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[2011] NSWSC 74
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In the matter of PILT Nominees Pty Ltd - Londish v Seller & ors [2011] NSWSC 74 (24 February 2011)
Last Updated: 20 June 2011
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Case Title:
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In the matter of PILT Nominees Pty Ltd - Londish v
Seller & ors |
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Medium Neutral Citation:
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Hearing Date(s):
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Decision Date:
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Jurisdiction:
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Decision:
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Orders made on 2 February 2011 dismissing
applications for the setting aside of judicial advice and repayment of monies.
Order made
24 February 2011 dismissing third and fourth interlocutory processes
and amended originating process against eighth, eleventh and
twelfth defendants
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Catchwords:
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JUDICIAL ADVICE - application by plaintiff to set
aside judicial advice for material non-disclosure and for repayment of trust
funds
paid out to trustees in reliance on such judicial advice - claim by
defendants for variation of injunction to permit payment out
of costs in
accordance with judicial advice - HELD - application to set aside judicial
advice dismissed - injunction varied - CORPORATIONS
- application to declare
invalid winding up resolution of company invalid or, in the alternative, to
terminate winding up pursuant
to s 482 Corporations Act 2001 - application for
leave to commence a derivative suit against the defendant - HELD - dismiss
applications re alleged invalidity
of winding up resolution - leave to commence
a derivative suit refused - PROCEDURE - whether issue estoppel or Anshun
estoppel -
HELD - issue estoppel and Anshun estoppel established |
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Legislation Cited:
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Cases Cited:
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Texts Cited:
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Spencer Bower, Turner and Handley, The Doctrine of Res
Judicata, 3rd edn |
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Category:
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Procedural and other rulings |
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Parties:
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Peter Gregory Londish (Plaintiff) Ross Edward
Seller (First Defendant) PILT Nominees Pty Ltd (Second Defendant) PILT
Managers Pty Ltd (Third Defendant) Baltarna Pty Ltd (Fourth
Defendant) Sanabu Pty Ltd (Fifth Defendant) Radio Nominees Pty Ltd (Sixth
Defendant) A T Lawyers Pty Ltd (Seventh Defendant) Valofo Pty Ltd (in liq)
(Eighth Defendant) Londish Nominees Queensland Pty Ltd (Ninth
Defendant) Vesudi Investments Pty Ltd (Tenth Defendant) Ian Russell Lock
(Eleventh Defendant) John Sheahan (Twelfth Defendant) Sidney Londish
(Thirteenth Defendant) David Charles Bowman (Fourteenth Defendant) Annette
Bowman (Fifteenth Defendant) Davlon Management Pty Ltd (Sixteenth
Defendant) Leighford Pty Ltd (Seventeenth Defendant) Seldam Pty Ltd
(Eighteenth Defendant) Roticil Pty Ltd (Nineteenth Defendant) Grayworth
Pty Ltd (Twentieth Defendant) Tiffany Properties Pty Ltd (Twenty First
Defendant) Masalo Pty Ltd (Twenty Second Defendant) |
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Representation
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Counsel: C J Bevan (Plaintiff) J E Sexton SC
(First, Second & Fourth Defendants F Gleeson SC with D Sulan (Eleventh
& Twelfth Defendants) |
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- Solicitors:
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Solicitors: Hartmann & Associates
(Plaintiff) Atanaskovic Hartnell (First, Second & Fourth
Defendants O'Neill Partners (Eleventh & Twelfth Defendants) PC Evans
(Thirteenth & Fourteenth Defendants) |
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File number(s):
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Publication Restriction:
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Judgment
- HER
HONOUR: Before me for hearing on 1-2 February this year were various
interlocutory applications brought in proceedings commenced
by Mr Peter Londish
in relation to PILT Nominees Pty Limited (the second defendant). These
proceedings are themselves one of a number
that have been commenced in what has
been described as a protracted dispute between members of the Londish family (in
particular,
between Mr Peter Londish and his father and brother-in-law, Messrs
Sidney Londish and David Bowman, respectively).
- The
disputes between the parties have arisen against the background, and must be
considered in the context, of the not uncomplicated
corporate and trust
structure in which the Londish family interests are held.
- Briefly,
at the relevant time, PILT Nominees (as trustee of the Prime Indexed Lease Trust
(PILT)) was the owner of various service
station properties which were the
subject of lease to a major petrol company for a number of years (those
properties now having been
sold). The sole beneficiary of PILT is Baltarna Pty
Limited (the fourth defendant) as trustee of the Baltarna Trust. The sole
beneficiary
of the Baltarna Trust is Valofo Pty Ltd (the company now in
liquidation, to which Messrs Lock and Sheahan, the eleventh and twelfth
defendants, were appointed first as administrators and then liquidators). Valofo
(the eighth defendant) is the wholly owned subsidiary
of Londish Nominees
Queensland Pty Limited (LNQ) (the ninth defendant), which in turn is the wholly
owned subsidiary of Vesudi Investments
Pty Ltd (Vesudi) (the tenth defendant).
The bulk of the shares in Vesudi (after a minority shareholding for the benefit
of Mr Ian
Londish, another son of Mr Sidney Londish, or interests associated
with him) are held as to a third each by companies controlled
respectively by Mr
Peter Londish (Feenix Investments Pty Limited), Mr Sidney Londish (Tiffany
Properties Pty Limited, the twenty
first defendant) and Mr Bowman (Masalo Pty
Limited, the twenty second defendant) as trustees for their respective family
trusts.
- The
relevant chain of control between the respective companies (as summarised by
Palmer J in the context of earlier proceedings in
2010) is that Mr Sidney
Londish and Mr David Bowman, through their respective companies, together
control Vesudi, which controls
LNQ, which in turn controls Valofo; and Valofo is
the sole unitholder of the Baltarna Trust the trustee of which is in turn the
sole
beneficiary of PILT.
- Collectively,
I will refer to Mr Seller, PILT Nominees and Baltarna as the "Trustees",
consistently with the manner in which reference
was made to them on the hearing
of the interlocutory applications, although as I understand it Mr Seller has not
himself conceded
that he holds his interest in the two trust companies as
trustee. The Trustees were represented at the hearing by Mr Sexton SC.
- Separately
represented (by Mr Gleeson SC, appearing with Mr Sulan of Counsel) were Valofo
and the liquidators who have been appointed
to it (Mr Ian Lock and Mr John
Sheahan). Where I refer to them collectively I do so as the Valofo parties,
otherwise I refer to Messrs
Lock and Sheahan simply as the liquidators.
- The
only other defendants appearing on the hearing before me were Mr Sidney Londish
(the thirteenth defendant and Mr Peter Londish's
father) and Mr David Bowman
(the fourteenth defendant and Mr Peter Londish's brother-in-law). These were the
directors of Valofo
who resolved to appoint the administrators and then
liquidators of Valofo. At the hearing on their behalf was Mr Evans, solicitor,
who attended (according to his submissions on costs, forwarded to me after the
close of the hearing) in order to be in a position
immediately to object to any
issue affecting his clients that "was not effectively addressed or challenged"
by Mr Gleeson. (As it
was, Mr Evans did not see the need so to intervene and
simply adopted Mr Gleeson's submissions.)
- Mr
Peter Londish has a number of complaints as to events that have occurred in
relation to the affairs of the companies higher up
the corporate chain than
Valofo and complains about the circumstances in which the decision was made to
place Valofo in external
administration and then in liquidation as a company in
insolvency. He also complains about actions taken by a solicitor, Mr Ross
Seller, (the first defendant) in his capacity as a director of PILT Nominees,
PILT Managers and Baltarna and in relation to his role
as advisor in relation to
the service station investment scheme. Mr Sellers (together with a Mr Crossman
who is not a party to these
proceedings) acted in relation to the setting up of
the structure, through which the Londish family interests invested in the
service
station properties (a structure under which certain tax losses were
apparently relied upon by Valofo to file a nil return for a number
of tax
years).
- In
his substantive proceedings, Mr Peter Londish seeks relief against a variety of
parties:
against Mr Seller and the entities he controls (PILT Nominees, PILT
Managers, Baltarna and a number of other companies), such relief
including a
declaration that the Baltarna Trust was a sham and that Valofo is the sole unit
holder and sole beneficiary of PILT;
orders for the accounting to Valofo by
Baltarna of moneys received by it out of the PILT trust fund and for the winding
up of Baltarna
in insolvency; orders for the winding up in insolvency of PILT
Nominees and PILT Managers; declarations as to Mr Seller's conduct
and orders
that Mr Seller (who it is alleged has at all times held his share in the capital
of PILT Nominees, PILT Managers and Baltarna
as nominee or trustee for members
of the Londish family including Mr Peter Londish; for payment of damages for
breach of fiduciary
duty and an account for moneys paid to Mr Seller or taken by
him out of the money or property of the PILT/Baltarna companies and
trusts);
against Mr Sidney Londish and Mr Bowman, for oppression in the affairs of the
Londish group of companies (Vesudi, LNQ and Valofo);
against Mr Sidney Londish and Mr Bowman, being the appointors of Messrs Lock
and Sheahan as administrators and liquidators of Valofo
(no relief seems to be
sought against the liquidators directly);
against Mr Sidney Londish and Mr Bowman regarding an alleged sham sale to
them of Londish Group assets (home units in a project known
as the Grandview
Project) for no consideration in June 2000 and oppression arising from their
alleged misappropriation of Londish
Group assets and monies since 2004;
and an application is made for the winding up of various companies named as
defendants in Part A of the Amended Originating Process
filed pursuant to leave
granted by Barrett J on 15 November 2010 on the just and equitable ground and/or
for oppression.
- Also
filed on 22 November 2010, pursuant to the leave granted by his Honour, is a
Statement of Claim which pleads (in some 80 or so
pages) the causes of action
"and their particularisation" in support of Mr Peter Londish's claims for relief
in the Amended Originating
Process.
- In
broad terms, the relief that Mr Peter Londish is principally seeking against Mr
Seller and his companies is to recover on behalf
of Valofo the sum of
approximately $9m that it is said has wrongfully been paid out of the company at
Mr Seller's direction or at
his behest. (In that regard, the liquidators of
Valofo have also shown an interest in investigating the conduct of Mr Seller but
Mr Peter Londish's complaint seems to be that they have not done so with
sufficient diligence and have not yet committed themselves
to prosecuting
proceedings for the recovery of sums paid out to Mr Seller and his companies.)
- The
applications before me can broadly be divided into two categories: those
involving the Trustees and those involving the Valofo
parties. At the conclusion
of the submissions in relation to the applications involving the Trustees, I
indicated the conclusion
I had reached on those applications and made orders
accordingly. I informed the parties that I would publish reasons for my decision
as soon as possible thereafter. These are those reasons. I then excused Mr
Sexton from further attendance and proceeded to finish
hearing the applications
involving the Valofo parties. As part of these reasons I now publish my decision
in relation to those other
applications.
- Briefly,
the respective interlocutory applications before me were as follows.
(i) Applications re Trustees
- In
relation to the Trustees, by a Fourth Interlocutory Process Mr Peter Londish
initially sought declaratory relief and orders setting
aside certain judicial
advice given (in 2009 and 2010, respectively) by each of White J and Pembroke J
(that relief not ultimately
being pressed), together with orders for the
repayment of trust moneys paid out in reliance on the challenged judicial advice
(which
relief was pressed). (An order was also sought that Mr Seller file and
serve an affidavit accounting for all trust funds paid out
by trustee companies
under his control.)
- As
a procedural matter, the Fourth Interlocutory Process also sought an order for
the consolidation or listing and hearing together
in these proceedings of
separate proceedings that have brought by the Valofo liquidators (for their
appointment as trustees of PILT
and the Baltarna Trust with these proceedings).
(That application was not in terms dealt with and given that the Valofo
liquidators'
application for the removal of the trustees of those two trusts and
for their appointment under s 70 of the Trustee Act has been listed for
hearing later this week and the applications before me had only been listed for
two days it would not have been
possible to hear the two together without
vacating the hearing before me which did not seem to be the most expeditious way
of dealing
with the various matters in dispute.)
- Mr
Peter Londish has also sought relief against the Trustees in his Third
Interlocutory Process, namely an order for the payment into
Court of a sum of
money currently held in a solicitor's trust account (the Gibson Trust Fund)
which is presently subject to undertakings
earlier given to the Court. This
represents the remaining proceeds of sale of the last service station asset of
PILT. (An order was
also sought by him to restrain any further ex parte
judicial advice applications by the Trustees - a direction along those lines
in due course being agreed by the Trustees).
- The
Trustees, in turn, have sought orders pursuant to an Interlocutory Process filed
by them on 25 January 2011 for the variation
of interlocutory orders made by
Barrett J on 15 (and amended on 18) November 2010, by consent restraining the
payment out of moneys
held in the Gibson Trust Fund. It was said that these
consent orders cut across the operation of the orders earlier made by Pembroke
J
in relation to the payment out of the respective trust funds (i.e. those of PILT
and the Baltarna Trust) of costs in relation to
the matters the subject of the
judicial advice given by his Honour (and potentially, although this was not
conceded by the Trustees,
cut across the subsequent orders made by Ball J on a
further application for judicial advice last year).
- The
orders made by Barrett J included a direction permitting the payment out
(notwithstanding the primary restraint on payment out
of the trust fund made by
his Honour at that time) of the proper costs of Counsel and solicitors for the
Trustees of and incidental
to a direction for the inspection of documents placed
before the Court on the respective judicial advice applications over which
there
was not a claim for privilege. (Hence it did not seem to me likely that his
Honour had intended the injunction to preclude
the use of the trust funds where
that was the subject of a judicial advice costs order.)
(ii) Applications re Valofo parties
- As
against the Valofo parties, Mr Peter Londish has sought orders (and
declarations) under the Third Interlocutory Process for leave
under s 47IB of
the Corporations Act to proceed against Valofo, being a company in
liquidation (it having been joined as a defendant to these proceedings); for
leave under
s 237 of the Act to bring these proceedings by way of derivative
suit on behalf of Valofo; a declaration as to the invalidity of the resolution
made by the board of Valofo (in which an alleged fourth director of the company,
Mr Martin Thompson, did not participate) appointing
the external administrators
to Valofo; and declarations as to the invalidity of the creditors' resolution
for the winding up of Valofo
in insolvency and for the appointment of the
liquidators to Valofo and the winding up of the company; alternatively, an order
for
the termination of the winding up of Valofo under s 482 of the
Corporations Act , with effect from 5 January 2010, on the basis of the
alleged improper conduct of its liquidators or the improper purposes of the
director/creditors who appointed them. (In closing submissions, Counsel for Mr
Peter Londish, Mr Bevan, emphasised that there was
no allegation of improper
conduct or involvement in an improper purpose on the part of the Valofo
liquidators.)
Facts
- Relevant
to an understanding of how the present dispute has arisen is that the investment
of the Londish family in the service stations
in question was an investment that
seems to have been intended to remain in place for a particular time and then be
wound up (on
the expiry of the service station leases), with tax losses being
available to Valofo in the interim. (As I understand it, on the
sale of the
service station properties it was intended that PILT would be wound up, with the
proceeds of sale then being able to
be distributed to its beneficiary, Baltarna,
through which a distribution would be made to Valofo and thence, through the
corporate
shareholdings, ultimately shared by the three arms of the Londish
family (excluding Mr Ian Londish).
- I
have outlined above the broad structure of the Londish family group. Mr Peter
Londish (as did Mr Bowman) became a director of Valofo
in 1995 (the two
replacing Mr Sidney Londish and Mr Ian Londish).
- At
some time in or around 2000 it seems that there was a residential development
project (the Grandview project) involving one or
more of the Londish interests.
The final wash up of this project seems to have been the source of some
dissention between the three
new Londish family members involved in the present
dispute (Messrs Sidney and Peter Londish and Mr Bowman). Indeed, claims in
relation
to the Grandview project (and oppression of Mr Peter Londish's
interests in relation thereto) is one of the matters pleaded in the
Statement of
Claim in these proceedings. (In essence, Mr Peter Londish alleges that he was
excluded from a one third share of profit
from that project, in circumstances
where Sidney and David each took apartments in the development for no costs and
that an "equalisation
payment" was due to him.
- Mr
Martin Thompson, a chartered accountant, had for some years provided accounting
services to companies in the Londish group of companies.
It appears from ASIC
records that in 2002, Mr Thompson was appointed first as a director of Vesudi
and then as a director of Valofo.
(Mr Bowman denies that Mr Thompson was ever in
fact appointed as a director of Valofo but ultimately nothing turns on this
earlier
recorded directorship since Mr Thompson is recorded as having ceased to
be a director of Valofo on 31 October 2003. Mr Peter Londish
says that this was
without his consent but Mr Bevan confirmed that no issue was pressed as to the
authenticity of Mr Londish's resignation
as a director in 2003).
- In
March 2008, Mr Seller (who was involved in the establishment of the overall
investment structure and who presently controls each
of PILT Nominees, PILT
Managers and Baltarna), acting as appointor under the Baltarna Trust Deed,
removed the Baltarna Class Trust
as a beneficiary of the Baltarna Trust thus
leaving Valofo as the only beneficiary of that trust.
- Hotly
in dispute before me was whether in April 2008 Mr Thompson was validly appointed
as a director of Valofo. In evidence was a
copy of minutes of a meeting of
directors of Valofo purportedly held in Sydney at 10am on 8 April 2008 at which
it was resolved that
Mr Thompson be 'reinstated' as a director. The sole
directors of the company at that stage were Mr Peter Londish and Mr Bowman. Mr
Bowman adamantly denies having been in attendance at any such meeting and denies
having agreed to the appointment of Mr Thompson
as a director. The only reason
put forward for the need for an additional director at that time was the need to
sign a document in
relation to the company (for the Deed of Retirement and
Appointment of Trustee in relation to PILT). That document was not signed
by Mr
Peter Londish and Mr Thompson until 17 April 2008 but Mr Peter Londish said it
had been anticipated that it would be signed
on an earlier date. (This reason
for Mr Thompson's appointment was not put forward until Mr Peter Londish's
cross-examination.)
