Of the remaining funds, $350,000 was transferred to the National Bank of Greece into an account in Greece which was not in the name of Enterprises. That money was withdrawn in cash by Michael and none remains. Further sums were withdrawn from the company’s bank account in Australia by means of cheques signed by Michael alone and made out to cash. Most of those cheques were cashed by Irene, Regina and Joanna. In all, there is now some $50,000 left out of the sum of almost $633,000 advanced by Dionysios to Enterprises.

6    In November 2005, Dionysios commenced these proceedings, claiming return of his money from Michael, Enterprises, Irene, Regina and Joanna on a number of grounds. When Dionysios died, Athena, as administratrix of his estate, took over the conduct of these proceedings and she is now the sole plaintiff.

7    Michael was served with the proceedings while in Greece and has otherwise been made aware of their course. He has been living with Regina for some years. Regina, Irene and Joanna have defended the proceedings and have given evidence. Michael has not entered an appearance or taken any step to defend the proceedings. He was called by Irene, Regina and Joanna as a witness during the trial. I am satisfied that Michael has at all relevant times been properly notified of these proceedings and that he has chosen not to defend them.

Causes of action

8    Many causes of action were pleaded in the alternative in the Amended Statement of Claim. However, at the conclusion of the trial, Mr Chrysostomou of Counsel, who appears for Athena, said that not all causes of action were now pressed. His final submissions, both oral and written, referred only to a few causes of action and they are the only causes of action with which I will deal in these reasons. In brief summary, they are as follows.

9    Athena, on behalf of Dionysios’ estate, claims damages against Michael for the tort of deceit. Athena alleges that:

– Michael represented to Dionysios that the new company they would establish together would have plenty of excavation work available;

– in fact, Michael had no work available for the company and never intended that the company engage in any business;

– in fact, Michael intended to set up the company in order to steal Dionysios’ money;

– Dionysios borrowed on the security of his properties and invested the proceeds in Enterprises in reliance on Michael’s representations;

– all or most of Dionysios’ loan to Enterprises has been lost by the dishonesty of Michael;

– but for Michael’s false representations, Dionysios would not have borrowed the funds and lent them to Enterprises;

– Michael is liable in damages for the amount of the loan, together with the costs of borrowing and interest, less what can be recovered from Enterprises’ bank account.

10    Athena seeks to bring claims in the name of Enterprises against Michael for breaches of duty to Enterprises, and against Irene, Regina and Joanna founded on such breaches of duty by Michael. Athena alleges that:

– as a director of Enterprises, Michael owed to the company duties, both as a fiduciary under general equitable principles, and also by virtue of s 180(1), s 181(1) and s 182(1) Corporations Act 2001 (Cth) (“CA”), to act in good faith in the interests of Enterprises, to refrain from using the property of the company or his position as a director for his own gain, and to act as a director with due care and diligence;

– in breach of his fiduciary and statutory duties, Michael caused or permitted to be paid out of Enterprises’ bank account virtually all of the funds lent to the company by Dionysios, for purposes unconnected with any business of Enterprises, and for the benefit of himself, Irene, Regina and Joanna;

– Enterprises is entitled to an order against Michael under CA s 1317H compensating the company for the loss suffered by reason of Michael’s breach of his statutory duties or, in the alternative, it is entitled to equitable compensation for breach of his fiduciary duties;

– each of Irene, Regina and Joanna received part of the funds of Enterprises disbursed or dealt with by Michael in breach of his statutory and equitable duties, with notice, actual or constructive, of the facts constituting those breaches of duty by Michael (a claim under the “first limb” of Barnes v Addy (1874) LR9ChApp 244;

– each of Irene, Regina and Joanna assisted or was knowingly concerned in the breaches by Michael of his statutory and equitable duties (a claim under the “second limb” of Barnes v Addy).

11    Athena seeks to bring claims in the name of Enterprises against Michael, Irene, Regina and Joanna for money had and received. She says that all the money withdrawn from Enterprises’ account which came into their hands is repayable to Enterprises upon principles of unjust enrichment.

12    Finally, Athena seeks to bring claims in the name of Enterprises against Irene, Regina and Joanna for conversion of cheques drawn on Enterprises’ account which they presented and cashed.

13    As Athena has no standing to bring claims on behalf of Enterprises, she seeks an order under CA s 237 granting her leave to do so.

The facts

14    Dionysios swore two affidavits in these proceedings before he died. They have been read without objection.

15    Dionysios was born in 1930 on the Greek island of Zakynthos. He came to Australia in 1950. He married and had one child, Athena. He was later divorced and never remarried.

16    In 1955, Dionysios purchased two blocks of vacant land at Sanctuary Point in New South Wales. In about 1960, he started to drive taxis and some time later he acquired a taxi cab plate. He drove taxis for about forty-four years until compelled by ill health to cease driving. Thereafter, he leased his taxi to Legion Cabs. As at 2004, Dionysios owned three properties: the two properties at Sanctuary Point and his home at Enmore. All were unencumbered.

17    Dionysios first met Michael, a distant relative, in about 1976 and they became friends. Dionysios was a frequent visitor to Michael’s home and was on good terms with Irene, Regina and Joanna.

18    From about 1978, Michael carried on an excavation business through two companies, both of which went into liquidation. From time to time, Dionysios lent money to Michael to help him through financial difficulties. The amounts were not more than $2,000 and Michael repaid the loans to Dionysios over time.

19    In August 2004, Michael established another excavation business under the business name “JL Excavations and Demolitions”. The proprietor of that business shown in ASIC’s records is Joanna, then a schoolgirl aged sixteen years. Joanna says, and I accept, that the business was in fact carried on by Michael and that she signed whatever he asked her to sign in relation to the business.

20    In August 2004, Dionysios suffered a stroke while in Greece and spent two months in hospital. On his return to Australia he was no longer able to drive safely and was required to surrender his licence. He ceased work as a taxi driver.

21    There is no doubt that Dionysios was somewhat depressed that he was no longer able to work. He was anxious to find another business activity. In that frame of mind, Dionysios began to discuss with Michael going into business together.

