Break Fast Investments Pty Ltd v Gravity Ventures Pty Ltd (No 2)
[2016] VSC 30
•9 February 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2010 04463
B E T W E E N:
| BREAK FAST INVESTMENTS PTY LTD (ACN 090 648 990) | Plaintiff |
| v | |
| GRAVITY VENTURES PTY LTD (ACN 107 651 507) AND OTHERS (according to the attached Schedule) | Defendants |
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JUDGE: | Judd J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 19 November 2015 |
DATE OF JUDGMENT: | 9 February 2016 |
CASE MAY BE CITED AS: | Break Fast Investments Pty Ltd v Gravity Ventures Pty Ltd & Ors (No 2) |
MEDIUM NEUTRAL CITATION: | [2016] VSC 30 |
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PRACTICE AND PROCEDURE — Application to lift permanent stay — No relevant change of circumstance — Application refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Collinson, One of Her Majesty’s Counsel with Dr P Vout | Mason Black |
| For the Third Defendant | Mr P Afshar | Spinks Eagle Lawyers |
HIS HONOUR:
The plaintiff applied by summons filed 9 October 2015 to lift a stay granted on 17 September 2015 and for leave to file and serve a fifth further amended statement of claim. The proposed amendment ‘excludes all reference to the joint venture and trust declared by Vickery J in Ambridge Investments Pty Ltd (in liquidation) (receiver appointed) v Baker & Ors [2010] VSC 59’.[1] In the Ambridge proceeding, Vickery J concluded that a property at 176 Wellington Parade, East Melbourne was held by the plaintiff upon an express trust for the members of a joint venture in defined proportions.
[1]Affidavit of John Vincent Sinisgalli sworn 9 October 2015.
The trial concluded on 12 March 2015. Following an invitation to the parties from the court to advance further submissions on limited topics, the plaintiff applied in August 2015 for leave to reopen its case and to lead evidence in support of the joint venture and trust alleged in paragraphs 20A and 20B of its statement of claim. At trial, the plaintiff proceeded on the basis that many of the defendants, including the third defendant Christos Voukidis, were bound by the doctrine of res judicata and advanced no evidence in support of the joint venture and trust. By the time of its application, the plaintiff had conceded that the defendants were not so bound, and sought to remedy the evidentiary deficiency.
At the same time as the plaintiff applied to reopen its case, Voukidis applied for a permanent stay on the ground that the proceeding was an abuse of process. On 17 September 2015 judgment was delivered refusing the application for leave to reopen, and granting a stay. The background to the proceeding, the applications made in August and those now before the court, is set out in the reasons for judgment.[2]
[2][2015] VSC 497.
I accept the plaintiff’s contention that a stay may be removed or lifted if proper grounds are shown.[3] The proceeding has not been dismissed or discontinued. It can be activated or ‘started up again’ if the court changes its status.[4] A decision to lift a permanent stay will usually require a ‘change in circumstances since the making of the original order’.[5] The plaintiff accepted that it was necessary to show changed circumstances as the basis for its application to lift the stay.
[3]Cooper v Williams [1963] 2QB 567, 580.
[4]Hardy v Commonwealth Bank of Australia [1999] VSC 41 [22]–[24].
[5]Rapson v Wright [1999] NSWC 534 [4].
The changes relied upon by the plaintiff were (a) its decision not to rely upon the pleaded allegations of a joint venture and trust relationship, and (b) an undertaking by the receiver of Ambridge to be bound by any judgment in this proceeding. The plaintiff submitted that to remove those and related allegations[6] ‘makes the res judicata point redundant’ and removes any risk that this court might hear and determine the issues already determined by Vickery J in the Ambridge proceeding.
[6]Paragraphs 20A, 20B, 21A, 39A, 39B, 42A, 42B, 42C and 42D in its statement of claim.
The plaintiff submitted that the references to the joint venture and trust relationship in the statement of claim were not relevant to the claims against the defendants. It would confine its case to breaches by Voukidis of statutory and fiduciary duties as an officer of the plaintiff, seeking relief from other defendants under Barnes v Addy.
Voukidis contended that the plaintiff sought to rerun issues already decided on the stay application, by elaborating on its case advanced in opposition to the stay. While the plaintiff traversed arguments advanced on the stay application, concerning the inconvenience of pursuing claims against Voukidis in the Ambridge proceeding, I do not take the plaintiff to be re‑agitating such arguments in order to persuade the court to lift the stay because of errors in the original decision. Rather, the plaintiff sought to rely upon such factors to inform the exercise of discretion to lift the stay, but only if proper grounds were shown which justified the court revisiting its earlier decision.
