Ambridge Investments Pty Ltd v Baker
[2016] VSC 616
•13 October 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2005 002014
| AMBRIDGE INVESTMENTS PTY LTD | Plaintiff |
| v | |
| BAKER & ORS | Defendant |
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JUDGE: | Judd J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 26 August 2016 |
DATE OF JUDGMENT: | 13 October 2016 |
CASE MAY BE CITED AS: | Ambridge Investments Pty Ltd v Baker & Ors |
MEDIUM NEUTRAL CITATION: | [2016] VSC 616 |
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PRACTICE AND PROCEDURE – Application for leave to file amended statement of claim – Application for leave to proceed on behalf of a trustee – Application for leave to join a party.
BANKRUPTCY – Whether bankrupt defendant should participate in trial – Access to frozen funds to defend the claim – Trust property – Discretion – Requirement for a legally represented contradictor.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Collinson, One of Her Majesty’s Counsel with Dr P Vout | Foster Nicholson Jones |
| For the Second Defendant | Mr P Afshar | Spinks Eagle |
HIS HONOUR:
On 17 September 2015 judgment was delivered on an application by Break Fast Investments Pty Ltd to reopen its case in the trial of a proceeding (Break Fast Investments Pty Ltd & Anor v Gravity Venture Pty Ltd & Ors) commenced by it against Christos Voukidis and others, and upon the cross-application of Mr Voukidis that the trial be permanently stayed as an abuse of process.[1] Leave to reopen was refused. An order was made that the trial be stayed. An application to lift the stay was refused on 9 February 2016.[2]
[1]Break Fast Investments Pty Ltd v Gravity Ventures Pty Ltd & Ors [2015] VSC 497.
[2]Break Fast Investments Pty Ltd v Gravity Ventures Pty Ltd & Ors (No 2) [2016] VSC 30.
Break Fast is the sixth defendant in this proceeding. Mr Voukidis is the second defendant. Ambridge and Break Fast are now controlled by Gregory Joseph Taylor, although that was not the case when this proceeding was commenced in 2005. One reason for the stay granted in the Break Fast proceeding was the existence of this proceeding, in which near identical allegations of misappropriation were made against Mr Voukidis.
In 2010, Vickery J declared in this proceeding,[3] on the trial of a separate question, that Break Fast was trustee of a property at 176 Wellington Parade, Melbourne, on behalf of the members of a joint venture. The members were, Ambridge, C&O Voukidis Pty Ltd and entities associated with Theodore Baker. Mr Baker is the first defendant in this proceeding, and was the principal witness for the plaintiff, Break Fast, in the Break Fast proceeding. In the reasons for judgment on the stay application in the Break Fast proceeding, I said:[4]
While there is a very substantial overlap between the allegations of fact in Ambridge and in this proceeding, the claims for liability and recoupment were differently formulated. Ambridge sought compensation from Break Fast, Voukidis and others as a consequence of the ‘Wrongful Payments’, as they are defined in this proceeding, as a breach of trust by Break Fast, with the knowing assistance of Voukidis and others. In this proceeding, Break Fast claimed recovery from C & O Voukidis on essentially the same basis as did Ambridge. The claims against Voukidis in this proceeding, described in more detail below, are made on the basis of alleged breach of duty owed to Break Fast, knowing receipt and knowing assistance.
Notwithstanding the reformulation of the case against Voukidis in this proceeding, in terms of breach of duty owed to the company, the plaintiff advanced a case at trial firmly rooted in the binding nature of the declarations in Ambridge; and the proposition that, in the absence of express authorisation from all joint venture partners, certain payments made by Voukidis were recoverable because they were not made for the benefit of the joint venture.
The claims for compensation in Ambridge made against Voukidis, Baker and others, remain unresolved. The further prosecution of the Ambridge proceeding was to await the outcome of this proceeding. In 2013, the managing judge was informed that the purpose of this proceeding was to produce a ‘pot of money’ to benefit Ambridge in the Ambridge proceeding. The prosecution of both proceedings is under the ultimate control of Taylor.
[3][2010] VSC 59.
[4][2015] VSC 497, [34]–[36].