22    According to Dionysios, he and Michael agreed that they would form a company to conduct an excavation business. Dionysios would borrow the money for the working capital and Michael would operate the business. Dionysios says that on a number of occasions he discussed with Michael at Michael’s house that he would mortgage his Sanctuary Point properties and his house to lend to the excavation company. He says that Michael assured him that the loan to the company would be repaid in three or four years, that he, Michael, would make the repayments on the mortgage until it was repaid, that the company’s loan would be repaid first, and that they would then expand the business and buy more machinery.

23    According to Dionysios, he had these discussions at Michael’s home almost every weekend in late 2004 and early 2005. He says that Irene was usually present during these discussions. Regina, who was married with two children and lived not far away, was also often present as she was visiting her parents with the children. According to Dionysios, Joanna was also present on some of these occasions but she would “come and go”. All discussions with Michael, according to Dionysios, took place openly with the members of Michael’s family present.

24    According to Dionysios, Irene participated in the discussions to the extent that she strongly suggested on a number of occasions that Dionysios and Michael should buy a shop rather than go into the excavation business. He says that Regina and Joanna agreed with this suggestion, saying that a food franchise would be a better business because all of the family could work in it.

25    Dionysios says that he rejected these suggestions for a food business as he had no experience in such a business whereas Michael was experienced in excavation.

26    Irene, Regina and Joanna firmly deny that they were present and heard any of the discussion between Dionysios and Michael about going into business together, setting up a company, and Dionysios borrowing money to lend to the company on the security of his properties. They agree that they came to know of the existence of Enterprises, but they say that as far as they knew Enterprises was a company established by Michael to conduct his excavation business. They say that they did not know that Dionysios was a director of Enterprises or that he had any financial interest in the company.

27    Michael gave no evidence at all as to whether any discussions between himself and Dionysios took place in the presence of his family and as to what, if anything, he had told them about Enterprises.

28    I do not accept Irene, Regina and Joanna as witnesses of credit, for reasons which I shall explain later: see paras [52]-[67]. I am unable to accept anything they say which is not corroborated by other reliable evidence or which is not otherwise inherently probable.

29    All three endeavoured to suggest that they were submissive to the authority of Michael and did not question whatever he said. They endeavoured to suggest that they were not interested in his business affairs. I reject those suggestions.

30    From my observation of their demeanour in the witness box, Irene, Regina and Joanna are each strong-willed and assertive. They had no difficulty in putting forward boldly their own positions, even in the unfamiliar environment of the courtroom. Each of them, particularly Regina, struck me as a person who would want to know whatever was going on in the family and would not be slow to voice, loudly, her own opinion, whether or not asked.

31    For example, Regina said that in April 2005 Joanna told her about the deposit of a cheque for $22,000 drawn on Enterprises’ account into the account of JL Excavations. Regina said that she later asked Michael where the money came from: T 85.34-86.11.

32    The evidence of Dionysios that Irene, Regina and Joanna were present at various times during his discussions with Michael and that they participated in those discussions is untested by cross examination and must be treated with caution. However, having regard to the characters of Irene, Regina and Joanna as demonstrated in the witness box, to the admitted frequency of Dionysios’ visits to the house in which Irene and Joanna resided at the time and to which Regina was a frequent visitor, I find the evidence of Dionysios inherently probable and the denials of Irene, Regina and Joanna inherently improbable.

33    Accordingly, I find that Irene, Regina and Joanna were at all times aware that Enterprises was a company set up by Dionysios and Michael to conduct an excavation business together, that Dionysios had borrowed a substantial sum of money on the security of his properties to lend to the company, and that that money was to be used for the company’s business purposes. In particular, I reject the evidence of Irene, Regina and Joanna that they believed that Enterprises conducted its business for the benefit of Michael alone.

34    Michael had established at least two companies previously in order to conduct his excavation business. Both companies failed. Regina had assisted him with the bookwork of those companies. I am satisfied that Irene, Regina and Joanna have a basic understanding of a company structure and knew that Dionysios, as well as Michael, would be a director of Enterprises.

35    In accepting the evidence of Dionysios on this aspect of the matter, I have not overlooked the criticisms of his credibility made by Mr Spinks. I will come to these criticisms in the course of the narration.

36    From November 2004 to about March 2005, according to Dionysios, Michael drove him around to various building sites and on these occasions told him about the excavation work which he could get for their company. Dionysios does not say that Irene, Regina or Joanna was present on any of these occasions.

37    Enterprises was incorporated in January 2005, the directors being Dionysios and Michael. Dionysios had 40% of the shares and Michael 60%.

38    In early March 2005, Dionysios applied to Perpetual Trustees Australia Ltd for a loan of $640,000, to be secured on his properties. On 11 March 2005, Michael opened an account in the name of Enterprises at the Chester Hill branch of the ANZ Bank. The bank manager gave evidence, which I accept, that by an oversight within the Bank at the time of opening the account, Michael was permitted to be sole signatory to the account, instead of co-signatory with Dionysios as the other director.

39    On 15 March 2005, Dionysios’ loan application for $640,000 was approved.

40    On 16 March 2005, Dionysios and Michael attended upon Mr J. Kartsounis, solicitor, in order to have the loan transaction completed. Mr Kartsounis gave evidence which was careful and precise. He had made contemporaneous diary notes from which he had refreshed his recollection in preparing his affidavit evidence. I accept his evidence as entirely reliable.

41    Mr Kartsounis quickly ascertained that it was Dionysios who was the borrower and that he should therefore advise Dionysios separately. Thereafter, Michael was not present when Mr Kartsounis gave advice to Dionysios. Dionysios explained to Mr Kartsounis that he was borrowing in order to lend to Enterprises so that the company could buy the earthmoving equipment which it would need for its business. Mr Kartsounis advised Dionysios to take a charge over the company and a personal guarantee from Michael, in order to secure the loan. Dionysios gave instructions to prepare such documents.

42    On 24 March 2005, Dionysios and Michael attended Mr Kartsounis’ office and executed a Deed of Charge and Guarantee. I will return to their provisions in due course.

43    On 30 March 2005, the nett proceeds of Dionysios’ loan, $632,927.82, was deposited into Enterprises’ account at ANZ Chester Hill. None of this money was used for the company’s purposes. Enterprises never commenced any business, nor did it purchase any excavation equipment or any other asset.