- Mr
Bowman made it clear that he would not have agreed to the execution of that
document (which suggests that the purported appointment
of Mr Thompson might
have been to get around a difficulty with Mr Bowman - something inconsistent
with there having been a meeting
between Mr Bowman and Mr Peter Londish for that
purpose). For his part, Mr Thompson recalls that he was asked to consent to
being
a director and he understood that this was in order to help Mr Peter
Londish with something and to sign a document - presumably the
17 April deed.
However, he does not recall doing anything as a director of the company or
attending any company meetings and when
initially asked about this he did not
suggest that he had in fact been appointed as a director. Mr Thompson's
recollection is limited
to the fact that he has since seen a minute referring to
his appointment as a director (and simply accepts that he may have been
appointed as a director but does not know).
- Mr
Bowman's evidence was that he travelled to Brisbane on 8 April (and there was
documentation recording the accruing of frequent
flyer points on that day).
Although Mr Bowman could not recall precisely when he flew to Brisbane, his
evidence was that he usually
flew up early in the day. I would infer that on
this occasion he did so on the 7.35am flight to which reference appears in the
frequent
flyer records.
- Mr
Peter Londish's evidence in this regard was less credible - his initial
assertion that Mr Bowman was in Sydney for the meeting
later becoming a
suggestion that the meeting was over the telephone. Mr Peter Londish being
unable to say where he was when the meeting
took place. I consider Mr Bowman's
account to be the more credible - first because the company minute is
inconsistent with the likely
travel of Mr Bowman on that day; secondly, because
I would have expected company minutes to record that a meeting was by telephone
if that was indeed that case; thirdly, because it was not until 15 April 2008
that a consent to act as director was signed by Mr
Thompson (which seems to me
to make it more likely that the resolution to appoint him would not have
occurred until after the securing
of that consent on15 April 2008) and,
significantly, because Mr Peter Londish took no steps formally to have recorded
in ASIC's records
the appointment of Mr Thompson as a director of Valofo and
there seems no reason for Mr Peter Londish not to have lodged the necessary
form
notifying of a change of officeholders of the company with reasonable promptness
had the resolution actually been passed at
that time in a meeting (however
convened) with his then co-director Mr Bowman.
- In
May 2008, Mr Crossman (who also is said to have had some involvement in the
establishment of the investment) commenced proceedings
for orders for the
removal of Baltarna and PILT Nominees (as trustees of the Baltarna Trust and
PILT respectively) in circumstances
where it was alleged that the removal by Mr
Seller of the Baltarna Class Trust as a beneficiary of the Baltarna Trust was
void. (It
was in the Crossman proceedings (since settled between the parties)
that the first judicial advice the subject of challenge in the
present
proceedings was given by White J.)
- Certain
interlocutory injunctions were granted by Hamilton J in the Crossman proceedings
intended to preserve the status quo in relation
to the disputed trust funds.
There was then a dispute as to the alleged breach of those orders by reason of a
substantial borrowing
by PILT Nominees on the security of the service stations
still owned by PILT Nominees in June 2008 ($11.3m, of which approximately
$5.3m
was paid to a company controlled by Mr Peter Londish - Davlon Management Pty
Limited).
- Mr
Peter Londish accepted in cross-examination before me that a payment of about
$5.3m had been paid to Davlon, of which he acknowledged
that he had received
about $2m which he said was used for personal expenses and to pay Londish Group
expenses. (In the witness box
he seemed to suggest that he had held this money
as some form of anticipatory offset against the - equalisation payment he
considered
due to him in relation to the profit entitlement he had claimed in
respect of the 2000 Grandview project.) It was accepted by Mr
Peter Londish that
part of the moneys paid to Davlon at that time may have been the subject of a
loan arrangement (and that only
about $300,000 had been repaid) but denied that
there was any fixed time for repayment of any such loan and disputed the amount
of
the payment that might be said to have been a loan).
- The
borrowing by PILT Nominees in June 2008 became the subject of contempt
proceedings (ultimately not pursued) by Mr Crossman against
both Mr Seller and
Mr Peter Londish (and the payment of moneys to Mr Crossman in connection with
the contempt proceedings is something
raised by the liquidators as one of the
questionable matters concerning PILT Nominees and its directors, Mr Seller and
Mr Peter Londish).
- In
early 2009, Mr Bowman and Mr Sidney Londish commenced to take steps to assume
control of the management of the various Londish
Group companies. On 19 February
2009, as the majority shareholders (through their respective family companies)
of Vesudi they signed
a notice of removal of Mr Peter Londish as director of
that company and for his replacement by Mr Sidney Londish (a step subsequently
found by Brereton J to have been valid). Notices were also signed on behalf of
Vesudi and then LNQ purporting to remove Mr Peter
Londish as director of LNQ ad
Valofo respectively. The notice purporting to remove Mr Peter Londish as
director and secretary of
Valofo was issued on 26 February 2009. Those steps
were the subject of a challenge before Brereton J, who gave an ex tempore
judgment
in the matter on 2 October 2009.
- Meanwhile,
on 16 July 2009, Mr Sidney Londish and Mr Bowman purporting to be the sole
directors of Valofo resolved to appoint Mr Lock
and Mr Sheahan as administrators
of the company pursuant to s 436A of the Corporations Act. The first meeting of
creditors was held on 27 July 2009.
- In
August 2009, a litigation lending agreement was entered into by the liquidators.
According to Mr Lock, this was to facilitate investigations
into the affairs of
the company (not to fund any litigation that might ensue therefrom). In August
2009 examination summonses and
orders for production were issued against Mr
Peter Londish and Mr Seller. There was resistance by both to the examinations.
(I mention
this only because of the criticism made by Mr Peter Londish that the
liquidators have been dilatory in the prosecution of claims
against Mr Seller
and his companies.)
- A
second meeting of creditors was convened on 19 August 2009.
- On
2 October 2009, Brereton J delivered an ex tempore judgment on the application
by Mr Peter Londish for a declaration that the administrators
had not been
validly appointed (and for consequential orders). That application was brought
on two bases - first, that the administrators
were not duly appointed (having
regard to the alleged invalidity of the notices removing Mr Peter Londish from
the relevant meeting
- hence squarely raising the issue as to the constitution
of the board at the time of the relevant resolution though not by reference
to
Mr Thompson) and, secondly, that they were appointed for an improper purpose. As
noted in the subsequent appeal judgment, the
case was decided only on the basis
of the invalidity ground (Mr Peter Londish having acceded to that approach).
- Brereton
J held that there was no valid and effective resolution of LNQ to remove Mr
Peter Londish as a director and replace him with
Mr Sidney Londish and therefore
that Mr Peter Londish remained at all material times a director of LNQ; hence
the notice to Valofo
was ineffective and Mr Sidney Londish had never been
appointed as a director of Valofo; thus the appointment of the administrators
was not a valid and effective act on the part of that company.
- Further
resolutions in relation to the replacement of Mr Peter Londish as a director of
Vesudi, LNQ and Valofo were passed on 16 October
2009 (to address the defects
found by Brereton J to have affected some of the notices issued in February
2009). The administrators
nevertheless appealed from the decision of Brereton J
(according to Mr Lock at the instigation of the litigation funder in order
to
challenge the costs orders made against him for which they were responsible).
- In
late October 2009, Valofo's former solicitors (ClarkeKann (NSW) Pty Limited)
served a statutory demand on the company, claiming
the sum of $25,579.75 in
relation to an invoice 29 May 2009. (Mr Peter Londish later took an assignment
for value of this debt in
November 2009, for the purposes of asserting standing
as a creditor of the company, which he duly did). That debt remains unpaid.
- On
26 November 2009, Mr Sidney Londish (having by then been validly appointed as a
director of Valofo) and Mr Bowman resolved, pursuant
to s 436A of the
Corporations Act that Valofo was insolvent and again appointed Messrs Lock and
Sheahan as voluntary administrators.
- Proofs
of debt were lodged by various entities associated with Mr Bowman and others.
(Mr Bowman's evidence was that at least some
of those proofs of debt related to
the payment of legal fees for advice sought in connection with the June 2008
transactions. Mr
Peter Londish disputes that these are genuine debts and Mr
Bevan noted that the liquidators had not admitted them as debts of the
company.
As at the time of the November resolution, however, there was at least the
ClarkeKann debt and a smaller debt owing to the
solicitor now acting for Mr
Sidney Londish and Mr Bowman in these proceedings (Mr Evans). (The existence of
the unpaid ClarkeKann
debt, on which Mr Peter Londish relied for his standing as
a creditor and the failure by his company Feenix Investments to repay
a debt
owing by it to the company - thus suggesting the debt was not a readily
realisable asset of the company - were matters relied
upon by Palmer J in due
course to dispose of the suggestion that the board of Valofo had no basis to
form the opinion that the company
was insolvent on 26 November 2009.)
- On
8 December 2009, a summons was filed by the administrators of Valofo against
PILT Nominees to preserve the trust assets in their
hands (in response to which
undertakings were given to restrain the use of the trust funds which led to the
payment into Court of
the sum of $1.2m and the retention in the Gibson Trust
Fund of approximately $500,000).
- Mr
Peter Londish shortly thereafter commenced proceedings on 10 December 2009,
challenging the administrators' appointment and seeking
an order for the
termination of the administration of Valofo on the basis that it was not
insolvent at the time of the November resolution
and that the resolution had
been passed for an improper purpose. It was apparently alleged that the
administrators were biased.
- These
proceedings were in due course heard by Palmer J ( Londish v Sheahan &
Ors - In re Valofo Pty Ltd [2010] NSWSC 337) in February 2010 and his Honour
delivered his reasons for judgment on 28 April 2010. By the time of the hearing,
a creditors' resolution
had been passed (on 15 January 2010) that Valofo be
wound up and that the administrators be appointed as liquidators. The matter
had
also by then proceeded by way of pleadings, a Statement of Claim having been
filed in January 2010.
- Palmer
J handed down judgment on 28 April 2010. As the precise nature of the issues
which were before and determined by his Honour
is relevant to the liquidators'
estoppel defence to the claims made against them in the present proceedings, it
will be necessary
later to refer in some detail to his Honour's reasons for
judgment. Suffice it to note for present purposes that his Honour held
that the
resolution placing Valofo in liquidation was for a proper purpose [41], namely
to obtain a better return for its sole shareholder,
LNQ; that the involvement of
the administrators in the prior invalid administration of Valofo did not make
them incapable of administering
the affairs of Valofo [45] and, relevantly, his
Honour said that he did not accept the submission made on behalf of Mr Peter
Londish
that the resolution to wind up Valofo was invalid because Valofo was not
validly in administration and was not insolvent and that
it was passed for
improper purposes.
- His
Honour said that there was no doubt that Valofo was placed in administration in
November 2009 (as it had been also in July 2009)
so that the administrators,
with the benefit of litigation funding, could pursue Valofo's rights through its
unitholding in the Baltarna
Trust, to attack the transactions relating to the
service stations and to secure the distribution of the sale proceeds of the PILT
assets to Valofo and thence to their own companies. (It was recognised by his
Honour that those proceedings might be expected to
cause focus to be placed on
the conduct of Mr Peter Londish as director of PILT Nominees. Palmer J noted
that Mr Londish as a director
of PILT Nominees did not wish to be sued in
relation to that transaction [at 20] and observed that Mr Peter Londish's
interest in
the PILT litigation was not primarily concerned with his status as a
creditor of Valofo but with his interest as a director and shareholder
of PILT
Nominees.)
- In
his Statement of Claim in the proceedings that came before Palmer J for hearing,
Mr Peter Londish had sought relief of the same
kind sought here in relation to
the termination of the winding up of Valofo.
- Of
the issues before Palmer J, as expressly noted by his Honour at [8], were not
only whether the liquidators were disqualified from
accepting appointment as
administrators by virtue of their prior dealings with Valofo and with the
appointors and whether the Court
should replace them as liquidators but also
whether the appointment of the voluntary administrators was invalid on the
ground that Valofo was not insolvent and the appointment
was not for a proper
purpose and whether the creditors' resolution to wind up Valofo was
invalid on the ground that the company was not validly in administration and
was
not insolvent, and that the resolution to wind up the company was for an
improper purpose . His Honour noted at [9] that in view of Mr Peter
Londish's agreement that Valofo should remain in liquidation the issues other
than
as to whether the liquidators should be replaced "have practical
consequences only for the costs orders which must ultimately be
made".
- (Palmer
J noted the submission of Mr Burchett of Counsel that the purpose of placing the
company in voluntary administration was improper
because it was not in
accordance with the objects of administration as expressed in s 435A of the
Corporations Act. His Honour expressed the view that the litigation before him
was part of a dispute as to who was to get what out of the proceeds
of sale of
the assets of PILT. The improper purpose alleged by Mr Peter Londish appeared to
be that the placement of Valofo in administration
was to benefit the interests
of Mr Sidney Londish and Mr Bowman through the recovery of assets ultimately for
the benefit of their
companies. His Honour did not accept that there was an
improper purpose.)
- Relevantly,
his Honour noted in his judgment that on 16 October 2009 Mr Sidney Londish was
appointed a director in place of Mr Peter
Londish and that the validity of that
appointment was not in issue. It may be seen from the above that the basis on
which Mr Peter
Londish had attacked the validity of the respective resolutions
in the proceedings before Palmer J had included the allegation that
Valofo was
not insolvent and that the resolution was passed for an improper purpose. What
was also raised (but not pursued) was the
issue as to the constitution of the
board and whether it included Mr Thompson.
- The
Court of Appeal decision handed down its decision on the appeal from the
decision of Brereton J in October 2010. By this time,
as will be apparent from
the above, not only had the administrators had been reappointed but also an
application had been brought
and determined by Palmer J in relation to that
re-appointment. The majority (Young JA and Lindgren AJA) concluded that the
relevant
notices did not purport to be resolutions of Vesudi or LNQ (and thus Mr
Peter Londish had not been validly removed and Mr Sidney
Londish had not been
validly appointed as a director of Valofo on 26 February 2009) but that
purported appointment of the administrators
on 16 July 2009 was not invalid on
the basis that it was just and equitable to make a validating order under s
1322(4)(a) of the Corporations Act . (The question whether the matter
should be remitted for a rehearing on the issue of improper purpose was answered
in the negative
on the basis that Mr Peter Londish had accepted the primary
judge's invitation to decide the matter based on invalidity alone; improper
purpose would have been relevant to the primary judge's discretion to validate
under s 1322(4) which was litigated; and that improper purpose in the relation
to the appointment of the same administrators by the same directors
on 26
November 2009 had, in the interim, been rejected by Palmer J (and there was no
evidence suggesting a change in the position
as regards solvency or anything
else going to improper purposes between 16 July 2009 and 26 November 2009.) (see
Hodgson JA at [36].)
- On
10 November 2010 the ATO issued notices of assessment to Valofo. Although it was
suggested in these proceedings that there was
no power to issue these
assessments (on the basis that they were amended assessments and issued outside
the time within which such
assessments could issue) the evidence from a senior
ATO lawyer was that they were original assessments (a computer glitch having
led
to a computer notice being issued shortly after the manual assessment) and that
the earlier returns being nil returns there was
no deemed assessment for the
years prior to 2004 (hence these were original assessments within time). Mr
Bevan confirmed following
this evidence that there was no issue taken by Mr
Peter Londish as to the tax assessments being invalid for the purposes of this
application.
- I
have referred above to the steps which Mr Lock deposed to having taken since his
appointment with Mr Sheahan as administrator and
then liquidator of the company.
Mr Lock's evidence was that since the completion of the initial investigation,
he and Mr Sheahan
have personally funded the liquidation. Although there were
criticisms of the way in which the administration and winding up had
been
conducted I saw nothing in Mr Lock's evidence to suggest that he was behaving
otherwise than as a professional liquidator conscious
of his position as an
official liquidator (even though not here a court appointed liquidator). I
considered his evidence as to the
basis on which he would act in the liquidation
on independent advice to be a sensible and reasonable approach.
- The
criticisms made of Mr Lock (and by extension Mr Sheahan perhaps) were that he
had delayed in the commencement of proceedings against
Mr Seller and his
companies (explicable in my view due to the desirability of completing
liquidators' examinations and obtaining
and acting on considered advice); had
delayed in lodging an objection to the ATO assessments (explained by reference
to the advice
he had received from the ATO); and his conduct in raising with the
ATO the potential tax exposure of the company (which I can hardly
see is
something that goes adversely to his credit in light of his position as
liquidator and responsibility to ascertain the debts
of the company).
- Finally
by way of background I note that it seems to be accepted that the assets of PILT
were at least worth around $12.5m in 2008
(the liquidators contend they were
worth some $16m). Of that amount Mr Peter Londish himself seems to contend that
a significant
sum was misappropriated by Mr Seller (and certainly his pleading
makes various allegations as to misconduct or breach of fiduciary
duty by Mr
Seller in relation to the payments out of PILT). There is a sum of $1.2m that
has been paid into court. The remainder
is in the Gibson Trust Fund and,
according to Mr Bevan, in danger of imminent dissipation through legal fees. Mr
Gleeson submits
that there has been a highly questionable use of the trust funds
by Mr Seller and by Mr Peter Londish. Whether that is ultimately
established to
be the case is one thing - I simply note that the fact that such allegations
have been made underscores the position
of conflict in which Mr Peter Londish's
present application against the Valofo parties seems to put him.
- I
turn then to the respective applications.
(i) Applications in relation to the Trustees
- Declarations/orders
setting aside judicial Advice
- The
principal relief initially sought by Mr Peter Londish in relation to the
Trustees concerned declarations as to the manner in which
judicial advice had
been sought and obtained by the relevant trustees and for the setting aside of
that judicial advice.
- The
first judicial advice subject to challenge is that given by White J on 2 June
2009 in other proceedings ( In the matter of PILT Nominees Pty Limited &
Anor, no. 2909/2009, unreported) to the effect that the trustees would be
justified in defending the proceedings commenced against them
in May 2008 by Mr
Crossman (and were entitled to have recourse to the assets of the respective
trusts of which they were a trustee
for the purposes of paying the reasonable
costs of defending the proceedings).
