Elie Chahwan v Bycoon (in liq.) Pty Ltd

[2013] NSWSC 159

Supreme Court

New South Wales

Medium Neutral Citation:	Elie Chahwan v Bycoon (in liq.) Pty Ltd [2013] NSWSC 159
Hearing dates:	14/02/13, 18/02/13, 22/02/13
Decision date:	06 March 2013
Before:	Nicholas J
Decision:	Par 22
Catchwords:	CORPORATIONS - winding up - application for leave to commence proceedings against company in liquidation - proprietary claim by plaintiff - application for extension of caveat - turns on facts
Legislation Cited:	Real Property Act 1900 Corporations Act 2001 (Cth)
Cases Cited:	Chahwan v Euphoric Pty Ltd [2006] NSWSC 1002 Chahwan v Euphoric Pty Ltd [2008] NSWCA 52 Chahwan v Euphoric Pty Ltd [2009] NSWSC 805 Chahwan v Euphoric Pty Ltd [2010] NSWSC 445 Chahwan v Euphoric Pty Ltd [2010] NSWSC 1062 Chahwan v Euphoric Pty Ltd [2010] NSWSC 1107 Executive Director of the Department of Conservation and Land Management v Ringfab Environmental Structures Pty Ltd [1997] FCA 1484 J & H Just (Holdings) Pty Ltd v Bank of New South Wales [1971] HCA 57; (1971) 125 CLR 546 Oceanic Life Ltd v Insurance and Retirement Services Pty Ltd (in liq.) (1993) 11 ACSR 516
Category:	Principal judgment
Parties:	Elie Chahwan - plaintiff Bycoon (in liq.) Pty Ltd - defendant
Representation:	Counsel: R McKeand SC/A C Casselden - plaintiff C D Wood - defendant Solicitors: Simon Diab & Associates - plaintiff O'Neill Partners Commercial Lawyers - defendant
File Number(s):	13/46549

Judgment

1. By summons filed 14 February 2013 the plaintiff seeks a declaration that the defendant (Bycoon) holds the property in folio identifier 39/30082 at Unanderra upon trust for the plaintiff, alternatively a declaration that the defendant holds the property subject to an equitable charge in his favour for funds provided to it to purchase the property. He also seeks interlocutory orders under s 74K Real Property Act 1900 (the Act) extending until further order the operation of caveat no. AB180099 (the caveat) in respect of the property, alternatively for leave under s 74(O)(2)(a) to lodge a further caveat.

1. The summons was returnable before me in the duty list on 22 February 2013. On that occasion the plaintiff sought leave to proceed under s 471B Corporations Act 2001 (Cth). The liquidator opposed the application. Upon the plaintiff giving the usual undertaking as to damages, I ordered the caveat be extended until 6pm 6 March 2013, and reserved my decision.

1. The caveat was lodged on 3 November 2004. It is over the property comprised in each of folio identifier 39/30082 and 40/30082 (lots 39 and 40). The interest claimed is described as:

"CONSTRUCTIVE OR RESULTING TRUST CONSEQUENT UPON PAYMENT OF PURCHASE PRICE OF THE LAND IN THE AMOUNT OF $588,915 plus interest."

1. On about 29 January 2013 a 21 day lapsing notice issued by the liquidator was served on the plaintiff's solicitors. This triggered the ex parte application to the court on 14 February 2013 which led to the present application.

1. It is well settled that the court's discretion to grant leave under s 471B is to be exercised with regard to the interests of justice in the particular case. It is said that the purpose of the requirement for leave is to prevent a company in liquidation being subjected to actions that are expensive and, therefore, carried on at the expense of the creditors of the company and, perhaps, unnecessarily (Executive Director of the Department of Conservation and Land Management v Ringfab Environmental Structures Pty Ltd [1997] FCA 1484, par 2).

1. In Oceanic Life Ltd v Insurance and Retirement Services Pty Ltd(in liq.) (1993) 11 ACSR 516 Zeeman J said (p 520):

"Questions relevant to the exercise of my discretion as to whether leave ought to be granted at all include the following:

1 Whether there is a substantial question to be tried.

2. Whether the action would interfere with the orderly winding up of the respondent.

3. Whether the action would serve any sufficient purpose.

4. Whether the action would have any adverse effect upon the respondent and its shareholders."

1. The claims in the present proceedings for which leave is sought, and the circumstances which gave rise to them, have had a long history. For the purpose of the present application it is unnecessary to recite the details as they are sufficiently recorded in earlier judgments namely Chahwan v Euphoric Pty Ltd [2006] NSWSC 1002; [2008] NSWCA 52 particularly per Tobias JA pars 11-25; [2009] NSWSC 805 particularly per Brereton J pars 9-16; [2010] NSWSC 445; [2010] NSWSC 1062 particularly per Palmer J pars 5-43; [2010] NSWSC 1107.

