Australian Spirit Management Pty Ltd v Commissioner of Taxation
[2012] NSWSC 123
•17 February 2012
Supreme Court
New South Wales
Medium Neutral Citation: Australian Spirit Management Pty Ltd & Ors v Commissioner of Taxation & Ors [2012] NSWSC 123 Hearing dates: 16 February 2012 Decision date: 17 February 2012 Jurisdiction: Equity Division - Commercial List Before: Black J Decision: Relief refused
Catchwords: PRACTICE & PROCEDURE - Preservation orders - whether preservation orders should be modified to release certain moneys - Balance of convenience Legislation Cited: - Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: - Australian Spirit Management Pty Ltd v Commissioner of Taxation [2011] NSWSC 1626
- A v C [1981] QB 956
- Badman v Drake [2008] NSWSC 968
- McCleary v Bullabidgee Pty Ltd [2008] NSW SC 534
- Westpac Banking Corporation v McArthur [2007] NSWSC 1347Category: Interlocutory applications Parties: Australian Spirit Management Pty Ltd & 5 Ors (Plaintiffs)
Commissioner of Taxation & 83 Ors (Defendants)Representation: Counsel:
G.K. Burton SC with P. Bruckner (Plaintiffs)
C. Bannon (Third Defendant)
K. Dawson (2nd and 4th Defendants)
Solicitors:
Kelvin Solari (Plaintiffs)
Atanaskovic Hartnell (3rd Defendant)
Deutsch Miller (2nd and 4th Defendants)
MacRae Lawyers (7, 20, 34, 38, 41, 46, 50, 53, 63, 64, 69, 70, 72, 79, 80, 81 Defendants)
Mark Turnbull & Co (43rd and 44th Defendants)
Robertson Saxton Primrose Dunn (47th and 48th Defendant)
File Number(s): 11/213409
Judgment
The background to these complex proceedings is set out in the decision of Rein J in Australian Spirit Management Pty Ltd v Commissioner of Taxation [2011] NSW SC 1626. His Honour there made orders, inter alia, for preservation of certain whiskey and its proceeds of sale ("preservation orders") and required the plaintiffs to give certain undertakings.
By Notice of Motion filed on 13 February 2011, the First and Second Plaintiffs (to whom I will refer collectively as "ASM") seek orders that certain moneys which are to be paid into a controlled moneys account and which are the subject of the preservation orders made by Rein J should be applied to the costs of ASM conducting certain proceedings in Australia and Scotland and also to its former directors' costs of defending certain proceedings in which they are personally involved ("the wider application").
When the matter was listed before me, having been referred by the Duty Judge, the three parties who took an active role ultimately accepted that it was preferable that ASM's wider application should be determined after comprehensive written submissions had been filed and there was also difficulty in proceeding with that wider motion before me where the affected Defendants, Chambers Finance Ltd ("Chambers Finance"), Grant McKenzie Hong Kong Ltd and Brackwell Trading Ltd, had served a Notice to Produce to which ASM had not yet responded. Several matters were agreed between the parties as to the future conduct of the wider application and the proceedings generally and I will make orders reflecting that agreement shortly.
Two matters were not agreed and it was common ground between the parties they should be determined by the Court. I heard extensive submissions as to those matters.
The first matter was that ASM sought an order that Chambers Finance undertake to join in an application to the Scottish Court of Session for a seist (stay) of certain Scottish proceedings if a mediation in these proceedings cannot be completed within a 21 day period and until such a mediation is concluded. By way of background to that matter, the parties had agreed before me as to the desirability of a mediation, although any formal orders for such a mediation will be made by directions in the Commercial List rather than by me. Although that order may ultimately be appropriate, I do not consider that I should presently make it, because it would be premature where orders for the mediation have not yet been made and any question of the mediation not being completed does not yet arise. It appears to me that the preferable course would be to address the question of any delay in the mediation at a point when the nature and reasons for that delay is known and it may be that such an issue could then be dealt with by agreement between the parties.
The second and more substantive question was whether orders should be made, as a term of deferring the hearing of ASM's wider application, releasing specified funds to the trust account of ASM's solicitors for specified purposes, in the amount of $48,680 (after allowing for $30,000 already held in trust by those solicitors) plus a further $20,000 in relation to the proposed mediation. I will refer to this matter as the "narrower application".