It took some time for those advising Ambridge to decide what, if any, course it should follow as a consequence of the permanent stay in the Break Fast proceeding. At first, Break Fast proposed to commence a third party proceeding against co-defendants, including Mr Voukidis. That option was abandoned in favour of proposed amendments to the statement of claim, for which leave is now sought.
The application for leave to file and serve an amended statement of claim is coupled with an application for leave to prosecute claims on behalf of Break Fast, as trustee, against Mr Voukidis, C&O Voukidis and Gravity Ventures Pty Ltd. Gravity Ventures is not yet a party to this proceeding. By summons dated 12 April 2016, Ambridge applied that it be joined as ninth defendant.
There are other defendants, against whom no relief is claimed. These include Career Path Australia Pty Ltd, IMF Pty Ltd, Oxley Group Finance Pty Ltd and Mark Stanley.
The plaintiff’s objective is to advance the same case against Voukidis, and the other active defendants, as was advanced in the Break Fast proceeding. In paragraph 1(c) of the proposed sixth further amended statement of claim the plaintiff alleges that it:
brings the claims in paragraphs 36 to 80 below for and on behalf of the sixth defendant (Break Fast) as trustee of an express trust of the property situated at 176 Wellington Parade, Melbourne being the land described in Certificate of Title Volume 9262 Folio 922.
It is common ground that the plaintiff will require leave to prosecute the proceeding on behalf of the trustee.
Mr Voukidis objected to the grant of leave on four grounds:
(a)Ambridge is prosecuting the proceeding to benefit Mr Taylor and related interests, and not in the interests of the trust estate;
(b)Ambridge has failed to demonstrate its interest as a beneficiary;
(c)A grant of leave would result in the re-litigation of the proceeding that has been stayed. It would be unjust to Mr Voukidis and others to be exposed to yet another proceeding. A continuation of this proceeding is inconsistent with the interests of justice;
(d)The absence of any ‘exceptional circumstances’ to justify the granting of leave.
The claim against Mr Voukidis is complicated by his recent bankruptcy. He is no longer exposed to any personal liability, although there is a claim for a declaration that he purchased a property at 8 Third Avenue, Lane Cove with funds wrongfully obtained from Break Fast, and made periodic payments to the mortgagee. The total amount allegedly misappropriated and applied by him to the property is a little over $350,000. The property has been sold. Net proceeds in the sum of $555,537 (as at May 2016), are held in an interest-bearing trust account in the joint names of Mr Voukidis and Break Fast. The significance of the Lane Cove funds is that they represent the only source of funds available to satisfy the plaintiff’s claims made directly against Mr Voukidis. The Lane Cove claims will involve an assessment of the extent to which the funds held in the joint account belong to Break Fast.
The Lane Cove funds are also the subject matter of a claim by Jonathan and Michelle Keene. Their claim was initiated by summons dated 11 August 2016. They claim to have spent around $800,000 on development of the Lane Cove property under an agreement with Mr Voukidis dated 28 January 2010. Their investment is secured by an unregistered mortgage dated 4 February 2010. If the Keenes’ claim prevails, it will exhaust the fund. The Keenes did not formally appear to participate in the plaintiff’s application for leave. I note, however, that they are represented by the same solicitors and counsel as Mr Voukidis, and thus have reason to believe that they are fully acquainted with the questions arising for consideration on the present applications.
The plaintiff argued that the Keenes should be added as defendants to this proceeding, with their claims resolved at the trial. I am not persuaded by that submission. Any connection between the issues raised by the Keenes’ summons, and the issues in this proceeding concerning the misappropriation of funds used in the purchase of the Lane Cove property, seem remote. I do not propose to join the Keenes as defendants, at least at this time. Their claim would seem capable of resolution in a separate, much shorter trial. The Keenes should not be required to participate in the trial of all issues between Ambridge and Mr Voukidis, if leave is granted, unless their participation is necessary for an adjudication of the issues in this proceeding. There is much to commend a course that would have their application resolved first.
