Distinctive FX Pty Ltd v Wright (No 3)
[2015] VSC 482
•11 SEPTEMBER 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2013 03774
| DISTINCTIVE FX PTY LTD (ACN 075 098 609) & 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)) AND OTHERS | Defendants |
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JUDGE: | ELLIOTT J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 28, 31 AUGUST 2015 |
FURTHER SUBMISSIONS: | 1, 2, 4 SEPTEMBER 2015 |
DATE OF JUDGMENT: | 11 SEPTEMBER 2015 |
CASE MAY BE CITED AS: | DISTINCTIVE FX PTY LTD v WRIGHT (No 3) |
MEDIUM NEUTRAL CITATION: | [2015] VSC 482 |
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INTERLOCUTORY INJUNCTION – Existing freezing order – Injunction over life insurance proceeds – Access given to life insurance proceeds – Further order sought by defendants preventing future tracing of life insurance proceeds paid to defendants’ lawyers.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Ms CM Kenny QC with Mr AF Solomon-Bridge | Millens Pty Ltd |
| For the Second and Fourth Defendants | Mr J Kohn | Tony Hargreaves & Partners |
HIS HONOUR:
A. Introduction
In this proceeding, the plaintiffs allege millions of dollars were misappropriated by a former employee, Jason van der Slot (“Jason”). Jason was previously the first defendant to the proceeding; he is now deceased. The second defendant is his widow, Elizabeth van der Slot (“Elizabeth”). It is alleged Elizabeth knowingly received misappropriated funds and also knowingly assisted in their misappropriation.
Recently, I delivered 2 interlocutory judgments in this proceeding concerning injunctive relief sought by the plaintiffs: the first on 22 June 2015 (“the First Judgment”);[1] and the second on 31 August 2015 (“the Second Judgment”).[2] I will only repeat the matters set out in those previous judgments to the extent that is strictly necessary. Injunctions are in place, in the nature of freezing orders and orders preventing the dissipation of funds over which it is alleged the plaintiffs have a proprietary interest.
[1]Distinctive FX Pty Ltd v Wright [2015] VSC 299.
[2]Distinctive FX Pty Ltd v Wright (No 2) [2015] VSC 454.
Upon the delivery of the Second Judgment, counsel for Elizabeth[3] requested that the court make an order that had not been the subject of any submission before then. Up until that time, because of the absence of submissions, I had assumed that such an order had not been sought.
[3]Who is also counsel for the fourth defendant, JLG Holdings Pty Ltd.
Counsel for Elizabeth then made oral submissions as to why the additional order should be made. In response, senior counsel for the plaintiffs stated she had been caught by surprise with respect to these further submissions. Time was sought for written submissions to be provided. That time was given.
In order to understand the context in which the further order is sought, it is necessary to set out some of the orders made on 10 July 2015,[4] which relevantly were as follows:
[4]Orders arising out of the First Judgment were deferred so that the plaintiffs could properly quantify the amount of their claim: see at [44].
1.Until the hearing and determination of the trial or further order, the Freezing Order made on 25 July 2013 by the Honourable Justice Macaulay and varied by the Honourable Justice Garde on 30 July 2013, the Honourable Justice Cavanough on 26 September 2013, the Honourable Justice Bell on 20 December 2013, the Honourable Justice Dixon on 20 March 2014, the Honourable Justice Ginnane on 8 April 2014, the Honourable Justice McMillan on 18 June 2014, the Honourable Justice Garde on 14 October 2014, and the Honourable Justice Elliott on 6 February 2015 and 20 March 2015, continue until further order, save that the relevant amount of the unencumbered value of Australian assets which [Elizabeth] must not remove from Australia or in any way dispose of, deal with or diminish (as identified in paragraph 6(a) of the Freezing Order made on 25 July 2013 by the Honourable Justice Macaulay) is varied to $5,862,636.50.
2.By 4:00 pm on 31 July 2015, [Elizabeth] make, file and serve on the plaintiffs an affidavit, together with documentary evidence, identifying:
(1)The current balance of the life insurance proceeds paid to [Elizabeth] by TAL Life Limited (“the Life Insurance Proceeds”).
(2)The current balance of the Commonwealth Superannuation disclosed in paragraph 9(h) of the affidavit of Jason Van Der Slot sworn 29 July 2013.
