FEDERAL COURT OF AUSTRALIA
Asden Developments Pty Ltd (in liq) v Dinoris [2017] FCAFC 117
Appeal from: Asden Developments Pty Ltd (in liq) v Dinoris [2015] FCA 729
Asden Developments Pty Ltd (in liq) v Dinoris(No 3) [2015] FCA 788
Asden Developments Pty Ltd (in liq) v Dinoris(No 4) [2016] FCA 1001
File number: QUD 704 of 2016 Judges: GREENWOOD, DAVIES AND MARKOVIC JJ Date of judgment: 10 August 2017 Catchwords: PRACTICE AND PROCEDURE – appeal of the dismissal of an application for the primary judge to disqualify himself on the ground of appended bias – whether the primary judge erred in rejecting evidence – whether the primary judge erred in respect of an order that the applicant pay the respondents’ costs of the proceeding
CORPORATIONS – liquidators’ statutory duties – whether liquidator breached s 180 of the Corporations Act 2001 (Cth) – whether statutory defences under ss 1317S and 1318 are available with respect to a finding of breach of s 180 of the Act
Legislation: Corporations Act 2001 (Cth), ss 180, 1317S, 1318
Federal Court of Australia Act 1976 (Cth), s 43(2)
Cases cited: Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Limited [2015] FCAFC 103, (2015) 236 FCR 78
Australian Securities and Investments Commission v Cassimatis (No 8 ) [2016] FCA 1023; (2016) 336 ALR 209
Australian Securities and Investments Commission v Edge [2007] VSC 170; (2007) 211 FLR 137
Australian Securities and Investments Commission v Healey (No 2) [2011] FCA 1003; (2011) 196 FCR 430.
Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1
Concrete Pty Ltd v Parramatta Design & Developments Pty Ltd [2006] HCA 55; (2006) 229 CLR 577
CSR v Della Maddalena [20016] HCA 1; (2006) 224 ALR 1
Ebner v Official Trustee in Bankruptcy [2000] HCA 63; (2000) 205 CLR 337
Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52
Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) [2015] HCA 53; (2015) 90 ALJR 270
Fox v Percy [2003] HCA 22; (2003) 214 CLR 118
House v The King [1936] HCA 40; (1936) 55 CLR 499
In re Home and Colonial Insurance Company, Limited [1930] 1 Ch 102 at 125
In re Windsor Steam Coal Company (1901), Limited [1929] 1 Ch 151
Johnson v Johnson [2000] HCA 48; (2000) 201 CLR 488
Michael Wilson & Partners Ltd v Nicholls [2011] HCA 48; (2011) 244 CLR 427
Pace v Antlers (1988) 80 FCR 485
Robinson Helicopter Company Incorporated v McDermott [2016] HCA 22; (2016) 90 ALJR 679
Shafron v Australian Securities and Investments Commission [2012] HCA 18; (2012) 247 CLR 465
Date of hearing: 23 February 2017 Registry: Queensland Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 107
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- AGLC
- Asden Developments Pty Ltd (in liq) v Dinoris [2017] FCAFC 117
- Case
- [2017] FCAFC 117
- Decision Date
CaseChat Overview and Summary
The case of Asden Developments Pty Ltd (in liq) v Dinoris involved an appeal against the dismissal of an application for the primary judge to disqualify himself on the ground of appended bias, and a cross-appeal against the findings that Mr Dinoris breached s 180 of the Corporations Act 2001 (Cth) and that certain statutory defences were not available to him. The underlying facts of the case were not contentious and involved the financial mismanagement of a property development company by its sole director and shareholder, Ms Nichols. Ms Nichols had directed Mr Levis, a pre-insolvency expert, to advise her on the company's financial difficulties and he had recommended that she establish a new bank account and transfer funds from the company's account to that of another company, Urban Property, which was controlled by Mr Levis. The liquidators had sought to recover the funds from Ms Nichols, alleging that she had breached her statutory duties under s 180 of the Corporations Act 2001 (Cth).
