Direct One Management Pty Ltd v Nafpaktos Pty Ltd
[2010] VCC 127
•15 March 2010
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL – GENERAL DIVISION
Case No. CI-08-03339
| DIRECT ONE MANAGEMENT PTY LTD | Plaintiff |
| ACN 106 212 908 | |
| v | |
| NAFPAKTOS PTY LTD | Defendant |
| ACN 088 127 084 |
---
| JUDGE: | HIS HONOUR JUDGE GINNANE |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 26 February 2010 |
| DATE OF JUDGMENT: | 15 March 2010 |
| CASE MAY BE CITED AS: | Direct One Management Pty Ltd v Nafpaktos Pty Ltd |
| MEDIUM NEUTRAL CITATION: | [2010] VCC 0127 |
REASONS FOR JUDGMENT
---
Catchwords: PRACTICE AND PROCEDURE – Application by plaintiff to amend Statement of Claim and to join additional defendants – allegations of involvement in breach of trustee’s fiduciary duty - Barnes v Addy claims – supporting evidentiary material necessary – application refused – County Court Civil Procedure Rules 2008, Rule 9.06.
---
| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D J Williams | Alliance Legal |
| For the Defendant | Mr T J Sowden | Gary Prince |
| HIS HONOUR: |
1 The plaintiff applies, by Summons dated 16 September 2009, to join five additional parties to the proceeding and to have leave to file and serve an Amended Writ and Amended Statement of Claim.
2 The parties sought to be joined are:
(a) Mr K Tsamis; (b) Ms M Tsamis; (c) A T Consultants Pty Ltd ACN 006 853 194; (d) Mr G Prince; and (e) 70 Nicholson St Pty Ltd ACN 105 731 495. 3 Other orders were sought in the Summons but were not argued before me and appear to have been resolved.
4 The power to join parties is contained in Rule 9.06 of the County Court Civil Procedure Rules 2008, which provides:
“9.06 Addition, removal, substitution of party At any stage of a proceeding the Court may order that—
(a)
any person who is not a proper or necessary party, whether or not that person was one originally, cease to be party;
(b) any of the following persons be added as a party, namely—
(i)
a person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all questions in the proceeding are effectually and completely determined and adjudicated upon; or
(ii)
a person between whom and any party to the proceeding there may exist a question arising out of or relating to or connected with any claim in the proceeding which it is just and convenient to determine as between that person and that party as well as between the parties to the proceeding;
(c)
a person to whom paragraph (b) applies be substituted for one to whom paragraph (a) applies.”
5 The Summons is supported by affidavits of Ms D Tsucalas, the sole director of the plaintiff, of 16 September 2009, and of Mr M Merlo, the solicitor for the plaintiff, of 29 January 2010 and 26 February 2010. In opposition to the Summons are affidavits of Mr G Prince, the solicitor for the defendant, of 27 January 2010 and a group of affidavits of, or on behalf of, the persons whom the plaintiff seeks to join, to which I refer below.
6 I first heard the application on 8 February 2010, when I declined to grant the plaintiff leave to deliver the proposed Amended Statement of Claim. However, I granted leave for the delivery of a Further Proposed Amended Statement of Claim and adjourned the summons to 19 February 2010, when I extended times for the delivery of the pleading and adjourned it to 26 February 2010.
7 I now set out a summary of relevant matters either pleaded in the proposed Amended Statement of Claim, or which appears in affidavits.
8 The sole director of the plaintiff is Ms Dimitri Tsucalas,
9 The existing defendant, Nafpaktos, is alleged to be the trustee of:
(a) The Hub Unit Trust; (b) The Tsamis Family Trust; and (c) The Tsamis and Dromi Family Trust. 10 The units in the Hub Unit Trust were allotted as follows:
(a) 120 units issued to the plaintiff; (b) 80 units issued to Martha Tsamis; and (c) 80 units issued to Patrick Dromi. 11 The Hub Unit Trust in turn held 280 units, or 25 per cent of the units in the Nicholson Street Unit Trust, the sole asset of which was a rooming house located in Nicholson Street, Fitzroy.