In a different category was a raft of ‘other matters arising from the Stay Judgment’, advanced by the plaintiff in support of its application to lift the stay. The plaintiff sought to explain the reason for Taylor’s reappointment as a director, why he was not called as a witness, why Voukidis’ claim to have been ‘unfairly isolated’ was misplaced, and the transition of Baker from defendant in the Ambridge proceeding to principal witness in this proceeding. These submissions involved an attempt by the plaintiff to challenge findings made in the reasons for judgment. The explanations were argumentative and not relevant to the applications now before the court.
One ground on which the stay was granted involved the almost identical claims made against Voukidis and related defendants in the Ambridge proceeding. On this application, the plaintiff submitted that the prospect of pursuing such claims in the Ambridge proceeding was unattractive. The plaintiff submitted that it was the proper plaintiff to make the claims, but acknowledged that it had been unwilling to proceed as plaintiff in the Ambridge proceeding. It claimed to be ready and willing to do so, evidenced by the very existence of this proceeding. The plaintiff submitted that it would require leave to be joined as a plaintiff in the Ambridge proceeding, ceasing to be a defendant. It acknowledged that its transformation into a plaintiff rather than a defendant would be possible under the Rules of Court, but questioned its ability to rely upon the judgment of Vickery J and the doctrine of res judicata to press its case against Voukidis and the other defendants. Thus, the plaintiff concluded, it may be required to establish for a second time the existence of the joint venture and trust. The inconsistency between that contention and the plaintiff’s present position on this application is self‑evident. It now contends that the joint venture and trust claims are not relevant to the claims against Voukidis and related entities.
The perceived difficulties for those in control of the plaintiff in prosecuting the claims against Voukidis in the Ambridge proceeding are a by‑product of strategic decisions made by Taylor and his legal representatives, as the persons responsible for the prosecution of the Ambridge proceeding and now this proceeding. Those in control of Ambridge and the plaintiff chose, as part of a conscious strategy, to prosecute this proceeding as if the defendants were bound by the judgment of Vickery J in the Ambridge proceeding, for the purpose of creating a fund to satisfy the claims of Ambridge. The evidence was adduced on that basis. The plaintiff now concedes that its case theory was flawed. Having failed in its application to reopen, the plaintiff now contends that the joint venture and trust allegations are entirely superfluous. While there may be some degree of inconvenience in pressing the claims in the Ambridge proceeding, any such inconvenience is self‑induced. Furthermore, the extent of any such inconvenience remains unexplored. It is hypothetical.
The plaintiff submitted that to allow the amendment and lift the stay would return the pleading to its original form, prior to the amendments introducing the joint venture and trust allegations, confining the case to a breach of duty by an officer supporting Barnes v Addy claims. But having already conceded that the doctrine of res judicata has no application, and that the joint venture and trust allegations are irrelevant to the case against Voukidis, the proposed amendments sought on this application are inconsequential. The plaintiff’s decision not to press those allegations is not, in any material respect, a changed circumstance. Moreover, insofar as the proposed amendment, if made, might be construed as a change in circumstances, it is the result of a strategic decision by those in control of Ambridge and the plaintiff. This ground, relied upon by the plaintiff to support its application to lift the stay is a confection, lacking substance.
The other change relied upon by the plaintiff was the receiver’s undertaking. The purpose of the undertaking was no doubt to ensure that any future prosecution of the Ambridge proceeding would not result in a decision inconsistent with an outcome in this proceeding. On the stay application, the plaintiff proffered an undertaking on behalf of the receiver not to pursue overlapping claims in the Ambridge proceeding. Both undertakings have a common purpose — to avoid the prospect of inconsistent decisions. In my opinion the new undertaking is merely a reformulation of the old, and does not constitute a material change. The reformulation does not justify lifting the stay already granted.
Assume for present purposes that the amendment is allowed and stay lifted. What then? According to the plaintiff, the evidence already given would be assessed against a case confined to a breach of duty by Voukidis as an officer of the plaintiff, without regard to its role as a trustee or the interests of the joint venture partners as found by Vickery J. The plaintiff assumed that further submissions might be made to assist the court in applying the evidence to the narrow case of breach of duties as an officer.
In the absence of evidence to support the joint venture and trust allegations, or the application of the res judicata estoppel, the plaintiff’s claims are already confined to the more limited case, although it is fair to say that the plaintiff may not have appreciated that limitation until sometime after it had concluded its final address at trial. Thus, nothing would change if the amendments were to be allowed.