The real beneficiary of any judgment
Mr Voukidis submitted that by reason of security granted to Headland Properties Pty Ltd, in support of an advance under a loan agreement dated 28 April 2012, any proceeds from a judgment would pass immediately to Headland. Headland is owned and controlled by Mr and Mrs Taylor. Thus, he submitted, the purpose of the proceeding should be defined by the predicted outcome of a successful claim. That purpose is to benefit Headland, and ultimately Mr and Mrs Taylor, and not the beneficiaries under the trust.
The evidence given by Mr Taylor on this matter was unsatisfactory. According to him, the loan agreement was prepared in order to resist an application by Mr Voukidis to wind up Break Fast. He claimed that no advance was ever made, although draft accounts of Break Fast indicate otherwise.
The loan agreement was exhibited to an affidavit sworn by Mr Voukidis on 11 August 2016, although the agreement had been mentioned in an affidavit, and at a directions hearing, much earlier. In an affidavit sworn 8 March 2016, in the Break Fast proceeding, Mr Voukidis complained about the existence of a loan agreement under which Break Fast was entitled to draw down on a facility with Headland of up to $1 million. Compounding interest, at the rate of 2 per cent per month, was payable. There was a higher penalty interest rate.
The loan document had been produced by Mr Taylor, on behalf of Break Fast, in response to a notice to produce, issued on behalf of Mr Voukidis, dated 3 November 2015. Also produced at the same time were draft accounts for Break Fast which recorded a debt due to Headland of $289,467.04 as at 30 June 2013, increasing in the subsequent year to $433,858.88.
Following production of the documents, Mr Voukidis’ solicitor sought an explanation from his counterpart of the circumstances in which the loan agreement had been made, and enquired whether Headland was a secured creditor. Mr Sinisgali, then solicitor for Break Fast, declined to provide a response, on the ground that Mr Voukidis had no interest in the trust. Further enquiries were made in February and again in early March 2016, shortly before a directions hearing that took place on 10 March 2016.
At the hearing on 10 March 2016, counsel for Mr Voukidis made reference to an affidavit sworn 8 March 2016 in the context of a submission that a proposed third party claim by Break Fast, as a defendant to the Ambridge proceeding, should not be allowed. At a directions hearing on 11 May 2016, counsel for Ambridge foreshadowed an application for leave to proceed against Mr Voukidis, who by then was a bankrupt, to be made in the Federal District Court. Following discussion about various related matters, such as variations to freezing orders, and the claim by Jonathan and Michelle Keene, the further hearing of various applications was adjourned to 12 August 2016. On that day the court was advised that leave had been granted for Ambridge to proceed against Mr Voukidis. Once again counsel for Mr Voukidis questioned whether Ambridge had any legitimate interest in the outcome of proposed proceedings. The plaintiff’s application for leave to amend and to proceed against Mr Voukidis and other defendants was adjourned for hearing on 26 August 2016.
The affidavit sworn by Mr Voukidis on 11 August 2016 was not filed or served until shortly before the hearing on 26 August 2016. That was unfortunate, because it resulted in a late responding affidavit from Mr Taylor, sworn the day before the hearing. In his affidavit, Mr Taylor revealed to the court, for the first time, that the draft accounts produced on behalf of Break Fast in November 2015, were inaccurate, and that no funds had been advanced under the loan agreement. He deposed:
7.In an urgent attempt to respond to Mr Voukidis’ Notice to Produce dated 3 November 2015 in proceeding SCI2010/4463, my office assistant provided to Break Fast’s solicitors a folder containing the erroneous draft balance sheets, which were in turn produced in response to the Notice.
8.The errors in the draft balance sheets arose when a bookkeeper prepared as a “first cut” draft of the balance sheets. Being uncertain how to attribute amounts used to pay legal fees, she assumed that those legal fees had been paid from a drawdown on the Loan agreement. In fact, the legal fees had been paid from monies recovered in settlement of proceedings in the Supreme Court of New South Wales and the County Court of Victoria and held in the trust account of Foster Nicholson Jones Lawyers, Break Fast’s previous solicitors.
Mr Taylor gave oral evidence and was cross-examined. He confirmed that the affairs of Break Fast were now managed from his office. He effectively controls Break Fast. Nevertheless, he denied any personal responsibility for the production of material pursuant to the notice. He said the documents had been sent from his office, in response to the notice, without his having seen them. He spoke of an urgent need to respond, within an hour and a half. He blamed his staff for having assembled material sent to the lawyers for Break Fast. He said that he was not in his office at the time, although conceded he may have extracted the loan agreement for the purpose of responding to the notice.
