Barringtons Accounting Pty Ltd v Barringtons Your Business Advisors Pty Ltd (in liquidation)
[2015] WASC 56
•11 FEBRUARY 2015
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: BARRINGTONS ACCOUNTING PTY LTD -v- BARRINGTONS YOUR BUSINESS ADVISORS PTY LTD (in liquidation) [2015] WASC 56
CORAM: MITCHELL J
HEARD: 6 FEBRUARY 2015
DELIVERED : 6 FEBRUARY 2015
PUBLISHED : 11 FEBRUARY 2015
FILE NO/S: CIV 2446 of 2014
BETWEEN: BARRINGTONS ACCOUNTING PTY LTD
Plaintiff
AND
BARRINGTONS YOUR BUSINESS ADVISORS PTY LTD (in liquidation)
First DefendantJENNIFER LOW as liquidator of BARRINGTONS YOUR BUSINESS ADVISORS PTY LTD
Second Defendant
FILE NO/S :COR 25 of 2015
BETWEEN :BARRINGTONS ACCOUNTING PTY LTD
Plaintiff
AND
BARRINGTONS YOUR BUSINESS ADVISORS PTY LTD (in liquidation)
Defendant
Catchwords:
Application for leave to proceed against company being wound up - Mistaken payments - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 471B
Result:
Leave refused
Category: B
Representation:
CIV 2446 of 2014
Counsel:
Plaintiff: Mr P A Tottle
First Defendant : Mr G D Cobby
Second Defendant : Mr D G Cobby
Solicitors:
Plaintiff: Tottle Partners
First Defendant : Roe Legal Services
Second Defendant : Roe Legal Services
COR 25 of 2015
Counsel:
Plaintiff: Mr P A Tottle
Defendant: Mr G D Cobby
Solicitors:
Plaintiff: Tottle Partners
Defendant: Roe Legal Services
Case(s) referred to in judgment(s):
Ainsworth v Criminal Justice Commission (1992) 175 CLR 584
ASIC v Rowena Nominees Pty Ltd [2003] WASC 112
Australian Conservation Foundation Inc v The Commonwealth (1980) 146 CLR 493
Australian Financial Services & Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14; (2014) 88 ALJR 552
Barnes v Addy (1874) LR 9 Ch App 244
Ex parte James; Re Condon (1874) LR 9 Ch App 609
Ex parte Simmonds; In re Carnac (1885) 16 QBD 308
Focus Metals Pty Ltd v Babicci [2014] VSC 380
Hanshaw v National Australia Bank Ltd [2012] NSWCA 100
Hypec Electronics Pty Ltd (in liq) v Mead [2003] NSWSC 934; (2003) 202 ALR 688
News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410
QBE Insurance (Australia) Pty Ltd v Lois Nominees Pty Ltd [2012] WASCA 186
Snelgrove v Great Southern Managers Australia Ltd (in liq) [2010] WASC 51
Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd (2000) 200 CLR 591
Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550
MITCHELL J:
(This judgment was delivered extemporaneously on 6 February 2015 and has been edited from the transcript.)
Factual and procedural background
In these proceedings the plaintiff claims that, on 19 September 2014, it purchased the assets, including goodwill, of an accounting partnership which carried on business under the name 'Barringtons' and 'Barringtons Your Business Advisors'. It alleges that the partnership comprised four corporations, each acting as a trustee.
Asset Sale Agreement
At the time of the sale, each of the four trustee corporations was subject to a members' voluntary liquidation, with two accountants acting as joint and several liquidators of those corporations. The Asset Sale Agreement (ASA) made on 27 August 2014 is referred to in the evidence, but has not itself been tendered.
The plaintiff claims that, since 19 September 2014, it has carried on an accounting practice under the name 'Barringtons' and 'Barringtons Your Business Advisors', using the assets purchased under the ASA, and that the partnership ceased to operate its business on that date. Many of the plaintiff's clients are former clients of the business operated by the partnership.