12 Mr Tom Karas is pleaded to be a director of 70 Nicholson Street Pty Ltd and to hold directly or indirectly a substantial interest in the Nicholson Street Unit Trust.
13 Mr Kon Tsamis is pleaded to be the sole appointed director of the defendant. Martha Tsamis is pleaded to be a director of the defendant within the meaning of paragraph (b) of the definition of “director” in s.9 of the Corporations Act 2001(Cth), in that Mr Tsamis was accustomed to acting in accordance with her instructions or wishes in the management and operation of the defendant’s affairs.
14 Ms M Tsamis is pleaded to be the sole director of MDC Entertainment Pty Ltd, which operates a nightclub known as “Chasers” in its capacity as Trustee of the MDC Unit Trust.
15 Ms Tsucalas is a cousin of Ms M Tsamis and Mr K Tsamis.
16 Mr T Karas, through Genesis Holdings Pty Ltd, is alleged effectively to control 50 per cent of the units in the MDC Unit Trust. Mr Prince’s affidavit of 27 January 2010 states that the sole director and shareholder of Genesis is Mr Nick Meletsis, who is Mr Karas’ brother-in-law.
17 MDC was in dispute with Mr Karas in relation to the Chasers Nightclub business (“the Nightclub dispute”).
18 The joinder of the proposed defendants was opposed by the defendant and was specifically opposed by A T Consultants Pty Ltd, which is an accountancy firm of which Mr A Tzelepis is a director, which appeared by counsel on 8 February 2010 and forwarded an email dated 25 February 2010 to the Court stating its opposition to the proposed amendments to the Statement of Claim.
Proposed Amended Statement of Claim
19 The Proposed Amended Statement of Claim (“the Statement of Claim”) is in two parts. Both of them refer to previous proceedings in the Court which are the “Nicholson Street proceedings” which were numbered CI-07-03585 and which were commenced against 70 Nicholson Street Pty Ltd and others.
20 The Nicholson Street proceedings alleged, in essence, breaches of the Trust Deed in the management and conduct of the 70 Nicholson Street Unit Trust and breach of duty by the trustee in failing to provide documents and details of the use of capital to the plaintiff.
21 The first part of the Statement of Claim alleges that the Nicholson Street proceedings were a wasteful use of the resources of the Hub Unit Trust and that their commencement and continuation was a breach of the fiduciary duties owed to the unit holders in that Trust. They are also pleaded to have been commenced and continued by the defendant for an improper purpose, namely as part of a strategy to place commercial and financial pressure upon Karas and other persons and entities associated with him in connection with the Nightclub dispute. It is also alleged that the defendant had a conflict between the interests of its unit holders and of its director Ms M. Karas. It alleges that the Nicholson Street proceedings were funded by Ms Karas.
22 Other breaches of fiduciary duties are alleged, including the failure to inform the plaintiff about matters affecting the Nicholson Street proceedings, and a failure to accept offers including an offer of $300,000 from the solicitors for 70 Nicholson Street and Mr Karas for the Nicholson Street Units in settlement of the Nicholson Street proceedings.
23 The second part of the proposed pleading commences with paragraph 19 and alleges that on 16 June 2009, the defendant agreed with the other parties to the Nicholson Street proceedings and the MDC proceedings to a settlement of both proceedings the substance of which was that:
(a)
Mr Karas would cause Genesis Holdings, [to] in substance, sell the MDC Units to Martha or her nominee for $550,000; and
(b)
Mr Karas would, in substance, purchase the Nicholson Street Units for $550,000; and
(c)
the matters in paragraphs (a) and (b) above would be given effect to by means of an exchange of transfers and/or cancellations of the MDC Units and the Nicholson Street Units, rather than any money passing between any of the parties to the settlement; and
(d)
Direct One would be kept in ignorance of the substance of the Settlement, the circumstances in which it was made, and its terms.
24 The MDC proceedings were Supreme Court proceedings in which State Securities Pty Ltd and Genesis claimed an interest in MDC Entertainment Pty Ltd, which is the licensee of Chasers Nightclub.
