Coral Vista Pty Ltd v Halkeas

[2010] QSC 256

[2010] QSC 256

SUPREME COURT OF QUEENSLAND

CIVIL JURISDICTION

PETER LYONS J

No 12318 of 2009

CORAL VISTA PTY LTD (ACN 011 051 728) AND ORS	Applicants
and
SYPROS DEMETRIOS HALKEAS AND ORS	Respondents

BRISBANE

..DATE 28/06/2010

ORDER

HIS HONOUR:  The first respondent has carried on the business of buying and developing properties over a number of years through a series of trusts.  There are at present six such trusts.  The four applicants in the principal proceedings are the trustees.  The trustees were under the control of the first respondent.  However, his son, Demetrios, was appointed a director of the trustees and became the sole director on the 6th of April 2007.  At that time the trustees granted powers of attorney to the first respondent.

Subsequently, the relationship between the first respondent and his son Demetrios worsened, and in September 2009 the powers of attorney were revoked.  There has been other litigation involving these parties.  One product of that litigation was an order made by Justice Philippides that the third respondent pay the sum of $301,000 into a trust account to be opened in the joint names of the solicitors for the applicants and the solicitors for the respondents.  No date was specified for the payment.  The order was made on the
11th of November 2009.  It has not been complied with.

The first respondent is a director of the third respondent.  Proceedings have been very recently commenced against him for contempt of the order of Justice Philippides.  It should be noted that material placed before me indicates that the sum represents a number of payments which the first respondent caused to be paid ultimately for his benefit.  His explanation was that that was the way in which the trusts had been conducted, they being used to provide the means of living and sources of funds for various purposes for himself and, I understand, other members of the Halkeas family.

The trust property is identified in the affidavit material.  There are differences in valuations attributed to the trust property, but an understanding of it can be obtained from the affidavit of the son filed today.

There are a number of parcels of real property, some of which are developed and some of which provide security for loans made to the trustees.  The value of the property, according to the affidavit of Demetrios Halkeas is a little over $17 million and the indebtedness is a little over $5 million.  The loans need to be serviced and his affidavit material indicates that the funds required for that purpose are in excess of $500,000 a year.

The trust has little by way of income.  There is a residential property which is rented, and there is an industrial property which may be rented but taken together the income would not appear to be sufficient to meet the requirements for servicing the loans.  It appears to have been the practice of those associated with the trusts to buy and improve properties and sell them, resulting in the generation of funds which enabled the operations to continue.

In addition to the property I have mentioned, the trusts have had a number of motor vehicles and the trust property includes some horses. 
The respondents in the principal proceedings seek the appointment of receivers.  They identify three grounds for their application.  One ground is that there has been a misapplication of trust funds.  The second relates to the fitness of Demetrios Halkeas to have control of the trustees and the third is that Demetrios Halkeas has exercised control of the trustees in a way that has involved the exercise of trust, powers and discretions for improper purpose.

It should be understood that these allegations are made against a background of considerable and, apparently, growing, hostility between the first respondent and his son, Demetrios.  The material before me supports the view that the relationship between them has deteriorated and is in a very poor state.

The allegations of misapplication of trust property relate to a number of matters.  One is an allegation that funds have been withdrawn from trust accounts and transferred to accounts of Demetrios.  There is some documentary support for this allegation, though it should be said the amounts involved, while not small, are not, in the context of the totality of the trust estate, particularly large.

The allegations of fitness relate to the age of
Demetrios Halkeas who is now 23; and to the hostility I have mentioned.  There is evidence in the material relied upon by the respondents in the principal proceedings of a high level of aggression on his part.

The allegations of lack of partiality appear to be relied upon in support of this proposition.  They are also related to the third ground stated, which is that the trustees have as a result of Demetrios' conduct been acting for an improper purpose, namely, it would seem, to make life extremely unpleasant for the first respondent, perhaps with a view to coercing him into ceasing a relationship which he has formed with the second respondent, and perhaps to achieve some form of reconciliation with his former wife, the mother of Demetrios, and a number of other children.

The first ground on which the application is opposed is that the first respondent is in contempt of court by reason of the fact he is a director of the third respondent, and there has been non-compliance with the order of the 11th of November, 2009.  It is said that this amounts to a bar to the application made by the respondents.

In support of this, reliance is placed on Young v Jackman [1986] 7 NSWLR 97, where reference is made to a proposition that a party found guilty of contempt should not be heard on an application made on his part to a court, and it is said that that proposition extends to a case where a party is considered to be prima facie in contempt, although proceedings for contempt have not been determined.