The legal issues before the court were whether the primary judge had erred in rejecting evidence, whether the primary judge had erred in respect of an order that the applicant pay the respondents’ costs of the proceeding, whether the liquidator had breached s 180 of the Corporations Act 2001 (Cth), and whether statutory defences under ss 1317S and 1318 were available with respect to a finding of breach of s 180 of the Act. The court found that the primary judge had not erred in rejecting Ms Nichols’ evidence, as the question put to her in evidence-in-chief was leading and imprecise, and the answer was ambiguous. The court also found that there was no error of principle in the primary judge's exercise of discretion in awarding costs against the company as the unsuccessful party, and that it was open to the primary judge to do so. The court found that the primary judge had not erred in finding that Mr Dinoris breached s 180 of the Act, as he had failed to contact Ms Nichols personally about the missing funds, and that it was unnecessary to consider statutory defences relied on by Mr Dinoris under ss 1317S and 1318 of the Act.
The appeal and the cross-appeal were dismissed and the final orders were that the appeal be dismissed and the cross-appeal be dismissed. The entry of orders was dealt with in Rule 39.32 of the Federal Court Rules 2011.
The legal issues before the court were whether the primary judge had erred in rejecting evidence, whether the primary judge had erred in respect of an order that the applicant pay the respondents’ costs of the proceeding, whether the liquidator had breached s 180 of the Corporations Act 2001 (Cth), and whether statutory defences under ss 1317S and 1318 were available with respect to a finding of breach of s 180 of the Act. The court found that the primary judge had not erred in rejecting Ms Nichols’ evidence, as the question put to her in evidence-in-chief was leading and imprecise, and the answer was ambiguous. The court also found that there was no error of principle in the primary judge's exercise of discretion in awarding costs against the company as the unsuccessful party, and that it was open to the primary judge to do so. The court found that the primary judge had not erred in finding that Mr Dinoris breached s 180 of the Act, as he had failed to contact Ms Nichols personally about the missing funds, and that it was unnecessary to consider statutory defences relied on by Mr Dinoris under ss 1317S and 1318 of the Act.
The appeal and the cross-appeal were dismissed and the final orders were that the appeal be dismissed and the cross-appeal be dismissed. The entry of orders was dealt with in Rule 39.32 of the Federal Court Rules 2011.
Orders
Orders of the court
1. The appeal be dismissed.
2. The cross-appeal be dismissed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
For the reasons that follow, both the appeal and the cross-appeal should be dismissed.UNDERLYING FACTS The underlying facts were not contentious. Asden Developments was incorporated in 2005 to undertake a property development (“the Wakerley Project”) for the family of Ms Nichols’ then husband, Phillip Nichols. From incorporation Ms Nichols was the company’s sole director and shareholder but the evidence indicated that Ms Nichols managed the company under the direction of her father‑in‑law, George Nichols, at whose request Ms Nichols had taken on the role as director. The company’s operations were largely funded by members of the Nichols family and Ms Nichols would go to her father-in-law when the company needed more funds. Neither Ms Nichols nor her husband provided any funds to Asden Developments. In early December 2010, the company was experiencing financial difficulties and Ms Nichols requested more funds from George Nichols to pay various creditors. Following a meeting on 4 December 2010, George Nichols gave Ms Nichols two cheques: one for $100,000 on 6 December 2010 and the other for $170,000 on 14 December 2010. Ms Nichols deposited the cheques into the company’s bank account at the Suncorp Bank on 6 December 2010 and 14 December 2010 respectively. However, instead of using those funds to pay creditors Ms Nichols took the following steps. On 15 December 2010, Ms Nichols withdrew the funds from the company’s bank account with the Suncorp Bank and deposited the funds into a new bank account in the name of the company with the Bank of Queensland. Ms Nichols was acting on the advice of a Mr Peter Levis (“Mr Levis”) in establishing the new account and transferring the funds. Mr Levis was a “pre-insolvency expert” whom Ms Nichols had consulted in early December 2010. On 20 December 2010 Ms Nichols used $22,322.43 of the $270,000 paid into the Bank of Queensland account to pay for a car she had earlier ordered. On 21 December 2010, Ms Nichols withdrew the balance of the funds of $236,500 from the company’s Bank of Queensland account and deposited the funds into an account in the name of Urban Property Consulting Pty Ltd (“Urban Property”), a company controlled by Mr Levis. Mr Levis withdrew $180,000 from Urban Property’s account the same day, which he deposited into an account in the name of TJI Investments Pty Ltd (“TJI”). TJI had been established by Ms Nichols on 14 December 2010 on advice from Mr Levis and Ms Nichols was the sole director and shareholder. On 22 December 2010, Ms Nichols resolved that Asden Developments be wound up voluntarily and that the former liquidators be appointed as the liquidators. In winding up the company, Ms Nichols was also acting on the advice of Mr Levis, who had approached Mr Dinoris on 15 December 2010 for his consent to act as liquidator. On the day of their appointment, the former liquidators obtained a copy of the bank statement for the company’s account with the Bank of Queensland and became aware that $236,500 had been withdrawn from that account. Ms Del Monte from the former liquidators’ office sent an email to Mr Levis inquiring about the withdrawn funds. She did not receive a response.