25 The particulars to paragraph 19 allege that the settlement was agreed at a meeting on 16 June 2009 at the Court while the trial of the Nicholson Street proceedings was stood down. The particulars to that paragraph contain details of an alleged meeting between Ms M Tsamis, Mr K Tsamis, Mr Karas, Mr Tzelepis and Mr Prince.
26 The settlement was implemented through Terms executed on 17 June 2009. The terms had a confidentiality provision whereby Mr Karas was not to discuss or provide any advice to Ms Tsucalas as to her rights or to any other of the other parties pursuant to the terms.
27 Paragraphs 21 and 22 of the Statement of Claim plead that:
“The Terms provided, inter alia, that:
(a)
the Nicholson Street Units were to be redeemed by 70 Nicolson Street for a consideration of $1.00; and
(b)
Karas’ interests would be at the request of Martha to transfer the MDC Unites to Nafpaktos for a consideration of $1.00.
In order to give further effect to the Settlement, and in purported performance of the Terms, on or about 17 June 2009 Nafpaktos received and executed a transfer of the MDC Units from Genesis Holdings Pty Ltd to Nafpaktos in its capacity as trustee for the Tsamis and Dromi Family Trust (‘MDC Unit Transfer’)”.
28 Paragraph 24 of the Statement of Claim pleads:
“In order to give further effect to the Settlement and the Terms, from 16
June 2009 until in or about November 2009 Nafpaktos:
(a)
refused despite request to inform Direct One of the substance of the Settlement and its Terms;
(b)
refused despite request to provide a copy of the Terms to Direct One;
(c)
gave misleading information to Direct One concerning the circumstances surrounding, and the substance of, the Settlement and the Terms, namely information to the effect that:
A.
‘we [Nafpaktos] had no choice but to give up the Nicholson Street Proceedings’;
B. ‘there is no equity in the Property’; C. ‘Karas isn’t paying anything’; D.
as to an assertion that there were discussions between Karas and Nafpaktos as to a buyout in the sum of $550,000, ‘nothing can be further from the truth’;
E. ‘the Hub Unit Trust was insolvent’; F.
‘Karas engineered the whole thing to ensure that Nafpaktos could get nothing’; and
G. ‘the MDC Unit Trust is worthless’ –
when in fact:
(i) Nafpaktos had not ‘given up’ the Nicholson Street Proceedings, but as alleged in paragraph 19 above had settled that proceeding in return for valuable consideration passing to Martha namely the benefit of the MDC Units;
(ii) there was equity in the Property having regard to the fact that Karas (amongst other offerors) had offered to the mortgagee in possession of the Property to purchase it for a price several hundred thousand dollars in excess of the debts secured against it;
(iii) Karas was in substance paying something, in that he was causing Genesis Holdings to transfer the MDC Units to Martha or her nominee;
(iv) There had been discussions between Karas and Nafpaktos which in substance related to a buyout in the sum of $550,000;
(v) The Hub Unit Trust was not insolvent, but had an asset namely the Nicholson Street Units which by reason of the matters alleged in paragraph (ii) above was a valuable asset, and no or no significant genuine liabilities;
(vi) Karas had not ‘engineered the whole thing to ensure that Nafpaktos got nothing’, in that the Settlement was one in substance proposed by Nafpaktos in the conversation particularised in paragraph 19 above, and further Nafpaktos had obtained a valuable benefit from the Settlement, namely the MDC Unites, for the Tsamis and Dromi Family Trust of which it was a trustee.
(vii) The MDC Unit trust was not worthless, but rather had such value that the parties to the Settlement treated 50% of the units in that trust (i.e. the MDC Units) as having a value of $550,000 for the purposes of the settlement.