As a practical matter, however, the task of assessing the evidence given at trial, on the incorrect assumption that the defendants were bound by res judicata estoppel, in the context of the plaintiff’s more limited case, even with the assistance of further submissions, will involve significant challenges. The plaintiff advanced its evidence at trial firmly rooted in the assumption that Voukidis and related defendants were bound by res judicata estoppel. In the judgment delivered on 17 September 2015, I said:[7]
[7][2015] VSC 497; endnote omitted.
53The significance to the plaintiff’s case, of its reliance on res judicata or issue estoppel, was reflected in the evidence adduced from Baker, and to some extent Anastasopoulos, to provide a foundation for the alleged breach of fiduciary duty owed to the plaintiff as trustee for the joint venture. The witnesses Baker and Anastasopoulos were asked to express opinions as to the validity of particular payments. They gave formulaic evidence. Baker’s evidence in relation to the first impugned payment set the tone:
What legitimate reason, if any, could there be for a $15,000 payment to Gravity Ventures? — — — No legitimate reason.
Can you think of any purpose or objective of the joint venture managed by Break Fast for a payment to Gravity Ventures? — — — There’s no purpose.
54Putting to one side, for the moment, the speculative nature of such evidence, it was predicated on the assessment of a beneficial interest in the plaintiff’s funds held by joint venture partners, not the plaintiff as beneficial owner. Questions of authority were not confined to the authority of a director or decisions of the board of the plaintiff (relevantly Baker and Voukidis), or even the plaintiff’s best interests. The plaintiff maintained that authorisation by the board (Voukidis and Baker) was irrelevant, because all of those with a beneficial interest in the assets of the joint venture, managed by the plaintiff, had not given informed consent. That is because Ambridge had never authorised the payments.
…
59In some respects, the role of the plaintiff as trustee on behalf of the joint venture partners might have been peripheral to the plaintiff’s pleaded case against Voukidis, which was based upon alleged breaches of duties owed to the plaintiff as an officer of the corporation. The plaintiff did not allege that Voukidis owed duties to the joint venture partners, although an allegation to that effect was made against C & O Voukidis. But the pleaded case, and the case advanced in opening and through Baker, did not align. It was as if the plaintiff ignored the pleaded duties. The allegations of breach made against Voukidis might have been advanced on the basis that the objectives of the investors in the property informed and regulated the nature and extent of the duties owed by Voukidis to the plaintiff, so that the capacity in which the plaintiff held the property was of no consequence.
60While the business of the plaintiff is a relevant matter in determining the nature and extent of duties owed to it, and thus what constitutes the improper use of assets, the duty of directors is not owed to beneficiaries, even though the company may hold assets upon trust for them. Notwithstanding the bland formulation of pleaded duties, the plaintiff conducted its case as if Voukidis’ duties were regulated by an obligation to the beneficiaries of a trust, rather than an obligation to Break Fast. Moreover, as part of its case for a dishonest and fraudulent design, the plaintiff pleaded that Voukidis knew that Break Fast was under no obligation to make the payments because of the ownership structure. Thus, the plaintiff’s claim to recover many of the alleged misappropriations depended on proof that Voukidis knew that the plaintiff was a trustee. The plaintiff’s evidence, through Baker and Anastasopoulos, was designed to establish that the interests of the joint venture beneficiaries under the trust were paramount; and the payments had not been approved by Ambridge.
61Lack of clarity in the plaintiff’s pleaded case masked the centrality of the trust structure until trial. At the very least, the formulation of Voukidis’ duties required clarification, to explain any limitations on expenditure by directors. If the directors required the express approval of beneficiaries, it ought to have been pleaded, with a proper foundation. In any event, the plaintiff’s case at trial depended upon it establishing that Voukidis was only authorised to make payments that were in the interests of the ‘joint venture’, and he was not authorised to depart from that prescribed mandate in the absence of authority from Ambridge.
62I note that there are some claims against Voukidis that do not depend at all upon any clarification of the capacity in which Break Fast held the property. In some instances, the plaintiff alleged forgery and deceit.
Such a challenge does not mean that the task is impossible. But any such assessment must necessarily be made in a context where the plaintiff’s case theory at trial has been substantially undermined by concessions now made concerning the impotence, and irrelevance, of the joint venture and trust allegations.
The plaintiff has failed to establish any material change in circumstances since the stay was granted. There are no other factors or circumstances advanced by the plaintiff that would support a change in the status of the case by lifting the stay. Accordingly, the application is refused.
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