Franks, M. v Morton, J.R.C

[1994] FCA 684

6b?t 99

JUDGMENT No. ..... d ~.,..-

LN THE FEDERAL COURT OF A U S T W )

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W S GISTRY ) No NG 378 of 1994

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BETWEEN:  MARK FRANKS & BARBARA FRANKS a6 trustees for the Mark A and W a r a A Franks Familv Trust

First Applicants

MARK FRANKS

Second Applicant

VIDEO RESOURCE GROUP INCORPORATED

Third Applicant

m:  JEFFREY ROY CHARLES MORTON

First Respondent

BUDLYRE PTY LIMITED

Second Respondent

Third Respondent

TRUEFEAT PTY LIMITED

Fourth Respondent

23 SEP 1994

.WEAM:	HILL J
E L A u :	SYDNEY  C ~ ~ W Q ~ C M
n&im2:	10 AUGUST 1994

RE REASONS FOR JUDGMENT

Before the Court are two motions brought by the applicants for orders, first for summary judgment against the first respondent, Mr Morton, in respect of an amount of US$25,000 and second for an order that the receivership of Mr Vouris, in respect of both Benelan Pty Limited and Truefeat Pty Limited ( "Truefeat"), be terminated and that pending the	nominee be appointed to manage and control those two	determination of the present proceedings Mr Franks or his
companies. I shall deal with each of the motions in the order
in which I have referred to them.
In its statement of claim the applicants, who are registered as the holders of 50% of the shares in Budlyre Pty Limited ("Budlyre") and, it would seem without dispute, the beneficial owners of the remaining shares, caused $25,000 in the United States to be deposited to a US dollar account of Budlyre, held with Westpac Banking Corporation. This is a matter which is agreed between the parties. So far as it is relevant, Mr Morton says that the money was forwarded to Budlyre by Mr Franks following a conversation which Mr Morton deposes to as follows:

"Franks said words to the effect 'I am sending you $50,000.00 to help with the cashflow for Truefeat. I'll send US$19,000 to the Budlyre Account, I get the guy from Antigua to send you US$6000 and hit my Amex for $15,000.00'"

It is the case of the applicant that Mr Morton thereafter withdrew the moneys but failed to apply the moneys either for the purposes of Budlyre or for the purposes of paying an outstanding tax liability of another company owned, or partly owned, by Mr Franks, Truefeat.

The only evidence as to the use of the money whlch has been advanced by Mr Morton is contained in c1.12 of his affidavit of 9 August 1994 in which he says:

"When the money arrived I drew out funds from the Budlyre account on behalf of Truefeat. I have no access to company records to verify the amounts and dates for such applications for funds."

In another paragraph he says that at some unnamed date he sent cheques to a Mr Merhi to use towards payment of the Truefeat group tax and the Budlyre sales tax. His affidavit annexes a fax to Mr Mehri dated 20 June 1994 enclosing two cheques drawn on Truefeat's account for a total of $20,226. It is clear that the cheques in question did not come from the Budlyre account, at least directly, but came from an Australian dollar account it would seem of Truefeat. That is the totality of the evidence as I understand it filed on behalf of the respondents, notwithstanding directions which I made on 5 August 1994 that the respondents should file all evidence upon which it proposed to rely by midday 9 August 1994.

Reference to the records of Westpac Banking Corporation which include the bank statements for the US dollar account of Budlyre and directions to pay amounts out of these accounts given by the respondent, Mr Morton, show the receipt of the $25,000 in two instalments, one of 28 April 1994 of approximately $6000 (less bank charges) and one of $19,000 on 4 May 1994. The directions from Mr Morton indicate that payments out of that account were made as follows:

$5000 on 4 May paid to a Mr Trugman of Los Angeles;

$5000 on 9 May paid to Mr Trugman of Los Angeles;

$5000 on 13 May paid to Mr Schaffel;

$5000 on 23 May paid to Mr Schaffel;

$1500 on 3 June paid to Mr Schaffel;

$3000 on 5 June paid to Mr Schaffel; and

$1500 on 14 June paid to Mr Schaffel.

Mr Schaffel's evidence was that in May 1994 he was telephoned by Mr Morton who sald he was coming to Los Angeles in a few weeks time and that he would wire Mr Schaffel money for when he arrived. He also mentioned that he was to see a lawyer in Los Angeles by the name of Mr Trugman who was, it would seem, Mr Mortonfs lawyer.

In a further discussion between Mr Schaffel and Mr
Morton, Mr Schaffel says Mr Morton referred again to wiring