PARTICULARS
The misleading information was conveyed:
(1) as to items A to C thereof, orally by Prince to Direct One’s solicitor Mario Merlo, in a telephone conversation on or about 16 June 2009, the material substance of which was that Prince said words to the effect alleged; (2) as to item D thereof, in writing in an email from Prince to Merlo dated 24 June 2009, a copy of which may be inspected by prior appointment; and (3) as to items E to G thereof, orally by Tzelepis to Merlo in a conversation in person at a unit holders meeting on 7 August 2009 the material substance of which was that Tzelepis said words to the effect alleged.”
29 This alleged conduct of Nafpaktos is pleaded in paragraph 25 to have constituted the implementation of a dishonest and fraudulent scheme or design or dishonest design in breach of its fiduciary duties to:
(a)
Deprive the Hub Unit Trust of its only asset, namely the Nicholson Street Units, without securing any valuable benefit for the Hub Unit Trist in return; and
(b)
Secure for the benefit of another trust of which it was trustee, namely the Tsamis and Dromi Family Trust, and specifically upon Martha as a beneficiary of that trust, a valuable benefit (namely ownership of the MDC Units) in return for Nafpaktos giving up the Nicholson Street Units; and
(c)
Keep Direct One in ignorance of the matters in paragraphs (a) and (b) above.
30 Each of the persons, whom it is desired to join as defendants, are alleged to have knowingly participated in the dishonest design and therefore to be liable in equity for the loss and damage suffered by the plaintiff in accordance with the principles of the second limb of Barnes v Addy, which were recently discussed in Farah Constructions Pty Ltd v Say-Dee Pty Ltd.[1]
[1] (2007) 230 CLR 89.
31 In essence, this second part of the proposed Statement of Claim is that the plaintiff‘s units in the Hub Unit Trust were transferred for no benefit to unit holders.
32 The structure of the allegations in the pleadings against each of the proposed defendants is as follows.
33 It is first alleged that the person knew of the dishonest design because they knew of circumstances from which a reasonable person would conclude that the conduct alleged was dishonest and fraudulent.
34 Second, it is alleged that the Ms M Tsamis and Mr K Tsamis participated in the dishonest design by participation in the 16 June 2009 meeting and the instructions that they gave to the solicitor, Mr Prince, to settle those proceedings.
35 In the case of Mr Prince, who is a solicitor, it is alleged in paragraph 33 that he provided legal advice and representation to Ms M Tsamis, Mr K Tsamis, the defendant and MDC. Mr Prince is alleged to have participated in implementing the dishonest design by participating in the conversation at the 16 June 2009 meeting, giving instructions to counsel to deal with opposing counsel to prepare the Terms, arranging for and attending execution of the Terms, instructing Tzelepis to prepare the MDC Transfer and conveying misleading information to Direct One.
36 AT Consultants Pty Ltd is alleged in paragraph 36 to be a firm of accountants providing, through its director Mr Achilles Tzelepis, accountancy services and financial advice to Ms Tsamis, Mr Tsamis, the defendant and MDC. It is alleged to have participated in implementing the dishonest design by participating in the conversations at the 16 June 2009 meeting, preparing the MDC transfer and conveying misleading information to Direct One.
37 The case against the last proposed defendant, 70 Nicholson Street Pty Ltd, is based on the knowledge and actions, including the participation of Mr Karas, who is its sole director.
38 Third, and as a result of the first two points, it is alleged that the person knowingly participated in the dishonest design and is therefore liable in equity for loss and damage suffered by the plaintiff.
39 The material in support of the proposed Statement of Claim and the joinder is largely in the affidavit of Mr Merlo dated 26 February 2010. In the key paragraph Mr Merlo states:
“I crave leave to refer the proposed Amended Statement of Claim being Exhibit ‘M2’ to this Affidavit. Insofar as the proposed pleading refers to matters involving me, I confirm that the same are true and correct. Insofar as the proposed pleading refers to matters involving others, I believe that the same are true and correct based upon the following:
(a) my instructions from my client; (b)
my discussions with Mr Prince and Mr Tzelepis prior to the Terms of Settlement being executed and at a meeting of the unitholders of the Hub Unit Trust on 7 August 2009;
(c)
the correspondence passing between myself and Mr Prince between in or about June 2009 and August 2009;
(d)
my discussions with witnesses to be called by my client including the solicitors and barristers for the Defendants to the 70 Nicholson Street proceedings and Tom Karas; and
(e)
the documents produced under subpoena in or about July 2009 by the solicitors for the Defendants to the 70 Nicholson Street Proceedings including but not limited to the file notes of those solicitors evidencing the discussions prior to settlement and the parties involved in those discussions and the drafts of the Terms of Settlement.