1. Relevantly, the proceedings commenced by the plaintiff in March 2005 included claims against Bycoon for relief as to his interest in lots 39 and 40 in similar terms to the claims for relief under the present summons. Barrett J, on 28 September 2006, granted leave under s 471B to bring and proceed with these claims. The liquidator did not oppose the grant of leave ([2006] NSWSC 1002, pars 1, 40, 41).

1. On 12 June 2009 Brereton J granted leave to further amend the statement of claim to add claims against Euphoric Pty Ltd under the "exceptional circumstances" jurisdiction. By these amendments the plaintiff alleged that Bycoon held the properties (lots 39 and 40) on trust for him, and as the sole beneficiary in the resulting trust of the properties, the plaintiff was entitled to enforce the rights that Bycoon had against Euphoric Pty Ltd in relation to the properties in circumstances where the liquidator would not bring Bycoon's claim against Euphoric Pty Ltd.

1. On 10 May 2010 Palmer J ([2010] NSWSC 445) heard the application of the defendants (which included Bycoon) to dismiss the proceedings for the plaintiff's want of prosecution and failure to comply with the court's directions. His Honour found (par 3) that there had been long delay on the part of the plaintiff in bringing and prosecuting the proceedings, and a long history of his failure to comply with the court's directions. In dismissing the statement of claim his Honour said:

"8 The impression that I had earlier gained that these proceedings are, indeed, a mockery has been confirmed. The Plaintiff has commenced these proceedings to stall recovery of a judgment debt by the Defendants and is endlessly spinning excuses for his failure to comply with the Court's directions to get the matter ready for trial. I am satisfied that these proceedings are an abuse of process in their conception and in their prosecution - except that there has been no genuine prosecution by the Plaintiff. The Plaintiff's Statement of Claim is dismissed."

1. On 17 September 2010 ([2010] NSWSC 1062) Palmer J dismissed the plaintiff's notice of motion seeking an order to set aside the orders he made on 10 May 2010. His Honour noted (pars 45, 53) that the plaintiff then wished only to pursue the claim that Bycoon held lots 39 and 40 upon a resulting trust for him, and that Euphoric had no equitable mortgage over lot 39. In dismissing the notice of motion his Honour said:

"60 I have also taken into account that continuation of the proceedings against Euphoric would further protract the winding up of Bycoon, which has been in a state of frozen animation because of these proceedings ever since the winding up order was made in November 2005. As recounted earlier, the liquidator has given evidence that the prolongation of these proceedings is causing continuing prejudice, not only to the company's creditors but to himself in that he has not known whether Bycoon is beneficially entitled to any property, so that his fees and expenses in the liquidation have gone unpaid.

61 Finally, bearing in mind the fact that I have not accepted Mr Diab's reasons for delay, I have no confidence that, were these proceedings to be revived, they would be conducted by Mr Chahwan in the future with any more expedition and attention to the Court's directions than they have been conducted in the last five years. After five years, forty hearings in the Court, twenty-seven of them before a Registrar and thirteen before a Judge, and an unsuccessful appeal to the Court of Appeal, Mr Chahwan has had more than a fair opportunity to present his case."

1. The recent history is as follows. Between 28 March 2011 and the issuing of a notice to vacate on 17 November 2011 the liquidator was engaged in proceedings for recovery of possession of the properties from a former tenant. Possession was eventually taken on 2 March 2012, and the liquidator retained an agent for sale on 2 May 2012. On 30 August 2012 the properties were listed for sale by public auction with a reserve price of $800,000, but were passed in. On 21 December 2012 contracts were exchanged for sale for the price of $740,000, with settlement to take place on 25 February 2013.

1. No dividends have been paid to any creditors to date. Bycoon's only assets are lots 39 and 40. Upon completion of the sale, the liquidator proposes to disburse the proceeds in accordance with the usual priorities to meet statutory charges, realisation costs, and payment of the balance to Euphoric Pty Ltd, the secured creditor, in a negotiated amount of $158,847.22 in exchange for the discharge of its mortgage.