44    On 31 March 2005, a cheque for $8,000 on Enterprises’ account, drawn to cash, was presented and paid. The sole signatory on the cheque was Michael. No beneficiary of the proceeds has been identified. Michael has not explained the purpose for which the money was used.

45    On 4 April 2005, a cheque for $5,900 on Enterprises’ account, drawn to cash, was presented and paid. The sole signatory was Michael. Regina identified the other writing on the cheque as Michael’s. No beneficiary of the cash has been identified. It may be assumed the Michael received the cash. No explanation for the payment has been given.

46    On 11 April 2005, a cheque for $22,000, drawn in favour of “JL Excavations and Demolitions” (the business name of which the registered proprietor is Joanna) signed by Michael alone was given by him to Joanna and deposited by her into the account of JL Excavations. Michael gave two inconsistent explanations for the transaction, virtually in the same breath: T 214.6-.33.

47    First, he said that when Dionysios came back from Greece – at a time unspecified – he did not have any money so Michael lent him $22,000, which he drew out of the JL Excavations’ account. Then he said that he caused $22,000 to be paid out of Enterprises’ account into the JL Excavations’ account because Dionysios owed him money and he was in effect repaying himself. In other words, one explanation for the withdrawal from Enterprises’ account is a loan to Dionysios, another explanation is that Michael was repaying himself for a loan already made to Dionysios. For reasons which I will explain in more detail later, I regard this contradiction in Michael’s evidence as an example of his willingness to say whatever occurs to him on the spur of the moment which he thinks will advance his position. I do not regard him as a witness of any credit. I do not accept either explanation.

48    The evidence does not show what became of the sum of $22,000 after it was deposited by Joanna into the account of JL Excavations. It does not appear to have been used to pay creditors of JL Excavations, as will emerge shortly. It is a fair inference that the money was used for the benefit of Michael and his family.

49    On 14 and 20 April 2005, cheques for $10,000 and $20,000 respectively on Enterprises’ account, drawn to cash, were presented and paid. The sole signatory was Michael. No beneficiary of the funds has been identified.

50    Several cash withdrawals from the account of Enterprises were made between 15 and 21 April 2005. The withdrawals were made by use of a credit card. The evidence is that Dionysios did not have a credit card which he could have used to withdraw that money. It is a fair inference that it was Michael who made the withdrawals.

51    On 21 April 2005, Dionysios and Michael left Australia to go to Greece. Dionysios returned on 24 June 2005, and Michael returned in late August 2005. Between 21 April 2005 and Michael’s return to Australia, Irene, Regina and Joanna between them withdrew from Enterprises’ account cash totalling $70,475. They were able to do so because Michael had left a full cheque book for Enterprises’ account with Regina in which he had signed all cheques in blank. He says that he did this so that, while he was in Greece, Regina or Irene could pay any of his creditors who came to his home asking for their debts to be paid.

52    In her affidavit evidence, Regina said only that Michael had left her with a cheque book full of signed blank cheques, that she had drawn and cashed particular cheques on Michael’s instructions, that she kept the cash withdrawn, totalling $21,000, and gave it, together with the cheque book, to Michael on his return.

53    Irene, in her affidavit, repeated this evidence of Regina. She said that she cashed cheques on Enterprises’ account only when Regina was unable to do so in compliance with a request from Michael. There were ten such cheques cashed by Irene between 19 May 2005 and 2 August 2005, the first for $10,000, the others for $1,000, $1,500 or $2,000. She says that she kept all of this cash “in safe keeping at my residence” and gave it all to Michael on his return from Greece.

54    Joanna in her affidavit evidence repeated this evidence of Irene and Regina. She said that she had cashed cheques on Enterprises’ account when Regina had been unable to do so. She said that she kept all the cash at the family home “for safe keeping”, and that she gave it all to Michael when he returned from Greece.

55    Irene, Regina and Joanna did not say anything in their affidavits to explain what they understood to be Michael’s purpose in asking them to withdraw cash from Enterprises’ account. In their oral evidence, however, they gave a reason for these transactions.

56    Regina said in cross examination that Michael kept ringing from Greece, telling her to withdraw cash from Enterprises’ account, using the signed blank cheques, in order to pay his excavation business creditors who would be coming to their home to collect the money. She said that each time she drew and cashed a cheque it was because her father had told her the amount of cash to be withdrawn and said that he was expecting a creditor to come to the house to collect it.

57    There were at least nine occasions on which Regina cashed cheques, which totalled some $21,000. She said that, in fact, no creditor of her father’s ever came to collect payment during his absence, and that she gave the whole of the cash back to Michael on his return.

58    Irene, in cross examination, said that she cashed cheques on the company’s account because Michael told her that his excavation business creditors would be coming to the house and making threats if they were not paid. In the space of a few moments she gave completely contradictory evidence. She said that while Michael was in Greece, people came to her house, sometimes two or three times a week, asking to be paid. At first, she that she had given them cash; in the next breath she said that she never gave anyone cash and that she was keeping the money “in case” – apparently, in case Michael’s creditors wanted payment: T 160.8-161.4. Irene said that she had kept all of the cash withdrawn from Enterprises’ account and had given it to Michael on his return from Greece.

59    Irene was giving this evidence in English, which is not her first language. However, she is fluent in English, although not idiomatic or grammatic. I am satisfied that the contradictions in this evidence are not attributable to a language difficulty. I am satisfied that the contradictions – indeed, the absurdities – in the evidence are the result of a deliberate and clumsy endeavour to conceal the truth.

60    Payments out of Enterprises’ account received by Irene, so far as they have presently been identified, amount to $26,545.

61    Irene denied that she deposited any money derived from cashing Enterprises’ cheques into her own bank account. On 5 May 2005, a cheque for $5,000 on the account of Enterprises, drawn to cash, was presented and paid to Regina. On the same day, $5,000 in cash was deposited in Irene’s bank account. Irene was asked whether that cash came from Enterprises’ account. She denied it. She was asked where she got the $5,000 cash deposited into her account on 5 May. She was unable to answer.