40 Ms Tsucalas, in her affidavit of 16 September 2009, states that at no stage prior to the entry into the Terms of Settlement was the plaintiff consulted about them. Further, that no meeting of the unit holders was held before the Terms of Settlement were accepted and executed. She refers to of a meeting of unit holders of the Hub Unit Trust of 7 August 2009 where discussions about the transfer of the 280 units occurred. She requested documents and information but did not receive them. She provides an explanation for the joinder of the proposed defendants, but her explanation does not deal in any substance with the settlement conference of 16 June 2009.
41 Affidavits have been filed by various proposed defendants being Mr Tsamis, Ms Tsamis, Mr Tzelepis and Mr Prince denying the allegations against them.
42 Mr Tsamis states that he did not attend the meeting of 16 June 2009 and that he had spoken previously with Ms M Tsamis, who informed him that Mr Karas would not offer any money to buy the defendant’s units and that it was a waste of resources to pursue the 70 Nicholson St proceedings. Ms Tsamis states that no meeting of the kind alleged in paragraph 19 of the proposed Statement of Claim occurred. Her sister Ms R Tsamis, who accompanied her to Court says the same thing as does Mr Tzelepis and Mr Prince in a further affidavit.
43 Mr B Gianoulas, the manager of Chasers Night Club, says that he accompanied Ms M Tsamis to Court on “16 June 2010” (sic) and that no meeting occurred as alleged in paragraph 19 of the proposed Statement of Claim.
44 The affidavits of Ms M Tsamis, Ms R Tsamis, Mr Tzelepis, Mr Prince and Mr Gianoulas support Mr Tsamis’ statement that he was not present at the County Court on 16 June 2009.
45 Mr Prince filed a substantial affidavit of 27 January 2010 in his capacity as solicitor for the defendant. He states that through no fault of his client, but for reasons he elaborates, the 70 Nicholson Street Trust had been wasted by the time the Nicholson Street proceedings came to trial (paragraph 10). He expresses his clients’ concern that this application is “yet another attempt by Mr Karas (this time through Tsucalas) to harass Ms Tsamis using court processes” (paragraph 11). He states that efforts were made to keep the plaintiff apprised of developments associated with the Nicholson Street proceedings (paragraphs 18- 26). He states that he was not involved in the settlement discussions on 16 June 2009. The effect of his evidence is that it is was not possible to obtain instructions from Ms Tsucalas about the settlement offer (paragraphs 27 -37). He refers to the inconvenience to his client if he is joined as a party and states that:
“it is extremely doubtful whether any legal firm could acquire the in depth
knowledge I have in this matter and associated proceedings.”
(paragraph 42)
46 Mr Prince specifically denies the allegations put against him in the proposed Statement of Claim and states that at all times the trustee, for whom he acted, had acted in the best interests of the trust (paragraphs 45-46).
Consideration of the Issues
47 My role is to exercise a discretion in deciding whether to permit the joinder of the proposed parties. It is not my role to assess the merits of the case that the plaintiff proposes or the response to it contained in the affidavits filed on behalf of the proposed defendants.
48 In Main-Road Property Group Pty Ltd v Pelligra & Sons Pty Ltd,[2] which involved a claim to join solicitors as parties to a counter claim, Bell J. emphasised that it was inappropriate to attempt to determine the merits of the claim against the propose defendants. However, his Honour still considered whether the proposed claim was obviously bad in law or futile.
[2] [2007] VSC 43.
49 I do consider that the proposed Amended Statement of Claim is adequately pleaded, in that it contains allegations which if proved might establish a cause of action. However that still leaves the question of whether the Court should exercise the discretion to allow the parties, against whom the cause of action is proposed, to be joined as defendants.