Evidence
Evidence Before The Court
The statements complained about were not capable of giving rise to an apprehension of bias and ground 11 is not established.Grounds 1-8: did the primary judge err in the rejection of Ms Nichols’ evidence? Ms Nichols gave the following evidence in chief:MR MARTIN: Now, if on the 22nd or 23 December, taking into account that the company was wound up on 22 December, if either on the 22nd or 23 December, the liquidator or one of them, Mr Dinoris or Mr Combis, had rung you and asked you about these transactions and the money in the bank account of the company that had been taken out, what would you have told them?---Well, I would have told them the truth, where it had gone.If they had asked you to repay what you had, what would you have done?---I would have repaid it. In cross‑examination it was put to Ms Nichols that had she been contacted by Mr Dinoris she would not have repaid the money. Ms Nichols denied this, stating that Mr Dinoris was the liquidator and “the authority” and she would have complied with his direction. The evidence was as follows:MR ERSKINE: All right. I suggest you would not have repaid the money? --- No, I – I think that I would have repaid the money. I put to you that you would have sought the advice of Mr Levis? --- Well, like, I’ve said Peter Levis was – Peter Levis told me that Peter Dinoris was already aware of what had happened with this money so ---…HIS HONOUR: So was the answer yes or no?: You would have told-you would have sought Mr Levis’ advice or no? ---Yes, I – I suppose, yes.You would have? --- As far as his advice I –I probably would have spoken to him, but as far as paying it back, I mean, Peter Dinoris, he is the liquidator as such. So he, you know, he is –the authority so I –I guess I’m trying to say I –I would have paid it back.MR ESRKINE: Well, you had already received a letter ---? --- I just – I ---I’s Sorry? --- Sorry. It – this is just a little bit because Peter Dinoris and Peter Levis as far as I’m aware through this whole thing knew. So had I received a phone call from Peter Dinoris I do believe I would have paid it back. The primary judge rejected Ms Nichols’ evidence. At [163], his Honour stated:When Ms Nichols’ evidence at the trial of this matter approximately five years after the events of late 2010 and early 2011 is assessed against the evidence bearing on all the relevant surrounding circumstances existing at that time, I consider the likelihood is that she would not have responded to an enquiry from Mr Dinoris in late 2010 or early 2011 by agreeing to pay back the funds. Instead, I consider she would most likely have sought advice from Mr Levis, or Mr Doyle, or both of them, and acted on that advice. Further, in the circumstances, I consider it is more likely that both Mr Levis and Mr Doyle, for different reasons, would have advised her not to repay the funds to Mr Dinoris… The primary judge considered that the second question put to Ms Nichols in her evidence in chief was leading and imprecise and the answer so ambiguous that its meaning was difficult to discern. This significantly affected the weight he gave to Ms Nichols’ answer. At [164] the primary judge said:First, I agree with Mr Dinoris that the second and most critical question put to Ms Nichols in her evidence-in-chief above (at [161]) was a leading question: “If they had asked you to repay what you had, what would you have done?” Her answer (“I would have repaid it”) must therefore be weighed accordingly. Furthermore, the question was so imprecise and the answer was so ambiguous that its meaning is difficult to discern. There is no difficulty with the word “they” in the question because, in the context of the previous question, it plainly meant Mr Dinoris or Mr Combis: “if on the 22nd or 23 December, ... Mr Dinoris or Mr Combis, had rung you and asked you about these transactions and the money in the bank account of the company that had been taken out, what would you have told them?” However, in the same context, the words “repay what you had” is more problematic. It could mean the money “that had been taken out” of the company’s bank account, or it could mean the money that Ms Nichols “had” at the time. Both possibilities are open on the previous question and both suffer from similar difficulties. On the first possibility, in fact, there were at the time two company bank accounts – one at Suncorp and one at the Bank of Queensland – and different amounts had been taken out of each at different times: $264,531.02 from the Suncorp account on 15 December 2010 and $236,500 from the Bank of Queensland account on 21 December 2010. On the second possibility, the difficulty is whether “had” meant in her possession, or under her control, bearing in mind the fact that, at the time, Mr Levis had the remainder of the money, namely $56,500. These features demonstrate the importance of framing precise non-leading questions when a witness is being asked to state how he or she would have acted in a particular hypothetical situation. In this case, the imprecise and leading nature of the question significantly affects the weight that can be given to Ms Nichols’ answer.
