Eddaglide Pty Ltd v Taubert

[2000] NSWSC 1123

CITATION:	Eddaglide Pty Ltd v Taubert [2000] NSWSC 1123
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 2989/96
HEARING DATE(S):	21 November 2000
JUDGMENT DATE:	22 November 2000
PARTIES :	Eddaglide Pty Limited (P1) Gundagai Gold Pty Limited (P2) Sigmund Taubert (D1) Taubert Technologies Pty Limited (D2) Pamela Ann Taubert (D3)
JUDGMENT OF:	Hamilton J

COUNSEL :	R Harper (P1 & 2) G Colyer (D1 & 2))
SOLICITORS:	John Carmody & Co (P1 & 2) Jones King Lawyers (D1 & 2)
CATCHWORDS:	PROCEDURE [484] - Judgments and orders - Amending, varying and settling aside - Ex parte orders and judgments - defence to part only - Default of appearance not properly explained - Bankruptcy proceedings taken - Undertaking to Court not to rely on judgment to defeat defence as to part.
DECISION:	Application to set aside judgments refused.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

HAMILTON J

WEDNESDAY, 22 NOVEMBER 2000

2989/96 EDDAGLIDE PTY LIMITED & ANOR v TAUBERT & ANOR

JUDGMENT

HIS HONOUR:

1    In this matter I yesterday dealt with two motions, one a motion to set aside a judgment in proceedings which had been entered by Master McLaughlin upon a summary judgment application, the other an application to discharge or vary the terms of a Mareva injunction. Yesterday afternoon I made orders in the matter as follows:

“Upon the plaintiffs by their counsel giving to the Court an undertaking that they will not raise any defence relying upon the judgments the subject of this application to any claim made by the first defendant in relation to the consultancy fees mentioned in paragraphs 16 and 26 the motor vehicle expenses mentioned in paragraph 26 the Mastercard payment mentioned in paragraph 27 or the expenses mentioned in paragraph 28 of the affidavit of the first defendant sworn 2 November 2000:

1 Application to set aside judgment dismissed.
2 Application to discharge or vary Mareva injunction dismissed.
3 Order that the defendants pay the plaintiffs’ costs of the applications.
4 Direct that these orders be entered forthwith.”


As the orders were made late in the afternoon, I deferred until today the giving of reasons for those orders and this I now do.

2    The proceedings are proceedings brought by two companies in liquidation against the first defendant, who was a director of the companies, the second defendant, a company associated with him, and the third defendant, who is his wife. Up till shortly before the time that the summary judgment was entered by the learned Master, all three defendants were represented by the one firm of solicitors. On 31 May 2000 those solicitors announced that they were no longer acting for the first and second defendants, but continued to act for the third defendant. When the summary judgment application came before the learned Master on 1 June 2000, the first and second defendants were not represented. I shall hereafter refer to the first defendant and the second defendant collectively as “the defendants”. The proceedings were settled as between the plaintiff and the third defendant, who continued to be represented, and she was dismissed from the proceedings. The summary judgment application proceeded in the absence of the defendants and judgment was given by the learned Master in the following terms:

“1 For the first plaintiff against the first and second defendants for $288,067.56 plus interest in the sum of $111,347.98, making a total of $399,415.54.

2 For the second plaintiff against the first defendant in the sum of $165,723.98 plus interest in the sum of $64,054.99, making a total of $229,781.97.

3 For the second plaintiff against the second defendant in the sum of $70,500 plus interest in the sum of $27,250.66, making a total of $97,750.66.”

3    In July 2000 the plaintiffs served a bankruptcy notice on the first defendant and made a statutory demand upon the second defendant. No action was taken by the second defendant in relation to the statutory demand. Winding up proceedings were subsequently commenced against the second defendant, but may not be maintainable, as the demand may have been stale at the time the proceedings were commenced. In any event, the summons has not proceeded to finality. It is not correct to say that the first defendant did nothing in response to the bankruptcy notice served upon him. There is some dispute in proceedings in the Federal Court as to whether or not an application was made for extension of the bankruptcy notice. However that may be, bankruptcy proceedings have been commenced in the Federal Court and have been several times before a Registrar, who has adjourned the matter from time to time so that the first defendant might make an application to this Court to set aside the judgment, but that has only recently occurred.