ASM relies on affidavits of its solicitor, Mr Kelvin Solari, sworn 13 and 16 February 2012 in support of the narrower application. Mr Solari gives evidence of the present position in the Scottish proceedings between ASM, Chambers Finance and others; proceedings in the Federal Court of Australia involving ASM's former directors; and other proceedings in the Supreme Court of New South Wales also involving ASM's former directors. ASM also relied on materials which were in evidence at the earlier hearing before Rein J. Chambers Finance relies on the affidavits of Mr Christopher Stern sworn 25 November 2011 and 15 February 2012, an affidavit of one of its Scottish legal representatives, Ms E-Ming Fong sworn 14 February 2012, and an affidavit of Ms Zoe Hillman sworn 15 February 2012.
ASM also drew attention to several observations of Rein J in his judgment making the preservation orders, including that ASM contended that Chambers Finance was not entitled to hold proceeds of whisky sales obtained under a funding agreement reached in 2009 at all, or at least without payment of "Reimbursed Costs" as defined; that Chambers Finance did not contest that there is a seriously arguable case that the security interest it holds is defective; and that the claim that Chambers Finance should pay to ASM the net proceeds of sale under the 2009 funding agreement is not a weak claim. At the same time, his Honour does not appear to have acceded to an earlier application by ASM for payment of the preserved funds to it, while leaving open the possibility of further applications for payment for specific purposes.
My attention was drawn to several relevant authorities in the course of argument, including Westpac Banking Corporation v McArthur [2007] NSWSC 1347 at [52] and Badman v Drake [2008] NSWSC 968. The former case dealt with an allowance for reasonable legal expenses when a freezing order had been made over a party's assets. The latter recognised the potential injustice in granting an injunction to restrain a defendant's use of a fund, which amounted to most of the defendant's realisable assets, where to do so would practically prevent the defendant from defending proceedings in which it had been found to have a seriously arguable case. ASM also relied on the decision in McCleary v Bullabidgee Pty Ltd [2008] NSWSC 534, where a party which contended that it had terminated contracts for the sale of properties sought to restrain a third party from distributing the payment of proceeds of rice derived from those properties. In that case, Brereton J had to address the position where two parties each had arguable claims to moneys held by a third and granted an order restraining the dissipation of the proceeds on the usual undertaking as to damages. That order was, as I understand it, directed to preserving the status quo and in that respect is very similar to the order previously made by Rein J in these proceedings.
I proceed on the basis that the question who originally possessed or had control of the relevant moneys or the whiskey is not material where the substantive contest between the parties is as to the entitlement to the property and the funds. The question before me is instead whether a term should be imposed, as a condition of the adjournment, permitting ASM to expend some of the monies which are the subject of preservation orders on legal costs where:
1. neither party has established its right to the funds at a final hearing;
2. the Court may be able to form preliminary views as to the merits of the claims, and Rein J has to some extent indicated such views but those views may change at a final hearing;
3. ASM may be unable to pursue proceedings without access to the funds; and
4. if ASM expends the funds, the success of Chambers Finance at a final hearing may be diminished or, depending on the quantum of the funds expended, denied.
The issue before me is further complicated by the fact that the Second, Third and Fourth defendants sought, before Rein J, to have moneys to be expended on their legal costs excluded from the preservation orders which his Honour made. ASM successfully opposed that position before Rein J, although the orders it now seeks appear to have some similarity to the orders which Chambers Finance sought before Rein J which it then opposed. In my view, complex issues will arise on the wider motion. Some of those issues were not canvassed before me, including equity's potentially different approach to the release of moneys where an injunction is granted in aid of a proprietary claim to a specific fund; A v C [1981] QB 956; Badman v Drake at [7].
ASM contends that the orders sought by the narrower application should be made so as not to stultify the conduct of the proceedings. I was informed from the Bar Table by Mr Burton SC, who appeared with Mr Bruckner for ASM, that ASM's solicitors proposed to cease to act if funds were not released for their costs. That submission was directed to the wider application and not specifically put in respect of the narrower application. Mr Solari does not deal with the question of ceasing to act in his affidavits read before me. I do not think, at least at this stage, that the concept of stultification provides substantial assistance. The question here is not, as it would be in a security for costs application, whether the Court should make an order for security which may prevent a plaintiff pursuing an otherwise meritorious case. The question is rather whether an order should be made, in connection with an agreed adjournment, which would allow ASM access to a fund which it claims, before it establishes that claim in a final hearing, because otherwise it may be unable to fund the proceedings to establish that claim.