62    On 19 May 2005, Irene cashed a cheque on Enterprises’ account for $10,000. On 25 May 2005, $6,055 in cash was deposited into Irene’s bank account. When asked where that cash came from, she said that she won it at the club or a friend gave it to her. Her evidence was unclear – not because of any language difficulty but because, to my observation, Irene was fabricating as she went.

63    The unreliability of the credit of Irena and Regina is further demonstrated by the admission, reluctantly made by Irene in cross examination, that when she and Regina together filled out an application for a credit card from the Commonwealth Bank, they deliberately falsified Irene’s financial information in material particulars.

64    Irene admitted that she used cash from Enterprises’ account to pay household and other expenses. I am satisfied that a substantial part of the sum of $26,545 withdrawn from Enterprises’ account by means of cash cheques presented by Irene was used by Irene for her own benefit.

65    In cross examination Joanna said that she cashed cheques on Enterprises’ account when Regina was not able to do so. She said that she gave the cash to Regina. Joanna said that Regina told her that she was going to “store” the money because “my dad was going to come back and take the money, or something like that”: T 192.42. I think that disclosure, probably made inadvertently by Joanna, reveals the truth: that Michael told Irene, Regina and Joanna, before he left for Greece with Dionysios, to withdraw cash from Enterprises’ account while he and Dionysios were overseas, using the blank cheques which he had left, and that, apart from using some of it for their living expenses, they were to keep the cash and give it to him on his return.

66    Joanna said that she was present on an occasion when Regina gave the “stored” cash to Michael on his return from Greece.

67    As far as the evidence reveals, payments out of Enterprises’ account received by Joanna amount to $22,830.

68    As I have noted earlier, Michael elected not to defend the claims made against him in these proceedings. He did not provide an affidavit in support of the Defendants’ case. He would not have given oral evidence had Regina not revealed, in cross examination, that Michael had been living in her home for some time and that there was no reason that he could not give evidence to corroborate the evidence of Irene, Joanna and herself. Doubtless wishing to avoid the drawing of an adverse Jones v Dunkel ((1959) 101 CLR 298) inference, Mr Spinks, with evident reluctance, called Michael as a witness. The reasons for Mr Spinks’ reluctance soon became apparent.

69    Michael said that, before his departure with Dionysios to Greece in April 2005, he and Dionysios agreed that the money which Dionysios had lent to Enterprises could be used to pay outstanding creditors of Michael’s own excavation business, which he had carried on under the name JL Excavations. Michael said that he owed money in respect of a job at Mona Vale. He identified one outstanding creditor by name and said that he had “a couple more” creditors for that job whose names he could not remember. He said that the total amount he owed to creditors for the Mona Vale was “close to $40,000”. He did not say that he owed any other business debts.

70    According to Irene and Regina, the cash which they and Joanna withdrew from the Enterprises’ account, totalling $70,475, was for the purpose of paying Michael’s creditors, totalling some $40,000, according to Michael. Yet, Irene and Regina never used that cash to pay creditors and Michael said that, having received the cash from Irene, Regina and Joanna on his return from Greece, he did not use it to pay his creditors. He said that his creditors remain unpaid.

71    Michael admitted that the cash which was drawn by Irene, Regina and Joanna from Enterprises’ account during his absence in Greece was used by them to pay expenses and other bills. He said that the use of the company’s money in this way was authorised by Dionysios.

72    In short, Michael says that everything done with the money lent to Enterprises by Dionysios was done with Dionysios’ consent. I reject that evidence, for reasons explained later. He said that when he returned from Greece, he collected from Irene and Regina the cash which they had withdrawn from Enterprises’ account, gave half of it to Dionysios and kept the rest for himself, with Dionysios’ consent.

73    Michael gave no reason or explanation whatsoever why Dionysios would agree that money, borrowed for investment in a business on the security of Dionysios’ three properties and on which Dionysios was paying interest, should simply be given as a gift to Michael and his family.

74    I find that Michael never intended that the cash withdrawn from Enterprises’ account was to be used to pay his creditors and he did not give such an instruction to Irene, Regina and Joanna. On the contrary, I find that Michael intended that the cash withdrawn from Enterprises’ account be used for the benefit of himself and his family. I am satisfied that he arranged with his family for the money to be withdrawn while Dionysios was overseas and had less chance of discovering what was happening.

75    On 24 August 2005, Michael procured a transfer of $350,000 from Enterprises’ account to an account in Greece with the National Bank of Greece. The account was in the names of Michael and Dionysios Lykouresis. On 15 September 2005, Mr Kartsounis learned of the transfer and informed Dionysios, who knew nothing about it. Mr Kartsounis went with Dionysios to the Sydney branch of the National Bank of Greece and arranged to have the transferred funds “frozen” so that they could be repatriated to Enterprises’ account in Sydney. Some further information was required from Dionysios in order to effect the “freeze”, so that the bank did not immediately implement it. Later that day, Dionysios told Mr Kartsounis that he had earlier been discussing with Michael the possible purchase of a “bus line” in Greece and that perhaps that was the reason that Michael had transferred the funds to Greece. He said to Mr Kartsounis that perhaps he should let the funds be transferred. Mr Kartsounis said that he would wait for Dionysios’ instructions.

76    On 19 September 2005, Dionysios attended the Chester Hill branch of the ANZ and arranged that his signature be required on the Enterprises’ account as co-signatory with Michael. Dionysios then instructed Mr Kartsounis that he intended to proceed with an investment in a “bus line” in Greece. In a letter dated 20 September 2005, Mr Kartsounis gave the clear and strong advice that it would be most unwise for Dionysios to proceed with the “investment” in the bus line. However, Dionysios gave no further instructions to Mr Kartsounis and no “freeze” on the funds transferred to the National Bank of Greece was effected.

77    Michael gave evidence that, while in Greece with Dionysios in 2005, he opened a bank account with the National Bank of Greece in the joint names of himself and “Dionysios Lykouresis”. The “Dionysios Lykouresis” who was a signatory to the account was not Michael’s co-director in Enterprises, but was a person described by Michael as “a distant relative” of his, a resident of Greece who happened to have the same first and last name. This “distant relative” is, as the evidence shows, a deaf-mute. Michael said that his “distant relative” became a co-signatory to the Greek bank account simply because he “happened to be there” and it was “convenient”.