First Proceedings
On 28 November 2014 the plaintiff commenced proceedings (CIV 2646 of 2014) against the defendants (First Proceedings). The first defendant is a corporation which was subject to a winding up order made by this court on 28 October 2014. The second defendant was appointed by the court as liquidator of the first defendant.
The essence of the plaintiff's claim was that its clients had mistakenly made payments in respect of services performed or to be performed by the plaintiff into two bank accounts in the name of the first defendant, intending that the payments be made to the plaintiff. The plaintiff contended that the defendants hold funds paid into those bank accounts on constructive trust for the plaintiff, or alternatively the plaintiff's clients. It sought a declaration to that effect and an order directing the second defendant to cause the first defendant to pay the funds to the plaintiff.
Section 471B of the Corporations Act
The First Proceedings, so far as they asserted a cause of action against the first defendant, were commenced without regard to the requirements of s 471B of the Corporations Act 2001 (Cth). That section relevantly provides that, while a company is being wound up by the court, a person cannot begin or proceed with a proceeding in a court against the company, or in relation to the property of the company, except with the leave of the Court and in accordance with such terms (if any) as the Court imposes. The reference to 'a court' in this provision is to any court, while the reference to 'the Court' includes this court.[1]
[1] Section 58AA of the Corporations Act.
The plaintiff sought the grant of leave nunc pro tunc. The defendants accept that leave might be granted despite the action already having been commenced, but contend that in the circumstances of the present case leave ought to be refused or, if leave is to be granted, then conditions should be imposed on the grant of that leave.
I listed for hearing today the preliminary question of whether the plaintiff should have leave to commence and continue these proceedings, and if not whether the action should be dismissed.
Second Proceedings
On 5 February 2015 the plaintiff commenced further proceedings (COR 25 of 2015) against Barringtons Your Business Advisors Pty Ltd (Second Proceedings). The defendant in the Second Proceedings is the first defendant in the First Proceedings. For convenience I will refer from this point refer to that company as the first defendant even in the context of the Second Proceedings.
In the Second Proceedings the plaintiff seeks leave under s 471B of the Corporations Act to commence further proceedings against the First Defendant. The proposed proceedings would be against the first defendant and Ms Low in her capacity as liquidator of the first defendant. Again, for convenience, I will continue to refer to Ms Low as the second defendant in relation to the Second Proceedings, although she is strictly only a proposed defendant to proposed proceedings.
The plaintiff's claims
The affidavit filed in support of the application for leave in the Second Proceedings attaches a minute of proposed consolidated statement of claim which the plaintiff proposes will stand as its pleading in both proceedings (Minute). I will deal with both applications for leave on the basis that the Minute reflects the claims which the plaintiff now seeks to advance against the defendants in both proceedings.
Mistaken payments
The Minute alleges that clients of the plaintiff have mistakenly made payments of invoices, rendered to them by the plaintiff in respect of services rendered by the plaintiff, into accounts operated by the first defendant. Those payments were made both before and after the appointment of the second defendant as liquidator of the first defendant on 28 October 2014. The total value of the alleged mistaken payments is $268,646.94.
The defendants accept that the mistaken payments were made into overdraft accounts held by the first defendant at the Commonwealth Bank, which are referred to in the proposed pleading as Account 429 and Account 534. It is accepted by all parties that Account 429 has had a debit balance at all material times, and that Account 534 had a debit balance at all material times up to 3 December 2014. The plaintiff alleges that eight mistaken payments were made by its clients into Account 534 after 3 December 2014, and that a payment by a ninth client on 3 December 2014 caused the account to go into a credit balance where it remained.
The plaintiff pleads that it has received an assignment of the rights to mistaken payments from three of its clients, including one of the payments (in an amount of $926.91) made into Account 534 at a time when that account had a credit balance.
Constructive trust
The plaintiff alleges that the funds in credit in Account 534 are held by the first defendant on constructive trust for the persons who made the mistaken payment or, in the case of the payment of $926.91 on 10 December 2014, for the plaintiff as assignee of the payer. While the pleading alleges a broader constructive trust in favour of the plaintiff, counsel for the plaintiff properly accepted that the only arguable proposition he could advance was for constructive trusts in favour of the payer or the payer's assigns.