- The
second challenged judicial advice is that given by Pembroke J on 2 November 2010
in the present proceedings to the effect that
it was appropriate for the
trustees to retain solicitors and counsel for the purpose of investigating and
determining whether it
was appropriate for them to defend the claims made
against them in the present proceedings (and in proceedings 2009/5645 in this
Court) and that the expenses of so doing could be recouped on an indemnity basis
out of the assets of the trusts of which each is
a trustee.
- Subsequent
to the judicial advice given by Pembroke J in these proceedings, further
judicial advice was obtained from by Ball J on
2 December 2010, in respect of
which there is no challenge by Mr Peter Londish, the effect of which is to
permit the trustees to
have recourse to the assets of the trust funds for the
steps taken in relation to the present application.
- Paragraphs
1 and 3 of the Fourth Interlocutory Process sought declarations that the
judicial advice given by White J and Pembroke
J, respectively, was obtained by a
wilful concealment of material facts or by a misrepresentation of the true facts
and circumstances
which were relevant to the exercise of the discretion to give
judicial advice in the terms sought by PILT Nominees and Baltarna (and,
in the
case of the judicial advice given in November 2010, that the application for
such advice was in breach of an order that I
had made, by consent, in this
proceeding on 6 October 2010).
- (I
note that the 6 October 2010 order in terms was as to the parties conferring
about a regime for the distribution of the sale proceeds
- not as to the
requirement for any notice to be given of an application for judicial advice
under s 63 of the Trustee Act. Hence, it was submitted by Mr Sexton that there
cannot have been any breach of that consent order by the making of the
application
for judicial advice - the parties having conferred and having agreed
to the payment into Court of a certain amount and the retention
of the balance
in the solicitor's trust account. That aspect of the matter was not pressed on
the current application.)
- Paragraphs
2 and 4 of the Fourth Interlocutory Process then sought orders that the
respective judicial advices be set aside pursuant
to s. 63(2) of the Trustee
Act 1925 (NSW).
- A
not insubstantial volume of material was tendered in relation to this aspect of
the applications (on which I understand Mr Peter
Londish was intending to rely
for the allegation that there had been material concealment at the time of the
respective judicial
advice applications), some of which material was the subject
of a disputed claim by the Trustees of privilege.
- In
that regard I note that Mr Peter Londish asserted that the material in question
(being the advices given by various Counsel to
PILT Nominees of which he was a
director) was provided to him not only in his capacity as a director of PILT
Nominees but also as
a co-respondent (with Mr Seller) to a notice of motion in
the Crossman proceedings for contempt of the injunction granted by Hamilton
J.
It was said that it was material the subject of joint privilege and/or common
interest privilege. It was also contended that the
privilege was as much the
privilege of Valofo (as the sole beneficiary of the trust) as it was of the
trustee and that where the
Court has the discretion to grant the beneficiary
access to the material as a beneficiary of the privilege in it for good reason
(relying on Avanes v Marshall [2007] NSWSC 191 at [11]; [15] it should do
so here as the relief sought by Mr Peter Londish was only for orders to benefit
Valofo.
- It
was further submitted by Mr Bevan that I should follow the course adopted by
Einstein J in Agricultural & Rural Finance v Atkinson [2010] NSWSC
1396 at [4], namely to admit into evidence provisionally on the voir dire
all of the evidence to which objection is taken on the ground of privilege,
permit cross examination (if required) on all of that
evidence provisionally on
the voir dire also; and determine the admissibility of that documentary
and oral evidence in the reasons for judgment on the substantive applications.
Mr Sexton objected to that course on the basis that it was not an answer to the
Trustees' concern that by so doing there might be
a loss of privilege vis a vis
the liquidators, who would have a clear interest in obtaining access to the
material. I considered
that the appropriate course was to determine first the
challenge by Mr Sexton to the hearing of the applications to set aside the
judicial advice, so as not to leave open room for argument on privilege issues
unless necessary.
- As
to the question whether I had power to entertain the application by Mr Peter
Londish in this regard, Mr Sexton submitted, at the
outset of the hearing before
me, that Mr Peter Londish's application for the relief sought in paragraphs 1-4
of the Fourth Interlocutory
Process was misconceived for two reasons: first,
that the orders sought for the setting aside of the judicial advice amounted in
substance to an appeal from two first instance judges of this Court that another
first instance judge of the Court is not competent
to entertain; and, secondly,
as I had understood him (although he appeared later to cast this submission in a
different way) that
as the complaints made by Mr Peter Londish were as to the
failure to put material before those judges that would have affected or
changed
their decision, the complaints should go back to the judges who gave the
judicial advice in question. (When the second submission
was later clarified, Mr
Sexton referred to Macedonian Orthodox Community Church v His Eminence Peter
the Diocesan Bishop of Macedonian Orthodox Diocese of Aust and NZ [2008] HCA 42; (2008) 237
CLR 66 as precluding an application retrospectively to White J or Pembroke J to
revoke the judicial advice orders, and submitted that this
must be a matter for
appeal, the advice having already been given - a point conceded by Mr Bevan on
the following day.)
- It
was acknowledged by Mr Sexton that Mr Peter Londish (who appeared on the
judicial advice application before Ball J but on not the
earlier application
before Pembroke J, which was conducted on an ex parte basis) was someone who
would have standing to seek leave
to appeal from the orders made on the
respective judicial advice applications (referring to Cuthbertson v Hobart
Corporation ( [1921] HCA 51; 1921) 30 CLR 16 at [25] and the Macedonian Church
case).
- Mr
Sexton submitted that s 63(2) of the Trustee Act (on which the orders
setting aside the judicial advice were predicated in the Fourth Interlocutory
Process) does not empower a single
judge of this Court to hear an appeal from
the decision of another single judge but simply has effect in determining (if
and when
the issue arises) whether a trustee is entitled to rely upon the
judicial advice as discharging the trustee's duty. The right of
appeal from an
order made in the provision of judicial advice lies under s 63(11) of the Act
and such an appeal is to comply with the provisions of Parts 54 and 55 of the
Uniform Civil Procedure Rules . (Part 55.4 provides that an appeal lies
to the Court of Appeal from an opinion, advice, direction or order given or made
by the
Court under s 63 of the Act.)
- As
I apprehend it, the basis on which Mr Peter Londish maintained that a single
judge was competent to make the declarations and orders
sought in paragraphs 1-4
of the Fourth Interlocutory Process was that this was not in substance an appeal
from the orders made by
White and Pembroke JJ in the giving of judicial advice
(in the sense that I was not being asked to determine that their Honours had
erred in so doing) but, rather, that this was an instance of the jurisdiction of
the Court to set aside an order obtained on an ex
parte basis in breach of the
applicant's duty of candour (such relief being available whether or not the
applicant would have been
entitled to the order in question following full
disclosure).
- In
that regard, I note that in Garrard (T/as Arthur Anderson & Co and ors v
Email Furniture Pty Ltd (1993) 32 NSWLR 662, in the Court of Appeal, Mahoney
A-P, with whom Clarke JA agreed, indicated that it was important that failure to
comply with the
duty of candour on an ex parte application was to be properly
sanctioned and said that an order obtained in breach of that duty would
almost
invariably be set aside. His Honour there drew no distinction between an order
in the nature of an injunction and an order
"which otherwise creates or confirms
rights which otherwise would not exist". (Here, of course, the provision of
judicial advice
by way of order does not, as was noted by Hallen AssJ in
Hargrave v Schumann , unreported 17 November 2010, of itself determine
any rights, though it has the potential to affect parties' rights, and does not
create a res judicata.)
- In
Thomas A Edison Ltd v Bullock [1912] HCA 72; (1912) 15 CLR 679, Isaac J said that when
the court is asked to disregard the usual requirement of hearing the other side,
then the moving party incurs
a most serious responsibility. In the context of a
judicial advice application, however, there is not the 'usual requirement of
hearing'
to which reference was made in the Edison case . In the
Macedonian Church case the High Court noted that s 63 operates as an
exception to the ordinary function of deciding disputes between competing
parties
in that "it affords a facility for giving 'private advice'"; private
because its function is to give personal protection to the trustee.
Their
Honours said "Section 63 reflects a compromise between a procedure for affording
private advice to trustees and the need for
affected persons to be given a
hearing in some cases".
- The
consequence of incomplete disclosure (or concealment) is dealt with in the
proviso to s 63(2), namely that if the trustee is guilty
of any fraud or wilful
concealment or misrepresentation in obtaining the opinion advice or direction
then the trustee is not protected
so far as the trustee's own responsibility is
concerned from a claim for breach of the trustee's duty if the trustee acts in
accordance
with the opinion advice or direction.
- It
seems to me that the appropriate course in the present case, if Mr Peter Londish
sought (otherwise than in the context of an appeal
from the orders by which
judicial advice was given) a determination of the question whether there had
been material concealment in
the obtaining of the judicial advice on either or
both of the occasions on which it had been obtained ex parte, would have been to
seek a declaration, in effect, that the proviso to s 63(2) had not been
satisfied (from which it would follow that the trustees could
not rely on the
judicial advice by way of a defence to an allegation that their conduct was in
breach of their duties as trustees).
That seems to have been what paragraphs 1
and 3 sought to do (though the need for this to be done on an interlocutory
basis might
have been moot) but in any event the application for orders setting
aside the judicial advice on that basis went much further than
that and were
tantamount to an appeal that as a single judge it would not have been competent
for me to entertain.
- In
any event, the issue having been raised only in opening submissions by Mr
Sexton, Mr Bevan requested time to consider that matter.
When the issue came to
be argued on the second day of the hearing, I was informed that Mr Peter Londish
was not pressing his application
for relief in paragraphs 1-4 of the Fourth
Interlocutory Process (and formally sought leave to withdraw the claims for
orders setting
aside the judicial advice of White J and Pembroke J) and was
limiting that part of the Fourth Interlocutory Process relating to judicial
advice to paragraph 5.
- Accordingly,
all that remained for me to determine in this regard was the application by Mr
Peter Londish for an order for the repayment
of trust funds paid out to the
trustees in reliance on that earlier judicial advice for their legal fees.
- In
supplementary submissions handed up on 2 February 2011, it was indicated that Mr
Peter Londish sought the repayment of trust monies
paid out for legal fees by
the trustees after the judicial advice was given by White J and Pembroke J (and
to challenge the Trustees'
right to assert the protection of that judicial
advice as an answer to that recovery claim), by disputing the satisfaction of
the
proviso in s 63(2) (even though, insofar as such a challenge was raised in
paragraphs 1 and 3 of the Fourth Interlocutory Process,
those paragraphs were
not by then being pressed).
- For
completeness, I note that the alleged material and intentional non-disclosure on
relation to both judicial advice applications
fell within three broad
categories:
first, the alleged failure to take their Honours to material in
relation to the payment of trust monies to Mr Seller and his companies
(disclosed in the affidavit sworn by Mr Seller in the Crossman proceedings); to
the motion in which PILT Nominees and its directors
had been charged with
contempt for breach of Hamilton J's orders; and to an affidavit sworn by Mr
Seller in which he gave his account
of the genesis and terms of PILT and the
Baltarna Trusts and his role in them (and, in particular the failure to disclose
that Mr
Seller was "planning to expend significant trust monies to fund the
defence of his own personal position in the Crossman proceedings,
both as the
principal defendant to them and as the principal respondent to the contempt
motion (in which Crossman was pressing for
Seller's imprisonment if found guilty
because of its flagrancy ... by utilising the same lawyers as the corporate
trustees which
were seeking the advice).
secondly, the failure to inform their Honours of an opinion from Senior
Counsel in March 2009 analysing Mr Seller's position as legal
advisor of the
Londish group and controlling director of the trustees of PILT and the Baltarna
Trust, in which it was said a number
of 'damning conclusions' were made as to
the conduct of Mr Seller based on the evidence in an affidavit sworn by him; and
thirdly, the failure to disclose an opinion from another Senior Counsel in
May 2009 as to the (said to be detrimental) taxation consequences
to Valofo from
the upholding of the claims made on PILT and the Baltarna Trust by both Messrs
Crossman and Seller as the advisors
of Valofo for an interest in the trust
funds.
- It
was submitted that had their Honours been fully informed of this evidence it is
highly unlikely that the judicial advice in question
would have been given (or
that any such advice would have been given so as to preclude Mr Seller from
utilising trust funds for the
defence of his own position).
- It
was further submitted that the factual non-disclosure before Pembroke J was more
flagrant for two reasons - first, that even less
material was provided to
Pembroke J than had been provided (even if not referred to) before White J; and,
secondly, by reference
to a comparison with the more extensive material put
before Ball J only a short time after the ex parte application to Pembroke J.
As
to timing issues, reliance was placed on the fact that Pembroke J was not
informed of observations made by Palmer J only one week
earlier as to Mr
Seller's unreasonable application to set aside an examination summons and his
unreasonable refusal to cooperate
with Valofo's liquidators in that regard.
- As
noted above, the claim for declaratory relief in this regard was not pressed.
Rather an order for the repayment of the trust funds
drawn by the Trustees with
the benefit of the judicial advice was sought by Mr Peter Londish on the basis
that there is no prima
facie right for a trustee to expend trust funds in the
defence of allegations of breach of trust (it being necessary for a trustee
to
obtain judicial advice before defending such proceedings). Therefore, it was
said, unless the Trustees could satisfy the proviso
to s 63(2) they could not
rely on the advice to justify the retention of the payment out of the trust
funds.
- However,
in circumstances where Mr Peter Londish was not pressing the claims for
declaratory relief in relation to the alleged concealment,
it seemed to me that
there was a difficulty for him to establish, on an interlocutory basis, that
there was a serious question to
be tried that the withdrawal of the trust funds
for the payment of legal expenses was in breach of trust. That is so because,
until
set aside (or a declaration is made that there had been misrepresentation
or wilful concealment so as to preclude reliance on the
judicial advice), the
Trustees would have the benefit of the judicial advice in order to defend such a
claim.
- What
the order in paragraph 5 is necessarily predicated upon is a determination as to
whether there was a serious question to be tried
that there had been a breach of
trust in relation to the withdrawal of the funds (and, in relation to funds
already withdrawn, one
that would more sensibly be dealt with at the conclusion
of the hearing, since the moneys had already been disbursed) and/or whether,
prospectively, there would be a breach of trust if further funds were withdrawn
in accordance with the judicial advice.
- The
concern, from Mr Peter Londish's point of view, was in effect put as one of
timing. It was submitted by Mr Bevan that what was
sought was a regime whereby
the money be repaid and placed into Court so as to preserve the trust assets
(and so that if, at the
end of the day, the proviso to s 63(2) was not satisfied
then there would be no loss to the beneficiary, Valofo). Mr Sexton, however,
contended that this misconceived the function of judicial advice and that, such
advice having been given, the trustees are entitled
to rely on it in the absence
of an appeal pursuant to which it is set aside. He submitted that the risk of
depletion of the trust
fund by the payment of those costs must have been
something that had already been taken into account in the judicial advice given
by the 3 separate judges of this Court (White, Pembroke and Ball JJ).
- Ultimately,
I formed the view that what the application for the relief in paragraph 5 of the
Fourth Interlocutory Process required
me to do was impermissibly to revisit the
judicial advice that had already been given insofar as it required me to form a
view as
to whether there was a serious question to be tried that the withdrawal
of funds (notwithstanding the orders permitting that withdrawal)
was a breach of
trust. If a question as to balance of convenience were to have arisen, then it
seemed to me that it was also relevant
that the only funds now to be expended
out of the trust funds, in accordance with the judicial advice already obtained
are those
necessary for the costs that Pembroke and Ball JJ considered
appropriate for the Trustees to incur in obtaining advice as to whether
to
defend the proceedings and as to the costs of the application before Ball J.
Those costs, it seemed to me, were likely to be of
a relatively confined
compass.
- Mr
Bevan suggested that the matter should proceed by way of a voir dire to
determine whether there was a prima facie case for intentional
non-disclosure.
However, in circumstances where what was ultimately sought was the relief in
paragraph 5, on an interlocutory basis,
for repayment of moneys predicated on
there having been a breach of trust in the disbursement of those in the first
place (which
required an assessment of the entitlement of the Trustees to rely
on the judicial advice that had been given but where there had
been no appeal
therefrom and the declaratory relief was not pressed), I did not consider it
appropriate to entertain a procedure
that might have other implications as
between the various parties (in relation to any claim by the Valofo parties that
legal professional
privilege in certain of the material relied upon by the
Trustees had been waived).
- I
was therefore not satisfied that the order sought in paragraph 5 should be made
on an interlocutory basis.
Remaining relief
- The
remaining relief sought by Mr Peter Londish against the Trustees related to the
application in the Fourth Interlocutory Process
for an order requiring Mr Seller
to update an affidavit of payments made (in earlier proceedings) pursuant to the
orders of White
J and the order sought in paragraph 3 of the Third Interlocutory
Process for the production of what seemed to be extensive company
and financial
records.
- As
to the first, as already noted the affidavit in question was sworn in other
proceedings (the Crossman proceedings) in which White
J had made the first of
the orders for judicial advice now being challenged. Mr Bevan informed me that
Mr Seller had consented to
the provision of that information in the earlier
proceedings (and, as I understood it, in the context of the pending contempt
application).
- Mr
Sexton submitted that the relief sought in paragraph 6 was otiose insofar as it
was being sought in aid of the relief claimed in
paragraph 5, if that relief was
not being granted (as I had indicated). Mr Bevan pressed that relief on the
basis that Mr Peter Londish
had incomplete knowledge of what had happened since
Mr Seller had sworn his affidavit in the Crossman proceedings and that it was
necessary to have that information in order to finalise the expert evidence in
these proceedings. I was told that some expert evidence
has already been
prepared and what is sought is information from Mr Seller to update that
evidence. It seemed to me that, put on
this basis, what was really being
required was an exercise in the nature of a combination of preliminary discovery
and a direction
for the service of affidavit evidence in advance of the ordinary
timetable. As I am informed that the expert evidence has already
been served in
Mr Peter Londish's case, all that would now happen, as I understand it, if the
additional material were to be served
would be for there to be an updating
affidavit filed from the expert(s). I saw no reason why orders should be made
for this at this
stage of the proceedings.