78    Michael said that all of the money in the National Bank of Greece account was withdrawn by him in cash and deposited into another bank account. When asked why he took the money in cash rather than transfer it by cheque, Michael gave confused answers, the purport of which was that it was “easier” in cash.

79    Michael said that the cash withdrawn by him from the National Bank of Greece account was used by him to buy a restaurant business in his own name in Zakynthos. He said that he paid $150,000 for the business, half of it in cash, and that the remainder of the money transferred out of Enterprises’ account into the Greek bank account, some $200,000, was spent in the restaurant business. He said that the restaurant business was closed within a year, so that all the money was lost. He said that he does not have any records of the restaurant purchase in Australia.

80    Michael said that he did not tell Dionysios before withdrawing all the money from the National Bank of Greece account, because Dionysios had told him earlier “you do anything you want [with the money]”. As I have noted, this was Michael’s stock answer when queried about the use of the money in Enterprises’ account.

81    In his affidavit, Dionysios strongly asserted that he had never authorised Michael to use Enterprises’ money to buy a restaurant business nor had he authorised it to be used for the purposes of Michael and his family. He asserted that the money was to be used in carrying on the company’s excavation business in Australia.

82    I have paid careful attention to Mr Spinks’ submission that the evidence of Dionysios should not be accepted: T 246.16-258.16. However, having regard to Dionysios’ evident wish to invest in a business in which he himself could participate – a desire confirmed by the independent evidence of Mr Kartsounis – I find Dionysios’ evidence inherently probable.

83    Why would Dionysios go to the trouble of consulting Mr Kartsounis as to his secured borrowing for the new business, setting up Enterprises to conduct the business, and taking a charge over that company’s assets and a personal guarantee from Michael to secure his loan to the company if he really was indifferent to how the funds which he had lent to Enterprises were being expended, and was content to see Michael fritter away for his own benefit the money which Dionysios had borrowed, secured over his properties including his house, and upon which he was paying interest? In the end, however, that was the submission which Mr Spinks was driven to make: T 256.28-.36.

84    I appreciate the force of Mr Spinks’ submission that Dionysios’ evidence should not be accepted because he did not tell Athena or his solicitors before commencing these proceedings that he had consented to the “unfreezing” of the payment of $350,000 to Greece. There are several possible explanations for this omission. One could have been that Dionysios, having discovered that Michael did not invest the transferred funds in purchasing a bus line but apparently used the money to buy a restaurant, regarded the whole transaction of withdrawal and expenditure as a fraudulent scheme by Michael from start to finish, so that the particular steps by which the fraudulent design was effected were of no consequence.

85    It is clear that when Dionysios discovered that $350,000 had been taken from the account of Enterprises at the ANZ Bank, Chester Hill, he was very concerned. It is also clear that at that stage he was still prepared to trust Michael and to give him the benefit of the doubt, at least for the time being, in the hope that the money would be invested in a bus line in Greece. Accordingly, Dionysios did not instruct Mr Kartsounis to effect the re-transfer of the funds to Enterprises’ account. Shortly afterwards, he attended the Chester Hill branch of the ANZ and arranged to become a co-signatory on Enterprises’ account. He then signed five blank cheques on the company’s account, three of which he gave to Michael. Dionysios said in his affidavit that these cheques were to be used in Enterprises’ business, if necessary, but not otherwise. Again, it appears that Dionysios was still willing to trust Michael that the money in the company’s account would be used for the company’s business.

86    Dionysios’ willingness to trust Michael to invest Enterprises’ money in a genuine business activity for the benefit of the company is very far from evidencing a willingness on his part to authorise Michael to “do anything you want” with the money, such as invest it in a restaurant business in the name of Michael alone or make gifts of it to Michael’s family.

87    A mere recitation of the evidence given by Michael is sufficient to demonstrate its gross improbability. Most of the evidence he gave about the opening of an account with the National Bank of Greece and the withdrawal of all the money in that account was self-evident nonsense. I gained the overwhelming impression from the way that Michael gave this evidence that he did not care in the least that his evidence was not believed.

88    In the absence of cross examination of Dionysios, and having regard to the inherent probabilities of all the evidence, I am not prepared to find that Dionysios’ evidence is generally unreliable.

Findings of fact

89    I regard the evidence of Michael as deliberately false. I accept the evidence of Dionysios that, apart from a sum of $30,000 to be used by Michael and himself during the trip to Greece, he did not authorise Michael to expend any of the money in Enterprises’ account for any purpose other than a proper business purpose of Enterprises.

90    I find that:

– Michael deliberately and dishonestly used his position as a director of Enterprises, and as sole signatory on Enterprises’ account, to withdraw money from that account and to use it for his own benefit and the benefit of his family;

– Michael had had that dishonest intention at the time he agreed with Dionysios to go into business together, and at the time that the Enterprises’ account was opened; he implemented that intention almost immediately by cash withdrawals;

– in order to carry out his dishonest purpose, Michael left a cheque book of signed blank cheques on Enterprises’ account with Regina before going to Greece with Dionysios in April 2005 and instructed her, Irene and Joanna to use the cheques to make regular withdrawals of cash from the account, to use some of the cash for their living and other expenses, and to keep the rest and to give it to him on his return to Australia.

91    I find that Irene, Regina and Joanna were fully aware at all material times that:

– Enterprises was a company formed by Dionysios and Michael to carry on an excavation business in Australia;

– Dionysios and Michael were directors of Enterprises;

– Dionysios had mortgaged his properties to raise funds for the business of Enterprises and those funds had been placed in the company’s account for the purposes of the business;

– the cash withdrawals from Enterprises’ account effected by them were not to be used for the purposes of Enterprises’ business but were intended by Michael to be used for his own benefit and for their benefit;

– in signing blank cheques on Enterprises’ account and in giving them instructions for the withdrawal of cash, Michael was using his position as a director of Enterprises for his benefit and for their benefit, and not for the benefit of Enterprises.