Mr Taylor said that the accounts were erroneous, having been prepared by a 65-year-old bookkeeper without his knowledge. He described it as the ‘first cut’, and denied having seen the accounts before they were released. He said his bookkeeper had made an incorrect assumption that there were loan moneys owing to Headland, whereas in fact ‘they had come from a settlement’. The circumstances in which such an error could have been made by the bookkeeper were not explained.
Mr Taylor said he became aware of the error in the accounts shortly after the documents had been produced under the notice, but did nothing to inform the legal representatives acting for Mr Voukidis of the error until the day before the hearing. By then some eight months had elapsed. He claimed that when he became aware of the error he discussed the matter with his solicitors, and an affidavit was prepared, but never filed. No explanation was given of the content of that affidavit, or why it had not been filed.
Mr Taylor explained the loan agreement as a document prepared in 2012 to meet a risk of insolvency, in the face of a winding-up application brought against Break Fast by Mr Voukidis. He agreed that security had been given by Break Fast to Headland, in support of a loan agreement, although no security documents were produced under the notice.
Mr Taylor’s evidence about the circumstances in which the accounts came to be prepared, the collation of documents for production pursuant to the notice, and the circumstances in which he failed to inform the recipient of the documents that they were erroneous and inoperative, was most unsatisfactory. It was inconsistent and improbable. It is inconceivable that he and his solicitors did not understand the significance placed by Mr Voukidis of the existence of the loan at and following the directions hearing in early March. While I find his evidence unsatisfactory, it was not put to him that the documents had been prepared, or that the error had not been disclosed, for some ulterior purpose.
Thus, on the present state of the evidence, unsatisfactory as it is, the premise for Mr Voukidis’ contention that the ultimate beneficiary is Headland and the Taylors, via the loan agreement and security, is not established.
Ambridge has failed to demonstrate any real interest as a beneficiary
Counsel for Mr Voukidis contended that before deciding whether Ambridge should be permitted to prosecute a case on behalf of Break Fast, or on its own account, against Mr Voukidis and others, it was necessary for an assessment to be made of the extent of any interest that Ambridge had in the outcome of any such proceeding. If Ambridge were to be permitted to prosecute the claim, it should establish a real interest in doing so, as well as satisfy the requirement for ‘exceptional’ or ‘special’ circumstances that justify a grant of leave. Mr Voukidis contended that, upon a proper taking of accounts, it would be found that Ambridge was owed nothing, and was probably indebted to Break Fast. An order is sought in this proceeding for the taking of accounts, but no progress had been made in that regard.
The uncertainty created by the loan document, and the corresponding uncertainty about the liabilities of Break Fast, call for some definitive statement as to the financial position of Break Fast. This may involve an analysis of transactions between Break Fast and members of the joint venture, and between Break Fast and other entities, sometimes described by Mr Voukidis as members of a ‘group’. In the last trial there were no final accounts to reflect the true state of affairs, including loan accounts. There was an allegation, supported by some evidence, that Ambridge was indebted to Break Fast for more than $3 million. The absence of final accounts made it difficult to assess the veracity of evidence and contentions concerning the relationship between Break Fast and other entities. The preparation of final accounts will avoid such uncertainty, and potential unfairness, and expose the extent of each joint venture partner’s interest in the proceeds of any judgment. The grant of leave will be subject to the preparation of final accounts for Break Fast.
Mr Voukidis also advanced the further contention that the declaration made by Vickery J was confined to the building at 176 Wellington Parade as the trust property, and did not extend to other property such as revenue derived from rental or the proceeds of a recovery proceeding such as Ambridge would prosecute in this case. I reject that contention. The trust identified by Vickery J would extend to all that was incidental to the ownership of the property, including its management and the receipt of income. Break Fast carried on no other business.