(3)Whether any, and if so what, assets were purchased with the Life Insurance Proceeds between 20 March 2015 and 19 June 2015.
(4)Whether the government payments referred to in [Elizabeth’s] solicitors’ letter of 29 June 2015 are being paid into frozen bank accounts and, if so, which accounts and the date from which this occurred.
3. Until further order, the balance of the Life Insurance Proceeds:
(1)Be paid into a separate trust account to be opened by [Elizabeth’s] solicitors for that purpose and maintained by them.
(2) Be preserved in their entirety.
The plaintiffs contend that no access should be granted to the Life Insurance Proceeds, by reason that they allege that the premiums for the life insurance policy were paid by the funds misappropriated by Jason. I have previously found, on an interlocutory basis, that the premiums for the life insurance policy were paid out of an account into which the misappropriated funds were paid and, accordingly, the plaintiffs are entitled to contend that the moneys used to pay the premiums were the subject of a trust in favour of the plaintiffs and, further, that they have a prima facie case for an entitlement to the Life Insurance Proceeds received by Elizabeth.[5]
[5]The First Judgment, [40(3)].
By the Second Judgment, I indicated that I would vary order 3 of the orders made 10 July 2015 to allow Elizabeth limited access to the Life Insurance Proceeds for the purpose of paying her weekly living expenses and also her reasonable legal costs of defending this proceeding (subject to certain conditions it is unnecessary to record here). However, in light of the further submissions, orders varying the existing orders are yet to be made.
B. The further order sought by Elizabeth
In addition to the proposed orders, Elizabeth seeks a further order to the effect that any order allowing Elizabeth access to the Life Insurance Proceeds for legal costs be made on the condition that the plaintiffs release Elizabeth’s legal practitioners from all claims which the plaintiffs may have in relation to the application of any of the Life Insurance Proceeds (or their traceable proceeds) for payment or discharge of legal expenses in defending this proceeding.
On 31 August 2015, it was submitted that, without this additional order, the lawyers were at risk of having to repay moneys to the plaintiffs because they were already on notice of the claims of the plaintiffs that the funds in question were impressed with a trust.
The further order is opposed by the plaintiffs. They submit the court has no power to make the order in circumstances where the solicitors and counsel are not parties to the proceeding.[6] Further, they submit that the order sought is too wide in that it seeks to extinguish “all claims” that might be made by the plaintiffs in relation to the Life Insurance Proceeds.
[6]Cf John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1, 46 [131] (French CJ, Gummow, Hayne, Heydon and Kiefel JJ).
In written submissions filed 2 September 2015, the oral submissions made on 31 August 2015 by Elizabeth’s counsel were substantially repeated. In essence, it was submitted that Elizabeth’s lawyers are unlikely to continue to act in this proceeding if there is a possibility that they might be required to disgorge any moneys received in payment of their legal costs. It was submitted that these lawyers would have difficulties establishing they received the money as a bona fide purchaser without notice given their knowledge of the claims made by the plaintiffs.
No authorities were referred to in support of Elizabeth’s submissions. Upon invitation from the court, further submissions were provided on 4 September 2015. The further submissions referred to authorities in support of the general proposition that a court has a discretion when granting an injunction, and in exercising that discretion the court may impose conditions.[7]
[7]See Supreme Court Act 1986 (Vic), s 37(2).
I have reviewed each of the 9 authorities referred to in Elizabeth’s submissions filed on 4 September 2015. None of those cases are concerned with the issue to be addressed presently, namely, whether solicitors and counsel acting for a defendant who is in possession of funds alleged to be impressed with a trust in favour of a plaintiff, may be exempted from any future claim by the plaintiff with respect to the expenditure of those funds for legal costs in defending the plaintiff’s claim against the defendant, even if the plaintiff is ultimately successful against the defendant.
C. Relevant principles
The mere fact that Elizabeth’s solicitors and counsel have knowledge of the claim by the plaintiffs does not, of itself, mean that the plaintiffs would be successful in recovering moneys from these solicitors and counsel if they are ultimately successful against Elizabeth. As was stated by Gordon J (with respect to knowing assistance) in Digital Cinema Network Pty Ltd v Omnilab Media Pty Ltd (No 2):[8]
… mere knowledge of a disputed claim is not sufficient to constitute knowing assistance in the subject matter of that claim in circumstances where the alleged accessory does not know whether the claim is well-founded or not.