- As
to the second matter, I considered that the provision of financial records
should be dealt with in the course of discovery. Again
this was sought in order
to facilitate the preparation of evidence by Mr Peter Londish but that evidence
has already been served.
I saw no reason to make orders for discovery at this
stage in advance of the pleadings having closed. In particular, I was concerned
that, until the Trustees had received advice as to whether to defend the
proceedings, it would not be known what stance would be
taken by them and it
might be that the cost of compliance with orders for the provision of documents
at this stage would be wasted
- either because the claims would not be defended
or because the issues on the pleadings might then be confined to a more limited
scope. (I note that Mr Sexton had indicated that if an order of this kind were
made he would seek that it be on terms that the Trustees'
costs of complying
with it should be paid on an indemnity basis immediately out of the trust fund.)
I was not persuaded that it was
appropriate to make such orders at this stage.
- In
relation to the application for an order for the payment into Court of the
moneys currently held in the Gibson Trust Fund on the
basis of the allegation
that the Trustees and PILT Managers had dissipated or were proposing to
dissipate the moneys in that fund
by the procedure of regular applications for
judicial advice to authorise the expenditure of the fund. Criticism was made in
this
regard of the liquidators in not opposing the payment out of moneys from
the trust funds and in not opposing the ju dicial advice
application made on 2
December 2010 to Ball J. I did not accede to this application on the basis that
it did not seem to me that
I should proceed on the basis of an assumption that
the Trustees would act in contempt of the orders made by Barrett J - and the
present application to vary those orders was an indication that they took their
obligations to comply with them seriously. If so,
and the only other withdrawal
was as permitted by the Court, then the premise on which this order is sought
seems to be that I should
assume in advance that incorrect judicial advice might
be given in future in this regard. I do not think that is a proper basis on
which to make such an order and I can see no advantage to Valofo in having the
money held in Court as opposed to held subject to
undertakings proffered to and
orders made by the Court.
- (On
the remaining application by Mr Peter Londish, the Trustees consented to an
order for notice to be given of any further application
for judicial advice at
the time such an application was filed.)
Trustees' claim for variation of injunctions
- I
turn then to the claim by the Trustees for the variation of the terms of the
injunction granted (by consent) on 18 November 2010
to permit the drawing of
funds the subject of the orders for judicial advice made by White and Pembroke
JJ (and to remove any doubt
as to the ability of the Trustees to draw down from
the quarantined funds the amounts permitted by the orders of Ball J, which have
not been challenged).
- Mr
Sexton noted that the orders sought by the Trustees relate to costs and
disbursements incurred since the application for judicial
advice to Pembroke J
(including the applications before each of Barrett J and Ball J); the costs of
the exercise authorised by Pembroke
J for the investigation of whether to defend
the proceedings and the costs of the application before me. An order was also
sought
to permit the release of funds the subject of earlier undertakings which
undertakings had been superseded by the orders made by Barrett
J.
- Mr
Bevan made it clear that Mr Peter Londish did not oppose the withdrawal of funds
as contemplated by the order of Ball J and that,
if that required any variation
to the 18 November orders of Barrett J, then there was no opposition to such a
variation. However,
other than as noted above, Mr Bevan submitted that variation
of the order was not appropriate in the absence of proof of a material
change in
circumstances. Mr Bevan referred to the :heavy onus [for an applicant] in
seeking to disturb an order made in the exercise
of a discretionary power" (
Philip Morris v Adam P Brown Male Fashions Pty Ltd [1980] FCA 82; (1980) 31 ALR 232 at
253.3; affirmed at (1981) 148 CLR 457 (HCA); and also Permewan Wright
Consolidated v A.G. (1978) 35 NSWLR 365 at 367.E (Reynolds JA),
applying Gamser v Nominal Defendant [1977] HCA 7; (1977) 136 CLR 145).
- Mr
Sexton in response submitted that the consent orders were made without argument
before his Honour and in the context of a busy
Corporations List.
- It
seemed to me that this was not an application by reference to a change in
circumstances but by reference to the fact that the interaction
between this
order and the orders that had only shortly before been made by Pembroke J had
not been fully appreciated by the parties
(and I doubt had been drawn to his
Honour's attention).
- In
the circumstances I considered it appropriate, to avoid any further dispute as
to the interaction between Barrett J's order restraining
payment out of the
funds and the orders made by Pembroke and Ball JJ in relation to the payment of
costs out of the trust fund, to
make orders formally varying the November
orders.
Costs
- As
to the Trustees' costs of the present application, Mr Bevan submitted that for a
number of reasons the appropriate order was for
costs to be reserved until the
conclusion of the proceedings. First, it was said that there had been a number
of problems beyond
the Mr Peter Londish's control (in that he had received no
notice of the first two applications for judicial advice) and that he
had
asserted either a joint or common interest privilege in the advices received by
the Trustees, which question had not been determined
(one way or the other).
Secondly, it was submitted that it was premature to award costs against a party
suing in a representative
capacity (on behalf of Valofo) until the allegations
against the Trustee had been determined on the merits. (In passing I note that
Palmer J did not accept that Mr Peter Londish's motives for bringing a similar
application had been so altruistically motivated -
rather, his Honour saw Mr
Peter Londish as being motivated by a desire not to be sued. Be that as it may,
Mr Peter Londish has nevertheless
taken it upon himself to assert claims that he
recognises it would be open to the liquidators to bring against the Trustees and
there
is an element of multiplicity of costs in this regard.)
- Mr
Sexton sought costs orders to follow the event and that they be paid out of the
assets of the trust in accordance with the judicial
advice given by Ball J.
- I
considered it appropriate, where the main substance of the application brought
against the Trustees and the time spent in debating
that application (as well as
the bulk of the material tendered by Mr Peter Londish) related to orders for the
setting aside of judicial
advice by two other judges of this Court and where
that relief was not ultimately pressed (and was conceded in submissions not to
be appropriate), costs should be awarded in favour of the Trustees
(notwithstanding that Mr Peter Londish has commenced the proceedings
in a
representative capacity on behalf of the corporate trustee and even accepting
his assertion that he has been hampered by a lack
of information from the
Trustees).
- Accordingly,
I made orders in accordance with the Short Minutes handed up by Mr Sexton.
- I
turn then to the applications made against the Valofo parties on which I
reserved my judgment.
(ii) Application for relief re Valofo parties
- Under
the Third Interlocutory Process, broadly speaking, the relief sought is twofold:
first, to declare the winding up resolution
in relation to Valofo to be invalid
or alternatively to terminate the winding up of Valofo (and on either basis to
effect the removal
of the liquidators) and, secondly, for leave on the part of
Mr Peter Londish to commence a derivative suit against Mr Seller and
the trustee
companies with which he is associated for, inter alia, the recovery by Valofo of
money allegedly taken by Mr Seller and
his companies in breach of trust. (Mr
Peter Londish's determination to have the conduct of the proceedings himself,
rather than leave
them to the liquidators of Valofo to commence, is evident from
the fact that a lengthy (over 80 page) Statement of Claim has already
been filed
with some apparent expedition in 6 weeks, I was told, (and expert evidence has
been prepared ahead of the close of pleadings).
- The
hearing of the application in relation to the first of those matters is of some
urgency, since there is on foot an application
(listed this week) by the
liquidators for their appointment pursuant to s 70 of the Trustee Act as
the new trustees of the two trusts (PILT and the Baltarna Trust) or,
alternatively, as the receivers of the remaining trust funds
of the trusts
(being the funds paid into Court or held in the Gibson Trust Fund). As I
understand it, the liquidators' application
is intended to facilitate the
pursuit of a claim for return of the moneys distributed out of PILT and/or the
Baltarna Trust funds
(potentially against Mr Peter Londish and Davlon as well as
Mr Seller and his companies) so as to secure a return to Valofo. Mr Lock,
in
cross-examination, indicated that this course of action was based on Senior
Counsel's advice due to a concern that there might
be an as to the standing of
Valofo otherwise to pursue the claims it sought to bring in relation to the
payments made out of the
trust funds. (This application is opposed by Mr Peter
Londish on the basis that it will cause the collapse of the trusts by the
merging
of the interests of the trustee and beneficiary. That will be a matter
in due course to be raised on the liquidators' application
and it is not
appropriate for me to comment on that matter, save to note that the liquidators
point to the personal interest he has
in proceedings not being brought against
him.)
- As
to the relief sought under s 482 of the Act (i.e., to terminate the winding up)
is concerned, Mr Bevan made it clear that this
was final relief being sought at
an interlocutory stage of the proceedings (not interlocutory relief). Mr Bevan
explained that bound
up with this is the issue as to the validity of the
resolution to place Valofo into liquidation at the end of 2009.) The application
to terminate the winding up is thus said to be coupled with the application for
leave under s 237 (Mr Bevan conceding that while
the company is in liquidation
leave under s 237 is precluded by reference to the decision in Chahwan v
Euphoric Pty Ltd [2008] NSWCA 52; (2008) 245 ALR 780; 65 ACSR 661 ). On the basis that this
is put as final relief, Mr Gleeson submits that if the claim in relation to the
winding up is unsuccessful
the Amended Originating Process should be dismissed
as against his clients (and Mr Bevan did not suggest otherwise).
- An
initial difficulty for Mr Peter Londish is that he has already sought (more than
once) to challenge the appointment of the administrators
to Valofo. He did so
before Brereton J (and then in the Court of Appeal) having regard to the
invalidity of the notices issued by
LNQ and Valofo but had raised at that time
also an issue as to the improper purpose of the resolution in question. He did
so again
before Palmer J raising again issues as to the invalidity of the
resolution there under consideration on grounds including as to
the solvency of
the company and the alleged improper purpose of the parties appointing the
administrators. He now brings a further
challenge in relation to the November
2009 resolution, asserting that there was a fourth director (Mr Thompson) on the
board of the
company and that he had been excluded from the board meeting but
also again raising issues of solvency of the company and improper
purpose. Not
surprisingly, the liquidators maintain that Mr Londish is estopped from so doing
- either by way of the principle of
issue estoppel or by way of an Anshun
estoppel.
- Mr
Peter Londish's main complaint before me as to the validity of the resolution to
wind up Valofo is that he says the company was
never validly put into
administration. He then says that the other directors who attended the
creditors' meeting and voted to wind
up the company were not valid creditors
(pointing to the fact that only two people who were voting as creditors had
proofs of debt
accepted by the liquidators - Mr Peter Londish, who had taken an
assignment of debt from a creditor, and Mr Evans, the solicitor
acting for the
twelfth and thirteenth defendants, who he says had a conflict of interest in
voting on the resolution).
- Another
difficulty for Mr Peter Londish's application is that since the winding up
resolution was passed, the Australian Taxation
Office has raised an assessment
of some $3.7million against Valofo, which if valid would leave little doubt that
it is now insolvent,
but I am asked not to take that into account in exercising
a discretion to terminate the winding up of Valofo.
- I
turn to the respective matters on which relief is sought.
s 471B application
- A
preliminary issue is as to the leave sought under s 471B of the Corporations
Act for Mr Peter Londish to have leave to proceed against Valofo Pty Limited
(in liq) (as a nominal defendant). The claim is said to be
pleaded for the
benefit of Valofo as the sole beneficiary of PILT and the Baltarna Trust.
Relevantly, Mr Bevan says that the oppression
case is not pleaded against
Valofo. A review of the Statement of Claim confirms that relief is not sought
directly against Valofo.
- Section
471B provides that:
While a company is being wound up in insolvency
or by the Court, or a provisional liquidator of a company is acting, a person
cannot
begin or proceed with:
(a) a proceeding in a court against the company or in relation to property of
the company; or
(b) enforcement process in relation to such property
except with the leave of the Court and in accordance with such terms (if any)
as the Court imposes.
- This
ensures that a company in liquidation does not face a multiplicity of legal
proceedings that are expensive, time consuming and
potentially unnecessary (
Altinova Nominees Pty Ltd v Leveraged Capital Pty Ltd (Receivers and Managers
Appointed) (in liq) [2009] FCA 42 [17 - 19]).
- As
to the principles pursuant to which leave to proceed will be granted, it has
been held that the Court's discretion is broad but
not absolute, and must be
exercised fairly. It can only be exercised if a serious question to be tried is
shown ( King v Yurisich [2006] FCA 1369; (2006) 59 ACSR [9 - 15]). There
is not an exhaustive list of the circumstances in which it may be appropriate
for the Court to grant
leave to proceed, but they have been said to include
factors such as the amount and seriousness of the claim, the degree of
complexity
of the legal and factual issues involved, and the stage to which the
proceedings, if already commenced, may have progressed ( Nommack (No 100) Pty
Ltd v FAI Insurances Ltd (in liq) [2003] NSWSC 359; (2003) 45 ACSR 215; Re Gordon Grant and
Grant Pty Ltd [1983] 1 Qd R 314 [317]).
- Where
claims are made in relation to the property of a company in liquidation
the question considered is usually whether there is a suitable alternative means
of proceeding (such as
the submission of a proof of debt). The question whether
a plaintiff should be granted leave under s471B is then largely reduced to one
of choosing between alternative forms of procedure ( Re Gordon Grant and
Grant Pty Ltd [1983] 1 Qd R 314 per McPherson J [317]; Vagrand Pty Ltd
(in liq) v Fielding (1993) 41 FCR 550 [555]; Swaby v Lift Capital
Partners Pty Ltd [2009] FCA 749 [24]).
- Mr
Bevan submits that there is no need for such leave but has sought it in response
to the issue having been raised by the liquidators.
The reason that Mr Bevan
submits that leave is not necessary is that he says Mr Peter Londish is not
seeking relief against Valofo's
property as such but, rather, is seeking to sue
for Valofo's benefit under a derivative action. In other words, Mr Bevan says
that
s 47IB is concerned with a claim upon the property of the company rather
than, as is the case here, a claim which seeks to reinstate
the property of the
company.
- Insofar
as Valofo is joined to the present proceedings only as a necessary party and no
relief is sought against it, I am of the view
that it would be appropriate to
make the order sought. As it is, in light of my findings on the remaining issues
to be considered,
nothing turns on this issue.
Issues re validity of winding up/termination of winding up
- Of
the more substantive issues before me, I consider first the issues relating to
the winding up of Valofo and the position of the
liquidators, since that is
relevant to whether the claim for leave to bring a derivative suit can be
sustained.
- Logically,
before considering whether the contentions as to the invalidity of the winding
up resolution are correct, it is necessary
to determine the claim that Mr Peter
Londish is estopped from pursuing his claims by reason of an issue estoppel or
Anshun estoppel.
Only if the estoppel issues are determined contrary to the
liquidators, does the question arise as to whether the resolutions to
place the
company in administration and then in liquidation are invalid by reason on the
exclusion from participation of Mr Thompson
(and the assertion that article 55
of Valofo's articles can be relied upon to validate those resolutions) or as to
whether the discretion
should be exercised to terminate the winding up of the
company.
- (Apart
from the concern as to the insolvency of the company and the perception that
these proceedings are an attempt to thwart the
liquidators in their recovery
actions, the other fundamental matters put by Mr Gleeson against the grant of
leave to Mr Peter Londish
in the present case are that the liquidators and the
main creditor (ATO) both oppose the grant of leave and that Mr Peter Londish
has
not offered appropriate indemnities or security to ensure that Valofo is
properly protected in the event that proceedings are
commenced it its name
(though I note in that regard that Mr Bevan has proffered an undertaking by Mr
Peter Londish to meet any conditions
set for the grant of leave).)
- Mr
Gleeson submits that the present challenge to the appointment of the liquidators
raises the same essential facts as those raised
in the proceedings determined
Palmer J in 2009 adversely to Mr Peter Londish and is no more than a second run
of the case brought
by Mr Peter Londish in the proceedings heard by and
determined. (There was no appeal from the decision of Palmer J.)
- In
particular, Mr Gleeson submits that the following factual issues have been
raised in both proceedings:
Whether Mr Sidney Londish and Mr David Bowman constituted the board
of Valofo at the time that the administrators were appointed;
Whether Mr Thompson was appointed a director of Valofo in April 2008;
Whether Valofo was insolvent in January 2010 when the liquidators were
appointed;
Whether the appointment of the administrators was for an improper purpose;
and
Whether the winding up resolution invalid because Valofo was not validly in
administration or was not insolvent or because the winding
up resolution was
passed for an improper purpose.
- In
respect of those issues it is submitted that Palmer J:
accepted that the board was properly constituted at [19], [21]
implicitly rejected that Mr Thompson was a director by reason of that finding
[19], [21]
held that Valofo was insolvent at the relevant time; [28]
rejected the assertion that the appointment of the administrators was for an
improper purpose; [47] and
rejected the assertion that the winding up resolution was invalid because
Valofo was not validly in administration, was not insolvent
or was passed for an
improper purpose [40]-[41].
- Those
same facts are put in issue in the Third Interlocutory Process (see paragraphs
[11] - [13] for the first two issues; [12] and
[17] for the third; [15] and [16]
for the fourth; and [13] - [17] for the fifth. The corresponding paragraphs of
the Statement of
Claim and Defence in the 2009 proceedings are noted as follows:
Statement of Claim [7]-[10]- Defence [7[-[9],[19]
Statement of Claim [10](a) -Defence [9], [19]
Statement of Claim [10] - Defence [9].[19
Statement of Claim [10] - Defence [9], [19]
Statement of Claim [14]-[22] - Defence [13[, [19]
- Reference
is made also to paragraph [8] of Palmer J's reasons for judgment (in which his
Honour summarised the four issues that he
saw as having arisen for
determination).