Continuation of this proceeding unjust
Mr Voukidis submitted that to permit Ambridge to reshape its case into a proceeding brought on behalf of Break Fast would be unjust and bring the administration of justice into disrepute. A central ground upon which Mr Voukidis relied to support his application for a permanent stay, accepted by the Court, was the injustice caused by his exposure to near identical claims in two proceedings by plaintiffs who were both under the effective control of Taylor. There were, of course, other grounds. The oppressive nature of the conduct was exacerbated by the prosecution of the Break Fast proceeding at trial.
During the course of submissions on the stay application, Mr Voukidis accepted that one possible outcome, should his application prove successful was exposure to another trial. He now suggests that, when making that concession, the trial he had in mind involved a case advanced by Ambridge in its own right, as formulated in the statement of claim as then existed. The plaintiff now proposes amendments by which the statement of claim will be replaced by a claim prosecuted on behalf of Break Fast in near identical terms to the case advanced in the Break Fast proceeding.
I am not persuaded that Mr Voukidis could reasonably have made that fine distinction. An alternative claim was made by Ambridge in this proceeding that Break Fast would be the beneficiary of any judgment. Once the declaration of a trust relationship had been made, and confirmed on appeal, any trial of the remaining issues would almost certainly have been recast to allege the fundamental allegations of misappropriation as breaches of directors’ duties, in conformity with what was pleaded in the Break Fast proceeding. I am persuaded that Mr Voukidis made his application for a permanent stay well aware of the prospect of a second trial.
Mr Voukidis has been awarded his costs for the Break Fast proceeding, having been successful in his application to bring the proceeding to an end by way of a permanent stay. While it may be oppressive to be exposed to a ‘re-run’ of the same issues in a new trial, it is not unfairly oppressive or, to put it another way, the oppression is not unjustified. In reasons for judgment on the application to reopen and the application for a stay,[5] I observed:
It may be superficially attractive, or ‘pragmatic’ to overlook the sins of the past, because a trial has now taken place. Once this proceeding is stayed, Ambridge may choose to prosecute similar claims in its proceeding. In such circumstances, Voukidis would be required to participate in another trial, although with no uncertainty about the ownership structure. Voukidis has made that choice, implicit in this application for a permanent stay.
[5]Break Fast, [118].
Any trial to which Mr Voukidis will now be exposed will be conducted on a different footing. The declarations made by Vickery J will be binding, but he is no longer exposed to any personal financial liability. There remain legitimate concerns about the confidentiality of communications during the Ambridge proceeding, when Messrs Voukidis and Baker, and Break Fast, were represented by the same firm of solicitors. Such concerns can be addressed by the trial judge. It is acknowledged that Mr Voukidis may have disclosed information that would ordinarily attract the protection of a privilege against disclosure. At this stage, however, he has not advanced a case in relation to any particular disclosures that ought to be protected.
Leave to prosecute claims
A beneficiary under a trust may maintain a proceeding to recover trust property in exceptional circumstances. Following a consideration of authority, Powell J, in Ramage v Waclaw[6] concluded that exceptions to the general principle, that the proper plaintiff was the trustee, are now accepted as being far more extensive than many of the 19th century authorities permitted.
[6](1988) 12 NSWLR 84, 91; TAL Life Ltd v Shuetrim [2016] NSWCA 68, [54]–[55]; Jacobs’ Law of Trusts in Australia, J D Heydon and M J Leening, LexisNexis 2006 7th edition at [2318].
In my opinion the requirement for exceptional or special circumstances is made out in this proceeding. While common control of Ambridge and Break Fast now effectively resides in the hands of Mr Taylor, that was not the case when this proceeding was commenced. Break Fast was a defendant, apparently in common purpose with Messrs Voukidis and Baker. Even at that time, an alternative claim was advanced by Ambridge to the effect that the beneficiary of any recovery from Mr Voukidis and others should be Break Fast. The present application seeks to formalise, and regularise, that claim. That is the claim that ought to have been prosecuted. That is what the plaintiff now proposes to advance.
