EH 2015 Pty Ltd (in Liq) v Caratti [No 3] - [2017] WASC 210

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: EH 2015 PTY LTD (IN LIQ) -v- CARATTI [No 3] [2017] WASC 210

CORAM: MASTER SANDERSON

HEARD: 16 MAY 2017

DELIVERED : 1 AUGUST 2017

FILE NO/S: CIV 1372 of 2011

BETWEEN: EH 2015 PTY LTD (formerly ESTEEM HOLDINGS PTY LTD) (IN LIQ) as Trustee for THE ESTEEM TRUST
Plaintiff
AND
ALLEN BRUCE CARATTI
First Defendant
WEDGEPOINT PTY LTD
Second Defendant
IAN CHARLES FRANCIS
Liquidator of the Plaintiff

Catchwords:

Corporations law - Right of liquidator to funds paid into court by company which subsequently became insolvent

Legislation:

Civil Judgments Enforcement Act 2004 (WA)
Corporations Act 2001 (Cth)

Result:

Application of liquidator dismissed

Category: A

Representation:

Counsel:

Plaintiff:     No appearance
First Defendant     :     No appearance
Second Defendant     :     No appearance
Liquidator of the Plaintiff :     Ms C M Guy
Other party     :     Mr C P Stokes

Solicitors:

Plaintiff:     No appearance
First Defendant     :     No appearance
Second Defendant     :     No appearance
Liquidator of the Plaintiff :     HWL Ebsworth Lawyers
Other party     :     Chris Stokes & Associates

Case(s) referred to in judgment(s):

Caterpillar Financial Australia Pty Ltd v Ovens Nominees Pty Ltd [2011] FCA 677
Dura (Australia) Constructions Pty Ltd (in liq) (Receivers & Managers Appointed) v Hue Boutique Living Pty Ltd [2014] VSCA 326
Dwight v Federal Commissioner of Taxation (1992) 37 FCR 178
Pilmer v HIH Casualty & General Insurance Ltd (No 2) [2004] SASC 389