money and asked Mr Morton to pay that money to a courier named

Ron . Mr Schaffel says that, in accordance with these	directions he received between 23 May and 14 June a total of
US$13,500 which he withdrew immediately upon receipt and is
unsure whether he paid some to a courier or not but the moneys went either to Mr Morton wholly or to persons to whom Mr Morton directed him to make payment.
On the evidence no conclusion is possible other than that Mr Morton transferred moneys out of the account of Budlyre and that all of the moneys were paid to him or at his direction for purposes which he does not attempt to explain. In these circumstances it is difficult to see that Mr Franks has through his evidence indicated any defence at all to the claim derivatively made on behalf of Budlyre, whlch of course is a respondent to the proceedings, that the moneys have been put by Mr Morton to a use which was not authorised.
The claim of Mr Franks is expressed to be for damages suffered by the applicants and/or an order that the applicants be paid directly US$25,000 by Mr and Mrs Franks. An alternative is that Mr Morton pay to Budlyre the sum of US$25,000. It seems to me that the only order that could possibly be appropriate is the order that the money at this stage be paid to the company and I would in the circumstances propose to make such an order.
The second motion arises because the receiver appointed to Truefeat has completed the formalities of his appointment but has indicated to the Court that for him to continue would involve considerable costs of administration.
He says he is of the view that the business is viable and could be very successful if managed efficiently. He says also that in his opinion the operations of the company should and could continue without his involvement though he points to the need for capital and the need for proper management and financial controls.
His report indicates that he had recommended an in- house accountant and general manager to be appointed, that an accountant commenced on an interim basis and that a general manager would be appo~nted in the near future. It does not appear that such a general manager has, at the moment, been appointed.
Other evidence before me casts doubt upon the management of the company under Mr Morton's control, a matter which is also referred to in the receiver's report.
It should perhaps be observed here that on Mr Frank's case he is the sole beneficial owner of the share capital of Truefeat, his case being advanced somewhat considerably after a day of hearing by the production ultimately of the declaration of trust on the part of Mr Morton that certain shares were held by him for Mr Franks.
the case then to be adjourned to enable Mr and Mrs Franks to In an ex tempore judgment of 4 July 1 9 9 4 I permitted develop a case, which they said they had, but that there was
some contractual or other relationship between Mr Franks and Mr Morton whereby Mr Morton was to have a percentage of the business of the company. Evidence has been filed in support of that case and I make no comment on that evidence. It was both because of the strength of Mr and Mrs Frank's case as to their beneficial ownership of the shares and as to the balance of convenience where there were suggestions that Mr Morton had mismanaged the company, that caused me in the first place to appoint a receiver to the company.
Mr Morton does not, of course, object to the receiver retiring from that position. He does, however, object to Mr Franks being appointed to that positlon or to any alternative course that may be proposed.
There is no doubt that it is normally quite inappropriate for one party to litigation to be appointed receiver of an asset which is the subject of dispute between that and other parties to the litigation, whether the matter arises as in the present under the CorDoration Law or whether it arises in some other context such as, for example, a partnership dispute. It is not suggested that I have no power to do that but rather that it is an inappropriate exercise of power.
In Kerr on Receivers 15th ed, Chapter 4 at 102 there is a discussion as to the exceptions to the general rule that an interested person be not appointed as a receiver. Of course, before that course could happen the Court would need to be satisfied that the appointment would produce a benefit. It is said that a party would not ordinarily be appointed receiver unless he undertook to act without salary. The present is not a case where Mr Franks seeks a salary.
The learned authors, however, do point out that the cases where a party is appointed as a receiver generally arise in the context of partnerships because there at least the partners would ordinarily have the day to day conduct of the business. It cannot be said that Mr Franks has on the evidence ever had real day to day conduct of the business of Truefeat although if his evidence be accepted he was its ultimate founder and the company is tied in with other businesses conducted by Mr Franks through corporate entities
in the United States.
Counsel for Mr Morton is unable to polnt to any particular prejudice on the evidence which his client would suffer by the appointment of Mr Franks but relles on the general undesirability of a party to the litigation being given control of the asset the subject of the dispute. He says, although this could not be quite accepted at face value, that so to do would be effectively to give on an interlocutory
basis Mr Franks the final relief he seeks.
I find the matter difficult. As the case presently standa there is at least an argument that Mr Morton has some interest in the business, although he has the obvious difficulty of overcoming a written declaration of trust which he has signed. His case appears not really to depend upon independent witnesses but on his versions of conversations. However, it think it would be unwlse to depart from the general principle that where a receiver is appointed pending the determination of litigation that receiver should be even- handed as between the parties and not be a person with interest in the litigation.
However, an alternative suggestion proposed by counsel for Mr Franks and not accepted other than as a last resort by counsel for Mr Morton was that the receiver be authorised to appoint Mr Franks as manager of the business of Truefeat pending the finalisation of litigation which the parties agree should in any event proceed with expedition. It seems to me appropriate that such an appointment should proceed purely on a nominal remuneration basis only but in order to ensure that the receiver has control and direction over Mr Franks in that position I would propose that the receiver be authorised to appoint Mr Franks as manager of Truefeat at a remuneration of $10 per month. Counsel for Mr Franks has indicated that that remuneration would be not
emphasise that the supervision of the company would continue unacceptable to his client given the circumstances. I would to reside in the receiver.
I order that the receiver be empowered to employ the second applicant, Mark Franks at a remuneration of $10 per month pending further order of course, as manager.
The costs on that motion will be costs in the I certify that this and the preceding nine (9) pages are a true copy of the Reasons for Judgment herein of his Honour Mr Justice Hill. course.
Associate:

m

Date: 22 Sfl.G,-.	LP /7PJ-
Counsel and Solicitors	NA Cotman instructed by
for Applicants:	Hunt & Hunt
Counsel and Solicitors	RH Weinstein instructed by
for Respondents:	Vandenberg Reid
Date of Hearing:	10 August 1994
Date Judgment Delivered:	10 August 1994