- I
was taken to the Written Submissions handed up on behalf of Mr Peter Londish in
the Palmer J proceedings and to the List of Issues
and written submissions
handed up on behalf of Mr Sidney Londish and Mr Bowman in those proceedings
(together admitted as Exhibit
4 in the present proceedings) in support of the
proposition that the constitution of the Board (and in particular whether Mr
Thompson
was a member of the Board at the relevant time) had been before his
Honour (although the latter was ultimately not pressed as an
issue for
determination by his Honour). (Mr Bevan submits that these are irrelevant for
the purposes of considering whether there
is an issue estoppel and that, in
considering either estoppel, reliance cannot be placed on what was contained in
the submissions
put on behalf of the liquidators in the Palmer J proceedings.)
Issue estoppel
- Diplock
LJ in Thoday v Thoday [1964] P 181, 197-198, [1964] 1 All ER 341, [1964]
2 WLR 371 explained the concept of issue estoppel as a species of estoppel res
judicatam:
[Estoppel per rem judicatam] ... is a generic term which
in modern law includes two species. The first species, which I will call
'cause
of action estoppel', is that which prevents a party to an action from asserting
or denying, as against the other party, the
existence of a particular cause of
action, the non-existence or existence of which has been determined by a court
of competent jurisdiction
in previous litigation between the same parties. ...
The second species, which I will call 'issue estoppel', is an extension of the
same rule of public policy. There are many causes of action which can only be
established by proving that two or more different conditions
are fulfilled. Such
causes of action involve as many separate issues between the parties as there
are conditions to be fulfilled
by the Plaintiff in order to establish his cause
of action; and there may be cases where the fulfilment of an identical condition
is a requirement common to two or more different causes of action. If in
litigation upon one such cause of action any of such separate issues as to
whether a particular condition has been fulfilled
is determined by a court of
competent jurisdiction, either upon evidence or upon admission by a party to the
litigation, neither
party can, in subsequent litigation between one another upon
any cause of action which depends upon the fulfilment of the identical
condition, assert that the condition was fulfilled if the court has in the first
litigation determined that it was not, or deny that
it was fulfilled if the
court in the first litigation determined that it was. But 'issue estoppel'
must not be confused with 'fact estoppel', which, although a species of
'estoppel in pais', is not a species
of estoppel per rem judicatam. The
determination by a court of competent jurisdiction of the existence or
nonexistence of a fact, the existence of which is not of
itself a condition the
fulfilment of which is necessary to the cause of action which is being litigated
before that court, but which
is only relevant to proving the fulfilment of such
a condition, does not estop at any rate per rem judicatam either party in
subsequent
litigation from asserting the existence or non-existence of the same
fact contrary to the determination of the first court ." (my emphasis)
- In
Fidelitas Shipping Co Ltd v V/O Exportchleb [1966] 1 QB 630, 641 his
Lordship said:
The final resolution of a dispute between parties as
to their respective legal rights or duties may involve the determination of a
number of different 'issues,' that is to say, a number of decisions as to the
legal consequences of particular facts, each of which
decisions constitutes a
necessary step in determining what are the legal rights and duties of the
parties resulting from the totality
of the facts . To determine an
'issue' in this sense, which is that in which I shall use the word 'issue'
throughout this judgment, it is necessary
for the person adjudicating upon the
issue first to find out what are the facts, and there may be a dispute between
the parties as
to this. But while an issue may thus involve a dispute about
facts, a mere dispute about facts divorced from their legal consequences
is not
an 'issue'.
- In
P&O Nedlloyd BV v Arab Metals Co & ors (No 2) [2006] EWCA Civ 1717; [2007] 1 WLR 2288
at [24], reference was made by Moore-Bick LJ to the explanation of the test for
distinguishing those facts, the determination of which will
give rise to an
estoppel, in Spencer Bower, Turner and Handley, The Doctrine of Res Judicata
, 3 rd edn, as involving the enquiry as to "whether the determination was so
fundamental to the decision that the latter cannot stand
without it."
- In
Champerslife Pty Ltd v Manojlovski & Anor [2010] NSWCA 33 at [106],
Handley JA P said:
The test for an issue estoppel or a cause of
action estoppel is objective. For issue estoppel it is whether the precise
question of
fact or law sought to be litigated in the later proceedings was
decided in the earlier as a fundamental basis for the decision .
For cause of
action estoppel it is whether the cause of action in the later proceedings is in
substance the same as that litigated
to judgment in the former. (my emphasis)
- In
Blair & Perpetual Trustee Co Ltd v Curran (Adam's will) [1939] HCA 23; (1939) 62 CLR
464 , Dixon J said at 531-2:
A judicial determination directly
involving an issue of fact or of law disposes once for all of the issue, so that
it cannot afterwards
be raised between the same parties or their privies. The
estoppel covers only those matters which the prior judgment ... necessarily
established as the legal foundation or a justification of its conclusion ...
- Writing
extra-judicially in "Res Judicata: General Principles and Recent Developments",
Handley AJA said this of issue estoppel:
Another form of res
judicata is issue estoppel. A judicial decision on one cause of action may
require the court to d e cide issues of fact or law which may become
issues in
later litigation between the same parties involving a different cause of action.
If the first court determines, by evidence
or admission, that some ingredient of
a cause of action does or does not exist, and that determination was fundamental
to the decision,
it will issue estop the parties in later litigation. The
leading Australian decision is Blair v Curran particularly the judgment
of Dixon J. Issue estoppel, as its name implies, only applies to issues. There
is no estoppel as to evidentiary
facts or legal questions which are no more than
steps in reasoning to the determination of an issue. ...
The doctrine of issue estoppel extends to issues that were assumed or
conceded in the prior litigation.
A decision on an issue against the party who succeeded does not give rise to
an issue estoppel because it was not fu n damental to
the decision in his
favour. Where several grounds for succeeding on a cause of action are upheld,
there is no estoppel on the separate
findings because none are fundamental.
Examples include a number of particulars of negl i gence, or different breaches
of the same
contract occurring at the same time. There will be cause of action
estoppels but no issue estoppel as to any particular of negligence
or particular
breach.
Anshun Estoppel
- The
principle articulated by Sir James Wigram VC in Henderson v Henderson
[1843] EngR 917; (1843) 3 Hare 100 at 115 was as follows:
[W]here a given matter
becomes the subject of litigation in, and of adjudication by, a Court of
competent jurisdiction, the Court
requires the parties to that litigation to
bring forward their whole case, and will not (except under special
circumstances) permit
the same parties to open the same subject of litigation in
respect of a matter which might have been brought forward as part of the
subject
in contest, but which was not brought forward, only because they have, from
negligence, inadvertence, or even accident, omitted
part of their case.
- In
Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45 ; 147 CLR 589
at 602-3 Gibbs CJ, Mason and Aickin JJ said:
... there will be no
estoppel unless it appears that the matter relied upon ... was so relevant to
the subject matter of the first
action that it would have been unreasonable not
to rely on it. Generally speaking it would be unreasonable not plead a [matter]
if,
having regard to the nature of the plaintiff's claim, and its subject matter
it would be expected that the defendant would raise
the defence and thereby
enable the relevant issues to be determined in the one proceeding. In this
respect we need to recall that
there are a variety of circumstances, some
referred to in the earlier cases, why any party may justifiably refrain from
litigating
an issue in one proceeding yet wish to litigate the issue in other
proceedings eg expense, importance of a particular issue, motives
extraneous to
the actual litigation, to mention but a few.
- In
Anshun (at 603) it was further said that:
It has generally
been accepted that a party will be estopped from bringing an action which, if it
succeeds, will result in a judgment
which conflicts with an earlier judgment ...
The likelihood that the omission to plead a defence will contribute to the
existence
of conflicting judgments is obviously an important factor to be taken
into account in deciding whether the omission to plead can
found an estoppel
against the assertion of the same matter as the foundation for a cause of action
in a second proceeding. By "conflicting"
judgments, we include judgments which
are contradictory, though they may not be pronounced on the same cause of
action. It is enough
that they appear to declare rights which are inconsistent
in respect of the same transaction.
- Allsop
P i n Champerslife at [4] emphasised that the mere fact that the matter
could have been raised does not mean it should have been raised (for the
operation
of the Anshun principle), repeating the statement in Anshun itself
that the matter " has to be so relevant as to make it unreasonable not to
raise it ". (my emphasis). Substantial similarity in the factual basis for
the claims is said to be a necessary but not sufficient condition
for
application of the principle ( Gibbs v Kinna [1998] VSCA 52; [1999] 2 VR 19 per Kenny
JA).
- In
Charben Haulage Pty Ltd (in liq) V Beilby (t/as Costello) [2010] NSWSC
510, it was noted that there are a variety of circumstances in which a party may
justifiably refrain from litigating an issue in one
proceeding yet wish to
litigate the issue in other proceedings (such as expense, the importance of the
particular issues, and motives
extraneous to the actual litigation). The test
remains one of reasonableness having regard to the circumstances.
- In
Champerslife , at [107] - [109], Handley JA, having considered the test
for issue estoppel, went on to consider the broadening of the enquiry to
be
undertaken where the question was one of Anshun estoppel and made it clear that
the enquiry in such a case is not restricted to
the pleadings and reasons for
judgment (and hence in the present case there can be no suggestion that it would
be inappropriate to
take into account the submissions that were made before the
Court in the previous proceedings). His Honour said:
The principle
in Henderson v Henderson [1843] EngR 917; (1843) 3 Hare 100 [67 ER 313] at p 115 [p 319]
widens the scope of both forms of res judicata estoppel without introducing
subjective factors. The test is whether
the new point "properly belonged to the
subject of litigation" in the earlier proceedings. The relevant evidence is
restricted to
the pleadings in both proceedings and the reasons for judgment in
the earlier.
Where the extended form of res judicata in Anshun or Johnson i
s in issue the enquiry is extended to include the reasonableness of the
litigant's conduct in the earlier proceedings, or the existence
of an abuse of
process in the later.
Application of the above principles
- Mr
Gleeson submits that the matters sought to be re-agitated before me were all
fundamental matters to the case determined by Palmer
J and that in those
circumstances Mr Peter Londish is estopped from seeking to re-litigating any of
those issues in the present case
(citing Blair v Curran and Murphy
vAbi-Saab (1995) 37 NSWLR 280 per Gleeson CJ at 287-8). It was said that to
allow Mr Peter Londish to do so would be against the administration of justice
and
would risk inconsistent findings from the same Court in respect of the same
issues. Broadly speaking I accept that submission.
- In
particular, Mr Gleeson noted that before Palmer J, Mr Peter Londish had adopted
an inconsistent position in relation to the insolvency
question (as he had done
before me) in asserting that Valofo was not insolvent yet relying on an unpaid
debt owed to him as giving
standing to bring the claim as a creditor of Valofo
and in seeking to attack the debts of other creditors that had incurred debts
to
ClarkeKann for the same legal work as his assigned debt.
- Those
matters were said to be in issue before Palmer J (in the sense that his Honour
decided Valofo was insolvent and that the creditors
who had voted on the winding
up resolution did not act for an improper purpose).
- Mr
Bevan contends that no res judicata has arisen as there has been no
merger in a judgment of an issue determined by a Court (as distinct from issues
which could have been
determined but were not). He submits that the case which
Mr Peter Londish now maintains on the Third Interlocutory Process is not
the
same as that which was determined by Palmer J and stresses what he describes as
the 'limited nature' of that decision.
- In
essence, Mr Bevan says that all that was determined by Palmer J determined (and
hence all that he seemingly accepts as capable
of giving rise to an issue
estoppel) was the application to disqualify the liquidators from holding office
as liquidators on the
grounds of conflict of interest and improper purpose. This
submission rests on the proposition that because Mr Peter Londish withdrew
a
proposed application to challenge the validity of the winding up (as Palmer J
noted at [6]) there was no determination of any issue
in relation to that
challenge. (It must be noted, however, that in the proceedings before Palmer J,
Counsel then appearing for Mr
Peter Londish made it very clear that he was still
pressing the issue of the solvency of the company and Palmer J made findings in
relation to that issue which he considered of relevance in relation to the
question of costs.)
- Mr
Bevan submits (and I broadly accept) that the question as to whether there is an
issue estoppel is to be determined on the pleadings
with reference to the
judgment (and that the materials tendered before Palmer J as contained in
Exhibit 4 are irrelevant for that
purpose), citing Chamberlain v DCT
[1988] HCA 21; (1988) 164 CLR 502 at 507-509.
- However,
while it may be that the case for primary relief, as it was finally put before
his Honour (see [42] of his Honour's judgment),
was limited to the challenge to
the appointment of Messrs Lock and Sheahan as administrators and later as
liquidators of Valofo,
it is also necessary to consider what issues fell to be
determined by his Honour when considering the exercise of his discretion
both as
to the principal relief and as to the question of costs. (Further, the fact that
a case was put forward and abandoned in
relation to the challenge to the
resolutions by reference to the constitution of the board is a matter that goes
directly to the
reasonableness of Mr Peter Londish now challenging the validity
of the relevant resolutions and the winding up itself on the very
same basis -
to be considered in the context of the Anshun estoppel defence.)
- There
are, in essence, three areas of potential overlap between the proceedings - the
allegations as to the constitution of the board
at the relevant time(s); the
allegations as to the solvency of the company; and the allegations as to
improper purpose.
- As
to the first, the constitution of the board at the relevant time or times, I
accept that the validity of the resolution by reference
to the constitution of
the Board was not pressed for determination by his Honour (though the
constitution of the board appears to
have been an assumed fact - and issue
estoppel can lie for facts assumed by the court which are necessary to determine
an issue in
the proceedings). It was, however, pleaded in paragraph 10(a) of the
Statement of Claim that Mr Thompson was "another validly appointed
director ...
who did not participate in the decision". Was that assumed fact fundamental to
or necessary for the determination of
the issues in the proceedings before
Palmer J? His Honour seemed to consider that all of the issues as identified by
him in paragraph
[8] of his judgment (including the determination of the issue
as to whether the company was validly in administration) were necessary
to
determine for the purposes of the relief sought (if only as to costs) and on
that basis it might be said that the issue of the
constitution of the board (and
the adoption of the assumed fact that it was comprised only of Mr Sidney Londish
and Mr Bowman) were
necessary for his decision and could give rise to an issue
estoppel. I accept, however, that there is more doubt in relation to the
question as to the constitution of the Board.
- It
seems to me that there is a reasonable argument that it was not necessary for
the determination of the issues set out above (or
a necessary or relevant matter
to take into account on the costs application) that a finding be made as to the
precise constitution
of the board in November 2009. Therefore, I am left in some
doubt as to there being an issue estoppel on this particular issue. (Given
the
conclusion I have reached on the Anshun estoppel, it is not necessary to resolve
this issue. Had it been, then I would have found
there was an issue estoppel
based on the pleading of Mr Thompson's valid appointment to the board and his
Honour's apparent acceptance
that the two members of the board at the relevant
time were Mr Sidney Londish and Mr Bowman.)
- Apart
from the submission that the administrators were never validly appointed as such
under s 436A(1) of the Act (by reason of the exclusion of Mr Thompson from the
resolution to appoint them), which is the first ground on which the
challenge to
the validity of the winding up was made, there other two grounds relied upon for
the relief sought relate to the alleged
solvency of the company and the
allegations in relation to improper purposes.
- The
bases on which Mr Bevan submitted in these proceedings that a finding should be
made as to the invalidity of the winding up of
Valofo by its creditors on 26
November 2009 and the appointment of the joint administrators as the company's
joint liquidators on
that date under s 439C(c) of the Act (or should
alternatively make an order terminating the winding up) covered broadly similar
ground.
- As
to the question of solvency, it is submitted that Valofo was not insolvent on 26
November 2009, and that none of the persons who
voted in support of the
resolution to wind up the company in insolvency at that stage believed it to be
insolvent. In support of
this submission it is said that Valofo at that stage
had only two valid creditors - Mr Peter Londish (by reference to the debt of
which he had taken an assignment) and Mr Evans (the solicitor for Valofo, Mr
Sidney Londish and Mr Bowman) for a debt claimed in
the sum of $5,000 for legal
fees. It was submitted that Mr Evans was precluded from voting at the meeting
(being the company's solicitor),
in that he was then retained by Valofo to
advise it on its external administration and possible liquidation and was
casting a decisive
vote at the creditors' meeting because the only other valid
creditor was Mr Peter Londish and he had opposed the winding up resolution.
No
authority was cited for that proposition. Insofar as the issue is one of a
conflict between Mr Evans' personal interest in the
debt owed to him and his
duties as a solicitor to the company, on ordinary principles one would consider
that proper disclosure would
have addressed the situation. Moreover there might
well be a distinction between a claim for fees relating to the liquidation or
administration itself (for which a claim might lie in the administration of the
insolvency and a claim for prior fees more generally
incurred in relation to
services to the company). In any event, nothing ultimately turns on this issue.
- Insofar
as Mr Sidney Londish, Mr Bowman, and their respective wives and trustees of
their family trust purported to vote as creditors,
Mr Bevan points to the fact
that their proofs of debt had not been assessed by the administrators and were
not subsequently accepted
by the liquidators (although I note that Mr Lock says
the liquidators have not ruled on any proofs of debt other than that of the
ATO). It is therefore contended that Mr Peter Londish was the only creditor
entitled to vote on the resolution and his vote against
the resolution should
have prevailed.
- (In
particular, Mr Bevan submits that there was no evidence to support the claims
for the nominal debts claimed to have been owed
to Mr Sidney Londish, Mr Bowman,
their wives and their family trust trustees and referred to what was said by
Palmer J [2010] NSWSC 337 at [23].)
- For
the purposes of considering whether there is an issue estoppel on these matters,
I note that the issues ultimately determined
by Palmer J as to the solvency of
the company at the relevant time were matters that his Honour was pressed by
Counsel then appearing
for Mr Peter Londish to determine. There was an express
election not to withdraw those allegations. That can only have been seen
by Mr
Bevan's client, therefore, as essential to the determination of the claim for
relief in that case. His Honour's determination
as to whether the appointment
was for an improper purpose must have taken into account the findings made in
relation to the solvency
of the company.
