Distinctive FX Pty Ltd & Ors v Wright & Anor
[2016] VSC 727
•25 November 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL court
S CI 2013 03774
| DISTINCTIVE FX PTY LTD & ORS | Plaintiffs |
| v | |
| KYLIE WRIGHT AND PETER VINCE (AS TRUSTEES OF THE ESTATE OF JASON ANDREW VAN DER SLOT PURSUANT TO PART XI OF THE BANKRUPTCY ACT 1966 (CTH)) | First defendant |
| NKT HOLDINGS PTY LTD | Third defendant |
| & ORS |
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JUDGE: | Robson J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 25 November 2016 |
DATE OF RULING: | 25 November 2016 |
CASE MAY BE CITED AS: | Distinctive FX Pty Ltd & Ors v Wright & Anor |
MEDIUM NEUTRAL CITATION: | [2016] VSC 727 |
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PRACTICE AND PROCEDURE – Application for adjournment of trial – Application to amend a freezing order – Use of moneys frozen for legal fees – Use of moneys frozen for living expenses – Defendant trustee of discretionary trust – Use of trust assets for living expenses of a beneficiary.
SOLICITOR’S LIEN – Whether solicitor may be compelled to produce documents subject to a lien to the party in default of paying fees in the litigation – Whether Civil Procedure Act may be used to compel production of documents.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Ms C M Kenny QC with Mr A F Solomon-Bridge | Millens |
| For the Third Defendant | Mr M Clarke | Thomson Geer |
HIS HONOUR:
Introduction
NKT Holdings Pty Ltd (NKT), is being sued inter alia for the knowing receipt of some $6 million which was allegedly stolen from the plaintiffs by Jason Van Der Slot. The matter is fixed for trial on 31 January 2017 before me on an estimated hearing of 10 days. A freezing order was made against the assets held by NKT. As is usual, the freezing order permitted moneys to be released to enable NKT to defend the proceedings. NKT retained Mills Oakley to act as its solicitor. Mills Oakley ran up a large bill without seeking to have the freezing order varied to pay its bill.
Kim Nguyen is the sole director of NKT. Ms Nguyen, on behalf of NKT, terminated the retainer of Mills Oakley in October 2016 and instructed Thomson Geer to act on behalf of NKT. Previously Mr Pitt of counsel was engaged to appear for NKT. Now Thomson Geer has retained Mr Clarke of counsel to act for NKT. Mr Clarke has a history of previously acting for Mrs Nguyen. Mrs Nguyen has confidence in Mr Clarke, who is a highly regarded barrister.
Issues
There are three issues before me. First, NKT applies to vacate the trial date and adjourn the trial for four to five weeks. Mr Clarke relies on the need to comprehend the complex statement of claim, peruse and comprehend the relevant documents and retain an expert accountant to respond to the plaintiff’s expert’s report.
Ms Kenny, one of Her Majesty’s counsel, who appears with Mr Solomon-Bridge, submits that little if any accounting evidence is required as NKT has admitted receipt of the allegedly stolen funds.
Ms Nguyen, in her affidavit of 24 November 2016 in support of NKT’s application, deposed that NKT is the trustee of the Kim Nguyen Family Trust. I have now been informed, contrary to the assertions by Ms Kenny this morning, that the plaintiffs are well aware of this and have in fact pleaded it against the defendants. Ms Nguyen produces financial statements for the trust for the year ended 30 June 2016. NKT submitted that the accounts are not signed by the accountants nor by the trustee, NKT.
In reply, Mr Clarke produced documents discovered by NKT relating to the trust, including the financial statements for the years ended 30 June 2013 and 30 June 2014. Both of those statements have been signed by Ms Nguyen as the director of NKT under the heading, ‘Trustee Declaration’ and they have also been signed by the accountants.
The accounts show that a property at Heatherton, which is the ‘duck farm,’ and a property at South Melbourne are assets of the trust. I understand the property at South Melbourne is at 123 Thistlethwaite Street, South Melbourne. Ms Nguyen says she paid cash for it. The Thistlethwaite Street property has been sold for $2.5 million. After the payment of securities on the property some $1.8 million will be available to NKT.