4    The nature of the proceedings in which the learned Master entered judgments is that they were brought by the liquidators of companies alleging that moneys that had been raised for the purposes of the companies did not reach the companies. Some of the moneys, at least, the evidence shows were deposited to an account of the second defendant. Furthermore, without going into detail, the first defendant took moneys that belonged to the plaintiff companies and used them for his own purposes. Before me it was conceded on his behalf that there was no defence that could be put forward in relation to the recovery of a considerable portion of the moneys taken or used by him. However, it was put to me that a defence was maintainable in relation to some moneys, either that it was proper for him to take them, or that he had defences by way of set off in relation to moneys owed to him by the companies, which should have gone in diminution of the amounts for which judgment was entered. He submits in these circumstances, particularly as the judgments were entered ex parte, that the judgments should be set aside. I did indicate to counsel for the defendants that, to any extent that the judgments were set aside, it would be upon condition that substitute judgments could be re-entered upon the summary judgment application in respect of sums as to which no bona fide dispute was established. In the light of what follows it was not and is not necessary to establish what the relevant amounts were.

5    The defendants, and particularly the first defendant, claimed that they have explained, and explained adequately, the reasons by reference to which judgments were allowed to go by default on 1 June 2000 and all the delays which have occurred since that time in their seeking to remedy the situation. As I have already said, while some application was made to the Federal Court exercising bankruptcy jurisdiction after service of the bankruptcy notice on the first defendant, no application to set aside the judgments in this Court was made until recently. The first defendant says that the evidence shows the defendants were unable to be represented before the Master on 1 June 2000. I find this a little mysterious, since the third defendant, the first defendant's wife, was represented on that day and apparently by the same solicitors who had previously represented the other defendants also. It does seem clear that the relevant solicitors were threatening to cease to act because they had not received funds from the first and second defendants and that that is what they did. However, it is quite plain that the first and second defendants must have known that the proceedings were before the Master on 1 June 2000 and, even if unable to be represented, they could, at the very least, have attended and explained their plight to the Master and sought an adjournment. They did not do so. Equally, at other times they could, if necessary, have acted in person to bring the present application. This is not uncommonly done in this day and age, even in commercial litigation in this Court, where people cannot afford representation. Thus, although there is some explanation, it cannot, in my view, be said to be a satisfactory explanation. I note specifically that the first defendant has not come before the Court on oath to give or verify any explanation of the circumstances.

6    When one turns to the evidence of the defences which the defendants say they wish to agitate, again it would not be true to say that there is no evidence as to these defences, but it would be fair to say, at the very least, that there is not very adequate evidence of them and that, despite the passage of a long period of time and the fact that the defendants are now represented, there is no specific evidence showing any defence by the second defendant to the judgment entered against it. There was a somewhat convoluted argument, which I found difficult to understand, that the material on which the judgment was entered against it must be regarded as flawed following on from the arguments about the same material that was put to me in relation to the first defendant. However, whatever may be said about the first defendant, I am of the view that there is no satisfactory evidence showing any defence on the merits by the second defendant in relation to the judgment entered against it, and I certainly do not propose to set that judgment aside.

7    The evidence in relation to the claimed defences of the first defendant are more ample, but not very ample. There are three items as to which there is evidence which is to some degree specific. That evidence is to be found in an affidavit of the first defendant sworn 2 November 2000 as follows:

“16 It was agreed between Larry Robinson and myself that we would be paid consultancy fees of $3500.00 per month up to the beginning of 1994, and $5000.00 per month after that. Due to the tight financial position that Eddaglide was in, I did not draw my full consultancy fee. Eddaglide still owes me the balance of the consultancy fees due to me, amounting to $48,000.00.
……
26 It was agreed between Larry Robinson and myself that we would be paid consultancy fees of $3500.00 per month up to the beginning of 1994, and $5000.00 per month after that. Due to the tight financial position that Gundagai was in, I did not draw my full consultancy fee. Gundagai still owes me the balance of the consultancy fees due to me, amounting to $50,000.00. In addition, I incurred motor vehicle expenses in travelling to the exploration sites exceeding $15,000.00 for which I was not reimbursed.
27 As the commercial manager for Gundagai, I was supplied with a company mastercard, which I was authorised to use for expenses incurred on behalf of the company. There were occasions where I was not able to pay for the expenses directly with the mastercard, so I was required to make cash withdrawals. I believe that the withdrawals referred to in the affidavit of Brian Patrick Dunphy sworn 31 March 2000 were in relation to expenses incurred on behalf of Gundagai. All of the payments made from Gundagai’s mastercard account can be accounted for through the records maintained by the company and myself.
28 I have incurred expenses on behalf of the company, for which I have never been reimbursed. These include the use of my home office, stationery, electricity and secretarial services. I estimate these expenses to amount to $35,000.00.”

There are also denials in general terms of liability and an assertion in general terms that there are other expenses which the first defendant was entitled to claim, but they do not reach a level of specificity which would permit the Court to conclude that they satisfactorily found any defence on the merits, and my attention will be confined to the three items that arise from the above paragraphs. Paragraph 16 relates to the first of the three judgments entered by the learned Master and deals with consultancy fees that it is said were not allowed for by the liquidator when he laid material before the Master to found the default judgment. The claimed sum totals some $48,000. The other three paragraphs relate to claims against the second plaintiff. The first of them again deals with the question of consultancy fees and is said to be in the sum of $50,000. The second deals with $15,000 in motor vehicle expenses. The third is as to expenses charged to a Mastercard which the liquidator treated as private, but which the first defendant claims were expended on company business. The sum is not specified in the affidavit from which I have cited, but is elsewhere identified as being in the vicinity of $17,000. The fourth claim is for the use of a home office and associated items said to total some $35,000.

8    Those claims that are most satisfactorily based in the evidence are the two claims relating to consultancy fees. That is because, not only does the first defendant depose to those in a reasonably specific manner, but that there was an entitlement in the first defendant to consultancy fees is also attested to by Lance Robinson, a person associated with the companies who gave the liquidator information about the defendant's claimed defalcations, and by the liquidator himself, who did allow some sums for consultancy fees in his calculations and thereby acknowledged the legitimacy of an agreement for consultancy fees. The other claims are stated in the most global of terms. It is not stated, even in global terms, that there was an agreement or what the agreement was as to the reimbursement of those expenses. For instance, it is not stated as to what the agreement was to make a payment to the first defendant in respect of the use of his home office. It may well be that the material as to these defences also was in such general terms that they could not be categorised as establishing in any requisite way the existence of a defence on the merits if counsel for the defendants had not drawn to the Court's attention, in conjunction with this evidence, what he described as a flaw in the "methodology" of the liquidator in formulating the claim laid before the learned Master.

9    That arises in the following way. The liquidator stated by affidavit sworn 31 March 2000 that he had not allowed expenses beyond some allowance for consultancy fees because he had been informed by Lance Robinson that there was no agreement as to the payment of any other expenses. Yet Mr Robinson deposed, in an affidavit sworn only two days later, on 2 April 2000, after referring to the agreement for consultancy fees:

“We were each entitled to recover any other verifiable expenses incurred on behalf of the companies. ... He had use of a Westpac Mastercard in the name of Gundagai Gold. He was entitled to use this credit card to meet company expenses only.”

Despite these statements by Mr Robinson on 2 April 2000, the matter laid before the learned Master on 1 June included the affidavit of 31 March 2000, in which the liquidator stated that he was proceeding on the basis that there was no agreement for the reimbursement of expenses. It does seem to me, therefore, that the judgments were obtained upon the basis of a flawed calculation or flawed material. It is true that in a later affidavit led before the Master there was an allowance of some $210,000, which it was acknowledged had been properly used by the defendants from the moneys concerned, but it is not at all clear on the evidence as to what was contained in this amount and it is not established that the error in the liquidator's statements of 31 March 2000 had been allowed for and corrected when the amounts for which judgment was obtained were laid before the Master.