Decision
Reasons for decision
The award of costs was at the discretion of the primary judge: s 43(2) of the Federal Court of Australia Act 1976 (Cth).Thus, an error of law of the type identified in House v The King [1936] HCA 40; (1936) 55 CLR 499 at 504‑505 must be shown to warrant the appellate court interfering with the costs order that was made. Ordinarily costs follow the event and ordinarily it is appropriate to award the costs of the proceeding to the successful party without attempting to differentiate between those particular issues on which it was successful and those on which it failed: Foots v Southern Cross Mine Management Pty Ltd [2007] HCA 56; (2007) 234 CLR 52 at [25] to [34]. As stated in Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) [2015] HCA 53; (2015) 90 ALJR 270 at [6] (per French CJ, Kiefel, Nettle and Gordon JJ:… the preferable approach in this case is the one usually taken, that costs should follow the outcome of the appeal. This is not a case where it may be said that the event of success is contestable, by reference to how separate issues have been determined [Compare Plaintiff M76/2013 v Minister for Immigration, Multicultural Affairs and Citizenship (2013) 251 CLR 322 at 393[241]]. There are no special circumstances to warrant a departure from the general rule, and good reasons not to encourage applications regarding costs on an issue-by-issue basis, involving apportionments based on degrees of difficulty of issues, time taken to argue them and the like. In the present case, no error of principle is shown in the exercise of discretion of the primary judge and the result is not so unreasonable or plainly unjust that an error of principle should be inferred. The originating application was dismissed because the company failed to establish that any loss flowed from the breach of duty and there are no special circumstances to warrant a departure from the general rule. It was open to the primary judge to award costs against the company as the unsuccessful party, notwithstanding its success in establishing that there was a breach of duty. CONCLUSION ON THE APPEAL As none of the grounds of appeal have been established the appeal must be dismissed.CROSS-APPEAL The amended notice of cross-appeal has 6 grounds, of which grounds 3, 4 and 5 were not pressed. Ground 1 alleges error by the primary judge in finding that Mr Dinoris breached s 180(1) of the Act. Ground 2 is that the primary judge erred in not finding that the company had failed to establish that the funds withdrawn were the property of the company and ground 6 is that the primary judge erred in finding that it was unnecessary to consider statutory defences relied on by Mr Dinornis under ss 1317S and 1318 of the Act.Ground 1: Did the primary judge err in finding that Mr Dinoris breached s 180(1) of the Act? It was not disputed that the primary judge had regard to the correct relevant legal principles in determining whether Mr Dinoris contravened s 180 of the Act in failing to contact Ms Nichols personally about the missing funds. At [89], the primary judge summarised the applicable legal principles as follows: … the test is an objective one. It requires an assessment as to whether Mr Dinoris’ conduct as a professional liquidator demonstrated the requisite degree of care and diligence that was reasonable in all the relevant circumstances. That assessment is to be made at the time of Mr Dinoris’ alleged breach and not with the benefit of hindsight. It is to have regard to the degree of care and diligence expected of a skilled and professional accountant performing the role of a liquidator. It also requires care to be taken to distinguish between conduct amounting to a breach of the statutory duty and that amounting to a mistake or error of judgment.
Ratio Decidendi
Legal Principle Established
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