NKT seeks to use these funds to pay Mills Oakley its outstanding fees of some $130,000 and thus secure the release of NKT’s files, which are currently retained under Mills Oakley’s lien in support of the outstanding fees. Mr Clarke also says that Ms Nguyen may need to seek to become a party to the proceeding to establish a claim in equity that she provided the funds for the purchase of the Thistlethwaite Street property and has a proprietary interest in the funds now generated by the sale of the property.
The plaintiffs make no claim to a proprietary interest in the Thistlethwaite Street property. Mr Clarke also submits that NKT may wish to amend its defence, although Mr Clarke did not precisely identify the new defences. I understand that, based on his instructions, NKT acts as a trustee of the Kim Nguyen Family Trust and claims on the basis that any liability incurred by NKT to the plaintiffs would not be as trustee but would be on NKT’s own behalf, that the trust assets are immune from any liability that NKT may have to the plaintiffs.
Adjournment application
In considering the application for an adjournment I must take into account my duties under the Civil Procedure Act 2010 to ensure that the proceedings are administered in a timely, just and cost-efficient way.[1] If an adjournment is granted for the four to five weeks sought, it is likely the trial will not be fixed until the second half of the year. I consider this would be unfair to the plaintiffs and not consistent with the Civil Procedure Act.
[1]See Civil Procedure Act 2010 (Cth) s 7(1).
Accordingly, despite the strong submissions made by Mr Clarke and the arguments that I have referred to, I refuse the application to vacate the trial date.
Solicitor’s lien
NKT also seeks an order to have moneys released from the freezing order to pay Mills Oakley so that the relevant files may be released to NKT. Ms Kenny strongly argued that there are alternative routes, such as the Court making an order under the Civil Procedure Act, or that Ms Nguyen could seek the production of the files under the principles referred to in the case of Hughes v Hughes.[2] Ms Kenny took me to the report in the All England Reports where the judge at first instance, Wrangham J, said:[3]
The general rule is that solicitor who is discharged by his client during an action otherwise than for misconduct can retain any papers in the cause in his possession until costs have been paid: Re Rapid Road Transit Co. (1) [1909] 1 Ch. 96. That rule, however, is subject to this qualification, that this absolute lien cannot be asserted where the cause is one in which other parties are interested and where those other parties would be embarrassed by assertion of the lien.
[2](1958) 2 All ER 366.
[3]Ibid 367.
I was proposing to reject the submission based on that case, on the basis that there is no other party here who would be embarrassed by the assertion of the lien other than NKT, so the case does not apply. After lunch Mr Clarke informed the Court that the case went on appeal, with the appeal being allowed. On the appeal, Lord Justice Hodgson said:[4]
There is no doubt that a solicitor who is discharged by his client during an action otherwise than for misconduct can retain any papers in the cause in his possession until his costs have been paid: see In Re Rapid Transport Co.[5] This rule applies, as the authorities show, whether the client’s papers are of any intrinsic value or not, although it would seem that so far as the solicitor’s working papers are concerned, where the work has not been paid for by the client, the solicitor would not be compelled to hand over his work unless it had been paid for, apart altogether from the lien.
[4]Hughes v Hughes [1958] 3 All ER 179, 180 (‘Hughes’).
[5][1901] 1 Ch. 96.
Mr Clarke also took me to a passage where His Lordship said:[6]
It would be odd if he [that is the client] were in effect able to get solicitor’s work done for nothing by the simple expedient of changing his solicitor as often as he chose, leaving a trail of unpaid costs in his wake and demanding the papers without payment when he had no just cause to complain of the conduct of the solicitor instructed and discarded.
If he is hampered in the presentation of his case to his own disadvantage by having changed his solicitor without good cause, the public interest does not require that a litigant who seeks to put away his wife should be in a better position to obtain documents over which the solicitor has a lien than a litigant in any other civil proceeding.
[6]Hughes, above n 4, 180–1.
I reject the contention that Mills Oakley could be required under those principles to produce the documents that they are holding under the lien.
Ms Kenny also relied upon s 47 of the Civil Procedure Act, where, in effect, the court can make orders as it thinks fit — obviously for the purpose of the just, efficient and timely conduct of the proceeding.
In my view, that is a rule going to procedure. I would not envisage that a court could extinguish a proprietary lien or recognisable equity under a rule relating to procedural orders. I reject that ground as well.