Relief sought
The Minute also alleges that the Commonwealth Bank will not reverse or redirect any of the payments without the approval and written authority of the second defendant and that the second defendant has failed and refused to provide that authority. The plaintiff intends to plead that the first defendant has no right or authority to the benefit of the mistaken payments.
The Minute seeks declarations that the payments were made into the accounts by mistake and the defendants are not entitled to the benefit of the payments; a direction to the second defendant to provide her written authority for the Commonwealth Bank to pay the relevant monies; a declaration that the credit balance is held on constructive trust; and an order directing repayment of the amounts standing to the credit of Account 534.
I note that counsel for the defendants accepted in submissions that the payments were made in circumstances giving rise to a restitutionary claim. The only qualification he made was that there may be no unjust enrichment, and any amounts owed by the first defendant to any of the payers may be subject to set‑off, if the payers owed money to the first defendant. He said that the second defendant did not have the capacity to confirm whether any of the payers were in fact debtors as she did not have access to the records of the first defendant (other than a bundle of papers provided very recently which the second defendant had not had the opportunity to review). There is evidence that the second defendant has requested that documents be provided by a number of parties, including the plaintiff and its directors (who were former directors of the first defendant) but, except in the limited respect just noted, has not been given the records.
Trust account
The Minute also alleges that the first defendant operated a trust account at the Commonwealth Bank (Trust Account) in which funds belonging to clients of the partnership were deposited from time to time. It pleads that, on 9 December 2014, the Trust Account was in credit in the sum of $191,152.15. The Minute identifies persons who are said to be beneficially entitled to funds in the Trust Account. Only one of those persons is the plaintiff, and the amount to which the plaintiff claims it is beneficially entitled is only $239.70. The plaintiff alleges, and it is not disputed by the defendants, that the second defendant has given instructions to the Commonwealth Bank to 'freeze' the Trust Account and has not authorised any payments out of the Trust Account. The Minute seeks a declaration that the persons it identifies are beneficially entitled to the sums identified in the minute and an order directing the second defendant to cause those sums to be paid to the relevant persons.
Principles concerning the grant of leave
The principles governing the exercise of my discretion to grant leave are not in dispute. They were considered in some detail by the Full Federal Court in Vagrand Pty Ltd v Fielding,[2] a decision which has been applied in a number of cases including by this court in Snelgrove v Great Southern Managers Australia Ltd (in liq).[3]
[2] (1993) 41 FCR 550.
[3] [2010] WASC 51, a case concerned with s 500(2) of the Act which gives rise to an equivalent test.
A principal purpose of the requirement for leave is to protect a company in liquidation from being subject to a multiplicity of actions which may be both expensive and time consuming, as well as in some cases unnecessary. Commonly, the question is whether a claimant should be permitted to proceed by action, or be required to engage in the much more expeditious and less expensive process of proving a debt in the liquidation. A claimant seeking leave is required to demonstrate that there is some good reason why a departure from the proof of debt procedure is justified in the case of the particular claim in dispute. While it is impossible to state in an exhaustive manner all the circumstances in which leave to proceed may be appropriate, 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 are relevant. Generally, a court will require that it be affirmatively satisfied that the claim has a solid foundation and gives rise to a serious dispute before granting leave.
The above considerations are framed by reference to a monetary claim, provable in the liquidation, being made by a proposed plaintiff against the company in liquidation. In my view additional considerations, to which I will refer, arise in the present case where the claim is not for monetary relief in respect of a provable debt owed by the company to the claimant. In considering those issues, the principal protective purpose of the leave requirement, identified above, must be kept in mind, as must any injustice to the claimant in being denied any capacity to assert legal rights.