10    However, that does not end the matter. If I set the present judgments aside the existing bankruptcy proceedings will be invalidated, although judgment would immediately be entered for a large sum which, on the evidence the first defendant has laid before the Court, it would be beyond the means of the first defendant to meet.

11    Factors that I take into account in deciding whether or not the judgment ought to be set aside are as follows. The evidence brought forward in respect of the claimed defences is still exiguous and imprecise, despite the long passage of time. On the other hand, it seems that the first defendant may have a claim to credits against the amount owing to him and it troubles me that, if the application is simply refused, the judgments may be raised against him by way of Anshun estoppel if he seeks to claim these amounts in separate proceedings, or it may be submitted to his trustee in bankruptcy, if he does in fact become bankrupt, that no allowance ought be made in favour of his estate in relation to these matters, because any investigation is closed off by the existence of the judgments.

12 Mr Harper, counsel for the plaintiffs, has referred me to the terms of s 86 of the Bankruptcy Act 1966 (Cth) and submitted that this is not so, that the trustee in bankruptcy will in any event carry out the exercise prescribed by that section and that the existence of the judgment could have no effect upon it. I am far from satisfied that the proposition, either as a matter of law or as a matter of practicality, is self evidently correct. I informed Mr Harper that the problem that I saw would be cured if the plaintiffs were prepared to give an undertaking to the Court in the terms set out in paragraph [1] above. This undertaking Mr Harper ultimately obtained instructions to give and did give to the Court. In the face of that undertaking, the conclusion that I came to in the exercise of my discretion was that the judgments against the first defendant ought not be set aside. If he desires to bring proceedings to vindicate his claims, the first defendant may set about that as soon as he pleases.

13    So far as concerns the application to vary the Mareva injunction, the relevant terms of the order are as follows:

“The defendant, whether by himself, his employees, agents, attorneys or otherwise, be restrained until further order:
a) from disposing of or dealing with in any manner whatsoever any of his assets whether such assets be within or outside the jurisdiction, and
b) in the case of any such assets within the jurisdiction, from removing such assets from the jurisdiction.
Including without limiting the generality of subparagraphs (a) and (b) hereof the defendant’s interest in the property at 6 Swindon Close, Turramurra 2074 being the land and improvements thereon comprised in Folio Identifier 7/210103 provided that:
(c) the defendant may incur living expenses to a maximum of $400 per week and pay any properly incurred legal expenses and insurances, mortgage payments, rates, taxes and other statutory charges properly payable in respect of his assets; and
(d) the defendant may dispose of or deal with his assets upon the terms consented to by the plaintiff of the plaintiff’s solicitor.”

The order is in somewhat ambiguous terms, the ambit of the legal expenses referred to not being plain. The first view of the ambit is that the availability of legal expenses to the defendants which it provides for is limited to expenses relating to the assets referred to in the order. The second view is that it is in general terms, permitting expenses in an unlimited amount to be taken for costs of these proceedings or other proceedings arising from the disputes between the parties or, indeed, legal expenses generally. Mr Harper submitted to me that the second view is correct, and that that is the view his client takes and will take of the order. However, it seems clear from the evidence that the plaintiffs' advisers have not always taken that view. I conclude that, although, as I have said, the order is not entirely clear, the second view is the better view of the order. In light of this, a variation of the order is not necessary. The application for variation will be dismissed.

14    Since, however, the plaintiffs have not unequivocally stated their adherence to the second view until yesterday, the application for variation would be dismissed, if there were not more, with costs against the plaintiffs. However, the defendants at all times until recently sought more than a variation of the orders to permit them to take legal expenses. Up to very recent times they have made it plain that they claimed a full discharge of the injunction and, indeed, the matter was initially opened to me yesterday on that basis. This they certainly could not and would not have obtained on the material laid before me. That matter I have taken into account in determining the costs of the applications.

…oOo…

Last Modified: 12/12/2000