I find that the only practical way that NKT is going to get access to its files and the work that has been done in preparing the case to date, which from the size of the bill is a large amount of work, is by paying Mills Oakley’s account.
Freezing order
A freezing order is designed to protect the assets of the defendants from being removed or dealt with to avoid being available to meet any judgment. In substance it is provided to avoid the plaintiff being cheated. The order is not intended to prevent the defendant using its assets for the legitimate purpose of defending the proceedings or otherwise in the ordinary course of business.
During the hearing, I was referred to a decision in Ryan v Ryan.[7] In that case I noted reference to a decision of Brereton J in Harrison Partners Construction Pty Ltd v Jebena Pty Ltd,[8] where his Honour said:
[g]enerally speaking, the proper legal costs of the defence should be exempted from the scope of an asset preservation order…[9]
It is a principle of Mareva injunctions that it should not be allowed to stultify the proper defence of the proceedings.[10]
[7][2012] NSWSC 636.
[8][2006] NSWSC 317 (‘Harrison Partners Constructions’).
[9]Harrison Partners Constructions [10], citing Clark Equipment Credit of Australia v Conto Factors Pty Ltd (1988) 1 NSWLR 522, 569 (‘Clark Equipment’); Glenwood Management Group Pty Ltd v Mayo [1991] 2 VR 49; Frigo v Culhaci [1998] NSWCA 88.
[10]Harrison Partners Constructions, [10], citing Clark Equipment and Lewis v Nortex Pty Ltd (In liq) [2004] NSWSC 64 (Hamilton J).
He went on to say:[11]
In this context the proper legal costs of the defence should not be viewed in any narrow way, and are not limited to the bare essentials which might be allowed on a party/party assessment. The proper purpose of the Mareva jurisdiction is not to confer on a plaintiff any priority or security or anticipatory execution, nor to constrain the legitimate conduct of the defendant, but only to prevent an abuse by the defendant of its dispositive power in a manner calculated to produce the result of defeating an anticipated judgment in favour of the plaintiff. Generally, it is not an abuse of a defendant’s dispositive power to fund its own defence, even on a lavish scale, so long as the expenditure is bona fide for that purpose. Courts should not deny such expenditure, even if the defence chooses to engage the most expensive law firm and counsel, unless the expenditure is not bona fide for the purpose of defending the proceedings.
[11]Harrison Partners Constructions, [11].
Consistently with those principles, and in view of the findings that I have made, I find that it is appropriate for NKT to use the funds available to it from the settlement of the sale of the Thistlethwaite Street property to pay Mills Oakley’s costs. The plaintiffs have no objection to NKT using the funds available to it from the settlement of the sale of the Thistlethwaite Street property to meet its costs of the litigation in the sum of approximately $303,000.00 but says it should be paid in two tranches.
I am not satisfied that time should be spent in applying for the second tranche when NKT will be sorely pressed to be ready for trial on 31 January 2017. This case demonstrates the bitterness between the parties. It has taken until three or so in the afternoon to hear a simple directions matter, and I think that the time would not be well spent on a second application for the second tranche. I reject that submission.
Living expenses
The final application by NKT is to release moneys owed to Mrs Nguyen by the trust of $1,000 a week to live on. Ms Nguyen has explained how she and her husband have been supporting themselves during the litigation. Ms Kenny has said that she has not found a single case where a company has been allowed to use funds for living expenses.
On the evidence before me, NKT is a trustee. Its duties as a trustee are to act in the best interests of the trust and of the beneficiaries. The trust owes money to Ms Nguyen. Ms Nguyen has called on those loans for living expenses. I see no reason why the trustee in the ordinary course of its duties as trustee should be prevented from releasing those moneys to Ms Nguyen for that purpose.
There is no suggestion by the plaintiffs that the payment is part of a scheme to cheat the plaintiffs out of the fruits of their judgment if they are successful. Accordingly, I propose to amend the freezing orders.
Conclusion
I direct that the parties bring into court short minutes giving effect to the decision I have made. I also direct that the parties confer and agree by 4.00 pm next Wednesday on fresh directions and orders for the preparation and conduct of this trial and in the event of disagreement I will list the matter for hearing next Friday at 10.00 am.
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