Mistaken payments into overdraft account
In the present case I am not satisfied that it is appropriate to grant leave to the plaintiff to commence proceedings against the first defendant in relation to the alleged mistaken payments which were credited to bank accounts in the first defendant's name.
Person against whom the plaintiff asserts a cause of action
The plaintiff's contention before me in oral submissions was more confined in many respects that some of the propositions put in the written material. Counsel for the plaintiff contended that the persons making the mistaken payments or their assigns would have a restitutionary claim against the Commonwealth Bank to whom the money was paid and which received the benefit of the payments by a reduction of the first defendant's indebtedness to the bank.[4] He did not, in the end, contend that the plaintiff has any restitutionary claim against anyone in respect of the mistaken payments except to the extent that it can assert rights which have been assigned to it by three of the payers. He did not contend that any of the persons whose payments were applied by the bank to reduce the debit balance of the first defendant's overdraft accounts had any cause of action for recovery of the money against the first defendant.
[4] Relying on Australian Financial Services & Leasing Pty Ltd v Hills Industries Ltd [2014] HCA 14; (2014) 88 ALJR 552 [105] ‑ [106] and cases there cited.
In my view, the fact that the plaintiff does not contend that it or its clients have any cause of action against the first defendant for recovery of the mistaken payments counts very strongly against the grant of leave to proceed against the first defendant at this time. The refusal of leave would not prejudice the capacity of any of the persons making mistaken payments to recover those payments. It would prejudice both defendants by diverting their limited resources away from the administration of the winding up to litigation in this court in relation to declaratory relief.
Parties to the proceedings
The plaintiff suggests that if the claimants took recovery action against the Commonwealth Bank then the first defendant would necessarily be a party to those proceedings. I am far from certain that this is the case. Claims by persons making mistaken payments that the Commonwealth Bank was liable to repay them the amounts paid would not necessarily result in any order that would directly affect the legal interests of the first defendant. Questions as to whether the bank was entitled to debit any refunded amounts so as to increase the first defendant's indebtedness to the bank might arise, but that may be an issue between the bank and its customer. Even if the first defendant was required to be joined, however, it would at least be joined in a properly constituted proceeding in which actual recovery of the mistaken payments was being pursued.
It is also significant, in my view, that the plaintiff seeks a declaration which will determine the private rights of third parties who made the payments, as well as the private rights between the Commonwealth Bank and the first defendant. The plaintiff has not joined either the Commonwealth Bank or the persons who made the payments to the proceedings.
Standing
I see no proper basis on which the plaintiff is entitled to bring the proceedings on behalf of its clients. There is no evidence that its clients have given the plaintiff any authority to do so, or that those clients are even aware of the proceedings.
The plaintiff relies on a statement by Mason J in Australian Conservation Foundation Inc v The Commonwealth:[5]
Depending on the nature of the relief which he seeks, a plaintiff will in general have a locus standi when he can show actual or apprehended injury or damage to his property or proprietary rights, to his business or economic interests …
[5] (1980) 146 CLR 493, 547.
However, as the previous paragraph in Mason J's judgment makes clear, he was there concerned with when a person has 'locus standi to seek a declaration or injunction to prevent the violation of a public right or enforce the performance of a public duty'. He was not concerned with the assertion of private rights by a third party. Ainsworth v Criminal Justice Commission,[6] on which the plaintiff also relied, was also a public law case.
[6] (1992) 175 CLR 584.
As cases referred to by McLure P in QBE Insurance (Australia) Pty Ltd v Lois Nominees Pty Ltd[7] illustrate, different considerations arise when considering the standing of one party to assert the private rights of another. As appears from her Honour's discussion, the comment of Gaudron J in Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd[8] that:
… a court could not make a final and binding adjudication with respect to private rights other than at the suit of a person who claimed that his or her right was infringed …
is subject to a number of limited exceptions. However, the plaintiff has not brought itself within any relevant recognised exception or advanced any reason why a new exception should be created in this case.
[7] [2012] WASCA 186 [36] ‑ [40].
[8] (2000) 200 CLR 591 [46].