50 I gain some assistance from the approach of Byrne J in Wimmera-Mallee Rural Water Authority v FCH Consulting Pty Ltd[3] where his Honour, after referring to the need to demonstrate the existence of a viable cause of action, stated:
“Since the application is not a true pleading application, but an application to join a party, the applicant must adduce material, including, if need be, hearsay in accordance with Rule 43.03 (2), sufficient to satisfy the court of these matters as well as to matters which may be relevant to the exercise of the discretion of the court.”
[3] [2000] VSC 102 at [9]
51 In that case the joinder was sought by the defendant to take advantage of the regime created by s 131 of Building Act 1993, which of course is a different context. I do not take the comments of Byrne J. as in any way limiting the discretion conferred by Rule 9.06, but rather as stating the obvious point that the Court needs to be given a reason to exercise the discretion. It will not always be the case that producing a properly pleaded statement of claim will be sufficient.
52 I take into account that a principal purpose of Rule 9.06(b) is preventing multiplicity of proceedings. The Rule deals with a number of situations. Rule 9.06(b)(i) deals with the situation where a person ought to have been joined as a party or whose presence is necessary “to ensure that all questions in the proceeding are effectually and completely adjudicated on”.
53 Rule 9.06(b)(ii) deals with the situation between a person and a party where there is a question arising out of, or relating to, or connected with, any claim in the proceeding “which it is just and convenient to determine between that person and party as well as between the parties to the proceeding”. I accept that if the claims in the second part of the proposed Statement of Claim are to be pursued it would be convenient, within the meaning of the Rule, that they be heard in the existing proceeding.
54 I accept that the questions raised in the proposed Statement about the alleged involvement of the proposed defendants in the settlement of the Nicholson Street proceeding are connected with other questions in the proceeding within the meaning of Rule 9.06(b)(ii). However, the Court is still left with the discretion conferred by the opening words of Rule 9.06.
55 The plaintiff emphasised that the test for joinder was low and that it was unnecessary to file evidence of fraud.
56 Arguments put by the defendant against joinder were:
(a) the speculative nature of the case; (b) the absence of proper material;
(c) the inconvenience caused by the solicitor being joined and the need for the defendant to obtain another solicitor: see Mr Prince’s affidavit at paragraphs 42 and 44. 57 If the Court refuses the application the plaintiff may commence a separate proceeding against the proposed defendants. But that will often be an option to an applicant, who has unsuccessfully sought to join defendants.
58 The key consideration is the extent of the material filed in support of the application.
59 The Court is asked to exercise its discretion and must be persuaded by the plaintiff to do so. It can only do so on the basis of the material filed in support of the application. That material can be in hearsay form. It may not be necessary to name witnesses, but the material must be sufficient to justify the exercise of the discretion. What will be required will vary. Often, as the plaintiff submitted, the justification for the joinder will be self evident and a short affidavit will suffice. In other cases more detail will be required. This is such a case. The allegations proposed to be made are substantial, new and serious allegations that to a significant degree turn on events alleged to occur at a meeting on 16 June 2009.
60 A mere expression of belief or conclusion that particular allegations are true and a reference to a number of sources on which that belief is insufficient in this case. The basis of that belief or conclusion must be revealed – some detail of the material, on which the belief or conclusion is based, should be provided.
61 In my opinion, the affidavits, particularly that of Mr Merlo that have been filed in support of the application, provide an insufficient basis to justify the exercise of the discretion to allow the joinder of the proposed defendants. Rule 9.06. In the critical paragraph of Mr Merlo’s affidavit that I have set out above, there is an expression of belief or conclusion based on a reference to a range of material without any indication of the contents of that material contains.
62 In this particular case, I consider the material filed by the plaintiff to be insufficient to justify the exercise of the discretion conferred by Rule 9.06.
63 I therefore dismiss the applications to deliver the proposed Amended Statement of Claim and to join further defendants as parties.
- - -
0