This leads to a second matter. ASM relied heavily on its inability to conduct the proceedings unless such an order was made. The evidence before me establishes that ASM does not itself have assets to fund the proceedings. ASM relies on that proposition for this application and Chambers Finance equally embraces it to seek security for costs. The position of those interested in ASM, in both a narrow and wider sense, appears to be the subject of some evidence in the proceedings but was not fully explored before me, although the evidence to which I was referred suggests at least that investors in the relevant projects may not wish to advance further funds for the conduct of these proceedings. There was no exploration before me of whether ASM has sought litigation funding, which might be expected to be a possibility if, as it contends, it has a strong claim for a substantial amount.
It is, in my view, possible to decide the narrower application on a relatively confined basis. I will proceed on the assumption that each party has a reasonably arguable claim to the whiskey and the funds, which seems to me to be implicit in Rein J's approach, although I expressly assume that matter rather than making any findings in that regard. It seems to me that the balance of convenience does not favour the orders sought by ASM for release of the funds pending the hearing of the wider application for several reasons:
1. The first and second expenditures sought to be paid from those funds have already been incurred and reimbursement of such expenses need not be decided on an urgent listing. The fourth and fifth expenditures as to future legal costs relate to this motion and the proposed mediation, among other costs. The issues in the wider motion are such that ASM may succeed but also may fail. I do not consider that I should order payment, in advance, of ASM's costs of the motion where those costs may not be recoverable once the motion is heard.
2. I also do not consider the evidence establishes that there is any immediate risk that ASM will be prejudiced if the narrower application is not granted pending the hearing of the wider application. There was, as I noted, no affidavit evidence to the effect that ASM's solicitors would withdraw, which in any event was put by reference to the wider application. I was informed that ASM's solicitors have not in fact yet given the notice which is required under the Uniform Civil Procedure Rules 2005 (NSW) before taking that course, and no doubt they will consider the imminence of any hearing of the wider application in determining whether to give such notice.
3. The third expenditure, $8,000 to the Scottish solicitors, is the expenditure for which there is perhaps the strongest claim. However, that expenditure is less than the amounts currently held by ASM's solicitors on trust.
4. Although the amount sought to be released is a relatively small portion of the amount said to be in issue, and a larger portion of the funds presently preserved, releasing it would, in my view, involve a real risk of prejudice to the Defendants if the Plaintiff ultimately fails to establish its case, since the Plaintiff offers no undertaking as to damages and it appears to be common ground that its financial position is such that an undertaking would be of little value unless secured. It may be that an examination of, on the one hand, the Plaintiff's prospect of success and on the other hand the balance of convenience in respect of the wider application means that matter should be given lesser weight. However, I consider that it must be given weight where the wider application has not yet been argued.
In summary, I consider this issue is properly determined with argument on the wider application; the detriment to the Defendant of release of the funds is real; and the immediate detriment to the Plaintiffs of deferring any release of funds to be determined on the wider application is limited. Accordingly, I do not consider the balance of convenience favours making the orders sought by ASM on the narrower application and I do not make those orders.
I note the following undertakings which are given by the Second, Third and Fourth Defendants as the case may be in respect of the adjournment of the wider application, which are undertakings to the Court and inter parties:
1. The Second Defendant undertakes not to take any step in the Scottish proceedings to obtain judgment or other relief for 21 days.
2. The Second Defendant undertakes to consent to any order sought by the Plaintiffs (as Defendants in the Scottish proceedings) to extend the time for filing of any defence in the Scottish proceedings to 29 March 2012.
By consent, the Court also notes that the Second to Fourth Defendants intend to file an amended application for leave to appeal and, on that basis, funds for the plaintiffs (being the respondents in the Court of Appeal proceedings) in respect of steps in those proceedings are not presently required.
Chambers Finance sought costs of the motion before me. The matter that proceeded before me related to a part of a wider motion and I will reserve the costs with the intent that the question of costs of this application may be agitated either at the conclusion of the wider application or at the conclusion of the proceedings.
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Decision last updated: 29 February 2012
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