This is said to be the law in New South Wales, though Young J, who determined the case, considered the rule to be somewhat unattractive, preferring the view, had he felt free to apply it, that the matter was one of discretion.

For the respondents it is submitted that non-compliance with the order of the 11th of November, 2009, does not result in proceedings for contempt, because the order is a money order and contempt proceedings would not apply.

Reliance was placed on Bakir v Doueihi [2001] QSC 414. There is a factual distinction between the present case and that one. In Bakir's case the plaintiff was ordered to pay a sum of money to the defendant by a fixed time.  Atkinson J held that this was a money order.

It seems to me that there is a significant distinction between the order in Bakir and the order of the 11th of November 2009 in the current proceedings.  The order of the 11th of November 2009 was intended to recover trust property and seek its preservation pending the final determination of the principal proceedings.  It was not an award of a sum of money to one of the parties.  It is a little difficult to see that there is any real distinction between an order of that kind and an injunction relating to property which seeks its preservation.  However, it does not seem necessary for me to reach a concluded view about that point.  It is common ground that non-compliance with the order is relevant to the discretion.

In the present case, there has been no real explanation offered for the non-compliance.  There has been no suggestion of any attempts at partial compliance.  Moreover, the conduct of Demetrios Halkeas, which is the subject of some of the allegations made against him, and in particular, his conduct in relation to selling some of the cars which had been owned by the trusts, is, on his evidence, intended to enable the liabilities of the trusts to be serviced.

The need to do so seems likely to have arisen from the fact that the trusts did not have other funds available to them, and that that, at least to a significant extent, is the result of the conduct which resulted in the sum of $301,000 being placed with the third respondent.

In other words, a number of the bases, or some of the bases, on which the respondents rely today are a consequence of their conduct, and conduct which, at least on the material available today, would seem to be fairly characterised as non-compliance with the order of the 11th of November.  It seems to me that that is a matter of considerable moment in the determination of today's application.

It was common ground that an order for the appointment of a receiver should not lightly be made.  The submissions made on behalf of the respondents acknowledge that a strong case of misconduct is necessary and that slight grounds are insufficient.

Those submissions also acknowledge that the appointment of a receiver is a drastic remedy to be imposed only where it is necessary for the protection of the assets of the trust; although elsewhere the submissions adopt the position that if a trustee is not discharging its duties properly in the interests of the beneficiaries, that, too, is a ground for an appointment even if the assets are not threatened.

The grounds relied on, in some cases, are not particularly recent.  For example, reference was made to conduct of Demetrios in 2009 which was said to demonstrate a favouring of persons and entities associated with him, over those associated with his father.

Reference was made to his threats, and perhaps attempts, to use trust assets to provide a home for his mother.  He at one stage indicated a desire to sell assets of the trusts to purchase a luxurious home for himself and his mother; and on another occasion, to use funds to buy two luxury apartments.  That appears to have occurred some time prior to March, 2009.

Reference was also made to the fact that the lease of the property at Sanctuary Cove, where the first and second respondents have been residing, has been terminated, and it would seem that attempts are being made to ultimately recover that property from them, and those associated with them, and to bring it about that they live somewhere else.

As I have said, the material also indicates a high level of hostility between the first respondent and Demetrios.  On the other hand, the affidavit evidence from Demetrios Halkeas indicates, as I have already mentioned, the level of indebtedness of the trusts, and the absence of sources of funds to service that indebtedness.

The vehicles have been sold at prices which may raise questions, but the explanation proffered for the sale is to generate funds to meet indebtedness.  And the affidavit of Demetrios Halkeas filed today identifies where the proceeds of those sales have been utilised.  Much of it has been in servicing loans or otherwise meeting indebtedness of the trusts.

Criticism was also made of his conduct in relation to the trusts because of the failure to carry out accounting and delete requirements for providing BAS statements.  His evidence is that most tax returns and BAS statements for the trusts have been lodged, and that for those statements not yet lodged, work is at present in progress to attend to them.

So far as his conduct in relation to the business of the trusts is concerned, he identifies plans which are intended to enable income to be generated or funds otherwise obtained to enable the debts to be serviced.

In proceedings like this, it is very difficult to come to a clear view about the true state of affairs.  However, while one can see much that would suggest a motive on the part of Demetrios Halkeas to use his position in a way that is damaging to the first respondent and those associated with him, the evidence, in my view, is not sufficient to demonstrate a strong case of misconduct to warrant the drastic remedy sought.

For those reasons, I refuse the application for the appointment of a receiver.

...

HIS HONOUR:  Paragraph 4 now reads the costs of and incidental to that application be reserved.

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