In all these circumstances I do not consider the plaintiff to have established any solid foundation for the grant of the declaratory relief which it seeks against the first defendant in the proposed proceedings.
Alternative relief
Further, in my view there is an alternative to action against the first defendant, which is more likely to resolve the issues which have arisen in relation to mistaken payments made after the second defendant's appointment.[9] That alternative involves invoking the court's supervisory jurisdiction over the second defendant as an officer of the court in respect of mistaken payments received during the course of her liquidation, as the plaintiff proposes to do in the action against the second defendant.
[9] There is no practical advantage to proceedings against the first defendant in respect of any monetary claim for mistaken payments made before the winding up order as these would be provable in the liquidation.
In my view the line of authority commencing with the decision in Ex parte James; Re Condon[10] is potentially applicable in this situation. The authorities dealing with the principle identified in that case are comprehensively discussed by Campbell J in Hypec Electronics Pty Ltd (in liq) v Mead.[11] The principle is exemplified in James and another early case, Ex parte Simmonds; In re Carnac,[12] both of which were concerned with payments made under a mistake of law which, at that time, was not a species of mistake which was thought to give rise to a restitution claim. In James the principle, applied to a trustee in bankruptcy, was expressed by James LJ in the following terms:
I am of the opinion that a trustee in bankruptcy is an officer of the Court. He has inquisitorial powers given him by the Court, and the Court regards him as its officer, and he is to hold money in his hands upon trust for its equitable distribution among the creditors. The Court, then, finding that he has in his hands money which in equity belongs to someone else ought to set an example to the world by paying it to the person really entitled to it. In my opinion the Court of Bankruptcy ought to be as honest as other people (614).
[10] (1874) LR 9 Ch App 609.
[11] [2003] NSWSC 934; (2003) 202 ALR 688.
[12] (1885) 16 QBD 308.
In Simmonds Lord Esher MR, after referring to the rule that money paid under mistake of law was not recoverable, said:
But the court has never intimated that it is a high-minded thing to keep the money obtained in this way; the Court allows the party who has obtained it to do a shabby thing in order to avoid a greater evil, in order that is, to put an end to litigation… Although the Court will not prevent a litigant party from acting in this way, it will not act so itself, and it will not allow its own officer to act so. It will direct its officers to do that which any high-minded man would do, viz, not to take advantage of the mistake of law. This rule is not confined to the Court of Bankruptcy. If money had by a mistake of law came into the hands of an officer of a Court of Common Law, the court would order to him to repay it so soon as the mistake was discovered (312).
There is every reason to think that the court's power to direct a liquidator in the exercise of his or her powers under s 477(6) of the Corporations Act would be exercised with these principles in mind.
In my view it is at least arguable that, on it being discovered that money has been mistakenly paid to a company in liquidation under the control of a liquidator appointed by the court, the court would act in the manner contemplated by the earlier authorities and direct that the money be repaid. As the principle is concerned with practical justice rather than legal entitlement, it is at least arguable that the court might make a direction for repayment without demanding an expensive and time consuming inquiry as to the existence of a possible set‑off, particularly where there was no material to positively suggest that a set‑off exists and reversal of the mistaken payment would not affect the right of the first defendant to pursue amounts which may be subject to any right of set‑off.[13]
[13] The same point can be made in relation to the defendant's contention that no unjust enrichment arises where the person making the mistaken payment is a creditor of the first defendant.
I should not be taken, by the comments which I have made, to be suggesting that the second defendant has acted with any impropriety in this particular case. Indeed the plaintiff accepts that it cannot yet say whether the court's direction is required. It cannot be assumed that the second defendant will not do what she can to rectify what are accepted to be mistaken payments, including by providing her consent to repayment and herself seeking the guidance of the court as to the appropriate course in a doubtful or contentious case.
What the line of authority commencing with James illustrates, however, is that there is a more effective and expeditious means of protecting the interests of those who have made mistaken payments after the appointment of the second defendant as liquidator if she does not act in relation to mistaken payments in a manner which is consistent with the principles to which I have adverted. It is at least premature to seek leave to institute proceedings against the first defendant at this stage.