- In
terms of the issue of insolvency therefore (that being a ground on which I was
pressed to make determinations in Mr Peter Londish's
favour in the current
proceedings) and as to the position of creditors, those were the subject of
express findings by his Honour
and I consider that there is a clear issue
estoppel in that regard.
- In
relation to the improper purposes ground, it is submitted that the persons who
voted to place Valofo into liquidation were acting
for an improper purpose
(namely to procure the liquidators to recover from Mr Seller and companies under
his control the remaining
$ 1.8m in the PILT trust fund and, after sharing the $
1.8m remaining trust funds with the liquidators' litigation funder (the
percentage
share attributed thereto being 40%), to pay it to themselves in equal
shares to the exclusion of the plaintiff as a one-third ultimate shareholder
of Valofo , consistently with what is alleged to have been Mr Sidney Londish
and Mr Bowman's exclusion in 2000 of Mr Peter Londish from the
one-third share
the latter claims of the Londish Group's 30% interest in an $11.9m profit of the
Grandview apartment complex project.
This is said to be different from the
improper purposes alleged before Palmer J in 2010.
- Pausing
there, Mr Bevan made it clear that Mr Peter Londish was not conducting that the
liquidators were acting for any improper purpose
(although they are criticised
for a number of matters (delay in the commencement of proceedings for the
recovery of moneys paid out
to Mr Seller and his companies; the manner in which
the ATO was notified of the potential tax issue leading up to the issue of the
tax assessments; and failure to lodge an objection to the tax assessments within
a 60 day period). The improper purpose alleged by
Mr Peter Londish seems,
therefore, to be one referable to what the controlling minds of Valofo might do
if and when moneys are received
by the company (and after the payment out by the
liquidators of the company's debts). A distribution to the company's sole
shareholder
(LNQ) would leave any surplus funds paid out of the liquidation to
be distributed or used by it. Mr Peter Londish's concern is that
until the funds
are in the hands of Vesudi (and perhaps even then) he has no control over their
distribution. That, however, does
not seem to me to provide a basis on which I
could conclude that the decision to place Valofo into administration and then
liquidation
was part of a grand scheme to deprive Mr Peter Londish of benefits
to which his family trust company might ultimately become entitled
as a
one-third shareholder of Vesudi.
- Mr
Bevan contends that the purpose found by Palmer J at [39] is not the improper
purpose now alleged. It is said that Mr Peter Londish
now contends that the
improper purpose was the recovery of trust assets by third party controllers of
Valofo (the liquidators) to
facilitate the distribution of its assets upstream
to Messrs Sidney Londish and Bowman, to the exclusion of Mr Peter Londish as a
one-third shareholder of Valofo, consistently with the historical course of
conduct of the affairs of Valofo, which Mr Peter Londish
alleges in his Amended
Originating Process and Statement of Claim amounts to oppressive conduct.
(Reference is made to the so-called
2000 'Grandview Project profit' as an
example of that oppressive conduct.) It is said that no such case was sought to
be made out
before Palmer J.
- The
case as pleaded before Palmer J particularised the improper purpose for which
the November appointment was said to have been made
in paragraph 10(c) as
including that it was made "for the purpose of pursuing in the name of Valofo
the claims of [Mr Sidney Londish
and Mr Bowman] (and their respective entities
in respect of the Baltarna Trust and PILT, in order to procure a distribution to
Valofo
and hence to them without accounting to the Plaintiff for their previous
drawings, liabilities incurred and payments made by him
in accordance with the
accounts of the Londish Group and/or without personal expense or liability for
costs". True it is that there
is no express reference to oppression; however,
the exclusion of Mr Peter Londish from claimed entitlements is raised.
- In
that regard, it seems to me that the distinction sought to be drawn between the
purpose so pleaded and that Palmer J found not
to be improper and the improper
purpose that it is now alleged to have been held (if in truth there be a
distinction) is somewhat
disingenuous. Both purposes encompass the winding up
the company so as to enable a claim for the recovery of the funds in question
(and the exclusion of Mr Peter Londish from a share therein) - the only
difference in the present proceedings seems to be that there
is an elaboration
upon that purpose to allege that such conduct would amount to oppression (of a
kind said previously to have occurred).
The immediate purpose remains the same
and is improper or not as the case may be. What is now pleaded with more
precision is the
legal consequence of what is said would flow from
implementation of that purpose. However, the exclusion of Mr Peter Londish from
a distribution of funds to which he claims to be entitled (being the foundation
for the oppression claim) seems also to be encompassed
in both ways in which the
improper purpose is alleged.
- Palmer
J held that the purpose underlying the decision to appoint the administrators
was not an improper purpose (and the Court of
Appeal later made a conscious
decision not to remit the matter on the improper purpose issue in relation to
the July 2009 resolution,
in light of Palmer J's finding). In my view the
overlap between the allegations in relation to improper purpose is such that an
issue
estoppel does arise on this aspect of the claim (although there would be
no issue estoppel as to whether the conduct, if it occurs,
does amount to
oppression).
- While
there may be a question as to whether an issue estoppel arises as to the
constitution of the Board (and the consequences of
a finding as to Mr Thompson's
appointment or otherwise as a director of the company) (although on balance I
consider there is, it
being an assumed fact that seems to have been a matter
necessary to his Honour's determination of the issues then before him), in
my
view the conduct of the case in relation to this issue clearly gives rise to an
Anshun estoppel.
- Mr
Bevan submits, and it was not disputed, that as the liquidators assert an
estoppel defence to the Third Interlocutory Process,
they bear the onus of
making good that estoppel defence. He correctly points out that an Anshun
estoppel depends on reasonableness. That reasonableness is to be determined
objectively.
- Mr
Bevan submits that, save for Exhibit 4, there is no evidentiary basis for the
contention by the liquidators that it was unreasonable
not to bring before
Palmer J for determination the issues now before the court. He submits that the
liquidators bear the onus of
proving that Mr Peter Londish had available one
year ago, when he sought to challenge the fitness of Messrs Lock and Sheahan to
act
as the liquidators of Valofo, all of the information and evidence on which
he now relies to terminate the winding up in the Third
Interlocutory Process. I
am not satisfied that the requirement to establish unreasonableness goes so far
as a requirement to establish
precisely what evidence the plaintiff had to raise
a claim that it is said should have been raised in the earlier proceedings. In
any event, this submission fails because the evidence establishes that (whatever
evidence may then have been available) it was sufficient
for Mr Peter Londish to
have raised the issue in his pleadings and submissions (and I do not accept that
I should assume that he
did so without having a proper basis for so doing).
- What
the Anshun principle requires is that a party bring forward its whole case
(unless it is reasonable not to do so) rather than
not raising issues relevant
to the case at hand and leaving those to be the subject of litigation in
separate proceedings.
- Mr
Gleeson submits that, absent any or any proper explanation from Mr Peter
Londish, a close connection between the facts in the sets
of proceedings makes
it unreasonable for him not to have agitated the issue in the earlier
proceedings (citing Ling v The Commonwealth [1996] FCA 1646; (1996) 68 FCR 180 at 184;
Zavodnyik v Alex Constructions Pty Ltd [2005] NSWCA 438; (2005) 67 NSWLR 457 at [39]- [40]).
- In
the present case it is submitted, and I accept, that the overlapping facts are
significant. Both the Palmer J proceedings and the
present proceedings concerned
the validity of the appointment of the liquidators by reference to the
composition of the board of
Valofo, the insolvency of Valofo in 2009, and the
alleged improper purpose of the winding up resolution on 5 January 2010. The
evidence
establishes that Mr Peter Londish was aware of the issue as to the
appointment of Mr Thompson. He can hardly not have been, since
it was he who
prepared the relevant Board minute (in the meeting, he says, though he cannot
recall where or when or even how that
meeting took place) and since he then
entered into the Deed of Retirement and Appointment of Trustee with Mr Thompson.
- Where
the principal factual issue in this case involves the composition of the board
of Valofo, it is relevant to note that this was
in issue not only before Palmer
J but also before the Court of Appeal, in considering the appeal from Brereton
J's decision.
- Mr
Bevan asserts that much of the evidence now relied on by Mr Peter Londish has
only become available since the application was made
to Palmer J. However, in
this regard he is referring not to the evidence in relation to Mr Thompson but
to the evidence in relation
to the status of those creditors who purported to
wind up the company (and even then this seems to be on the basis of
non-acceptance
of proofs of debt that were challenged by him at the time of the
Palmer proceedings in any event). The evidence in relation to Mr
Thompson is
evidence of which Mr Peter Londish must have been aware at all relevant times,
since the assertion that he was a director
is one that was made in the
submissions handed up to Palmer J (paragraph 6 (ix) (c) - "The resolution
appointing the Administrators
was not of the Board, in that it involved only 2
of the at least 3 directors; Martin Thompson having not been involved "
(my emphasis)).
- The
relevance of Exhibit 4 is disputed by Mr Bevan. Insofar as it contains his own
client's submissions it is said that it addresses
a case proposed to be made but
later withdrawn by Mr Peter Londish and that as no reasons for its withdrawal
were given the only
available inference is that Mr Peter Londish was not then
confident that he could then make out a challenge to the validity of the
winding
up a year ago. Mr Bevan submits that this suggests that it was not unreasonable
to expect Mr Bevan to have done so on advice.
However, Palmer J's reasons
suggest that the withdrawal of the claim based on invalidity of the resolution
was in fact predicated
on an objection to the identity of the liquidators as not
being independent which to me suggests an abandonment of any other claim
in
relation to the winding up resolution (at [7] Palmer J noted that Mr Burchett
had informed the court "that Mr Londish was not
now opposed to Valofo remaining
in liquidation; what he really sought was the removal of Messrs Sheahan and Lock
as liquidators and
their replacement by a liquidator whom Mr Peter Londish
regarded as independent". Insofar as I can draw any inference from what was
apparently said to Palmer J at the time, it would not support the conclusion for
which Mr Bevan now seems to contend.
- Insofar
as the objection to reliance being placed on Exhibit 4 is put on the basis that
the submissions of the defendants can hardly
support an Anshun estoppel
against Mr Peter Londish as he has no control over their defences, that seems to
me to ignore the fact that in considering
the reasonableness of Mr Peter Londish
now seeking to raise allegations made and not pursued before Palmer J (when the
same issues
were there being considered) one matter to take into account would
surely be that the parties had prepared for the hearing on the
assumption that
this was an issue and the election not to pursue that claim must surely have
been taken as a considered decision
not to challenge the winding up on that
ground. (In that regard it is relevant to note that the Court of Appeal did not
consider
it appropriate to remit an undecided issue for determination where the
parties had proceeded at trial on the basis that the determination
of the
remaining issue would be determinative of the outcome.)
- It
seems to me that even if there is no issue estoppel arising in relation to the
allegations that relate to Mr Thompson's membership
or otherwise of the Board,
this is a clear case where an Anshun estoppel would arise.
- It
seems to me to be wholly unreasonable for Mr Peter Londish now to plead a case
that Mr Thompson was a director at the relevant
time when he has already raised
this in earlier proceedings (and presumably allowed the defendants to go to
Court assuming that they
would need to meet such a case) and has then withdrawn
it in circumstances where it must surely be seen as part of the whole of the
circumstances on which the appointment of the administrators was to be
challenged if that challenge were to be pursued. To test that
proposition it
seems to me that it would be surely be unreasonable for there to be a succession
of attempts to challenge the validity
of the winding up based on the status of
one or more additional persons as members of the Board. Insofar as the issue was
before
Palmer J as to whether the company was validly in administration (even if
the only practical consequence of that issue by the time
of judgment was as to
costs orders) and Mr Peter Londish was aware of and had already raised an issue
as to Mr Thompson's membership
of the Board, it seems to me that it was
reasonable to expect that any such issue be determined then and there and not in
any separate
proceedings at a later time.
- In
relation to the suggestion that the improper purpose ground is now being put
differently from that before Palmer J, again I think
it manifestly unreasonable
for the whole of the case on unreasonableness not to have been articulated
before his Honour. The vice
of that not having been raised is that it highlights
the public policy rationale underlying the estoppel - namely the risk of
inconsistent
findings. The very fact that Mr Bevan submitted that, had the Court
of Appeal been aware of the alleged fourth director it might
have come to a
different decision in the exercise of its discretion, implicitly acknowledges
the relevance of that matter to the
issues considered by Palmer J.
- Tellingly,
it is submitted for Mr Peter Londish that "it is questionable whether any relief
at all would have been granted by the
Court of Appeal had it been aware that the
exclusion from the decision-making process to place Valofo into administration
was not
merely of one director, as the Court assumed to be the case (so that he
was bound to be outvoted by the other two directors, Messrs
Bowman and Sidney
Londish, in any event) but rather of half of its directors (Messrs Thompson and
Peter Londish), which necessarily
led to a deadlocked board and no resolution to
go into administration being passed at all." If so, then it illustrates the risk
of
inconsistent findings by reference to the failure of Mr Peter Londish to
raise all his complaints in relation to the winding up at
the earlier time.
- In
conclusion, therefore, I find that Mr Peter Londish is precluded by way of issue
estoppel from raising in the present proceedings
the three grounds on which he
seeks to rely to terminate the winding up or otherwise to obtain declarations as
to the invalidity
of the winding up - being the constitution of the board, the
alleged solvency of the company and the improper purpose allegations
(now said
to constitute oppression). I further consider that even if an issue estoppel had
not arisen in relation to any one or more
of those issues, Mr Peter Londish
would now be estopped by way of application of an Anshun estoppel from raising
those issues.
- That
disposes of the claims against the Valofo parties on the winding up aspect of
the matter. However, I proceed to consider briefly
what the position would have
been had I decided that Mr Peter Londish was not so estopped.
Appointment of Mr Thompson
- The
significance of this issue arises first as to whether Article 55 would operate
to validate any otherwise invalid directors' resolution.
- Article
55 of the Valofo articles provides:
A resolution in writing, signed
by the majority of the Directors for the time being entitled to receive a notice
of a meeting of Directors,
shall be valid and effectual as if it had been passed
at a meeting of the Directors duly convened and held...
- It
is acknowledged that as at the time the company was placed into administration
in July 2009, Mr Sidney Londish and Mr Bowman were
duly appointed directors of
the Board. Mr Bevan, however, submits that the effect of the Court of Appeal's
finding in October 2010
(notwithstanding that it validated the resolution) was
that Mr Peter Londish was also a director as at that date. The Court of Appeal
declared that Mr Peter Londish had not been validly removed as a director of
either LNQ or Valofo on 25 and 26 February 2009. It
nevertheless held that the
appointment of Messrs Lock and Sheahan as the administrators of Valofo on 16
July 2009 was not invalidated
by reason of the invalid removal of Mr Peter
Londish as a director of those two companies.
- I
t is submitted that a lthough the resolution of 16 July 2009 is not invalidated
by the mere fact that Mr Peter Londish was invalidly
removed as a director of
Valofo on 26 February 2009, nonetheless Mr Peter Londish remained a director
holding office in Valofo at
the date of the resolution as a matter of law as
found by the Court of Appeal. It is therefore said that it as at 16 July 2009
there
were four directors holding office in Valofo, a resolution could only have
been validly passed under article 55 (whether it be to
appoint administrators or
to do any other act on behalf of the company) on 16 July 2009 if three or more
of them supported the resolution.
Accordingly, i t is submitted that the
appointment of administrators to Valofo on 16 July 2009 was invalid by reason of
the exclusion
of Mr Thompson from the resolution to appoint them to take control
of the affairs of Valofo, notwithstanding that it has been held
by the Court of
Appeal not to be invalid by virtue of the established invalid removal of Mr
Peter Londish as a director of both LNQ
and Valofo. It is said that nothing
either found or declared by the Court of Appeal affects this conclusion.
- Mr
Bevan therefore submits that if Mr Thompson was also a director Valofo had 4
directors as at that date who were entitled to notice
of and participation in
the relevant Board meetings; and that article 55 cannot be invoked to assist in
this regard since a majority
of 4 directors would not have been 2 (and hence it
could not be assumed that the resolution would have been operative). (Such an
argument would not assist in relation to the November meeting by which time Mr
Peter Londish had in fact been removed as a director.)
- The
significance of article 55 from the Valofo parties' perspective is that if one
assumes that Mr Thompson was a director and did
not receive notice of the
meeting which resolved to place Valofo into administration, nevertheless this is
of no moment since article
55 would operate to cure any problem arising from a
failure to notify Mr Thompson of the meeting. In that regard, it seems to me
that there is force in the submission that (it having been held that as at July
2009 Mr Peter Londish remained a director of the
company, article 55 could not
be invoked to validate a decision by 2 of the (on that hypothesis) 4 directors).
Nothing turns, however,
on this as I am not satisfied that it has been
established that Mr Thompson was validly appointed as a director in 2008 and, as
noted
above, it does not appear to affect any resolution after the November
meeting.
- (Although
an issue was raised on the submissions as to whether Mr Thompson had ever been
validly removed as a director, by reference
to the analysis of what was required
for such a step as set out by Hodgson JA at [5]-[14], Mr Bevan confirmed in the
course of hearing
that Mr Peter Londish does not suggest that the resignation by
Mr Thompson in 2003 was effective. Rather, his assertion is that Mr
Thompson had
been appointed as a member of the Board on 8 April 2008 and therefore it could
not be assumed that (had Mr Peter Londish
been permitted to vote) there would
have been a majority vote in favour of the resolution to appoint administrators
to the company.)
- This
gives rise to the main factual issue in dispute before me - namely whether Mr
Thompson was re-appointed to the board of Valofo
on 8 April 2008. Mr Bevan says
that this occurred in order to facilitate Valofo giving informed consent to the
replacement of the
then trustee and manager of PILT by the new trustee and
manager, PILT Nominees and PILT Managers, something that he said was necessary
in order to avoid the obligation that the outgoing trustee would otherwise have
had to vest the two trust funds in Valofo (as had
been the original intention of
the investment scheme). Mr Peter Londish gave evidence to that effect.
- As
to this factual dispute, the onus of establishing that Mr Thompson was a
director at the relevant time must lie on Mr Peter Londish.