92    I find that there was no reasonable basis upon which Irene, Regina and Joanna could have honestly believed that Dionysios, as a director of Enterprises, had consented to the use of Enterprises’ money for the benefit of Michael and themselves. If they were not actually aware that Dionysios did not consent to this use of Enterprises’ money, all of the facts of which they were aware compelled them to make express and direct enquiry of Dionysios, before they received and disposed of the cash from Enterprises’ account. They did not make such an enquiry, either because they were actually aware that Dionysios did not consent, or else they wilfully shut their eyes to the question whether he consented, strongly suspecting that if he were asked, he would refuse consent. Either because they actually knew of Michael’s dishonest design, as a director of Enterprises, to use the company’s money for his and their benefit, or because they wilfully shut their eyes to it, Irene, Regina and Joanna dishonestly participated and assisted in that dishonest design and dishonestly received and dealt with the proceeds of that dishonest design.

The claim against Michael in deceit

93    I accept the evidence of Dionysios that he borrowed funds and lent them to Enterprises because of representations made by Michael to him that he had plenty of excavation work for the company’s business. Because Michael began to withdraw cash from Enterprises’ account as soon as it was opened and applied that money for his own purposes, I am satisfied that Michael did not have plenty of work available for the company and that he never intended that Enterprises would obtain work or carry on any active business. I find that Michael made the representations to Dionysios falsely and that he intended that Dionysios should act upon them in borrowing funds and investing those funds in Enterprises. I am satisfied that Dionysios relied upon Michael’s false representations in borrowing funds and investing them in Enterprises and that Dionysios has suffered loss thereby in that the whole of the funds borrowed have been lost, save for what little remains in Enterprises’ account. The loss includes the expenses incurred by Dionysios in the borrowing, as well as the $30,000 which was taken from the funds borrowed and expended on the trip to Greece. The borrowing, the borrowing expenses, and the expenditure of borrowed funds, would not have occurred had not Dionysios relied upon Michael’s false representations.

94    It follows that I find that all of the elements of the tort of deceit, which has been pleaded by Dionysios against Michael, have been made out: Derry v Peek (1889) 14 App Cas 337. There will be judgment for Athena against Michael for the amount of the funds borrowed by Dionysios, plus borrowing costs and interest under the mortgages, less whatever is recovered from the bank account of Enterprises. The amount of the judgment debt will have to be calculated. I will require the Plaintiff to bring in Short Minutes of Order.

Breach of statutory and fiduciary duty

95    It follows from the findings I have made that, in causing the funds of Enterprises to be paid to Irene, Regina and Joanna as he did and in dealing otherwise with the company’s funds as I have described above, so that they are now said to be lost, Michael acted dishonestly in his own interest and in the interest of Irene, Regina and Joanna rather than in the interests of Enterprises. He has breached both his fiduciary duties as a director and his duties under CA s 180(1), s 181(1) and s 182(1). He would be liable to compensate Enterprises under CA s 1317H(1) if Enterprises brought a claim against him.

96    Likewise, it follows from the findings which I have made that each of Irene, Regina and Joanna knowingly and dishonestly assisted in Michael’s breaches of his fiduciary and statutory duties. It follows also that each of them received the funds of Enterprises dishonestly, with knowledge of the facts constituting Michael’s breach of his fiduciary and statutory duties. If Enterprises brought claims for accessory liability against them, those claims would fall within both limbs of Barnes v Addy.

97    However, an order against Michael under CA s 1317H(1) for compensation and orders against Michael, Irene, Regina and Joanna for equitable damages can only be made in favour of Enterprises. Enterprises is not a plaintiff and orders in its favour can be made only if Athena is granted leave under CA s 237 to bring these claims on its behalf.

Leave under CA s 237

98    Very unusually, an application for leave under CA s 237 was not made prior to commencement of the proceedings. Leave had not been granted when the trial commenced.

99    A question arose whether leave could be granted, nunc pro tunc, at the close of the trial and in the course of a final judgment. Ultimately, Mr Spinks, solicitor, who presented the case for Irene, Regina and Joanna very ably, did not submit that such leave could not now be granted. He very properly referred me to cases in which leave under CA s 237 had been granted nunc pro tunc on the basis that absence of leave at the time of commencing proceedings was a procedural irregularity which could be cured by the Court: see South Johnstone Mill Ltd v Dennis [2007] FCA 1448, 64 ACSR 447, at paras [24]-[56], per Middleton J; McLean v Lake Como Venture Pty Ltd [2004] 2 Qd R 280; Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 per Brereton J. I am content to follow those decisions.

100    However, Mr Spinks submitted that leave should be refused in this case upon grounds to which I will come shortly.

101    CA s 236 relevantly provides:

“Bringing, or intervening in, proceedings on behalf of a company

(1) A person may bring proceedings on behalf of a company, or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for those proceedings, or for a particular step in those proceedings (for example, compromising or settling them), if:

(a) the person is:

(i) a member, former member, or person entitled to be registered as a member, of the company or of a related body corporate; or

(ii) an officer or former officer of the company; and

(b) the person is acting with leave granted under section 237.

(2) Proceedings brought on behalf of a company must be brought in the company’s name.”

Section 237 relevantly provides:

“Applying for and granting leave

(1) A person referred to in paragraph 236(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings.

(2) The Court must grant the application if it is satisfied that:

(a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and

(b) the applicant is acting in good faith; and

(c) it is in the best interests of the company that the applicant be granted leave; and

(d) if the applicant is applying for leave to bring proceedings—there is a serious question to be tried; and

(e) either:

(i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or

(ii) it is appropriate to grant leave even though subpara-graph (i) is not satisfied.”

102    Dionysios held 40% of the issued shares of Enterprises at the time of his death. Mr Spinks concedes that Athena, as administratrix and sole beneficiary of the estate of Dionysios, is entitled to be registered as a member of Enterprises, for the purpose of CA s 236(1)(a)(i).

103    Mr Spinks does not concede that it is probable that Enterprises itself will not bring these proceedings or properly take responsibility for them, for the purposes of CA s 237(2)(a). He did not submit that there is any possibility that Michael, as sole remaining director of Enterprises, will cause Enterprises to take responsibility for these proceedings. Rather, he says that a receiver could be appointed to Enterprises by Athena under the charge given by Enterprises to Dionysios and the receiver could, in the name of Enterprises, take responsibility for these proceedings.