Representation at trial
The proceeds from the sale of the Lane Cove property were also relevant to a claim made on behalf of Mr Voukidis that he should have access to some part of those funds for legal representation during any trial. While Mr Voukidis has no interest in the property claims made in the proceeding, or any personal liability, he has a very real interest in the potential impact of the allegations on his character and reputation. There is abundant authority in support of the proposition that a defendant, who is bankrupt, may be made a party to a proceeding or permitted to fully participate to protect legitimate interests other than property and liability.[7]
[7]Re-engine Pty Ltd & Anor v Fergusson & Ors [2007] VSC 57, [39]–[68].
The plaintiff submitted that Mr Voukidis should not be regarded as having a reputation to protect, as a consequence of adverse findings made against him by Vickery J in 2010. While his reputation may have been tarnished, the allegations to be made against him in this proceeding are serious, and potentially very damaging. He is, in effect, accused of theft.
There are other aspects of any trial, apart from reputation and character, that would justify Mr Voukidis’ participation. In the reasons for judgment in Break Fast, I said:[8]
Voukidis complained from time to time during the trial that he was unfairly isolated by Break Fast and Baker, as the target of this proceeding. Had Voukidis been represented, his complaint might have been developed. After all, the seeds of an abuse allegation had already been firmly planted by his counsel in February 2013. There was also the risk that Baker, as a co-defendant in the Ambridge proceeding, might have been privy to confidential and privileged communications or information that could be unfairly deployed by Break Fast against Voukidis in this proceeding. Baker’s transition from co-director and co-defendant, to instigator of this proceeding, and then as its principal witness was, to say the least, arresting. The potential for unfair prejudice to Voukidis was manifest.
Following the trial, when further submissions were received by the court on the application to reopen, Voukidis, through his counsel, submitted that the proceeding ought to be stayed as an abuse of process. One ground was that this proceeding was maintained for an ulterior purpose, to provide funds for distribution to Ambridge in the Ambridge proceeding. While the role of Baker in this proceeding was mentioned, as creating some kind of unfairness to Voukidis, the potential for prejudice was not fully developed.
The significance of Baker’s mercurial role, from co-defendant and director, to decision maker in the commencement of this proceeding, and eventually key witness for the plaintiff against Voukidis, was not confined to the abuse argument. Had the full extent of his role been exposed during the trial, it would have been highly relevant to his credibility as a witness against Voukidis. While it is true that Voukidis knew of Baker’s role, he was unrepresented at trial. The full significance of Baker’s role may not have been appreciated by Voukidis. Baker’s role was not fully exploited in cross-examination, as might have been the case had Voukidis been represented by competent counsel. This was just another example of the failure of the adversarial system in the absence of competent legal representation.
[8][2015] VSC 497, [42]–[44].
In my opinion there is a sufficient basis upon which Mr Voukidis should be permitted to participate fully in any trial. It is highly desirable that the court have a contradictor. If Mr Voukidis does not participate in the trial, the court will be denied a contradictor. Further, any participation by Mr Voukidis must be meaningful, informed and, if possible, supported by competent legal representation.
Ambridge claims a proprietary interest in the Lane Cove proceeds, held on trust for Break Fast. As was pointed out by the Court of Appeal in Distinctive FX Pty Ltd v Van der Slot,[9] an order permitting Mr Voukidis to have access to the fund would give such an order an aspect of finality. That aspect is even more acute in the present case, because Mr Voukidis is bankrupt, under no obligation to repay if the plaintiff succeeds at trial. There remains, however, a discretion to permit access to such funds, although the question of recoverability, and the risk of injustice to the claimant (Ambridge on behalf of Break Fast) in having its own property used against it by an opposing party (Mr Voukidis), are relevant consideration.[10] The Court of Appeal rejected the contention that the inability to restore the trust was a ‘predominant’ consideration.[11]
[9][2016] VSCA [39] (‘Distinctive FX’).
[10]Distinctive FX, [22].
[11]Distinctive FX, [28].
I assume a prima facie case to support the existence of a trust in favour of Break Fast. After all, a Freezing Order was made to protect the property.[12] I acknowledge that, in the exercise of discretion as to whether Mr Voukidis should have access to those funds to conduct his defence, the prima facie position is that the Court should protect trust property. I also take into account that it is unlikely the trust will be restored if the claim by Ambridge is made good at trial. But there are other factors which must also be taken into account.