- In
that regard, Mr Gleeson points to the fact that Mr Thompson was unaware that he
had been re-appointed to Valofo's board (and expressed
doubts about this on 12
August 2010 when he signed a statement to that effect). Mr Bevan discounts this
on the basis that he says
the statement was prepared for Mr Thompson by the
liquidators' solicitors without being provided with the Valofo board minutes
dated
8 April 2008 making his re-appointment. It is submitted that had Mr
Thompson seen the minutes he would no doubt not have expressed
reservations
about the status of his reappointment. It seems to me that this is an exercise
in speculation. Mr Thompson cannot have
recalled being appointed as a director
at the time of his original statement and his present recollection is no more
than an assumption
based on what the minutes he has now been shown record.
- Mr
Bevan submits that what the Court of Appeal did was no more than to protect the
resolution of Messrs Bowman and Sidney Londish
to place Valofo into external
administration from invalidity on the sole ground that Mr Peter Londish, a
director of Valofo, was
wrongfully excluded from the resolution, by exercising
its discretion to validate under s. 1322(4)(a) of the Act; it did not protect
from invalidity under s. 1322(4)(a) of the Act the resolution to place Valofo
into administration by reason of the exclusion of Mr Thompson from the
resolution, which
is the ground now relied on by Mr Peter Londish.
- Mr
Bevan submits that this is in essence a dispute as to credit. He relies on the
minute of the Valofo board resolution (of 8 April
2008) as establishing the
validity of Mr Thompson's appointment.
- As
to credit, Mr Bevan submits that if Mr Bowman had genuinely disputed the
validity of Mr Thompson's appointment to the board on
8 April 2008, it could be
expected that when Mr Bowman learnt a year later that Mr Thompson had
purportedly been acting as a board
member he would have taken umbrage at such
conduct (but did not dos so; simply questioning Mr Thompson as to whether he had
consented
to trust funds being lent to Davlon rather than being paid as a
distribution to Valofo).
- Mr
Bowman, in the witness box, displayed the air of someone who was not surprised
that there might have been some purported conduct
(being adamant that he did not
consider Mr Thompson ever to have been appointed) and in that context he
response might simply have
been to try and ascertain what had been happening
behind his back, so to speak, leaving for a later day any complaint about the
means
by which it had occurred.
- In
any event, what seems to me more telling is the inconsistent evidence of Mr
Peter Londish in relation to the alleged directors'
meeting on 8 April 2008; the
failure of Mr Peter Londish to take any steps to register the change in the
directorships of the company;
the objective unlikelihood of an appointment as
director of someone before they had formally consented to act; and the
convenient
coincidence of timing between the purported appointment as director
and the signing of a document that I accept Mr Bowman would not
have necessarily
been prepared to sign at the time.
- The
significance of the fact that Mr Thompson had previously sent a letter to Mr
Bowman in April 2009 and signed a statement in August
2010 to the effect that he
did not recall or did not consider he had been appointed a director in April
2008 seems to me to support
the version of events for which Mr Bowman contends
(whether or not Mr Thompson had been shown a board minute to that effect). The
fact remains that he cannot have understood that he had been appointed if he had
no recollection of it and no recollection of doing
anything at all as a director
other than perhaps signing a document.
- Mr
Thompson's evidence was that he was "confused" as to whether he was a director
and he accepted that his only basis for thinking
that he had been appointed a
director was because he had been shown the document purporting to record a
minute of a meeting at which
he was said to have been appointed. I have already
indicated that I do not accept Mr Peter Londish's evidence that there was such
a
meeting.
- Mr
Thompson confirmed that he had never attended any board meetings of Valofo and
had not discussed his appointment with the other
Valofo director, Mr Bowman. He
said that he had signed various documents at the request of Mr Peter Londish but
seemed to have no
idea why he had done so .
- It
is submitted by Mr Gleeson that Mr Peter Londish had a clear reason for seeking
(secretly) to appoint Mr Thompson as a director
to Valofo (that being to set in
train a series of events which involved Valofo consenting to the replacement of
the trustee of PILT
and the control of any distribution out of PILT, and his
subsequent authorisation at PILT level to the payments to Davlon) and, as
I
apprehend it, that purpose would have been lost had the appointment been drawn
to Mr Bowman's attention. I accept Mr Bowman's evidence
that he was unaware that
such steps had been taken on behalf of Valofo.
- (I
note that Mr Gleeson also submits that the suggestion that Mr Thompson was
appointed on 8 April to execute a deed that was not
executed until17 April 2008,
because Mr Bowman was to be in Brisbane at that time, has the flavour of a
recent invention (there being
no such explanation in Mr Peter Londish's
affidavit). Given that the documentation was prepared and apparently signed with
advice
from lawyers, there is no explanation or documentation from them as to
arrangements for signing of the deed or changes in the scheduled
time for that
to occur, to support Mr Peter Londish's version of events. Mr Gleeson points out
that there is no evidence to suggest
that a board meeting had been held by
Valofo to authorise the signing of the deed, or that the date for signing the
deed had to be
17 April (and no other date), or that the deed could not be
executed in counterparts, or that Mr Bowman was unable to sign the document
in
Brisbane, or that Mr Bowman could not appoint an alternative director to carry
out such a task.
- I
am not satisfied that Mr Peter Londish's evidence is reliable in this regard and
I find on the b alance of probabilities that there
was no board meeting of
Valofo (whether in person or over the telephone) on 8 April 2008 and that Mr
Thompson was not appointed a
director on 8 April 2008.
- In
any event, even had I been persuaded to this point that the issues should be
determined in favour of Mr Peter Londish on the winding
up application point, I
am not satisfied that the proper exercise of discretion would be to terminate
the winding up of the company
or to remove the liquidators for the reasons set
out below.
Discretion
- In
Meltedge v Bambakit Pty Ltd [2005] NSWSC 160 at [5], Barrett J noted that
the jurisdiction to terminate a winding up under s 482 is discretionary and that
the court may have regard to a range of factors. His Honour noted also that,
while not to be rigidly applied
(as indicated in Dubolo Pty Ltd v Codrington
Investment Corporation Pty Ltd (1998) 26 ACSR 723), useful guidance could be
found in the list of criteria set out in the judgment of Master Lee QC in Re
Warbler Pty Ltd (1982) 6 ACLR 526. Those criteria included that:
1. The granting of a stay is a discretionary matter, and there is a
clear onus on the applicant to make out a positive case for a
stay: Re:
Calgary and Edmonton Land Co Ltd (In liq) (1975) 1 WLR 355 at pp 358-359 per
Megarry J. ....
4. The attitude of creditors, contributories and the liquidator is a relevant
consideration: sec 243(1), Calgary and Edmonton Land Co Ltd (supra).
5. The current trading position and general solvency of the company should be
demonstrated. Solvency is of significance when a stay
of proceedings in the
winding-up is sought: In re a Private Company (1935) NZLR 120; Re Mascot Home
Furnishers Pty Ltd (197 0 ) VR 593 at p 598. ...
7. The general background and circumstances which led to the winding-up order
should be explained: Krextile Holdings Pty Ltd v Widdows
(supra).
- It
is therefore for Mr Peter Londish to make out a positive case for termination,
having regard to factors including the above.
- Mr
Gleeson submits that there are two reasons why the Court should not terminate
the winding-up of Valofo.
- First,
that Valofo was insolvent at the time of that the creditors resolved to wind up
the company. It is submitted that unless the
Court rules that each of the proofs
of debt was invalid as at 5 January 2010 (and doubt is raised as to the Court's
power to do so
in circumstances where there was no challenge under s 1321 of the
Corporations Act by the plaintiff to the liquidators' decision to admit
the creditors for voting at the 5 January 2010 meeting) then there were unpaid
debts which had not then and have not been satisfied (including the ClarkeKann
debt assigned to Mr Peter Londish). Mr Gleeson notes
that Mr Bowman gave
evidence that he considered that Valofo's lack of cash-flow and its desire to
incur professional fees in investigating
or pursuing claims in respect of the
PILT assets meant that it was appropriate to appoint administrators and points
to evidence tendered
by Mr Peter Londish from Valofo's other director (Mr Sidney
Londish) to similar effect.
- Secondly,
and in my view this is of great significance, Mr Gleeson points to the fact that
the ATO is presently a creditor of Valofo
for around $4m. It is submitted (and I
agree) that this debt cannot be ignored for the purpose of an application to
terminate the
liquidation and is an overwhelming impediment to that application
(relying on what was said in Prendergast v Rolcoss (in liq) [2008] NSWSC
146 per White J at [25]). I accept that any order terminating the winding up now
would have the effect of prejudicing the interests of
the ATO even if the other
alleged creditors' debts were to be disallowed. Further, even if there is an
issue as to the liquidators'
conduct in drawing the potential tax liability to
the attention of the ATO (and I do not accept that there is), it does not alter
the fact that there is such a debt.
- In
Mercy & Sons Pty Ltd v Wanari Pty Ltd (subject to deed of company
arrangement) (in liq), [2000] NSWSC 756, Austin J had earlier noted that
voluntary winding up is a procedure less subject to judicial supervision and
considerations of the
public interest than court ordered winding up and had
identified the various categories of interests to which the court has regard
when considering an application to terminate a winding up as being the interests
of creditors "taking into account whether they object
to the proposed
termination" (and potential future creditors); the interests of the liquidator
(particularly with respect to costs;
the interests of contributories; and the
public interest " including matters of commercial morality taking the initial
approach that insolvent companies should be wound up : Re Data Homes Pty
Ltd [1972] 2 NSWLR 22." (my emphasis)
- Mr
Bevan conceded that one must take into account the solvency of the company today
(whatever its position was at the time of the
resolution to place the company in
liquidation). Initially, it was submitted that the company was not presently
insolvent (in the
sense of being unable to pay its debts as and when they fall
due), when 'proper account' was taken of the recent income tax debt
of
approximately $3.9m imposed on Valofo by the ATO.
- In
that regard, it seems that Mr Peter Londish's advisers had formed the opinion
that the assessments issued on 10 November 2010 to
Valofo (creating a debt due
to the Commonwealth as from 3 December 2010, 21 days after their service on
Valofo's tax agents, Mann
Judd, on 12 November 2010) were amended assessments.
On that basis it was contended that the ATO's amended assessments were
statute-barred
and not a valid debt for the purposes of proving in Valofo's
liquidation and hence for s 482 purposes. It was submitted by Mr Bevan that, in
the absence of fraud or evasion, the ATO has no power to amend the assessments
of
Valofo beyond the 2006 tax year (if it is a large business entity, which
neither accountant supports) or the 2008 tax year (if it
is a small business
entity, as is likely) (by reference to s 170(1) Table items 1-5 of the ITAA36).
- I
accept the evidence from Mr Zafirou of the ATO as to the circumstance in which
the second assessment issued. Mr Bevan ultimately
did not press the tax
assessment issue and conceded that it is recognised that the Court must not
terminate any winding up (even
if the winding up is held to be invalid) unless
there is convincing evidence as to current solvency (referring to Re Elvi Pty
Ltd; Re Fullin Enterprises Pty Ltd (1983) 1 ACLC 910; GT Motor Inns Pty
Ltd and Re (1980) 4 ACLR 881.)
- However,
Mr Bevan contended that the Court nonetheless had the power under s 482 of the
Act to treat the debt as not being a relevant liability of Valofo for the
purpose of exercising the statutory discretion to
terminate or stay the winding
up and that this was particularly so if serious doubt was cast upon the
legitimacy of the tax debt
by the party applying for the termination or stay
(referring to DCT v Lencal Excavations Pty Ltd [2004] NSWSC 783; DCT v
Sydney Concrete Steel Fixing Pty Ltd [1999] NSWSC 494; (1999) 17 ACLC 972; Metledge v
Bambakit Pty Ltd (in liq) [2005] NSWSC 160 at [33]).
- It
was further submitted by Mr Bevan that no weight should be placed on the
liquidators' opinion as to solvency because they had been
instrumental in
causing the tax debt to be incurred by Valofo in the first place.
- On
this issue, reliance was placed on Mr Thompson's evidence as to the
circumstances in which the tax audit was commenced. The evidence
of Mr Lock was
that he had become aware of a potential tax exposure when (in effect) this was
used as a negotiating lever (or, in
Mr Lock's words, blackmail) in the course of
the settlement discussions with Mr Seller. Mr Lock, in my view quite properly,
formed
the opinion that he should raise the question of any tax liability with
the ATO. As a professional liquidator (whether or not court
appointed) it seems
to me that it cannot be said that it was improper to raise with the ATO the
question whether it was a creditor
(and to draw the ATO's attention to the
suggestion by the company's legal adviser that there may be such a liability).
- In
any event, Mr Bevan conceded by the close of the hearing before me that the
assessments had the effect of rendering the company
insolvent. The question then
is as to whether I could properly exercise a discretion to terminate the winding
up of a company that
appears at present to be hopelessly insolvent.
- I
note that Mr Peter Londish confirmed, through his Counsel, that if the winding
up were to be terminated he would undertake to the
Court to use his best
endeavours to procure the remainder of the board of Valofo to resolve to lodge
an objection against the amended
assessments and to appeal against any
disallowance of the objections under Part IVC of the Taxation Administration
Act, 1953 (Cth); and (if Valofo's board refused to undertake those steps)
would apply to the Federal Court of Australia for leave to do so
personally as a
derivative action on behalf of Valofo at his risk as to costs under s 501 of the
Act (referring to HFGC Nominees (No. 2) v Hancock as Liquidator of 246
Arabella Investments Pty Ltd (in liq) [2010] FCA 1005 at [7-10] and
[21-[23]).
- As
to this discretionary issue, there is a very real risk that if an order for the
termination of the winding up were to be made this
would simply have the effect
of an insolvent company to go back into the commercial world (something said in
Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC
1235; (2005) 226 ALR 510 at [289] to be contrary to commercial morality).
- I
do not consider that this is a matter where it would have been appropriate (had
I otherwise been satisfied as to Mr Peter Londish's
claim) to make orders of the
kind sought in relation to the termination of the winding up.
Derivative suit
- Next
I turn to the second aspect of the relief sought by Mr Peter Londish vis a vis
the Valofo parties. Mr Peter Londish seeks leave,
in his capacity as a member of
a related body corporate of Valofo, by reference to a one-third interest in
Vesudi (the ultimate holding
company of Valofo) to bring proceedings on behalf
of Valofo, as sole beneficiary of the Baltarna Trust, seeking the relief in the
Amended Originating Process and based on the facts pleaded in the Statement of
Claim in order to reinstate trust assets of about
$9m from Mr Seller and
companies under his control.
- Mr
Peter Londish seeks to do so in general terms on the basis of his assertion that
the liquidators of Valofo have shown no interest
whatsoever in doing so. In
particular, Mr Bevan places emphasis on the fact that since 8 December 2009
(when the liquidators commenced
proceedings against Mr Seller and the companies
under his control) the liquidators have obtained no relief against Mr Seller,
save
for securing undertakings to inform them of his intention to pay out
further trust funds to himself and/or his companies. It is asserted
that the
liquidators have acquiesced in Mr Seller's conduct to pay further trust funds to
his companies and have failed to appear
to oppose (with Mr Peter Londish) the
judicial advice sought by Mr Seller and his trustee companies for the Court's
imprimatur to
his expenditure of further trust funds when they have been given
notice of such applications.
- Mr
Bevan is critical of the fact that the liquidators have formulated no statement
of claim or summons against Mr Seller and his trustee
companies and those of his
other companies which have received about $9m in trust funds to seek the
recovery of those trust funds
for the benefit of Valofo (pointing to the speed
with which it is said that Mr Peter Londish has prepared his pleading).
- It
seems to be submitted that the liquidators have focussed only on ensuring that
there are funds available for their own costs (although
this is inconsistent
with the submission that they have been acquiescent in funds being made
available to the Trustees out of the
trust fund). Mr Peter Londish asserts that
the steps currently being undertaken in relation to the application for
appointment to
PILT and the Baltarna Trust is undertaken for the liquidators'
own benefit (to secure payment of their remuneration and legal fees)
rather than
for Valofo's benefit.
- At
the outset I must say that I cannot accept that the liquidators have behaved in
any way improperly in relation to the conduct of
the liquidation to date, on the
evidence before me. It seems that they have quite properly obtained legal advice
in relation to the
conduct of proceedings and it seems to me that the choice for
example as to how best to prepare for the commencement of proceedings
(by
examination summonses and by removing any doubts as to standing) cannot properly
be criticised (whether or not that be the manner
in which Mr Peter Londish may
have chosen to pursue the recovery of the moneys).
- As
to the specific requirements for an application for leave to bring a derivative
suit, Mr Bevan submits that Mr Peter Londish has
standing to support his
application for leave under s 236 of the Corporations Act because he is a member
of a related body corporate of Valofo via his one third interest in Vesudi, the
ultimate holding company of
Valofo (though in fact that interest is through
another corporate entity) and is a former officer of Valofo. It is submitted
that
he is otherwise qualified as he sues for Valofo's benefit at his own
expense and (having regard to the undertaking Mr Peter Londish
proffers in
connection with this leave) without any risk to Valofo as to costs.
- However,
as pointed out by Mr Gleeson (and accepted by Mr Bevan), the Court does not have
power to grant leave under s 237 of the Corporations Act while the
company is in liquidation ( Chahwan ). Therefore, having already
determined that the winding up should not be terminated, it follows that the
application for leave under
s 237 of the Act must be dismissed.
- Nevertheless,
for completeness I address the position on the assumption that (contrary to my
findings) I had been satisfied that the
winding up had been terminated and
therefore there was not the difficulty adverted to above in relation to Mr Peter
Londish's application.
- What
s 237(2) requires is that there be a serious question to be tried. A party
seeking leave to bring a derivative suit does not need to prove
any element of
the derivative suit in order to satisfy s 237(2).