1. The liquidator says that the liquidation cannot be finalised until completion of the sale, and the determination of the present proceedings. In the meantime, charges and costs relating to the properties continue to accrue. After disbursement of the proceeds of sale as proposed, there will be no funds available for distribution to unsecured creditors, or to the plaintiff, should his claim be established.

Determination

1. In support of the application for leave under s 471B the plaintiff contended that his evidence demonstrated an arguable case for the declaratory relief sought in the summons. Accordingly, so it was put, his evidence was sufficient to meet the requirement for an order extending the operation of the caveat under s 74K(2) of the Act that the court be satisfied that his claim has, or may have, substance. It was put that if the caveat was not extended, the sale of the properties would proceed, and the plaintiff would lose the right to claim his equitable interest in them. In these circumstances it was put that, on the balance of convenience, the caveat should be extended to protect his interest pending determination of the claims for final relief. It was also put that any prejudice suffered by the liquidator if leave was granted and the caveat extended was of his own making due to his delay in seeking removal of the caveat which had been in operation since 3 November 2004.

1. For the liquidator it was submitted that the application was unmeritorious in that it would further postpone the orderly winding up of Bycoon. Further, it was put, the proceedings would necessarily oblige the liquidator to incur continuing costs, charges and expense where he is without funds to meet them. In any event, continuation of the proceedings would serve no useful purpose as there was no likely prospect of recovery by the plaintiff should he ultimately succeed.

1. Although, as a discretionary factor, it may be accepted that the plaintiff has established that his claim has, or may have, substance for the purposes of an application under s 74K(2) of the Act, in my opinion it should be given little weight in the circumstances of this case. In my assessment, this consideration is clearly outweighed by the factors relied upon by the liquidator. I accept generally the submissions on behalf of the liquidator which provide powerful support for refusal of the plaintiff's application.

1. Furthermore, in my opinion, the grounds upon which Palmer J on 10 May 2010 ordered that similar claims be dismissed, and on 17 September 2010 refused to set aside that order, are effectively determinative of this application. His Honour found that the winding up of Bycoon had been effectively frozen because of the proceedings, the prolongation of which had caused continuing prejudice not only to creditors, but to the liquidator himself for unpaid fees and expenses. His Honour was left with no confidence that, if revived, the proceedings would be conducted differently albeit that the long history of the litigation showed that the plaintiff "... has had more than a fair opportunity to present his case". With respect, his Honour was indubitably correct in his conclusion.

1. No criticism of the liquidator for failing to move earlier for removal of the caveat should be entertained. A caveat operates only to give notice of the caveator's claim to an interest in the property in respect of which it is lodged. In J & H Just (Holdings) Pty Ltd v Bank of New South Wales [1971] HCA 57; (1971) 125 CLR 546, p 552 Barwick CJ said:

"Its purpose is to act as an injunction to the Registrar-General to prevent registration of dealings with the land until notice has been given to the caveator. This enables the caveator to pursue such remedies as he may have against the person lodging the dealing for registration."

1. If a caveator requires the court's determination of the claim it behoves him to take proceedings in a timely fashion. In this case, the plaintiff did so in March 2005, but his claim was dismissed ([2010] NSWSC 445). The fact that the liquidator did not cause the lapsing notice to issue until it became necessary to have the title to the properties cleared to enable registration of the transfer to the purchaser should not weigh against him either on the plaintiff's application under s 471B, or under s 74K(2) of the Act.

1. It was not until shortly before the end of the period under the lapsing notice, and shortly before the proposed date for settlement of the contract for sale, that the plaintiff sought to revive his claims by commencing these proceedings. Having regard to the history of the litigation to which I have referred, and to the applicable principles, the interests of justice dictate that the application for leave under s 471B should be refused. The circumstances strongly suggest that the commencement of these proceedings is merely an opportunistic attempt to frustrate and prolong the orderly finalisation of the liquidation of Bycoon. They should be permitted to go no further.

1. Accordingly it is ordered that:

(1) The application for leave under s 471B Corporations Act 2001 be refused.

(2)   The summons be dismissed.

(3)   The plaintiff pay the defendant's costs.

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Decision last updated: 06 March 2013