The principal practical relief which the plaintiff seeks in the Minute is a direction that the second defendant provide a written authority to the Commonwealth Bank. In my view that claim can be pursued, if necessary, without the first defendant being joined to the proceedings.
For these reasons I would not grant leave to the plaintiff to commence proceedings against the first defendant in relation to the relief sought.
Constructive trust
I turn to deal with the claim that funds standing to the credit of Account 534 are held on constructive trust.
Evidence of constructive trust
There is authority for the proposition that a proprietary remedy of constructive trust may arise in favour of the payer where the person receiving the payment has 'knowledge' (in the sense required to render a third party liable under the second limb of Barnes v Addy)[14] of the mistake, so that the person receiving the payment cannot in good conscience use the money as his or her own.[15] There is, therefore, a solid foundation for the claim that funds standing to the credit of Account 534 are held by the first defendant on constructive trust for the persons who made the mistaken payments.
[14] (1874) LR 9 Ch App 244.
[15] See Focus Metals Pty Ltd v Babicci [2014] VSC 380 [107] ‑ [116] and cases there cited.
However, many of the considerations which count against the grant of leave in respect of earlier mistaken payments are also relevant here.
Standing
In my view, the plaintiff does not have standing to seek relief in relation to funds alleged to be held on constructive trust for the benefit of persons other than the plaintiff. In my view no case with any solid foundation for the proposed claim for declaratory relief by the plaintiff could exist except in relation to the $926.91 payment for which the plaintiff claims to hold assigned rights from the person making the payment.
Alternative relief
An application for directions in relation to the second defendant's dealing with that amount of $926.91 would again seem to be a more expeditious and less expensive mechanism for dealing with any issues with amounts said to be held on constructive trust. Further, in this case the small amount said to be held on constructive trust for the plaintiff is a factor counting against the grant of leave to it alone, and that would not ordinarily justify the institution of proceedings in this court even if leave were granted. In any event, a proceeding in relation to the $926.91 is not what is really contemplated by the plaintiff.
Premature application
In circumstances where the defendants appear to accept that the funds are mistaken payments which should be reimbursed, subject to the existence of any set‑off, the grant of leave to proceed against the first defendant appears to be premature at this stage. I would not, by this conclusion, rule out the grant of leave to those claiming funds held by the first defendant to commence proceedings in an appropriate court, if that proved to be the only available means to secure repayment. However, at this stage I think that it can be said that there are other means of resolving the issues which should at least be explored before that step is taken. In any event, the standing problem means that there is no solid foundation for the plaintiff's claim as it is currently formulated.
For all of the above reasons, I would not at this stage grant leave to commence the proposed proceedings so far as they concern the alleged constructive trusts.
Trust Account
I now turn to deal with the claim in relation to the Trust Account.
The defendants accept that funds held in the Trust Account are held on trust and do not form part of the assets available for distribution in the liquidation of the first defendant. However, the defendant's position is that, before making payments from the Trust Account, it is necessary that there be a reconciliation of the account. The second defendant has indicated that she seeks two things in order to conduct such a reconciliation: the books and records of the first defendant relating to the trust and the provision of funds to enable her to undertake the reconciliation.
In my view there are a number of factors which count against the grant to the plaintiff of leave to commence proceedings in this court seeking orders in respect of the Trust Account.
Standing
The amount claimed by the plaintiff to be held on trust for it is only $239.70. The amount of that claim counts against the grant of leave. Otherwise the plaintiff's claim is for declarations and orders for repayment in relation to amounts said to be held on trust for others, and I see no basis on which the plaintiff has a right to assert such a claim on their behalf. I do not accept the plaintiff's submission that it has standing to assert the private rights of the beneficiaries of the Trust Account because 'it has a direct commercial interest in preserving its relationships with those clients who made the payments by insulating them from the dispute'. There is merit in the defendants' submission that this interest is ultimately founded upon the plaintiff's desire to avoid making disclosure to its clients of the failure of the former accounting practice, the change in ownership of that practice and the consequences to its clients flowing from the plaintiff having failed to do so. This is not one of the rare cases where one person has standing to assert the private rights of another.