- The
criteria to be considered upon an application for leave to commence a derivative
suit are:
the probability that the company will not itself bring
the proceedings, or properly take responsibility for them;
whether the applicant is acting in good faith;
whether it is in the best interests of the company that the applicant be
granted leave;
whether there is a serious question to be tried by the court (if the
applicant is applying for leave to bring proceedings rather than
intervene in
any proceedings to which the company is a party); and
either:
at least 14 days before making the application to the court, the applicant
gave written notice to the company of the intention to
apply to the court for
leave and of the reasons for applying; or
it is appropriate for the court to grant leave even though notice was not
given to the company: s 237(2).
- Each
of these five criteria must be satisfied ( Goozee v Graphic World Group
Holdings Pty Ltd [2002] NSWSC 640; (2002) 42 ACSR 534 at 541; [2002] NSWSC 640; 20 ACLC 1502).
If all five criteria are satisfied, then the court is bound to grant the
application ( Fiduciary Ltd v Morningstar Research Pty Ltd [2005] NSWSC
442; (2005) 53 ACSR 732 at 735; [2005] NSWSC 442; 23 ACLC 1100). Turning then to the respective
criteria, I note as follows.
- Inaction
by the company - The court must be satisfied that it is probable that
the company will not itself bring the proceedings or properly take
responsibility
for the proceedings.
- Mr
Bevan submits that it is self evident that the liquidators will not bring the
proceeding Mr Peter Londish seeks to bring since
they have had 15 months to do
so (with litigation funding) yet their only demonstrated interest in that time
has been securing control
of the balance of the trust fund ($1.8m) (said to be
for their own pecuniary benefit). He calls in aid in this regard the fact that
the liquidators have opposed Mr Peter Londish bringing the proceeding for
Valofo. As to these matters, the evidence was that the
litigation funding in
place was for investigation of claims and not for the prosecution of claims and
that Mr Lock has been attempting
to secure funding from creditors (in particular
from the ATO - that being the context in which the ATO's proof of debt was
admitted
in advance of the consideration of other proofs of debt). I am not
satisfied that the securing of the trust fund has been shown to
be motivated by
any personal gain to the liquidators. Nor do I think the reasons for the
liquidators' apparent opposition to Mr Peter
Londish commencing the proceedings
in the name of Valofo are motivated by a desire for no such recovery proceedings
to be commenced.
Rather there seems to be a well founded concern as to the
position of conflict in which Mr Peter Londish finds himself and perhaps
a
greater faith in the conduct of proceedings by their own legal team.
- Here,
there is nothing that persuades me that the liquidators do not intend to
progress reasonable avenues for recovery of funds for
the benefit of the
company's creditors and contributories. The fact that they may not have
progressed them as vigorously as Mr Peter
Londish thinks they should is not to
the point. I am not satisfied that the first of the criteria has been
established.
- Applicant's
good faith - In determining this question, the court will have regard
at least to the following matters: (i) whether the applicant honestly believes
that a good cause of action exists and has a reasonable prospect of success; and
(ii) whether the applicant is seeking to bring the
derivative action for a
collateral purpose which amounts to an abuse of process ( Swansson v RA Pratt
Properties Pty Ltd [2002] NSWSC 583; (2002) 42 ACSR 313, at 320). However,
the inquiry concerning the applicant's good faith is not limited to these two
matters ( Chahwan v Euphoric Pty Ltd [2008] NSWCA 52; (2008) 65 ACSR
661).
- In
Swansson it was said (ACSR at 320-21) that it will be relatively easy for
the applicant to demonstrate good faith where the applicant is a
current
shareholder of the company who has more than a token shareholding and the
derivative action seeks recovery of property so
that the value of the
applicant's shares would be increased.
- It
is said by Mr Bevan again to be self evident that Mr Peter Londish will sue in
good faith for Valofo's sole benefit because he
seeks no relief for himself . It
does not seem to me that this addresses the question of Mr Peter Londish's
interest in avoiding
personal exposure for his conduct as a director of PILT
Nominees.
- The
two factors identified by the court in Swansson as being relevant to
consideration of the good faith requirement in s 237(2) were applied by Barrett
J in Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640;
(2002) 42 ACSR 534; 20 ACLC 1502. His Honour held that the applicants were
acting for a collateral purpose in that the applicants' purpose in seeking to
bring the
derivative action was to force the directors to pay dividends or else
to force the directors to arrange for the applicants' shares
to be purchased.
The application to bring a derivative action was therefore denied.
- Here,
it is submitted by the liquidators that there may be a collateral purpose in
that Mr Peter Londish has an interest in avoiding
proceedings against himself
for recovery of moneys obtained by him. It seems to me that this is by no means
a far-fetched assertion
and I cannot be satisfied that this criterion is
established.
- Best
interests of the company - It is for Mr Peter Londish to establish that it
is in the best interests of the company that he be granted leave. Mr Bevan
submits
that it is plainly in Valofo's best interests to recover the moneys
allegedly misappropriated from trusts of which it is sole beneficiary
for the
sake of its creditors and its shareholders, who are the members of the Londish
family, through their equal one-third interests
in Vesudi's capital. I accept
that to be the case. However, I am not satisfied that the substance of the
redress which Mr Peter Londish
seeks to achieve for Valofo is not available by
means of the suit the liquidators already appear to have under consideration.
- In
determining whether an application is in the best interests of the company, it
is said that the fact that the applicant has a personal
interest in the outcome
of the action or the applicant has personal animus against other members of the
company is not significant
or decisive because this would be common in the types
of disputes which lead to derivative actions ( Maher v Honeysett & Maher
Electrical Contractors Pty Ltd [2005] NSWSC 859; Ehsman v Nutectime Int'l
Pty Ltd [2006] NSWSC 887; [2006] NSWSC 887; (2006) 58 ACSR 705).
- I
am of the view that this criterion is not satisfied having regard to the
apparent position of conflict which Mr Peter Londish will
almost certainly face
in commencing proceedings on behalf of Valofo in relation to the disputed PILT
transactions and having regard
to the fact that there are independent
liquidators capable and apparently not unwilling to pursue any such claims as
they may be
properly advised to bring. (As to the cost to the company of doing
so through liquidators and not Mr Peter Londish, it seems that
the liquidators
intend to pursue funding from an external source in any event.)
- A
serious question to be tried - In order to determine whether there is a
serious question to be tried, the applicant must provide the court with
sufficient material
to enable the court to make this determination ( Charlton
v Baber , above at ACSR 46). There is the same relatively low threshold to
surmount as in the case of an application for an interlocutory
injunction (
Swansson v RA Pratt Properties Pty Ltd ).
- It
has been said that whether there is a serious question to be tried can be
answered only by reference to an infringement of some
legal or equitable right
or the commission of some legal or equitable wrong ( Goozee , above, ACSR
at 542 and Ragless v IPA Holdings Pty Ltd (in liq) [2008] SASC 90, at
[40]; [2008] SASC 90; (2008) 65 ACSR 700; 254 LSJS 225).
- Mr
Bevan points to the facts alleged in the Statement of Claim, as supported by the
evidence of Mr Peter Londish (as the former co-director,
together with the
principal defendant, Mr Seller, of the principal trustee, PILT Nominees, who is
alleged to be responsible for the
breaches of trust and other serious conduct
alleged), Mr Thompson (the former principal external accountant of the Londish
Group)
and Mr Neil Wickenden (the current external accountant of the Londish
Group), as establishing the existence of a serious question
for trial.
- It
was in effect accepted by the liquidators that there is a serious question to be
tried as far as the claims to recover moneys by
Valofo are concerned and this
criterion seems to me to be satisfied.
- Notice
of proceedings to company - Mr Bevans relies upon the commencement of
proceedings on 1 October 2010, at which time it is said that notice of an
intention to
bring a proceeding by Statement of Claim on behalf of Valofo was
given (the liquidators giving no consent to bring the proceeding
and being
insistent on an application for leave under s 237 to be brought. To the extent
that this might not have been notice strictly as required, s 237(2)(e)(ii)
contemplates that a court can grant leave even if the applicant has not given
written notice to the company of the intention to apply
for leave and of the
reasons for applying. Valofo, through the liquidators, has clearly been on
notice of Mr Peter Londish's intention
to seek relief of this kind.
Conclusion as to s 237 application
- As
is apparent from the above I am not satisfied of all of the requisite criteria
and hence am not bound to grant (nor do I consider
it appropriate to grant)
leave to Mr Peter Londish to bring the derivative proceedings. I think it more
appropriate that such proceedings
be left to the independent liquidators to
pursue in accordance with legal advice obtained by them.
Inherent jurisdiction
- In
his submissions, Mr Gleeson pointed out that there had been no application by Mr
Peter Londish seeking to invoke the inherent jurisdiction
of the Court to grant
leave to commence proceedings in the name of Valofo (whilst the company was in
liquidation. In reply, Mr Bevan
sought to do just that (though the claim had not
been put on this basis in the Interlocutory Process), accepting that the
principle
in Chahwan was uncontroversial (and maintaining that this was
why Mr Peter Londish had made his application under that section concurrently
with
an application to terminate the winding up under s 482 or to have it
declared invalid under s 439C of the Act).
- Mr
Bevan further maintained that Mr Peter Londish would seek leave to sue for
Valofo's benefit, as an exercise of the inherent jurisdiction
of the Court,
(even if the winding up were not to be terminated) on the basis of the delay in
commencement or formulation of any
court process seeking recovery action by the
liquidators against Mr Seller and his companies for Valofo's benefit.
- Reliance
was placed by Mr Bevan on the decision in HFGCNominees (No. 2) v Hancock
[2010] FCA 1005, where leave to bring a derivative action on behalf of a
company was granted to a director where the liquidators had decided not
to
pursue a tax appeal for the company against the ATO. Here, however, there has
been no decision by the liquidators not to pursue
recovery against Mr Seller or
his companies. I accept Mr Lock's evidence that he will pursue whatever causes
of action he is advised
to bring in the interests of the creditors and
contributories of the company and I do not consider that any adverse conclusion
can
be reached as to the manner in which the steps have been taken to date (by
proceedings first with examination summonses and then
making the application in
relation to PILT and the Baltarna Trust.
- While
the Court's inherent jurisdiction was not invoked until closing submissions,
there is no further evidence on which Mr Peter
Londish relies for such an
application and it was not suggested that there was any prejudice to the
liquidators in it being made
at a late stage of the proceedings. However, Mr
Gleeson did point out that the question of standing at common law is not as
broad
as that now permitted under statute, noting that Mr Peter Londish is not a
member of the company . He is, however, a creditor.
- As
to what is required to be shown for leave to be granted in the inherent
jurisdiction of the Court, in Carpenter v Pioneer Park Pty Ltd [2008] NSWSC 551; (2008) 71
NSWLR 577, Barrett J considered the early cases in which the court had allowed a
creditor or member to sue in the name of a company in liquidation
in the
exercise of its general equitable jurisdiction. His Honour noted (at [34]) that
in considering whether to exercise such discretion
the court's attention should
be focused on three main matters: the question whether the proceedings proposed
to be pursued have some
"solid foundation", in that they exhibit such a degree
of merit as to be neither vexatious nor oppressive and to present reasonable
prospects of success; the attitude of the liquidator and the question whether
"practical considerations support the initiation of
the proceedings", with
particular reference to the financial protection of the liquidator and the
estate of the company by means
of indemnity and, if indicated, security.
- As
to those factors, it seems to be accepted that the Statement of Claim filed by
Mr Peter Londish establishes that there is a serious
question to be tried.
However, the second consideration (regarded as an important consideration by
Barrett J at [31] and similarly
by Austin J in Cadima Express Pty Ltd (in
liq) v Deputy Commissioner of Taxation [1999] NSWSC 1143; (1999) 157 FLR 424 at [46]- [47]; [1999] NSWSC 1143; 33
ACSR 527 at [46] - [47]) points heavily against the grant of leave. The
liquidators oppose the grant (as does the ATO which on any view of things
is
accepted to be, at present, the company's major creditor). The liquidators
maintain their intention to proceed with claims on
behalf of Valofo but with the
benefit, as I understand it, of considered advice once the outcome of their
application to be appointed
as trustees of PILT and the Baltarna Trust is known.
That does not seem to me to be unreasonable or to warrant a conclusion that
they
will not prosecute diligently any claims they are advised to pursue. Nor do I
think it can fairly be suggested that all they
are seeking to do is to recover
funds to pay for their own remuneration (as seemed to be suggested on behalf of
Mr Peter Londish).
- Insofar
as the basis for the grant of leave is put by Mr Bevan on the criticism of the
alleged inaction by the liquidators since their
appointment in terms of recovery
actions against Mr Seller and his companies in respect of the dissipation of the
PILT assets, Mr
Gleeson points to the tasks in which the liquidators have been
involved in that time: in particular, the various court proceedings
in which the
liquidators have been engaged; the examinations conducted by the liquidators;
their attempts to seeks to n egotiate
an overall settlement with Mr Seller (in
the context of which Mr Seller apparently asserted that there was a tax office
exposure
of the kind that has now emerged); the negotiation of undertakings to
ensure that a significant portion of the remaining trust assets
($1.2 m) has
been paid into Court; and the application to replace PILT Nominees Pty Ltd and
Baltarna Pty Ltd as trustees of the various
trusts. Mr Lock's evidence was that
after that application is heard, the liquidators intend to investigate and (if
appropriate) prosecute
actions against a number of parties and he denied that if
that application were to be unsuccessful he would not take further steps
to seek
recovery of moneys from Mr Seller (and/or other parties).
- Insofar
as the application is made in the inherent jurisdiction and discretionary
factors arise, it is relevant to note that Mr Peter
Londish is said to be in a
position of hopeless conflict, being exposed to claims in relation to the $5m
from PILT assets paid to
Davlon. The liquidators refer to contemporaneous
documents that suggest that all or a significant portion of the amounts received
by Davlon was by way of a loan for 6 months with no interest, yet only about
$300,000 has been repaid. (In cross-examination Mr Peter
Londish accepted that
the money had been paid to Davlon but first denied that it was a loan and then
suggested that part of it may
have been a loan. He seems to have regarded it as
to be offset against moneys otherwise due to him and only repayable if at all in
that context.) The liquidators submit that if it is not a loan then there is no
basis established for the payment to Davlon.
- Whatever
the position in that regard, it seems to me that there is a clear conflict of
interest on Mr Peter Londish's part in seeking
to act in the name of Valofo (and
this seemed only to be highlighted by the submission later made on his behalf
that the expeditious
conduct of proceedings in this court in effect mandated
that his proceedings be allowed to be prosecuted since otherwise he would
simply
have to bring his claims by way of a cross-claim). It does not seem to be
answered by the proposition that any trust funds
received by Mr Peter Londish
will be accounted for as a set-off in a shareholder oppression suit
(particularly where there is doubt
as to the level at which that shareholder
oppression suit would lie - Mr Bevan seemed to suggest that the apprehension of
continuing
oppressive conduct was at the LNQ level upwards and emphasised that
the complaint about improper purpose was one that went to the
appointment not
the conduct of the liquidation).
- For
the liquidators it was suggested that this was an attempt by Mr Peter Londish to
thwart or obstruct them in their duties as liquidators
(a conclusion that Palmer
J's judgment suggests that he may have been inclined to accept back in 2010). If
that is the effect of
the relief Mr Peter Londish is seeking, then it does not
seem to me to be the point that (as emphasised in reply by Mr Bevan) that
in
none of the affidavits sworn by Mr Lock does he assert any concern that Mr Peter
Londish's proceedings against Mr Seller and his
companies prevent him from
making claims for Valofo.
- Having
taken into account the above matters I am of the view that the appropriate
persons to commence claims for Valofo while it is
in liquidation (in the absence
of anything to suggest a refusal or unwillingness or inability to do so) are the
liquidators appointed
to conduct its winding up. I consider that there is much
force in the submission by Mr Gleeson that the conflict faced by Mr Peter
Londish (a conflict to which Palmer J has already adverted in his judgment in
the previous proceedings) is fatal to his claim to
bring an action on behalf of
Valofo.
- As
to the third consideration referred to in Carpenter , I simply note that
criticism was made of the fact that appropriate indemnities had not been
proffered to ensure the protection of
the liquidators and the company and that
it was not sufficient to do, as was done here by Mr Peter Londish (namely to
place himself
in the hands of the Court as to conditions to be imposed (if any)
on the grant of leave in the inherent jurisdiction or under s 237). I note that
Mr Bevan emphasised Mr Peter Londish's acknowledgement that the proceeding would
be brought at his personal risk as to
costs (though he would seek indemnity from
the company for those costs if the proceedings were successful). However, there
was no
consideration of the adequacy of such an undertaking (particularly in the
context of litigation that might be expected to be hard
fought and costly, given
what little has been put before me by way of the history of the matter to date.
- I
therefore do not consider this to be a case where leave should be granted in the
inherent jurisdiction of the Court.
Orders
- As
to the Trustees, I have already made orders in relation to those aspects of the
Third and Fourth Interlocutory Processes, including
the costs of the application
against them.
- I
now dismiss the Third and Fourth Interlocutory Processes insofar as they concern
Valofo with costs.
- I
order judgment for the eighth, eleventh and twelfth defendants on the Statement
of Claim in proceedings (326572 of 2010) and dismiss
the Amended Originating
Process against them with costs.
- As
to the thirteenth and fourteenth defendants, their costs of the application were
sought on the basis that it was necessary for
him, in effect, to maintain a
watching brief in case matters were raised that affected his clients' interests.
While I would have
been inclined to think that his clients could have relied
upon the defence mounted by the liquidators in this regard, I am persuaded
that
it is in order to award costs in their favour by reference to two matters:
first, this is a protracted dispute and one in respect
of which it is apparent
that there are strong feelings within the Londish family and as individual
defendants I consider that Mr
Sidney Londish and Mr David Bowman were entitled
to be cautious in protecting their interests in this ongoing litigious saga;
and,
secondly, it seems to me unlikely that the costs will be large in the
scheme of things. Accordingly, I order that the plaintiff pay
the costs of the
thirteenth and fourteenth defendants in relation to the Third and Fourth
Interlocutory Processes.
**********
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