104    I bear in mind that a receiver has not been appointed to the company even though the proceedings have been on foot since November 2005. When I queried with Counsel for Athena why this obvious step towards a direct means of recovery had not been taken, Counsel said that he would take instructions. The following day he said that he was instructed to press only the causes of action already pleaded, meaning, I assume, that a receiver would not be appointed and added as a plaintiff. In those circumstances, and since I am now giving final judgment, I am satisfied that the requirement of CA s 237(2)(a) is met.

105    Mr Spinks does not contend that there is no serious question to be tried, for the purpose of s 237(2)(d).

106    Mr Spinks’ principal submission is that Athena is not “acting in good faith”, within the meaning of s 237(2)(b) and that she has not demonstrated, as required by s 237(2)(c), that it is in the best interests of Enterprises that she be granted leave.

107    The undisputed circumstances upon which Mr Spinks relies are as follows:

– there is only one creditor of Enterprises, Athena, who is a secured creditor;

– the company has never traded and has never been active;

– the company’s debt to Athena under the charge far exceeds its remaining asset, namely, whatever is left in the ANZ bank account;

– if Enterprises’ claims against Irene, Regina and Joanna succeed, Enterprises will recover no more than the amount of the funds lent to the company by Dionysios, together with interest;

– all that would be received by Enterprises from Irene, Regina and Joanna would go straight to Athena, not as a shareholder or person entitled to be registered as a shareholder, but as the only secured creditor of the company.

In support of his submissions, Mr Spinks relies on Swansson v R.A. Pratt Properties Pty Ltd (2002) 42 ACSR 313, which was followed and applied by the Court of Appeal in Chahwan v Euphoric Pty Ltd (2008) 65 ACSR 661.

108    Counsel for Athena made no response to these submissions.

109    In Swansson and in Chahwan it was held (at [42] and [74] respectively) that in order to demonstrate that he or she is acting in good faith for the purposes of CA s 237(2)(b), an applicant must show that the injury sought to be redressed by the derivative action, if leave is granted, is necessarily dependent upon, or connected with, the applicant’s status as a person within s 236(1)(a), namely, a current or former shareholder or a current or former officer. Accordingly, where a creditor, who happens to be a shareholder, seeks nothing more by the derivative action than to place the company in a financial position to repay the debt, such an applicant will not be acting “in good faith” for the purpose of s 237(2)(b) because, in reality, the applicant is seeking to vindicate his or her interest only as a creditor.

110    In Chahwan, the applicant for leave, a shareholder, claimed that the company held certain property for him upon a constructive trust. The property had, however, been mortgaged by the company to a third party. If the applicant were ultimately to receive the property, the mortgages would have to be set aside but the only party having standing to commence proceedings to set aside the mortgages was the company, which declined to bring the proceedings. The applicant therefore sought leave under s 237 to bring a derivative action. The Court of Appeal upheld the trial judge’s refusal to grant leave.

111    Tobias JA, with whom Beazley and Bell JJA agreed, founded upon the undeniable fact that if the applicant succeeded in his claim for a constructive trust, the only possible person who would benefit from the derivative action would be the applicant in his character of beneficiary of a constructive trust, to the exclusion of the company, its creditors and its shareholders: [89]. In the present case, the interest which Athena has in the derivative claims cannot be as a shareholder of Enterprises. If the derivative claims succeeded and Enterprises recovered from Michael, Irene, Regina and Joanna, Athena would benefit in her character as a shareholder only if she made no claim against the company as a creditor. In that event, the proceeds of the claim would be available to both shareholders, i.e. Michael and Athena, in the proportions 60% and 40% respectively. It is inconceivable that Athena would allow that to happen. Plainly, Athena’s real objective in applying for leave is to take the whole of the proceeds of the derivative claims as a secured creditor of Enterprises pursuant to the charge.

112    In those circumstances, the injury sought to be redressed by the derivative claim has nothing to do with Athena’s status as a shareholder, or as a person entitled to be registered as a shareholder, of Enterprises. The derivative claims would not be an abuse of process because they would be prosecuted to achieve a proper purpose, namely, to recover property for the company, but in prosecuting the claims Athena would not be acting in good faith for the purposes of CA s 237(2)(b) because she is seeking to vindicate her interest only as a creditor of the company: see Chahwan at [74].

113    Accordingly, Athena fails to satisfy the requirement of s 237(2)(b), so that leave must be refused.

114    For the sake of completeness, and in case I am wrong in this conclusion, I will express my view as to whether the requirement of CA s 237(2)(c) is met.

115    In Chahwan, the company was insolvent. Accordingly, the best interests of the company were, in substance, the best interests of its creditors: [91]. The Court of Appeal held that the proposed derivative claim was not in the best interests of the creditors. The company had traded and, if the applicant succeeded in all his claims, the former mortgagee of the properties would become an unsecured creditor of the company. It was not clear whether the company had other creditors and other assets so that the applicant had not demonstrated that the best interests of all creditors of the company would be enhanced if the applicant’s proprietary claim against the company succeeded. Indeed, it appeared that in such a case the company’s creditors generally would be substantially worse off: [92]-[93]. Accordingly, the Court of Appeal held that the applicant had not satisfied the requirement of s 237(2)(c).

116    The facts in the present case are very different. As I have noted, Enterprises has never traded. Its only function has been to open a bank account in order to receive the loan moneys advanced by Dionysios. It is presently insolvent because it cannot possibly repay its debt to the estate of Dionysios. Therefore, the interests of Enterprises are in substance the interests of its one and only creditor, Athena as the administratrix of the estate of Dionysios: Walker v Wimborne (1976) 137 CLR 1; Spies v R (2000) 201 CLR 603.

117    In my opinion, a derivative proceeding to recover assets to pay an insolvent company’s only creditor would be a proceeding which is in the best interests of the company, for the purpose of 237(2)(c).

A just claim has miscarried

118    The only claim in the proceedings for which leave under CA s 237 is not required is the claim in deceit against Michael and judgment will be given against him. However, Michael’s evidence strongly suggests that he has taken pains to ensure that whatever assets he has or controls are untraceable or unreachable.

119    The family home is in the name of Irene. It may be that Regina and Joanna also have assets. However, although I have found that Irene, Regina and Joanna acted dishonestly in participating in and receiving substantial benefits from Michael’s fraud upon Dionysios, the only claims for recovery made against them in the proceedings must fail because the remedy sought was by means of a derivative suit in Enterprises’ name and, on the particular facts of this case, leave to bring such a suit could not be given.