Plaintiff not an appropriate representative
Even if the plaintiff could establish an arguable basis on which it could seek declaratory relief on behalf of its clients, there are a number of reasons why it is not the appropriate representative in this case. As noted above, there is no evidence that the plaintiff has told its clients about the proposed proceedings, or indeed that there is any difficulty in relation to funds held in the Trust Account. Further, it appears from the evidence that the plaintiff, or at least those who control the plaintiff (the former directors of the first defendant) have access to the records relating to the Trust Account and have failed to comply with directions by the second defendant to provide the records to her. In doing so they have impeded the resolution of the issue as to the precise amounts to which beneficiaries of the Trust Account are entitled. Further, if the action were to proceed in its current form it would, in my view, be necessary for all the named beneficiaries to be joined to the proceedings so as to be bound by the result and because their interests would be directly affected by the court's decision as to the extent of their interest in the fund.[16] Many of the clients may prefer to avoid becoming parties to litigation in this court.
Inefficiency of litigation
[16] News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410, 525.
It will be much more efficient and less expensive for the determination of the amounts owed to beneficiaries of the Trust Account to be undertaken by a qualified accountant in the position of the liquidator than by this court. The affidavits of the second defendant do establish a number of anomalies in the trust account balance sheet that would seem to justify undertaking a reconciliation of the account before making payments from it.
The plaintiff points to the demands by the liquidator for the provision of funds before she will undertake the reconciliation as a reason why leave should be granted. In my view there are a number of answers to that submission.
It is true that the second defendant has, in correspondence, referred to the need for funding. However, she has done so in a context where she did not have the capacity to undertake a reconciliation of the Trust Account because she lacked access to the relevant records of the first defendant, which appear to be in the possession of persons including the plaintiff and those who control it. If the second defendant were given custody of the records, so that she had the capacity to undertake a reconciliation of the account, then it should not be assumed that funding will present an insurmountable obstacle.
In that regard, it should be noted that the second defendant appreciates that she may seek an order of this court allowing her to have recourse to the trust assets to meet her remuneration and expenses attributable to the administration of the Trust Account where the assets of the first defendant are insufficient to do so.[17]
[17] Paragraph 21 of the Defendant's Outline of Submissions, citing ASIC v Rowena Nominees Pty Ltd [2003] WASC 112, (2003) 45 ACSR 424 [80] ‑ [84].
Further, in dealing with issues of funding, it can be expected that the second defendant will undertake her important professional responsibilities as a registered liquidator and an officer appointed by this court to conduct a winding up in a manner which will not be entirely dictated by the availability of funds.[18]
Alternative remedy
[18] See, by analogy, the comments of Young JA in Hanshaw v National Australia Bank Ltd [2012] NSWCA 100 [25] ‑ [26].
If the first defendant fails to fulfil its obligations as trustee then the more appropriate remedy would be for this court to appoint a new trustee, who was willing to undertake the obligations of trustee, in substitution for the first defendant. Such an order could be made under s 77(1) and s 77(2)(f) of the Trustees Act 1962 (WA). That course of action would appear preferable to the institution of proceedings in this court to determine the particular entitlements of beneficiaries.
Conclusion
For all of the reasons I have given, I am not convinced that leave should be granted to the plaintiff at this stage to commence or continue either of the proceedings as currently formulated in all the circumstances of this case. The applications for leave to commence and continue the proceedings against the first defendant should be dismissed.
Action against the second defendant
I had also listed for hearing today the question of whether the action should also be dismissed as against the second defendant if leave is refused to proceed against the first defendant. However, counsel for the defendants no longer presses for dismissal of proceedings against the second defendant at this time, so it is unnecessary for me to deal with this issue.
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