[12]Order of Elliott J made 2 December 2013 in the Break Fast proceeding.
The claim to a trust made by Ambridge is qualified by the challenge to the trust made by the Keenes. While the Keenes’ claim is not equivalent to a direct challenge by Mr Voukidis, it does introduce a level of uncertainty into the plaintiff’s claims, in addition to any defences Mr Voukidis might advance. The Keenes must be taken to know of Mr Voukidis’ application for access to the fund to support his legal costs, and raise no objection.
An assessment of the strength of the case against Mr Voukidis, in relation the Lane Cove claim, is also relevant. In the Break Fast proceeding, Mr Voukidis particularised his defences to the alleged wrongful payments which underpin the claim by Ambridge to the Lane Cove funds. While he did not give evidence, the case advanced by Break Fast depended substantially on the Court accepting the evidence of Mr Baker, the co-director of Break Fast. In the reasons for judgment in the Break Fast proceeding, I said, concerning the defences advanced by Mr Voukidis and the role of Mr Baker,
45By his defence, Voukidis alleged that Baker had authorised various transactions, with full knowledge of the manner in which funds were being deployed. He also alleged that Baker was a beneficiary of payments. Baker denied any benefit. And yet bank records disclosed that Baker or his company Career Path was the recipient of regular payments. No claim was made against Voukidis in respect of such payments. It must have been obvious to the plaintiff that a serious credit issue would arise in relation to Baker’s evidence.
46Another factual conflict in the trial, which elevated the significance of Baker’s evidence and the question of the capacity in which Break Fast held the property, was Voukidis’ ‘group’ allegation. Evidence disclosed that investors in the Wellington Parade property also invested in other businesses and property development projects. Some of those other businesses and projects were owned or controlled by entities that are or were once defendants in this proceeding. Some of those parties had a role in the defences raised by Voukidis and C & O Voukidis. While Voukidis sought to characterise Break Fast as a member of a group of interdependent entities, whose interests were aligned, the plaintiff and Baker sought to isolate Break Fast by reason of its position as trustee on behalf of joint venture partners.
47Although unrepresented, Voukidis contended, through his defence and submissions, that this court should assess his conduct through the prism of the ownership structure contended for by the defendants Break Fast, Baker, Voukidis and others in Ambridge. Voukidis placed emphasis on the shareholdings in the plaintiff as representing the true equity position of investors. He contended that the plaintiff, and other entities in which he and Baker had an interest, were part of a group within which funds could be utilised as and when required, and recorded against loan accounts. The group included Oxley, St Leonards and Onetofour Holdings Pty Ltd. If Voukidis is correct, the plaintiff may not succeed in establishing many of the alleged breaches of fiduciary duty. On the other hand, even if it be accepted that the plaintiff’s ownership paradigm ought to be applied to the facts, its formulation of the dishonest and fraudulent design, to support the second limb of Barnes v Addy claims, was based on the allegation that Voukidis knowingly procured Break Fast to breach its obligations as trustee on behalf of the joint venture. If Voukidis honestly believed that he was entitled to conduct the plaintiff’s business on the basis of his ownership paradigm, much of the sting in the plaintiff’s case would dissipate.
48There was some evidence to support Voukidis’ contention that the scope of his duties as a director should be analysed and assessed by reference to the view of the ownership structure contended for by Voukidis, rather than through the prism of the judgment of Vickery J in Ambridge. The evidence included a Deed of Cross-Collateralisation dated 21 August 2002; the circumstances in which the one share in the plaintiff, previously owned by Ambridge, became owned by Oxley; the use of Oxley as a conduit of funds for the support of other ‘group’ entities; and the recording of loan accounts with the plaintiff.
49At the time the Wellington Parade property was purchased, Stanley was the sole shareholder in and one of two directors of Ambridge. He had been appointed a director of the plaintiff at the time of incorporation, but resigned in December 2002. In November 2001, Stanley mortgaged his one share in Break Fast to secure a liability to George Tauber Management Pty Ltd, in relation to a loan to St Leonards. Baker, Voukidis, Anastasopoulos and others had also invested in St Leonards. Stanley defaulted under the loan agreement, and in July 2004 Oxley was established to take an assignment of the mortgage. It ultimately became the shareholder in Break Fast in lieu of Stanley.