120    It is with considerable regret that I have reached this conclusion. My regret is not that the law affords no remedy against Irene, Regina and Joanna. It is that the Plaintiff’s legal advisers have, for some reason, ignored the most obvious and direct remedy in favour of pursuing one which was bound to fail.

121    There is in evidence the deed of charge dated 24 March 2005 which Dionysios took over the assets of Enterprises to secure his loan to the company. Clause 7(7) provides that, upon a default by the company, the “creditor” (now Athena) may appoint a receiver to the “secured property”, which is defined in the widest possible terms and would include a chose in action such as a claim by the company to recover compensation under CA s 1317H and a claim to recover equitable damages or compensation for accessory liability under Barnes v Addy.

122    By clause 8(2)(a)(i), a receiver is given the same rights as are conferred on a receiver under the Corporations Act. By CA s 420(2)(k), a receiver is given power to bring proceedings in the name and on behalf of the company.

123    It would have required only the stroke of a pen for Athena to appoint a receiver to Enterprises. The receiver could then have brought claims for accessory liability against Irene, Regina and Joanna in Enterprises’ name and on its behalf, without any leave under CA s 237 being necessary. It will be clear from my findings that such proceedings by the receiver would have succeeded. The proceeds of a judgment recovered from Irene, Regina and Joanna would then have been paid by the receiver to Athena pursuant to the charge.

124    The peril in which Athena’s derivative claims stood became apparent as Athena’s case began to emerge. On the third day of the trial I raised with Athena’s counsel the proposition that there may be a far more direct remedy available to Athena than a derivative claim which required leave under CA s 237. Counsel said that he would seek instructions. As I have noted earlier, on the following day Counsel informed me that he would proceed with the causes of action pleaded.

125    It is a fundamental requirement of justice in our Courts that a judge must not only act impartially in the conduct of proceedings, but must also be seen as acting impartially: see Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337, at [81] per Gaudron J; North Australian Aboriginal Legal Aid Service Inc v Bradley (2004) 218 CLR 146, at [27]; Cesan v The Queen (2008) 83 ALJR 43, at [71]. This has never meant that judge must sit mute throughout a trial. A judge must ensure that the real issues in dispute between litigants are brought forward and contested fairly. However, the extent to which a judge may go in achieving this object is sometimes problematic.

126    The resources and abilities of parties to conduct litigation are not always evenly matched. The imbalance is more stark when one of the parties is a litigant in person and the other has competent legal representation. The Courts have recognised that a trial judge has a duty to ensure that an unrepresented litigant understands what is happening in the trial, but has no duty to advise the litigant how his or her case would best be conducted: Malouf v Malouf [2006] NSWCA 83, at [94]-[95] per Mason P. Still less has the trial judge the duty to give that kind of advice to a party who has legal representation. To give such advice would be to abandon even the appearance of judicial impartiality.

127    It is sometimes difficult in practice for a Judge to discern the dividing line between elucidating the real issues for trial, on the one hand, and, on the other, advising one of the litigants how best to conduct his or her case. One way for a Judge to avoid the difficulty is to maintain resolute silence even in the face of the looming possibility that a meritorious claim may fail for lack of insight on the part of the party’s legal advisers. Judicial silence may once have been regarded as “a counsel of perfection”: see per Jacobs J in Reg v Watson; ex parte Armstrong (1976) 136 CLR 248, at 294. However, it is no longer commended. In Vakauta v Kelly (1989) 167 CLR 568, at 571, Brennan, Deane and Gaudron JJ said:

“It seems to us that a trial judge who made necessary rulings but otherwise sat completely silent throughout a non-jury trial with the result that his or her views about the issues, problems and technical difficulties involved in the case remained unknown until they emerged as final conclusions in his or her judgment would not represent a model to be emulated.”

See also Galea v Galea (1990) 19 NSWLR 263, at 279; Antoun v R [2006] HCA 2, at [31].

128    In the present case, having asked Counsel for Athena why a receiver could not have been appointed and having engaged in the discussion to which I have referred earlier, I did not feel that I could go further without appearing to advise Athena how best to conduct her case. It seemed that, if the risks of proceeding with the derivative claims were to be avoided, I would have to give express advice in terms of paragraphs [121]-[123] of this judgment. I would also have had to advise that it was not too late, even at that stage in the proceedings, to seek leave to amend the Statement of Claim by joining a receiver appointed by Athena to bring the accessory liability claims in Enterprises’ name. If Mr Spinks had opposed leave to amend, he would have had to show why his conduct of the case would have been prejudiced in a way that could not have been cured by a costs order. This would not have been an easy task, as there could have been no new evidence as a result of the amendment except for the production of the signed appointment of the receiver.

129    If I had given advice to this effect, doubtless the whole trial would have miscarried. In the result, it is Athena’s just claim against Irene, Regina and Joanna which has miscarried.

Costs

130    When a litigant succeeds in the result but is shown to have acted relevantly in the proceedings in a deplorable manner, the Court may, in its discretion, deprive that party of a costs order in its favour: see e.g. Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298, at [477].

131    It will be clear from the findings which I have made that Irene, Regina and Joanna have engaged in dishonest conduct. Their success in these proceedings is due to a technicality and has nothing to do with the merits. It has long been recognised that there are “technical points of law” which, though properly taken, can operate to deny substantive justice: see e.g. Melbourne Steamship Co Ltd v Moorehead (1912) 15 CLR 333, at 342 per Griffith CJ. I will need to be persuaded why I should make a costs order in favour of Irene, Regina and Joanna rather than leave them to bear their own costs of the proceedings.

Orders

132    There will be judgment for the Plaintiff against the First Defendant in an amount to be calculated in accordance with paragraphs [93] and [94]. There will be judgment for the Third, Fourth and Fifth Defendants on the Amended Statement of Claim.

133    I will stand the proceedings over for a short time to enable the Plaintiff to bring in Short Minutes of Order in accordance with these reasons. I will then hear argument as to costs.

– oOo –

LAST UPDATED:
26 February 2009