In making this observation, her Honour referred to the decision of Carl Zeiss Stiftung v Herbert Smith & Co (No 2)[9] (a case concerned with knowing receipt), where it was said:[10]
The rule, as I understand it, is that no stranger can become a constructive trustee merely because [she or he] is made aware of a disputed claim the validity of which [she or he] cannot properly assess.
[8][2011] FCA 509, [175] (citation omitted). See also Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373, 398.6 (Gibbs J), 409.5 (Stephen J, with whom Barwick CJ agreed).
[9][1969] 2 Ch 276.
[10]At 296H (Sachs LJ).
The case of Carl Zeiss Stiftung v Herbert Smith & Co (No 2) concerned solicitors who had been paid by their client from moneys the subject of a proprietary claim by the plaintiffs. The court found that the requisite knowledge did not exist and no constructive trust arose. Accordingly, their Lordships declined to determine whether or not a claim against the solicitors acting for a defendant based on tracing funds paid to them, by reason of a constructive trust alleged by the plaintiffs, was contrary to public policy.[11] At first instance, it was held that such a claim was contrary to public policy as it obstructed the course of justice.[12]
[11]At 293F-G (Danckwerts LJ), 299H-300A (Sachs LJ), 304E (Edmund Davies LJ).
[12]Carl-Zeiss-Stiftung v Herbert Smith & Co (No 2) [1968] 2 All ER 1233, 1236F-1237H (Pennycuick J).
In Cogent Nominees Pty Ltd v Anthony,[13] the effect of a freezing order exception for legal expenses on the ability of a plaintiff to make a proprietary claim, and trace the funds in question to the solicitors, was discussed. Referring to the earlier decision of United Mizrahi Bank Ltd v Doherty,[14] it was stated that solicitors receiving funds the subject of a proprietary claim could resist such a claim upon the application of principles relating to constructive trusts for knowing receipt of trust property and for assistance with knowledge of a dishonest breach of duty.[15] Put simply, each case depends on the circumstances in which the solicitors received the funds. It was further observed that the mere existence of a freezing order with an exception for legal costs would not protect the solicitors from such a claim.[16]
[13][2003] NSWSC 804 (Austin J).
[14][1998] 1 WLR 435 (Michael Burton QC).
[15]Cogent Nominees Pty Ltd v Anthony [2003] NSWSC 804, [7]-[8] (Austin J).
[16]At [7]. See also United Mizrahi Bank v Doherty [1998] 1 WLR 435, 441B-445G (Michael Burton QC).
D. The decision
In my view, it would be inappropriate, at least at this stage, to make the further order sought by Elizabeth’s lawyers. Although the substantive application for injunctive relief is interlocutory, the court is, in substance, being asked by Elizabeth to make a final decision in relation to some of the Life Insurance Proceeds.
The lawyers in question have put no evidence before the court as to their state of knowledge (which may go beyond what is presently in evidence in this proceeding). Accordingly, the court is being invited to make a ruling without having the necessary facts before it. To adopt the language used in United Mizrahi Bank Ltd v Doherty,[17] in the absence of relevant evidence I have no idea whether there is a danger that the order sought, if made, would wrongly exempt the solicitors from liability. In these circumstances, where the onus is clearly upon the moving party to obtain a variation to the existing orders,[18] Elizabeth’s lawyers have failed to satisfy the court that such a variation should be made.
[17][1998] 1 WLR 435, 445E (Michael Burton QC). See also at 445B.
[18]See, for example, Cogent Nominees Pty Ltd v Anthony [2003] NSWSC 804, [12].
As the court is not in a position to make a determination about whether or not the plaintiffs would have the ability to trace any of the Life Insurance Proceeds into the hands of Elizabeth’s lawyers, it is unnecessary to consider the further issue about whether such a claim would be contrary to public policy.[19] In circumstances where the issue does not strictly arise,[20] and no party made any submission on this issue, it is not appropriate to express any view on the matter.
[19]See fnn 11 and 12 above.
[20]In any event, it is likely that precise factual findings would need to be made before a proper application of any public policy could occur.
For the reasons stated, I will not make the further order sought.
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