50Voukidis argued that Oxley became the owner of the interest formerly held by Stanley through Ambridge. He contended that there existed a group structure, in which equity in the Wellington Parade property was reflected through shares held in the plaintiff, involved Baker (and later McGrouther) controlling 50 per cent through two shares, Voukidis controlling 25 per cent through one share and Oxley, in which Baker, Voukidis, Anastasopoulos and Crotti participated, controlling 25 per cent through one share. Voukidis contended that the shareholding in Break Fast was also reflected in St Leonards, a beneficiary of so-called ‘wrongful payments’.
51Voukidis alleged that those who controlled and owned the plaintiff, and thus the property and its revenue stream, were in a position to decide how to apply the plaintiff’s funds within the group. He alleged that they were entitled to apply the funds for the benefit of other entities in which they shared an equivalent, or near equivalent interest. He argued that under the cross-collateralisation deeds, Break Fast was obliged to support St Leonards, and that many of the payments made by him were for that legitimate purpose. He argued that in so doing, there was no need to have regard to the interests of Ambridge, which Stanley had sacrificed.
Thus, by the unusual events that have occurred leading to these applications, this Court is better informed about the plaintiffs prospects than might otherwise be the case. Some assessment, no matter how imperfect, can be made of the claim by Ambridge on behalf of Break Fast to the Lane Cove fund. Based on the evidence advanced in the Break Fast proceeding the plaintiffs case, in relation to the Lane Cove allegations, is not a particularly strong case in relation to some of the alleged wrongful payments. The plaintiff may, of course, conduct its case differently in a new trial.
A further relevant consideration is the practical importance to the Court of an effective contradictor at trial. The adversarial system of dispute resolution does not function properly in the absence of qualified and competent legal representation for litigants. The course of the trial in the Break Fast proceeding, in which Mr Voukidis was unrepresented, provides ample evidence of the difficulty confronted by a court, in a complex commercial case, when the principal defendant is unrepresented, and no other defendant is represented throughout the trial.
No solution has been advanced, other than access to the Lane Cove fund, to ensure an effective contradictor at trial. I am satisfied that a fair trial requires the appointment of competent counsel to represent Mr Voukidis. His Trustee in Bankruptcy will not participate. The plaintiff, quite understandably, complained that the fund cannot be replenished, should it establish its case at trial, and should not be deployed by the alleged wrongdoer to defend the case. It relied on its prima facie right to have the fund fully protected pending a final resolution of the case.
In my opinion, the plaintiff’s right to have the fund protected, pending adjudication, is not unqualified. Adjudication of the issues in this proceeding, by way of a trial in this Court, must be fair and just. The plaintiff’s right is qualified by a responsibility to assist the fair and just adjudication of its claim, even if that means putting at risk part of the property to which it lays claim. Thus, any grant of leave to amend, and to bring the proceeding on behalf of Break Fast, must be coupled with a condition that the plaintiff and Break Fast cooperate in making available a sum from the Lane Cove fund sufficient to provide a minimum level of appropriate legal representation for Mr Voukidis. In my opinion, such representation should consist of a solicitor and junior counsel, briefed for the trial.
Conclusion
For the reasons given above, I grant leave to the plaintiff to amend its statement of claim substantially in the form of exhibit PAJ1 to the affidavit of Phillip Anthony Jones sworn 8 April 2016. Further, I grant leave to the plaintiff to bring the proceeding on behalf of Break Fast. Leave is conditional on:
(1)The plaintiff and Break Fast cooperating to make available to a solicitor engaged by Mr Voukidis, out of the Lane Cove fund, or by some other means, an amount to be determined by the Court from time to time as reasonable remuneration for a solicitor and junior counsel for the trial, including preparation.
(2)The appointment by the parties, or in default appointment by the Court, of an independent, suitably qualified and experienced accountant to prepare final accounts for Break Fast and if necessary give evidence. The period for which such accounts shall be prepared, and the scope of the accounts, will be the subject of further submissions.
Gravity Ventures will be added as a defendant to the proceeding.
I will hear the parties on costs and directions for trial.
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