MASTER SANDERSON: By application lodged 2 February 2017 the liquidator of the plaintiff seeks orders declaring the payment of monies out of court to Christopher Stokes, the plaintiff's former solicitor, on 27 January 2017 was a void disposition pursuant to s 468 of the Corporations Act 2001 (Cth). As an additional order the liquidator seeks to have Mr Stokes repay those funds into court. To understand the nature of the application it is necessary to say something of the background.
By orders made 11 September 2012 and 24 October 2012 I ordered the plaintiff to pay $100,000 into court as security for costs for its action against the first and second defendants. These funds were paid into court on or about 9 November 2012. At all material times prior to about 18 October 2012 Mr Christopher Stokes acted for the plaintiff. The plaintiff filed a notice of change of solicitor on 18 October 2012 and Mr Stokes ceased to act for the plaintiff at that time.
On 27 August 2015 Principal Registrar Gething made orders to place this action on the inactive cases list. On 20 January 2016 the Federal Court of Australia made a winding‑up order against the plaintiff and appointed Ian Charles Francis as liquidator of the company. On 27 February 2016 pursuant to O 4A r 28 of the Rules of the Supreme Court 1971 (WA) this proceeding was taken to have been dismissed.
On 24 November 2015 Mr Stokes filed an application in this proceeding to enforce a judgment obtained in the Magistrates Court of Western Australia for the sum of $26,945.03. Mr Stokes was seeking to levy execution against the funds paid into court as security for costs. It is perhaps worthy of note that Mr Stokes resorted to a Civil Judgments Enforcement Act 2004 (WA) application (the CJEA application) rather than assert to the court his entitlement was pursuant to a solicitor's lien.
On 4 April 2016 a registrar of this court made orders adjourning Mr Stokes CJEA application sine die. On 28 October 2016 the defendants filed a bill of costs for taxation and on 1 December 2016 those costs were taxed in an amount of $23,692.79.
On 24 November 2016 the liquidator advised Mr Stokes of the winding‑up of the plaintiff and enquired with Mr Stokes as to the status of his CJEA application. On 23 December 2016 the CJEA application came back before a registrar who made orders on the papers for the sum of $26,945.03 including costs to be paid out of court to Mr Stokes. Following requests by Mr Stokes to the court these funds were paid out of court to Mr Stokes on 27 January 2017. No notice of that request was given to the liquidator.
On 2 February 2017 the liquidator on behalf of the plaintiff filed a request pursuant to O 25 r 7 for payment out of court of the sum of $76,307.21 - that is, the amount of $100,000 less the defendants' taxed costs. On 28 February 2017 the principal registrar wrote to the parties saying the matter would be listed in Masters Chambers for directions. On 14 March 2017 I made orders for the payment out of court to the defendants for their taxed costs and also made an order for the sum of $45,417.30 be paid out of court to the plaintiff. I adjourned this application sine die in order for the liquidator and Mr Stokes to confer. No agreement was reached. Mr Stokes maintains he is entitled to retain the funds which were paid to him. The liquidator maintains the payment to Mr Stokes was a void transaction and the money should be paid back into court.
The liquidator's position may be summarised in this way. Any disposition of property of a company other than an exempt disposition made after the commencement of the winding‑up of a company is void unless the court orders otherwise: see s 468(1) of the Corporations Act. An exempt disposition is one that is made by a company's liquidator and/or administrator. It is the liquidator's position as the payment out of court was not made by the liquidator it was not an exempt disposition. Mr Stokes does not argue otherwise.
Further the liquidator says any execution put in force against the property of a company after the commencement of the winding‑up by the court is void: s 468(4) of the Corporations Act. That being so, the CJEA application and enforcement of the Magistrates Court judgment against the property of the plaintiff is void.
In my view the submissions of the liquidator cannot be accepted. The status of money paid into court whether as security for costs or pursuant to a freezing order or as a condition of leave to defend has been the subject of numerous cases. So far as payment into court pursuant to an order for security for costs is concerned the authority most often referred to and followed is the decision of Mullighan J in Pilmer v HIH Casualty & General Insurance Ltd (No 2) [2004] SASC 389. The facts in that case were as follows. The plaintiff was covered for professional and indemnity insurance by the defendants. The plaintiff was found liable for professional negligence and the first defendant disputed the obligation to indemnity. Judgment was entered against the first defendant as it was found it was obligated to indemnify the plaintiff. The first defendant was ordered to make payment into court of the amount required to discharge its obligation to the plaintiff. The first defendant then became insolvent and was wound‑up. The question was whether the funds in court were the property of the first defendant for the purposes of s 468 of the Corporations Act. The further question was whether the payment out would constitute disposition of property under s 468(1) of the Act and would be void. The further question was whether in the circumstances the court should exercise its discretion to validate a disposition which would otherwise be void.
The decision contains an exhaustive analysis of the relevant authorities. His Honour then concluded:
I mention some fundamental principles which emerge from the decisions in these cases which I accept:
1The party who pays money into court in the circumstances referred to in the cases does not retain any legal or equitable interest in the money. The money is vested in the Registrar and is to be disbursed in accordance with the decision of the court.
2S 468(1) only operates in respect of property in which the company has a beneficial interest in the sense of property which would be available in the winding up and only to the extent of that interest and also in the sense that the company is free to deal with the property.
3In circumstances such as in the present case, the moneys in court provide security to the party who is to benefit in accordance with the decision of the court as to payment out and that party is in the nature of a secured creditor. For that reason the company is not free to deal with the money. It could not deal with any of the money unless the Court so decided when making an order for payment out.
4There is no disposition of property of a company unless the company has a beneficial interest in the money at the time of the payment out [113].
The decision in Pilmer was a first instance decision. It was considered by the Court of Appeal in Victoria in Dura (Australia) Constructions Pty Ltd (in liq) (Receivers & Managers Appointed) v Hue Boutique Living Pty Ltd [2014] VSCA 326. At [64] ‑ [71] Santamaria JA discusses the decision in Pilmer and the decision of Hill J in Dwight v Federal Commissioner of Taxation (1992) 37 FCR 178. Unfortunately in the summary which is found at [86] his Honour does not deal directly with the status of funds paid into court as security for costs. But as I understand the decision the court at least implicitly approved the conclusion reached in Pilmer as against the conclusion reached in Dwight.
All of this means two things. First, there can be no suggestion the money paid out to the defendants to cover their taxed costs is subject to any claim by the liquidator. To be fair that was not the issue in this case but less there be any doubt it is worth making that observation. Second, the liquidator is not entitled as of right to payment to him of the funds held in court. It is a matter for the court to whom the funds ought be paid.
Turning then to the submissions of Mr Stokes. He makes a number of points. First, he says EH 2015 Pty Ltd is no longer trustee of the Esteem Trust. Pursuant to cl 21 of the trust deed the company ceased to be a trustee when it went into liquidation. That being so it is at best a bare trustee. Mr Stokes refers to what was said in Caterpillar Financial Australia Pty Ltd v Ovens Nominees Pty Ltd [2011] FCA 677: 'As bare trustee, the Company has limited powers to deal with the assets of the Trust' [8]. Mr Stokes then submits as a consequence of the limited rights of the plaintiff as a bare trustee the liquidator cannot make any application with respect to the funds in court. On balance I think that submission is correct. Even if it were to be said that the liquidator was acting to protect a right of indemnity over the trust assets or a lien the funds in court are not available because they are not the property of the plaintiff. Perhaps some further rights may rest in a replacement trustee. But at present it is not open to the liquidator of the plaintiff to bring this application.
The second argument run by Mr Stokes related to a solicitor's lien. Mr Stokes points out a lien holder whether the lien be at common law, equity or pursuant to statute is a secured creditor for the purposes of insolvency administration: see s 553E of the Corporations Act. However, a solicitor's lien arises where there is a judgment or a compromise. Generally the lien is said to apply over fruits of a judgment recovered by the lawyer.
There is nothing here which Mr Stokes did which in some way resulted in funds being in court. He was simply the solicitor for the plaintiff when the money was paid into court. He was certainly acting for the plaintiff when the payment was made but that is neither here nor there. The position would be different if the defendant had made a payment into court in settlement of the plaintiff's claim. Then it is arguable a lien would have arisen. But in this case there is nothing Mr Stokes did to advance the position of the plaintiff which resulted in money being paid into court.
At the hearing of this matter a Mr Jamie Pollock appeared. It as not entirely clear who Mr Pollock was representing. Nonetheless he advanced the proposition that the funds paid into court were not in fact paid in by the plaintiff but by a third party. That may well be right. It does not mean however the third party has any right or entitlement to those funds. That is a matter for discussion between the third party and any new trustee appointed to the Esteem Trust. If it came down to an exercise of discretion I certainly would not order any funds be paid to the third party.
In summary then I am not satisfied the liquidator has any right to bring an application. The application will be dismissed. I will hear the parties as to the form of orders and as to costs.